FCC Searches for Industry Consensus on Regulatory Treatment of VoIP

By Ike Himowitz

Last week, the Federal Communications Commission asked the public for comment on a petition requesting the FCC declare that Voice-over-Internet-Protocol (VoIP) traffic is identical to traditional telecommunications traffic for intercarrier compensation purposes. The proceeding offers VoIP providers another opportunity to submit updates and additional information on express their views on the appropriate regulatory treatment of VoIP services, which the FCC last raised in its broad Feb. 2011 Notice of Proposed Rulemaking on intercarrier compensation and universal service reform.

One key issue raised by the petition is the applicability of access charges to VoIP services. Access charges are fees that a carrier that serves end users charges other carriers to deliver non-local or interexchange traffic to, or from, those end users. They can run from hundredths of a penny to several cents per minute, which can add up quickly. Access charges provide many traditional carriers with a significant revenue stream, which is one of the reasons why access charge reform is so difficult for the FCC to adopt.

Some parties argue that calls which originate in VoIP format should not be subject to access charges, but rather the much lower reciprocal compensation that applies to local traffic, which typically is much lower than access charges. Proponents of this position include large VoIP providers like Vonage and Broadvox, more traditional carriers like T-Mobile, and nontraditional communications providers like Microsoft, Google and Skype, which generally operate all-IP networks or may not operate a network at all. 

These parties base their argument for the inapplicability of access charges on, among other things, the fact that:

Minimal fee proponents also claim that reducing costs associated with IP networks (including access charges) will encourage carriers to deploy faster networks with greater capabilities than would otherwise be available.  They typically advocate either a very low rate of approximately $0.0007 per minute or bill-and-keep,” which means that neither party bills the other for the exchange of VoIP traffic.

In contrast, many traditional carriers argue that VoIP traffic is indistinguishable from traditional traffic when they receive it, and for that reason VoIP should be subject to traditional access charges. They say the costs of handling traffic remain constant regardless of how it originates, so there is no reason for what they view as an artificial distinction. 

Traditional carriers also argue that regulatory uncertainty over the treatment of VoIP has created artificial efficiencies which have provided VoIP carriers with unfair advantages. These carriers assert that if VoIP traffic were treated the same as traditional traffic, VoIP technology would not offer significant advantages over traditional telephone networks. They call the different regulatory treatment of VoIP traffic a misguided attempt by the FCC to interfere in the market.

The FCCs failure to address this issue, even as VoIP traffic becomes increasingly common, has led to widespread disputes and a Wild West mentality in carrier-to-carrier relationships. Earlier this year, Verizon unilaterally announced that it would not pay the traditional access charges on VoIP traffic it delivered to other carriers, but would instead only pay $0.0007. Other carriers of VoIP traffic subsequently adopted similar positions. Meanwhile, providers such as YMax Corporation, which markets MagicJack, have blocked traffic from carriers that refuse to pay YMaxs tariffed access charges.

Access charges traditionally have been used to subsidize local services, which is why the access charge debate is tied closely to universal service reform, which is also pending before the FCC. The federal Universal Service Fund provides financial support to rural carriers in order to improve and expand their networks while reducing the price of service for subscribers in rural areas. Many rural carriers fear the reduction in revenues that would result from access charge reform or an FCC decision that VoIP traffic is not subject to access charges. For this reason, they want to receive more universal service support to offset the loss of this revenue.  However, the FCC is under intense pressure to reduce the size of the universal service fund, so enlarging it by amount sufficient to replace lost revenues is likely a non-starter. Further, the FCC has already indicated it prefers to invest universal service support in broadband deployment, rather than the traditional telephone network.

Comments on this petition about the appropriate regulatory treatment of VoIP are due Aug. 8, 2011, and reply comments are due Aug. 23, 2011. As always, the FCC will also continue to meet with interested parties individually throughout the summer.

Ike Himowitz is a attorney at SNR Denton in Washington, D.C., where he is a member of the Technology, Media, and Telecommunications team. He specializes in telecommunications policy, telecommunications-related litigation, and network interconnection negotiations and disputes.  Any opinions expressed above are his own and not that of his firm or its clients.  He can be reached at [email protected].