Wednesday, April 6, 2011

FCC's Intercarrier Comp Workshop Stimulates Debate About Traffic Pumping, Phantom Traffic and VoIP

Despite the usual "technical difficulties" with the FCC's streaming video, today's ICC Workshop was an extremely insightful look into the key issues and controversies associated with phantom traffic, access stimulation, VoIP access charges and revenue recovery mechanisms. There was no shortage of lively debate, and it was very informative to watch industry leaders hash out different perspectives regarding how these issues should be addressed with FCC policy. From free conference calling companies to state utility boards to rural associations, there was little consensus overall, but I think each participant contributed valuable arguments that will hopefully play into the FCC's ultimate decisions. I'm not going to do a point-by-point/he-said-she-said breakdown of the entire Workshop (which would be impossible since the FCC video feed freezes approximately every 30 seconds, plus many of the issued discussed today are mentioned in my comment summaries), but there are a few issues that I would like to discuss within each of the three sessions from the Workshop.

Access Stimulation & Phantom Traffic
Panel Participants: Krista Tanner (Iowa Utilities Board), Dave Schornak (TekStar Communications), David Erickson (, David Frankel (ZipDK), Jonathan Banks (USTelecom), Melissa Newman (Qwest), and Michael Romano (NTCA)
This session became rather tense at some points, as there are clearly many strong and contradictory opinions regarding the severity and consequences of access stimulation and phantom traffic. The simple fact that the panel included members from free conference calling companies really "pumped" the level of tension, pun intended. The discussion that I found particularly interesting was whether the FCC's policy towards these issues should be crafted based on the "worst case scenario"--in this case, the worst of the bad actors. Iowa has clearly had some significant issues with traffic pumping, which has left the IUB reeling in the wake of a long and painful proceeding that resulted in the High Volume Access Trigger and an IUB that is intolerant of anything that resembles traffic pumping (legitimate or not). The IUB doesn't even think it is necessary to differentiate between legitimate high volume traffic increases and intentional traffic pumping, because the bottom line is that it makes no difference what the calls are for if the rates are not adjusted to meet the higher volume. NTCA's Romano argues that Iowa is an extreme case and that broader policy decisions should probably not be based on the worst bad actors. Both of these points were discussed in the comments I summarized, but it was quite informative for me to listen to a live debate about traffic pumping policy. My bottom line here is that this type of situation should never have happened in the first place in our industry, but it has happened and it is now time for the FCC to deal with it in a way that prevents continued rate structure abuse.

VoIP Access Charges
Panel Participants: Kathleen Grillo (Verizon), Eric Einhorn (Windstream), Julie Laine (Time Warner), Brendan Kasper (Vonage), Paul Gallant (MF Global/Washington Research Group), and Peter McGowan (NY State Department of Public Service)
As I mentioned in my previous post, this issue represents an ugly battle between traditional voice telecommunications service providers and VoIP providers, and I do not see a resolution where at least one side isn't going to have to make a significant sacrifice in both finance and pride. One thing I noticed in the pro-VoIP comments was the argument that since the future of voice communications is IP-based and will move away from a per-minute cost recovery model, VoIP providers should not be subject to an "antiquated" access charge regime. However, I don't think the real issue is implementing an antiquated access charge regime--it is bringing stability, predictability and certainty to an extremely volitile and unstable area of FCC policy. Yes, voice telecom is moving towards IP and will eventually move away from per-minute structures. But until that time comes, there cannot continue to be a "Wild West" attitude towards VoIP access charges. Continuing with this behavior will distort the industry, discourage investment, and cause untold financial harm in terms of litigation and lost revenue--and it literally makes the whole industry look bad. Nobody likes a free rider, whether it is that "friend" who always conveniently forgets his wallet when its time to pay for dinner or a company leaching off the investments that other companies have poured their souls and bank accounts into for the benefit of consumers.  VoIP providers seem to be focusing on a non-issue (that ICC is antiquated and therefore should not apply), as is often the case in rulemaking proceedings, possibly in order to take the heat off the glaring fact many VoIP providers are cheating the system. It appears as though there is a high degree of consensus among telecom industry heavy-hitters (read: companies with lots of lobbyists), such as Verizon, Windstream and Time Warner, that there needs to be immediate action to put VoIP on an access charge structure--even the representative from Wall Street agreed that the current environment is bad from an investment perspective. Furthermore, creating artificial regulatory distinctions between VoIP and other traffic will perpetuate the issue and possible cause mass chaos as every provider will try to justify that their traffic is VoIP. The comment that really stuck with me from this panel was from Windstream: although the current access charge disputes are troubling, if the FCC does not act immediately there is a terrifying potential that the entire ICC access charge system will completely unravel and destabilize the industry--and then the FCC will really be faced with a challenge of epic proportions.

Developing a Recovery Mechanism
Panel Participants: John Rose (OPASTCO), Kenneth Mason (Frontier), Robert Quinn (AT&T, Charles McKee (Sprint-Nextel), Frank Louthan (Raymond James), and David Bergmann (NASUCA)
OK, so my attention span was really waning midway through this session, but there were a few points that definitely stood out--especially towards the end of the session when the focus turned specifically onto small family owned companies in Iowa. I want to commend Frank Louthan from Raymond James for pointing out some very informative rural perspectives throughout the session, but he really went to bat for small rural companies when the AT&T panelist asked "Does Iowa really need 200 small carriers?" Many of us from small companies know the ugly truth about the future--that we will not all survive. I have personally felt victimized by FCC staff who have asked me why all the small carriers don't just consolidate already. Anyway, Louthan responded to AT&T that this is indeed a very emotional issue and a large percentage of the small companies are family-owned--when you threaten to take away something that a family has spent several generations (100 or more years in some cases) building and maintaining, emotions will run high. Consolidation is a very, very bitter pill to swollow. Louthan discussed other RLEC cost recovery issues with great insight. He described how important it is for the FCC to act quickly to restore certainty to the industry, because many RLECs rely on lenders who are currently hesitant to invest in these companies. Furthermore, the uncertainty contributes to low valuation for RLECs--something that definitely needs to change before any of us will consider consolidating or selling our businesses to larger carriers. If the ICC and USF cost recovery issues are resolved with satisfaction, the valuation of RLECs will surely increase. If there is any continued/ongoing risk that RLECs will not be able to repay loans due to regulatory uncertainty, our companies will not only be under-valuated, but we will not be able to meet the FCC's goals for deploying broadband in rural areas. The whole situation is extremely circular, and if one node on the loop is broken the entire rural broadband deployment initiative will suffer tremendously--there is no built in protection ring here (FTTH joke).

I encourage you all to watch the workshop on when it is available. I thought it was really valuable to learn perspectives of all different areas of the industry on these ICC issues, and I look forward to the future workshops on USF reform. I thought the FCC did a great job of organizing a public opportunity for rural telecom providers to present their cases and make their voices heard on extremely critical topics.

I think I have done enough writing for this week, but I finally made a decision about Twitter and decided to join, so PLEASE FOLLOW RURAL TELECOMMENTARY ON TWITTER @RuralTelComment!

Next week I am attending the Utilities Telecom Council's Smart Grid Policy Summit! The UTC extended me a very generous student discount, which I gladly accepted. So look for Part 2 on my Smart Grid Series next week!

Cassandra Heyne


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