ICF: Our Plan is Best Way to Reform Intercarrier Compensation

Although other commenters have derided the ICF plan (CD Feb 24 p4), the group told the FCC its proposal “is a pragmatic and commercially reasonable solution… that does not tilt in favor of any one industry segment.” To critics of the plan’s higher end user charges, ICF said: “End users as a group inevitably will pay for [carriers’ cost of generating and terminating calls] one way or another. They can continue to pay the costs inefficiently and indirectly through shifting support and unpredictable rates subject to perpetual regulatory intervention. Or… they can pay the costs efficiently to their own carriers… with rates established by a competitive market with a predictable universal service safety net.”

ICF said the universal service part of reform creates “a stable and fair contribution methodology based on numbers and connections and explicit support mechanisms to replace the current unsustainable reliance on implicit support.” Because compensation rules are “inextricably intertwined” with interconnection rules, ICF created a “uniform interconnection platform,” eliminating the need for separate interconnection networks for local exchange and interexchange traffic, the group said. As part of its proposed interconnection rules, it established the concept of network “edges” points where networks interconnect and “transfer financial responsibility for traffic,” the filing said. “The plan creates incentives for carriers to engineer their networks based on engineering principles rather than intercarrier compensation rules.”

Disagreeing with critics who say the plan isn’t legal because it preempts state regulatory authority over intrastate access charges, ICF said its plan is “authorized by existing law.” “The plan tackles both interstate and intrastate compensation rules,” the filing said: “No plan can succeed unless it replaces the present system in both jurisdictions. The ICF plan’s uniformity - - across jurisdictions and among carrier rate levels and rate structures -- will create certainty in the industry that will promote competition and eliminate opportunities to exploit regulatory disparities.” Referring to the bill-&-keep (B&K) concept assailed by rural and competitive carriers, ICF said it would eliminate termination rates over a transition period, “shifting cost recovery to end users and eradicating the terminating monopoly problem and attendant regulatory quagmire.”

ICF said a model it recently developed shows the plan would create about $2.7 billion a year in explicit universal service support, with 2/3 going to rural carriers. The model also found the plan would convert just over half of rural carriers’ current intercarrier compensation revenue to “explicit universal service support, requiring them to seek recovery of only about one quarter of these current revenues from their own end users, and preserving the remaining quarter as a substantial continuing intercarrier compensation revenue stream.”

ICF said no other plans proposed to the FCC “offer such fundamental or concrete reform and none are proposals that can be implemented today.” The group said many of the other plans “are simply recitations of principles, and all lack the rigorous analyses necessary to assess their viability.” None “adequately addresses disparities in intrastate compensation, which are perhaps the most significant disparities in the current system,” ICF said: “The few competing plans that even address intrastate compensation inexplicably do so without ensuring consistency of rates among carriers within the same state, or from one state to the next, or between the state and federal jurisdictions.”

NCTA Supports Bill-&-Keep

NCTA sided with ICF on B&K, telling the FCC “the key principle underlying a fair and pro-competitive intercarrier compensation regime is to apply bill-and-keep to all voice traffic.” It’s procompetitive “because it forces each network to pay for its own services and operations from revenues received from its own direct customers,” NCTA said. When one network provider charges another for handling inbound or outbound traffic, “the charging network is exporting its own costs onto its competitor,” NCTA said: “This is simply not sustainable as the economic basis for interconnection of intermodal facilities-based competitors such as cable, traditional telephone and wireless. Each network should be required to recover its costs from its customers, not its competitors.”

NCTA said the FCC “should be skeptical of any claim that current recipients of intercarrier compensation are entitled to be ‘kept whole.’ They are not.” Even if some carriers require additional revenue, said NCTA: “The solution is not to allow them to continue to collect payments from their competitors; it is to relieve them of any federal constraints that prevent them from collecting the money from their own customers.” The one exception might be small, rural carriers that can’t immediately recover full universal service funding from their own customers, the cable association said: “To address this problem, small carriers certified as eligible telecommunications carriers… whether incumbents or competitors, should be permitted to charge terminating access charges.”

NARUC said it hasn’t taken a position on the various proposals but won’t endorse 2 specific actions, based on principles its members approved: “Any proposal that either eschews any significant state role or mandates bill and keep.” The state regulatory group said it supports a unified intercarrier compensation plan that applies the same rate to all traffic regardless or origin but said the FCC lacks authority to mandate a unified plan that crosses state boundaries. NARUC said the “easiest proposals to reject” based on the principles are the ICF, Western Wireless and CTIA plans “because none includes a substantial state role and all mandate bill and keep.” NARUC said its Intercarrier Compensation Task Force found the ICF plan had merit but “because of its legal frailty/vulnerability on the state preemption issue, this plan is basically a guarantee to the FCC of protracted and likely unsuccessful litigation.”

