Randy May on FCC, AT&T and Internet telephone calls

[Declan McCullagh <declan () well com>]

-------- Original Message --------
Subject: RE: [Politech] FCC rules on AT&T's request re: VoIP, access 
charg	es
Date: Fri, 23 Apr 2004 17:40:24 -0400
From: Randy May <rmay () pff org>
To: 'Declan McCullagh' <declan () well com>

Declan--Your readers, particularly the metaphysicians among them, might be
interested in my blog on the FCC's action regarding AT&T's petition:

"The Metaphysicians' Club
Well, as my colleague Adam Peters points out below, the FCC has (finally)
decided AT&T's petition for a declaratory ruling. The Commission held that
AT&T must pay access charges because "the service which AT&T describes is a
telecommunications service"--not an information service. It is the right
result, I think, under the current rules in which all turns on whether the
service is classified as "telecommunications" or an "information service".
Until rules are changed in accordance with accepted processes, we live in a
system that, thankfully, places a high value on abiding by them.

So right result. The Commission should have acted months ago to provide AT&T
the clarification it requested back in October 2002.

But even a casual reading of the FCC's order shows why the advent of VoIP
and other IP services will force policymakers sooner rather than later to
confront the reality that the old regulatory paradigms no longer make sense.
Much of the Commission's explanation for its action rests on the
determination that AT&T's service "does not involve a net protocol
conversion" or provide "enhanced functionality" or result in a "change in
the form or content" of the information as sent and received." Ergo, a
telecom service.

Net protocol conversions and changes in form and content? As I pointed out
early this year in "The Metaphysics of VoIP", distinctions based on these
functional concepts are the stuff of philosophers. Why, just last week at
the gathering of my local metaphysical club, we spent the evening discussing
what really happens to the form and content of a VoIP call as it experiences
numerous protocol conversions and reconversions!

Don't get me wrong. I understand the Commission is playing with the
regulatory definitional deck is was dealt in the 1996 Telecom Act, which was
lifted from the 1980 Computer II decision. But what the Commission's action
on the AT&T petition really illustrates--aside from reinforcing the notion
that equity and stability and respect for the law are promoted by adherence
to rules until they are changed--is that in today's digital world we need a
new paradigm in which regulatory decisions are based on marketplace
realities. Then the focus would be on treating services that are
substituable from a consumer's perspective in a like fashion--not on whether
a net protocol conversion occured.

- posted by Randolph May @ 4/22/2004 04:25:54 PM"

For the original, see www.pff.org/weblog and see "The Metaphysics of VoIP"
at http://news.com.com/2010-7352_3-5134896.html

Thanks,
Randy

Randolph J. May
Senior Fellow and Director of Communications Policy Studies
The Progress & Freedom Foundation
1401 H Street, NW
Suite 1075
Washington, DC 20005

Tel       202-289-8928
Fax      202-289-6079
E-mail  rmay () pff org
Web    www.pff.org



-----Original Message-----
From: Declan McCullagh [mailto:declan () well com]
Sent: Thursday, April 22, 2004 9:52 AM
To: politech () politechbot com
Subject: [Politech] FCC rules on AT&T's request re: VoIP, access charges



from the FCC...

Today, the FCC clarified that the service described in AT&T's petition
(filed on October 18, 2002) is a telecommunications service upon which
interstate access charges may be assessed.  The full FCC Order will be
posted on the Commission's home web page, www.fcc.gov, shortly.  Below
(1)  a brief summary of the Order, and (2)  statements from the Chairman
and  each Commissioner.

  (1) Summary material

Summary of Petition

In its petition, AT&T seeks a ruling that access charges do not apply to
its specific service.  AT&T's specific service consists of a portion of
its interexchange voice traffic routed over AT&T's Internet backbone.
Customers using this service place and receive calls with the same
telephones they use for all other circuit-switched calls.  The
initiating caller dials 1 plus the called party's number, just as in any
other circuit-switched long distance call.  These calls are routed over
Feature Group D trunks, and AT&T pays originating interstate access
charges to the calling party's LEC.  Once the call gets to AT&T's
network, AT&T routes it through a gateway where it is converted to IP
format, then AT&T transports the call over its Internet backbone.  This
is the only portion of the call that differs in any technical way from a
traditional circuit-switched interexchange call, which AT&T would route
over its circuit-switched long distance network.  To get the call to the
called party's LEC, AT&T changes the traffic back from IP format and
terminates the call to the LEC's switch through local business lines,
rather than through Feature Group D trunks.

