Regulatory 2.0 Call on ICC and USF NPRM FCC order.

Carl Ford : 4G: For Generations to Come
Carl Ford

Regulatory 2.0 Call on ICC and USF NPRM FCC order.

Here is the transcript from our call.
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Carl Ford
Welcome everyone.
This is Carl Ford. I wanna thank everyone for participating here. I see people dialing in still. So we're going to get started here shortly. I'm going to give a brief thank you to our four panelist speakers. I wanna thank Glenn Richards. Glenn, why don't you give everybody a sound...
...of your voice.
Glenn Richards
Hi! This is Glenn Richards. Welcome.
Carl Ford
And Glenn is our moderator. And Hank Hultquist is from AT&T and he will be giving us his perspective here. Hank, say hi to the world.
Hank Hultquist
Hi Carl and world.
Carl Ford
And amongst our other friends ... we have Dave Erickson from Free Conference Call and WYDE Voice with us.
Dave, say hi to the world.
Dave Erickson
Hi everybody. Thanks for coming.
Carl Ford
And last but not least our host of the conference bridge, Dave Frankel, is with us. Dave, say hello to the world.
David Frankel
Hello world.
Carl Ford
So ... so we've got an eclectic group joining us from various companies and carriers and some press, so we'll warn everybody in advance to watch what they say and I want to get it out of the way here and let...
...Glenn set the stage. So Glenn, why don't you take over?
Glenn Richards
Thanks Carl. Thanks for putting us together. I understand we've got
about 130 or so folks registered for this, which is pretty incredible given that I think the notice just went out late last week. It shows the great interest in what I believe is probably the most important issue that the FCC will be grappling with during the next...
...next year or so.
So ....
Carl has asked me to do a sort of a broad overview of the document that, if you haven't seen it, is 289 pages long.
It has 703 substantive paragraphs.
Carl Ford
.
Glenn Richards
And most importantly to the lawyers on the phone, 1116 footnotes.
Hopefully all of you have read all those footnotes because that's where the most of... no. That's not where the most important stuff is but it is an incredible document and it's an incredible effort on the FCC's behalf. This isn't the first time in the last 15 years that the FCC has attempted to sort of revisit the bigger questions of universal service and inter...
Carl Ford
.
Glenn Richards
For your compensation but ... it could be probably. This may be the time that they actually do address these very important issues. So what do we have at stake here and kind of what is all this about? In broad strokes, this could be an early obituary
... for the circuit switch telephone network, for those of us that had been ...
... sort of following these issues for a long time. The emergence of IP and IP technologies and Voice over IP have sort of teetered on the edges and have sort of been around the edges of FCC policy now for quite some time but I think with the introduction of the National Broadband...
Broadband Plan about a year ago. And reading this document, I think that the most enlightening thing for me is that the FCC recognizes that the world is changing.
This is... this is their effort, I think...
... to get the world to sort of change in a direction that they believe is the right way to change which is to move everybody off of sort of TDM circuit switch networks on to IP-based and broadband networks. And the policy changes that need to take place to do that...
....
...come at... come at a large expense, you know ...
... not dissimilar from things like, you know, Medicare and Social Security. There are lots of dollars in play here that are affected or could be affected by the decisions that the FCC intends to make during the next 18 months in this proceeding.
So let's just talk about it briefly in terms of, you know, the two... there are two big areas and they're both interconnected and I think Hank's gonna do a bit of discussing how to tie those together but the Universal Service Fund
is... and the piece that's being investigated here has to do with the subsidies that have been provided
... to local phone companies around the country in order to keep access to the public network affordable.
Carl Ford
.
Glenn Richards
And these are policies... universal service is endemic and part of the Communications Act since the very beginning, in 1934.
And more recently in the 90s, the FCC established what's called now Universal Service Fund in order to directly get contributions into this ....
... fund so that ...
these phone companies in rural and remote areas could be provided subsidies in order to keep the cost of those services down.
The last total that I saw, I think in calendar year 2010, there were $4 billion that were
that were sent out to phone companies. And we talked about small in rural but that includes even some of the largest phone companies that have exchanges in rural and remote areas. So at first blush, what we're talking about are revenue and moneys moving to the tune of about $4 billion. And the most interesting part of the Universal Service Fund
... changes that the FCC is proposing to do. Right now, companies that qualify based on the cost of serving these very high cost areas where the cost of a line could be $3000 a month and we wanna sell it for $15 a month, the most interesting thing that the FCC is trying to do here is get companies to move to broad...
... band networks
...and figure out a way to make those shifts within the constructs of the current law.
One of the questions that they're grappling with, they have this what they call their supported services which, you know, are things from the legacy network of like 911 access to operator services.
It didn't really focus on a broadband world. And so, where they want to take the Universal Service Fund is to create what they call a Connect America Fund that will allow for companies to use these funds to build out broadband networks. And so, the FCC has asked
... lots and lots of questions about its authority to do that, the integration of how states would play in that. And so, what we're looking at is sort of this
...very broad rule change. And there's a question as to whether the FCC even has the authority to make such a broad rule change that would redirect this funding to broadband.
So one of the interesting and sort of unique ideas that's part of this proposal is something called a reverse auction.
... whereas now, in most of these areas, it's either the incumbent local exchange carrier that is the beneficiary of the high cost funding. Or in some cases, there are what are called competitive eligible telecommunications carriers which could be wireless carriers that are also receiving funding to serve portions of these areas.
The FCC is looking at a proposition that says ...
We really wanna find out, does it make sense to have more than one supported entity in any of these service territories. So one thing that it's proposing is to do... enter into what it's calling a reverse auction which is to find out who the... who can provide broadband and the supported services to these areas
at the cheapest cost that would be the least drain on the fund.
