Intercarrier compensation reform: Now what?

Changes in Congress could also play an important role in the balance of power seen this year. At press time, Stifel Nicolaus analysts expected Rep. Ed Markey to be replaced as chair of the telecom subcommittee of the House Energy and Commerce Committee by Rep. Rick Boucher, a Virginia Democrat. Boucher, a strong advocate of rural interests, was “instrumental” in killing Martin’s intercarrier comp reform plan, Stifel Nicolaus analysts said in a January note. However, they added, “Rep. Boucher has traditionally been more supportive of the Bells than Rep. Markey has been, though in recent years the difference has blurred as both have supported network neutrality… He is also a major backer of DBS (DISH, DTV)and other satellite services.”

Another question sure to come up in the next look at intercarrier comp is the treatment of voice-over-IP traffic. The Martin plan would have classified all traffic that began as IP and ended on circuit-switched networks – and vice versa -- as interstate information services. In theory, that would have allowed less regulation and access charges and potentially further complicated VoIP-related interconnection, which, if it is repeated, could concern cable companies, CLECs and wireless carriers.

Another issue near to RLECs’ hearts is the treatment of so-called “phantom traffic” – traffic whose source is misidentified or concealed, preventing proper billing among carriers. Depending on the specific carrier, King has said, phantom traffic may represent 10% to 30% of all traffic on RLEC networks. Recovering even half of this lost revenue – which would in theory be 100% margin – would make a big difference in RLECs’ lives.

The Martin plan, following in part recommendations made by USTA in particular, protected and in some cases added to the identifying information required to accompany call traffic. And where call info was lacking, terminating carriers could have billed the carrier that sent them the traffic at the highest going rate, regardless of where the call originated. Those rules would have essentially put transit providers –those selling wholesale transport services to other carriers -- in the role of bill collector, a move to which Verizon and Sprint both objected.

Last summer, before it was clear how much Martin’s FCC would try to accomplish in its final months, many industry observers predicted that the commission, short on time, would focus first or even exclusively on phantom traffic as the most pressing and least controversial problem to solve. But Obama’s FCC, lacking those time limitations, is more likely to focus instead on more comprehensive intercarrier comp reform, King said, as that is what most industry stakeholders prefer. However, that likely means a longer wait for phantom traffic relief.

“If anything does get done in ’09 [regarding intercarrier comp], it will probably be late ’09, and it will almost certainly be less contentious than the Martin plan,” he said.