Access
Reform
On March 3, 2005, the FCC launched
the second phase of its comprehensive rulemaking proceeding regarding intercarrier compensation. The importance of this
proceeding cannot be understated; policies and regulations adopted as a result of it will likely affect all corners of the
telecommunications industry.
The FCC's objective
in the proceeding is perhaps best summarized by Commissioner Michael J. Copps: “Our intercarrier compensation system
is Byzantine and broken. We have in place a scheme under which the direction
and amount of payments vary depending on whether carriers route traffic to a local provider, a long distance provider, an
Internet provider, a CMRS carrier, or paging provider. In a marketplace defined
by convergence and technological change, this hodgepodge of rates looks more like a historical curiosity than a rational system
of compensation.”
The FCC’s
Further Notice of Proposed Rulemaking (“Further Notice”) is intended to begin the process of replacing
the existing myriad intercarrier compensation regimes with a fair and unified regime designed for today’s marketplace. In its Further Notice, the FCC seeks comment on a range of proposals to comprehensively
reform the existing intercarrier compensation process as well as the impact that they are likely to have upon Universal Service
and end user customers.
Under the current
intercarrier compensation regime, federal and state access charge rules govern the payments that interexchange carriers (“IXCs”)
and commercial mobile radio service (“CMRS”) providers make to local exchange carriers (“LECs”) that
originate and terminate long distance calls. By contrast, the reciprocal compensation rules established under Section
251(b)(5) of the Telecommunications Act of 1996, as amended, generally govern compensation between telecommunications providers
for the transport and termination of calls not subject to access charges. These
rules apply different cost methodologies to similar services in ways that increasingly distort marketplace competition.
Proposals
for Reform
Numerous industry
groups have submitted proposals to the FCC to comprehensively reform federal and state intercarrier compensation mechanisms. The following major groups have submitted proposals which are referenced in the FCC’s
Further Notice: Intercarrier Compensation Forum (“ICF”), the
Expanded Portland Group, the Alliance for Rational Intercarrier Compensation, the Cost-Based Intercarrier Compensation Coalition,
Cellular Telecommunications and Internet Association, National Association of State Utility Consumer Advocates, National Association
of Regulatory Utility Commissioners, Western Wireless, Home Telephone Company and PBT Telecom.
While the Further
Notice summarizes many of these proposals, it is helpful to review at least one, the proposal of the ICF. The ICF is a diverse group of nine carriers (i.e., AT&T, GCI, Global Crossing, Iowa Telecom,
Level 3, MCI, SBC, Sprint and Valor) representing different segments of the telecommunications industry. The ICF has developed a comprehensive plan for reforming the current network interconnection, intercarrier
compensation, and Universal Service rules. Among other things, the ICF plan would
reduce per-minute termination rates from existing levels to zero over a six-year period.
Specifically, the compensation rate for interstate access, intrastate access, and most other types of non-access traffic
would be reduced in equal steps over four years to a unified rate of $.000175 per minute-of-use ("MOU"). This rate is further reduced in the fifth year of the transition to $.0000875 per MOU and finally eliminated
a year later. Revenue eliminated as a result of the transition to bill-and-keep
under the ICF plan would be replaced by a combination of end user charges and a new Universal Service support mechanism. As intercarrier payments decline, the cap on the subscriber line charge (“SLC”)
would increase in equal steps from the current level of $6.50 to $10.00 in areas served by non-rural carriers and up to $9.00
in areas served by certain rural LECs.
The FCC’s
Further Notice seeks comment on the various proposals and asks parties whether it would be preferable to adopt a single
proposal in its entirety rather than adopting a modified version of any particular proposal or attempting to combine different
components from individual plans.
State Jurisdiction
A significant
issue on which the Further Notice seeks public comment is the agency’s legal authority to reform intrastate access
charges as part of its comprehensive intercarrier compensation reform. Access
charges for intrastate traffic has historically been an area within the exclusive jurisdiction of state public utilities
commissions. Thus, any proposal that includes reform of intrastate access charges
has the potential to raise federal-state jurisdictional issues. State public
utilities commissions can be expected to seek to constrain FCC efforts to exercise jurisdiction over and reform intrastate
access charges.
