FCC Offers Clarification To VoIP Symmetry Rule

February 11, 2015 – The Federal Communications Commission has issued a clarification to the VoIP symmetry rule.[1] Specifically, the Commission has clarified that the VoIP symmetry rule applies in a technology- and facilities-neutral manner, and that “[i]t does not require, and has never required, an entity to use a specific technology or its own facilities in order for the service it provides to be considered the functional equivalent of end office switching.”[2]

This means a competitive local exchange carrier (LEC) or its VoIP provider partner is not required to provide the physical last-mile facility to the VoIP provider’s end user customers in order to provide the functional equivalent of end office switching, and thus for the competitive LEC to be eligible to assess access charges for this service. The FCC’s declaratory ruling applies retroactively.

What Is The VoIP Symmetry Rule?

In the 2011 USF/ICC Transformation Order, the FCC put the intercarrier compensation system on a path to bill-and-keep as the ultimate default framework all telecommunications traffic, and for the first time, expressly addressed intercarrier compensation obligations associated with VoIP traffic.[3]The FCC adopted a symmetrical framework for VoIP-PSTN traffic, allowing competitive LECs to assess the same intercarrier compensation charges as incumbent LECs under comparable circumstances. To encourage the migration to all-IP networks, the FCC adopted the VoIP symmetry rule, which permits 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 TDM architecture.[4]  Double billing is not allowed under the VoIP symmetry rule, nor does the rule permit a LEC to charge for functions that are not performed by itself or its retail VoIP partner.

Recent Disputes Surrounding The VoIP Symmetry Rule & End Office Switching Charges

Recently, numerous competitive LECs have complained to the FCC that two interexchange carriers – AT&T and Verizon – are withholding payments for certain access services owed to the competitive LECs for VoIP traffic. In response to these claims, AT&T and Verizon argue that competitive LECs should not be allowed to assess local end office switching charges when their over-the-top VoIP partners transmit calls to unaffiliated Internet service providers (ISPs) for routing over the Internet.

AT&T and Verizon claim the competitive LECs “do not provide ‘end office switching’ as that concept is universally understood in the industry.” Rather, the competitive LECs simply dump over-the-top VoIP calls in an undifferentiated stream onto the public Internet, over which the calls may travel for hundreds or even thousands of miles before they are ultimately delivered to the end user.[5] According to AT&T and Verizon, for decades it has been established in courts, in the industry, and at the FCC that the defining characteristic of an end office switch and “what distinguishes” it from other network functionalities is “interconnection, i.e., actual connection of [subscriber] lines and trunks.”[6] 

AT&T and Verizon argue that competitive LECs and their over-the-top VoIP partners are not actually providing the physical lines that are a part of end office switching, and thus competitive LECs should not be able to charge for those services they are not actually providing.[7] AT&T and Verizon argue that physical end office switching occurs only when a competitive LEC partners with a facilities-based VoIP provider because such a scenario provides the last-mile transmission into a home via an actual physical facility. Additionally, they argue that if the Commission were to change course and allow assessment of local switching charges in the circumstances at issue, the Commissioner may do so on a prospective basis only.

The FCC’s Declaratory Ruling – Interpretation Of The VoIP Symmetry Rule

In the declaratory ruling, the Commission explains that the VoIP symmetry rule is not limited to facilities-based VoIP services. Specifically, the Commission clarifies that the VoIP symmetry rule does not require a competitive LEC or its VoIP provider partner to provide the physical last-mile facility to the VoIP provider’s end user customers in order to provide the functional equivalent of end office switching, and thus for the competitive LEC to be eligible to assess access charges for this service. Its intent when adopting the VoIP symmetry rule was to provide similar, i.e., symmetric, intercarrier compensation rights for competitive LECs partnering with VoIP providers, and specifically where new and different technologies are used. Furthermore, the Commission states that it did not “intend[] to draw any distinction between competitive LECs partnering with facilities-based VoIP providers and those partnering with over-the-top VoIP providers.” If it were to adopt AT&T and Verizon’s interpretation, the Commission believes that carriers would be required to distinguish between over-the-top VoIP services and other VoIP services, which “would only lead to additional intercarrier compensation disputes, costly litigation, and less certainty to the industry.”

