United States: Update: FCC Approves Fundamental Overhaul Of Intercarrier Compensation And Universal Service Fund

On Friday, November 18, 2011, the U.S. Federal Communications Commission ("FCC") released an order, adopted October 27, 2011, comprehensively overhauling the nation's existing universal service fund ("USF") and intercarrier compensation ("ICC") regime. The full text of the Order is available on the FCC's website. Below we have provided a summary of the 759 page Order's key points.

UNIVERSAL SERVICE REFORM

As was widely expected, the Order eliminates the existing high-cost funding mechanism in its entirety, replacing it after a transition period with three funds designed to support broadband information services: the Connect America Fund ("CAF"), the Mobility Fund, and the Remote Areas Fund, which tie funding to broadband build-out obligations, along with an ILEC access replacement mechanism. The total funding for all replacement mechanisms will be capped at $4.5 billion annually, the same level as the high-cost program for Fiscal Year 2011, with $4 billion earmarked for price-cap and rate-of-return carrier service areas and the remaining $500 million of funding reserved for mobility voice services. Existing support will be frozen and the transition to the new support mechanisms will begin January 1, 2012.

Under the new support system all ETCs will be required to offer voice as well as broadband service at rates reasonably comparable to those available in urban areas and to report regularly on a number of performance measures, including speed, latency, capacity, and build-out progress which must be tested, if applicable, and reported to the Commission and will be subject to audit. ¶¶ 74-97, 584-7. ETCs will be subject to a uniform national reporting framework that modifies existing reporting and certification obligations, but that may be expanded upon by the states. ¶¶ 568, 574.

Universal Service Fund Phase-out

• ETCs currently receiving support will have their support frozen as of year-end 2011 and phased out in 20% increments over a five-year period beginning on July 1, 2012. ¶¶ 513, 519.
  
  
• The support baseline will be set at the lower of the carrier's 2011 support or at an amount equal to $3,000 times the number of lines reported at the end of 2011. ¶ 515.
  
  
• The support phase-down will stop on June 30, 2014 if Mobility Fund Phase II is not operational by that date, which would ensure approximately $600 million per year of legacy support until new mechanism is operational. ¶ 519.
  
  
• A "waiver" process from the phase-out of funding is available in cases of "extreme hardship" where the carrier can demonstrate that the reduction in support would put consumers at risk of losing voice service, with no alternative service available. However, the Commission expressly stated that it does not expect to grant waiver requests routinely. ¶¶ 539-42.
  
  
• ETCs serving Tribal areas are required to demonstrate on an annual basis that they have meaningfully engaged Tribal governments in their supported areas, and must do so before the submission of their long form applications. ¶¶ 636-637.
  
  

Mobility Fund

The Mobility Fund for wireless carriers will be implemented in two phases with a transition period.

Mobility Fund -- Phase I

Phase I of the Mobility Fund will provide one-time support to designated ETCs to deploy 4G and 3G wireless voice services to areas currently "unserved" by such services, as determined by the Commission.

• Phase I will be capped at $300 million annually.
  
  
• A separate $50 million for a Tribal Mobility Fund directed towards Tribal and Hawaiian Home Lands that will follow the same general terms and conditions as the Mobility Fund, but with 25% bidding credit for Tribally-owned or controlled providers; ¶ 126, n. 197, ¶ 484, ¶ 490.
  
  
• Mobility Fund support will be awarded to no more than one provider per area, with limited exceptions. ¶ 316.
  
  
• Funds will be distributed by a competitive bidding process targeting currently unserved areas, measured in reference to American Roamer data on a census block level. ¶ 334.
  
  
• Prior to participating in the auction, participants must be designated as an ETC, have access to spectrum capable of supporting 3G or better services (¶ 394, ¶ 440), and be able to certify its financial (¶ 444) and technical capability to provide the required services (¶ 401). Carriers that have made regulatory commitments or federal funding to provide 3G or better service prior to the auction application deadline will not be eligible. ¶ 453 However, to encourage auction participation by Tribally-owned or controlled providers, such providers that have applied for ETC designation by the time of the short-form auction application deadline may apply for Phase I Tribal Mobility Fund or General Mobility Fund support in Tribal areas.
  
  
• To obtain funding carriers must commit to using funds to deploy 4G services within 3 years or 3G services within 2 years to at least 75% of the road miles associated with census blocks designated as "unserved" by the Commission in advance of the auctions. ¶ 365.
  
  
• Additional public interest obligations will be associated with Mobility Fund support, including reporting on performance requirements (¶ 369, ¶ 471), reasonable collocation (¶ 376), voice and data roaming (¶ 379), and the provision of service at reasonably comparable rates. ¶ 384.
  
  
• The Mobility Fund auctions will be structured as a single-round sealed bid format (¶ 413), with participants required to complete a two-stage application (¶ 417, ¶ 435), and subject to additional policies and rules promulgated by the Wireless Bureau prior to auction. ¶ 420.
  
  
• Winning bidders will have support provided in three installments, the first installment after its long-form post auction application is granted (¶ 466), the second when the carrier has provided service to 50% of its coverage area (¶ 466), and the final installment when the carrier filed with USAC a report demonstrating that it has met its coverage obligations.
  
