ACG Research

ACG Research
We focus on the Why before the What

Wednesday, October 19, 2011

Connecting America: Winners and Losers

The goal of the “Connecting America, The National Broadband Plan,” on which the FCC will be issuing a ruling on October 27th, is to bring broadband service(s) to nearly 100 million Americans who do not have access. As with any bill that hits Congress, all have the touch of special interest groups promoting their agenda. This bill is no exception.
One of the losers will be the small rural local exchange companies (RLEC). Why? Dig deeper in the plan and you’ll come across a “Notice of Proposed Rulemaking” ( To fully understand the repercussions of this document for RLECs one has to understand one of the major ways these companies make money.

Before fiber optics was widely used, carriers created Carrier Access Billing Settlements (CABS), which are a way to track termination fees (and origination as it pertains to toll-free calls). You use my network to terminate your customer or I use your network to terminate my customer. When you touch my network you owe me. When I touch your network I owe you. At the end of the month the call minutes that touched our respective networks and comparison on any overages are tallied and the companies settle payments. That’s CABs very simplified.

The RLECs receive more calls from ATT, Verizon, CenturyLink and other carriers than the other way around. At the end of the month or quarter these rural carriers can get hefty checks from the major carriers, which help to subsidize their network infrastructures and without which maintaining their existing customer base would be severely limited.
I recently spoke to the CEO of a RLEC and one of his big concerns among many is the slow erosion of his CAB settlements. This bill would add access fees and universal service fees to VoIP. The CEO estimates that over a four-year period his settlement agreements with ATT, Verizon, CenturyLink and other companies will drop precipitously, by nearly 80 percent.

The original purpose of VoIP was to avoid some of these access fees. Connecting America will benefit the large providers as they will see significant reductions in payments to RLECs while at the same time increasing access payments from VoIP service providers. These fees would, no doubt, have a negative impact on thousands of small and mid-sized VoIP companies and consumers by adding costs of doing business. Rural carriers manage all the customers’ complaints, service the current infrastructure, do the truck rolls and manage the overall satisfaction of their customer base. This bill, as it is written today, will affect their bottom lines and possibly put many of them out of business.

Broadband access for Americans should be universal if possible. I agree with and applaud this goal. Is there a way to bring all the benefits of the Internet to all Americans and not wipe out the RLECs or the small and midsized VoIP service providers? ICORE, Inc., believes it’s a noble and worthy cause to provide America with broadband access but not, however, on the backs of the small guys. Rather than funding this project through a government FCC mandate to the sole benefit of the large carriers, they propose that all instead abide by the same rules regulated through the PUC. In other words, let the states manage parity not the federal government. Second, enact strong penalties for the one percent of providers that are gaming the system and leave the 99 percent alone. And finally, have this commission exercise its authority to require VoIP, wireless and landline providers that use the public switched network to pay for that usage.

Tony Jones

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