[Federal Register Volume 84, Number 208 (Monday, October 28, 2019)]
[Rules and Regulations]
[Pages 57629-57652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22447]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 51, 61, and 69
[WC Docket No. 18-155; FCC 19-94]
Updating the Intercarrier Compensation Regime To Eliminate Access
Arbitrage
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Commission shifts financial
responsibility for all interstate and intrastate terminating tandem
switching and transport charges to access-stimulating local exchange
carriers, and modifies its definition of access stimulation. Under the
existing intercarrier compensation regime, carriers enter into
agreements with entities offering high-volume calling services, route
the calls through interexchange carriers at more expensive rates, and
profit from the resulting access charge rates which interexchange
carriers are required to pay. With this action, the Commission moves
closer toward its goal of intercarrier compensation regime reform by
reducing the financial incentives to engage in access stimulation.
DATES:
Effective date: November 27, 2019.
Compliance date: Compliance with the requirements in Sec.
51.914(b) and (e) is delayed. The Commission will publish a document in
the Federal Register announcing the compliance date.
FOR FURTHER INFORMATION CONTACT: Lynne Engledow, Wireline Competition
Bureau, Pricing Policy Division at 202-418-1540 or via email at
[email protected].
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order and Modification to Section 214 Authorizations, WC Docket No.
18-155; FCC 19-94, adopted on September 26, 2019, and released on
September 27, 2019. The full text copy of this document may be obtained
at the following internet address: https://docs.fcc.gov/public/attachments/FCC-19-94A1.pdf.
I. Background
1. In the 1980s, after the decision to break up AT&T, the
Commission adopted regulations detailing how access charges were to be
determined and applied by LECs when IXCs connect their networks to the
LECs' networks to carry telephone calls originated by or terminating to
the LECs' customers. Those regulations also established a tariff system
for access charges that mandates the payment of tariffed access charges
by IXCs to LECs. In passing the Telecommunications Act of 1996 (the
1996 Act), Congress sought to establish ``a pro-competitive,
deregulatory national policy framework'' for the United States'
telecommunications industry in which implicit subsidies for rural areas
were replaced by explicit ones in the form of universal service
support. In response, the Commission began the process of reforming its
universal service and ICC systems.
2. In the 2011 USF/ICC Transformation Order (76 FR 73830, Nov. 29,
2011), the Commission took further steps to comprehensively reform the
ICC regime and established a bill-and-keep methodology as the ultimate
end state for all intercarrier compensation. As part of the transition
to bill-and-keep, the Commission capped most ICC access charges and
adopted a multi-year schedule for moving terminating end office charges
and some tandem switching and transport charges to bill-and-keep.
3. In the USF/ICC Transformation Order, the Commission found that
the transition to bill-and-keep would help reduce access stimulation,
and it also attacked access arbitrage directly. The Commission
explained that access stimulation was occurring in areas where LECs had
high switched access rates because LECs entering traffic-inflating
revenue sharing agreements were not required to reduce their access
rates to reflect their increased volume of minutes. The Commission
found that, because 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), it also
increased the average cost of long-distance calling. The Commission
explained that ``all customers of these long-distance providers 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 . . . above-cost intercarrier
compensation rates.'' The Commission, therefore, found that the
terminating end office access rates charged by access-
[[Page 57630]]
stimulating LECs were ``almost uniformly'' unjust and unreasonable in
violation of section 201(b) of the Communications Act of 1934, as
amended (the Act).
4. To reduce financial incentives to engage in wasteful arbitrage,
the Commission adopted rules that identify those LECs engaged in access
stimulation and required that such LECs lower their tariffed access
charges. Under our current rules, to be considered a LEC engaged in
``access stimulation,'' a LEC must have a ``revenue sharing
agreement,'' which may be ``express, implied, written or oral'' that
``over the course of the agreement, would directly or indirectly result
in a net payment to the other party (including affiliates) to the
agreement,'' in which payment by the LEC is ``based on the billing or
collection of access charges from interexchange carriers or wireless
carriers.'' The LEC must also meet one of two traffic triggers. An
access-stimulating LEC either has ``an interstate terminating-to-
originating traffic ratio of at least 3:1 in a calendar month, or has
had more than a 100 percent growth in interstate originating and/or
terminating switched access minutes-of-use in a month compared to the
same month in the preceding year.'' An access-stimulating rate-of-
return LEC is required by our current rules to reduce its tariffed
terminating switched access charges by adjusting those rates to account
for its projected high traffic volumes. An access-stimulating
competitive LEC must reduce its terminating switched access charges to
those of the price cap carrier with the lowest switched access rates in
the state.
5. The record makes clear that these rules were an important step
toward reducing access stimulation and implicit subsidies in the ICC
system. Before the rules were adopted, Verizon estimated that access
arbitrage cost IXCs between $330 million and $440 million annually. By
contrast, IXCs estimate that access arbitrage currently costs IXCs
between $60 million and $80 million annually. In addition, the record
shows that the current access stimulation rules have effectively
discouraged rate-of-return LEC access stimulation activity. The access-
stimulating LECs identified in the record are all competitive LECs. No
rate-of-return LECs have been identified as engaging in an access
stimulation scheme.
6. Terminating end office access rates have now been transitioned
to bill-and-keep for price cap LECs and competitive LECs that benchmark
their rates to price cap LECs, and by July 1, 2020, they will
transition to bill-and-keep for rate-of-return LECs and the competitive
LECs that benchmark to them. Price cap incumbent LEC terminating tandem
switching and transport charges likewise have transitioned to bill-and-
keep when such a LEC is the tandem provider and it, or an affiliated
incumbent LEC, is the terminating end office LEC. As a result,
terminating end office charges are no longer driving access
stimulation.
7. At issue in this proceeding are arbitrage schemes that take
advantage of those access charges that remain in place for those types
of terminating tandem switching and transport services which, unlike
end office switching charges, have not yet transitioned or are not
transitioning to bill-and-keep. 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
centralized equal access (CEA) providers, to be included in the call
path.
8. CEA providers are a specialized type of intermediate access
provider that were formed about 30 years ago to implement long-distance
equal access obligations (i.e., permitting end users to use 1+ dialing
to reach the IXC of their choice) and to aggregate traffic for
connection between rural incumbent LECs and other networks,
particularly those of IXCs. Three CEA providers are currently in
operation--Iowa Network Services, Inc. d/b/a Aureon Network Services
(Aureon), South Dakota Network, LLC (SDN), and Minnesota Independent
Equal Access Corporation (MIEAC). When the Commission authorized
Aureon's creation as a CEA, it adopted a mandatory use requirement that
requires IXCs that deliver traffic to the LECs subtending the Aureon
tandem to deliver the traffic to the CEA tandem, rather than indirectly
through another intermediate access provider or directly to the
subtending LEC. The SDN authorization also includes a similar mandatory
use requirement. MIEAC's authorization does not provide for mandatory
use.
9. In 2018, to address current access stimulation schemes, the
Commission adopted the Access Arbitrage Notice (83 FR 30628, June 29,
2018) and proposed to reduce access arbitrage by making the party that
chooses the call path responsible for the cost of delivering the call
to the access-stimulating LEC. The proposed rules offered a two-prong
solution. Under the first prong, an access-stimulating LEC could choose
to be financially responsible for calls delivered to its network so it,
rather than IXCs, would pay for the delivery of calls to the LEC's end
office, or the functional equivalent. Under the second prong, an
access-stimulating LEC could choose to accept direct connections either
from the IXC or from an intermediate access provider of the IXC's
choice, allowing the IXC to bypass intermediate access providers
selected by the access-stimulating LEC. The Commission reasoned that,
if the access-stimulating LEC were made responsible for paying the
costs of delivering calls to its end office, or if the LEC had to
accept a more economically rational direct connection to its end office
for high volumes of calls, it would be incentivized to move traffic
more efficiently. In the Access Arbitrage Notice, the Commission also
sought comment on possible revisions to the definition of access
stimulation as well as on additional alleged ICC arbitrage schemes and
ways to reduce them.
II. Eliminating Financial Incentives To Engage in Access Stimulation
10. In this document, we adopt rules aimed at eliminating the
financial incentives to engage in access arbitrage created by our
current ICC system. Under our existing rules, IXCs must pay tandem
switching and transport charges to access-stimulating LECs and to
intermediate access providers chosen by the access-stimulating LEC to
carry the traffic to the LEC's end office or functional equivalent.
This creates an incentive for intermediate access providers and access-
stimulating LECs to increase tandem switching and transport charges.
The result, as AT&T explains, is that ``billions of minutes of long
distance traffic are routed through a handful of rural areas, not for
any legitimate engineering or business reasons, but solely to allow the
collection and dispersal of inflated intercarrier compensation revenues
to access-stimulating LECs and their partners, as well as intermediate
providers.''
11. Commenters offer evidence that there are at least 21
competitive LECs currently involved in access stimulation. Although
there are access-stimulating LECs operating in at least 11 different
states, there is wide agreement that the vast majority of access-
stimulation traffic is currently bound for LECs that subtend Aureon or
SDN. To put the number of access stimulation minutes in perspective,
AT&T observes that ``twice as many minutes were being routed per month
to Redfield, South Dakota (with its population of approximately 2,300
people and its 1 end office) as is routed to all of Verizon's
facilities in New York City (with its population of approximately
8,500,000 people and its 90 end
[[Page 57631]]
offices).'' Sprint explains, that while Iowa contains less than 1% of
the U.S. population, it accounts for 11% of Sprint's long-distance
minutes-of-use and 48% of Sprint's total switched access payments
across the United States. Similarly, South Dakota contains 0.27% of the
U.S. population, but accounts for 8% of Sprint's total switched access
payments across the United States.
12. The record shows that CEA providers' tariffed charges for
tandem switching and tandem switched transport serve as a price
umbrella for services offered on the basis of a commercial agreement by
other providers, meaning the commercially negotiated rates need only be
slightly under the ``umbrella'' CEA provider rate to be attractive to
those purchasing the service(s). As AT&T explains:
Some access stimulation LECs (either directly or via least cost
routers) offer commercial arrangements for transport. The rates in
these agreements, however, are well above the economic cost of
providing transport. Because the only other available alternative is
the tariffed transport rate of the intermediate provider selected by
the LEC (such as a centralized equal access provider), that tariffed
rate acts as a ``price umbrella,'' which permits the access stimulation
LEC to overcharge for transport service. The access stimulation LEC or
least cost router can attract business merely by offering a slight
discount from the applicable tariffed rate for tandem switching and
transport. Because the Commission's rules disrupt accurate price
signals, tandem switching and transport providers for access
stimulation have no economic incentives to meaningfully compete on
price.
A. Access-Stimulating LECs Must Bear Financial Responsibility for the
Rates Charged To Terminate Traffic to Their End Office or Functional
Equivalent
13. To reduce further the financial incentive to engage in access
stimulation, we adopt rules requiring an access-stimulating LEC to
designate in the Local Exchange Routing Guide (LERG) or by contract the
route through which an IXC can reach the LEC's end office or functional
equivalent and to bear financial responsibility for all interstate and
intrastate tandem switching and transport charges for terminating
traffic to its own end office(s) or functional equivalent whether
terminated directly or indirectly. These rules effectuate a slightly
modified version of the first prong of the access-stimulation rule
proposed by the Commission in the Access Arbitrage Notice and properly
align financial incentives by making the access-stimulating LEC
responsible for paying for the part of the call path that it dictates.
14. After reviewing the record, we decline to adopt the second
prong of the Commission's proposal that would allow an access-
stimulating LEC to avoid paying for tandem switching and tandem
switched transport by permitting an IXC to directly or indirectly
connect to the LEC and pay for that connection, rather than having the
LEC pay the cost of receiving traffic. We are persuaded by the
substantial number of commenters that argue that adoption of the first
prong of the proposal will better address the problem of access
stimulation and that allowing LECs the alternative of permitting direct
or indirect connections paid for by the IXC would create a substantial
risk of stranded investment.
15. We also modify our definition of access stimulation to capture
the possibility of access stimulation occurring even without a revenue
sharing agreement between a LEC and a high-volume calling service
provider.
1. New Requirements for Access-Stimulating LECs
16. The approach we adopt in this document--shifting financial
responsibility for all tandem switching and transport services to
access-stimulating LECs for the delivery of terminating traffic from
the point where the access-stimulating LEC directs an IXC to hand off
the LEC's traffic--has broad support in the record. This shift in
financial responsibility from IXCs to access-stimulating LECs for
intermediate access provider charges and access-stimulating LECs'
tandem switching and tandem switched transport charges is aimed at
addressing the changes that have occurred in access arbitrage since the
adoption of the USF/ICC Transformation Order. The record shows that
billions of minutes of access arbitrage every year are being directed
to access-stimulating LECs using expensive tandem switching providers
for conference calling and other services offered for ``free'' to the
callers, but at an annual cost of $60 million to $80 million in access
charges to IXCs and their customers. Although only a small proportion
of consumers call access-stimulating LECs, the costs are spread across
an IXC's customers. As a result, long-distance customers are forced to
bear the costs of ``free'' conferencing and other services that only
some customers use. In attacking this form of cross-subsidization, we
follow the lead set by the Commission in the USF/ICC Transformation
Order.
17. Our new rules eliminate the incentives that access-stimulating
LECs have to switch and route stimulated traffic inefficiently,
including by using intermediate access providers to do the same.
Because IXCs currently pay the LECs' tandem switching and tandem
switched transport charges and the intermediate access provider's
access charges, the terminating LEC has an incentive to inflate its own
charges, and is, at a minimum, insulated from the cost implications of
its decision to use a given intermediate access provider. Indeed, in
some cases the terminating LEC may not be merely indifferent to what
interconnection option is most efficient but may have incentives to
select less efficient alternatives if doing so would lead it to
benefit, whether directly or on a corporation-wide basis.
18. As AT&T observes, making access-stimulating LECs financially
responsible for traffic terminating to their end offices will be
effective because it will ``reduce the ability of terminating LECs and
access stimulators to force IXCs, wireless carriers, and their
customers [to subsidize], via revenues derived from inefficient
transport routes, the costs of access stimulation schemes.'' In
addition, the costs of access stimulation are not limited to the access
charges paid by IXCs and their customers. Costs also are incurred by
IXCs in trying to avoid payments to access stimulation schemes whether
through litigation or seeking regulatory intervention.
19. Commenters argue that placing the financial responsibility on
the access-stimulating LEC for delivery of traffic to its end office,
or functional equivalent, will reduce inefficiencies created by access-
stimulating LECs that subtend intermediate access providers and choose
to work with high-volume calling service providers that locate
equipment in remote rural areas without a reason independent of
arbitraging the current ICC system. We agree with these commenters. As
CenturyLink explains, this change will ``properly recognize[] that the
responsibility to pay for the traffic delivery should be assigned to
the entity that stimulated the traffic in the first place.''
20. We find unpersuasive arguments that as a result of the USF/ICC
Transformation Order and the Aureon tariff investigation proceeding
(addressing rate setting by CEA providers), there are few to no
problems arising from arbitrage that need to be solved today. The
record shows that access stimulation schemes are operating in at least
11 states and are costing IXCs between $60 million and
[[Page 57632]]
$80 million per year in access charges. The record also shows that
access stimulation is particularly concentrated where CEA providers
Aureon and SDN received authority from the Commission to construct
their CEA networks. In granting that authority, the Commission included
a mandatory use requirement that requires IXCs to route
telecommunications traffic through the CEA tandems to terminate traffic
to the participating LECs that subtend those tandems. The CEA
providers' tariffed rates to terminate traffic ``are premised on
typical volumes to high-cost rural exchanges.'' We find that these high
CEA rates create a price umbrella: A price that other intermediate
access providers can ``slightly undercut'' but still make a profit. As
a result, ``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 ICC rates
due to the distance and volume of traffic.'' The record shows that
access stimulation also occurs in states not served by CEA providers
but to a lesser extent.
21. Nor do we find persuasive arguments that access stimulation is
beneficial. The Joint CLECs, for example, allege that more than 5
million people ``enjoy the benefits'' of high-volume services hosted by
them on a monthly basis. For its part, HD Tandem claims that ``75
million unique users this year . . . have called voice application
services at the rural LECs that HD Tandem terminates to.'' The Joint
CLECs argue that ``nonprofit organizations, small businesses, religious
institutions, government agencies, and everyday Americans . . . will
undoubtedly suffer if these [access stimulation] services are put out
of business.'' Other parties, including several thousand individual
users of ``free'' conferencing and other high-volume calling services,
have filed comments expressing concern that such ``free-to-the-user''
services will be eliminated by this action and urging us to retain the
current regulatory system in light of the purported benefits such
``free'' services provide. As commenters explain, these arguments are
both self-serving and inconsistent with our goals in reforming the ICC
system. The benefits of ``free'' services enjoyed by an estimated 75
million users of high-volume calling services are paid for by the more
than 455 million subscribers of voice services across the United
States, most of whom do not use high-volume calling services. According
to Sprint, for example, less than 0.2% of its subscribers place calls
to access stimulation numbers, but 56% of Sprint's access charge
payments are paid to access-stimulating LECs--leaving IXC customers
paying for services that the vast majority will never use. We find that
while ``free'' services are of value to some users, these services are
available at no charge because of the implicit subsidies paid by IXCs,
and their costs are ultimately born by IXC customers whether those
customers benefit from the ``free'' services or not.
