Re: FCC Storm Brewing Around "Traffic Pumping"

[David Farber <dave () farber net>]

Begin forwarded message:

From: "David Frankel" <dfrankel () zipdx com>
Date: September 28, 2009 1:03:53 AM EDT
To: <dave () farber net>
Subject: RE: [IP] Re: FCC Storm Brewing Around "Traffic Pumping"

Dave,

No doubt you’ve seen the firestorm launched Friday by AT&T’s letter to  
the FCC, complaining that GoogleVoice gets to discriminate in their  
call termination practices, while Ma Bell is not permitted to do so.  
And Google has responded (http://googlepublicpolicy.blogspot.com/2009/09/response-to-at-letter-to-fcc-on-google.html 
), claiming that as a software application provider, Google shouldn’t  
be held to the same rules as a telecommunications carrier. So indeed,  
the debate rages on. (In my original note, I suggested that  
GoogleVoice also BENEFITS from certain access charges, and of course  
so does AT&T, because they are the provider of “local access” in much  
of the nation.)

Chris (below) has indeed been proven correct; the access charge  
arbitragers have been scheming for some time and they won’t stop until  
forced to do so. Chris is also correct that ultimately the system  
needs a complete overhaul. This will be complicated because there are  
perhaps a thousand “legitimate” parties to the access charge regime  
and it will be difficult to extricate them.

But there IS a relative “flash cut” fix for the bulk of the arbitrage  
problem. Access charges were intended to pay for “access” – the wires  
that are strung on poles down country roads to bring the farmers (and  
other end-users) onto the PSTN. Generally, the services in question  
here don’t involve legitimate “access” and shouldn’t trigger the  
collection of access charges. That was, generally, the finding of the  
Iowa Utilities Board in their ruling last week. The FCC just needs to  
(carefully) codify this at the interstate level.

The IRS has had great success with a somewhat analogous issue. They  
use the “doctrine of economic substance” to reign in frivolous and  
abusive tax schemes. If the only purpose for a particular financial  
endeavor is to evade taxes, and it provides no other economic benefit  
or financial risk, then there is no “economic substance” to it and it  
is not permitted. In addition to prohibiting access charges where  
there is, in fact, no end-user access, the FCC should also prohibit  
schemes that are concocted purely to generate or inflate access charges.

If the FCC implemented such a fix then this particular AT&T vs. Google  
issue would be moot.

Stan’s (also below) comments are “close but no cigar.” The “recip  
comp” charges he refers to are part of LOCAL traffic exchange  
agreements; in most of the cases here, we are talking about LONG  
DISTANCE traffic (intra- or inter-state) that falls under a distinct  
set of rules governed explicitly by “access tariffs.” As far as his  
idea for “least cost routing” to cap call termination rates – that  
won’t work on any kind of scale. The carriers that offer wholesale  
“flat rate” long distance termination always (to my knowledge) require  
in their Terms of Service that the traffic be “balanced.” A wholesale  
customer (like Google) can’t route ONLY the expensive calls to the  
“flat rate” carrier (where that carrier’s costs would exceed its  
selling price), and send the “cheap” calls to the “banded” provider.  
That’s simply not sustainable.

David


Begin forwarded message:

From: "Savage, Christopher" <ChrisSavage () dwt com>
Date: September 25, 2009 8:27:22 AM EDT
To: <dave () farber net>
Subject: RE: [IP] Re: FCC Storm Brewing Around "Traffic Pumping"


Dave,

Someone needs to say the obvious here: As long as there are multiple  
different rates (bill-and-keep, interstate access, intrastate access,  
recip comp, big ILEC, small rural ILEC, CLEC) for the technically  
identical function (terminating a minute of traffic to a given phone  
number/line port), people will figure out ways to game the system.  If  
you have lots of traffic to terminate you will try really, really hard  
to fit as much of that traffic as possible into the cheapest category  
(bill-and-keep or recip comp).  If you get lots of traffic coming into  
your system you will try really, really hard to fit as much of that  
traffic as possible into the most expensive category (typically small  
rural ILEC intrastate access fees).  And even if you don’t try to game  
the system you are stuck with the administrative hassle of trying to  
figure out what bucket different technically identical traffic belongs  
in.

Sadly, we aren’t going to fix this system on a flash-cut basis  
tomorrow – which we could, in theory – because too many little rural  
ILECs, and still some large ILECs, make too much of their money off of  
high termination rates.

