A Perfect Storm of Economic Incentives and Technology Brews Arbitrage
USF/ICC reform may be the dominant rural telecom regulatory topic at the moment, but rural representatives from across the country took the initiative to come to the FCC this week and present information about rural call termination problems at a public Workshop. The purpose of the October 18 Workshop, which also included panelists from large ILECs and CLECs (but noticeably no pure VoIP providers), was to identify why these problems are occurring, what impact the problems have on companies and consumers, and how the problems can be solved with regulation, standards, enforcement or best practices.
This Workshop was the result of strong efforts by the Rural Associations and several state Commissions, who have pleaded with the FCC to address rural call termination issues throughout the year (The ILEC Advisor: FCC Finally Gets the Message about Call Termination Problems). Commissioner Mignon Clyburn opened the Workshop by acknowledging that rural call termination problems are indeed troubling for public safety, health care, businesses and people just trying to communicate by phone. She sympathetically said, “I want my call to go through, and I know you want yours to go through as well.”
The first panel tackled the causes, scope and impact of the problems. Panelists included Robert Gnapp (NECA), Fritz Hendricks (Onvoy Voice Services), Denny Law (Golden West Telecommunications), Dave Lewis (ANPI/Zone Telecom), Kim Meola (AT&T), Dale Merten (Toledo Telephone) and Tami Spocogee (PAETEC). Gnapp summed up the situation by saying, “This is the most troubling, time consuming and frustrating problem [rural providers] have ever had to deal with.” Hendricks added that it “vilifies” RLECs, even though he has “yet to find a rural carrier” who was at technologically at fault.
Lewis and Hendricks provided insightful comments about how the relationship between economic incentives and technology creates ripe opportunities for arbitrage. Lewis reasoned that as telephone rates increase, companies lose business, and they may look for ways to evade economic challenges and “change the cost dynamics.” Unfortunately, it costs more to terminate calls in rural areas, so companies facing economic pressure might refuse to terminate calls to high-cost areas in an effort to save money. Hendricks explained that “technology provides a vehicle for arbitrage, but economics create the incentive.”
In terms of the causes of call termination problems, many are quick to blame Least Cost Routing (LCR) technologies (and the carriers who utilize LCR). However, several panelists pointed out that LCR has been around for at least a decade, whereas these problems have dramatically increased in the last couple of years. Spocogee stated that LCR isn’t the problem if it is done correctly. Another possible troublemaker called “SIM Box Fraud” was also identified.
There was no shortage of examples of the impact on consumers and rural economies. Merten described a rural community in the Pacific Northwest with an economy based largely on tourism and charter fishing. He claimed that this rural community has been “absolutely devastated” as a result of calls not being completed to the charter fishing businesses. Merten’s company has invested significant resources and time to track and identify the source of call termination problems. In Law’s South Dakota service area, hundreds of automated calls from a school district failed to reach parents to notify them of school closings or other important news. Other panelists and audience members cited specific difficulties experienced by rural health care providers and sheriff’s offices. Gnapp explained that there have been at least 10,000 documented complaints, but the complaints are only a “small subset” of the real number of failed calls to rural areas, which could be in the millions or tens of millions.
The second panel addressed possible resolutions. Panelists included Scott Booth (Verizon), Jill Canfield (NTCA), Martin Corso (TDS Telecommunications Corp.), Penn Pfautz (AT&T) and Rick Ratliff (Sprint). The primary means to address call termination problems appear to be through regulatory intervention, enforcement, industry standards or best practices; but the panelists differed as to which solution is most appropriate. Considering how diverse the sources and causes of call termination problems are, a combination of resolution mechanisms may be the best course of action going forward.
One of the biggest challenges is actually figuring out the source of the problem—without this key information, it is indeed difficult to remedy the situation. A “carrier list” of contacts at IXCs who will help rural carriers address and resolve problems has been created, but Canfield commented that the carrier list is only helpful if the customer complains, the originating IXC can be identified, and the originating IXC is on the list. She also said that it places the burden on the consumer, and Corso later added that business customers are especially reluctant to contact their customers and then tell them to contact their originating carriers—it is definitely a lot of trouble for all parties afflicted.
I thought it was interesting that the large ILEC panelists all seemed sympathetic and dedicated to working with the RLECs on these issues, but the ILECs have the capacity to invest millions of dollars and dedicated staff specifically to monitor and track down non-compliant parties. For example, Ratliff mentioned that Sprint has an email address for call termination complaints and “several staff” who just monitor complaints and “go after bad actors.” Buying expensive monitoring technology and hiring several full time employees to address call termination problems is a luxury that few—if any—small RLECs can afford right now, yet the number of complaints can reach dozens per day. I would imagine some RLECs could keep a full time employee busy by just addressing call termination complaints.
Differences aside, Pfautz insisted that AT&T “[makes] money by completing calls, not by dropping them on the floor.” Booth added that Verizon wants calls to be completed so consumers have a “positive experience;” and Sprint and AT&T are both dedicated to shutting down arbitragers and ending relationships with non-compliant intermediaries.
Will the pledges to take a hard line on arbitrage be sufficient, or does the FCC need to intervene? The rural panelists at the Workshop seemed to agree that the upcoming ICC reforms will not be a solution in themselves, and the ideal course of action may be a combination of best practices, monitoring, reporting and enforcement. Canfield stated that best practices are a good start, but not everyone will follow them so long as there are financial incentives not to; Corso added that monitoring alone is not an appropriate solution. Canfield also argued that the FCC has the authority and ability to issue forfeitures under the current call blocking rules, and these problems could be treated as de facto call blocking.
Overall, this Workshop was very interesting and definitely an important first step in getting the FCC’s attention and moving forward towards consensus and resolution. A number of states are also conducting inquiries on this issue; so hopefully industry, government and consumer stakeholders will begin experimenting with and implementing remedies.
Meanwhile, it would be great if the “bad actors” would take note that RLECs are not going to sit back and continue to let these problems reach an epidemic scale. The fact that a number of panelist and a large portion of the audience in attendance at the FCC came from all over the country really spoke to the gravity of this matter. Indeed the significance and somberness should not be underestimated—as an audience member who traveled to DC from rural Missouri said, “One death because of this issue is not worth the billions of dollars saved.”
The full video recording of the Workshop is available here.