And so, that's one of the sort of the unique policies and then which kinds of companies should participate in that. What we've got today is a system where we've got something called the carrier of last resort, where companies are expected that... or if they are receiving these funds
...in order to serve, you know, the last remaining legacy customers on the public switch telephone or the circuit switch network. These companies will sort of be the ones that get the funding that will hopefully then reduce
the amount of the fund that goes to them because we have this reverse auction. So from my perspective, that's probably the kind of the one unique part, portion of this.
Whether...
...this is sort of stacked in favor of the current incumbents getting this, whether companies that are providing new technologies are gonna be eligible or will compete. And then, the other interesting question that they're asking is what do we do about those areas where frankly no one wants to bid?
And are there areas that are so remote and far removed that there is actually no business model, even one that is subsidized and supported that... where we could actually provide a full suite of broadband and other voice telecommunications services?
The other interesting part about what the FCC is trying to do on USF has to do with the inclusion of satellite services.
I think despite what the broadband plan may have said about satellites, I think that there's ...
...coming something of a recognition in the industry that there are gonna be small parts of the country that are so rural and so remote that getting any type of traditional wire line or wireless broadband services to these areas
might just be impossible. And so, what the FCC is asking in this proceeding is whether there are opportunities for wire line or wireless companies to partner with satellite companies in order to get those last, you know, remnants of the people that are in the most rural and remote areas.
And so, this is sort of an expectation that, you know, the satellite broadband providers who historically have been somewhat left out because it's been perceived that the broadband speeds provided by these satellite providers are not fast enough and the download speeds are not fast enough, comparable to, you know, what we would expect in a wire line or
a 4G kind of network, that they're gonna play a bigger role in order to get to those last miles rather than spending potentially tons of money to reach those sectors.
That's kind of a very quick overview of the universal service part.
On the intercarrier compensation side
there has always been, since the breakup of of AT&T, when we've created, you know, an intrastate authority and interstate authority and we have local phone companies... there has always been a system of payments for the completion of calls between carriers. And that broadly is what intercarrier compensation means.
Historically, local phone companies have been able to price those services, those... what they call access charges, above cost in order to serve other public interest goals including, you know, keeping local prices down
including subsidizing, you know, services where necessary.
As competition and as new services... as people had moved away from wire line services there have been pressures brought particularly because of services like Voice over IP and things like Skype and things like e-mail, the amount of voice communication
on the traditional PSTN continues to go down. However, the cost of providing those services isn't really effective.
So what we've got and what has developed over the last 20 or so years is we've got a system that's kind of convoluted because all different sorts of calls, from an intercarrier compensation perspective, are priced differently.
So a call that, for instance, originates on a wireless phone in one state terminates on a wire line phone in another state, a Voice over IP call that originates in one state terminates in another state, local phone calls within, you know, within blocks away, all are charged potentially at different levels
by the carriers that originate and terminate those calls.
And so what the FCC is attempting to do in asking questions in this proceeding is how do we grapple with the world where voice minutes are going down, where Voice over IP is becoming the predominant technology in terms of origination of traffic
and how do we deal with the fact that in a lot of areas
there's still a perceived requirement that access charges need to be priced over call.
And so one of the big issue that the FCC is attempting to grapple with in terms of intercarrier compensation is how do we move forward? Is there a way that we can get all of these rates at the same rate? Should we even go away from a system more like an Internet system where we've got what's called bill and keep
where actually there are no charges that are paid for the origination or termination of calls and carriers can only receive those charges from their end-user customer.
So the FCC is broadly asking questions about how do we move forward and incentivize people to move off of the circuit switch networks where permanent charges have been sort of the name of the game to a system where we've got all IP network.
How can we... what we need to be doing in terms of exchanging traffic at that point.
So, some specific questions that our speakers are gonna get to and I'll let them talk about it. One is called phantom traffic. They're also gonna talk about, you know, what the proper intercarrier compensation mechanism should be for Internet protocol traffic.
And there's another issue called access stimulation which, I think, David and David are both going to address. And so with that opening, I'm gonna hand this now over to Hank Hultquist.
Hank Hultquist
Thanks, Glenn. And that was really a great overview and I think you stole like half the things I was planning to say.
So I'm gonna start by talking a little bit about where we're going and then a little bit about where we came from, and then finally trying to tie it all together.
....
I think, you know, the National Broadband Plan is really the place to start in terms of figuring out what's going on here from a policy perspective.
But from an overall business perspective, I think it's becoming clear for a while, you know, what's happening to the PSTN.
If you look at the FCC's data
over since... between 1999 and 2009, incumbent local phone companies
lost almost half of their switch access line.
And that trend of line loss was accelerating, such that the highest rate of line loss was in 2008 and 2009.
So meanwhile, you know, I think everybody knows broadband is becoming more and more viewed as the essential service that everybody needs to connect. So we're sort of in this world where
we've got a business that's on the decline and meanwhile, everybody's moving to broadband, all different kinds of broadband.
The National Broadband Plan comes along and the Broadband Plan sort of tease up these goals. And...
you know, nobody... I don't think anybody wants to say, you know, that the Broadband Plan got everything right in terms of what the right speed should be and how much it will cost but directionally, I think there's broad recognition among policy makers, politicians and everyone
that this universal service system has to change its fundamental policy objective from voice service to broadband, and we have to try to do that in a way that is least disruptive as we can make it, recognizing that these are industries that are in transition.
So you've got the Broadband Plan out there, you've got this recognition of what we're gonna do. If you ask anybody over on Capitol Hill, you know, 10 years from now, is it all right if any of your constituents just have
...an analog POTS line as their only form of communication service. I don't think you'd get much
agreement that that would be a good outcome. So there's kind of this universal recognition that we have to change the Universal Service Fund from voice to broadband.
