On March 30, 2011, the Federal Communications Commission (“FCC”) released a Public Notice seeking Comments on a Petition for Declaratory Ruling (“Petition”) that is likely to have far-reaching implications for the entire international telecommunications and IP transport industries. The issues which have been teed up for the FCC to decide could impact every service provider in the supply chain of international communications services, including prepaid calling card carriers and distributors, to U.S. origination/termination carriers, to international VoIP peering/routing providers and every service provider that has come to rely on steadily declining international long distance prices to attract customers. The Petitioner, Toronto Asia Tele Access Telecom, Inc. (“Petitioner”), requests a ruling regarding the application of Sections 214 and 254 of the Communications Act to its provisioning of international VoIP peering services and its distribution of private label prepaid calling cards.
The Petitioner is a Canadian company that entered the U.S. market in 2006 as a private label distributor of prepaid calling cards. The Petitioner presently provides prepaid calling cards to its U.S. distributors and offers IP-enabled calling, SMS and web dialing through its various websites to U.S. customers. The Petitioner does not currently hold and has never held section 214 authority to provide international services, has not registered with the Commission, and does not contribute to the Universal Service Fund (“USF”) or any other FCC programs. The Petitioner is seeking a declaratory ruling that it has been lawfully operating in the U.S. since 2006 and that it was not and still is not required to register with the FCC or obtain international section 214 authority, under applicable statutes and FCC regulations.
The stakes are high. An FCC ruling on the Petition will likely determine the prospective and/or retroactive regulatory classification of:
• Private label distributors of prepaid calling cards (with potential implications for other types of “distribution” methods and services), and
• Non-U.S. carriers that provide their services to U.S. customers through VoIP peering arrangements.
The FCC could go one of two ways. The Commission could accept the Petitioner’s claims that its services and service delivery methods are excluded from FCC jurisdiction under existing U.S. communications statutes and regulations. If it does, the FCC will likely embark on the establishment of new rules which will more clearly define and govern the activities of private label distributors of communications services and VoIP peering services. Taking this path would create certainty in two areas of FCC jurisprudence historically plagued by uncertainty. And certainty coupled with well-conceived, thoroughly vetted rules will not dampen, but rather stimulate continued innovation, competition and lower-priced communications services.
On the other hand, the FCC could take the “easy road” and impose traditional common carrier regulations on companies, like the Petitioner, that provide non-traditional services (VoIP peering) through non-traditional methods (private label distribution).
If the FCC pursues the latter path, it could potentially impose traditional common carrier regulations on non-U.S. carriers who have limited to absolutely no ties or physical nexus with the United States — other than VoIP peering/traffic exchange agreements with U.S. partners. Importantly, such traditional regulations will likely extend USF, TRS and a host of other FCC-mandated fees to revenue derived from the exchange of VoIP peering traffic, which could raise the cost of services by up to 20%.
A copy of the Petition is linked here: Petition for Declaratory Ruling
The FCC Public Notice requesting industry Comments is linked here: Public Notice
Regardless of which side of the issue your company comes down on, the entire international telecommunications industry has a stake in the outcome of this Petition. It is therefore critically important that you take time to read the Petition and understand the possible impacts the FCC’s decisions could have on your company. For more details on the Petition and its implications, continue reading. You may also contact Jonathan Marashlian at jsm@commlawgroup.com to learn more.
TIME IS LIMITED; ACTION IS REQUIRED NOW: COMMENTS DUE BY APRIL 29TH; REPLY COMMENTS DUE BY MAY 19th
The Petition
The Petitioner claims that it does not operate as a regulated common carrier, but rather as a “private company.” As a non-common carrier, the Petitioner claims it does not fall under the FCC’s jurisdiction or require FCC authority to operate. In particular, Petitioner states that as a private label distributor of prepaid calling cards, it exercised no control over the underlying services, did not provide any facilities, and was not involved in the transmission of any end user’s information of its choosing and therefore does not require operating authority under Section 214 of the Communications Act.
The Petitioner also claims it operates lawfully via its VoIP peering services. In particular, its intermediary role between the underlying carrier, retail outlets and customers excludes it from the category of regulated common carrier. Petitioner argues that it does not provide regulated “telecommunications” because it engages in unregulated VoIP peering arrangements which are individually negotiated contracts between two unregulated private businesses. And, moreover, because the Petitioner has no physical presence in the U.S. or direct nexus with end users, the Petitioner argues the FCC has no jurisdiction over its services.
Petitioner seeks a ruling from the Commission that (1) it has been lawfully operating as an international service provider since its entry into the U.S. market in 2006 as a private label prepaid calling card distributor; (2) it has been lawfully providing international service through its VoIP peering arrangements; (3) it is not providing a telecommunications service that requires authorization pursuant to section 214; and, (4) it is not required to file reports for or contribute to the USF and other FCC programs.
