Rural telephone battlefield: David vs. Goliath

Mon, 07/13/2009 - 8:30am
Carson Walker, The Associated Press

SIOUX FALLS, S.D. – Three South Dakota companies that provide local telephone access in rural areas are trading lawsuits with four national long-distance companies over a practice that stems largely from more people switching to cell phones.

The local exchange carriers say the big businesses aren't paying their bills – more than $13 million and counting. But AT&T, Sprint, Verizon and Qwest, which pay the local carriers, accuse them of driving up costs by flooding lines with teleconference calls and other services.

That practice is known as traffic pumping, and it has expanded as traditional phone companies look for ways to replace the fees they used to gather from people who had landlines.

In a nutshell, it entails local carriers working with businesses that offer free, or nearly free, long-distance conference calling, adult chat or similar services. Rural companies are allowed by law to charge long-distance companies higher per-minute rates for connecting their calls to the local network. The local companies then split the profits with the service providers.

Traffic pumping is part of a larger debate over the future of access fees tied to traditional phone lines as more communication moves onto broadband networks, said Rich Coit, executive director of the South Dakota Telecommunications Association.

The disputes over the practice began two years ago and have landed in federal court in Sioux Falls, as well as in other rural states such as Iowa. The Federal Communications Commission began reconsidering the rules in 2007 but has yet to adopt any changes, so the main battlefield is in the courts.

In South Dakota, the plaintiffs are Sancom Inc. of Mitchell, Northern Valley Communications LLC of Aberdeen and Splitrock Properties Inc. of Garretson. The defendants, some of which have settled or paid their bills with the local companies, are AT&T Inc., Sprint Communications Co., Verizon Business Services and Qwest Communications International Inc.

According to court documents, Sancom settled out of court with Verizon but seeks $5.7 million from AT&T, more than $417,000 from Sprint and more than $108,000 from Qwest. Northern Valley's lawsuits seek $6.2 million from AT&T and about $885,000 from Qwest. Splitrock sued Sprint and Qwest but didn't include specific amounts.

Some of the long-distance companies have countersued.

"Sprint has been billed for millions of dollars of unlawful charges, charges that Sancom has no legal basis to collect for carrying this type of call traffic," Sprint states in its claim that seeks an injunction to end what it said are "illegal arrangements."

But Dusty Johnson, chairman of the South Dakota Public Utilities Commission, said traffic pumping technically isn't against the law.

"Starting a teleconferencing center is not illegal, and charging a low price for that is not illegal. Specific facts matter a lot in cases like this," he said.

Still, Coit said the state's telecom association adopted a resolution a year ago urging its rural carrier members to avoid the practice.

It reads in part: "Carriers engaged in such arrangements hurt the interests of all rural telephone companies in South Dakota and jeopardize the ability of rural telephone companies to properly charge other carriers for their use of local network facilities."

Johnson said local carriers have lost access fee revenue "as cell phones have cannibalized minutes from landline providers."

In November, AT&T and the Rural Independent Competitive Alliance submitted to the FCC a compromise on rules that it said "addresses the problems created by the few carriers gaming the system, but does not unduly impact those carriers competing in good faith."One proposal is to outlaw revenue-sharing agreements between local exchange carriers and businesses that offer teleconferencing or other services.

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