4.5.3 Implications of VoIP for Interconnection Pricing

Changes in how telecommunications services are delivered, including the emergence of VoIP will have significant implications for interconnection pricing. In particular, the opportunities VoIP creates for arbitrage create pressures to:

Move toward cost-based pricing for interconnection (and other telecommunications services), and
Adopt uniform charges for access, regardless of the type of call, type of service providers, or other call characteristics.

Cost-based Pricing

Traditionally, telecommunications prices have been designed to keep prices for access and “basic” local service low, at the expense of long-distance users. The resulting high long-distance prices have created numerous opportunities for arbitrage, which have placed downward pressure on prices.

Recognizing that the traditional model is unsustainable and inefficiency, many regulators are now moving away from this model towards a more cost-based model. This shift is often involves a long transition period, to avoid significant immediate jumps in prices for basic service.

Generally, pricing reforms are accompanied by a shift to transparent funding of universal service obligations, through explicit charges to interconnecting service providers, or directly to end users.

Uniform Access Charges

It is common for network operators to charge different access prices depending on the type of call, the type of service providers, or the distance involved. This creates opportunities for arbitrage.

In many cases it makes more sense to move to a uniform charging regime, for example:

Network operators, especially long-distance, average long and short haul traffic costs and charge a flat rate for calls. For example, a single per minute rate for all calls in a wide geographic area (say, nationwide),
“All You Can Eat” pricing — a flat monthly rate for unlimited local and long distance calls. This form of pricing is already standard for Internet access in many countries,
If the cost of measuring the distance between the call originator and call recipient exceed the cost difference in handling traffic of different distance, then network operators should not bother to do so. In this case, charges should not differ based on distance.

To move to a more sustainable charging regime, regulators will need to:

Eliminate regulatory asymmetries that treat similar services differently based on the technology used to provide the services (for example VoIP or conventional voice service), or the type of provider,
Decide whether VoIP providers offering equivalent service to conventional voice telephony should pay the same charges and regulatory fees as other network operators.

Changes in technology and telecommunications network cost structures mean that per minute pricing may be becoming an inefficient cost recovery mechanism. As more services are delivered as packets over digital networks, minutes of use are no longer an important cost driver.

Technical developments are improving the ability of consumers to manage their own telecommunications services. As a result the premise that the calling party is the sole cost causer may no longer be valid. The Calling Party Pays approach to call pricing (and interconnection charges) may no longer reflect actual cost causation.