**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | WC Docket No. 02-361         |
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| Petition for Declaratory Ruling  | ) |                              |
| that AT&T's Phone-to-Phone IP    | * |                              |
| Telephony Services are Exempt    | * |                              |
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ORDER

**Adopted: April 14, 2004 Released: April 21, 2004**

By the Commission: Chairman Powell and Commissioners Abernathy, Copps,
Martin, and Adelstein issuing separate statements.

# introduction

1.  On October 18, 2002, AT&T filed a petition for declaratory ruling
    that its "phone-to-phone" Internet protocol (IP) telephony services
    are exempt from the access charges applicable to circuit-switched
    interexchange calls.[^1] The service at issue in AT&T's petition
    consists of an interexchange call that is initiated in the same
    manner as traditional interexchange calls -- by an end user who
    dials 1 + the called number from a regular telephone.[^2] When the
    call reaches AT&T's network, AT&T converts it from its existing
    format into an IP format and transports it over AT&T's Internet
    backbone.[^3] AT&T then converts the call back from the IP format
    and delivers it to the called party through local exchange carrier
    (LEC) local business lines.[^4] 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. Our analysis in this order
    applies to services that meet these three criteria regardless of
    whether only one interexchange carrier uses IP transport or instead
    multiple service providers are involved in providing IP transport.

2.  We note that the Commission recently adopted a Notice of Proposed
    Rulemaking concerning IP-enabled services, including Voice over
    Internet Protocol (VoIP).[^5] In that proceeding, we sought comment
    on, among other things, whether access charges should apply to VoIP
    or other IP-enabled services.[^6] In this order, we provide
    clarification about the application of our rules to AT&T's specific
    service because of the importance of this issue for the
    telecommunications industry.[^7] There is significant evidence that
    similarly situated carriers may be interpreting our current rules
    differently.[^8] These divergent interpretations may have
    significant implications for competition between these providers,
    for the ability of LECs to receive appropriate compensation for the
    use of their networks, and for the application of important
    Commission rules, such as the obligation to contribute to the
    universal service support mechanisms. Accordingly, we adopt this
    order to provide clarity to the industry with respect to the
    application of access charges pending the outcome of the
    comprehensive *IP-Enabled Services* rulemaking proceeding. We in no
    way intend to preclude the Commission from adopting a different
    approach when it resolves the *IP-Enabled Services* rulemaking
    proceeding or the *Intercarrier Compensation* rulemaking
    proceeding.[^9]

# background

3.  VoIP technologies, including those used to facilitate IP telephony,
    enable real-time delivery of voice and voice-based applications.
    When VoIP is used, a voice communication traverses at least a
    portion of its communications path in an IP packet format using IP
    technology and IP networks. VoIP can be provided over the public
    Internet or over private IP networks. VoIP can be transmitted over a
    variety of media (e.g., copper, cable, fiber, wireless). Unlike
    traditional circuit-switched telephony, which establishes a
    dedicated circuit between the parties to a voice transmission, VoIP
    relies on packet-switching, which divides the voice transmission
    into packets and sends them over the fastest available route. Thus,
    VoIP uses available bandwidth more efficiently than circuit-switched
    telephony and allows providers to maintain a single IP network for
    both voice and data.

4.  The first set of definitions relevant to the Commission's regulatory
    treatment of VoIP was developed in the *Computer Inquiries* line of
    decisions.[^10] In those decisions, the Commission created a
    distinction between basic services and enhanced services. A basic
    service is transmission capacity for the movement of information
    without net change in form or content.[^11] By contrast, an enhanced
    service contains a basic service component but also involves some
    degree of data processing that changes the form or content of the
    transmitted information.[^12] Therefore, the Commission found that,
    generally, services that result in a protocol conversion are
    enhanced services, while services that result in no net protocol
    conversion to the end user are basic services.[^13] The Commission
    found that, "\[i\]n enhanced services, communications and data
    processing technologies have become intertwined so thoroughly" that
    they are distinctly separate from basic services.[^14] The
    Commission concluded that enhanced services constitute the
    electronic transmission of writing, signs, signals, pictures, etc.,
    over the interstate telecommunications network and therefore are
    subject to the Commission's jurisdiction.[^15] It further found,
    however, that the enhanced service market was highly competitive
    with low barriers to entry; therefore, the Commission declined to
    treat providers of enhanced services as common carriers subject to
    regulation under Title II of the Communications Act of 1934, as
    amended (the Act).[^16] The Commission exercised its Title I
    jurisdiction to impose conditions on both telephone carriers' entry
    into the enhanced services market and their provision of basic
    service to enhanced service providers.[^17]

5.  In the Telecommunications Act of 1996 (the 1996 Act),[^18] Congress
    included definitions of the terms "telecommunications,"
    "telecommunications service," and "information service."[^19]
    Telecommunications is defined in the statute as "the transmission,
    between or among points specified by the user, of information of the
    user's choosing, without change in form or content of the
    information as sent and received."[^20] A "telecommunications
    service" is "the offering of telecommunications for a fee directly
    to the public, or to such classes of users as to be effectively
    available directly to the public, regardless of the facilities
    used."[^21] An "information service" consists of "the offering of a
    capability for generating, acquiring, storing, transforming,
    processing, retrieving, utilizing, or making available information
    via telecommunications, and includes electronic publishing, but does
    not include any use of any such capability for the management,
    control, or operation of a telecommunications system or the
    management of a telecommunications service."[^22]

6.  In the *Non-Accounting Safeguards Order*, the Commission has
    determined that the statutory term "telecommunications service" is
    similar to the Commission's *Computer Inquiries* definition of a
    basic service, and the statutory term "information service" is
    similar to the definition of an enhanced service.[^23] The
    Commission found that, like basic services and enhanced services,
    telecommunications services and information services are separate
    and distinct categories, with Title II regulation applying to
    telecommunications services but not to information services.[^24]
    The Commission also found that services that involve no net protocol
    conversion are telecommunications services, rather than information
    services, under the 1996 Act definitions.[^25]

7.  With respect to protocol conversion and phone-to-phone services, the
    Commission noted in the *Stevens Report* that its *Non-Accounting
    Safeguards Order* determined that "certain protocol processing
    services that result in no net protocol conversion to the end user
    are classified as basic services; those services are deemed
    telecommunications services."[^26] The Commission further stated
    that "\[t\]he protocol processing that takes place incident to
    phone-to-phone IP telephony does not affect the service\'s
    classification, under the Commission\'s current approach, because it
    results in no net protocol conversion to the end user."[^27]
    Moreover, the Commission observed that "\[t\]he Act and the
    Commission's rules impose various requirements on providers of
    telecommunications, including contributing to universal service
    mechanisms, paying interstate access charges, and filing interstate
    tariffs."[^28] The Commission also discussed two types of IP
    telephony: computer-to-computer telephony and phone-to-phone
    telephony.[^29] In its examination of computer-to-computer IP
    telephony, the Commission focused on IP telephony provided over the
    Internet.[^30] In this scenario, callers use software and hardware
    at their premises to place calls using Internet access provided by
    an unregulated Internet service provider (ISP), and the ISP may not
    even be aware that a voice call is taking place.[^31] Thus, the
    Commission found that the ISP did not appear to be providing
    telecommunications to its subscribers.[^32]

