Results tagged “Intercarrier Compensation Reform”

August 4, 2011 7:28 PM

What the Price Cap LECs Saw, and What They Need to See

Last Friday--after months of intense negotiation, compromise, and an exhaustive re-calculation of the Mayan Calendar--the six largest "price cap" LECs submitted a comprehensive USF/Intercarrier Compensation reform plan to the FCC ("the Plan").  [Note: you really only need to read "Attachment 1"--the rest just provides legal and economic support for the FCC to adopt the Plan.]  

Under the Plan, the only economic incentive to keep the PSTN alive will disappear on July 1, 2017.  On that date, the Plan--and the Prophecy--require that Price Cap LECs shall be required to make money just like any other business: by efficiently selling services to customers who voluntarily decide to purchase these services.  

This Plan, if adopted by the Commission, will serve to streamline intercarrier compensation, while more efficiently promoting the goal of universal access to broadband, as well as voice, services.  At first, all of this will sound kind of scary to many of you.  

Therefore, let me assure some of you that arbitrage will still be around for 6 more years, and the Plan only requires the end of subsidies as they currently exist.  The Plan is by no means a "Doomsday Prophecy", but merely a gateway to the implementation of simpler, more efficient, and more transparent, subsidy recovery mechanisms.  

Let's look at how the Plan would affect two large, PSTN-dependent industries, if adopted today:

VoIP Providers:

    1) Positive:  allows for recovery of all VoIP-originated or terminated "toll" calls at interstate access rates for the next two years!  That's a crazy incentive to upgrade to more efficient technology ASAP.  As a LEC, you don't have to maintain "big iron" to get big bucks.  There will also be a strong short term benefit to interconnected VoIP providers.  No more haggling with big LECs who only want to pay you $.0007/min, and there's a big difference between $.05 and $.0007.  For the next 6 years--albeit at descending rates--carriers serving end-users of VoIP service will be able to collect larger revenue streams than they are generally being paid today.

    2) Negative:  costs to over-the-top VoIP providers will increase, as may wholesale costs of transmission to interconnected VoIP providers (if purchased from a third party backbone operator--because as the costs collected from other carriers goes down, customer costs will increase; even in the wholesale world).

Wireless Carriers:  Stone cold positive.  No negatives here at all.  Wireless providers get a quick transition from intrastate access rates (which are usually much higher than interstate) to the much lower interstate rates, and decreasing rates over time.  It is notable that most of the Price Cap LECs in the Plan, DO NOT have wireless affiliates.

Regulatory "Underbrush" Grows on Both Sides of the Fence

All of the price cap LEC's supporting the Plan have waxed eloquent at one time or another about the need for the FCC to eliminate its outdated regulations a/k/a "regulatory underbrush."  The Price Cap LEC's Plan accomplishes a lot of these goals, but keep in mind, "regulatory underbrush" grew on both sides of the fence. 

The same byzantine, opaque, universal service system also resulted in cost recovery mechanisms in the form of "services" that are no where to be found in the modern, competitive services offered by cable companies, and wireless carriers.  For example, in a competitive market that didn't start as a regulated monopoly with the goal of keeping "basic" service rates low, would any of these things really emerge as "services" that customers would buy?    

    --"unlisted" phone numbers;

    --"foreign exchange" service (in wireless, you can port a NY number to a TX carrier, but LEC voice providers still make you pay to "port" your landline number a mile away);

    --"hunt groups" (say a customer has one number for its business, but the customer actually buys 10 lines to make sure calls are always answered--the automatic process of "hunting" (finding an open line attached to the main number)--is sold as a separate service);

    --phone handset "rentals":  there have got to be some people still renting that bakelite phone for 3 bucks a month;

    --inside wiring "protection";

    --selling common PSTN "vertical" switch features, like caller ID, a la carte;

    --charging extra for "touch tone" dialing (still happens).

Bottom Line:  The Price Cap LECs have a good plan to streamline regulations for "cost recovery."  But, allowing carriers to to recover costs by receiving explicit subsidies and charging a fair price for service may cause the FCC to wonder how much in costs is still recovered via distorted "services" that emerged from the antiquated regulatory regime in need of reform.  If you can think of any "cool" old, tariffed "services" that seem to have originated as a form of "cost recovery"--and are still being "sold"--please post in the comment section. 

February 18, 2011 4:12 PM

USF/ICC Reform: The Customer Can't Carry the Carrier

Maybe our relationship isn't as crazy as it seems
Maybe that's what happens when a tornado meets a volcano
All i know is i love you too much to walk away though

"Love the Way You Lie" Eminem (ft. Rihanna), 2010

Last week, the FCC released a Notice of Proposed Rulemaking ("NPRM") in yet another attempt to address its crazy relationship with the tremendously (perhaps, needlessly?) complex, and intertwined, issues of Universal Service Fund ("USF") and intercarrier compensation ("ICC") reform.  The NPRM is long, but well-written.  It does a good job of explaining why these two subsidy systems are in need of drastic reform, and it proposes some thoughtful ideas for reform in both the near term and longer term. 

