Evslin Hopes Bell Atlantic Is Model for ILECs on IP Telephony
The following information has been excerpted from the September 21, 1998 edition of Communications Business & Finance.
Bell companies have been taking very different approaches to dealing with providers of Internet protocol (IP) telephony. While BellSouth Corp. and U S WEST, Inc., have moved to levy access charges on providers of such services, Bell Atlantic Corp. has taken a more cooperative approach, announcing early this month an agreement with ITXC Corp. to terminate calls in IP format.
Tom Evslin, chairman and CEO of ITXC, spoke with CBF after the the signing of the Bell Atlantic agreement about the recent IP telephony developments. Mr. Evslin joined Princeton, N.J.-based ITXC last year after forming AT&T Corp.'s WorldNet Internet access service. He says he hopes other incumbent local exchange carriers (ILECs) will follow Bell Atlantic's lead and look at IP telephony as a business opportunity rather than a threat.
CBF: What's the significance of the agreement you just reached with Bell Atlantic?
Evslin: Bell Atlantic and ITXC have signed an agreement that provides for Bell Atlantic to offer operating gateways-Internet telephony gateways-and to provide termination of calls in Bell Atlantic territory. So, for the first time, calls will be handed over to a Bell company as IP calls, rather than first being converted in somebody else's gateway to PSTN [public switched telephone network] calls and then handed over for [PSTN] completion.
ITXC's business is to do authentication, routing, and settlement for calls around the world. So the calls that they will terminate for us, literally, could originate from anywhere in the world. We will route them, or at least some of them, to Bell Atlantic gateways, and then they will terminate those calls to their subscribers in their market area.
CBF: What are some of the advantages of being able to terminate these calls in IP format rather than having to convert them to circuit-switched form?
Evslin: What we're doing is taking IP a step closer to the customers. The closer we get to the local switching fabric, the better the call-completion rate is going to be and the better the quality is. Bell Atlantic also is giving us a good price for termination. We have a lot of ways to terminate the calls, so quality and price are the factors we use to determine where we want to terminate. To our customers around the world, it means that we can give them high-quality termination at a very reasonable price.
It also has a special significance to carriers we're working with around the world because, frankly, they're more comfortable knowing there's another carrier at the other end-somebody who really knows what it means to operate a seven-day-a-week, 24-hour-a-day operation, has good power, has a good connection to the switch, and so on.
For the IP telephony industry it's another step forward to have Bell Atlantic now be terminating IP calls as IP calls. It obviously opens up the future for Bell Atlantic, if they want to, to offer enhanced services that are based on the capabilities of IP because now they've got the call as an IP call rather than having it as a circuit-switched call.
CBF: This is a striking contrast to the news a week earlier, when BellSouth said it was going to charge IP telephony providers access fees.
Evslin: I certainly can't speak for Bell Atlantic, but from my point of view as a vendor there's a world of difference between the companies. You've got BellSouth saying, "I want to collect tolls at a rate that I get to set, whether I'm providing any competitive service at all. Don't you dare try to do anything without stopping at my toll booth first. And I'll decide what I want to charge you for those tolls."
On the other side, you have Bell Atlantic saying, "I'm going to win your business by making you a competitive offer to do something useful." One of them is trying to be a toll collector on IP telephony, or block it. The other one is being a contributor and competing in the marketplace the way that marketplace should work.
CBF: So will you be looking at other options, maybe CLECs, to terminate calls in BellSouth's territory to get around this?
Evslin: Sure. We typically use a variety of options for termination. We also use, in the United States, domestic long distance carriers to terminate a lot of calls because, again, most of our calls are international. Once we've carried the calls to the U.S., in most places using domestic long distance carriers is a perfectly viable alternative. Then there isn't any [telco] access charge arbitrage involved. But on the international calls the most important factor is avoiding accounting rates and taking advantage of IP, not arbitraging on access charges.
CBF: Where do you see things going from here, with this major contrast in the ways the Bells-at least two of them-are handling things?
