FCC Faces Tuesday Deadline For VoIP Ruling

Interconnection fees between IP voice traffic and Bells' last mile copper networks at source of dispute.

By Roy Mark | Posted Mar 21, 2005
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The Federal Communications Commission (FCC) has until Tuesday to decide if Level 3 must pay negotiated reciprocal compensation rates or higher, government-mandated access charges for IP traffic that interconnects with the public switched telephone network (PSTN).

If the FCC does not rule by Tuesday on the issue, Voice over IP wholesaler Level 3 will by default be allowed to pay the lower reciprocal rate. Currently, Level 3 and other VoIP providers are paying the lower reciprocal fees pending the FCC decision.

The lower reciprocal rate applies only to "information services" as defined by the FCC. The agency is currently conducting a review of all IP-based services, but it has not legally defined Internet telephony as an information service.

Access charges, on the other hand, often include not only connection fees but also other subsidies, such as the Universal Service Fund. The United States Telecom Association, the principal trade association of the Baby Bells, contends that if VoIP providers are allowed to continue to pay reciprocal rates, funding for communications services in rural and low income areas will be "drastically reduced."

If forced to pay the higher access fees, VoIP providers are likely to pass the extra charges on to consumers. That in turn, Level 3 says, will slow the rollout of the emerging service.

"Under Level 3's flawed logic, the rates it pays for electric service, water service, mail service or any other state-regulated service would be a tax on the Internet," SBC said in an FCC filing Friday afternoon. "In any event, under the commission's long-standing rules, Level 3 is subject to access charges when sending IP-PSTN traffic over the PSTN."

Level 3 calls the higher access fee a "compelled subsidy" 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.

"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," John Ryan, a senior legal vice president at Level 3, told internetnews.com last month.

To support its forbearance petition, Level 3 submitted in February 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.

SBC's Friday filing at the FCC questions the logic of the Level 3 financial model.

"Level 3's attempt to downplay the growth of VoIP to this commission cannot mask the facts: the tremendous growth potential of VoIP is universally recognized and, in fact, has been touted by Level 3 itself to the investment community."

The war of words between Level 3 and SBC is part of a larger proceeding at the FCC aimed at modernizing the rules for exchanging traffic between networks. The federal courts have already ruled that the old tariff system on phone calls is stifling competition.

A group of nine carriers known as the Intercarrier Compensation Forum (ICF), which includes SBC and Level 3, has submitted a proposal to the FCC for new interconnection rates to update the nearly 20-year-old system.

In filings with the FCC, SBC urges the agency to reject Level 3's petition until the ICF proposal is fully reviewed.

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