AT&T has asked the FCC to declare that “phone-to-phone” IP telephony services offered over the Internet are not today, and will not be, subject to the same “access charges” normally applied to long distance calls. AT&T’s request comes in response to efforts by the incumbent LECs (“ILECs”) to compel AT&T and other carriers to pay access charges on these types of communications, and in response to a recent decision from the New York Public Service Commission (“PSC”) applying access charges to such communications.
Technical Background. Traditional circuit-switched telephony works by establishing an end-to-end connection between the calling party and the called party. That connection is open for the entire duration of a phone call, and the circuit is dedicated exclusively to the parties of that call. IP telephony works differently: the content of the call (such as people’s voices) is converted to digital “packets” that conform to the Internet Protocol (IP) and then delivered separately to the desired destination, where they are converted back into normal voice signals. These packets may be sent either over the public Internet itself (although this can lead to quality problems) or over private data networks using IP.
There are several different types of IP telephony. Broad categories include: (i) “computer-to-computer” IP telephony, in which people with microphones, speakers, and appropriate software talk to each other using their normal connections to their Internet service providers (“ISPs”) for connectivity; and (ii) “phone-to-phone” IP telephony, in which a caller uses a normal telephone and the normal telephone network to call up a “gateway” device, which converts the voice into IP and transmits it to another “gateway” device. This second device then converts the call back to traditional network format and establishes a connection, over the normal telephone network, to the called party. This latter method is essentially the one that AT&T uses.
Legal Background. Currently interexchange carriers (“IXCs”) pay access charges to LECs for the origination and termination of long distance calls. However, under the FCC’s long standing “ISP Exemption” policy the FCC has exempted all enhanced and information service providers (collectively referred to as “ISPs”) from access charges. Instead, the FCC allows such entities to purchase telecommunications services from LECs as though they were end users, thereby avoiding access charges completely.
Following on that policy, the FCC’s current stance is that it will not impose access charges, or other similar assessments, on the nascent IP telephony market. In a 1998 report to Congress, known as the Stevens Report, the FCC tentatively concluded that certain configurations of IP telephony services (computer-to-computer and computer-to-phone) are information services. The FCC concluded in the Stevens Report that other configurations (namely, phone-to-phone) appear to be telecommunications services, regardless of whether these services are provided over the Internet or over interexchange networks that use Internet Protocol. Despite the fact that the FCC deemed some forms of IP telephony to be a telecommunications service, it expressly declined to impose any type of access charge on such communications. The FCC stated that it did not want to impose regulations on this nascent service and noted that it did not have a complete factual record necessary to make that decision.
State regulators have generally followed the FCC’s lead and refused to impose access charges on IP telephony. Earlier this year, however, the New York PSC ruled that a particular form of in-state IP telephony was a telecommunications service, not an information service, and therefore subject to access charges.
Next Steps At The FCC
The FCC is not obliged to respond to AT&T’s petition within any particular time frame, or at all. Even so, AT&T’s stature in the industry, the conflict with the New York PSC, and AT&T’s recitation of present actions by ILECs to impose access charges in (apparent) violation of the FCC’s stated policy suggest that the FCC will, in fact, consider AT&T’s request. This will entail consideration of several issues central to Chairman Powell’s vision of the telecommunications marketplace.
First, AT&T’s petition seeks an exemption from interstate access charges on the grounds that those charges are above cost and inefficient. The FCC will be hard pressed to rebut that charge, as the FCC itself has taken great pains since 1998 to force reductions in per minute access charge rates and move to flat connection charges that more closely reflect the static cost characteristics of the local loop. AT&T also points out that the FCC found in the Stevens Report that computer-to-phone calls do not use the ILEC network in the same way that switched voice calls do. AT&T asserts that phone-to-phone calls are functionally equivalent to computer-to-phone calls, setting up another intellectual hurdle for the agency should it choose to depart from past policy.
Second, resolution of AT&T’s petition also turns on an important political and economic consideration. One reason (some might say the real reason) that the FCC has not affirmatively regulated IP telephony is because it recognizes that international voice over IP (“VoIP”) and data traffic has played a key role in forcing foreign governments to lower international settlements payments by U.S. carriers (i.e., the prices U.S. carriers pay to terminate calls in foreign countries). Thus, the FCC has a strong incentive to continue its current policy (although it has recently opened another rulemaking to reassess its position).
Third, the FCC must confront the extent to which state regulators have any jurisdiction over these types of calls. The FCC has already announced that Internet-bound traffic is jurisdictionally interstate and therefore subject to the FCC’s authority. Thus, it is no great leap to think the agency might now occupy the IP space by preempting state regulation of IP communications. But the Supreme Court has ruled repeatedly that intrastate communications are within the province of state regulators, so it is unclear how far the FCC can go in federalizing regulation (or deregulation) of the IP telephony market.
While the FCC will not likely ignore AT&T’s request, neither will it try to resolve it soon. As indicated above, the FCC may try to fold these questions in to other ongoing proceedings (an intercarrier compensation rulemaking is already in progress). Alternatively, the FCC may (as it has done in the past) accept comments on these questions and then take some time to consider and act on the petition.
Please contact us if you would like additional information on AT&T’s petition, or how the FCC’s policies in this area may impact your operations.