Telecom Carriers: 'Phantom' Voice Traffic Costing Billions

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Some VoIP (voice over Internet Protocol) and mobile phone service providers are riding free when connecting to the traditional telephone network in the U.S., potentially costing carriers billions of dollars, according to testimony at a Senate hearing Wednesday.

Many voice calls now don't include the identification needed for carriers to charge access fees for calls coming into their networks, said Raymond Henagan, general manager of Rock Port Telephone, based in Missouri. These so-called phantom calls are particularly hard on rural telephone carriers, which receive an average 29 percent of their revenues from the intercarrier compensation system, he told the Senate Commerce, Science and Transportation Committee.

Some VoIP providers have refused to pay access fees by saying the U.S. Federal Communications Commission has "given them permission to use the networks for free because they're IP," Henagan said. "You and I both know these are regular voice calls, people talking to people. Because these companies have sprinkled IP fairy dust on them, they think they get a free ride."

In 2007, 18 percent of Rock Port Telephone's voice minutes were unbillable, and some rural carriers are seeing up to 30 percent of their minutes from phantom traffic, Henagan said. He asked senators to push the FCC to require that all voice traffic pay intercarrier compensation fees.

"If the FCC lets this continue, Americans who live in rural areas will likely see their phone bills escalate," he said. "Their quality of service will be decreased, and [there will be] large reductions of investments in broadband."

Phantom traffic costs traditional carriers between $600 million and $2 billion a year, added Lawrence Sarjeant, vice president of federal legislative and regulatory affairs at Qwest Communications International. Sarjeant urged Congress or the FCC to fix problems with the complicated intercarrier compensation system, saying the FCC doesn't require VoIP providers to include traditional call identification protocols on their calls.

Traditional telephone carriers have "made a lot of investments" in their networks and deserve to be compensated for traffic coming from outside the network, he said. Without the access fees, Qwest has less money to upgrade its network and roll out new broadband services, he said.

"If this happens, consumers lose," Sarjeant added.

But representatives of wireless carrier Sprint Nextel and VoIP provider Covad Communications downplayed the problem. Charles McKee, Sprint Nextel's director of government affairs, said he does not believe that a "significant amount of traffic is being manipulated" for fraudulent purposes. The traditional telephone carriers often haven't updated their networks to identify new forms of voice calls, he said.

In addition, the intercarrier compensation rules are complicated and sometimes unclear, McKee added. "What one carrier characterizes as fraud, another carrier will consider entirely appropriate under the existing rules," he said.

Many VoIP providers have tried to work out compensation agreements with rural carriers, but the rural carriers have spurned the offers, added Angela Simpson, Covad's senior counsel for government and regulatory affairs. Lawmakers should be wary of imposing new regulations on Internet-based services, and instead should research further the extent of the problem, she added.

New regulations could slow down adoption of broadband, Simpson said. "We are concerned that proponents of a new ... regulation have not adequately demonstrated a quantifiable problem," she said. "There's no need to conduct open-heart surgery to fix a paper cut."

Still, Senator Ted Stevens, an Alaska Republican, said he would introduce legislation that would require the FCC to establish new rules for intercarrier compensation and VoIP providers within 12 months.

"It's unfair to the system that some people disguise their traffic and not pay for it, as others do," Stevens said.

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