  
• The first reverse auctions are expected to be held beginning in the third quarter of 2012.
  
  

Mobility Fund -- Phase II

Will provide ongoing, annual support of up to $500 million which will include up to $100 million set aside for a Tribal Mobility Fund targeting Tribal lands. (¶ 494) The proposed details of the Mobility Fund Phase II are outlined in a the FNPRM discussed below.

• Support will only be provided to a single carrier in each area supported by the Mobility Fund.
  
  
• A competitive bidding process will be used to determine which carriers receive support.
  
  
• The Phase II mechanism rules are expected to be adopted in 2012 and implemented in 2013. ¶ 514.
  
  

Remote Areas Fund

The FCC also established a Remote Areas Fund, designed to fund deployment to extremely high cost of service areas.

• Will provide at least $100 million annually to a fund broadband deployment to the country's most remote areas. ¶ 534.
  
  
• The technology used to participate in the Remote Area Fund will not be restricted, allowing satellite broadband providers and wireless Internet service providers to be eligible for participation. ¶ 537.
  
  
• The details of the Remote Areas Fund are outlined in a the FNPRM discussed below.
  
  

The Connect America Fund

The CAF for carriers capable of deploying 4 Mbps download and 1 Mbps upload broadband services will be implemented in two phases, with support under the CAF directed almost exclusively to price-cap and rate-of-return carriers.

To fund these programs the Commission amended its rules to allow the universal service fund to "accumulate reserves" to facilitate the transition to the CAF and the Mobility Fund. ¶ 546, 564. The Commission fails to mention that the FCC's ability to establish similar reserves is currently being challenged before the D.C. Circuit and may not withstand judicial challenge.

• CAF Phase I: Price Cap Carriers
  • Effective January 1, 2012, support for price cap areas will be frozen and phased out over five years.
    
    
  • A $300 million fund will be created targeting price cap carrier service areas that lack fixed broadband services of at least 768 kbps download and 200 kbps upload speeds, as identified by the Commission's National Broadband Map. ¶ 105.
    
    
  • Funds will be distributed by the use of a forward-looking cost model that will generate an estimate of the broadband build-out costs for the price-cap carrier's wire center, which the carrier may elect to receive in exchange for a commitment to deploy 4 Mbps download -1 Mbps upload broadband to locations "unserved" by services of at least 768 kbps download speeds.
    
    
  • The price-cap incumbent LEC will be eligible to elect to receive $775 of additional "incremental" support for each location served and must complete the proposed build-out within 3 years. ¶ 138.
    
    
  • Carriers must certify that the funds will be deployed only to "unserved" locations and that the carrier did not have plans to deploy to that area within the next three years. ¶ 146.
    
    
• CAF Phase II: Price Cap Carriers
  • Effective January 1, 2012, support for price cap areas will be frozen and phased out over five years.
    
    
  • The Commission will model forward looking costs to estimate the expense of deploying wireline networks on a census block or smaller basis. ¶ 189 Using the cost model the Commission will offer each price cap LEC annual support for five years in exchange for a commitment to offer voice and broadband throughout its service territory, subject to public interest obligations. The list of eligible census blocks is expected to be published before the end of 2012. ¶ 171.
    • If the price cap carrier declines to participate the area's support will be distributed to other carriers using a competitive bidding mechanism developed in the FNPRM in order to deploy broadband services to those areas, subject to the $1.8 billion cap.
      
      
    • This modified "right of first refusal" is among the most controversial pieces of the Order and is likely to be the source of a judicial challenge.
      
      
  • The Phase II CAF will not provide support in areas where unsubsidized competitors are providing broadband - defined as a facilities based provider of residential terrestrial fixed voice and broadband services. ¶ 103.
    
    
  • Support recipients will be required to build out 4 Mbps download - 1 Mbps upload services to 85% of their high-cost locations within 3 years covered by a state-level commitment and 100% coverage within 5 years, with some locations upgraded further to 6 Mbps - 1.5 Mbps speeds by that point. ¶ 160 There is a limited exception for areas where there exists no terrestrial backhaul, the supported carrier must only provide speeds of 1 Mbps download - 256 kbps upload speeds. ¶ 101.
    
    
  • After the five-year period, the Commission will use competitive bidding to distribute any universal service support needed in those areas, with bidding open to all carriers. ¶ 178.
    
    
  • The FCC expects that the model and competitive bidding mechanism will be adopted by December 2012, and disbursements will ramp up in 2013 and continue through 2017.
    
    
• CAF Phase II: Rate of Return Carriers
  • Rate of return carriers will be awarded $2 billion in support annually, subject to a less demanding build-out obligation, but will face the elimination and phasing out of support in areas currently served by an unsubsidized competitor and for lines that exceed $250 per month in support. ¶ 194-203.
    
    

The Connect America Fund – FNPRM

• Public Interest Obligations
  • The Order alters many of the public interest obligations of carriers. In the FNPRM, the FCC is seeking comment on how to implement those changes, including: ¶ 1012.
    • Measuring Broadband Service. The Order requires actual speed and latency to be measured on each ETC's network. The FCC seeks comment on the methodology used to measure broadband speeds, what data should be made available, and the FCC's reporting requirements. ¶ 1013.
      
