Sprint Nextel Files Complaint to the FCC over AT&T's New "Transit Fees"

Not long after AT&T received approval for its merger with BellSouth, it informed competing wireless operators of its new policy regarding wireless to wireless interconnections. Sprint-Nextel complained to the FCC in a recent CMRS market competition report that the new policy is anticompetitive. The policy states that any new interconnections between Sprint Nextel and AT&T Mobility, formerly Cingular, will now have to be connected through AT&T's ILEC tandem. Under the new terms, Sprint Nextel will now have to pay transit fees to send its wireless traffic to Cingular subscribers.

"This is something they just notified on - they don't need approvals," says Pete Sywenki, director of government affairs for Sprint Nextel. "AT&T Wireless has essentially told us that new traffic has to go through the tandems, and they aren't going to allow direct connections with their wireless facilities," he says. In the past, Cingular and Sprint traded traffic under a bill and keep arrangement where no money traded hands.

In addition to new interconnections running through an AT&T tandem switch, any traffic increases in any given market where an existing, direct connection is in place, would be required to switch through the AT&T tandems as well. Further, Sprint believes that as interconnect contracts come up for renewal, all of its traffic ultimately will be required to route through AT&T tandems. "Contract terms do expire," says Sywenki. "We just had a contact expire in the BellSouth region, and we are going month to month with that right now. What I assume that is telling us is that the new contract will require the traffic to go through the tandem," says Sywenki.

Not a Level Playing Field

Sprint notes that the transit fees are another step towards an anticompetitive market because Sprint and other wireless providers will have to pay transit fees, but AT&T in essence will not. "When they send traffic to us, it may run though that tandem, it may not. But if they do send it though the tandem, I assume that AT&T ILEC will charge AT&T wireless that same transit fee, but so what? If it is an increased cost, for them, it is internal accounting funny money," says Sywenki. In other words, even if AT&T Wireless paid the same rate, it is an accounting cost to AT&T, while for other carriers it is a cost that impacts the bottom line. "Whatever AT&T Wireless pays to AT&T, it comes out of one pocket and goes into another. As far as AT&T Corporation is concerned, AT&T Wireless would gladly quadruple the transit rate it pays to AT&T ILEC if it means that AT&T Corporation can collect quadruple the amount of money from AT&T's competitors as it collects today," says Sywenki.

What Sprint and other providers are concerned about is how this will impact the prices they are able to offer their customers. "Any time AT&T imposes interconnection and access fees on other carriers at rates well above the true costs of providing interconnection, it is able to impact consumer prices," he adds.

Interconnection Complexity

For Sprint Nextel, dealing with both bill-and-keep and interconnect rated traffic will create more difficulties in an already complex interconnect atmosphere. "It is already a nightmare," says Sywenki. Sprint Nextel, like many other service providers, has different compensation systems driven by various regulations governing local, wireless and wireline long distance traffic exchange, which will now become relevant to the traffic being exchanged with Cingular, thus adding complexity. "It certainly doesn't make it any better," says Sywenki, "but it doesn't make it much worse. Now we will have bills coming from Cingular, where we didn't have that before." What the final impact to Sprint Nextel's operations and bottom line will be is "hard to say," says Sywenki, because Sprint expects its traffic loads to increase and at the same time it is expanding into new geographical markets.

Sprint says that there are several additional factors regarding this new policy that it finds disturbing. Because this is a transit service, AT&T is under no obligation to provide the service and there are no regulatory constraints on the rates. "We don't know how much traffic will be impacted and we also don't know the rate level [they will insist] we pay," Sywenki says. He believes that it would only be a matter of time before Verizon would view AT&T's policy as a money maker and follow suit. Any incumbent telephone company that provides network transit via tandem switches might also choose this path.

According to Sprint, the new policy is continuing a pattern where large incumbents assert their market power by imposing costs on their competitors. "This is a growing problem, and we've seen this everyday in the special access market in particular," says Anna Gomez, vice president for Sprint Nextel's Government Affairs group. "This is yet another notch in their belt, and it is harming competition," Gomez says.