Small telcos say they are losing substantial access revenues to voice over IP providers, a topic we explored in Part 1 and Part 2 of this series. Often the same small telcos say they are also being underpaid for terminating calls from wireless carriers—a topic that has received less attention, perhaps because it is even less well understood.

When a small telco terminates a call that originated from a wireless carrier, the call is considered to be local if it originated from within the same major trading area (MTA). MTAs are large geographic areas, sometimes encompassing multiple states. For this traffic, also known as intraMTA, wireless carriers are required to pay reciprocal compensation to the terminating local telco. Reciprocal compensation rates are negotiated as part of an interconnection agreement between the wireless carrier and the telco and are often much lower than interstate or intrastate access charges—typically a fraction of a penny per minute, compared with a few cents a minute for interstate or intrastate access. Without an agreement, the telco cannot bill the wireless carrier for reciprocal compensation charges.

In practice, telcos are finding they also need an interconnection agreement in order to collect interstate and intrastate access charges, which apply on calls from wireless carriers that originate outside the MTA. The reason is that, because of difficulties associated with determining the location of a wireless customer, telcos often agree to bill for access based on the assumption that certain percentages of traffic are interMTA and intraMTA. The exact percentages are spelled out in the interconnection agreement that the telco has with each wireless carrier. Those agreements also break down the interMTA traffic into interstate and intrastate components if applicable.

Typically a telco relies on these negotiated agreements for billing all of the wireless traffic it terminates– which means that if the telco has not negotiated agreements with certain wireless carriers, it cannot bill those carriers for terminating calls of any type. And even when interconnection agreements are in place, small telcos say the negotiated traffic factors favor the wireless telcos—an assertion supported by studies that have been performed on behalf of some small telcos.

Those traffic factors often overstate the percentage of intraMTA traffic from the wireless carrier, notes Robert Gnapp, director of demand assurance & network analysis for NECA. “We’ve seen agreements specifying 97% intraMTA traffic when studies indicate the traffic is nearly 30%  interMTA,” notes Gnapp.

The reason telcos often agree to these overstated factors, he says, is that they often lack the resources to conduct supporting traffic studies. As a result, some companies are forced to accept understated factors to avoid expensive, drawn out negotiations or arbitration, says Gnapp. Complicating matters is the fact that some tandem operators do not pass along call detail information, notes Rhonda Armstrong, vice president of operations for Sebastian.

Increasingly some small telcos have begun to attempt to renegotiate terms of their agreements with wireless carriers based on traffic studies. Oregon telco Gervais Telephone, along with five other small telcos in that state, has enlisted TimeData, a provider of revenue recovery services, to study their traffic patterns in the hope of finding sufficient supporting data—and sufficient strength in numbers–to persuade wireless carriers to renegotiate.

TimeData’s study also found that Gervais was terminating traffic from about two dozen wireless carriers with whom it had no agreements and therefore was not collecting any termination charges, says Terry Martin, vice president of network operations for TimeData. The traffic studies should be useful in helping Gervais and the other Oregon telcos negotiate agreements with those wireless carriers, Martin says.

TimeData’s study for Gervais found that the telco, which has just 800 lines, had been underpaid by wireless carriers by about $500 a month—on top of about $2000 a month the telco was unable to bill other landline-based providers, including CLECs terminating calls for VOIP carriers.

Unlike some of its peers, Sebastian—a small California telco—receives call detail records for wireless calls it terminates from the tandem switch operator and has used that data to bill wireless carriers with whom it has no interconnection agreement for access charges. But the wireless carriers have refused to pay without an agreement, says Rhonda Armstrong, vice president of operations for Sebastian.

“If we could bill based on where the call originated from, that would be the ideal,” Armstrong says. But rather than enter a prolonged dispute with those carriers, Sebastian has found itself forced into negotiating agreements at unfavorable terms in order to get any revenues at all, Armstrong says.

Part 1 of this series looked at the overall threat that lost access revenues have on small telcos and at efforts by Sebastian to collect terminating access charges from a CLEC the company says has been particularly troublesome. Part 2 explained how some VOIP carriers and others are avoiding access charges and at how small telcos would like to see the issue addressed.