In the Matter of ICC Abuse and Arbitrage, A Battle Between Telcos and VoIP Ensues

Comments on Intercarrier Compensation Arbitrage Issues (Round 1 of the USF Reform NPRM comment cycle showdown) were due Friday, April 1st--no fooling unfortunately. 

For your reference, this is in regards to:

In the Matter of:

Connect America Fund (WC DN 10-90)

A National Broadband Plan For Our Future (GN DN 09-51)

Establishing Just and Reasonable Rates for Local Exchange Carriers (WC DN 07-135)

High-Cost Universal Service Support (WC DN 05-337)

Developing a Unified Intercarrier Compensation Regime (CC DN 01-92)

Federal-State Joint Board on Universal Service (CC DN 96-45)

Lifeline and Link-up (WC DN 03-109)

So now that we have gotten the formalities out of the way, let's have some fun with Intercarrier Compensation comments! I was not actually planning to spend much time this weekend reading comments, but when I heard about the FCC Workshop April 6 on ICC Reform, featuring a dozen or so "telecom regulatory luminaries," I knew should do some preparation before the FCC Workshop, which I plan to watch via FCC livestream from my house (assuming the video feed from the FCC isn't chugging along at 64kbps like it tends to do on these things).  My intention is to read and summarize a small but elite group of comments to gain a better understanding about the rural telecom industry's concerns regarding ICC abuse and arbitrage, and then watch the FCC Workshop and write about that as well. Simple and straightforward, right? We shall see. ICC is not my strongest area of expertise, so just reading the comments has been a real learning--and eye-opening--experience for me. I'm well aware of the problems that VoIP carriers have been causing in the industry for some years now regarding their refusal to pay access charges, and I've been following the access stimulation/traffic pumping controversy for about 8 months. The more I read about these issues, the more I am convinced that ICC is indeed the most "broken" component of USF. I've criticized the FCC in the past for preaching about how "broken" the USF system is, but now I think I can safely admit the USF critics may have been correct, as long as they were referring specifically to ICC in their accusations of waste, fraud, abuse, arbitrage, and so on.

On to the comments... I've chosen to read and summarize comments from the Independent Telephone & Telecommunications Alliance (ITTA); Joint comments by NECA, NTCA, OPASTCO, WTA, Eastern Rural Telecom, The Rural Alliance and The Rural Broadband Alliance; the Iowa Utilities Board; Blooston Rural Carriers; Vonage and Google (to get the perspective from the "dark side"). The comments are centered around three key issues from Section XV of the USF Reform NPRM:

1. The regulatory catagorization of VoIP traffic, specifically if VoIP providers should be subject to the same ICC rates as traditional telecommunications carriers. VoIP providers have been fighting tooth and nail to avoid paying access rates, despite the fact that there is clearly no difference from a consumer perspective between a VoIP call and a traditional PSTN voice call. Continuing to allow VoIP carriers to avoid access rates is not technologically neutral and encourages free riders and payment avoidance.
2. Rules addressing phantom traffic, where providers omit certain call signaling information in order to make it impossible for the terminating carrier to identify, and properly charge, the originating carrier.
3. Rules addressing access stimulation, where large volumes of traffic (usually in conjunction with free conference calling or "chat lines") are terminated in areas with access rates based on low demand (like rural areas). If access tariffs are not re-filed based on the increased call volume, ill-gotten revenue is gained by traffic pumping carriers.

Comments of the Independent Telephone & Telecommunications Alliance (ITTA): 
ITTA urges the FCC to quickly adopt rules to prevent ICC abuse and arbitrage, adding that "abuse...is rampant throughout the country" (ITTA, pg. iii). Basically, if you use the PSTN, you need to pay. ITTA, an alliance of small and mid-sized telecommunications carriers, is very concerned about the increasing number of VoIP carriers who are withholding access payments, phantom traffic access avoidance schemes, and unreasonable rates resulting from access stimulation. Adopting rules to resolve these issues would restore certainty in the industry as well as create greater financial stability and predictability regarding ICC payments. These rules are necessary to implement before a broader ICC reform can be achieved, which is one of the FCC's goals for overall USF restructuring. ITTA argues that continued mischief in the ICC realm, such as access avoidance, is unacceptable and undermines the entire system. Although some parties argue that ICC itself is an outdated system, that does not justify making one's own rules (I can point to a lot of rules in this country that are "outdated" and "in need of reform," but that doesn't give any citizen the right to avoid the rules or devise their own personal variations just because they don't like the rules--if everyone did this our society would quickly crumble, which is clearly where the telecommunications ICC regime is headed without a quick resolution to ICC abuse coupled with effective enforcement mechanisms). ITTA points to the fact that VoIP providers are required to follow other rules such as E-911 and CALEA, where VoIP is clearly treated as equivalent to telecommunications service. It is simply bad policy to uphold a facade where VoIP traffic is treated differently than telecommunications traffic in some regulatory areas but the same in others, which will prevent investment and create unfair competitive advantages, as well as "condone the Wild West environment that characterizes intercarrier compensation today" (ITTA, p. 8). Regarding phantom traffic, ITTA supports the FCC's proposal to require calling party information in call signaling information no matter what technology the carrier uses (SS7, TDM, IP, etc).  Furthermore, the FCC should be proactive about enforcing phantom traffic rules, which will ultimately help "eliminate cheaters and allow carriers to obtain fair compensation for use of their networks" (ITTA, p. v). Finally, ITTA insists that access stimulation is a violation of Section 201 by creating artificial demand and unreasonable rates. Overall, ITTA puts forth some very persuasive arguments about VoIP being functionally identical to PSTN traffic, and ITTA effectively illustrates the harm, risk and uncertainty that continued ICC abuse and arbitrage will cause to small and mid-sized carriers in rural areas if rules are not implemented as soon as possible.