The question is, how do we do this? And I think Glenn laid out, you know, the options that the NPRM sets out there around things like reverse auctions and that kind of process, which is really a very radical departure from the ways in which we've provided universal service in the past.
And sort of my overall message is
We are moving universal service from a regulatory model to a procurement model. That's kind of the mantra that I have about the changes that we're making. We're changing it from a model of how do you regulate a monopoly service provider. That model has been in transition for a while but we didn't know exactly where we were going
to a model that says
how do we come up with the least cost way in which we can get someone to agree to provide service in areas that which is otherwise uneconomic to provide such service?
So, I think, that is a really radical change from this regulatory model, this monopoly regulation model, to what I call a procurement model.
So to sort of
deal with all these issues that... in doing this and Glenn keyed them all up, these issues around how you determine the size of the subsidy, what do you do about intercarrier com.
I wanna go back a little, and what Glenn talked about, you know. Glenn mentioned that, you know, universal service, we've had this system since the '34 Act. We've actually probably have them longer than that.
It's not the case that Alexander Graham Bell invented universal service. In fact, by the time Bell's patents expired in 1894, there were only about 5 telephones per 1,000 people in this country.
But by 1907, the fellow who is at that time the president of AT&T, Theodore Vail, announced that his policy for universal service was one policy one system universal service.
And so, Bell set... I mean, Vail, set out really to, you know...
very aggressively to acquire other companies.
Ultimately, the antitrust authorities got involved and Vail entered a consent decree that was based on a letter that is known now as the Kingsbury Commitment.
That consent decree ultimately through a series of exchanged...
gave rise to the system we had in this country from the '34 Act until divestiture of AT&T in 1984.
And that was basically a system of monopoly where you had
geographic local exchange monopoly.
Under that system, the subsidies for universal service were provided through the rate making process.
Some services were priced
in order to subsidize other business services were priced to subsidize residential services.
Long distance services were priced to subsidize local services.
And the way the money flowed under that system was that within AT&T, within the Bell System, you had a process called Division of Revenues which, you know, sent the money from the long lines company out to the local phone company.
And then for the independent phone companies, you have the settlement process whereby AT&T would settle with these companies for traffic exchange to subsidize service in those areas.
As when suggested, that all changed in 1984. In 1984, we put into place the system of explicit intercarrier compensation
with carriers for access charges.
And so that's the system we live under today with these carrier of access charges. We've had it shortly after divestiture, and basically, it was a way of maintaining this subsidy flow for long distance to local services.
While you no longer have a monopoly long distance provider, you still have monopoly local phone providers at that time, and so we created the system as Glenn said, it's become, you know, quite anachronistic. Basically, long distance calls
still subsidize local phone service even though as a
...as a retail market, long distance really has basically disappeared.
So we have kind of, you know, this is archaic system
of subsidies based on intercarrier compensation.
It's been clear, I think, to a lot of people that that system was becoming unstable and could not be sustained much longer. I mean, people have been talking about their reforming the system for probably at least a decade.
....
That's how we've gotten to the place where we are. So the question now is, as we move forward on reform and if I'm right that this is basically a transition from a regulatory model of universal service to more of a procurement model.
What is the... what are the implications ultimately for these intercarrier charges
that we had in place since divestiture of AT&T?
I think you have to look at, you know, technology. Technologically, we are going... I mean, we are obviously going to an all IPWorld.
And in that all IPWorld
we are not going to have the kinds of
pricing practices we have today on the PSTN. We're not going to have
the so-called terminating monopoly charges. We're not going to, you know, have people instituting access charges
based on this notion that we have on the PSTN of calling party network pays.
From an IP perspective,
ultimately voice is an inherently balanced application.
The data transfer in any voice call is likely to be symmetrical and certainly on average, they are symmetrical. But on the PSTN
the reason that we have...
these problems that arise from time to time and in the past...
we had it with dialup (??) speed traffic at one point in time.
Is that you end up with call flows that are largely one way and because of the calling party network pays rules that you have on the PSTN
that gives rise to significant intercarrier obligations or disputes or whatever.
Ultimately, all of that will be meaningless as we move to IP. We're not going to have calling party network pays when we move this to the IP network. When we treat this, this is the way we treat other business in the IPWorld.
So...
What I see ultimately, the FCC being involved in here really is
preparing the steps
to begin for the eventual sunset of the Public Switch Telephone Network
and the business model that we've used to provide universal service on that networking. That's the business model that has this
basic local exchange service offered at a low rate combined with subsidies through intercarrier compensation and through explicit subsidies and universal service and we're moving to a model where providers will
you know, the... the compensation they get from actual customers
for the services they provide to those customers
and in places where it is too costly otherwise to provide service, we'll have some kind of universal service subsidy.
I think Glenn properly noted many of the specifics that we're gonna have to look at things like
what's the role of satellite and other things and those details are gonna be really important.
But my view with the overall transition we're making is away from the PSTN
to an all IP network
and away from a regulatory model of universal service to more of a procurement model. And with that I will pass it off to the next speaker.
Dave Erickson
.
Thanks, Hank. This is Dave Erickson with freeconferencecall.com
I'm...
I'm gonna talk a little bit about IP interconnection.
The phantom... phantom traffic and access stimulation. I really wanna take this from...
from a consumer perspective because I think
sometimes in all of this, the consumer gets lost and ultimately
what the consumer enjoys is choice.
Along the lines of IP interconnection
or the IP traffic connecting with the PSTN traffic,
if you look at most of the major providers or all of the significant providers of
Voice over IP, the applications, you know, Vonage, Skype, Ooma, Magic Jack, and Speakeasy, it goes on and on and on.
