Wholesale Ruling   In a ruling released on March 1, 2007, the Federal Communications Commission (“FCC”) ruled that wholesale telecommunications carriers may interconnect with incumbent local exchange carriers (“ILECs”) when they are reselling their services to other telecommunications providers, including Voice over Internet Protocol ("VoIP") service providers.  The decision represents a victory for wholesale carriers, since it clarifies their right to interconnect with ILECs on behalf of their wholesale customers (irrespective of that customer's regulatory classification).  It also benefits Voice over Internet Protocol (“VoIP”) service providers, which rely upon intermediate wholesale providers to interconnect with the public switched telephone network (“PSTN”) thereby ensuring that they have the connectivity they need to offer competitive telephone services.   Background   Time Warner Cable (“TWC”), which has been providing VoIP service since 2003, filed a petition for declaratory ruling with the FCC on March 1, 2006.  It claimed that two of the underlying carriers from which it purchases wholesale telecommunications services were unable to provide those services to the company in parts of South Carolina and Nebraska.  The utility commissions in those states permitted rural ILECs to decline interconnection with the carriers to the extent that the carriers were operating as wholesale service providers.    Specifically, the South Carolina Public Service Commission determined that MCI did not have the right to seek interconnection with rural ILECs in order to provide wholesale service to TWC, because the wholesale service was not a “telecommunications service” under the Communications Act, and MCI was thus not a “telecommunications carrier.”  Meanwhile, the Nebraska Public Service Commission denied the status of “telecommunications carrier” to another one of TWC’s wholesale providers, Sprint, because its relationship with TWC was an “individually negotiated and tailored, private business arrangement” and therefore outside the scope of sections 251 and 252 of the Communications Act (“Act”).  Without the wholesalers’ ILEC interconnection agreements, TWC’s VoIP customers are unable to connect to the PSTN or to the ILECs’ E911 networks.   In its petition, TWC requested a ruling that telecommunications carriers may interconnect with ILECs to provide wholesale telecommunications services to other providers, such as VoIP providers.  It also sought to clarify that interconnection rights under section 251 of the Act are not based on the identity of the wholesale carrier’s customer.   Requests Granted   The FCC granted both of TWC’s requests.  First, it found that “telecommunications services,” as defined under the Act, include both retail and wholesale services.  The FCC explained that under long-standing precedent, “telecommunications services” are not only those that are offered “directly to the public,” as the South Carolina Commission had asserted, but also those offered “to such class of users as to be effectively available directly to the public.”  Since MCI provides wholesale service to TWC, which TWC makes available to the public as a retail service, MCI – as a wholesale provider – is in fact providing “telecommunications services.”   Second, the FCC found that the rights of a wholesale provider under the Act do not depend on the regulatory classification of the retail service that the end user receives.  Thus, a wholesale provider may seek interconnection on behalf of a VoIP provider regardless of whether VoIP itself is classified as an information service or a telecommunications service.  The FCC was careful to note that it was drawing no conclusion regarding the regulatory classification of VoIP, which the agency is still considering in a separate proceeding.  The FCC added that its findings furthered its long-standing goals of promoting telephone competition and broadband deployment.   The FCC also rejected the contention that it lacked jurisdiction to consider TWC’s petition because it involved state utility commission decisions.  The FCC noted that TWC’s petition ultimately concerned the Act, over which the FCC clearly has jurisdiction, and that since TWC asked only for a statement as to whether the South Carolina and Nebraska commissions’ interpretations of the Act were correct, preemption of any specific state decisions was not an issue.   Net Effect   Since the FCC did not specifically preempt the South Carolina and Nebraska commission actions, it remains to be seen what effect the FCC’s ruling will have on those decisions.  Even so, the ruling is a net positive for wholesale carriers as well as the VoIP providers that receive service from them.  The decision affirms the right of wholesale carriers under the Act to interconnect and exchange traffic with ILECs on behalf of other providers (even when those providers are offering VoIP services), as well as the right of VoIP providers to receive the benefit of those agreements.  At the very least, it should make for a more level playing field for VoIP-based and other competitive telephone services, and it is likely to impact other state utilities commissions where proceedings on these same issues are pending.     Please feel free to contact us if you have any questions or we can be of any assistance to you.   March 2007   Back