As Transitions Begin for Nation's Phone Networks, Talk Turns to Interconnection

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By Paul Barbagallo

Feb. 12 — As the Federal Communications Commission begins to transition the nation's century-old telephone networks of circuits, switches, and copper wires to one that is entirely Internet-protocol based, the sticking point for many within the telecommunications industry continues to be interconnection.

Indeed, the FCC must decide in the coming months whether or not to enforce the requirement in the Communications Act that telecom carriers interconnect with each other's networks. The issue has already touched off a fierce battle within tight industry factions, pitting large companies against small companies and leaving FCC Chairman Tom Wheeler with no easy path forward.

“Required interconnection is one of the basic principles of the Act,” Charles McKee, vice president of federal and state regulatory issues for Sprint Corp., said during a panel discussion at the National Association of Regulatory Utility Commissioners' winter meeting here. “It's necessary for us to agree on the way in which we exchange IP [Internet protocol] traffic. We cannot reach end-user retail [customers] without guaranteed interconnection.”

Continuing, he said, “Incumbent local exchange carriers [ILECs] have the incentive and ability to suppress new entrants … and impose higher rates. That is the thing that needs to be dealt with.”

The FCC's ultimate decision will hinge on its interpretation of Sections 251 and 252 of the Communications Act of 1934, as amended. Both sections were added to the Act by the by the Telecommunications Act of 1996.

Section 251(a)(1) requires all “telecommunications carriers” to “interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers,” with Section 251(c)(1) mandating “good faith” negotiations.

Section 252, meanwhile, targets ILECs specifically, authorizing state utility commissions to mediate any contract disputes that arise. In particular, under Section 252(b)(1), “during the period from the 135th to the 160th day after the date on which an incumbent local exchange carrier receives a request for negotiation under this section, the carrier or any other party to the negotiation may petition a state commission to arbitrate any open issues.” Once the state arbitrator rules and an interconnection agreement is signed, other telecom carriers can then “opt in” to that same agreement, under its same terms and conditions.

AT&T: Section 252 Not a ‘Very Good Model.'

But as ILECs like AT&T Inc. see it, once every telecom carrier revamps its network to deliver all phone calls in IP, these provisions should be null and void.

“I don't think Section 252 of the Act is a very good model,” Hank Hultquist, vice president of federal regulatory affairs for AT&T, said during the panel discussion. “It reaches only one shrinking segment of the industry, and only applies interconnection obligations to ILECs. Most voice calling today has already been moved to the mobile carriers.”

At the FCC, AT&T has been the loudest advocate for what has been termed the IP Transition, the migration of the nation's phone network to all-IP technology. AT&T petitioned the FCC in November 2012 to begin this transition by setting up trials around the country in which the company would stop selling certain unprofitable (but mandated by law) landline telephone services and begin offering unregulated IP-based or wireless versions. For past five years, the largest ILECs in the country—AT&T, Verizon Communications Inc., and CenturyLink—have been slowly scrapping billions of dollars worth of “Baby Bell” network equipment that is still based on an old technology called time division multiplexing, or TDM, and replacing it with newer, IP technology, which has proven itself a far cheaper and more efficient means of moving digital information of all kinds, especially phone traffic.

According to Hultquist, AT&T's goal is that, by 2020, all voice traffic will be exchanged per “commercial” IP arrangements.

But for AT&T and the other ILECs, this transition is as much about regulation as it is about technology. As descendants of the Baby Bells, AT&T, Verizon, and CenturyLink must still must provide a quick dial tone, a sure connection, and resiliency during storms and power outages. By law, they are still “Carriers of Last Resort,'' which means that they must offer service to every residence in their territories. Comcast Corp., Vonage Holdings Corp., and Skype Communications, as IP voice service providers, bear none of these social responsibilities. And today, in some markets, AT&T's landline phone service is seeing a sub-20 market share.

“Interconnection cannot be optional,” Hultquist said. “Everybody does have to interconnect. … But if there is going to be a conversation about what the ‘regulatory backstop' should be, I think we should develop a regulatory backstop that applies equally to all providers and doesn't single out any set of providers—the ILECs—for different treatment than others. If other parties are interested in discussing how we develop such a framework, I would be happy to sit down and talk with them about that.”

Time Warner Cable: Act ‘Technology Neutral'.

Julie Laine, group vice president and chief regulatory counsel for Time Warner Cable, responded that regardless of regulatory disparities, the Act is still “technology neutral,” and Sections 251 and 252 still apply whether the call is TDM-based or IP-based.

In the end, to Laine, the issue is about making sure that regulators require all telecom carriers to interconnect on fair terms and conditions.

Joseph Gillan, an economist at Gillan Associates, agreed.

“The terms and conditions of that interconnection can't be designed to favor one provider over another,” he said. “You don't get to give yourself a waiver of the Act because you don't like it. A couple of large providers have decided that they don't like the Act anymore, so as long as they say it doesn't apply, it doesn't apply. Well, the Act applies.”

Gillan pointed out that Act does in fact call for “commercial negotiations,” with the caveat being that carriers can petition their state commissions to arbitrate if there is an impasse in talks.

“This is not an ILEC v. CLEC [competitive local exchange carrier] issue,” Gillan said. “This is four large corporations—AT&T, Verizon, CenturyLink and Comcast—against everyone in the industry.”

To contact the reporter on this story: Paul Barbagallo in Washington at pbarbagallo@bna.com

To contact the editor responsible for this story: Bob Emeritz at bemeritz@bna.com