      
    • Reasonably Comparable Voice and Broadband Services. The Order directs the Wireline Competition Bureau and Wireless Telecommunications Bureau to conduct a survey of voice and broadband rates. The FCC seeks comment on how to conduct the survey, for example, how should the FCC collect and measure data on reasonably comparable voice and broadband services, including data speeds, fixed vs. mobile services, and reasonable ranges of rates. ¶ 1018.
      
      
    • Interconnection Requirements. The FCC seeks comment on proposed interconnection requirements for CAF recipients. ¶ 1028.
      
      
• Interstate Rate of Return Represcription
  • Rate-of-return carriers will continue to receive modified versions of legacy universal service support. The FCC seeks comment on how the Order's changes in universal services support fit within the broader framework for rate-of-return carriers, and how the changes are linked to other FNPRM proposals, including the separate CAF support mechanism for rate-of-return carriers. ¶ 1044.
    
    
• Eliminating Support for Areas with an Unsubsidized Competitor
  • The Order begins a three-year phase out process for high-cost support for incumbent rate-of-return carriers in study areas where an unsubsidized competitor serves 100 percent of the residential and business locations in the study area. The FCC seeks comment on several aspects of the phasing out process, specifically: ¶ 1061.
    • How should the FCC implement the Order's phase-out of support for incumbent rate-of-return carriers where unsubsidized competitors offer services?
      
      
    • What methodology should be used to determine the extent of overlap, such as how to use small block and large block data?
      
      
    • What should the process for affected ETCs to challenge purported overlap be? Should there be state commission involvement? If so, how?
      
      
    • How should the FCC adjust support levels in areas of less than 100% overlap?
      
      
• Limits on Reimbursable Capital and Operating Costs for Rate-of-Return Carriers
  • The Order adopts a rule to use benchmarks for reasonable costs to impose limits on reimbursable capital and operating costs. In the FNPRM the FCC seeks comment on its proposed methodology for limiting reimbursable capital and operating costs for high-cost loop support received by rate-of-return carriers. ¶ 1079.
    
    
• ETC Service Obligations
  • The CAF shifts support to deploying modern broadband and voice services. The FCC seeks comment on how the shift to CAF should change ETC service obligations. ¶ 1089.
    • Given the Order's reduced or eliminated universal service support for legacy voice service, should voice obligations be reduced? ¶ 1095.
      
      
    • The FCC has forborne section 214(e)(1) ETC requirements, and interprets section 10 as allowing future forbearance of the "throughout [their] service area" requirement if satisfactory criteria are met. The FCC seeks comment on this interpretation. ¶ 1097.
      
      
    • The FCC seeks comment on commenter proposals for broader modifications such as blanket forbearance in areas receiving no universal service support or reinterpretation of section 214(e)(1) to apply only to areas where those services are supported. ¶ 1098.
      
      
  • The Order creates a rule that would reduce support for entities that receive high-cost support but do not fulfill their public interest obligations. The FCC seeks comment on whether to adopt financial guarantees or penalties to increase accountability for recipients of high-cost support. ¶ 1104.
    
    
• Annual Reporting Requirements for Mobile Service Providers
  • The Order imposes annual reporting requirements for recipients of USF support under new section 54.313. Should the FCC revise or replace 54.313 requirements for mobile service providers that do not reflect the nature of the mobile service being offered? ¶ 1117.
    
    
• Mobility Fund Phase II
  • The Order establishes the Mobility Fund to promote the availability of mobile broadband services. In the FNRPM the Commission proposes to use a reverse auction mechanism to distribute support and seeks comment on this approach as well as alternatives. ¶ 1122.
    
    
  • Framework for Support under Competitive Bidding
    • The Commission proposes census blocks as the minimum size geographic areas. American Roamer data regarding the availability of 2G and 3G or higher service would be used to determine eligibility for support. The Commission seeks comment on the use of other proxies, data sources, or technologies that should be considered to determine eligibility of census blocks. ¶ 1124.
      
      
    • The FCC seeks comments on the need for package bidding or whether it should defer to a bidder-defined approach. ¶ 1131.
      • The FCC proposes using TIGER census data to determine road miles and basing bidding units and coverage requirements on this data and seeks comment on this approach. ¶ 1134.
        
        
      • The FCC additionally seeks comment on maximizing consumer benefits, lengths of terms of support, provider eligibility requirements, and public interest obligations for Mobility Fund providers. ¶ 1136-1151.
        
        
    • The Commission proposes auction rules based on a reverse auction system and seeks comment on the number of bidding stages, bidding preference for small business, and the application process, which is similar to that used in the Mobility Fund Phase I, discussed above. ¶ 1155.
      
      
    • An economic model-based process could be used as an alternative to competitive bidding. The FCC seeks comments on how to design such a model and the framework for such a process. ¶ 1174.
      • Specifically, how could "brownfield" and "greenfield" models as proposed by US Cellular and MTPCS, and CostQuest, be constructed and what are each model's advantages? ¶ 1177-1178.
        
        
      • If an economic model approach is used, which elements of the framework, such as public interest obligations, granularity of geographic units, length of term support or other elements would need to change? ¶ 1183-1188.
        
