[Politech] FCC rules on AT&T's request re: VoIP, access charges

From: Declan McCullagh (declan@private)
Date: Thu Apr 22 2004 - 06:52:11 PDT

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    from the FCC...
    Today, the FCC clarified that the service described in AT&T's petition 
    (filed on October 18, 2002) is a telecommunications service upon which 
    interstate access charges may be assessed.  The full FCC Order will be 
    posted on the Commission's home web page, www.fcc.gov, shortly.  Below 
    (1)  a brief summary of the Order, and (2)  statements from the Chairman 
    and  each Commissioner.
      (1) Summary material
    Summary of Petition
    In its petition, AT&T seeks a ruling that access charges do not apply to 
    its specific service.  AT&T’s specific service consists of a portion of 
    its interexchange voice traffic routed over AT&T’s Internet backbone. 
    Customers using this service place and receive calls with the same 
    telephones they use for all other circuit-switched calls.  The 
    initiating caller dials 1 plus the called party’s number, just as in any 
    other circuit-switched long distance call.  These calls are routed over 
    Feature Group D trunks, and AT&T pays originating interstate access 
    charges to the calling party’s LEC.  Once the call gets to AT&T’s 
    network, AT&T routes it through a gateway where it is converted to IP 
    format, then AT&T transports the call over its Internet backbone.  This 
    is the only portion of the call that differs in any technical way from a 
    traditional circuit-switched interexchange call, which AT&T would route 
    over its circuit-switched long distance network.  To get the call to the 
    called party’s LEC, AT&T changes the traffic back from IP format and 
    terminates the call to the LEC’s switch through local business lines, 
    rather than through Feature Group D trunks.
    Scope of Decision
    We clarify that, under the current rules, the service that AT&T 
    describes is a telecommunications service upon which interstate access 
    charges may be assessed.  We emphasize that our decision is limited to 
    the type of service described by AT&T in this proceeding, i.e., an 
    interexchange service that:  (1) uses ordinary customer premises 
    equipment (CPE) with no enhanced functionality; (2) originates and 
    terminates on the public switched telephone network (PSTN); and (3) 
    undergoes no net protocol conversion and provides no enhanced 
    functionality to end users due to the provider’s use of IP technology.
    Other IP-Related Issues
    We are undertaking a comprehensive examination of issues raised by the 
    growth of services that use IP, including carrier compensation and 
    universal service issues, in the IP-Enabled Services rulemaking 
    proceeding.  In the interim, however, to provide regulatory certainty, 
    we clarify that AT&T’s specific service is subject to interstate access 
    charges.  End users place calls using the same method, 1+ dialing, that 
    they use for calls on AT&T’s circuit-switched long-distance network. 
    Customers of AT&T’s specific service receive no enhanced functionality 
    by using the service.  AT&T obtains the same circuit-switched interstate 
    access for its specific service as obtained by other interexchange 
    carriers, and, therefore, AT&T’s specific service imposes the same 
    burdens on the local exchange as do circuit-switched interexchange calls.
    Retroactivity Issue
    We do not make any determination at this time regarding the 
    appropriateness of retroactive application of this declaratory ruling 
    against AT&T or any other party alleged to owe access charges for past 
    Accordingly, if disputes arise, the question whether access charges can 
    be collected for past periods may be addressed on a case-by-case basis.
        (2) Statements of Chairman and Commissioners:
    Statement of Chairman Michael K. Powell
    Re: Petition for Declaratory Ruling That AT&T’s Phone-to-Phone IP 
    Telephony Services Are Exempt From Access Charges, WC Docket No. 02-361, 
                  Today’s decision is correctly decided on very narrow 
    grounds.  A straightforward application of existing law places the long 
    distance telephone service, as it is factually described by AT&T, 
    squarely in the category of a telecommunications service.  The carrier 
    has long been obligated to pay access charges for this service and we 
    unanimously confirm that it still is required to do so.
