[Federal Register Volume 85, Number 131 (Wednesday, July 8, 2020)]
[Rules and Regulations]
[Pages 40908-40915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13183]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 51, 54, 61, and 69
[WC Docket No. 18-155; FCC 20-79; FRS 16861]
Updating the Intercarrier Compensation Regime To Eliminate Access
Arbitrage
AGENCY: Federal Communications Commission.
ACTION: Order on reconsideration.
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SUMMARY: In this document, the Federal Communications Commission
responds to a petition for reconsideration of the Access Arbitrage
Order filed by Iowa Network Services d/b/a Aureon Network Services
(Aureon) in Iowa. Upon review of the record, we dismiss Aureon's
Petition as procedurally defective, and independently, and in the
alternative, deny it on substantive grounds.
DATES: The denial of the petition for reconsideration was effective
June 11, 2020.
ADDRESSES: The complete text of this document is available for
inspection and copying during normal business hours in the FCC
Reference Information Center, Portals II, 445 12th Street SW, Room CY-
A257, Washington, DC 20554, or at the following internet address: At
https://docs.fcc.gov/public/attachments/FCC-20-79A1.pdf.
FOR FURTHER INFORMATION CONTACT: For further information, please
contact Victoria Goldberg, Pricing Policy Division, Wireline
Competition Bureau, at [email protected].
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order
on Reconsideration (Order) in WC Docket No. 18-155, adopted June 11,
2020 and released June 11, 2020. The full text of this document is
available on the Commission's website at https://docs.fcc.gov/public/attachments/FCC-20-79A1.pdf.
I. Introduction
1. In the 2019 Access Arbitrage Order (84 FR 57629, Oct. 28, 2019),
we tackled, once again, the troublesome use of ``free'' conference
calling, chat lines, and certain other services operated out of rural
areas to take advantage of inefficiently high access charges allowed
under the existing intercarrier compensation regime. As we explained,
access stimulation schemes adapted to shrinking end office termination
charges by taking advantage of access charges that had not transitioned
or were not transitioning to bill-and-keep. As such, these schemes were
structured to ensure that interexchange carriers (IXCs) would pay high
tandem switching and tandem switched transport charges to access-
stimulating local exchange carriers (LECs) and to the intermediate
access providers chosen by those access-stimulating LECs. We also found
that the vast majority of access-stimulation traffic was bound for LECs
that subtended two centralized equal access (CEA) providers, Iowa
Network Services d/b/a Aureon Network Services (Aureon) in Iowa and
South Dakota Network, LLC (SDN) in South Dakota.
2. To eliminate the financial incentives to engage in access
arbitrage, we adopted rules making access-stimulating LECs--rather than
IXCs--financially responsible for the tandem switching and transport
service access charges associated with the delivery of traffic from an
IXC to the access-stimulating LEC end office or its functional
equivalent. To facilitate the implementation of the rules in Iowa and
South Dakota, we also modified the section 214 authorizations for
Aureon and SDN to permit traffic terminating at access-stimulating LECs
that subtend those CEA providers' tandems to bypass the CEA tandems.
3. Now Aureon seeks reconsideration of the Access Arbitrage Order.
In its Petition, Aureon reiterates several of the arguments it made on
the record in the Access Arbitrage proceeding. In particular, Aureon
objects to our decision to adopt rules making access-stimulating LECs
responsible for paying for tandem switching and transport services, and
argues that we should instead have adopted one of its proposals--either
to ban access stimulation or to require consumers placing calls to
access-stimulating LECs to pay their IXCs an additional charge for each
such call. Aureon also objects to our decision to modify its section
214 authorization, and it argues that we should have addressed its cost
and rate complaints that are at issue in other Commission proceedings.
Upon review of the record, we dismiss Aureon's Petition as procedurally
defective, and independently, and in the alternative, deny it on
substantive grounds.
II. Background
4. The Commission has been combating access stimulation for more
than a decade. Traditionally, access-stimulating LECs relied on the
existence of high end office terminating switched access rates in rural
areas that allowed them to increase their revenue by inflating their
terminating call volumes through arrangements with entities that offer
high-volume calling services. Because LECs entering traffic-inflating
revenue-sharing agreements were not required to reduce their access
rates to reflect their increased volume of minutes, access stimulation
increased access minutes-of-use and access payments (at constant, per-
minute-of-use rates that exceed the actual average per-minute cost of
providing access). As a result, IXCs and their customers had to pay
those inflated intercarrier compensation charges.
5. In the 2011 USF/ICC Transformation Order (76 FR 73830, Nov. 29,
2011), the Commission found that access-stimulating LECs were
``realiz[ing] significant revenue increases and thus inflated profits
that almost uniformly [made] their interstate switched access rates
unjust and unreasonable.'' The record showed that the ``total cost of
access stimulation to IXCs [had] been more than $2.3 billion over the
[preceding] five years'' and that ``Verizon estimate[d] the overall
costs to IXCs to be between $330 and $440 million per year.'' The
Commission explained that all long distance customers ``bear these
costs, even though many of them do not use the access stimulator's
services, and, in essence, ultimately support businesses designed to
take advantage of today's above-cost intercarrier compensation rates.''
The Commission also found that ``[a]ccess stimulation imposes undue
costs on consumers, inefficiently diverting capital away from more
productive uses such as broadband deployment,'' and that it ``harms
competition by giving companies that offer a `free' calling service a
competitive advantage over companies that charge their customers for
the service.''
6. The Commission sought to eliminate the detrimental effect of
[[Page 40909]]
access stimulation on all American consumers by requiring LECs to
refile their interstate switched access tariffs at lower rates if: (1)
The LEC has a revenue-sharing agreement; and (2) the LEC either has (a)
a 3:1 ratio of terminating-to-originating traffic in any month or (b)
has more than a 100% increase in traffic volume in any month measured
against the same month during the previous year. These rules were
``narrowly tailored to address harmful practices while avoiding burdens
on entities not engaging in access stimulation.'' The LECs that were
thereby identified as being engaged in access stimulation were, for the
most part, required to change their tariffs for end office access
charges. A rate-of-return LEC was required to file its own cost-based
tariff under section 61.38 of the Commission's rules and could not file
based on historical costs under section 61.39 of the Commission's rules
or participate in the NECA traffic-sensitive tariff. A competitive LEC
was required to benchmark its tariffed end office access rates to the
rates of the price cap LEC with the lowest interstate switched access
rates in the state.