8.  In its examination of phone-to-phone IP telephony, the Commission
    stated that:

> "we tentatively intend to refer to services in which the provider
> meets the following conditions: (1) it holds itself out as providing
> voice telephony or facsimile transmission service; (2) it does not
> require the customer to use CPE different from that CPE necessary to
> place an ordinary touch-tone call (or facsimile transmission) over the
> public switched telephone network; (3) it allows the customer to call
> telephone numbers assigned in accordance with the North American
> Numbering Plan, and associated international agreements; and (4) it
> transmits customer information without net change in form or
> content."[^33]

The Commission found that the record then before it suggested that this
type of phone-to-phone IP telephony lacks the characteristics of an
information service and bears the characteristics of a
telecommunications service.[^34] The Commission declined, however, to
make a definitive pronouncement as to the regulatory status of
phone-to-phone IP telephony absent a more complete record focused on
individual service offerings.[^35] The Commission also stated that it
would address in future proceedings the regulatory requirements,
including interstate access charges, to which specific types of
phone-to-phone VoIP services might be subject if they were determined to
be telecommunications services.[^36] Specifically with regard to
interstate access charges, the Commission stated, "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."[^37]

9.  Between the issuance of the *Stevens Report* and the date AT&T filed
    its petition for declaratory ruling in this proceeding, the
    Commission took no further action with regard to classifying IP
    telephony for purposes of determining if carriers are subject to
    interstate access charges for such traffic.[^38] In its
    *Intercarrier Compensation* notice of proposed rulemaking, the
    Commission mentioned the application of access charges to VoIP,
    stating that "\[IP\] telephony threatens to erode access revenues
    for LECs because it is exempt from the access charges that
    traditional long-distance carriers must pay."[^39] AT&T filed its
    petition for declaratory ruling that interstate access charges do
    not apply to its phone-to-phone IP telephony service on October
    18, 2002. In response to a Public Notice seeking comment on the
    petition, numerous parties filed comments by December 18, 2002, and
    reply comments by January 24, 2003.[^40]

# discussion

10. At the outset, we note that the Commission recently has determined
    that the VoIP service provided by pulver.com's Free World Dialup is
    an unregulated information service subject to the Commission's
    jurisdiction,[^41] and has commenced a comprehensive rulemaking
    proceeding to address IP services generally.[^42] That proceeding
    will entail an analysis of the regulatory characterization of a
    variety of IP services, including VoIP, and the applicability of
    access charges to those services. The decision we make in this order
    with regard to AT&T's specific service is meant to provide clarity
    to the industry with respect to the application of interstate access
    charges pending the outcome of the rulemaking proceeding. Commenters
    supporting divergent outcomes on AT&T's petition have asked the
    Commission for clarification on this issue.[^43] This order
    represents our analysis of one specific type of service under
    existing law based on the record compiled in this proceeding. It in
    no way precludes the Commission from adopting a fundamentally
    different approach when it resolves the IP services rulemaking, or
    when it resolves the *Intercarrier Compensation* proceeding.[^44]

11. 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.[^45] 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.[^46] 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.[^47] 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.[^48] Therefore, AT&T does not pay terminating interstate
    access charges on these calls.[^49]

## AT&T's Specific Service is a Telecommunications Service

12. We clarify that AT&T's specific service is a telecommunications
    service as defined by the Act. AT&T offers "telecommunications"
    because it provides "transmission, between or among points specified
    by the user, of information of the user's choosing, without change
    in the form or content of the information as sent and
    received."[^50] And its offering constitutes a "telecommunications
    service" because it offers "telecommunications for a fee directly to
    the public."[^51] Users of AT&T's specific service obtain only voice
    transmission with no net protocol conversion, rather than
    information services such as access to stored files. More
    specifically, AT&T does not offer these customers a "capability for
    generating, acquiring, storing, transforming, processing,
    retrieving, utilizing, or making available information;" therefore,
    its service is not an information service under section 153(20) of
    the Act.[^52] End-user customers do not order a different service,
    pay different rates, or place and receive calls any differently than
    they do through AT&T's traditional circuit-switched long distance
    service; the decision to use its Internet backbone to route certain
    calls is made internally by AT&T. To the extent that protocol
    conversions associated with AT&T's specific service take place
    within its network, they appear to be "internetworking" conversions,
    which the Commission has found to be telecommunications
    services.[^53] We clarify, therefore, that AT&T's specific service
    constitutes a telecommunications service.[^54]

13. We are not persuaded by arguments that AT&T's specific service is an
    information service due to its future potential to provide enhanced
    functionality and net protocol conversion.[^55] AT&T argues that IP
    services increasingly involve net protocol conversions and are
    enhanced services under the Commission's rules.[^56] Commenters
    similarly argue that VoIP services that today have characteristics
    of telecommunications services may evolve into integrated voice,
    data and enhanced services platforms.[^57] This order, however,
    addresses only AT&T's specific service, and that service does not
    involve a net protocol conversion and does not meet the statutory
    definition of an information service. If the service evolves such
    that it meets the definition of an information service, the
    Commission could revisit its decision in this order.[^58]

## Access Charges Apply to AT&T's Specific Service

14. After determining that AT&T's specific service falls within the
    Act's definition of a telecommunications service, we must decide
    whether access charges should apply to the service. Under our rules,
    access charges are assessed on interexchange carriers that use local
    exchange switching facilities for the provision of interstate or
    foreign telecommunications services.[^59] In determining whether
    access charges should be assessed on AT&T's specific service, we are
    mindful that the Commission may soon decide to reform its
    intercarrier compensation regime, and of Congress' directive in
    section 230 "to foster and preserve the dynamic market for
    Internet-related services" and "the strong federal interest in
    ensuring that regulation does nothing to impede the growth of the
    Internet -- which has flourished under our 'hands off' regulatory
    approach -- or the development of competition."[^60] We are also
    mindful of the equally compelling statutory obligation to preserve
    and advance universal service, a policy goal that remains
    intertwined with the interstate and intrastate access charge
    regime.[^61]

15. 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.[^62] 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.[^63] It is
    reasonable that AT&T pay the same interstate access charges as other
    interexchange carriers for the same termination of calls over the
    PSTN, pending resolution of these issues in the *Intercarrier
    Compensation* and *IP-Enabled Services* rulemaking proceedings.[^64]

16. AT&T argues that, even if section 69.5(b) of our rules applies on
    its face, the Commission waived it or otherwise established a
    carve-out for AT&T's specific service in the *Stevens Report*.[^65]
    We disagree. If the Commission had wanted to establish an exemption
    from section 69.5(b) for certain telecommunications services, it
    would have been obligated to conduct a rulemaking in conformity with
    the Administrative Procedure Act.[^66] Statements of policy in a
    Report to Congress or a Notice of Proposed Rulemaking ― even if
    clear[^67] ― cannot change our rules. The Commission can, of course,
    grant a waiver for a particular type of service,[^68] but we
    conclude that neither the *Stevens Report* nor the *Intercarrier
    Compensation* NPRM constitutes a waiver of section 69.5(b) as
    applied to AT&T's specific service. As discussed below,[^69]
    although we decide that the Commission did not waive section 69.5(b)
    or otherwise create a blanket exemption for AT&T's specific service,
    we do not decide at this time whether AT&T or any similarly situated
    party has a valid defense against damages based on equitable
    considerations.

