cr> Modem Tax Again


Craig A. Johnson

Date:          Thu, 29 Feb 1996 06:00:51 -0500
From:          Dave Farber <•••@••.•••>
Subject:       IP:  modem tax again... for IP
To:            •••@••.••• (interesting-people mailing list)

From: •••@••.••• (Richard Jay Solomon)
Subject: modem tax again... for IP

WASHINGTON, D.C., U.S.A., 1996 FEB 23 (NB) -- Brock Meeks, in his
latest Muckraker column for HotWired, resounds the alarms over the
long-discussed but yet-to-be-seen modem tax from the Federal
Communications Commission (FCC).

"The so-called modem tax, once the cyberspace version of urban
myth, is evolving into reality. Only now it's more likely to be
called the 'Internet service tax'," Meeks wrote. "One powerful
tool at their disposal is the new Telecommunications Act, which
requires a new definition of Universal Service. Buried in that
bedrock public policy are the access fee structures."

Long the legend and lore of the Internet world, modem tax rumors
surface with some regularity, as with Meeks' call-to-arms coming
from the enactment of the Telecommunications Act.

But maybe this time Meeks has it right, but for a slightly
different reason.

Bob Smith, executive director of the Interactive Services
Association (ISA) told Newsbytes that "the current discussion
has been going on for a couple of months. What's prompted the
talk is that the Internet may become the alternative to voice
communication networks."

A September 25, 1995 press release from the Internet Telephone
Company points to the issues of concern to the traditional voice
communications companies: "ITEL has announced the forthcoming
release of WebPhone. WebPhone is a powerful, full featured,
voice communication system which provides real-time, full
duplex, point to point telephone quality voice communications
over the Internet. WebPhone looks and operates like a
conventional full featured telephone yet costs the user nothing
but their monthly Internet service provider's fee for unlimited
long distance calls."

"The telephone companies are asking why this network should not
pay the same charges as the existing telecommunications
networks," Smith said. "It seems we are evolving into the
integration of voice communication into Internet communications."

"It's unlikely, perhaps impossible, for an Internet service tax
to be imposed given the infrastructure," J.P. Bailey, of MIT's
Research Program on Communications Policy (RPCP) and author of
"Internet Economics," told Newsbytes. "Have you ever looked at There are so many mom & pop service providers
that the coordination costs would outweigh the benefit of
receiving a tax. How do you tax something so distributed and so

"How many long distance telephone companies are there? Meeks
rhetorically asked Newsbytes. "Answer: perhaps a thousand or
more, and all of them have to pay access fees. The extra burden
would likely drive out or accelerate the demise of "mom and pop"
ISPs" (Internet service providers).

Meeks said that, according to his FCC contacts, such an
outcome would be likely, but "they aren't concerned. 'Frankly,
this kind of shake out will likely happen sooner or later,' is
the basic response," Meeks said. "What they are charged with
doing is making the rate structure fair and competitive. To do
that, subsidies are to be stricken, and the ESP (Enhanced
Service Provider) exemption (given to online service providers)
is one of those. Likewise, the Bells have been hammering the
removal of the exemption big time. And the FCC is listening."

Michel Daley, spokesman for Bell Atlantic, said that his company
had no comment on the idea of ISPs being charged an "Internet
service tax," but that, "We have concerns about Internet usage
and phone lines, those being usage fees versus the current flat

"As Internet providers and users tie up our network for hours at
a time," Daley told Newsbytes, "they are requiring us to build
additional facilities to handle these calls. It's just not fair
unless they pay more."

In December, 1995, FCC Chairman Reed Hundt proposed access
charge reforms, changing from interstate access rate base to
cost-based levels where everyone would pay the same rate based
upon usage.

A Newsbytes source in the FCC Common Carrier Bureau said that
"many ESPs came in saying they'd be willing to pay the
cost-based rates."

The Common Carrier Bureau went work on restructuring the Access
Fee framework but the pending passage of the telecommunications
bill held things up, according to Meeks.

"After looking at all that is involved with the various
rulemakings, the CCB decided that the access fees issues fell
under the broad definition of redefining universal service,"
Meeks said. "It's a highly volatile issue, even within the FCC.
They know (and have been warned from the inside) that they are
likely to get hammered on this and they are preparing for the

Brock Meeks insisted to Newsbytes that "this time, it's no
rumor -- this idea has legs... and they are growing. The FCC is
concerned about the rise of Internet phone technologies, despite
their low usage. It makes the Net look more like a telephone
company and when it starts to look like one, it starts to get
regulated like one."

(Dennis Whitehead/19960223/Contact: Bob Smith, ISA, 301-496-4955;
Glenn Hutton, ITEL, 305-251-4653 ext 104; Mindy Ginsberg, FCC/CCB,
202-418-1500; Michel Daley, Bell Atlantic, 703-974-3428; Brock Meeks,


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