Friday, March 2, 2007

The Missoula Plan - Good Grief

We have just wrapped up three days exhibiting at the Comptel show in Las Vegas. I am happy to report that business activity at this show was better than ever. One of the more informative sessions at the Comptel Convention was a debate on Intercarrier Compensation and the Missoula Plan. The Missoula Plan is a proposal to the FCC by Rural ILECs for intercarrier compensation. The plan also has some support from large carriers - notably AT&T. The Plan is too long and complex to describe here so I will get straight to the important points in the intercarrier compensation (IC) debate:

- The public policy driving IC is the fact that everyone benefits when even the most remote parts of rural America have telecom access.
- IC is an arcane federal tax used to transfer revenue from urban telecos to rural telcos.
- Folks who argue that the Missoula Plan will provide rural ILECs with the funds they need to build broadband to the farm house are dreaming. Innovative new network services for rural America will be best delivered by entreprenuerial companies, not the aging management of rural telcos with obsolete technical skills.
- The Missoula Plan is too complicated to work and adds big ineffciencies to the telecom business. It needs to be killed.

The Alternative Plan
- Market driven IC settlement rates (not IC rates dreamed up by a lawyer) are an economic necessity for the efficient allocation of network costs.
- Eliminate the requirement that all telco networks must accept all traffic routed to them. Yes, this is telecom heresy. But the world has changed in the last 100 years. Market forces will motivate carriers to carry any and all telephone calls. This is the Internet model and it works. Would you choose an ISP that could only reach 95% of the web sites on earth? Of course not, the same applies for telephone service.
-Proponents of the Missoula Plan argue that the plan will lower IC to rural ILECs from 7 cents per minute (in some cases) to just 1.75 cents per minute. This is a mistake. If the real cost is 7 cents per minute, the rural ILEC should be charging calling parties 7 cents per minute to call the remote hunting lodge.
- Phantom traffic (unbillable intercarrier traffic) is the real economic inefficiency that needs to be addressed. This is the one point of the Missoula Plan that most carriers agree with.

The Missoula Plan is a bad plan and will fail. The entire IC regulatory regime is being undermined by market forces. The FCC needs to keep its focus on creating new inter-modal competition for telecom. Some rural ILECs are going to go bust, but market forces will drive new capital, firms and technology to fill the void - if the FCC lets them.