20 September 2000

Date: Wed, 20 Sep 2000 11:33:58 -0400
From: Chris Savage <chris.savage@CRBLAW.COM>
Subject: 256 Viet Cong Captured, or, Notes from the Front in a Dirty Little War
To: CYBERIA-L@LISTSERV.AOL.COM

Warning: long, but (a) impassioned and (b) actually, really important post follows.  I beg your indulgence.  This may not be refined legal/policy analysis, but it really matters to down-in-the-trenches netizens.

On Monday, September 13, pro-Internet guerrillas suffered a defeat as the House Telecom Subcommittee, chaired by Billy Tauzin (R-LA) approved an amended version of that black-headed boil of a bill, HR 4445.  (See end of post for information re: my characterizations of the bill.)  The amended version eliminates most "reciprocal compensation" between local exchange carriers after six months.  The next battle - ***ONE THE INTERNET GUERILLAS REALLY, REALLY NEED TO WIN*** - is next week (we think) in the full House Commerce Committee, chaired by Rep. Bliley (R-VA).

The pro-Internet guerillas in this case are, basically, (a) scrappy competing phone companies whose oxen are about to get directly gored (trade ass'n URL: www.alts.org); (b) ISPs and their trade associations (www.cix.org, www.usispa.org), who will face higher rates and crappier service if the monopolists get to freeload on the network of the scrappy competitors, which is what the disgusting, moronic, HR 4445 is designed to accomplish; (c) state regulators (www.naruc.org), who have been sorting out this issue basically fine (with a few notable exceptions) for four years, and who are pissed at the monopolists trying to get Congress to strip them of jurisdiction to do it; and (d) consumer groups (e.g., Consumers Union's Gene Kimmelman) who can tell where the money to pay for the monopolists' freeloading will (eventually) come from - consumers.

This bill is a Very Bad Thing(tm).

Why the good guys are right and the bad guys are wrong:

Success has a thousand fathers; failure is an orphan.  The Internet in the US is a multi-front success.  One of its fathers is the FCC, whose decisions in 1982 and 1984 declared that ISPs can connect to the public switched network (PSTN) just like normal business customers.  ISPs were declared to not be regulated **CARRIERS**.  They are, instead, a type of **CUSTOMER** of regulated carriers.  This meant that the ISPs, and the gear they attached to the PSTN, were largely unregulated. Which is why the whole thing has grown so rapidly and so well.

These same FCC decisions meant that plain old folks like you and me and Declan McCullagh and John Perry Barlow and Lee Tien and David Burt and John Young and Andrew Greenberg and Mike Godwin and Mac Norton and Jim Tyre and Robert Bodi and Seth Finkelstein (to name a few) could just make a plain old local telephone call - the cost of which is typically included in a flat-rated calling plan from "The Phone Company" - to our ISP to get our email, exchange files, and (later) surf the web.  My non-random list above is intended to point out that no matter where you are on issues of 1A rights or privacy or online porn or censorware or encryption or copyright, **YOU HAVE BENEFITED FROM THIS BASICALLY SENSIBLE (NON)REGULATORY APPROACH TO THE NET.**

Yet this is what is being violated, screwed up, and generally hosed to benefit the big monopoly phone companies, in the carbunculous HR 4445.  The purpose of the bill - what the monopolists are trying to accomplish - is to ghettoize ISPs into a separate-but-unequal class of "customer," gerrymandering the rules so that for innovative, scrappy new competitors to actually meet the needs of ISPs will become more difficult and expensive.

To review some (sorta technical) bidding:  There are five parts to completing a local call:

(a) the path from the caller to his switch;

(b) switching the call in that device;

(c) hauling the call to the called party's switch;

(d) switching it **there** to the called party's line; and

(e) hauling it to the called party on that line. 

In the US, the charges to the **CALLING PARTY** - including, for this purpose, flat-rated "free" local calling plans - cover the costs of (a) through (d).  Cost (e) is covered by charges to the called party.  (This is just the called party's recurring monthly charge for the telephone line/telephone number on which he is being called).

When Congress introduced local telephone competition in 1996, it required competing carriers to enter into "reciprocal compensation" arrangements.  In practical terms this means that when a customer of one carrier calls a customer of another carrier, the first carrier still collects all the money from its caller (to cover items (a) through (d) above), but only does part of the work (items (a) and (b), and, typically, part of (c)).  In a competitive world, note that the called party won't necessarily be connected to the network serving the calling party; the called party may be attached to a competitor's switch.  But the calling party's carrier gets paid to do jobs (a) through (d), yet when another carrier's customer is being called, it only does jobs (a) through (c).  Reciprocal compensation ("recip comp" in the trade...) means that the originating (calling party's) carrier has to pay the terminating (called party's) carrier for doing job (d).

