America Online Urges FCC to Reject New Internet Regulation

January 26, 1998

Dulles, VA, -- January 26, 1998 - America Online, Inc. (NYSE: AOL) today filed comments with the Federal Communications Commission (FCC) in strong support of maintaining the current regulatory framework for Internet services as the best way to ensure competition, benefit consumers, and fuel continued rapid economic growth and technological innovation. The filing was in response to a request for comments on the FCC's upcoming report to Congress on Universal Service. The FCC is reviewing implementation of the Telecommunications Act of 1996, including the possibility of expanding current telecommunications regulations to include providers of advanced services such as Internet Service Providers (ISPs). "The Internet market is fiercely competitive and that competition has brought substantial benefits to consumers and the U.S. economy," said George Vradenburg, Senior Vice President and General Counsel of America Online. "Sound policy dictates that Internet services develop under an unregulated framework that fosters growth, innovation and diversity. Burdening the new medium with telephone-like regulations designed for telephone companies operating in a monopoly environment will stymie growth and hurt consumers." Citing statistics from a number of sources, AOL's filing underscored the explosive growth that advanced services and technologies have brought American consumers, along with rapid and substantial economic expansion that reaches all sectors of the U.S. economy: -Over three-quarters of a million jobs were created by the Internet in 1996 alone. (Global Internet Project) -Technology represents 50 percent of the nation's economic growth. (Office of Technology Policy, U.S. Department of Commerce) -Business on the Internet added $200 billion to the Gross Domestic Product (GDP) in 1996. (Global Internet Project) The AOL filing also highlighted the substantial social benefits created by the Internet, particularly for those in rural areas, including dramatically increased access to information and educational opportunities, extending the reach of schools, libraries and hospitals well beyond their geographic boundaries. AOL said that placing new regulatory burdens on the industry, particularly a requirement to contribute directly to universal service, would undermine the social and economic benefits of the Internet and stifle economic growth by adding a new tax burden that would likely flow through to consumers. The filing cited figures that showed even minimal phone regulations would result in a four percent reduction of gross revenues for ISPs, who already operate on razor-thin margins. "Online services and ISPs already contribute millions of dollars a year to universal service as heavy users of telecommunications services," Vradenburg said. "And ISPs will pay even higher rates to the carriers as they pass on their universal service and other charges to us. A forced contribution on top of those charges would result in double payment - in effect a 'telephone tax on the Internet' - that consumers would end up paying for." AOL's filing pointed out that telecommunications carriers have experienced dramatic revenue growth in recent years as a result of millions of new second line and multi-line business charges ordered by consumers and ISPs. "As we move toward a data-based infrastructure designed for the needs of the next century, our regulatory policy must look to the future, not to the past," Vradenburg said. "We don't need more regulation and taxation to ensure a vibrant, competitive, and innovative marketplace. We need the FCC's continued commitment to a market-friendly approach marked by economic growth, product innovation, and job creation as we move into the 21st century." For a copy of AOL's FCC filing, please contact Tricia Primrose at 703-265-1746.

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