Scope of Decision
We clarify that, under the current rules, the service that AT&T
describes is a telecommunications service upon which interstate access
charges may be assessed.  We emphasize that our decision is limited to
the type of service described by AT&T in this proceeding, i.e., an
interexchange service that:  (1) uses ordinary customer premises
equipment (CPE) with no enhanced functionality; (2) originates and
terminates on the public switched telephone network (PSTN); and (3)
undergoes no net protocol conversion and provides no enhanced
functionality to end users due to the provider's use of IP technology.

Other IP-Related Issues

We are undertaking a comprehensive examination of issues raised by the
growth of services that use IP, including carrier compensation and
universal service issues, in the IP-Enabled Services rulemaking
proceeding.  In the interim, however, to provide regulatory certainty,
we clarify that AT&T's specific service is subject to interstate access
charges.  End users place calls using the same method, 1+ dialing, that
they use for calls on AT&T's circuit-switched long-distance network.
Customers of AT&T's specific service receive no enhanced functionality
by using the service.  AT&T obtains the same circuit-switched interstate
access for its specific service as obtained by other interexchange
carriers, and, therefore, AT&T's specific service imposes the same
burdens on the local exchange as do circuit-switched interexchange calls.

Retroactivity Issue

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.

Accordingly, if disputes arise, the question whether access charges can
be collected for past periods may be addressed on a case-by-case basis.

****************************************************************************
********


    (2) Statements of Chairman and Commissioners:


Statement of Chairman Michael K. Powell

Re: Petition for Declaratory Ruling That AT&T's Phone-to-Phone IP
Telephony Services Are Exempt From Access Charges, WC Docket No. 02-361,
Order

              Today's decision is correctly decided on very narrow
grounds.  A straightforward application of existing law places the long
distance telephone service, as it is factually described by AT&T,
squarely in the category of a telecommunications service.  The carrier
has long been obligated to pay access charges for this service and we
unanimously confirm that it still is required to do so.

             I have stated my solid view that VOIP offers enormous
potential for consumers and should be very lightly economically
regulated.  I remain staunchly committed to that position.  VOIP is
clearly not your father's telephone service.  It represents a uniquely
new form of communication that promises to offer dramatic advances in
the consumer experience.  Consumers can anticipate greater value,
greater personalization, and a wealth of features that are only possible
through the convergence of voice and data on a broadband network that
pushes more intelligence to the edge of the network and into the hands
of end-users.  The promise of such services and the potential for
greater competition combine to justify a minimal and innovation-friendly
regulatory policy.

             In that vein, the objectives of digital migration are
achieved by moving to networks and services that empower individuals.
Therefore, it is important to be guided by the perspective of consumers
that are purchasing service, in determining how a service should be
understood.  The services that are the subject of this petition merely
use IP technology in a manner that does not offer consumers any
variation in experience or capability.  We therefore should approach
AT&T's request that it not be subject to the obligations of a
telecommunications carrier with skepticism.  The petitioner argues that
its service should be exempt from the access charge regime because it
may use IP in its transport system.  Yet, as the Order notes, customers
are in no discernable way receiving the transforming benefits of an
IP-enabled service.   In fact, the consumer receives the same plain old
telephone service.   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.

             Carriers understandably are anxious to lower their
significant access costs as long distance revenue declines.  The
Commission has recognized that our intercarrier compensation system is
under severe stress in light of technological change.  We have committed
ourselves to reforming the system and I am aware that carriers
themselves are working toward solutions.  The appropriate way to address
these challenges is through intercarrier compensation reform and we will
focus our efforts there.
____________________________________________________________________________
_________

  STATEMENT OF COMMISSIONER KATHLEEN Q. ABERNATHY

  Re:  Petition for Declaratory Ruling That AT&T's Phone-to-Phone IP
Telephony Services Are Exempt From Access Charges, WC Docket No. 02-361,
Order



I support this important effort to clarify the obligations of
long-distance carriers to pay access charges in connection with their
use of the public switched telephone network.  The advent of IP
technology opens up exciting new opportunities for providers of
communications services and consumers, but it also challenges existing
regulatory structures.  In particular, it has become abundantly clear
that the Commission needs to overhaul its intercarrier compensation
regime to address artificial distinctions among various types of
traffic.  At the same time, however, I have always stressed that
carriers are bound by our current rules unless and until the Commission
changes them in accordance with the Administrative Procedure Act.
Carriers cannot unilaterally effect rule changes by engaging in self-help.