7. In the USF/ICC Transformation Order, the Commission transitioned
end office terminating access charges to bill-and-keep. The Commission
found that the transition to bill-and-keep would help reduce access
stimulation by reducing ``competitive distortions inherent in the
intercarrier compensation system and eliminating carriers' ability to
shift network costs to competitors and their customers.'' At the same
time, the Commission transitioned tandem switching and transport
charges to bill-and-keep for price cap carriers when the terminating
price cap carrier owns the tandem in the serving area, 47 CFR 51.907.
For rate-of-return carriers, the Commission capped terminating
interstate and intrastate transport charges at interstate levels.
8. In September 2017, in light of developments that had occurred in
the relevant markets since the USF/ICC Transformation Order, the
Wireline Competition Bureau (Bureau) sought to refresh the record on
several issues, including the transition of the remaining tandem
switching and transport charges to bill-and-keep. The comments that the
Bureau received suggested that, in response to the reforms adopted in
the USF/ICC Transformation Order, access stimulation schemes had
adapted to shrinking end office termination charges and sought to take
advantage of access charges that have not yet transitioned or are not
transitioning to bill-and-keep. It appeared that access stimulation
schemes had restructured to take advantage of the tandem switching and
tandem switched transport charges that IXCs pay to access-stimulating
LECs. The access stimulation schemes often involved carriers that
billed ``excessive transport charges, including lengthy per-mile, per-
minute charges to remote areas on large volumes of stimulated''
traffic.
9. In 2018, the Commission adopted a Notice of Proposed Rulemaking
(Access Arbitrage Notice) (83 FR 30628, June 29, 2018) proposing to
eliminate the financial incentive to engage in access arbitrage by
giving access-stimulating LECs two alternatives for connecting to IXCs.
First, the access-stimulating LEC could choose to be financially
responsible for calls delivered to its network; in this situation, IXCs
would no longer pay for the delivery of calls to the access-stimulating
LEC's end office or the functional equivalent. Second, instead of
accepting this financial responsibility, the access-stimulating LEC
could choose to accept direct connections either from the IXC or an
intermediate access provider of the IXC's choice; this alternative
would permit IXCs to bypass intermediate access providers selected by
the access-stimulating LEC. The Commission also sought comment on
revising the access stimulation definition, on moving all traffic bound
for an access-stimulating LEC to bill-and-keep, and on additional
arbitrage schemes and ways to eradicate them.
10. The Commission also sought comment on whether it should modify
the section 214 authorizations of Aureon and SDN, which were granted
almost 30 years ago. When the then-Common Carrier Bureau adopted the
section 214 authorizations which formed the regulatory foundation for
the CEA providers, it included a mandatory use provision for Aureon,
and an apparent mandatory use provision for SDN. These mandatory use
provisions required IXCs delivering terminating traffic to a LEC
subtending one of these CEA tandems to deliver the traffic to the CEA
tandem rather than indirectly through another intermediate access
provider or directly to the subtending LEC. In the Access Arbitrage
Notice, the Commission proposed to eliminate the mandatory use
requirement as it pertains to traffic terminating at access-stimulating
LECs because, among other things, delivery of such high volumes of
traffic was not the reason that CEA providers were authorized.
11. The Commission received over 140 formal comments and ex parte
communications, and over 2,500 ``express'' comments in response to the
Access Arbitrage Notice. In the Access Arbitrage Order, we found that
the rules adopted in the USF/ICC Transformation Order resulted in a
dramatic reduction in costs to IXCs--from approximately $330 million to
$440 million annually reported in 2010 to between $60 million and $80
million annually reported in 2019--and ``effectively discouraged rate-
of-return LEC access stimulation activity.'' We also found that since
terminating end office access rates had transitioned to bill-and-keep
they were no longer driving access stimulation. Instead, we found that
access arbitrage schemes were taking advantage of terminating tandem
switching and transport service access charges which, unlike end office
switching charges, had not yet transitioned or are not transitioning to
bill-and-keep. We also found that access stimulators typically operate
in those areas of the country where tandem switching and transport
charges remain high and are causing intermediate access providers,
including CEA providers, to be included in the call path. We further
explained that the tariffed tandem and transport access charges of CEA
providers with mandatory use requirements served as a price umbrella
for similar services offered by intermediate access providers pursuant
to commercial agreement, thus inviting access arbitrage. The
intermediate access provider would attract traffic to its facilities by
offering a small discount from the applicable tariffed CEA rate.
12. In the Access Arbitrage Order, we adopted three key rule
modifications of relevance here. First, to reduce the use of the access
charge system to subsidize high-volume calling services, we adopted
rules making access-stimulating LECs--rather than IXCs--financially
responsible for the tandem switching and tandem switched transport
access charges for the delivery of terminating traffic from IXCs to the
access-stimulating LECs' end offices or their functional equivalents.
Second, we modified the definition of access stimulation to include two
new alternative triggers without a revenue-sharing component. Third, to
facilitate our new rules, we modified the Aureon and SDN section 214
authorizations to eliminate the mandatory use requirements insofar as
they apply to traffic being delivered to access-stimulating LECs. We
therefore enabled ``IXCs to use whatever intermediate access provider
an access-stimulating LEC that otherwise subtends Aureon or SDN
chooses.'' We reasoned that our action would ``allow IXCs to directly
connect to access-stimulating LECs
[[Page 40910]]
where such connections are mutually negotiated and where doing so would
be more efficient and cost-effective.''
