Wednesday, February 23, 2005 - The Progress & Freedom Foundation Blog

AT&T Loses $500 Million Gamble

The FCC has decided that AT&T is retroactively liable for those access charges and universal service contributions it actively withheld in conjunction with its calling card service. The shell of its former self had claimed that the card, which required end-users to endure an advertisement before connecting a call, constituted an interstate information service. Such is the lawyers' incentive created by the info/telecom service distinction enshrined in the '96 Act. And yes, it is conceded at the outset that universal service and intercarrier compensation are in need of reform. However, AT&T was pursuing these ends legitimately through, for instance, its participation in the intercarrier compensation forum. So recent history suggests that it was less of an effort to incite sweeping regulatory change than it was an attempt at regulatory arbitrage.

Nevertheless, the facts were such that AT&T was able to wage an effective public relations war, pitting the financial interests of our soldiers fighting in Iraq against the interests of universal service and access charge recipients. The strategy showed some promise. Last fall, Congress inserted language into an omnibus appropriations bill which would essentially exempt AT&T from paying these fees.

However, as the FCC explained in its order and Chairman Powell expanded upon in his statement, the military issue was a convenient red herring. Other calling card providers who pay access charges and make their USF contributions were still able to offer calling cards to military personnel at rates comparable to those offered by AT&T. Notably, AT&T also argued that its calling card service is a form of "universal service" for low-income families. This argument would have more rhetorical value, were it not for the inconvenient little fact that AT&T was refusing to make universal service contributions in the first place!

I do admit feeling a wave of nostalgia in writing this since, if the SBC/AT&T merger goes through, this may be the last great arbitrage effort by AT&T that is snuffed out by an agency or the courts. The previous effort involved AT&T's effort to exempt its CallVantage service from access charges, which was similarly dismissed by the FCC. Oddly, the FCC issued an NPRM today asking whether, in part, a recently marketed AT&T calling card which utilizes IP transport over a portion of the calling path should be subject to access charges. Assuming the issue is factually similar to that which has already been decided by the Commission, I'm guessing no.

posted by @ 9:13 PM | Capitol Hill , Communications , Communications , The FCC