VoIP providers could get special (lower) long-distance access charge rate

When the FCC announced several weeks ago that it would consider requiring VoIP providers to pay access charges, it didn’t occur to me that the commission might impose a separate long-distance access charge rate for VoIP providers. But as a recent FCC workshop revealed, that is one of several options the commission is considering.

The workshop, which happened on April 7, focused on inter-carrier compensation reform and brought together a wide range of stakeholders, including incumbent carriers such as Verizon and Windstream and competitive carriers such as XO and Vonage, as well as Time Warner Cable. There was even a Wall Street representative—Paul Gallant, senior vice president and telecom analyst for Stanford Washington Research Group.

“Wall Street is glad to see the FCC cares about Wall Street,” said Gallant. He seemed to speak for almost everyone present when he said there have been a lot of “fits and starts on this issue the past few years that have been very frustrating to Wall Street.”

The options
Of the five service providers on the panel, two—Windstream Communications and Time Warner Cable—said they would like to see VoIP providers pay the same long-distance per-minute access charge rates that other carriers pay. Indeed, according to Eric Einhorn, vice president of federal governmental affairs, for Windstream, the majority of VoIP providers already are paying that rate. (Others say they aren’t required to pay.)

VoIP provider Vonage, not surprisingly, would like to see a bill-and-keep approach toward access charges. A bill-and-keep approach often is put in place when two carriers exchange roughly equal amounts of traffic with one another—the idea being that there’s no point in paying access charges to one another that will just cancel each other out.

Callers benefit from being able to receive calls from VoIP providers; therefore VoIP providers shouldn’t have to pay access charges to reach those customers, said Brendan Kasper, senior regulatory counsel for Vonage America. Kasper added that if the industry were to go to a bill-and-keep arrangement, that would give telcos added incentive to move toward SIP traffic exchange—a move that would help modernize the nation’s voice services infrastructure.

XO and Verizon offered a third alternative. They would like to see VoIP providers pay other carriers for terminating long-distance traffic using a reciprocal compensation approach. Reciprocal compensation is the term typically used for local traffic exchange—and those rates typically are considerably lower than long-distance access charge rates. Verizon cited a .07 cents-per-minute charge versus rates of a few cents per minute that are charged for long-distance access today.

Someone asked whether it might actually cost more to bill for access charges at a rate of .07 cents per minute than to just move to bill-and-keep--which seems like a really good question.

Kathleen Grillo, senior vice president of regulatory affairs for Verizon, offered a justification, arguing essentially that a reciprocal compensation approach leaves more room for any future refinements that might be deemed necessary. Once fees go to zero, she said, it would be virtually impossible to make those refinements.

New arbitrage opportunities?
One problem with solutions other than what Windstream and Time Warner Cable advocate is that if VoIP providers get a special lower rate, it could be challenging to confirm whether traffic has been correctly categorized—and there would be a strong incentive to disguise non-VoIP traffic as VoIP.

Perhaps an even bigger concern is that long-distance access charges were set at certain rates based on existing traffic volumes with the goal of helping telcos in high-cost areas cover their network costs. Until the Universal Service and inter-carrier compensation systems are reformed, the only solution that achieves that goal is one that would require VoIP providers to pay long-distance access charges at the same rate as other carriers.

For VoIP providers to pay “full access charges” is “the only option that would improve the stability and predictability of the access charge revenue stream,” said Gallant. “The other options replace one area of uncertainty with another.” And a predictable and stable revenue stream is critical to lenders’ willingness to make loans to rural carriers, he said.

Gallant’s comments were intended to pertain primarily to publicly-traded rural telcos such as Windstream, but they are equally pertinent—perhaps even more so—to the 800 or so small rural telcos operating nationwide.

As Gallant and Einhorn noted, another concern with setting a lower long-distance access charge rate for VoIP carriers is that those VoIP carriers that are already paying long-distance access charges at the regular rate would see their charges drop—and access charge revenues collected by the rural telcos would drop accordingly.