Level 3 Submits VoIP Intercarrier Compensation Model To FCC

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Level 3 Submits VoIP Intercarrier Compensation Model To FCC

I just received this release from Level 3 , regarding their having submitted a financial modeling program to the FCC showing the likely impact of VoIP on ILEC access revenues.

The release follows:

Level 3 Submits VoIP Intercarrier Compensation Model To FCC

Findings Indicate Voice over IP Is Not a Significant Threat To ILEC Access Revenues Over Next Two Years

BROOMFIELD, Colo., February 1, 2005 -- Level 3 Communications, LLC today announced that it has submitted a financial modeling program to the Federal Communications Commission that demonstrates the likely economic impacts of Voice over IP on access charge revenues collected by local phone companies. The submission was made in support of Level 3's December 2003 forbearance petition on Voice over IP, which is pending before the Commission.

The model, using industry-based assumptions, indicates that the growth of VoIP traffic will not have a significant impact on access charge revenues collected by non-rural local carriers over the next two years. If the FCC were to reverse the current intercarrier compensation regime and apply access charges to VoIP traffic, carriers' access charge revenue would increase by only 1.8 to 3 percent through 2006.

"In our view, these figures show strongly that there is no compelling need to apply access charges to Voice over IP," said Bill Hunt, vice president of legal and public policy for Level 3. "First, granting the petition will have very little disruptive impact on ILEC access charge revenue. Second, and perhaps more importantly, imposing access charges would burden VoIP providers with an unnecessary payment obligation that is likely to slow the growth of this important technology.

"In the long run, consumers and the economy will benefit far more if emerging VoIP technologies are allowed to continue to develop without being hindered by outdated access charge regimes especially when the FCC is already undertaking a broad review of the entire intercarrier compensation system."

The Level 3 forbearance petition asks the FCC to reaffirm that service providers should exchange IP-to-PSTN VoIP traffic using reciprocal compensation agreements rather than federal or state tariffs for access charges, which comprise far higher fees and contain hidden subsidies for incumbent local carriers.

Currently VoIP traffic is not subject to interstate or intrastate access charges. As more carriers deploy VoIP platforms and services, some local exchange carriers have claimed they are entitled to access charges if VoIP traffic originates or terminates on their networks. If the FCC does not rule on the Level 3 forbearance petition by the statutory deadline of March 22, 2005, the petition will be deemed granted.

The financial model submitted by Level 3 was designed by QSI Consulting, Inc., an economic consulting firm. The model is an interactive program that can analyze multiple factors related to intercarrier compensation and VoIP growth, including wireline substitution rates, price compression, and DSL revenue growth.

The QSI analysis contains a number of key conclusions:
-- If the FCC were to impose access charges on VoIP traffic, non-rural ILECs would collect $114 million in 2005 and $167 million in 2006 in additional access charge revenue, which represents only a 1.8 and 3 percent increase, respectively, over what they would otherwise receive during those years.

-- The resulting increased costs to consumers would slow broadband adoption, including DSL services offered by ILECs. The report finds that imposing access charges on VoIP traffic would create a loss in ILEC revenue from new DSL sales of approximately $95 million in the same timeframe.

-- Access charges lost due to consumers using cell phones to place long distance calls is likely to be a far greater drain on ILEC switched access revenue than VoIP over the next two years.

"We believe it is in the public interest to apply real analytical rigor to the important issue of VoIP and intercarrier compensation," said Hunt. "Despite current debates over access charges, no one has yet introduced quantitative measurements of the effects of imposing access charges on VoIP traffic. The Level 3 model allows all parties involved to enter their own assumptions and estimates. We have worked very diligently to use informed, well-researched assumptions based on realistic market trends. We hope the model is useful to the Commission as it considers this important issue."

To obtain a copy of the QSI Model, visit http://www.Level3.com/QSI.

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