BY LAURA GUEVIN
Managing Editor, INTERNET TELEPHONY

H.R. 1291: A Storm Is Brewing In The IP Cloud

By now I'm sure most of you know about H.R. 1291, a bill passed by the House of Representatives on Monday that would basically allow the FCC to impose universal services charges for Internet phone calls. The bill, known as the "Internet Access Charge Prohibition Act of 1999," was introduced by Rep. Fred Upton (R-Mich) in March of 1999. There is great disparity between what the bill was originally meant to protect, and what it could end up enabling, however. My calls to legislators and government agencies to attempt to clarify H.R. 1291's intent only lead to more confusion.

In simple terms, the bill would amend section 254 of the Communications Act of 1934 to preclude the FCC from imposing universal service charges on ISPs. All telecommunications companies offering interstate service pay four percent of their gross revenues into the Universal Services Fund (USF) as part of an FCC program to ensure poor and rural customers have affordable phone service. Many telcos have chosen to pass on this expense to customers, who pay a universal service charge with their monthly bills. According to the House discussion before passing this bill, the bill was proposed partly to quash the infamous e-mail rumors about a fictitious Congressman named Schnell proposing a fictitious piece of legislation that would allow per-minute access charges to be levied for Internet use.

This is all well and good, right? I suppose, except for two very important pieces of information. The bill does not address per-minute access charges for ISPs, only the universal service charge. And Upton added an amendment last week (called a "Rule of Construction" in the bill text), stating that the FCC would not be precluded from imposing access charges on providers of Internet telephone services, "irrespective of the type of customer premises equipment used in connection with such services." Apparently, not all data is created equal -- at least in the eyes of the legislators who passed this bill.

Internet Telephone Charges
I asked Upton's press secretary Mike Waldron about the last-minute addition of the Internet telephone call "amendment" and was told that the Internet telephony community is mistakenly up in arms.

"There was no telephony amendment. That's a misnomer," said Waldron. The additional text governing Internet telephone calls is actually an amendment in the nature of a substitute, said Waldron, and "it only clarifies the intent of the bill." He also said the additional text was not added at the last minute (as I implied in my questioning) and that it went through the standard process (even though the bill was introduced in March 1999, and the amendment was officially added by the Committee on Commerce on May 12, 2000 -- just two working days before the bill passed). It should also be noted that the bill bypassed the subcommittee consideration that most Congressional bills are required to go through. It was sent to the Senate on Wednesday.

As for imposing charges on Internet telephony traffic, Waldron says, "The door is wide open already. The FCC has the power to impose those charges tomorrow." But when I asked him how the government would distinguish voice packets from the millions of data packets routed by service providers, he said that would be the FCC's responsibility. "If Internet telephony providers have a bone to pick, it should be with the FCC," said Waldron.

The FCC looked at the issue of regulating Internet phone calls back in 1998, and decided that it is not ready to conclude that long-distance calls carried over the Internet or other data networks should be regulated as a telecommunications service. I spoke with Michael Balmoris, who handles public affairs for the Common Carrier Bureau, and he confirmed that the FCC has no plans to start charging for IP phone calls.

"We have no proceedings or inquiries or plans to start levying access charges," said Balmoris. I asked him about the prospect of separating out voice from data packets if the FCC does decide to start imposing charges, and he responded, "as far as I know, we haven't made any distinction there." Balmoris would not comment on long-term plans for levying charges, however.

IP Or PSTN: Which Lobbying Voice Is Louder?
The Internet telephony service provider community is indeed up in arms over the bill, and some providers say it's clear who has lobbying clout on Capitol Hill. "Give smart Americans a break!" said Jan Horsfall, president and CEO of PhoneFree.com in a statement. "What Congress is really trying to protect is the traditional telecommunications giants who are slower, more expensive, but obviously more influential in Washington than the American people." "The old telcos spend $3 billion a year in advertising -- much of which gets passed on to the consumer, yet less than four percent of their users understand their calling plans," said Horsfall. "And they still want more help from the government to protect their bureaucracies? That stinks of excessive and heavy-handed lobbying."

