Traditional network operators often charge different interconnection rates, depending on the type of call or type of service provider involved. Often this reflects differences in regulatory treatment between service providers. This creates opportunities for service providers to engage in arbitrage (either legally or illegally).
Arbitrage can cause marketplace distortions and reduce the effectiveness of regulation. If legislatures and regulators do not promptly adjust the regulatory policy that triggered such arbitrage, the impact on the market can be substantial. Some common arbitrage strategies are discussed here.
Not all regulatory arbitrage strategies violate laws and regulations even though they deviate from regulatory intent, or exploit loopholes. Also, when network operators create arbitrage opportunities in the absence of a regulatory obligation, or if they fail to close a loophole quickly once it is detected, this may indicate that they themselves expect to benefit. Operators will tolerate some loss of revenue if it is outweighed by other benefits, such as regulatory relief or compensation.
Certain features of VoIP traffic create additional arbitrage opportunities. VoIP traffic can readily enter the Internet without traversing the PSTN. Opportunities also exist for terminating VoIP traffic without traversing the PSTN, or through undetected transit of the PSTN. Even when a PSTN operator is able to detect VoIP traffic, it may not be able to differentiate between local, domestic, and international VoIP calls for billing purposes.
Arbitrage may involve:
- Qualifying services as long haul transmission in order to avoid universal service surcharges,
- Obscuring the origin of traffic to making international traffic appear domestic and long distance traffic appear local, in order to obtain the most favourable access price,
- Characterizing traffic as local instead of long haul, to generate a reciprocal payment obligation (instead of a one-way access charge),
- Distorting or obscuring the origin of traffic and the method of transmission to reduce or avoid charges imposed by another carrier for delivering the traffic to the intended recipient,
- Offer telecommunications services as ancillary to, or a minor transport element for, an enhanced information service.
RELATED INFORMATION
About the Internet
About VoIP
VoIP and Regulation
Interconnection Pricing for VoIP
VoIP Over Wireless Networks