Sprint Pushes Wholesale VoIP Offering, Rural Incumbents Balk

Decisions by regulators in 6 states and a federal court in N.Y. upheld Sprint’s wholesale VoIP service as common carriage, affirming Sprint’s right to interconnect with rural incumbents. Sprint offers cable companies partnerships for voice service making competition feasible in rural markets with only a couple thousand households, said Jim Patterson, Sprint Communications vp for cable solutions. When Sprint merged with Nextel, it spun off its local exchange business but kept its IP-based wholesale business in Sprint Communications.

“This represents a change in the way we look at rural markets,” Patterson said, describing the “partnership” as one in which the cable partner handles sales, billing, customer service, bundling and provisioning of the last-mile connection to customer premises. Sprint provides the cable company wholesale IP-based access, local and interoffice transport, network signaling, caller ID and other vertical services, advanced phone features, E-911 and local number portability.

The Sprint service is available in versions for cable companies that do and don’t own local phone switches, Patterson said. Cable companies with their switches handle local on-net termination themselves, handing only nonlocal, off-net traffic over to Sprint for routing and completion, he said. Under either arrangement, the end-user doesn’t see Sprint behind the scenes, he said. End-users deal only with the cable company retailing the phone service.

Sprint began developing its wholesale VoIP product in 2003, Patterson said. State regulators in N.Y., Tex., Ohio, Ind., Ill., and Iowa have certified Sprint as an intrastate common carrier and upheld its right to interconnect with incumbent telcos, Patterson said. Sprint applications are pending in S.D. and Wis., and before 2008 the company hopes to have its wholesale VoIP service available to cable companies in more than 40 states, he said. Cable has been able to compete for bundled phone service in large urban markets -- but by partnering with Sprint, cable companies can leverage their existing cable plant in smaller rural markets to offer financially feasible telecom services, Patterson said.

Sprint offers the same general deal to all cable companies, Patterson said: “The agreements we make differ in detail because every cable company wants its own unique fingerprints on the contract but they all have a broad general similarity.” Rural carriers that have opposed Sprint in local markets are rehashing arguments like those they raised when equal access was applied to promote toll and long distance competition, he said.

The N.Y. PSC early this year declared Sprint a common carrier in providing wholesale VoIP services to Time Warner Communications and so entitled to interconnect with incumbent telcos. The U.S. Dist. Court, Rochester this month upheld that ruling, overriding arguments by a coalition of 10 rural incumbents led by Berkshire Telecom. The court in Case 05- CV-6502 CJS said the Sprint-Time Warner pact was “an undisputedly new type of business arrangement” and said the PSC came to the reasonable conclusion that Sprint’s new business concept can be common carriage even if Sprint holds out its services only to other carriers, or if it provides its services to end-users indirectly, through a retailer partner like Time Warner. The N.Y. suit was the first of its kind to be decided.

N.Y. PSC Comr. Maureen Harris said the PSC’s mission “is to remove barriers to competition,” and the agency found the partnership deal Sprint offers cable companies can overcome inherent barriers to rural competition. Sprint took a unique tack toward local service but still fits the definition of a common carrier, so it’s entitled to local interconnection, she said. Robert Mayer of the PSC telecom staff office said the commission saw Sprint as “an important facilitator for Time Warner and other cable companies that want to get into the voice business.” By capitalizing on capabilities Sprint offers, cable companies can rapidly extend their voice service into rural markets where they already offer TV service, he said.

“It’s natural for incumbents to resist, to avoid having to face a competitor, but phone service shouldn’t be a monopoly business,” Mayer said: “We've been encouraging competition for years.” It remains to be seen whether rural incumbents’ dire predictions of what will happen if cable competes with them come to pass, he said. N.Y. PSC Gen. Counsel Peter McGowan said that competitors first entered Verizon markets, it predicted disaster. But instead Verizon responded to its rivals and consumers ultimately benefitted from the competition, he said. He expects rural incumbents also will respond to phone competition from cable, and produce consumer benefits, he said.

Rural incumbents suits against state commission interconnection orders involving Sprint in Ill. and Tex. are pending in federal courts, with claims like those in the N.Y. case. As in N.Y., plaintiff telcos in Ill. and Tex. contend the states incorrectly classified Sprint as a common carrier, claiming Sprint violates federal law by not disclosing all rates and terms in contracts with cable companies. The U.S. Dist. Court in E. St. Louis, Ill. plans a Dec. 19 hearing on the telcos’ request for an injunction to stop state regulators from enforcing their interconnection order. It also gave Sprint until Nov. 23 to supply plaintiff telcos the complete contracts it made with cable companies. The court reserved judgment on whether to include unedited copies in the case record after the Ill. Commerce Commission noted that only edited contracts appeared in the ICC case record, and that a court shouldn’t decide a case based on material that wasn’t in the ICC record.

A rural incumbent in Ia. earlier in Nov. unsuccessfully tried a different argument against Sprint wholesale VoIP service with the Ia. Utilities Board. Iowa Telecom said its interconnection agreement with Sprint, approved by the IUB after lengthy arbitration over its obligation to interconnect with Sprint, didn’t cover wireless, toll or ISP-bound traffic, or local traffic transiting to other carriers. Iowa Telecom said Sprint made contradictory requests regarding points of interconnection. Sprint had sought interconnection for service provided in partnership with MediaCom’s MCC Telephony business unit.

Sprint accused Iowa Telecom of trying to “relitigate the Sprint-MCC business model by making an untimely collateral attack on the board’s arbitration order.” The IUB in Case FCU-06-49 said Iowa Telecom had no right to refuse interconnection. Iowa Telecom misread the language regarding types of traffic covered by the agreement, Sprint offered reasonable steps to address the carrier’s traffic-handling concerns and Sprint had no reasonable alternative to using Iowa Telecom’s network, it said. Sprint can choose where its points of interconnection are and how those facilities may be provisioned, it said.