Bells vs. Software Giants on Internet Battlefield

As Internet use grows, how should networks be changed and who should pay for it?

The Federal Communications Commission is about to decide whether local telcos should charge special access fees to Internet service providers.

The agency plans to begin a general proceeding on Internet access reform this month and could issue proposed rules by December, according to Kevin Werbach, FCC counsel for new technology policy. "The entire system isn't consistent with the competitive market," said Werbach.

At issue is who will pay for growing Internet use. The Bells say that the phone lines are overburdened by Internet traffic and that they should be reimbursed for the use.

Bell companies claim that the Internet service providers are currently enjoying a special exemption from the FCC.

The Enhanced Service Provider exemption permits Internet access companies to gain access through local service tariffs.

For example, the price for business dial tone in Virginia ranges from $16.93 to $18.93, according to Bell Atlantic. However, an Internet service provider does not pay extra for its Internet usage because the traffic is coming from the Internet service provider's customers.

"That exemption was put in at a time when that business was at its infancy," said Harry Mitchell, a spokesman for Bell Atlantic, Philadelphia. "We want everyone who uses the Internet to pay for it."

The growing debate over access fees has put the Baby Bells at odds with industry lobbying groups -- the newest of which calls itself the Data Coalition.

Formally announced only last week, the coalition's members include computer industry heavyweights IBM Corp., Armonk, N.Y., and Microsoft Corp., Redmond, Wash.

The coalition is calling for the Bells to determine a technological solution to the problem rather than charging new fees that could be passed on to the customer.

"This is going to be one of the most important infotech agendas over the next six to 12 months," said Mark Corbitt, who recently left his position as director of technology policy at the FCC to join Intel Corp. as director of corporate business development. Corbitt came to the FCC from Intel last January to start the agency rolling on Internet issues.

One solution that the Data Coalition thinks the local telcos should try is asymmetrical digital subscriber line, or ADSL, which is a technology that would let the data traffic bypass switches.

"Either deploy technology or get out of the way for competition," said Paul Misener, chair of the Data Coalition's steering committee and manager of telecommunications and computer technology policy at Intel.

Other Data Coalition members include Mountain View, Calif.-based Netscape Communications Corp.; Compaq Computer Corp., Houston; Plano, Texas-based Electronic Data Systems Corp. and the Business Software Alliance, a Washington-based trade association.

The Bells have been coming out with elaborate studies showing how much money Internet traffic is costing them. A few months ago, Bell Atlantic sent its study to the FCC asking the agency to reform the access rules.

"It is time now to agree on a plan to manage the costs of carrying Internet traffic while still assuring the unprecedented growth of online services and the Internet itself," Bell Atlantic's study said. The Bell also told the FCC that a new technology is needed to move data traffic onto a separate network.

The separate network scheme is the one area where both groups agree.

However, who will build or maintain that network is under debate. "The Bells aren't investing in digital technology," said Glenn Manishin, Netscape's FCC counsel. "It's their obligation in the first place to remain cutting edge."

Industry experts have been saying lately that the Internet could be headed for a crash if use continues to grow at such furious speed. However, other experts say that prediction is unnecessarily negative. "The threat is more imagined than real," said Manishin.

An October study by the Alliance for Telecommunications Industry Solutions, Washington, found that the U.S. public telecom networks are reliable even though the number of telephone lines has increased 18.3 percent and the number of calls has increased by 16.2 percent since 1992. The group found there were 165 outages (defined as affecting 30,000 lines for 30 minutes or more) from July 1, 1992, to June 30, 1993, while there were only 178 outages in the most recent year from July 1, 1995, to June 30, 1996.

Still, FCC Chairman Reed Hundt on Nov. 1 called for the members of his agency's Network Reliability and Interoperability Council to monitor the impact of the Internet's growth on public networks. Specifically, Hundt said he wants to know whether the agency or industry should work on ensuring network reliability.

The council, which is chaired by Ivan Seidenberg, CEO of Nynex, New York, said recently in its quarterly report to the FCC that no carrier has reported an event associated with the Internet that met the definition of "outage."

Still, the industry was shaken by Dulles, Va.-based America Online's brownout of its private network in August.

And while outages aren't happening all over, Bell Atlantic claims customer complaints about service have increased due to heavier traffic.

Another problem, the Bell Atlantic study pointed out, is that as Internet service providers move more toward a fixed-rate, all-you-can-use-in-one-month rate (AOL announced a flat rate $19.95 monthly plan last week), Internet users are likely to log on and stay on, even when they are not using the service.

"Neither end users nor ISPs have sufficient incentive to utilize public-switched network resources efficiently," the Bell Atlantic study said.

Regardless of the solution, both groups say increased costs and potential for outages will turn people away from the Internet and online services. "It affects our ultimate user," said Misener. "It jeopardizes the health of the Internet."

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