The 2017 Annual Access Filings are a month away as part of the movement of terminating access rates to bill-and-keep, price cap ILECs (and mirroring CLECs) are required to reduce their tandem-switched transport rates to $0.0007 as the final interim step before reducing them to $0.00 in 2018.  Now, however, that expected reduction is in some doubt.

On April 11, 2017 in Docket 10-90, CenturyLink filed a Petition with the FCC requesting a limited stay of the tandem-switched transport reduction requirement. The ILEC claims that a stay is necessary to prevent “a confusing morass” as carriers take a variety of different approaches to the required reductions.  Additionally, CenturyLink argues that without a stay “there will be irreversible competitive harm in Years 6/ 7 and beyond and arbitrage schemes that have already been launched in anticipation of this transition will only expand.”  Here’s some background for CenturyLink’s arguments.

The FCC’s 2011 Access Transformation Order was an attempt to stop the rampant arbitrage in an inter-carrier compensation system that charged different rates for traffic transversing identical facilities depending on whether that traffic was classified as interstate, intrastate or local. As part of the Order, most terminating access rates began a multi-year transition to bill-and keep. However, other than requiring originating intrastate access rates to mirror interstate rates, originating access was left to a later date. On the terminating side, only price cap ILECs were required to reduce tandem-switched transport rates to bill-and-keep. Moreover, reductions were required only within the tandem serving area where the terminating carrier owns the tandem serving switch, and for termination at the end office where the terminating carrier does not own the tandem serving switch. 

As we have pointed out many times, this was confusing enough, but according to CenturyLink, the situation is actually worse, because the wording in the actual Commission rules differs somewhat from the wording in the Order:

Specifically, Rule 51.907(g)(2) states that the Year 6 transition step to $0.0007 applies to “terminating traffic traversing a tandem switch that the terminating carrier or its affiliates owns…”  And, Rule 51.907(h) specifies that the Year 7 transition step to zero applies to “charges applicable to terminating tandem-switched access service traversing a tandem switch that the terminating carrier or its affiliate owns.” Nowhere in the Transformation Order or rules does the Commission define what “affiliates” are referred to in this language.  (Century Petition, at p. 5).

However, as even CenturyLink admits, the industry is well aware of this situation.  ILECs have been meeting with the Commission to try to work out these inconsistencies to ensure that all carriers are on the same page as the Annual Access Filings approach.  According to CenturyLink, the Commission advised the carriers to comply with the following principles:

Tandem switching and transport rates are not intended to be moved to bill and keep in Years 6/7 for call flows where the price cap carrier owns the tandem but neither it nor an affiliate own the end office (hereafter “Terminating Tandem To Third Party” service).

These rates as applicable to call flows where the price cap carrier is the terminating carrier (i.e. it owns the end office) and it also owns the tandem are intended to be moved to bill and keep in Years 6/7 (hereafter “Terminating Tandem To End Office” service). 

These rates as applicable to call flows where the tandem is owned by a price cap carrier and the end office is owned by another price cap carrier that is affiliated – i.e. owned by the same holding company – are also considered Terminating Tandem to End Office service (and transition to bill and keep).  However, as applicable to call flows where the tandem is owned by a price cap carrier and the end office is owned by an affiliated CMRS carrier or CLEC, the rates are considered Terminating Tandem to Third Party service (and do not transition to bill and keep).

If a rate of return ILEC owns the tandem, no tandem charges, in any call flows, move to bill and keep – since the rate of return ILEC, unlike the price cap ILEC rules, leave tandem services untouched in Years 6/7 (Id., p. 6).

Despite this guidance, Century still believes the potential exists for chaos when the new tandem-switched transport rates are filed. It asserts that CLECs that must mirror ILEC rates may have difficulties determining the correct tandem-switched transport rates and it is upset that asymmetrical treatment of tandem charges will lead to irrevocable competitive harm.

An approach where the transition to bill and keep applies to tandem services in some contexts but the identical service is not subject to the transition in other contexts leads to obvious market inefficiencies and disincentivizes investment. These same competitive harms will follow where the transition to zero applies to tandem services provided when the tandem owner and the end office owner are affiliated and are one type of carrier, but not when they are affiliated and are another type of carrier. Such asymmetry also leads, as night follows day, to damaging market inefficiencies and arbitrage – harms that cannot be undone at a later date (Id., p. 8).

CenturyLink claims that a stay would prevent such confusion while the Commission has time to determine how all tandem-switched tandem charges should be handled in the future.

The industry had its chance to make its opinion heard on the stay request when comments were filed on May 4^th.  Most oppose CenturyLink’s Petition. For example, AT&T which has been very vocal in stating that the Commission’s failure to move all access charges to bill-and-keep has allowed arbitrage opportunities to remain, argues that preventing tandem-switched transport rates from decreasing, exasperates the problem.

[T]he response to those problems should not be to delay but to complete the necessary additional reforms.  It makes no sense to say that, because the pace of additional reform has moved too slowly, the Commission should slow down (or, in effect, repeal) its existing reforms.  To the contrary, the Commission should take a strong stance against the use of originating access charges and terminating transport charges to engage in arbitrage and inefficient behavior…On the other hand, an indefinite “stay” of the Commission’s 2011 transition rules for terminating tandem switching and transport would do nothing to speed the transition to bill-and-keep for tariffed access charges, which is the end state that the Commission has determined “best advances the Commission’s policy goals and the public interest, driving greater efficiency in the operation of telecommunications networks and promoting the deployment of IP-based networks.”  (AT&T Comments, at p. 3).

In our opinion, the Commission is extremely unlikely to grant CenturyLink’s Petition.  While claiming that there will be competitive harm if tandem-switched transport rates continue to move to bill-and-keep, the ILEC has failed to demonstrate that actual harm will occur.  Moreover, since the Commission has already presented guidelines for the industry to follow, it believes the situation is under control.  Thus, a stay almost certainly will not occur.  Nevertheless, access customers should review proposed price cap ILEC and mirroring CLEC tandem-switched transport rates when they are filed on June 16^th, to make sure that this year’s transition to $0.0007 is done correctly.

By Andy Regitsky, CCMI