Even with inter-carrier compensation reform, some bad actors continue to abuse the remaining price differences in switched access charges to enrich themselves. These arbitrage opportunities exist because rural ILECs were not required to reduce terminating tandem-switched transport to bill-and-keep maintaining their access revenues and originating switched access charges were never reformed at all by the FCC.

On the terminating side, some LECs continue to contract out with enterprises that generate large numbers of terminating calls and split the excess access revenues. Next week, we will discuss this issue of access stimulation (or traffic pumping) and review a current case where the FCC will determine whether IXCs must utilize the tariffs of LECs engaged in such a practice.

For now, however, we concentrate on the issue of 8YY query charges, which according to AT&T, currently constitute 19 percent (!) of its switched access charges

In a February 12, 2018 ex parte presentation to the FCC in Docket 10-90, AT&T highlighted the fact that one of the most significant remaining originating switched access arbitrage issues is the issue of 8YY query charges. 8YY query charges are assessed by ILECs and CLECs to IXCs. They cover the LECs' costs for querying the 8YY database and identifying the carrier identification code (CIC) for the IXC that owns the Toll-Free Telephone Number.  With this information the LEC can route and bill the call to the proper IXC.

When the FCC began the transition of terminating access charges to bill-and-keep, 8YY query charges along with other originating access charges were not included in the transition. Instead we currently have a market in which CLECs and ILECs compete with various wholesale providers to perform 8YY queries and assess a plethora of different rates. In its ex parte, AT&T notes that the top 23 8YY query providers (out of 1084) bill for 90 percent of the dip (query) charges and their charges vary from a low of $0.0023 for Ameritech to a high of $0.0079 for Embarg/CTL. Moreover, according to AT&T, multiple carriers are assessing 8YY query charges for the same call. This revenue sharing between LECs is an impediment to the transition to an IP network.

 AT&T began highlighting this issue almost two years ago:

The Commission should forbear from its rules allowing LECs to assess per query database dip charges on toll-free calls…These tariffed database query charges, which are not covered by the Commission's existing transition to bill-and-keep or its benchmark rules for CLEC access charges, vary substantially among LECs, and many query charges for toll-free database dips are priced well above the rates that prevail in the wholesale market for query charges. Forbearance from rules that allow and encourage such charges in tariffs is consistent with the Commission's existing approach to intercarrier compensation, which "rejects the notion" that only one party to a call "benefits from [the] call and therefore should bear the entire cost of originating, transporting, and terminating a call." Eliminating these per query charges will also eliminate an implicit subsidy and, by subjecting the costs of these queries to market discipline, will ultimately reduce charges to consumers. (Docket 16-363, AT&T Petition for Forbearance, filed September 30, 2016, at p. 4).

 AT&T asks the FCC to immediately move 8YY query charges to bill-and-keep, but if the Commission is concerned about the loss of access revenues for rural ILECs, it should impose a price cap on the charges. Verizon suggests that the CLEC benchmark rule apply, meaning a CLEC could not assess a higher 8YY query rate than the ILEC in the territory it is serving

Benchmarking 8YY database query charges also would go a long way towards solving the problem. Inteliquent, Bandwidth, and Onvoy note that ILEC price-cap rates are presumptively just and reasonable, and 8YY query charges capped at the competing ILEC rates would be consistent with that presumption. Likewise, Peerless supports a benchmarking regime, which it argues would eliminate excessive charges and address access-stimulation concerns. And CenturyLink, while noting that “AT&T has a valid point that database query charges vary considerably within the industry” and that 8YY database query charges “[have] created arbitrage issues within the industry,” says the FCC can better address the problems with 8YY database query charges by clarifying they are subject to the benchmark. (Docket 16-363, Verizon Reply Comments, filed December 19, 2016 at p. 6).

Years after inter-carrier compensation reform, we are still waiting for the FCC to act on originating switched access rates. The Commission stated at that time that it would conduct a study to assess the impact of lost terminating access revenues on rural ILECs before imposing further access reductions. However, the current FCC with its preference for deregulation might decide it already has the information it needs and choose to skip such a study. If that is true, a transition to bill-and-keep for originating access charges, including 8YY query charges, may be closer than it appears, especially with so many arbitrage opportunities still available.