22. Access-stimulating LECs also argue that the Commission should
find beneficial their use of access-stimulation revenue to subsidize
rural broadband network deployment. These implicit subsidies are
precisely what the Commission sought to eliminate in the USF/ICC
Transformation Order, as directed by Congress in the 1996 Act. Indeed,
the Commission addressed similar arguments in the USF/ICC
Transformation Order, where it found that although ``expanding
broadband services in rural and Tribal lands is important, we agree
with other commenters that how access revenues are used is not relevant
in determining whether switched access rates are just and reasonable in
accordance with section 201(b).'' As Sprint explains, ``this sort of
implicit cross-subsidy is contrary to the principle that access rates
should reasonably reflect the cost of providing access service, and
that subsidies, including universal service support, be explicit and
`specific.''' Competition also suffers because access-stimulation
revenues subsidize the costs of high-volume calling services, granting
providers of those services a competitive advantage over companies that
collect such costs directly from their customers.
23. Eliminating the implicit subsidies that allow these ``free''
services will lead to more efficient provision of the underlying
services and eliminate the waste generated by access stimulation. After
the implicit subsidies are eliminated, customers who were using the
``free'' services, and who value these services by more than the cost
of providing them, will continue to purchase these services at a
competitive price. Thus, the value of the services purchased by these
customers will exceed the cost of the resources used to produce them,
which implies both that customers benefit from purchasing these
services and that network resources are used efficiently. Further,
users who do not value these services by as much as the cost of
providing them, including those who undertook fraudulent usages
designed only to generate access charges, will no longer purchase them
in the competitive market. Thus, valuable network resources that were
used to provide services that had little or no value will no longer be
assigned to such low-value use, increasing efficient utilization of
network resources.
24. We find misplaced or, in other cases, simply erroneous, the
arguments offered by the Joint CLECs in an expert report by Daniel
Ingberman that argues economic efficiency is enhanced when access-
stimulated traffic is brought to a network with otherwise little
traffic volume because this allows the small network to obtain scale
economies. The result, Ingberman claims, would be substantially lower
prices for local end users, producing relatively large increases in
consumer surplus. In contrast, if the traffic were placed on a network
that already carries substantial traffic volumes, the scale effects are
minimal, and so the benefits to end users of lower prices are also
minimal. Thus, according to Ingberman, siting new traffic on smaller
(rural) networks, as access stimulators do, must raise economic well-
being.
25. We reject Ingberman's claim that lower consumer prices from
siting new traffic on a smaller network are likely to be significant,
if they arise at all. The Commission's high cost universal service
program provides support to carriers in rural, insular, and high cost
areas as necessary to ensure that consumers in such areas pay rates
that are reasonably comparable to rates in urban areas. Thus, smaller
rural carrier rates for end users will always be comparable to larger
carrier rates whether the smaller carrier is a rural incumbent LEC that
receives universal service support or is a competitive LEC that does
not receive such support but competes on price against a rural
incumbent LEC that does. Given reasonably comparable rates, siting new
traffic on a smaller network is not likely to significantly lower, and
may make no difference to, rates charged to end users of the smaller
network.
26. Ingberman also fails to establish the validity of his claim
that increased access traffic on a LEC network would result in lower
prices to its end-user customers. In particular, he has not established
that as a practical matter, increasing access traffic on a LEC's
network lowers the LEC's cost of serving its end-user customers.
Without lowering such costs, a LEC would have no incentive to lower
prices to its end-user customers. The access-stimulating LEC would
simply continue to charge its profit-maximizing price to its retail
[[Page 57633]]
customers, while pocketing the windfall from access arbitrage.
27. We find several other fundamental problems with the Ingberman
Report. Although Ingberman acknowledges that IXCs pay terminating
switched access charges (which are often paid both to intermediate
access providers and access-stimulating LECs), his model assumes bill-
and-keep pricing. That is, Ingberman assumes away the central issue
this proceeding must deal with: The use of intercarrier compensation
charges to fund access stimulators' operations. Consequently, his
analysis does not take into account the cost that access stimulators
impose on larger networks and their subscribers. It also fails to model
access-stimulating services, beyond assuming they bring traffic to the
smaller network. But these services are delivered in highly inefficient
ways, relying on unusually expensive calling paths. These services also
are sold in highly inefficient ways, almost always below the efficient
cost of delivery of such services. Nor does Ingberman's model account
for the time and effort taken to generate traffic, often fraudulent,
for access stimulation, and to develop the complex schemes and
contracting relationships that generate access-stimulating LEC profits.
Moreover, there is no recognition of the cost of IXCs engaging in
otherwise unnecessary, and hence, wasteful, efforts to identify
fraudulent traffic or to find ways to avoid the abuses of our tariffing
regime perpetrated by access stimulators. Similarly, the model provides
no means for estimating the efficiency costs of allowing terminating
switched access charges that not only exceed marginal cost, but also
total costs. These are all significant costs for which any model should
account.
28. Further, we find misplaced arguments by some commenters that
there is no evidence that IXCs' customers will benefit from reduced
access arbitrage. Reducing the costs created by access arbitrage by
reducing the incentives that lead carriers to engage in such arbitrage
is a sufficient justification for adopting our rules, regardless of how
IXCs elect to use their cost savings. The Commission has recognized for
many years that long-distance service is competitive, and we generally
expect some passthrough of any decline in costs, marginal or otherwise.
To the extent passthrough does not occur, IXC shareholders are
presently subsidizing users of access-stimulating services, which
distorts economic efficiency in the supply of those services. Even if
we cannot precisely quantify the effects of past reforms (given the
many simultaneously occurring technological and marketplace
developments), as a matter of economic theory, we expect some savings
to flow through to IXCs' customers or the savings to be available for
other, beneficial purposes. For example, IXCs will no longer have to
expend resources in trying to defend against access-stimulation
schemes, and consumers will be provided with more-accurate pricing
signals for high-volume calling services. More fundamentally, these
commenters fail to explain how a policy that enables a below-cost
(sometimes zero) price for services supplied by high-volume calling
service providers and general telephone rates that subsidize these
high-volume calling services could be expected to produce efficient
production and consumption outcomes.
29. We also find no merit to arguments that IXCs will be able to
seize new arbitrage opportunities as a result of the rules we adopt in
this document. Aureon, for example, argues that IXCs will be
``incentivized to increase arbitrage traffic volume,'' without
explaining how IXCs would accomplish such a task. The Joint CLECs argue
that if the new rules decrease the use of ``free'' conference calling
services, IXCs will realize greater use of their own conference calling
products and greater revenue while also benefiting from reduced access
charges. If our amended rules force ``free'' service providers to
compete on the merits of their services, rather than survive on
implicit subsidies, that outcome is to be welcomed because it would
represent competition driving out inefficient suppliers in favor of
efficient ones. Nothing we do in this document shifts arbitrage
opportunities to the IXCs or to any provider; we are attacking implicit
subsidies that allow high-volume calling services to be offered for
free, sending incorrect pricing signals and distorting competition. In
addition, as AT&T explains, IXCs have engaged in a decade-long campaign
to end the practice of access arbitrage because they and their
customers are the targets of such schemes.
30. AT&T expresses concern that IXCs will be obligated to deliver
access-stimulated traffic to remote tandem locations and to pay the
related excessive transport fees for connecting to that remote tandem
if access-stimulating LECs decide to build new end office switches in
remote areas, and their affiliates decide to deploy new tandem switches
in similarly remote locations. AT&T therefore suggests that we limit
the IXCs' delivery obligations to only those tandem switches in
existence as of January 1, 2019. AT&T does not point to any existing
legal requirements that an IXC must agree to a new point of
interconnection designated by an access-stimulating LEC should the
access-stimulating LEC unilaterally attempt to move the point of
interconnection. As such, we decline to address AT&T's hypothetical
concern at this time.
31. Various commenters have described a practice wherein calls
routed to an access-stimulating LEC are blocked or otherwise rejected
by the high-volume calling service provider served by the access-
stimulating LEC and/or the terminating LEC, but then successfully
completed when rerouted. We make clear that in the case of traffic
destined for an access-stimulating LEC, when the access-stimulating LEC
is designating the route to reach its end office and paying for the
tandem switching and transport, the IXC or 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, either
in the LERG or in a contract.
32. We also reject several suggestions that we should not move
forward with this rulemaking. For example, commenters suggest that we
issue a further notice of proposed rulemaking to seek additional
comment on the issues raised in the proceeding, decline to adopt
changes to address access arbitrage, refocus the proceeding to ensure
that tandem switching and tandem switched transport access charges
remain available to subsidize their access stimulation-fueled
operations, or ``revisit'' the rule's trigger and explore a different,
mileage-based mechanism. The Joint CLECs, a set of access-stimulating
LECs, go as far as arguing that we should close this docket without
taking action. For its part, T-Mobile suggests that we address ongoing
arbitrage and fraud by enforcing current rules without further
rulemaking. We disagree with these suggestions; the record shows that
access arbitrage schemes have adapted to the reforms adopted in 2011.
We will not postpone adoption of amendments to our rules that address
the way today's access arbitrage schemes use implicit subsidies in our
ICC system to warp the economic incentives to provide service in the
most efficient manner.
33. We also decline to adopt Wide Voice's alternative suggestions
that we either cap transport miles charged by access-stimulating LECs
to 15 miles or hold access-stimulating LECs responsible only for
transport mileage charges, not switching charges. In support of these
positions, Wide Voice
[[Page 57634]]
alleges, without offering any support, that transport charges are the
primary driver of access stimulation. Nor does Wide Voice explain how a
mileage cap would reduce access arbitrage. By contrast, the record
demonstrates that reversing the financial responsibility for both
transport and tandem switching charges will help eliminate access
arbitrage. Either of these proposals would, however, benefit Wide Voice
which does not charge for transport.
34. We also decline to adopt Aureon's suggestion that would allow
IXCs to charge their subscribers an extra penny per minute for calls to
access stimulators. There is no evidence that access-stimulating calls
currently cost a penny per minute, so the proposal would simply trade
one form of inefficiency for another. We are also concerned that
adopting such an overbroad proposal to address the stimulation of
tandem switching and transport charges would confuse consumers and
unnecessarily spill into, and potentially negatively affect, the
operation of the more-competitive wireless marketplace and the choices
consumers have made when selecting wireless calling plans.
35. At the same time, we remain unwilling to adopt an outright ban
on access stimulation. As the Commission concluded in the USF/ICC
Transformation Order, prohibiting access stimulation in its entirety or
finding that revenue sharing is a per se violation of section 201 of
the Act would be an overbroad solution ``and no party has suggested a
way to overcome this shortcoming.'' Instead, the Commission chose to
prescribe narrowly focused conditions for providers engaged in access
stimulation. We adhere to that view in this document because there is
still no suggestion as to how a blanket prohibition could be tailored
to avoid it being overbroad. We believe the rules we adopt in this
document 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. The
rules adopted in this document are not overbroad. They are consistent
with the policies adopted in the USF/ICC Transformation Order and are
the product of notice and record support.
36. Having concluded that a modified version of the first prong of
the Commission's proposal in the Access Arbitrage Notice will
adequately address current access arbitrage practices, we decline to
adopt the second prong of the proposal. Prong 2 of that proposal would
have provided access-stimulating LECs an opportunity to avoid financial
responsibility for the delivery of traffic from an intermediate access
provider to the access-stimulating LEC's end office or functional
equivalent by offering to accept direct connections from IXCs or an
intermediate access provider of the IXC's choice. The record offers no
support for the adoption of Prong 2 as drafted, and we agree with
various concerns raised in the record that access-stimulating LECs
could nullify any benefits of this approach. For example, Prong 2 could
allow access-stimulating LECs to avoid financial responsibility by
operating in remote locations where direct connections would be
prohibitively expensive or infeasible and alternative intermediate
access providers may be nonexistent or prohibitively expensive. Under
such circumstances, Prong 2 would be ineffective at curbing the
practice while increasing disputes over the terms of direct connections
before the courts and the Commission.
37. Likewise, even where establishing a direct connection may
initially appear cost-effective, the ease with which access stimulation
traffic may be shifted from one carrier to another undermines the value
of making the investment. After a direct connection premised on high
traffic volume has been established at an access-stimulating LEC's
original end office, the access-stimulating LEC or providers of access-
stimulating services could move traffic to a different and more distant
end office, thus stranding the financial investment to build that
direct connection with minuscule traffic volume after the access
stimulation activity has shifted locations. We conclude that requiring
a shift in financial responsibility for the delivery of traffic from
the IXC to the access-stimulating LEC end office or its functional
equivalent is sufficient, at this time, to address the inefficiencies
caused by access stimulation relating to intermediate access providers.
The attractiveness of these schemes will necessarily wane once the
responsibility of paying for any intermediate access provider's charges
is shifted to access-stimulating LECs. As a general matter, we
acknowledge that companies can currently, and will continue to be able
to, negotiate individual direct connection agreements and leave the
possibility of a policy pronouncement regarding direct connections for
consideration as part of our broader intercarrier compensation reform
efforts.
38. In the Access Arbitrage Notice, the Commission sought comment
on moving to a bill-and-keep regime all terminating tandem switching
and tandem switched transport rate elements for access-stimulating LECs
or the intermediate access providers they choose. Contrary to the
claims of some commenters, the rules we adopt in this document are
consistent with our goal of moving toward bill-and-keep. They prohibit
access-stimulating LECs from recovering their tandem switching and
transport costs from IXCs, leaving access-stimulating LECs to recover
their costs from high-volume calling service providers that use the
LECs' facilities. Likewise, the rules we adopt treat access-stimulating
LECs as the customers of the intermediate access providers they select
to terminate their traffic and allow those intermediate access
providers to recover their costs from access-stimulating LECs. Thus, we
allow intermediate access providers to continue to apply their tandem
switching and transport rates to traffic bound for access-stimulating
LECs, but those rates must be charged to the access-stimulating LEC,
not the IXC that delivers the traffic to the intermediate access
provider for termination.
2. Redefining ``Access Stimulation''
39. In recognition of the evolving nature of access-stimulation
schemes, we amend the definition of ``access stimulation'' in our rules
to include situations in which the access-stimulating LEC does not have
a revenue sharing agreement with a third party. In so doing, we leave
the current test for access stimulation in place. That test requires,
first, that the involved LEC has a revenue sharing agreement and,
second, that it meets one of two traffic triggers. The LEC must either
have an interstate terminating-to-originating traffic ratio of at least
3:1 in a calendar month or have had more than a 100% growth in
interstate originating and/or terminating switched access minutes-of-
use in a month compared to the same month in the preceding year. We add
two, alternate tests that require no revenue sharing agreement. First,
under our newly amended rules, competitive LECs with an interstate
terminating-to-originating traffic ratio of at least 6:1 in a calendar
month will be defined as engaging in access stimulation. Second, under
our newly amended rules, we define a rate-of-return LEC as engaging in
access stimulation if it has an interstate terminating-to-originating
traffic ratio of at least 10:1 in a three calendar month period and has
500,000 minutes or more of interstate terminating minutes-of-use per
month in an end office in the same three calendar month period. These
factors will be measured as an average over the same three calendar-
month period. Our
[[Page 57635]]
decision to adopt different triggers for competitive LECs as compared
to rate-of-return LECs reflects the evidence in the record that there
are structural barriers to rate-of-return LECs engaging in access
stimulation, and at the same time, a small but significant set of rate-
of-return LECs can experience legitimate call patterns that would trip
the 6:1 trigger.
40. We adopt these alternate tests for access stimulation because,
as one commenter explains, as terminating end office access charges
move toward bill-and-keep, ``many entities engaged in access
stimulation have re-arranged their business to circumvent the existing
rules by reducing reliance on direct forms of revenue sharing.'' Or, as
another commenter explains, the revenue sharing trigger is creating
incentives for providers to ``become more creative in how they bundle
their services to win business and evade'' the rules. We also are
concerned about a prediction in the record that if we were to adopt the
rules originally proposed in the Access Arbitrage Notice, without more,
access-stimulating LECs will cease revenue sharing in an effort to
avoid triggering the proposed rules, even while continuing conduct that
is equivalently problematic.
41. A number of commenters describe ways that carriers and their
high-volume calling service partners may be profiting from arbitrage
where their actions may not appear to fit the precise provisions of our
revenue sharing requirement. For example, T-Mobile reports that some
LECs create ``shell companies to serve as their intermediate provider,
and then force carriers to send traffic to that intermediate provider,
who charges a fee shared with the ILEC.'' Aureon posits that tandem
provider HD Tandem could receive payment from a LEC or an IXC to
provide intermediate access service and then share its revenues
directly with its high-volume calling service affiliate without sharing
any revenue with the terminating LEC. Also, an access-stimulating LEC
that is co-owned with a high-volume calling service provider could
retain the stimulated access revenues for itself, while letting the
high-volume calling service provider operate at a loss. In those
situations, the LEC would not directly share any revenues. Likewise,
Inteliquent suggests that there would be no revenue sharing if the same
corporate entity that owns a high-volume calling service provider also
owns an end office, or if switch management is outsourced to a high-
volume calling platform or its affiliate. In those cases, the revenue
would remain under the same corporate entity and not come from separate
entities sharing ``billing or collection of access charges from
interexchange carriers or wireless carriers.'' Because of these
concerns, we find it reasonable and practical to adopt additional
triggers in our rules that define access stimulation to exist when a
LEC has a highly disproportionate terminating-to-originating traffic
ratio. We, therefore, keep the revenue sharing requirement of Sec.
