Where Long-Distance Charges Come From (Summer, 1998) By The Prophet ---------------------------------------------------- Most people when calling long distance pay little regard to how charges are calculated. They simply pick up the phone, dial 1+NPA+7, and pay the bill when it arrives. In fact, more than half of AT&T's customers pay so little attention to long-distance charges that they pay the AT&T "basic rate," which is the highest price charged by the "Big Three" in America! Literally every AT&T customer would benefit from a savings plan, yet people are lazy and do not make the one phone call that would be required to sign up. So AT&T and others make millions of extra dollars a year as a result. Most people also do not question why long distance costs money. They simply accept that if they call out of their flat-rate area (if a flat-rate area is even available), the call will cost them a certain amount per minute. But why is there a per-minute charge for a call between Seattle and Portland, when one can use Internet services between the two cities for free? The answer is a Byzantine system of tolls mandated by the FCC known as "access charges." Access Charges The system of "access charges" is at the heart of per-minute charges for voice bandwidth. Every area has an area known as "local toll calling." For instance, the Seattle LATA covers western Washington State with a northern boundary of the Canadian border, the eastern boundary of NPA 509, and the southern boundary of roughly a line from the Columbia River at Longview west to the Pacific coast and east to NPA 509. Calls that are placed between points within the LATA are known as intra-LATA calls, and are routed and priced on a monopoly basis by the LEC (in the Seattle area, predominantly USWest). Calls that cross LATAs, such as a call from Seattle to Portland, are carried by an IXC, such as MCI, which you may choose. IXCs are where access charges begin. Suppose you place a call from downtown Seattle to downtown Portland. The call is routed from your local switch anywhere within the LATA - to the access tandem. From there, the call is handed off to your IXC. Your IXC carries the call to the access tandem in Portland, where it hands the call back to USWest along with SS7 routing data. Your friend's phone in Portland rings, and when he answers the circuit is completed. And the billing starts; USWest charges the IXC an "access charge" set by the FCC on both the Seattle and Portland sides. These access charges usually add up to about half of the per-minute charge you pay to the IXC. If the access charges were to be eliminated, the need to bill by the minute would also be eliminated; there would no longer be an artificial "cost per minute." This would result in the elimination of a great deal of overhead in billing, collections, and customer service. Without access charges, flat-rate long distance would probably be as common as flat-rate local phone service. LECs Incur Expenses In general, LECs like access charges. Access charges subsidize the cost of providing residential service in many areas. They also provide a very healthy revenue stream. But they also provide an incentive for people not to spend too long on the phone. With flat rate long distance, people will probably make more phone calls and stay on longer. This is likely to be problematic. Switches are intentionally under-engineered. Just like ISPs assume every subscriber won't be online at once, phone companies assume that not everyone is going to be using the phone at once. So switches are generally engineered with the "1/7th rule," which holds that on average, only 1/7th (or less) of subscribers will be using the phone at any given time. This works fine when people make short phone calls, but doesn't work nearly as well when a flat-rate unlimited plan is available. The recent explosion in Internet usage has required many LECs to undergo expensive upgrades to local tandems and switches. In fact, LECs like access charges so much that they think that ISPs should pay them, too. When they began to make expensive upgrades, many LECs petitioned the FCC to force ISPs into the access charge system. ISPs are classified as "enhanced service providers," and are exempt - so far - from per-minute fees, despite the fact that they, like IXCs, carry traffic across LATAs. Pacific Bell was particularly vocal in its criticism of the lack of an access charge revenue stream from ISPs, but became strangely quiet when asked about its explosion in revenue from second lines, its advertising of "second lines" specifically for Internet use, and in particular its profitable ISP business, pacbell.net. Thus far, the FCC has ruled against billing ISPs access charges. However, the recent popularity of VOIP has raised interesting concerns. Both the FCC and the telephone industry wonder why a circuit-switched voice call is subject to access charges, but a packet-switched voice call is not. This argument is likely to be resolved soon. The FCC does read all public comments, and posts regular updates on regulatory issues at its web site: www.fcc.gov. Bandwidth One compelling argument in favor of expansion in data services is bandwidth. Domestic bandwidth is at an amazing surplus. In 1992, Sprint s available bandwidth alone could carry every long-distance voice call made in the United States on a typical business day. It is unlikely that this has changed in the past five years. Sprint has continued to upgrade its existing fiber and lay new fiber. Now, Sprint, MCI, AT&T, LDDS Worldcom/WilTel, Allnet/Frontier, LCI, and numerous other long-distance companies have state-of-the-art digital fiber-optic networks, many with similar amounts of bandwidth to Sprint. North America is literally awash in fiber; some fiber is laid and available, but optoelectronics have not yet been installed to put it into use because there aren t any customers for the bandwidth. (This fiber is known as "dark fiber.") International bandwidth is more at a premium, but expanding rapidly. Bandwidth is wasted if not used at a given moment in time. Consider then, all of the bandwidth that could be put to good use that is currently unused. The figure is even more staggering when you consider how much bandwidth is wasted in circuit-switched technology. Every voice call occupies a 64k channel, although VOIP users know that good voice quality can be obtained over a 28.8 connection. Circuit switching is inefficient. Where Do We Go From Here? According to Department of Commerce statistics, Internet use has grown from three million subscribers in 1994 to over 64 million subscribers today. Clearly the Internet is very popular, and its astounding popularity is likely the result of its low cost and ready accessibility. The FCC is well aware of the Internet's tremendous potential, and has created a $2.4 billion Schools and Libraries fund, to help bring universal Internet access. The status quo is likely to be maintained with respect to the Internet as we now know it. However, the future of enhanced services, such as VOIP and videoconferencing, is very much in doubt. If you think that full use of bandwidth is more efficient than access charges, it is important that the FCC know what you think. Through the "enhanced services" provision, they created the Internet and with the stroke of a pen, at the behest of a telecommunications lobby, they can destroy it. Be sure that your ISP (or you, if you are an ISP) is well informed of access charge issues; what the FCC does is important to you! Glossary of Terminology * LEC: Local Exchange Carrier, or the local telephone company (USWest, GTE, etc.) * IXC: IntereXchange Carrier, or the long-distance company, carries calls between LATAs (Sprint, MCI, etc.) * LATA: Local Access Transport Area * Tandem: Connects the IXC and LEC s networks, also interconnects LEC networks within a LATA * POP: Point of Presence * CO: The LEC's Central Office, connects your telephone to its network. This is where your dial tone comes from. * Switch: The heart of a CO, switches calls within or between COs. * ISP: Internet Service Provider (uunet, concentric, netcom, etc.) * VOIP: Voice Over IP (Internet)