13. In November 2019, Aureon filed its Petition seeking
reconsideration of the Access Arbitrage Order. Aureon requests that we:
(a) Reconsider our rules requiring access-stimulating LECs to pay
tandem switching and transport charges and instead either ban access
stimulation or, in the alternative, require callers to high-volume
calling services to pay for additional fees to cover the costs of the
IXCs' access charges; (b) retain the mandatory use provisions of the
section 214 authorizations for Aureon and SDN; and (c) reconsider what
Aureon characterizes as additional financial burdens on CEA providers
created by our reforms.
14. We released a Public Notice announcing the filing of the
Petition and established deadlines for Oppositions and Replies to the
Petition. We received Oppositions from AT&T, Verizon and Sprint, and a
Reply from Aureon.
15. Any interested party may file a petition for reconsideration of
a final action in a rulemaking proceeding, 47 CFR 1.429(a).
Reconsideration ``may be appropriate when the petitioner demonstrates
that the original order contains a material error or omission, or
raises additional facts that were not known or did not exist until
after the petitioner's last opportunity to present such matters,'' 47
CFR 1.429(b). Petitions for reconsideration that do not warrant
consideration by the Commission include those that: ``[f]ail to
identify any material error, omission, or reason warranting
reconsideration; [r]ely on facts or arguments which have not been
previously presented to the Commission; [r]ely on arguments that have
been fully considered and rejected by the Commission within the same
proceeding;'' or ``[r]elate to matters outside the scope of the order
for which reconsideration is sought,'' 47 CFR 1.429(l)(1)-(3), (5). The
Commission may consider facts or arguments not previously presented if:
(1) They ``relate to events which have occurred or circumstances which
have changed since the last opportunity to present such matters to the
Commission'', 47 CFR 1.429(b)(1); (2) they were ``unknown to petitioner
until after [their] last opportunity to present them to the Commission,
and . . . could not through the exercise of ordinary diligence have
learned of the facts or arguments in question prior to such
opportunity,'' 47 CFR 1.429(b)(2); or (3) ``[t]he Commission determines
that consideration of the facts or arguments relied on is required in
the public interest,'' 47 CFR 1.429(b)(3).
III. Discussion
16. We consider and dismiss Aureon's Petition as procedurally
deficient. Separately, we deny the Petition on the merits. In the
discussion below, we address the Petition's procedural defects and then
turn to the shortcomings of Aureon's substantive arguments.
A. Aureon's Petition Is Procedurally Defective
17. Aureon fails to meet the standard to justify reconsideration.
It does not identify any material error or omission in the Access
Arbitrage Order; raise facts that were not known or did not exist
before Aureon's last opportunity to present such matters in the
underlying rulemaking; or demonstrate that reconsideration would be in
the public interest. Instead, Aureon's Petition suffers from numerous
procedural flaws--repeating arguments that Aureon previously raised and
to which we responded, raising ``new'' arguments that it could have
made in the underlying proceeding, and presenting arguments that are
beyond the scope of this proceeding--that warrant dismissal, 47 CFR
1.429(l).
18. The Commission Need Not Address Petitions that Repeat Previous
Arguments. Our rules and precedent are clear that we need not consider
petitions for reconsideration, such as Aureon's, that ``merely repeat
arguments we previously . . . rejected'' in the underlying order.
Nonetheless, Aureon focuses its Petition on arguments it already made.
Most notably, notwithstanding Aureon's claim to the contrary, in the
Access Arbitrage Order, we fully considered and rejected its
recommendations to ban access stimulation or to allow IXCs to charge
users of access-stimulating services for the access costs associated
with those services.
19. We recognize that we are required to `` `consider responsible
alternatives to [our] chosen policy and to give a reasoned explanation
for [our] rejection of such alternatives.' '' At the same time, while
``an agency ordinarily must consider less restrictive alternatives and
should explain its reasons for failing to adopt such alternatives,'' we
are required only to provide an explanation of our decision to reject
any particular proposal.
20. With respect to Aureon's proposal to ban access stimulation, in
the Access Arbitrage Order, we recognized Aureon's proposal and found,
as the Commission concluded in the USF/ICC Transformation Order, that a
ban would be an overbroad solution. As we explained, we therefore opted
to ``prescribe narrowly focused conditions for providers engaged in
access stimulation'' that strike an ``appropriate balance between
addressing access stimulation and the use of intermediate access
providers while not affecting those LECs that are not engaged in access
stimulation.'' Thus, we fully considered and rejected Aureon's
proposal.
21. With respect to Aureon's proposal to require IXCs to charge
access-stimulation service customers the cost of related access
charges, we explicitly addressed Aureon's previous, more specific
proposal that we allow IXCs to charge a penny a minute to their
customers making calls to access-stimulating LECs. We gave two reasons
for rejecting Aureon's proposal on the merits, explaining that: (1)
There was no evidence to suggest that access-stimulation calls cost a
penny per minute, ``so the proposal would simply trade one form of
inefficiency for another;'' and (2) ``such an overbroad proposal . . .
would confuse consumers and unnecessarily spill into, and potentially
affect, the operation of the more-competitive wireless marketplace.''
Aureon now claims that it never intended to propose charging customers
``a specific price for the call, such as a penny'' and insists that its
intent was simply to suggest charging customers ``something other than
zero for a call that has been falsely represented in the past as being
`free.''' Putting aside Aureon's attempt to recast its proposal, Aureon
fails to persuade us that our consideration of the concept of IXCs
charging end users for placing calls to access-stimulating LECs was
insufficient.
22. We also fully considered and rejected another request that
Aureon now repeats: That we not modify its section 214 certification.
As we explained when we rejected this request, Aureon provided no
supporting detail for its claim that modifying its section 214
authorization would negatively affect its ability to provide services
in rural areas and to maintain its network. We further explained that
``[o]ur decision to permit traffic being delivered to an access-
stimulating LEC to be routed around a CEA tandem does not affect
traffic being delivered to non-access-stimulating LECs that remain on
the CEA network, and will not impact Aureon's ability to serve rural
areas, contrary to Aureon's concern.'' As these arguments have been
``fully considered and rejected by the Commission,'' they are
procedurally improper here.
