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.

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