Several diverse companies have banded together to complain to the FCC that despite the transition of terminating switched access rates to bill-and-keep, national wireless carriers are engaging in traffic aggregation schemes at the terminating end of calls. In a December 4, 2017 ex parte presentation in Docket 10-90, the Klein Law Group representing Consolidated Communications, Peerless Network and West Telecom Services noted that:

By refusing direct interconnection (and in some cases terminating existing connections altogether) for all terminating traffic or certain types of terminating traffic (e.g., interMTA and/or wholesale traffic), these wireless carriers are forcing such terminating traffic to be routed through their “intermediate carrier partners” or “affiliates” and as a result, originating carriers no longer can terminate such traffic to these wireless carriers on a bill-and-keep basis. (Klein Law Group, ex parte, at p. 3).

The complaining carriers (Carrier Coalition) believe that the wireless providers are engaging in illegal arbitrage schemes.

Wireless Carriers are engaging in this relatively new practice in order to perpetuate revenue-generating arbitrage schemes that force carriers to send terminating traffic destined to a Wireless Carrier’s end-users through the Wireless Carrier’s intermediate carrier partner. These intermediate carrier partners then assess terminating MOU charges and (on information and belief) share such revenues, either directly or indirectly, with their Wireless Carrier partner. Due to such new practices, many carriers that previously sent terminating traffic to the Wireless Carriers over direct connections (for which there were no MOU charges) are now forced to pay unjust and unreasonable per-MOU rates to the Wireless Carriers’ unilaterally-chosen intermediate carrier partners.(Docket 10-90, October 26, 2017 Comments of Peerless, West, Peninsula Fiber, Alpha Connect, Nex-Tex, and Iris Networks, at p. 15).

The Carrier Coalition argues that these arbitrage schemes violate the spirit of the section 251 interconnection rules because those rules were designed to spur competition while these arbitrage schemes force carriers to settle for economically inefficient indirect connections. More importantly for the purposes of winning a complain, the Coalition claims that forcing indirect connections are unjust and unreasonable in violation of section 201 and 202 because they are forced to pay minute of use charges when (under the bill-and-keep rules) they would pay nothing for direct connections.

By refusing to make direct connections available for all or certain types of traffic where there are sufficient volumes of traffic to justify direct connection as a matter of economic efficiency, Wireless Carriers force interconnecting carriers to incur per MOU charges that are wholly unnecessary. Moreover, the excessive rates assessed by Wireless Carriers’ intermediary carrier partners are unwarranted and supra-competitive. By making direct connects unavailable, the intermediate carrier partners have a bottleneck monopoly on delivering terminating traffic to the Wireless Carriers’ end-users, which allows them to assess unjust and unreasonable MOU charges to terminate such traffic. For example, Inteliquent’s rate deck pricing went up by 400 percent after it entered into (on information and belief) a revenue sharing agreement with T-Mobile. (Id., pp. 17-18).

To remedy this situation, the Carrier Coalition requests the Commission to immediately adopt a direct connect requirement:

The FCC should immediately require that all wireline and wireless carriers make direct connections available to requesting carriers that send or receive at least four (4) T-1s of originating and/or terminating traffic per month (or for IP networks or other modern technology, 200,000 monthly MOUs sustainable average over a 30-day period), for all traffic—i.e., all local and long-distance traffic along with all wholesale and retail traffic (the “Four T1 Standard”), with a zero rate per MOU for all terminating traffic (“Direct Connect Requirement”) (Klein Law Group December 4, 2017 ex parte at Appendix, p. 2).

T-Mobile responded to the assertions of the Coalition by claiming that is willing to directly connect with any carrier with sufficient traffic volume to justify the cost of a direct connection. However, the mobile provider believes that a direct connect requirement would codify the historic switched access regime instead of encouraging a further move to bill-and-keep and incenting the transition to an Internet protocol (IP).

T-Mobile opposes efforts to mandate direct connections not because T-Mobile opposes direct connections, but rather because such agreements turn the clock back on ICC [Intercarrier Compensation] reform and the IP Transition by: (i) requiring competitive carriers to establish a POI [Point of Interface] in each ILEC central office; (ii) imposing the full cost of connecting directly to a POI in each of the ILEC's end offices solely on the competitive carrier; and (iii) stopping the transition to bill-and-keep so that ILECs can continue receiving legacy revenue streams. (Docket 10-90, January 5, 2018, T-Mobile Ex parte letter to FCC at p. 3).

T-Mobile is correct that the FCC should take further measures to move the remaining switched access charges to bill-and-keep, however that sentiment does not excuse any carrier wireline or wireless from refusing to directly connect with a carrier seeking such a connection. Moreover, it is inexcusable for any terminating carrier to seek to arbitrage the situation by cutting a deal with an intermediate carrier and splitting the revenues. A move to bill-and-keep would obviously make arbitrage moot, until then, however, it would behoove the Commission to require direct connections to squelch such schemes to the extent they exist today.