Retroactive Application

The Commission’s declaratory ruling regarding the interpretation of the VoIP symmetry rule applies retroactively. As explained by the Commission, declaratory rulings are adjudicatory matters, in which retroactivity is presumed, and clarifying the law and applying that clarification to past behavior are routine functions of adjudications.[8] If certain conditions are met, retroactivity will not apply. Here, AT&T and Verizon claimed that a “manifest injustice” would occur if the declaratory ruling was applied retroactively, but this argument was rejected.  The Commission concluded that neither party reasonably relied on settled law contrary to the interpretation of the VoIP symmetry rule adopted in the declaratory ruling. In the Commission’s assessment, its clarification of the VoIP symmetry rule does not depart from “settled law,” nor does it substitute “new law for old law that was reasonably clear.” Furthermore, the Commission echoed the views of certain parties that opposed AT&T and Verizon, stating that “the “mere lack of clarity in the law does not make it manifestly unjust to apply a subsequent clarification of that law to past conduct.”

At the heart of AT&T and Verizon’s argument was the belief that the Commission should look to key physical switching functions identified in the TDM network and identify similar physical functions in the IP network when determining whether the functional equivalent of end office switching occurs for competitive LECs partnering with over-the-top VoIP providers. But, the Commission labeled this argument a constricted, narrow interpretation of “functionally equivalent” and rejected it. It stated that “[d]irect comparisons between TDM network architecture and IP network architecture cannot be made precisely because IP-based networks do not involve the same types of physical connections as those found in traditional TDM networks.”

FCC Commission Ajit Pai dissented from the verdict that was rendered in the Commission’s declaratory ruling because he believes it adopts a new rule that contravenes Commission precedent without first seeking comment, as is required by the rules of administrative procedure. In other words, the Commission’s clarification of the VoIP symmetry rule alters, without notice, the FCC’s rules to mean something they’ve never meant before. Commissioner Pai leans heavily on the 2011 YMax Order that considered and rejected the contention that an over-the-top VoIP provider performs end office switching by interconnecting virtual loops over the Internet. He disagrees with the way the Commission has attempted to square the YMax Order with the VoIP symmetry rule:

Because YMax did not provide a physical transmission facility that provides a point-to-point connection, the Commission determined that YMax was not providing end office switching pursuant to its tariff. The Commission declined to address, however, whether interconnected VoIP was subject to intercarrier compensation rules and, if so, the applicable rate for such traffic.[9]

Indeed, the Commission acknowledged that the YMax Order may appear to be in conflict with its clarification of the VoIP symmetry rule, perhaps in response to Commissioner Pai’s dissent. But, in the declaratory ruling, the Commission explained that its VoIP symmetry rule “supersedes any potential limitation suggested by [the YMax Order],” and the holding in the YMax Order is limited to the specific facts of that case. It’s safe to say this will not be the last we hear of the VoIP symmetry rule.

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[1] Connect America Fund, WC Docket No. 10-90, Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Declaratory Ruling, FCC 15-14 (rel. Feb. 11, 2015) (Declaratory Ruling).

[2] Declaratory Ruling at ¶ 3.

[3] Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed Rulemaking, FCC 11-161 (rel. Nov. 18, 2011), aff’d, 753 F.3d 1015 (10th Cir. 2014) (USF/ICC Transformation Order).

[4] See USF/ICC Transformation Order at ¶970.

[5] Letter to Marlene H. Dortch, Secretary, FCC, from David L. Lawson, Counsel for AT&T, CC Docket No. 01-92, WC Docket Nos. 10-90 and 07-135, p. 1 (Dec. 17, 2014).

[6] Petitions for Reconsideration and Applications for Review of RAO 21, AAD 92-86, 12 FCC Rcd 10061, para. 11 (1997)  (A piece of equipment is a switch if and only if it “is capable of interconnecting lines or trunks, i.e., if it has the switching matrix required for call interconnection . . . .”).

[7] The Commission has divided VoIP providers into two general types: (1) facilities-based VoIP providers and (2) over-the-top VoIP providers.  Facilities-based VoIP providers, including certain cable VoIP providers, are providers that own and control the last mile facility and  may own or lease the switching and transmission networks that are used to carry VoIP calls.  Over-the-top VoIP providers, include providers that require the end user to obtain broadband transmission from a third-party provider, and such VoIP providers can vary in terms of the extent to which they rely on their own facilities.  Declaratory Ruling at footnote 35.

[8] Declaratory Ruling at ¶48.

[9] Declaratory Ruling at ¶14.