In a previous blog, we spelled out why certain CLECs defend their ongoing efforts to stimulate access minutes by making deals with end user customers who generate an abnormally large amount of billable access minutes, and then splitting the profits between them. That discussion can be found here.

In short, the competitive LECs defend this practice because:

If access stimulation is eliminated, and they are forced out of business, their entrenched ILEC competitors will be free to raise prices on rural Americans; and,

Revenues from access stimulation provide the dollars needed to bring broadband to rural consumers in areas of the country where ILECs have not had the incentives to build up their own broadband networks.

It should be noted that CLECs supporting access stimulation are in a decided minority, and their switched access customers used their reply comments in Docket 18-155 to justify why they and the FCC have always opposed access stimulation

INCOMPAS explains how today’s access stimulation usually occurs:

Working with a content provider via a revenue-sharing agreement, access-stimulating local exchange carriers (“LECs”) have taken to using intermediate providers to evade Commission rules that require these carriers to reduce their access charges. As a result, a number of inefficiencies in the intercarrier compensation system have emerged[.] (Docket 18-155, INCOMPAS Reply Comments, filed August 3, 2018, at p. 1.).

AT&T used its reply comments to list the FCC’s litany of problems with access stimulation back in 2011:

Access stimulation is a “wasteful arbitrage scheme[]” that “imposes undue costs on consumers, inefficiently diverting capital away from more productive uses such as broadband deployment.” 

Because the intercarrier compensation rates billed by traffic-pumping LECs did not account for the lower costs of handling large volumes of traffic, traffic-pumping LECs were making “inflated profits” and almost invariably charged “unjust and unreasonable” rates.

Under the access stimulation business model, all ordinary subscribers of long-distance and wireless service are compelled to subsidize implicitly the costs of free or low-cost calling services used by some consumers. 

Access stimulation “also harms competition by giving companies that offer a ‘free’ calling service a competitive advantage over companies that charge their customers for the service.” 

Access stimulation harms IXCs and wireless carriers, because when these “carriers pay more access charges as a result of access stimulation schemes” (or incur excessive litigation costs to fight such schemes), “the amount of capital available to invest in broadband deployment and other network investments that would benefit consumers is substantially reduced. (Docket 18-155, AT&T Reply Comments, filed August 3, 2018, at p. 7).

Sprint noted that while the FCC can take short-term steps to decrease access stimulation by requiring stimulators to either accept financial responsibility for terminating traffic delivered to their end offices; or, permitting direct connections from the IXC or an intermediate carrier chosen by the IXC, the only way to end it permanently is through moving all switched access charges to bill-and-keep.

The Commission has long recognized the flaws in the “outdated” legacy access charge regime, which was “riddled with inefficiencies and opportunities for wasteful arbitrage” that destabilized companies’ ICC revenues; impeded investment; led to costly disputes, arbitrage “schemes,” and competitive distortions; and forced millions of Americans to pay more for their wireless and long distance service than they should because of “hidden, inefficient charges.” The Commission emphasized the need to transition to bill-and-keep, stating: We need a more incentive-based, market-driven approach that can reduce arbitrage and competitive distortions by phasing down byzantine per-minute and geography-based charges. And we need to provide more certainty and predictability regarding revenues to enable carriers to invest in modern, IP networks. Given the dubious claims relating to the public interest benefits of various traffic pumping schemes, and the well-documented inefficiencies and costs resulting from such schemes, the Commission should immediately move to full bill-and-keep in order to prevent, or at least minimize, access arbitrage. (Docket 18-155, Sprint Reply Comments, filed August 3, 2018, at p. 3.).

The FCC is on the path to take short-term steps this year to eliminate or at least minimize access stimulation. Moreover, it seems more and more likely that whether the Commission accomplishes it on a rate-by-rate basis or in a global proceeding, bill-and-keep for all switched access is coming. Not this year, but certainly in the next few. If you are a CLEC that engages in access stimulation, now is a good time to adjust your business plan.