This section discusses:
Application of Origination and Termination Payments to VoIP
VoIP providers require access to the PSTN to terminate calls to recipients who do not subscribe to the VoIP provider’s service, and for some types of call originations. Such interconnection typically occurs between a VoIP operator’s gateway and the PSTN operator’s Tandem Switch closest to the call originator or recipient.
For call terminations VoIP operators should pay PSTN operators for call switching and routing, in much the same way that other carriers (such as mobile and long distance operators) do.
Call originations may require a different pricing and access mechanism. For many VoIP services, the caller originates the call over a high speed, broadband Internet access link, such as DSL, a cable modem, or a wireless network. The call never has to transit the PSTN, and so the local network operator typically has no basis for demanding compensation. Thus, originating VoIP traffic parallels a Calling Party Pays financial model in the sense that VoIP subscribers must pay for and route telephone traffic through their Internet access link.
Cost Drivers for VoIP
Per minute cost recovery has a number of weaknesses in a VoIP world. Call duration has no meaningful relationship to the costs of a VoIP call. Charging on a per minute basis creates opportunities for VoIP operators to engage in regulatory arbitrage, or to avoid interconnection charges.
As VoIP traffic increases, interconnection charges based on bandwidth used would better reflect underlying cost drivers, and would be more consistent with economic efficiency.
Setting Cost-Based Charges for VoIP Interconnection
An interconnection pricing mechanism for VoIP services should reflect the costs of the local network assets used to provide VoIP. If interconnection prices reflect underlying costs, and appropriate cost drivers, opportunities for arbitrage will reduce. Similarly, where VoIP operators provide a service that is functionally equivalent to conventional telephony, treating VoIP providers in the same way as conventional service providers will remove arbitrage opportunities.
Cost reflective interconnection pricing for VoIP could involve:
- End user payments: This would involve moving to full cost recovery from end users. For example, network operators would recover most of the costs of the local loop from end users on a pro rata, per-line basis. In many cases this would involve a major shift in charging, and would need an extensive transition period. In practice this might not work given existing arbitrage opportunities,
- Unbundling: Unbundling the local loop used by VoIP operators from other local exchange carrier costs should enable regulators to set charges that reflect the actual costs of the assets used by VoIP providers. However, unbundling does have some disadvantages. If not done well, unbundling can distort competition further. In particular, the regulator must still determine how to allocate shared and common costs between VoIP and other services — a challenging and contentious decision. The resulting interconnection price should not be so low as to discourage entrants from investing in their own infrastructure,
- Cost based VoIP origination and termination charges: Rather than a full unbundling exercise, this option would involve setting cost-based interconnection charges. Under a regime of uniform access charges VoIP providers would pay the same origination and termination fees as other service providers that use the same network facilities and services. These charges should reflect the economic costs of access to the PSTN, and other switching and routing services provided by network operators.
Reciprocal Payment Obligations
VoIP operators currently do not receive any compensation from PSTN operators for terminating calls that originate on the PSTN. If VoIP operators are treated in the same way as other service providers with respect to interconnection payments, then they should also have the same rights to compensation. That is, VoIP providers should also be entitled to reciprocal compensation for terminating calls that originate on the PSTN.
Effect of Convergence
The emerging trend in retail pricing for VoIP services is to offer to consumers "all you can eat" calling packages at a flat monthly or even yearly rate. Many of the triple-play offerings (voice, broadband, television) are using this type of flat rate pricing for the voice component of the service. As a consequence, this will create additional pressure for interconnection pricing for VoIP services to conform to the retail pricing structure, further undermining the traditional system of charging for interconnection on a per minute basis.
RELATED INFORMATION
A Comparison of Telecommunications and Internet Cost Recovery
Models for Internet Interconnection
Implications of VoIP for Interconnection Pricing
Criteria for a New Interconnection Regime