US West to Assess Access Charges for Internet Telephony

(September 14, 1998)  On Friday, September 11, US West became the second Regional Bell Operating Company (RBOC) to announce that it would attempt to collect access charges on packet switched, Internet protocol, telephony. On September 2 BellSouth made a similar announcement.  Since "information services" are not regulated by the FCC, and are exempt from access charges, IP telephony providers are likely to challenge the moves in court and/or before the FCC.

On Friday US West, Inc. wrote a letter to Internet protocol (IP) phone service providers which stated:

"Effective immediately, U S WEST will no longer process orders for local exchange service used to provide interstate or intrastate toll services, even if the toll transmission medium is a packet switched network and even if the Internet protocol is used for such transmission."

The letter went on to explain that the "fact that such toll calls are transmitted by the toll carrier via packet switched, rather than circuit switched, technology does not relieve toll carriers of the requirement to order the correct facilities and to pay the appropriate access rates for service."

"These companies should pay their fair share, as required by federal law," said Mark Roellig in a press release on Friday.  Roellig is US West's Executive VP for Public Policy, Human Resources and Law.  He continued that, "These charges are vital for funding local phone service for people in rural and other high-cost communities. All companies using the local network to complete long-distance calls are required to pay these fees, regardless of the technology they use to complete the calls."

The telecommunications and Internet industries are converging.  Also, the design of phones and computers are converging, as phones take on microprocessors, and computer take on speakers and microphones. IP telephony is presenting itself as a realistic alternative to old fashioned analog circuit switched phone company service.  As its technology advances, it may become more efficient, more versatile, and cheaper.

How much of the cost advantage may be due to being exempt from access charges, universal service taxes, and FCC regulation, is debated.  But whatever the case, the old technology phone companies are taking notice, and taking action.  The actions of BellSouth and US West, if carried out, would raise the price of the competing IP telephony services, while increasing the monopoly rents collected by the local phone companies.

How the Federal Communications Commission (FCC) will respond is uncertain.  It issued an advisory, non-binding, Report to Congress on universal service on April 10 which suggested that phone-to-phone IP telephony ought to be treated as a regulated "telecommunications" service, rather than an unregulated "information" service.  As the technologies converge, the FCC could use the unregulated status of the information services to in effect deregulate some currently regulated functions.  On the other hand, the FCC could use convergence as excuse to extend its regulatory grasp into computer and Internet industry.

US West and BellSouth collect access charges from Interexchange Carriers (IXCs) such as AT&T and MCI WorldCom to originate and terminate long distance telephone calls.  This revenue supports the cost of maintaining local facilities.   However, under FCC rules, access charges apply to "telecommunications" services, but not to "information" or "enhanced" services.  For example, Internet Service Providers (ISPs), as "information" services, are exempt under FCC rules from paying access charges.

IP telephony providers use Internet protocol, packet switching, to transfer digital voice data.  The technology is Internet, but the service increasingly resembles in function old fashioned circuit switched technology.  It also appears to be a major source of competition for the old circuit switched phone companies.

The question of whether the regional Bell operating companies (RBOCs) can collect access charges from IP telephony providers is a matter of debate.  On September 2 Bell South was the first RBOC to assert the claim.   Bell South cited the FCC's April 10, 1998 "Report to Congress" on universal service as authority for its decision.

US West is not relying on the April 10 Report.  Instead, its letter to IP telephony providers stated that FCC Rule 69.5(b) is its authority.  This letter stated that: "At the interstate level, a provider of toll service must pay carriers' carrier charges pursuant to Section 69.5(b) of the rules of the Federal Communications Commission whenever local exchange switching facilities are used for the origination or termination of a toll call. Similar charges must be assessed for origination or termination of an intrastate toll call."

US West's press release did make reference to the following quote from the April 10 Report: "certain IP telephony services lack the characteristics that would render them 'information services' and instead bear the characteristics of telecommunications services."  However, Emily Harrison, a spokesman for US West, added in an interview that US West is not relying on the April 10 Report; it relies on Rule 69.5(b).

Yet, 69.5(b) is merely the rule that says IXCs pay access charges.  It is a brief section which was drafted before IP telephony was an issue.  It does not even mention IP telephony.

The debate is not likely to be resolved soon.