Who Killed Reciprocal Compensation In Massachusetts?

An entrenched telecom power structure protecting its own interests? State government protecting the interests of consumers? Or self-serving CLECs, seeking to capitalize on a legislative goldmine?

by Patricia Fusco ISP-Planet Managing Editor [May 24, 1999]

Reciprocal Compensation was bludgeoned to death by the Massachusetts Department of Telecommunications and Energy last week.

In a split decision, the DTE reversed an earlier ruling about the nature of calls to the Internet. The weapon wielded in the attack was the Federal Communication Commission's February ruling that calls made to the Internet are in essence, Interstate.

Bell Atlantic utilized this FCC decision to strike down reciprocal compensation in Massachusetts. But who really killed reciprocal compensation?

The Massachusetts DTE contends that the Internet is powerful enough to stand on its own, without reciprocal compensation subsidizing the demand for dial-up access. In their defense, the mission of the DTE is to ensure that telecommunication companies provide their customers with the most reliable telecommunications resources at the lowest possible cost.

The DTE acted in defense of Massachusetts telephone subscribers. Bell Atlantic threatened the DTE that telephone costs in the state could increase more than $150 million per year to cover increasing reciprocal compensation payments.

The price hike equated to a $2.80 monthly tax on every phone line for Bell Atlantic's customers, whether they use the Internet or not.

The DTE took action in order to spare citizens of the commonwealth from paying more than $33 a year in additional taxes. Clearly Bell Atlantic may be guilty of coercion or extortion, but not murder.

So who really killed reciprocal compensation?

Perhaps we should look to the primary beneficiary of reciprocal compensation, competitive local exchange carriers? As circumstance would have it, those companies that benefited the most from reciprocal compensation revenues may be our culprits.

Like any industry, telecommunications has some good companies and some bad companies. In this case, good CLECs were those companies that chose to offer customers diversified services.

Good CLECs considered reciprocal compensation monies from increased Internet local call termination on their networks to be a small portion of their total revenue. Good CLECs planned for a future without reciprocal compensation as part of the scheme.

Bad CLECs considered reciprocal compensation monies to be the gold rush of this decade. Some of the bad CLECs relied on the loophole in legislation for as much as 70 percent of their total revenue in 1998.

Bad CLECs sought out ISPs as their customers in order to maximize their return of reciprocal compensation dollars from RBOCs. Bad CLECs would offer reduced prices or sometimes-free Primary Rate Interface circuits to ISPs, just to gain access to more local call completions on their networks.

Bad CLECs were paid more than $1 million a month in reciprocal compensation payments from Bell Atlantic in Massachusetts. Bad CLECs killed reciprocal compensation in the Commonwealth.

Will bad CLECs have more blood on their hands in the days to come? Only time will tell if bad CLECs can kill reciprocal compensation in the other 49 states.

Much like Massachusetts, the state public utility boards in Alaska, California, Florida, Illinois, Michigan, New York, North Carolina, Ohio, Pennsylvania, Texas, Washington and Wisconsin all reaffirmed that Internet traffic is local in 1998.

ISPs will not bear the brunt of the Massachusetts ruling if the price of PRI circuits increases due to reduced competition. Few ISPs built business plans around reciprocal compensation revenue.

Increased dial-up fees were not what the FCC had in mind when they labeled Internet access Interstate in nature. All the same, dial-up consumers will end up paying the final price for the death of reciprocal compensation in Massachusetts.

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