connectivity issues

[mike at bilow.com (Michael Bilow)]

Since this discussion was originally in a regulatory context regarding
cable services, it might be worth my pointing out that there is a lot of
regulatory magic underlying the telephone network in terms of who can
receive calls and how this is paid for.

The basic procedure is what is known as "settlement."  When telephone
companies agree to to allow their users to call each other, they agree to
monitor call volume and utilization in each direction.  If Company A sends
more calls to Company B than the reverse, then Company A pays Company B a
"settlement fee."  This reflects the fact that the US billing model is
"caller pays," so what is really happening is that the two companies are
splitting the revenue from Company A's customer who is making the call.

The reasoning is that it generates business for Company A for their
customers to be able to call Company B's customers.  This is especially
true if Company B has a lot more subscribers.  Far more calling minutes
are initiated from, say, Abington to Boston than from Boston to Abington.  
In the old days, it was not unusual for each town exchange to have its own
independent telephone company, and a few of these still survive in
northern New England although they are mostly a thing of the past in
southern New England.  Like party lines and Mabel the operator, many
people probably regard settlement as a quaint vestige of another era, but
the practice extends in a slightly modified guise into long distance and
even international calling.

One of the huge recurring controversies at the highest levels of the
Internet has been a demand for settlement from the larger carriers.  
There have been attempts to, in my opinion, fragment the Internet using a
kind of guild registry, the most notable of which was CIX a few years ago.  
The idea was that some of the first-tier ISPs wanted to form a guild where
they would promise not to sell to other ISPs unless those ISPs joined the
guild and contributed to what amounted to a settlement pool.  Since the
vast majority of small ISPs were collecting revenue directly from their
customers, the larger ISPs, like the larger Company B in my telephone
example, wanted their cut.  Cooler heads prevailed, especially at Sprint
which, although one of the founding members of CIX, declined to enforce
the embargo -- probably at the insistence of their antitrust counsel.

The settlement model has also backfired notoriously in some cases.  When
ISPs started dealing with CLECs and therefore became eligible for
settlement, the local monopoly carriers lobbied very hard to impose
settlement fees on them.  Several companies, notably Brooks Fiber, began
bending over backwards to wire incoming lines for ISPs nearly free of
charge.  Of course, since ISP dial-up lines are used strictly for incoming
calls, the monopoly carriers suddenly discovered that they had to pay the
settlement fees, often well into the millions of dollars, because their
customers were calling the ISPs!  The monopoly carriers then went back to
the federal government and lobbied exactly the opposite position to the
one they had pressed earlier, and got the ISPs exempted from settlement,
using the odd theory that calls to ISPs were essentially "long distance."  
One argument was really as foolish as the other, but the FCC went for
both and now ISPs are exempt from settlement again.

-- Mike


On 2001-08-12 at 01:56 -0000, Chris Janicki wrote:

> You must be getting dizzy from all that circular reasoning.  
> 
> There are two components to communication: the one who INITIATES the 
> communication, and the one who ACCEPTS the communication.  Once the lines 
> of communication are established, data is bidirectional.
> 
> Let's stick to one analogy- the phone.  For a basic service charge you 
> are allowed to accept unlimited calls, and during those calls data is 
> exchanged bidirectionally, but you didn't initiate the call.  Calls you 
> initiate cost extra.  (Please don't start some spiral of logic concerning 
> local calling areas or I'll toss my cookies.)
> 
> Non-commercial web service is similar, although the direction is simply 
> reversed... for a basic service charge you get to initiate communications 
> (send mail, browse web sites, etc.).  The communication is still 
> bidirectional, but you initiated it.  To accept new connections (host a 
> web server, etc.) is a premium service, like initiating phone calls is a 
> premium service.
> 
> The logic seems pretty simple to me.

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