FeatureGroup IP: Forbearance Denial Favors ILECs

The FCC last week rejected a long-pending forbearance petition that leaves unanswered the question of how, or whether, providers must pay access charges on certain VoIP traffic.

The request was filed in late 2007 by Texas-based CLEC FeatureGroup IP. Now, executives say, the company could go out of business – or, at the very least, be prevented from expanding – because it might have to pay millions of dollars’ worth of access charges to AT&T Inc. (T) that have piled up over several years. FeatureGroup IP has been avoiding making that $7.5 million payment, contending it shouldn’t have to pay VoIP-related access fees because its customers are not service providers. Rather, it carries traffic from companies such as Google Inc. (GOOG) and Skype.

The forbearance request stems from that commercial dispute between FeatureGroup IP and AT&T, but if the plea had been approved, the complex intercarrier compensation regime would have been upended. FCC officials and the telecom industry all want to fix the system, but not piecemeal and not to the benefit of one provider over another. In their Jan. 21 order, commissioners Michael Copps, Jonathan Adelstein and Robert McDowell said approving the petition would have created a “regulatory void” and prematurely rewritten intercarrier compensation rules.

A number of other CLECs, including PAETEC (PAET), XO Communications (XOHO) and Broadview Networks, opposed FeatureGroup IP’s request and say they’re relieved the FCC didn’t approve it. They want intercarrier compensation change to be addressed as a whole, not in one-off rulings. The FCC has been trying to revamp intercarrier compensation, but efforts have undergone so many starts and stops, no one quite knows when an overhaul will be complete.

In the meantime, FeatureGroup IP has to decide whether to appeal the FCC’s decision. The company thinks it has grounds to do so – such as seemingly contradictory technical arguments and the absence of a chairman when the denial was issued – but must consider the time and cost of continuing legal action. Overall, executives are disappointed in the FCC’s action and see it as one more way legacy providers are being allowed to quash competition.

The order “extends market dominance and control over innovation to the incumbents, and that’s what’s wrong,” said Lowell Feldman, founder of FeatureGroup IP.