Conflicting Rulings Fail to Clarify VoIP Compensation Issue

Carriers hoping for clarity as to whether access charges apply to interconnected voice over Internet protocol (VoIP) traffic will remain disappointed in light of two recent, conflicting rulings.

On Feb. 11, the Pennsylvania Public Utility Commission (PaPUC) found that intrastate access charges can apply to VoIP traffic originated by interconnected VoIP service providers, transported by a carrier (GNAPs) and terminated by another carrier (Palmerton Telephone, a rural local exchange carrier (LEC) serving eastern Pennsylvania).

Then, on Feb. 18, a federal judge in Washington, D.C., ruled that interstate access charges cannot apply to similar traffic enhanced and transported by CommPartners (a VoIP provider and carrier), then terminated by PAETEC (a national competitive LEC).

At first blush the decisions are difficult to reconcile, but there is a factual distinction that could explain the opposing results that carriers and others with an interest in VoIP compensation may want keep in mind.

Background

Since at least 1981 the Federal Communications Commission (FCC) has differentiated between then-called “enhanced services” (involving data processing) and basic transmission services (simple transport without change in form or content). The Telecommunications Act of 1996 renamed enhanced services “information services,” and basic transmission “telecommunications.”

Enhanced/information services are exempt from common carrier regulation. The FCC has also permitted providers of these services to connect to the public switched telephone network (PSTN) without paying access charges (under the so-called “enhanced service provider (ESP) exemption”). (Access charges are the fees LECs charge long distance providers to originate and terminate toll calls on the local PSTN.) 

VoIP status

Although the FCC has never definitively ruled on the question, many state regulators and federal courts have found that VoIP services are information services under federal law. (Briefly, the conversion of the VoIP traffic into the time division multiplexed (TDM) format used on the PSTN, and the protocols used to route VoIP traffic on broadband networks, constitute a “protocol conversion” that supports the contention VoIP qualifies as an information service. Please see our advisory from last May for more details.)

And because information service providers can avoid access charges under the ESP exemption, some VoIP providers and telecommunications carriers that transport VoIP traffic have taken the position that LECs should not bill access charges for VoIP-originated traffic, even when it is exchanged by carriers in TDM format on the PSTN. (The counter-argument is that the ESP exemption applies to end-users only, not carriers, and that it therefore does not apply to VoIP traffic exchanged by carriers. Those arguments are beyond the scope of this advisory. We should also note that many VoIP providers and carriers that route their traffic do not seek an exemption from access charge payment obligations.)

PaPUC ruling

The PaPUC ruled that GNAPs’ intercarrier compensation rights and obligations are not affected by the VoIP-originated status of traffic carried by GNAPs and exchanged with Palmerton in TDM format over the PSTN.

Writing for the entire Commission, PaPUC Chairman James H. Cawley concluded, “The fact that GNAPs handles and transports IP-based traffic does not detract from the overall common carrier telecommunications service which GNAPs performs.”

In response to GNAPs’ arguments that FCC decisions (including the agency’s 2004 Vonage ruling) pre-empted all state regulation of VoIP service, Chairman Cawley responded, “we are not dealing with the issue of market entry and regulation of nomadic VoIP service providers” and “[n]either are we trying to apply regulation that would have had the potential of touching the intrastate retail operations of an interconnected nomadic VoIP provider such as Vonage.” Instead, “we are dealing with GNAPs’ wholesale transport (inclusive of VoIP or IP-enabled calls), access to and termination of traffic in Palmerton’s PSTN network facilities, and these are clearly telecommunications functions and services under the Commission’s jurisdiction in accordance with applicable Pennsylvania and federal law.”

Thus, The PaPUC directed Palmerton to calculate and issue a final bill to GNAPs for all intrastate interexchange call traffic transported by GNAPs and terminated by Palmerton, including VoIP traffic.

D.C. Federal District Court ruling

The PAETEC v. CommPartners dispute addressed by the federal court in Washington, D.C., differs factually from the Pennsylvania Palmerton v. GNAPs case. While GNAPs acknowledged in the Pennsylvania proceeding it was only transporting third-party VoIP-originated traffic, CommPartners established in the D.C. District Court proceeding that it was providing both transport and the underlying VoIP service.

Thus, Judge James Robertson of the Federal District Court for the District of Columbia concluded, “I find that CommPartners’ transmission and net conversion of the calls is properly labeled an information service.” Judge Robertson agreed with CommPartners that the “default” form of intercarrier compensation is reciprocal compensation (much less expensive than access), and that access charges could only apply to traffic types that existed prior to the establishment of the reciprocal compensation regime in 1996.

Since information services are not subject to access charges, and since VoIP traffic did not exist to be exchanged prior to 1996, access charges simply do not apply, no matter how broadly worded PAETEC’s tariff might be, and no matter that the FCC allowed that tariff to go into effect. (On the latter point Judge Robertson ruled that the ancient “filed rate doctrine” could not trump the deregulated, access charge-free character of information services traffic “because a filed tariff cannot be inconsistent with the statutory framework pursuant to which it is promulgated.”)

Lastly, the judge expressly declined to decide whether the information service exception applies only to interstate calls, or whether it can reach intrastate traffic as well.

Future disputes

Stakeholders on both sides of the debate over compensation for VoIP calls will find something positive in these decisions.

Access charge proponents will cite Palmerton as but the latest in a series of state commission rulings that the level of intercarrier compensation is independent of the traffic protocol used, and emphasize Judge Robertson’s refusal to extend the access charge exemption to the state level.

Access charge opponents will use PAETEC as authority that a “real” information services provider, even if also a telecommunications carrier, cannot be assessed access charges on VoIP traffic no matter what the jurisdiction.

Whether the subtle factual distinction between the cases is predictive beyond Palmerton and PAETEC or not, everyone in the VoIP space would be wise to take heed of who processes terminated VoIP traffic when considering the applicability of access charges to VoIP traffic. And without a broad FCC pronouncement on VoIP intercarrier compensation (unlikely in the near term, if at all), the field is still ripe for further disputes.