The Federal Communications Commission last week put the magicJack business model in jeopardy when it ruled that the carrier was not entitled to collect access charges for calls terminating to its customers through its affiliate company YMax. The FCC ruling came in response to a complaint by AT&T.

But although it represents a victory for AT&T, it may be only a partial victory because the ruling also left open the possibility that YMax and other companies that terminate calls for low-cost over-the-top VoIP providers might be able to collect access charges now or in the future, depending how their access charge tariffs are written.

magicJack offers unlimited VoIP calling at low rates for people who purchase a device from the company that is designed to send and receives voice calls in VoIP form over a broadband connection. It has been speculated that the reason magicJack can afford to offer such low prices is because YMax collects access charges on calls to magic Jack customers. Like other VoIP providers, magicJack does not connect directly to the public telephone network but instead uses a company certified as a competitive local exchange carrier (in this case YMax) to terminate calls from the public phone network to its customers.

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In the new ruling, the FCC stopped short of saying that CLECs cannot collect access charges on calls terminated for VoIP providers, explained Steve Augustino of telecom law firm Kelley, Drye & Warren in a blog post. Instead, Augustino said, the FCC “held that magic Jack customers were not ‘end users’ under the [YMax] tariff because magic Jack customers do not ‘use’ a service they obtain under the terms and conditions of the tariff.” In addition, Augustino noted that the FCC said YMax “does not provide ‘end office switching’ or ‘transport’ services because YMax does not provide connections to the magic Jack customers via ‘station loops’ or ‘end user lines.’”

In the ruling, the FCC also made a point of saying that “we need not, and do not, address issues regarding the intercarrier compensation obligations, if any, associated with VoIP traffic in this order.”

magicJack and YMax may be in a fairly unique position, in that YMax has CLEC certification throughout the U.S. and is owned by the same parent company as magicJack. Most other over-the-top VoIP providers are not so well positioned to tap the access charge revenue stream. But if any of them are doing so, they could face similar challenges.

YMax meanwhile, may find itself responding to a flood of claims from carriers other than AT&T that have been paying terminating access charges to magic Jack users.

The FCC, meanwhile, is getting ready to rule on whether VoIP providers should be required to pay access charges when their customers call customers of other companies. Some VOIP providers have argued that VoIP is not a telecommunications service and therefore they are exempt from access charges.

Longer term, however, the FCC has announced plans to phase out the access charge system—a process that is expected to take a number of years. magicJack already has taken steps to try to make that happen sooner rather than later, offering carriers free equipment if they agree to enter into a “bill and keep” agreement with YMax. In retrospect, magicJack/YMax may have done that as a defensive move in the event that the FCC ruled in favor of AT&T. Now, considering that AT&T did indeed win, carriers may have little motivation to enter “bill and keep” agreements with YMax because they may believe they don’t have to pay access charges to YMax anyway.

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13 thoughts on “FCC Access Charge Ruling Puts magicJack in Jeopardy

  1. But if I read this right, it's more of a technicality than an actual win. Does this ruling just mean they have to file a new tarrif and all is well?

  2. As a telecommunications industry veteran, I would respectfully say that this FCC ruling is a rounding error to magicJack’s business model. I find it curiously interesting that the “media” focused on this rather trivial decision and not the impact and not the big picture story about AT&T’s history of illegal billing tactics being overlooked by Bush and Obama’s absolute favoritism and personnel ties between the FCC and AT&T. The Big Brother behind the scenes innerworkings is the stuff of Hollywood movies. As Deep Throat said, “Follow the money.” Companies like magicjack and rebel CEO’s like Borislow must be fully understood to be fully appreciated and they will surely provide the insight to awaken the public. Where is Michael Moore when we need him? I am proud of my contribution to this industry but embarrassed by it’s deceit and corruption. Go get em magicJack!

  3. The reason majicJack does not qualify for intercarrier compensation is simply the fact that the company nor its affiliate YMax own any telecommunications infrastructure equipment. They own no switching, transport or loop facilities. All they provide is a plug and play device that works over existing (non-switched) data networks that are being paid for by end users (consumers) through monthly Internet data plans. Since the data networks are already being paid for by the consumer, these networks do not qualify for recovery under intercarrier compensation rules that were established to recover the cost of the public switched (voice) network. Intercarrier compensation rules do not cover terminal equipment that resides at the customer premise so YMax has no facility costs that it can recover from originating carriers or consumers that terminate calls to a majicJack enabled phone. The FCC finally got one right this time.

    1. This is not true. MagicJack uses a CLEC, Ymax, to connect to the PSTN. Either MagicJack orYmax needs to pay access. MagicJack has to connect to the PSTN in some fashion in order to terminate calls to a phone number. They are not conneting to an IP address.

