United States: D.C. District Court: Voip-Originated Calls Are Not Subject To Access Charges

On February 19, 2009, the U.S. District Court for the District of Columbia released a seminal decision in the long debate concerning intercarrier compensation for Voice over Internet Protocol ("VoIP")- originated calls. PAETEC Communications v. CommPartners, LLC, No. 08-0397, determined that CommPartners' VoIP-originated service "is properly labeled an information service," and as such, "not subject to the access charge regime." Instead, reciprocal compensation applies, regardless of terminating carrier's tariff language that insists otherwise.

Regulatory Background

As the PAETEC court observed, "[t]he telecommunications industry has been 'raging for years' with debate about" how best to classify IP-originated service and what form of intercarrier compensation ought to be applied to it.¹ Six years ago, the Federal Communications Commission ("FCC") considered a petition from AT&T for a declaratory ruling "that its 'phone-to-phone' Internet protocol (IP) telephony services are exempt from the access charges applicable to circuit-switched interexchange calls."² The FCC determined that AT&T was responsible for the payment of access charges, as its service constituted telecommunications,³ but prospectively reserved the right to decide "whether access charges should apply to VoIP or other IP-enabled services."⁴

In 2004, the FCC held that VoIP services qualifying as information services are not amenable to access charges and subject only to federal regulation. When pulver.com petitioned for a declaratory ruling that its Free World Dialup ("FWD") service was neither telecommunications nor a telecommunications service, the FCC likened it to an information service, given its "capability of generating, acquiring, storing, transforming, processing, retrieving, utilizing or making available information" by "facilitat[ing] a direct disintermediated voice communication" by means of "a peer-to-peer exchange."⁵ Citing several portions of the Communications Act of 1934, as amended (the "Act"), the FCC held that "[a]sserting federal jurisdiction over FWD is consistent with - and supported by - the states' already-limited role with regard to information services."⁶ The Vonage Order "preempt[ed] an order of the Minnesota Public Utilities Commission (Minnesota Commission) applying its traditional 'telephone company' regulations to Vonage's DigitalVoice service, which provides voice over Internet protocol (VoIP) service and other communications capabilities."⁷ The FCC ultimately preempted state entry regulation of all VoIP services "having basic characteristics similar to DigitalVoice."⁸ The FCC concluded that separating Vonage's VoIP "into interstate and intrastate communications is impossible or impractical" and that unfettered state regulation could undermine the FCC's Congressional mandate to promote a national broadband policy. ⁹

The FCC continued to apply the "case-by-case" treatment prescribed by the AT&T Petition to a variety of burgeoning IP-enabled services.¹⁰ In Regulation of Prepaid Calling Card Services, for example, the FCC applied the "key question" from the Supreme Court's Brand X decision to AT&T's IP-based prepaid calling cards: is "the telecommunications transmission capability . . . 'sufficiently integrated' with the information service component 'to make it reasonable to describe the two as a single, integrated offering.'"¹¹ In this instance, the FCC answered in the negative, as "the use of IP transport in the provision of a prepaid calling card service does not alone convert that service from a telecommunications service to an information service."¹² Yet the issue of how to definitively classify telecommunications services that utilize IP technology - whether this transforms them into an information service and thus exempts them from access charge payments - has proven difficult to address. A broader, categorical approach to classifying particular sorts of IP-enabled services, such as those that originate a call in IP format and convert it into another form, has been wanting.¹³

The Decision

PAETEC concerns two telecommunications companies, PAETEC Communications and CommPartners, LLC. PAETEC alleged its entitlement to access charges for calls initiated on CommPartners' network in VoIP format, but terminated on PAETEC facilities in Time-Division Multiplexing ("TDM") format. It cited its federal tariff in support of this claim, citing language that provided for access charges in the case of any termination on the PAETEC network, "regardless of the technology used in transmission. . . . includ[ing] . . . Internet Protocol or similar services."¹⁴ The court disagreed with PAETEC's assertions on the following bases:

• Classification under the Communications Act: While information services and telecommunications services are mutually exclusive, services that combine both telecommunications and information components are treated as information services."¹⁵ Citing Sw. Bell Tel.¹⁶ and Vonage Holdings,¹⁷ the court determined that "transmissions which include net format conversion from VoIP to TDM are information services exempt from access charges."¹⁸
• Reciprocal Compensation: The court dismissed "PAETEC's submission that the analysis should turn not on whether companies actually paid access charges for VoIP prior to the Act, but instead whether pre-Act law would have supported such charges" as little more than "an invitation to speculate."¹⁹ Under the Telecommunications Act of 1996, the court observed, "reciprocal compensation is the norm."²⁰
• Filed-Rate Doctrine: The court took notice of its inability to determine tariff rate and term reasonability pursuant to the filed-rate doctrine. Nonetheless, it held that "PAETEC's tariff must give way," as an "access charge regime is inapplicable to VoIPoriginated tariff, and . . . a filed tariff cannot be inconsistent with the statutory framework pursuant to which it was promulgated . . . ."²¹

Footnotes

1 PAETEC at 6.

2 Petition for Declaratory Ruling that AT&T's Phone-to-Phone IP Telephony Services are Exempt from Access Charges, 19 FCC Rec. 7457, ¶ 1 (2004) ("AT&T Petition").

3 See 47 U.S.C. §§ 153(43) and (46).

4 AT&T Petition at ¶¶ 1-2 (access charges were appropriate as AT&T's service was "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").

5 Petition for Declaratory Ruling that pulver.com's Free World Dialup is Neither Telecommunications Nor a Telecommunications Service, Memorandum Opinion and Order, 19 FCC Rcd 3307, ¶ 12 (2004) (citing 47 U.S.C. § 153(20)).

6 Id. at ¶¶ 16-17 (citing 47 U.S.C. § 152(a) and (b) and 47 U.S.C. § 230).

7 Vonage Holdings Corporation Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission, 19 FCC Rcd 22404, ¶ 1 (2004) ("Vonage Order"), aff'd sub nom., Minn. Pub. Utils. Comm'n v. FCC, 483 F.3d 570 (8th Cir.2007).

8 Id. at ¶¶ 14, 19, 32 (the characteristics include (1) a requirement for a broadband connection from the user's location; (2) a need for IP-compatible customer premises equipment ("CPE"); and (3) a service offering that includes a suite of integrated capabilities and features, able to be invoked sequentially or simultaneously, that allows customers to manage personal communications dynamically, including enabling them to originate and receive voice communications and access other features and capabilities, including video).

9 Id.

10 AT&T Petition at ¶ 2 (noting outstanding Notices of Proposed Rulemaking concerning IP-enabled and VoIP services); see also Id. at ¶ 23 ("While we recognize the strong interest in providing certainty - and indeed that is a primary reason for issuing this ruling - we are unable to make a blanket determination regarding the equities of permitting retroactive liability. We believe that the equitable inquiry is inherently fact-specific. . . . Accordingly, if disputes arise, the question whether access charges can be collected for past periods may be addressed on a case-bycase basis").

11 Regulation of Prepaid Calling Card Services, 21 FCC Rcd 7290, ¶ 15 (2006) ("Prepaid Calling Card Order") (citing National Cable & Telecomm. Ass'n. v. Brand X Internet Services, 125 S. Ct. 2688, 2704 (2005)).

12 Prepaid Calling Card Order ¶ 20.

13 See, e.g., Grande Communications' Petition for Declaratory Ruling Regarding Intercarrier Compensation for IPOriginated Calls, WC Docket No. 05-283 (rel. Oct. 12, 2005) (FCC has not yet ruled on Grande Communications' petition for a declaratory ruling that "a LEC may properly rely on a customer's certification that the traffic being sent originates in IP format at the calling party's premises and therefore undergoes a net protocol conversion, or is otherwise enhanced, Ipenabled traffic. . . . [and that] terminating LECs receiving such traffic over local interconnection trunks are to treat that traffic as local traffic for intercarrier compensation purposes and may not assess access charges for such traffic.

14 PAETEC at 3.

15 Id. at 5-6 (internal citations omitted).

16 Sw. Bell Tel., L.P. v. Mo. Pub. Serv. Comm., 461 F.Supp.2d 1055 (E.D. Mo. 2006).

17 Vonage Holdings Corp. v. Minn. Pub. Utils. Comm'n, 290 F.Supp.2d 993 (D. Minn 2003).

18 PAETEC at 6.

19 Id. at 8 (emphasis in original).

20 Id. at 7.

21 Id. at 9, 11.

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