under the plan could face an increase in charges to complete calls on - PDF document

July 27, 2006 In This Week's Issue : Bulletin # 106 www.troutmansanders.com INTERCARRIER COMPENSATION PLAN FILED AT FCC UNIVERSAL SERVICE DEADLINE LOOMS FOR VOIP PROVIDERS Troutman Sanders Telecommunications Practice Group COURTS WEIGH IN ON GOVERNMENT DATAMINING ACTIVITIES Team Leader Williams, Robert P. II (404) 885-3438 (404) 962-6721 INTERCARRIER COMPENSATION PLAN FILED AT FCC By Ben Young Benedict, Thane Hull, Gerit This week, a broad coalition made up largely of telecommunication Kirsner, Matthew B. Kowalski, Raymond A. carriers and the state regulators filed a proposal for intercarrier Lawhon, Joseph R. compensation reform with the FCC, which is considering overhauling Ragsdale, Joy M. the current intercarrier compensation regime. This proposal, called the Schwalb, Eric J. “Missoula Plan,” seeks to reduce the system of payments between Still, William R. communications providers for carrying voice traffic across their Wilson, David K. networks. The main goal of the plan is to unify intercarrier charges for Young, Benjamin L. most of the nation’s lines within four years. Zdebski, Charles A. The Missoula Plan creates three tracks based on the size of the carrier. The first track includes all wireless carriers, large wireline carriers, and competitive local exchange carries. The second track includes mid-size rural wireline carriers. The third track includes rural rate-of-return local exchange carriers (RLECs). For first track, the subscriber line charge, which contributes to universal service funding, will increase in four steps to a cap of $10.00. For the second and third tracks, the increase will be less with the subscriber line charge capped at $8.75. RLECs would be further protected by a provision that would kick in if the reduction of intercarrier compensation was greater than the increase in the cap. The Missoula Plan also proposes to solve some of the problems created by “phantom traffic,” or network activity that cannot be billed, by defining certain rights and responsibilities associated with this activity. The Missoula Plan has generated significant opposition in the communications industry, particularly among wireless carriers, who

under the plan could face an increase in charges to complete calls on wireline networks. Most wireless carriers, including a key wireless association, instead prefer a “bill-and-keep” system of negotiated interconnection terms between carriers. The wireless industry’s opposition to the Missoula Plan was recently echoed by a representative of the wireless trade association CTIA, which stated, “The Missoula Plan does not serve the interests of consumers because it does not adequately address and in many cases would exacerbate problems with the current intercarrier compensation and universal-service systems— that is uneconomic regulatory distinctions and incentives for inefficiency.” (“Cingular only wireless carrier supporting ‘Missoula’ compensation plan,” RCRNews , July 25, 2006). UNIVERSAL SERVICE DEADLINE LOOMS FOR VOIP PROVIDERS By Eric Schwalb The Federal Communications Commission recently expanded Universal Service Fund (USF) obligations to providers of Voice over Internet Protocol (VoIP). By August 1, 2006, VoIP providers must register with the FCC and by the end of the year, most VoIP providers must begin USF reporting and contribution obligations. The FCC requires telecommunications providers, now including VoIP providers, to contribute 10.7% of their interstate telecommunications revenues to the USF to subsidize the provision of various telecommunications services to poor and rural areas of the country. The USF contribution applies to all VoIP providers who offer interconnected (i.e., an offering able to receive or make two-way calls) interstate phone service. For VoIP providers that do not distinguish their phone service between interstate, intrastate, and international services, such providers may adopt a presumption that 64.9% of call revenues are interstate. Similarly, only revenue from telecommunications services, and not information services like voicemail, are subject to USF contributions, and may have to be billed separately in the future by VoIP providers should they want to contribute only for their telecommunications offerings. Although the FCC has not yet determined VoIP providers to be telecommunications carriers, it continues to add the same requirements of such carriers to VoIP providers, including CALEA, E911, and now USF. Similarly, the FCC’s expansion of USF to VoIP providers also raises the possibility that VoIP providers may face additional regulation at the state level, including contribution to state USF programs.

COURTS WEIGH IN ON GOVERNMENT DATAMINING ACTIVITIES By Cory Menees AT&T may yet have to answer in court for its participation in the warrantless government surveillance program first revealed in December 2005 by the New York Times . This program, labeled “terrorist surveillance” by the Justice Department, has enlisted some of the nation’s largest phone companies in the National Security Administration’s (NSA) effort to intercept phone calls and e-mails between domestic and overseas locations without court approval. AT&T went one-for-two in July, as a federal court in Illinois dismissed a class action based on the company’s participation in the program while a California court denied dismissal motions made in a similar case. Despite the conflicting rulings, the outcomes are arguably reconcilable given a subtle but essential difference between the two cases. In the case that may yet proceed to trial, the San Francisco-based nonprofit privacy group Electronic Frontier Foundation (EFF) brought suit against AT&T, alleging that the company collaborated with the government in an illegal domestic spying program by assisting in targeted eavesdropping efforts. Chief U.S. District Judge Vaughn R. Walker of the Northern District of California rejected separate motions by AT&T and the Justice Department seeking dismissal of the suit. AT&T argued that it was immunized from suit by the relationship the program created between the company and government. Walker was no more convinced by the government’s argument that court proceedings concerning the mechanics of the program would compromise national security, pointing out that the program was “hardly a secret.” In a related case, Judge Matthew Kennelly, of the U.S. District Court for the Northern District of Illinois, was convinced by the government’s national security argument, dismissing a class action against AT&T on the basis of the state secret privilege. The suit in Illinois was based on allegations that AT&T had illegally given customer information to the NSA. While the government has acknowledged the cooperation of phone carriers in targeted surveillance of certain communications, it has not admitted to receiving customer records cataloguing numbers called, call length, and the like. Judge Kennelly wrote that his decision was reconcilable with that of Judge Walker, as the two cases focused on fundamentally different issues despite both involving AT&T’s cooperation in NSA surveillance efforts. As the government has formally acknowledged carriers’ cooperation in targeted surveillance efforts – the illegal activity alleged in the California suit – the government could not claim confirmation of the activity in court proceedings would amount to divulgence of a state secret. In contrast, the government has not acknowledged receipt of

customer records, the alleged illegal transaction in the Illinois suit. Because no records turnover has been officially recognized by the government, Kennelly accepted invocation of the state secret privilege to ensure an unacknowledged surveillance practice would not be confirmed in open court. Since first coming to light, the surveillance program has spawned an estimated 35 lawsuits in different states. Congress is considering legislation to consolidate the cases for consideration by a special court established under the Foreign Intelligence Surveillance Act to hear cases relating to sensitive national security issues. In the near term, the question remains whether Judge Vaughn will allow the EFF suit to proceed to discovery during the pendency of an expected government appeal. The Bush administration is expected to fully defend the surveillance program, as it allows the NSA to forego getting a warrant before intercepting communications between the United States and locations overseas where one of the parties to the communications is suspected of terrorist ties. Of the thirty odd suits filed in relation to the program, only one – in Detroit – is close to a ruling on the question of the program’s legality. FOR MORE INFORMATION The Troutman Sanders LLP Newsletter is intended to provide general information about legal and regulatory utility developments which may be of interest. It is not intended to be comprehensive nor to provide specific legal advice and should not be acted or relied upon as doing so. If you would like further information or specific advice, please contact our office.