17. Some commenters argue that AT&T's specific service should not be
    assessed interstate access charges because it utilizes the Internet
    rather than a private IP network.[^70] These commenters cite the
    substantial investment AT&T and other providers have made in
    upgrading their common Internet backbone to allow for quality voice
    message transmission.[^71] These commenters, however, fail to
    explain why using the Internet, as opposed to a private IP network
    or some other type of network, is at all relevant to our analysis of
    whether AT&T's specific service should be assessed interstate access
    charges, particularly here where AT&T merely uses the Internet as a
    transmission medium without harnessing the Internet's broader
    capabilities. In the *IP-Enabled Services* rulemaking proceeding it
    is possible that we may draw such distinctions, but we have not done
    so under our current rules. Commenters also argue that applying
    access charges to AT&T's specific service would constitute a tax on
    the Internet, contrary to Congress' decree in section 230(b)(2) of
    the Act that the Internet should be "unfettered by Federal or state
    regulation."[^72] As discussed above, we must foster the growth of
    IP services through a "hands off" regulatory approach in a manner
    that is nonetheless consistent with our other statutory obligations,
    pending the resolution of intercarrier compensation issues in the
    rulemaking proceedings.[^73] We do not believe that a service of the
    type described above -- which provides no enhanced functionality to
    the end user due to the conversion to IP -- is the kind of use of
    the "Internet or interactive services" that Congress sought to
    single out for exceptional treatment. Certainly, AT&T's investment
    in Internet backbone facilities and the development of network
    technologies are important, as is the goal of designing a minimally
    regulatory approach to the Internet that will reduce, as far as
    possible, regulatory barriers to investment and technology and
    market entry. On the other hand, we see no benefit in promoting one
    party's use of a specific technology to engage in arbitrage at the
    cost of what other parties are entitled to under the statute and our
    rules, particularly where, based on the record before us, end users
    have received no benefit in terms of additional functionality or
    reduced prices. Pending resolution of these issues in the rulemaking
    proceedings, we conclude that it is reasonable to apply access
    charges to AT&T's specific service.

18. Commenters also oppose the application of interstate access charges
    to AT&T's specific service on the basis that these access charges
    are above cost and inefficient.[^74] In response, commenters urging
    denial of the petition argue that the Commission recently has
    reformed its interstate access charge regime to address
    inefficiencies, and if AT&T believes that access charges are not
    cost-based it should challenge the rates through the Commission's
    tariff procedures.[^75] The Commission currently is considering
    access charge reform in its *Intercarrier Compensation*
    proceeding,[^76] and any issues raised by current access rate levels
    or rate structures will be addressed there, on the basis of a
    detailed record. Until such time, however, interstate access charges
    are the charges assessed on interexchange carriers that use local
    exchange switching facilities for the provision of interstate
    telecommunications services.[^77] Furthermore, at this time we are
    not persuaded that we should exempt AT&T's specific service from
    interstate access charges. For the reasons described above, we
    clarify that AT&T's specific service does not qualify as an
    information service, nor does it provide any enhanced functionality
    to its customers. End users place and receive calls from their
    regular touch-tone telephones, use 1+ dialing, and do not subscribe
    to a service separate from, or pay rates that differ from, those
    paid for AT&T's traditional circuit-switched long distance service.
    AT&T's specific service utilizes the LECs' originating and
    terminating switching facilities in the same manner as its
    circuit-switched interstate traffic. Although AT&T asserts that
    conversion to IP can produce enormous efficiencies by allowing the
    integrated provision of voice, data, and enhanced services,
    exempting from interstate access charges a service such as AT&T's
    that provides no enhanced functionality would create artificial
    incentives for carriers to convert to IP networks. Rather than
    converting at a pace commensurate with the capability to provide
    enhanced functionality, carriers would convert to IP networks merely
    to take advantage of the cost advantage afforded to voice traffic
    that is converted, no matter how briefly, to IP and exempted from
    access charges. IP technology should be deployed based on its
    potential to create new services and network efficiencies, not
    solely as a means to avoid paying access charges.[^78]

19. Commenters argue that it is inequitable to impose access charges on
    AT&T's specific service if access charges do not apply to other
    types of IP-enabled voice services.[^79] The Commission is sensitive
    to the concern that disparate treatment of voice services that both
    use IP technology and interconnect with the PSTN could have
    competitive implications. We note that all telecommunications
    services are subject to our existing rules regarding intercarrier
    compensation. Consequently, when a provider of IP-enabled voice
    services contracts with an interexchange carrier to deliver
    interexchange calls that begin on the PSTN, undergo no net protocol
    conversion, and terminate on the PSTN, the interexchange carrier is
    obligated to pay terminating access charges.[^80] Our analysis in
    this order applies to services that meet these criteria regardless
    of whether only one interexchange carrier uses IP transport or
    instead multiple service providers are involved in providing IP
    transport.[^81] Thus our ruling here should not place AT&T at a
    competitive disadvantage.[^82] We are adopting this order to clarify
    the application of access charges to these specific services to
    remedy the current situation in which some carriers may be paying
    access charges for these services while others are not.

20. Several commenters argue that it is difficult to determine which
    calls utilize IP technology for purposes of assessing access
    charges.[^83] Other commenters argue that the Commission should
    impose a minimum surcharge for any IP traffic that cannot be
    measured and should require all providers of telecommunications
    services that utilize the SS7 network to pass calling party number
    information to identify where the call originated.[^84] The
    Commission has recognized the potential difficulty in determining
    the jurisdictional nature of IP telephony.[^85] We intend to address
    this issue in our comprehensive *IP-Enabled Services* rulemaking
    proceeding and do not address it here.

## Retroactivity of Access Charges

21. Several commenters argue that AT&T's phone-to-phone service has
    always been a telecommunications service to which interstate access
    charges have applied.[^86] These commenters thus argue that this
    declaratory ruling recognizing the applicability of access charges
    to AT&T's service necessarily has a retroactive effect. In contrast,
    AT&T and other commenters argue that the *Stevens Report* expressly
    exempted all VoIP services ― including AT&T's specific service ―
    from interstate access charges, necessitating a prospective-only
    application of access charges to AT&T's service.[^87] Alternatively,
    AT&T and others argue that, even if the Commission did not formally
    establish an exemption, it would be inequitable for the Commission
    to permit retroactive application of this declaratory ruling in
    light of various statements by the Commission ― in the *Stevens
    Report*, the *Intercarrier Compensation* NPRM, and elsewhere ―
    suggesting that access charges did *not* apply.[^88]

22. As discussed above, we do not believe that the Commission waived
    section 69.5(b) or otherwise created an exemption for AT&T's
    specific service. The absence of any waiver or exemption, however,
    does not end the retroactivity inquiry. The courts have made clear
    that retroactive effect may be denied if the equities so require.
    The Supreme Court found in *SEC v. Chenery* that "retroactivity must
    be balanced against the mischief of producing a result which is
    contrary to a statutory design or to legal and equitable
    principles."[^89] The D.C. Circuit has explained that whether to
    permit retroactive application of an agency decision "boil\[s\] down
    to . . . a question grounded in notions of equity and
    fairness."[^90] One relevant factor is whether there has been
    "detrimental reliance" on prior pronouncements by the
    Commission.[^91]

23. 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.[^92] 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. For
    example, the nature of a particular phone-to-phone service offering,
    when the service was introduced, the purported basis for detrimental
    reliance on Commission pronouncements, and the course of dealings
    between the parties in a dispute all may prove relevant to the
    analysis. Accordingly, if disputes arise, the question whether
    access charges can be collected for past periods may be addressed on
    a case-by-case basis.[^93]

# conclusion

24. We find AT&T's specific service, which an end-user customer
    originates by placing a call using a traditional touch-tone
    telephone with 1+ dialing, utilizes AT&T's Internet backbone for IP
    transport, and is converted back from IP format before being
    terminated at a LEC switch, is a telecommunications service and is
    subject to section 69.5(b) of the Commission's rules.

