******* http://www.wired.com/wired/5.06/netizen.html Wired Issue 5.06 - June 1997 Netizen Telco Terrorism By Declan McCullagh (declan@well.com) If the Baby Bells get their way, you'll pay by the minute and through the nose for the privilege of logging on. But the Net has an unlikely defender: the FCC. --- Ed Young, Bell Atlantic's chief lobbyist, is a busy man - so busy, he says, that he can find time to talk only between meetings in a Nynex boardroom in Washington, DC. He waves expansively at the juice bar and grins, "Take whatever you like. It's all paid for by Nynex." A moment later, Young denounces Internet users for precisely the same attitude. "There's no longer a free lunch," he complains. "Internet welfare has to stop." It's a catchy sound bite - honed through countless repetitions over the last year - and Young has spent a lot of time testing it out on Washington regulators. He says that flat-rate Internet pricing is clogging phone lines, jamming telephone switches, and, most important, costing his employer hundreds of millions of dollars a year. Last summer, Bell Atlantic teamed up with a few other Baby Bells to try to persuade the Federal Communications Commission to levy minute-by-minute access charges on Internet service providers - hefty fees that could double or triple the average monthly bill. For the telcos, securing permission to begin collecting access fees would be like hitting the jackpot; a charge of merely 3 cents a minute would bring in nearly US$6 billion in new revenue each year. But some important members of the high tech community worry that it could also trigger the death of the Net. Three-cents-a-minute access fees would boost a service provider's costs by more than $100 a month for each subscriber who logs on for two hours a day. In an era when $19.95-per month flat-rate pricing reigns supreme, the thought of shelling out per minute access charges to local phone companies has the online industry scared shitless. CompuServe, for example, estimates that its phone costs would zoom from $36 million to $367 million. The online and high tech industries have counterattacked, arguing that while more than 18 million Americans creep through cyberspace using modems that sip bandwidth through twisted-pair straws, the telcos want more money yet refuse to improve service by bringing high-speed data connections to the local loop. The stage has been set for a showdown between a telephone industry regulated since its birth and a new economy that has prospered with surprisingly little government interference. The tug-of-war pits buttoned-down monopolies against a rough-and-tumble collection of Silicon Valley bigwigs. Faced with potential disaster, the high tech coalition has had no choice but to learn the art of war as it is waged within the confines of the FCC's arcane rulemaking process. This strange form of bureaucratized combat - which operates under the guise of public policy - has plenty of precedents in the annals of American capitalism. But in this particular fight, an unusual third set of combatants has been dragged into the struggle: grassroots Internet users. Speaking with a mixture of awe and bewilderment, FCC attorney James Casserly says, "In the past, we've never seen anything like this." A case of congestion It's not that the telcos' anxieties are entirely unfounded: real problems loom on the horizon. America's local-loop architecture - in which modems use analog phone lines for digital communications - is vulnerable to network congestion, and flat-rate pricing for phone and Internet service seems destined to exacerbate the problem. This is largely because telephone networks are designed around the assumption that roughly one in every eight subscribers will try to use the phone simultaneously - which, in turn, means that if just 12 percent of an area's customers are online at once, nobody else can use the phone. In other words, America's telecommunications infrastructure, was designed to facilitate occasional analog calls, not continuous digital connections. The telcos are standing at a crossroads, stuck with a network that was designed for voice traffic but that now groans under the weight of data calls. The Baby Bells understand this, and they say they want to go digital. Which raises the questions: How will they do it, when will they do it, and, more important, who will pay? Both sides agree that the solution lies in new technology. Currently, most phone calls travel along an analog phone line to a digital switch that connects to an analog outgoing line. Find a way to bypass the analog connections with end-to-end digital networks, and the congestion problem disappears. Here's why: To transmit data, analog circuit-switched networks require a continuous open channel, which must be maintained even when it's not in use. But a digital packet-switched network, such as the Internet, breaks the data into small chunks that are sent as needed asynchronously and reassembled by the receiver. Right now, the telcos have no financial incentive to promote speedier, more efficient technologies - and when they've tried, they've blown it through a combination of high prices and notoriously bad customer service and support. Take ISDN, a digital technology that has been ready-to-arrive for 25 years but never quite did. "The problem isn't technology," according to James Love, an economist at the Ralph Nader-sponsored Consumer Project on Technology. "It's monopoly pricing by the telcos." There are even better technical solutions than ISDN, such as xDSL, about which the telcos appear ambivalent at best. They shouldn't be. The xDSL family of digital-subscriber-line technologies could provide a way out of the regulatory staredown between the telcos and the Net, supercharging ordinary copper wires to carry data at Ethernet speeds without