In the June 14, 1999 issue of
TechWeek, the editor-in-chief, Tim
Graham, noted in his "SourceCode" column how easy it is for rumors, even hoaxes,
to be perpetuated through the use of e-mail. He added that there are so many Internet
hoaxes, in fact, that one "hardly pays attention any more. Our first instinct may be
to dismiss them even when the warnings are real." Graham indicates that he did so
"when he heard the California Public Utility Commission was considering new
regulations that would treat local phone calls to ISPs as long-distance calls because of
the global nature of the Internet...the action remained as a very real possibility as of
this writing. And sadly, not enough of us were paying close enough attention."
But one local Sacramento newspaper has been paying attention to this
important regulatory issue. In the June 6, 1999 issue of the Sacramento News &
Review,
the paper indicated in a critical tone that there is a general tendency for Governor Davis
to take too long to make appointments to state boards and commissions. To illustrate the
negative consequences of this, the News & Review added that "consumer advocates
point to his failure to make appointments to two open seats on the five-person state
Public Utilities Commission (PUC). Too bad, because on Thursday, June 3, the PUC will vote
on a case that could result in higher Internet service fees for consumers. At least some
of former Governor Pete Wilson's three appointees on the PUC have indicated they may vote
for a change in rules that would cause phone calls from Internet users to their Internet
service provider (ISP) to get classified as long distance rather than local calls. The
reclassification would mean a loss in revenue for local phone companies and ISPs, which
say they would have to pass on such costs to consumers."
However, the PUC did not vote on this issue on June 3, and the June 10
issue of the News & Review highlighted its article about this by stating that
"Davis appointees could stop new Internet fees." This article stated that
"Governor Gray Davis appears to have taken to heart the criticism that he's lagging
on making appointments to state boards and commissions. Last week, Davis appointed two
interim members to the five-person state Public Utilities Commission. The interim
appointees ensured that the PUC postponed a vote on a case that could have resulted in
higher Internet service fees for consumers since at least two PUC members appointed by
former Governor Pete Wilson had indicated that they planned to vote against consumer
interests."
Ironically, on June 10 the Sacramento Bee published an editorial that
focused upon this issue and a recent federal district court ruling concerning Portland,
Oregon in a decision which indicted that a local government can order AT&T to open its
cable lines to ISPs. The title of this editorial was "Internet's middle men:
Government grapples to regulate service providers". It indicated that ISPs are
involved in a major policy conflict with both major local telephone companies and the
"giant television cable companies". The Bee expressed the following view about
this conflict: "Regulators and judges will shape the future of the Internet with
these and various other decisions on access and charges—decisions likely to prove as
important as historical rulings about railroads, pipelines and interstate commerce. Those
who use the Internet should indeed pay. Yet he who owns the wires should not control
access to the Internet as well. Choice is a key ingredient to a vibrant and affordable
Internet."
This editorial statement was an interesting contrast to the News &
Review because the Bee did not claim that changing the nature of a dial-up call to an ISP
from local to something else was necessarily adverse to "consumer interests".
Also, I was surprised that the Bee's editorial did not mention legislators in addition to
regulators and judges as those that will shape public policy in this matter. However this
editorial omission was rectified somewhat the next day because an article appeared in the
Bee announcing that Governor Davis had appointed Carl Wood and Joel Hyatt to full terms on
the PUC. This piece concluded by citing Republican consultant and former PUC member Stan
Hulett when he stated that "the commission is under a considerable amount of
pressure...the Legislature is pushing them very hard." Unfortunately, there was no
elaboration in the piece about the latter observation.
