Dallas, TX – Suzanne Sprague, KERA 90.1 Reporter: When the 1996 Telecommunications Act became law, the local phone service market exploded with new carriers. So when you make a phone call, you may start out on a Southwestern Bell line but end up on the network of one of its competitors. All the phone companies had to negotiate a way to determine who would absorb the costs for such a call. They came up with something called reciprocal compensation. Bill Maddox with Southwestern Bell explains.
Bill Maddox, Southwestern Bell: Reciprocal compensation is when one company places a call over another company's network and pays for that time on the other company's network. That's reciprocal compensation.
Sprague: Phone companies pay a fraction of a penny per minute for such a phone call, which on average lasts three minutes. But when you dial up an Internet service provider, you're likely to be online for upwards of half an hour. And since the new local phone companies have 90 percent of the state's Internet service providers as customers, Southwestern Bell is paying out a lot more for each of those calls.
Scott Hadley, Texas Public Utility Commission: If you boil it down, Southwestern Bell feels it's not getting a fair share because these Internet service provider calls are a lot longer than your everyday voice call.
Sprague: Scott Hadley is a spokesperson for the Texas Public Utility Commission. The Commission is considering changes to the reciprocal compensation agreements because they have expired. And Southwestern Bell is asking that one of those changes be exempting Southwestern Bell from paying reciprocal compensation when its customers go online.
David Robertson, stic.net: Bad things usually flow down hill.
Sprague: David Robertson is Vice President and General Manager of stic.net, an Internet service provider in San Antonio, which uses Time-Warner for its phone lines.
Robertson: And if Southwestern Bell were successful in being exempted from paying their fair share, then T-W would have a great big cash flow deficit. Now, after they've finished shivering, they're going to turn around and try to get that money from someone. I am their customer as an ISP. They're going to of course raise prices for services. Since I'm an ISP and my margins are very small, I won't be able to afford to do that, so I'm going to turn around and guess who's going to pay the bill?
Sprague: Robertson says you'll pay the bill through higher Internet access rates, possibly long- distance or per-minute rates.
Jeff Tuttle, Allison Royce: This could have a global economic impact on the growth and development of the Internet.
Sprague: Jeff Tuttle is president of Allison Royce, a commercial web site developer in San Antonio.
Tuttle: If we're going to be charged by the minute, we're not going to access the Internet. If we don't access the Internet, companies that have Web sites on the Internet are not going to see any traffic. They're not going to have anybody visiting their sites because nobody can afford to get on the Internet. It could alter the growth pattern of the Internet significantly.
Sprague: The Internet service providers have been the most vocal opponents to Southwestern Bell's proposal. They see it as an attempt by Bell to monopolize the Internet access business by making their competitors' prices less attractive. But Bill Maddox with Bell says they're blowing everything out of proportion.
Maddox: We're not suggesting in any way any increases in residential rates. Nor are we suggesting any increases in the rates that ISPs charge. If they say that they're going to have to increase rates, they're simply putting out a smokescreen there to Internet users.
Sprague: Terry Hadley with the Public Utility Commission acknowledges it's traditional for such costs to be passed on to customers. But he says it's unclear if that would have to happen in this case. The Commission will take up the issue at its meeting today in Austin, but doesn't plan on rendering a decision. Meanwhile, David Robertson says the Texas Internet Service Providers Association, or TISPA, continues to meet with Southwestern Bell.
Robertson: With meetings as recent as last week, we're attempting to take them at their word as an honorable company and negotiate a middle ground on this where everyone can win.
Sprague: Other states, including California, are looking at exempting Internet calls from reciprocal compensation as well. So later this week, TISPA will also take its case to the Federal Communications Commission. If negotiations with Southwestern Bell fail, the PUC would likely render a decision in the Texas case next month. For KERA 90.1, I'm Suzanne Sprague.