A document recently made public, provides insight into a bugaboo of telecom regulatory policy – the so-called terminating access monopoly.  The theory of the terminating access monopoly is that for all traffic which must terminate to a specific end user device who is served by a single provider, that provider has a monopoly and can insist upon unreasonable termination charges. The theory rose to prominence during the 1990s era debate over CLEC access charges, and has been used to justify net neutrality regulation and, most recently, regulation of IP-IP interconnection.

The most obvious problem with this theory is that one could as plausibly argue that the originating provider has a similar monopoly. What I mean is, for example, that for me to receive a call which I am expecting from my boss, his carrier is the monopoly provider of origination. In effect, the two providers are locked in a bilateral monopoly – one originating, the other terminating. If both providers have a monopoly over their role in the exchange of traffic, why do we have a terminating monopoly theory and not an originating monopoly theory?

In fact, like so many monopolies, the terminating monopoly is not some naturally occurring phenomenon, but rather is a consequence of regulation. On the public switched telephone network (PSTN), regulators created a system known as “calling party network pays,” under which “originating” carriers were required to compensate “terminating” carriers for calls. This requirement was effectuated primarily through the filing of tariffs by the terminating carriers. Originating carriers were required to complete calls (even calls associated with scams like traffic pumping) pursuant to terms lawfully set out in these tariffs.

In the late ‘90s, CLECs began to tariff ever-increasing rates for terminating access services. Ultimately, the FCC dealt with this problem by prohibiting CLECs from filing tariffs for rates higher than those of the competing ILEC. CLECs were permitted to charge higher rates only pursuant to contract. Needless to say, their “terminating monopoly” has not enabled CLECs to force other carriers to enter contracts at higher rates.

So, what does this have to do with the European Telecommunications Network Operators (ETNO) submission to the World Conference on International Telecommunications (WCIT)?  In that document, ETNO proposes that the International Telecommunications Regulations (a treaty document governed by the ITU for its 193 member countries) adopt “a sustainable system of fair compensation . . . respecting the principle of sending party network pays.”  In effect, this proposal seeks international regulatory intervention to establish a new “terminating monopoly” for Internet traffic. Of course, if terminating monopolies arose simply as a consequence of the fact that certain traffic must terminate to a particular end user, why would these operators support regulatory assistance to govern the terms of Internet interconnection agreements?

After all, up until now, the Internet has been immune to the terminating monopoly problem. Without a government-created right for one network to force the other to compensate it outside of the bounds of commercially-determined value, networks have enjoyed the benefits of a robust transit market backed up by bilateral peering arrangements only in those circumstances where both parties find such arrangements beneficial.  If carriers truly enjoyed a terminating monopoly in the commercial market-place, they could simply demand that sending party networks pay them. The inability to do so without the assistance of a regulator’s intervention, shows that creation of the terminating monopoly is a dependant consequence of government intervention.

In the current debate over IP-IP interconnection here in the U.S., some parties are again arguing that regulation is needed to prevent certain providers from exploiting their terminating monopoly. They have it exactly backwards. Without regulation, there is no effective terminating monopoly.

And, as one of my favorite bloggers, Jim Cicconi, remarked last week at a conference here in DC, other countries are looking to the United States on Internet governance issues to see what policies it enacts in this area, and IP interconnection “goes to the heart of how the Internet is structured and functions.”

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