61.3(bbb)(1)(i) as is, and adopt two alternative prongs of the
definition of access stimulation that do not require revenue sharing.
42. Some commenters have ``no objection if the revenue sharing
aspect of the definition is eliminated'' and if the Commission were to
rely solely on traffic measurement data. However, the record shows that
the current definition has accurately identified LECs engaged in access
stimulation. We therefore find that the better course is to leave the
current test in place and add two alternate tests for access
stimulation that do not include revenue sharing, and have higher
traffic ratios.
43. A Higher Traffic Ratio Is Justified When No Revenue Sharing
Agreement Is in Place. In adopting two alternative tests for access
stimulation that do not include a revenue sharing component, we are
mindful of the importance of identifying those LECs engaging in access
stimulation while not creating a definition that is overbroad,
resulting in costly disputes between carriers and confusion in the
market. First, in an effort to be conservative and not overbroad, we
adopt an alternative test of the access-stimulation definition for
competitive LECs, which requires a higher terminating-to-originating
traffic ratio than the 3:1 ratio currently in place. We find that a 6:1
or higher terminating-to-originating traffic ratio for competitive LECs
provides a clear indication that access stimulation is occurring, even
absent a revenue sharing agreement. We could establish a smaller ratio;
however, we agree with Teliax that tightening the ratio ``would most
certainly catch normal increases in traffic volumes,'' and thus be
overinclusive. We also want to protect non-access-stimulating LECs from
being misidentified. We have selected a 6:1 ratio, which is twice the
existing ratio and is the ratio recommended by Inteliquent. The 6:1
ratio should help to capture any access-stimulating competitive LECs
that decide to cease revenue sharing, as well as any access-stimulating
competitive LECs that already may have ceased revenue sharing, or that
currently are not doing so.
44. This larger ratio is sufficient to prevent the definition from
ensnaring competitive LECs that have traffic growth solely due to the
development of their communities. We do not find compelling Wide
Voice's suggestion that an access-stimulating LEC that exceeds the 6:1
ratio would have an incentive to try to game the system by obtaining
more originating traffic, such as 8YY traffic, to stay below the 6:1
ratio or move traffic to other LECs to avoid tripping the trigger. All
LECs, not just access-stimulating LECs, should have an incentive to
obtain more traffic, whether it's originating 8YY traffic or
terminating traffic. However, there is no evidence that access-
stimulating LECs are currently able to avoid the 3:1 trigger by simply
carrying more originating traffic or moving traffic, and Wide Voice
offers no evidence that doing so will be a simple matter for LECs
seeking to avoid the 6:1 ratio that we are adding to capture LECs
engaging in this scheme without a revenue sharing agreement. We do not
include a threshold for number of minutes of interstate traffic carried
by a competitive LEC to meet the test for an access-stimulating
competitive LEC because there is no justification in the record for a
specific number.
45. We adopt a separate alternative test for determining whether a
rate-of-return LEC is engaged in access stimulation in part to address
NTCA and other commenters' concerns that ``eliminating the revenue
sharing component of the definition of access stimulation . . . could
immediately have the inadvertent effect of treating innocent RLECs as
access stimulators when they do not engage in that practice at all.''
In adopting a second alternate access-stimulation definition applicable
only to rate-of-return LECs we recognize that the majority of those
carriers are small, rural carriers with different characteristics than
competitive LECs. For example, unlike access-stimulating LECs that only
serve high-volume calling providers, rate-of-return carriers, which
serve small communities and have done so for years, would not be able
to freely move stimulated traffic to different end offices. In
addition, as NTCA explains, such carriers also may have traffic ratios
that are disproportionately weighted toward terminating traffic because
their customers have shifted their originating calls to wireless or
VoIP technologies. This trend is reflected in the Commission's Voice
Telephone Services Report-June 2017. We also agree with NTCA that small
rate-of-return LECs' traffic may be more sensitive to seasonal changes
in the ratio of their terminating-to-originating access minutes because
of
[[Page 57636]]
the unique geographical areas they serve and thus may have spikes in
call volume with a greater impact on traffic ratios than would be
experienced by carriers with a larger base of traffic spread over a
larger, more populated, geographical area.
46. The second alternate definition we adopt strikes an appropriate
balance. It recognizes the potential that small, non-access-
stimulating, rate-of-return carriers may have larger terminating-to-
originating traffic ratios than competitive LECs and ``avoid[s]
penalizing innocent LECs that may have increased call volumes due to
new economic growth,'' for example. NTCA shows that application of a
6:1 ratio to rate-of-return LECs would identify as access-stimulating
LECs approximately 4% of rate-of-return LECs that participate in the
National Exchange Carrier Association (NECA) pool even though they are
not actually engaged in access stimulation. NTCA and AT&T therefore
recommend that, for rate-of-return carriers, we adopt a second test for
access stimulation that is based on a 10:1 traffic ratio combined with
traffic volume that exceeds 500,000 terminating interstate minutes per
end office per month averaged over three months. We agree with NTCA and
AT&T that their proposed 10:1 trigger is reasonable given that a small
but significant number of rate-of-return LECs that are apparently not
engaged in access arbitrage would trip the 6:1 trigger; the structural
disincentives for rate-of-return LECs to engage in access stimulation;
and the lack of evidence that rate-of-return LECs are currently engaged
in access stimulation. We also think that a threshold of 500,000
terminating interstate minutes per month is a reasonable trigger for
rate-of-return LECs. By its very nature, access stimulation involves
termination of a large number of minutes per month, as such, excluding
the smallest rate-of-return carriers from the definition is a sensible
approach. Thus, for rate-of-return LECs, we adopt a 10:1 ratio as
demonstrating access stimulation activity when combined with more than
500,000 interstate terminating minutes-of-use per month, per end
office, averaged over three calendar months.
47. We also agree with NTCA that ``any access stimulation trigger
be based on actual minutes of use as measured by the LEC traversing the
switch, rather than by reference to billing records.'' This is how the
ratio is currently calculated and it should remain the case that when
calculating the current 3:1 terminating-to-originating traffic trigger,
or the 6:1 or 10:1 triggers adopted in this Order, carriers must look
to the actual minutes traversing the LEC switch. This combination of a
traffic ratio and a minutes-of-use threshold for rate-of-return
carriers is consistent with the Commission's approach in the USF/ICC
Transformation Order to ensure that the definition is not over-
inclusive but is enforceable. In addition, we find that measuring this
ratio and the average monthly minutes-of-use threshold over three
months will adequately account for the potential seasonal spikes in
calling volumes identified by NTCA.
48. Although no party has raised concerns about how the existing
3:1 traffic ratio is calculated, we received specific questions about
calculating the 6:1 ratio. We clarify that all traffic should be
counted regardless of how it is routed. Contrary to Wide Voice's
assertions, originating traffic using tariffed access services counts
as does originating traffic using a ``least cost router under
negotiated billing arrangements outside of the access regime.'' All
originating and terminating interstate traffic should be counted in
determining the interstate terminating-to-originating traffic ratio.
This also means that all terminating traffic from all sources, not just
one IXC, should be counted in determining a traffic ratio.
49. We recognize the possibility that a LEC may experience
significant traffic growth and if, for example, such customers include
one or more inbound call centers, the result could be that its traffic
exceeds one of the new traffic ratio triggers we adopt. We are not
aware of any similar problems occurring with the existing 3:1 ratio and
the record contains no evidence of that happening. Nonetheless,
consistent with the Commission's decision in the USF/ICC Transformation
Order, should a non-access-stimulating LEC experience a change in its
traffic mix such that it exceeds one of the ratios we use to define
access-stimulating LECs, that LEC will have ``an opportunity to show
that they are in compliance with the Commission's rules.'' In addition,
as Sprint correctly points out if a LEC, not engaged in arbitrage,
finds that its traffic will exceed a prescribed terminating-to-
originating traffic ratio, the LEC may request a waiver. We find these
alternatives will protect non-access-stimulating LECs from false
identification as being engaged in access stimulation.
50. Identifying When a LEC Is No Longer Engaged in Access
Stimulation. Because we are adding two alternate bases for identifying
access stimulation, we also must modify the rule that defines when a
LEC is no longer engaged in access stimulation. The existing rule
provides that a LEC is no longer engaged in access stimulation when it
ceases revenue sharing. We amend our rules to provide that a
competitive LEC that has met the first set of triggers for access
stimulation will continue to be considered to be engaging in access
stimulation until it terminates all revenue sharing arrangements and
does not meet the 6:1 terminating-to-originating traffic ratio; and a
competitive LEC that has met the 6:1 ratio will continue to be
considered to be engaging in access stimulation until it falls below
that ratio for six consecutive months, and it does not qualify as an
access-stimulating LEC under the first set of triggers.
51. We amend our rules to provide that a rate-of-return LEC that
has met the first set of triggers for access stimulation will continue
to be considered to be engaging in access stimulation until it: (1)
Terminates all revenue sharing arrangements; (2) does not meet the 10:1
terminating-to-originating traffic ratio; and (3) has less than 500,000
minutes of average monthly interstate terminating traffic in an end
office (measured over the three-month period). A rate-of-return LEC
that has met the 10:1 ratio and 500,000 minutes-per-month threshold
will continue to be considered to be engaging in access stimulation
until its traffic balance falls below that ratio and that monthly
traffic volume for six consecutive months, and it does not qualify as
an access-stimulating LEC under the first set of triggers. We find that
a six-month time frame will accurately signal a change in either a
competitive LEC's or a rate-of-return LEC's business practices rather
than identify a short-term variation in traffic volumes that may not
repeat in the following months.
52. We also make a minor modification to Sec. 61.3(bbb)(4) which
states that LECs engaged in access stimulation are subject to revised
interstate switched access rates. When the rule was adopted in the USF/
ICC Transformation Order, the Commission stated that revised interstate
switched access rates applied to both rate-of-return LECs and
competitive LECs. However, the rule adopted in that Order, Sec.
61.3(bbb)(2), refers to the rate regulations applicable only to rate-
of-return carriers. In the Access Arbitrage Notice, we asked for
comments on the rules, and received no comments on this issue. We
therefore modify (now relabeled) Sec. 61.3(bbb)(4) to refer to the
rate regulations for competitive LECs as well as rate-of-return LECs.
The revised Sec. 61.3(bbb)(4) therefore specifies that a LEC engaging
in access stimulation is subject to revised interstate switched
[[Page 57637]]
access charge rules under Sec. 61.26(g) (for competitive LECs), or
Sec. Sec. 61.38 and 69.3(e)(12) (for rate-of-return LECs).
53. In response to comments, the rule we adopt specifically states
that a LEC that is not itself engaged in access stimulation, but is an
intermediate access provider for a LEC engaged in access stimulation,
shall not itself be deemed a LEC engaged in access stimulation. In
addition, some commenters express concern that the breadth of the
proposed rules may pose adverse consequences for non-access-stimulating
LECs. NTCA cautions that ``LECs that do not qualify as access
stimulators under the Commission's rules but which subtend the same CEA
as those who do [may] be inadvertently affected by the Commission's
reforms.'' We do not foresee such an issue with the rules. The rules we
adopt in this document do not alter the financial responsibilities of
any LEC that is not engaged in access stimulation regardless of whether
it subtends the same CEA provider as an access-stimulating LEC. We are
nevertheless concerned about arguments that high-volume calling
providers may not be considered end users. Thus, we make clear that,
for purposes of the definition of access stimulation, a high-volume
calling provider, such as a ``free'' conference calling provider or a
chat line provider, is considered an end user regardless of how that
term is defined in an applicable tariff. Thus, a LEC that provides
service to such a high-volume calling provider will be considered a
rate-of-return local exchange carrier serving end user(s), or a
Competitive Local Exchange Carrier serving end user(s).
54. Having amended our access stimulation rules as they relate to
the relationship among access-stimulating LECs, ``interexchange
carriers,'' and ``intermediate access providers'' for the delivery of
access-stimulated traffic, we agree with AT&T on the need to define
those terms to provide clarity. We therefore define ``interexchange
carrier'' to mean ``a retail or wholesale telecommunications carrier
that uses the exchange access or information access services of another
telecommunications carrier for the provision of telecommunications''
(emphasis added). We define ``intermediate access provider'' to mean
``any entity that carries or processes traffic at any point between the
final Interexchange Carrier in a call path and a local exchange carrier
engaged in access stimulation, as defined by Sec. 61.3(bbb).'' In
adopting this definition, we recognize the Joint CLECs' concern that
there may be more than one intermediate access provider in a call path.
The use of the phrases ``any entity'' and ``any point'' is broad enough
to allow for more than one intermediate access provider between the
final IXC and the LEC even though we question the likelihood of this
hypothetical. And the access-stimulating LEC will choose the
intermediate access provider(s) to deliver the traffic to the LEC. The
adopted definitions are slightly different than those proposed in the
Access Arbitrage Notice to help ensure clarity going forward. We have
amended our rules under part 51-Interconnection and have also added
conforming rules applicable to access-stimulating LECs to the relevant
tariffing sections since these rules will require tariff changes. We
believe these changes to the rules proposed in the Access Arbitrage
Notice will allow better ease of reference.
55. Moreover, we encourage self-policing of our access-stimulation
definition and rules among carriers. IXCs and intermediate access
providers, including CEA providers, likely will have traffic data to
demonstrate infractions of our rules, such as a LEC meeting the
conditions for access stimulation but not filing a notice or revised
tariffs as discussed in the Implementation section below. If an IXC or
intermediate access provider has evidence that a LEC has failed to
comply with our access-stimulation rules, it could file information in
this docket, request that the Commission initiate an investigation,
file a complaint with the Commission, or notify the Commission in some
other manner.
56. Finally, we reject several arguments from commenters regarding
the definition of access stimulation. First, we reject Wide Voice's
suggestion that we abandon the current definition of access stimulation
entirely because its usefulness has ``largely expired with the
sunsetting of the end office.'' This sentiment is belied by commenters
that confirm the current definition has worked as intended to identify
LECs engaged in access stimulation. We likewise reject Wide Voice's
proposed alternative, which would define access stimulation as
``traffic originating from any LEC behind a CEA tandem with total
minutes (inbound + outbound) in excess of 1000 times the number of its
subscribers in its service area.'' We agree with commenters that Wide
Voice's ``comments are obviously intended to further arbitrage
activities, rather than stop them.'' Wide Voice is certified as a
competitive LEC in dozens of states, but has not built out facilities
in Iowa, South Dakota, and Minnesota. By suggesting that we abandon our
current definition of access stimulation in favor of one that applies
only in the states with CEA tandems, Wide Voice and others would be
free to stimulate access charges without federal regulatory restraint
in the 47 states that do not have CEA tandems. Furthermore, the
mathematical formula proposed by Wide Voice is too broad because by
including originating minutes in the formula, it is not focused on
eliminating terminating access stimulation.
57. Second, FailSafe and Greenway suggest that the current access-
stimulation definition be made more restrictive. They both argue that
the existing traffic growth trigger in the access-stimulation
definition--which requires that there is more ``than a 100 percent
growth in interstate originating and/or terminating switched access
minutes-of-use in a month compared to the same month in the preceding
year''--could have the unintended consequence of labelling competitive
LECs as engaged in access stimulation ``simply by beginning to provide
services'' and thus presumably increasing their volume of traffic from
no traffic to some traffic. This suggestion and the concern these
parties raise fail for at least two reasons. First, the 100% traffic
growth trigger compares a month's switched access minutes with the
minutes-of-use from the same month in the previous year. A competitive
LEC that was not in business the previous year would not qualify
because the absence of any monthly demand in the prior year renders
this comparison inapposite, and the requisite calculation to satisfy
the trigger cannot be performed. Second, the 100% traffic growth
trigger is only one part of that portion of the definition. The
competitive LEC must also have a revenue sharing agreement, which
presumably a new non-access-stimulating competitive LEC in Greenway's
hypothetical would not have. Neither Greenway nor FailSafe cites any
LEC that has been misidentified as engaged in access stimulation under
the current definition using the traffic growth trigger. They also do
not suggest how they would revise the current access-stimulation
definition to restrict its possible application and avoid the
misidentification they suggest might result. We find that this
hypothetical concern is already addressed by the existing rule.
FailSafe is similarly concerned that this rule would identify emergency
traffic to its cloud service as access stimulation traffic. This
concern is unwarranted: our rules do not define types of traffic, but
rather define certain LECs as being engaged in access
[[Page 57638]]
stimulation. Additionally, LECs that suffer legitimate traffic spikes
from events such as natural disasters will have the opportunity to
present relevant evidence if they file waiver requests with the
Commission.
