We anticipate that the FCC will soon issue an order eliminating the arbitrage opportunities that exist in the current switched access regime. The Commission is expected to give LECs engaged in access stimulation a choice of either (1) accepting financial responsibility for terminating traffic delivered to their end offices; or, (2) accepting direct connections from an IXC or an intermediate carrier chosen by that IXC.

Most industry observers (and yours truly) believe the Commission will choose the first option. If it does, the stimulator would bear financial responsibility for all intermediate access provider terminating charges today charged to an IXC, and would be prohibited from assessing transport charges between the intermediate access provider and the LEC’s end office or functional equivalent that the LEC, itself, provides.

In a recent ex parte letter Sprint points out the benefits of eliminating access stimulation:

Increase Broadband Infrastructure Investment: Eliminating the costs associated with access billing and verification, billing disputes, fraud detection and mitigation, and inefficient network connections will redirect hundreds of millions of dollars to broadband infrastructure.

Accelerate the IP Transition: The ability of LECs to impose access tariffs encourages them to maintain TDM rather than deploy IP networks for interconnection and the exchange of voice traffic. By ending access charges, all LECs will have a strong incentive to establish efficient, cost-minimizing, reciprocal IP interconnection and traffic exchange network arrangements.

Mitigate Robocalling: The maximum effectiveness of STIR/SHAKEN requires end-to-end IP in the carriage of voice calls. The current system discourages LECs from replacing TDM with all IP networks and interconnecting and exchanging voice traffic with other carriers in IP.

Promote Intermodal Competition: Removing the outdated access charge rules will remove the grossly disparate treatment of CMRS providers that the Commission recognized 18 years ago, in 2001.

Remove Implicit Subsidies: Eliminating the monopoly era access charge system will advance the deregulatory, pro-competition policy goals of the Act and the Commission. Moreover, it will deliver on the directives of Congress in Section 254(e) that subsidies be targeted and explicit, and not embedded in market distorting rates.

Improve Rural Call Completion: High volume traffic schemes are employing autodialing to generate calls to access stimulator rural telephone numbers. Eliminating access charges will remove the incentives underlying robo-pumping, which will allow more real traffic to complete and thereby improve rural call completion. (Docket 18-155, Sprint May 16, 2019 letter to FCC pp. 1-3).

Sprint goes a step further than many parties and advocates for not just the end of access stimulation but also for the elimination of the access charge system itself. It seeks to replace access charges with the establishment of Internet Protocol (IP) interconnection with the exchange of voice traffic at a small number of locations, the same locations where carriers exchange data traffic.

Sprints wants all remaining switched access charges to be eliminated immediately. However, if the Commission is not prepared to take such a drastic action, Sprint proposes the following:

Sprint supports- the immediate adoption of “prong 1” of the Commission’s proposal, so long as the access stimulators do not shift costs back to IXCs or wireless carriers through alternative call routing. Specifically, access stimulators should be responsible for ALL access elements and functions for calls delivered to them – all ports, tandem switching, and transport.

Adopt a mandatory one-year phase out of remaining access rate elements for price cap ILECs and CLECs. This provides ample time for these LECs to make reciprocal, competitively neutral IP-interconnect and traffic exchange arrangements for voice calls at the same locations where data traffic is exchanged.

Adopt a mandatory two-year phase out of remaining access rate elements for all other ILECs. Rural ILECs may petition the FCC for universal service support to recover the incremental costs of implementing IP interconnection. (Id., at p. 11)

We wrote in May that we expect the FCC to address the access stimulation and 8YY arbitrage issues this summer. We stand by that assessment. There are too many ongoing disputes between carriers regularly occurring for the Commission to avoid these issues much longer. Moreover, some IXCs are regularly resorting to self-help remedies (i.e., not paying disputed charges) that leave some LECs in the precarious position of not receiving payments for legitimate charges. It can’t go on much longer.

However, we believe the Commission will not move to bill-and-keep immediately because of the concerns over lost access revenues for rural ILECs. Sprint blithely claims that such ILECs could petition the FCC for more universal service dollars. But that is not such an easy process when you have limited resources. A LEC would have to forecast lost revenues and true up differences when actual numbers become available. Moreover, the Commission would have to set up a specific fund to pay ILECs and determine where the dollars would come from and how long the fund should last. Should rural ILECs be made revenue neutral forever, or should they become responsible for recovering their lost access revenues from their own customers just as price cap ILECs largely do today?

These are vital questions to answer and why an immediate transition to bill-and-keep is unlikely. Nevertheless, access stimulation is likely to end soon and bill-and-keep for all carriers is just around the corners. Carriers that rely on switched access revenues for a significant amount of their revenues must be prepared.