Comments of NECA, NTCA, OPASTCO, WTA, ERTA, Rural Alliance, and Rural Broadband Alliance ("Rural Associations"):
The Rural Associations also agree that VoIP traffic should be subject to the same intercarrier compensation rates as PSTN traffic; specific and detailed call signaling requirements should be established to prevent phantom traffic; and reasonable rules should be implemented to prevent ill-gotten access stimulation revenue. Furthermore, the Rural Associations add that the FCC should consider developing rules to resolve refusal-to-pay situations to reduce the legal and financial burden on small carriers to recover revenue from non-paying carriers in court. The Rural Associations argue that ICC abuse and arbitrage cause ongoing and numerous billing disputes, complaints, litigation, an inefficient use of resources, and increased strain on the USF system. This amounts to significant regulatory uncertainty, and perpetuates the perception that the FCC has lost control of ICC altogether. The Rural Associations effectively disprove several common myths about VoIP: the myth that VoIP uses different technology for originating calls and therefore should be exempt from ICC; the myth that IP-enabled technologies deserve different regulatory treatment; and the myth that the use of "protocol conversion" in calls that originate on IP and terminate on the PSTN constitutes an "information service," which deserves ICC exemption. The Rural Associations argue that any differentiated treatment of VoIP in ICC constitutes discrimination, therefore VoIP should receive identical regulatory treatment as PSTN calls. Regarding phantom traffic, the Rural Associations believe that terminating carriers should be allowed to charge the highest rate to unidentified traffic as a penalty, which could become a very effective enforcement and prevention mechanism. I believe this would create a strong incentive for carriers to comply with call signaling information requirements. The threat of high costs and financial penalties is extremely powerful--I argued a few weeks ago that imposing data usage caps and overage fees would effectively deter some large-scale digital content piracy. Evading rules and fees is not nearly exciting or lucrative when the cost of the consequence increases beyond a certain threshold--the FCC needs to figure out what "penalty rate" would effectively prevent a considerable quantity of phantom traffic. Finally, the Rural Associations support reasonable rules to address access stimulation, but cautions the FCC to "distinguish between situations where traffic levels are artificially inflated and situations where traffic increases as a result of legitimate and much-needed economic activity in rural areas" (Rural Associations, pg. 32). There are many legitimate large-scale call centers located in rural areas, which should not be confused with intentional traffic pumping. Overall, I thought the Rural Association's arguments were very well developed and convincing, particularly the comments disproving that interconnected VoIP is fundamentally different than PSTN traffic, and the arguments about enforcing phantom traffic with financial penalties.


Comments of the Iowa Utilities Board ("IUB"): 
The IUB's comments were primarily focused on the VoIP and access stimulation issues, and the IUB provided some great examples of recent Iowa decisions regarding both of these controversies. The IUB effectively argues that any VoIP service that is functionally equivalent to a telecommunications service should, 1: be subject to identical ICC rates, and 2: be classified as a telecommunications service. To illustrate this argument, the IUB described several IUB decisions where VoIP was classified as either a telecommunications or an information service--for example, non-nomadic cable telephony VoIP was classified as functionally equivalent to telecommunications service whereas nomadic VoIP was not functionally equivalent. According to the IUB, continued inconsistent VoIP classification by states and the FCC will cause significant regulatory uncertainty beyond the realm of ICC: "the consequences of functionally equivalent VoIP services not being classified as telecommunications services is the potential loss to public safety, service quality, and other public interest considerations..." (IUB, pg. 7). The IUB also discussed its 2010 decision adopting a High Volume Access Service (HVAS) trigger, where a 100% increase in intrastate exchange access billing within 6 months was established as a threshold for determining if a carrier is involved in access stimulation. The IUB points out that the FCC's proposed "Access Revenue Sharing" trigger is completely intolerant of access sharing and is thus more strict than Iowa's HVAS. I was pleased that the IUB concluded its comments by explaining how important ICC reform is to the state's many small rural providers, and that addressing the ICC issues will help ensure fair compensation--which is crucial for small companies who receive in excess of 50% of their revenue from ICC and USF.


