FCC Rules on AT&T's VOIP Petition

April 21, 2004. The Federal Communications Commission (FCC) announced and released its Order [27 pages in PDF] on AT&T's petition for a declaratory ruling that access charges do not apply to its service in which calls originate and terminate on circuit switched PSTN facilities, but are routed on internet backbone. The FCC rejected AT&T's request, and ruled that the service at issue is "telecommunications service upon which interstate access charges may be assessed".

AT&T filed its petition [37 pages PDF] on October 18, 2002. The FCC adopted this Order, but did not announce it, on April 14, 2004. This Order is FCC 04-97 in WC Docket No. 02-361. The FCC was unanimous. All five Commissioners wrote separate statements.

FCC Chairman Michael Powell wrote in a separate statement [PDF] that this Order rests on "very narrow grounds" and that VOIP "should be very lightly regulated".

He said that "To allow a carrier to avoid regulatory obligations simply by dropping a little IP in the network would merely sanction regulatory arbitrage and would collapse the universal service system virtually overnight."

FCC Commissioner Kathleen Abernathy (at right) wrote in a separate statement [PDF] that "AT&T's ``phone-to-phone IP telephony service´´ is a telecommunications service. In fact, this service -- which begins and ends on the PSTN, provides no enhanced functionalities, and entails no net protocol conversion -- does not differ in any material respect from traditional long distance services."

She added that "true VoIP services" are "provided via broadband connections and offer enhanced functionalities to consumers".

The Order describes AT&T's service at issue as follows: "The service at issue in AT&T’s petition consists of an interexchange call that is initiated in the same manner as traditional interexchange calls -- by an end user who dials 1 + the called number from a regular telephone. When the call reaches AT&T’s network, AT&T converts it from its existing format into an IP format and transports it over AT&T's Internet backbone. AT&T then converts the call back from the IP format and delivers it to the called party through local exchange carrier (LEC) local business lines."

The Order offers this analysis. "We clarify that AT&T’s specific service is a telecommunications service as defined by the Act. AT&T offers ``telecommunications´´ because it provides ``transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.´´ And its offering constitutes a ``telecommunications service´´ because it offers ``telecommunications for a fee directly to the public.´´ Users of AT&T’s specific service obtain only voice transmission with no net protocol conversion, rather than information services such as access to stored files." (Footnotes omitted.)

The Order adds that "AT&T does not offer these customers a ``capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information;´´ therefore, its service is not an information service under section 153(20) of the Act. End-user customers do not order a different service, pay different rates, or place and receive calls any differently than they do through AT&T's traditional circuit-switched long distance service; the decision to use its Internet backbone to route certain calls is made internally by AT&T. To the extent that protocol conversions associated with AT&T’s specific service take place within its network, they appear to be ``internetworking´´ conversions, which the Commission has found to be telecommunications services. We clarify, therefore, that AT&T’s specific service constitutes a telecommunications service." (Footnotes omitted.)

Then, having determined that the service is a "telecommunications service", the FCC concluded that access charges should apply. The Order states that "all telecommunications services are subject to our existing rules regarding intercarrier compensation. Consequently, when a provider of IP-enabled voice services contracts with an interexchange carrier to deliver interexchange calls that begin on the PSTN, undergo no net protocol conversion, and terminate on the PSTN, the interexchange carrier is obligated to pay terminating access charges." (Footnote omitted.)

The Order adds that "We do not make any determination at this time regarding the appropriateness of retroactive application of this declaratory ruling against AT&T or any other party alleged to owe access charges for past periods."

Commissioner Kevin Martin wrote separate statement [PDF] in which he addressed the topic of retroactive application of agency decisions.

Commissioner Michael Copps wrote in a separate statement [PDF] that by deciding individual petitions for declaratory rulings, before addressing intercarrier compensation generally, the FCC is creating confusion.

Commissioner Jonathan Adelstein wrote in a separate statement [PDF] that "This Order makes clear that the service in question -- which is marketed as, and is identical in all significant respects to, traditional long distance service -- is a telecommunications service. As a result, consumers will enjoy the protections of our rules for telecommunications services and local phone providers will receive adequate compensation for carrying these calls. Were the Commission to reach another result – classifying this service as an information service -- providers could avoid the obligation to observe consumer protection rules, to comply with public safety and law enforcement provisions, and to contribute to the universal service fund ..."

BellSouth's VP for Governmental Affairs Herschel Abbott praised the FCC's Order in a release. He stated that "Today's FCC action is NOT regulation of the Internet. To be clear -- it is nothing more than the application of clear and existing rules to a traditional voice telecom service. AT&T's ``IP-in-the-middle´´ service offers consumers none of the features and capabilities associated with true VoIP. What AT&T is offering is plain old telephone service. In fact, AT&T bills its customers no differently whether or not the call travels part of the way on an IP circuit. We agree, by the way, that calls that never touch the local telephone network are not subject to access charges."

The FCC has two pending proceeding related to this declaratory ruling. First, there is its now three years old proceeding on intercarrier compensation (CC Docket No. 01-92). Second, there is its recently begun proceeding on IP-enabled services (FCC 04-28 in WC Docket No. 04-36). See, story titled "FCC Adopts NPRM Regarding Regulation of Internet Protocol Services" in TLJ Daily E-Mail Alert No. 837, February 16, 2004.

The FCC has recently decided two petitions for declaratory rulings regarding VOIP services -- the just decided AT&T petition, and Pulver.com's petition regarding its Free World Dialup (FWD) service.

The FCC announced its declaratory ruling on February 12, 2004 that FWD is "not telecommunications as defined by the Act", that FWD is "not telecommunications service as defined by the Act", and that FWD is "an information service as defined by the Act". See, story titled "FCC Rules on Pulver's Free World Dialup VOIP Service" in TLJ Daily E-Mail Alert No. 836, February 13, 2004.

There are also pending petitions for declaratory rulings regarding VOIP services, submitted by Vonage and Level 3.

Vonage seeks a ruling that its service is an "information service" and that federal policy preempts state action in this area. Vonage filed its petition on September 22, 2003. See, part 1, part 2, part 3, part 4, part 5, and part 6. This is WC Docket No. 03-211.

Vonage has also litigated this issue. On October 16, 2003, the U.S. District Court (DMinn) issued its Memorandum and Order [PDF] in Vonage v. Minnesota Public Utilities Commission, holding that Vonage is an information service provider, and that the MPUC cannot apply state laws that regulate telecommunications carriers to Vonage. The Court wrote that "State regulation would effectively decimate Congress's mandate that the Internet remain unfettered by regulation." See, story titled "District Court Holds that Vonage's VOIP is an Information Service" in TLJ Daily E-Mail Alert No. 760, October 17, 2003.

On December 23, 2003, Level 3 Communications filed a petition with the Federal Communications Commission (FCC) requesting that it forebear from applying the requirements of Section 251(g) and FCC rules to the extent that they might be interpreted to allow local exchange carriers (LECs) to impose interstate or intrastate access charges on internet protocol (IP) traffic that originates or terminates on the public switched telephone network (PSTN), or on PSTN-PSTN traffic incidental thereto. The Level 3 petition is published in the FCC web site in five parts in PDF. See, part 1, part 2, part 3, part 4, and part 5. See, stories titled "Level 3 Files VOIP Petition With FCC" and "Summary of Other VOIP Proceedings at the FCC" in TLJ Daily E-Mail Alert No. 815, January 14, 2004.

Finally, there is the DOJ's pending petition, which seeks, among many other things, a declaratory ruling that CALEA obligations extend to providers of VOIP services.