The Internet telephony industry is finally registering on their Richter Scale, said Mary Evslin, vice president of marketing for ITXC. Evslin said H.R. 1291 should serve as a wakeup call that the industry needs to be more involved in lobbying Congress. "The current means of taxing telecommunications don't work in the new world," said Evslin. She said the government needs to take another look at the entire issue of taxation and come up with a new system geared toward the emerging network infrastructure. She also stressed that ITXC is not opposed to helping poor and rural residents get affordable access to phone service (the USF goal), but added, "Maybe we can just make plain old calling so cheap that they don't need a subsidy."

Joc Jacquay, CEO of IP phone technology developer Pagoo, said universal service charges for Internet calling would be one of the most difficult things in the world for the FCC to monitor. "It will affect all providers across the board," said Jacquay. He compared the lobbying efforts of the Bell operating companies to "an archaic monopoly grasping at any straw to stay alive."

Of course, there's no clear connection between telco lobbying power and the Internet telephony amendment to H.R. 1291, and according to Rep. Upton's press secretary, the addition was merely a clarification of the original intent of the bill. I was able to find some interesting data on Upton's campaign contributors online, and wasn't surprised to see that top contributors over the past four years include AT&T, Ameritech Corp., GTE, WorldCom, and the Cellular Telecom Industry Association, to name a few.

At least one House Representative feels the bill doesn't do enough to address burgeoning services like Internet telephony, which he contends are threatening to hurt the poor by failing to contribute to the USF. During the 20-minute discussion on the House floor before the bill was passed, John D. Dingell (D-Mich) said, "I am disappointed that the majority refuses to seize an opportunity here to address a greater and a more genuine threat to consumer pocketbooks; that is, the very real possibility that new services such as Internet telephony may evade the responsibility of contributing to support the USF, a fund that ensures that all Americans have access to affordable telephone service."

"I would observe these are the same Americans who are stuck on the wrong side of the digital divide and are least able to take advantage of high-tech alternatives. Unfortunately, in our haste to get this legislation to the floor that solves, as I have mentioned, an imaginary problem, we squandered the opportunity to address one that is all too real, and that is the prices which Americans will pay for local telephone service if today's disparate regulatory treatment is permitted to continue," said Dingell. It's too bad that Internet telephony is largely free or available for a much lower cost than traditional phone service anyway. But that, of course, will change if providers have to pay out at the same rate as the telco giants.

What About Those Per-Minute Access Charges?
One of the things I find most interesting about this bill is that it was authored, at least in part, to put to rest rumors about customers paying per-minute access charges for Internet use. And while I don't think legislators are itching to wallop their constituents with huge access bills (and the FCC claims it will not regulate Internet usage), the fact is, the bill only addresses the universal services charge, not other types of charges that could be levied against ISPs.

Rep. Edward Markey (D-Mass) pointed this out during the discussion period, but he was the only voice of dissention, actually arguing in favor of universal service charges for ISPs. "The proposal here on the floor, which is styled as a remedy to any chance that the FCC might some day permit access charges to be imposed on Internet service providers, is also a work of fiction. This is not a bill that we should send on to President Clinton. This is a bill that should be sent over to the Federal Trade Commission for false advertising," said Markey. "This bill does not prohibit per minute access charges on Internet service providers. This bill only prohibits access charges that are for universal service to help poor people, to help rural Americans." Markey went on to state, "Under this bill, access charges would be permitted as long as they do not go to universal service. In other words, access charges levied by local phone companies to recoup their costs or for profit for themselves are fully permitted under this bill. So this is a great moment here for the Congress? We are going to prohibit anything from being done for poor people or rural Americans for their phone service, but we are going to make sure and protect the phone companies so that they can make more profits."

I asked Mike Waldron what Rep. Uptons response to Markeys comments was. But all he would say is that Markey supported the bill twice (he is not listed as a co-sponsor). "Ill let you draw your own conclusions," said Waldron about this inconsistency.

The Internet telephony industry will also have to draw its own conclusions about what kind of impact this bill will have, and if the FCC will ever pull out the stops and start charging universal service and other fees. For now, we'll have to wait and see what the Senate has to say about H.R. 1291. But the Internet telephony industry is not going to sit by idly for this round of legislation, and service providers are already stepping up their efforts to lobby Washington. If you would like to express your opinion about this bill's treatment of Internet phone regulation, talk to your Senators. You can link to their Web sites from the Senate home page. Or, call them from your PC phone: Education, after all, is the first step to enlightenment.

Laura Guevin welcomes your comments at lguevin@tmcnet.com.