        
• Competitive Process Where the Incumbent Declines the State-Level CAF Commitment
  • Under the Order, ILECs will be offered the option of making a state-level commitment to provide broadband to high-cost areas in exchange for additional funding. Where incumbents decline, a competitive bidding process will be used. The FNPRM seeks comment on the proposed rules for a reverse auction-style bidding process. ¶ 1189.
    • The FCC seeks comment on what approaches could be used to define areas to be used in the bidding process, minimum geographical unit, prioritization of areas, and public interest obligation performance. ¶ 1191.
      
      
    • The FCC further seeks comment on proposals regarding eligibility requirements including ETC designations, certification of financial and technical capability, and eligibility of carriers declining state-level commitments covering the area. ¶ 1198-1201.
      
      
• Remote Areas Fund
  • The Order establishes a Remote Areas Fund to assist Americans living in remote areas in obtaining affordable broadband. The FCC seeks comment on how to implement the RAF. ¶ 1223.
    • The FCC proposes the fund be structured as a portable consumer subsidy and seeks comment on this proposal and alternative structures. ¶ 1225.
      • How should the Commission identify areas eligible for the RAF while the proposed forward-looking cost model is unavailable? ¶ 1230.
        • What broadband public interest obligations are appropriate and what standards and measurements should be used? ¶ 1240.
          
          
        • With respect to pricing obligations, the FCC proposes applying standards from the CAF order to RAF reasonably comparable rates and seeks comment on this proposal, as well as its subsidy pass through, price guarantee, and consumer flexibility proposals. ¶ 1246.
          
          
    • The portable consumer subsidy proposal lists subscriber qualifications such as remoteness, one subsidy per household, limiting support to new subscribers and a means test. Further, should a community anchor institution and small business eligibility test be used? The FCC seeks comment on these proposals. ¶ 1255
      • How should the amount of the voice and broadband subsidies be determined, with respect to monthly payments, installation fees, and satellite service limitations? ¶ 1264-1272.
        
        
      • The FCC seeks comment on alternative auction approaches including per-subscribed location auctions, coverage auctions, and combined auctions. Additionally, are the rules established for the Mobility Fund Phase I, potential small business preference rules, and process for application, auction, and pos-auction appropriate? ¶ 1276-1288.
        
        

INTERCARRIER COMPENSATION REFORM

The Order provides for the transition for all types of traffic to a bill-and-keep regime over a period of six to nine years, as well as a mechanism to offset the resulting revenue losses for incumbents. The Order also establishes a set of rules to reduce access stimulation by requiring access stimulating LECs to set their interstate access rates no higher than the lowest interstate access rate of any incumbent LEC in the state. In addition, the Commission determined on a prospective basis that "toll" VoIP traffic will be compensable as interstate access traffic and that "local" VoIP traffic will be subject to reciprocal compensation. The Commission also clarified some rules relating to compensation for wireless traffic, and adopted a new set of rules to reduce phantom traffic.

Rules to Reduce Access Stimulation

• Access stimulating LECs realize significant revenue increases and thus inflated profits that almost uniformly make their interstate switched access rates unjust and unreasonable. ¶ 662.
  
  
• While access stimulation may provide benefits for those in tribal lands, how access revenues are used is not relevant in determining whether switched access rates are just and reasonable in accordance with section 201(b). ¶ 666.
  • An "access stimulating LEC" must refile its interstate access tariffs when: (¶ 667)
    • the LEC has entered into an "access revenue sharing agreement;" and either
      
      
    • the LEC has had a three-to-one interstate terminating-to-originating traffic ratio in a calendar month; or
      
      
    • has had a greater than 100 percent increase in interstate originating and/or terminating switched access MOU in a month compared to the same month in the preceding year.
      • An "access sharing revenue agreement" is defined in the Order as one where a rate-of-return LEC or CLEC "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 LEC or competitive LEC is based on the billing or collection of access charges from interexchange carriers or wireless carriers." ¶ 669
        
        
• If a LEC is determined to be engaged in access stimulation, with 45 days: (¶ 679)
  • a rate-of-return LEC must file its own cost-based tariff under section 61.38 of the Commission's rules and may not file based on historical costs under section 61.39 of the Commission's rules or participate in the NECA traffic-sensitive tariff;
    
    
  • a CLEC must benchmark its tariffed access rates to the rates of the price cap LEC with the lowest interstate switched access rates in the state.
    
    
• Once a rate-of-return LEC or a competitive LEC has met both conditions of the definition and has filed revised tariffs it may not file new tariffs at rates other than those required by the revised pricing rules until it terminates its revenue sharing agreement(s), even if the LEC no longer meets the 3:1 terminating-to-originating traffic ratio condition of the definition or traffic growth threshold. ¶ 679.
  
  
• Carriers filing complaints may rely on the 3:1 terminating-to-originating traffic ratio and/or the traffic growth factor for the traffic it exchanges with the LEC as the basis for filing a complaint. ¶ 699.
  • This will create a rebuttable presumption that revenue sharing is occurring and the LEC has violated the Commission's rules. The LEC then would have the burden of showing that it does not meet both conditions of the definition.
    
