IHS Global Insight Perspective | |
Significance | The FCC has begun the process of gathering information on second and middle mile access while Chairman Genachowski has pledged to look at interconnection charges. |
Implications | These are fundamental pricing structures, which underpin how revenues are divided between carriers. Interested parties will fight hard to gain benefits from the emergent system. |
Outlook | Changes to the system have been needed for years and the push to facilitate broadband deployment provides an ideological underpinning to the decisions that will be made. |
Federal Communications Commission (FCC) Chairman Julius Genachowski has pledged to open an inquiry into interconnection charges, the prices set to transfer calls, and data traffic between networks, report Dow Jones. Meanwhile, in a separate report representatives for the rural companies that benefit from the system that sets higher termination rates for high-cost rural numbers are lobbying for an examination of Google Voice and have highlighted AT&T's withheld payments to similar numbers while litigation is under way.
The first report notes that wireless carriers Sprint-Nextel, T-Mobile USA and U.S. Cellular Corp have targeted the high prices for some special access connections charged by Verizon and AT&T. With regard to these "special access" charges for the high-capacity connections that backhaul voice and data to the network backbone, Genachowski has sent a letter to Democrat Senator for Hawaii Daniel Inouye, stating that the FCC would issue a public notice on the matter within 30 days to seek comment on the "appropriate analytical framework" under which the network pricing structure would be examined. The companies have noted that the issue is hindering their ability to achieve the goal of universal broadband access promoted by U.S. President Barack Obama. The first matter would be to collect additional data on the issue. The FCC, which has asked for additional information before—although for the de-regulation of "business broadband" services, which in many cases is the same as "special access" services— also noted two years ago that information requirements were being reduced (see United States: 26 October 2007: EmbarQ and Citizens Communications Receive Forbearance on Business Broadband; 12 October 2007: AT&T Granted Limited Relief on Business Broadband Regulation; and 4 October 2007: Special Access Debate Continues in U.S.).
To complicate the issue, while the FCC has been removing special access price caps and deregulating similar business access services, AT&T was forced to freeze prices on several special access services for 39 months as a condition of the Bellsouth merger, then was granted the right to withhold pricing information (see United States: 28 March 2007: Bellsouth Merger Conditions Resolved—AT&T Reduces Wholesale Rates Unilaterally and 11 February 2008: AT&T Wins Right to Withhold Commercial Broadband Pricing). Sprint then challenged the deregulation of "business services" in court over the merger conditions issue while other complaints through the court system more recently saw the case returned to the FCC for review (see United States: 10 December 2007: Sprint Appeal to Rescind Business Broadband Forbearance for Verizon Rejected; 23 October 2007: AT&T Forbearance is Challenged; United States: 21 July 2009: U.S. Courts Uphold Elimination of Special Access Price Caps; and 17 July 2009: FCC Asked to Review Special Access Fee Data).
In a similar issue, the AT&T vs Google Voice case, relating to the blocking of calls to rural numbers with high termination charges by Google, has seen a new chapter written (see United States: 28 September 2009: AT&T Sets FCC on Google for Restricting Interconnection). Representatives Steve Buyer (Republican Indianapolis), Charlie Melancon (Democrat representative for Louisiana),Michele Bachmann (Republican representative for Minnesota), and John Barrow (Democrat representative for Georgia) have written to the FCC pressing for an examination of the case, saying that rural customers could be harmed by allowing Google to "evade compliance with important principles of access and competition". Google has been arguing that its service, which is positioned as a phone management service that facilitates management of calls through a web page—directing calls to multiple lines onto a single number and requiring a telephone number from another provider—should not have to operate under the same requirements as carriers.
However, AT&T's main aim has been to firstly highlight the hypocrisy between Google's advocacy of "open networks" and its controlled access in this case, while also raising a long simmering issue along the way in which termination fees are charged at particularly high rates to rural areas. This system has led to accusations of "traffic pumping" whereby chat lines and conference services are located in these exchanges to drive up traffic, with revenues in some cases allegedly fed back to the service providers. The Dow Jones report notes that Ross Buntrock, an attorney representing several rural telephone carriers, has noted that while AT&T might terminate the calls, it has been withholding payment while litigation proceeds. Buntrock notes, "The only difference between Google's alleged call-blocking and AT&T's refusal to pay terminating access charges for conference and chat-line calls is that [local exchange carriers are forced to incur the costs of terminating AT&T's customers' traffic." Google then picks up the baton: "For AT&T to invoke rural America to seek common carriage regulation of online applications, while rural carriers say AT&T isn't even paying its bills, is the height of cynicism. The fact is, we agree that the FCC needs to fix the current rules for compensating phone carriers."
Outlook and Implications
The FCC has been looking at these issues for some time, but has failed so far to address the fundamental reform of the system that is required, partly as former chairman Kevin Martin attempted to push through the issue towards the end of his tenure (see United States: 14 November 2008: FCC Seeks Comment on Intercarrier Compensation and Universal Service Fund Reform). Rural services do require additional support, but the current system is open to abuse. A fundamental change to the termination charge scheme is likely to emerge that will be tied into changes to the Universal Service Fund, which is also intended to support high cost-serving areas. This will also target broadband access, while the old system focussed on providing basic voice services.
The FCC has already released the first step, asking interested parties to provide information on how backhaul costs affect the economics of broadband deployment. The specific questions include examining how much capacity is required at the second mile (from the first point of aggregation, such as a remote terminal, wireless tower location, or HFC node, to the point of connection with the middle mile transport) and the middle mile (from the central office, cable headend or wireless switching station to an internet Point of Presence) for each end-user. Information on the technology options and availability in the next five to 10 years is requested, which would include copper, fibre and microwave wireless. Information on pricing and availability of second and middle mile services in specific geographic areas is also sought, as well as the impact of discounts in standard prices. The request for information also includes a request for data on pricing for dedicated internet access ports providing connectivity to the internet backbone. The nature of competition, access to alternatives and the overall economics of deployments are also under examination.
This is the first step in a process that should fundamentally change the fee structure in the United States. There will likely be significant winners and losers from any changes that are implemented and it will be a hard-fought battle, but there appears to wide agreement from many parties that change is necessary.