# ordering clauses

25. Accordingly, IT IS ORDERED, pursuant to sections 4(i), 4(j), 201,
    202, and 203 of the Communications Act of 1934, as amended, [47
    U.S.C. §§ 154(i),
    (j)](http://web2.westlaw.com/Find/Default.wl?DB=1000546&DocName=47USCAS154&FindType=L&AP=&RS=WLW2.92&VR=2.0&SV=Split&MT=Westlaw&FN=_top),
    [201](http://web2.westlaw.com/Find/Default.wl?DB=1000546&DocName=47USCAS201&FindType=L&AP=&RS=WLW2.92&VR=2.0&SV=Split&MT=Westlaw&FN=_top),
    [202](http://web2.westlaw.com/Find/Default.wl?DB=1000546&DocName=47USCAS202&FindType=L&AP=&RS=WLW2.92&VR=2.0&SV=Split&MT=Westlaw&FN=_top),
    [203](http://web2.westlaw.com/Find/Default.wl?DB=1000546&DocName=47USCAS203&FindType=L&AP=&RS=WLW2.92&VR=2.0&SV=Split&MT=Westlaw&FN=_top),
    and section 1.2 of the Commission\'s rules, [47 C.F.R. §
    1.2](http://web2.westlaw.com/Find/Default.wl?DB=1000547&DocName=47CFRS1.2&FindType=L&AP=&RS=WLW2.92&VR=2.0&SV=Split&MT=Westlaw&FN=_top),
    that the Petition for Declaratory Ruling that AT&T's Phone-to-Phone
    IP Telephony Services are Exempt from Access Charges IS DENIED as
    set forth herein.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch\
> Secretary

**[ATTACHMENT A]{.underline}**

**Comments Filed:**

Alaska Exchange Carriers Association, Inc. (AECA)

American Internet Service Providers Association, *et al.* (AISPA)

Americans for Tax Reform

Association for Communications Enterprises, *et al.* (ASCENT)

Beacon Telecommunications Advisors, LLC

BellSouth Corp.

California RTCS

Fair Access Charge Rural Telephone Group (Rural Telephone Group)

Fred Williamson and Associates, Inc. (FW&A)

Frontier Telephone of Rochester, Inc.

Global Crossing North America, Inc.

GVNW Consulting, Inc.

ICORE Companies

John Staurulakis, Inc. (JSI)

Level 3 Communications, LLC

Minnesota Independent Coalition

Missouri Small Telephone Company Group

National Exchange Carrier Association (NECA)

National Telecommunications Cooperative Association (NTCA)

NetAction

Net2Phone, Inc.

New Hampshire Public Utilities Commission

New York State Department of Public Service

Organization for the Promotion and Advancement of Small
Telecommunications Companies (OPASTCO)

Qwest Communications International, Inc.

Rural Iowa Independent Telephone Association

SBC Communications Inc.

Small Business Survival Committee (SBSC)

Southeastern Services, Inc. (SSI)

Sprint Corp.

TCA

Time Warner Telecom

United States Telecom Association (USTA)

Verizon

VON Coalition

Warinner, Gesinger & Associates, LLC

Washington Independent Telephone Association, *et al.* (WITA)

Western Alliance

WorldCom

**Reply Comments Filed:**

Regulatory Commission of Alaska (Alaska Commission)

American Internet Service Providers Association, *et al.* (AISPA)

AT&T Corp.

AT&T Wireless Services, Inc.

Beacon Telecommunications Advisors, LLC

BellSouth Corp.

California Public Utilities Commission (California Commission)

California Telephone Association

Competitive Telecommunications Association (CompTel)

Fred Williamson and Associates, Inc. (FW&A)

Global Crossing North America, Inc.

GVNW Consulting, Inc.

ICG Communications, *et al.* (ICG Joint Comments)

IDT Corporation

Information Technology Association of America (ITAA)

ISP/VoIP Coalition

Michigan Public Service Commission (Michigan Commission)

Minnesota Independent Coalition

National Cable & Telecommunications Association (NCTA)

National Exchange Carrier Association (NECA)

Net2Phone, Inc.

Northeast Florida Telephone Company (NEFCOM)

Organization for the Promotion and Advancement of Small Telecom. Cos.
(OPASTCO)

Qwest Communications International, Inc.

SBC Communications Inc.

State Members of the Federal-State Joint Board on Separations

Sprint Corporation

Southeastern Services, Inc. (SSI)

Texas Office of Public Utility Counsel, *et al.* (TOPUC)

Texas Statewide Telephone Cooperative, Inc. (TSTCI)

United States Telecom Association (USTA)

Verizon

Warinner, Gesinger & Associates, LLC

Washington Independent Telephone Association, *et al.* (WITA)

WorldCom

**[Statement of]{.smallcaps}**

**[Chairman Michael K. Powell]{.smallcaps}**

> *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 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.[^94]

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***

#  {#section .unnumbered}

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."[^95] 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."[^96]
As the Order notes, one relevant factor is whether there has been
"detrimental reliance" on prior pronouncements by the Commission.[^97]

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.[^98]

> 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.[^99]

The Commission also noted that access charges different from those
assessed on circuit-switched interexchange traffic "may" apply to VoIP
services.[^100] 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."[^101]

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*.[^102] 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]: Petition for Declaratory Ruling that AT&T's Phone-to-Phone IP
    Telephony Services are Exempt from Access Charges (filed Oct. 18,
    2002) (AT&T Petition). AT&T seeks a declaratory ruling as to the
    applicability of interstate access charges to these services, and it
    asserts that such a ruling will provide guidance to states that
    mirror federal rules in assessing intrastate access charges. AT&T
    Petition at 1.

[^2]: AT&T Petition at 19.

[^3]: AT&T Petition at 18-19.

[^4]: AT&T Petition at 19.

[^5]: *IP-Enabled Services*, WC Docket No. 04-36, Notice of Proposed
    Rulemaking, FCC 04-28 (Mar. 10, 2004) (*IP-Enabled Services*).

[^6]: *IP-Enabled Services*, WC Docket No. 04-36, FCC 04-28 at paras.
    61-62.

