8YY Charge Reform
| Published date | 27 November 2020 |
| Record Number | 2020-24624 |
| Section | Rules and Regulations |
| Court | Federal Communications Commission |
Federal Register, Volume 85 Issue 229 (Friday, November 27, 2020)
[Federal Register Volume 85, Number 229 (Friday, November 27, 2020)]
[Rules and Regulations]
[Pages 75894-75917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24624]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 51
[WC Docket No. 18-156; FCC 20-143; FR ID 17154]
8YY Charge Reform
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this document, the Commission takes definitive steps to
address the arbitrage and fraud that have increasingly undermined the
system of intercarrier compensation that currently underpins toll free
calling. Those steps include transitioning 8YY end office originating
charges to bill-and-keep over approximately three years and creating a
single charge for 8YY tandem switching and transport services and
capping it at a lower, uniform rate. The order caps rates for the
database queries necessary to route toll free calls, reduces them to a
national uniform rate over approximately three years, and limits such
database query charges to one per call. Finally, the Commission allows
carriers to use existing mechanisms to recover lost revenue. The
measures will reduce the incentives for carriers to engage in 8YY
access arbitrage and lower the costs of 8YY services overall.
DATES: The amendments in this document shall be effective December 28,
2020, except for Sec. Sec. 51.907(i) through (k) (instruction 4),
51.909(l) through (o) (instruction 5), and 51.911(e) (instruction
6.b.), which are delayed. The FCC will publish a document in the
Federal Register announcing the effective date for those sections.
ADDRESSES: Federal Communications Commission, 445 12th Street, SW,
Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT: Peter Bean, Wireline Competition
Bureau's Pricing Policy Division at 202-418-1520 or via email at
[email protected].
SUPPLEMENTARY INFORMATION: This a final rule summary for the
Commission's report and order released October 9, 2020. A full text
copy of this document can be accessed at the following internet
address: https://www.fcc.gov/document/fcc-modernizes-rules-toll-free-calls.
I. Background
1. 8YY services have long been a prominent fixture of the
telecommunications landscape. Calls to 8YY numbers differ from other
calls carried over the public switched telephone network in that the
party receiving the call--not the party placing the call--pays the toll
charges. When long-distance calls were expensive, allowing consumers to
call businesses and other institutions without worrying about the cost
of toll service was a benefit to consumers and to the companies
receiving their calls. Reductions in toll rates and the rise of
unlimited, all-distance calling plans have largely eliminated separate
toll charges for consumers, yet 8YY services continue to have
significant value, as evidenced by the persistently high demand for
toll free numbers. Businesses and other institutions increasingly use
8YY numbers to support branding efforts, and to facilitate and evaluate
marketing efforts--by, for example, assigning specific numbers to
individual advertising campaigns to track the effectiveness of those
campaigns.
2. The record indicates that the percentage of originating traffic
attributable to 8YY has grown significantly over the years and
currently accounts for the vast majority of originating access traffic.
According to AT&T, for example, in 2008, 8YY originating minutes
accounted for 64% of all AT&T originating access minutes (including
minutes from AT&T affiliates) and by 2019, they accounted for 83% of
all originating access minutes. Increased demand for toll free numbers
has led the Commission to authorize a half a dozen additional toll free
codes beyond the original 800 code, including the 888, 877, 866, 855,
844, and 833 codes.
A. 8YY Routing and Intercarrier Compensation
3. To understand intercarrier compensation for 8YY calls, it is
first necessary to understand how toll free calls are routed and how
that differs from the routing of non-toll free calls. When a caller
dials an 8YY number, the originating carrier does not simply pass the
call to the customer's pre-subscribed interexchange carrier, as it
would for a non-toll free call. Instead, to determine how to route a
toll free call, the originating carrier typically queries an
industrywide database operated by the Toll Free Number Administrator
(the 8YY Database) to determine the 8YY provider for the dialed number.
Typically, for calls routed over time-division multiplexing (TDM) based
networks, to query the 8YY Database a carrier must route the 8YY call
through a switch, equipped with a ``service switching point.'' The
service switching point ``suspends'' routing of the call and, during
this suspension, sends a query over the signaling system 7 (SS7)
channel to a service control point. Service control points are
``regional databases that contain routing instructions for the toll
free numbers located in . . . particular geographic regions.'' 8YY
calls from customers served by local exchange carrier end offices that
are not connected to a service control point can be routed to one of
the local exchange carrier's tandem switches that is equipped with a
service control point, and the call is processed from there. Local
exchange carriers that do not own a service control point can purchase
database query services from carriers that do.
