I came across Verizon's opposition to the Missoula Plan in Pennsylvania. It's quite a hoot and proves this world goes round. Verizon's argument is essentially that (1) its inter-carrier compensation rates are ok, (2) the rates for rural carriers are too high, and (3) inter-carrier compensation should be left to negotiation based on the relative value of the networks just like in the Internet space. As a purchaser of Verizon's access and a peer to Verizon, Global Crossing can attest to the fact that (1) Verizon's existing inter-carrier compensation rates are too high, (2) that rates for rural carriers are too high, and (3) inter-carrier compensation for Internet traffic is vastly different from inter-carrier compensation for PSTN traffic for good reason. I have previously addressed the first two items, so I want to focus on the third. First, the irony is not lost on this veteran of the CLEC wars that Verizon is embracing the very argument it opposed so vigorously when it was first proposed over ten years ago by myself and Bob Atkinson on behalf of Teleport Communications Group. Only when we proposed it, we were sincere in our belief that the inter-carrier compensation arrangements negotiated between Internet peers during the 1990s were the product of the dynamic interplay of a variety of competitive operators. We emphasized that peering arrangements, characterized by the mutual exchange of traffic at no additional cost, represented the best "real world" example of what economically rational competitive enterprises would negotiate in the absence of market power or market-distorting regulations. Of course, so did the "bill and keep" arrangements established between the Bell Companies and independent telephone companies, but those were similarly dismissed by Verizon as "special." So for Verizon to wrap itself in the Internet now and claim that "negotiation" is the best way to establish inter-carrier compensation arrangements is quite rich. First, there is no "negotiation" when Verizon has a monopoly on the termination of traffic to its customers and has upwards of 60 million customers. Second, Verizon helped perpetuate the myth that the calling party is the cost causer in a PSTN call and the called party derives no benefit from the call. One of the reasons Internet peers exchange traffic at no additional cost is because of the perceived mutual benefit to themselves and their customers. Verizon never recognized this in the PSTN world. But Verizon is clever enough to point out that inter-carrier compensation arrangements in the Internet space consider the "relative" value of each party's network. This of course allows for the Internet transit arrangements whereby smaller network operators pay transit fees to larger network operators. But Verizon neglects to point out that size is not the only criteria for determining value and mutuality of interest in the Internet space. There is geographic coverage, content, number of customers, and other criteria that Internet peers consider. In the PSTN, there is nothing really to consider but the number of customers you have and of course the one with the most customers win. This is due in large part to the single purpose nature of the PSTN. In the PSTN, you pick up the phone to talk to someone, period. It is not unreasonable to conclude that the calling party derives the greatest value in that situation. Not so with the Internet. While the Internet can be used for all of the same reasons as the PSTN, what the Internet allows that the PSTN does not is a greater mutuality of value. There are some PSTN models for this such as chat lines, information services, etc., but the Internet basically made every communication mutually valuable. And of course it is impossible, and should be vigorously discouraged, for government to attempt to establish a demarcation in the value chain. I would refer readers back to the Stifel/Nicolaus report on net neutrality and how that debate is nothing more than a tug of war over where the demarcation in the value chain resides. Verizon is such a big fan of the Internet model now because it believes it can better sustain its competitive advantage through brute force negotiation, free from the prying eyes of public policy makers, than through regulation. What is unstated in Verizon's petition is its belief that it has no peer, or only one peer (AT&T). If Verizon has no peer or only one peer, then that means all others pay to transit its network at "negotiated" rates. Since regulated rates are already "low" according to Verizon, presumably they believe "negotiated" rates will be higher. I am sure by now some of you readers are ready to say "aha" because you think net neutrality is the answer. But this is not an argument in favor of net neutrality. My aim is to point out the hypocrisy and self-serving nature of Verizon's argument. Negotiations continue to work in the Internet space in the absence of net neutrality. The problem is when Verizon tries to leverage its monopoly PSTN termination service into the Internet space. Absent Verizon's PSTN customer base, Global Crossing is roughly equal to Verizon in terms of Internet backbones (which is why we are a peer). But layer on Verizon's PSTN network and suddenly Verizon argues it has the more valuable network. They should not be permitted to use in the Internet space the regulatory advantage they enjoy in the PSTN. That is market-distorting. And this is where the Missoula Plan comes into play. By unifying all inter-carrier compensation rates (albeit at three levels for three different classes of carriers), and dramatically reducing them for Track 1 carriers, the Missoula Plan goes a long ways towards eliminating Verizon's artificial advantage in the PSTN. The Missoula Plan is not perfect. It represents the best compromise that could be achieved amongst the disparate industry interests. But it is an important first step and those that throw up all over it bear the burden of explaining how their proposal is more fair for a broader spectrum of the industry. They can't so they don't. Instead they just say no and bemoan the rural companies like Verizon does. There is no doubt that the rural companies achieved some objectives with the Missoula Plan. But you can't realistically expect to make progress on this issue without the rural companies. So thankfully this world is round and I now get to argue to Verizon that the inter-carrier compensation arrangements for the Internet are not good enough for the PSTN. Only I am not saying that because I fear rationalization of the PSTN arrangements. Rather, I am saying that because I do not want Verizon to be able to pervert the arrangements for the Internet. If you want to save the Internet, rationalize inter-carrier compensation in the PSTN before it contaminates the Internet.