AT&T to pay VoIP carrier access fees

["CHRIS PEABODY" <>]

Very interesting - and I thinks is demonstrative of how important these 
arcane intercarrier compensation rules will be as the FCC and the industry 
re-write the rules.  The FCC noted earlier that intercarrier compensation was 
a very big issue for small and rural carriers.
        
washingtonpost.com

AT&T Faces Bills for Calls Carried Over Internet

By Christopher Stern
Washington Post Staff Writer
Thursday, April 8, 2004; Page E01

The Federal Communications Commission is prepared to rule against AT&T 
Corp.'s request that it be exempted from paying local telephone companies 
hundreds of millions of dollars in fees because the long-distance calls 
traveled partly over the Internet.

The decision could prove costly for AT&T, which has withheld some payments to 
regional telephone companies for as long as two years, claiming that calls 
carried for even short distances over the largely unregulated Internet should 
not be subject to traditional phone fees.

A majority of at least three of the agency's five commissioners has voted to 
reject AT&T's argument, sources at the agency confirmed yesterday. "This baby 
is a done deal," said one agency official.

No official was willing to be identified by name because commissioners have 
yet to make their votes public.

The pending ruling is just one piece of a larger debate at the FCC over how 
phone service should be regulated when calls are carried on the Internet. 
Internet-only calling is currently exempt from fees under the theory that the 
technology is still young. But telephone companies of all stripes are 
pressing the FCC to free them from the obligation in an effort to speed 
innovation and avoid being put at a disadvantage with their new competitors.

Until those rules are changed, regional phone companies, led by SBC 
Communications Inc., argue that AT&T must pay the access fees because the 
local phone companies are incurring the cost of connecting and completing the 
calls. AT&T often routes calls over its own private Internet network for at 
least a portion of their journey.

AT&T acknowledged yesterday that it had lost the battle at the agency. 
"Unfortunately, we expect our petition to be denied," said AT&T spokeswoman 
Claudia Jones. "It will be the first sign that the FCC will impose legacy 
regulations on new technologies," she added.

Had AT&T won its case, the decision would have put billions of dollars in 
so-called access charges in jeopardy across the industry. Under the current 
regulatory regime, AT&T and other long-distance companies must pay the fees 
to cover the cost of connecting their long-distance customers to local 
networks. The fee is owed both to the companies that connect customers who 
are making calls and to the local telephone companies that deliver the calls 
to their final destination.

The fees are the single largest expense for long-distance companies, equal in 
most cases to more than 40 percent of their total revenue.

SBC has argued that AT&T, the only major long-distance company to claim it 
did not owe the fees, has withheld hundreds of millions of dollars from the 
local phone provider.

While the ruling would require AT&T to pay the fees in the future, it is 
silent on the matter of retroactive payments. Sources within the agency said 
that FCC Chairman Michael K. Powell failed to win support for a proposal to 
require AT&T to pay the fees retroactively.

Even though three commissioners, including Powell, Kathleen Q. Abernathy and 
Jonathan S. Adelstein, have already voted, it may be two weeks before a final 
decision is issued, sources said. Under the agency's rules, once three 
commissioners vote, other members have up to three weeks to make their 
decision.

Sources familiar with the proposed ruling say it will leave the door open for 
SBC and other local companies to file lawsuits against AT&T to recover past 
payments against AT&T.

"As soon as we see the order, we'll see what the next step is," said SBC 
spokesman David A. Pacholczyk.

The agency recently ruled in a separate case that it would not require 
companies that route calls over the Internet to pay the access charges. But 
in that case, the commission ruled that the exemption applied only in cases 
in which calls were carried in their entirety over the Internet and never 
touched the traditional local networks.

It is not clear what the financial impact will be if AT&T is ultimately 
forced to pay the back charges.

In its own filings with the FCC, SBC has stated that long-distance companies 
generally could owe between $250 million and $450 million.

However, both Sprint Corp. and WorldCom Inc., say they already pay access 
charges, even when they carry long-distance calls over their own internal 
Internet networks.

AT&T did not officially mention any potential liability from the FCC's 
decision until last month, when it said in a financial statement filed the 
Securities and Exchange Commission that the FCC may regulate calls that 
travel over the Internet in the future, "which would eliminate some or all of 
the access cost savings we expect to receive."

"They have talked about it publicly, but they have not mentioned numbers," 
said Rick Grubbs, senior telecommunications analyst with Kaufman Bros. L.P.

Grubbs said the potential impact of the decision depends on the size of the 
liability. "If it's only $100 million or so, for a company their size, it's 
not that material," Grubbs said.

But Drake Johnstone, a telecommunications analyst with Davenport & Co., said 
AT&T had an obligation to say how large the liability could be. "This is 
something that AT&T should have disclosed, that they have a potential risk to 
incur these costs," he said.

© 2004 The Washington Post Company



Chris Peabody
Director, Enterprise Network Communication Systems
L Robert Kimball & Associates
Washington, DC
301-296-4550  Work
301-529-3825 Cell