  4. As a consumer, when majicjak holds itself out to be a long distance company or a telephone company, and in turn, refuses to abide by the rules and regulations of the industry, they don't pass the sniff test. I believe they use a loose interpretation in the regs to avoid paying real costs, and after all, they are just a simple information (IP) company, wink-wink. If the local, state, and federal taxing authorities knew about their tax evasion schemes, they may be in more hot water than the FCC.

    When it comes to their ads where they portray a "telephone company and long distance calling," I think they get by with having web feet, a protruding bill, feathers, making a quacking sound, and an affinity for water.

  5. It’s this kind of arbitrage and gaming of the system that gives the industry a black eye and advances all these calls for major reform. Interesting that all these reforms are supposed to fix ILECs, when companies like magicJack are the ones causing the problems.

  6. It's companies like MagicJack that has causing the industry to have dropped calls, calls that won't terminate, calls with dead air and etc. They are using the telcommunications line to complete and make calls and are paying nothing. It isn't fair the the rest of the subscribers.

    1. I lived long enough to remember A TT charge $16.52 per minute on calls to Europe. So I own two MJ and use them happily. As far as A TT goes,they do just all other corporations will-screw the public while you can.

    1. The only way that I know to contact Magic Jack is via a chat line on their website. I think it's strange that a company that represent itself as a telephone servide and long distance provider does not provide a phone number to be contacted. Have you found a phone number for them yet? Let me know by e-mail at lvkaraokedave@yahoo.com. Thanks, Dave

  7. This is a C&P from earlier today, w/ consent from one of the support staff through mJ:

    “Please wait for a site operator to respond.

    You are now chatting with ‘Liv’

    Your Issue ID for this chat is [deleted for privacy but available upon qualified request]

    Liv: Hello, how may I help you?

    Gwendolyn Jones: Thank you. I have the original style mJ, & recently, I’ve been having trouble calling my cellphone voicemail, w/ the same # that always used to work in the past. I just got off the phone w/ the cellphone company, & they showed me that the number I’ve been dialing still works from any land-line, but for me, calling from my mJ, I keep getting a message from mJ about setting up a conference call & purchasing minutes?

    Liv: okay.

    Liv: please let me explain it to you Gwendolyn. is that okay with you?

    Liv: As much as we want to help you, but you need to purchase prepaid minutes for you to place a call to the said number , since the other phone service provider charges your magicjack phone number for the said call, the charges is made because of the changes that is made by the other service provider and we are still working on how to provide you free calls to all the carrier, however you can still call other U.S and Canadian numbers for FREE.

    Liv: may i clarify about your cellphone voicemail issue Gwendolyn?

    Gwendolyn Jones: I’ll double-check that w/ them. This isn’t the first time I’ve encountered this message, when dialing other long-distance #s.

    Liv: yes. i understand.

    Liv: The thing about it Gwendolyn is that the other carrier that you are trying to call is now allowing magicjack numbers to go throught because they require us to have charges before they do allow your call.

    Liv: This only means that we have to pay the other carrier before our calls go through.

    Gwendolyn Jones: I’ll C&P this info, if you don’t mind. I see no difference in my calling long-distance from my land-line, paying the LD charges, or calling from my cellphone & paying the minutes. I’m wondering, how many others are going to start charging for “incoming” calls, especially since I’ve already paid mJ to have the nationwide calling of non-toll numbers for the duration of my pre-paid time for mJ?

    Gwendolyn Jones: Since I’ve pre-paid mJ & I’ve pre-paid my cellphone company, this now creates a legal issue w/ me caught in the middle.

    Liv: we don’t have the total number of carrier for now Gwendolyn who charges us with regards on making call to their numbers.

    Liv: i do understand you Gwen, is is okay to call you that name?

    Gwendolyn Jones: I’ll refer this to my legal firm for review, & write it into the media.

    Gwendolyn Jones: “Gwen” is fine for short.

    Liv: okay. i understand your situation Gwen. I hope i did explain well about your concern.

    Liv: I will take note about your concern.

    Gwendolyn Jones: For now. I’ll confirm & discuss this issue w/ them. The 805 area code, & the one of my friend living in another state, both are giving me the same issue. As I encounter others, I’ll be making a note of them & adding to the List.

    Gwendolyn Jones: I do hope for mJ sake, that they don’t have anything to do w/ this.”

    ~end~

    Now, my issue isn’t whether mJ (or through its affiliate, YMax) can charge for additional “minutes” to complete the call, it’s their advertisement that once purchased (the unit & the year+ time contract), purchasers then have nationwide free calling; as my note above shows, this doesn’t seem to be the case. One may easily understand that the time contract would imply that such connections have already been paid & settled prior.

    I welcome any thoughts?

  8. It appears like MJ is blocking local assigned numbers and forcing customers to take their prepaid. Which is total violation of FCC. I dont know how can they do this?

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