Last time we discussed the fact that the FCC is preparing to issue an Order later this month that would eliminate most access arbitrage by creating rules that would require access-stimulating LECs to pay the tariffed tandem switching and tandem transport charges normally assessed to an IXC when that LEC delivers traffic from that IXC to the access-stimulating LEC’s end office or equivalent.

The interesting part of the Order is how the Commission completely dismantles the arguments access stimulators have made for years defending their dubious practice. Remarkably, they continue to make these arguments today, even with adoption of this Order pending. Proponents of access stimulation have told me they still believe they will prevail in the end. Unfortunately for them, the FCC uses the Order to lay out a systematic rebuttal to all their contentions. Here are their arguments for access stimulation followed by the FCC’s responses. Afterwards, I provide my own views on the future of access stimulation.

Access stimulation is beneficial – Stimulators allege that more than 5 million people enjoy the benefits of high-volume services. They claim that nonprofit organizations, small businesses, and everyday Americans would suffer if access stimulation services end. Users of “free” conferencing and other high-volume calling services are upset their services will be eliminated without access stimulators.

The FCC notes, however:

The benefits of “free” services enjoyed by an estimated 5 million users of high volume calling services are paid for by the more than 121 million subscribers of voice services across the United States, most of whom do not use high-volume calling services. According to Sprint, for example, less than 0.2% of its subscribers place calls to access stimulation numbers, but 56% of Sprint’s access charge payments are paid to access-stimulating LECs—leaving IXC customers paying for services that the vast majority will never use. We find that while “free” services are of value to some users, these services are available at no charge because of the implicit subsidies paid by IXCs, and their costs are ultimately born by IXC customers whether those customers benefit from the “free” services or not. (FCC Docket 155 Draft order, para. 25.).

Access Stimulation Revenues Subsidize Broadband Networks in Rural Areas – The Commission responds that while expanding broadband services in rural and Tribal lands is important, how access revenues are used is not relevant in determining whether switched access rates are just and reasonable. Moreover, competition also suffers because access-stimulation revenues subsidize the costs of high-volume calling services, granting providers of those services a competitive advantage over companies that collect such costs directly from their customers. Id., at 26.).

Economic efficiency is enhanced when access-stimulated traffic is brought to a network with otherwise little traffic volume because this allows the small network to obtain scale economies – Economist Daniel Ingberman claims that this would substantially lower prices for local end users, producing relatively large increases in consumer surplus. However, the Commission objects arguing the high cost universal service program provides support to carriers in rural, insular, and high cost areas as necessary to ensure that consumers in such areas pay rates that are reasonably comparable to rates in urban areas. Thus, smaller rural carrier rates for end users will always be comparable to larger carrier rates whether the smaller carrier is a rural incumbent LEC that receives universal service support or is a competitive LEC that does not receive such support but competes on price against a rural incumbent LEC that does. Given reasonably comparable rates, siting new traffic on a smaller network is not likely to significantly lower, and may make no difference to, rates charged to end users of the smaller network. (Id, at 29.).

Access stimulators can continue to make their arguments to the courts or even state public utility commissions. However, their chances of success are very small. Courts are not likely to accept arguments that non-users of calling services should subsidize users since the nation already has a national program to subsidize rural customers and keep urban and rural rates comparable – the Connect America Fund. Thus, there is no lawful reason an additional subsidy is necessary for rral customers. In addition, courts have previously found that the FCC has jurisdiction over both interstate and intrastate access charges, leaving state public utility commissions in a position where they would not be able to preempt the FCC even if they wanted to. Therefore, it is fair to say this Order is a keeper and access stimulators will soon have to find different sources of revenue. That is a message they should take very seriously.