VIII.B.Treatment of Interstate Information Services 282. Usage of interstate information services, and in particular the Internet and other interactive computer networks, has increased dramatically in recent years. Such new services create significant benefits for the economy and the American people. The 1996 Act states that it is the policy of the United States "to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation," and we have long sought to avoid unnecessary regulation of information services. As usage continues to grow, such services may have an increasingly significant effect on the public switched network. 283. Therefore, as part of this comprehensive proceeding, we must consider how our rules can provide incentives for investment and innovation in the underlying networks that support the Internet and other information services. We consider in this section the narrow question of whether to permit incumbent LECs to assess interstate access charges on information service providers. We make no specific proposals, and we tentatively conclude that the existing pricing structure for information services should remain in place at this time. In Section X, we issue a Notice of Inquiry to examine various fundamental issues about the implications of usage of the public switched network by information service and Internet access providers. 284. Beginning with the Computer II proceeding in the 1970s, we have distinguished between basic and enhanced communications services. The category of enhanced services, which includes access to the Internet and other interactive computer networks, as well as telemessaging, alarm monitoring, and other services, appears to be quite similar to the term "information services" in the 1996 Act. In the 1983 Access Charge Reconsideration Order, we decided that, although enhanced service providers (ESPs) may use incumbent LEC facilities to originate and terminate interstate calls, ESPs should not be required to pay interstate access charges. 285. As a result of these decisions, ESPs may purchase services from incumbent LECs under the same intrastate tariffs available to end users, by paying business line rates and the appropriate subscriber line charge, rather than interstate access rates. Those business line rates are significantly lower than the equivalent interstate access charges, in part because of separations allocations and the access charge per-minute rate structure, and in part because the business lines that ESPs now purchase generally do not include usage-sensitive charges for receiving local calls. ESPs, consequently, typically pay incumbent LECs a flat monthly rate for their connections regardless of the amount of usage they generate. Pacific Bell estimates that calls to Internet-provided services could comprise up to 25 percent of its traffic by the end of the decade. US West projects that 30 percent of all local exchange traffic will be for access to the Internet by the year 2000. The Internet access market is also highly competitive and dynamic, with over 2,000 companies offering Internet access as of mid-1996. It is extremely likely that, had per-minute interstate access rates applied to ESPs over the past 13 years, the Internet and other information services would not have developed to the extent they have today -- and indeed may not have developed commercially at all. 286. For some time, however, incumbent LECs and others have argued that ESPs impose costs on the network that are similar to those imposed by providers of interstate voice telephony, and that ESPs should therefore pay interstate access charges. Several parties made this argument in their comments in response to a petition filed by America's Carriers Telecommunications Association (ACTA) earlier this year. In addition, four BOCs have filed studies in recent months purporting to show that the current pricing structure for Internet access contributes to the congestion of incumbent LEC networks. The BOCs claim that Internet users typically stay on the line far longer than voice users, but that the flat monthly rates Internet service providers pay to incumbent LECs do not cover the additional cost of network upgrades that are required to support such traffic. 287. In response, information service providers argue that the rates they pay to incumbent LECs, combined with the additional revenues from sources such as second lines installed for Internet usage, more than cover the costs they impose on the network. These parties also argue that the imposition of access charges would stifle growth, investment, and innovation in information services, causing detrimental effects for the economy and U.S. competitiveness. The Network Reliability and Interoperability Council (NRIC), an advisory committee of industry representatives organized to advise the FCC, is also looking into the effects of Internet usage on the public switched telephone network. 288. We tentatively conclude that information service providers should not be required to pay interstate access charges as currently constituted. As we have explained throughout this Notice, the existing access charge system includes non-cost-based rates and inefficient rate structures. We see no reason to extend this regime to an additional class of users, especially given the potentially detrimental effects on the growth of the still-evolving information services industry. Although our original decision in 1983 to treat ESPs as end users rather than carriers was explained as a temporary exemption, we tentatively conclude that the current pricing structure should not be changed so long as the existing access charge system remains in place. The mere fact that providers of information services use incumbent LEC networks to receive calls from their customers does not mean that such providers should be subject to an interstate regulatory system designed for circuit-switched interexchange voice telephony. We seek comment on this tentative conclusion. 