Evslin: What I hope will happen, and I hope this isn't wishful thinking, is that more of the Bells will decide to emulate Bell Atlantic than emulate BellSouth. They'll decide that they want to be participants in this industry-in IP telephony-rather than simply trying to block it and collect tolls. I don't know that this will happen, but we're very hopeful it will.
BellSouth will find that a regulatory gain won't really do anything for it as far as building its business. Bell Atlantic, with what seems to me a more enlightened attitude, will be able to demonstrate that it's positioning itself well for the next generation of telephony, and that should be a better example to the other [Bells]. I certainly hope theirs is the example that's followed.
CBF: I assume all this will end up at the FCC and in court. Is this something you're concerned about, the implications of a negative ruling for you?
Evslin: In the short term a negative ruling doesn't have any implications for us. We use domestic long distance companies or Bell companies to terminate our calls.
Our business isn't built on access charge arbitrage. That's because ITXC's calls are international and not domestic. It could obviously have a more negative impact on the people who staked out a position providing domestic service, like Qwest [Communications International, Inc.], ICG [Communications, Inc.], and AT&T [Corp.].
But it's somewhat chilling for the industry-for investment in the industry-to have BellSouth take this hostile position. There will be some uncertainty. The uncertainty itself won't do much damage, but it's not good. But there's not going to be any quick resolution to this, because it's a very complicated issue.
My guess is that it won't really be resolved in either judicial or regulatory forums until we've had so much access charge reform that access charges have come down to a cost basis. If that's the case, then the whole thing is moot. If I had to take a bet, it would be that this case ends up being moot before it ends up being decided. It's an annoyance more than a source of concern.
This wasn't unexpected, after the April 10 letter from the FCC [to Congress regarding universal service]. We expected that there would be a challenge.
The rumor always was that it would come from BellSouth and, in fact, it did. But what BellSouth appears to be doing is putting itself in place of the FCC. They've said, "Clearly this fits the definition of telephony, and clearly we should be able to collect access charges."
But what the FCC's letter said was that this was anything but clear. It's hard to see what their legal basis is for putting themselves in place of the FCC. They certainly won't succeed in doing that in the short-term, but they may succeed both in sowing some fear and doubt and in forcing some regulatory and judicial review.
There's one other thing that bothers me about BellSouth's position. Internet telephony is the first time that people who don't have computers benefit from the Internet. BellSouth said that access charges are necessary to subsidize communication for people who can't afford it. It's almost Orwellian to turn that argument around and say, "We're going to impose access charges on people who don't own computers who use the Internet for communication. . ."
They've got things sort of turned around. The customers for Internet telephony today-and many of them don't know that they're customers for Internet telephony-are the people who are very cost-conscious about their calling, people who buy prepaid calling cards.
They're the people the universal service fund is meant to help communicate. They're exactly the people who will suffer if BellSouth succeeds in imposing more fees or more regulation on Internet telephony, which it ironically wants to do in the name of those people.
CBF: As an international carrier, does BellSouth's decision really affect you? Or are you just concerned about its precedent-setting potential?
Evslin: Almost all of our calls are international. International calls are much more expensive than domestic calls in most markets, not because they're that much more costly to provide but because of international accounting rates that countries in some cases, and carriers in others, have decided to pay each other for terminating those calls. . .
In almost all cases, calls that go over the Internet or private IP networks, because they cross international boundaries as data and not as voice, aren't subject to accounting rates. They've just never been subject to the accounting rates. And not paying accounting rates is a source of much more savings than not paying access charges, particularly to Asian or South American countries where calls can cost as much as a dollar a minute.
There's a significant opportunity to reduce that cost by carrying the calls as data and not as voice. There are also operating efficiencies with IP, but they're dwarfed right now by the savings in not having to pay international accounting rates.
But it is important that the U.S. not set a bad example. The U.S. has [argued] in various international fora both to reduce accounting rate costs and not to regulate Internet services. The administration pushed very hard for an international agreement, which it got, not to tax Internet services. So, if we start taxing and regulating Internet telephony in the U.S., then we're not practicing what we've been preaching. We're setting a bad example to the rest of the world, where we've been pretty much a leader in leaving the Internet unregulated and without special taxes.
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