FCC Faces Another VoIP Deadline

by Roy Mark

The agency has until March 22 to decide if Internet telephony companies must pay access fees.

The Federal Communications Commission (FCC) will face another crucial Voice over IP decision next month when it will decide if IP-based carriers must pay the same access fees as long distance companies to interconnect with the public switched telephone network .

Currently VoIP traffic is not subject to interstate or intrastate access charges, which are set by federal and state regulatory agencies. The 20-year-old regulatory scheme generates $14 billion a year for the incumbent networks. Most of the fees flow one way to the Bells.

IP carriers, on the other hand, pay a negotiated cost-based rate to deliver calls on the last mile of the Bells' copper legacy network.

As VoIP has emerged as an alternative voice platform to traditional telephone service, though, some local exchange carriers are claiming they are entitled to access fees -- which are often seven times the price of cost-based rates -- if VoIP traffic originates or terminates on their networks.

"We have not been paying access fees, but some ILECs have started to invoice that," John Ryan, a senior legal vice president at VoIP transmission provider Level 3, said.

In December 2003, Level 3 filed a forbearance petition with the FCC to "reaffirm" under existing FCC rules that service providers should continue to pay the cost-based rate rather than federally or state-mandated access charges. If the FCC does not rule on the petition by the statutory deadline of March 22, the petition will be granted.

"We consider [access charges] a compelled subsidy," Ryan said. "We believe it is an antiquated regime. If passed on to consumers, the rate increases would be in the 20 to 30 percent range based on current rates."

The access fee regime is based on the 20th century telecom economics of time and distance. It can cost more to send a call one mile than it does 10,000 miles, but the system has fostered low, albeit subsidized, local rates for consumers. The access fees also help fuel the Universal Service Fund, which subsidizes the cost of rural phone service and forces carriers to engage in fee negotiations with 50 separate state utility commissions.

To support its forbearance petition, Level 3 submitted on Tuesday a financial modeling program to the FCC that claims the growth of VoIP traffic will not have a significant impact on access charge revenues collected by carriers over the next two years.

According to the Level 3 study, if the FCC were to reverse the current intercarrier compensation regime and apply access charges to VoIP traffic, carriers' access charge revenue would increase by only 1.8 percent to 3 percent through 2006.

"In our view, these figures show strongly that there is no compelling need to apply access charges to Voice over IP," Bill Hunt, vice president of legal and public policy for Level 3, said in a statement issued with the report.

"First, granting the petition will have very little disruptive impact on ILEC access charge revenue. Second, and perhaps more importantly, imposing access charges would burden VoIP providers with an unnecessary payment obligation that is likely to slow the growth of this important technology."

The Level 3 report further states that access charges lost due to consumers using cell phones to place long distance calls is likely to be a far greater drain on ILEC-switched access revenue than VoIP over the next two years.

"We believe it is in the public interest to apply real analytical rigor to the important issue of VoIP and intercarrier compensation," said Hunt. "Despite current debates over access charges, no one has yet introduced quantitative measurements of the effects of imposing access charges on VoIP traffic."

Hunt added, "In the long run, consumers and the economy will benefit far more if emerging VoIP technologies are allowed to continue to develop without being hindered by outdated access charge regimes, especially when the FCC is already undertaking a broad review of the entire intercarrier compensation system."

This article was originally published on Thursday Feb 3rd 2005