Why Are Some OTT VoIP Providers Leaving Money on the Table?

Intercarrier compensation is a topic most providers of over-the-top (“OTT”) VoIP services would find esoteric and archaic.  And, in the long-term, absent a major change in FCC policy, intercarrier compensation will likely disappear, except for toll-free calls that are paid by the toll-free subscriber.  Essentially, terminating Local and Tandem Switching are already gone except in rural markets.  And rural market terminating charges disappear by July 1, 2020.

However, originating access remains available, pending further FCC action.  In its recent OTT VoIP Access Order that ruled OTT VoIP providers and their CLEC partners cannot charge originating Local Switching because they do not provide the local loop, the FCC affirmed that those partnerships could charge Tandem Switching instead, so long as the partners provide that service or its functional equivalent. 

Moreover, the same Order states (¶ 23, n.65) that OTT providers and their CLEC partners can “assess access charges for other access services they provide … to the extent they provide those services or the functional equivalent thereof.”  This means:

  • For sent-paid traffic directly routed from the CLEC’s end office switch to interexchange carrier’s point of interconnection, the CLEC can bill Tandem Switching (instead of Local Switching) and Transport from the CLEC’s tariff.
  • For sent-paid traffic indirectly routed from the CLEC’s end office switch to the interexchange carrier’s point of interconnection1 through the CLEC’s tandem switch, the CLEC can bill Tandem Switching (instead of Local Switching), a second Tandem Switching charge and Transport from the CLEC’s tariff.
  • For toll-free traffic, the CLEC can also bill its 8YY Database Query charge.

What should an OTT VoIP provider not receiving any intercarrier compensation consider?  Find a high-quality CLEC to partner with to provide this service.  Compensation will likely be in the form of revenue sharing.  Alternatively, a provider may wish to consider becoming a CLEC itself, at least for so long as intercarrier compensation remains available.  Of course, the provider needs to consider the added costs for operating as a CLEC against the additional revenues.  And that’s why partnering with an existing CLEC may well be the better choice to take advantage of the short-term revenue stream.

What not to do.  In my view, attempting to engage in access stimulation is not a good idea.  While FCC rules permit access stimulation, interexchange carriers will most likely challenge access bills, often refusing to pay, which, in turn, would force the partnership to file a lawsuit or walk away from the revenue.  And, any such lawsuit will likely include a counterclaim by the carrier.  Litigation with a counterclaim can become very expensive quickly.

Similarly, I recommend policing your end user customers that may be interested in robocalling and Caller ID spoofing.  Not only will higher calling volumes likely cause interexchange carriers to challenge the resulting larger intercarrier compensation bills, but the FCC can also be expected to investigate complaints about robocalling /Caller ID spoofing more aggressively and impose civil forfeitures against regulated entities that knowingly permit or tolerate robocalling and other fraudulent traffic.  Needless to say, entering into a revenue-sharing agreement with a robodialer is a bad choice.

If you have any interest is exploring this topic, please contact Robert H. Jackson at rhj@commlawgroup.com or 703-714-1316.

Jackson is Of Counsel at Marashlian & Donahue, PLLC and brings with him a wealth of knowledge and experience across a broad spectrum of communications and technology issues.  He is an attorney, government relations professional, and former telecom company executive with broad experience addressing the legal and regulatory aspects of financial, technical and marketing issues associated with the telecommunications, Internet and video distribution industries.

Jackson has been involved in intercarrier compensation matters for most of his career, from writing Iowa’s intrastate access rules in the 1980s to advocacy on the VoIP Symmetry Rule and other FCC-related intercarrier compensation changes presently under consideration.

1 Including a point of interconnection with an interexchange carrier -designated, third-party-operated tandem switch.

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