FCC Faces Another VoIP Deadline

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

“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

“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

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

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.”

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