[^7]: *See, e.g.,* Sprint Comments at 9 ("there is a pressing need for
    the Commission to clarify whether phone-to-phone VOIP traffic should
    be subject to or exempt from access charges"); Letter from David L.
    Sieradzki, Counsel for WilTel Communications Group, Inc., to Marlene
    H. Dortch, Secretary, Federal Communications Commission, WC Docket
    No. 02-361, Att. at 1, 3-4 (filed Mar. 12, 2004) (WilTel March 12
    *Ex Parte* Letter) (WilTel takes no position on the outcome of the
    proceeding, but asks the Commission to act to provide clarity to the
    industry); Letter from Thomas Jones, Counsel for Time Warner
    Telecom, to Marlene H. Dortch, Secretary, Federal Communications
    Commission, CC Docket No. 01-92, WC Docket Nos. 02-361 and 03-211,
    1-2 (filed Nov. 25, 2003) (Time Warner November 25 *Ex Parte*
    Letter) (urging the Commission to act quickly to provide clear
    policy guidance on the application of interstate access charges to
    VoIP traffic).

[^8]: Sprint Comments at 10, 12-13; Time Warner Comments at 2-3; Letter
    from Peter A. Rohrbach, Counsel for WilTel Communications, LLC, to
    Marlene H. Dortch, Secretary, Federal Communications Commission, WC
    Docket No. 02-361, Att. at 1 (filed Jan. 23, 2004) (WilTel January
    23 *Ex Parte* Letter);

[^9]: *Developing a Unified Intercarrier Compensation Regime*, CC Docket
    No. 01-92, Notice of Proposed Rulemaking, 16 FCC Rcd 9610 (2001)
    (*Intercarrier Compensation*).

[^10]: *See Regulatory and Policy Problems Presented by the
    Interdependence of Computer and Communication Services and
    Facilities*, Docket No. 16979, Notice of Inquiry, 7 FCC 2d 11 (1966)
    (*Computer I* *NOI*); *Regulatory and Policy Problems Presented by
    the Interdependence of Computer and Communication Services and
    Facilities*, Docket No. 16979, Final Decision and Order, 28 FCC 2d
    267 (1971) (*Computer I Final Decision*); *Amendment of Section
    64.702 of the Commission\'s Rules and Regulations (Second Computer
    Inquiry)*, Docket No. 20828, Tentative Decision and Further Notice
    of Inquiry and Rulemaking, 72 FCC 2d 358 (1979) (*Computer II
    Tentative Decision*); *Amendment of Section 64.702 of the
    Commission\'s Rules and Regulations (Second Computer Inquiry)*,
    Docket No. 20828, Final Decision, 77 FCC 2d 384 (1980) (*Computer II
    Final Decision*); *Amendment of Section 64.702 of the Commission\'s
    Rules and Regulations (Third Computer Inquiry)*, CC Docket No.
    85-229, Report and Order, 104 FCC 2d 958 (1986) (*Computer III*)
    (subsequent cites omitted) (collectively the *Computer Inquiries*).

[^11]: *Computer II Final Decision*, 77 FCC 2d at 419-22, paras. 93-99.

[^12]: *Computer II Final Decision*, 77 FCC 2d at 420-21, para. 97.

[^13]: *Amendment to Sections 64.702 of the Commission's Rules and
    Regulations (Third Computer Inquiry); and Policy and Rules
    Concerning Rates for Competitive Common Phase II Carrier Service and
    Facilities Authorization Thereof; Communications Protocols Under
    Section 64.702 of the Commission's Rules and Regulations*, CC Docket
    No. 85-229, Report and Order, 2 FCC Rcd 3072, 3081-82, paras. 64-71
    (1987) (*Computer III Phase II Order*); *Implementation of the
    Non-Accounting Safeguards of Sections 271 and 272 of the
    Communications Act of 1934, as Amended*, CC Docket No. 96-149, First
    Report and Order and Further Notice of Proposed Rulemaking, 11 FCC
    Rcd 21905, 21957-58, para. 106 (1996) (*Non-Accounting Safeguards
    Order*). The Commission identified three categories of protocol
    processing services that would be treated as basic services. These
    categories include protocol processing: (1) involving communications
    between an end user and the network itself (e.g., for initiation,
    routing, and termination of calls) rather than between or among
    users; (2) in connection with the introduction of a new basic
    network technology (which requires protocol conversion to maintain
    compatibility with existing CPE); and (3) involving internetworking
    (conversions taking place solely within the carrier's network to
    facilitate provision of a basic network service that result in no
    net conversion to the end user). *Computer III Phase II Order*, 2
    FCC Rcd at 3081-82, paras. 64-71; *Non-Accounting Safeguards Order*,
    11 FCC Rcd at 21957-58, para. 106. The first and third identified
    categories of processing services result in no net protocol
    conversion to the end user. *Implementation of the Non-Accounting
    Safeguards of Sections 271 and 272 of the Communications Act of
    1934, as Amended*, CC Docket No. 96-149, Order on Reconsideration,
    12 FCC Rcd 2297, 2297-99, para. 2 (1997).

[^14]: *Computer II Final Decision*, 77 FCC 2d at 430, para. 120.

[^15]: *Computer II Final Decision*, 77 FCC 2d at 432, para. 125.

[^16]: *Computer II Final Decision*, 77 FCC 2d at 432-35, paras.
    126-132. Title II of the Communications Act imposes certain
    requirements on common carriers, including requiring carriers to
    provide service on just, reasonable, and nondiscriminatory rates and
    terms; to comply with tariffing requirements for dominant carriers;
    to meet certain certification and discontinuance requirements; to
    comply with interconnection obligations; to contribute to the
    universal service fund; to provide access to law enforcement for
    authorized wiretapping pursuant to CALEA, the Communications
    Assistance for Law Enforcement Act; to comply with disability
    accessibility requirements; and to comply with privacy requirements.
    47 U.S.C. §§ 201-276.

[^17]: *Computer I Final Decision*, 28 FCC 2d at 268-70, 277, paras.
    4-10, 24; *Computer II Final Decision*, 77 FCC 2d at 435, 474,
    paras. 132, 229.

[^18]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (1996).

[^19]: 47 U.S.C. §§ 153(20), (43), and (46).

[^20]: 47 U.S.C. § 153(43).

[^21]: 47 U.S.C. § 153(46).

[^22]: 47 U.S.C. § 153(20).

[^23]: *Non-Accounting Safeguards Order*, 11 FCC Rcd at 21955-58, paras.
    102-107; *Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report to Congress, 13 FCC Rcd 11501, 11507-08, 11516-17,
    paras. 13, 33 (1998) (*Stevens Report*).

[^24]: *Stevens Report*, 13 FCC Rcd at 11507-08, para. 13.

[^25]: *Non-Accounting Safeguards Order*, 11 FCC Rcd at 21957-58, para.
    106. Similarly, the Commission found that certain classes of
    "excepted" protocol processing services are telecommunications
    services as well. *Non-Accounting Safeguards Order*, 11 FCC Rcd at
    21958, para. 106.

[^26]: *Stevens Report*, 13 FCC Rcd at 11526, para. 50 (citing
    *Non-Accounting Safeguards Order*, 11 FCC Rcd at 21958 para. 107).

[^27]: *Stevens Report*, 13 FCC Rcd at 11527, para. 52.

[^28]: *Stevens Report*, 13 FCC Rcd at 11544, para. 91.