This new regime took place more or less at the same time that the Internet was becoming a mass phenomenon. This meant that ISPs needed to add literally **MILLIONS** of phone lines to meet demand (remember the hue and cry when AOL didn't have enough lines and everyone got busy signals?).  Relations between ISPs and the monopoly phone companies have always been frosty, so ISPs jumped at the chance to instead get their lines from the scrappy new competitors. These new firms had to invest hundreds of millions of dollars (collectively, maybe, billions) in switching gear, so that they could become part of the PSTN, and assign phone numbers to ISP lines so that the ISPs could actually GET calls. And under the recip comp regime, when (say) Pac Bell's customers called an ISP modem connected to a (say) Metropolitan Fiber Systems phone line, Pac Bell had to pay MFS for the use that Pac Bell's customer was making of MFS's gear (which, of course, makes sense, since Pac Bell had been paid by its customer for (a) through (d) above, but was only doing (a) through (c)...)

This was great, except for two things.  One, the monopoly phone companies had gotten greedy, thinking that they would receive more calls, net, than they would send out.  So they proposed high per-minute rates for performing the terminating switching function (item (d) above), thinking they'd get paid more often than they had to pay.  So, two, the scrappy little competitors allowed themselves to be thrown into that briar patch, then went out and met burgeoning ISP demand for phone lines.

It is pretty clear (despite some incredibly involved regulatory arcana) that under current law, the resulting (large) liabilities from the monopolists to the scrappy new competitors are, basically, tough noogies.  The law calls for it, the contracts the monopolists signed call for it, so they ought to pay it.  Of course, their obligation to pay the specific high rates they stupidly sought several years ago is embodied in specific contracts, more or less all of which have expired or will soon.  New contracts are being set up with much lower, more rational rates for performing function (d) above (terminating switching).

But the monopolists were pissed, their pride had been hurt, and even at the lower, rational rates for the terminating switching function, they are facing hundreds of millions of dollars of payment obligations (they actually say it's $2 billion annually; I don't know...).  (The amount is huge in any case because there are now something like 40 million US households on-line, almost all using dial-up access.)  So the monopolists realized that under current law they really had to pay, and they realized that arguments on "the merits" weren't going to help.

So they went to Congress with a propaganda war about how the scrappy new competitors serving ISPs were really sleazeball scam artists trying to "exploit" a "quirk" in the regulatory system, or trying to "arbitrage" some regulatory "anomaly."  Never mind that the PSTN would have crashed if massive new investment had not been made to accommodate the increase in Internet-related usage, and much longer holding times, associated with ISP-bound calls.  Never mind that the investment had indeed been made, but by the scrappy new competitors, not the monopolists.  And never mind that the monopolists couldn't give a rodent's rear about accommodating this new customer demand, and were basically hostile to the Internet as a whole. According to the monopolists' propaganda, this is all a scam perpetrated by the new competitors - and especially the new competitors who had the audacity to actually ***focus their business efforts*** on serving the needs of the growing ISP market segment.

So the monopolists rolled out the big lobbying guns, called in some chits, and got that oozing pustule of a bill, HR 4445, introduced.  The pro-Internet guerillas fought back valiantly, but lost (mostly) on Monday night.  Go see http://www.usta.org/rls00-42.html to see the bad guys crowing about it.

But the war isn't over yet.  What happens now is that the horrible piece of legislative pestilence, HR 4445, goes to the full Commerce Committee. Probably next week.  And while the good guys lost the votes Monday night, some amendments were passed that probably make the bill less palatable to the ILECs.  And the good guys made very clear to everyone involved that this issue was controversial and contentious, which in some small way improves the chances that the full Committee will just not want to screw around with it as the session ends.  But we're not there yet.

And - here's the good news - at least one representative made reference to the emails she had been receiving, telling her to vote against this evil, anticompetitive piece of trash (well, she didn't actually say that, and the emails didn't either, but the effect was the same - she was getting emails telling her to vote against it, which she intended to heed).

So, like last Sunday's missive, I am again calling on all right-thinking netizens to write, call, or email their congresspeople and tell them in no uncertain terms that their constituents want them to vote **AGAINST** HR 4445.  You can do this by going to www.alts.org, and clicking on "H.R. 4445 Update;" there's a handy email form you can use.  That link also contains more background data, from the good guys' perspective, on exactly what happened last Monday.

Folks, we really need your help on this.   Call, write, or email your congresspeople.  If you were amongst the vanguard who did so in response to my earlier plea, please do it *again*, saying that you heard that the bill came out of subcommittee Monday night and that you really want it to be defeated in full committee.  Forward this post to your friends, to the press, to anyone who might care.  Tell any remotely clued people that this is happening now, but it IS stoppable, and it **MATTERS**.