                 I have stated my solid view that VOIP offers enormous 
    potential for consumers and should be very lightly economically 
    regulated.  I remain staunchly committed to that position.  VOIP is 
    clearly not your father’s telephone service.  It represents a uniquely 
    new form of communication that promises to offer dramatic advances in 
    the consumer experience.  Consumers can anticipate greater value, 
    greater personalization, and a wealth of features that are only possible 
    through the convergence of voice and data on a broadband network that 
    pushes more intelligence to the edge of the network and into the hands 
    of end-users.  The promise of such services and the potential for 
    greater competition combine to justify a minimal and innovation-friendly 
    regulatory policy.
                 In that vein, the objectives of digital migration are 
    achieved by moving to networks and services that empower individuals. 
    Therefore, it is important to be guided by the perspective of consumers 
    that are purchasing service, in determining how a service should be 
    understood.  The services that are the subject of this petition merely 
    use IP technology in a manner that does not offer consumers any 
    variation in experience or capability.  We therefore should approach 
    AT&T’s request that it not be subject to the obligations of a 
    telecommunications carrier with skepticism.  The petitioner argues that 
    its service should be exempt from the access charge regime because it 
    may use IP in its transport system.  Yet, as the Order notes, customers 
    are in no discernable way receiving the transforming benefits of an 
    IP-enabled service.   In fact, the consumer receives the same plain old 
    telephone service.   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.
                 Carriers understandably are anxious to lower their 
    significant access costs as long distance revenue declines.  The 
    Commission has recognized that our intercarrier compensation system is 
    under severe stress in light of technological change.  We have committed 
    ourselves to reforming the system and I am aware that carriers 
    themselves are working toward solutions.  The appropriate way to address 
    these challenges is through intercarrier compensation reform and we will 
    focus our efforts there.
      Re:  Petition for Declaratory Ruling That AT&T’s Phone-to-Phone IP 
    Telephony Services Are Exempt From Access Charges, WC Docket No. 02-361, 
    I support this important effort to clarify the obligations of 
    long-distance carriers to pay access charges in connection with their 
    use of the public switched telephone network.  The advent of IP 
    technology opens up exciting new opportunities for providers of 
    communications services and consumers, but it also challenges existing 
    regulatory structures.  In particular, it has become abundantly clear 
    that the Commission needs to overhaul its intercarrier compensation 
    regime to address artificial distinctions among various types of 
    traffic.  At the same time, however, I have always stressed that 
    carriers are bound by our current rules unless and until the Commission 
    changes them in accordance with the Administrative Procedure Act. 
    Carriers cannot unilaterally effect rule changes by engaging in self-help.
    As the foregoing Order makes clear, there is no doubt that AT&T’s 
    “phone-to-phone IP telephony service” is a telecommunications service. 
    In fact, this service -- which begins and ends on the PSTN, provides no 
    enhanced functionalities, and entails no net protocol conversion -- does 
    not differ in any material respect from traditional long distance 
    services.  Nor can there be any serious claim that the Commission 
    formally exempted these services from the access charge regime.  While 
    the Commission has unfortunately muddied the waters by issuing some 
    opaque statements regarding the appropriate regulatory treatment of 
    phone-to-phone services that employ IP in the backbone, the Commission 
    never waived the requirement that interexchange carriers pay access 
    charges in connection with such traffic.  Thus, carriers that provide 
    such phone-to-phone services must comply with our access charge rules, 
    even if those rules create anomalies and inefficiencies that warrant 
    A number of parties have suggested deferring resolution of this issue 
    and deciding it in the pending rulemaking on IP-enabled services.  While 
    I understand the desire for a comprehensive approach, I believe such 
    arguments misapprehend the difference between a declaratory ruling 
    proceeding and a rulemaking.  The former clarifies the existing state of 
    the law, while the latter establishes new rules (which may modify or 
    eliminate existing rules).  It is not possible for the Commission to 
    elucidate carriers’ existing compensation obligations in a rulemaking. 