Sadly, though, that's the "tell"--the "near term"/"longer term" goals, with no immediate action--even on the so-called "immediate reforms."  Yep. I hate to say it, but within a few paragraphs--you know the Commission loves these old relics (both the regimes and the many small, inefficient carriers they make everyone else subsidize) way too much to walk away.  Before you even get to the Executive Summary--though the words are lovely--you can't help but think, "Love the Way You Lie."

Don't get me wrong, it's not just this Commission. These regulatory structures have been crumbling--quite publicly--for some time now, and no FCC has done anything about it (including this FCC--for its first year and a half and counting).  But, because of this tendency towards delay, there is no longer a "longer term", and the FCC cannot save, or reform, the USF without "sudden changes" or "flash cuts" that the FCC "intends to avoid." NPRM, ¶12.  Sudden changes are inevitable, and rate of return carriers can either act quickly to participate in a version of reform that guarantees them a chance, but no guarantee, of surviving, or the rate of return carriers can resist reality and the time it takes for the FCC to adopt reforms will be there only transition period.

Why do I say this?  Because "near" term was 4-5 years ago, and "long" term is just as fast as the Commission can act--probably 1 ½ -2 years at the soonest.  Let's consider the notions of "near term" and "long term" in the historical contexts of the need for USF/ICC reform.

The NPRM cites a few factors that make the reform of the USF/ICC regulations so urgent.  Prominent among these factors are observations about the market, and observations by politicians about the state of the USF.  First, the FCC points to the trend of the acceleration of the deterioration of the PSTN, once supported by its now-antiquated, and always-artificial, LEC (intrastate) and IXC (interstate) distinctions. NPRM ¶8.  The PSTN, so rapidly in decline, contains both the purpose of, and presumption for, the USF/ICC models we have today.  The NPRM also notes the observations of Congressman Lee Terry and former Congressman Rick Boucher that "the Universal Service Fund is broken." NPRM, ¶9.  But, here's the thing: neither of these precipitating factors is new. 

A Long Time Coming

As early as 2002, barely upon completion of the USF reforms of the 1996 Act, the FCC's Common Carrier Bureau ("CCB") Chief testified before the Senate that the USF structures just put in place a few years earlier would need to be evaluated and changed frequently.  Then CCB Chief Dorothy Attwood, explained that,

price competition, technological substitution, and development of new service bundles and new services--are precisely the kind of developments Congress sought to stimulate when it passed the 1996 Act. . . . Nonetheless, they strain traditional regulatory distinctions. They present challenges to our universal service framework.  They require us to consider difficult questions. Testimony at p. 4.
What about Representatives Terry and Boucher?  Well, Congressman Terry introduced his first USF reform bill, H.R. 1582 almost 8 years ago, in 2003.  Reps. Terry and Boucher were working together on universal service reform at least as early as 2005.  So the observation by Reps. Terry and Boucher that the USF is broken is hardly new information. 

The NPRM also notes the importance of clarifying the regulatory treatment of VoIP for intercarrier compensation purposes.  Is this a new problem?  Nope, been there, done that (as far as asking the questions go). The FCC just celebrated its 7th anniversary of adopting its first VoIP classification NPRM.

Transition? Maybe When We Had Time

Finally, let's go back to the fundamentals.  Paragraph 8 of the NPRM says it all with just a few statistics,

traditional wireline telephone (switched access) minutes plummeted from 567 billion in 2000 to 316 billion in 2008.  From 2008 to 2009, interconnected Voice over Internet Protocol (VoIP) subscriptions increased by 22 percent, while switched access lines decreased by 10 percent.
By 2008, the number of switched access minutes were almost half of what they were in 2000.  By 2010, the number is almost certainly half (or less) of the number of switched minutes in 2000.  The Commission's recent Local Competition Report ("LCR") provides additional evidence of the trend away from the PSTN.  Between 1999 and 2009, ILEC switched access lines (including CLECs using ILEC lines) had declined from around 189 million in 1999 (LCR, Table 1) to about 116 million in 2009 (LCR, Fig. 4 + Fig. 8).  Interestingly, the total Universal Service Fund size in 2000 ($4.4 billion) was about the same as the size of the high cost fund alone today ($4.3 billion).

Add to this the information in the figure 6, ¶165 of the NPRM, which notes that at the end of 2010, rate of return carriers collected $2.0 billion to serve 5.8 million access lines.   If current trends hold (10% line loss/year), these same carriers will be serving 2 million less lines by the end of 2014.  If the President's $5 billion plan to bring wireless broadband to unserved areas  is successful, then line losses will be much more drastic around the time the FCC adopts comprehensive reform.

