Arbitration road shows an indictment of telecom regulation

On Monday morning, I attended an arbitration hearing at the Wisconsin Public Service Commission concerning the interconnection rates Level 3 should pay when SBC terminates voice-over-IP (VoIP) calls carried by Level 3 for its VoIP clients such as Vonage.

Now, I am one of the few people in the world who finds regulation fascinating, so the prospect of watching a Q&A on a controversial topic like VoIP interconnection piqued my interest. But I decided not to stay for the entire two-day proceeding, which was underwhelming, for several reasons.

First, this was the fifth of 13 state arbitrations on VoIP interconnection terms between the two carriers, so the parties involved have each other's testimony down by heart. In fact, every other question seemed to begin with the phrase, "I know you answered this in California, but ..." Certainly there was a feeling that, to a large extent, the participants were "going through the motions."

Second, I doubt the arbitration decision will matter much in the long run. After all, I assume the loser in the case will appeal the finding in court, anyway.

Third, the FCC has to rule on a Level 3 petition on this very subject by March 22. And even one of the administrative law judges acknowledged that he wasn't sure of the state's jurisdiction, particularly after the FCC's ruling last week that Vonage's VoIP offering is not subject to state regulation.

So, what did it cost Level 3 to send a six-person contingent of legal experts to this proceeding of questionable importance? One Level 3 representative estimated the carrier's price tag to be about $200,000 per trip. I didn't talk to anyone at SBC on the subject, but its entourage was almost twice the size of Level 3's, so it's safe to say the RBOC spent at least as much.

If true, that's $400,000 -- the retail cost of 10,000 high-speed connections for one month of service. Multiply that by 13 states, and the two carriers conservatively will spend $5.2 million on the VoIP arbitrations in SBC's footprint, with each arbitration likely to be appealed in the state court system at untold costs.

Remember, this is just the tip of the iceberg -- Level 3 potentially faces this scenario with every ILEC, and SBC deals with many more CLECs and IXCs. And, of course, VoIP is a new issue for the arbitration table, where a host of interconnection battles are fought. So, given what's at stake, I guess one really can't fault carriers for spending such money on arbitrations.

But maybe the scariest part of this case is that both Level 3 and SBC are both member of the Intercarrier Compensation Forum, so they theoretically agree on the future of interconnection rates -- an odd foundation for a rate dispute. The ICF has proposed a modified bill-and-keep system, and there may be no greater argument for the proposal than to consider the amount of money carriers spend on arbitrations in an attempt to settle disputes.

The same may be true for FCC pre-emption of state commissions. I'm not naïve enough to believe any intercarrier-compensation system will eliminate disputes and the need for arbitrations. But it seems silly for the disputing parties -- not to mention state governments -- to spend additional money so an arbitration performance can be repeated in each jurisdiction. Cooperation among states to somehow consolidate arbitration hearings would be a big step in the right direction, so money could be saved on the "repeats."

There has to be a better way, and the industry, state commissions, Congress and the FCC need to find it. The customers and taxpayers ultimately paying these bills would be much better served if carriers spent their money on networks and developing services instead of spending it on lawyers and lobbyists in the current regulatory environment.

E-mail me at djackson@primediabusiness.com.