Traffic pumpers come forward

One of the peculiarities of the telecom business is that there seems to be no end to new ways people can game the system. Just when I’d gotten to the point where I pretty much understood phantom traffic, along came traffic pumping.

The polite word for gaming the system is arbitrage, and although arbitrage takes various forms, it generally involves finding a loophole in the system that governs how one carrier compensates another for terminating calls to end-user customers. With phantom traffic, carriers strip out information from call detail records that is needed for the carrier serving the called party to bill for terminating the call. With traffic pumping, the operator of a free conference calling service or chat line receives calls through a local exchange carrier that has high terminating access charges, sharing in the access charges with the LEC or CLEC.

Some people have argued that as long as we continue to have an access charge system, people will continue to find ways to game it—and this is a key reason why the Federal Communications Commission is looking to phase out access charges. With this goal in mind, the FCC yesterday gathered together a surprisingly diverse group of stakeholders for what the commission called a “workshop” to discuss ideas for inter-carrier compensation reform.

It wasn’t quite like the famous bar scene in Star Wars. But it was close.

Sitting down together were people from associations representing rural carriers who rely most heavily on access charges, as well as VoIP carriers (some of whom have argued in the past that they don’t have to pay access charges). And in a similar juxtaposition, you had Krista Tanner, a member of the Iowa Utilities Board (which recently took action to address traffic pumping) and David Erickson, founder and CEO of FreeConferenceCall.com, a company that shares in terminating access revenues with several carriers around the country.

The regulator’s view
As Tanner explained, the IUB took action on traffic pumping in response to complaints filed by Qwest, which argued that traffic to free conference call and chat lines served by eight different local carriers was not actually being delivered to end user premises and in some cases didn’t even terminate in the actual exchange. The IUB investigated the matter and found in favor of Qwest, ordering that the other carriers refund access charges paid by Qwest.

The board was concerned, however, that local carriers could enter into a revenue-sharing arrangement with a free conference call or chat line in a way that would not be in violation of existing rules. Accordingly, it created what Tanner called “high-volume access rules.”

As Tanner explained, access charges in rural areas are often set quite high because call volumes to those areas are low, requiring higher per-minute charges in order for the carrier to recover its costs. High-volume access rules require access charges to be adjusted downward if the minutes terminating to a carrier with high access charges increase by a certain amount in a certain period of time. The IUB set the bar at 100% growth over a six-month period.

The pumper’s perspective
When Erickson had his turn, he argued that FreeConferenceCall.com saves end users money on conference calling by eliminating the “organizing fee” that people typically would pay for such a service. He also said that by partnering with a company like FreeConferenceCall.com, a rural carrier can increase its access revenues, which can then be invested in the carrier’s network. He pointed to two examples of tribal phone companies that partnered with FreeConferenceCall.com and were thereby able to avoid drawing any funding from the Universal Service program.

Erickson said that four of the 16 carriers his company works with have high-volume tariffs. “We like the idea of a revenue sharing trigger, not a revenue sharing ban,” he said.

What Erickson didn’t say (and unfortunately no one asked him) was whether his company continues to do much business with carriers subject to high-volume access rules after they reach the point where access charges drop. But it seems like there would be a powerful incentive to move on at that point.

The solution
Perhaps surprisingly, there doesn’t seem to be much of a move afoot to ban access charge revenue sharing between carriers and conference call or chat line operators. I might have expected the National Telecommunications Cooperative Association to advocate something along those lines. But Michael Romano, senior vice president of policy for the organization, said he would rather see a minutes of use trigger along the lines of what the IUB implemented. His concern with banning revenue sharing outright, he said, is that it might be defined too broadly and could prohibit more benign practices, such as an agreement that a local telco might make with a local utility.

The tale of traffic pumping is only the latest example of access charge arbitrage. And unless and until regulators find a less round-about way of helping carriers in high-cost areas recover their costs, it’s unlikely to be the last.

The FCC has vowed to put a plan in place to phase out access charges “within a few months.” But because the phase-out is expected to be gradual, the FCC has said it also plans to take near-term action on traffic pumping.

Based on yesterday’s workshop, it appears that there is something close to consensus that applying some sort of high-volume rule would be the best solution.

A final note
Perhaps I would be remiss if I didn’t mention that Dave Schornack, director of business development for TekStar Communications, a rural CLEC that has several conference call operator customers, also participated in the FCC workshop yesterday. Schornack wasn’t as talkative as Erickson, however.

Also on hand was David Frankel, founder of conference call operator ZipDX. But instead of defending the traffic pumping business model, Frankel said the system ought to incent conference call providers to locate where costs are low instead of where costs are high.