Finally, for those who have read this far - a gold star to anyone who can identify the allusion in the Re: line.  And an extra gold star to anyone who can identify the children's book that, if you've read it, is the obvious inspiration for my colorful characterizations of the bill.  Hint for the first question: Rado & Ragni.  Hint for the second question: Agatha & Magnus.

Chris S.

P.S. -- to anyone who missed my earlier post [below].  I have a few dogs in this fight (I represent some of the scrappy new competitors in their valiant battles against the evil monopolistic empire that is the old phone companies) (   ;-)  ), so if you couldn't tell from the tone of the above, yes, indeed, I am not a fully unbiased observer/commenter on the events of the day...

Date: Sun, 17 Sep 2000 09:11:35 -0400
From: Chris Savage <chris.savage@CRBLAW.COM>
Subject: A little Cyber-Politicking, or, These are the times that try neti zens' souls...
To: CYBERIA-L@LISTSERV.AOL.COM

Hello all:

First, disclosure:  I represent some companies who will be harmed by the anti-Internet, anti-competitive, really, really bad legislation I am noting below.  And I've devoted a bunch of my professional life for the last three-and-a-half years fighting (with some success) in the regulatory arena against the result that the existing monopolist phone companies are trying to achieve by a behind-the-scenes back-door legislative deal.

So it's possible I'm a tad biased.  ;-)

But that said - something rotten is (potentially) going down in DC, and I'd like list members to (a) know about it, and (b), if they are so inclined, participate in some cyber-political action by publicizing the problem, and emailing their representatives expressing their opposition.  (You can do this by going to the ALTS.org site noted below.)  OTOH, if you think I'm wrong, go ahead and send your representatives an email of support for the bill.

If you could look yourself in the mirror afterwards.  ;-)

The Really Bad Bill(tm) at issue here is called "HR 4445."

The view from 100,000 feet is that the existing regulatory regime (under the 1996 Telecom Act, 47 USC sec. 251 et seq.) facilitates competition among local telephone companies for the business of dial-up ISPs.  The result has been: (a) ISPs have been able to expand their operations to keep pace with rapid growth in demand for Internet access over the last four years; (b) the new competitors (unlike the entrenched monopolists) have been motivated to do a bunch of technical stuff that makes the ISPs' lives easier; and (c) the rates ISPs have to pay for their connections to the public switched telephone network (i.e., the phone lines that the need so dial-up customers have somewhere to dial) have been kept reasonable and may actually be declining.

The incumbent monopoly phone companies (Verizon [Bell Atlantic + GTE], BellSouth, Qwest [nee US WEST], and Southwestern Bell [which now includes Pac Bell and Ameritech] really, really hate this.  So they got one of their friends in congress to start pushing a bill to change the Telecom Act of 1996 to undo the regulatory victories of the competing phone companies and ISPs, and make sure that it can't happen again.  This is "HR 4445."

I would be happy to go into greater detail either on- of off-list with anyone who is remotely interested.  There is an enormous regulatory/legal history here, including state-federal jurisdictional fights, a trip to the Supreme Court, several court of appeals decisions, and endless regulatory battles in the states and at the FCC.  Another list member, Mac Norton, has been almost as involved in this as I have...

There's some more detail below as a start; if the issue bores you, hit "DELETE" now.

But this ACTUALLY, REALLY MATTERS to dial-up ISPs and their suppliers, and a little cyber-politicking at this point would really make a difference.  So I'd like the help of anyone who can spare a few minutes and a mouse-click or two...

For a somewhat more detailed take on the issue from the side of the fence I am on, go to www.alts.org, and click on "Update on HR 4445."  (They also have a handy "email your congressman" feature, that I urge all good US-based Cyberians to consider...).

The folks on the other side, as noted, are the monopolist incumbent phone companies.  Their trade association is USTA, at www.usta.org.  The main firms are Verizon (www.verizon.com), BellSouth (www.bellsouth.com), Qwest

(www.qwest.com), and Southwestern Bell Corp. (www.sbc.com).  I have checked these web sites and can't find any mention of the issue.  If anyone finds any on-line explanation of the other side's views, I'd be obliged if they could post the URL.

More detail:

There are two 'net-related legal/regulatory vectors at work here.

(1) Based on its decision in what is known in the trade as "Computer II," when the FCC created "access charges" in 1984, it declared that ISP-like entities (known then as "Enhanced Service Providers," or ESPs) would be exempt from the per-minute access charges that applied to long distance carriers.  The purpose and effect of this was to ensure that these entities could buy phone lines like any other customers, and receive calls like any other customers.  The result was that people could call Compuserve, Prodigy, and, later, AOL, Concentric, Mindspring, etc., as a plain old local call. This was part and parcel of the FCC's decision not to regulate the Internet. The fact that folks can dial into their ISPs as a local call, without special charges, is generally credited with helping support the rapid growth of the Internet here in the US, once things really started taking off in the mid-1990s.  Points to remember: ISPs CAN BUY PLAIN OLD PHONE SERVICE TO CONNECT THEIR MODEMS TO THE PHONE NETWORK; and, CALLS TO ISPs ARE, AT LEAST IN ECONOMIC TERMS (WHO PAYS WHO), PLAIN OLD LOCAL CALLS.

