ICG May Sue to Stop BellSouth Over Access Charges on Internet Telephony

(September 10, 1998.)  ICG Communications Inc, a provider of phone-to-phone Internet communications, may bring suit to enjoin BellSouth from trying to collect access charges on Internet telephony.  BellSouth informed IP telephony customers on September 2 that "BellSouth will no longer provide local exchange service to companies providing long distance service via the Internet or IP technology.  Companies providing this type of service should use one of BellSouth's access service offerings."

BellSouth made its announcement in a letter to customers which cited as authority an April 10, 1998 Report to Congress, prepared by the Federal Communications Commission.

The lengthy Report to Congress dealt with the subject of universal service.   More specifically, it dealt with whether any forms of Internet telephony constitute "telecommunications services" and are therefor subject to universal service payments.  However, a determination that a form of Internet Protocol (IP) telephony constitutes a "communications service" for the purposes of universal service, would also be relevant to the subject of access charges.

The Report to Congress purported to be merely an analysis without legal effect.   However, it argued that "phone-to-phone" IP telephony services constitute "telecommunications services."  The Report also argued that self providers of Internet backbone are "telecommunications services."

Cindy Schonhout, ICG Communications' Senior Vice President for Government and External Affairs, said in an interview on Wednesday that "we disagree with BellSouth's position."  Asked if ICG would bring suit, Schonhout stated, "we will if necessary, depending on what actions BellSouth takes."

Schonhout continued that ICG cannot take any action now because BellSouth has not yet done anything to it.  There is not yet a ripe case.  "Until I get a bill from them, I don't have anything to complain about," explained Schonhout.  Also, it is not clear what BellSouth might do.  "They might discontinue our service" rather than charging access fees.  "I dont know what they are going to do," said Schonhout.

"It is a violation of the Telecom Act of 1996," said Schonhout, which is based upon a "mistaken interpretation" of the April 10 Report to Congress.   Moreover, "the Chief of Staff of the FCC has announced that BellSouth was wrong."  Schonhout also said that "it is an effort to preserve its monopoly revenue."

If ICG goes file suit against BellSouth, Schonhout does not yet know where the suit would be filed.

BellSouth elaborated on its decision in a background statement which was also released on September 2.

"Today, BellSouth charges access charges to Interexchange Carriers (IXCs) such as AT&T and MCI to originate and terminate long distance calls.  This revenue is used to pay for use of BellSouth's local facilities and to support Universal Service.   A number of companies have announced plans to offer IP telephony long distance services as common carriers. ...  These companies argue that since they make use of the Internet (or their own networks using Internet protocols) to carry their customers' long distance voice traffic, they should be defined by the FCC as "information service providers" ...  consequently, these companies argue that they should not be assessed access charges when they are transmitting voice traffic.  BellSouth disagrees. Information or enhanced services providers offer users the ability to interact with stored data and to retrieve data; ...  In contrast, the service offered by these companies is merely basic long-distance service. The transmission technology long-distance carriers use to carry calls to their destinations is irrelevant; if the service offered to the public is long distance service it is subject to access charges, regardless of the means of transmission."

BellSouth added that, "We believe that as telecommunications service providers, companies offering long-distance telephone service over the Internet should not only pay access charges, but they should contribute to the Universal Service Fund as well."

Presently, most of the cost advantage of long distance IP telephony over traditional circuit switched telecommunications, for calls made within the U.S., derives from IP telephony not being subject to access charges and universal service contributions.

BellSouth is the first of the Regional Bell Operating Companies (RBOCs), or "Baby Bells", to make such a decision.

No one at the FCC contacted by Tech Law Journal would comment on the record about BellSouth's announcement.