Cost
Recovery
The Further
Notice seeks comment on whether carriers will be permitted to offset revenues previously recovered through interstate
access charges if, as part of the reform process, the FCC reduces or eliminates the ability of LECs to impose interstate switched
access charges on IXCs. While interstate access charges have declined over the
years, both Price Cap LECs and Rate-of-Return LECs still generate significant revenue from access charges (and concomitantly
IXCs still incur significant costs associated with access charges). Some proposals
before the FCC rely upon two mechanisms – the SLC and some form of Universal Service support – for offering Price
Cap carriers the opportunity to recover costs previously recovered from IXCs through interstate switched access charges. The Further Notice asks whether the FCC should rely solely on end user charges,
or whether it also should rely on Universal Service support mechanisms to offset revenues no longer recovered through interstate
access charges.
Since a comprehensive
reform effort could entail similarly reducing or eliminating intrastate switched access charges, these same questions are
posed with respect to intrastate access charges and whether they can be replaced with additional Universal Service funding
and SLC increases. The Further Notice queries whether the FCC should create
a federal mechanism to offset any lost intrastate revenues or whether the states should be responsible for establishing alternative
cost recovery mechanisms for LECs within the intrastate jurisdiction.
Rate Integration/Averaging
Highlighting
an issue that could affect insular areas and specialized regional providers, the FCC seeks public comment on the relationship
between the access charge reform proposals and the FCC’s rate integration and rate averaging requirements. Section 254(g) of the 1996 Act codifies the FCC’s pre-existing rate integration and geographic rate
averaging policy. The so called “Rate Integration Rule”, as codified
in Section 254(g), requires providers of interexchange telecommunications services to charge rates in each state that are
no higher than those in any other state. Similarly, the so called “Geographic
Rate Averaging Rule”, as incorporated in Section 254(g), requires providers of interexchange telecommunications services
to charge rates in rural and high-cost areas that are no higher than the rates they charged in urban areas.
According to
the Further Notice, the FCC is concerned that, absent access charge reform, the rate integration and rate averaging
requirements eventually will have the effect of discouraging IXCs from serving rural areas.
The FCC also notes that these requirements may place specialized, regional providers at a competitive disadvantage
vis-ą-vis providers serving urban markets. Among other things, the Further
Notice inquires as to whether there are additional steps the FCC should take to address these concerns or whether there
are circumstances where the FCC should forebear from applying the rate integration and rate averaging requirements.
CMRS Issues
Under the FCC’s
so called “IntraMTA Rule”, traffic to or from a CMRS network that originates and terminates within the same Major
Trading Area (“MTA”) is subject to reciprocal compensation obligations under Section 251(b)(5), rather than interstate
or intrastate access charges. Thus, the FCC’s rules define telecommunications
traffic between a LEC and a CMRS provider that is subject to reciprocal compensation as traffic that, at the beginning of
the call, originates and terminates within the same MTA. The purpose of the IntraMTA
Rule is to distinguish access traffic from Section 251(b)(5) reciprocal compensation traffic.
Many of the proposals being considered by the FCC would eventually eliminate the IntraMTA Rule and treat CMRS traffic
the same as all other wireline traffic for compensation purposes. The Further
Notice seeks comment on this potential reform.
Implementation
Issues
Under the FCC’s
access charge regime, the rates, terms and conditions under which carriers provide interstate access services are generally
contained in tariffs filed with the FCC. By contrast, the exchange of traffic
under Section 251(b)(5) is governed by interconnection agreements. The Further
Notice seeks comment on how to reconcile these two fundamentally different approaches if the agency moves to a unified
rate for all types of traffic. The Further Notice also seeks comment on
the type of transition that would be needed to move to a new regime.
Conclusion
The FCC’s
intercarrier compensation reform proceeding can be expected to touch upon virtually all sectors of the telecommunications
industry, spanning wireline, wireless and VoIP service providers, state public utilities commissions, and perhaps most directly,
end user customers. Not only does the proceeding have the potential to affect
the rates that end users pay (e.g., the SLC and provider charges), but it also can be expected to impact the Universal
Service program.
Initial comments
in the proceeding are due sixty days after the FCC’s Further Notice is published in the Federal Register and
reply comments are due ninety days after publication in the Federal Register.
March 2005
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