Unless reforms are equally drastic, the "have nots"--and thanks to the National Broadband Map, you now know who you are--will (one hopes) grow weary of paying a higher and higher USF "tax" on their phone bill (currently 15.5%) to subsidize the increasingly irrelevant "haves."  Contribution reform (another long-ignored concern) is not yet in discussion.  So, by the time comprehensive USF reforms are adopted, it's a safe bet that unless something changes the inefficient rate of return LECs won't have enough customers/lines to make a transition plan even worth the candle.  If these carriers choose to cling to antiquated entitlements, they will be choosing to accept the fate of the entitlements they love.

However, there is a message of hope for rate of return LECs.  They have a (very) little time left which they can use to work with the Commission to modernize USF in a way that allows them an opportunity (but no guarantee) of remaining relevant.  They also have the outside chance of getting efficient on their own.  Either way, a transition will be unnecessary. 

January 12, 2010 6:21 PM

CASH FOR MINUTES!! No Questions Asked . . .

Yesterday, I did a post--based on a court case initiated in 2007--that suggested traffic pumpers looking for revenue sharing arrangements (for traffic transport and termination) with high-cost LECs was maybe a little scandalous, or at least something you wouldn't want to go around asking about in polite company.  Well . . . as with a lot of things, it all depends on who's asking the question, how the question is asked, and whether the person asking really gives 2 cents what anyone thinks. (At this point, transition to your best Rod Serling voice.)  But in the Telecom Zone, everything is not always as it appears, which brings us to our next case.  Submitted for your consideration, the case of one TRX Telecommunications . . . .

If the "minute broker", mentioned yesterday, brought "buyers" and "sellers" of minutes together in a discrete, low-key, manner, TRX Telecom--the phone company that pays you--(by the way, that's their real tag-line) looks for revenue sharing arrangements with all the zeal of a direct marketing version of a monster truck show promoter.  No apologies, no discretion, no shame, no fear, just BUTT-KICKING, PLATFORM POUNDING, MINUTE CRANKING!!  

Heck, a better way to say it might be: no business plan? NO PROBLEM!  No software-based calling platform?  NO PROBLEM!  No services to sell? NO PROBLEM!  TRX Tel does all the work: they offer basic to more advanced, chat room and teleconferencing services.  What they don't do is judge . . . or ask you for anything . . . but MINUTES!  Even then, they don't make customers commit to any "minimum" level of minutes.  They just ask you to do your best, brother.  Any incremental minute (on the TRX platform) is a good minute, and you always get a cut--whether you produce 18 minutes or 18 MILLION minutes . . . .

But, if you DO produce 18 million minutes (per month)?  Well, you get a prize, my friend.  What type of prize?  AN A@$-KICKING, NITRO-FUELED, 5 CENTS/MINUTE!  That's right, brother, 5 CENTS/MINUTE!  That's 100 TIMES the large LEC interstate termination rate!  And this is a BOUNTY--it's not like they're giving you ALL the money that's being generated from your 18 million minutes.   

And here's the best part: all it takes to add a million dollars/month to your bottom line is to keep 500 lines busy 24/7 for a month. Convince 500 friends to use their flat-rated, bundled, triple-play phone line to stay on a 24/7 conference call, use their mobile phones for voice, and you can give them a nice discount.  Another option would be to use your Skype account while you're sleeping.  If that bothers you, then just get non-profits, and other groups looking to save money to actually use the services in a normal fashionIt doesn't matter!  Whether Al Quaida or Alpa Chino, "real" or "fake", the fact is that minutes are minutes, and "bounties" are "bounties."  I didn't invent this system, but I can't "un-invent" it either . . . .  So, here's to you TRX Tel, crack open a cold Bud Light, because you always tell it like it is, and, thanks to you, talk isn't always cheap!

[Note: I don't let my clients pay for this type of shenanigans, so if you're an IXC reading this, give me a call.  But, if you don't call, or you're not one of my clients, then your best bet is to just take the advice of "Teddy KGB" (from "Rounders").  Admit you got beat, and pay these men their money.]

January 11, 2010 5:24 PM

Pssst! Wanna Buy Some Minutes?

["None of us are going to deny what other people are doing. If saying bullshit is somebody's thing, then he says bullshit. If somebody is an ass-kicker, then that's what he's going to do on this trip, kick asses. He's going to do it right out front and nobody is going to have anything to get pissed off about. He can just say, 'I'm sorry I kicked you in the ass, but I'm not sorry I'm an ass-kicker. That's what I do, I kick people in the ass.' Everybody is going to be what they are, and whatever they are, there's not going to be anything to apologize about. What we are, we're going to wail with on this whole trip."]
-- Tom Wolfe (The Electric Kool-Aid Acid Test)

I kicked off with that quote, and I want you to read it--and understand this--I respect authentic, original, people in the telecom business.  They may not be the most likeable people in popular opinion polls, but they do want they do without regard to the opinions of others, and they almost always drive change (for better or for worse).  Dave Erickson of ("") is such an individual.  And, as much as I might crack on "traffic pumpers", Dave has posted up on this blog--under his own name--without regard to what anyone thinks . . . and I like that.  I mean, as traffic-pumpers go, he's "doing it right out front and nobody is going to have anything to get pissed off about."  So, brother, if you're reading this, you need to know I've got nothing but mad respect for the way play your game--and that's no joke.  