[[Page 40911]]
23. Aureon also repeats various other arguments that we addressed
in the Access Arbitrage Order. For example, Aureon again claims that
our access arbitrage rules shift costs to ``a few thousand rural
customers paying for access stimulation services that they never use,
as the LECs recover their costs from their rural end users.'' The claim
is incorrect. As we explained in the Access Arbitrage Order, our new
rules ``shift the recovery of costs associated with the delivery of
traffic to an access-stimulating LEC's end office from IXCs to the
LEC.'' And, under our new rules, carriers may respond to the shifting
financial responsibilities ``in a number of ways--including in
combination--such as by changing end-user rates,'' selecting less
costly intermediate access providers or traffic routes, or seeking out
other revenue sources, such as ``through an advertising-supported
approach to offering free services or services provided at less than
cost.''
24. Aureon also rehashes its previous argument that under the new
rules, large IXCs ``could engage in arbitrage with respect to wholesale
IXC transport and transit service.'' In the Access Arbitrage Order, we
found ``no merit'' to these same arguments because Aureon failed to
explain how IXCs would accomplish such arbitrage. As we explained, our
new rules did not shift arbitrage opportunities to IXCs or to any other
providers.
25. Aureon also repeats the argument that our new rules could lead
to call completion problems. In the Access Arbitrage Order, we
concluded that an intermediate access provider may consider its call
completion duties satisfied ``once it has delivered the call to the
tandem designated by the access-stimulating LEC.'' Finally, Aureon
again raises concerns about the ``demise'' of its network without
access-stimulating LECs (one that it does not attempt to square with
its request to outlaw access stimulation). Aureon raised these concerns
during the rulemaking proceeding and we dismissed them because Aureon
provided no data to support its claims.
26. Apparently recognizing this weakness in its Petition, Aureon
contends that we should exercise our discretion and consider its
Petition even though it repeats arguments we have already rejected.
Yet, to support this contention, Aureon relies on three Commission
orders denying other petitions for reconsideration. We find none of the
proffered orders persuasive. The first order is simply inapposite--it
does not even discuss review of repetitious petitions for
reconsideration. The second order denies the petitions at issue in part
because they were repetitive. In the third order, the Commission
considers a repetitious petition for reconsideration, as Aureon would
have us do here, but ultimately denies the petition because the
petitioner failed to demonstrate any material error or omission or to
raise any new facts, and found that the new arguments were
unpersuasive. Thus, the orders Aureon cites do little to advance its
cause. Certainly nothing in those orders requires us to review, much
less grant, Aureon's Petition to the extent it merely repeats arguments
it made in the underlying proceeding.
27. The New Arguments That Aureon Now Makes Should Have Been Known
to It. Aureon complains for the first time about possible costs it may
incur related to compliance with the switch in financial responsibility
for tandem switching and transport services provided to access
arbitrage customers, claiming that it would be an ``administrative
nightmare'' if LECs change their status from access-stimulating LECs to
non-access-stimulating LECs--which it contends incorrectly could take
place monthly, 47 CFR 61.3(bbb)(2)-(3). Aureon also predicts an
increase in billing disputes related to the Order. Aureon failed to
raise these challenges in its various filings in the underlying
proceeding, and it has provided no explanation why it could not have
raised these issues before the Access Arbitrage Order was adopted.
28. Also for the first time, Aureon provides data purporting to
illustrate that ``Aureon would be prevented from charging a cost-based
rate above the competitive LEC benchmark rate if access stimulation
traffic were removed from the CEA network.'' Certainly, Aureon should
have been able to provide such illustrative data during the rulemaking
proceeding. The application of the competitive LEC benchmark rule is
not new, and Aureon was on notice of our proposed course of action with
respect to access stimulation. Aureon has provided no explanation as to
why it could not have provided this financial data during the
rulemaking proceeding (nor, again, how its argument here squares with
its request to outlaw access arbitrage), 47 CFR 1.429(l); 47 U.S.C.
405.
29. Aureon Seeks Reconsideration Based on Issues Beyond the Scope
of This Proceeding. We also find that Aureon's Petition is procedurally
deficient and subject to dismissal insofar as it requests that on
reconsideration we address the rates that Aureon can charge as a CEA
provider. Aureon complains about ``rate differentials,'' the
Commission's ``accounting directive'' for CEA service, and the rate
caps that have applied to Aureon since before the Access Arbitrage
Order. Aureon also asserts that the reforms adopted in the Access
Arbitrage Order will prevent it from recovering its costs--because of
the preexisting cap on its rates--and complains that those same reforms
``do[ ] not allow Aureon to earn the authorized rate of return or to
charge just and reasonable rates.'' We dismiss these arguments because
they are outside the scope of the proceeding. As we explained in the
Access Arbitrage Order, the rules we adopted in that Order ``do not
affect the rates charged for tandem switching and transport.''
Likewise, nothing in the Access Arbitrage Order affects the method that
Aureon must use to calculate its rates. Indeed, the issue of Aureon's
rates and the proper method of calculating those rates are the subject
of two entirely separate proceedings.
B. Aureon's Petition Fails on the Merits
30. Although Aureon's Petition warrants dismissal on procedural
grounds alone, we also find that the Petition fails on the merits. This
failure provides an alternative and independent basis for rejecting the
Petition. Contrary to Aureon's claims, the rules we adopted in the
Access Arbitrage Order accomplish our goal of removing the financial
incentives to engage in access arbitrage and reducing the use of
intercarrier compensation to provide implicit subsidies to services
offered by access-stimulating LECs. It was also reasonable for us to
find that the rules we adopted are more targeted and more effective
than a blanket ban on access stimulation or a rule allowing IXCs to
charge consumers more for calls to access-stimulation services.
