Have you ever picked up a newspaper or book in which the author takes a position so contrary to popular belief that at first you can't believe they are serious? It happened to me this week when I read the joint comments of a group of CLECs in the FCC proceeding (Docket 18-155) called "Updating the Intercarrier Compensation Regime to Eliminate Access Arbitrage." 

In their comments the CLECs, all who engage in access stimulation, remarkably argue that they are providing a service that is helping rural consumers!

Access stimulation has always been thought of as a bad thing in our industry. It usually involves carriers with artificially high access rates splitting their profits with an end user partner which generates an unusually high billable number of access minutes, hurting both IXCs and consumers. 

In 2011, the Commission created rules to stop access stimulation (also called traffic pumping), and those rules were highly successful. However, access stimulators have always been highly creative. Lately, they have used the remaining switched access charges that have not transitioned to bill-and-keep (such as tandem-switched-transport rates) and partnered with intermediate companies to once again engage in access stimulation.

The record indicates that today’s access arbitrage schemes are often enabled by the use of intermediate access providers selected by the terminating LECs. When an intermediate access provider is in the call path, the IXC pays access charges on a per-minute-of-use (MOU) basis to the intermediate access provider and to the terminating LEC. (Notice of Proposed Rulemaking, Docket 18-155, released June 5, 2018 at p. 4).

In its current rulemaking proceeding the FCC intends to eliminate this version of access stimulation by requiring offending CLECs to choose one of two alternatives, (1) accepting financial responsibility for terminating traffic delivered to their end offices; or, (2) accepting direct connections from the IXC or an intermediate carrier chosen by the IXC.  

Moreover, the Commission makes it clear that it not joking, because if it decides not to implement either alternative, it may require stimulators to reduce ALL remaining terminating transport rates along with all originating access charges to bill-and-keep. That would almost surely put them out of business! 

The industry filed comments about the Commission's proposals on July 20th. As might be expected, there were a variety of positions expressed, with access payers consistently arguing that while the proposed alternatives were viable short-term solutions, bill-and-keep was the only permanent way to end traffic pumping. Although, their solutions differed, virtually all parties agreed that access stimulation was a bad activity that should be eliminated. Only the group of CLECs currently engaging in traffic pumping argued differently.

Those CLECs, which include BTC, Inc. d/b/a Western Iowa Networks, Goldfield Access Network, Great Lakes Communication Corporation, Northern Valley Communications, LLC, and Louisa Communications, claim that there is no evidence that access stimulation has hurt consumers. Moreover, they make two arguments in favor of access stimulation. 

First, if access stimulation is eliminated, and CLECs are forced out of business, their entrenched competitors will be free to raise prices on rural Americans.

Second, revenues from access stimulation provide the dollars needed to bring broadband to rural consumers. In their own words the CLECs claim:

A review of the record reveals not a single instance in which any IXC has provided evidence to back up its assertions [against access stimulation]. No IXC has come forward with evidence of the amounts it actually paid in tariffed access charges related to access stimulation traffic or supported its assertion that these charges are material to the rates its consumers pay for long-distance service. Furthermore, the CLECs are not aware of any evidence that would support the Commission’s and IXCs’ conclusion that eliminating all access stimulation access charges would result in even a single penny in reduced costs for consumers. And without this evidence, the entire basis for concluding that consumers are “harmed” by access stimulation is nothing more than conjecture and theory. 

While the proponents of the rule changes have come forward with no evidence proving that, under the post-Connect America Fund Order landscape, access stimulation has harmed consumers, the harm to consumers that would result from the Commission’s present rule changes is readily apparent. First, the nonprofit organizations, small businesses, religious institutions, government agencies, and everyday Americans that have come to rely upon the conference calling and audio broadcasting services at the heart of this dispute will undoubtedly suffer if these services are put out of business. These services provide individuals with the opportunity to use the long-distance plans that they purchase from IXCs – plans that the IXCs designed and marketed knowing full well that access charges were a variable cost – without incurring additional out-of-pocket costs. 

Those CLECs represented by these comments estimate that more than 5 million Americans enjoy the benefits of using their long-distance plans to call into conference calling and audio broadcasting services hosted just by these CLECs on a monthly basis. In the absence of these services, those consumers will still pay for their long-distance service, however, on top of that they would have to pay for a conferencing service. AT&T, for example, charges a rate of $0.043 per minute for each user that participates in a toll-free conference call on their platform and $0.039 per minute when the caller uses his or her long-distance plan to participate in AT&T’s conferencing service. Thus, if AT&T puts its competitors out of business, it stands to gain both the reduction in access charges and increased revenues due to the rising number of consumers who will be forced to procure its conferencing services. This means that, under the Commission’s proposed rules, American consumers would pay more to obtain conferencing services similar to what they receive today for free. 

The second category of consumers that will no doubt be harmed by the Commission’s proposed rules are the local residential and business customers of the rural CLECs that help complete calls to conference calling and radio broadcasting providers. Rural CLECs, just like every other carrier in the country, are attempting to respond to the changing demands for telecommunications services and the shift from traditional TDM networks to an all IP-world. 

In sum, on the one hand, the Commission says it wants to see expanded broadband adoption in rural, underserved parts of the country, but, on the other, it is proposing rules that would deny rural CLECs the essential resources they need to ensure that quality access to broadband is provided. This inconsistency makes one wonder if the Commission’s real policy position is that it wants Americans to have broadband, but only if that broadband is provided by an incumbent carrier like AT&T or Verizon. Certainly, from a rural CLEC’s perspective, the likely “ultimate end state” of the Commission’s proposed rules is to deny CLECs the resources necessary to be part of the solution in closing the digital divide across rural America. (Comments of Competitive Local Exchange Carriers, Docket 18-155, filed July 20, 2018, at pp. 14-20. 

There is no question that as switched access prices have declined, CLECs with their access rates tethered to ILECs, have had a difficult time. Rural ILECs can recover lost access revenues through a combination of access recovery charges and Connect America Funds, while rural CLECs usually must fend for themselves. The question the FCC must ultimately answer in this proceeding, is whether it is a good thing for the country, especially rural consumers, to be served by CLECs propped up by artificially high rates, or would the areas they serve be better off without them? Parties will have a chance to respond to the arguments made by these CLECs in reply comments due August 3, 2018.