Level 3 Drops VoIP Rate Request

Level 3 Communications withdrew late Monday its petition seeking a Federal
Communications Commission (FCC) ruling on the rates Voice over IP
providers pay incumbent telephone companies to complete
Internet telephony calls over the public switched telephone network (PSTN).

In late 2003, Broomfield, Colo.-based Level 3 wholesaler filed a
forbearance petition asking the FCC to clarify whether Internet telephone
companies should pay negotiated market rates for their voice traffic, which
hits the PSTN, or the higher, government-mandated charges that long-distance
and wireless carriers pay to interconnect with incumbent carriers.

By statute, the FCC was required to issue an opinion on the petition by
today, but Level 3 CEO James Q. Crowe said his company
withdrew its request in deference to new FCC Chairman Kevin Martin, who
succeeded Michael Powell as head of the agency last week.

“Given the appointment of new leadership only three business days before the
statutory deadline for ruling on the petition, we determined it was
inappropriate to ask the agency to resolve this important issue in the
timeframe required by law,” Crowe said in a statement. “However, there
remains a pressing need in the industry for clarity in this area, and Level
3 may elect to re-file the petition or take other appropriate regulatory
actions in the future.”

Currently, Level 3 and other VoIP providers pay incumbent carriers a
negotiated market rate to complete calls over the Bells’ legacy, last mile
copper network. That rate is normally reserved for what the FCC classifies
as information services. The FCC is currently in a review process of all
IP-based services, including Internet telephony, but has not yet determined
if they are information services.

Long distance and wireless carriers are classified by the FCC as
telecommunications carriers and pay a higher “access” fee to incumbent
carriers that include payments to the Universal Service Fund. VoIP providers
fear if they are forced to pay the higher access rate, the additional costs
to consumers will slow the rollout of the emerging technology.

Level 3’s decision to withdraw its petition maintains the status quo for VoIP
providers while the FCC completes its IP-based services review.

“Level 3 and other VoIP service providers continue to maintain that voice
calls between the legacy telephone network and the Internet should be
exchanged using reciprocal compensation rates, which are lower than access
charges and far closer to the network provider’s true cost,” Crowe said.

As part of the complicated proceedings at the FCC, Level 3 is part of a
group of nine carriers that have formed the Intercarrier Compensation Forum
(ICF) to help determine new interconnection rates for a 20-year-old system
that never anticipated IP services.

SBC and other incumbent carriers had opposed the Level 3 petition, arguing
the rate issue should be determined by the consensus opinion of the ICF
instead of piecemeal applications by individual VoIP carriers.

“The commission’s record is one of strong support for Voice over IP, and
we’re confident it will resolve these important issues in an appropriate and
timely manner,” Crowe said. “There are a number of other avenues by which the
commission can address the issue of VoIP and intercarrier compensation, and
our hope is that it does so quickly in order to provide the industry with
clear ground rules.”

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