[February 3, 2005]

7. VNXX

We have an interesting situation in Texas.

Level 3 and other CLECs have the ability to order a number group in, for example Brownwood, and direct a LEC to deliver calls to that number group to their distant facility in, for example, San Angelo. The cost for that service is: the first 15 miles are free, and thereafter, the charge is a couple of bucks per DS1.

Thus Level 3, a company that already enjoys a close relationship with Verizon, can have a DS3 circuit, capable of handling 672 simultaneous calls, for way less than $500 per month. This means that Level 3 has a circuit cost of less than a dollar a port. A port is capable of answering one call, so the capacity of the circuit is 672 calls at the same time. And the circuit isn't even one that is local. In this case, it goes from Brownwood to San Angelo.

Once the call is delivered to Level 3, that company can transport the call to anywhere within their network. This means that the call can then be carried to, for example, Dallas, where calls from other locations can be combined into modem banks. The greater the number of calls in one location, the lower the cost of handling any one call and the lower the port count needed. This has been a basic tenant of Telco operations for generations and is expressed within something called "an Erlang formula." And the cost for bandwidth is much, much lower in Dallas than in Brownwood or San Angelo—pennies on the dollar.

A facilities based, local ISP, must order circuits from Verizon. The tariff charge is $606.75 plus certain other fees, for 23 PRI circuits. This translates to a charge of $27.00 per line versus less than $1.00. The disparity between these two charges is, simply put, unreasonable given the following facts. Level 3 uses the described circuit solely for the purpose of handling data calls on behalf of those Level 3 customers who purchase the service. For example, AOL contracts with Level 3 to have Level 3 answer calls from AOL customers. Level 3 functions as a wholesale ISP at whatever charge In other words, Level 3 is using the circuit solely for the purpose of providing what Verizon and others call, "Enhanced Services."

In Texas, Valor and Century Tel have refused to provide VNXX circuits for the purpose of answering data calls. On the other hand, Verizon has had no reluctance in providing VNXX for Level 3 and any other CLEC that asks and goes through the proper ordering cycle. In point of fact, Level 3 may have a contract that specifically allows them to use VNXX circuits for the purpose of answering modem calls.

Which then leads us to the central question. Why would Verizon willingly provide a data circuit for which they are paid less than seven cents on the dollar compared to standard Tariff rates? What is the business case for providing dirt-cheap circuits for Level 3? Could it be that Level 3 has a contract to answer calls for Verizon Online at correspondingly dirt-cheap rates? Could this mean that Verizon Online is able to make very high profits on their dialup customer base so they can then subsidize losses on DSL. Is this a back door means for Verizon to subsidize Verizon Online?

 

1. Background

what the RBOCs really think about competition

missing the Internet revolution

Robert Cannon

2. Pricing and Cost Issues: predatory prices crush competition

RBOC costs, for the record

3. Business Practices

4. Slamming and other dubious business practices

5. Networks

6. Customer Service

7. VNXX

>8. Verizon's Petition for Forbearance

9. Unintended Consequences

10. Conclusion

RBOCs, why you need me