To gain a better understanding of conflicts between California state
and local government communications policies, one needs to be aware of recent
communications policy developments at the national level, especially the interaction
between Congress and the Federal Communications Communication (hereafter designated as the
FCC). For a number of reasons, the recent relationship between the FCC and the Republican
controlled Congress has been stormy. For example, Republican Representative Billy
Tauzin,
Chairman of the House Commerce Telecommunications subcommittee, has indicated that he will
introduce legislation to curtail the FCC's power. Republican Senator John McCain of
Arizona has stated that he will attempt to reorganize and modify some of the FCC's
functions through the budgetary process in the Senate. Even the prominent Democratic
Congressman from Michigan, John Dingell, a respected figure on communications policy
issues, stated publicly in late 1998, concerning the landmark telecommunications act
passed by Congress in 1996, that "we handed implementation [of the law] over to the
FCC...clearly there is a high probability we made a terrible mistake." Dingall said
that he intended to introduce legislation to reduce the FCC's powers and possibly even
transfer some of its current functions to the Commerce Department. Such recent bipartisan
attacks on the FCC are an important political component of current communications policy
developments at both the national, state, and local levels of government.
Another crucial political component of contemporary communications
policy was the passage by Congress of the Telecommunications Act of 1996, which contains
the doctrine and contractual telecommunications industry practice based upon this act
known as reciprocal compensation. After this act was passed, the major local telephone
companies engaged in a strenuous pursuit calling for reciprocal compensation, and it was
used in a number of complex agreements and contracts between the major local telephone
companies and other minor telephone industry competitors in their local service spheres.
This administrative and subsequent legal doctrine is the mechanism whereby phone companies
pay each other a per-minute fee for using competitors' networks to complete a call. This
procedure applies to only local, not interstate, telephone calls. Fees attached to
interstate calls are known as access charges, but they do not apply to enhanced services
such as Internet traffic. At the time reciprocal compensation was initially seized upon by
the local major telephone companies, they expected to reap millions of dollars of profit
from it.
They expected that this would occur because they serviced most of the
available individual and corporate customers in their respective local geographical areas
of operation. So, for example, if a phone customer of a small telephone company were to
make a local call to someone else serviced by the major telephone company, then the former
would have to pay the latter a contractually negotiated fee. The major telephone company
expected, because they possessed most of the local areas phone lines and customers, that
it would get the lion's share of the fees generated from reciprocal compensation. However,
they did not envision that ISPs would use the smaller telephone companies to service their
Internet customers. When customers use a local dial-up connection to the ISP to get onto
the Internet, they often spend a lot of time on that connection going to sites not just
throughout the country but also the world. Since the local major telephone companies'
customers make local calls that are indeed just local, and because these local calls are
of relatively short duration compared to local calls to the ISP, then the major local
telephone companies have wound up owing millions of dollars to their local smaller
competitors. Thus, it is not surprising that the major local telephone companies want to
have these local dial-up calls to ISP designated as long-distance calls. |
Beginning last November, the FCC was supposed to enter this
communications policy fray by announcing whether local dial-up calls to an ISP should be
deemed long-distance calls. If the FCC were to make such a policy change, it would in
effect vitiate the odious impact of the reciprocal compensation doctrine as far as the
local major telephone companies are concerned. When it finally announced its decision on
February 25, 1999, its ruling was one of ambiguous, possibly even contradictory, political
"clarity." The FCC ruled that a dial-up call to an ISP should be treated as an
interstate transmission. Yet the FCC added that the existing interconnection contracts
between the major local telephone companies and their smaller local competitors must be
honored, thereby leaving the former in the position of still owing millions of dollars to
the latter—and continuing to operate under these contracts for their duration as
stipulated when originally written. Moreover, FCC Chairman Willam Kennard said that this
decision "doesn't affect the way consumers get dialup access to the
Internet...Nothing we're doing here should be construed as regulating the Internet."
In a subsequent statement soon after February 25, Chairman Kennard declared "Those
employing scare tactics have also suggested that the FCC is going to change the way
consumers pay for dial-up access to the Internet. Again, nothing could be further from the
truth...We are not regulating the Internet and we will not do so as long as I am
chairman."