....
All of them have chosen
to
interconnect via the PSTN and I think mainly, they've chosen to interconnect via the PSTN
because it's simple, because it already has an economy
and it all points to a connected network and in order to get to an IP to IP, we would have to find some way
to get that valuable interconnection
....
taken care of. Right? We can't just hope that
Vonage and Skype will work together with a common numbering system and plan
and pass traffic back and forth because VoIP has been around since the 1996 Act and really, no one has done any significant VoIP to VoIP interconnection with
enough parties to eliminate the PSTN.
If you go back to like the early days, you know, Hank mentioned e-mail, right? If you go back to the early days of e-mail
there were a lot of people that were really
hot on e-mail and thought that, you know, e-mail was going to take away the regular postal service, right?
And although e-mail did have a very profound effect on the postal service, right?
We've found that it didn't eliminate it.
And, you know, you can consider the postal service an older less efficient system.
My point is not a technical one, my point is that the consumer today has the choice whether he wants to send an e-mail or he wants to put a 44-cent stamp
on a handwritten letter and send it.
These two things run in parallel, right, the e-mail and the postal service. And I believe that VoIP and
....
the PSTN similarly run in parallel although there is a cross connect and though there is an interconnect. Right?
... David.
There's not a true apple to apples comparison of the PSTN to VoIP.
And the reason is because VoIP is not interconnected like the PSTN. It doesn't have the addressing scheme and the international connectability and all other things that come with it. And that's why we've seen a lot of these VoIP providers connect through the PSTN. You basically have two types of VoIP. You've got VoIP's that's free and
VoIP that you pay for and the VoIP that you pay for is interconnected and you wouldn't pay a dime for it if it wasn't interconnected.
Vonage has no network, right? They have a box in the home that uses your internet connection to get to the PSTN to deliver a voice call to another phone.
If you were to make a comparison back to e-mail and the post, it would be the idea that I could send an e-mail to the post office and then the post office would print it out, put it in an envelope and hand deliver it to the address that I wanted it delivered to.
The argument here is... is because I sent the e-mail to the post office, that the post office somehow has to deliver that
that...
package for free.
Because everything is heading to e-mail, everything is heading to Voice over IP, right?
The Voice over IP doesn't have the ability to work with the addressing scheme of the PSTN in the same way that the PSTN does, just like
the post office uses an addressing scheme that e-mail doesn't, right? And so that interconnection has proved absolutely necessary in order for these VoIP service providers
to charge for their VoIP services.
....
That's, you know, kinda leads us to phantom traffic, right? The idea behind phantom traffic is how do we strip away
information that's used within the PSTN
to avoid payment for the delivery of the things we wanna get delivered from a VoIP world to a PSTN world, right?
And you can only imagine, right, that if somehow that was able to continue and we were to go to a more open system
what happens with the equivalent of spam on the e-mail system
or what they call SPIT on the Voice over IP system.
We don't have a whole lot of it right now and the reason is, it's because Skype doesn't make its addressing system available to anybody that wants to send traffic to Skype for free, right? They work through the PSTN because the PSTN has a whole economy built around it.
It kind of discourages the sending of, you know, junk mail or junk calls or crank calls or whatever you would have it, right?
Today's systems, right? The mail, there's still people that send junk mail. There's still people that make voice calls
...make solicitations or political announcements or things about it who are willing to pay to reach us in VoIP. But what would happen if it was all free and what would happen if it was a bill and keep model and that I had to open up all the addresses of all of my users to whoever wants to tap them?
Am I going to be the forced to interconnect?
You know, how are we gonna handle the addressing of it, the appropriate identification of these things, the securities of it.
And dealing with creating an IP to IP network that lacks all the regulation and all of the economy that's involved in...
... the PSTN, you know. Hank mentioned bill and keep and the difference between bill and keep and the calling party pay system. The bill and keep system is here today. We don't need to regulate away calling party pays in order to get bill and keep. Bill and keep is here. It's just not working
as well as the calling party pay system. In calling party pays, all system... all participants in the transactions are paid for what they did. In bill and keep, you're asked to receive traffic free of charge.
It creates a lot of complications and since 1995
when I first started seeing VoIP
the bill and keep system has not proliferated into any great
interconnection that allows me to get to where I wanna go.
That it relies upon the calling party pay system of the PSTN and therefore the stripping out of information and phantom traffic, you know, we should simply...
look to eliminate the ability to do that if
if we're gonna go from one system to another system and there's a cost
on the PSTN, then
all parties should pay whatever it takes to deliver but via the PSTN or they shouldn't use it and find a different way to do it in which it's free and more cost effective and all of that thing. As a consumer, right, I'm not asking for efficiency in the calling system because I'm not willing to pay. I'm more than willing to pay.
What's important to me is that I get connected to all of the parties that I wanna connect to.
Right? And the only problems as a consumer that I have with paying or, you know, the long term contracts and all of the junk fees that get put on around my calling plan, right, but I'm more than happy to pay to be connected to talk to my wife when I'm traveling and to pay to be connected to have a quality line, a quality connection
and I think that every party should get paid along the way so that that is always available to me.
And that we shouldn't regulate against it because it is a consumer choice and I like that consumer choice as a consumer.
Getting to the idea of access stimulation...
....
Access stimulation, I think, has caused a little bit of heartburn
in the intercarrier compensation methods. I think that high volume access (tariffs?)
create a way for a low volume, high cost area that increases volume. It goes down to a level playing field with Tier 1 metros and pricing. It's available in the most effective territories if in fact they
generate enough traffic to... and get to the levels that deem that price. And that by using high volume access (tariffs?) which... it's a really simple thing. It starts...