But (and you just knew there was a "but" coming), this is a story--contained in a court case--that I've never seen reported, and it's an enduring testament to Dave Erickson's stone cold, "bad-ass"-ness, but it's a story that readers have got to hear to believe.  At this point, Dave will probably disagree with every characterization I make . . . but that's part of why I'm going to be what I am, and there's not going to be anything to apologize about.

OK, so on with the story.  Let's say you think there's a good way around the FCC's Farmers and Merchants Order, where the Commission found in favor of Qwest in a complaint against a local exchange carrier ("LEC") that specific revenue-sharing contracts between the LEC and conference calling companies, did not constitute the provision of switched access services, where calls are terminated to an end-user premise, consistent with the LEC's tariff on file with the Commission.  So, that order means nothing to you--maybe you've got some cool creative tariff attorney and some inventive new traffic pumping scheme.  Fair enough; so far, so good, but here's the big question: if you're a free conference calling company, looking to set up shop in a high cost area with a cool, new tariff, or traffic-pumping plan, have you ever thought about how you'd actually do it?

Continue reading Pssst! Wanna Buy Some Minutes?
January 6, 2010 11:27 PM

A Good Question, A Direct Answer, and . . . Mayhem Ensues

Confusing, huh?  Sounds like a movie idea . . . for a really bad movie; but that's what happened recently with an AT&T filing in response to the 25th Public Notice in the National Broadband Plan proceeding.  The Commission asked for public comments on a very important, and very forward-thinking topic: how should the Commission plan for the inexorable obsolescence of the Public Switched Telephone Network ("PSTN").  

The simple fact of the matter is that, due to broadband availability and adoption patterns, increasing availability of mobile VoIP apps, and (morbidly) the dying off of PSTN customers--and the fact that younger customers, with broadband access, are opting for VoIP solutions.  Fortunately, the Commission acted on its own data, and recognized that the costs of the PSTN are being born by a smaller, and smaller group of consumers all the time, and the consumers that lack VoIP as an alternative (because they have not adopted broadband) are those least able to afford these increasing costs--the less-educated, the poor, the elderly, and minorities.  (See, p. 82). The Commission is to be applauded for recognizing a trend, and trying to plan in advance in order to avoid a potentially disastrous crisis in advance.

Among those filing comments in this proceeding, AT&T recognized the problem was as grave as the Commission suspected, and they responded to the Commission's request for comments with all the gravity with which the Commission solicited the comments.  Critics may call AT&T's comments melodramatic, but, judging from the attention they received (even if it was misplaced), I'd say AT&T did a good job of calling public attention to the Commission's very timely concern.  AT&T's policy blog explains their position a lot more succinctly than I could, and the posts contain good links to AT&T's actual comments.  If readers are interested, I would strongly encourage them to read these two posts--the first, and the second.

Bottom line: AT&T isn't seeking to turn off the PSTN, so there's no need for panic.  Hysteria isn't good, but (this time) it can have a good outcome if it brings more awareness to an urgent problem--the need for the Commission to reform USF contributions and distributions, and Intercarrier Compensation Reform, before the network becomes a network for broadband "haves, and have-nots."

December 1, 2009 1:14 PM

The Alchemy of Net Neutrality: Does Double Discrimination Create Value?

`When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `which is to be master -- that's all.'  Through the Looking Glass, Chapter 6.

`Can you do Addition?' the White Queen asked. `What's one and one and one and one and one and one and one and one and one and one?'

`I don't know,' said Alice. `I lost count.'  Through the Looking Glass, Chapter 9.

The question to be considered in the context of the Net Neutrality NPRM is not that the Commission is using a word--this time "neutrality"--to mean just what it chooses it to mean, but rather, how does it all add up, when layered on top of another equally "neutral" (but fundamentally discriminatory) regulatory regime such as intercarrier compensation where the same word "termination" has so many different meanings (prices)?  How do the sums add up?  Like Alice, I've lost count, but let me give you an example to see if you can keep better count. 

On November 19th, eBay closed on its sale of Skype, eBay's large, over-the-top, VoIP subsidiary, in a transaction that valued Skype at $2.75 billion (though eBay held on to 30% of the company).  This somewhat concludes eBay's rollercoaster ride into the world of telecommunications. Though the company itself valued Skype at $1.7 billion on its own books, eBay was unable to find anyone willing to pay even $1.4 billion--eBay's asking price--this spring, and even some Skype cheerleaders were speculating that, earlier this year when eBay made the decision to sell Skype, that eBay would likely get closer to $1 billion.  

