Telco Plan Boon for Business?

By Caron Carlson  |  Posted 2004-08-23

A new plan to overhaul the byzantine payment system that carriers use to complete one anothers calls could be a boon to enterprises but a bane to consumers, some of whom fear it would result in higher local telephone rates.

The plan submitted to the Federal Communications Commission last week by nine carriers—including AT&T Corp., MCI Inc., Sprint Corp. and SBC Telecommunications Inc.—responds to a conundrum that has dogged regulators for years: As the telecommunications industry has become increasingly competitive and new providers and technologies edge into the market, not everyone pays into the system proportionally.

As such, the FCC is seeking a way to sort things out without burdening emerging technologies or undermining the subsidies that ensure affordable basic telephone service for all Americans.

The nine carriers—calling themselves the Intercarrier Compensation Forum—would simplify the compensation process by phasing out the billions of dollars in payments they make to one another and allowing local phone companies to raise their monthly customer rates instead. Beginning next July, the compensation rates would begin to decline, eventually disappearing.

Enterprises could benefit from the ICF plan, as they tend to be heavy long-distance users and rates for such calls would likely decline. With the caveat that the plan could undergo a number of transformations before it is approved, Jim Blaszak, who represents large enterprises in the Ad Hoc Telecommunications Users Committee, said enterprises stand to gain.

"If [the plan] were to be adopted, it has the potential to better align underlying rates with economic costs," said Blaszak, a partner at Levine, Blaszak, Block & Boothby LLP, in Washington. "Enterprises should realize the benefits of lower usage charges. The reduction in usage charges should more than offset an increase in line charges."

Usage charges are imposed on toll calls, as opposed to the flat charges imposed on local lines. But in todays networks, the difference in the costs of local and long-distance calls is becoming negligible, and services are being sold in bundles.

"In that kind of environment, the only sensible way to recover the costs of the loop is through flat monthly charges. Its ultimately unavoidable," Blaszak said.

From an economic perspective, it is more sensible to subsidize local loops—for the purpose of affordable local service nationwide—through a flat charge, Blaszak said.

The FCC is poised to initiate a proceeding on the intercarrier compensation and subsidy problems, and that proceeding would likely take more than a year. Three Regional Bell Operating Companies, Verizon Inc., BellSouth Corp. and Qwest Communications International Inc., do not support the ICFs proposal, likely leaving the plan open to a heated debate.

Check out eWEEK.coms VOIP & Telephony Center at for the latest news, views and analysis on voice over IP and telephony.

Rocket Fuel