clogging the voice network. Studying the studies For now, however, both sides are pumping most of their energy into spinning the argument. Last June and July, Bell Atlantic, U S West, PacBell, and Nynex launched the opening salvo in the access-fee battle by passing along a few studies to the FCC. The Bell Atlantic report noted that Net surfers use their phone lines to make longer calls, with an average length of 18 minutes, compared with 5 minutes for a typical voice call. Meanwhile, Bell Atlantic said it spends $75 to service and maintain each local loop that runs into an ISP line - lines that generate revenues of only $17 per month. That piddling 17 bucks, the telcos claim, barely covers the cost of keeping a dial tone humming, and isn't nearly enough to pay for the expensive upgrades needed to handle circuit-gobbling Internet providers. If more money isn't spent to upgrade the network, the scaremongers warn, traffic jams caused by gluttonous Internauts could become a public menace. The report concluded that "service interruptions of even a temporary length could affect public safety services such as 911 service, with unthinkable consequences." The telcos' solution: the FCC must let them levy per-minute access charges to raise the hundreds of millions of dollars a year needed to keep the phone system from crashing. To battle the phone companies' analytical onslaught, Intel, Compaq, IBM, America Online, CompuServe, and a handful of trade associations formed the Internet Access Coalition in the autumn of 1996 to craft a counterstudy to rebut the telcos' claims. Delivered to the FCC in January 1997, the coalition report, titled "The Effect of Internet Use on the Nation's Telephone Network," blasted telco assumptions and pointed out their hypocrisy: the Baby Bells whine that flat-rate Internet services are congesting phone lines even as many of them are peddling flat-rate Internet access themselves. Some have actually given it away - in California, PacBell offered five months of free Internet service and waived installation charges for customers who ordered a second phone line. How can a cash-strapped phone company afford this? Since many homes are already wired for two lines, second-line service has become a source of easy profits for the telcos. In 1995, for example, second lines generated six times the revenues the Baby Bells now say they need to upgrade their networks. The coalition's debunking was thorough. Even if data calls average 20 minutes - so what? One such call eats up fewer phone company resources than 20 individual one-minute voice calls. Moreover, the much-publicized "clogged network" numbers came from areas with exceptionally heavy modem use - regions that are hardly representative of the network as a whole. In other words, the telcos gave the FCC anecdotal, worst-case estimates of network-congestion difficulties and presented them as commonplace, or perhaps even dangerous. The phone companies reacted to the IAC study by retreating from their initial position. No longer will you hear their lobbyists talk of 3-cents-a minute access surcharges; since early this year the fallback stance has been to seek some charge - any charge! - as long as it's collected through a metered pricing scheme. "It doesn't have to be a large charge," Bell Atlantic's Ed Young now says. "It can be something of the magnitude of a penny a minute, or even less. But it has to be something." The friendly FCC? The Baby Bells might have assumed they had allies in the four FCC commissioners. The agency's history is replete with precedents in which decisions have shielded venerable industries from competition by upstarts. The commission delayed the introduction of FM radio to protect AM stations. It stalled cable television to benefit broadcasters. No wonder, then, that many Internet users took for granted that it would happily sacrifice the Net to spare the telcos. But, surprisingly, the FCC has often gone out of its way to protect the Net from telco onslaughts. A 1980 directive dubbed "Computer II" said the commission would regulate only "basic" telephone services, not providers of "enhanced services." That marked the Net's first reprieve, as the "enhanced service provider" category includes everything from voicemail services to alarm-monitoring firms to Internet providers. In 1984 Ma Bell splintered, and the FCC decided to tack an "access charge" of roughly 5 cents a minute onto every long distance call to compensate local phone companies for completing the local-loop connection. The Net's second reprieve came when commissioners ruled that enhanced service providers wouldn't be obliged to pay similar access charges because of the "severe rate impacts" that would result. Finally, in 1987, the telcos trotted out many of the hardship claims they still use today, saying that voice users were subsidizing the clunky online services of the time, and demanding that the FCC impose per-minute access charges on them. The nascent high tech community responded to the affront quickly. Irate BBS sysops buried the agency in faxes (a novelty at the time), while firms such as IBM, Digital, and CompuServe persuaded a few members of Congress to intervene. In the end, the commissioners ruled for the Net and against the telcos, saying that it was inappropriate to assess per-minute charges on the fledgling online industry. That ruling, which immunized ISPs and online services against access charges, is what the telcos now call obsolete. Access charges, paid mostly by long distance companies, added up to more than $23 billion in 1996. These days, however, long distance companies like MCI and AT&T are cajoling the commission to reduce access charges, and the FCC seems sympathetic to the idea. This means long distance rates may soon be dropping. But it also means the Baby Bells will