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Incumbents Push FCC On Question Of VoIP Regulation

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Incumbents Push FCC On Question Of Voip Regulation

January 30, 2004

By Josh Long

It is likely going to take at least a year before the FCC releases sweeping rules governing regulation of phone companies routing calls over the Internet. But the top U.S. telecom regulator is expected to clarify rules pertaining to some more narrow aspects of voice over IP as early as March.

Of course, FCC Chairman Michael Powell has repeatedly expressed his desire to leave nascent technologies, including VoIP, unregulated. "It [VoIP] is not a telephone service; it is a voice application, completely indistinguishable from any other kind of application that can run on an IP network," Reuters News Service quoted Powell as telling journalists at the World Economic Forum in January. "If you're going to say to me that voice over IP is something that needs regulation, then you're going to have to explain to me why e-mail isn't also, or streaming video or instant messaging is not also.”

But incumbent telcos and top politicians are pushing Powell and the rest of the FCC to provide more details on Voip regulatory requirements.

AT&T Corp. filed a petition with the FCC in October 2002, asking the federal agency whether Voip traffic originating and terminating on the PSTN is subject to switched access charges.

The regional Bells, in recent filings with the FCC, have also asked for details on Voip regulation.

And Congressman Billy Tauzin, chairman of The House Committee on Energy and Commerce, wrote a letter to Powell at the end of January, asking the agency to specify by Feb. 5 whether access charges apply to long-distance VoIP.

“I am extremely concerned that the commission’s continued failure to clarify the rules governing traffic over AT&T’s IP backbone could jeopardize our ability to keep telephone rates in rural areas affordable,” Tauzin said.

“I would simply like to know whether the traffic described in AT&T’s petition is subject to access charges today under the commission’s existing rules,” the congressman added. “Silence is not acceptable.”

Daniel Berninger, an independent analyst who has done work for Voip companies like, says it’s expected that the FCC will rule AT&T’s long-distance Voip service must be regulated. But he says the FCC is expected to find that the Internet-based voice service provided by is not subject to regulations., which operates Free World Dialup, filed a petition with the FCC more than a year ago asking the government agency to affirm that broadband Internet phone service should not be regulated. Free World Dialup members must buy special equipment and have a broadband connection to talk with one another over the Internet. The free calls are routed entirely over the Internet, according to the petition, and neither touch the PSTN nor a cell-phone network. Other Voip companies offer similar service.

Berninger says the FCC is expected to rule in March on the AT&T and petitions in concert with issuing its widely anticipated notice of proposed rulemaking (NPRM) on VoIP. The NPRM is the government agency’s standard method for outlining its objectives and soliciting public comments before releasing new rules. Broad Voip rules are expected to be released in about a year.

Aids to Powell and FCC Commissioner Kevin Martin did not respond to a request for comment.

The FCC must rule on a separate Voip petition Level 3 Communications Inc. submitted by December, or March 2005, if the regulator seeks an extension. 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 form.

Instead, Level 3 asserts, the carriers should pay reciprocal compensation charges under FCC rules. In the FCC filing, Level 3 says “such a reaffirmation has become timely and critical because LECs are asserting that access charges apply to such traffic with threats of lawsuits to collect such charges retroactively.”

The distinction between reciprocal compensation and access charges makes a huge difference to the bottom line of local phone companies. Under reciprocal compensation rules, carriers such as AT&T and Level 3 pay the Bells .07 cents a minute to terminate calls. By comparison, carriers shell out half a penny per minute if they are required to pay terminating access charges to local telcos. That makes access charges about seven times higher than reciprocal compensation fees.

The AT&T and Level 3 petitions highlight a central question vexing the entire industry. How can the FCC maintain its desired hands-off approach to Voip when part of the calls frequently touch the Bell network and other local networks, which are subject to a mountain of rules?

The regional Bells contend AT&T and other long-distance carriers must pay them access charges to originate and terminate long-distance Voip traffic on the PSTN. Verizon spokesman Larry Plumb says just because AT&T carries the long-distance portion of the call in IP “doesn’t make it an IP phone call.”

AT&T disagrees, citing two FCC documents, including a report the regulator submitted to Congress in 1998 focusing on the Universal Service Fund. In the comprehensive document to Congress -- often referred to as the Stevens report named after U.S. Sen. Ted Stevens (R-Ala.) - the FCC classified Voip into different categories and indicated its preferences for treating the various types of traffic. But the agency did not make any definitive finding.

Of great concern to AT&T is not only the possibility that the FCC would rule phone-to-phone Voip is subject to access charges, but that the agency would require AT&T to retroactively compensate the Bells for terminating calls dating back years.

In a joint meeting that AT&T and its rival 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, stated 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.”

The Bells dispute those remarks.

In a letter dated Jan. 22, Kathleen Grillo, vice president of federal regulatory advocacy at Verizon, called on the FCC to act swiftly on AT&T’s petition.

“AT&T’s service is run of the mill long-distance voice service that merely uses Internet protocol for some portion of a call’s transmission. These calls originate and terminate on the public switched telephone network and customers neither use nor need a broadband connection on either end of the calls,” Grillo wrote. “And AT&T’s service offers consumers none of the enhanced functionalities or new innovations that Voip providers can offer.

“There is nothing new or different about AT&T’s service. Nonetheless, while other interexchange carriers have been paying access charges on this traffic, AT&T is artificially calling its traditional long distance service ‘VoIP’ and has stopped paying access charges,” she said.

One company, perhaps more than any other, has brought Voip into the limelight over the last year: Vonage Holdings Corp.

In October 2003, Vonage also filed a petition with the FCC, asking the regulator to overturn a decision by the Minnesota Public Utilities Commission and affirm its Internet telephony service is an interstate service and not subject to telecommunications regulations.

A judge overturned the Minnesota regulator’s decision, but the PUC still had time to file an appeal.

The Vonage petition has broad ramifications for the entire industry. It is conceivable the FCC would not rule specifically on the petition but rather study the fundamental issues raised in its larger analysis of regulating VoIP.

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