FCC: IXCs Must Pay

The FCC ruled April 22 long-distance carriers must pay local phone companies access charges when they route calls over the Internet if the traffic originates and terminates on the PSTN controlled by SBC Communications Inc. and other regional Bells.

In a lawsuit filed against AT&T Corp., SBC is seeking to recover $141 million in access charges. The question is whether SBC - and the other Bells - are going to seek to recover access charges from other carriers for calls that were made months, even years, ago. “We already are attempting to seek access charges from other companies,” says SBC spokesman Dave Pacholczyk. “Ideally it won’t be [through] litigation, but you never know.”

In a filing last December, SBC said it had lost between $200 million and $450 million due to companies unlawfully avoiding the payment of access fees. SBC, the second-largest local phone company, estimated an additional $800 million in interstate and intrastate access revenue was at risk.

Qwest Communications International Inc. also has filed a lawsuit against AT&T, claiming the phone giant defrauded Qwest out of tens of millions of dollars in access charges.

Asked whether Verizon Communications Inc. would seek to recover access charges, spokesman Larry Plumb says, “That’s an issue still being studied.”

The FCC did not make a determination as to whether local phone companies are entitled to recover access fees from long-distance companies for calls routed in the past. “While we recognize the strong interest in providing certainty - and indeed that is a primary reason for issuing this ruling - we are unable to make a blanket determination regarding the equities of permitting retroactive liability,” the regulator said in its order. “We believe the equitable inquiry is inherently factspecific … Accordingly, if disputes arise, the question whether access charges can be collected for past periods may be addressed on a case-by-case basis.”

Blaine Gilles, vice president of voice services and strategic markets with WilTel Communications Inc., says the Tulsa, Okla.-based wholesale carrier has been paying local phone companies access charges all along. Access fees, he says, can represent 80 percent of a long-distance carrier’s operating costs. “We have taken a very conservative approach in the past,” Gilles says. “Where we [owed] access charges, we have been paying them … . If we do owe money, it’s very minimal.” Gilles says numerous carriers have “used alternative means to attempt to avoid access charges.”

One day after the FCC ruling, SBC filed a lawsuit against AT&T, accusing the No. 1 long-distance phone company of fraud by carrying long-distance traffic over facilities that were supposed to be used only for routing local phone calls.

“AT&T orchestrated and implemented a fraudulent scheme to avoid tariffed “access charges” by delivering its long-distance calls for termination over facilities that AT&T obtained under the express condition that they be used for local traffic, and thereby disguising its long-distance calls as local calls,” the lawsuit says.

AT&T spokeswoman Claudia Jones says the company “does not comment on pending litigation but we believe that we have strong defenses, and we will defend vigorously.”

In its petition before the FCC, AT&T argued it should not be required to pay access charges when it converts calls over its long-distance Internet network.

FCC Chairman Michael Powell has pledged to apply light regulation to Internet-based phone service, often dubbed VoIP, but he said what AT&T was providing is clearly not that.

“In fact the consumer receives the plain old telephone service,” he said. “To allow a carrier to avoid regulatory obligations simply by dropping a little IP in the network would merely sanction regulatory arbitrage and would collapse the universal service system virtually overnight.”

The FCC stated in its order that long-distance companies must pay access charges when calls originate and terminate on the public network regardless of the number of carriers involved in transmitting the call over an Internet backbone.

Some long-distance companies use other carriers to transmit calls over an Internet network. “We note that all telecommunications services are subject to our existing rules regarding intercarrier compensation. Consequently, when a provider of IP-enabled voice services contracts with an interexchange carrier to deliver interexchange calls that begin on the PSTN, undergo no net protocol conversion and terminate on the PSTN, the interexchange carrier is obligated to pay terminating access charges,” the FCC said. “Our analysis in this order applies to services that meet these criteria regardless of whether only one interexchange carrier uses IP transport or instead multiple service providers are involved in providing IP transport.”

Prior to the FCC ruling, Sprint Corp. had been operating under the understanding that it was not required to pay access charges on the traffic in question, says spokesman James Fischer. “At the time we were waiting on an FCC clarification,” Fisher says, and “it was entirely appropriate for the way the law was interpreted then.”

“The kind of VoIP service … [in question] was a pretty small amount of traffic for us,” he says.

In late April, Global Crossing Ltd. revealed plans to restate its financial statements due to the “adequacy of the company’s accrued cost of access liability.” Cost of access includes the fees Global Crossing pays local phone companies to originate and terminate phone calls. The company said its cost of access operating expenses totaled $1.915 billion in 2003. Global Crossing says the expected restatement is an accounting issue and not directly related to the FCC ruling.

Qwest Eliminates Access Charges on “True VoIP” Calls

Qwest Communications International Inc. says it will drop access charges for “true VoIP” traffic terminating on its TDM network.

True VoIP traffic originates from VoIP endpoints, not the PSTN, explains Joe Glynn, vice president of product strategy for the carrier. It does not include standard telephony services that use IP as a transmission medium between switches. The FCC ruled last week that such traffic was subject to access charges.

Glynn says, however, the company also plans to roll out a product for PSTNoriginated traffic carried by VoIP carriers that enables them to hand off the traffic for termination on the Qwest network. “Now, what we are doing is giving customers the option of not only handing traffic to us on TDM trunks, now they can hand it to us directly as voice over IP. We will terminate that on our Feature Group B trunks around the country,” says Glynn. He adds that the service is being tested and will be available initially this summer. This product includes access charges.

For true VoIP traffic, Qwest’s new service, available now, requires VoIP carriers to convert traffic to TDM for handoff and termination. They are charged for transport, but not access, Glynn says. The move is as much a policy change for the carrier as a billing one, he says, noting that the emerging regulatory framework exempts true VoIP traffic from access charges. “Because of the way we viewed non-access-charge traffic, we did not have a non-access-charge product to sell VoIP carriers,” he says.

In a press statement, the carrier cited support for the growth of the emerging VoIP market as a motivator for the policy change. “Those VoIP carriers are our customers,” adds Glynn. “We would rather have them come to us than somebody else.”

Qwest also is offering true VoIP services to consumers in Minneapolis/St. Paul with plans to roll out service to consumers in 14 states by the end of the year. Glynn says it will be packaged for resellers sometime after the rollout is completed.

In addition, Qwest has plans to introduce this summer a hosted IP telephony product for businesses on a nationwide basis.