58. Third, HD Tandem takes the opposite view and argues that the
access-stimulation definition should be broadened ``to apply to any
carrier with a call path that assesses access charges of any kind
(shared or not) and unreasonably refuses to direct connect, or its
functional equivalent, with other carriers with reciprocity.''
Similarly, CenturyLink proposes that we shift financial responsibility
to any LEC, including those not engaged in access stimulation, that
declines a request for direct connection for terminating traffic. Both
of these suggestions go beyond the issue of access stimulation and the
current record does not provide a sufficient basis to evaluate the
impact of either proposal on LECs that are not engaged in access
stimulation. And, as discussed above, we do not adopt the Commission's
direct connection proposal, at this time, and also find that nothing in
the record would justify HD Tandem's suggested expansion of the access-
stimulation definition.
59. Fourth, we reject Inteliquent's and HD Tandem's suggestions
that we add a mileage cap to the access-stimulation definition. When
Inteliquent proposed the 6:1 ratio, it also proposed that the access
stimulation definition should require that ``[m]ore than 10 miles [be]
billed between the tandem and the serving end office,'' and that the
end office have interstate terminating minutes-of-use of ``at least 1
million in one calendar month.'' We are including a minutes-of-use
trigger with the new alternate 10:1 traffic ratio for rate-of-return
LECs. However, we decline to add a cap on transport mileage because as
HD Tandem admits, a mileage cap ``would not eliminate the use of
intercarrier compensation to subsidize `free' or `pay services.'' In
supporting a mileage cap of 15 miles, Wide Voice claims that such a cap
would reduce the estimated $80 million cost of access stimulation by
about $54 million. However, Wide Voice's calculations appear to assume
that all transport costs are eliminated not just those that exceed 15
miles, and assumes that access-stimulating LECs and the intermediate
access providers that serve them would not simply adjust their business
practices to take into account such a cap.
60. Indeed, a mileage cap would invite access stimulation because a
LEC could avoid being designated as an access-stimulating LEC and
incurring the corresponding financial responsibly by limiting its
transport charges to avoid tripping the mileage cap trigger. For
example, a definition of access stimulation that included a requirement
that to fit the definition a LEC bill for 10 miles or more of transport
would allow a LEC to bill for just under 10 miles of transport while
having a terminating-to-originating traffic ratio of 1000:1.
Furthermore, a mileage cap would not deter access-stimulating LECs that
receive transport from intermediate access providers that do not charge
mileage, such as Wide Voice and HD Tandem.
61. We also reject arguments that there was insufficient notice for
the addition of additional triggers for the definition of access
stimulation. The Access Arbitrage Notice clearly sought comment on
changing the definition of access stimulation. Indeed, there was
express notice that the Commission could adopt a rule ``remov[ing] the
revenue sharing portion of the definition'' of access stimulation,
leaving a definition triggered by either a 3:1 traffic ratio or 100%
year-over-year traffic growth alone. We are not persuaded that
commenters have identified concerns about a rule relying on the 6:1 or
10:1 traffic ratios that they should not already have recognized the
need to raise in response to that express notice.
62. Some commenters have complained that not enough data was
submitted in the record in this proceeding. However, in the Access
Arbitrage Notice, the Commission asked whether there are ``additional,
more-current data available to estimate the annual cost of arbitrage
schemes to companies, long distance rate payers, and consumers in
general''; whether there are ``data available to quantify the resources
being diverted from infrastructure investment because of arbitrage
schemes''; whether ``consumers are indirectly affected by potentially
inefficient networking and cost recovery due to current regulations and
the exploitation of those regulations''; and whether there are ``other
costs or benefits'' the Commission should consider. The Commission
asked for the costs and benefits of its two-prong approach, and the
``costs and benefits of requiring a terminating provider that requires
the use of a specific intermediate access provider to pay the
intermediate access provider's charges.'' The Commission could not have
been more clear in its request for data. If the commenters are
dissatisfied with the amount of data provided to the Commission, it
certainly was not due to the Commission not asking for it.
63. Contrary to several parties' assertions, the Commission's
adoption of the 6:1 traffic trigger is not arbitrary and capricious.
This section of the Order reviews the numerous viewpoints expressed by
the parties to this proceeding and explains our rationales for our
decisions. We have considered and provided reasons for rejecting a
mileage cap, despite the fact that Peerless and West's emphasis on the
mileage cap arguably is self-serving. Likewise, Peerless and West's
alleged concern for the impact of our decision on ``innocent LECs'' has
been addressed several times in this Order. Our concern about
``innocent rate-of-return LECs'' and our review of the data submitted
by parties such as NTCA, AT&T, and Inteliquent supports the adoption of
the 6:1 and 10:1 traffic ratios. We also have explained ways that
``innocent LECs,'' that have traffic patterns that would cause them to
surpass the traffic ratios, may seek assistance from the Commission. As
Peerless and West admit, a court's review of an agency's action is a
narrow one. Peerless and West cannot discount our extensive review and
consideration of the numerous viewpoints expressed in this proceeding,
and our explanation for rejecting or accepting each viewpoint. The fact
that Peerless and West may disagree with this agency's decision is not
dispositive. The Commission has gone to great lengths to explain the
facts found and to articulate a rational connection with the choices
made.
3. Additional Considerations
64. Self-Help. Our focus here is on reducing access stimulation,
and no commenters have argued that limiting self-help remedies will
further that goal. As the Commission did in the USF/ICC Transformation
Order, we caution parties to be mindful ``of their payment obligations
under the tariffs and contracts to which they are a party.'' We
discourage providers from engaging in self-help except to the extent
that such self-help is consistent with the Act, our regulations, and
applicable tariffs. Intercarrier compensation disputes involving
payment for stimulated traffic have become commonplace, with IXCs
engaging in self-help by withholding payment to access-stimulating
LECs. As a result, several commenters request that we address self-help
remedies in access arbitrage disputes, and others would like us to
disallow self-help more broadly. We decline those requests. Disallowing
self-help, whether in the access stimulation context or not, would be
inconsistent with existing tariffs,
[[Page 57639]]
some of which permit customers to withhold payment under certain
circumstances.
65. We also decline to adopt other tariff-related recommendations
made by commenters. AT&T, for example, suggests that we ``eliminate
tariffing of tandem and transport access services on access stimulation
traffic.'' We believe this suggested solution is unnecessary in light
of the more narrowly drawn solutions to access stimulation that we
adopt in this document. Furthermore, there are protections provided by
tariffs--such as the ability to dispute charges described above--that
should not be eliminated as a result of an unexplored suggestion made
in passing in this proceeding. AT&T also suggests that we ``make clear
that LECs can include in their tariffs reasonable provisions that allow
the LECs to decline to provide [telephone lines and/or access services]
to a chat/conference provider.'' We decline to suggest tariff language
changes in this proceeding beyond those necessary to implement our rule
changes. Each carrier is responsible for its own tariffs and tariff
changes are subject to the tariff review process.
66. Mileage Pumping and Daisy Chaining. ``Mileage pumping'' occurs
when a LEC moves its point of interconnection, on which its mileage-
based, per-minute-of-use transport charges are based, further away from
its switch for no reasonable business purpose other than to inflate
mileage charges. ``Daisy chaining'' occurs when a provider adds
superfluous network elements so as to reclassify certain network
functions as tandem switching and tandem switched transport, for which
terminating access is not yet scheduled to be moved to bill-and-keep.
Because there is nothing in the record to indicate that mileage pumping
and daisy chaining are significant issues outside of the access
stimulation context, we decline to adopt a new rule specifically
addressing these issues. We believe that placing the financial
obligation for tandem switching and tandem switched transport charges
on the access-stimulating LEC should eliminate the practices of mileage
pumping and daisy chaining.
67. Because our new rules will encourage access-stimulating LECs to
make more efficient decisions, the rules should negate the need for T-
Mobile's proposal that would establish multiple interconnection points
nationwide where providers could choose to connect either directly or
indirectly, and HD Tandem's suggestion that LECs engaged in access
stimulation be required to offer what HD Tandem terms an ``internet
Protocol Homing Tandem.'' Both proposals would require us to decide
what would be efficient for affected providers without the benefit of
specific, relevant information about their networks. Therefore, we
decline to adopt these proposals. Any remaining abuses of illegitimate
mileage pumping or daisy chaining activities after the implementation
of our new and modified access-stimulation rules can be addressed on a
case-by-case basis in complaints brought pursuant to section 208 of the
Act.
68. Finally, we do not address the merits of several other issues
raised in the record because they are outside the scope of this
proceeding or are insufficiently supported with data and analysis. For
example, some parties used this proceeding as an opportunity to air
grievances related to a dispute that was twice before the South Dakota
Public Utilities Commission. We agree with the South Dakota 9-1-1
Coordination Board and SDN that it is not appropriate to raise a state
dispute regarding efforts to implement next generation 911 service in
this rulemaking proceeding in the hope that the Commission will include
language in this Order to address that particular dispute.
69. A few parties argue that we should adopt rules regarding the
rates providers charge for certain services. For example, the Joint
CLECs suggest that we adopt a ``uniform rate for access-stimulating
traffic.'' Yet those carriers provide no justification for adopting a
specific rate, nor does the record otherwise provide a basis to fill
that void. The Commission previously adopted rate caps for access-
stimulating LECs and the result was a reduction in the cost of
arbitrage but not its elimination. We therefore take a different
approach in this Order. The rules we adopt in this document do not
affect the rates charged for tandem switching and transport. HD Tandem
and Wide Voice's arguments that we do not address ``rate disparities''
or ``equalize compensation'' are misplaced. Our goal is to eliminate
the incentive for access-stimulation schemes to take advantage of rate
disparities and unequal compensation opportunities, and we do so by
reversing the financial responsibility for paying tandem switching and
transport, from IXCs to access-stimulating LECs, but the rates for
those services are unaffected. We find that by reversing the financial
responsibility, customers will receive more accurate price signals and
implicit subsidies will more effectively be reduced. We are not
persuaded that continuing to allow access-stimulating LECs to collect
revenues from access charges, even if ``equalized,'' would eliminate
the arbitrage problem. To the contrary, such action would provide
access-stimulating LECs with a protected revenue stream and thus
encourage arbitrage. HD Tandem also suggests that ``it would be
problematic for the Commission to involve itself in consumer pricing.''
We agree, and the rules we adopt in this document do not require any
changes to consumer prices.
B. Implementation Issues
70. We amend our part 51 rules governing interconnection and our
part 69 rules governing tariffs to effectuate the requirements that:
(1) Access-stimulating LECs assume financial responsibility for
terminating interstate or intrastate tandem switching and tandem
switched access transport for any traffic between the LEC's terminating
end office or equivalent and the associated access tandem switch; and
(2) access-stimulating LECs provide notice of their assumption of that
financial responsibility to all affected parties. To ensure that
parties have enough time to come into compliance with our rules, we
adopt a reasonable transition period for parties to implement any
necessary changes to their tariffs and to adjust their billing systems.
This Order and the rules adopted herein, except the notice provisions
which require approval from the Office of Management and Budget (OMB)
pursuant to the Paperwork Reduction Act (PRA), will become effective 30
days after publication of the summary of this Order in the Federal
Register. We give access-stimulating LECs and affected intermediate
access providers an additional 45 days to come into compliance with
those rules.
71. With respect to the new notice provisions in our rules, which
require OMB approval pursuant to the PRA, within 45 days of PRA
approval, each existing access-stimulating LEC must provide notice to
the Commission and to any affected IXCs and intermediate access
providers that the LEC is engaged in access stimulation and accepts
financial responsibility for all applicable terminating tandem
switching and transport charges. As proposed in the Access Arbitrage
Notice, notice to the Commission shall be accomplished by filing a
record of its access-stimulating status and acceptance of financial
responsibility in the Commission's Access Arbitrage docket on the same
day that the LEC issues such notice to the IXC(s) and intermediate
access provider(s). This 45-day tariffing and notice time period will
begin to run for new access-stimulating LECs from the time they meet
the
[[Page 57640]]
definition of a LEC engaged in access stimulation.
72. Some commenters have suggested that a longer transition for the
transfer of financial responsibility is warranted. We disagree. There
is no reason to allow access-stimulating LECs and the intermediate
access providers that they choose to use to continue to benefit from
access arbitrage schemes. A transition period of 45 days after the
effective date of the rules--or, in the case of a LEC that is newly
deemed to meet the definition of a LEC engaged in access stimulation,
45 days after that date--is sufficient time for access-stimulating LECs
and the affected intermediate access providers to amend their billing
practices and to make any tariff changes deemed necessary, and to
prepare to close out then-current billing cycles under previous
arrangements at that billing cycle's natural end. Commenters have
argued that a mid-cycle billing change would not be administrable, but
a mid-cycle change is not required by these rules.
73. In particular, several commenters argue the draft Order leaves
too little time for access-stimulating LECs to come into compliance,
suggesting that an 18-24 month period is warranted to allow them to
change their business models and avoid the definitional triggers. We
first note that there is a distinction between how much time it will
take for an entity to come into compliance with the rules and how much
time it will take to change their business model in light of the change
in the rules. There is contrary evidence in the record, suggesting that
access-stimulating LECs are able to relocate their traffic in days, if
not hours, rather than weeks and months. Further, nothing in this Order
either requires or impedes an access-stimulating LEC's ability to make
changes to their business model should they choose to do so in light of
the rules we adopt in this document. In addition, the rules provide a
clear process by which an access-stimulating LEC can transition out of
being categorized as such. We also reject FailSafe's request for a
three-year phaseout of access charges due to independent telephone
companies' provision of services related to emergency communication.
FailSafe has not identified any concrete examples under which a
carrier's provision of services related to emergency communication
would have or will trip the new definition(s) of access stimulation,
and the record is devoid of any support of FailSafe's concern.
74. The Joint CLEC's further claim that the 45 day time period for
implementation leaves ``LECs with no other option but to flash cut
their primary revenue stream, going from having a lawful means of
earning profits to having a significant cost center in a matter of
days.'' As a result, the Joint CLECs argue that the new access
stimulation rules violate the Takings Clause of the Fifth Amendment of
the Constitution because they ``eliminate[] access stimulation as a
revenue stream for the CLECs and provide[] no realistic alternative
means of compensation for them.'' We consider the precedent on
government takings and find that this argument is without merit. In the
Penn Central case, the Supreme Court explained that in evaluating
regulatory takings claims, three factors are particularly significant:
(1) The economic impact of the government action on the property owner;
(2) the degree of interference with the property owner's investment-
backed expectations; and (3) the ``character'' of the government
action. Those factors do not support a regulatory takings argument
here.
75. First, we are not persuaded by the record here that the
economic impact of our rules is likely to be so significant as to
demonstrate a regulatory taking. Our rules leave carriers free to
respond in a number of ways--including in combination--such as by
changing end-user rates to account for the access-stimulating LEC
assuming financial responsibility for the intermediate access
providers' charges for delivering traffic under our rules; or by self-
provisioning or selecting an alternative intermediate access provider
or route for traffic where that would be a less costly option, or by
seeking revenue elsewhere, for example, through an advertising-
supported approach to offering free services or services provided at
less than cost. Although certain commenters cite declarations
purporting to demonstrate that the new rules would ``both wipe out the
value of [prior] investments and prevent the CLECs from operating as
financially viable enterprises,'' we find them unpersuasive. The
declarations do not meaningfully grapple with the viability of the
range and potential combination of alternatives for responding to the
new rules through any analysis of the details of cost data or other
information associated with such scenarios, instead simply asserting
that customers inevitably will shift to other providers. Insofar as the
declarations also express other concerns about the administration of
the rules without justification for, or quantification of, the likely
effects, we likewise find them unpersuasive. These shortcomings are
particularly notable given ``the heavy burden placed upon one alleging
a regulatory taking.'' In addition, we are not persuaded that
declarations from three access-stimulating competitive LECs and three
``free'' conference calling providers would call into question our
industry-wide rules in any event. Should a given carrier actually be
able to satisfy the ``heavy burden'' of demonstrating that the rule
would result in a regulatory taking as applied to it, it is free to
seek a waiver of the rules.
76. Second, our actions do not improperly impinge upon investment-
backed expectations of carriers that engaged in access stimulation
under the 2011 rules. The Commission has been examining how best to
address problems associated with access stimulation for years, taking
incremental steps to address it as areas of particular concern arise
and evolve. This has included seeking comment even on proposals that
would declare access stimulation per se unlawful, at least in certain
scenarios. Indeed, the record reveals that under the existing rules
many disputes have arisen regarding intercarrier compensation
obligations in the scenarios our new rules are designed to directly
address. In light of this context, we are not persuaded that any
reasonable investment-backed expectations can be viewed as having been
upset by our actions here.
77. Finally, consistent with the reasoning of Penn Central, we find
the character of the governmental action here cuts against a finding of
a regulatory taking, given that it ``arises from [a] public program
adjusting the benefits and burdens of economic life to promote the
common good,'' rather than involving a ``physical invasion'' by
government. In particular, our action in this document substantially
advances the legitimate governmental interests under the Act of
discouraging inefficient marketplace incentives, promoting efficient
communications traffic exchange, and guarding against implicit
subsidies contrary to the universal service framework of section 254 of
the Act.
