Telecom Woes Shared Via Industry Party Line

To understand how the financial collapse of a single company such as WorldCom Inc. can quickly ripple through the rest of the telecommunications industry, consider the path of a single phone call.

At Fluor Corp., Eric Fullmer picks up the handset in his cubicle on the second floor of the engineering and construction firm’s Aliso Viejo headquarters. He has just completed a plan for installing pipes in a refinery Fluor is building in Venezuela, and he wants to discuss it with colleagues in Caracas and in the Philippines.

The call travels along the networks of at least five phone companies. Each company along the route collects or pays fees for its role in completing the circuit. Despite the complexities, the connections are almost always made in a matter of seconds.

“If I dial the right number, it’s going to get through to them,” said Fullmer, a software engineer. The 3-D computer design he has created to illustrate his pipe-installation plan can be shared just as easily. “If I hit the right sequence of keys, the data will be sent.”

To its users, the worldwide network of copper wires and fiber-optic cables functions as a nearly seamless unit that allows the sound of a caller’s voice to travel to the recipient’s ear in a matter of milliseconds. The journey for data transmissions can take a little longer, though it is usually measured in just seconds.

Along those wires and cables, however, are a complicated series of routes and transfer points connecting scores of networks of different shapes and sizes. Many of those transfer points act as electronic tollbooths keeping track of tiny charges--fractions of a cent--that accrue each time a call switches networks.

There are traditional long-distance networks operated by AT&T; Corp., WorldCom and Sprint Corp. and traditional local phone networks run by the likes of SBC Communications Inc., Verizon Communications Inc., BellSouth Corp. and Qwest Communications International Inc. There are next-generation networks built during the 1990s telecom boom by upstarts such as Level 3 Communications Inc. and Williams Communications Group Inc. And there are networks connecting continents via cables laid beneath the ocean floor by companies such as Global Crossing Ltd.

Most calls traveling even a moderate distance change networks at least once. A typical call from Los Angeles to New York changes networks at least twice. Some carriers lease lines from other carriers to fill gaps in their networks, adding another layer of complexity.

The reason for the transfers is simple logistics.

“All telecom companies buy from each other because nobody goes everywhere,” said Todd Braning, a manager in Level 3’s Internet services group.

But with all that interconnectedness comes a considerable degree of financial interdependency. So with dozens of phone companies in critical financial health, the telecom flu could spread throughout the industry if companies can’t collect the billions of dollars in access fees they charge every year.

“Normally, telephone firms do business with a bit of a float in payables and receivables--a hundred million here or there does not matter, if everyone gets paid eventually,” said Shane Greenstein, an associate professor at Northwestern University’s Kellogg Graduate School of Management who studies telecommunications networks.

“If they happen to get into a cash crunch, then it would be real trouble for them and their business partners,” Greenstein said. “So far, there is no sign that we are close to that, but that is the concern to worry about.”

In the bankruptcy cases of WorldCom and Global Crossing, for instance, hundreds of local telephone companies--from tiny firms in Iowa and Montana to Baby Bells such as Pacific Bell parent SBC--have sought upfront payments for connecting their customers to the troubled long-distance carriers. SBC told a federal bankruptcy judge in New York that WorldCom’s MCI long-distance unit owes it more than $300 million, with that amount climbing by about $150 million a month.

Generally, bankruptcy judges deny such requests because the companies in bankruptcy proceedings would collapse without the connections.

Direct Route

The path a call takes could be as direct as a nonstop flight from Los Angeles International Airport to Boston’s Logan International Airport, or as meandering as a Southwest Airlines route that zigzags the country, making multiple stops en route to its final destination.

Like a cross-country trip, a residential long-distance phone call begins at home. In Los Angeles, the first transfer point is a few hundred yards away at a Pacific Bell central office, where a huge switch routes calls.

Signaling equipment tells the switch which long-distance carrier each customer uses. That switch also is a metering and billing device, keeping track of the minutes spent on the line and the fees the long-distance company must pay.

The call is then transferred to a switch belonging to AT&T;, MCI, Sprint or another designated carrier. From there, the call travels over the long-distance network to Boston, where it goes to the Verizon central office closest to the house at which the phone will ring. A few hundred yards later, the circuit is complete.

The long-distance company bills the caller--the average rate nationwide was 9 cents a minute in 2000, the most recent data available from the Federal Communication Commission--and then uses some of that revenue to pay PacBell and Verizon for their roles in originating and terminating the call. The average charge in the U.S. for originating a call is 0.9 of a cent a minute, while the average charge for terminating a call is 0.78 of a cent a minute, the FCC said.

The fees are small, but the money adds up over the nearly 360 billion minutes of interstate calls made each year.

International Service

The big carriers have built their own nationwide long-distance networks, and their calls usually don’t stray from their own lines except to link up with local networks. Some smaller long-distance firms lease some or all of their lines from other carriers, and their calls may travel a less-direct route. They also end up with another set of bills to pay.

An international call from the U.S. involves several more steps. When the call reaches the U.S. border, it travels via an undersea cable or a satellite link to a long-distance company in the destination country, which then hands it off to a local phone company. Rates for handling international calls are negotiated by the phone companies.

Long-distance calls made by businesses work essentially the same way, though businesses typically have more choices than residential customers. It is easier for them to bypass their traditional local phone company by using a so-called competitive local exchange carrier, or CLEC, such as IDT Corp. subsidiary Winstar Communications or McLeodUSA Inc.

Large businesses such as Fluor also can build their own private networks to carry calls and data along heavily traveled routes.

Data transmissions on the Internet are significantly more haphazard. When Fullmer, the Fluor engineer, sends an e-mail to someone outside the company, it goes to one of the company’s Internet service providers, such as WorldCom’s UUNet unit.

Sorting the E-Mail

E-mails get broken up into packets of data, each one stamped with the destination address and a tag indicating where it belongs when the message is reassembled on the recipient’s computer. The packets are shipped separately over the network and could end up taking wildly different routes to get from Fullmer’s desk to their destination.

Fluor’s ISP examines each packet and checks whether the destination address also is on the UUNet network. If not, “it would dump it on a peer like Genuity,” said Kevin Bell, Fluor’s director of information technology. “They would carry it for a while, and then they’d say, ‘That’s not ours, let’s dump it on AT&T.;’ Then AT&T; would say, ‘That’s not ours, let’s dump it on Verizon.’ Eventually it gets to the right network.”

The companies that operate Internet backbone networks don’t charge each other to carry traffic as phone companies do. But they charge ISPs and smaller networks transit fees for the right to connect to their networks. Those charges typically are a mix of a flat monthly fee and an amount based on the volume of traffic sent over the network, Greenstein said.

That pricing model could become more common for traditional phone calls too, as more carriers look for ways to shift calls from copper wires to cheaper data lines using a technology called voice-over IP (Internet Protocol). For Fullmer’s call to Boston, the long-distance company would digitize the sound of his voice and chop the data into packets. Those packets would then be sent cross-country over multiple networks in the same manner as his e-mail and reassembled in Boston before the call was returned to Verizon’s copper wires.

With voice-over IP, phone companies might even abandon per-minute pricing and charge customers flat monthly rates for all of their calls, just like ISPs.

If that occurs, phone company networks could become even more intertwined.