    

Rules to Reduce Phantom Traffic

• The revised calling signaling rules will encompass both interstate and intrastate traffic. ¶ 710.
  • All traffic originating or terminating on the PSTN and traffic transmitted using Internet protocols must include the CPN associated with the call. ¶ 711.
    
    
  • CN must be passed unaltered where it is different from the CPN. The CN field may only be used to contain a calling party's charge number, and that it may not contain or be populated with a number associated with an intermediate switch, platform, or gateway, or other number that designates anything other than a calling party's charge number. ¶ 714.
    
    
  • Service providers using MF signaling must pass the number of the calling party (or CN, if different) in the MF ANI field. ¶ 716.
    
    
• The revised call signaling rules also apply to interconnected VoIP traffic. VoIP service providers will be required to transmit the telephone number of the calling party for all traffic destined for the PSTN that they originate. If they are intermediate providers in a call path, VoIP providers must pass, unaltered, signaling information they receive indicating the telephone number, or billing number if different, of the calling party. ¶ 717.
  
  
• Service providers are prohibited from stripping or altering call information, and are required to pass the calling party's telephone number (or, if different, the financially responsible party's number), unaltered, to subsequent carriers in the call path. ¶ 719.
  • The Commission declined to extend phantom traffic and call-signaling rules to include JIP, CIC, or OCN information. ¶¶ 725-28.
    
    
• The FCC declined to adopt new methods of enforcing rules against phantom traffic. ¶¶ 730-735.
  
  

Transition to a Bill-and-Keep Regime

• The FCC adopted bill-an-keep as the "end state or all traffic" because it best "advances the Commission's policy goals and the public interest, driving greater efficiency in the operation of telecommunications networks and promoting the deployment of IP-based networks." ¶¶ 740-759.
  
  
• The FCC's statutory authority to implement bill-and-keep as the default framework for the exchange of traffic with LECs flows directly from sections 251(b)(5) and 201(b) of the Act. ¶ 760.
  
  
• The transition rules apply only with respect to terminating access. The FCC seeks comment in the FNPRM on the ultimate transition away from such charges as part of the transition of all access charge rates to bill-and-keep. ¶ 777.
  
  
• With respect to wireless traffic exchanged with a LEC, the Commission has independent authority under section 332 of the Act to establish a default bill-and-keep methodology that will apply in the absence of an interconnection agreement. ¶ 779. T
  
  
• The Commission adopted the following schedule for the transition to bill-and-keep (¶ 801):
  
  

• Since intercarrier compensation charges are constrained by the transition glide path adopted in the Order, the FCC will be monitoring to ensure that carriers do not shift costs to other rate elements that are not specifically covered, such as special access or common line. ¶ 804
  
  
• CMRS providers will be subject to the transition applicable to price cap carriers. Although CMRS providers are subject to mandatory detariffing, these providers are included to the extent their reciprocal compensation rates are inconsistent with the reforms adopted in the Order. ¶ 806
  
  
• The Order retains the CLEC benchmark rule during the transition. Competitive LECs have 15 days from the effective date of a newly incumbent LEC tariff upon which they benchmark to make their own corresponding filing(s). ¶ 807
  
  

Implementation Issues

• LECs will continue to tariff default charges for intrastate toll traffic at the state level, and for interstate toll traffic with the Commission, in accordance with the timetable and rate reductions set forth above. ¶ 812
  • Carriers remain free to enter into negotiated agreements that differ from the default rates established in the Order, consistent with the negotiated agreement framework that Congress envisioned for the 251(b)(5) regime to which access traffic is transitioned.
    
    
  • During the transition, traffic that historically has been addressed through interconnection agreements will continue to be so addressed.
    
    
• To ensure compliance with the framework and to ensure carriers are not taking actions that could enable a windfall and/or double recovery, state commissions should monitor compliance with our rate transition; review how carriers reduce rates to ensure consistency with the uniform framework; and guard against attempts to raise capped intercarrier compensation rates, as well as unanticipated types of gamesmanship. ¶ 813.
  
  
• The reforms in the Order do not abrogate existing commercial contracts or interconnection agreements or otherwise require an automatic "fresh look" at these agreements. ¶ 815.
  
  

Other Rate Elements

• Originating charges for all telecommunications traffic subject to the comprehensive intercarrier compensation framework should ultimately move to bill-and-keep. ¶¶ 817-18.
  • All interstate originating access charges and intrastate originating access charges for price cap carriers are capped at levels effect as the effective date of the rules.
    • This prohibition on increasing access rates also applies to any remaining Primary Interexchange Carrier Charge in section 69.153 of the Commission's rules, the per-minute Carrier Common Line charge in section 69.154 of the Commission's rules, and the per-minute Residual Interconnection Charge in section 69.155 of the Commission's rules.
      
      
    • Price cap carriers and CLECs that benchmark to price cap rates are also prohibited from increasing their originating intrastate access rates.
      
      
  • Carriers are prohibited from increasing their originating interstate access rates above those in effect as the effective date of the rules.
    
    
• For price cap carriers, in the final year of the transition, transport and terminating switched access shall go to bill-and-keep levels where the terminating carrier owns the tandem. However, transport charges in other instances, i.e., where the terminating carrier does not own the tandem, are not addressed in this Order. ¶ 819.
  