(2) One feature of the Telecom Act of 1996 is a new requirement for local carriers competing with each other to set up "reciprocal compensation" arrangements.  This means that if one of my customers (who pays me for local calling service) calls up one of your customers, then I have to pay you a certain amount (we negotiate, and if we can't agree, state regulators figure it out) for each minute of local traffic I send you.  The point is that my customer has paid me to get the call all the way to the called party.  Point to remember: If I don't serve the called party, I have gotten all the money but only done some of the work; I have to share the money with the other carrier, who actually gets the job done.

Astute observers now see the problem:  The passage of the 1996 Act was more or less simultaneous with the beginning of the consumer Internet explosion. Literally millions of consumers started calling dial-up ISPs to web surf, check email, etc.  For a variety of reasons, ISPs, new and old, thronged to new, competitive local exchange carriers to get their dial-up lines.

So, most people CALLING ISPs were served by the incumbent monopolists - Bell Atlantic, Ameritech, etc.  But more and more ISPs GETTING CALLED were served by new competitors - MFS, Teleport, Global NAPs, Focal, Pae-Tec, PacWest - a bunch of scrappy little folks (some of whom I represent) who most people have never heard of.

So, under the "originating carrier pays terminating carrier" rule, the monopolists have had to pay the new guys a fair chunk of change.  This makes sense, though, because the new guys have had to invest hundreds of millions of dollars in new switching gear to serve their ISP customers, and in the US phone system, customers - even ISPs - don't pay for incoming usage.  So if the new gear that the ISPs require of their suppliers is going to get paid for, it needs to be this way, within the current system.  These payments are necessary to fair competition amongst phone companies for the business of ISPs.  Without them, serving ISPs gets more expensive and difficult, with predictable results.

These are the payments that the monopolists are trying to kill with HR 4445.

Technical?  You bet!  Obscure?  Hard to get more arcane!  Easy to explain to the voting public?  Dream on!

But actually, really, important.

The latest version of this piece-of-trash bill is scheduled for mark-up in the Telecom subcommittee of the House Commerce etc. Committee tomorrow (Monday, 9/18/00) night.

Any help anyone can give, either by (a) publicizing what the monopolists are trying to pull off, and/or (b) urging congress to kill this bill, would be much appreciated.

Again, near-infinite detail and background available off-line to anyone who is interested.

Chris S.

Date: Sun, 17 Sep 2000 20:22:13 -0500
From: Mac Norton <mnorton@UARK.EDU>
Subject: Re: A little Cyber-Politicking, or, These are the times that try neti zens' souls...
To: CYBERIA-L@LISTSERV.AOL.COM

Well, I'm not sure I'd agree with everything Chris says about the '96 Act, which I more and more consider to be a failure in significant respects. We must remember that it is a product of vicious, brutal compromise, the kind that in the legislative process always yields legal impedimenta that were political lubricant only, in Congress. Bear in mind that the '96 Act was in large part the product of a bloody, gory stalemate in the '95 Session, one that left both sides--which did not, and has never, included ISPs to any appreciable extent, hey! wake-up call!--with bruised knuckles and missing teeth.

One more thing off the chest: How long have I been telling you guys "It's all phones"?  Of course I'll admit to a little exaggeration there, but what we have here is a vital case in point, HR 4445.  If you care about the Internet as we know it-- and let me emphasize, *as we know it*--then you are opposed to the subtle proposition put forth in this poisonous proposal.

Subtle?  Yes.  Let's just cure a telephone cost allocation problem, that's all. Let's just cure it the same way Cromwell cured the Charles I problem. Cut off the head and get rid of the headache. The same way we want to cure the Napster problem, the DeCSS problem, the linking problem--those of us with monopolies see the way! Let's make it illegal! Let's put people in jail or make them liable for civil penalties or make their business model against the law. Notwithstanding, in the recip comp case, that their business model was ours to begin with.

Look, it costs money to terminate (receive and switch to your end-user) a telephone call.  Not much, per call or per minute. In this litigation we talk of mills and even of millrays, per MOU, or minute of use.

Think that's small change for the Internet?  Well, I'm involved in a case at the moment that entails one Billion minutes in the downtown area of a small state capital.  That's with a "B".

Get a grip, and get against this bill, HR 4445. It's harm.

MacN