Hands off the ISPs

A few months ago on these pages, I wrote a column that elicited more mail than I've ever received.

Basically, my point was that telcos should stop nickel-and-diming other ISPs, ignoring them or, at best, squeezing them out of business by charging retail rates for services and connection.

Telcos, I said, would be better off thinking of their local ISPs as potential business partners, or channels, for their Internet value-added services.

I received many letters from ISPs out there telling me I was in outer space. The chances of a telephone company treating an ISP like a partner, they said, were about as likely as selling a pager to the Man in the Moon.

One letter I received was from Ron Yokubaitis, chairman of ISP Texas Networking Inc. Ron has increased his business into a $5 million metro-area ISP from a $10,000 investment only three years before. That's even more impressive than Lucent Technologies (and its stock has more than tripled in the last year).

Ron's letter goes like this: "Your article presupposes that the telcos-[Southwestern Bell] and GTE for Texas.Net-have any inclination to treat us like a customer or even as a business partner any time soon.

"We were the first ISP in San Antonio, Texas, and our office is a parking lot away from SWB world headquarters. Might as well be on another planet. You can imagine what our monthly bill to SWB is like, yet no one from SWB has ever said 'thanks' or dropped by to take us to lunch.

"SWB has to bleed a whole lot more business before they will ever start to treat us like a valuable business customer. Texas.Net does not realistically think that SWB will ever view us as a valuable customer until it is way too late. It may be past that point now.

"The premise of your article is flawed. You assume that the telcos' corporate culture is even listening."

Well, Ron, you may be right. But hold on just a little longer.

There's another wild card about to hit the Internet business, and it may just blast open some of those deaf ears you've run into.

This time, the wild card is not technology. It's politics.

The FCC recently reported to Congress that it will decide on a case-by-case basis whether certain companies that provide phone service over the Internet should contribute to the universal service fund. Its reasoning: ISPs already contribute indirectly to universal service because they pay for backbone access from the incumbent carriers.

The timing of the debate is almost perfect. It comes within weeks of a decision by America Online, the nation's pre-eminent Internet-based business, to expand into cheap long-distance and DSL services.

What's more, AOL hopes to help pay for these expansions partly with its unregulated decision to hike on-line access prices by 10%.

Even before the report was released, Congressional heavyweights on the Senate Commerce Committee were lining up on both sides. Sen. John Rockefeller, D-W.Va., said ISPs should be regulated more, or at least brought under the FCC umbrella as far as paying their fair share of the universal service contribution that telcos and long-distance carriers pay.

But Sen. John McCain, R-Ariz., said the FCC should leave ISPs alone. It's important to the industry, and the country, that the government "preserve the vibrant and competitive" free market that's out there now for the Internet, he said.

This debate will run on through-and probably past-the dog days of summer. And while it's way too early for even a pundit like me to pick a winner, I can say two things about the coming debate.

First, should McCain get his way and the FCC leave its hands off ISPs, Ron and other ISP execs will see major telcos come a-courting.

After all, ISPs could become "regulation-free zones" for another few years for all types of voice/data/multimedia experimental businesses (within or across LATA boundaries) that regulated telcos and long-haul carriers have their eyes on.

Second, for those who doubt that McCain can deliver, don't sell him short. He's the man who almost single-handedly added more compensation to the "done-deal" settlement between the government and cigarette makers.

Take heart, Ron. Telcos may get the message yet.