IP Interconnection Major Point of Contention in Any Act Rewrite

AT&T has thousands of interconnection points on the TDM network, because every CLEC gets to interconnect in every local calling area, said Bob Quinn, senior vice president-federal regulatory. “In reaching those agreements, you've got to build trunk loops to them, and it’s costly to do it that way,” he said. “In an IP world, that’s not how it’s going to be."

The “essential elements of communications policy” are often “resisted by the incumbents,” said Comptel CEO Chip Pickering. It makes sense that incumbents would want to protect their markets, he said. But charging “exorbitant” monopoly rents, especially for last-mile access, creates barriers to competition, Pickering said. AT&T and Verizon say they are making IP interconnection available without oversight by the FCC, but they hold all the cards on the pricing, he said. Section 251 is technologically neutral, and its pro-competitive framework must apply going forward, he said. “AT&T does not have the option to determine whether section 251 applies. It does apply.” The Section 251 framework “provides protections that are lost in commercial negotiations, including nondiscrimination and opt-in rights,” Pickering said. AT&T wants to discriminate against smaller companies, charging more for interconnection than it may for larger companies, he said. “The harm in this approach is significant."

"We embrace interconnection,” Quinn said. “We interconnected the whole world to the Internet without a single interconnection rule.” The CLECs are all connected to the Internet, and “none of them had any regulatory authority to hammer out a deal,” he said.

When Quinn says AT&T doesn’t oppose interconnection, but doesn’t want to do it under Section 251, that’s “code” for doing it if the company can “dictate the terms” under which it’s done, said a wireless industry official. The purpose of sections 251 and 252 was to give the small competitive entrants some regulatory leverage to require incumbent LECs to exchange traffic, said the official. Otherwise, ILECs -- which have substantial market power and control access to most users on the public switched telephone network -- would have incentives to prevent interconnection, or make interconnection terms so onerous that it would undermine their competitive position in the marketplace, he said.

"This isn’t about IP-to-IP interconnection,” said an ILEC attorney. “You have to understand the CLEC business model. … The CLECs make money from 251 interconnection. They make money on access charges.” In an IP-to-IP universe, “it will all be VoIP” and the access charges will go away, he said. “What they're doing right now is they're demanding” Section 251 to apply. “They want the fight. And who are they going to take the fight to? They take the fight to the state commissions. … They don’t want to replace their interconnection trunks."

Reflecting Marketplace Realities

To ITTA, any revised act should incorporate the principle of parity. “ILECs continue to be compelled to operate under a federal regulatory regime that doesn’t properly reflect today’s marketplace realities,” said ITTA President Genny Morelli. There’s a lot more competition from numerous broadband competitors, like Comcast, which have far fewer regulatory constraints than ILECs, she said. “Many of the regulations that apply to ILECs are the product of a long-ago era when ILECs were monopoly providers of voice service,” Morelli said. “It’s time to realign regulatory requirements among competitors to take into account the significant changes in the market that have occurred since the 96 Telecom Act became law."

A “rural transport rule” to address the costs of transport beyond rate-of-return LECs’ network boundaries will be crucial in any new system of interconnection, said Michael Romano, NTCA senior vice president-policy. “If the financial responsibility for getting to individual carrier hotels … falls upon a small company that serves 5,000 people,” there’s no way to achieve reasonably comparable service at comparable rates, he said. “That can’t be lost in the interconnection debate.” Beyond universal service concerns, NTCA has also suggested that such rules of the road are critical to make sure networks all interconnect with and talk to one another, Romano said. He cited ongoing rural call completion concerns as an example of what can happen where rules and consequences aren’t clear enough.

The act’s established protections should continue to apply in any instance where ILECs have market power, said Thomas Jones of Willkie Farr, who represents CLEC clients Cbeyond, EarthLink, Integra Telecom and tw telecom. Since such market power exists in the market for interconnection of managed IP voice services, Section 251 and Title II provisions should continue to apply, he said. “As the FCC has concluded, the provisions of the Communications Act governing interconnection and last-mile access are technology neutral,” Jones said. “There is nothing in the statute, therefore, that prevents the FCC from adopting appropriate constraints on the exercise of market power by incumbent LECs with regard to newer technologies such as IP or packet."

But the transition to IP technology has brought so much competition that regulatory intervention is not warranted, said Free State Foundation President Randolph May. “The existence of many different IP networks facilitates various transit routing arrangements around a particular direct peering point in the event of stalemated negotiations.” Where negotiations fail, “limited government intervention” might be warranted, he said. Any new act should require the FCC to find “clear and convincing evidence of market failure and consumer harm before intervening,” he said. “Under the new statute, any such intervention should be in the form of some dispute resolution process, such as third-party baseball-style ‘last best offer’ arbitration, not the current common carrier model."

"The old regulated interconnection regimes have led to extensive arbitrage and disputes,” said Anna-Maria Kovacs, visiting senior policy scholar at Georgetown University. “IP traffic, both unmanaged and managed, needs to be free to move globally without regard to borders, type of platform, or type of traffic. The geographic and technology distinctions that are at the core of Title II would be tremendously harmful in the global IP world.” It will be “critical” to maintain the core values of public safety, universal access, consumer protection and competition, but Kovacs said “a rigid regime like Title II that was designed for a world in which consumers had no choices is neither necessary nor useful in the new world in which they enjoy a plethora of choices.” Said AT&T’s Quinn: “I can’t imagine, in a converged world, you would have a Title II regime in existence.”