pull in less cash from long distance carriers - a potential shortfall that perhaps explains why they are now so hungry to levy access charges on Internet providers. All this wonk warfare might have gone largely unnoticed on Main Street USA, were it not for an FCC Web page that solicited public input on the access-charge issue. Only a few comments trickled in during the first few weeks after the page was put up in December 1996. But as the spring comment deadline grew near, the word got out: the FCC was poised to screw the Net. Between February 1 and February 14, hundreds of thousands of irate emails flooded isp@fcc.gov. In message after message, Internet users pleaded, argued, and reasoned with the agency not to levy access charges. One message labeled the telcos' demands "just another scam so the greedy phone companies can separate even more money from consumers." This tidal wave of digital bile did not escape the attention of Reed Hundt, chair of the FCC. "Imposing today's interstate access charges on Internet users is the information-highway equivalent of reacting to potholes by making drivers pay for a new toll road," he says. Such comments are reassuring, but like any veteran bureaucrat, Hundt seems eager to find a middle ground between the telcos and the Net. Thus, he has also offered his own solution. Right now, residential phone lines are cheap because federal and state agencies have mandated increases in the cost of long distance calls and premium services like call waiting to subsidize basic dial-tone access for everyone. Hundt has suggested removing these subsidies from second phone lines. In the absence of local-loop competition, his proposal would potentially double the price of a second line. But it would also give the telcos less to grumble about. Hundt has only one vote on the four-member Federal Communications Commission (the fifth spot remains vacant at the time of this writing), but other commissioners seem to agree with his position. "We're going to walk very carefully so as not to impede progress or competition," insists Commissioner Susan Ness. Indeed, when the group held a preliminary vote on access charges last December, it ruled that Internet providers should not be subject to access charges of around 3 cents a minute. Since today's system is so screwed up, the agency said, "We see no reason to extend this régime to an additional class of users, especially given the potentially detrimental effects on the growth of the still-evolving information services industry." The Net had - once again - found an improbable ally in the FCC. But the lovefest may be short-lived. The ruling left the door open for the commission to impose access charges of less than 3 cents, and the telcos are now asking for a penny a minute. Inside the Beltway, the buzz is that the FCC won't impose new access fees anytime soon. But no matter what the commissioners decide, the losing side is likely to take its grievances to the Senate's Commerce, Science, and Transportation Committee, which oversees the agency and could overrule its decision. The Commerce Committee's new chair, Senator John McCain (R-Arizona), harbors little sympathy for the telcos - or their lobbyists. (See "The McCain Mutiny," page 122.) After presiding over a recent hearing on universal service, McCain began spreading the word that he opposes new access charges. "The claims that are being made by the telcos are somewhat exaggerated," he says. "I'm persuaded that online access isn't nearly the burden they are complaining about." McCain's assessment is not universally shared - Alaska's Senator Ted Stevens, a senior Republican on the committee, said in March that Internet services should be regulated as telephone companies, and forced to pay some form of access charge or universal service fee. The ad hoc alliance All of which means that the peculiar synergy that exists between grassroots Internet users and high tech corporations remains as important as ever. In the face of the telcos' onslaught, netizens are joining ranks with business interests to lobby the government and protect the Net. Although the flood of angry email that stuffed the FCC's in-box was a chaotic, word-of-mouth effort, it worked wonders - and effectively changed the course of the debate in DC. "I think people in Washington recognize that the 300,000-message deluge was just the tip of the iceberg," says Paul Misener, Intel's chief (and only) telecom lobbyist and coordinator of the Internet Access Coalition. Yet in a very real way, the digital nation had misidentified its foe. As a rule, Washington's bureaucrats are not power-crazed authoritarians; most are reactive creatures who simply respond to demonstrations of influence and power. Bell Atlantic, PacBell, Nynex, et alia leaned hard on the FCC for access fees, and the agency reacted in its own instinctively bureaucratic way. The high tech community responded by forming its own ad hoc coalition to pressure the FCC, and thousands of Internet users chimed in to express their collective dismay. Of course, the best way to win not just the battle but the war may be to remove the commission's power to regulate the Net altogether. Still, so far the real threat to netizens has come from complacent telcos and their legions of starched-collar lobbyists, not the FCC. The distinction is important, because the old rule of thumb still holds true: The enemy of our enemy may occasionally prove to be our friend. ----- Declan McCullagh (declan@well.com) is the Washington correspondent for The Netly News (http://netlynews.com/). Copyright © 1993-97 Wired Magazine Group Inc. All rights reserved. Compilation Copyright © 1994-97 Wired Digital Inc. All rights reserved. ------------------------- Declan McCullagh Time Inc. The Netly News Network Washington Correspondent http://netlynews.com/