78. Turning to the other implementation issues. No commenter
opposed the proposed notice requirements, and others agreed that having
access-stimulating LECs notify the Commission at the same time they
notify affected intermediate access providers and IXCs will provide
transparency and also address concerns raised in the record about
confusion over whether a LEC is an access-stimulating LEC. Affected
carriers have had ample notice of these changes, and the PRA approval
process will provide
[[Page 57641]]
additional time for carriers to prepare before the notice requirement
comes into effect.
79. We further amend our rules to require that when a LEC ceases
engaging in access stimulation in accordance with Sec. 61.3(bbb), the
LEC must also notify affected IXCs and intermediate access providers of
its status as a non-access-stimulating LEC and of the end of its
financial responsibility. We also require that an access-stimulating
LEC publicly file a record of the end of its access-stimulating status
and the end of its financial responsibility in the Commission's Access
Arbitrage docket on the same day that the LEC issues such notice to the
IXC(s) and intermediate access provider(s). We decline to further
prescribe the steps necessary to reverse the financial responsibility
and leave it to the parties to work with each other to make the
necessary changes in a reasonable period of time.
80. We believe these changes will reduce complications that could
arise from coterminous dates for giving notice and for shifting
financial responsibility. We decline to further prescribe any elements
of this notice obligation and instead leave it to the parties to
clearly and publicly manifest their status and intent when providing
the requisite notice.
81. Implementation Concerns Are Surmountable. We are not persuaded
that there are implementation concerns significant enough for us to
reject the Commission's proposal regarding the shifting of financial
responsibility as an undue burden on providers. In its comments, SDN
correctly observes that our rules may well require SDN to amend its
tariff so that SDN can bill access-stimulating LECs for its services.
There is no reason to believe that this will be onerous, and SDN has
not provided evidence of material incremental costs of making the
necessary changes to implement billing arrangements with subtending
access-stimulating LECs.
82. SDN expresses concern that disputes may arise about whether
certain traffic is access-stimulation traffic. However, traffic will be
classified based on the status of the terminating LEC--if the
terminating LEC is an access-stimulating LEC, all traffic bound for it
will be subject to the changed financial responsibility. We expect that
the new requirements for such carriers to self-identify will prevent
the vast majority of potential disputes between IXCs and intermediate
access providers concerning whether the LEC to which traffic is bound
is engaged in access stimulation. An intermediate access provider's
duty to cease billing an IXC for tandem switching and transport
services attaches only after receiving written notice from an access-
stimulating LEC. Thus, if a LEC engaged in access stimulation fails to
notify the intermediate access provider (either due to a good faith
belief that it does not meet the definition of being an access-
stimulating LEC or simply failing to provide the notice, for whatever
reason), an IXC's recourse is against the LEC, not the intermediate
access provider.
83. In their comments, the Joint CLECs assert that the explanation
in the Access Arbitrage Notice of the intermediate access provider's
costs that must be borne by an access-stimulating LEC is vague. We
disagree. The Joint CLECs appear primarily to take issue with the use
of the word ``normally'' in such an explanation but fail to recognize
that the explanation that they quote is from the text of the Access
Arbitrage Notice, not the proposed rule. The proposed rule refers to
``the applicable Intermediate Access Provider terminating tandem
switching and terminating tandem switched transport access charges
relating to traffic bound for the access-stimulating local exchange
carrier.'' It is a relatively simple matter to determine the charges
applicable to intermediate access service being provided by an
intermediate access provider, particularly when the relevant service
has already been provided for years (albeit with a different billed
party).
84. We are similarly unpersuaded that the implementation issues
raised by the Joint CLECs create issues of real concern. The issues
raised by the Joint CLECs include: (1) Identifying the relevant
intermediate access provider when an access-stimulating LEC connects to
IXCs through multiple such providers; (2) determining how financial
responsibility should be split when an intermediate access provider
provides more than the functional equivalent of tandem switching and
tandem switched transport in the delivery of the call; and (3) the CEA
providers' rates. We nonetheless clarify that an access-stimulating LEC
is responsible for all of the charges for tandem switching and tandem
switched transport of traffic from any intermediate access provider(s)
in the call path between the IXC and the access-stimulating LEC.
C. Legal Authority
85. The Commission last attacked access arbitrage in the 2011 USF/
ICC Transformation Order, as part of comprehensive reform of the ICC
system. The Commission undertook ICC reform informed by three
principles and interrelated goals, all of which inform the Order we
adopt in this document. First, the Commission sought to ensure that the
entities choosing what network to use would have appropriate incentives
to make efficient decisions. In that regard, in the USF/ICC
Transformation Order, the Commission found that ``[b]ill-and-keep
brings market discipline to intercarrier compensation because it
ensures that the customer who chooses a network pays the network for
the services the subscriber receives. . . . Thus, bill-and-keep gives
carriers appropriate incentives to serve their customers efficiently.''
As one of the first steps toward bill-and-keep, the Commission adopted
a multi-year transition period to move terminating end office access
charges to bill-and-keep.
86. Second, the Commission endeavored to eliminate implicit
subsidies, consistent with the mandates of section 254 of the Act. The
Commission recognized the historical role access charges played in
advancing universal service policies, finding that ``bill-and-keep
helps fulfill the direction from Congress in the 1996 Act that the
Commission should make support explicit rather than implicit'' by
requiring any such subsidies, if necessary, be provided explicitly
through policy choices made by the Commission under section 254 of the
Act.
87. Third, the Commission weighed the regulatory costs of the steps
it took in reforming the ICC regime. In so doing, it recognized that
``[i]ntercarrier compensation rates above incremental cost'' were
enabling ``much of the arbitrage'' that was occurring. The Commission
adopted rules aimed at reducing an access-stimulating LEC's ability to
unreasonably profit from providing access to high-volume calling
services. Although the Commission concluded that it might theoretically
have been possible to establish some reasonable, small intercarrier
compensation rate based on incremental cost, it rejected that approach
because doing so would lead to significant regulatory burdens to
identify and establish the appropriate rate(s), an approach the
Commission sought to avoid in adopting a move toward a bill-and-keep
methodology. Instead, to address access stimulation, the Commission
capped the end office termination rates access-stimulating LECs could
charge.
88. Based on our review of the record, we find that requiring IXCs
to pay the tandem switching and tandem switched transport charges for
access-stimulation
[[Page 57642]]
traffic is an unjust and unreasonable practice that we have authority
to prohibit pursuant to section 201(b) of the Act. In 2011, when the
Commission adopted the access-stimulation rules, its focus was on
terminating end office access charges and it found that the high access
rates being collected by LECs for access-stimulation traffic were
unjust and unreasonable under section 201(b) of the Act. Building on
that legal authority and the Commission's goals for ICC reform in the
USF/ICC Transformation Order here, we extend that logic to the practice
of imposing tandem switching and tandem switched transport access
charges on IXCs for terminating access-stimulation traffic. We find
that that practice is unjust and unreasonable under section 201(b) of
the Act and is therefore prohibited.
89. In the USF/ICC Transformation Order, the Commission sought to
ensure that the entities choosing the network and traffic path would
have the appropriate incentives to make efficient decisions and
recognized that ICC rates above cost enable arbitrage. The Commission
also sought to eliminate implicit subsidies allowed by arbitrage,
consistent with section 254 of the Act. Given changes in the access-
stimulation ``market'' after 2011, the access-stimulation rules adopted
as part of the broader intercarrier compensation reforms in the USF/ICC
Transformation Order now fail to adequately advance those goals.
Allowing access-stimulating LECs to continue to avoid the cost
implications of their decisions regarding which intermediate access
providers IXCs must use to deliver access-stimulated traffic to the
LECs drives inefficiencies and leaves IXCs to pass the resultant
inflated costs on to their customer bases. The rules we adopt in this
Order, requiring the access-stimulating LEC to be responsible for
paying those charges, counter the perverse incentives the current rules
create for LECs to choose expensive and inefficient call paths for
access-stimulation traffic and better advance the goals and objectives
articulated by the Commission in the USF/ICC Transformation Order.
90. Of course, the Commission's focus on the importance of
efficient interconnection did not begin with the USF/ICC Transformation
Order. It can also be found, for example, in the initial Commission
Order implementing the 1996 Act. In that Order, in considering
telecommunications carriers' interconnection obligations, the
Commission specified that carriers should be permitted to employ direct
or indirect interconnection to satisfy their obligations under section
251(a)(1) of the Act ``based upon their most efficient technical and
economic choices.'' The focus on efficient interconnection is
consistent with Congressional direction to the Commission in, for
example, section 256 of the Act which requires the Commission to
oversee and promote interconnection by providers of telecommunications
services that is not only ``effective'' but also ``efficient.'' By
adopting rules crafted to encourage terminating LECs to make efficient
choices in the context of access stimulation schemes, the rules are
thus consistent with longstanding Commission policy and Congressional
direction.
91. Likewise, the record reveals that the incentives associated
with access stimulation lead to artificially high levels of demand,
often in rural areas where such levels of demand are anomalous and
largely unaccounted-for by existing network capabilities. This, in
turn, can result in call completion problems and dropped calls. For a
number of years, the Commission has sought to address concerns about
rural call completion problems--a concern that Congress recently
reinforced through its enactment of section 262 of the Act. Adopting
rules that help mitigate call completion problems in rural (and other)
areas thus also harmonizes our approach to access stimulation under
section 201(b) with those broader policies.
92. We also conclude that our new rules are more narrowly targeted
at our concerns regarding the terminating LECs' reliance on inefficient
intermediate access providers in circumstances that present the
greatest concern--those involving access stimulation--compared to other
alternatives suggested in the record, such as adopting rules that would
regulate the rates of access-stimulating LECs or of the intermediate
access providers they rely on. The record does not reveal any rate
benchmarking mechanism that would effectively address our concerns, and
establishing regulatory mechanisms to set rates based on incremental
cost, as some parties have suggested, would implicate the same
administrability concerns that dissuaded the Commission from embarking
on such an approach in the USF/ICC Transformation Order. We also are
guided by past experience where attempts to address access stimulation
through oversight of rate levels have had short-lived success that
quickly was undone through new marketplace strategies by access-
stimulating LECs.
93. To the extent that access stimulation activities have the
effect of subsidizing certain end-user services--allowing providers to
offer the services to their customers at no charge in many instances--
we also conclude that regulatory reforms that eliminate those implicit
subsidies better accord with the objectives of section 254 of the Act.
Specifically, Congress directed that universal service support ``should
be explicit and sufficient to achieve the purposes'' of section 254.
Congress established a framework in section 254 for deciding not only
how to provide support--i.e., explicitly, rather than implicitly--but
also for deciding what to support. Any implicit subsidies resulting
from access stimulation are based solely on the whims of the individual
service providers, which are no substitute for the considered policy
judgments the Commission makes consistent with the framework Congress
established in section 254.
94. These same considerations also independently persuade us that
it is in the public interest to adopt the access stimulation rules in
this Order under section 251(b)(5) of the Act. The USF/ICC
Transformation Order already ``br[ought] all traffic within the section
251(b)(5) regime.'' In other words, under that precedent ``when a LEC
is a party to the transport and termination of access traffic, the
exchange of traffic is subject to regulation under the reciprocal
compensation framework'' of section 251(b)(5). And it clearly is
traffic exchanged with LECs that is at issue here. Our rules govern
financial responsibility for access services that traditionally have
been considered ``exchange access,'' and providers of such services
meet the definition of a LEC.
95. In particular, just as we conclude that our rules reasonably
implement the ``just and reasonable'' framework of section 201(b) of
the Act as workable rules to strengthen incentives for efficient
marketplace behavior and advance policies in sections 251, 254, and 256
of the Act, we likewise conclude that they are in the public interest
as rules implementing section 251(b)(5). The Commission explained in
the USF/ICC Transformation Order that section 201(b)'s statement that
``[t]he Commission may prescribe such rules and regulations as may be
necessary in the public interest to carry out the provisions of this
Act'' gives the Commission broad ``rulemaking authority to carry out
the `provisions of this Act,' which include Sec. [ ] 251.'' Indeed,
the Commission elaborated at length on the theory of its legal
authority to implement section 251(b)(5) in the USF/ICC Transformation
Order, which applies to our reliance on that authority here, as well.
[[Page 57643]]
96. We reject arguments that section 251 of the Act does not
provide authority for our action here. Although the Joint CLECs contend
the action here falls outside the scope of ``reciprocal compensation''
under section 251(b)(5) because it ``deprives [certain] carriers of
access revenues without providing any reciprocal benefit,'' they
approach the issue from an incorrect perspective. In evaluating whether
a new approach to reciprocal compensation is in the public interest,
the Act does not require us to ensure that each carrier receives some
benefit from the change relative to the status quo. Furthermore, our
actions here are one piece of a broader system of intercarrier
compensation that takes the form of reciprocal arrangements among
carriers. As part of this overall framework, carriers have packages of
rights and obligations that, in some defined cases allow them to
recover revenues from other carriers and in other cases anticipate
recovery from end users. By this Order, we simply modify discrete
elements of that overall framework. We thus reject claims that our
actions here are not part of reciprocal compensation arrangements for
purposes of section 251(b)(5).
97. Nor are we persuaded by arguments that section 251(b)(5)
authority is absent here because the Commission ``promised a bill-and-
keep regime that is `technologically' and `competitively neutral' ''
and our rules here allegedly fall short. As a threshold matter, this
Order does not purport to adopt a bill-and-keep regime for access-
stimulation traffic, but continues the Commission's efforts to address
arbitrage or other concerns on an interim basis pending the completion
of comprehensive intercarrier compensation reform. Agencies are free to
proceed incrementally, ``whittl[ing] away at them over time, [and]
refining their preferred approach as circumstances change and they
develop a more nuanced understanding of how best to proceed'' rather
than attempting to ``resolve massive problems in one fell regulatory
swoop.'' Further, although this Order cites illustrative examples of
the types of traffic and types of carriers that have been the focus of
many access stimulation disputes, the rules we adopt apply by their
terms whenever they are triggered, without regard to the content or
type of traffic (e.g., conference calling traffic or otherwise) and
regardless of the size or location of the access-stimulating carrier.
98. Finally, even assuming arguendo that the specific Commission
rules adopted to address access stimulation here were viewed as falling
outside the scope of section 251(b)(5), our action would, at a minimum,
fall within the understanding of the Commission's role under section
251(g) reflected the USF/ICC Transformation Order. As the Commission
stated there, section 251(g) grandfathers historical exchange access
requirements ``until the Commission adopts rules to transition away
from that system,'' including through transitional rules that apply
pending the completion of comprehensive reform moving to a new,
permanent framework under section 251(b)(5). The access stimulation
concerns raised here arise, in significant part, because of ways in
which the Commission's planned transition to bill-and-keep is not yet
complete and, in that context, we find it necessary to address
problematic conduct that we observe on a transitional basis until that
comprehensive reform is finalized.
99. We also find unpersuasive arguments that the proposed and
existing access-stimulation rules are ``discriminatory'' because they
treat access-stimulating LECs differently than other LECs. Section
202(a) of the Act prohibits carriers from ``unjust or unreasonable
discrimination in charges, practices, classifications, regulations,
facilities, or services for or in connection with like communication
service, directly or indirectly, by any means or device, or to make or
give any undue or unreasonable preference or advantage to any
particular person, class of persons, or locality, or to subject any
particular person, class of persons, or locality to any undue or
unreasonable prejudice or disadvantage.'' It is neither unjust nor
unreasonable to treat access-stimulating LECs differently from non-
access-stimulating LECs. Section 202(a) does not apply to actions
carriers take in compliance with requirements adopted by the
Commission, particularly where, as here, the Commission finds those
rules necessary under an analysis of what is ``just and reasonable.''
More generally, actions by the Commission are subject to the
Administrative Procedure Act requirement that they must not be
arbitrary and capricious, and courts have found only that the
Commission ``must provide adequate explanation before it treats
similarly situated parties differently.'' The existing access-
stimulation rules adopted by the Commission in 2011, which treat
access-stimulating LECs differently than other LECs, have been reviewed
and approved by the Tenth Circuit Court of Appeals, which specifically
held that the rules were not arbitrary and capricious and that the
Commission had explained its rationale for the differing treatment. The
rules we adopt in this document, treating access-stimulating LECs
differently from other LECs, are similarly well-reasoned and justified.
100. Contrary to the Joint CLECs' claim, making the access-
stimulating LEC, rather than the IXC, responsible for paying
intermediate access provider(s)' terminating tandem access charges
simply changes the party responsible for paying the CEA, or other
intermediate access provider(s), for carrying that traffic. We make the
party responsible for selecting the terminating call path responsible
for paying for its terminating tandem switching and tandem switched
transport. The act of stimulating traffic to generate excessive access
revenues requires that we treat that traffic differently than non-
stimulated traffic to address the unjust and unreasonable practices it
fosters, as well as the implicit subsidies access stimulation creates.
Further, we are not failing to recognize the potential impacts on CEA
providers if access-stimulation traffic is removed from their networks.
If a CEA provider's demand changes, the existing tariff rules,
applicable to the calculation of a CEA provider's tariffed charges,
will apply--on a nondiscriminatory basis.
