The Future of Interconnection

A Verizon payphone with the Bell logo.

A Verizon payphone with the Bell logo. (Photo credit: Wikipedia)

AT&T and Public Knowledge both testified yesterday at a House Communications Subcommittee hearing about the transition of today’s PSTN to an all-IP network.

Both parties agreed that there were five areas that must be addressed to maintain a functional telephone network:

  • Service for everybody
  • Interconnection and competition
  • Consumer protection
  • Reliability
  • Public Safety

I want to look a little more at the issue of interconnection and competition. Today a large percentage of my clients have interconnection agreements with the incumbent telephone companies. Most of my clients are CLECs but a few are wireless carriers, and each negotiates interconnection under a different set of FCC rules.

Interconnection is vital to maintain competition. Interconnection basically covers the rules that define how voice traffic gets from one network to another. The agreements are very specific and each agreement defines precisely how the carriers will interconnect their networks and who will pay for each part of the network.

For the most part, the rules of Interconnection adopted as part of the Telecommunications Act of 1996 work well and there are probably over 2,000 companies using these agreements to interconnect with each other.

There is a lot of danger that changing the interconnection rules could harm and force competitive companies out of the market. Let me just revisit a little bit of history to talk about what I mean. A long time ago the FCC decided that interconnection for local calls between incumbents should be free, and so incumbent telephone companies don’t charge each other to exchange local minutes. However, I can think of at least five times during my career when the RBOCs like AT&T tried to put in reciprocal charges for this traffic. That means that both parties would pay each other the same amount for terminating local calls from the other. Sounds okay until you recall that AT&T basically serves all of the metro areas in the country while smaller telcos serve the rural areas. Still today there is a lot more calling made from rural areas into metros than in the other direction, and if such a change was made the rural companies would be sending big checks to the RBOCs for ‘free’ calls

And the RBOCs have tried to do similar things to competitive carriers with interconnection. The FCC’s interconnection rules say that a competitive carrier can choose to interconnect with a larger company at ‘any technically feasible point’, and yet every few years the RBOCs try to change interconnection agreements to force carriers to carry the traffic to the RBOC hubs. Again, this is a matter of money and the RBOCs want the competitive carriers to pay for everything.

Changing to an all-IP network is likely to open up the same battles. Rather than maintain a system today of many tandem offices in a state, it is not impossible that the RBOCs will have only one hub in each state, or even only one hub in each region of many states. And if they make that kind of change you can expect that they will then expect competitive carriers to pay to carry all if their traffic to and from such hubs. I can tell you that such a change would devastate the business plan of many competitive carriers and would greatly reduce competition in the country.

The FCC has to be diligent in making the changes to IP. Everybody agrees that the technological change needs to be made. It’s more efficient. But we can’t let a technology change be grounds for a land-grab by AT&T and Verizon in an attempt to quash competition. They will, of course, claim that they are not trying to do that, but during my 35-year career I have seen them try exactly that kind of change a whole lot of times. And there is no doubt in my mind they will try to do it again.

Current Access Disputes

We are seeing more access charge disputes today than we have ever seen. For those who don’t know about access charges they are the fees that an Interexchange Carrier (IXC, or long distance carrier) pays for accessing a local network. Most of the fees are quite miniscule at fractions of a penny per minute, but since there are still a lot of long distance minutes they add up to substantial payments from long distance carriers to LECs and CLECs.

It seems that a number of IXCs have recently adopted a policy of disputing access charges in the hopes of getting out of paying what they should pay. They know that some local telcos won’t dispute their claims even if the dispute is wrong. They also know that the dispute process can be painful and they hope to wear telcos down into making compromises just to get paid something. In my view some IXCs are being bad citizens in that they know they can strong-arm smaller telcos into accepting less than they should be paid.

Over the last year, the following are the sorts of disputes we have been seeing:

  • IXC’s are demanding a fully verifiable access bill. By that I mean that they expect every fact on the access bill to be correct. In the telephone industry there are several industry databases and the IXCs want every fact on the bill to match the information in these databases. This includes a lot of different facts from the names of switching offices (CLLI codes), mileages, billing percent splits between various carriers, the company that should be billing (OCNs), etc. There is nothing wrong with expecting the bills to be verifiable. But over time small errors creep into these databases as companies make changes to their networks. In the past the IXCs would see these kinds of issues as clerical issues and not substantive issues and they would often point them out and ask the carrier to fix them. But today the more aggressive carriers are refusing to pay bills until such problems are fixed.
  • NECA LATA issue. The NECA tariff which most small telephone companies still use for their Interstate tariff has a prohibition in it that says that a telco cannot carry their traffic to a tandem in a different LATA. This prohibition comes from 1984 when the RBOCs were all part of NECA for a few years. Judge Greene, in the order that divested the RBOCs from AT&T prohibited the RBOCs from carrying voice traffic to another part of the country, and this was left to the IXCs, being mostly AT&T then. However, when the RBOCs all left NECA nobody changed the language in the NECA tariff and so the prohibition is still there. There is no external law or rule that prohibits smaller telcos from carrying traffic to another LATA. Unfortunately, the language in a tariff overrides any industry rules, so if you use the NECA tariff and your tandem is in a different LATA your access bill can be successfully disputed. The only real fix for this is for NECA to fix their tariff or for you to use a different tariff.
  • Traffic and mileage pumping. Last year the FCC banned traffic and mileage pumping. Traffic pumping is when a carrier generates bogus traffic simply for the purposes of generating access charges. Mileage pumping is when a carrier rearranges their network to bill extra miles of transport for the purposes of billing more access. Since that ruling I have seen a number of disputes that accused telcos of one of these types of pumping, but in each case the accusation was not true. Since traffic pumping is now a bad word, I believe the IXCs are trying to scare telcos into settling rather than taking a claim of traffic pumping to a regulatory body. If you are accused of this please talk to us, because the chances are high that you are not in violation of this prohibition.

All of these issues can be a problem for a telco since the IXCs are in the driver’s seat. They can withhold payments for access which gives them the upper hand in a dispute. They know it is a costly process for telcos to appeal an access dispute to the next level, which is normally done by filing a complaint at the state Commission. I don’t mean to sound cynical, but I think there are ruthless people in the access departments of some IXCs that are getting bonuses for reducing access payments by any means they can find. Even scarier, there is now a whole industry of access consultants who get paid a percentage of any savings they can find in access bills. Such consultants are highly motivated to use any tactic in the book to get a payday.

And so my warning to LECs and CLECs is to get your access bills into the best shape they can be. Do a careful review between your access bills, your actual network and the industry databases (the LERG and Tariff 4). Eliminate any easy reason for the IXCs to single you out, because fighting your way out of access disputes can be costly and time-consuming. CCG has done hundreds of access charge reviews, so don’t hesitate to call us if you want to do this and need help.