In the Matter of Level 3 Communications, Petition for Forbearance

Dear Chairman Powell:

I write to offer my thoughts on the pending petition by Level 3 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.

Chairman Powell, you outline two overriding principles for reform in your separate statement to the Further Notice of Proposed Rulemaking in Developing a Unified Intercarrier Compensation Regime (CC Docket No.01-92):

• Rate structures should be unitary and must eliminate arbitrage opportunities; and
• FCC rules should better reflect sound economic principles.

Granting the Level 3 petition would not advance the above goals. Indeed, because the Level 3 petition addresses only a tiny segment of the broader issues surrounding intercarrier compensation, addressing only the petition may hurt overall reform efforts.

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.

Prices are an important signaling mechanism for markets, but they become politicized if set by government regulators. According to the recent CEI study The Price is Right – Or Better Be! (available at http://www.cei.org/gencon/004,04413.cfm), accurate prices are rarely the result of federal or state regulatory price setting.

VoIP and other IP applications should be free of most government regulation. This letter lays out the concern that the granting of the Level 3 petition may end up hurting, not helping, ongoing intercarrier compensation efforts and the long-run interests of IP-based communications.

Sincerely,

Braden E. Cox

Technology Counsel