  
• The Commission recognizes that the continuation of transport charges in perpetuity would be problematic. ¶ 820.
  
  

ICC Reform Recovery Mechanism – Carriers Eligible to Participate

The Order establishes an "access replacement" fund for ILECs that will allow recovery of costs associated with lost access revenues. All incumbent LECs are eligible to participate because regulatory constraints on their pricing and service requirements otherwise limit their ability to recover their costs. ¶ 862. Notably, however:

• The FCC declined to provide an explicit recovery mechanism for competitive LECs because (¶ 864):
  • their end-user charges are not subject to comparable rate regulation and therefore those carriers are free to recover reduced access revenue through regular end-user charges; and
    
    
  • competitive LECs typically have not built out their networks subject to COLR obligation, and thus typically can elect whether to enter a service area and/or to serve particular classes of customers depending upon whether it is profitable to do so without subsidy.
    
    
• The FCC declined to permit competitive LECs to reduce their access rates over a longer period of time than incumbent LECs, because deviating from that framework for purposes of the access reform transition would create new opportunities for arbitrage and require increased regulatory oversight. ¶ 866.
  
  

ICC Reform Recovery Mechanism –Calculating Eligible Recovery for ILECs

• Price cap incumbent LECs' Baseline for recovery will be 90% of their Fiscal Year 2011 interstate and intrastate access revenues for the rates subject to reform and net reciprocal compensation revenues. ¶ 851.
  • For price cap carriers' study areas that participated in the Commission's 2000 CALLS reforms, and thus have had interstate access rates essentially frozen for almost a decade, Price Cap Eligible Recovery (i.e., revenues subject to our recovery mechanism) will be the difference between: (a) the Price Cap Baseline, subject to 10 percent annual reductions; and (b) the revenues from the reformed intercarrier compensation rates in that year, based on estimated MOUs multiplied by the associated default rate for that year.
    
    
  • For carriers that have more recently converted to price cap regulation and did not participate in the CALLS plan, the reductions will be phased in after five years, so that the initial 10 percent reduction occurs in year six.
    
    
  • Estimated MOUs will be calculated as FY2011 minutes for all price cap carriers, and will be reduced 10 percent annually for each year of reform to reflect MOU trends over the past several years.
    
    
• Rate-of-return incumbent LECs' Baseline for recovery will be based on their 2011 interstate switched access revenue requirement, plus FY2011 intrastate terminating switched access revenues and FY2011 net reciprocal compensation revenue. ¶ 851.
  • Rate-of-Return Eligible Recovery will be the difference between: (a) the Rate-of-Return Baseline, subject to five percent annual reductions; and (b) the revenues from the reformed intercarrier compensation rates in that year, based on actual MOUs multiplied by the associated default rate for that year.
    
    
• Incumbent LECs are permitted to recover a limited portion of their Eligible Recovery from their end users through a monthly fixed charge called an ARC. In order to ensure that any ARC increase on consumers does not impact affordability of rates, including by limiting the annual increase in consumer ARCs to $0.50. ¶ 852.
  • Incumbent LECs may not charge an ARC on any Lifeline customers.
    
    
  • This charge is calculated independently from, and has no bearing on, existing SLCs, although for administrative and billing efficiencies carriers are permitted to combine the charges as a single line item on a bill.
    
    
  • To protect consumers the FCC adopted a Residential Rate Ceiling that prohibits imposing an ARC on any consumer paying an inclusive local monthly phone rate of $30 or more.
    
    
  • LECs may not charge an a multi-line business ARC where the SLC plus ARC would exceed $12.20 per line.
    
    
  • To recover Eligible Recovery, price cap incumbent LECs are permitted to implement monthly end user ARCs with five annual increases of no more than $0.50 for residential/single-line business consumers, for a total monthly ARC of no more than $2.50 in the fifth year; and $1.00 (per month) per line for multi-line business customers, for a total of $5.00 per line in the fifth year, provided that:
    • any such residential increases would not result in regulated residential end-user rates that exceed the $30 Residential Rate Ceiling; and
      
      
    • any multi-line business customer's total SLC plus ARC does not exceed $12.20.
      
      
  • To recover Eligible Recovery, rate-of-return incumbent LECs are permitted to implement monthly end user ARCs with six annual increases of no more than $0.50 (per month) for residential/single-line business consumers, for a total ARC of no more than $3.00 in the sixth year; and $1.00 (per month) per line for multi-line business customers for a total of $6.00 per line in the sixth year, provided that:
    • such increases would not result in regulated residential end-user rates that exceed the $30 Residential Rate Ceiling; and
      
      
    • any multi-line business customer's total SLC plus ARC does not exceed $12.20.
      
      
  • Competitive LECs, which are not subject to the Commission's end-user rate regulations today, may recover reduced intercarrier revenues through end-user charges.
    
    
• Recovery from the CAF for incumbent LECs will be provided to the extent their Eligible Recovery exceeds their permitted ARCs. ¶ 853.
  • For price cap carriers that elect to receive CAF support, such support is transitional, phasing out over three years beginning in 2017.
    
