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FCC TAKES FIRST STEP TOWARD INTERCARRIER COMPENSATION REFORM
On February 10, 2005, the Federal Communications Commission ("FCC") initiated a rulemaking proceeding whose goal is to replace the outdated intercarrier compensation system with a uniform regime suited for competitive markets and new technologies. The current system relies on per-minute intercarrier payments that distinguish between different types of carriers and services, such as local and long-distance, or wireless and wireline, even though these distinctions often have no bearing on the cost of providing service. Furthermore, new technologies, such as Internet telephony, and new service offerings, such as bundled flat-rate packages, have eroded these distinctions.
The FCC began its long trek towards reforming intercarrier compensation over four years ago with its 2001 Intercarrier Compensation NPRM. Although no rules ever resulted from this proceeding, the record developed therein gave rise to four suggested common themes for reform.
First, any approach should encourage the development of efficient competition and the efficient use of and investment in telecommunications networks. Second, any approach must preserve universal service support, which ensures affordable rates for consumers living in rural and high-cost areas. Any proposal that would result in significant reductions in intercarrier payments should include a proposal to address the universal service implications of such reductions. Third, any approach must be technologically and competitively neutral. Finally, an approach that requires minimal regulatory intervention and enforcement is consistent with the competitive deregulatory environment of the 1996 Telecommunications Act. Proposals that rely on negotiated agreements between carriers might be preferable to regimes requiring detailed rules and regulations.
The FCC is seeking comment on seven comprehensive reform proposals submitted by the industry and others in the rulemaking. Among the questions the Commission will examine is the effect any change will have on consumers and the universal service fund, which helps provide affordable service for rural and low income Americans. The Commission said it would be "particularly receptive" to any plan that offers expanded choices and lower rates to rural consumers.
Following is a list of the groups submitting reform proposals and a brief description of their plans:
- Intercarrier Compensation Forum (ICF). The group represents a diverse group of nine carriers. The plan would reduce most per-minute termination rates from existing levels to zero over a six-year period.
- Expanded Portland Group (EPG). The group is comprised of small and mid-sized rural LECs. Its two-phase plan would eventually convert per-minute intercarrier charges to capacity-based charges.
- Alliance for Rational Intercarrier Compensation (ARIC). ARIC represents small rural providers serving high-cost areas. Its Fair Affordable Comprehensive Telecom Solution (FACTs) plan would unify per-minute rates at a level based on a carrier's embedded costs.
- Cost-Based Intercarrier Compensation Coalition (CBICC). The coalition represents competitive local exchange carriers, or CLECs. The plan would create a cost-based termination rate in each geographic area for all types of traffic.
- Home Telephone Company and PBT Telecom (Home/PBT). Home and PBT are rural local exchange carriers. The plan would replace the current regimes with connection-based intercarrier charges.
- Western Wireless. Western Wireless is a wireless carrier that receives universal service support in 14 states. Its plan would reduce intercarrier charges in equal steps over four years to bill-and-keep.
- NASUCA. NASUCA is the National Association of State Utility Consumer Advocates. NASUCA's plan would reduce certain intercarrier rate levels over a five-year period.
To read these plans in their entirety, visit the FCC's web site at
FCC PROPOSES REDUCTION IN CARRIER CHANGE (PIC) CHARGES
On February 10, 2005, the FCC announced the adoption of rules aimed at reducing the cost to consumers of switching long-distance providers. The current rate of $5 could be reduced to $1.25 under the Commission's new rules. These rates would apply when long-distance carriers order the changes electronically rather than manually. For manual changes, the rates could increase slightly, to $5.50.
Local exchange carriers, which receive the fees for switching a customer's pre-subscribed long-distance carrier, can charge more if they can document higher costs. However, local carriers that adopt the new "safe harbor" rates are free from the expense of submitting detailed cost information. Local companies can also charge less than the safe harbor rate if they choose.
