Interconnection in a Liberalized Network: California

1
Interconnection in a Liberalized Network
Californias ISPs View Reciprocal Compensation

• Yale M. BraunsteinSchool of Information
  Management SystemsUniversity of
  CaliforniaBerkeley, CA 94720 (U.S.A.)
• September 2001

2
Introduction

• As new entrants enter a telecommunications market
  the problem of interconnection has two
  dimensions technical and economic. This
  surveys focus is on the latter.
• ISPs can choose which local telephone company
  provides their service. The calls on these lines
  are almost all inbound.
• Key acronyms
• ILEC incumbent local exchange
  carrier(generally the 4 Baby bells or RBOCs)
• CLEC competitive

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The dimensions of interconnection-1

• B.C. (before competition) it was common to see
  some or all of the following
• Local tariffs were averaged across customers. In
  addition, the non-traffic-sensitive portion of
  the tariff was often kept artificially low.
• The tariffs for long distance (trunk) calls were
  sufficiently higher than costs so as to enable
  the costs of local service to be kept low.
• International rates were many times the cost of
  service.

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The dimensions of interconnection -2

• A.C. (after competition) it is common to see some
  or all of the following
• Rebalancing of local tariffs, increasing the
  the non-traffic-sensitive portion of the tariff.
• The tariffs for long distance (trunk) calls
  decreased to near costs as this market became
  VERY competitive. The subsidy to local rates has
  disappeared.
• International rates are changing. (This is
  another lecture!)

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The dimensions of interconnection -3

• And, most importantly for todays topic, new
  entrants have emerged to provide new services and
  services to particular market segments.
• There is disagreement over the extent to which
  this entry is economic (justified by new
  technologies and markets) or uneconomic (the
  result of opportunities that are driven by
  regulation).

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Additional concerns

• Equal treatment and symmetry requirements
• Whose costs?
• Possible difference in technologies
• Legacy customers
• Preferences for corporate relatives

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An illustration of the lack of symmetry
Although these diagrams show connections to
inter-exchange carriers, they could also be to
network access points.
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Calls to the Internet in the U.S.
9
Example of Press Coverage

• FCC Poised to Close Loophole on Internet Traffic
  Fees
• November 30, 2000 -- (Reuters) - Federal
  regulators will next month likely close a
  loophole that has allowed some companies to set
  up telephone centers to carry Internet traffic
  and reap millions of dollars in fees from
  regional telephone companies, industry sources
  said Tuesday.
• Under the present system, known as reciprocal
  compensation, established local phone companies
  like BellSouth Corp. and Verizon Communications
  have been paying fees to competing telephone
  carriers for connecting calls, but have not seen
  a dime in return.
• And with the rise in consumers connecting to the
  Internet from home, some competing carriers have
  been signing up Internet service providers (ISPs)
  to be the routing carrier of choice to cash in on
  receiving compensation from the incumbent
  carriers.
• But since the Internet does not return calls, the
  established phone companies end up paying about
  2 billion in compensation this year to the
  rivals without seeing reciprocal fees.

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The Survey

• Purpose The California ISP Association wanted
  to have its views heard as the battle was being
  fought on three fronts (CPUC, FCC, Congress).
• They needed a public interest hook on which to
  base their arguments (rural service).
• They wanted unbiased outside experts to bless
  the survey.
• We agreed with the following conditions
• We were involved in design administration
• We would do all the analysis interpretation
• We had final editorial control
• Report is at http//www.sims.berkeley.edu/bigyal
  e/ISPsurvey.html

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Dealing with the Client

• They impose deadlines (and change them)
• They have prior arrangements with survey
  companies, etc., for administration, not all of
  which were trouble-free
• Possible battles over final edits
• In this case there was a middleman, which was
  both good (focus, isolation from some issues) and
  bad (another layer of management)
• Big positives their professional experience,
  their past experience, they wrote the press
  release.

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SURVEY OF CALIFORNIA ISPs PREDICTS THAT FCC PLAN
WOULD LEAD TO HIGHER INTERNET RATES U.C.
Berkeley Professor Examines Reciprocal
Compensation

• WASHINGTON, D.C., December 6, 2000 A
  representative survey conducted by a U.C.
  Berkeley professor and released today shows that
  California consumers would have to pay
  significantly more to access the Web if state and
  federal regulators accept a proposal to change
  the way Internet calls are handled.
• The survey results come on the heels of a report
  yesterday by the Wall Street Journal that the
  Federal Communications Commission (FCC) is moving
  closer to adopting a proposal to eliminate
  reciprocal compensation a reimbursement paid by
  local carriers for completing calls by each
  others customers.