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February 29, 1996

Net Access Providers Worried
As FCC Rethinks On-Line Regulation

This spring the Federal Communications Commission will again take a look at Internet services as part of broader hearings on telecommunications policy, and many Internet service providers are bracing for possible changes that they fear could push up their costs -- and in some cases drive them out of business.

While F.C.C. officials said that the commission had no "pre-conceived notions" about how to treat Internet service providers in its rule-making, Internet service providers, or ISPs, are deeply worried that the commission may try to reclassify them and on-line services like America Online, Compuserve and Prodigy as long-distance carriers.

Such a change, they said, could force them to pay access line charges to the regional Bell operating companies, burden them with new rules and perhaps bankrupt some of the 1,000 or so small and medium-size companies that provide direct access to the Internet.

"It would turn the information superhighway into a very expensive toll road," said Fred R. Goldstein, a senior consultant at the BBN Corporation, an Internet service provider. "If it passed, it would put a lot of ISPs out of business."

Stanton McCandlish, manager of on-line services at the Electronic Frontier Foundation in San Francisco, agreed that such a move could have a harsh impact on Internet service providers.

"It strikes me as unlikely that ISPs would be regulated as phone companies," he added. "But they do have reason to be concerned."

The FCC will again take a look at Internet service providers this spring as part of broader hearings on universal service and access charges. A notice for proposed rule-making may be issued as soon as Thursday.

The AT&T Corporation on Tuesday underscored how blurry the lines have become between long distance carriers and Internet services. The company announced that it would offer its telephone customers five hours of free access to the Internet each month for a year, and unlimited access for customers for less than $20 a month.

"There certainly is a recognition that the convergence is blurring the distinctions of communications services," said Mark Corbitt, the FCC's director of technology policy. "But there are no pre-conceived notions about how to go forward. We want and encourage input from the Internet community."

Internet services, on-line information services and data services currently are classified as "enhanced service providers," an area that the FCC looked at in 1988 and left unregulated. But several trade publications have reported that the FCC staff has circulated draft proposals to possibly reclassify Internet service providers.

The hearings are bound to stir up another round of debate about whether Internet and on-line services must pay their fair share into a universal service fund. A major point of contention is expected to be how to classify new Internate businesses that operate in areas not addressed under 60-year-old communications regulations.

"We've got a Congress and regulators that want to impose the old territory that they know on an entirely new medium," McCandlish said.

For example, Internet service providers often use local lines to connect their customers to the Internet, yet information is often carried across state lines. That could be interpreted as "interstate traffic" and thus bring the companies into the regulator's realm.

Moreover, new technologies allow users to transmit voice over the Internet, even though such products don't supply voice-grade telephone service and aren't widely used -- yet.

"We want to make sure the FCC distinguishes between actual content services versus the actual network that makes interaction possible," said Robert L. Smith, executive director of the Interactive Services Association, an industry trade group that is expected to be involved in the debate. "How we should be treating these data services will be much more complicated.

"Maybe what we'll see is a better understanding of the separating out of the actual network from the services of the network," he added.

Goldstein noted that any reclassification of "enhanced" services could ripple to other Internet users as well. For example, corporate telephone exchanges that include modems and allow employees to telecommute in and connect to the Internet might be reclassified, he said. So might home users who run electronic bulletin boards, he said.

"The question," Goldstein said, "is where do you draw the line?"

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