...a phone company out of the rural rate that they are capable of accepting because they're in a rural area. And as they grow in volume, it takes them down to a Tier 1 metro or something that's more like a Tier 1 metro as they start acting as a Tier 1 metro.
The beauty of this is is that this would actually incentivize, right, people to go and work in the rural areas, and to work in the rural areas in such ways that they would get down to Tier 1 metro pricing, create infrastructure, create high-tech jobs, all kinds of things in these areas that we're looking for USF to...
pay.
We have worked on a number of projects with high volume access tariffs where the price is going down as the volume goes up. And we've, you know, constructed complete, you know, facilities with both VoIP and PSTN interconnection
...and without any USF help at all, with private investment, with willing parties and it's been very successful. So, my thought is is that access stimulation, there might be a pricing issue there. It's not an illegality issue.
It's... you know, the difference between, like, say, traffic pumping is it's artificially generated calls where access stimulation is the consumer choosing to make the call. It's consumer-dialed calls to services and... and connectivity that they want and I don't think that we should be looking to
take away consumer choices, so...
With that, I'm gonna hand it off to David Frankel with ZipDX.
David Frankel
Thanks, Dave. I'm David Frankel. I also run a conferencing service, you're on it,called ZipDX. And Dave Erickson and I often find ourselves on opposite sides of various issues, but I have to say fundamentally, I agree with many of the points he's raising. I think absolutely consumer choice and satisfying consumer in business needs is
what we all want to have happen and that regulations should be supportive of that. I also think that the marketplace is the best place for people to decide whether they want to use VoIP or PSTN, whether they wanna use e-mail or the post office. I think that that is the
the ultimate feedback essentially that... that the industries need and run by to make decisions. And so when the regulator steps in, it ideally should really only be to do something that market forces can't do
by themselves. Looking back, and I've been participating for a relatively short time in these FCC proceedings. I got involved because of my involvement in conference calling and trying to figure out what were my options as a conference calling provider in terms of how I might take advantage of intercarrier compensation
for example.
Got drawn in to USF as well, and I have to tell you, I just became extremely frustrated with what I saw. Dave knows well that there are a lot of people that don't play by the rules. So you have organizations that on the one hand, the regulations would indicate they're obligated to pay but they don't wanna pay. You have others on the other hand that...
...that are going out of their way to take advantage of anomalies and the regulations to do things which I think are just nuts as an engineer. So I invented this term the other day called most cost routing, if you got people that are putting high volume calling services in rural expensive areas
on purpose so that they can collect a lot of money. And I think that if you feel that there's some social good to that, that the social thing should be separated from the technical things or the business things that we're doing with regulation. So if you feel that there's a need to subsidize some particular community or region or whatever
that should be done explicitly and transparently instead of bearing that inside some arcane set of regulations. So as we look at this FCC NPRM, again, there's lots of different elements to it but I stepped back from it all and say what's
the ultimate outcome that we want. You look at voice, I mean, here's voice. It's been around for more than a hundred years. Hank had some of the history on it, it's a tremendous network that we've got in place. And as Dave said, as a consumer, I love and I will pay for the ability to
to use my telephone to reach someone that I want to talk to, or I value that communication. But communications is very, very, very rapidly expanding now. We've got all sorts of different modalities, several of them I did mention, I mean, e-mail and Skype and Twitter and Facebook and SMS. These things have come out
in the scene all within just the past couple of decades, some of them just within the past couple of years and they're flourishing without hundreds of bureaucrats in the government fretting over them and without then a constituency of, no offense, thousands of attorneys and others that
Carl Ford
....
David Frankel
that are part of that regulatory structure. And so, if Facebook screws up, if Facebook does something wrong in terms of privacy, boy, the court of public opinion addresses that within hours, generally, and they take corrective action. Some of the FCC issues have been percolating for
for years, for almost a decade in some cases, so it's really kind of scary. If we're gonna move into the 21st century, and if we want the voice network and the PSTN to continue to serve us in some way, then I think that we have to be very, very forward-looking and very, very cautious about how much burden
we place on it and constraint, or it's just gonna get smothered and constricted to the point of extinction. And again, I think Dave Erickson's analogy with the post office are important. The truth is the post office is going out of business, and if you read The Business Press, you see that the post office can no longer afford to pay for the
these post offices in all these rural areas, and when Netflix stops paying them 600 million dollars a year to deliver DVDs, that they're losing a huge chunk of revenue that's gonna be very painful for them. And to cling to a model that in that case is maybe a couple hundred years old, now finally it's just not working for them anymore. So...
I love the PSTN and I love the... some of the attributes that Dave highlighted, the consistency, the reliability, and most of us know Skype went down for a day a couple of months ago and that's something we'd never tolerate in our PSTN. So, really the tremendous challenge I think is how do we get the best of both of
these worlds, how do we have a very, very robust reliable network that everybody can be connected to and that everybody can count on but that can be
cost effective enough and capable enough that it can compete and still serve a role in the face of these other modalities that are now on the scene. And I would love to see the PSTN continue to not just survive but to prosper. I would be a big fan and Dave is too of wideband audio.
So, if we could all be connected in high fidelity audio, then we'd have even better voice conversations, it would be an even better experience for everybody. We've gotta be looking, if we're gonna monkey with regulations, at how we can encourage that sort of thing to happen. And when it comes to VoIP, as Glenn said, a lot of us
believe that that is the future, how do we embrace that, how do we... as opposed to set up walls and two separate systems, how do we take advantage of what VoIP can do for us and make the PSTN even more powerful. So when I think about. comments and contributions and where, how to leverage, what the FCC has started with this NPRM...
Carl Ford
....
