FORD: VoIP, Intercarrier compensation and parsing the Embarq petition

By Carl Ford

When it comes to voice and landline regulatory reform, the FCC has several petitions and actions going on simultaneously. It's easy to lump them all together, but they deal with different aspects of what it means to provide voice service. Embarq's recent petition has everything to do with intercarrier compensation. 

As you know, in the history of telecom, long distance subsidized the cost of the local loop with termination charges to local terminating carriers. Before VoIP came along, the rates for these settlements were put in place. They had much more to do with regulatory objectives than real costs, both on the local loop side and on the interoffice, interLATA, International side. 

The FCC had done excellent work at one point, harmonizing the International settlements rates, and many local rate plans benefited as well.  It is one of the key reasons bucket of minutes pricing is available on all phones services.

Today's issue is that traffic rates for local and state termination have stayed stagnant since before the VoIP revolution. The termination charges with these local tariff rates are out of sync with the market realities today.

Whenever there is an anomaly like this, the opportunity exists for arbitrage. The traffic that is terminating into these local carriers represent more than the volume that VoIP traffic represents and includes traffic from wireless and wireline services. However, often the traffic origination is not known since it is coming based on clearinghouse and competitive carrier relations and may be deliberately masked for competitive reasons. 

The Embarq petition wants all traffic to be terminated at the rates that were set before the advantages of fiber, VoIP and competition came into being. And the rate has no relevance to cost. In fact, the cost of per-minute billing systems is often considered not worth the hassle, especially if bucket of minutes pricing is applied.

The hope would be that a cohesive nationwide rate would apply based on real costs. Major carriers are advocating bill and keep and/or a nationwide rate that is in keeping with the overall market and their experience of cost recovery.

If the Embarq petition is allowed to stand, competition may again be reduced by the cost prohibitive nature of compliance with per-minute billing being applied to all carriers. Of course, the legacy carriers have these systems so the status quo will get to stay that way. The more things change, the more you get the same old POTS.

Like you, regulators see the services that "quack like a duck" and want to apply the standard rules. The issue is that the revocation of the enhanced service provider exemption lumps everything that is displayed as telecom. And given how many jurisdictions are looking for someone to tax, it is going to become burdensome. 

As change comes upon us at the national level, we need to make sure that the change in pricing is not being subverted by our lack of attention.

Carl Ford is Strategic Adviser and Community Developer for FierceMarkets. His words of wisdom can be found at www.carlford.net