Finally, some good news...
Tuesday November 28 3:56 PM ET
FCC Poised to Close Loophole on Internet Traffic Fees
By Jeremy Pelofsky
WASHINGTON (Reuters) - Federal regulators will next month likely close a loophole that has allowed some companies to set up telephone centers to carry Internet traffic and reap millions of dollars in fees from regional telephone companies, industry sources said Tuesday.
Under the present system, known as reciprocal compensation, established local phone companies like BellSouth Corp. (NYSE:BLS - news) and Verizon Communications (NYSE:VZ - news) have been paying fees to competing telephone carriers for connecting calls, but have not seen a dime in return.
And with the rise in consumers connecting to the Internet from home, some competing carriers have been signing up Internet service providers (ISPs) to be the routing carrier of choice to cash in on receiving compensation from the incumbent carriers.
But since the Internet does not return calls, the established phone companies end up paying about $2 billion in compensation this year to the rivals without seeing reciprocal fees.
The Federal Communications Commission (news - web sites) will over the next two years likely move to a system where the telephone company that bills a call, whether it is from a landline, wireless or to an Internet system, keeps the money, a process known as ''bill and keep,'' Legg Mason analyst Daniel Ernst said in a research note Monday.
``While it is possible the FCC could release the order at its next open meeting on December 7, we believe that it is more likely the order will be released under circulation later in the month,'' Ernst said in his report.
The plan is being debated among the five FCC commissioners to determine the period for phasing in the new system and what limits to impose on the fee payments before eliminating them altogether, an industry source said Tuesday.
FCC officials, including the agency's chairman William Kennard and the head of the common carrier bureau, Dorothy Attwood, have said they wanted to resolve the reciprocal compensation issue before the end of this year.
``Reciprocal compensation as it exists today is nothing but a loophole that allows a few unscrupulous companies to drain money out of the system at the expense of all consumers,'' said Matthew Miller, a spokesman for SBC Communications Inc. (NYSE:SBC - news), the nation's second biggest local telephone company.
``The chairman has said that the Commission will take action by the end of the year and we look forward to anything they can do to close this loophole,'' he said.
Other companies poised to benefit from the move include Teligent Inc. (NasdaqNM:TGNT - news), WinStar Communications Inc. (NasdaqNM:WCII - news) and XO Communications Inc. (NasdaqNM:XOXO - news), which ``could experience cost reductions that amount to nearly 2 percent of revenue with the full implementation of bill & keep,'' Ernst said.
The move to bill and keep also follows failed attempts by Congress to solve the problem, an issue pushed hard by the regional Bell companies. While lawmakers are expected to deal with some spending issues when they return next week, reciprocal compensation is not expected to be among them.
The FCC must still work out when to begin bill and keep, how to phase in the system, what pricing mechanism to use during the interim period and determine the scope of calls covered under the plan, Ernst said.
If the agency adopts a cap system during the two-year phase-in, the revenues from reciprocal compensation would drop by 66 percent next year, from $2 billion to $685 million, Ernst said, adding that long-distance carriers and competitive local carriers would see the largest decline in revenues. |
