To all of SnowCrest's customers:
Pacific Bell is attempting, through an arbitration process, to change
long-standing policy in the state of California. They are attempting
to have the Public Utilities Commission (PUC) rule that phone calls
to Internet Service Providers should be classified as long distance
calls instead of local calls. Their argument centers around the fact
that customers can access far-away places after placing such a call,
so they argue that the call is not in fact a local call.
Pacific Bell is attempting to have the PUC make this change without:
1) having a full complement of members (Governor Davis is expected to
appoint new members to the Commission. At present, only three out
of five positions are filled).
2) having appropriate public hearings. The ruling would be made in
response to an arbitrator's decision which went AGAINST Pacific
Bell. Pacific Bell is simply asking for a reversal of that decision.
The consideration of this request does not require a public hearing.
3) considering the impact on customers (or the State of California,
for that matter). If 600,000 customers of ISP's in the state find
their monthly access fees for Internet usage double, triple, or
more, a good percentage of those customers would no longer be
able to afford Internet access, especially in the rural areas.
This memo, in addition to giving you the background information, is
asking you to contact the Public Utilities Commission and express your
opinion of Pacific Bell's proposal. Direct your comments to the
Richard Bilas firstname.lastname@example.org
Henry Duque email@example.com
Josiah Neeper firstname.lastname@example.org
Please send a copy of your e-mail to:
Your e-mail should include:
Your mailing address and phone number
The fact that you are writing regarding CPUC issue A 98-11-024.
The fact that you are a customer of SnowCrest, and therefore a
customer of Pac-West Telecomm.
Your opinion, including the affect that a ruling to overturn the
arbitrator's opinion would have on your ability to access the
A request that public hearings be held on this issue (if you agree).
Thank you for considering this issue and thank you in advance for making
your opinion known to those who will be making the decision.
Kearns & West has prepared a background paper on this issue, which
has been reproduced below (with their permission):
"We cannot allow any segment of America to become a `have not' zone in
the telecommunications age."
"For consumers, dialing up the Internet is just like a local call. It
always has been and as far as I'm concerned, it always will be."
---FCC Chairman, William E. Kennard
"ISP-bound traffic is not local."
Pac-West, a venture-backed, Stockton-based local phone company is
currently in a California Public Utility Commission (CPUC) arbitration
initiated by Texas-based SBC/Pacific Bell. SBC/Pacific Bell seeks to
reclassify consumer calls to Internet service providers (ISPs) as
long-distance calls. Its goal: avoid paying Pac-West for completing
calls from SBC/Pacific Bell customers to their ISPs. The arbitration
began in November, 1998. The arbitrator ruled on 4/30/99 that calls from
such customers to their ISPs should be local, not long distance, calls.
While this report carries weight, the CPUC could reverse the arbitrator's
decision. The issue is scheduled to come before the CPUC on May 27,
1999. At stake in this arbitration is an issue of tremendous importance
to California: i.e., the structure of the economic relationship between
the telecommunications networks that enable Internet services.
SBC/Pacific Bell is seeking to receive per minute long distance "access
charges" from Pac-West and its other local competitors for Internet calls
completed by these new competitors. This arbitration is just the first
of many upcoming decisions between competitive local phone companies in
California and SBC/Pacific Bell.
The Federal Communications Commission, FCC, has consistently
supported preserving universal, affordable access for rural and urban
consumers while encouraging competition between local phone companies. A
recent ruling by the FCC found that the Bells are required to pay their
bills to local competitors like Pac-West. Dozens of states, and two
federal courts have all agreed with the FCC that no long-distance access
charges for Internet access should be allowed and that the Bells should
pay their bills. Just this month, Nevada settled a similar arbitration
Currently in California, when consumers dial-up their Internet
Service Providers (ISPs), those calls are treated as local and when their
ISP retrieves information from the World Wide Web, no long-distance or
international charges apply -- even if the consumer is surfing
international sites (e.g. travel guides, international news, etc).
Competing phone companies have to work together to help consumers
reach their ISPs. When Pacific Bell uses the Pac-West network to connect
its customers with their ISPs, under the terms of the 1996
Telecommunications Act, Pacific Bell is required to pay a fee called
"reciprocal compensation." Reciprocal compensation applies to local
calls. SBC/Pacific Bell has refused to pay their past reciprocal
compensation bills related to calls to ISPs, arguing that calls made by
consumers to ISPs should be considered long-distance calls, even if the
two numbers are in the same local calling area, city block or building.
Their reasoning: because the ISP could access data located in a server
located anywhere in the world, the initial call should be considered long
-distance. Pacific Bell therefore argues that the connecting local
carrier which is terminating the call to the ISP, such as Pac West,
should pay per-minute "access charges" to Pacific Bell.
Access charges are traditionally paid by long distance telephone
companies like AT&T, MCI, and Sprint, to local telephone companies on
each end of a long distance call, to pay the local telephone company for
carrying the call.