Finally, our decision to modify Aureon's section 214 authorization was
supported by the record and furthers our goal of shifting financial
responsibility for access stimulation to the access-stimulating LEC.
1. The Reforms Adopted in the Access Arbitrage Order Are Consistent
With the Commission's Policy Goals
31. Our Action Removes Financial Incentives to Engage in Access
Arbitrage. In both the Access Arbitrage Notice and the Access Arbitrage
Order, the Commission was clear that the fundamental goal in this
proceeding was to remove financial incentives to engage in access
arbitrage. In the USF/ICC Transformation Order, the Commission
successfully sought to reduce the cost of
[[Page 40912]]
access arbitrage by defining access stimulation and by capping the
terminating end office rates charged by access-stimulating competitive
LECs. The Commission also recognized that the transition of all
terminating end office charges to bill-and-keep would further reduce
the cost of access arbitrage to IXCs and their customers. In the Access
Arbitrage Order, we found that the Commission's existing rules worked
well and reduced the annual cost of access arbitrage to IXCs, and by
extension their customers, from between $330 million to $440 million
annually to between $60 million to $80 million annually. We explained
that, as terminating end office rates fell, those charges no longer
drove access-stimulation schemes. Despite this history, Aureon seeks to
attack our decisions in the Access Arbitrage Order, first by arguing
that ``years of experience have shown that [reforming] the intercarrier
compensation approach simply does not work'' to curb access arbitrage.
This argument ignores the evidence presented in the Access Arbitrage
Order demonstrating that the rules adopted in the USF/ICC
Transformation Order substantially reduced access arbitrage.
32. Aureon also ignores the very real benefit of the rules we
adopted in the Access Arbitrage Order. By making access-stimulating
LECs financially responsible for the rates charged to terminate traffic
to their end offices or functional equivalents, we now prevent access-
stimulating LECs from passing the costs of their services--or the
services of their high-volume calling provider partners--on to IXCs
and, by extension, the public at large. This may, in turn, cause
``users to cease using those services, and cause access-stimulating
LECs or their [high-volume calling provider partners] to terminate the
calling services altogether.'' This outcome is more than just
hypothetical. While most of the rules have only been in effect since
November 2019, we have already received letters from several entities
stating that they are exiting the access stimulation business. Aureon
neither acknowledges these developments nor provides any new evidence
demonstrating that IXCs are, or even could, engage in the type of
hypothetical arbitrage it theorizes about. Aureon argues that our new
rules are ineffective at reducing access stimulation, citing the
behavior of two companies that Aureon believes are taking steps to
evade our new rules. We stand ready to address and prevent any efforts
to circumvent our new rules. Indeed, the Wireline Competition Bureau
has already initiated one such investigation. However, efforts to
circumvent our rules do not undermine our reasonable predictive
judgment that the rules adopted in the Access Arbitrage Order will help
eliminate ``the financial incentives to engage in access arbitrage,'' a
prediction confirmed by the number of companies that have notified us
that they have left the access stimulation business. In sum, Aureon's
Petition does not support its claim that our new rules work at cross-
purposes with our goal.
33. Our Actions Address the Use of Intercarrier Compensation to
Provide Implicit Subsidies to Services Offered by Access-Stimulating
LECs. As we explained in the Access Arbitrage Order and Aureon has now
acknowledged, prior to the Access Arbitrage Order, ``it was the IXCs'
customers that subsidized the access costs incurred for a small subset
of customers to use an access stimulating service.'' Under our new
rules, a significant benefit of requiring access-stimulating LECs to
pay for tandem switching and transport is that doing so ends the use of
intercarrier compensation to implicitly subsidize access stimulation
services. Yet, Aureon claims that our access arbitrage rules shift
costs to ``a few thousand rural customers paying for access stimulation
services that they never use, as the LECs recover their costs from
their rural end users.'' This argument makes a number of unsupported
assumptions. First, it assumes that access-stimulation schemes will
continue to operate out of rural areas, despite the loss of the
financial incentives in the form of intercarrier compensation revenue
that led them there in the first place. Second, it assumes that access-
stimulating LECs have customers not engaged in access-stimulation
schemes and that those customers would remain customers should they
face higher prices. Finally, it assumes that access-stimulating LECs
are charging or will charge their non-access-stimulation customers more
to cover their new costs and fails to consider the possibility that
access-stimulating LECs will instead pass tandem switching and
transport charges through to the high-volume calling service providers
that cause the LECs to incur those costs. The latter possibility
properly aligns financial incentives by shifting costs to the cost
causers, which is what we set out to accomplish. And, despite
significant evidence that access-stimulating LECs have already exited
the access-stimulation business, we have no evidence that our rules
have led to an increase in rural rates and we have no evidence that
future departures from the access-stimulation business will cause such
increases.
34. There Is No Reason to Think that the Access Arbitrage Order
Will Have a Negative Impact on the Commission's Goal of Fostering
Competition in Rural Areas. Aureon further argues that amending its
section 214 authorization to exempt traffic delivered to access-
stimulating LECs from the mandatory use provision of that authorization
is inconsistent with a goal of that section 214 authorization:
Encouraging long distance competition in rural areas. Aureon does not
explain how modification of its section 214 authorization to eliminate
the mandatory use requirement for traffic delivered to access-
stimulating LECs will decrease IXC competition. Rather, Aureon suggests
that loss of access-stimulation traffic will lead to the ``demise'' of
its network, which it argues will have a deleterious impact on
competition in rural areas. Yet, in its Petition, Aureon does not
explain why it thinks the loss of access-stimulation traffic will lead
to its demise, nor does it attempt to reconcile the inconsistency
between its advocacy for an order on reconsideration that prohibits
access stimulation and its apparent claim that loss of access-
stimulation traffic will cause the Aureon network to collapse and
eliminate long distance competition in rural Iowa. Furthermore, there
is no evidence that access-stimulation traffic existed when Aureon
received its section 214 authorization. Indeed, the section 214
authorization was granted based on the Commission's understanding that
the CEA network would be supported primarily by intrastate traffic, not
interstate traffic. Aureon also fails to acknowledge that another CEA
provider, Minnesota Independent Equal Access Corporation, does not have
a mandatory use requirement in its authorization and that SDN has not
challenged the modification of its section 214 certification in the
Access Arbitrage Order. Both facts suggest that the mandatory use
requirement is not necessary for the successful operation of a CEA
network.
