AT&T recently met with the FCC staff and issued a memo after the meeting outlining their vision for the future PSTN (public switched telephone network). It’s routine for any ex parte meetings with the FCC to be documented in this kind of memo so that everybody knows what was discussed. There is nothing shocking in what AT&T said, because they have been saying the same things for several years. But I’d like to discuss AT&T’s vision and talk about what such changes mean to the current carrier world.

The memo outlines what the AT&T wants the national telephone network to look like after a transition from today’s TDM-based telephone network to an all-IP network. Here are a few things that AT&T sees in the IP telephone world:
• There will only be a few nationwide points of interconnection. This memo doesn’t say how many, but it probably means just at the major Internet hubs that exist today like Dallas, Chicago, Los Angeles, New York City, Washington DC, etc.
• They don’t think there should be any more distinction between long distance and local calls. Basically, in their new world a minute is a minute.
• Each carrier would be responsible for getting their traffic to and from these few points of interconnection.
• They see the interconnection process handled largely by what they call ‘indirect interconnection’, meaning that smaller carriers will contract with larger carriers to connect to others.
• They liken their vision of the future network to today’s peering and transit arrangements.

So what does this all mean to smaller carriers? I’m afraid this is very much in AT&T’s favor and bad for everyone else:
• Today a CLEC can meet a carrier at any technically feasible location, and then each side is responsible for the cost of their own network. AT&T’s proposal would put 100% of the cost of network and the transport needed to meet AT&T on LECs and CLECs.
• By getting rid of the distinction between toll and local minutes this proposal changes the way that smaller telephone companies get compensated. This would eliminate cost separations for the ILECs. It would eliminate NECA. It would remove long distance as a source for funding the Universal Service Fund. It would essentially remove the FCC from telephone regulation.
• When they say they want the world to look like today’s transit arrangements, AT&T is making a huge money grab. Today local traffic is exchanged for free, or virtually free between carriers. In a transit world (with AT&T presumably being the transit provider) AT&T would charge every carrier for every minute they pass to another carrier. What AT&T likes about transit charges is that they are not regulated in the same manner as access charges, and AT&T will get to set that transit rate.
• This would also make it hard for telcos to continue to give free local calling. Where local calls are swapped for free today, in a world when a carrier has to pay to send and receive each call it’s hard to see that cost not being passed on to customers.
• Also, getting rid of the distinction between local and long distance traffic is AT&T’s way of asking for the end of all access charges. The FCC has already begun a multi-year transition to get rid of terminating access charges at the end-office level. But AT&T envisions the end of both originating access and of transport and tandem access charges. This would destroy some smaller local telcos who rely on those revenues. Getting rid of transport charges is particularly egregious since those costs compensate somebody for building rural fiber. Who will ever build new long-haul rural fiber if they can’t get reimbursed for it?
• These changes would also undo all of the changes made by Judge Greene when he divested Ma Bell in 1984. It gets rid of LATAs and everything associated with that change and basically puts AT&T back where they were before divestiture. Only richer.

One has to admit that AT&T’s version of the future world might well be the most efficient way to do this. But it also very conveniently shifts all costs away from them and gives them a huge windfall in transit charges. This is a massive power play from AT&T that is disguised as an engineering discussion about efficiency.

One would hope that the FCC can see through this because AT&T’s proposal undoes both the divestiture changes from 1984 and the Telecom Act of 1996. And in doing so it makes it far more expensive for any telco other than AT&T to do business by both adding costs and eliminating revenues.