Should Internet users or the local companies which carry their
call to the local ISP have to pay long-distance access charges for every
minute they log onto the Internet? This would tremendously increase the
charges ISPs (such as SnowCrest) would have to charge for monthly
Internet service. (Long distance access charges are about $0.03 per
minute, so each hour of Internet use would mean that Pacific Bell would
have to be paid another $1.80 in access charges.) Accordingly, five
hours of Internet use a week would result in an additional $36.00 in
access charges each month. The impact of these additional charges on
Internet usage, and the many business plans predicated on steadily
increasing Internet traffic, is unknown.
Government regulators recognize this and have tried to protect the
Internet and let it grow. They have exempted Internet calls from long
distance access charges, and have instead treated these calls like "local
calls" for ratemaking purposes. Users have not had to pay long distance
fees and their carriers have not had to pay long distance access charges.
Furthermore, the FCC has avoided making a hasty decision to change this
twenty-year policy. The FCC recently asserted jurisdiction over Internet
calls and opened a regulatory proceeding to explore whether its
long-standing policy of treating Internet calls as local calls for
ratemaking should be changed, and if so how. However, the FCC
explicitly left the issue in the hands of the states in the meantime,
saying that "until adoption of a final rule, state commissions will
continue to determine whether reciprocal compensation is due for this
The CPUC itself decided in October, 1998, by a vote of 3-to-2,
that Internet calls should not be subject to long-distance access charges
and that SBC/Pacific Bell should pay reciprocal compensation. Three
commissioners supported the decision and two commissioners dissented.
Now, the CPUC has only three commissioners and a majority of only two
commissioners has the power to potentially unravel the previous decision.
Not only that, but two of the present commissioners are the two who sided
with Pacific Bell in the previous 3-2 decision. Pac-West believes that
the CPUC should stand by its October decision and that it is
inappropriate to settle the issue through an arbitration proceeding
without the benefit of public hearings and input to a full Commission.
In reviewing this issue the CPUC should be careful to hear from ISPs,
residential and business Internet users, and rural as well as urban
This is also not the best time to settle the issue. With the FCC
proceeding underway, there is no certainty that any decision made today
will not be undone in the next 12 months. Additionally, the CPUC should
wait until the remaining appointments have been made before taking up the
The economic arrangements which underlie the Internet have enabled
ISPs to bring Internet services to thousands of rural and urban
subscribers. Pac West alone provides the underlying network which
enables over 600,000 Internet subscribers to reach their ISPs.
SBC/Pacific Bell's campaign to change these arrangements in order to
collect millions of dollars of new long distance access charges from
these ISPs and their carriers should not be permitted to force the CPUC
into a hasty and unwise change of its current policy.
Rural Internet Access Must Be Preserved. If the CPUC reverses
itself and decides to make Internet access a long-distance call, rural
Internet users will be hit the hardest. The cost of serving all areas in
the state will skyrocket leaving rural Internet service at risk. We risk
creating zones of information "have-nots" in California.
Affordable Internet Access Must Be Preserved. If the CPUC
reverses itself and decides that Internet access is a long-distance call,
consumers face higher charges for Internet access. The tremendous growth
of the Internet has made important contributions to California's economy
and many policy makers, business leaders and consumer leaders suggest
that affordable access is essential for continued and growing consumer
Changes to Internet Access Need to Be Considered Carefully.
Homes, businesses, healthcare facilities, libraries all depend on
Internet access. No changes to the current arrangements should be made
without the benefit of a full Commission and public hearings in advance
of the decision. Certainly, an obscure arbitration is the wrong forum
for such an important decision.
We Should Avoid Restructuring Internet Access. Adopting
SBC/Pacific Bell's proposal would fundamentally change the rules
governing Internet access and cause an industry-wide restructuring.
Ratepayers, rural users and SBC/Pacific Bell competitors would all be
hurt. Many consumers would be forced to change ISPs, many ISPs would
lose customers, and SBC/Pacific Bell's competitors would be forced to
scrap existing business plans. A final decision by the FCC isn't
expected for 12 months, or more. Depending on the outcome of those
proceedings, Californians would either have to go through another
restructuring or change back to the status quo.
Innovation and Competition Should Be Rewarded, Not Punished.
SBC/Pacific Bell is fighting its battles in legal proceedings rather than
the marketplace. Meanwhile, California-based competitive local phone
companies are finding innovative, cost-effective and technologically
advanced ways to bring Internet access to all areas in California.
SBC/Pacific Bell is fighting to change current policy, because it didn't
believe that competing local phone companies would successfully attract
so many ISP customers. Local competitors should not be punished because
SBC/Pacific Bell is missing the opportunity to compete for ISP customers.
SBC/Pacific Bell is Isolated In its Position. Dozens of states,
two federal courts and the FCC have all agreed that no long-distance
charges for Internet use should be allowed, and that the Bells should pay
reciprocal compensation bills. On April 8, 1999, Nevada settled a
similar arbitration and found that Pacific Bell parent company SBC did
have to pay reciprocal compensation. The Nevada PUC warned that denying
reciprocal compensation for ISP-bound traffic would slow the development
of competition, harm the state^Òs economy and be bad for the public.
For More Information:
Sharif Ebrahim, Rudy Jurgensen (email@example.com)
Kearns & West, 415-391-7900