In 2005, eBay bought Skype (or some part of it that, curiously, did not include the central intellectual property that made the service work) for a reported $2.6 billion, but the founders stayed on to manage the Skype subsidiary, and if all had worked out, could have earned an additional $1.5 billion over the next couple of years if certain targets were met.  Less than a year later, eBay ousted the founders and gave them an additional $500 million to leave early, for a real cost of acquisition of $3.1 billion.  At the time of the purchase, eBay was alternately lauded for its foresight, or criticized for paying way too much for a service that is largely "free." 

Subsequent to the original purchase date, most reports about the transaction were negative--suggesting that eBay's purchase was looking like a worse and worse decision with each passing year.  Business Week continued to follow the operation of Skype within eBay to see how the transaction would turn out.  The articles suggested the acquisition, in hindsight, was a bad idea--and getting worse all the time

But, what happened since April, when no buyers were willing to even purchase all of Skype for $1.4 billion?  Who knows?  But Skype is now valued at a higher revenue/EBITDA ratio than Google (15X vs. 11X).  And, if it's relevant, Skype's 15+ revenue/EBITDA was multiples higher than the 4.4 recorded by Apple over the fiscal year ending in September 2009.

Continue reading The Alchemy of Net Neutrality: Does Double Discrimination Create Value?
November 14, 2009 12:35 PM

Broadband Team Finally Gets It Right! New NPRM on USF and Intercarrier Comp

Yeah, like I'm one to talk about someone finally "getting it right?"  I've posted exactly 0 blog entries in one month (but it was a long month and we did go off daylight savings time), and I get to be a critic?  Seriously, though, if they had such a thing as a "license to blog", mine would have already expired for lack of use.   But, in my defense, I haven't posted anything in a while, because the big telecom policy talk of the day has been the FCC's proposed "Net Neutrality" Rulemaking, which was released on October 22nd.  And, the fact is, I'm really uncomfortable with the subject of "net neutrality"--for several reasons, not the least of which is that I've always been kind of confused and intimidated by the subject, because it always meant something different to different people.  However, now that the FCC has given it a concrete meaning, I have no excuses, so I'll hold my nose and start writing on it very soon. 

The point of this post, though--because I'm not one of those "hater" bloggers (not all the time anyway)--is to give credit to the Broadband Team over at the FCC for their appropriately named 19th [Nervous Breakdown] NPRM where they ask about how the role of the current state of USF funding and distribution, and intercarrier compensation, can effect broadband deployment.  As I am wont to do, I will take credit for prompting this NPRM--even though the subject was inescapable for the Broadband Team if they were going to do a comprehensive report (which they seem to be striving for)--because I wrote a post on this same subject two months ago (back when I was blogging). 

The NPRM seeks, in my opinion the most important information of the inquiry, because, unlike a lot of panels and inquiries, this information could really end up setting the FCC's substantive agenda for the next year or more--after the report is issued.   The reasons these issues are so big is that they are so pervasive, and so relevant to broadband deployment to rural and low income areas, and have been neglected for far too long.  Moreover, in a broadband/Net-centric world, these two key policies remain firmly stuck in the pre-Telecom Act days.  Additionally, it must be noted that it is impossible  for the Commission to tackle my new favorite subject of Net Neutrality without first figuring out the effects of imposing "neutrality" on the two of the pillars of regulation that are currently built on discrimination.  The FCC really can't think about imposing system-wide "neutrality" on a system that was never built to accommodate that principle (beyond common carriage--which the FCC's proposed Net Neutrality rules go well beyond), until the Commission understands how the current system promotes, or discourages, broadband Internet usage. 

Think about it.  Universal service was to be achieved on the theory that long distance (voice) subsidizes local, urban subsidizes rural, and business subsidizes residential.  Similarly, interconnection prices (for originating and terminating specific calls) range from "free" (wireless termination) to 6-7 cents a minute or more (rural or intrastate toll landline terminations).  Where discrimination is the law, economic incentives run counter to the law--and unproductive regulatory arbitrage is rewarded.  This is the system that we have and that is crumbling.  It certainly merits a look by the Commission as to how this system--and potential reforms--might promote broadband deployment in places where deployment is stuck, but subsidies persist to flow. 

Finally, I think this NPRM will lead to the most long lasting effects on the Commission's agenda in the near future because these matters are the biggest matters affecting broadband deployment that the FCC has the most control over.  I said it before, but these are the biggest issues from the past, that will be the biggest issues for the near future--if the FCC gets it right.  Yesterday's announced NPRM assures that these issues will be accounted for in the report to Congress, and will probably produce more pressure from Congress to work on these matters for the sake of establishing a platform for economic growth. 

So here's to you, oh conjurers of the Congressional Report, crack open a cold Bud Light, and . . . get back to work. . . you don't have a lot of time left!

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.

