Telco revenue challenges are not all about losing lines to VOIP, cable companies and wireless. Increasingly, the telcos also lose when the people who place calls to their customers are using one of these non-traditional methods. This is a particular concern to small, often rural telcos that rely most heavily on the access revenues earned for terminating calls from other carriers.

Some non-traditional carriers, and some third-party carriers that terminate traffic for them, have established unconventional–some say devious–routing, signaling and numbering schemes to make it difficult or impossible for small telcos to collect access charges. This trend is often referred to as ‘phantom traffic.’ Some VOIP providers argue that they don’t have to pay access charges because they do not provide telephone service, but rather an information service, and they refuse to pay even when telcos figure out a way to bill them.

Not every non-traditional carrier takes such pains to avoid access charges. But avoiding access charges helps make the lower and lower prices the market is seeing for non-traditional services possible. And, small telcos say, the more these companies get away with it, the more prevalent it becomes. From the non-traditional carrier’s point of view, it becomes not a case of “Let’s try this” but rather “We have to do this to remain competitive.”

Small telcos argue that with access revenues dwindling, it is becoming increasingly difficult to sustain the local infrastructure on which their customers—and ultimately all telco customers—rely.

“If carriers are using the PSTN that we’ve invested in, they need to pay for their part of it,” argues Rhonda Armstrong, vice president of operations for Sebastian, a small telco based in California. “The rate structure is based on that premise and when that starts falling apart, revenue recovery would have to shift to either public support options, high cost funds, or from end users, making the remaining services unaffordable. Once that starts deteriorating, it makes it difficult to run the PSTN.”

In this three-part series, we look at how access charges are avoided, how small telcos are affected, and what, if anything policy makers are likely to do to address this situation.

Sebastian’s experience

Although interstate and intrastate access charges typically are just a few pennies a minute, they can add up to some large numbers.

Sebastian has lost more than $200,000 in access revenues in the last two years to one particular carrier that terminates traffic for VOIP carriers, says Armstrong—and the monthly number has been climbing. The carrier involved—CommPartners–operates as a competitive local exchange carrier (CLEC) but also terminates traffic from VOIP carriers who, as information service providers, cannot terminate their own traffic because they are not allowed to enter into interconnection agreements with telcos for voice traffic.

Like many small telcos, Sebastian receives traffic from virtually all other carriers through a tandem switch operated by one of the former Bell companies. In Sebastian’s case, intraLATA traffic from multiple carriers, subject to intrastate access charges, comes over designated trunks from the tandem. The tandem operator, AT&T, provides call detail records designed to enable Sebastian to bill the carriers originating the traffic, but according to Armstrong, all records for calls from CommPartners have the same calling party number assigned to them.

“We have no way to identify where it came from,” Armstrong says. “The fact that it’s coming over intraLATA trunks tells us we have to bill it as intraLATA traffic.”

CommPartners and some other carriers terminating VOIP traffic, however, have refused to pay, Armstrong says. “They say ‘It’s IP so we don’t have to pay,’” explains Armstrong. But she disagrees.

“The rules state that on the originating side that’s true,” she says. “But as long as we’re on the terminating side, it’s our contention that they owe us access.”

Although small telcos normally have the option of turning off people who don’t pay their bills, policy makers have prevented them from doing so in cases like these. Such cases are difficult for telcos to win because of the impact on VOIP end user customers, explains Paul Bilberry, CEO of Carrier Management Systems Inc., a provider of telecommunications network analysis software. “The PUC will say you can’t block them because some poor guy is trying to call his grandmother,” says Bilberry.

Despite those precedents, Sebastian in January took its case against CommPartners to the California public utility commission. “We’ve said they legally have to pay or that we have the right to disconnect them,” Armstrong explains. “It will go though hearings. We don’t expect a decision until the end of the year.”

A spokesman for CommPartners said the company declines to comment on pending litigation.

Some details of Sebastian’s case are unique. Not all tandem switches separate intraLATA and interLATA traffic onto separate trunk groups. But although access avoidance takes different forms in different states and between different carriers, it’s happening on a very broad scale and it’s on the rise, says Robert Gnapp, director of demand assurance & network analysis for the National Exchange Carriers Association and an expert on access avoidance.

Both Armstrong and Gnapp say they have heard reports of problems from numerous small telcos about certain CLECs, including at least one with a large national footprint.

Part 2 of this series will explain how VOIP carriers and others are avoiding access charges and will look at how small telcos would like to see the issue addressed. Part 3 will look at challenges small telcos face in collecting access charges from wireless carriers.