Chris S.
From: David Farber [mailto:dave () farber net]
Sent: Tuesday, September 22, 2009 7:37 PM
To: ip
Subject: [IP] Re: FCC Storm Brewing Around "Traffic Pumping"



Begin forwarded message:

From: "Stan Hanks" <stan () colventures com>
Date: September 22, 2009 7:06:52 PM EDT
To: <dave () farber net>
Subject: RE: [IP] FCC Storm Brewing Around "Traffic Pumping"



Bit of misinformation here…

The free conference services typically have a revenue splitting  
arrangement with a CLEC in a state where said CLEC has a favorable  
reciprocal compensation (known as “recip comp”) agreement with the  
LEC. This type of reciprocal compensation agreement is not uncommon,  
and typically is bundled with some other facet of the interconnection  
agreement between the parties. Back in the late 90s, it was common for  
the CLEC to agree to pay high recip comp rates in exchange for  
receiving higher termination rates or requiring the CLEC to pay for  
100% of the interconnect infrastructure or various other things that  
almost always ended up working out better for the CLEC than the LEC,  
despite the LEC mentality which argued otherwise. Anyway, almost all  
of these types of agreements are in jeopardy from the new proposed  
rule making under which all such agreements would be set at a flat  
rate of $0.0007 per minute (see “The Missoula Plan”). Currently,  
they’re all over the place from ‘”free” to close to $0.015 per minute.

This is NOT the only type of business in which these things play – the  
entirety of the remaining dial up Internet access business is based on  
just such recip comp agreements. Players like United Online, NetZero,  
PeoplePC, etc buy access from CLECS for pennies PER HOUR and also  
agree to a split of the recip comp garnered by the CLEC. This is a big  
win-win situation for the CLEC, who gets a giant windfall of recip  
comp from all these inbound calls, and the access provider, who  
essentially gets their access “for free” or “negative cost”.

Now, Google, like any other player in the market, is having to BUY  
termination – the right to send traffic from their network to some  
else’s – just like any other business. And like any other entity of  
similar size, they’re probably buying from multiple carriers at  
multiple rates. I haven’t seen “carrier rate tables” that I can talk  
about in a while, but the most recent for which I’ve got a lapsed NDA,  
from early 2007, showed a lowest rate of $0.0021 and a highest rate of  
$0.1227. In the same time period, I had a carrier offering rates at a  
“flat” $0.0125 to anywhere in North America.

So, if Google knows what they’re doing, and I’m willing to bet they  
do, they have current rates which are BETTER than those, And if  
they’re using any kind of least-cost routing, again, not a huge leap  
of technology, they should be able to effectively cap their exposure  
at, oh, let’s call it a penny and a half a minute.

Given that, this is NOT about Google having to pay exorbitant rates  
for their customers to terminate calls to the “Free Conference” states  
– unless Google is really mis-managing their business. This is CLEARLY  
about “something else” – could be they themselves are negotiating  
interconnect agreements with the LECs to enable them to build out  
their own network, could be something else.

Follow the money. It’ll lead you to the answer.

Best,

Stan

P.S. If I’m wrong, and Google has rates which are hugely different  
from these and/or they’re not running an LCR, if someone from Google  
would be so good as to contact me, I can help you fix all that. J


From: David Farber [mailto:dave () farber net]
Sent: Tuesday, September 22, 2009 3:06 PM
To: ip
Subject: [IP] FCC Storm Brewing Around "Traffic Pumping"



Begin forwarded message:

From: "David Frankel" <dfrankel () zipdx com>
Date: September 22, 2009 3:51:55 PM EDT
To: <dave () farber net>
Subject: FCC Storm Brewing Around "Traffic Pumping"




Dave,

You may have seen today’s WSJ article about GoogleVoice and the  
scrutiny it is starting to receive.
http://online.wsj.com/article/SB125357862855329543.html

One of the aspects of the service noted in the article is that  
GoogleVoice is accused of blocking access to “free conference call”  
services. Instead of charging the host for a conference call, these  
services use inflated “access charges” to force long-distance  
companies to pay for the connection. The charges are inflated by  
virtue of the fact that the phone numbers they use are located in  
rural places like Iowa, which are typically entitled to higher access  
rates. These charges get passed through to Google, and of course  
Google doesn’t want to pay them.

Yesterday, The Iowa Utilities Board issued their ruling in an  
investigation involving these free-conferencing “traffic pumpers.” It  
is available here:
https://efs.iowa.gov/efiling/groups/external/documents/docket/023026.pdf

The IUB only regulates in-state calls; it’s up to the FCC to handle  
interstate calls. But the IUB’s ruling is a scathing indictment of the  
carriers that serve the free conferencers, concluding that their  
imposition of access charges was improper and in fact directing that  
the fees be refunded.

So you might sympathize with GoogleVoice; they don’t want to be  
fleeced any more than anybody else.

What I find interesting, though, is that in their own way, GoogleVoice  
is taking advantage of access charges. When one of their customers  
advertises their GoogleVoice number and has their colleagues call it,  
now GoogleVoice is the one collecting access charges. They may not be  
as inflated as the rural numbers that the free-conferencers use, but  
they (and their carrier partners) are collecting access charges that  
in many cases are higher than what would have otherwise been assessed.

Hopefully the FCC will finally step in and (following Iowa’s lead) put  
a stop to the madness.

David Frankel
ZipDX® LLC
Los Gatos CA USA
Tel: 1-800-FRANKEL





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