As the foregoing Order makes clear, there is no doubt 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.  Nor can there be any serious claim that the Commission
formally exempted these services from the access charge regime.  While
the Commission has unfortunately muddied the waters by issuing some
opaque statements regarding the appropriate regulatory treatment of
phone-to-phone services that employ IP in the backbone, the Commission
never waived the requirement that interexchange carriers pay access
charges in connection with such traffic.  Thus, carriers that provide
such phone-to-phone services must comply with our access charge rules,
even if those rules create anomalies and inefficiencies that warrant
reform.[1]

A number of parties have suggested deferring resolution of this issue
and deciding it in the pending rulemaking on IP-enabled services.  While
I understand the desire for a comprehensive approach, I believe such
arguments misapprehend the difference between a declaratory ruling
proceeding and a rulemaking.  The former clarifies the existing state of
the law, while the latter establishes new rules (which may modify or
eliminate existing rules).  It is not possible for the Commission to
elucidate carriers' existing compensation obligations in a rulemaking.
Nor would it have been appropriate to delay issuing this ruling any
longer; rather, we should have issued it long ago.  AT&T's unilateral
decision to stop paying access charges in connection with
"phone-to-phone" traffic has created significant competitive
distortions.  When some carriers are paying access charges in connection
with such traffic while others are not, customers end up choosing
service providers based on regulatory arbitrage rather than service
quality or other more legitimate factors.  Therefore, while I strongly
endorse calls to reform our intercarrier compensation rules -- and I
stand ready to work with my colleagues and interested parties on a broad
range of options -- we must enter into that process with carriers
competing on a level playing field and with a common understanding of
existing obligations.
____________________________________________________________________________
___________________________


STATEMENT OF COMMISSIONER MICHAEL J. COPPS

  Re:       Petition for Declaratory Ruling that AT&T's Phone-to-Phone
IP Telephony Services are Exempt from Access Charges (WC Docket No. 02-361)



             Today's decision clarifies the scope of carrier access
charge obligations when interexchange carriers provide phone-to-phone IP
telephony services.  I support this Order because the decision we reach
is the one that flows most logically from our current rules.

             Nonetheless, I am concerned that we have reached this
conclusion without taking into consideration the full context that good
policy-making requires.  By approaching the subject of access charges
and VoIP through occasional and discrete petitions, we are
nickel-and-diming much larger intercarrier compensation issues.  We
should have begun at the beginning and undertaken the sorely needed
reform of intercarrier compensation and then considered petitions such
as this.  We have in place today an intercarrier compensation regime
under which the amounts and direction of payments vary depending on
whether carriers route traffic to local providers, long-distance
providers, Internet providers, CMRS carriers, or paging providers.  This
system is an open invitation for abuse.  In an era of convergence of
markets and technologies, its patchwork of rates should have been
consigned by now to the realm of historical curiosity.  But rather than
grasp the whole, today's decision sets the stage for proceeding
piecemeal.  It only prolongs the development of a better system that
would rely more heavily on market forces to drive technological advances
and innovation.

             As a separate matter, I am concerned that unsuspecting
carriers may wind up caught in the crossfire and rendered collateral
damage by today's Order.  To date, the Commission's pronouncements
concerning VoIP services and access charges have been unfortunately
opaque.  The Commission suggested that access charges "may apply" in its
1998 Report to Congress, but reserved further judgment until future
proceedings with more focused records.  The Commission prolonged this
uncertainty by declining to move ahead on a 1999 petition from US West.
  It provided another vague sign in the Initial Regulatory Flexibility
Analysis accompanying the 2001 Intercarrier Compensation Notice of
Proposed Rulemaking.  As a result, innovative and entrepreneurial VoIP
upstarts may have been encouraged to believe they had a green light to
go ahead and develop business plans based on the assumption that access
charges were not required.  This may not have been the best
interpretation of our precedent.  But the Commission surely played a
role in this state of affairs by sending out mixed signals.

