FCC May Allow VOIP Access Charges

The Federal Communications Commission (FCC) is expected to deny a forbearance petition that has kept VOIP providers from paying PSTN access charges, just days before the Commission’s March 22 deadline, sources close to the Commission say.

When this happens, VOIP providers will be subject to access charges for terminating their calls on other carrier networks. But all is not lost for the VOIP crowd.

The FCC is expected to deny the forbearance request before Tuesday, rather than let the deadline pass, sources say. But soon after, the FCC may also order a rule change further exempting the VOIP carriers from access charges. Either way, the resolution of the situation will have very serious implications for the fledgling VOIP industry.

“I know there will be order of denial on the forbearance,” says Staci Pies, vice president of governmental and regulatory affairs at VOIP provider PointOne Telecommunications.

“But because of the way they will deny it, following that will be an additional order that will change the rules in such a way that Level 3 and others like them will be afforded relief,” says Pies, who worked at Level 3 when the petition was filed, and before that held an office at the FCC in Washington.

“The commissioners understand that it doesn’t make any sense to deny the forbearance because the rules are substandard, and then not change the rules,” Pies says.

It's worth noting that FCC's denial of Level 3's petition doesn't necessarily mean the FCC is requiring or approving of access charges on VOIP calls. Carriers may interpret the denial in a variety of ways -- one of which would open up VOIP companies to lawsuits over access charges from incumbent carriers.

Background: The forbearance petition was filed a year ago by VOIP provider Level 3 Communications Inc. (Nasdaq: LVLT), and since then the VOIP industry has watched for the Commission to grant or deny it, hoping all the while that it would do neither as the deadline approached. If the Commission did let the deadline pass, it would mean that VOIP carriers would continue to be exempt from the access charges.

Outgoing chairman Michael Powell, in one of the last actions of his term, has reportedly floated two possible responses to the Level 3 petition, sources close to the situation say. The first is an outright denial of the forbearance petition, and the second is an “interim” rule change that would further protect Level 3 and others from the access charges.

Telecom carriers, on the other hand, believe that the FCC will deny the petition -- period.

“We believe that there is currently a majority to deny the petition,” says Mike Balmoris of SBC Communications Inc. (NYSE: SBC) regulatory affairs (Balmoris is also a former FCC officer). As for the second option of a rule change: “We don’t count three votes -- we don’t believe there is a majority for that order.

“At a high level SBC believes that under current law the access charges apply to this [VOIP] traffic,” Balmoris says.

If Level 3’s petition is denied, some dire consequences for VOIP carriers could emerge.

“Depending on how the denial is written, it will mean that the ILECs could sue CLECs and VOIP providers for retroactive fees they feel they could have collected during the period of forbearance,” PointOne's Pies says. “Then they will immediately raise the rates for the traffic.”

Both Level 3 and SBC participate in the Intercarrier Compensation Forum (ICF), an industry group formed to fix the current regulatory structure around pricing for inter-carrier traffic, which is widely seen throughout the industry as in terrible need of an overhaul.

Level 3 could not be reached for comment as this article was published.

SBC’s well publicized position has been that Level 3 should deal with the problem of access charges by working within the ICF to fix the entire set of rules governing carrier compensation. “We have a plan to ramp down access charges,” Balmoris says of the ICF. “But the Level 3 petition isolates one of the aspects [access charges] of a comprehensive solution; from a policy fairness perspective that is just not the right way to do things.”

But Pies raises an interesting counterpoint: “If the Level 3 forbearance is denied, the ILECs will no longer see VOIP carriers as a threat to their business so it will remove some of the incentive for them to reach agreements on these pricing issues.”

FCC commissioners have been in meetings with the various interested parties all this week, apparently in preparation for a response to the petition.

“These have been some of the craziest weeks ever,” says Pies, having just returned from meetings at the FCC. “Everything is so up in the air right now with the change in the chairmanship.” Pies says the new chairman, Kevin Martin, had been very careful not to show his cards on the issue while he waited to see if he would be nominated to replace Powell (see That's Chairman Kev, to You...).

Level 3 and other VOIP providers believe that IP-based phone services are not, and have never been, subject to access charges when VOIP calls terminate on the PSTN. Access charges can include additional fees meant to subsidize such things as Universal Service subsidies, and those fees, of course, are passed on to the customer. For VOIP customers this could mean paying for phone service by the minute, an idea that would almost make the whole point of VOIP moot.

The VOIP carriers prefer paying the incumbent LECs on a negotiated, market-driven basis known as “reciprocal compensation” for terminating traffic on their networks.

Some of those opposing the petition have claimed that, through its request, Level 3 is only trying to reduce its own access costs while continuing to collect access charges on traffic that terminates on the Level 3 network, a charge Level 3 vigorously denies. "Level 3 will collect reciprocal compensation for IP-PSTN traffic it terminates, and it will pay reciprocal compensation for IP-PSTN traffic it originates," the company says in a statement.

— Mark Sullivan, Reporter, Light Reading