2. The Commission Justifiably Rejected Aureon's Proposals
35. We continue to find no merit to Aureon's position that either
its proposed ban on access stimulation or its proposal to allow IXCs to
charge end users for some of the access costs required to complete a
call to a high-volume calling service would be better than the more
nuanced approach we took in the Access Arbitrage Order.
[[Page 40913]]
36. In its Petition, Aureon argues that by failing to ban access
stimulation, the new rules will require it to ``maintain large and
potentially unused capacity to accommodate potential `whipsawing' of
traffic between networks.'' Aureon fails to explain, however, how these
issues stem from our access arbitrage rules and in its Petition
provides no data--such as forecasted capacity requirements or the cost
to Aureon of engineering its network to accommodate the alleged
capacity requirements--to support its claims. We fail to see how
Aureon's allegations about its capacity issues are attributable to the
new access arbitrage rules. If anything, the issue of capacity on
Aureon's network likely predates the Access Arbitrage Order.
37. We are also unpersuaded by Aureon's argument that banning
access stimulation would be preferable to our current rules because
under the new rules, rural end users will pay for access stimulation
services, even if those consumers don't use the services. We disagree
with Aureon's conclusion. Aureon does not attempt to square these
unsupported assertions with the fundamental premise of the rules
adopted in the Access Arbitrage Order: To make the access-stimulating
LEC--not rural end users--financially responsible for the rates charged
for stimulated traffic terminated to the LEC's end office or functional
equivalent. We agree with AT&T that, contrary to Aureon's assertions,
``the bulk of the access termination costs will be borne by access
stimulation LECs, the [free calling partners] or their customers--not
by rural customers who do not use the services.''
38. Moreover, we agree with AT&T and Sprint that Aureon's proposed
``ban'' would be unlikely to be effective. Aureon proposed to define
``High Call Volume Service'' as a high call volume operation marketed
as free to the end user and to ban services that met that definition.
Aureon also proposed a blanket prohibition on carrying traffic
associated with a high-volume calling operation ``with a rebuttable
trigger of 100,000 minutes per month to a single telephone number
whereby calls to that number would be prohibited.'' Aureon does not
explain how we would effectively monitor whether a high-volume calling
service is marketed as free to end users, however. Nor does Aureon
explain how we would enforce a prohibition on calls to a single number
that exceed 100,000 minutes in a given month. If the Commission could
not effectively identify whether a carrier is providing service to a
``high call volume operation,'' it would not be able to enforce the
proposed prohibition against carrying traffic for such providers. In
addition, carriers could circumvent Aureon's proposed minutes-of-use
trigger by operating enough telephone numbers for a particular access
stimulation scheme to keep the call volumes for a single telephone
number below the 100,000-minute threshold, and if they did so, it
appears that Aureon would have the same issue with managing capacity
requirements and call completion. Aureon did not grapple with these
issues in its comments during the rulemaking proceeding and makes no
effort to do so in its Petition or its Reply.
39. Relatedly, Aureon fails to provide any explanation as to how or
why a ban would be less restrictive than the narrowly focused rules we
adopted. Confusingly, Aureon asserts that ``[a]ll evidence points to
Aureon's proposed [ban] as satisfying both the FCC's existing policy .
. . and being less restrictive and burdensome because no sea-change
would be required with regard to how . . . the telecommunications
industry operated'' prior to the adoption of our new access arbitrage
rules. But, surely a complete ban on access stimulation (if it were
successful) would result in less traffic being delivered from IXCs to
CEA providers, not ``higher traffic volumes'' as Aureon suggests.
Aureon likewise provides no information about the alleged ``sea-
change'' wrought by our new rules beyond saying that it has always been
the norm for IXCs to pay access charges. Simply because ``it has always
been done that way'' does not mean that the Commission cannot change
course. And a change in course was warranted here to reduce the LECs'
incentives to engage in access stimulation.
40. Aureon also fails to substantively support its claim that our
new rules create an ``administrative nightmare.'' Aureon complains that
it will incur billing costs because LECs could become access
stimulators one month and then cease to be access stimulators the next,
resulting in the potential for billing disputes. Aureon provides no
data to support its concerns about billing costs. Nor does it provide
any data about how many LECs would change their status monthly, or even
how many access-stimulating LECs currently subtend its network.
Moreover, Aureon fails to address the fact that our rules prevent
access-stimulating LECs not engaged in revenue sharing from changing
their status more than once every six months, 47 CFR 61.3(bbb)(2)-(3).
In addition, Aureon does not explain why the reforms adopted in the
Access Arbitrage Order would lead to increased billing disputes.
41. Aureon claims that the rules requiring access-stimulating LECs
to pay Aureon for all terminating CEA services are ``overly broad''
because the CEA traffic will be ``some mix of traditional traffic and
access stimulation traffic.'' Aureon's concerns are misplaced. We
clearly and intentionally made sure that our rules covered both
``traditional'' and access-stimulation traffic, shifting ``financial
responsibility for all tandem switching and transport services to
access-stimulating LECs.'' As a result, it should make no difference to
Aureon whether the traffic it delivers to an access-stimulating LEC
consists entirely of access-stimulation traffic, non-access stimulation
traffic, or a mix of both.
42. Finally, Aureon argues that the Commission has, ``in analogous
contexts, determined that it was not overly broad to prohibit certain
types of behaviors.'' This argument falls far short of justifying
Aureon's requested reconsideration. Simply because the Commission has
chosen to ban certain unrelated practices in unrelated proceedings does
not mean that we were bound to ban a particular practice in this
particular proceeding.
