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.”

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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.

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20 thoughts on “Access Avoidance Hurts Small Telco Revenues, Threatens PSTN

  1. Lots of interesting stuff here. Really sheds light on the complexity of access, the need for fair reform, and the pending dangers of over reliance on access revenue. Hopefully we'll hear additional perspective on this issue throughout this series from our readers.

  2. This is exactly why I fear for small telcos. The gravy train of access is coming to an end. It will either be regulated out, or bypassed by technology. Either way, it's days are numbered. Access is so '20th century." We're in the 21st century now. The sooner small telcos can wean themeselves off of access, the better off they will be.

  3. Sorry, but I have no sympathy for the small telcos – the access charge business was always a ripoff scheme that caused some users to have to pay more than others for exactly the same service, depending on which side of an imaginary geographic line you might be on. Well, in the 21st century data flows without much regard for arbitrary geographic distinctions, and for that I'm most thankful. The reason the small telcos are in trouble is that in many way they still want to operate as if it were 1910, not 2010, and to the degree they can pull it off the use lobbyists and other henchmen to pressure legislators to perpetuate their small fiefdoms rather than getting out and competing as if it were a truly competitive marketplace (and yes, that means being willing to compete for customers in the territories of other ILECS. Shoot the damn sacred cow of non-competition with other telcos, already!).

    The trouble is that even if buggy whip manufacturers could have got laws passed that required every horse owner to buy a buggy whip, at the end of the day it was still a buggy whip and simply not needed when society moved to automobiles. And now we are moving from landlines to data, and as much as the phone and cable companies would love to put voice and video in separate classifications and cahrge more for them, at the end of the day it's all just data and if you give people enough economic incentive, they will figure out ways to hide the true content of the data, as well as its origins. I'm not saying landlines will ever completely disappear (the Amish have kept the buggy industry alive, after all) but in another ten years or so few people will care if the landline is a relic of the past, and eventually even the bought-and-paid-for legislators will stop caring, and what will these small telcos do then?

    My advice, quit trying to pay the role of the troll under the bridge, and reinvent yourselves as data companies. Offer Internet using fiber to the home at affordable prices and without usage caps (try not to be a big bad phone company for once) and you will have people moving into your area just to get your service! Be prepared to give early retirement to some of your olde phartes that still cling to the idea of access charges and usage-based billing, because that's not what customers want (actually, some might not mind TRUE usage-based billing, but nobody offers that to retail customers, and few customers would actually want it anyway – look at how the cell phone industry is finding that customers will pay more just to NOT have a meter running!).

    Time marches on. The horse and buggy aren't making a comeback, netither are telegrams, 8-track tapes, or landline telephones. And giving people economic incentives to flee the PSTN only hastens the day when there will be plenty of old copper pairs hanging on the poles that nobody's using!

    1. Thank God!!!

      We're saved! All of this time I thought the problem with which we have been dealing to be fairly complex, and now I discover it's only a state of mind.

      I can quit worrying now and get on with my myopic, but no longer larcenous existence.

      What a relief!

    2. well…I'd think it ought to be up to small telcos how they'd like to run their business, and if we want to encourage them to run it in a certain way for everyone's benefit or to unstick their obstinate complacency then we ought to do it by making the same rule for everyone. The status quo is letting shylock scammers and dishonest businessmen erect “comfortable with dishonesty'' as a barrier-to-entry in the VoIP business, which isn't a benefit to anyone—traditional, VoIP, or consumer.

      If I read you right, you're saying the VoIP carriers are doing something wrong and the small telcos are not, *BUT* this is the best we can hope for because the political process that's supposed to pick the same-rules that everyone follows is so broken there's no hope of a marketplace that's both transparent and rational? Well, I would guess you may be right about that.

  4. Jack

    Clueless you are. It is not data over the internet it is data over facilities that by publicly policy has been agreed to be paid or by a usage fee.

    Toll roads are no different. You use it, you pay for use. If you choose anothe path (the internet) then you do not pay. However, you can't cry "I started out on a non-toll road, so now I get to complete my trip using the toll road at no charge"

    "Buggy Whip", Really! Your understanding of the issue is so lackng the best you can do is the "Buggy Whip"?

    Maybe we can all just drop n and use your place as a bed and breakfast at no charge. I mean you are paying for it, why shouldn't the whole world have it to use for free?

  5. Are access rules designed to protect customers or companies? Perhaps the ownres of these small telcos should consider selling their business to a larger company that doesn't need to be subsidized with access revenue in order to operate.

  6. Larger companies aren't going to buy these companies because these areas need the access revenues to cover costs. If a larger company were to buy into one of these areas, their metropolitan customers would still be subsidizing these customers through local rates making the overall corporate bottom line lower and, in turn, stockholders unhappy (unless they raise everyone's local rates). For whatever reason, the govt decided that every US citizen should have access to a telephone and created incentives (in the form of access revenues and subsidies) in order to make that happen. Is it truly a "right" or "need" for every citizen to have a phone? Also, like many things our gov't undertakes, they never go back and reevaluate what they've done. For decades, copper wire has been the technology used to deliver services. As technology changes, like wireless,fiber and voip, do the incentives need to change or are they needed at all.
    Allowing companies to decide on their own that they don't have to pay a bill but then not allowing companies to turn that customer off, goes against everything our economy is built on. I agree that local companies should be looking for ways to sustain themselves without the subsidies, but to just pull the carpet out from under them in one motion would create chaos. Once the businesses go under because the costs to deliver services are too high and since no large companies are going to want to move into these areas, does the govt then force AT&T and Verizon to service these areas because they can afford to lose the most money?

  7. Most of these companies would be bought in a flash. Trust me, I know. I have been on both sides. Frontier, Windstream and Century, for example, are very eager to buy rural properties These small companies, because of their size are very inefficient. Most of their fixed costs would be absorbed by a larger company and 60 -70 % of the employees would not be required. The real subsidy is occuring today, with high access charges and USF fees, being born by ratepayers throughout the country.

  8. Interesting comments by many. As a 30 year veteran in the mid sized Telco family I know this is not just an issue for small Telco's. Its an issue for Windstream, Century and Frontier as well. And its not an issue of HIGH access rates that burns most. Its an issue that carriers want to use another company's network that has a cost, FOR FREE, and will lie to make a profit at another company's expense. Everyone on this post should agree that this issue must be dealt with immediately. I agree that 1990's rates are inefficient and must be changed and that smaller companies will continue to go out of existence because they are less efficient and have higher unit costs (with more people losing jobs and service going in the crapper, but damn the employee and customer for efficiency sakes). Cost causers should pay something for using another company's network (it ain't free).

  9. We have transported data on broadband and PSTN access networks as dumb pipes to allow the applications to grow. As TRG uncovered for BELLCORE client companies in the mid-1990, the Info Providers would no longer enter into trials with Telco's because the Telco's were looking at ownership. Thus, based on demand for data networks, but no ownership in the info providers (I know it is an old name of the industry) the broadband networks were built again without packet usage charges.

    All of that is coming to an end. As the telcos leave TDM, the networks are built for packet data rates and charges. This year we should see the mobile network fully implement packet data charges.

    As wireline builds in all packet networks, the TDM access charges will be replaced with packet charges. Not a speedy change, instead one that will take 3-5 more years.

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