It's been six long years since the FCC took the first steps to fix the hopelessly muddled inter-carrier compensation system when it began reducing most terminating switched access charges to bill-and-keep. However, concerned about lost access revenues for rural ILECs, the Commission left originating access charges untouched and only mandated reductions in tandem-switched transport when the terminating price cap carrier owned the tandem in that serving area. Moreover, for rate-of-return ILECs, these charges were capped at interstate levels and not reduced any further.

The Commission also punted on two important issues in 2011. It failed to define the place where carriers are responsible for handing off their traffic (i.e., the network edge), and it refused to decide whether transit service (a competitive tandem-switched transport service) should be regulated.

After years of industry pressure for further reform, the Commission recently (finally!!) asked the industry to refresh the record on these three important issues, defining the network edge, "fixing" tandem-switched transport and regulating transit services. Industry comments were filed on October 26, 2017 in Docket 10-90, and while most carriers (other than rural ILECs) wanted further access reform, each tended to prescribe reforms that would be favorable to it.

Take the issue of the network edge, virtually all commenters believe it should be clearly defined, but each commenter puts its own spin on the definition. For example, AT&T was less concerned with a network edge definition than in ensuring a terminating carrier could not limit how it brought traffic to the edge:

First, a necessary corollary to any network edge rule is a rule that explicitly guarantees that the party that has the financial responsibility to carry traffic to or from a network edge has the unfettered freedom to choose how, and by what arrangements, that party will carry the traffic on its side of the edge. The network edge rule, by itself, is not enough: some terminating carriers today engage in a variety of tactics designed to force a sending carrier to use inefficient and costly arrangements to deliver traffic to their networks, and these carriers could continue to pursue such tactics even in a bill-and-keep world with network edge rules. Accordingly, the Commission should adopt a network edge rule that explicitly ensures a carrier’s freedom to choose how it will deliver traffic on its side of the designated edge. (AT&T Comments, p. 3).

Sprint seeking to bring traffic to the network edge as efficiently as possible, recommends the network edge use the same Internet protocol (IP) network infrastructure used to transport and interconnect IP data and video traffic.

Most IP traffic today is exchanged at Internet exchange points (IXPs), and it is Sprint’s experience that most U.S. Tier 1 ISP traffic is exchanged at a relatively small number of IXPs across the country. Every IP network already has established locations where it currently exchanges non-voice IP traffic, and – other than a desire to protect above-cost access revenue streams or to preserve a competitive advantage for an affiliated entity – there is no reason why voice traffic could or should not also be exchanged at those existing locations as the default. (Sprint Comments pp. 2-3.).

While ITTA requests the Commission to require carriers to directly connect to another carrier's network edge.

Some ITTA members have been prevented from terminating traffic directly to wireless networks. Instead of terminating traffic at the wireless carrier’s network edge, where bill-and-keep would apply, they are forced by the wireless carrier to terminate traffic at a third-party tandem, thereby incurring tandem terminating access charges that they cannot avoid. This obstructionism by some wireless carriers artificially inflates transport costs...The refusal by wireless carriers to directly interconnect, leading to wasteful inflation of transport costs, also presents an exemplary case of an unjust and unreasonable practice under Section 201. It creates competitive market distortions between wireline and wireless services, an outcome that the Commission’s ICC reforms were precisely designed to eliminate.33 The Commission should rectify the situation by clarifying that, pursuant to Sections 251(a) and 201, every carrier has the right to terminate traffic directly to other carriers, as long as the carrier bears responsibility to transport the traffic to the terminating carrier’s network edge. (ITTA Comments, pp. 8-9.)

Not surprisingly, when we move to whether transit service should be regulated, each carrier also provided a response that would be economically advantageous. For example, AT&T and competitive tandem providers, which provide transit service to smaller carriers, argue that the Commission has no authority to regulate transit rates, while Sprint, which sometimes uses transit services, naturally claim that transit rates must be set at incremental costs levels by the FCC.

Industry responses for further tandem-switched transport reform are similar. Rural ILECs fearing additional access reductions would eat into their remaining switched access revenues and noting the current shortfall in Connect America Fund dollars, want the Commission to perform an analysis of the 2011 Inter-Carrier Compensation Order before taking further actions. While companies such as Sprint, which pays for switched access, recommends the Commission quickly begin a two-year transition to bill-and-keep for the remaining tandem-switched transport charges and all originating access charges.  

With little agreement between carriers, the Commission finds itself in a tough sport. The feeling here is that, at a minimum it must begin to analyze the effects of the 2011 Order on the industry, especially rural ILECs. Such a study is needed before it can take further moves toward bill-and-keep for the remaining switched access elements.

Conducting such a study should not deter the Commission from taking steps to immediately define the network edge and decide once and for all if transit services should be regulated. With alternative tandem service companies thriving, we prefer the market determining transit rates rather than the government.

By Andy Regitsky, CCMI