FCC Moves on Reciprocal Compensation, VoIP Interconnect Role Unclear; Broadband Bill Reappears
John L. Guerra
06/01/2001
Complaining that payments for ISP traffic have “created opportunities for regulatory arbitrage and distorted market incentives,” the FCC in April determined that ISP-bound calls are interstate in nature, and not subject to reciprocal compensation rules. The agency also outlined an interim method that CLECs can use to collect for ISP-bound calls until the practice is phased out over the next several years.
Here’s how the plan will work:
For the first six months following the order, intercarrier compensation of ISP-bound traffic will be capped at a rate of $.0015/minute of use (MOU). For the 18 months thereafter, the rate will be capped at $.0010/MOU. Thereafter, the rate will be capped at $.0007/MOU.
The rate caps for ISP-bound traffic apply only if an incumbent local exchange carrier (ILEC) offers to exchange all local traffic at the same rate.
A cap will be imposed on total ISP-bound minutes for which a local exchange carrier (LEC) may receive this compensation. The volume cap will equal the number of ISP-bound minutes for which that LEC was previously entitled to compensation, and a 10 percent growth factor.
To identify ISP-bound traffic, the commission presumes that intercarrier traffic that exceeds a 3:1 ratio of terminating to originating traffic is ISP-bound traffic subject to the compensation mechanism.
Contentious Issue
ISP-bound calls have been contentious for the industry. ILECs have long complained that Internet traffic originating on their networks hits the CLEC switch and “disappears” into the IP cloud and are not reciprocal in nature. CLECs have been collecting handsomely on such calls, relying on arbitrage at the state level to force LECs to pay up. The FCC decision will reduce, and eventually halt, the annual $2 billion from ILECs to the already beleaguered competitive community.
For ILECs such as BellSouth, the decision was welcome news. “Some of these ISPs were behind CLECs, because it was a very viable business plan; now it’s more [representative] of the real cost,” says Jim Brinkley, senior director of interconnection marketing for BellSouth.
A spokesman for ALTS, which represents facilities-based CLECs, played down the ruling, saying that the FCC decision at least removes uncertainty surrounding such payments. “All we were asking for was a final answer on this,” Brinkley says. “And the [interim payment scheme] also mirrors agreements that are largely already in place in the industry.”
ALTS: States Were Doing Good Job
ALTS President John Windhausen Jr. issued a statement that seemed to both accept and reject the FCC’s argument, which gives competitors a three-year window to collect more money on ISP-bound calls. “This decision provides greater certainty for the CLEC community, and confirms that CLECs have the right to be compensated for their costs of carrying dial-up ISP traffic over the next three years. We believe the marketplace, through private agreements, and state commissions, through rigorous costing analyses, were adequately addressing appropriate rate levels for reciprocal compensation and ISP-bound traffic.”
Windhausen also complained about the fact that CLECs would be able to collect on only 10 percent of new customer ISP-bound calls, which he characterized as “unnecessarily regulatory.” He said it would discourage CLECs from deploying facilities in new markets. Both camps have argued that a decision either way would make Internet access more expensive for consumers.
The agency also released a notice for proposed rulemaking that seeks to change intercarrier payments to bill-and-keep. Under the new scheme, carriers would pass origination and termination costs to their customers rather than collecting money from other carriers to pay for the traffic. The broad call for comment includes an examination of “all existing intercarrier compensation regimes and alternative reform measures that would build upon current cost-based intercarrier payments.” The FCC says it wants to move away from “transitional intercarrier compensation systems” to a more “permanent regime to support the pro-competitive goals” of the 1996 Telecom Act.
VoIP: Interconnect Mystery
The FCC will probably hear from carriers concerned about the role VoIP providers play in the interconnection mix. Softswitch and gateway technology makes it difficult for LECs to determine the origination and termination of voice calls over the Internet—or even the presence of such calls on their networks.
In fact, VoIP providers argue, many telcos are realizing that it’s better to invest in softswitches rather than traditional PSTN circuit switches because VoIP could become the telephony architecture of the future.
If this migration continues, states will find it increasingly difficult to follow call origination and termination points to levy taxes. Not only that, LECs will find connection points tougher to define—which could slowly diminish their ability to track interconnection agreements, or to determine who’s using their networks to send IP phone traffic.
The VoIP distributed environment differs from the established PSTN, composed of static circuit switches that make it easy to track calls, including origination and termination, and assign carrier interconnection points. This call capture capability is something with which LECs are familiar. Yet, when it comes to a VoIP network, built separately from the Internet and PSTN, voice calls and data bypass traditional networks.
Trying to Track the Pieces
“The problem with VoIP is that it’s not that easy to define or determine where it interconnects” with the PSTN, says Martin Demers, senior vice president of marketing and development for Ace-Comm. “Usually a softswitch is composed of at least two pieces. There’s the call processing engine, and the gateway that acts as the bridge between the legacy environment and the IP environment.” Yet the gateway may be in another state, far from where the VoIP traffic occurred.
“You could have two people in the same state using VoIP to communicate, but the gateway may be in another state,” Demers says. The state where the gateway is located “may want to collect taxes on that call, but the state can’t determine where the call originated or terminated. Depending on how you look at the traffic, it could be an intrastate call or interstate call.”
Enterprise Customers Rely on VoIP
VoIP was designed to be a more affordable way to transport traffic without paying traditional interconnection costs, Demers says. “It’s increasingly being used in enterprise networks, which further robs incumbents of termination and access fees. Let’s say you set up a WAN to connect offices, using big pipes that connect your computers,” Demers says. “There’s nothing stopping you from sending voice independent of a carrier over a wide area network.”
Not only that, but someone in the company making a VoIP call to an overseas office can route the call through the company’s PBX at the overseas location and enter the PTT’s traditional telephone network at that point, which makes the international call look like a local one. So British Telecom’s network, for instance, would be unable to determine that an American’s call to a friend in Britain actually came from overseas.
BellSouth: Not to Worry
BellSouth’s Brinkley says the carrier isn’t overly concerned about unseen VoIP traffic, because the cost is passed on to consumers anyway. “There are a whole bunch of [consumers] that use their PC as a phone instrument over traditional phone lines,” he says. “The consumer pays us for the dial-up line or the DSL. We don’t bill the long-distance carrier or the ISPs. The consumer is paying for it by paying for the phone line, or DSL line.”
BellSouth is more concerned about large companies that pay IXCs for direct access to long-distance service and bypass the local switch. “That’s fairly economical, so large businesses—I would assume anything over 10 lines—they would do a direct connection to an IXC,” Brinkley says. “Doing that and VoIP are ways of avoiding switched access charges.”
Tauzin-Dingell Bill is Back … The House telecommunications subcommittee passed the so-called Tauzin-Dingell Bill, which raised more alarms in the competitive telecom industry than the FCC’s ISP reciprocal compensation decision. The Internet Freedom & Broadband Deployment Act (H.R. 1542) contains provisions that would eliminate the unbundling of network elements and line sharing for data. In addition, the act would let RBOCs into the long-distance market by allowing them to extend data lines across state boundaries. The introduction or passage of the bill in subcommittee was no surprise, regardless of how such competitive groups such as ALTS and the Competitive Telecommunications Association (CompTel) couched their language. House Energy and Commerce Committee Chairman Rep. W.J. "Billy" Tauzin (R-La.) tried to pass a similar bill last year, but the Senate never took it up. Tauzin and the RBOCs continue to face strong opposition in the Senate. Tauzin’s co-sponsor on the bill is Democrat John Dingell of Michigan. Here’s a sampling of industry reaction to the subcommittee’s vote:
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