Federal Communications Commission

Notice of Proposed Rulemaking

Released on December 24, 1996

Excerpt pertaining to interstate information services

B.Treatment of Interstate Information Services

282. Usage of interstate information services, and in particular the Internet and other interactive computer networks, has increased dramatically in recent years. Such new services create significant benefits for the economy and the American people. The 1996 Act states that it is the policy of the United States "to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation," and we have long sought to avoid unnecessary regulation of information services. As usage continues to grow, such services may have an increasingly significant effect on the public switched network.

283. Therefore, as part of this comprehensive proceeding, we must consider how our rules can provide incentives for investment and innovation in the underlying networks that support the Internet and other information services. We consider in this section the narrow question of whether to permit incumbent LECs to assess interstate access charges on information service providers. We make no specific proposals, and we tentatively conclude that the existing pricing structure for information services should remain in place at this time. In Section X, we issue a Notice of Inquiry to examine various fundamental issues about the implications of usage of the public switched network by information service and Internet access providers.

284. Beginning with the Computer II proceeding in the 1970s, we have distinguished between basic and enhanced communications services. The category of enhanced services, which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. In the 1983 Access Charge Reconsideration Order, we decided that, although enhanced service providers (ESPs) may use incumbent LEC facilities to originate and terminate interstate calls, ESPs should not be required to pay interstate access charges.

285. As a result of these decisions, ESPs may purchase services from incumbent LECs under the same intrastate tariffs available to end users, by paying business line rates and the appropriate subscriber line charge, rather than interstate access rates. Those business line rates are significantly lower than the equivalent interstate access charges, in part because of separations allocations and the access charge per-minute rate structure, and in part because the business lines that ESPs now purchase generally do not include usage-sensitive charges for receiving local calls. ESPs, consequently, typically pay incumbent LECs a flat monthly rate for their connections regardless of the amount of usage they generate. Pacific Bell estimates that calls to Internet-provided services could comprise up to 25 percent of its traffic by the end of the decade. US West projects that 30 percent of all local exchange traffic will be for access to the Internet by the year 2000. The Internet access market is also highly competitive and dynamic, with over 2,000 companies offering Internet access as of mid-1996. It is extremely likely that, had per-minute interstate access rates applied to ESPs over the past 13 years, the Internet and other information services would not have developed to the extent they have today -- and indeed may not have developed commercially at all.

286. For some time, however, incumbent LECs and others have argued that ESPs impose costs on the network that are similar to those imposed by providers of interstate voice telephony, and that ESPs should therefore pay interstate access charges. Several parties made this argument in their comments in response to a petition filed by America's Carriers Telecommunications Association (ACTA) earlier this year. In addition, four BOCs have filed studies in recent months purporting to show that the current pricing structure for Internet access contributes to the congestion of incumbent LEC networks. The BOCs claim that Internet users typically stay on the line far longer than voice users, but that the flat monthly rates Internet service providers pay to incumbent LECs do not cover the additional cost of network upgrades that are required to support such traffic.

287. In response, information service providers argue that the rates they pay to incumbent LECs, combined with the additional revenues from sources such as second lines installed for Internet usage, more than cover the costs they impose on the network. These parties also argue that the imposition of access charges would stifle growth, investment, and innovation in information services, causing detrimental effects for the economy and U.S. competitiveness. The Network Reliability and Interoperability Council (NRIC), an advisory committee of industry representatives organized to advise the FCC, is also looking into the effects of Internet usage on the public switched telephone network.

288. We tentatively conclude that information service providers should not be required to pay interstate access charges as currently constituted. As we have explained throughout this Notice, the existing access charge system includes non-cost-based rates and inefficient rate structures. We see no reason to extend this regime to an additional class of users, especially given the potentially detrimental effects on the growth of the still-evolving information services industry. Although our original decision in 1983 to treat ESPs as end users rather than carriers was explained as a temporary exemption, we tentatively conclude that the current pricing structure should not be changed so long as the existing access charge system remains in place. The mere fact that providers of information services use incumbent LEC networks to receive calls from their customers does not mean that such providers should be subject to an interstate regulatory system designed for circuit-switched interexchange voice telephony. We seek comment on this tentative conclusion.

289. We recognize that this issue is of special interest to users of the Internet and online services. Therefore, we have established an electronic mailbox at <isp@fcc.gov> for submission of informal comments on the treatment of Internet and other information services. Additional information on this issue is available through our World Wide Web site at <http://www.fcc.gov/isp.html>. We are inviting all parties that file formal paper comments in this proceeding to submit copies of their comments in electronic form, and we intend to make those electronic submissions available for review on the World Wide Web.

290. We invite interested parties to discuss the number of ESPs and Internet service providers, if any, that can be considered "small entities" within the meaning of the Regulatory Flexibility Act, and whether there is any reason to establish different requirements for small ESPs and information service providers.

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