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The Politics Of Internet Telephony
by Teri RuckerThe current debate over what if any regulations apply to Internet telephone services is not as much about the future as it is about large companies, decades-old telecom regulations, subsidies for rural and poor residents, and billions of dollars.
As policymakers on Capitol Hill and at the FCC seek answers for the market in voice-over-Internet protocol (VoIP), they must try to balance desires to encourage the construction of new communications networks and the deployment of advanced technologies with the social policy goal of ensuring that all Americans can access affordable phone service.
All parties involved said a big part of determining VoIP rules means addressing the current regime that governs how telecom companies pay each other for transmitting competitors' calls over their lines. That will require difficult political decisions that some policymakers may hesitate to make, industry sources said.
Some History About Access Charges
The debate started about 20 years ago when AT&T was divided and forced to separate its local and long-distance networks. Before the divestiture, AT&T subsidized the cost of local service with artificially high long-distance rates at the behest of regulators.
The costs of running wires to everyone's homes, particularly in rural areas, maintaining a network, providing operator service and all the customer-service functions "is not an inconsiderable amount of money," one telecom expert said. It requires "an enormous amount of support to make sure everybody has a line in their home, but it is a good social policy worth preserving" and the system was created to implicitly subsidize the goal of universal service.
When AT&T was split, it kept the long-distance portion of the business, the regional Bell companies were born to deliver local service and regulators crafted the regime that charges competitors to access the Bell networks. When AT&T and other long-distance companies like MCI transmit long-distance calls, they must pay the Bells per-minute fees to originate and terminate the calls. For example, access charges would be paid to SBC Communications to originate a call when Aunt Martha, who lives in Los Angeles, calls her sister in Maryland, where Verizon Communications gets a fee to terminate the call.
In 1996, Congress decided to end implicit subsidies and make them explicit, requiring fees on all phone bills to redistribute the money to supplement the cost of providing service to customers in the highest-cost regions.
The Bells incur costs to handle the long-distance traffic that is compensated through access charges. It is believed that implicit subsidies still remain because access fees are priced above the cost of providing service. The price for access has fallen to about 0.95 cents a minute, but a telecom expert said that while the fee may not seem like much, when millions of minutes of calls cross the Bell networks, the total charges add up.
The 1996 act also created a system known as reciprocal compensation that allows the Bells and local competitors to compensate each other for passing traffic across their networks. Reciprocal compensation is a cost-based mechanism and less expensive than access charges.
States also set fees for intrastate traffic that is dramatically higher than interstate fees, ranging from a penny a minute to 5 cents a minute.
New Rules For A New World?
Understanding the system that governs compensation between telecom carriers could help policymakers understand where each carrier's interests lay in the VoIP debate. Almost every VoIP call touches the Bell networks in some way because the public telephone network is not capable of carrying Internet protocol traffic. That forces VoIP providers to convert the voice packets back into a format capable of traveling over the Bell networks.
Companies like Verizon already have lost revenue as access fees decline and more people use wireless phones for long-distance calls or turn to e-mail. The Bells stand to lose even more as the VoIP world emerges. Small, rural carriers that derive much of their revenue from access charges and universal service have the most to lose.
"VoIP is not even the tail on the dog; it is the flea on the tail of the dog," the telecom expert noted. "But it is expected to accelerate quickly and it has the [Bells] worried." For example, AT&T pays $6 billion per year in access charges to the four Bells.
To Tom Tauke, Verizon's senior vice president, it is clear that converted VoIP traffic is the equivalent of long-distance traffic and that access charges should apply. He called for "no economic regulation in the new world," saying that avoiding costly rules will encourage innovation. But when VoIP calls are transmitted to the old system and converted to traditional service, "the circuit switch part is part of the old world, so access charges do apply," he argued.
Richard Whitt, director of federal advocacy at MCI, calls that the "old switches, old subsidies" plan, saying it makes little sense to apply higher charges based on old technology to VoIP traffic, especially when there are other forms of compensation. "A minute is a minute and a bit is a bit, and there is no difference between a long-distance call and a local call," he said.
The idea is not to let VoIP providers avoid paying to use the Bell network, Whitt said. "The question is not paying them zero versus access but what will compensate them adequately," he said. MCI and AT&T stand to save millions, if not billions, each year if the fee is lowered.
Furthermore, Robert Quinn, vice president of federal regulatory affairs at AT&T, sees no reason why his company should pay inflated access charges to companies like Verizon to subsidize old networks when the Bells have not made the upgrades to handle the Internet traffic from companies that have invested in their networks.
Complicating Factors
Another part of the debate involves universal service, a telecom goal funded by a percentage of long-distance revenue. If access charges are lowered, the cost for universal service could go to customers, and that would be politically unpopular. Industry sources said such a plan would face the greatest opposition from the "farm team" -- a powerful group of senators representing rural areas.
Further complicating the solution is the fact that no one has ever determined exactly how much money is needed to maintain the networks and ensure universal-service support -- a large but unknown dollar figure, the industry sources said.
Company representatives currently are meeting to discuss such issues, and the FCC is waiting to hear proposed solutions before reviving its three-year-old proceeding on inter-carrier compensation. In the meantime, the FCC is poised to launch a proceeding on VoIP in the spring, a powerful House lawmaker has demanded that the FCC decide by the end of the week what fees AT&T owes the Bells for VoIP traffic, and rural carriers are sending letters to Capitol Hill asking that lawmakers ensure that the access-charge system remains in place.
Observers said the question remains whether policymakers can make substantial changes or whether they will buckle under intense political pressure to keep phone costs low.
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