Sex, Lies and CDRs

Whether labeled traffic pumping or access stimulation, no one would have guessed the world of interconnect would play out like an afternoon soap opera — replete with sex, gambling, accusations of cheating, and smear campaigns.

Nonetheless, intercarrier compensation has become stimulating fodder for even the mainstream media, in which IXCs and rural LECs have managed to mete out their frustrations: the latter accusing IXCs of blocking traffic, and the former accusing rural LECs of profiting from salacious porn and gambling activities.

Some well-publicized articles have gone so far as to name Iowa “the capital of dial-a-porn.” And The Wall Street Journal has reported that phone sex startups have been rushing to free conference-call service providers so that sex chats can be initiated without the costs associated with 900 numbers.

Understandably, people in the Bible Belt took notice, and rural LECs declared IXCs were conspiring to malign them in nationwide smear campaigns. Regardless, the nature of the calls has little bearing on the legality or ethics behind traffic pumping — the practice of driving up access charges by routing traffic from free conference calling or chat lines through local exchange numbers assigned to rural LECs by IXCs.

While sex and gambling sold the issue for a while, the bigger question is whether or not current tariffs should be revamped now that the Internet opens the door for rural companies to profit from tariffs initially established to offset the costs of supplying telecom services in rural areas. If rural LECs will be routing traffic from Web sites through their switches, then some say the FCC must re-evaluate how smaller companies determine tariff schedules used in interconnect agreements. Others say rural LECs have a right to make profits.

The attraction was a natural one, as the growing demand for conference calling collided with the trend toward buffet-style long-distance plans. It was no wonder that free conference-calling companies and rural LECs got under the covers together; the rural LECs realized they could become the conduit through which millions of minutes could flow, thus increasing terminating access charges to their IXC partners. To them, it was fair game to leverage the IXCs’ miscalculations around large blocks of “anytime” minutes and flat-rate nights and weekends. They also thought it was fair to provide conference calling to schools, nonprofit organizations, Web-based corporations, grassroots organizations, and others usually priced out of such services.

IXCs counter that the Robin-Hood-like contentions by their rural partners fail to acknowledge that local exchanges have an intended purpose — to offset the cost of rolling out telephone services in rural areas. Regardless of the complaints by IXCs, the conference-calling companies and rural LECs were moonstruck by the symbiosis — and profits. But like all good love affairs, the honeymoon period was bound to come to an end — and in dramatic fashion.

The purported “cheating” wasn’t too difficult to discover when charges skyrocketed. Though IXCs engaged in litigation would not comment directly for this article, it is clear they believe rural LECs acted inappropriately. “The IXCs noticed a significant growth in the demand used to establish ‘average schedule’ formulae,” explains Michael T. Hills, president of i2Gemini (formerly HTLT Technologies), a telecom engineering and consulting firm that provides decision-support tools to IXCs. “The process of running the increased demand data through the formulae produced much larger costs for the IXCs.” For that reason, i2Gemini advises its IXC customers to review minutes of use to rural areas for possible abuses.

i2Gemini’s Michael T. Hills

Overall, the discovery of unusual traffic was tedious and somewhat “low-tech,” even though the people in charge of traffic engineering were extremely tech-savvy. “We’d pull CDRs and call records from internal systems to evaluate all calls we sent to the LEC,” says one IXC engineer, who wishes to remain anonymous. “When we saw instances of 20- to 30-minute calls, as opposed to the average of three to four minutes, we knew there was something to investigate.” At that point, he and the other engineers began dialing. “If the call was answered by a conference-calling service or chat line, we knew we were on to something,” he adds.

When feeling particularly enterprising, the engineers would look around the Internet for sites advertising free conference calling or chat services to see if any numbers mirrored what they found on their access charge bills. “All of a sudden, we’d see 90 to 95 percent of the traffic coming from one or two phone numbers, and our access charges rising from $5,000 a month to $70,000 the next,” he adds.

As the tables turned, the IXCs traditionally accused of overcharging rural LECs in phantom traffic arguments were feeling mistreated by their smaller interconnect partners.

