FCC Holds Originating End Office Does Not Apply to OTT VoIP Calls

As expected, the FCC released an OTT VoIP Access Order that rejected the ability of Over-the-Top (“OTT”) VoIP providers and their CLEC partners to bill originating end office switching charges.

In 2011, the FCC’s Transformation Order, as part of its initial steps to phase-out access charges on interexchange calls adopted what is now the “VoIP Symmetry Rule.”  The Rule “permit[s] a LEC to charge the relevant intercarrier compensation for functions performed by it and/or by its retail VoIP partner, regardless of whether the functions performed or the technology used correspond precisely to those used under a traditional . . . architecture.” 

Because of a large number of intercarrier disputes over the application of the Rule, the FCC, on its own motion in 2015, adopted a Declaratory Ruling that held access charges could be levied on OTT VoIP traffic, i.e., calls placed over a broadband connection supplied by a third-party.  The Declaratory Ruling was challenged in court.  In 2016, the D.C. Circuit vacated the Declaratory Ruling for lack of a sufficient explanation of the FCC’s decision to apply access to OTT traffic.  The court’s remand sat dormant at the FCC until CenturyLink filed its Petition for Declaratory Ruling (“CTL PDR”) in 2018.

In limiting the availability of end office access to VoIP calls that transverse a broadband connection provided by the CLEC (so-called “bundled VoIP”), the OTT VoIP Access Order concluded that “a physical connection to the last-mile facilities used to serve an end user is the key characteristic of end office switching, and absent such physical connection, a VoIP-LEC partnership is not performing the functional equivalent of end office switching.”  Since, OTT VoIP rides a third-party’s broadband connection, it is ineligible for end office access, in the view of the FCC.  The Commission did say, however, that “over-the-top VoIP-LEC partnerships, may assess access charges for other access services they provide, such as dedicated transport access service or tandem-switched access service, to the extent they provide those services or the functional equivalent thereof.”

Finally, the FCC concluded that the OTT VoIP Access Order would be applied retroactively since a declaratory ruling is adjudication under the Administrative Procedure Act.  This means the FCC and courts should apply the FCC’s conclusions to ongoing cases back a point two years before a case was filed.  (The statute of limitations for federal billing disputes is two years.)  Also, carriers that paid end office access on OTT VoIP traffic can now seek refunds going back two years.

The FCC premised the OTT VoIP Access Order on several policy goals, including the desire to provide certainty to carriers regarding VoIP services, to promote the continued transition from traditional voice networks to modern all-IP networks and to help resolve pending intercarrier compensation disputes.

Discussion

The combination of the FCC’s ruling disqualifying OTT VoIP calls from the application of end office access and the retroactive nature of the OTT VoIP Access Order could be disastrous for those CLEC/VoIP providers that have billed and collected end office access on this traffic.  However, these CLECs have a very strong argument that the OTT VoIP Access Order allows the CLEC to bill and collect tandem switching instead (assuming it has a tandem rate in its tariff).  That should be an offset of sorts to the “refund.”  Further, in the event that the CLEC does not have a direct connection to an interexchange carrier (“IXC”), the calls must be switched a second time to reach the IXC’s point of interconnection.  This could be an additional offset to the refund in the event the CLEC performed a second switching function, unless the IXC has already paid the “second” tandem switching charge.

The same reasoning applies to CLECs that have tariff collection lawsuits pending.  They should be able to argue they are entitled to collect tandem switching in lieu of end office switching.  Further, they would be eligible to collect a second tandem switching charge if they switched the call a second time (with appropriate tariff language).

Moreover, given the retroactive nature of the OTT VoIP Access Order, these claims reach back to the boundary of the statute of limitations.  Also, since the FCC does not handle access collection complaints, the matter will be before a judge.  Few judges are likely to interpret the FCC’s decision as giving the IXC free originating access and, as such, may be persuaded to apply tandem switching charges, as appropriate. 

Affected CLECs should consider analyzing their individual situations on an IXC-by-IXC basis to determine the financial effect on their businesses.  While it is always a challenge to seek judicial review of any federal agency order, CLECs that are seriously harmed by the retroactive disqualification of end office access on OTT VoIP traffic may wish to consider filing a petition for judicial review.  The FCC has suffered a number of reversals for failing to justify or explain their decisions, including the court’s vacation of the 2105 Declaratory Ruling itself. 

The OTT VoIP Access Order has a number of flaws and unsupported conclusions, which could possibly persuade an appeals court to reverse or, at least, vacate and remand.  It is beyond the scope of this Client Alert to analyze the OTT VoIP Access Order from an appellate perspective.  However, examples of potential error can be found in the December 4, 2019 CenturyLink and Teliax ex parte filings in this proceeding.

If you have any questions about the FCC’s OTT VoIP Access Order or would like to discuss the regulatory and legal strategies in response to this decision, please contact Robert H. Jackson at rhj@commlawgroup.com or 703-714-1316.

Jackson is Of Counsel at Marashlian & Donahue, PLLC and brings with him a wealth of knowledge and experience across a broad spectrum of communications and technology issues.  He is an attorney, government relations professional, and former telecom company executive with broad experience addressing the legal and regulatory aspects of financial, technical and marketing issues associated with the telecommunications, Internet and video distribution industries.

Jackson has been involved in intercarrier compensation matters for most of his career, from writing Iowa’s intrastate access rules in the 1980s to advocacy on the VoIP Symmetry Rule and other FCC-related intercarrier compensation changes presently under consideration.

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