Continue reading FCC Last Friday: "Someone's $0.00 Has Got to Go(?)!"
October 13, 2009 1:30 PM


I know I said in a previous post that I've done this subject to death and resolved to write on some new stuff.  I still mean to do this . . . and start exercising, drop a few pounds, cure cancer, become a ninja (well, you get the drift--a lot of stuff that isn't happening anytime soon).  But, I haven't posted anything in a couple of weeks--totally wasting all the "good will" I got from Harold Feld when he was nice enough to mention me on his blog in a post a couple weeks ago.  Around the same time, I also was lucky enough to get a referral from Rob Powell in his TelecomRamblings blog.

But, while I, personally, wasn't posting a lot (I wrote a few comments on the post Harold cited to), Harold's readers really juiced up the dialogue through their comments on the post that he cited in his blog.  The comments--really a lot more than the blog itself--have turned into a pretty robust discourse on the issue of "traffic pumping" and "access avoiding."  The "two Daves"--Erickson and Frankel--who are on opposite sides of this debate at the Commission, both contributed a lot of good and thoughtful material.  Do yourself a favor, and take a few minutes to read the commentary HERE; it would be a shame if the only people to see this discussion are the people leaving comments.  Thanks to everyone on both sides of the debate (most of the commenters) that took the time to write such thoughtful comments.  

Intercarrier compensation--especially the battle between the "free" services --is going to be something that you'll hear a lot more about over the next several months, so bear with me, but I promise you'll really understand a hard subject if you do.

September 25, 2009 4:13 PM

Policy Personals: FCC Broadband Planner ISO "the Man in the Mirror"

I have to confess, I haven't been following the Commission's major initiative: the development of the National Broadband Plan.  Why?  I guess I'm just skeptical about the ability of the regulator (or any other central planner) to anticipate innovation, much less promote it.  From what I've seen, the best the government can do is to try to enforce the rules that exist, on the one hand, and, on the other, to eliminate rules that hinder healthy growth in commerce.  The idea of the government "creating" a "broadband plan" and then seriously expecting private firms to cooperate is just something I don't think I've ever witnessed--outside of an economy with much deeper government participation in the marketplace than we have here in the U.S. 

So, I haven't been following along mostly because I can't figure out why this regulator-driven plan would be any more successful than any other "plan" from any other central planner.  In fact, one thing about the "fact gathering" for the Plan makes me wonder whether this is even what Congress had in mind when they asked the FCC to come up with a "Plan."  Specifically, the methodology for "creating" the "plan" seems--from the panels the Commission is holding--exclusively, and excessively, focused on factors beyond the Commission's ability to influence. 

But, given the Agenda for the next FCC meeting on September 29th (progress on "the Plan"), I decided to take a gander at what the FCC has been looking at to develop the National Broadband Plan.  A cursory glance at the web site displays a profound lack of introspection into how the Commission's current policies are influencing--for better or worse--broadband deployment.  In the previous post, I noted the IUB decision earlier this week, finding "traffic pumping" to be a violation of the traffic pumpers' tariffs. 

Given that access charge revenue is only available for originating or terminating circuit-switched calls, any regulatory scheme that allows access charges to artificially expand is tantamount to paying carriers not to deploy broadband and not to switch to an all-IP format. Yet the Commission sees no sense of urgency to reform intercarrier compensation, and is even entertaining a Petition to Preempt the IUB decision.

Similarly, higher USF "taxes" limit the amount of funds available to carriers who have yet to deploy broadband, and the "squeeze" gets tighter every quarter, as the contribution factor inexorably increases.  Expanding the contribution factor, or more closely scrutinizing subsidized services are issues that have simply faded from the Commission's screen--and I mean this literally.  Under "strategic goals" at the FCC web site (on the left hand side of the screen), Universal Service and Intercarrier Compensation are two issues that are nowhere to be found.

Is it me, or would a good look in the mirror, help the Commission better assess the influences of its current policies, so that--if necessary--the FCC could change the things that are easiest to change?  It's kind of like looking at a "muscle magazine" and designing an exercise/diet/fitness program, dreaming about how big and buff you're going to get . . . all the while, conveniently ignoring that you're smoking two packs a day and drinking a six-pack every night.  Wouldn't you want to know if you could reach your goals faster, just by getting out of your own way?

September 24, 2009 3:31 PM

The Tao of Intercarrier Compensation

[Note: I want to clarify from the outset what I mean by "intercarrier compensation."  Used generically, the term "intercarrier compensation" can refer to any charges between carriers for handling traffic. Accepting another carrier's traffic can (but doesn't need to) involve two functions: 1) the charge to transport traffic from the point of interconnection to the last aggregation/switching point in the terminating carrier's network, and 2) the cost to "terminate" (switch and deliver) that traffic to its destination.  In the world of exchange access, there are many carriers and carrier combinations that can usually transport traffic to the terminating carrier's last point of aggregation.  Said differently, there is a vibrant and competitive market for wholesale transport, so in our context "intercarrier compensation" will only be used to refer to the "pure" terminating function--from the last point of switching on the terminating carrier's network."]