    Nor would it have been appropriate to delay issuing this ruling any 
    longer; rather, we should have issued it long ago.  AT&T’s unilateral 
    decision to stop paying access charges in connection with 
    “phone-to-phone” traffic has created significant competitive 
    distortions.  When some carriers are paying access charges in connection 
    with such traffic while others are not, customers end up choosing 
    service providers based on regulatory arbitrage rather than service 
    quality or other more legitimate factors.  Therefore, while I strongly 
    endorse calls to reform our intercarrier compensation rules -- and I 
    stand ready to work with my colleagues and interested parties on a broad 
    range of options -- we must enter into that process with carriers 
    competing on a level playing field and with a common understanding of 
    existing obligations.
      Re:       Petition for Declaratory Ruling that AT&T’s Phone-to-Phone 
    IP Telephony Services are Exempt from Access Charges (WC Docket No. 02-361)
                 Today’s decision clarifies the scope of carrier access 
    charge obligations when interexchange carriers provide phone-to-phone IP 
    telephony services.  I support this Order because the decision we reach 
    is the one that flows most logically from our current rules.
                 Nonetheless, I am concerned that we have reached this 
    conclusion without taking into consideration the full context that good 
    policy-making requires.  By approaching the subject of access charges 
    and VoIP through occasional and discrete petitions, we are 
    nickel-and-diming much larger intercarrier compensation issues.  We 
    should have begun at the beginning and undertaken the sorely needed 
    reform of intercarrier compensation and then considered petitions such 
    as this.  We have in place today an intercarrier compensation regime 
    under which the amounts and direction of payments vary depending on 
    whether carriers route traffic to local providers, long-distance 
    providers, Internet providers, CMRS carriers, or paging providers.  This 
    system is an open invitation for abuse.  In an era of convergence of 
    markets and technologies, its patchwork of rates should have been 
    consigned by now to the realm of historical curiosity.  But rather than 
    grasp the whole, today’s decision sets the stage for proceeding 
    piecemeal.  It only prolongs the development of a better system that 
    would rely more heavily on market forces to drive technological advances 
    and innovation.
                 As a separate matter, I am concerned that unsuspecting 
    carriers may wind up caught in the crossfire and rendered collateral 
    damage by today’s Order.  To date, the Commission’s pronouncements 
    concerning VoIP services and access charges have been unfortunately 
    opaque.  The Commission suggested that access charges “may apply” in its 
    1998 Report to Congress, but reserved further judgment until future 
    proceedings with more focused records.  The Commission prolonged this 
    uncertainty by declining to move ahead on a 1999 petition from US West. 
      It provided another vague sign in the Initial Regulatory Flexibility 
    Analysis accompanying the 2001 Intercarrier Compensation Notice of 
    Proposed Rulemaking.  As a result, innovative and entrepreneurial VoIP 
    upstarts may have been encouraged to believe they had a green light to 
    go ahead and develop business plans based on the assumption that access 
    charges were not required.  This may not have been the best 
    interpretation of our precedent.  But the Commission surely played a 
    role in this state of affairs by sending out mixed signals.
                 Today the Commission does not acknowledge the confusion it 
    created.  Instead, this decision is eerily silent on the equities of 
    retroactive liability, the degree to which there has been detrimental 
    reliance on our muddled pronouncements, and the auditing and litigation 
    burden that would follow from retroactive application.  This is 
    unfortunate.  Because the Communications Act does not contemplate that 
    the Commission will act as a collection agent for carriers with unpaid 
    tariffed charges, carriers seeking recovery will proceed directly to 
    court.  The ensuing litigation could tie up the resources of carriers 
    providing services similar to AT&T’s phone-to-phone IP telephony, 
    carriers caught in the middle of access charge disputes between 
    incumbent local exchange carriers and VoIP providers, and 
    entrepreneurial VoIP providers that heretofore believed their services 
    were exempt from access payments.
                 We can and should do better.  We have a three-year old 
    proceeding on intercarrier compensation that is still pending.  We are 
    late to these issues, and the pit stop we take here to straighten out 
    one issue leaves behind a system in need of more comprehensive improvement.
