The Access Charge Fight

CC Docket No. 96-262 sounds dry. What it actually decided was whether Americans would reach the internet on a flat monthly fee or on a running meter, and the answer shaped the next twenty years.

Two days before Christmas

On December 24, 1996 the Federal Communications Commission released the notice of proposed rulemaking in its access reform proceeding, CC Docket No. 96-262. Buried in a document mostly concerned with restructuring what long distance carriers paid local telephone companies was a tentative conclusion with far wider consequences: that internet access providers, the notice naming AOL, CompuServe, EarthLink, IBM and Microsoft among them, should not be required to pay interstate access charges.

Tentative is the operative word. A tentative conclusion in an NPRM is an invitation to argue, not a decision. Comments in the docket were due January 27, 1997, with reply comments by 5:00 PM on February 14. Late-filed and ex parte submissions could still be lodged after that and could still influence the outcome, a point the coalition made repeatedly to readers who arrived at the site after the formal windows closed. The entire fight, from filing to resolution, ran inside about six months.

Tolls built for long distance

Access charges were a settlement system, not a service. When a long distance carrier handled a call, it originated on a local network at one end and terminated on a local network at the other, and it paid the local carriers a per-minute rate for both. Those rates did more than recover the cost of switching the call. They carried a substantial share of the fixed cost of the local network, which is why they were among the most politically contested numbers in American telecommunications.

Internet service providers sat outside that system. They bought ordinary business lines from the local carrier, at business line rates, and were billed as customers rather than as carriers. Their subscribers, dialing a local number, paid whatever their state tariff charged for a local call, which in most of the country meant nothing per minute. What the local carriers proposed was to move internet providers across that line and start metering them. The coalition's estimate of the pass-through was as much as 60 cents an hour.

"What new features would you receive for this new service? None!"

Internet Access Coalition, FCC Examines Internet Access, 1997

An exemption written in 1983

The exemption the fight was about was not new and was not designed for the internet, which barely existed commercially when it was created. In MTS and WATS Market Structure, 97 FCC 2d 682 (1983), at paragraph 83, the Commission set out the access charge regime that became Part 69 of its rules and decided that enhanced service providers would be treated as end users rather than as carriers. In 1983 that category meant timesharing bureaus, database services, protocol conversion and the early online services. It was an administrative judgment about a small industry, taken while the Commission was preoccupied with the breakup of the Bell System.

Fourteen years later that judgment was carrying the economics of the consumer internet. Nothing in the 1983 order anticipated six million households buying second telephone lines to stay online, and the local carriers were entitled to point that out. Their proposal was, in effect, that a classification made for one industry should not be allowed to survive unexamined into a completely different one. The coalition's counter was that the classification should be tested against current facts, and that when it was, the facts did not support moving internet providers into a per-minute regime.

Why the Bells asked

The companies pressing the change were the regional Bell operating companies, Ameritech, BellSouth, Bell Atlantic, NYNEX, Pacific Telesis, SBC and US West, along with GTE. Their filings in the summer and autumn of 1996 rested on a network engineering argument that deserves to be stated properly rather than caricatured. Local switching equipment was dimensioned on the assumption of short calls and mostly idle lines. Dial-up sessions held lines open for far longer than voice calls did, and in offices serving large internet providers that changed the load profile in ways the carriers said they could measure.

There was also a fairness framing. A long distance carrier delivering a two-hour call paid by the minute at both ends. An internet provider delivering a two-hour session paid a flat business line rate. From inside a carrier, that looks like the same use of the same plant on two different price lists. The weakness in the position was never that it was unprincipled. It was that the supporting measurement was thin, that the offices studied had been chosen precisely because they were the worst cases, and that the filings said nothing at all about the revenue the same traffic was generating at the other end of every call.

Sixty cents an hour

The coalition's most effective piece of work was arithmetic anyone could check. Flat-rate internet access in early 1997 cost roughly 19 dollars a month. Add access charges at up to 60 cents an hour and a subscriber who used 20 hours a month, which was moderate even then, would pay about 12 dollars more. That is a 60 percent increase on the bill for exactly the same service, delivered over exactly the same copper, at exactly the same speed.

The rhetorical edge came from the last part. The carriers were not proposing to sell anything new in exchange for the money. Their position was that access charge revenue would eventually fund data-friendly upgrades, which the coalition treated as a promissory note rather than a service. Presented that way, on a page that a dial-up user could read in two minutes, the proposal was very hard to defend in public, and the public reaction was part of what kept the tentative conclusion from being quietly reversed.

The inquiry nobody remembers

Released the same day was a companion notice of inquiry, CC Docket No. 96-263, asking a genuinely forward-looking question: what would it take to get faster, data-friendly connections into American homes. Comments were due March 24, 1997, with replies by April 23. This half of the proceeding attracted a fraction of the attention and arguably mattered more.

The coalition's answer was that the 28.8 and 33.6 kilobit ceiling of the day was not imposed by personal computers or by the internet backbone but by the analog equipment and software the local carriers ran. Digital, packet-oriented technologies that already existed, ADSL and HDSL in particular, could raise connection speeds by a factor of a hundred or more. The coalition's position across both dockets was consistent: build the faster service first, then charge for it and earn a return on it the way firms in competitive markets do, and meanwhile do not let incumbents block competitors who want to build it sooner.

How a website filed comments

The coalition's site did something that reads as unremarkable now and was novel in 1997: it turned a regulatory docket into something an ordinary person could participate in from a modem. The FCC page explained the proceeding in plain language and gave the filing instructions in operational detail, including the requirement to put the docket number in the subject line of an emailed comment, to state whether the electronic filing duplicated a formal one, and to include a full name and postal address. It advised readers, sensibly, that concise and responsibly worded comments carry more weight than angry ones.

The take-action page went further, pointing readers to their senators and representative and to three organizations working the same issue from outside the industry: the Center for Democracy and Technology, the Internet Service Providers and Users Association, and the Media Access Project. The coalition also did the conventional Washington thing of publicly thanking the decision makers who had gone its way, naming Chairman Reed Hundt and Commissioners Quello, Ness and Chong for the tentative conclusion.

The 1983 exemption held its ground

The Commission did not extend access charges to internet service providers. The end user classification set out in 1983 survived the access reform proceeding, flat-rate internet access remained lawful, and the per-minute internet that most of Europe lived with for years never took hold in the United States. A note on sourcing: the coalition's own archived pages stop before the final order, so this page describes the outcome rather than citing an order number that the surviving record here does not establish.

What followed is the part that makes the docket worth remembering. Dial-up subscriptions kept climbing, 56 kilobit modems arrived during 1997, and the competitive pressure the coalition had argued for pushed carrier investment toward DSL, and cable operators toward data service, instead of toward metering the network they already had. It is one of the quieter hinge points in the history of the commercial internet. Had metering won in early 1997, the always-on habits that the web was built around would have formed against a running clock, and it is not obvious that they would have formed at all.