Despite steps taken in 2011 to stop carriers from taking advantage of the artificial differences in switched access rates, the FCC finally has faced up to the fact that switched access arbitrage through access stimulation (traffic pumping) and toll-free 8YY calls, continues alive and thriving in 2018.  Thus, in its upcoming June 7, 2018 meeting, the Commission will open rulemaking proceedings to eliminate both types of switched access arbitrage.  

Next time, we will focus on the 8YY proceeding, but now we discuss Docket 18-155, a Notice of Proposed Rulemaking (NPRM) to eliminate switched access stimulation.

According to the Commission, access stimulation occurs when

a local exchange carrier (LEC) with relatively-high switched access rates enters into an arrangement to terminate calls—often in a remote area—for an entity with a high call volume operation, such as a chat line, adult entertainment calls, and “free” conference calls, collectively high call volume services. (NPRM, at p. 2).

Specifically, access stimulation must meet two conditions:

First, the involved LEC must have a “revenue sharing agreement,” which may be “express, implied, written or oral” that “over the course of the agreement, would directly or indirectly result in a net payment to the other party (including affiliates) to the agreement, in which payment by the LEC is “based on the billing or collection of access charges from interexchange carriers or wireless carriers.”

Second, the LEC must also meet one of two traffic tests.  An access-stimulating LEC either has “an interstate terminating-to-originating traffic ratio of at least 3:1 in a calendar month,” or “has had more than a 100 percent growth in interstate originating and/or terminating switched access minutes of use in a month compared to the same month in the preceding year.”

Even if a LEC no longer meets either of these traffic tests, once it is considered to have engaged in access stimulation, this regulatory classification persists so long as the LEC maintains any revenue sharing agreement. (Id. At 3).

In its 2011 Order transitioning most terminating access rates to bill-and-keep, the Commission required carriers engaging in access stimulation to take one of two actions:

A LEC that is engaged in access stimulation is required by our rules to reduce its access charges either by adjusting its rates to account for its high traffic volumes (if a rate-of-return LEC) or to reduce its access charges to those of the price cap LEC with the lowest switched access rates in the state (if a competitive LEC).  These reduced rates lower the cost to IXCs and the amount received by the LEC and the provider of high call volume services with which it has a revenue sharing agreement. (Id.).

While this action clearly reduced access stimulation opportunities, resourceful carriers found novel ways to use the continuing arbitrage in rates to make a profit for themselves.

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.   This tactic evades existing Commission rules intended to stop access stimulation to the extent that an intermediate access provider is not captured by the definition of “access stimulation,” and thus, is not subject to those rules. (Id., at 4).

Moreover, many of the LECs engaged in traffic pumping use Centralized Equal Access (CEA) providers to connect to IXCs. Centralized equal access providers are unique intermediate carriers that

were formed in the 1980s to implement long distance equal access obligations (permitting end users to use 1+ dialing to reach the IXC of their choice) and to aggregate traffic for connection between rural incumbent LECs and other networks, particularly those of IXCs.

There are currently three CEA providers, and the LECs that use them (subtending LECs) have traditionally been reliant on CEA providers for this equal access implementation as well as traffic measurement and billing. (Id., at 4-5).

To end the arbitrage opportunities inherent in the current system, the Commission proposes to give carriers engaging in access stimulation a choice of either (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.  

If the stimulating LEC chooses to accept financial responsibility, it would 

bear all financial responsibility for applicable intermediate access provider terminating charges normally assessed to an IXC (from the point of indirect interconnection to the access-stimulating LEC’s end office or functional equivalent), and would be prohibited from assessing transport charges for any portion of transport between the intermediate access provider and the LEC’s end office or functional equivalent that the LEC, itself, provides. (Id. at 5.).

If the access stimulator would rather not pay for terminating calls, it could, instead, allow direct connects:

Under this proposal, IXCs would have the option of selecting an intermediate access provider that would bill the IXC for transport to the access-stimulating LEC on a dedicated basis...[A]s a result of this election, an IXC would have the choice to connect with an access-stimulating LEC directly or indirectly through the LEC’s existing intermediate access provider or another IXC directly connecting to the access-stimulating LEC. (Id. At 6).

Access stimulators would be wise to accept one of these proposals (or stop traffic pumping) because the Commission warns that if it decides not to implement either proposal, it may require stimulators to reduce ALL remaining terminating transport rates (dedicated and tandem-switched), along with all originating access charges to bill-and-keep. That would immediately eliminate all switched access arbitrage (and revenues) and conceivably put these carriers out of business!

The industry will have a chance to comment on these proposals sometime in the late summer. It is an extremely important proceeding for those impacted by access stimulators (both small and large companies). Therefore, it would be wise for your company to determine which proposal makes sense for your unique circumstances and get your views on the record.