    
  • For rate-of-return carriers, ICC-replacement CAF support will phase down as Eligible Recovery decreases over time, but will not be subject to other reductions.
    
    
  • CAF recovery will require both price cap and rate-of-return carriers to comply with the broadband obligations discussed above.
    
    
• Competitive LECs, which have greater freedom in setting rates and determining which customers they wish to serve, will not be eligible for CAF support to replace reductions in ICC revenues. ¶ 853.
  
  
• A carrier can petition for a Total Cost and Earning Review to request additional CAF ICC support and/or waiver of CAF ICC support broadband obligations. In analyzing such petitions, the FCC will consider the totality of the circumstances, to the extent permitted by law. ¶ 925.
  
  

Intercarrier Compensation for VoIP Traffic

• The Order adopts a prospective intercarrier compensation framework that brings all VoIP-PSTN traffic within the section 251(b)(5) framework. ¶¶ 943-44.
  • Default charges for "toll" VoIP-PSTN traffic will be equal to interstate access rates applicable to non-VoIP traffic, both in terms of the rate level and rate structure;
    
    
  • Default charges for other VoIP-PSTN traffic will be the otherwise-applicable reciprocal compensation rates; and
    
    
  • LECs are permitted to tariff these default charges for toll VoIP-PSTN traffic in relevant federal and state tariffs in the absence of an agreement for different intercarrier compensation.
    
    
• The determination applies only prospectively, and is subject to the reductions in rates required in the Order. ¶ 945.
  
  
• LECs are permitted to tariff reciprocal compensation charges for toll VoIP-PSTN traffic equal to the level of interstate access rates. ¶ 961.
  
  
• LECs are permitted to charge the relevant intercarrier compensation for functions performed by it and/or by its retail VoIP partner, regardless of whether the functions performed or the technology used correspond precisely to those used under a traditional TDM architecture. ¶ 970.
  
  
• A carrier that otherwise has a section 251(c)(2) interconnection arrangement with an incumbent LEC is free to deliver toll VoIP-PSTN traffic through that arrangement, consistent with the provisions of its interconnection agreement. ¶ 972.
  
  
• A carriers' blocking of VoIP or vice versa calls is a violation of the Communications Act and, therefore, is prohibited just as with the blocking of other traffic. ¶¶ 973-974.
  
  

Intercarrier Compensation for Wireless Traffic

• The scope of compensation obligations under section 20.11 which governs competitive LEC-CMRS compensation arrangements are coextensive with the scope of the reciprocal compensation requirements under section 251 of the Act. ¶ 988.
  • Section 20.11 applies only to LEC-CMRS traffic that, since the Local Competition First Report and Order, has been subject to the reciprocal compensation framework under section 251(b)(5) of the Act.
    
    
  • Section 20.11 does not apply to access traffic that, prior to this Order, was subject to section 251(g).
    
    
  • The terms "mutual compensation" in section 20.11 and "reciprocal compensation" in section 251(b)(5) and Part 51 are synonymous when applied to non-access LEC-CMRS traffic.
    
    
• Bill-and-keep should be the default applicable to LEC-CMRS reciprocal compensation arrangements under both section 20.11 or Part 51 and should apply immediately. ¶ 994.
  
  
• For non-access traffic exchanged between a rural, rate-of-return LEC and a CMRS carrier, the rural, rate-of-return LEC will be responsible for transport to the CMRS provider's chosen interconnection point when it is located within the LEC's service area. ¶ 999.
  • When the CMRS provider's chosen interconnection point is located outside the LEC's service area, the LEC's transport and provisioning obligation stops at its meet point and the CMRS provider is responsible for the remaining transport to its interconnection point.
    
    
• The scope of compensation obligations under section 20.11 which govern competitive LEC-CMRS compensation arrangements are coextensive with the scope of the reciprocal compensation requirements under section 251 of the Act. ¶ 988.
  
  
• The intraMTA rule means that all traffic exchanged between a LEC and a CMRS provider that originates and terminates within the same MTA, as determined at the time the call is initiated, is subject to reciprocal compensation regardless of whether or not the call is, prior to termination, routed to a point located outside that MTA or outside the local calling area of the LEC. ¶ 1007.
  
  

Intercarrier Compensation – FNPRM

• Transitioning Rate Elements to Bill-and-Keep
  • The Order begins transition to Bill-and-Keep for certain terminating access rates, but not all rate elements. The FCC seeks comment on the proper transition and recovery mechanism for the remaining rate elements such as origination, transport and termination, and transit. ¶ 1297.
    • For origination rates, the FCC seeks comment on whether an additional multi-year transition is needed and how to implement a transition. ¶¶ 1299, 1302.
      
      
    • For transport and termination rates, the FCC seeks comment on how to transition for tandem switching and transport charges as well as how the transition of these charges will be affected by transitioning to IP networks. ¶¶ 1306, 1310.
      
      
    • With regard to transit, the Commission has not addressed whether transit services must be provided pursuant to section 251 of the Act. The FCC seeks comment on whether transit rates should be regulated to ensure reasonable rates. ¶ 1312.
      