43. Aureon's proposal that we allow IXCs to pass through the costs
of access stimulation to customers calling access-stimulating LECs also
fails on the merits. Aureon argues that allowing pass-through charges
to the users of high-volume calling services sends the correct pricing
signals whereas, as Aureon implies, the rules adopted in the Access
Arbitrage Order do not. But Aureon still does not provide any data
about what the pass-through cost could or should be, it does not
explain why it provided no such data in the underlying proceeding, nor
does it explain how we could reach a decision about what would be an
appropriate charge without such data. Our approach, which places
financial responsibility on the access-stimulating LECs, is simpler to
administer and avoids the difficulty of attempting to calculate a pass-
through charge absent relevant data, which, as we recognized in the
Access Arbitrage Order, is lacking.
44. In any event, contrary to Aureon's assertion, consumers are
``provided with more-accurate pricing signals for high-volume calling
services'' under our new rules. In the Access Arbitrage Order, we moved
the cost of terminating access charges for stimulated traffic from IXCs
to access-stimulating LECs, thereby aligning the cost of using high-
volume calling services closer to the actual users of those services.
As AT&T aptly explains, access-stimulating LECs and
[[Page 40914]]
high-volume calling service providers now ``have a choice to either
absorb the terminating access cost themselves, or pass them along to
the users of free calling services.'' If access-stimulating LECs decide
to pass those costs through to the users of those calling services,
those services will no longer be free. But, in either case, end users
will receive more accurate indications of the price of the services
they use. Our approach is also more consistent with cost causation
principles because it aligns the ``costs associated with traffic
destined for `free' conference call services to the carrier directly
serving the free conference call company rather than to all the
carriers that deliver conference call traffic that originates all over
the world.'' We agree with Sprint that ``[a]ligning costs this way . .
. requir[es] the final carrier--the cost causer access stimulating LEC
(and ultimately its customers, the conference call company)--to bear
the costs of decisions they make as to where to place the switch that
is serving the conference call company.'' Thus, we agree with
commenters that Aureon has not shown that requiring IXCs to pass
through costs to end users would be more effective at eliminating
access arbitrage than our chosen approach. We also reaffirm our
conclusion that the rules we adopted in the Access Arbitrage Order
provide customers with more accurate pricing signals than they had
before our Order.
3. Aureon Fails To Show That Our Decision To Modify Its Section 214
Authorization Should Be Reconsidered
45. We also deny on the merits Aureon's request that we reconsider
the modifications to Aureon's and SDN's section 214 authorizations that
now explicitly permit IXCs terminating traffic at an access-stimulating
LEC that subtends either of their CEA tandems to use routes other than
those CEA tandems to reach the access-stimulating LEC. Aureon raises
several objections, but none have merit.
46. To begin with, the reforms adopted in the Order do not prohibit
any access-stimulating LEC from choosing Aureon or SDN as its
intermediate carrier and paying them to provide service. Second, Aureon
argues that we did not consider how changing the mandatory use policy
would affect competition for long distance services. Although it is not
clear, Aureon's argument seems to be based on a prediction that a
reduction of access-stimulation traffic on the Aureon and SDN networks
as a result of the Access Arbitrage Order will lead to Aureon's demise.
Relatedly, Aureon complains that it will be harmed because it relied on
the grant of its section 214 authorization in building and maintaining
its network. These arguments make little sense for a number of reasons.
First, the Order does not eliminate the mandatory use requirements as
they may apply to traffic terminating at non-access-stimulating LECs.
The mandatory use requirements continue to apply to IXCs delivering
traffic to dozens of non-access-stimulating LECs that subtend Aureon's
and SDN's tandems. Third, although we previously dismissed Aureon's
concerns about the financial impact on Aureon in the Arbitrage Order
because Aureon provided no data to support its claims, Aureon once
again failed to provide data supporting its concerns in the Petition.
47. Aureon raised concerns about the ``demise'' of its network in
the underlying rulemaking, and we dismissed those concerns because
Aureon provided no data to support its concerns. AT&T points out that
merely repeating those arguments without ``put[ting] forward any
supporting data'' does not provide a basis for reconsideration. While
Aureon did provide some data in its Reply, it uses the data to spin a
tale about the hypothetical removal of access-stimulation traffic. Such
speculation cannot justify Aureon's request for reconsideration. Aureon
provides three tables showing select information from its most recent
tariff filing. It manipulates these tables to show revenue shortfalls
if access-stimulation traffic were to leave its network. However, there
is evidence in the record that a significant amount of traffic already
bypasses Aureon's CEA tandem. In addition, Aureon bases its
calculations on data provided by AT&T in a different proceeding, using
AT&T's data to calculate the percentage of revenues Aureon may lose in
its hypothetical. But Aureon never confirms whether AT&T's data is
correct. So it is difficult to determine, on the basis of the data
submitted, the actual, verifiable effect of the Access Arbitrage Order
on Aureon's network. Furthermore, while Aureon appears to claim that
the Access Arbitrage Order may lead to its demise by taking access-
stimulation traffic off its network, Aureon does not even attempt to
square that claim with its argument that access stimulation should be
banned. If Aureon's proposed ban were successful, Aureon would also
stop carrying access stimulation traffic, which would have the same
financial impact that Aureon alleges the Access Arbitrage Order will
have. As Verizon points out, banning access stimulation ``would likely
cause the same, or even greater, reduction in traffic on CEA providers'
networks'' as the section 214 modifications.
48. Next, Aureon claims that the Commission ``authorized the
mandatory use policy to . . . bring advanced services to rural areas''
and therefore its mandatory use authority should not be replaced.
