February 2, 2004

Honorable Byron Dorgan
United States Senate
713 Hart Office Building
Washington, D.C. 20510

Dear Senator Dorgan:

On behalf of the North Dakota Association of Telecommunications Cooperatives, I am writing to express our concern over statements made by a number of policymakers in both Congress and the executive branch regarding Voice Over Internet Protocol (VoIP). The independent telephone industry in North Dakota has become increasingly concerned over the "hands-off" approach advocated by members of the Federal Communications Commission and some in Congress.

Increasingly, more and more telecommunications providers are using VoIP technology to transmit long distance telephone calls without paying either access charges or making contributions to the Universal Service Fund. In a majority of cases, the VoIP provider is using the local telephone company's network to either originate or terminate those calls without compensating the rural telephone company for use of its facilities. I would like to note, however, that there are a number of VoIP providers who offer their service in a "closed system" and never touch the public switched network. The Association does not argue that companies who operate in that strictly "closed system" should pay access fees or participate in the Universal Service system.

Our concern is not additional competition in the telecommunications marketplace. It is one of fair compensation for the use of our facilities. VoIP providers that want to avoid making payments for the infrastructure of others that they use often argue that VoIP is in its infancy and it should not be strangled by regulation or that it is a "information service" and, unlike "telecommunications service", not regulated by the Federal Communications Commission. Information service providers are not required to pay access charges or make contributions to the Universal Service Fund. We disagree. VoIP is simply a different technology for transmitting the telephone call. In fact, VoIP providers advertise their service as identical to telephone service for a lesser fee.

Simply put, allowing VoIP providers to compete directly with other telecom providers without requiring them to support the local networks they use would be a disaster for North Dakota's rural telephone industry. The danger is twofold: First, as more traffic migrates to VoIP technology the burden of supporting the Universal Service Fund becomes greater for the remaining customers. Second, lack of responsible regulation will encourage telecom providers to remove their traffic from the public switched network and migrate it to a Voice Over Internet Protocol platform. Neither choice will be to deliver a better choice for subscribers or offer a superior technology, it will be because the Federal Communications Commission will have chosen to regulate identical services differently. The agency will have created a regulatory arbitrage incentive to use VoIP instead of the public switched network.

Senator Dorgan, the access rates other providers pay the local network for completion or origination of their calls and universal service monies make telecommunications service affordable for rural North Dakotans. Rural telephone companies alone in North Dakota received in excess of $54 million from the Universal Service Fund in 2003. Additionally, access payments alone represented tens of millions of additional dollars. Rates for our members and subscribers would be substantially higher without these two revenue streams. Those funds are directly responsible for the deployment of next generation services for all North Dakotans, both rural and urban. As you well know, the rural industry in the State offers high-speed broadband in over 260 North Dakota communities, as well as employing a rural workforce of almost 900 of the mostly high-trained men and women found anywhere in the State.

The Association strongly believes the Universal Service Fund is under assault and that many providers seek to avoid any responsibility for ensuring affordable telephone service for all Americans. We further believe that a strong, principled stand will be necessary to protect the system from a piece-by-piece dismantling by some regulators and policymakers who fail to understand the critical role that access revenues and Universal Service monies play in making sure that residents in low-density, high-cost areas of this nation have access to the services necessary to participate in a 21st century economy.

Senator Dorgan, the Association requests that you insist that all providers of telecommunications services in this nation be treated equally and that the concept of universal service be reaffirmed. False distinctions among telecom services, such as those advocated by some VoIP providers, will have a disastrous affect on the vast majority of consumers, especially in high-cost areas such as North Dakota.

Thank you for your consideration of the Association's request. If I may answer any questions regarding VoIP, the North Dakota independent telephone industry or any other matter, please contact me.

Sincerely,

David Crothers
Executive Vice President

DC:cs