HOW WILL THE FCC TREAT PRE-PAID PRIVATE LABEL DISTRIBUTORS?
With this Petition, the FCC has the opportunity to define the players in the prepaid calling card “ecosystem,” in particular, how “private label distributors” should be classified and treated. This issue impacts not only private label distributors of prepaid calling cards, but could determine the regulatory classification and duties of private label distributors of any telecommunications service.
Once again, the FCC can approach this issue in one of two ways:
1. Classify Private Label Distributors as mere Resellers of Telecommunications: The FCC can continue along the current trend, viewing private label distributors as nothing more than “mere resellers of telecommunications.” As such, the FCC and USAC are free to subject private label distributors to the same degree of regulatory responsibilities that apply to resellers of traditional, post-paid telecommunications. This includes 499 registration and filings, 214 licensing, CPNI, USF fees, TRS fees, and the like.
2. Recognize the value of Private Label Distributors in the marketplace. The FCC can decide that private label distribution is a valuable tool for providing access to affordable communications services and refrain from imposing traditional regulatory responsibilities on this sector of the industry.
A decision on this issue will provide needed guidance to wholesale suppliers and distributors alike.Because FCC regulations are silent as to where private label distributors fall within the regulatory “ecosystem” there is a great deal of uncertainty for wholesale-only suppliers to retail entities. A decision on the Petition could provide some much-needed certainty.
WILL THE FCC BEGIN REGULATING NON-U.S. CARRIERS WITH VOIP-PEERING ARRANGEMENTS?
The Petitioner maintains a data center in Milan to exchange IP-based traffic with third party carriers (i.e. VoIP peering) to provide service to its U.S. calling card customers and also provides its VoIP calling, SMS and web dialing services through VoIP peering arrangements. The FCC has yet to classify the regulatory status of such providers. The only existing precedent applicable to carriers providing intermediate IP transmission is the FCC’s IP-in-the-Middle Order. That order, however, only classified services with the particular characteristics of AT&T’s service at issue. It did not cast a wide net in seeking to apply traditional telecommunications regulations to all providers of services using IP “in the middle” transmission.
As a result, the Petitioner argues its VoIP peering arrangements should more appropriately be classified as unregulated information services. For the FCC to do otherwise and impose regulations of these distinct services would directly conflict with the FCC’s public policy goals by diminishing competition in the industry and raising rates applicable to international services. The Petitioner claims that as more providers shift to IP-enabled services, and customers rely on such providers to offer low-cost quality international services, regulating all entities in the distribution chain will stall innovation and development and burden consumers with unnecessary expenses.
The Commission’s ruling on the “VoIP peering” issue will no doubt have far-reaching implications for the entire international telecommunications/IP-based communications industry. In particular, if the FCC chooses to impose FCC regulations on non-U.S. carriers with limited to absolutely no ties to the U.S. other than a “peering” / “traffic exchange” agreement with a U.S.-based traffic termination/origination company, the result could lead to a reversal of the over 20-year trend of declining international long distance prices. This is because such a non-U.S. carrier will be now burdened with USF contributions as well as TRS, LNP, NANP and FCC regulatory fees on revenue derived from the exchange of VoIP peering traffic. The regulations imposed can raise the cost of goods by nearly 20%.
The Universal Service Administrative Company (“USAC”), USF administrator, already imposes USF and TRS Fund fees indirectly in ways that it cannot do directly. If the Commission takes the “easy road” with the Petition, it would merely legitimize USAC’s current actions. For example, under its current policy, carriers must treat revenues received from “international only” service providers (i.e. 100% of their traffic originates in the U.S. and terminates abroad or originates abroad and terminates in the U.S.) as end-user revenues subject to USF. And, such carriers can pass through USF fees on such revenues to their customers. So, even though the Commission exempts “international only” providers from direct USF contribution liability, indirectly, they bear the burden of the contributions via pass-throughs from their suppliers. Sanctioning USAC’s would only further expand the number of carriers subject to indirect pass-through charges.
ACTION NEEDED
There are some very good things that could come out of this proceeding. But make no mistake, there are also some very bad things if the FCC takes the “easy road” and rules that Petitioner is and always has been subject to 214, 499 and other FCC regulations. The easy road would result in the imposition of the full panoply of carrier regulations on private label distributors and carriers with VoIP peering arrangements and validate USAC’s imposition of USF, TRS and other FCC fees on providers of international IP transport (thereby immediately raising the cost of an international call anywhere from 1.5% (applying just TRS and other FCC fees) to as much as 17% or more. Indeed, it would be the first time in over 20 years that the price of an international call increased, instead of decreased.
We cannot emphasize enough how serious the situation is and how important this Petition is to the industry.
We would like to help you understand the implications of this Petition and assist you in commenting on the Petition if you so desire. If you have questions or comments regarding this Advisory or are interested in submitting comments, please contact Jonathan Marashlian at jsm@commlawgroup.com or the attorney assigned to your account.