      Re:       Petition for Declaratory Ruling that AT&T’s Phone-to-Phone 
    IP Telephony Services are Exempt from Access Charges, WC Docket No. 02-361
                 In today’s decision, the Commission determines for the 
    first time that AT&T’s specific service is subject to interstate access 
    In assessing whether agency decisions may be applied retroactively, the 
    Supreme Court found in SEC v. Chenery that the harms from retroactive 
    application of the decision must be weighed against the harm of 
    producing a result that is “contrary to a statutory design or to legal 
    and equitable principles.”[2]  The D.C. Circuit has explained that the 
    retroactive application of an agency decision “boil[s] down to…a 
    question of concerns grounded in notions of equity and fairness.”[3]  As 
    the Order notes, one relevant factor is whether there has been 
    “detrimental reliance” on prior pronouncements by the Commission.[4]
    As also noted in the item, in the 1998 Report to Congress the Commission 
    stated that, after examining specific services with focused records in 
    future proceedings, it “may find it reasonable” that providers of 
    phone-to-phone VoIP service pay interstate access charges.[5]
    In upcoming proceedings with the more focused records, we undoubtedly 
    will be addressing the regulatory status of various specific forms of IP 
    telephony, including the regulatory requirements to which phone-to-phone 
    providers may be subject if we were to conclude that they are 
    “telecommunications carriers.”…We note that, to the extent we conclude 
    that certain forms of phone-to-phone IP telephony service are 
    “telecommunications services,” and to the extent the providers of those 
    services obtain the same circuit-switched access as obtained by other 
    interexchange carriers, and therefore impose the same burdens on the 
    local exchange as do other interexchange carriers, we may find it 
    reasonable that they pay similar access charges.[6]
    The Commission also noted that access charges different from those 
    assessed on circuit-switched interexchange traffic “may” apply to VoIP 
    services.[7]  Furthermore, in its Intercarrier Compensation notice of 
    proposed rulemaking, the Commission noted in the Initial Regulatory 
    Flexibility Analysis that the notice of proposed rulemaking was 
    motivated in part by the need to address the potential erosion of access 
    revenues for LECs “because [IP telephony] is exempt from the access 
    charges that traditional long-distance carriers must pay.”[8]
    Prior to our decision in this order, it was unclear what, if any, 
    interstate access charges applied to AT&T’s specific service.  The 
    Commission contributed to this uncertainty as to the applicability of 
    access charges by its discussion in the Report to Congress and by 
    mentioning an exemption from access charges in the Intercarrier 
    Compensation notice of proposed rulemaking.  Furthermore, the Commission 
    prolonged the uncertainty by declining to rule on US West’s petition on 
    the issue that was filed soon after the release of the Report to 
    Congress.[9]  This is the first opportunity the Commission has taken to 
    provide guidance as to the applicability of interstate access charges to 
    AT&T’s specific service.
      Re: Petition for Declaratory Ruling that AT&T’s Phone-to-Phone IP 
    Telephony Services Are Exempt from Access Charges, WC Docket No. 02-361, 
    I support this Order clarifying the application of the Commission’s 
    access charge rules because it provides critical guidance on an issue of 
    importance to the long distance and local telephone industries and 
    ultimately to consumers.  Through this Order, we address the regulatory 
    status of a distinct but increasingly prevalent form of communications – 
    long distance telephone calls that employ some form of protocol 
    conversion in the backbone of a carrier’s network but which in all other 
    significant respects are the same as traditional phone calls.  Despite 
    the technical nature of the questions we address here, this Order 
    preserves many of the Commission’s highest priorities.
    This Order makes clear that the service in question – which is marketed 
    as, and is identical in all significant respects to, traditional long 
    distance service –  is a telecommunications service.  As a result, 
    consumers will enjoy the protections of our rules for telecommunications 
    services and local phone providers will receive adequate compensation 
    for carrying these calls.  Were the Commission to reach another result – 
    classifying this service as an information service – providers could 
    avoid the obligation to observe consumer protection rules, to comply 
    with public safety and law enforcement provisions, and to contribute to 
    the universal service fund, which ensures access to essential services 
    for low income consumers and consumers in rural areas.  If the 
    Commission had avoided this question or simply permitted providers to 
    avoid our access charge rules for this service, we would have removed 
    substantial amounts of support for the local phone providers which 
    ultimately carry these calls to consumers.  This support is particularly 
    vital for smaller providers serving Rural America.
