There was little doubt that this year’s ILEC Annual Access Filings (AAF) were going to be confusing and potentially very contentious.  After all we are in Step 6 in the ongoing transition of most terminating access charges to bill-and-keep.  For price cap ILECs, this is an important step.  Per part 51.907(g)(2) of the FCC rules, effective July 1, 2017, price cap ILECs must

establish, for interstate and intrastate terminating traffic traversing a tandem switch that the terminating carrier or its affiliates owns, Tandem-Switched Transport Access Service rates no greater than $0.0007 per minute.

The controversy enveloping this year’s filing has to do with whether the tandem-switched transport rates apply to all a price cap ILEC’s affiliates.  Some access customers, including Sprint and Level 3 believe that AT&T, Verizon, CenturyLink and Cincinnati Bell have failed to apply the maximum $0.0007 per minute charge to all their affiliates including CLECs and CMRS providers.  Thus, they requested that the FCC either reject or suspend and investigate the new July 1, 2017 access rates for these ILECs.  As Sprint explained:

Contrary to the FCC’s Step 6 Rule, each of these ILEC-filed tariffs improperly limits assessment of the $.0007 transitional tandem switched transport rate only to traffic that traverses the ILEC tandem switch and terminates to an end office owned by that same ILEC.  As required by the FCC’s Step 6 Rule, the $0.0007 transitional rate applies to all traffic traversing the ILEC tandem switch and terminating not only to an end office owned by the ILEC tandem-owner, but also to end offices owned by any affiliate of that ILEC tandem-owner.  Such affiliates include the ILEC’s affiliate CLEC entities, affiliate wireless carrier entities, and affiliate non-ILEC VoIP entities.  As currently filed, each of these tariffs ignores the express language of the FCC’s Step 6 Rule and will unlawfully impose tandem switching rates higher than $0.0007 for traffic terminated via the ILEC tandem to its affiliates. (Sprint Petition to Reject or in the Alternative, Suspend and Investigate, filed June 23, 2017, at p. 2)

The price cap ILECs do not agree with this interpretation of Part 51.907(g)(2).  They claim that the $0.0007 properly applies only when traffic terminates at an end office owned by the price cap ILEC.  Verizon states:

Although Sprint and CenturyLink now argue the transitional $0.0007 rate must also apply when a price-cap LEC’s affiliate owns the terminating end-office switch, they misread the rule.  Section 51.907(g)(2) requires “[e]ach price cap carrier” to establish the specified Tandem Switched Transport Access Service rates for “terminating traffic traversing a tandem switch that the terminating carrier or its affiliates owns….”  The “terminating carrier” referenced in the rules must be a price-cap LEC. Not only does section 51.907(g)(2) explicitly apply to “each price cap carrier,” but section 51.907 as a whole is titled “[t]ransition of price cap carrier access charges.” Given that the “terminating carrier” must be a price-cap LEC, the scope of the rules is limited to traffic a price-cap LEC terminates via a tandem it or an affiliate owns. (Opposition of Verizon to the Petitions to Reject or Suspend, filed June 27, 2017, at 2-3.

AT&T adds:

Rule 51.907(g) applies to “Price Cap Carriers” that are also “the terminating carrier” – i.e., the carrier that is actually terminating the call to the end user and thus owns the end office switch.  In context, the phrase “the terminating carrier” in subsection (g) makes sense only if it is a reference back to the “Price Cap Carrier.” In other words, the rule requires a Price Cap Carrier to phase out its tandem charges when it is “the terminating carrier” and, as such, owns the end office.  Level 3’s argument is based entirely on statutory and other definitions of “affiliate,” see Level 3 Petition at 5-8, but this misses the point.  The issue is not the meaning of “affiliate,” but who the rule deems to be the “terminating carrier.” The rule requires the Price Cap Carrier to phase out its tandem charges when the “terminating carrier or its affiliate” – i.e., the terminating carrier’s affiliate – owns the tandem. (AT&T’s Opposition to Petitions of Level 3 and Sprint Corporation to reject or to Suspend and Investigate AT&T Tariff Filings, filed June 27, 2017, at p. 5).

On July 7, 2017, the FCC had the final say on this issue when it issued a Public Notice in Docket 17-64, explaining that it would not reject or suspend and investigate the tariff filings.  Thus, all the new access rates that became effective on July 1, 2017 are deemed lawful.

We conclude that none of the parties filing petitions against the tariff transmittals at issue have presented compelling arguments that the transmittals are so patently unlawful as to require rejection.  Similarly, we conclude that none of the parties have presented issues regarding the tariff transmittals that raise significant questions of lawfulness which require their investigation.  Accordingly, the petitions to reject and to suspend and investigate the tariff transmittals at issue are denied.

No doubt if you are an ILEC access customer you are thinking that THIS FCC will always favor the large price cap ILECs and large ISPs.  However, the FCC’s narrow interpretation of affiliate may make sense.  As AT&T points out, a wider definition of “affiliate” may prejudge certain issues the Commission never reached any conclusions on when it decided to move access charges to bill-and-keep.  For example, the agency has yet to determine where the network edge is between two carriers exchanging traffic.  There is also the issue of how a carrier would be paid from a CMRS affiliate.  AT&T states:

For example, if Rule 51.907(g) were read to apply to a situation in which a CMRS carrier was the “terminating carrier” and its “affiliate,” a Price Cap Carrier, owned the tandem, such a reading could have substantial unintended consequences. Applying Rule 51.907 to this scenario would be destabilizing, because price cap LECs would have no means of recovering tandem costs through a CMRS affiliate’s end user customer charges, and fierce price competition from CMRS carriers that do not have price cap LEC affiliates, such as T-Mobile and Sprint, would preclude them from doing so in all events. ((AT&T Petition, at note 18.).

Once again, access customers fume because the Commission refuses to move all inter-carrier compensation charges to bill-and-keep.  If different carriers pay different rates for the same services, there will continue to be arbitrage opportunities and abuse.  If tandem-switched-transport rates differ from direct-trunked transport rates, all network decisions will continue to be artificially distorted.   Why the FCC doesn’t act is beyond me.      

By Andy Regitsky, CCMI