The communications policy dispute at the national government level
becomes a lot more interesting, and confusing, when one surveys the role of the states. By
now as many as half of the states have ruled, in one fashion or another, that calls to
ISPs are local, not interstate, in nature. Since the FCC already has less than hospitable
relations with Congress, I imagine it doesn't want to engage in a full-scale policy battle
with at least half of the states about this issue. In addition, the FCC wants to avoid
this conflict because it knows that it would be perceived as thwarting the necessity and
legitimacy of federalism. Hence, the stipulation by the FCC that existing contracts
between telephone companies that incorporate reciprocal compensation must be honored, even
though it says that local calls to ISPs are not really local. Now for those that wonder
how such communications policy can emanate from the FCC, I suggest you try devising a
seemingly rational communications policy that "balances" the competing economic
interests of major telephone companies, their smaller competitors, ISPs, and Internet
users. Also, you must take into account the state's policy-making
prerogatives within a
federal system and an ideological environment hostile to government regulation even if
government regulation of some sort is actually by now an integral component of our
political system.
Another current significant communications policy issue concerns what
has been termed "open access." The best example of this was the recent open
access case earlier this month in Portland, Oregon. A federal district court judge ruled
in favor of state and local officials who demanded that AT&T open its high-speed cable
networks in Portland so that ISPs could use them to provide Internet access to their
customers. The judge that rendered this decision said he did not wish to deal specifically
with open access; yet, he provided the foundation for it by announcing that "The
issue is whether the city and county have the power to require access to the cable modem
platform as a condition of approving AT&T's takeover of the cable franchises. To
resolve the legal issue, I don't need to consider whether the open access requirement is
good policy...I conclude that the open access requirement is within the authority of the
city and county to protect competition." FCC Chairman Kinnard responded quickly to
this judicial ruling. On June 15 at the National Cable Television Association Convention
he criticized vigorously judicial decisions that allow local governments to regulate the
deployment of broadband services. He said "There are 30,000 local franchises in the
United States. If each one decided on their own to develop technology standards for
two-way communications on the cable infrastructure, there would be chaos...The fact is
there is a role for national policy...we have to have a national standard in this
area." Kennard termed his approach to communications policy issues as the
"Hippocratic high-tech oath—do no harm." One of the audience members delighted
with FCC Chairman's interpretation of "do no harm" was Leo Hindery, in charge of
AT&T's cable unit, who said, "The Chairman said this is a federal issue and we're
delighted that he reiterated his strong stance. I thought it was a very harsh indictment
of the Portland decision...We have argued for a long time that is not an issue that is
resolvable at the local level...If national telecom policy is decided franchise by
franchise, that's not a policy." Well, actually it is, it's just that it would be a
telecommunications policy anathema to AT&T. Obviously, AT&T's Leo Hindery has
studied digital public policy at the Alexander Hamilton School of Government.
In the meantime, Congressmen Rick Boucher (D-Virginia) and Bob
Goodlatte (R-Virginia) introduced legislation that proposes to require AT&T and other
cable providers to give outside ISPs access to their broadband infrastructures. Moreover,
openNet Coalition, an interest group representing ISPs throughout America, lobbies
Congress intensely to keep dial-up calls to ISPs designated as local calls and to allow
local communities to get open access to broadband networks. And in the longer meantime, an
intriguing question is what happens to telecommunications policy that ends up at a Supreme
Court that is receptive to federalism arguments that possibly diminishes the recent,
meaning at least since 1937, national scope of the Constitution's commerce clause?
The "simple" question of whether a call to an ISP should be a
local or long-distance call is a vivid illustration of the interrelationship between
politics and digital technology. All people that use an ISP have been and will continue to
be affected both directly by the politics of the "local call" and open access
issues in terms of how much they will have to pay to get access to the Internet. The
future role and functions of ISPs will be dependent upon what local and national political
elites consider the most appropriate regulatory policy within the confines of what they
deem a viable federal system of government. This does not necessarily mean that such
public policy will comport with the dictates of instrumental rationality characteristic,
of say, an operating system.
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