David Frankel
those are the kinds of things that I'm thinking about.
Carl, why don't you take it from there?
Carl Ford
Wonderful. I wanna thank everybody for... for their...
conversations. I wanted to tell people to raise your hand.
It's 1, right?
Right, Dave?
David Frankel
*1 to raise your hand and then we'll be able to see.
Carl Ford
*1... *1 raises your hand.
So feel free to raise your hands right now. Glenn, I... right off the bat we've got our very first question
which comes from
Isabelle from My Premier Online who's asking the question, should the contribution base be expanded and if so, does the FCC even have the regulatory authority to do so. And I assume that's the US... that's the FUSF discussion. So, Glenn, do you wanna start us off on that?
Glenn Richards
Well, let me...
Yeah, happy to start off. So probably, in the inter... one thing I left out was where we're at in the process for this proceeding. So what we are... what we've been talking about is what the FCC calls the notice of proposed rule making. It was issued a couple of weeks ago and there are common...
Carl Ford
....
Glenn Richards
cycles attached to the things that we're talking about.
Some of them will be 30 days after the item's published in the federal register, some 45 days, that the item has yet to be published in the federal register so the clock has not started on the comments, but hopefully everyone on this call that's got an interest in these issues can publicly participate. But to your specific question...
A third piece to the USF...
intercarrier (com?) piece was the collection methodology. And what the FCC... what we thought in the industry was that the FCC was gonna attempt to issue a more comprehensive rulemaking that was going to address the contribution site.
Carl Ford
....
....
Glenn Richards
Right now, for those of you in the industry, you're probably well aware if you are a large user or a telecommunications company, you're paying a rough 15% of your every month's bill to contribute and pay for all these USF programs.
Not the access charge piece which is in and of itself is an 8 billion dollar industry but that is payments between carriers, but the universal service contribution methodology piece is not addressed yet. We're expecting that to be addressed in a separate rule making that will come out in the next couple of months, but should the FCC expand the base, so one area that
the FCC has been considering and toying with is expanding the base to include broadband services.
Other people have recommended that the commission consider things like moving to a number based system or an access line based system rather than a revenue based system.
Carl Ford
....
....
Glenn Richards
Does the FCC have authority to expand? I think that's an interesting question. At one point, the FCC had
regulated DSL, for example, if we wanna talk about broadband as a telecommunications service. Some entities still treat DSL as a telecoms service and would be contributing on that.
So I think it's... there's still a question as to whether they... when you say expand the contribution base
they've looked at broadband, I mean, they can expand it beyond telecommunications.
Because the act constricts it to interstate telecommunications revenues, so they've got some limitations on their authority on how they can expand the contribution base, but they've also got some ability to look at alternative methods to fund the contribution.
Carl Ford
....
Hank Hultquist
Hey, Carl. This is Hank. I'd like to sort of follow up. Is that okay?
Carl Ford
Yeah, sure.
Hank Hultquist
I think Glenn cues up the right question which is really
who do you think should contribute and
you know, if your answer is basically that providers of telecommunications services should contribute
then, you know, you probably don't need to change the (statute?). You might just want to mess around a little with how you
Carl Ford
....
Hank Hultquist
have them do it whether the numbers or connections or some other mechanism.
Carl Ford
....
Hank Hultquist
If you think that a broader base of entities who benefit from broadband should contribute
Carl Ford
....
Hank Hultquist
then you get into dicier questions about statutory authority.
So... but I do think the first question that, you know, from a policy perspective people should be thinking about is
Carl Ford
....
....
Hank Hultquist
you know, who...
what's the right party that should contribute to universal service (in the country?).
David Frankel
It's David Frankel. I'd just volunteer that in terms of who contributes, I would argue that whether you have a business, whether it's the broadband providers, the telephony communications providers that write the checks, ultimately it is the users, it is Dave Erickson's consumers that are paying for
Dave Erickson
....
Carl Ford
....
....
David Frankel
...for this somehow, so it's really a tax. And I don't think that anybody should hide from that whether you make AT&T pay for it or Comcast pay for it, then their subscribers have to pay for it. And so, I think when you think about who the base should be, the one thing that I definitely don't wanna see is I don't wanna see
Carl Ford
....
David Frankel
more and more and more administrative burden added to running this fund. It needs to be simple and cheap to administer so that the proceeds, the bulk of the proceeds, the bulk of the expense can go to funding your social goal which is to have everybody connected.
Dave Erickson
....
Carl Ford
I'm gonna take issues, Dave. This is gonna be an interesting thing because normally I'm
in hot (light?) with a lot of things you say.
But last week in my article on M2M, I talked about ClimateMinder which was a farm solution where farmers could basically use mobile technologies to manage all their sensing needs with
irrigation and pesticides and pests and a whole swath of opportunities, and, you know, if you were to look at, you know
what government agencies are larger than the FCC, you know, Agriculture, I think, has 300 employees to every one farmer, and if I could
just make it so that we are really talking about broadband supporting an internet of things
that kind of expands the conversation. I don't wanna be too parochial towards voice here given the fact that, you know, now with smart phones, only about 40% of the time are you doing anything that would be considered communication. So I think
we've got a kinda
take a step back and ask the question, how do we transition to this broadband world and does it have to be... what old mindsets need to be replaced. So...
you know, I can make a statement that says, you know, that...
rural can pay for itself in ways that we don't normally think about
that if we expand our mindset a bit, that might be the right answer. I
still don't understand how to make the transition
to voice... from voice to broadband and my big fear which hasn't come up yet
as usual, is 911 services.
....
