[Politech] Randy May on FCC, AT&T and Internet telephone calls

From: Declan McCullagh (declan@private)
Date: Tue Apr 27 2004 - 09:28:42 PDT

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    -------- Original Message --------
    Subject: RE: [Politech] FCC rules on AT&T's request re: VoIP, access 
    charg	es
    Date: Fri, 23 Apr 2004 17:40:24 -0400
    From: Randy May <rmay@private>
    To: 'Declan McCullagh' <declan@private>
    Declan--Your readers, particularly the metaphysicians among them, might be
    interested in my blog on the FCC's action regarding AT&T's petition:
    "The Metaphysicians' Club
    Well, as my colleague Adam Peters points out below, the FCC has (finally)
    decided AT&T's petition for a declaratory ruling. The Commission held that
    AT&T must pay access charges because "the service which AT&T describes is a
    telecommunications service"--not an information service. It is the right
    result, I think, under the current rules in which all turns on whether the
    service is classified as "telecommunications" or an "information service".
    Until rules are changed in accordance with accepted processes, we live in a
    system that, thankfully, places a high value on abiding by them.
    So right result. The Commission should have acted months ago to provide AT&T
    the clarification it requested back in October 2002.
    But even a casual reading of the FCC's order shows why the advent of VoIP
    and other IP services will force policymakers sooner rather than later to
    confront the reality that the old regulatory paradigms no longer make sense.
    Much of the Commission's explanation for its action rests on the
    determination that AT&T's service "does not involve a net protocol
    conversion" or provide "enhanced functionality" or result in a "change in
    the form or content" of the information as sent and received." Ergo, a
    telecom service.
    Net protocol conversions and changes in form and content? As I pointed out
    early this year in "The Metaphysics of VoIP", distinctions based on these
    functional concepts are the stuff of philosophers. Why, just last week at
    the gathering of my local metaphysical club, we spent the evening discussing
    what really happens to the form and content of a VoIP call as it experiences
    numerous protocol conversions and reconversions!
    Don't get me wrong. I understand the Commission is playing with the
    regulatory definitional deck is was dealt in the 1996 Telecom Act, which was
    lifted from the 1980 Computer II decision. But what the Commission's action
    on the AT&T petition really illustrates--aside from reinforcing the notion
    that equity and stability and respect for the law are promoted by adherence
    to rules until they are changed--is that in today's digital world we need a
    new paradigm in which regulatory decisions are based on marketplace
    realities. Then the focus would be on treating services that are
    substituable from a consumer's perspective in a like fashion--not on whether
    a net protocol conversion occured.
    - posted by Randolph May @ 4/22/2004 04:25:54 PM"
    For the original, see www.pff.org/weblog and see "The Metaphysics of VoIP"
    at http://news.com.com/2010-7352_3-5134896.html
    Randolph J. May
    Senior Fellow and Director of Communications Policy Studies
    The Progress & Freedom Foundation
    1401 H Street, NW
    Suite 1075
    Washington, DC 20005
    Tel       202-289-8928
    Fax      202-289-6079
    E-mail  rmay@private
    Web    www.pff.org
    -----Original Message-----
    From: Declan McCullagh [mailto:declan@private]
    Sent: Thursday, April 22, 2004 9:52 AM
    To: politech@private
    Subject: [Politech] FCC rules on AT&T's request re: VoIP, access charges
    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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