Intercarrier compensation is, perhaps, the most un-understood (not mis-understood), and urgent, telecom policy issue requiring the Commission's attention.  But, I've kind of done it to death, so I'll try to make this my last "pure" post on this subject. Nonetheless, the Commission's persistent refusal to solve the obvious problems with the design of the intercarrier compensation system make this an issue that pervades, pollutes, and corrupts almost every subsequent telecommunications policy initiative; and, unless corrected, the National Broadband Plan will be no exception. 

The subject of intercarrier compensation is devilishly complicated to understand, but the correct policy--the answer, the "way", the "tao"--is beautiful in its intellectual simplicity.  The "tao"--as always--is comprised of the "yin" and the "yang." So, rather than skipping (or Skype-ing) to the tao, it is more enlightening to work backwards, and introduce the yin and the yang of intercarrier compensation, why they must exist in proportion, what can happen when they go out of proportion, and then come to the policy solution that will best promote harmony.  In the last post, we discussed the internal tension between certain "free" services.  These "free" services are all the result of attempts to exploit quirks in the intercarrier compensation system--a system that places different prices on the same function (traffic termination) based entirely on how that traffic is classified.  What was not discussed was how these internal tensions can coexist within one carrier.

Continue reading The Tao of Intercarrier Compensation
September 18, 2009 12:13 PM

When Irresistible Force Meets Immovable Object . . . In the Land of the Free

While the deep thinkers in government and in the general "world of the deep thinker" are thinking about lofty issues affecting broadband (remember, I said "lofty" issues), commerce proceeds apace, the domestication of the dog continues unabated, and . . . the "little", pragmatic issues surrounding broadband get bigger . . . but not "lofty."  In a time where lofty gets most of the focus from the broadband plan, "free" is not as insignificant as it sounds. 
"Free" is an afterthought, a cheesy giveaway, or, even worse, a gimmick.  Yet, it is "free" that will force the Commission's head out of the clouds, and force the FCC to deal with the little, pragmatic issues that drive the little, pragmatic services that cause the little, pragmatic people . . . to buy broadband.  Some would say it already is.

Everywhere you look, "free" is "in."  Recently, Wired! Magazine published an article by Chris Anderson, called "Free! Why $0.00 Is the Future of Business."  The article, which is essentially the thesis of a book by Mr. Anderson (available for free), notes that frequently what looks like "free" might just be a different cost-recovery system.  For example, the "buy one, get on free" is a staple of sales promotions, similarly, Gillette makes profits off of repeated blade sales and not from selling razors, and Google makes money from advertisers, and obtaining "free" information about the value that consumers' place on certain search terms helps Google sell a better product to its advertisers.  Most kinds of "free" aren't "free" at all (to consumers)--though they still may be good deals.  Other kinds of "free" services are, in fact, "free" to consumers, because they involve transferring costs to another company in the supply chain, i.e., Mr. Traffic Pumper Guy

Dow Jones today pointed out--in a very observant article--that at least part of the FCC cares a lot about the public's perception that it is standing up for consumers to have access to "free" applications. This, Dow Jones explains, may be one reason why the Commission cared enough to initiate an inquiry into why Apple didn't give "free" placement to Google Voice, a "free" call management/VoIP application, in its iPhone Apps Store.  In other words, preserving "free" might be a good way to ingratiate yourself to certain "public interest" advocates.  Dow Jones quoted a Senior Counselor to the FCC as saying, "We're moving to a broadband world and we want to maximize innovation and investment in the space."

Continue reading When Irresistible Force Meets Immovable Object . . . In the Land of the Free
August 26, 2009 11:49 AM

Here's To You, Mr. Traffic-Pumper, Access-Stimulator Telecom Guy!

With apologies to Bud Light, and their fabulous "Real Men of Genius" radio ads,  TeleComSense will, on occasion, try to honor those innovators in the communications industry, which devote so much ingenuity and effort to produce little-to-negative consumer welfare.  If you're not familiar with the Bud Light ads, they are, quite simply, the best radio ads, period--just click on the link above, and get ready for tons of simple-minded, yet clever (in a simple-minded kind of way) entertainment.  The format is always the same: a guy with a deep, booming voice offers a tongue-in-cheek "salute" to the frequently inexplicable, generally trivial, and always humorous, occupations, products, hobbies, or other segments of our "market-driven" society, while a cheesy '80s sound chorus will chime in with additional fanfare.  [Warning: if the "market" is your "religion", you might find these commercials quite blasphemous].

Unfortunately, the Bud Light crew beat me to one communications industry example--"Mr. Dishonest Cable TV Hooker Upper", but here are the "lyrics" to this tribute. The words in parentheses contain the singing parts.