Aureon is not able to offer support for this claim because the Aureon
Section 214 Order says nothing about advanced services, which was not a
commonly used term when the then-Common Carrier Bureau adopted that
Order in the 1980s. Instead, the Common Carrier Bureau found that the
mandatory use policy was justified by the revenues that would be
generated by requiring Northwestern Bell to use the CEA network for
intrastate, intraLATA toll calls in Iowa. And the Iowa Supreme Court
relied on the same justification when it upheld the Iowa Utilities
Board's authorization for the CEA network. We also reject as a reason
for reconsideration Aureon's assertion that our modification to the
mandatory use policy is contrary to the Commission's original intent in
establishing the mandatory use policy--to ensure that tariffed CEA
rates would remain affordable for AT&T's smaller IXC competitors. To
the contrary, IXCs carrying terminating access-stimulation traffic
should be paying less now because they will not be paying tandem
switching and transport charges for access-stimulation traffic.
Moreover, Aureon also fails to acknowledge that CEAs were created to
facilitate rural customers' ability to originate calls through the
long-distance carrier of their choice. Our changes to Aureon's section
214 authorization should not have any effect on its ability to provide
centralized equal access service.
49. Aureon goes on to claim that we erred in modifying its section
214 authorization because the mandatory use provisions were in the
public interest. While we acknowledge that the then-Common Carrier
Bureau determined that those provisions were in the public interest in
1988, we also recognize that, at the time, the Common Carrier Bureau
and others envisioned that the majority of the traffic traversing the
CEA network would be intrastate. As we explained in the Access
Arbitrage Order, however, ``[a]ccess stimulation has upended the
original projected interstate-to-intrastate traffic ratios carried by
the CEA networks.'' SDN and Aureon ended up acting as a price umbrella
that allowed access-stimulating LECs and the intermediate access
providers with which they
[[Page 40915]]
partnered to overcharge for transport, as long as they offered a rate
that was slightly under the CEA rate. And, ``because the Commission's
rules disrupt[ed] accurate price signals, tandem switching and
transport providers for access stimulation [had] no economic incentives
to meaningfully compete on price.'' The result was that `` `AT&T and
other carriers routinely discover that carriers located in remote areas
with long transport distances and high transport rates enter into
arrangements with high volume service providers . . . for the sole
purpose of extracting inflated intercarrier compensation rates due to
the distance and volume of traffic.' '' Based on these changed
circumstances, we find that we properly determined ``that the public
interest will be served by changing any mandatory use requirement for
traffic bound to access-stimulating LECs to be voluntary usage'' and
``that access stimulation presents a reasonable circumstance for
departing from the mandatory use policy.'' Thus, although the mandatory
use policy requiring IXCs to use SDN and Aureon for traffic terminating
at participating telephone companies may have been in the public
interest in 1988, it is not in the public interest today with respect
to traffic terminating at access-stimulating LECs.
50. Aureon also claims that the Commission should have used a
``less restrictive and less burdensome'' measure when it modified the
section 214 authorizations. We disagree. Rather than eliminating the
mandatory use provisions altogether, an option that we considered, we
modified them only with respect to traffic terminating at access-
stimulating LECs and only because doing so was necessary to effectuate
our other access stimulation rules. As such, we adopted an approach
that is narrowly tailored and well suited to the problem of the price
umbrellas created by mandatory use that access-stimulating intermediate
providers and their partners were using to their benefit. In the Access
Arbitrage Order. we found that the ``vast majority'' of access-
stimulation traffic was routed to LECs that subtend Aureon and SDN.
Given that finding, we decided to modify Aureon's and SDN's section 214
authorizations to enable IXCs to use whatever intermediate access
provider an access-stimulating LEC that otherwise subtends Aureon or
SDN chooses. We reasoned that doing so will allow IXCs to choose more
efficient and cost-effective routing options--such as direct
connections--to reach access-stimulating LECs. We do not see--and
Aureon has not suggested--a ``less restrictive'' mechanism for
achieving our goal.
51. Finally, Aureon's assertions regarding the importance of the
mandatory use provision are belied by information in the record
indicating that traffic often bypasses its network. Thus, we find no
merit in Aureon's request that we reconsider our decision to modify its
section 214 authorization.
IV. Procedural Matters
52. Paperwork Reduction Act Analysis. This Order on Reconsideration
does not contain any new or modified information collection
requirements subject to the Paperwork Reduction Act of 1995, Public Law
104-13. Thus, it does not contain any new or modified information
collection burden for small business concerns with fewer than 25
employees, pursuant to the Small Business Paperwork Relief Act of 2002,
Public Law 107-198, see 44 U.S.C. 3506(c)(4).
53. Congressional Review Act. The Commission will not send a copy
of this Order on Reconsideration to Congress and the Government
Accountability Office pursuant to the Congressional Review Act, see 5
U.S.C. 801(a)(1)(A), because no rule was adopted or amended.
54. Regulatory Flexibility Act Analysis. In the Access Arbitrage
Order, the Commission provided a Final Regulatory Flexibility Analysis
pursuant to the Regulatory Flexibility Act of 1980, as amended (RFA).
We received no petitions for reconsideration of that Final Regulatory
Flexibility Analysis. In this present Order on Reconsideration, the
Commission promulgates no additional final rules. Our present action
is, therefore, not an RFA matter.
V. Ordering Clauses
55. Accordingly, it is ordered that, pursuant to sections 1, 2,
4(i), 4(j), 201, 214, 218-220, 251, 252, 403 and 405 of the
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i),
154(j), 201, 214, 218-220, 251, 252, 403, 405, and Sec. Sec. 1.47(h),
1.429, 63.10 and 64.1195 of the Commission's rules, 47 CFR 1.47(h),
1.429, 63.10 and 64.1195, this Order on Reconsideration is adopted.
56. It is further ordered that the Petition for Reconsideration
filed by Iowa Network Services, Inc. d/b/a Aureon Network Services, is
dismissed and, on alternate and independent grounds, it is denied.
57. It is further ordered that, pursuant to Sec. 1.103 of the
Commission's rules, 47 CFR 1.103, this Order on Reconsideration shall
be effective upon release.
Federal Communications Commission.
Marlene Dortch,
Secretary, Office of the Secretary.
[FR Doc. 2020-13183 Filed 7-7-20; 8:45 am]
BILLING CODE 6712-01-P