A coalition representing a wide range of U.S. telecommunications companies has submitted a plan to the FCC proposing to radically change the system governing how carriers pay one another to complete calls.
AT&T Corp., Level 3 Communications Inc., SBC Communications Inc. and Valor Telecommunications LLC are among the group of companies supporting a plan submitted by the Intercarrier Compensation Forum (ICF).
The ICF, which has been working to develop a proposal for more than a year, says the current rules were written two decades ago and do not reflect changes in the industry such as the popularity of wireless and growth of Internet-based phone service. The coalition on Monday submitted a filing to the FCC outlining the proposal and intends to file a more comprehensive plan in the next week or so.
Abolishing Fees
The ICF has proposed moving to a unified rate structure and drastically reducing the “access charges” and other fees carriers pay one another to complete calls -- eradicating the fees altogether in July 2011. The decreases in rates would begin to take effect next summer and there would be reductions over the next seven years.
Beginning in July 2008, carriers would pay one another a unified termination rate to complete calls regardless of how regulators classify the traffic. Two years later, carriers would pay their peers $0.0000875 a minute to complete a call for all types of traffic, representing a 50 percent decrease from the proposed fee in 2008.
To put that figure into context, a large incumbent like Verizon Communications Inc. charges .6 cents a minute on average to originate or terminate a long-distance phone call, according to the ICF, but the rates can vary widely.
For years, industry executives have argued a smorgasbord of fee structures has encouraged telecommunications companies to misrepresent where traffic originates, dodge fees and exploit rules for purposes regulators did not envision.
Access fees represent an enormous expense for such long-distance carriers as AT&T and MCI Inc. AT&T says access charges represent its largest expense. However, the fees have plummeted by 92 percent since 1984, the year the Bell monopoly was divested. That year, the interstate access fee for origination and termination was 17.26 cents per minute, according to FCC data; it now averages 1.44 cents per minute.
In 1998, local phone companies collected $18.4 billion in access revenue, while in 2002, the companies collected nearly $14 billion in access charges, including $5.5 billion in interstate fees and $8.4 billion in intrastate fees, according to FCC data.
Those figures exclude the subscriber line charges consumers pay. The ICF proposal would allow phone companies to jack up over the next few years the “subscriber line charge,” a flat fee consumers and businesses pay to help recover the cost of maintaining the local network. Large carriers are currently authorized to charge up to $6.50 a month for the subscriber line charge; the proposal would allow them to begin charging up to $7.25 next summer with a limit of $10 in 2008.
Treating Internet Phone Traffic
Under the ICF proposal, the unified rate also would apply to Internet phone traffic in 2008, although the coalition does not say how the proposed rules would affect Internet phone service before that date. The FCC is mulling how to regulate Internet phone service in a number of proceedings, and one of the dilemmas the agency faces is whether companies routing traffic over the Internet should be required to pay other carriers access charges for completing calls.
Level 3 is involved in one of those proceedings. The Broomfield, Colo., company says the commission must rule on a forbearance petition it filed by Dec. 23., adding the order would provide guidelines about VoIP traffic.
Verizon, the biggest local phone company, earlier this year withdrew its support from the ICF, saying in part the coalition did not adequately address Internet phone technology as part of its plan for intercarrier compensation reform.
Expanding Universal Service Fund
In addition to reforming intercarrier compensation rules, the ICF also has proposed changing the method by which carriers contribute to the Universal Service Fund, the multi-billion dollar pot of money used partly to subsidize telecom services in rural areas where the cost of providing local phone service is high.
End users would pay a flat fee every month to support the fund based on every phone number and high-speed Internet connection they have. That means cable companies and DSL providers also would charge high-speed Internet customers a fee.
Under the current system, phone companies contribute to the fund a percentage of interstate revenue they generate. With the precipitous decline of traditional long-distance minutes as a result of such trends as the popularity of wireless service and Internet browsing, carriers have had to contribute a greater percentage of interstate revenue to the fund in recent years. In 2003, the Universal Service Administrative Company (USAC), a non-profit group established by the FCC to administer subsidy funding mechanisms, billed more than 2,500 telecom companies per month and collected an average of nearly $500 million each month to support the fund.
Protecting Rural Carriers
The FCC is likely to give serious consideration to the coalition’s plan because it represents more than a year of work supported by a wide range of companies. However, the proposal could face stiff opposition from rural phone companies who rely heavily on the fees they collect from other carriers to complete calls in areas of the country that are relatively more expensive to support than in major U.S. cities.
In a letter to the FCC, the National Exchange Carrier Association said access charges represent more than $2 billion in revenue for small phone companies and up to 70 percent of their total revenue.
The ICF says its plan includes a number of protections for these rural phone companies.
Not only are the rural telcos allowed to increase the subscriber line charge under the proposal, they also could charge carriers a terminating transport rate. Larger non-rural incumbents would not be permitted to charge the rate.
An ICF spokesman on Monday said the new method for contributing to the Universal Service Fund would increase the amount of money available in the fund by an estimated $2.5 billion. Rural phone companies frequently draw from the fund to support their operations. Last year the USAC’s High Cost and Low Income Division distributed more than $3.7 billion in support to approximately 1,400 phone companies.
The National Telecommunications Cooperative Association, a group representing rural phone companies, said it would closely inspect the ICF proposal.
"NTCA looks forward to the opportunity to examine the plan in detail and to participate in the debate that will follow the long-awaited public airing of the plan,” the group said in a press release. “The public and regulators must now determine whether the plan will, in fact, benefit consumers, promote competition, spur investment and preserve universal service as it claims."
