The Level 3 Petition – More Harm Than Good

by on March 8, 2005

I recently sent an open letter to Michael Powell and the other FCC Commissioners about the Level 3 petition. Level 3 sure has a genius of a petition out there. It is requesting that the FCC not apply access charges on VoIP calls that originate or terminate on the public switched telephone network (PSTN). This forbearance petition touches on key issues of interest regarding the future treatment of IP-based communications.

Under the rubric of “deregulation” Level 3 has created a possible arbitrage bonanza for itself. And the amazing thing is that many policy gurus (including Ray Gifford at PFF and Jeff Pulver) are in favor of it, although they too express reservations. The thought is that having IP traffic pay lower access charge rates (set by the states no less! – don’t we want the states out of this?) will somehow speed things up for broader intercarrier compensation reform. To me, though, it just doesn’t seem fair. And far from speeding up the process, it will entrench those VoIP companies that benefit from regulatory arbitrage and could end up hurting broader efforts at reform. That’s why the Commission should give this one a thumbs down. As I say:

Granting the Level 3 Petition Creates Arbitrage Opportunities That Could Hurt Overall Reform by creating a special interest group–VoIP carriers–that would benefit by different regulations for access charges. These carriers would then have every incentive to stall efforts toward overall intercarrier compensation reform. The result is not a unitary movement for reform, but a contentious and fragmented debate similar to what has occurred over the regulatory arbitrage involved with local phone open access fees.

Granting the Level 3 Petition Is Not Good Economics. The compensation system advocated by Level 3 assigns jurisdiction to set rates to the states. The result is not a deregulation of VoIP, but merely the substitution of a one regulatory regime for another.

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