             Today the Commission does not acknowledge the confusion it
created.  Instead, this decision is eerily silent on the equities of
retroactive liability, the degree to which there has been detrimental
reliance on our muddled pronouncements, and the auditing and litigation
burden that would follow from retroactive application.  This is
unfortunate.  Because the Communications Act does not contemplate that
the Commission will act as a collection agent for carriers with unpaid
tariffed charges, carriers seeking recovery will proceed directly to
court.  The ensuing litigation could tie up the resources of carriers
providing services similar to AT&T's phone-to-phone IP telephony,
carriers caught in the middle of access charge disputes between
incumbent local exchange carriers and VoIP providers, and
entrepreneurial VoIP providers that heretofore believed their services
were exempt from access payments.

             We can and should do better.  We have a three-year old
proceeding on intercarrier compensation that is still pending.  We are
late to these issues, and the pit stop we take here to straighten out
one issue leaves behind a system in need of more comprehensive improvement.

____________________________________________________________________________
___________________________


STATEMENT OF COMMISSIONER KEVIN J. MARTIN

  Re:       Petition for Declaratory Ruling that AT&T's Phone-to-Phone
IP Telephony Services are Exempt from Access Charges, WC Docket No. 02-361


             In today's decision, the Commission determines for the
first time that AT&T's specific service is subject to interstate access
charges.

In assessing whether agency decisions may be applied retroactively, the
Supreme Court found in SEC v. Chenery that the harms from retroactive
application of the decision must be weighed against the harm of
producing a result that is "contrary to a statutory design or to legal
and equitable principles."[2]  The D.C. Circuit has explained that the
retroactive application of an agency decision "boil[s] down to...a
question of concerns grounded in notions of equity and fairness."[3]  As
the Order notes, one relevant factor is whether there has been
"detrimental reliance" on prior pronouncements by the Commission.[4]

As also noted in the item, in the 1998 Report to Congress the Commission
stated that, after examining specific services with focused records in
future proceedings, it "may find it reasonable" that providers of
phone-to-phone VoIP service pay interstate access charges.[5]

In upcoming proceedings with the more focused records, we undoubtedly
will be addressing the regulatory status of various specific forms of IP
telephony, including the regulatory requirements to which phone-to-phone
providers may be subject if we were to conclude that they are
"telecommunications carriers."...We note that, to the extent we conclude
that certain forms of phone-to-phone IP telephony service are
"telecommunications services," and to the extent the providers of those
services obtain the same circuit-switched access as obtained by other
interexchange carriers, and therefore impose the same burdens on the
local exchange as do other interexchange carriers, we may find it
reasonable that they pay similar access charges.[6]

The Commission also noted that access charges different from those
assessed on circuit-switched interexchange traffic "may" apply to VoIP
services.[7]  Furthermore, in its Intercarrier Compensation notice of
proposed rulemaking, the Commission noted in the Initial Regulatory
Flexibility Analysis that the notice of proposed rulemaking was
motivated in part by the need to address the potential erosion of access
revenues for LECs "because [IP telephony] is exempt from the access
charges that traditional long-distance carriers must pay."[8]

Prior to our decision in this order, it was unclear what, if any,
interstate access charges applied to AT&T's specific service.  The
Commission contributed to this uncertainty as to the applicability of
access charges by its discussion in the Report to Congress and by
mentioning an exemption from access charges in the Intercarrier
Compensation notice of proposed rulemaking.  Furthermore, the Commission
prolonged the uncertainty by declining to rule on US West's petition on
the issue that was filed soon after the release of the Report to
Congress.[9]  This is the first opportunity the Commission has taken to
provide guidance as to the applicability of interstate access charges to
AT&T's specific service.
____________________________________________________________________________
_______________________

STATEMENT OF COMMISSIONER JONATHAN S. ADELSTEIN

  Re: Petition for Declaratory Ruling that AT&T's Phone-to-Phone IP
Telephony Services Are Exempt from Access Charges, WC Docket No. 02-361,
Order



I support this Order clarifying the application of the Commission's
access charge rules because it provides critical guidance on an issue of
importance to the long distance and local telephone industries and
ultimately to consumers.  Through this Order, we address the regulatory
status of a distinct but increasingly prevalent form of communications -
long distance telephone calls that employ some form of protocol
conversion in the backbone of a carrier's network but which in all other
significant respects are the same as traditional phone calls.  Despite
the technical nature of the questions we address here, this Order
preserves many of the Commission's highest priorities.

