The world of carrier access charges is arcane, complex and frankly baffling to folks trying to understand it for the first time. However, even if you don’t have to deal with the intricacies of access charges on a day-to-day basis (consider yourself lucky!); access charges are worth following, because:

• Access charges account for such a high percentage of carrier revenues, and

• Terminating access rates are transitioning to a zero rate level (bill-and-keep), which will require carriers to find new areas of revenue to replace lost access revenues. Some replacement revenue for ILECs will come from the monthly Access Recovery Charges (ARCs), while many ILECs, especially rural ones will help pay for universal service with dollars from the Connect America Fund (CAF).  Much of the lost revenues, however, especially for price cap ILECs, will have to be recovered from end user customers, making these revenues more subject to competition.

• Moreover, despite the recent decision by the Tenth Circuit Court of Appeals affirming the FCC’s 2011 Inter-Carrier Compensation Order, the battle over whether the FCC can control intrastate access charges and whether bill-and-keep is lawful is ongoing. There is little doubt that The National Association of Regulatory Commissioners (NARUC) or rural ILECs will appeal the decision to the US Supreme Court with a final decision probably a couple of years away.

Thus, access charges remain important, and in this year’s Annual Access Filings (AAFs), something unique has happened. ILECs are required to separate their originating and terminating end office access rates into separate rate elements. The rules are spelled out in the Code of Federal Regulations (CFR) in section 51.907 for price cap ILECs and section 51.909 for rate-of-return (ROR) ILECs. Originating and terminating end office rates are required to be separated to reflect the fact that, at least for now, terminating charges are transitioning to bill-and-keep while originating end office charges are not.

As part of the terminating access rates transition to bill-and-keep, many price cap ILECs have replaced the terminating end office Local Switching, Shared Trunk Port and Dedicated Port switched access rate elements with a single rate element called the “Single Terminating End Office Charge” (STEOC). Originating end office charges remain as separate rate elements. Please note that because of time constraints, not all price cap ILEC AAFs were reviewed.

NECA, which files interstate access tariffs for most ROR ILECs, has established separate rates for originating and terminating Local Switching in compliance with section 51.909. However, the terminating Local Switching rate element will now include the Information Surcharge rate element.  Information Surcharge remains as a separate rate element for originating minutes. 

The new composite end office rates were introduced on June 16, 2014, when ILECs filed their Annual Access Filings (AAFs) with the FCC. The STEOC, along with all other new access rates will become effective on July1. While the rules do not specifically require composite rate elements, let’s look at why most ILECs have chosen to file them.

On July 1, 2014, as part of inter-carrier compensation (ICC) reform, price cap ILECs are required to reduce their composite interstate and intrastate end office switched access and reciprocal compensation rates to a level that is two thirds of the difference between their baseline rates in effect December 29, 2011 and the rate of $0.0007 per minute. Rate-of-return (ROR) ILECs are required to reduce terminating switched end office and reciprocal compensation rates to a level that is two thirds of the difference between their baseline rates and $0.005.

This is Step 3 of the transition to bill-and keep. In steps 1 and 2, ILEC intrastate terminating access rates were transitioned to interstate rate levels.

The easiest way for ILECs to demonstrate that they are complying with the Step 3 requirement is to restate their December 29, 2011 terminating end office charges as a single per minute equivalent. Thus, they can demonstrate that terminating end office rates have moved one-third of the way to $0.0007 for price cap ILECs and $0.005 for (ROR) ILECs. In addition, ILECs will use these composite rate elements to more easily calculate how much of their revenues (called Eligible Revenues) are permitted to be recovered from the ARC. 

Thus, folks dealing with the Carrier Access Billing System (CABS) should be aware that they will have to deal with new rate elements beginning this July and continuing into the future.

By Andrew Regitsky, President, Regitsky & Associates

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