101. Equally meritless is the Wide Voice claim that sections 201(b)
and 251(b)(5) of the Act ``permit the Commission to establish rate
uniformity, not rate disparity, which is what would result were the
Commission to make access stimulators switched access purchasers rather
than switched access providers. . . . '' Nothing in the text of those
provisions requires rates to be uniform, however. And, more
fundamentally, shifting the responsibility for paying a rate does not
change the rate. In addition, we are moving toward the stated goal of a
bill-and-keep methodology, not toward establishing a rate for access-
stimulation traffic. We make no changes to rates here and sections
201(b) and 251(b)(5) of the Act support our adoption of the modified
access-stimulation rules in this Order. The Joint CLECs also argue that
making access-stimulating LECs financially responsible for the
terminating tandem switching and transport of traffic delivered to
their end offices by adopting the Commission's Prong 1 proposal would
violate the Tenth Circuit Court of Appeals' holding that section 252(d)
of the Act reserves to the states the determination of carriers'
network ``edge.'' Shifting the financial responsibility for the
delivery of traffic to access-stimulating LEC end offices does not move
the network edge or affect a state's ability to determine that edge.
The Joint CLECs' argument is
[[Page 57644]]
misguided. Section 252(d) governs ``agreements arrived at through
negotiation.'' Just as the Commission's adoption of bill-and-keep as
the ultimate end state for intercarrier compensation shifts the
recovery of costs from carriers to end users, here we shift the
recovery of costs associated with the delivery of traffic to an access-
stimulating LEC's end office from IXCs to the LEC. Our determination to
shift the recovery of costs associated with the delivery of traffic to
an access-stimulating LEC's end office from IXCs to the LEC does not
interfere with ``agreements arrived at through negotiation'' and
therefore does not affect a state's rights or responsibilities under
section 252 of the Act with respect to voluntarily negotiated
interconnection agreements.
III. Modification of Section 214 Authorizations for Centralized Equal
Access Providers
102. To facilitate the implementation of the rules we adopt in this
document, we modify the section 214 authorizations for Aureon and SDN--
the only CEA providers with mandatory use requirements--to permit
traffic terminating at access-stimulating LECs that subtend those CEA
providers' tandems to bypass the CEA tandems. By eliminating the
mandatory use requirements, we enable IXCs to use whatever intermediate
access provider an access-stimulating LEC that otherwise subtends
Aureon or SDN chooses. Eliminating the mandatory use requirements for
traffic bound for access-stimulating LECs will also allow IXCs to
directly connect to access-stimulating LECs where such connections are
mutually negotiated and where doing so would be more efficient and
cost-effective.
103. Historically, IXCs delivering traffic to LECs that subtended
the CEA tandems were required to use Aureon's and SDN's tandems,
because terminating traffic to those LECs was subject to mandatory use
requirements contained in the CEA providers' section 214
authorizations. Wide Voice suggests that we ``[b]reak[ ] the CEA
monopoly'' to the extent needed so that other providers can serve the
access-stimulating LECs. This Order does that. Sprint suggests that we
eliminate the CEA mandatory use requirements for the termination of all
traffic. There is no evidence that doing so would be in the public
interest, or even that there are other tandem switching and transport
providers available to serve other LECs subtending the CEA providers.
This proceeding is focused on access stimulation. We, therefore, adopt
rules that are narrowly focused on access stimulation.
104. Aureon and SDN present seemingly opposing views. Aureon wants
to continue to carry access-stimulation traffic on its CEA network
because it believes the traffic volumes will drive down its rates to a
point where arbitrage will not be profitable. At the outset, we note
there is nothing preventing a CEA provider from voluntarily reducing
its rates to keep such traffic on its network rather than completely
forgoing the revenue opportunity. Unlike Aureon, SDN wants the
Commission to prohibit access-stimulating LECs from using SDN's tandem.
Because we expect that our adopted rules will effectively remedy the
incentives associated with the differences in tandem switching and
tandem switched transport rates between CEA providers and other
intermediate access providers, we decline to prohibit access-
stimulating LECs from subtending CEA providers.
105. Aureon complains that if the subtending LECs use direct
connections instead of the CEA network, there will be increased
arbitrage, and it would put Aureon out of business. However, evidence
in the record shows that much of the access-stimulation traffic is
currently bypassing Aureon's and SDN's networks. Also, intermediate
access providers, such as the CEA providers, remain free to collect
payment for their tandem switching and transport services if the
access-stimulating LEC chooses to use their services. In that
situation, the intermediate access provider will receive payment from
the access-stimulating LEC, and may not collect from IXCs. If access-
stimulating LECs decide to move their traffic off of a CEA network and
the CEA provider has significantly less traffic on its network, the CEA
provider may file tariffs with higher rates provided that such tariff
revisions are consistent with our rules applicable to CEA providers.
Furthermore, neither Aureon nor SDN has provided any data that would
show that operating a CEA network without the access-stimulating LECs
would be economically unviable.
106. Aureon and SDN ask us to reject any proposals that would
modify their section 214 authorizations. Aureon voices concern that
requiring access-stimulating LECs to pay for the use of the CEA tandem
would be a drastic modification to its section 214 authorization.
Aureon does not explain what would need to change in its section 214
authorization, and we are not aware of any change that needs to be made
in this regard. Aureon expresses concern that a modification to its
section 214 authorization will impact its ability to provide
competitive services to rural areas, and to maintain its investment in
its fiber-optic network. Our 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. Similarly, Aureon
argues that if LECs pay for the terminating traffic, Aureon would need
to make ``significant changes to the compensation arrangements for CEA
service, which would render it financially infeasible for the CEA
network to remain operational.'' But Aureon provides no supporting
detail for these claims.
107. When the section 214 authorizations were granted three decades
ago, there were no individual LECs subtending these CEA providers
exchanging traffic, particularly terminating traffic, with IXCs at
close to access-stimulation levels--and no reports of subtending LECs
that would be sharing excess switched access charge revenue with
anyone. In fact, the original applications of the Iowa and South Dakota
CEA providers stated that the majority of their revenues would be for
intrastate calls. Now, AT&T reports that ``twice as many minutes were
being routed per month to Redfield, South Dakota (with its population
of approximately 2,300 people and its 1 end office) as is routed to all
of Verizon's facilities in New York City (with its population of
approximately 8,500,000 people and its 90 end offices).'' Access
stimulation has upended the original projected interstate-to-intrastate
traffic ratios carried by the CEA networks.
108. The Commission may modify or revoke section 214 authority to
address abusive practices or actions when necessary. In this document,
we find that the public interest will be served by changing any
mandatory use requirement for traffic bound to access-stimulating LECs
to be voluntary usage. We determine that access stimulation presents a
reasonable circumstance for departing from the mandatory use policy.
109. In sum, it is in the public convenience and necessity that we
modify the section 214 authorizations for Aureon and SDN to state:
``The mandatory use requirement does not apply to interexchange
carriers delivering terminating traffic to a local exchange carrier
engaged in access stimulation, as that term is defined in section
61.3(bbb) of the Commission's
[[Page 57645]]
rules.'' We find that this modification is an appropriate exercise of
our authority under sections 4(i), 214 and 403 of the Act. Only those
LECs engaged in access stimulation and IXCs delivering traffic to
access-stimulating LECs will be affected by these changes to Aureon's
and SDN's section 214 authorizations. Our methodology reflects the
``surgical approach'' that GVNW Consulting requested the Commission to
use to address access stimulation. We remind Aureon and SDN that all
other relevant section 214 obligations remain.
110. Legal Authority. In addition to our broad legal authority to
adopt our rules applicable to access stimulation traffic, we have
specific legal authority to modify the section 214 authorizations for
Aureon and SDN to eliminate any mandatory use requirements that may be
applicable to traffic bound for access-stimulating LECs. The Common
Carrier Bureau (Bureau) adopted the original section 214 certificates
for Aureon and SDN pursuant to section 214 of the Act. Indeed, whether
section 214 of the Act was applicable to Aureon's application (which
preceded SDN's application) was an issue in that proceeding. In the
end, the Bureau agreed with Aureon's ``view that [Aureon] requires
Section 214 authority prior to acquiring and operating any interstate
lines of communications.'' Our modifications to the Aureon and SDN
section 214 authorizations are an appropriate exercise of the
Commission's authority under section 214, which gives the Commission
authority to ``attach to the issuance of the certificate such terms and
conditions as in its judgment the public convenience and necessity may
require,'' as well as our authority under sections 4 and 403 of the
Act.
IV. Procedural Matters
111. Paperwork Reduction Act Analysis. This document contains
modified information collection requirements subject to the Paperwork
Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to
the Office of Management and Budget (OMB) for review under section
3507(d) of the PRA. OMB, the general public, and other Federal agencies
will be invited to comment on the modified information collection
requirements contained in this proceeding. In addition, we note that
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law
107-198; see 44 U.S.C. 3506(c)(4), we previously sought specific
comment on how the Commission might further reduce the information
collection burden for small business concerns with fewer than 25
employees.
112. In this Order, we have assessed the effects of requiring an
access-stimulating LEC to take financial responsibility for the
delivery of traffic to its end office or the functional equivalent and
find that the potential modifications required by our rules are both
necessary and not overly burdensome. We do not believe there are many
access-stimulating LECs operating today but note that of the small
number of access-stimulating LECs in existence, many will be affected
by this Order. We believe that access-stimulating LECs are typically
smaller businesses and may employ less than 25 people. However, we find
the benefits that will be realized by a decrease in the problematic
consequences associated with access stimulation outweigh any burden
associated with the changes (such as submitting a notice and making
tariff or billing changes) required by this Report and Order and
Modification of Section 214 Authorizations.
113. Congressional Review Act. The Commission has determined, and
the Administrator of the Office of Information and Regulatory Affairs,
Office of Management and Budget concurs, that these rules are non-major
under the Congressional Review Act, 5 U.S.C. 804(2). The Commission
will send a copy of this Report and Order and Modification of 214
Authorization to Congress and the Government Accountability Office
pursuant to 5 U.S.C. 801(a)(1)(A).
114. Final Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act of 1980 (RFA), as amended, the Commission
has prepared a Final Regulatory Flexibility Analysis (FRFA) relating to
this Report and Order and Modification to Section 214 Authorizations.
V. Final Regulatory Flexibility Analysis
115. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the notice of proposed rulemaking for the access
arbitrage proceeding (83 FR 30628, June 29, 2018). The Commission
sought written public comments on the proposals in the Access Arbitrage
Notice, including comment on the IRFA. This present Final Regulatory
Flexibility Analysis (FRFA) conforms to the RFA.
A. Need for, and Objectives of, the Order
116. Although the Commission's earlier rules, adopted in the USF/
ICC Transformation Order, made significant strides in reducing access
stimulation, arbitragers have reacted to those reforms by revising
their schemes to take advantage of access charges that remain in place
for tandem switching and transport services. New forms of arbitrage now
command significant resources and create significant costs, which
together raise costs for consumers. In general, the intercarrier
compensation regime allows access-stimulating local exchange carriers
(LECs) to shift the costs of call termination to interexchange carriers
(IXCs) and their customers via tandem switching and transport rates,
creating perverse incentives for access-stimulating LECs to route
network traffic inefficiently in a manner that maximizes those rates.
IXCs are obligated to pay these charges but are left without any choice
about how the traffic is routed, and pass those inflated costs along to
their customers in turn, raising the price for consumers generally.
117. In this Order, to reduce the incentives to engage in the
latest iteration of access stimulation, as well as to continue the
reforms of the USF/ICC Transformation Order, we adopt 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 the IXC to the access-stimulating LEC
end office or its functional equivalent.
118. The rules adopted in this Order will thus require switched
tandem and transport costs to be charged to the carrier that chooses
the transport route. This change will encourage cost-efficient network
routing and investment decisions, and remove the incentives that lead
to inefficient interconnection and call routing requirements. We also
modify the definition of access stimulation to include two additional
traffic volume triggers. We add two higher ratios to capture access-
stimulating LECs that do not have a revenue sharing agreement, which
would have escaped our current definition.
B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
119. The Commission did not receive comments specifically
addressing the rules and policies proposed in the IRFA. FailSafe
Communications, Inc., a self-described ``end-user'' and small business
``disaster recovery'' service provider, articulated related concerns
elsewhere. It requested an exemption from our rules ``for CABS access
traffic associated with bona-fide SMB [small and medium-sized
businesses] end users with less than 24 phone lines,'' arguing it and
its ``Independent
[[Page 57646]]
Telephone Company'' and competitive LEC partners would be adversely
affected by the Order and the requirements for access-stimulating LECs,
but failing to propose a less burdensome alternative that would
mitigate their concerns. FailSafe offers no evidence in support of its
concern nor any explanation for why the exemption it proposes would
resolve its concerns. We thus decline to grant such an exemption at
this time, but note here, as we do in the Order, that affected rate-of-
return LECs and competitive LECs may seek a waiver of our rules,
particularly in compelling cases that may implicate the provision of
emergency services.
C. Response to Comments by Chief Counsel for Advocacy of the Small
Business Administration
120. Pursuant to the Small Business Jobs Act of 2010, which amended
the RFA, the Commission is required to respond to any comments filed by
the Chief Counsel for Advocacy of the Small Business Administration
(SBA), and to provide a detailed statement of any change made to the
proposed rules as a result of those comments.
121. The Chief Counsel did not file any comments in response to
this proceeding.
D. Description and Estimate of the Number of Small Entities to Which
the Rules Will Apply
122. The RFA directs agencies to provide a description of, and,
where feasible, an estimate of, the number of small entities that may
be affected by the rules adopted herein. The RFA generally defines the
term ``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A ``small business concern'' is one which: (1) Is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the Small Business
Administration (SBA).
123. Small Businesses, Small Organizations, Small Governmental
Jurisdictions. Our actions, over time, may affect small entities that
are not easily categorized at present. We therefore describe here, at
the outset, three broad groups of small entities that could be directly
affected herein. First, while there are industry-specific size
standards for small businesses that are used in the regulatory
flexibility analysis, according to data from the SBA's Office of
Advocacy, in general a small business is an independent business having
fewer than 500 employees. These types of small businesses represent
99.9% of all businesses in the United States which translates to 28.8
million businesses.
124. Next, the type of small entity described as a ``small
organization'' is generally ``any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.''
Nationwide, as of August 2016, there were approximately 356,494 small
organizations based on registration and tax data filed by nonprofits
with the Internal Revenue Service (IRS).
125. Finally, the small entity described as a ``small governmental
jurisdiction'' is defined generally as ``governments of cities,
counties, towns, townships, villages, school districts, or special
districts, with a population of less than fifty thousand.'' U.S. Census
Bureau data from the 2012 Census of Governments indicate that there
were 90,056 local governmental jurisdictions consisting of general
purpose governments and special purpose governments in the United
States. Of this number there were 37, 132 General purpose governments
(county, municipal and town or township) with populations of less than
50,000 and 12,184 Special purpose governments (independent school
districts and special districts) with populations of less than 50,000.
The 2012 U.S. Census Bureau data for most types of governments in the
local government category show that the majority of these governments
have populations of less than 50,000. Based on this data we estimate
that at least 49,316 local government jurisdictions fall in the
category of ``small governmental jurisdictions.''
126. Wired Telecommunications Carriers. The U.S. Census Bureau
defines this industry as ``establishments primarily engaged in
operating and/or providing access to transmission facilities and
infrastructure that they own and/or lease for the transmission of
voice, data, text, sound, and video using wired communications
networks. Transmission facilities may be based on a single technology
or a combination of technologies. Establishments in this industry use
the wired telecommunications network facilities that they operate to
provide a variety of services, such as wired telephony services,
including VoIP services, wired (cable) audio and video programming
distribution, and wired broadband internet services. By exception,
establishments providing satellite television distribution services
using facilities and infrastructure that they operate are included in
this industry.'' The SBA has developed a small business size standard
for Wired Telecommunications Carriers, which consists of all such
companies having 1,500 or fewer employees. Census data for 2012 show
that there were 3,117 firms that operated that year. Of this total,
3,083 operated with fewer than 1,000 employees. Thus, under this size
standard, the majority of firms in this industry can be considered
small.
127. Local Exchange Carriers (LECs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to local exchange services. The closest applicable NAICS
Code category is Wired Telecommunications Carriers as defined above.
Under the applicable SBA size standard, such a business is small if it
has 1,500 or fewer employees. According to Commission data, census data
for 2012 shows that there were 3,117 firms that operated that year. Of
this total, 3,083 operated with fewer than 1,000 employees. The
Commission therefore estimates that most providers of local exchange
carrier service are small entities that may be affected by the rules
adopted.
128. Incumbent LECs. Neither the Commission nor the SBA has
developed a small business size standard specifically for incumbent
local exchange services. The closest applicable NAICS Code category is
Wired Telecommunications Carriers as defined above. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 3,117 firms operated in that year. Of
this total, 3,083 operated with fewer than 1,000 employees.
Consequently, the Commission estimates that most providers of incumbent
local exchange service are small businesses that may be affected by the
rules and policies adopted. Three hundred and seven (1,307) Incumbent
Local Exchange Carriers reported that they were incumbent local
exchange service providers. Of this total, an estimated 1,006 have
1,500 or fewer employees.