Wireless Industry Calls For Transition To Bill-&-Keep

The wireless industry unanimously urged the FCC to move to B&K to address evolving technology and industry changes to the competitive telecom marketplace. Wireless carries had no major disagreements in their comments this week, with all generally backing the CTIA proposal (CD May 19 p4). Sprint, an ICF participant, was the only exception, since the ICF plan doesn’t go all the way to B&K for certain, mainly rural, carriers.

CTIA’s proposal builds on principles the group submitted earlier to the FCC. The proposal submitted Mon. would: (1) Eliminate regulatory distinctions among technology platforms, types of providers and traffic. (2) Cut costs by creating incentives for service providers. (3) Encourage parties to exchange traffic pursuant to negotiated agreements. (4) Ensure incumbent and competitive ETCs have non-discriminatory access to universal service. (5) Provide for a 3 year transition to the new system.

“The industry’s proposal for reform focuses on what is most important -- maximizing consumer benefits,” said CTIA Pres. Steve Largent: “By encouraging competition among telecommunications services and rewarding efficient use of support by carriers, the proposal enables consumers to win by receiving high-quality and reliable telecommunications services at affordable rates.”

Although wireless carriers’ comments generally agreed on major issues, “some carriers emphasized some issues more than others,” an industry observer said. For example, Nextel focused on transit issues, while Western Wireless urged more state participation in the process than others, the source said. That is consistent with an ICC plan Western Wireless submitted late last year. That plan supported B&K, in line with the rest of the wireless industry. But, the source said, “they [Western Wireless] were letting the states retain quite a bit of responsibility while most wireless carriers would like to have state role more limited. States have generally been very active in setting rates and with bill-and-keep, those rates go away meaning state role would go down.”

“The Western Wireless and CTIA [plans] are very similar,” said Mark Rubin, an attorney representing Western Wireless: “They diverge in a role that commercial negotiations might play when it comes to negotiating interconnection agreements.” Another distinction is that Western Wireless supports a 4-year transition period, while CTIA believes 3 years is enough. “We support the CTIA proposal,” Rubin said: “We may have slight differences but we support their fundamental idea because they worked with us” to develop the position.

Nextel stressed the need for the Commission to keep the ILECs obligation to provide transit service in support of interconnection under “just, reasonable and not unreasonably discriminatory” terms, conditions and rates. Nextel also warned the Commission against adopting an ICC reform plan that “relies to a significant degree on new support mechanisms that keep carriers whole by maintaining intercarrier revenue streams being lost as a result of technological change and the inroads of competition.” It said any ICC reform plan should avoid “fundamentally altering or reconfiguring the basic network structure of [CMRS]-ILEC interconnection.” The intraMTA reciprocal compensation pricing rules should be maintained, it said.

Verizon Wireless said the FCC should: (1) Remove competitive disparities to ensure that all carriers exchange traffic based on a set of consistent rules. (2) Unify reciprocal compensation and access rates to prevent arbitrage. (3) Opt for a system that minimizes transaction costs. (4) Adopt a reform plan that prevents carriers from using numbering resources as a means to “game” the ICC system.

U.S. Cellular said the FCC has legal authority to implement a unified ICC regime, but “does not need” to adopt any single proposal “as is.” “The Commission should adopt the best plan possible by drawing on the strongest points in the specific proposals advanced,” it said. U.S. Cellular supports the principles developed by Western Wireless and CTIA and “aspects” of the plans put forward by NARUC and NASUCA. It said the Western Wireless proposal offers a better transition plan than ICF, shortening that period by 2 years for most carriers. Like CTIA, U.S. Cellular supports creation of a single unified universal service mechanism that calculates support on a forward-looking basis. U.S. Cellular opposed the proposals by ICF and other coalitions, saying they would “decrease efficiency and preserve or exacerbate unjustifiable and uneconomic distinctions between technologies.”

T-Mobile backed the CTIA proposal, saying “the vast majority” of other proposals “continue to reflect the wireline-centric aspects of the current regime.” Other proposals also “fail to provide incentives to stabilize or ultimately reduce the level of universal service support, or to ensure that universal service support is explicit and targeted in a manner that benefits only consumers in high-cost areas,” it said. T-Mobile urged the Commission to grant Sprint’s routing and rating petition reaffirming that wireless carriers can serve telephone numbers with different routing and rating points and requiring ILECs to route calls to them.