FCC Under Pressure on VoIP

Posted: 3/2004

FCC Under Pressure on VoIP
Congressman Demands Answers on AT&T Petition
By Josh Long

A high-ranking congressman this winter pressured the FCC to rule whether AT&T Corp. must pay switched access fees to terminate long-distance traffic carried over its IP network.

The request by Rep. Billy Tauzin (R-La.) underscored the concern of rural phone companies that their bread-and-butter revenue  access fees  will deteriorate as carriers increasingly route phone traffic over the Internet. OPASTCO (Organization for the Promotion and Advancement of Small Telecommunica-tions Companies) says many of its members generate at least 60 percent of their operating revenue through access fees and Universal Service Fund support. In a recent letter to the FCC insisting AT&Ts VoIP service is subject to switched access charges, NECA (National Exchange Carrier Association) said access charges represent more than $2 billion in revenue for small telephone companies, and up to 70 percent of their total revenue.

In a letter addressed to FCC Chairman Michael Powell, Tauzin asked the top communications regulator to specify whether access charges apply to longdistance voice over IP (VoIP). In an October 2002 petition, AT&T asked the FCC to issue a ruling declaring long-distance VoIP service is exempt from access charges.

I am extremely concerned that the commissions continued failure to clarify the rules governing traffic over AT&Ts IP backbone could jeopardize our ability to keep telephone rates in rural areas affordable, Tauzin, who recently resigned as chairman of the House Committee on Energy and Commerce, wrote in the Jan. 29 letter to Powell. I would simply like to know whether traffic described in AT&Ts petition is subject to access charges today under the commissions existing rules. Silence is not acceptable.

AT&T and the rural phone companies are not the only ones with a stake in the FCCs ruling. The regional Bells contend AT&T and other long-distance carriers must pay them access charges to originate and terminate long-distance VoIP traffic over the PSTN.

AT&T, the No. 1 long-distance phone company, is concerned not only the FCC would rule it must pay access charges to terminate long-distance VoIP traffic  known as phone-to-phone VoIP  but that the regulator would require the company to retroactively compensate local phone companies for terminating calls. AT&T spokeswoman Claudia Jones says the company pays the Bells about $9 billion a year in access fees.

In a joint meeting AT&T and SBC Communications Inc. held with FCC staff in December, AT&T stressed that even if the commission could identify some legitimate basis for repealing the existing access-charge exemption for phone-to-phone VoIP traffic, there could be no possible basis to apply any such ruling retroactively, David Lawson, an attorney representing AT&T, said in a Dec. 22 letter to the FCC. The entire industry has operated for years on the understanding that phone-to-phone VoIP services have been exempt from access charges, and an about-face by the commission now would do extraordinary harm.

However, SBC alleges AT&T devised a scheme to avoid paying access charges, and consequently, should be required to pay access charges retroactively if the FCC denies AT&Ts petition. AT&T and others actively avoided paying access charges through a scheme designed to evade detection, thus calling into doubt whether they were acting on a good faith reading of the law, SBC said in an FCC filing. It is therefore highly disingenuous for AT&T to claim that is avoided paying access charges for years, without complaint from SBC, when AT&T hid the true nature of its terminating traffic from SBC.

Farooq Hussain, a general partner with consulting firm Network Conceptions LLC, says the AT&T petition has more to do with the ancient fight between local and long-distance phone companies over paying access charges than VoIP regulation. I dont think its [the AT&T petition] a big issue, Hussain says.

The AT&T petition is among numerous requests telecommunications providers have made with the FCC asking for clarification on various aspects of VoIP regulations. Level 3 Communications Inc., pulver.com and Vonage Holdings Corp. all have filed VoIP petitions.

In December 2003, Level 3 filed a forbearance petition, asking the FCC to affirm rules that carriers are not required to pay local phone companies access charges for terminating calls on the PSTN when they originate in IP. Instead, Level 3 asserts, carriers should pay reciprocal compensation charges under FCC rules. The distinction makes a huge difference on the bottom line.

Under reciprocal compensation rules, carriers such as AT&T and Level 3 pay the Bells .07 cents a minute to terminate calls, an industry source says, while carriers shell out about half a penny per minute if they are required to pay terminating access charges. That makes access charges about seven times higher than reciprocal compensation.

The FCC answered the pulver.com petition in February, ruling the company  which routes calls entirely over the Internet  is not subject to traditional phone rules. The FCC declared pulver.coms Free World Dialup is an unregulated information service, although FCC commissioner Michael Copps said the regulator was making a hasty decision without scrutinizing the ramifications on such matters as public safety and the Universal Service Fund.

That same day, the FCC began the long journey to writing rules governing the regulation of phone services that are routed over IP networks. Based on the premise that Internet services should remain largely unregulated, the FCC opened a notice of proposed rulemaking (NPRM) seeking public comment on a variety of issues related to VoIP.

Competitive market forces rather than prescriptive rules will respond to public need much more quickly and more effectively than even the best intentioned responses of government regulators, FCC chief Powell said. Indeed our best hope for continuing the investment, innovation, choice and competition that characterizes Internet services today lies in limiting to a minimum the labyrinth of regulations and fees that apply to the Internet.

However, regulators face an uphill battle applying minimal regulation. How does the FCC keep a hands-off approach to VoIP when part of the calls are frequently touching local phone networks, which are subject to a mountain of rules frequently designed to protect consumer welfare?

FCC commissioners will attempt to clear this quagmire when they release broad VoIP regulations. By then, congressman Tauzin should have his answer.