Saving CLEC access charges for another day, the FCC (www.fcc.gov) yesterday ruled on two related reciprocal compensation issues. First, the federal agency adopted rules setting prices for intercarrier compensation for ISP bound traffic. Second, the commission initiated a broader notice of proposed rulemaking (NPRM) on intercarrier compensation. But it’s still unclear exactly what the FCC is doing since it didn’t release its price fixing rule or the NPRM.
The Telecom Act provides that local phone companies must compensate each other for handling each other's local calls. A telephone company must pays a second telephone company for each local call it completes to one of its customers.
Intercarrier compensation refers to payments among telecommunications carriers resulting from interconnection of their networks. Reciprocal compensation refers to the payments among carriers for the origination and termination of local telecommunications traffic (there is a separate payment scheme for payments for "long distance" calls, referred to as access charges). The Commission concluded that reciprocal compensation has inherent shortcomings with respect to the recovery of costs for originating and terminating telecommunications traffic delivered to ISPs.
ILECs such as BellSouth Corp. (www.bellsouth.com), Verizon Communications Inc. (www.verizon.com), and SBC Communications Inc. (www.sbc.com) complain that some CLECs are abusing the system. The ILECs claim that some of the CLECs concentrate on serving ISPs, but not residential customers, and then make money off of reciprocal compensation payments that aren’t reciprocal, and involve little cost to provide. They want to end reciprocal compensation for ISP bound traffic.
On the flip side, competitors argue that ending the practice would harm competition and could result in Internet access charges.
While the FCC adopted the NPRM regarding intercarrier compensation generally, it didn’t release the order. However FCC commissioners and staff did say that they were interested in receiving comment on "bill and keep" proposals in the NPRM.
FCC Chairman Michael K. Powell called the NPRM an “extraordinarily ambitious undertaking” that’s long overdue.
“In a competitive environment, and an environment in which new technical innovative services are being provided, the regulatory regime itself risks distorting the efficient development of that market because there are such different compensation and regulatory regimes, depending on the nature of your service," Powell said.
The FCC also adopted, but did not release, new rules setting intercarrier compensation rates for telecom traffic delivered to ISPs.
“The commission concluded that telecommunications traffic delivered to an ISP is interstate access traffic, specifically ‘information access,’ thus not subject to reciprocal compensation,” the FCC said.
Rather than immediately eliminating the current system, which has created opportunities for regulatory arbitrage and distorted market incentives, the FCC said it instead established a transitional cost recovery mechanism for the exchange of this traffic.
The prices fixed by the FCC are:
* For the first six months following the effective date of this order, intercarrier compensation of ISP-bound traffic will be capped at a rate of $.0015 per minute-of-use (mou).
* For the 18 months thereafter, the rate will be capped at $.0010/mou.
* Thereafter, the rate will be capped at $.0007/mou.
Commissioner Harold Furchtgott-Roth criticized price setting by government agencies. He also predicted that the FCC's order will result in another round of litigation “and in all likelihood,” he said, “this issue will be back at the agency in another couple of years.”
Powell disagreed saying “the commission's reasoning rests on solid legal analysis, and a careful and comprehensive evaluation of many competing views.”
J. Bradford Ramsay, general counsel for the National Association of Regulatory Utility Commissioners (NARUC) (www.naruc.org), the lobbyist for state telecom regulators, appreciates the fact that the FCC took great pains to listen to NARUC's member states' views.
“However, the order does, in my personal opinion, take an unfortunate turn,” Ramsay told XChange yesterday. “Sometime the right policy choice is to make no choice at all, meaning allow the process in place to move to its natural conclusion.”
NARUC originally took the position that whatever the FCC promulgated with respect to reciprocal compensation, that it should not make it mandatory, Ramsay said. That way, regardless of whether the courts ultimately find the FCC's assertion of jurisdiction warranted, no one could second guess or collaterally attack the states authority to take action, he said.
“There is no question that the reciprocal compensation rates, under state PUC oversight, have been in a steady downward trend,” Ramsay said. “Now we have to wait for the courts again to rule if the FCC was correct in asserting its authority.”
And unless the order is stayed, the states will have to comply with it while they wait for a determination, Ramsay said.
“Moreover, this assertion of authority does not even resolve the ultimate question, but rather punts it to the NPRM,” Ramsay said. “So we're looking at even more uncertainty and at least two cycles of litigation on the FCC's ruling alone.”
Industry reaction, for the most part, was positive following the FCC’s announcement, but there is concern from both the CLEC and ILEC communities.
John Windhausen Jr., president of the Association for Local Telecommunications Services (ALTS) (www.alts.org), said that the FCC decision provides greater certainty for the CLEC community and confirms that CLECs have the right to be compensated for their costs of carrying dial-up ISP traffic over the next three years.
“We believe the marketplace, through private agreements and state commissions, through rigorous costing analyses, were adequately addressing the appropriate rate levels for reciprocal compensation and ISP-bound traffic,” Windhausen said in a statement. “We remain concerned, however, that the proposed 10 percent growth ceiling is unnecessarily regulatory and may discourage our companies from deploying facilities in new markets.”
Windhausen also urged the FCC to reach a decision as soon as possible to resolve the issue of CLEC access charges. An FCC decision on that issue could come next week.
Verizon’s Ed Young, senior vice president for international and federal public policy, said that the FCC reduced but failed to eliminate regulatory subsidies, which some companies are unjustly reaping financial gains from.
“In fact, because of prior regulatory decisions, these companies are being paid not to compete with local phone companies, like Verizon,” Young said. “Billions of dollars are being doled out annually to a few major carriers.”
Russell Frisby, president of the Competitive Telecommunications Association (CompTel) (www.comptel.org), praised the FCC for not eliminating reciprocal compensation payments.
"Remember, the Bells were the ones who pushed so hard to get reciprocal compensation into the Act,” Frisby said. “And now they want to penalize competitors for benefiting from it. All the competitors did was bring better prices and services to consumers when the Bells had no interest in it.”
