Is It Time to Move All Access Charges to Bill-and-Keep?
January 20, 2017 | by Andrew Regitsky
Will 2017 be the end of switched access charges? Despite the FCC’s decision in 2011 to reform inter-carrier compensation charges including interstate and intrastate access and reciprocal compensation charges by transitioning to a bill-and-keep structure, the industry debate over these charges continues into the new year and new administration.
For those unfamiliar with the term, a bill-and-keep regulatory system requires carriers to recover their costs of originating and terminating local and long-distance calls from their own customers rather than from charges assessed on other carriers.
The problem is that in its 2011 Transformation Order, the FCC began a transition to move most terminating access charges to bill-and-keep while leaving originating access charges untouched. While the long-term goal was to also eliminate the remaining access charges no firm date was set to ensure rural ILECs, which largely depended on access charges for much of their revenues, were protected.
The major reason a new structure was needed for inter-carrier compensation in the first place was to reduce the arbitrage opportunities that existed for years which featured different rates for interstate and intrastate access and lower rates for the “reciprocal compensation” assessed on terminating local calls. This led to multiple bad actors attempting to “arbitrage” the system. For example some companies artificially stimulated call volumes to pump up the number of terminating access minutes and generated huge profits for themselves.
In its 2011 Order, the Commission addressed the issue in the short-term by requiring ILECs and CLECs to file lower tariff rates if they had either a three-to-one ratio of terminating to originating traffic in any month or experienced more than a 100 percent increase in traffic volume in any month measured against the same month in the previous year. It expected the problem to vanish once terminating access charges were eliminated.
However, as AT&T pointed out in a Petition for Forbearance filed with the FCC on September 30, 2016, in Docket 16-363, carriers have not completely stopped trying to stimulate terminating traffic they have simply moved many of the charges to tandem-switched transport.
This arbitrage opportunity remains because in the 2011 Order, the FCC chose to only reduce tandem-switched transport in certain situations. To protect the access revenues of rural rate-of-return ILECs, their tandem-switched transport rates were capped at interstate levels but not reduced any further. Nor were the rates of mirroring CLECs serving customers in those rural areas. Thus, as AT&T notes, until the FCC acts, traffic pumpers will have a continued opportunity to continue their unfair practices.
To address this problem, AT&T requested the Commission to take the following action:
[T]he Commission should forbear from the tariffing of access charges for tandem switching and tandem-switched transport for all LECs, including intermediate LECs, on all calls to or from LECs engaged in access stimulation…The Commission has already determined that access stimulation causes unreasonable access rates, harms consumers, and injures competition- as well as diverting capital from broadband expenditures…Although the Commission instituted partial reforms in 2011, it recognized that those reforms would not eliminate access stimulation or the many "adverse effects" that arise from it. Today, access stimulation schemes continue to flourish, in large part because the carriers engaged in the practice are able to generate access bills with very high per-minute per-mile transport charges. Forbearance is necessary to protect ratepayers and IXCs from being forced (i) to contribute to the "inflated profits" of LECs engaged in access stimulation and (ii) to subsidize users of "free" conference and adult chat line services. (AT&T Petition for Forbearance, Docket 16-363, filed September 30, 2016, at pp 3-4.)
Once the Petition was filed, the industry had a chance to respond in filed comments and reply comments. While Verizon supported AT&T, most parties agreed that while access stimulation was a continuing problem, a forbearance proceeding was not the appropriate procedural vehicle to detariff tandem switching charges. For example, CenturyLink asserted that the Commission should take a more targeted approach to tandem arbitrage issues:
The Commission should deny the forbearance relief sought in the AT&T Petition regarding tandem charges and instead, take a more targeted approach that will address a broader range of ongoing arbitrage problems relating to tandem charges. While LEC tandem and mileage transport charges related to access stimulation continues to be a problem, the Commission should simply clarify that all tandem provider rates are subject to the CLEC benchmark rule and that it is unlawful for terminating carriers to refuse direct interconnection to IXCs. This will largely if not completely eliminate the more narrow concern that AT&T seeks to address while also addressing some of the broader tandem-related issues within the industry. It will also avoid requiring all tandem providers to create new systems and processes to identify traffic that is bound for a LEC engaged in access stimulation – something that cannot now be done. (CenturyLink Opposition/Comments to AT&T Petition for Forbearance, Docket 16-363, filed December 2, 2016 at p. 2).
The most interesting comments came from Sprint, which argued that it was well past time for the Commission to move all remaining access charges to bill-and-keep. According to Sprint:
Simply put, there is no basis for not finishing what was started in 2011. The FCC has addressed or is well underway with the transformation of FUSF for broadband deployment. Meanwhile, the market distortions including access stimulation, disparate treatment of competing technologies, and the ongoing imposition of grossly inflated rates by LECs for elements the FCC allowed to continue is costing the industry hundreds of millions of dollars per year and delaying the migration to IP. The retail rates that U.S. consumers and businesses are paying for communications are still unnecessarily high due to access charges. All of the harms identified by the FCC still exist. (Reply Comments of Sprint, Docket 16-363, filed December 19, 2016, at p. 11).
No doubt, the new Trump administration would be happy to eliminate all access charges as part of the deregulatory wave it is expected to bring to the FCC. It is hard to believe, however, that rural ILECs which continue to rely on originating access revenues to cover many of their costs and enable investments in new technologies such as broadband would acquiesce to such a plan. Sprint claims that rural ILECs could recover these lost revenues through their retail charges, however, in many cases that could price these services so high, rural end users could not purchase them. Moreover, such a controversial FCC action would be opposed by multiple state commissions until they were made confident the revenues of rural ILECs in their state were protected.
That is why, even by the standards of a Trump inspired FCC, it is hard to believe the FCC would move all access charges to bill-and-keep until and unless it could demonstrate that rural ILECs would remain revenue neutral. Don’t bet on that happening anytime soon.
