Internet Glut Gives Phones a Busy Signal

For the better part of one day in July and again in November, thousands of people in the San Francisco Bay area weren't able to complete an everyday task: make a phone call.

The reason, Pacific Bell says, is the Internet. The company says Internet congestion has forced it to put 22 of its 650 central offices in California under watch and has left customers facing fast-busy signals or dead air when they pick up their phones.

California leads the rest of the nation in home-computer and Internet use - more than a third of the world's Internet traffic begins or ends in the state. But similar problems are starting to crop up elsewhere in the US.

The underlying problem is that today's telephone network is engineered to carry short voice calls, not long data communications. Upgrading this network will cost billions of dollars. And neither the local telephone companies nor Internet access firms are particularly eager to foot the bill.

As early as today, the federal government is expected to announce whether it will consider the investment issue. Local telephone companies hope to get federal permission to slap a controversial access fee on companies that offer Internet access. If they win, consumers will likely end up paying more for Internet access.

Even if the phone companies lose, the days of a flat $19.95 monthly charge for unlimited Internet use may be near an end. Most publicly traded on-line companies, which offer the flat rate, are losing money. Two pulled out of the consumer Internet business altogether earlier this year. Last week, industry leader Netcom announced it too was discontinuing its popular $19.95 service to concentrate on the business market.

"Somehow, we have to get the Internet on a sound economic footing," says Jim Diestel of Pacific Bell. "A flat rate by itself isn't bad. But at $19.95, I'm not sure it makes sense."

Bargain access

Up to now, computer users have gotten an extraordinary deal. Not only could they use the Internet as much as they wanted for one flat fee, most of them could also connect to it via a local call.

Typically for local calls, telephone companies charge by the call, not by the minute. That means the Internet user can stay connected to the computer network for hours and pay the phone company no more than someone making a 10-second call.

That poses a challenge for a local phone company like Pacific Bell. It built its network to handle voice calls, which average three to four minutes. But the company has found the average Internet calls lasts 28 minutes. And with an increasing number of customers going on-line, the traffic is starting to choke the system.

Another stumbling block in networks' attempts to adjust to the new demands, is that Internet users are changing local calling patterns. In a study of nine of its central offices in the Washington, D.C., area earlier this year, Bell Atlantic found that the presence of an Internet-access company could change peak calling periods from the afternoon (which is traditional) to the evening.

The reason: Residential customers were logging on to the Internet after dinner and staying on for hours.

A Bell Atlantic study also showed that Internet-access companies have twice the average peak usage of an area's business and government lines and at least nine times the rate for the area's residential lines.

The local Bells argue that this is unfair. Pacific Bell says it will have to spend between $27 million and $103 million next year to keep up with surging Internet use, but it will only earn the same flat monthly fee from Internet-access firms as it charges other businesses, though those customers strain the system far less.

That is why the Bells are pushing hard to have the Federal Communications Commission (FCC) revoke a 13-year-old exemption for Internet-access companies and other so-called "enhanced service providers."

Without the exemption, a Bell could charge Internet companies an access fee for every call in the same way it charges long-distance companies. According to published reports, the FCC is expected to announce today whether it will look into the exemption matter.

Skeptics, however, charge that the Bells are playing a double game. While they wring their hands over growing Internet use, they themselves are selling Internet access service to businesses and consumers.

Also, they're pushing hard to persuade residential customers to order second lines for their homes. If things are so bad, why are the Bells adding to the problem? asks Allen Clark, spokesman for MCI Communications Corporation. "This is a PR campaign" designed to persuade the FCC to act.

Big bills ahead

Everyone agrees the Bells will have to spend billions of dollars to create high-speed networks and move Internet traffic off the traditional telephone network. The question is how quickly to build them. Mr. Diestel of Pacific Bell claims it will be the turn of the century before most of the data traffic moves over to higher-speed and higher-priced lines.

Mr. Clark of MCI says the switch will come sooner if the Bells make the necessary investments today and offer customers high-speed data options. "They don't want to do it? Let us in, we will," he says. This year alone, MCI has upgraded its own Internet backbone to handle 15 times more traffic.

But Ray Albers, vice president of technology planning for Bell Atlantic, is skeptical that Internet users will shift quickly. Bell Atlantic has already installed an array of signal converters, or called routers, to take Internet traffic off the regular telephone network and route it along specialized data lines.

But so far, its own Internet subsidiary has been the only customer. Other Internet-access firms seem content to add business lines at the current flat rate.

Will consumers pay more for higher-speed connections? At today's monthly rate of $19.95 for unlimited use, Mr. Albers thinks many of them will stand pat. "You're going to find a lot of users who will be content with the lower-speed stuff," he says.