      
• Bill-and-Keep Implementation
  • The FCC seeks comment on interconnection issues that must be addressed to implement the bill-and-keep regime established in the Order. ¶ 1315.
    • Currently, ILECs must allow requesting telecommunications carriers to interconnect at any technically feasible point. Does the Commission need to prescribe points of interconnection under bill-and-keep? ¶ 1316.
      
      
    • The Commission believes that tariffs should continue to be relied upon until carriers negotiate alternative agreements. Should the FCC forbear from tariffing requirements under section 203 of the Act and Part 61 of the Commission Rules to enable negotiation of alternative arrangements pursuant to the Order? ¶ 1322.
      
      
    • Some commenters have expressed concern that a bill-and-keep approach promotes arbitrage such as traffic dumping on terminating carriers' networks. The FCC seeks more detail on arbitrage concerns, the negative effects of dumping, and what additional measures may prevent such arbitrage. ¶ 1325.
      
      
• Reform of End User Charges and CAF ICC Support
  • The Order adopts a transitional recovery mechanism for ILECs. The FCC seeks comment on the long-term elimination of that transitional recovery mechanism as well as pre-existing rules on subscriber line charges, specifically ARC phase-out, CAF ICC support phase-out, treatment of demand in determining eligible recover for rate-of-return carriers, the magnitude and long-term role of SLCs, and advertising SLCs. ¶¶ 1326-1334.
    
    

INTERCONNECTION

The FCC clarified that the T-Mobile Order did not impose Section 251(c) obligations on CMRS carriers, but declined to extend the interconnection requirements established in the T-Mobile Order to the relationship between CMRS carriers and competitive LECs. The Commission also made clear that it expected all carriers to negotiate in good faith in response to request for IP-to-IP interconnection for the exchange of VoIP traffic until it completes its rulemaking proceeding on the topic.

Duty to Interconnect

• Sections 201 and 332 of the Act provide a basis for rules allowing an incumbent LEC to request interconnection, including associated compensation, from a CMRS provider and invoke the negotiation and arbitration procedures set forth in section 252 of the Act. ¶ 834.
  • Ancillary authority also supports the T-Mobile Order requirement that CMRS providers comply with the negotiation and arbitration procedures set forth in section 252 of the Act because both incumbent LECs and CMRS providers are telecommunications carriers, over which the FCC has clear jurisdiction. ¶ 837.
    
    
• The FCC clarifies that the T-Mobile Order did not apply Section 251(c) to CMRS carriers. ¶ 840.
  
  
• The Commission declines to extend the interconnection requirements in the T-Mobile Order to govern the relationship between CMRS carriers and competitive LECs. ¶ 845-46.
  
  
• While the FNPRM is pending, all carriers are required to negotiate in good faith in response to requests for IP-to-IP interconnection for the exchange of voice traffic. ¶ 1011.
  
  

Interconnection – FNPRM

• IP-to-IP Interconnection Issues
  • The Order creates requirements to negotiate IP-to-IP interconnection in good faith. The Commission seeks comment on implementing the good faith requirement and what sections of the Act best provide support for the requirement. ¶ 1335.
    
    
• Scope of Traffic Exchange Covered By an IP-to-IP Interconnection Policy Framework
  • The Order encompasses only IP voice traffic. The FCC seeks comment on the scope of IP traffic that should be covered by an IP-to-IP interconnection framework. ¶ 1344.
    
    
  • Should only voice be covered? What would be the impact on non-voice IP interconnection? Should only managed or facilities-based VoIP services be covered? How would "over the top" VoIP providers be affected? ¶ 1346.
    
    
• Good Faith Negotiations for IP-to-IP Interconnection
  • The FCC seeks comment on the scope and nature of good faith negotiations requirements adopted by the Order, such as the types of carriers covered and whether the Commission needs to address ranges of reasonable IP-to-IP interconnection rates. ¶ 1348.
    
    
  • The Commission seeks comment on statutory authority to require good faith negotiations, such as sections 251(a)(1), 251(c)(2), 201 or 256 of the Act, 706 of the 1996 Act, or the Commission's ancillary authority. What implications do such sources of authority have on the scope and enforcement of good faith negotiation requirements? ¶¶ 1351-1358, 1380-1398.
    
    
• IP-to-IP Interconnection Policy Frameworks
  • The FCC seeks comment on the appropriate role of the Commission in IP-to-IP interconnection.
    
    
  • What measures should the FCC take to encourage efficient IP-to-IP interconnection, such as costs of IP-to-TDM conversion? ¶ 1360.
    • Should the FCC consider specific mechanisms to require IP-to-IP interconnection, such as the Commission's role being subject to certain baseline terms and conditions, POI location involvement, or providing only a principle with case-by-case enforcement. ¶¶ 1365-1374.
      
      
    • Should the Commission not regulate commercial agreements? If so, what incentives for IP-to-IP interconnection would be present? ¶ 1375.
      
      
• Further Call Signaling Rates for VoIP
  • The FCC recognizes that the scope of ICC obligations for VoIP providers is broader than the definition of interconnected VoIP in the rules. Recognizing potential technical difficulties and arbitrage opportunities, the FCC seeks comment on the need for signaling rules for one-way VoIP service providers. ¶ 1400.
    
    

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