Why the coalition commissioned a study of the phone network

In January 1997 a coalition of twenty-four technology companies published the report it had commissioned from an independent economics firm, and used it to answer the phone industry's claim that dial-up internet traffic was breaking the national telephone network.

The bill that nearly landed on every modem

The Internet Access Coalition came together in 1996 around a single worry: that going online was about to start costing money by the minute. On Christmas Eve of that year the Federal Communications Commission opened its access reform proceeding, CC Docket No. 96-262, alongside a companion inquiry into data-friendly connections, CC Docket No. 96-263, with comments due on March 24, 1997. Whether internet service providers would be made to pay interstate access charges was live in both, and the local phone companies were pressing hard for it.

The coalition made the consequence concrete rather than abstract. A typical unlimited dial-up plan cost about $19 a month. If access charges were applied and providers passed them through, the coalition calculated an additional cost of up to sixty cents an hour, which turned twenty hours of use into roughly twelve extra dollars every month. Its own literature called the proposal a tax on internet access and pointed out that such fees were not lawful at the time. For member companies whose businesses depended on households staying connected for hours at a stretch, a meter on the phone line was an existential product problem, not a regulatory abstraction.

Twenty-four companies with one shared interest

The roster spanned nearly every part of the computer industry as it stood in 1996. Hardware makers included Apple, Compaq, Dell, Digital Equipment, Eastman Kodak, Intel and Sun Microsystems. Software and services were represented by Microsoft, Netscape, Novell, Oracle, IBM and GE Information Services. The online and access businesses most directly exposed to the charge were there in force: America Online, CompuServe, EarthLink and the Internet Service Providers and Users Association. Trade bodies filled out the list, among them the American Electronics Association, the Business Software Alliance, the Consumer Electronics Manufacturers Association, the Information Technology Association of America, the Information Technology Industry Council, the Software Publishers Association and the Voice on the Net Coalition.

Paul Misener chaired the steering committee and was the name on the coalition's public positions. Press inquiries ran through Angela Leung at The Dittus Group. The coalition also pointed sympathizers toward organizations working the same question from the consumer side, including the Center for Democracy and Technology and the Media Access Project. What it did not have was a plausible claim to neutrality, and it knew it. Every member had a commercial stake in the answer, which is precisely why the central document in its campaign was written by somebody else.

"The affordability and usefulness of the Internet are in jeopardy."

Internet Access Coalition, 1997

Hiring economists rather than advocates

The coalition retained Economics and Technology, Inc., a consulting firm at One Washington Mall in Boston that specialized in the economics of regulated telecommunications. Lee L. Selwyn had founded the firm in 1972 and led it since. He held a doctorate from the MIT Sloan School of Management and had appeared as an expert witness before roughly forty state utility commissions, the FCC, Canada's CRTC, the United Kingdom's Oftel and Mexico's SCT, and had been invited to testify on telecommunications deregulation before committees of both houses of Congress. He wrote the report with his ETI colleague Joseph W. Laszlo.

The choice mattered because of the terrain. The Bell companies' filings were built from switch engineering data and cost accounting, material only they held and only a specialist could contest. A press release calling the claims exaggerated would have gone nowhere. A fifty-page technical analysis, signed by an economist with a two-decade record of testifying against incumbent carriers, could be filed, cited and argued with. The finished study was titled The Effect of Internet Use on the Nation's Telephone Network, and the coalition released it on January 22, 1997. One inconsistency in the record is worth flagging: ETI's own later publications list dates the report July 22, 1997, while the coalition's site, the primary source used throughout this archive, gives January 22.

What the study set out to test

The assignment was to examine five documents that the local carriers had put in front of the FCC over the previous summer and autumn, and to answer three questions about them. Was the congestion they described a property of the network as a whole or of a small number of unusual locations? Were the carriers genuinely carrying internet traffic without compensation, as they said? And if a problem existed, was a per-minute charge on the existing circuit-switched network the right instrument for fixing it?

The method was mostly forensic rather than experimental. ETI did not run its own field measurements; it read the carriers' evidence closely and checked the arithmetic and the sampling behind it. That approach turned out to be enough, because the sampling was the weak point. There were 23,686 central office switches in the country, and the carrier studies rested on observations at 127 switching entities that had been picked because they served internet providers. The second half of the work was accounting: reconstructing, from public line and revenue data, how much money the carriers were actually collecting from the households that had gone online. That analysis ran as a separate appendix to the report.

"Data communications traffic poses no significant threat to network integrity at the present time."

Selwyn and Laszlo, The Effect of Internet Use on the Nation's Telephone Network

Three conclusions the coalition put in public

The study reached three conclusions and the coalition led with all of them. Data traffic posed no significant threat to network integrity as things then stood. The additional traffic had produced revenues for local exchange carriers that far exceeded what it cost them to carry it. And the durable remedy lay in competition and in networks built for data, not in metering the voice network by the minute.

The revenue finding was the one with a number attached to it. Households that took up online services bought second telephone lines in bulk. About six million residential lines were in use principally for online access in 1995, producing $1.4 billion in revenue in that year alone and more than $3.5 billion cumulatively from 1990 through 1995. Bellcore, the research arm the regional companies jointly owned, had estimated that reinforcing the network would cost around $35 million per year per company, or $245 million nationally. The revenue from online-driven second lines exceeded that estimate by a factor of six. The carriers, on the study's arithmetic, were not subsidizing the internet. They were among its larger beneficiaries.

What held, and what happened to the coalition

The coalition got the outcome it wanted. The FCC's tentative conclusion, that internet service providers should not be made to pay interstate access charges, held, and the coalition publicly applauded Chairman Hundt and Commissioners Quello, Ness and Chong for reaching it. Flat-rate dial-up access remained legal and cheap, which is the reason the years that followed were a boom rather than a slow metered trickle. The second half of the study's argument was vindicated more slowly, as digital subscriber line service and then cable and fiber replaced the circuit-switched workaround that dial-up always was.

The coalition itself did not last much longer than the fight that produced it. Its site remained at this address into 2001, after which the domain passed through other hands entirely. Selwyn's firm carried the same line of argument forward, publishing Building A Broadband America and Bringing Broadband to Rural America in 1999 and continuing on broadband policy for another decade. The pages preserved here are the coalition's own, restored at the addresses where they originally lived. The study text remains the copyrighted work of Economics and Technology, Inc., so this archive describes and cites it rather than reprinting it.