I'm very afraid of
of how the next generation 911 is going to be paid for, because it was paid for by voice traffic in the past, particularly intrastate voice traffic, and that kind of traffic has kind of disappeared from the planet. So...
you know, I'm kinda curious about
you know, what we expect to see happen there and, you know, maybe Homeland Security should be the answer for that. I see a hand up from from Bill Myers and I wanna make sure that we let Bill talk.
Bill...
David Frankel
Yeah, Carl, if you want... if you wanna do that, you can. If you... we got a couple of hands up actually. If you click on hand, you can sort those and I can call on them or you can as you wish.
Dave Erickson
Hey, I...
Carl Ford
Bill... go ahead, Bill.
Dave Erickson
I would like to interrupt real quick. It's Dave Erickson and I just wanna put in my two cents real quick on, you know, the idea of the current voice network funding the broadband network. You know, the idea here is right that you're raising the price of postage
Carl Ford
....
....
Dave Erickson
to pay for broadband so that we can send e-mails, right, and I think we just need to be real clear that they are two different systems, right, the VoIP system and the PSTN system and it's okay for one to fund the other but that we shouldn't go out of our way to regulate out the old system just because some people on this call believe
Carl Ford
....
....
....
....
....
Dave Erickson
that it's a dying business model. I feel that... that it's gonna be around for a long time.
Carl Ford
....
....
Well said.
Bill, you got a question?
Bill Myers
Yeah, thanks for taking my call. And first, as an administrative matter, can you guys make sure that you say your names before you start speaking. It's difficult to track who's talking at one time. I'd love to hear the other panelists if you respond to Mr. Erickson's argument that the PTS... that the old network is still important, if there's no... if I heard you right, sir, that you're saying
that there's, you know, there's no way to guarantee payments up and down an IP network and therefore there's no way to guarantee quality of service. So I'd love Mr. Richards and Mr. Hultquist and some of the others, how do you respond to Mr. Erickson specifically?
Hank Hultquist
So, Bill, this is Hank. I mean, I'm happy to answer...
Bill Myers
Hi.
Hank Hultquist
I'm happy to try to answer that question. I think... I think it is... how you sunset the PSTN is a difficult question and it's one that engineers and economists and regulatory people are gonna have to think about. But my view of it is, it is a business model that is, you know, it's on life support today.
Bill Myers
Mm hmm.
Carl Ford
....
Hank Hultquist
Every year, the neck of rates go up. Now, that may not mean anything to a lot of people, but what it means is that the base of minutes for the rate of return carriers is shrinking substantially as is their line count.
So we've got a system that is in some version of collapse. You might think it's a long slow collapse or you might think it's going to be accelerating (at its?) collapse. But my view is we have to come up with a rational way to try to make that transition as least disruptive as we can.
But if we think we can actually somehow keep it alive and despite the rising neck of rates and the rising dollars that get diverted to various universal service mechanisms on a consequence of line loss I don't think that's sustainable. But we should, if people think it is
then they should explain how from an empirical perspective as access minutes fall, rates go up, access lines fall, ICLS goes up.
What they project five years out for this... for this PSTN network because what I project
is a network that's gonna be about a quarter of the lines that it was in 1999 and I just don't see that as being long run sustainable.
Glenn Richards
--
Hey, Bill. This is Glenn Richards. So I think of it kind of...
Bill Myers
Hi.
Carl Ford
--
Glenn Richards
You know, my soon-to-be 87-year-old father is not gonna subscribe to broadband. He's not gonna... nor have something other than a wireline phone, can't seem to wanna use cell phone. So there's... you know... there's... yeah, it's gonna be there. But I... somebody... a couple of folks I think have made the analogy in some ways to post offices.
Carl Ford
--
Glenn Richards
You know, It's rare that walk into a post office anymore. It's rare that I walk into a bank anymore, right? And so I think what's gonna eventually happen, and, you know, while I tend to be in the older set, I mean, most of the people under 30 they work in my office, most of them don't even have wireline phones. So, yeah, I mean, it's not gonna be a two-year thing, it may not be a five-year thing.
Carl Ford
--
Glenn Richards
But I think as most of the folks on the phone realized that probably in 20 years everyone's gonna have a broadband connection. And... or at least 99% of the people, there will always be people that don't. And most of the... you either have a wireless phone and a broadband connection and I don't really see a need at that point for a PSTN.
And ... you know, but again,
when that is... is, you know, it's hard to tell.
Bill Myers
But, as a follow-up... hello? Can you hear me?
Sorry, to follow up. I mean, how do you address Mr. Erickson's concern that you're gonna lose quality of service as you make this transition? Nobody's arguing that the transition isn't under way. But if I heard you right, Mr. Erickson, your argument was that, you know, that the current network allows us to guarantee good reliable voice service, and we don't have those same guarantees on a broadband only, sir.
Glenn Richards
Yup.
Carl Ford
--
Bill Myers
--
Hank Hultquist
Hey Bill.
Dave Erickson
That's... that's... that's... that's... that's correct. And... and... and I'll tell you, you know, we'd need another call.
Network with, you know, different codecs and Skype working in one codec and somebody else working on a different codec and how those all get transcoded and moved around the addressing schemes and whatnot. But the real issue here is, right, today, right, because we don't know how that IP system developed is, you know, that there's people on this call that's gonna argue that PS...
...ends on life support. Well, here's what I got to say to him. If it's on life support, we don't need to step on the oxygen host, right?
It should, in free markets disappear on its own. But having said that, right, the only inner connectivity in our sophisticated VoIP systems right now is our PSTN. So this system that's on life support is what's keeping us all connected in this VoIP to VoIP world right now. We do not have a replacement for it. We do not
have a similar addressing scheme. We do not have similar protocols, right? And... and the true idea here is is that some people will say that VoIP works as an application as opposed to a service and therefore there's no need for third parties and compensation between. But the fact of the matter is is that
VoIP is an application. It's here today is
you know, been here for 15 years and I feel it's on life support because none of them interconnect with each other and have no ability to get to the other, you know, VoIP provider system and get in their addressing scheme and complete a call with (??).