289. We recognize that this issue is of special interest to users of the Internet and online services. Therefore, we have established an electronic mailbox at for submission of informal comments on the treatment of Internet and other information services. Additional information on this issue is available through our World Wide Web site at . We are inviting all parties that file formal paper comments in this proceeding to submit copies of their comments in electronic form, and we intend to make those electronic submissions available for review on the World Wide Web. 290. We invite interested parties to discuss the number of ESPs and Internet service providers, if any, that can be considered "small entities" within the meaning of the Regulatory Flexibility Act, and whether there is any reason to establish different requirements for small ESPs and information service providers. X. NOTICE OF INQUIRY ON IMPLICATIONS OF INFORMATION SERVICE AND INTERNET USAGE 311. In Section VIII.B, above, we tentatively concluded that information service providers should not be subject to interstate access charges as currently constituted. However, the development of the Internet and other information services raise many critical questions that go beyond the interstate access charge system that is the subject of this proceeding. Ultimately, these questions concern no less than the future of the public switched telephone network in a world of digitalization and growing importance of data technologies. Our existing rules have been designed for traditional circuit-switched voice networks, and thus may hinder the development of emerging packet-switched data networks. To avoid this result, we must identify what FCC policies would best facilitate the development of the high-bandwidth data networks of the future, while preserving efficient incentives for investment and innovation in the underlying voice network. In particular, better empirical data are needed before we can make informed judgments in this area. 312. We ask whether, after we complete reform of access charges as contemplated in this proceeding, we should consider any additional actions relating to interstate information services and the Internet. We therefore initiate this Notice of Inquiry, with a separate pleading cycle, to address these issues. Based on the record in response to this Notice of Inquiry, and the decisions we make in the Access Reform Report and Order, we will determine whether to make proposals in this area in a subsequent Notice of Proposed Rulemaking. 313. Many of the concerns now being raised about switch congestion caused by Internet usage arise because virtually all residential users today connect to the Internet -- a packet- switched data network -- through incumbent LEC switching facilities designed for circuit- switched voice calls. The end-to-end dedicated channels created by circuit switches are unnecessary and even inefficient when used to connect an end user to an ISP. We seek comment on how our rules can most effectively create incentives for the deployment of services and facilities to allow more efficient transport of data traffic to and from end users. We invite parties to identify means of addressing the congestion concerns raised by incumbent LECs, for example by deploying hardware to route data traffic around incumbent LEC switches, or by installing new high-bandwidth access technologies such as asymmetric digital subscriber line (ADSL) or wireless solutions. 314. We seek comment on what regulatory barriers -- at either the state or federal level -- might prevent provision of alternate network access arrangements for information service providers, or might create artificial disincentives against use of such arrangements when they become available. Should we consider using our forbearance or preemption authority to avoid results that would hamper the deployment of new technologies? We also seek comment on how the matters before us in our Local Competition and Universal Service proceedings affect information service providers and raise issues that we need to address in this proceeding. 315. We seek comment on the effects of the current system on network usage, incumbent LEC cost-recovery, and the development of the information services marketplace. We are disinclined to take actions that would stifle, rather than enhance, the development of the Internet, or similar packet-switched networks. We encourage commenters to provide data on the characteristics of information service usage and its effects on the network. We are also particularly interested in data on the incumbent LECs' costs directly related to ESPs' use of the PSTN, on incumbent LECs' revenues attributable to ESP traffic (including second phone line revenue), and in a comparison of what PSTN services ESPs desire, as opposed to what they currently have access to. We seek comment on administrative and technical issues that may arise either under continued operation of the current system or as modified by this proceeding. In particular, we seek comment on jurisdictional, metering, and billing questions, given the difficulty of applying jurisdictional divisions or time-sensitive rates to packet-switched networks such as the Internet. 316. The current division in our rules between basic and enhanced services may not accurately capture the types of companies that provide information services today, and the manner in which these companies use incumbent LEC facilities. There are many kinds of information services, with different usage patterns and effects on the network. For example, arguments about network congestion caused by long hold-time calls would not seem to apply to information services such as telemessaging or credit card validation. We seek comment on whether we should distinguish between different categories of information or enhanced services. In addition, several companies now provide software that allows a voice conversation to be conducted over the Internet. Such "Internet telephony" allows what appears to be a basic service -- voice transmission -- to take place over a packet-switched interactive data network that we have traditionally considered to be an enhanced service. We seek comment on how new services such as Internet telephony, as well as real-time streaming audio and video services over the Internet, should affect our analysis. 317. We seek comment as to whether the issues raised in this Notice of Inquiry should be addressed in any existing proceeding, or a new proceeding. As discussed in Section VIII, above, the Network Reliability and Interoperability Council (NRIC) is also currently evaluating the effects of Internet usage on the voice network. We do not intend for this proceeding to in any way supersede the NRIC's efforts, and we believe that the NRIC's recommendations will complement the record we develop here. Ultimately, a full and open debate about the relationship of information services to the public switched network will benefit all parties. We also strongly encourage interested parties among incumbent LECs and ESPs to work together to identify which technological solutions hold the greatest promise in carrying Internet traffic most efficiently and with the least adverse price impact on consumers. 318. As discussed in Section VIII, above, we have established an electronic mailbox at for submission of informal comments on the treatment of Internet and other information services, and we have made additional information available through our World Wide Web site at .