129. Competitive Local Exchange Carriers (Competitive LECs),
Competitive Access Providers (CAPs), Shared-Tenant Service Providers,
and Other Local Service Providers. Neither the Commission nor the SBA
has developed a small business size standard specifically for these
service providers. The appropriate NAICS Code category is Wired
Telecommunications Carriers, as defined above. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
U.S.
[[Page 57647]]
Census data for 2012 indicate that 3,117 firms operated during that
year. Of that number, 3,083 operated with fewer than 1,000 employees.
Based on this data, the Commission concludes that the majority of
Competitive LECS, CAPs, Shared-Tenant Service Providers, and Other
Local Service Providers, are small entities. According to Commission
data, 1,442 carriers reported that they were engaged in the provision
of either competitive local exchange services or competitive access
provider services. Of these 1,442 carriers, an estimated 1,256 have
1,500 or fewer employees. In addition, 17 carriers have reported that
they are Shared-Tenant Service Providers, and all 17 are estimated to
have 1,500 or fewer employees. Also, 72 carriers have reported that
they are Other Local Service Providers. Of this total, 70 have 1,500 or
fewer employees. Consequently, based on internally researched FCC data,
the Commission estimates that most providers of competitive local
exchange service, competitive access providers, Shared-Tenant Service
Providers, and Other Local Service Providers are small entities.
130. We have included small incumbent LECs in this present RFA
analysis. As noted above, a ``small business'' under the RFA is one
that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer
employees), and ``is not dominant in its field of operation.'' The
SBA's Office of Advocacy contends that, for RFA purposes, small
incumbent LECs are not dominant in their field of operation because any
such dominance is not ``national'' in scope. We have therefore included
small incumbent LECs in this RFA analysis, although we emphasize that
this RFA action has no effect on Commission analyses and determinations
in other, non-RFA contexts.
131. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA has developed a definition for Interexchange Carriers. The closest
NAICS Code category is Wired Telecommunications Carriers as defined
above. The applicable size standard under SBA rules is that such a
business is small if it has 1,500 or fewer employees. U.S. Census data
for 2012 indicates that 3,117 firms operated during that year. Of that
number, 3,083 operated with fewer than 1,000 employees. According to
internally developed Commission data, 359 companies reported that their
primary telecommunications service activity was the provision of
interexchange services. Of this total, an estimated 317 have 1,500 or
fewer employees. Consequently, the Commission estimates that the
majority of IXCs are small entities that may be affected by our
proposed rules.
132. Local Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. The
Telecommunications Resellers industry comprises establishments engaged
in purchasing access and network capacity from owners and operators of
telecommunications networks and reselling wired and wireless
telecommunications services (except satellite) to businesses and
households. Establishments in this industry resell telecommunications;
they do not operate transmission facilities and infrastructure. Mobile
virtual network operators (MVNOs) are included in this industry. Under
that size standard, such a business is small if it has 1,500 or fewer
employees. Census data for 2012 show that 1,341 firms provided resale
services during that year. Of that number, all operated with fewer than
1,000 employees. Thus, under this category and the associated small
business size standard, the majority of these resellers can be
considered small entities.
133. Toll Resellers. The Commission has not developed a definition
for Toll Resellers. The closest NAICS Code Category is
Telecommunications Resellers. The Telecommunications Resellers industry
comprises establishments engaged in purchasing access and network
capacity from owners and operators of telecommunications networks and
reselling wired and wireless telecommunications services (except
satellite) to businesses and households. Establishments in this
industry resell telecommunications; they do not operate transmission
facilities and infrastructure. Mobile virtual network operators (MVNOs)
are included in this industry. The SBA has developed a small business
size standard for the category of Telecommunications Resellers. Under
that size standard, such a business is small if it has 1,500 or fewer
employees. Census data for 2012 show that 1,341 firms provided resale
services during that year. Of that number, 1,341 operated with fewer
than 1,000 employees. Thus, under this category and the associated
small business size standard, the majority of these resellers can be
considered small entities. According to Commission data, 881 carriers
have reported that they are engaged in the provision of toll resale
services. Of this total, an estimated 857 have 1,500 or fewer
employees. Consequently, the Commission estimates that the majority of
toll resellers are small entities.
134. Other Toll Carriers. Neither the Commission nor the SBA has
developed a definition for small businesses specifically applicable to
Other Toll Carriers. This category includes toll carriers that do not
fall within the categories of interexchange carriers, operator service
providers, prepaid calling card providers, satellite service carriers,
or toll resellers. The closest applicable NAICS Code category is for
Wired Telecommunications Carriers as defined above. Under the
applicable SBA size standard, such a business is small if it has 1,500
or fewer employees. Census data for 2012 shows that there were 3,117
firms that operated that year. Of this total, 3,083 operated with fewer
than 1,000 employees. Thus, under this category and the associated
small business size standard, the majority of Other Toll Carriers can
be considered small. According to internally developed Commission data,
284 companies reported that their primary telecommunications service
activity was the provision of other toll carriage. Of these, an
estimated 279 have 1,500 or fewer employees. Consequently, the
Commission estimates that most Other Toll Carriers are small entities
that may be affected by rules adopted pursuant to the Access Arbitrage
Notice.
135. Prepaid Calling Card Providers. The SBA has developed a
definition for small businesses within the category of
Telecommunications Resellers. Under that SBA definition, such a
business is small if it has 1,500 or fewer employees. According to the
Commission's Form 499 Filer Database, 500 companies reported that they
were engaged in the provision of prepaid calling cards. The Commission
does not have data regarding how many of these 500 companies have 1,500
or fewer employees. Consequently, the Commission estimates that there
are 500 or fewer prepaid calling card providers that may be affected by
the rules.
136. Wireless Telecommunications Carriers (except Satellite). This
industry comprises establishments engaged in operating and maintaining
switching and transmission facilities to provide communications via the
airwaves. Establishments in this industry have spectrum licenses and
provide services using that spectrum, such as cellular services, paging
services, wireless internet access, and wireless video services. The
appropriate size standard under SBA rules is that such a business is
small if it has 1,500 or fewer employees. For this industry, U.S.
Census data for 2012 show that there
[[Page 57648]]
were 967 firms that operated for the entire year. Of this total, 955
firms had employment of 999 or fewer employees and 12 had employment of
1000 employees or more. Thus under this category and the associated
size standard, the Commission estimates that the majority of wireless
telecommunications carriers (except satellite) are small entities.
137. The Commission's own data--available in its Universal
Licensing System--indicate that, as of October 25, 2016, there are 280
Cellular licensees that may be affected by our actions in this
document. The Commission does not know how many of these licensees are
small, as the Commission does not collect that information for these
types of entities. Similarly, according to internally developed
Commission data, 413 carriers reported that they were engaged in the
provision of wireless telephony, including cellular service, Personal
Communications Service, and Specialized Mobile Radio Telephony
services. Of this total, an estimated 261 have 1,500 or fewer
employees, and 152 have more than 1,500 employees. Thus, using
available data, we estimate that the majority of wireless firms can be
considered small.
138. Wireless Communications Services. This service can be used for
fixed, mobile, radiolocation, and digital audio broadcasting satellite
uses. The Commission defined ``small business'' for the wireless
communications services (WCS) auction as an entity with average gross
revenues of $40 million for each of the three preceding years, and a
``very small business'' as an entity with average gross revenues of $15
million for each of the three preceding years. The SBA has approved
these definitions.
139. Wireless Telephony. Wireless telephony includes cellular,
personal communications services, and specialized mobile radio
telephony carriers. As noted, the SBA has developed a small business
size standard for Wireless Telecommunications Carriers (except
Satellite). Under the SBA small business size standard, a business is
small if it has 1,500 or fewer employees. According to Commission data,
413 carriers reported that they were engaged in wireless telephony. Of
these, an estimated 261 have 1,500 or fewer employees and 152 have more
than 1,500 employees. Therefore, a little less than one third of these
entities can be considered small.
140. Cable and Other Subscription Programming. This industry
comprises establishments primarily engaged in operating studios and
facilities for the broadcasting of programs on a subscription or fee
basis. The broadcast programming is typically narrowcast in nature
(e.g., limited format, such as news, sports, education, or youth-
oriented). These establishments produce programming in their own
facilities or acquire programming from external sources. The
programming material is usually delivered to a third party, such as
cable systems or direct-to-home satellite systems, for transmission to
viewers. The SBA has established a size standard for this industry
stating that a business in this industry is small if it has 1,500 or
fewer employees. The 2012 Economic Census indicates that 367 firms were
operational for that entire year. Of this total, 357 operated with less
than 1,000 employees. Accordingly we conclude that a substantial
majority of firms in this industry are small under the applicable SBA
size standard.
141. Cable Companies and Systems (Rate Regulation). The Commission
has developed its own small business size standards for the purpose of
cable rate regulation. Under the Commission's rules, a ``small cable
company'' is one serving 400,000 or fewer subscribers nationwide.
Industry data indicate that there are currently 4,600 active cable
systems in the United States. Of this total, all but eleven cable
operators nationwide are small under the 400,000-subscriber size
standard. In addition, under the Commission's rate regulation rules, a
``small system'' is a cable system serving 15,000 or fewer subscribers.
Current Commission records show 4,600 cable systems nationwide. Of this
total, 3,900 cable systems have fewer than 15,000 subscribers, and 700
systems have 15,000 or more subscribers, based on the same records.
Thus, under this standard as well, we estimate that most cable systems
are small entities.
142. Cable System Operators (Telecom Act Standard). The
Communications Act also contains a size standard for small cable system
operators, which is ``a cable operator that, directly or through an
affiliate, serves in the aggregate fewer than 1 percent of all
subscribers in the United States and is not affiliated with any entity
or entities whose gross annual revenues in the aggregate exceed
$250,000,000.'' There are approximately 52,403,705 cable video
subscribers in the United States today. Accordingly, an operator
serving fewer than 524,037 subscribers shall be deemed a small operator
if its annual revenues, when combined with the total annual revenues of
all its affiliates, do not exceed $250 million in the aggregate. Based
on available data, we find that all but nine incumbent cable operators
are small entities under this size standard. We note that the
Commission neither requests nor collects information on whether cable
system operators are affiliated with entities whose gross annual
revenues exceed $250 million. Although it seems certain that some of
these cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, we are unable at this time to
estimate with greater precision the number of cable system operators
that would qualify as small cable operators under the definition in the
Communications Act.
143. All Other Telecommunications. The ``All Other
Telecommunications'' industry is comprised of establishments that are
primarily engaged in providing specialized telecommunications services,
such as satellite tracking, communications telemetry, and radar station
operation. This industry also includes establishments primarily engaged
in providing satellite terminal stations and associated facilities
connected with one or more terrestrial systems and capable of
transmitting telecommunications to, and receiving telecommunications
from, satellite systems. Establishments providing internet services or
voice over internet protocol (VoIP) services via client-supplied
telecommunications connections are also included in this industry. The
SBA has developed a small business size standard for ``All Other
Telecommunications,'' which consists of all such firms with gross
annual receipts of $32.5 million or less. For this category, U.S.
Census data for 2012 show that there were 1,442 firms that operated for
the entire year. Of these firms, a total of 1,400 had gross annual
receipts of less than $25 million. Thus a majority of ``All Other
Telecommunications'' firms potentially may be affected by our action
can be considered small.
E. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
144. Recordkeeping and Reporting. The rule revisions adopted in the
Order include notification requirements for access-stimulating LECs,
which may impact small entities. Those LECs engaged in access
stimulation are required to notify affected intermediate access
providers and affected IXCs of their status as access stimulators and
of their acceptance of financial responsibility for the tandem and
transport switched access charges IXCs used to bear. An access-
stimulating LEC must also publicly file a record of its access-
stimulating status and
[[Page 57649]]
acceptance of financial responsibility in the Commission's Access
Arbitrage docket on the same day that it issues notice to IXC(s) and/or
intermediate access provider(s).
145. Rule changes may also necessitate that affected carriers make
various revisions to their billing systems. For example, intermediate
access providers that serve access-stimulating LECs will now charge
terminating tandem switched access rates and transport rates to the
corresponding LECs, whereas IXCs that serve access-stimulating LECs
will no longer be required to pay such charges. As intermediate access
providers cease billing IXCs, and instead bill access-stimulating LECs,
they will likely need to make corresponding adjustments to their
billing systems.
146. This Order may also require access-stimulating LECs to file
tariff revisions to remove any tariff provisions they have filed for
terminating tandem switched access or terminating switched access
transport charges. Although we decline to opine on whether this Order
requires carriers to file further tariff revisions, affected carriers
may nonetheless choose to file additional tariff revisions to add
provisions allowing them to charge access-stimulating LECs, rather than
IXCs, for the termination of traffic to the access-stimulating LEC.
These revisions may necessitate some effort to revise the rates (and
who pays them), including terminating tandem switching rates and
transport rates. The requirement to remove related provisions, and the
choice to make any additional revisions, would apply to all affected
carriers, regardless of entity size. The adopted rule revisions will
facilitate Commission and public access to the most accurate and up-to-
date tariffs as well as lower rates paid by the public for the affected
services.
147. Existing access-stimulating LECs, or LECs who later become
access-stimulating LECs, will also face similar reporting and
recordkeeping requirements should they later choose to cease access
stimulation. These steps are virtually identical as the steps discussed
above that are required or may be necessary when commencing access
stimulation, including providing third-party notice, filing a notice
with the Commission, potential billing system changes, removing tariff
provisions, and potentially preparing and filing a revised tariff.
F. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
148. The RFA requires an agency to describe any significant
alternatives that it has considered in developing its approach, which
may include the following four alternatives (among others): ``(1) the
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance and reporting requirements under the rule for such small
entities; (3) the use of performance rather than design standards; and
(4) an exemption from coverage of the rule, or any part thereof, for
such small entities.''
149. Transition Period. To minimize the impact of the changes
affected carriers may need to make under this Order, we implement up to
a 45 day transition period for the related recordkeeping and reporting
steps. To give effect to the financial shift of responsibility, we
require that access-stimulating LECs remove any existing tariff
provisions for terminating tandem switching or terminating tandem
switched transport access charges within the same period, i.e., within
45 days of the effective date of the Order (or, for those carriers who
later engage in access stimulation, within 45 days from the date it
commences access stimulation). This will also allow time if parties
choose to make additional changes to their operations as a result of
our reforms to further reduce access stimulation. To ensure clarity and
increase transparency, we require that access-stimulating LECs notify
affected IXCs and intermediate access providers of their access-
stimulating status and their acceptance of financial responsibility
within 45 days of PRA approval (or, for a carrier who later engages in
access stimulation, within 45 days from the date it commences access
stimulation), and file a notice in the Commission's Access Arbitrage
docket on the same date and to the same effect. The Commission
announced the notice aspects of the transition period in the proposed
rule in the Access Arbitrage Notice, and while several commenters
voiced support, none cited any specific problems nor concerns
associated with these notice requirements. These notice requirements
for such carriers to self-identify will help parties conserve resources
by limiting potential disputes between IXCs and intermediate access
providers concerning whether the LEC to which traffic is bound is
engaged in access stimulation. Such changes are also subject to the
Paperwork Reduction Act approval process which allows for additional
notice and comment on the burdens associated with the requirement. This
process will occur after adoption of this Order, thus providing
additional time for parties to make the changes necessary to comply
with the newly adopted rules. Also, being mindful of the attendant
costs of any reporting obligations, we do not require that carriers
adhere to a specific notice format. Instead, we allow each responding
carrier to prepare third-party notice and notice to the Commission in
the manner they deem to be most cost-effective and least burdensome,
provided the notice announces the carrier's access-stimulating status
and acceptance of financial responsibility. Furthermore, by electing
not to require carriers to fully withdraw and file entirely new tariffs
and requiring only that they revise their tariffs to remove relevant
provisions, we mitigate the filing burden on affected carriers.
150. We recognize that intermediate access providers may need to
revise their billing systems to reflect the shift in financial
responsibility and may also elect to file revised tariffs. Though we
believe the potential billing system changes to be straightforward, to
allow sufficient time for affected parties to make any adjustments, we
also grant them the same period from the effective date for
implementing such changes. Thus, affected intermediate access providers
have 45 days from the effective date of this rule (or, with respect to
those carriers who later engage in access stimulation, within 45 days
from the date such carriers commence access stimulation) to implement
any billing system changes or prepare any tariff revisions which they
may see fit to file. The time granted by this period should help
carriers make an orderly, less burdensome, transition.
151. These same considerations were taken into account for LECs
that cease access stimulation, a change that carries concomitant
reporting obligations and to which we apply associated transition
periods for billing changes and/or for tariff revisions that,
collectively, are virtually identical to those mentioned above.
152. In comments not identified as IRFA-related, centralized equal
access (CEA) providers Aureon and SDN argued that the potential billing
changes and tariff revisions that would arise from making LECs
financially responsible constitute an undue burden that ``would render
it financially infeasible for the CEA network to remain operational.''
Aureon's sole
[[Page 57650]]
support for this assertion is that this change would ``necessitate
significant changes to the compensation arrangements for CEA service.''
We have considered these costs but are not persuaded that these costs
are significant enough to rise to an undue burden on affected carriers.
