CLECs OFFER ALTERNATIVE INTERCARRIER COMPENSATION PLAN

Pac-West Regulatory Vp John Sumpter said under the CBICC proposal all traffic would transition over at least 2 years to a single rate set by state regulatory commissions. At the end of the transition the terminating compensation rate for all traffic -- local, intrastate and interstate -- would be “the blended TELRIC rate for tandem switching… set by the state commission for each ILEC in a serving area,” according to a CBICC press release distributed during a panel on intercarrier compensation. The group said “rebalancing rates to actual cost will be accomplished through a capped increase in the SLC, with [universal service funds] to recover any remaining shortfall.” There would be “separate transition schemes for interstate and intrastate” access rates,” Sumpter said. The transition periods “can overlap but they don’t necessarily have to be the same schedule,” he said. Reciprocal compensation traffic and ISP-bound traffic would move immediately to the baseline rate, the group said in the news release.

Sumpter said during the panel discussion that CLECs’ interests aren’t necessarily represented by the larger ILECs and long distance companies on the ICF. He said long distance carriers want to eliminate access charges and the large ILECs “appear willing to see access revenues drop to zero as long as they can make up the costs” by increasing the SLC. “What’s so bad about bill-and-keep?” asked Sumpter. “Nothing if traffic going back and forth is in balance,” he said. However, “if it is not in balance you're just creating another opportunity for arbitrage.” ALTS Pres. John Windhausen called the plan “economically rational” compared with the “dangerous bill-&-keep approach.”

Sumpter said rural companies also have a problem with B&K because they don’t have enough subscribers to raise the SLC enough to cover the lost access charges. John Jones, a Century Telephone executive, said his predominantly rural company is participating in the 10-month long ICF talks as a protective action: “I can’t tell you Century Tel management supports bill-&-keep but if the world goes there we want to have a seat at the table so we can have input on how to get there.” For example, he said, the transition timetable is important to Century Tel because “we can’t flashcut to bill- &-keep.”

FCC Comr. Copps told the ALTS conference that the FCC should have 4 telecom priorities the next few months: (1) Appeal the U.S. Appeals Court, D.C., ruling on the Triennial Review Order. (2) Continue to urge negotiations that preserve competition. (3) Resolve intercarrier compensation. (4) Stop the “mindless” process of broadband reclassification. Copps said he wondered whether the FCC has “lost sight of the market-opening provisions of the Telecom Act.” He said the FCC needs more tools for enforcement and “shouldn’t be bashful about going and asking for it.” Copps also said that most American’s don’t have a choice between DSL and cable, despite “all the talk of intermodal competition.”

Copps said the D.C. Circuit decision was a “body blow” to competition. He said the decision would eventually hurt small business, which relies on competition. Special access tariffs “spell trouble for the inroads [CLECs have made] to serve small business,” he said. But Copps said the broadband ruling on the TRO was worse than the UNE ruling: “The farther fiber is out of your reach, the higher the prices for consumers.”

ALTS Chmn. Jim Geiger said he wondered why there was talk on Capitol Hill of reforming the Telecom Act: “What problem are they trying to solve with the rewrite of the Telecom Act?” Geiger said the ILECs believe the solution to all of their problems is to “kill the CLECs.” “Are ILECs bad people?” he asked the crowd: “No, silly: They're a monopoly.” Geiger said if the courts or govt. ever determine that UNEs are taken off the table for CLECs, then ILECs should lose long distance privileges.

Hill Staffers Discuss Telecom Act Reform

Several Hill staffers discussed UNEs, VoIP and Telecom Act reform at the conference. Margaret Cummisky, aide to Senate Communications Subcommittee ranking Democrat Inouye (Hawaii), said Inouye wanted Telecom Act reform to be open, citing recent statements by Senate Appropriations Chmn. Stevens (R-Alaska) that fewer hearings and more industry meetings are the path he prefers in developing reform proposals. Inouye is likely to be the leading Democrat on the Commerce Committee next year. She said Inouye wanted to get to work on telecom reform “right out of the gates” next year.

