A Washington-based source says Federal Communications Commission (FCC) chairman Kevin Martin was “furious” upon hearing news that Verizon Communications Inc. and BellSouth Corp. had imposed new “cost recovery” fees on DSL customers.

Both carriers had just been relieved of collecting Universal Services Fund (USF) fees from those customers, which would have meant a real reduction in what consumers pay for DSL service. The new fees were almost identical in cost to the old USF fees, and appeared designed to allow the carriers to collect more DSL revenues while their subscribers' bills stayed about the same.

The Commission applied pressure late last week, saying it planned to send “letters of inquiry” to both carriers based on concerns that the new fees violated the Commission’s “truth-in-billing” rules.

Sources say Commissioner Martin's office and the two carriers were in phone conversation Friday. BellSouth avoided being the recipient of the FCC's letter by agreeing to cancel the fees, while Verizon held its ground and indeed received an FCC letter Friday. Verizon has 20 days to respond.

BellSouth released a statement late Friday announcing the "immediate" cancellation of the fees. The carrier also said it will credit any of its subscribers who have already paid the fees.

BellSouth has good reason to play nice with the FCC. Its planned merger with AT&T Corp., announced in March, is subject to the approval of Martin and the rest of the FCC. (See AT&T, BellSouth to Merge.)

BellSouth says it removed the fee because of complaints from its customers, but said its decision was also influenced by the involvement of the FCC. “We were getting feedback from that regulatory body,” BellSouth spokesman Joe Chandler tells Light Reading. “We’re obviously involved in a merger situation, and we wanted to make sure that this did not present a distraction to that process.”

The FCC has no such leverage over Verizon, sources say.

Verizon explained last week it needs the fees to help pay for the costs of connecting its “naked DSL” customers. Such customers buy DSL service without buying phone service. (See Verizon Blames New Fees on 'Naked' Users.)

Verizon spokeswoman Bobbi Henson told Light Reading Monday that her company hasn’t much to say on the issue at present. Henson confirms Verizon received a letter of inquiry from the FCC Friday, and says her company is working on addressing the commission’s questions. Asked if Verizon might cancel its new DSL fees, Henson declined to speculate and says the issue is being considered by “business leadership.”

AT&T says it never considered such a fee. A spokesman said AT&T removed the USF fee line item from its DSL subscribers' bills starting August 14.

An FCC spokesman was called for this story, but he had no comment.

— Mark Sullivan, Reporter, Light Reading