Most of us have learned that there’s no such thing as a “free lunch.” But don’t tell that to the companies providing the latest flavor of voice communications service: so-called voice over the Internet, or VOIP providers. To some of these companies, not only can you get, but you can demand something for nothing. In other words, you can get a free lunch.
Imagine walking into a store, picking a product off the shelf, going to the cashier and saying, “Hey, I’m not going to pay for this,” and walking out the door. That’s precisely what some VOIP providers are doing today.
Here’s how it works. When you make a phone call, you originate the call with your phone, which is connected to whichever network provider you’ve chosen as your phone company. That can be a “traditional” wireline network provider, a wireless provider, or most recently, a cable company or some other Internet-based provider. Once you dial the number of the person you’re calling, your network provider sends the call to its destination, which often is located on another network. Usually, when a call originates on one network and terminates on another network, the two (or more) networks compensate one another for the costs associated with transporting that call.
In the telecom world, we call this “intercarrier compensation,” when one telecom provider, or carrier, compensates another for services rendered. After all, networks cost money, which needs to be recovered. One method of investment expense recovery is to charge for the cost of terminating calls. For rural telephone companies, like the local network providers of Montana, intercarrier compensation comprises a significant amount of the revenues which these companies invest in their networks to provide access to advanced, ubiquitous, affordable telecom services for their residential and commercial consumers. In fact, as much as half of rural network providers’ revenues are attributable to intercarrier compensation. Conversely, the rates you pay for local telephone service contribute to less than half, and often far less than half, of the revenues your local telecom company receives.
So it only makes sense that if intercarrier compensation revenues, or other non-rate based revenues go down, something’s going to happen if a company wishes to continue investing in its network. Either rates go up for wholesale or retail customers (that is, other carriers will pay more intercarrier compensation rates or end users—commercial and residential consumers will pay more) or, investment will need to be curtailed. Neither of these options is necessarily good for telecom networks or their consumers—that is, you and me.
I said earlier that “usually” telecom carriers compensate one another. However, voice over the Internet, or VOIP, providers have found a way to get around the ugly inconvenience of having to pay others for terminating their calls. They’ve come up with a number of creative interpretations of federal rules to inform other telecom providers that they don’t have to pay for the cost of terminating calls that the VOIP providers originate. For example, the Federal Communications Commission, or FCC, created a rule well over a decade ago which was designed to help dial-up Internet companies connect to their subscribers. This rule, called the “enhanced service provider,” or ESP exemption, said that dial-up Internet subscribers did not have to pay intercarrier compensation charges when connecting directly to their Internet service provider.
Now, fast forward to today’s marketplace. First, dial-up is quickly fading away. So the rule, which was designed for a dial-up Internet world, is becoming obsolete. Second, the rule was designed to apply to incoming calls directly from subscribers to their Internet provider—NOT to outgoing calls connecting to the nation’s voice communications networks. The result is that some VOIP providers today have decided to call themselves “enhanced service providers,” and thereby claim they’re eligible for the ESP exemption, which says they don’t have to comply with the intercarrier compensation obligations that all other voice carriers need to comply with. And if they get away with this creative application of the ESP exemption, they’ll be no different than the guy who walks into the store, grabs merchandise and walks out without paying.
If they get away with this ruse, the VOIP providers will actually get their free lunch! But of course we know that there’s no such thing as a free lunch. The rest of us will have to pay, either as prices go up, or investment goes down, or both.
The FCC has a number of requests that have been filed recently seeking fair and equal treatment of all voice calls that terminate on the nation’s telecom networks. VOIP carriers’ claim that they don’t have to pay for services rendered lacks both legal and ethical substance.
It’s time the FCC take immediate action, before the free lunch crowd gets any bigger, and before we end up paying for others’ irresponsible behavior.
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Contact: Geoff Feiss, General Manager
Montana Telecommunications Association
406.442.4316