- The Washington Times - Thursday, September 28, 2000

There has never been a better time than now to launch a new business and no better place to start it than right here in the United States. Technological advances, greater access to capital and a booming domestic and global marketplace are all converging factors that have led to an explosion of small business start-ups across all demographic groups.

Certainly the Internet has provided a boost to the time-honored American ideals of self-reliance and entrepreneurship. Beyond the headline-grabbing 23-year-old millionaire stories and the volatility of dot-com stocks we find that the Internet is an enabler of small businesses and entrepreneurs with big ideas. Whether rooted in the old economy or the new, small businessmen and women with sound ideas and the courage to take action can reach out to the world for the price of a local phone call.

A recent report from Access Markets International Partners and Inc. Magazine found a dramatic increase in small business activity online. The number of small businesses selling their products and services on e-commerce sites in 1999 was estimated at 600,000 up from 400,000 in 1998. The value of their transactions increased from $14 billion in 1998 to $25 billion in 1999. The number of small businesses transacting online jumped from 1.8 million in 1998 to 2.8 million. The study projects that small business purchases online will increase to $118 billion by 2001. Affordable access to the Internet has leveled the playing field between big and small business, and the news will keep getting better as the nationwide deployment of high-speed Internet access helps small firms operate with even greater efficiency.

Unfortunately, affordable Internet access is now under siege in Congress. The regional Bell phone companies have used their lobbying muscle to get two bills introduced in Congress S. 2902 in the Senate and H.R. 4445 in the House both aimed at preserving the Bells' monopoly in local phone service, which was supposed to end when Congress passed the landmark Telecommunications Act of 1996.

In the process of gutting the competitive requirements of that act, the two Bell bills would reclassify Internet access calls from local to long distance and push up the average cost of Internet service for consumers and small businesses by 18 to 34 percent, according to some estimates. Price increases in rural areas could be much higher.

The Bell bills' most serious attack on affordable Internet access comes in the provision to eliminate "reciprocal compensation." In the telecommunications market, reciprocal compensation means that any telephone company completing an incoming call from the customer of another telephone company gets paid for providing that service.

When competition was first introduced within the $100 billion-a-year local service market, the Bell monopolists supported reciprocal compensation. They negotiated reciprocal compensation fees (some say much too high), confident that their size guaranteed they would receive the majority of incoming calls, thus collecting the majority of reciprocal compensation fees.

But perhaps 100 years of monopoly control had left the Bells too complacent. The entrepreneurial energy of the new competitors who took them on in the marketplace and won the local service business of America's Internet Service Provider (ISP) companies by offering them lower rates and better service was just what the 1996 Telecommunications Act was supposed to do.

As a result, the new competitors were completing millions of calls from Bell customers to the ISPs, and by 1997 several Bells owed the new competitors hundreds of millions of dollars in reciprocal compensation.

Instead of roaring back into the marketplace with a better offer, they unfortunately roared down to Washington to demand protection. In the meantime, competitive local carriers complain that the Bells have refused to pay the reciprocal compensation fees they owe to these new competitors.

When a small business refuses to pay legitimate bills, it ends up in small claims court or bankruptcy. It doesn't go running to Congress asking for special treatment. Specifically, these bills, if enacted by Congress, would eliminate reciprocal compensation altogether.

If that happens, the new competitors will be denied a legitimate and needed revenue stream. Picking up the Bell companies' tab would force new competitors either to go out of business or pass along the extra costs to the ISPs, who would in turn pass them on to Internet customers small businesses.

Either way, consumers and small businesses will be hit with artificially higher Internet costs and fewer choices. That's not a formula for entrepreneurial growth; it will, however, help to preserve monopolies. Congress should leave the 1996 Telecommunications Act as is; it has worked to create a competitive and innovative environment that has benefited small business as consumers and entrepreneurs in the industry. Leave reciprocal compensation alone, and let the market continue to work. Congress will surely be applauded for that.

Karen Kerrigan is chairman of the Small Business Survival Committee.

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