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, which ensures access to essential services
for low income consumers and consumers in rural areas.  If the
Commission had avoided this question or simply permitted providers to
avoid our access charge rules for this service, we would have removed
substantial amounts of support for the local phone providers which
ultimately carry these calls to consumers.  This support is particularly
vital for smaller providers serving Rural America.

Carriers deserve proper compensation for use of their network.  We must
continue to promote and create incentives for the deployment of new
technologies, but these innovative services will not be able to reach
their full audience or potential if we undermine the ability of
providers to support their networks.

By issuing this Order, we answer the calls of participants throughout
the industry who asked for guidance on the Commission's rules.  Indeed,
the one point of unanimity in our record was the desire for a Commission
decision.  While some parties have asked us to go further and address
more of the issues raised in our recent Notice of Proposed Rulemaking on
Voice over Internet Protocol (VoIP), delay in answering the question at
hand would serve only to create instability for the long distance
industry and to increase the rapidly-growing stakes for each side.

I welcome the opportunity to address the wide scope of issues raised in
the VoIP rulemaking and to consider the issues raised in the broader
intercarrier compensation debate.  This Commission must make sure that
it employs a framework that continues to foster innovation and that
enables our rules to evolve as the services and technologies of the
industry evolve.  The Order we adopt today preserves the Commission's
flexibility to address the broader issues raised in these rulemakings
and to revise our rules as necessary.  As we move forward to address
these broader issues, I am committed to a process that takes into
account the needs of consumers, who often are not directly included at
the industry bargaining table, and the needs of those in hard-to-serve
areas of Rural America.  Through this proceeding and through our broader
rulemakings, we must ensure that we preserve the affordable and
universally-available communications services that American consumers
and businesses have come to rely on and that Congress has mandated.

[1]     While I am receptive to arguments that we should not extend
legacy regulations to nascent services such as VoIP, those arguments
overlook the facts present here.  We are not choosing to extend
regulatory requirements in this Order; rather, such requirements already
apply under section 69.5(b) of the Commission's rules, and can be
eliminated only through a rulemaking proceeding or by waiver.  Moreover,
the service at issue appears no different from traditional long distance
services, and thus is unlike true VoIP services, which are provided via
broadband connections and offer enhanced functionalities to consumers.

[2]     SEC v. Chenery, 332 U.S. 194, 203 (1947).

[3]     Cassell v. FCC,  154 F.3d 478, 486 (D.C. Cir. 1998) (quoting
Clark-Cowlitz Joint Operating Agency v. FERC,  826 F.2d 1074, 1082 n.6
(D.C. Cir. 1987)).  See also Clark-Cowlitz, 826 F.2d at 1081 (stating
that "a retrospective application can properly be withheld when to apply
the new rule to past conduct or prior events would work a 'manifest
injustice'").

[4]     Verizon Tel. Cos. v. FCC, 269 F.3d 1098, 1110 (D.C. Cir. 2001).

[5]     Federal-State Joint Board on Universal Service, Report to
Congress, CC Docket No. 96-45, 13 FCC Rcd 11501, 11545, at para. 91
("Report to Congress").

[6]     Id.

[7]     Id.

[8]     Developing a Unified Intercarrier Compensation Regime, FCC
01-132, 16 FCC Rcd at 9657, at  para. 133 ("Intercarrier Compensation").

[9]     In 1999, US West filed a petition seeking a declaratory ruling
that access charges apply to phone-to-phone IP telephony services
provided over private IP networks.  Petition of US West for Declaratory
Ruling Affirming Carrier's Carrier Charges on IP Telephony (filed Apr.
5, 1999).  The Commission took no action on the petition and US West
subsequently withdrew it.  Letter from Melissa E. Newman, Qwest, to
Magalie Roman Salas, Secretary, Federal Communications Commission (Aug.
10, 2001).
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