    Carriers deserve proper compensation for use of their network.  We must 
    continue to promote and create incentives for the deployment of new 
    technologies, but these innovative services will not be able to reach 
    their full audience or potential if we undermine the ability of 
    providers to support their networks.
    By issuing this Order, we answer the calls of participants throughout 
    the industry who asked for guidance on the Commission’s rules.  Indeed, 
    the one point of unanimity in our record was the desire for a Commission 
    decision.  While some parties have asked us to go further and address 
    more of the issues raised in our recent Notice of Proposed Rulemaking on 
    Voice over Internet Protocol (VoIP), delay in answering the question at 
    hand would serve only to create instability for the long distance 
    industry and to increase the rapidly-growing stakes for each side.
    I welcome the opportunity to address the wide scope of issues raised in 
    the VoIP rulemaking and to consider the issues raised in the broader 
    intercarrier compensation debate.  This Commission must make sure that 
    it employs a framework that continues to foster innovation and that 
    enables our rules to evolve as the services and technologies of the 
    industry evolve.  The Order we adopt today preserves the Commission’s 
    flexibility to address the broader issues raised in these rulemakings 
    and to revise our rules as necessary.  As we move forward to address 
    these broader issues, I am committed to a process that takes into 
    account the needs of consumers, who often are not directly included at 
    the industry bargaining table, and the needs of those in hard-to-serve 
    areas of Rural America.  Through this proceeding and through our broader 
    rulemakings, we must ensure that we preserve the affordable and 
    universally-available communications services that American consumers 
    and businesses have come to rely on and that Congress has mandated.
    [1]     While I am receptive to arguments that we should not extend 
    legacy regulations to nascent services such as VoIP, those arguments 
    overlook the facts present here.  We are not choosing to extend 
    regulatory requirements in this Order; rather, such requirements already 
    apply under section 69.5(b) of the Commission’s rules, and can be 
    eliminated only through a rulemaking proceeding or by waiver.  Moreover, 
    the service at issue appears no different from traditional long distance 
    services, and thus is unlike true VoIP services, which are provided via 
    broadband connections and offer enhanced functionalities to consumers.
    [2]     SEC v. Chenery, 332 U.S. 194, 203 (1947).
    [3]     Cassell v. FCC,  154 F.3d 478, 486 (D.C. Cir. 1998) (quoting 
    Clark-Cowlitz Joint Operating Agency v. FERC,  826 F.2d 1074, 1082 n.6 
    (D.C. Cir. 1987)).  See also Clark-Cowlitz, 826 F.2d at 1081 (stating 
    that “a retrospective application can properly be withheld when to apply 
    the new rule to past conduct or prior events would work a ‘manifest 
    [4]     Verizon Tel. Cos. v. FCC, 269 F.3d 1098, 1110 (D.C. Cir. 2001).
    [5]     Federal-State Joint Board on Universal Service, Report to 
    Congress, CC Docket No. 96-45, 13 FCC Rcd 11501, 11545, at para. 91 
    (“Report to Congress”).
    [6]     Id.
    [7]     Id.
    [8]     Developing a Unified Intercarrier Compensation Regime, FCC 
    01-132, 16 FCC Rcd at 9657, at  para. 133 (“Intercarrier Compensation”).
    [9]     In 1999, US West filed a petition seeking a declaratory ruling 
    that access charges apply to phone-to-phone IP telephony services 
    provided over private IP networks.  Petition of US West for Declaratory 
    Ruling Affirming Carrier’s Carrier Charges on IP Telephony (filed Apr. 
    5, 1999).  The Commission took no action on the petition and US West 
    subsequently withdrew it.  Letter from Melissa E. Newman, Qwest, to 
    Magalie Roman Salas, Secretary, Federal Communications Commission (Aug. 
    10, 2001).
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