[^29]: *Stevens Report*, 13 FCC Rcd at 11541-45, paras. 83-93.

[^30]: *Stevens Report*, 13 FCC Rcd at 11543, para. 87.

[^31]: *Stevens Report*, 13 FCC Rcd at 11543, para. 87.

[^32]: *Stevens Report*, 13 FCC Rcd at 11543, para. 87. The Commission
    recognized, however, that its analysis focused on ISPs as entities
    procuring inputs from telecommunications service providers. Thus,
    classifying Internet access as an information service in this
    context left open significant questions regarding the treatment of
    the Internet (and information) service providers that own their own
    transmission facilities and that engage in data transport over those
    facilities to provide an information service. *Stevens Report*, 13
    FCC Rcd at 11534, para. 69. In addition, the Commission did not
    expressly address the regulatory classification of wireline
    broadband Internet access services in the *Stevens Report*;
    classification of those services is being addressed in the *Wireline
    Broadband NPRM*. *Appropriate Framework for Broadband Access to the
    Internet over Wireline Facilities*, CC Docket Nos. 02-33, 95-20,
    98-10, Notice of Proposed Rulemaking, 17 FCC Rcd 3019, 3027-28,
    para. 14 (2002) (*Wireline Broadband NPRM*).

[^33]: *Stevens Report*, 13 FCC Rcd at 11543-44, para. 88.

[^34]: *Stevens Report*, 13 FCC Rcd at 11544, para. 89.

[^35]: *Stevens Report*, 13 FCC Rcd at 11544, para. 90.

[^36]: *Stevens Report*, 13 FCC Rcd at 11544, para. 91.

[^37]: *Stevens Report*, 13 FCC Rcd at 11544-45, para. 91.

[^38]: In 1999, U S 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 U S 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 U S West subsequently withdrew it. Letter from Melissa
    E. Newman, Vice President-Federal Regulatory, Qwest, to Magalie
    Roman Salas, Secretary, Federal Communications Commission (Aug. 10,
    2001).

[^39]: *Intercarrier Compensation*, 16 FCC Rcd at 9657, para. 133. The
    Commission made this statement in the Initial Regulatory Flexibility
    Analysis section of the notice as an explanation for the need for
    and objectives of the rulemaking.

[^40]: *Wireline Competition Bureau Seeks Comment on AT&T's Petition for
    Declaratory Ruling that AT&T's Phone-to-Phone IP Telephony Services
    are Exempt from Access Charges*, WC Docket No. 02-361, Public
    Notice, 17 FCC Rcd 23,556 (Wireline Comp. Bur. 2002); *Wireline
    Competition Bureau Extends Deadline for Filing Reply Comments to
    Comments on AT&T's Petition for Declaratory Ruling that AT&T's
    Phone-to-Phone IP Telephony Services are Exempt from Access
    Charges*, WC Docket No. 02-361, Public Notice, 17 FCC Rcd 24,471
    (Wireline Comp. Bur. 2002). A list of parties filing comments and
    reply comments is included at Attachment A.

[^41]: *Petition for Declaratory Ruling that pulver.com's Free World
    Dialup is Neither Telecommunications Nor a Telecommunications
    Service*, WC Docket No. 03-45, Memorandum Opinion and Order, FCC
    04-27 (Feb. 19, 2004).

[^42]: *IP-Enabled Services*, WC Docket No. 04-36, FCC 04-28.

[^43]: *See* Sprint Comments at 2-3 (seeking prompt clarification that
    AT&T's type of service should be subject to access charges); Time
    Warner Comments at 4 (seeking prompt clarification that AT&T's type
    of service is exempt from access charges); WilTel January 23 *Ex
    Parte* Letter, Att. at 1 (seeking prompt resolution of the issue
    while taking no position on what should be the outcome).

[^44]: *Intercarrier Compensation*, 16 FCC Rcd 9610.

[^45]: AT&T Petition at 18.

[^46]: AT&T Petition at 18-19. Feature Group D trunks allow end users to
    use 1+ dialing for long-distance calls, with the call being handled
    by the caller's preselected interexchange carrier. Without use of
    Feature Group D, the user must first dial a 7- or 10-digit number, a
    calling card number and PIN number, and then the desired telephone
    number. Harry Newton, *Newton's Telecom Dictionary* 318 (19^th^ ed.
    2003).

[^47]: Although AT&T's specific service uses the LECs' terminating
    switching facilities in the same manner as traditional
    circuit-switched long-distance calls that are subject to access
    charges, we note that local calls, which are not subject to access
    charges, also use terminating switching facilities in the same
    manner. As we stated in the *IP-Enabled Services* notice of proposed
    rulemaking, "\[a\]s a policy matter, we believe that any service
    provider that sends traffic to the PSTN should be subject to similar
    compensation obligations, irrespective of whether traffic originates
    on the PSTN, on an IP network, or on a cable network. We maintain
    that the cost of the PSTN should be borne equitably among those that
    use it in similar ways." *IP-Enabled Services*, WC Docket No. 04-36,
    FCC 04-28, para. 61. Therefore, we initiated the *Intercarrier
    Compensation* proceeding to address troublesome consequences of
    disparate intercarrier compensation regimes and to advance the
    policy goal of a unified intercarrier compensation regime.
    *Intercarrier Compensation*, 16 FCC Rcd 9610. We will also examine
    appropriate compensation mechanisms for IP services' use of
    switching facilities in the *IP-Enabled Services* rulemaking
    proceeding. *IP-Enabled Services*, WC Docket No. 04-36, FCC
    04-28**.**

[^48]: AT&T Petition at 19. AT&T pays the lower local business line rate
    for terminating calls in this manner, as opposed to paying the
    higher terminating access charge rate that would apply to traffic
    terminated over Feature Group D trunks.

[^49]: AT&T terminates these calls through local primary rate interface
    (PRI) trunks to LEC end offices. To the extent AT&T purchases PRIs
    from a competitive LEC and the called party is served by an
    incumbent LEC, the competitive LEC terminates the call over
    reciprocal compensation trunks. Therefore, the incumbent LEC
    receives either (1) the rate paid for the PRI trunk if AT&T
    purchased it from the incumbent LEC; or (2) the reciprocal
    compensation rate for terminating the call from the competitive LEC
    if AT&T purchased the PRI trunk from a competitive LEC. AT&T
    Petition at 19.

[^50]: 47 U.S.C. § 153(43).

[^51]: 47 U.S.C. § 153(46).

[^52]: 47 U.S.C. § 153(20).

[^53]: *Non-Accounting Safeguards Order*, 11 FCC Rcd at 21957-58, para.
    106.

[^54]: This determination is consistent with the Commission's tentative
    conclusion in the *Stevens Report* that phone-to-phone IP telephony
    bears the characteristics of telecommunications service. *Stevens
    Report*, 13 FCC Rcd at 11544, para. 89. AT&T's specific service
    meets the four conditions that the Commission stated "it tentatively
    intend\[ed\] to refer to" as phone-to-phone IP telephony. *Stevens
    Report*, 13 FCC Rcd at 11543-44, para. 88.

[^55]: *See* Global Crossing Comments at 8-11; Net2Phone Comments at
    2-4; ITAA Reply at 4-6.