Bud Light Presents Real Men of Genius
(Real Men of Genius)
Today, we salute you, Mr. Dishonest Cable TV Hooker Upper
(Mr. Dishonest Cable TV Hooker Upper)
On any given day, sometime between nine and four thirty,
you arrive ready to bring us the world and,.
for an extra twenty, you will bring us porn.
(naughty, naughty boy)
Hey, you've already got the van and the jumpsuit,
why not get into criminal activity?
(Just a naughty boy)
Afterall, what are they gonna do, throw you in cable jail?
( I don't think so)
So, crack open an ice cold budlight, Manhandler of the scrambler,
because isn't it about time someone hooked you up?
(Mr. Dishonest Cable TV Hooker Upper)


OK, here's a little background on our first TeleComSense "Real Industry Innovator"--the much-maligned "traffic pumper."  A "traffic pumper", or "access stimulator" is a LEC that finds a way to maximize the amount of traffic (minutes) that it can terminate at the highest switched access terminating rates (usually the rates allowed in the most rural areas).  But here's the trick, the "traffic pumper" does it without ever completing one additional call to a human in that service area.  While "access charges" existed, in one form or another, prior to the AT&T divestiture in 1984, it should be noted that access charges became much more visible  at the time of the AT&T divestiture, and were designed to enable long distance competition while continuing to compensate the newly-divested Bell Operating Companies and independent telephone companies for long distance calls made over their local networks.  In effect, access charges provided a way to maintain the longstanding cross-subsidization of "basic local exchange service," by "long distance service" in a market with multiple long distance providers. 

Continue reading Here's To You, Mr. Traffic-Pumper, Access-Stimulator Telecom Guy!
July 2, 2009 11:24 PM

The FCC's Broadband Plan: Is the Grass Greener in a "Green Field" or a "Brown Field"?

At today's open meeting, the FCC gave an update on its process for developing a National Broadband Plan.  The Commission's explanation of the development of a National Broadband Plan, and the benefits that such a plan promises, upon implementation, was truly inspirational. . . and a very befitting way to kick off the Fourth of July weekend.  The only thing that could have made the presentation more inspiring would have been the addition of Lee Greenwood's, "Proud To Be An American" as a background track. 

All kidding aside, though, the prospect of a National Broadband Plan is an exciting proposition, and has, naturally enough, led to a lot of excited and ambitious "castles in the air" type conjecture (though not in the pejorative sense of the expression).   Seriously, I'm impressed by the way Chairman Genachowski is going about developing a broadband plan.  He couldn't do better with his choice of a person to shepherd the plan along--Blair Levin.  I wasn't able to find Blair's bio on the Commission web site, but, if you're reading this, I shouldn't have to.  Blair is one of those few people that, if you've been around the telecom policy world for any time at all, even if you don't know him, you know he knows what's going on--and probably understands the implications a lot better than you!  At least this is the case when the "you" is me, anyway. 

The other thing Chairman Genachowski--with less than a week on the job--got right was the "" web site to allow a lot of transparency into the development of the broadband plan, and to allow for maximum inclusion of ideas by all concerned parties.  Finally, on the web site, I'd like to draw the reader's attention to the excellent presentation by Blair Levin on the process that has already been developed to begin the iterative process of creating a National Broadband Plan. So, I am kind've encouraged that the Commission is not looking at the broadband plan as a totally "green field" project that can be undertaken without regard to first fixing existing problems.  Still, this being Washington, nobody gets a free ride--except for, like, on their birthday, or political appointment day, or some other special occasion.

Continue reading The FCC's Broadband Plan: Is the Grass Greener in a "Green Field" or a "Brown Field"?
May 14, 2009 7:41 AM

[Go] Back to [Get to] the Future: The Foundation of a National Broadband Plan

Saul Hansell had a great post on May 8th, that is well worth reading if you are one of the many parties struggling to come up with comments to file on June 8th in the FCC's National Broadband Plan proceeding.  In fact, the last paragraph/sentence of the post provides what, with very little (if any) editing, could be the first sentence in a compelling set of comments.  Indeed, it is too bad the FCC didn't start its request for suggestions for big plans with such a simple, commonsense, and obvious premise.  Mr. Hansell concludes:

"What good will it do for the F.C.C. to come up with a spiffy new plan to get faster cheaper broadband to more people if the phone companies fail and millions of people won't be able to dial 911 in an emergency?" 

To really understand what he is talking about, I strongly encourage reading the post.  For too long, telecom industry "insiders"--what you might call the FCC's constituents--have been whistling past the graveyard, assuming that the FCC has all the tools it needs to keep any type of company/industry in business if it really deems that company's services to be in the "public interest."  The "tools" of which I am referring are the implicit and explicit subsidies of intercarrier compensation (what companies--telephone, cable, or wireless--pay each other to deliver voice calls to the party being called) and the Universal Service Fund, which all users pay into in order to ensure (theoretically) that all Americans have access to telephone service.  Mr. Hansell understatedly characterizes these interrelated mechanisms as "inscrutably complex."   They are all that, and a bag of chips.

Continue reading [Go] Back to [Get to] the Future: The Foundation of a National Broadband Plan