TCS Daily

Calling Card Cacophony

By Duane D. Freese - December 30, 2004 12:00 AM

The biggest bit of unfinished business in telecommunications for 2004 -- and for many years before -- is summed up in the latest dust up between local exchange carriers and AT&T over its calling cards.

Just before Christmas, U.S. Telephone Association President and CEO Walter McCormick Jr. went ballistic, asking SAM'S CLUB and Wal-Mart to "disassociate" themselves "from AT&T's unconscionable refusal to meet its obligations to rural telecommunications and its cynical exploitation of the goodwill of all Americas toward our troops and their families."

What has AT&T been doing? Well, it's been issuing calling cards to American troops -- 325,000 of them worth $6 million in calls to those in Iraq and 25,000 to injured service members at hospitals stateside. The donated cards are the same as those sold at stores, so they contain ads from Wal-Mart and SAM'S CLUB. That, though, isn't the exploitation that McCormick is concerned with. The USTA's objection is AT&T's assertion that the inclusion of the ads makes the cards an "information service" rather than a strict telecommunications service.

The designation has become important because the Federal Communications Commission has ruled that an information service doesn't have to contribute money to the Universal Service Fund nor pay per minute access charges for connecting to the local public switched telephone network.

The charges can be substantial. On normal long distance bills, about 9 to 10 percent of the call goes to support USF. Overall, $6 billion was collected and expended last year by the fund to help make phone service more affordable to rural and low-income families and connect libraries and schools to the Internet. Meanwhile, competitive long distance carriers pay anywhere from a half-cent a minute to more than 30-cents a minute -- about $15 billion last year -- in access charges for originating and completing calls on local phone networks.

The benefit of cutting those costs is plain. It means AT&T can offer card users bargains on both international and national long distance calls. AT&T last summer noted the phone cards had helped it avoid some $500 million in USF payments and access charges.

It also makes calling card donations to the military more affordable. Only the local and rural phone companies McCormick represents see those bargains as coming at their expense, even though members of Congress and the Defense Department have weighed in on AT&T's behalf in its petition for a ruling by the FCC to declare the cards an information service.

The real crime here is the confusion at the FCC, in the Congress and in the states about how to deal with universal service and intercarrier compensation between competitive services and local phone monopolies.

The Telecommunications Act of 1996 states that all providers of telecommunications services should contribute to the Universal Service Fund in some equitable and nondiscriminatory manner. But the whole USF system has become one discriminatory and inequitable ruling after another by the FCC.

Cable modem and Internet Service Providers don't get or receive money from the fund. Wireless companies both give to and receive from the fund. Local phone monopolies give to and receive from the fund. Long distance companies just pay, and pay, and pay. The same is true on access charges.

Arrangements for intercarrier compensation to pay for use by communications providers to connect calls to eachother's systems is bizarre. The Intercarrier Compensation Forum (ICF), made up of a broad array of telecommunications industry participants, found 10 different categories for terminating and transporting calls that the FCC itself has found have the very same cost basis but were charged differently.

No wonder that long distance revenues, as FCC Commissioner Kathleen Abernathy noted last year, "have been in decline because of price competition and substitution of wireless services, e-mail and VoIP services."

If one player has to subsidize local phone service, and other services that it competes with don't, it will find itself losing business. And little wonder that a long distance provider, trying to keep some business, would try to level the playing field by finding a loophole for one of its services.

Of course, the answer that the local phone monopolists want is to simply get other communications companies to pay them more.

USTA members' submission to the FCC on intercarrier compensation reform demanded:

  • Support must go to the networks (translation - pay local phone companies).
  • Eligibility should be far more rigorous (translation - cut out the cell phone companies or small competitive phone carriers).
  • If states wish to subsidize competition, they should pay for it (translation -- compensate for lines lost to competitive phone carriers).
  • Broaden the Base of Contributions (translation - increase fees on Internet Service Providers, VoIP companies, cable companies and other potential competitors).

The ICF has a better idea.

On intercarrier compensation, it suggests moving toward a plan which would eliminate access charges and reciprocal compensation, recognizing that communications traffic is a two-way street -- it is of benefit to both parties. Thus, each should bill its customers for its service, not each other -- which creates a lot of paperwork and unfairly has competitive local or long distance carriers subsidizing local phone monopolists.

For universal service, the ICF would establish a methodology for paying for that service based on so-called "units" that would be applied to phone numbers, ensuring cellular, VoIP and regular wireline providers pay, and high-capacity network connections, which would sweep in long distance companies.

In a perfect world, USF would disappear. With new VoIP, cellular and other phone services being made available at ever lower cost, it isn't needed any more except in rare places, which might better be funded by general taxes.

As an alternative, though, the funding proposed by ICF would at least create a level field for competition while not discouraging innovation, as would occur if the USTA's proposals on USF were implemented.

But 2005 is the year that something needs to happen.

When an advocate for monopolistic POTS (plain old telephone service) attempts to blacken the name of an industry competitor for lowering the cost of phone calls to our service men and women at home and abroad, it's a dark day indeed. The FCC and Congress could certainly make the New Year brighter if they would fix the real problem -- not cheaper phone cards, but a costly, anti-competitive, discriminatory intercarrier compensation and universal service system.


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