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 periods.
Accordingly, if disputes arise, the question whether access charges can be collected for past periods may be addressed on a case-by-case basis.
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(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, Order
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.
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STATEMENT OF COMMISSIONER KATHLEEN Q. ABERNATHY
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, Order
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 reform.[1]
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.
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STATEMENT OF COMMISSIONER MICHAEL J. COPPS
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.
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STATEMENT OF COMMISSIONER KEVIN J. MARTIN
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 charges.
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.
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STATEMENT OF COMMISSIONER JONATHAN S. ADELSTEIN
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, Order
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 injustice’”).
[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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