IP: more on the jurisdiction of the last mile

[Dave Farber <farber () cis upenn edu>]

Date: Tue, 29 Dec 1998 19:41:13 -0700 (MST)
From: Joel M Snyder <Joel.Snyder () Opus1 COM>
To: clide () educause edu


I just wanted to make a couple of points about the article that Dave Farber
reprinted in his ip mailing list.  Your article was excellent; my purpose here
is to offer expanded information which may be helpful to your readers.

You wrote:

> When a customer places a telephone call, and the call goes onto an ILEC
> (Incumbent Local Exchange Carrier), then onto a CLEC (Competitive Local
> Exchange Carrier), and then is terminated at an ISP (Internet Service
> Provider), the ILEC owes the CLEC reciprocal compensation for the
> termination of the call. Reciprocal compensation is basically a settlement
> mechanism for telephone traffic transferred between two local networks.

This is key because this is the dominant method in place.  CLECs are
largely "cherry pickers;" they go after the most profitable customers who
have the lowest cost of service.  Originally this was the downtown area
of most cities; now the CLECs have learned that ISPs need hundreds, if not
thousands, of lines in a city and that they can service them very
inexpensively.  Often this is compounded by tariffs which the ILEC has filed
which make no sense to the ISP.  As an example, it is very common for the price
for 24 telephone lines individually delivered on individual pairs to be less
than the cost of a T1 line, with 24 voice channels, delivered on 4 pair, even
though the cost to provide the T1 is much less. 

Conversely, CLECs have no interest whatsoever in selling individual dial-tone
to subscribers; the cost to provide the service doesn't provide the margins
that their corporate masters are looking for.  

Thus, it is generally true that most ISP traffic follows the path you suggest
in any 1st or 2nd tier city (Phoenix is a 1st tier city; Tucson is a 2nd tier;
a city like Flagstaff, Arizona, would be a 3rd tier city---these are generally
not large enough to be of sufficient interest to CLECs to be worth opening up
there).  I am sure that you are aware of this, but your readers may not be, and
I think that this point should be driven home. 

Whether or not the "thinly veiled" threat you refer to is real, it is very true
that the CLECs are affecting the profitability of ILECs/RBOCs in ways very
disproportionate to the numbers involved.  

You also wrote:

> The FCC approach
>
> A holding that a non-"long-distance", "local" phone call to a local ISP is
> actually "interstate" at first glance wouldn't appear to make much sense.
> But there is a previously-used route that the FCC may choose to reinforce:
> "the Commission traditionally has determined the jurisdictional nature of
> communications by the end points of the communication and consistently has
> rejected attempts to divide communications at any intermediate points of
> switching or exchange between carriers." GTE ADSL Tariff Order, FCC 98-292,
> at 10.   With the Internet, that apparently means anywhere in the world;
> thus the telecommunication with the ISP could be interstate.

There is precedent for this going much further back, to at least the beginnings
of Frame Relay service in the late 1980s.  At that time, RBOCs in this part of
the country had two different tariffs for Frame Relay service: interstate, and
intrastate.  A connection which had a certain percentage of Internet access
traffic (I forget the number, but it was probably about 70%) qualified for the
interstate tariff which was substantially less than the intrastate tariff. 

Finally, you wrote:

> There's no telling what the FCC may do (close odds are that the Commission
> will consider telecommunications to ISPs "interstate"), but some ideas have
> been floated.  

I've been watching this flavor of issue since writing FCC comments on the
original "modem tax" NPRM in 1987.  Although things often do not make sense in
the quasi-regulated environment, it is my opinion that your suggestion will
come to pass, for no other reason than the immense inequity that the reciprocal
compensation payments cause.  Clearly, the traffic-sensitive payments offered 
are far in excess of the actual costs of providing the service.  While there
are good reasons for termination settlements, the particularly skewed case of
subscriber-to-ISP is not one of them and my belief is that the FCC will, under
any guise necessary, try to bring some sense of rational proportionality to
these charges.  

jms

Joel M Snyder, 1404 East Lind Road, Tucson, AZ, 85719
Phone: +1 520 324 0494 (voice)  +1 520 324 0495 (FAX)  
jms () Opus1 COM    http://www.opus1.com/jms    Opus One