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To: MikeM54321 who wrote (8548)	9/19/2000 1:06:39 PM
From: Bernard Levy	Read Replies (1) \| Respond to of 12823

Hi Mike: This refers to the fact that when a phone call originates with one company and is terminated by another, the originating company must pay a fee to the one which terminates the phone call. The expectation was originally that since voice phone traffic flows are balanced, these compensatory fees would balance out. However, for Internet connections, the Internet does not call you back, so that ILECS have to pay large fees to CLECS and these fees are not reciprocated. Some would say that these fees are fair compensation for all the roadblocks that ILECS have thrown in the way of CLECs over the years. Regards, Bernard Levy

To: MikeM54321 who wrote (8548)	9/19/2000 1:13:14 PM
From: justone	Respond to of 12823

Mike: Reciprocal compensation is one of the issues that continues to prove that tariffs and government mandates in the telecom market are often more important than technology, capital, or marketing in influence. But this one is a fun one to understand- it a case where the big bad powerful wealthy guys did themselves in, and the little guys won. Basically, when Congress they opened the telecom market up in 1996, the big RBOCs lobbied congress to put in a requirement that any competing local phone company must pay the RBOC for terminating a call. The RBOCs representatives, with a smug smile on their face, since they believed that most calls would terminate on the incumbent phone company subscribers, said "We, the RBOC will pay you, the CLECS, for terminating calls on your network as well, isn't that fair?" They figured this would put the little CLECS out of business real soon. The Political Incumbents (congress) with a goodly amount of donation $'s from the Telephone Incumbents (RBOCs), passed it. Well, something called the internet came along just about then. Guess what- a local phone call to a ISP is a call terminated on rival network. AND IT IS ONLY ONE WAY! that is, the ISP doesn't generate a call. So all the money for reciprocal compensation flowed from the RBOC to the ISP/CLEC. I'd have loved to seen the look on the CEOs faces at the RBOCs the moment they realized what was happening. Many people were delighted at the irony of the RBOC lobbyists shooting themselves in the foot, but there was a serious side. The local phone companies are forced to subsidize local phone service. With the internet, they are not only giving their competitor money from reciprocal compensation, but for these calls, which last 10 times longer than local calls, they have to spend a lot of money upgrading their switches to handle unexpected extra traffic capacity And sometimes they have to buy, a, say, $40 million tandem if the traffic increases just beyond their current needs. US West, for example, claimed they would have to double their network if this problem continues- of course that was in a statement where they were lobbying for the end of reciprocal compensation. The ILECs do sometimes get second line revenue, but that doesn't compensate them for the equipment costs of the network expansion. So dropping the compensation is a fair idea, I guess. But it causes a short fall of revenue in ISPs. Is it important- well, kind of. Having to pay reciprocal compensation helped force ILECs to deploy DSL, which they didn't want to do because it competed with T1 leased liens. Not having it mostly hurt the ISP. It will also hurt people who sell internet off load solutions (a small group, including CISCO, LUCENT, etc.). Yes, the $4 billion revenue is chump change to this industry. But how much of the $600 billion vendor equipment sales expected was for planned network expansion due to dial up internet growth? That could be important. My guess is ten of billions, but I haven't really looked at this in a few years. If you want another example of the government muddying the waters of the last mile, you can look at E911 (emergency 911), or CALEA (lawful intercept), anything beginning with "FCC says", but those are other stories from the Beltway.