MTA Commentary—Parity Needed in Network Compensation

June 12, 2008

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I thought you’d be interested in this month’s MTA Commentary, which discusses the urgent need for the FCC to clarify rules to require Internet voice providers to compensate other networks for the cost of carrying their traffic.

Internet voice providers increasingly are “gaming the system” to avoid compensating other networks, while at the same time creatively interpreting rules—or the lack thereof—to require network interconnection. By failing to compensate other networks, IP voice providers threaten further investment in the very broadband networks on which their applications depend.

Please feel free to call/reply if you have any comments or questions.

Best regards,

Geoff Feiss Montana Telecommunications Association 406.442.4316 (office) 406.594.0424 (mobile)

Serving Montana’s telecommunications industry for over 50 years

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MTA Commentary—Parity Needed in Network Compensation

June 11, 2008

As with any business, it takes money to invest in maintaining and growing the enterprise. Telecom providers are investing heavily in deploying broadband networks, which enable more information to travel faster among telecom consumers. Entertainment, health care, education, commercial and other applications that benefit millions of Americans are growing daily as a result of widespread availability of broadband-capable networks.

Montana’s rural independent telecom providers are industry leaders in deploying broadband capabilities throughout their networks. Ironically, the increased availability of broadband has spawned new telecom applications that threaten continued investment in the very broadband networks upon which these applications rely. In particular, certain Internet voice providers are coming up with a variety of schemes by which to avoid compensating networks for connecting calls from one customer to another.

Case in point: the Federal Communications Commission’s lack of clarity with regard to the appropriate treatment of Internet voice communications that originate or terminate on the public telephone network. At issue is the way communications providers compensate one another for originating, transporting, and terminating calls. In FCC parlance, this is called “intercarrier compensation.” And intercarrier compensation comprises a substantial portion of the revenues that telephone networks need to invest in their infrastructure, which includes broadband network capabilities. In other words, investment in network infrastructure, including broadband network deployment, depends on communications providers paying one another fairly for carrying calls on their networks.

With the advent of new Internet-based voice communications applications, the traditional system of intercarrier compensation is breaking down, and continued investment in the very networks that these new applications depend on is threatened.

The FCC currently has several proceedings that have been languishing for months, even years. These proceedings generally share one common theme: a growing number of telecommunications providers are creatively interpreting telecommunications regulations—or importantly, the lack of regulations—to circumvent the obligation to compensate network providers for carrying their call traffic.

The latest example is a proceeding at the FCC, which was initiated by Vermont Telephone Company, or VTel. VTel was requested by an affiliate of the local cable company, Comcast, to provide interconnection services to the Comcast affiliate. The affiliate serves to connect Comcast’s Internet voice communications operation with VTel’s network. In short, Comcast intends to use federal rules that apply to all telecommunications providers to require VTel to interconnect with the Comcast voice communications enterprise. But here’s the catch: Comcast’s Internet Voice enterprise does not call itself a telecommunications provider and therefore, according to Comcast, it doesn’t need to compensate VTel for interconnecting its traffic on VTel’s network. So on the one hand, Comcast wants to be treated as a telecommunications provider so it can require other telecommunications providers to interconnect with its IP voice service. But on the other hand, Comcast does not want to be considered a telecommunications provider for purposes of actually compensating other networks for interconnecting with it.

Comcast isn’t alone. A similar situation in California has led the California Public Utilities Commission to state that “the FCC should not allow carriers to take advantage of the lack of clarity in FCC policies to advance their own interpretations.” And the Washington Commission notes that Internet voice providers want the state commission to enforce certain rules, but “are quick to point out that the [Commission] has no jurisdiction over rates, terms and conditions of their services.” As California points out, these Internet voice providers are making a “distinction without a difference” in that every phone call originates with a customer and ends with another customer on another network. The fact that a call might have been originated on a broadband connection does not magically transform the call into something that it’s not.

As the FCC itself has stated, “any service provider that sends traffic to the [public telephone network] should be subject to similar compensation obligations, irrespective of whether the traffic originates on the [telephone network], an [Internet] network or on a cable network.”

And yet, these Internet voice providers continue to avoid compensating other carriers for carrying their traffic. The result is that network freeloaders cost the rest of us dearly. By failing to pay appropriate intercarrier compensation, telecom networks lose money they need to recover their costs for maintaining and investing further in broadband deployment. While the FCC waits to settle these crucial compensation issues, state commissions increasingly face situations like the ones in Vermont, California and Washington, to name a few. Is an IP voice provider a telecom provider or not? If it’s not, then network investment can be hindered. If it is, then it can’t pick and choose when to comply with rules meant to treat all telecom providers similarly. There are a lot of consumers and businesses waiting for the FCC to act.

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Contact: Geoff Feiss, General Manager Montana Telecommunications Association 406.442.4316 gfeiss@telecomassn.org

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