When consumers switch both interstate and intrastate long-distance providers at the same time, the charge for changing the interstate provider is cut in half, from $1.25 to 63 cents for electronically processed changes. The FCC has no authority to reduce the intrastate charge, which is set by each state.
The Commission found that electronic processing and other changes in the industry have reduced the cost of switching carriers since the $5 fee was adopted in 1984. The order creates an incentive for long-distance carriers to invest in electronic processing so that fees charged by local providers won't deter customers from signing up. Long-distance companies sometimes voluntarily pay these fees to attract new customers, but they are not required to do so.
Local carriers that haven't installed systems capable of processing electronic orders would not be required to do so if the investment isn't economically rational. These carriers may charge the safe harbor rate for manual changes.
FCC ADOPTS RULES TO IMPROVE EXCHANGE OF CUSTOMER INFORMATION BETWEEN ILECs AND IXCs WHEN CUSTOMERS SWITCH PREFERRED PROVIDERS
The Commission has adopted new rules that will help ensure that consumers' phone service bills are accurate and that their carrier selection requests are honored and executed without undue delay. The rules specify a number of situations in which carriers must share customer information with each other.
The proceeding began with a Notice of Proposed Rulemaking released on March 25, 2004. It asked parties to address the magnitude of the billing problems ascribed to carriers' failure to exchange customer account information among themselves in a complete and/or timely manner and whether the adoption of mandatory, minimum standards could significantly reduce the percentage of consumer complaints concerning billing errors.
Upon a review of the record, the FCC concluded that mandatory, minimum standards are needed to facilitate the exchange of customer account information between local exchange carriers (LECs) and interexchange carriers (IXCs). The FCC pointed to evidence demonstrating that information needed by carriers to execute customer requests in a timely and efficient manner and to properly bill customers was not being consistently provided by all LECs and by all IXCs.
Comments by a group of telephone companies reported, for example, that nearly 60 percent of approximately 3,065 wireline local service providers do not participate in any exchange of customer account information. As a result, on average, approximately 163.7 million calls per month (nearly two billion calls per year) are placed on their long distance networks by subscribers for whom the long distance provider has received no customer billing name and address information. The Commission noted that complaints to its own Consumer Centers also indicated continuing problems caused by lack of information sharing among companies.
Under the new rules, a LEC will be required to supply customer account information to an IXC when: (1) the LEC has placed an end user on the IXC's network; (2) the LEC has removed an end user from the IXC's network; (3) an end user that is presubscribed to the IXC makes certain changes to her account information via her LEC; (4) the IXC has requested billing, name and address (BNA) information for an end user who has usage on the IXC's network but for whom the IXC does not have an existing account; and (5) the LEC rejects an IXC-initiated order to change a customer's presubscribed interexchange carrier (PIC). In addition, an IXC will be required to supply customer account information to a LEC when an end user contacts the IXC directly either to select or to remove the IXC as his PIC. The Commission also required carriers to provide the required notifications promptly and without unreasonable delay.
While the Commission specified what type of information must be shared, it did not specify the method carriers should use, allowing them to share customer account information pursuant to state-mandated data exchange requirements, privately negotiated agreements with other carriers, or voluntarily-established business rules, including the voluntary, industry-developed standards known as the Customer Account Record Exchange (CARE) process. This approach should minimize the potential costs or burdens associated with implementing the information sharing requirements, particularly for small and rural carriers.
The new rules recognize a carrier's right to be compensated for the services it provides by ensuring that providers of long distance phone services receive proper notification when customers are placed on their networks.
The information sharing standards adopted today apply in situations involving an IXC and a LEC (or LECs). The Commission also issued a Further Notice of Proposed Rulemaking (FNPRM) seeking comment on whether they should be extended to situations in which consumers change LECs. The FNPRM specifically asked whether the Commission should require all local service providers to participate in the exchange of customer account information and if so, what information local service providers should be required to supply.
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