CyberWire Dispatch // Copyright (c) 1994 //

Jacking in from the "Back From the Dead" Port:

Washington, DC -- Nothing chills -- or inflames -- the Net faster than when word of the dreaded "FCC Modem Tax" begins ooze through Cyberspace.

Well... it's back. Sort of.

Ruth Milkman, legal advisor to Federal Communications Commission Chairman Reed Hundt, said during a recent question and answer session that the agency might again take up the issue of the so-called modem tax.

"Some years down the road I can see acceess fees [for enhanced service providers] being considered by the FCC," Milkman said during a phone interview. "But only under the scenario when access charges are reformed."

These access charges are a kind of trip wire phrase which online activists have dubbed a "modem tax" when applied to enhanced service providers, which is another catch phrase meaning services like America Online and CompuServe.

Milkman said the FCC would only consider an access charge under a very narrow scenario which would play out only if "enhanced service providers felt that by paying the access charges they weren't contributing to a subsidy scheme set up for (long distance phone companies)," Milkman said.

So, what the hell is an "access charge"? Take a deep breath. Here goes:

Access charges are paid by long distance companies to local telephone companies. Every time a company such as AT&T connects a caller in Des Moines with Uncle Bert in New York, it has to pay Nynex, the local telephone company, a fee for the privilege of carrying that long distance call over their facilities, commonly known as the "local loop."

Long distance companies pay up to 40% of their entire revenues to local telephone companies. That's billions and billions of dollars each year that flow into the hands of the Baby Bells, just for completing the calls.

The access fees are set at artificially high rates because they contain a mind numbing set of complex subsidies, the most obvious one is that which underwrites the public policy known as "Universal Service."

Back in the days when the FCC only had rotary dial phones (circa 1987) someone came up with the brilliant idea that because modem use was increasing at such a rapid pace, that maybe services such as Sprintlink (then known as telenet) and CompuServe should have to pay these access charges, too.

After all, the FCC wonks postured, they carry long distance (modem) traffic over the phone lines? It would only be fair to have these "enhanced service providers" as they are known in FCC-speak, also help out the impoverished long distance phone companies underwrite Universal Service.

Bingo. The hue and cry that went up from the online community (it wasn't yet called "the Net") was enormous. The major players -- Telenet and CompuServe -- quickly branded the plan as a "tax" and thus the phrase "modem tax" was born.

Dire warnings went out: If the FCC succeeded in making enhanced service providers chip in for access fees, it would increase the cost of each hour of online time by at least $6 per hour.

And remember, this was in the days when a 2,400-bps modem was the hottest thing going. Six bucks an hour would have demolished the struggling online industry.

The fallout among the nascent online community was astounding. For the first time in history, the "net" community rose up with a single voice and FLOODED the FCC with protests.

FCC official "filing kits" made the rounds, teaching people how to file official comments of protest.

The ground swell of opposition worked. The FCC was buried in responses. At the time, the FCC said it was the hottest item in its history, garnering more response than any issue in history.

The FCC eventually backed off. The reason: It was persuaded that enhanced service providers were still entrepreneurial companies and couldn't afford the burden of access fees.

The proposal was officially dropped. It was the first major victory for the Net. And it was empowering. The online community became educated and enlightened almost over night to the ways of an arcane governmental agency. And this community was drunk with a heady kind of power: It could sufficiently affect the outcome of governmental regulation.

Small catch: The damn "modem tax" issue wouldn't die.

Someone with the brains of a trout began to circulate the now infamous "modem tax" file. The file claims that Jim Eason, a San Franciso radio talk show host had aired a segment in which he claimed to have inside information that the FCC was about to relaunch its "modem tax" proposal.

The message was and is a HOAX.

But it also has never died. It's the Net's first "urban myth" and like Freddie, it refuses to die, even to this day.

Milkman, who was on-board at the FCC during the 1987 modem tax firefight, sighed when explaining the complex issue: "Part of the problem is that nobody is exactly sure what all the subsidies are. Most people agree that there are subsidies in the access charges, but you can't break out those subsidies exactly."

Another factor in play: Sometimes enhanced service providers are really just reselling long distance transport after having bought large blocks of time from a major carrier like AT&T. Thus, to have these enhanced service providers also pay an access fee amounts to a kind of double-dipping, Milkman said.

As it turns out, Congress might have as much to say about a future "modem tax" as the FCC. This twisted scenario turns on the tenuous grasp that everyone from the Vice President to Commerce Department to the FCC has on exactly what constitutes "Universal Service," in the era of the Information Superhighway.

Revamping the 60 year old Communications Act of 1934 will be up to Congress this year. And they will likely do it. But how universal service is defined remains a big mystery. And who ends up paying for and maintaining that public policy (which isn't about to be abolished) also remains a mystery.

Don't be surprised if, when the legislative smoke clears, not only do enhanced service providers -- America Online, CompuServe and Prodigy, et al -- have to pay access fees, but also your Internet provider and your cable company.

And who do you think will end up catching those cost increases?? Right. Your wallet.

But for now? Rest easy, Milkman says: "I want to make this very clear: There is NO docket [open] in which the Commission is proposing making enhanced service providers pay access charges. And I don't anticipate it coming up."

Meeks out...