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Reciprocal Compensation Worth More Than $12 Billion

With more than 84 million Internet users in 1998, the potential revenue for reciprocal compensation for Internet traffic is over US$12 billion, according to The Strategis Group's latest industry white paper.

In the first in a series of telecom industry white papers, the report examines the implications of recent and future Federal Communications Commission and state regulations regarding the classification of Internet traffic as local or long distance.

Competitive Local Exchange Carriers (CLECs), ISPs, and enhanced service providers have an immense financial stake in preserving Internet call classification as local service, the report said. Long hold times for customers in Internet dial-up traffic drive the potential reciprocal compensation revenues to a possible size of $12.7 billion, against projected 1999 payments of only $1 billion.

If the FCC sides with the states in classifying Internet calls as local service, this classification would then apply to all 50 states, doubling the number of states where Internet calls are considered local and therefore subject to reciprocal compensation. This would likely result in a much higher share of the $12.7 billion potential revenues actually collected by ISPs and CLECs.

"The impact on the Internet industry of this additional revenue from interconnection would be significant," said Brice David, senior consultant at The Strategis Group.

"An additional $12 billion in revenues would substantially enhance the attractiveness of many ESP and CLEC stocks, improve the projected economics of business cases, and would attract significant new investment to the industry, including new players."

The Strategis Group reports on market research and offers consulting services to telecom companies.