Convergence or Collision? Telecommunications Regulation and the Internet

Michael Katz
Hal R. Varian
UC Berkeley

Jan 23, 1997

The School of Information Management and Systems and the Center for Telecommunications and Digital Convergence at UC Berkeley are sponsoring a one-day workshop on Friday, March 7, 1997 that will address some critical regulatory issues facing the Internet.

The focus of this workshop is on the interaction between telecommunications regulation and the Internet. The Telecommunications Act of 1996 raises many difficult regulatory issues for the FCC. The Internet is, at the moment, a small part of this broader set of issues. However, many observers think that Internet technology will play a large role in the telecommunications infrastructure in the future, so it would be wise to develop policy that will be applicable to the Internet as well as to the existing technologies.

Two especially contentious issues have emerged in recent months that will provide a focus for the conference discussion.

• Many telephone subscribers purchase an unlimited local service option. The rates for this service class are based on the average length of phone call of 4-5 minutes. However, individuals who access the Internet via telephone service generally have much lengthier calls---on the order of 20 minutes. In order to maintain the same quality of service for voice telephony, the local carriers have had to add significant capital equipment in terms of switches and lines. Is the current local exchange service rate structure sustainable with this new type of usage? Is the investment in POTS capacity desirable from a social viewpoint?

• Due to their classification as Enhanced Service Providers, Internet providers do not pay access charges to the LECs. However, in many cases, Internet services directly compete with long distance services. For example, there are several fax servers that will accept email which is then converted to a local fax call. There are also several Internet telephony software packages that allow for long distance voice calls. In some cases these systems offer interconnection with the public switched telephone network. Is it appropriate that the Internet providers avoid exchange access charges? And how is the answer to this question affected by the the FCC's undertaking broader access reform?

The one-day workshop will address these and related issues. The workshop will be by invitation only and will comprise a small group of academics, FCC commissioners and staff, and representatives from both the computer and the telecommunications industries. Attendance will be limited to ensure that the group is small enough that meaningful discussion can take place.

These are complex issues, and clear policy proposals have not yet emerged, even from parties with much at stake. The workshop will offer a neutral ground where these issues can begin to be addressed in a serious manner.