We believe these changes to be straightforward, particularly because
the identities of the relevant parties will already be known to one
another because of existing relationships between them, and because
they have previously charged others for the same services. There is no
reason to believe that these changes will be onerous and the record is
bereft of evidence of material incremental costs of making the
necessary changes to implement billing arrangements with subtending
access-stimulating LECs. We find no further evidence in the record of
financial difficulties that CEAs would experience from this switch. In
addition, we revise the definition of access stimulation to apply only
to LECs that serve end users. This definitional change will narrow the
providers who will be deemed access stimulators by excluding CEA
providers, as they do not serve end users. We also adopt two alternate
triggers in the access stimulation definition, one for competitive LECs
and one for rate-of-return LECs, which should further limit the
applicability of these new rules to small providers.
153. Report to Congress: The Commission will send a copy of the
Order, including this FRFA, in a report to be sent to Congress pursuant
to the Congressional Review Act. In addition, the Commission will send
a copy of the Order, including this FRFA, to the Chief Counsel for
Advocacy of the SBA. A copy of the Order and FRFA (or summaries
thereof) will also be published in the Federal Register.
VI. Ordering Clauses
154. Accordingly, it is ordered that, pursuant to sections 1, 2,
4(i), 4(j), 201-206, 218-220, 251, 252, 254, 256, 303(r), and 403 of
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i),
154(j), 201-206, 218-220, 251, 252, 254, 256, 303(r), 403 and Sec. 1.1
of the Commission's rules, 47 CFR 1.1, this Report and Order and
Modification of Section 214 Authorizations is adopted.
155. It is further ordered, pursuant to sections 4(i), 214, and 403
of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214,
403 and Sec. Sec. 1.47(h), 63.01 and 64.1195 of the Commission's
rules, 47 CFR 1.47(h), 63.10, 64.1195, that the section 214
authorizations held by Iowa Network Access Division and South Dakota
Network, LLC, are modified such that the mandatory use requirement
contained in the authorizations does not apply to interexchange
carriers delivering terminating traffic to a local exchange carrier
engaged in access stimulation. These modifications are effective 30
days after publication of this Report and Order and Modification of
Section 214 Authorizations in the Federal Register.
156. It is further ordered that a copy of this Order shall be sent
by U.S. mail to Iowa Network Access Division and South Dakota Network,
LLC, at their last known addresses. In addition, this Report and Order
and Modification of Section 214 Authorizations shall be available in
the Commission's Office of the Secretary.
157. It is further ordered that the amendments of the Commission's
rules are adopted, effective 30 days after publication in the Federal
Register. Compliance with Sec. 51.914(b) and (e), which contain new or
modified information collection requirements that require review by OMB
under the PRA, is delayed. The Commission directs the Wireline
Competition Bureau to announce the compliance date for those
information collections in a document published in the Federal Register
after OMB approval, and directs the Wireline Competition Bureau to
cause Sec. 51.914 to be revised accordingly.
158. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Report and Order and Modification of Section 214
Authorizations, including the Final Regulatory Flexibility Analysis, to
Congress and the Government Accountability Office pursuant to the
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).
159. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Report and Order and Modification of Section 214
Authorizations, including the Final Regulatory Flexibility Analysis, to
the Chief Counsel for Advocacy of the Small Business Administration.
List of Subjects
47 CFR Part 51
Communications common carriers, Telecommunications.
47 CFR Parts 61 and 69
Communications common carriers, Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary, Office of the Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR parts 51, 61, and 69 as
follows:
PART 51--INTERCONNECTION
0
1. The authority citation for part 51 continues to read as follows:
Authority: 47 U.S.C. 151-55, 201-05, 207-09, 218, 225-27, 251-
52, 271, 332 unless otherwise noted.
0
2. Amend Sec. 51.903 by adding paragraphs (k), (l), and (m) to read as
follows:
Sec. 51.903 Definitions.
* * * * *
(k) Access Stimulation has the same meaning as that term is defined
in Sec. 61.3(bbb) of this chapter.
(l) Intermediate Access Provider has the same meaning as that term
is defined in Sec. 61.3(ccc) of this chapter.
(m) Interexchange Carrier has the same meaning as that term is
defined in Sec. 61.3(ddd) of this chapter.
0
3. Section 51.914 is added to read as follows:
Sec. 51.914 Additional provisions applicable to Access Stimulation
traffic.
(a) Notwithstanding any other provision of this part, if a local
exchange carrier is engaged in Access Stimulation, as defined in Sec.
61.3(bbb) of this chapter, it shall, within 45 days of commencing
Access Stimulation, or within 45 days of November 27, 2019, whichever
is later:
(1) Not bill any Interexchange Carrier for terminating switched
access tandem switching or terminating switched access transport
charges for any traffic between such local exchange carrier's
terminating end office or equivalent and the associated access tandem
switch; and
(2) Shall designate, if needed, the Intermediate Access Provider(s)
that will provide terminating switched access tandem switching and
terminating switched access tandem transport services to the local
exchange carrier engaged in access stimulation and that the local
exchange carrier shall assume financial responsibility for any
applicable Intermediate Access Provider's charges for such services for
any traffic between such local exchange carrier's terminating end
office or equivalent and the associated access tandem switch.
[[Page 57651]]
(b) Notwithstanding any other provision of this part, if a local
exchange carrier is engaged in Access Stimulation, as defined in Sec.
61.3(bbb) of this chapter, it shall, within 45 days of commencing
Access Stimulation, or within 45 days of November 27, 2019, whichever
is later, notify in writing the Commission, all Intermediate Access
Providers that it subtends, and Interexchange Carriers with which it
does business of the following:
(1) That it is a local exchange carrier engaged in Access
Stimulation; and
(2) That it shall designate the Intermediate Access Provider(s)
that will provide the terminating switched access tandem switching and
terminating switched access tandem transport services to the local
exchange carrier engaged in access stimulation and that it shall pay
for those services as of that date.
(c) In the event that an Intermediate Access Provider receives
notice under paragraph (b) of this section that it has been designated
to provide terminating switched access tandem switching or terminating
switched access tandem transport services to a local exchange carrier
engaged in Access Stimulation and that local exchange carrier shall pay
for such terminating access service from such Intermediate Access
Provider, the Intermediate Access Provider shall not bill Interexchange
Carriers for terminating switched access tandem switching or
terminating switched access tandem transport service for traffic bound
for such local exchange carrier but, instead, shall bill such local
exchange carrier for such services.
(d) Notwithstanding paragraphs (a) and (b) of this section, any
local exchange carrier that is not itself engaged in Access
Stimulation, as that term is defined in Sec. 61.3(bbb) of this
chapter, but serves as an Intermediate Access Provider with respect to
traffic bound for a local exchange carrier engaged in Access
Stimulation, shall not itself be deemed a local exchange carrier
engaged in Access Stimulation or be affected by paragraphs (a) and (b).
(e) Upon terminating its engagement in Access Stimulation, as
defined in Sec. 61.3(bbb) of this chapter, the local exchange carrier
engaged in Access Stimulation shall provide concurrent, written
notification to the Commission and any affected Intermediate Access
Provider(s) and Interexchange Carrier(s) of such fact.
(f) Paragraphs (b) and (e) of this section contain new or modified
information-collection and recordkeeping requirements. Compliance with
these information-collection and recordkeeping requirements will not be
required until after approval by the Office of Management and Budget.
The Commission will publish a document in the Federal Register
announcing that compliance date and revising this paragraph (f)
accordingly.
0
4. Amend Sec. 51.917 by revising paragraph (c) as follows:
Sec. 51.917 Revenue recovery for Rate-of-Return Carriers.
* * * * *
(c) Adjustment for Access Stimulation activity. 2011 Rate-of-Return
Carrier Base Period Revenue shall be adjusted to reflect the removal of
any increases in revenue requirement or revenues resulting from Access
Stimulation activity the Rate-of-Return Carrier engaged in during the
relevant measuring period. A Rate-of-Return Carrier should make this
adjustment for its initial July 1, 2012, tariff filing, but the
adjustment may result from a subsequent Commission or court ruling.
* * * * *
PART 61--TARIFFS
0
5. The authority citation for part 61 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 154(j), 201-205, 403, unless
otherwise noted.
0
6. Amend Sec. 61.3 by revising paragraph (bbb) and adding paragraphs
(ccc) and (ddd) to read as follows:
Sec. 61.3 Definitions.
* * * * *
(bbb) Access Stimulation. (1) A Competitive Local Exchange Carrier
serving end user(s) engages in Access Stimulation when it satisfies
either paragraph (bbb)(1)(i) or (ii) of this section; and a rate-of-
return local exchange carrier serving end user(s) engages in Access
Stimulation when it satisfies either paragraph (bbb)(1)(i) or (iii) of
this section.
(i) The rate-of-return local exchange carrier or a Competitive
Local Exchange Carrier:
(A) Has an access revenue sharing agreement, whether express,
implied, written or oral, that, over the course of the agreement, would
directly or indirectly result in a net payment to the other party
(including affiliates) to the agreement, in which payment by the rate-
of-return local exchange carrier or Competitive Local Exchange Carrier
is based on the billing or collection of access charges from
interexchange carriers or wireless carriers. When determining whether
there is a net payment under this part, all payments, discounts,
credits, services, features, functions, and other items of value,
regardless of form, provided by the rate-of-return local exchange
carrier or Competitive Local Exchange Carrier to the other party to the
agreement shall be taken into account; and
(B) Has either an interstate terminating-to-originating traffic
ratio of at least 3:1 in a calendar month, or has had more than a 100
percent growth in interstate originating and/or terminating switched
access minutes of use in a month compared to the same month in the
preceding year.
(ii) A Competitive Local Exchange Carrier has an interstate
terminating-to-originating traffic ratio of at least 6:1 in an end
office in a calendar month.
(iii) A rate-of-return local exchange carrier has an interstate
terminating-to-originating traffic ratio of at least 10:1 in an end
office in a three calendar month period and has 500,000 minutes or more
of interstate terminating minutes-of-use per month in the same end
office in the same three calendar month period. These factors will be
measured as an average over the three calendar month period.
(2) A Competitive Local Exchange Carrier will continue to be
engaging in Access Stimulation until: For a carrier engaging in Access
Stimulation as defined in paragraph (bbb)(1)(i) of this section, it
terminates all revenue sharing agreements covered in paragraph
(bbb)(1)(i) of this section and does not engage in Access Stimulation
as defined in paragraph (bbb)(1)(ii) of this section; and for a carrier
engaging in Access Stimulation as defined in paragraph (bbb)(1)(ii) of
this section, its interstate terminating-to-originating traffic ratio
falls below 6:1 for six consecutive months, and it does not engage in
Access Stimulation as defined in paragraph (bbb)(1)(i) of this section.
(3) A rate-of-return local exchange carrier will continue to be
engaging in Access Stimulation until: For a carrier engaging in Access
Stimulation as defined in paragraph (bbb)(1)(i) of this section, it
terminates all revenue sharing agreements covered in paragraph
(bbb)(1)(i) of this section and does not engage in Access Stimulation
as defined in paragraph (bbb)(1)(iii) of this section; and for a
carrier engaging in Access Stimulation as defined in paragraph
(bbb)(1)(iii) of this section, its interstate terminating-to-
originating traffic ratio falls below 10:1 for six consecutive months
and its monthly interstate terminating minutes-of-use in an end office
falls below 500,000 for six consecutive months, and it does not engage
in Access Stimulation as defined in paragraph (bbb)(1)(i) of this
section.
(4) A local exchange carrier engaging in Access Stimulation is
subject to
[[Page 57652]]
revised interstate switched access charge rules under Sec. 61.26(g)
(for Competitive Local Exchange Carriers) or Sec. 61.38 and Sec.
69.3(e)(12) of this chapter (for rate-of-return local exchange
carriers).
(ccc) Intermediate Access Provider. The term means, for purposes of
this part and Sec. Sec. 69.3(e)(12)(iv) and 69.5(b) of this chapter,
any entity that carries or processes traffic at any point between the
final Interexchange Carrier in a call path and a local exchange carrier
engaged in Access Stimulation, as defined in paragraph (bbb) of this
section.
(ddd) Interexchange Carrier. The term means, for purposes of this
part and Sec. Sec. 69.3(e)(12)(iv) and 69.5(b) of this chapter, a
retail or wholesale telecommunications carrier that uses the exchange
access or information access services of another telecommunications
carrier for the provision of telecommunications.
0
7. Amend Sec. 61.26 by adding paragraph (g)(3) to read as follows:
Sec. 61.26 Tariffing of competitive interstate switched exchange
access services.
* * * * *
(g) * * *
(3) Notwithstanding any other provision of this part, if a CLEC is
engaged in Access Stimulation, as defined in Sec. 61.3(bbb), it shall:
(i) Within 45 days of commencing Access Stimulation, or within 45
days of November 27, 2019, whichever is later, file tariff revisions
removing from its tariff terminating switched access tandem switching
and terminating switched access tandem transport access charges
assessable to an Interexchange Carrier for any traffic between the
tandem and the local exchange carrier's terminating end office or
equivalent; and
(ii) Within 45 days of commencing Access Stimulation, or within 45
days of November 27, 2019, whichever is later, the CLEC shall not file
a tariffed rate that is assessable to an Interexchange Carrier for
terminating switched access tandem switching or terminating switched
access tandem transport access charges for any traffic between the
tandem and the local exchange carrier's terminating end office or
equivalent.
0
8. Amend Sec. 61.39 by revising paragraph (g) to read as follows:
Sec. 61.39 Optional supporting information to be submitted with
letters of transmittal for Access Tariff filings by incumbent local
exchange carriers serving 50,000 or fewer access lines in a given study
area that are described as subset 3 carriers in Sec. 69.602.
* * * * *
(g) Engagement in Access Stimulation. A local exchange carrier
otherwise eligible to file a tariff pursuant to this section may not do
so if it is engaging in Access Stimulation, as that term is defined in
Sec. 61.3(bbb). A carrier so engaged must file interstate access
tariffs in accordance with Sec. 61.38 and Sec. 69.3(e)(12) of this
chapter.
PART 69--ACCESS CHARGES
0
9. The authority citation for part 69 continues to read as follows:
Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254,
403.
0
10. Amend Sec. 69.3 by adding paragraph (e)(12)(iv) and removing the
authority citation at the end of the section to read as follows:
Sec. 69.3 Filing of access service tariffs.
* * * * *
(e) * * *
(12) * * *
(iv) Notwithstanding any other provision of this part, if a rate-
of-return local exchange carrier is engaged in Access Stimulation, or a
group of affiliated carriers in which at least one carrier is engaging
in Access Stimulation, as defined in Sec. 61.3(bbb) of this chapter,
it shall:
(A) Within 45 days of commencing Access Stimulation, or within 45
days of November 27, 2019, whichever is later, file tariff revisions
removing from its tariff terminating switched access tandem switching
and terminating switched access tandem transport access charges
assessable to an Interexchange Carrier for any traffic between the
tandem and the local exchange carrier's terminating end office or
equivalent; and
(B) Within 45 days of commencing Access Stimulation, or within 45
days of November 27, 2019, whichever is later, the local exchange
carrier shall not file a tariffed rate for terminating switched access
tandem switching or terminating switched access tandem transport access
charges that is assessable to an Interexchange Carrier for any traffic
between the tandem and the local exchange carrier's terminating end
office or equivalent.
* * * * *
0
11. Amend Sec. 69.4 by adding paragraph (l) to read as follows:
Sec. 69.4 Charges to be filed.
* * * * *
(l) Notwithstanding paragraph (b)(5) of this section, a local
exchange carrier engaged in Access Stimulation as defined in Sec.
61.3(bbb) of this chapter or the Intermediate Access Provider it
subtends may not bill an Interexchange Carrier as defined in Sec.
61.3(bbb) of this chapter for terminating switched access tandem
switching or terminating switched access tandem transport charges for
any traffic between such local exchange carrier's terminating end
office or equivalent and the associated access tandem switch.
0
12. Amend Sec. 69.5 by revising paragraph (b) and removing the
authority citation at the end of the section to read as follows:
Sec. 69.5 Persons to be assessed.
* * * * *
(b) Carrier's carrier charges shall be computed and assessed upon
all Interexchange Carriers that use local exchange switching facilities
for the provision of interstate or foreign telecommunications services,
except that:
(1) Local exchange carriers may not assess a terminating switched
access tandem switching or terminating switched access tandem transport
charge described in Sec. 69.4(b)(5) on Interexchange Carriers when the
terminating traffic is destined for a local exchange carrier engaged in
Access Stimulation, as that term is defined in Sec. 61.3(bbb) of this
chapter consistent with the provisions of Sec. 61.26(g)(3) of this
chapter and Sec. 69.3(e)(12)(iv).
(2) Intermediate Access Providers may assess a terminating switched
access tandem switching or terminating switched access tandem transport
charge described in Sec. 69.4(b)(5) on local exchange carriers when
the terminating traffic is destined for a local exchange carrier
engaged in Access Stimulation, as that term is defined in Sec.
61.3(bbb) of this chapter consistent with the provisions of Sec.
61.26(g)(3) of this chapter and Sec. 69.3(e)(12)(iv).
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[FR Doc. 2019-22447 Filed 10-25-19; 8:45 am]
BILLING CODE 6712-01-P