ILECs Say Study Supporting Free Conference Calling is Flawed

The claims in the report “suggest that we don’t know our business,” said Steve Davis, Qwest senior vice president of public policy. Traffic pumping is illegal and costs the industry tens of millions of dollars every year, he said: “It’s an exploitation of a system that was put in place in order to facilitate phone services in high-cost, low-volume areas. They take rates that were set intentionally high and it supports free porn services.” AT&T has estimated RLECs charged about $250 million in access fees in 2007 alone, Hultquist said. “It’s a significant and growing element of our overall access expense.”

The report, released Wednesday, says free calling services create positive, profitable benefits for ILECs. Paid for by Free Conferencing Corporation, the study was done by economists Alan Pearce and Brian Barrett of Information Age Economics in an attempt to evaluate complaints from some incumbent carriers that the practice causes them to lose money, Pearce said in an interview: “Their profits are not impaired. The ILECs are participating and making money from conference calls.”

Supporters of the study plan to share it with the House Commerce Committee, said RLEC attorneys. Rural telcos replied Monday to a committee probe in February on the practice. The committee is in the process of receiving and reviewing information from the companies, said a House staffer. The responses weren’t released. All 24 RLECs planned to send separate responses with hard data, said an attorney for some of them.

RLECs were eager to provide explanations of their side of the debate, which historically has been dominated by the larger carriers, the attorney said. The RLECs each have annual revenue of less than $10 million and lack the regulatory affairs resources of the big IXCs. However, the companies didn’t have much difficulty compiling data for the committee in a short time because all the companies are involved in traffic pumping disputes in other venues and therefore had the information on hand, the attorney said. Respondents are waiting to see what followup information is needed, if any, the attorney said.

The report said the practice stimulates more consumer demand for the incumbents’ unlimited long distance plans. If an incumbent carrier isn’t profiting from any particular call as a result of its long-distance plan, “it’s a direct effect of that company’s own business plans and pricing,” the report said.

Sometimes a study is the “last refuge of the scoundrel,” said Jonathan Lee of JD Lee Consulting. “It is simply too much to say that IXCs would introduce a product like unlimited calling so that customers will use that product to call ’traffic pumping’ numbers at traffic pumping volumes, with the knowledge that they will lose money on this product, and at the same time say that their profits are enhanced.”

“The report puts on paper what we already knew,” said Tim Jenkins, Aventure Communications vice president. The telco has been servicing free conference call companies since 2006. “It’s not an illegal scheme,” said President Jim McKenna: “We're doing exactly what the law says we're to do.” He dismissed the “traffic pumping” term: “No matter what you call it, that call was delivered to our switch via a phone number.”

Aventure usually generates 8 to 12 million minutes per month through its conference call services. The company is currently owed about $20 million in access charges and hasn’t been paid for about three years, officials said. Aventure continues to sell its lines to conference call companies, but has lost eight of its 17 customers. Jenkins said the argument that they support adult chat lines is an attempt at “pushing everybody’s buttons.” We can’t “listen in on everybody’s conversation, so how do they know?” he said. The telco filed a collection action that was stayed by a district court judge, he said.

AT&T has settled with some of the CLECs for an amount less than the CLECs’ tariff rates, Hultquist said: “Some aren’t settling, so we're litigating the lawfulness of their charges.”

Both sides of the issue are seeking action by the commission. “We have to have clarification from the FCC,” Aventure’s McKenna said. “If you don’t like this type of service, change it. In our mind, we're following along.”

As minutes increase, the CLECs’ access rates should go down, AT&T’s Hultquist said. They're able to have a smaller, “fixed amount of investment, but they create astronomical increases in the number of minutes without changing the rate.” The telco asked the FCC to consider a rule requiring LECs to lower access rates if they're generating an “unusually high amount of traffic,” he said.

The commission announced its proposals Friday for changing the intercarrier compensation mechanism as part of its Universal Service Fund overhaul (CD March 8 p1). It intends do away with charging access on a per-minute basis to avoid “unfortunate situations with arbitrage,” senior policy advisor Carol Mattey said. Meanwhile, a November draft of a USF revamp bill planned by House Communications Subcommittee Chairman Rick Boucher, D-Va., included a ban on “access stimulation charges.” Actions by the House Commerce Committee and the FCC indicate patience with traffic pumping may be wearing thin, Hultquist said in a post on the AT&T blog.