New plan on intercarrier compensation

by on August 17, 2004

An eclectic group of telecom companies yesterday unveiled a long-awaited plan for revamping intercarrier compensation. Everyone knows the current system for compensating firms for carrying one another’s traffic is a mess. Rates vary wildly based on how each carrier is defined by regulators: long-distance firms, LEC, ISPs all pay different rates, with differences based on long-obsolete technologies and regulatory schemes. Worse, the system masks a sizable subsidy program, largely to the benefit of rural telcos and their customers. And the whole creaky mechanism is being undercut by the emergence of VOIP, which is less firmly in its clutches.

Yesterday’s announcement was the result of a year-long negotiation among a good part of the telecom world–and was backed by SBC, AT&T, MCI, Level3 and others not normally seen on the same press release. And it includes a lot of sensible and overdue reforms: a uniform compensation rate, putting them on a flat (rather than per-minute) basis, and encouraging private negotiation of compensation. For this the plan deserves kudos. But there are problems with this bandwagon as well. Among other things it would shore up universal service subsidies by making cable and VOIP phone consumers pony up contributions for the first time. That seems a lost opportunity: yes, these services present a challenge to the whole subsidy system. But rather than protect the subsidies from that challenge, why not use it to to gain more substantial reform of the whole subsidy system?

This, by the way, may be one reason why many major telecom players stayed away from this proposal–three of the Bell companies sat it out, as did the cable industry. (This in itself is an interesting development. For decades, the battlelines in telecom have been boringly predictable–LD firms on one side, Bells on the other. Now, those lines are mixing.) Stay tuned for a long-running battle at the FCC and the states–and within the telcom industry itself–on this issue.

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