As a result, AT&T Inc. began to degrade service or block access to traffic coming from 976 and 900 exchanges, as well as Web sites like GCP’s freeconferencecall.com. The rural LECs accused IXCs of routing conference-call traffic over congested parts of their networks, or over public Internet lines that cannot provide carrier-grade quality.

Next, IXCs refused to pay termination fees to seven Iowa LECs. They pointed to service contracts in which there was language reserving the right to block access to certain categories of numbers, as well as certain Web sites, when receiving “excessive billing, collection, fraud problems or other misuse of our network.”

“The IXCs are being disingenuous if they do not acknowledge they make millions on the long-distance charges from customers on each call — regardless of what it is or where it’s going,” says Ken Johnson, a principal with Bennet & Bennet PLLC, a Washington, D.C.-based firm representing the rural LECs involved in lawsuits with AT&T.

The IXCs feel they are justified because, they say, they have lost millions of dollars to tariff abuses. AT&T, for example, predicted it would lose up to $250 million from traffic pumping schemes.

The lawyers representing the rural LECs have retorted that those amounts are impossible, noting their calculations reflect access bills for a six-month period among seven LECs amounted to $20 million.

Of course the “excess” is very subjective. Rural LECs in the Coalition for Carrier Neutrality say their rates average about 4 cents, with certain companies going as high as 13.6 cents (some ILECs point to AT&T’s ILEC, Alascom, which charges 23.5 cents). Under Section 201(b) of the Communications Act, tariffing of traffic-sensitive switched access services by LECs must ensure rates remain “just and reasonable.”

Simultaneously, AT&T, Qwest Communications International Inc. and others like Sprint Nextel and Verizon Communications Inc. have filed suits not only against rural LECs, but against some CLECs as well. Leading the charge is AT&T, which has been criticized by rural LECs for not filing Section 208 complaints (the formal complaint process) with the FCC right away. The rural LECs have interpreted that to mean IXCs fear the FCC will side with them. AT&T is sticking to its contention that it “did the right thing” by bringing its case before the PUC, which is in charge of intrastate fees. AT&T also has gone to district court in Iowa.

If earlier judgments are any indication, it might be difficult for IXCs to meet their burden of proof when it comes to possible violations of Section 201(b). The FCC already had determined that intentional call blocking, degradations of service and non-payment of access charges were illegal responses by an IXC when AT&T took action against Beehive Telephone, Frontier Communications and Jefferson Telephone. In this latest Notice of Proposed Rule Making, however, the IXCs may have more influence because of the sheer volume of complaints about LECs directing calls through their local exchanges for profit.

Despite the heated exchanges, it ultimately will be up to the FCC to decide if companies like AT&T lost enough to traffic pumping to invoke a change in how tariffs are decided in interconnect agreements. The fact that so many IXCs are jumping on the bandwagon with complaints has convinced the FCC to re-evaluate compensation and tariffs.

On Nov. 15, the FCC published a NPRM to investigate cost and tariff issues in the Federal Register; this is the same NPRM the FCC opened in October. Comments were due by Dec. 17, and replies by Dec. 31, which was after press time for this issue.

The FCC already has acknowledged that chat lines, conference calling and similar services generate substantial growth in access traffic to the LECs from long-distance companies. The FCC also acknowledges that tariffed rates are set at levels targeted to recover the costs of providing access, which it interpreted to mean rates should remain “just and reasonable” over time as costs and demand change. The FCC tentatively has concluded that the average schedule formulas can yield only “reasonable estimates” of an average schedule carrier’s cost when the demand is within the range used to develop the formulas.

The commission has asked for comment on several possible approaches to address alleged access stimulation strategies. Some proposals would require carriers to file revised tariffs if demand increases beyond a threshold level. The current NPRM requests information about rate-of-return LECs, price-cap LECs and CLECs.

Parties on both sides seem to feel some relief now that the FCC suspended tariffs and has agreed to look at rural LECs jumping in and out of the NECA pool.

“The IXCs did the right thing by finally going to the FCC,” says Bennet & Bennet’s Johnson. He feels confident that LECs possessing the wherewithal to buy additional traffic with a percentage of their termination fees will galvanize the FCC to rethink “average schedules” used to determine tariffs.

Meanwhile, the rural LECs believe the NPRM will lead to investigations around ongoing service degradation.