Hank Hultquist
So Bill, this is Hank. I just have to respond really briefly to that. My view is engineers figure out how to make things work. So, today, people are figuring out how to do things like interconnect telepresence services.
Bill Myers
--
Hank Hultquist
I'm pretty sure engineers can figure out how to interconnect VoIP services. My opinion on the reason why we don't have widespread IP to IP interconnection for voice today is because we have a meter on the PSTN that lets people charge other parties for traffic.
Carl Ford
--
Hank Hultquist
Until... when we get rid of that meter, people will figure out efficient ways to interconnect.
Carl Ford
Okay, and with that said...
Bill Myers
Thank you.
Carl Ford
Bill, I'm gonna... I'm gonna let...
Bill Myers
Thank you.
Carl Ford
Go ahead.
Bill Myers
Thank you.
Carl Ford
Okay.
Eliza Krigman, you have a question. Hold on one second, let me unmute you.
You should be able to speak now, Eliza.
Dave, just check.
**Eliza Krigman**
--> has been called on
Carl Ford
Thought I'd clear the mute.
Here we go.
Go ahead, Eliza.
**Eliza Krigman**
Hello. Can you hear me now?
Hello?
Glenn Richards
Yes. Yeah, we're... we can hear you.
**Eliza Krigman**
Oh, hi.
Carl Ford
Yes.
**Eliza Krigman**
Okay great. First question is for Hank. Something you said earlier that IP traffic is inherently balanced, if that's the case, why are there conflicts like with Comcast and Level 3 and who should be paying for what? Could you explain that?
Hank Hultquist
Hello, Eliza. Yeah, that's a good question, Eliza. What I was saying was Voice over IP traffic is inherently balanced. So when you and I talk
**Eliza Krigman**
--
Hank Hultquist
on a conversation, if we were to talk on the phone, on average, you know, unless I was really talkative, you would talk as much as I did.
**Eliza Krigman**
--
Hank Hultquist
And so, from a bits transferred perspective they would be relatively balanced and certainly over the course of, you know, millions of minutes it would be, you know, bits. It would be quite balanced.
**Eliza Krigman**
Okay.
Hank Hultquist
I think the reason... the reason why that you see these disputes is because there are other applications, other used cases that are not inherently balanced, and that's what creates this asymmetry. But it just so happens voice is a balanced application.
**Eliza Krigman**
Okay, okay. That makes sense to me. And then my other question is for whoever can answer this, more of a technical one. You know, let's say I'm speaking on Gmail, Gchat video. Is that... how is that characterized? What connection to that happen? Because for me that's a form of having your live conversation
Carl Ford
--
**Eliza Krigman**
with people over the internet. Is that happening to the PSTN somehow or is that purely broadband?
David Frankel
This is David Frankel with ZipDX. So it's broadband. It's... if you're truly using your... whether it's a Skype client or Gmail client or something like that, and you're going computer to computer in particular, then that's gonna be
purely using a broadband connection and not touching the PSTN. Most of these services certainly Skype, Dave Erickson mentioned, that... that there are ways to connect or bridge from there to the PSTN. So to a mobile phone or to a regular land line and then those modalities get involved...
in these PSTN regulations that we've been talking about. When... but when you just use PC to PC, that's all broadband.
**Eliza Krigman**
Is that factor into everybody's thoughts about how the system should evolve because... I mean, I know myself and others are using that more and more.
David Frankel
Well, it certainly does from my perspective and I think... I think Hank had some numbers about how many people are abandoning the PSTN because these other methods, applications are available and in many cases people find them not only cheaper but more convenient or more capable, maybe a video element whathaveyou.
--
**Eliza Krigman**
--
Hank Hultquist
--
Dave Erickson
I think... this is... this is Dave Erickson with Free Conference Call. I think the issue is though in like the service that you mentioned, right, these services all work as islands, right? If you take away the interconnection that Skype has to, you know, the PSTN, right...
Skype is a great service and I'm not arguing that that should be taken away or any ... anything like that, right? It's here, it's available. But Skype works as an island. And you gotta have Skype to talk to Skype, and... and that's fine, that's there, and it's cut into the PSTN dramatically, right? But it doesn't eliminate the PSTN. There's
**Eliza Krigman**
--
Dave Erickson
a lot of uses for the PSTN and one of them is that the PSTN actually connects all of the islands. So you can't go from Vonage to Skype without the PSTN and that's the idea. We're looking at interconnected voice.
It's the important thing here and not regulating away ways that voice stays interconnected, but allowing for all of these services like Skype and... and the video service that you just mentioned, right? There are two different things in that one works as an island and one is interconnected.
**Eliza Krigman**
Okay. Thanks.
Carl Ford
Dave, let me... There's a call for you. Let me jump in here 'cause I want you to put your other hat on...
**Eliza Krigman**
--
Carl Ford
if I could, Dave Erickson. And with WYDE Voice you... you are basically looking for interconnection or wideband...
codecs to... to...
other carriers. What if... how do you incent the world to make the transition?
Dave Erickson
Well, so... You know, I'm a big.. big... you know, I love the idea of HD Voice, right?
And I think that the current idea that we have of VoIP is a really old one, right? And that you start looking at the HD Voice, it's the ability in the future to actually project 100% of my voice over the connection to the receiving party.
And to have actual in-room quality in an interconnected network. But in order for that to happen, right, we've gotta recognize that Yahoo! uses iSAC as a codec and Skype uses SILK as a codec, and... and