October 13, 2009 3:41 PM

FCC Last Friday: "Someone's $0.00 Has Got to Go(?)!"

Well . . . not really, at least not quite yet, but this is where the Commission is heading--whether they know it, or like it, or not.  If the FCC does know where they're heading (and I don't think they do), they can't be too thrilled, because they also don't know how to make it stop.  Wait, what am I talking about?

Last Friday, October 9th, on the Friday afternoon before the Columbus Day weekend, the Commission's Wireline Competition Bureau sent a letter to Google, asking some questions about the Google Voice service.  The questions aren't that tough for Google to "slip", in the sense that the questions won't get the "real" story out--the most we could probably learn is that Google itself just might receive ultra-low priced, even "free", inputs from its carrier partner(s), and Google might have some deniability about knowing how their "free" service is paid for.  But the answers should give the Commission some clues to pursue the whole story--which they won't get until they send out questions to Google's carrier partner(s), and the FCC does ask Google to identify its carrier partner(s) in the last question.

Notably, the Google letter is found on the Wireline Competition Bureau's home page, and not the FCC's main home page.  However, with no apparent sense of awareness, or irony, the entire FCC voted an Order and Notice of Proposed Rulemaking on the very same date (that was on the main home page) designed to agree with a coalition of smaller LECs seeking to "amend [the Commission's] rules to permit an incumbent LEC ETC with declining numbers of access lines to use a higher DEM weighting factor in performing jurisdictional separations and calculating LSS.  We believe that public policy supports doing so."  (See paragraph 13, citations omitted).  Effectively, the FCC has recognized that the number of companies actually paying access is declining, and decided that the best solution is to raise rates for the few companies that actually own up to providing a telecommunications service.  Why does this matter?

In August when the FCC sent its original letters to Apple, AT&T, and Google, I really didn't think the letters could possibly turn out well for Google.  I also noted that I preferred to think the purpose of the letters were for the FCC to "declare Google Voice to be a wireless information service, and then apply this definition to the wired broadband network in solving the classification of VoIP to eliminate this nasty obstacle to the creation of the national broadband plan."  I've since become skeptical that this Commission has any appetite--or understanding of the necessity--for reforming intercarrier compensation (and universal service) before undertaking any discretionary projects.  I don't think the FCC wants to classify VoIP service at all, but at this point, it just seems that circumstances won't allow this luxury.

I recently noted, that Traffic Pumping and "Magic-Jacking"© cannot continue to exist, while the number of "access paying" telecommunications carriers dwindles.  Yeah, that's right, I'm copyrighting the term "magic-jacking" to refer to the practice of an "over-the-top" VoIP provider (i.e., no LEC facilities) "stimulating" terminating and originating 8YY "access" revenues (for which the switchless VoIP provider appears to have no right to charge) by offering a "free" two-legged calling service in which the first "leg" goes to a mechanical relay point--usually in a higher-than-RBOC interstate location.  Meanwhile, the "magic-jacker" blocks termination to locations where termination costs are greater than the "terminating" access being charged to the IXC for "completing" the call to the relay point.  Google Voice, Magic Jack, and Skype are all prominent examples of alleged "magic-jackers."  SpeakEasy has recently declared that it is joining their ranks.

This is why I noted, that every "access avoider" (i.e., "over the top" VoIP Provider), also has the (almost?) impossible temptation to also practice "traffic pumping."  Tempting?  To be sure, but how is this so easy for firms like SpeakEasy, et. al?  Well, the "secret" is that all the "over-the-top" firms need is a CLEC-partner with a Local Routing Number ("LRN") which tells the Local Exchange Routing Guide ("LERG"), a database that communicates ultimate routing information to the calling party's carrier, where to "terminate" the call.  If the "termination point" (a/k/a) relay point (the "first leg" in the previous example) is placed in a high cost area, then the VoIP provider's CLEC simply charges every tariff charge that a "real" local exchange carrier could charge--even though that provider may own no local switches or transport and, in any case, plays no part in the actual termination of the call to the called party. The access revenues from this scheme are then shared in some fashion with the VoIP provider to partially or totally defray the costs of the services that it obtains from its partner.


Similarly, VoIP providers can also aggregate originating 8YY calls, in some cases from all over the world, over trunks owned or leased by the CLEC partners. Once again, the CLEC partner assesses originating access charges on the IXC serving the 8YY customer as if the CLEC were serving the actual subscribers who dialed the calls, rather than the VoIP provider who aggregated them. Needless to say, the costs of providing access to individual end users are far higher than the costs of providing access to an aggregator. In this case the CLEC may further enhance its gains by applying an aggressive PIU (percent interstate usage) to the 8YY calls (e.g., 50%). Since intrastate access rates are far higher (in some cases as high as 6-7 cents per minute) than interstate rates (typically about half a cent per minute), this can be extremely profitable, though of dubious legality.

Does any of this matter?  Of course it does, but to what end?  Even if the FCC hasn't put the pieces together, the Commission certainly understands these behaviors are linked.  Unfortunately, though, in the words of the deep-voiced Bud Light guy, are there "FCC Police" watching this fraudulent behavior, and putting offenders into "FCC Jail"?  (I don't think so . . . )  So, between the "traffic pumpers" and "magic-jackers" the amount of money available to support the existing intercarrier compensation-universal service regimes is dwindling. 

Unfortunately, it is impossible to say whether the Commission at least recognized this fact on Friday, but it's refusal to conduct a comprehensive intercarrier compensation overhaul has left the few, and fewer, "legitimate" telecommunications providers of IXC service to make more bricks with less straw . . . .  Doesn't give you a lot of confidence that the FCC knows how proposed Net Neutrality rules will affect this already-unstable system, does it?

Gotta love MagicJack! If an AT&T DSL customer gets a MagicJack and an AT&T voice or wireless customer calls that guy, MagicJack collects access charges from AT&T for terminating the call over AT&T's own lines! What a country!

John Dog | October 19, 2009 5:40 PM | Reply

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