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March 1, 2004

6 Min Read
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

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., 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

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 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


Federal Communication Commission www.fcc.govHouse Committee on Energy and Commerce 3 Communications Inc. www.level3.comNECA www.neca.orgNetwork Conceptions LLC www.networkconceptions.comOPASTCO www.pulver.comSBC Communications Inc. www.sbc.comVonage Holdings Corp.

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