James Assey, Democratic Counsel for the Senate Commerce Committee, said he didn’t know what was driving desire to rewrite the Telecom Act. Asked about a rewrite of the Telecom Act, Mike O'Reilly, aide to Sen. Sununu (R-N.H.) wondered whether that meant the whole Act. “There many pieces to the Act,” he said, noting that cable and broadcasters were also regulated in the act: “It depends what pieces.” Replying to an audience question, Assey said there was concern that any efforts to reopen the act would be met with throngs of lobbyists looking for special provisions. He said the FCC has the power to revise many provisions that could be addressed in a Telecom Act rewrite.

Assey said he hoped that any rewrite wouldn’t address intercarrier compensation, which he said could have an effect on prices felt by consumers. Cummisky said Inouye wanted to explore industry consolidation and how mergers are affecting competition. While some have trumpeted the virtues of consumers’ getting one bill for all telecom services, Cummisky wondered whether that was “good or bad.”

O'Reilly said it’s unlikely the Senate will consider VoIP legislation, but Sununu will still “push hard” for a hearing and markup of the bill before the session ends. Cummisky said Inouye was concerned how carriers would “behave” under a VoIP system. O'Reilly said Sununu had similar concerns about regulators. He said Sununu didn’t want the old intercarrier compensation regime to apply to VoIP. ALTS Pres. John Windhausen said facilities-based CLECs were worried VoIP would be used as justification to take UNEs, like the loop and transport, away from CLECs. Assey said CLECs need to lobby members so they understand VoIP doesn’t make UNEs irrelevant.

Assey said VoIP was part of the broadband deployment issue, which he said suffered from both supply and demand problems. Nearly 90% of Americans can get broadband, but only 20% do, he said, partly because there’s not enough content, and partly because lack of competition has kept prices too high. O'Reilly disagreed partly, saying most of the broadband problem is on the demand side. He said VoIP would help spur demand for broadband. Assey said Committee ranking Democrat Hollings (S.C.) hadn’t developed a strong opinion on Sununu’s VoIP bill and was still reviewing the proposal. He said issues with public safety and universal service needed to be worked out. Sununu’s bill isn’t as demanding of VoIP providers on issues like CALEA as is a similar bill introduced by Rep. Pickering (R-Miss.)

CLECs Reluctant to Enter VoIP Market

While acknowledging numerous benefits VoIP could provide, CLECs are reluctant to enter that market, speakers at a separate CEO panel agreed. “We tend to move slow in terms of getting into new stuff outside our core focus,” said New Edge Networks CEO Dan Moffat: “We haven’t determined whether we want to be a VoIP provider.” Eschelon CEO Rick Smith said the quality of VoIP service provided over public Internet network was still not good enough. He said his company was looking into VoIP provided over the private networks, but was waiting till prices come down.

Supra CEO Russ Lambert said lack of broadband deployment was “a limitation” for VoIP rollout. He said about 60% of his company’s customers didn’t have access to broadband. Also, he said some of his customers were “not sophisticated enough to think [VoIP] through.” But, he said, in the long run his company would “definitely be offering” VoIP, especially for international traffic. New South CEO Jim Akerhielm said his company was “encouraged” by the opportunities VoIP was providing. He said New South planed to “greatly enhance” IP capabilities of its network over the next 24 months, and to start rolling out a “real life service offer” on a market-by-market basis by the end of next year, with all the long distance traffic expected to be eventually carried over IP network.

Looking for a merger partner was cited as one of the biggest business challenges for many CLECs during the panel. “Merger makes sense for many of us,” Akerhielm said. He said the “real drivers of consolidation” were “scale and density.” Smith said his company was interested in acquisitions: “We can buy a customer base less expensively than build it ourselves.” But he said there were “not a lot of people” in the industry his company would be interested in. He said Eschelon had 3 “filters,” meaning it was looking for a company that would be in the same market, in the same customer segment and would be profitable, without synergies and being able to generate cash flow to Eschelon within 24 months.