[^56]: AT&T Reply at 27-28.

[^57]: AT&T Petition at 28; Global Crossing Comments at 16-17; AT&T
    Reply at 28-30.

[^58]: The ISP/VoIP Coalition asks the Commission to rule that, even if
    some forms of VoIP are found to be telecommunications services,
    services that do not use 1+ dialing are information/enhanced
    services. ISP/VoIP Coalition Reply at 4-5. Because AT&T's specific
    service does utilize 1+ dialing, other VoIP services that do not are
    beyond the scope of this proceeding.

[^59]: "Carrier's carrier charges shall be computed and assessed upon
    all interexchange carriers that use local exchange switching
    facilities for the provision of interstate or foreign
    telecommunications services." 47 C.F.R. § 69.5(b).

[^60]: *Implementation of the Local Competition Provisions in the
    Telecommunications Act of 1996; Inter-Carrier Compensation for
    ISP-Bound Traffic*, Declaratory Ruling in CC Docket No. 96-98 and
    Notice of Proposed Rulemaking in CC Docket No. 99-68, 14 FCC Rcd
    3689, 3693, para. 6 (1999) (*ISP Reciprocal Compensation Declaratory
    Ruling*), *vacated and remanded*, *Bell Atlantic Tel. Cos. v. FCC*,
    206 F.3d 1 (D.C. Cir. 2000). As an example of the Commission's
    "hands off" regulatory approach, it exempted enhanced service
    providers (ESPs) from paying access charges to avoid imposing severe
    rate increases on ESPs and to avoid disrupting the industry segment.
    *MTS and WATS Market Structure*, CC Docket No. 78-72 Phase I,
    Memorandum Opinion and Order, 97 FCC 2d 682, 715, para. 83 (1983)
    (*MTS/WATS Market Structure Order*); *Amendments of Part 69 of the
    Commission's Rules Relating to Enhanced Service Providers*, CC
    Docket No. 87-215, Order, 3 FCC Rcd 2631, 2633, para. 17 (1988)
    (*ESP Exemption Order*).

[^61]: 47 U.S.C. § 254. As AT&T recognizes, some states mirror federal
    rules in assessing intrastate access charges; therefore, our
    decision may affect intrastate access charges in those states. AT&T
    Petition at 1.

[^62]: *IP-Enabled Services*, WC Docket No. 04-36, Notice of Proposed
    Rulemaking, FCC 04-28 at paras. 61-66.

[^63]: Under section 69.5(b) of the Commission's rules, "\[c\]arrier's
    carrier \[access\] charges shall be computed and assessed upon all
    interexchange carriers that use local exchange switching facilities
    for the provision of interstate or foreign telecommunications
    services." 47 C.F.R. § 69.5(b).

[^64]: Some commenters ask us to find that IP telephony is within the
    Commission's exclusive jurisdiction and subject to federal
    preemption. American ISP Ass'n Joint Comments at 17-19; Global
    Crossing Comments at 7-8; IDT Reply at 10-11. We find, however, that
    AT&T's specific service is a telecommunications service to which
    access charges apply. Therefore, we do not address the preemption
    issue in this proceeding. In the *IP-Enabled Services* proceeding,
    however, the Commission is seeking comment on whether there are
    categories of IP-enabled services that should be regulated only at
    the federal level. *IP-Enabled Services*, WC Docket No. 04-36,
    Notice of Proposed Rulemaking, FCC 04-28 at paras. 40-41.

[^65]: AT&T Petition at 12-17; AT&T Reply at 7-13; Letter from David L.
    Lawson, Sidley, Austin, Brown & Wood LLP, to Marlene H. Dortch,
    Secretary, Federal Communications Commission, WC Docket No. 02-361,
    2-3 (filed Dec. 22, 2003) (AT&T December 22 *Ex Parte* Letter);
    Letter from Patrick H. Merrick, Director-Regulatory Affairs, AT&T
    Federal Government Affairs, to Marlene H. Dortch, Secretary, Federal
    Communications Commission, WC Docket No. 02-361, Att. at 1-6 (filed
    Feb. 20, 2004) (AT&T February 20 *Ex Parte* Letter).

[^66]: *Sprint* *Corp. v. FCC*, 315 F.3d 369, 374 (D.C. Cir. 2003) (the
    Commission must use the notice-and-comment rulemaking process to
    make "substantive changes in prior regulations").

[^67]: The intent underlying the Commission's prior statements regarding
    phone-to-phone services such as AT&T's remains a matter of
    significant dispute. As the Commission recently observed in the
    *IP-Enabled Services* NPRM, the *Stevens Report* includes statements
    that can be read to suggest that phone-to-phone services such as
    AT&T's are telecommunications services subject to access charges,
    but also includes statements that appear to suggest that access
    charges or similar charges would be imposed on such services only at
    some future date, if at all. *IP-Enabled Services*, WC Docket No.
    04-36, Notice of Proposed Rulemaking, FCC 04-28 at paras. 29-30
    (citing *Stevens Report* paras. 50, 52, 91). The *IP-Enabled
    Services* NPRM also noted that the Initial Regulatory Flexibility
    Analysis in the *Intercarrier Compensation* NPRM stated that IP
    telephony "threatens to erode access revenues for LECs because it is
    exempt from the access charges that traditional long-distance
    carriers must pay." *IP-Enabled Services*, WC Docket No. 04-36,
    Notice of Proposed Rulemaking, FCC 04-28 at para. 30 (citing
    *Intercarrier Compensation*, 16 FCC Rcd at 9657, para. 133). It is
    not clear whether or not this reference to "IP telephony" was
    intended to include phone-to-phone services that use IP in the
    backbone.

[^68]: 47 C.F.R. § 1.3; *WAIT Radio v. FCC*, 418 F.2d 1153, 1157 (D.C.
    Cir. 1969).

[^69]: *See* paras. 22-23 *infra.*

[^70]: AT&T Petition at 24; Global Crossing Comments at 6.

[^71]: AT&T Petition at 24; Global Crossing Comments at 4-5.

[^72]: 47 U.S.C. § 230(b)(2). AT&T Petition at 25; Americans for Tax
    Reform Comments at 1; Small Business Survival Committee Comments at
    1; AT&T Reply at 19-23; ITAA Reply at 12-13.

[^73]: *See* para. 14, *supra*.

[^74]: AT&T Petition at 25; American ISP Ass'n Joint Comments at 32;
    WorldCom Comments at 6-7; AT&T Reply at 28, 32-33. AT&T cites the
    Commission's ESP exemption as a basis for declaring AT&T's specific
    service free from access charges. AT&T Petition at 26 (the ESP
    exemption applies to Internet service providers (ISPs) and is
    sometimes referred to as the ISP exemption). As AT&T also notes,
    however, the ESP exemption applies to interactive computer services,
    not to telecommunications services. AT&T Petition at 8.

