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AT&T: A latter day Standard Oil?

I love a good fight, especially when there's a clear bully and the bully takes a pasting.  In the  David and Goliath match-up of AT&T versus the Iowa rural telcos, I'm rooting for the little guys. 

Last week I had a chance to chat with FreeConferenceCall.com CEO Dave Erickson, and his attorney Jon Canis about how the actions of the large incumbents are affecting his business, and what they plan to do about it.  It's a fascinating glimpse into the internecine world of telecom regulation and the relationship been the incumbents, and competitive service providers.  It's a story of abuse, illegal behaviour, and harrassment by large bullies intent on crippling small businesses.

For Dave Erickson, the nightmare began March 9, when Cingular (AT&T wireless) blocked all calls to his Iowa numbers.  Callers would receive a message advising them to call 611, where Cingular's unchecked and uninformed customer service department advised callers that "Free Conference is a fraud", or "Free Conference is blocking your call", or "Free Conference costs too much".  Calls were blocked until the night of April 2.

Moreover, it wasn't just Cingular, but also Nextel, Sprint and Qwest blocking.  More insidious than Cingular's blatant behaviour, the others blocked calls sporadically — a strategy designed to convince customers that Free Conference's service was faulty and reliable.

According to Jon Canis, this is simply a fight about access charges.  It's been going on sporadically for some time, but really ratcheted up about four months ago when AT&T began withholding access charges billed by rural telcos in Iowa.  Within sixty days, the other Bells did the same, in an apparent act of collusion with AT&T. 

Canis' firm, Kelley Drye and Warren has initiated a collection action on behalf of seven of the small telcos.  Their case is pretty simple.  Existing precedents bar all forms of "self help". The big guys have to take their case to the FCC.  They can't just refuse to pay bills.  And even more important, forty years of legal precedent says that they can't just turn off service to rural exchanges arbitrarily.  According to Canis (who ought to know, having represented 30 CLECS five years ago in a similar situation), that's the law.  The US economy cannot function if carriers can arbitrarily cut other carriers' service off.

The most egregious element of this whole thing?  AT&T apparently made this decision without examining the traffic in question.  Canis claims that less than 5% of the traffic to these iowa exchanges is international reorigination. The other 95% is domestic traffic to businesses like his client FreeConferenceCall and other established traditional businesses.  Even so, no matter the traffic, carriers don't have the right to decide not to terminate it in Iowa without gaining the support of the FCC.

To date, the Iowa attorney general has received several hundred complaints.  Local councils are talking to the Iowa Utilities Board, and FreeConferenceCall has put up a blog to tell their story and answer customer questions. And, on the 19th and 20th of this month, the FCC Commissioners have agreed to meet with CEOs of several of the companies affected.  "We will use this series of meetings with them individually to describe our concerns and how we'd like the FCC to respond", said Canis. FCC staff have offered to mediate, but Canis is hoping for a faster resolution.  He cites the case of Madison River, where the local rural telco was blocking Vonage traffic.  The FCC initiated a motion of its own, sent a letter of investigation, and within 3 weeks had a negotiated consent decree.

The situation is quite analagous to the IP telephony carriers unlimited plans. IP Telephony companies use statistical models to compute the average usage of a customer, and then offer "unlimited" minute plans knowing that most customers will use the average amount.  If their calculations are inaccurate, then they must absorb the losses.  These wildly popular marketing plans have garnered customers and revenues for them in what looked like a stagnant market – residential telephony.  Similarly, the enormously successful nationwide calling plans offered by cellular providers like AT&T assume an average termination cost.  AT&T knows the termination costs for every exchange it serves, and it knows the traffic patterns.  If AT&T's calculations are inaccurate, then they must absorb the losses. 

And that's the nub of the problem. By throwing its weight around, AT&T is trying to bully the small carriers in Iowa into absorbing the expense of its super successful nationwide long distance marketing plan. Doesn't seem quite fair, does it?  It's a bit like Rockefeller's Standard Oil negotiating kick backs on every barrel of oil shipped, whether it pumped by them or not.

Meanwhile, guys like Dave Erickson keep trying to serve customers and keep their businesses up and running despite ongoing and apparently illegal harrassment and abuse from much larger competitors. 

UPDATE: Some of the best coverage of this whole story is GigaOm's series by Paul Kapustka

{ 3 comments… add one }

  • Peter Childs April 10, 2007, 3:44 am

    Is this also a harbinger of a world where Net Neutrality doesn’t exist?

    Sites arbitrarily shut down or intermittently blocked, disinformation masquerading customer service and hundreds of thousands of ‘service providers’ without the cash or pluck of Iowa telco’s to be goaded due to their ‘access’ arrangements.

    If this can happen to small companies in a regulated market – imaging what could happen if Telco’s can treat web traffic the way they want – instead of equally.

    • Disa Joseph February 9, 2015, 3:13 am

      Yeah, I remembered the news of the blocking of the calls at that time.

  • Alec April 10, 2007, 6:06 am

    I don't think it's a net neutrality issue. Their conduct is flat out illegal, it appears to me.

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