A ruling on a little watched case in Texas could set the stage for the legal freedom of VoIP.

by Alex Goldman ISP-Planet Managing Editor [May 4, 2005]

In the bankruptcy court of the Northern District of Texas, Dallas Division, judge Harlin D. Hale has issued a ruling that could have national implications. In case No. 05-31929-HDH-11, the court ruled that one company's VoIP service that supported a variety of features including calls from one phone to another is clearly an information service, not a telecommunication service, and is therefore not subject to access fees from the RBOC.

"If you look at what most VoIP gateways do, it's a matter of fact that they do actively interact with and change content and user supplied information during the entirety of the communication, if you have a reasonable definition of 'content'," notes W. Scott McCollough, a CLEC lawyer familiar to attendees of ISPCON and members of TISPA, of which he is no longer a member.

It's a significant ruling. "It's the first time a provider who was involved in what has come to be known as phone to phone VoIP has been ruled to be exempt from access charges," says McCollough.

The company in bankruptcy court is VoIP wholesaler Transcom. "SBC sued Transcom, VarTec, and PointOne in Missouri saying that all of these companies were providing the same thing that AT&T provides and that they owed access charges to SBC," McCollough explains.

"The company had been leasing PRIs from AT&T when SBC complained about the failure to pay access charges. AT&T decided that Transcom's business might not be legal, and suspended Transcom's PRIs. The combination of the SBC lawsuit and the suspension of service forced Transcom to file for Chapter 11 protection."

Definitions are the key
Three key definitions were central to the argument: the definition of "enhanced services" which are not subject to access charges, the definition of "information services" which are also not subject to access charges, and the definition of "telecommunications services" which are subject to access charges.

The FCC defines "enhanced service" as "services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information."

The Communications Act defines "information service" as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service." Enhanced services are a subset of information service.

Judge Hale noted that the definition of "telecommunications" is clearly stated in 47 USC 153(43) as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." (Emphasis added by Hale.)

The judge therefore ruled that "only telecommunications services pay access charges" and that Transcom's service was "not a 'telecommunications service' subject to access charges, but rather . . . an information service and an enhanced service that must pay end user charges."

McCollough represented Transcom, having represented its predecessor, DataVoN, which was bought by Transcom out of bankruptcy court. He says he came with DataVoN and has represented Transcom on regulatory issues.

Transcom offers lower prices that are achieved through a more efficient ESP (Enhanced Service Provider) model that is made possible by the associated IP technology, and also through avoiding access charges. Transcom's business model, therefore, remains intact after this case. The court essentially ruled that AT&T's suspicion that Transcom's service was illegal was not valid.

The law moves slowly
While the court in Texas ruled that AT&T's suspicion that Transcom's service was illegal was wrong, it ruled that it could not force AT&T to turn on the PRIs because the contract says that any disputes about the contract must be settled in the state of New York.

Of course, Transcom will continue looking for a PRI provider that does not disconnect its customers merely because an ILEC complains, but should Transcom need AT&T, it can find AT&T in court in New York.

Meanwhile, this is a substantial victory for VoIP providers across America. Because the law was, until now, unclear on this point, many VoIP providers have been collecting access fees even though they were not certain they had to. Even with this court decision, they may not yet feel safe.

McCollough notes that this is is not the only case where a VoIP provider is being forced to defend its exemption from access charges. "There are several lawsuits out there over this, but this is the first decision by a court that I am aware of," he explains.

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