Most businesses purchase ILEC special access circuits directly from ILEC federal access tariffs filed with the FCC. The special access section of these tariffs will list general rates available to all business customers. In addition, thanks to the FCC, ILECs have the pricing flexibility to negotiate individual contracts with business customers. 

Contract tariffs are usually more economical than the general tariff rates. They are required to be tariffed and theoretically available to similarly situated customers. However, they routinely require the leasing of a large number of dedicated circuits in an individualized design to ensure they are available only to the particular customer that negotiated the contract. Thus, contract tariffs are generally available to large businesses while small and medium sized businesses are forced to settle for the general tariff rates.    

Most businesses that purchase special access usually buy high capacity circuits that provide for the transmission of isochronous serial digital data at rates of 1.544, (DS1) or, or 44.736 (DS3) Mbps. Larger businesses may choose to order a high capacity circuit to an ILEC end office called a hub. At that hub the high capacity circuit can be divided into individual channels of a lower capacity or bandwidth through a process called multiplexing. These lower capacity circuits can then be used to reach a variety of different locations.

For example, a business may order a DS3 circuit from a customer designated premises to a LEC Hub for multiplexing to 28 1.544 Mbps channels (28 DS1s). The 28 DS1 may be further multiplexed at the same or different Hub to 24 Voice Grade Channels, or may be extended to other customer designated premises.

Enterprises that order special access have found that ILEC general tariff rates are usually lower when purchased under an optional payment plan (OPP). These plans require customers either to purchase circuits in volumes larger than one or/and purchase circuits for at least a year or more. While these OPPS will provide lower rates, businesses must be careful to only purchase volume or term discount plans that they intend to meet. That is because if the customer attempts to remove circuits before the term of the OPP has ended, it could be subject to early Termination Charges. These charges can be very large, and can tie a customer to an ILEC until the tariff requirements are fulfilled.

While businesses should always be cognizant of their changing telecommunications needs it is extremely important that at least once a year they review their special access purchases. The best time for that is each July when ILEC new special access rates become effective. The FCC has declared that ILECs must file new price caps for their special access services every year. These caps limit the total amount of revenues ILECs can achieve from all their special access services. However, the revenue cap can increase (or decrease) each year based on the level of inflation in the economy and due to exogenous costs ILEC may face. Exogenous costs are defined as costs that are imposed on the ILEC and out of its control, examples include imposed costs such as changes in generally accepted accounting procedures or acts of nature such as damaging hurricanes. 

More importantly for business customers, ILECs are generally free to change rates for individual special access services as long as they stay at or below the overall special access revenue cap. In recent years, that has meant that ILECs seeking to move customers to longer term plans have increased prices on individual circuits purchased on a month-to-month basis while decreasing prices on OPPs. In addition, ILECs have generally increased prices on services in which they face little competition from competitors such as low capacity voice grade services or on optional features such as multiplexing which are usually purchased as a package with circuits. 

How are special access rates changing this year? Let’s review the special access filings of the major ILECs:

• Verizon is changing certain special access rates to reflect the change in exogenous costs incurred in this filing. Specifically, Verizon is slightly increasing rates for voice grade and DS1 channel terminations. These rate changes increase overall special access revenues by approximately $1.7 million.
• The BellSouth operating companies did not change any of their special access rates.
• Some non-recurring charges for DS1 and DS3 circuits have increased in FCC Tariff 11 covering the old Qwest companies.
• NECA Special Access rates proposed in this filing are, on average, 14.8 percent higher than the rates currently in effect. DS1 rates are especially impacted and increase overall by 22.6 percent. However, in the NECA tariff, rates vary by rate band, with each NECA company falling in a specific band. That means that a business must use NECA tariff FF No. 5 to check the rate band of the ILEC it is purchasing from to know how it is impacted.

While overall, few rates have changed this year, it is still important to ensure that the specific rates an individual business is paying haven’t increased. If rates have increased, long –term OPPs may become the most economical choice. Conversely, if the rates your company pays have decreased, even month-to-month special access service may become an economical choice rather than paying per minute charges.

Two other points your business should consider when reviewing your special access purchases or planning to buy special access services for the first time. For many routes competitive LECs (CLECs) may offer you a more economical plan than your ILEC. This is especially true in large cities and their key suburbs.  Therefore, businesses should always evaluate all their choices before selecting a special access provider.

Businesses should also be aware that as the industry moves to an all fiber network, special access will eventually be replaced by Ethernet. This is several years away, however, as ILEC special access revenues are so lucrative. Moreover, when special access is finally phased out, the FCC is likely to ensure that special access customers will have the opportunity to move to Ethernet services without penalty.

Ethernet is defined as system connecting a number of computers to form a local area network, with network protocols designed to control the passage of information while avoiding simultaneous transmission by two or more systems.

Ethernet is available today from ILECs and competitors in some locations in tariffs and through off-tariff negotiated agreements. Where Ethernet is available, it would be wise for businesses to compare special access and Ethernet prices, to see which service best meets its needs.

By Andy Regitsky, CCMI