Comments of The Blooston Rural Carriers (Prepared by Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP):
The Blooston Rural Carriers argued in favor of imposing equal treatment of interconnected VoIP as telecommunications services and requirements to prohibit phantom traffic from the perspective of mandated competitive and technological neutrality. They argue that many VoIP providers have achieved their market share and low rates through payment avoidance and shady phantom traffic techniques. According to the Blooston Rural Carriers, competitive and technological neutrality are "the bedrock standards for regulating both the traditional voice sector and the emerging broadband sector of the telecommunications industry" (Blooston Rural Carriers, pg. 2). VoIP and phantom traffic carriers who do not follow these principles are cheating consumers and other carriers, which reduces incentives to invest and imposes an unfair burden on the consumers who do not use VoIP service. The Blooston Rural Carriers provide extensive proof that VoIP competes head-to-head with wireline and wireless carriers. Further, they argue that VoIP rates are not low because VoIP uses "better technology," but because many VoIP providers do not own or invest in networks and facilities--they free-ride on those who have made significant network and facility investments. Finally, the Blooston Rural Carriers argue that phantom traffic is technically equivalent to stealing cable TV by hooking up an unauthorized drop or using a stolen credit card, and the FCC needs to "sanction and fine service providers for engaging in unjust and unreasonable practices, such as intentionally and/or repeatedly omitting, stripping, or misidentifying call identifying information" (Blooston Rural Carriers, 9). A startling statistic is that as much as 20% of traffic terminating at RLECs contains missing or incorrect caller location and identification information. Wow.

Comments of Vonage Holdings Corp.
Vonage addresses the VoIP ICC issue and lightly touches on the phantom traffic issue. Vonage argues in favor of imposing a "bill-and-keep" regime for interconnected VoIP, as the FCC is planning to transition the industry to this regime anyway and it would be inefficient to require interconnected VoIP to make two transitions. I cannot personally weigh in on the bill-and-keep debate because I do not know enough about it, but the Blooston Rural Carriers argued that bill-and-keep is appropriate in situations where there is symmetrical traffic volumes and rates between carriers, which is not typically the case between VoIP and RLECs. Anyway, Vonage claims that imposing equivalent ICC requirements on VoIP providers is a "step backwards" to an increasingly irrelevant and obsolete per-minute framework. Vonage looks to the fact that interconnected VoIP is not geographically bounded like the PSTN, and in fact, VoIP and wireless have "made geography irrelevant in the wireline environment" (Vonage, pg. 5). Vonage listed many reasons why interconnected VoIP should be placed within a bill-and-keep regime, including: it is forward-looking, bill-and-keep is the FCC's ultimate goal, it will facilitate the transition to IP networks, it will create cost savings and lower rates for consumers, it will encourage providers to reduce costs, and finally, it will prevent ICC revenue generation schemes (like access stimulation). Vonage is basically arguing that bill-and-keep is the endgame solution to all of the industry's ICC problems, and allowing interconnected VoIP to transition to bill-and-keep immediately will not only prevent, but also prohibit many of the controversial problems that are currently plaguing the system.

Comments of Google, Inc:
Google credits VoIP as being central to the global power of the Internet, and notes that interconnected VoIP has increased 20% between 2009 and 2010, while traditional telephone service declined by 10%. Google argues against imposing traditional ICC mechanisms on interconnected VoIP providers, because traditional access charges will hinder IP network development and traditional ICC "conflicts with our clear national directive to keep Internet services free of heavy-handed government regulation" (Google, pg. 6). Like Vonage, Google provides a laundry list of reasons why bill-and-keep is the ideal default regime for interconnected VoIP: it is simple, it imposes a low administrative burden, it keeps the government out of issues between carriers, it is based on reciprocity, it is consistent with national broadband goals, and it encourages IP network/facility investment. I personally did not think that Google's arguments were especially convincing--they didn't offer much in terms of evidence to support their claims that bill-and-keep is the best solution and that interconnected VoIP providers should not be required to pay equal access charges as telecommunications providers.

Well, that's it for now! Do you think the FCC will be convinced that VoIP should be classified and treated like a traditional telecommunications provider within the ICC ecosystem, or will VoIP providers continue to evade regulatory parity? Clearly, there is very little consensus between the opposing sides of the industry on this issue--meaning it is definitely going to be a bitter battle until the FCC makes a decision, which will also clearly leave one side making a significant sacrifice.

Readers-- are there any other comments you would like to see summarized? If so, please leave a comment or send me an e-mail and I will see what I can do to add additional perspectives on the ICC abuse and arbitrage issue.

Cassandra Heyne
ruraltelecommentary@gmail.com 

P.S. You can now "subscribe" to Rural TeleCommentary with RSS--the button is located to the right, below the "Telecom News and Resources" link list.