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Access charges for the Internet

Wed, 01/31/1996 - 7:00pm
Jeffrey Krauss, Perpetrator of Techno-Babble and President of Telecommunications and Technology Policy
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By Jeffrey Krauss, perpetrator of techno-babble and President of Telecommunications and Technology Policy

The last time the FCC wanted to impose access charges on "enhanced service vendors" like packet data networks and data retrieval services, it encountered a firestorm of grassroots opposition and threats from Congress. The FCC backed down. Now, an FCC staffer has been quoted as saying that this time, Internet users could be hit with this tax.

Back in the days of AT&T's monopoly, long distance calls cost a lot more than today, and a substantial portion of the long distance revenues were siphoned off by AT&T and used to cover the cost of the local telephone network. Economists might say this was not a subsidy, because the local network was needed to originate and complete long distance calls. But by AT&T's bookkeeping, for every minute the local network was used, long distance calls were charged three times the amount that local calls were charged.

MCI became successful partly because its customers did not have to pay the same subsidy to the local network that AT&T customers paid. But in 1983, after the divestiture of the Bell Operating Companies, the FCC replaced the AT&T subsidies with a system of access charges paid by all competing long distance carriers.

It's these access charges paid by long distance carriers that might be imposed on Internet service providers. If you recall, before access charges, you would make an MCI long distance call by keying in a local phone number, logging in to MCI by keying in an account number, then keying the number of the called party. MCI paid ordinary local phone rates for that local number you dialed, covering the path from the local telephone company switch to the MCI switch.

Today, MCI pays "carrier common line charges" which are much higher than ordinary local phone rates for the path from the telco switch to the MCI switch. As a result, MCI pays local phone companies like Nynex as much as 5 to 6 cents for every minute those local lines are used. This adds a significant amount to MCI's long distance charges.

Of course, MCI received some benefits from this conversion to access charges, because there were modifications to local telco switches as well. Everyone then was "pre-subscribed" to AT&T; to use any other long distance service, you had to key or dial many more digits. Today, you can pre-subscribe to MCI, or you can dial into its network using the access code 10222. There's no need to dial a local phone number. You don't need to key in an account number. These improvements are known as "equal access."

Today, you send Internet e-mail by keying in a local phone number, logging in and then keying in the e-mail address of the recipient. Your Internet service provider pays local phone rates for the path from the telco switch to its Internet server/switch. It's exactly the same as using MCI before the days of access charges. But Internet users would not benefit at all from these access charges.

Wait a minute. Maybe the FCC will do something rational and require that the new access charges be used to subsidize local ISDN data services rather than voice services. Naahhh!

The last time around

In 1987, the FCC proposed to apply these carrier common line charges to "enhanced service vendors." ("Enhanced service vendor" is the term the FCC uses to designate anyone that offers a service in which telecommunications and computer processing elements are combined; it includes packet switching networks, e-mail networks, database retrieval services, burglar alarm monitoring, etc.) The FCC received formal comments from 129 parties, and many informal comments and letters, mostly opposing the idea. Not surprisingly, the local telcos loved it.

There was no public use of the Internet then, but there were packet switched networks such as Telenet and Tymnet, and many companies were just starting to set up corporate e-mail networks on these packet networks. The banks were doing electronic funds transfer over enhanced service networks. CompuServe existed then, and so did Quantum Computer Services, which later changed its name to America Online. In addition, even then, there were thousands of electronic bulletin boards which had begun to exchange messages across the country. They all opposed the FCC's plan.

In October 1987, Congressman Ed Markey convened a hearing in Boston on the issue. Not surprisingly, he had no problem rounding up witnesses who opposed the FCC's plan. The FCC Chairman at that time, Dennis Patrick, tried to defend the FCC's proposal. It is fair to say that he did not enjoy that hearing.

Future of access charges

As local telephone service is opened to competition, the FCC recognizes that it will be forced to revise the access charge policies. Today, local monopoly telcos reap a windfall from access charge taxes imposed on long distance carriers. It isn't fair to continue these subsidies to the established local telcos while requiring new competitive local phone carriers (like cable companies and PCS operators) to operate without them. Access charge taxes should be eliminated over time, so that competing phone companies have a level playing field. Get rid of 'em, don't create new ones!

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