[^75]: FW&A Comments at 12-13; JSI Comments at 6; OPASTCO Comments at
    5-6; TCA Comments at 5-6; Western Alliance Comments at 9-10. *See
    Access Charge Reform*, Sixth Report and Order in CC Docket Nos.
    96-262 and 94-1, Report and Order in CC Docket No. 99-249, Eleventh
    Report and Order in CC Docket No. 96-45, 15 FCC Rcd 12962, 13027,
    para. 158 (2000) (*CALLS Order*) (changes to the Commission's price
    cap rules drove interstate switched access usage charges for price
    cap carriers closer to their actual costs more quickly than would
    have occurred under the prior price cap regime); *Multi-Association
    Group (MAG) Plan for Regulation of Interstate Services of Non-Price
    Cap Incumbent Local Exchange Carriers and Interexchange Carriers*,
    Second Report and Order and Further Notice of Proposed Rulemaking in
    CC Docket No. 00-256, Fifteenth Report and Order in CC Docket No.
    96-45, and Report and Order in CC Docket Nos. 98-77 and 98-166, 16
    FCC Rcd 19613, 19651, para. 83 (2001) (*MAG Order*) ("Based on
    examination of the record in the above-captioned proceedings, we
    have not identified any rate structure modifications, other than the
    modifications addressed below, that would remove non-cost-based rate
    elements or implicit subsidies from the rate structure of
    rate-of-return carriers.").

[^76]: *Intercarrier Compensation*, 16 FCC Rcd 9610.

[^77]: 47 C.F.R. § 69.5(b).

[^78]: Time Warner Comments at 6; Qwest Reply at 6-7; WITA Reply at 7-8.

[^79]: AT&T Petition at 28-31; ASCENT Joint Comments at 24-25; Level 3
    Comments at 12-13.

[^80]: *See* 47 C.F.R. § 69.5(b) (imposing access charges on
    "interexchange carriers that use local exchange switching facilities
    for the provision of interstate or foreign telecommunications
    services"). Depending on the nature of the traffic, carriers such as
    commercial mobile radio service (CMRS) providers, incumbent LECs,
    and competitive LECs may qualify as interexchange carriers for
    purposes of this rule.

[^81]: WilTel March 12 *Ex Parte* Letter at Att.

[^82]: We are examining reform of our current intercarrier compensation
    rules in our *Intercarrier Compensation* proceeding and expect to
    act further on that proceeding in the near future. *See Intercarrier
    Compensation*, 16 FCC Rcd 9610. In that proceeding, the Commission
    will address further reconciliation of the access charge regime with
    reciprocal compensation arrangements pursuant to section 251(b)(5)
    of the Act.

[^83]: AT&T Petition at 31-32; ASCENT Joint Comments at 18-19; AT&T
    Reply at 30-31; ICG/Vonage Reply at 7-8; ITAA Reply at 13-14.

[^84]: Beacon Comments at 2-5; Fred Williams & Associates Comments at
    17-19; Verizon Comments at 8; Time Warner November 25 *Ex Parte*
    Letter at 3 n.10.

[^85]: *Stevens Report*, 13 FCC Rcd at 11545, para. 91.

[^86]: BellSouth Comments at 10; Qwest Comments at 15-16; SBC Comments
    at 8-9; Verizon Comments at 6-7.

[^87]: AT&T Petition at 12-17; Sprint Comments at 6-7; AT&T Reply at
    7-13; AT&T December 22 *Ex Parte* Letter at 1-4; AT&T February 20
    *Ex Parte* Letter at 13-25; Time Warner November 25 *Ex Parte*
    Letter at 3-7.

[^88]: AT&T December 22 *Ex Parte* Letter at 1-2; AT&T February 20 *Ex
    Parte* Letter at 13-22; Time Warner November 25 *Ex Parte* Letter at
    4-7.

[^89]: *SEC v. Chenery*, 332 U.S. 194, 203 (1947).

[^90]: *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'").

[^91]: *Verizon Tel. Cos. v. FCC*, 269 F.3d 1098, 1109 (D.C. Cir. 2001).

[^92]: We note that, pursuant to section 69.5(b) of our rules, access
    charges are to be assessed on interexchange carriers. 47 C.F.R. §
    69.5(b). To the extent terminating LECs seek application of access
    charges, these charges should be assessed against interexchange
    carriers and not against any intermediate LECs that may hand off the
    traffic to the terminating LECs, unless the terms of any relevant
    contracts or tariffs provide otherwise.

[^93]: We note that the courts appear to have sanctioned deferring such
    equitable considerations to case-by-case determinations. *See,
    e.g.*, *Verizon*, 269 F.3d at 1101 (affirming general finding of
    liability but expressing "no opinion as to the Commission's
    authority to impose damages" on parties that may have detrimentally
    relied on "the agency's initial (and mistaken) interpretations").
    Under sections 206-209 of the Act, the Commission does not act as a
    collection agent for carriers with respect to unpaid tariffed
    charges. Therefore we expect that LECs will file any claims for
    recovery of unpaid access charges in state or federal courts, as
    appropriate. *See Beehive Tele., Inc. v. Bell Operating Cos.*, File
    No. E-94-57, Memorandum Opinion and Order, 10 FCC Rcd 10562 (1995)
    (holding that the Commission does not have jurisdiction to resolve
    claims for collection of unpaid tariff charges); *Illinois Bell Tel.
    Co. v. AT&T*, File Nos. E-88-73, E-88-118, E-88-120, E-88-119,
    E-89-41 through E-89-61, E-89-133, Order, 4 FCC Rcd 5268 (1989);
    *Illinois Bell Tel. Co. v. AT&T*, File Nos. E-88-73, E-88-118,
    E-88-120, E-88-119, E-89-41 through E-89-61, E-89-133, Order, 4 FCC
    Rcd 7759 (1989); *Tel-Central v. United Tel. Co.*, File No. E-87-59,
    Memorandum Opinion and Order, 4 FCC Rcd 8338 (1989); *Long
    Distance/USA, Inc. v. Bell Tel. Co. of Pa.*, File Nos. E-89-03
    through E-89-32, Memorandum Opinion and Order, 7 FCC Rcd 408 (Com.
    Car. Bur. 1992); *American Sharecom, Inc. v. Mountain States Tele. &
    Telegraph Co.*, File Nos. E-88-36, E-88-37, Memorandum Opinion and
    Order, 8 FCC Rcd 6727 (Com. Car. Bur. 1993); *C.F. Communs. Corp. v.
    Century Tele. of Wisconsin*, File Nos. E-89-170 through E-89-172,
    E-89-179 through E-89-182, Memorandum Opinion and Order, 8 FCC Rcd
    7334 (Com. Car. Bur. 1993). *But see MGC Comm., Inc., v. AT&T*, File
    No. EAD-99-002, Memorandum Opinion and Order, 15 FCC Rcd 308 (1999)
    (deciding claim for recovery of tariffed charges without discussing
    jurisdiction issue, which neither party raised).

[^94]: 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.

[^95]: *SEC v. Chenery,* 332 U.S. 194, 203 (1947).

[^96]: *Cassell v. FCC,* 154 F.3d 478, 486 (D.C. Cir. 1998) (quoting
    C*lark-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'").

[^97]: *Verizon Tel. Cos. v. FCC,* 269 F.3d 1098, 1110 (D.C. Cir. 2001).

[^98]: 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").

[^99]: *Id.*

[^100]: *Id.*

[^101]: Developing a Unified Intercarrier Compensation Regime, FCC
    01-132, 16 FCC Rcd at 9657, at para. 133 ("Intercarrier
    Compensation").

[^102]: 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).