4. A database query produces a carrier identification code, which
tells the local exchange carrier to route the call to the 8YY provider,
typically an interexchange carrier, associated with that carrier
identification code. The originating carrier then uses its own or an
intermediate carrier's transport and switching facilities to route the
call to the designated 8YY provider.
5. Carriers assess intercarrier compensation somewhat differently
for 8YY calls than for other calls. When a caller places a regular
long-distance call from a landline telephone, the caller's local
exchange carrier routes that call to the long-distance carrier
(interexchange carrier) used by the caller through pre-arranged direct
connections with the interexchange carrier or through a nearby tandem
switch and the interexchange carrier pays the local exchange carrier
for originating the call. The interexchange carrier is then responsible
for routing the call to its final destination and for paying any
charges associated with its decisions about how to route the call. For
its part, the interexchange carrier is paid by the customer that placed
the call.
6. By contrast, when a caller makes a toll free call from a
landline telephone, the 8YY provider pays the caller's local exchange
carrier for originating the call and for performing the 8YY Database
query. The 8YY provider also pays tandem switching and transport
charges
[[Page 75895]]
to intermediate carriers in the call path between the local exchange
carrier and the 8YY provider. The 8YY customer compensates the 8YY
provider for completing the call. The rates paid by 8YY providers for
various access charges typically are tariffed rates which vary widely
depending on where an 8YY call originates and how it is routed.
7. The situation is slightly different for 8YY calls placed using a
wireless carrier. The Commission's rules prohibit wireless carriers
from tariffing terminating or originating access charges. As a result,
a wireless carrier cannot assess 8YY providers for originating end
office charges, database query charges, or tandem switching or
transport charges.
B. Impact of the 2011 USF/ICC Transformation Order
8. In the 2011 USF/ICC Transformation Order (76 FR 73830, Nov. 29,
2011), finding that the intercarrier compensation system had become
``riddled with inefficiencies and opportunities for wasteful
arbitrage,'' the Commission undertook comprehensive reform of the
intercarrier compensation system by adopting bill-and-keep ``as the
default methodology for all intercarrier compensation traffic.'' As a
first step in moving intercarrier compensation toward bill-and-keep,
the Commission established a plan to transition all terminating end
office rates and some terminating tandem switching rates to bill-and-
keep over six years for price cap carriers and competitive local
exchange carriers that benchmark to price cap carriers and nine years
for rate-of-return carriers and the competitive local exchange carriers
that benchmark to them.
9. As part of the intercarrier compensation reforms adopted in the
USF/ICC Transformation Order, the Commission created a transitional
Eligible Recovery mechanism to mitigate revenue reductions wrought by
the transition of terminating end office charges to bill-and-keep. The
Commission defined as ``Eligible Recovery'' the amount of intercarrier
compensation revenue reductions that price cap and rate-of-return
incumbent local exchange carriers would be eligible to recover. An
incumbent local exchange carrier's Eligible Recovery is based on a
percentage of the reduction in intercarrier compensation revenues
resulting from the reforms adopted in the USF/ICC Transformation Order.
After calculating Eligible Recovery, incumbent local exchange carriers
may recover that amount through Access Recovery Charges, subject to
caps and, where eligible, Connect America Fund Intercarrier
Compensation support. The Commission adopted a rebuttable presumption
that these revenue recovery mechanisms would allow carriers to earn a
reasonable return on their investment, and also adopted a Total Cost
and Earnings Review to allow individual carriers to demonstrate that
the rebuttable presumption is incorrect and that additional recovery is
needed to prevent a taking.
10. In the USF/ICC Transformation Order, the Commission found that
``originating charges for all telecommunications traffic subject to
[its] comprehensive intercarrier compensation framework should
ultimately move to bill-and-keep.'' It declined, however, to move
originating access to bill-and-keep immediately. Instead, it capped
most originating access charges as ``a first step'' in a ``measured
transition toward comprehensive reform.'' The Commission capped all
interstate originating access charges and intrastate originating access
charges for price cap carriers at their then current rates. The
Commission also capped interstate originating access charges for rate-
of-return carriers. But, it declined to cap intrastate originating
rates for rate-of-return carriers to ``control the size'' of the
Connect America Fund and to ``minimize burdens on consumers.'' The
Commission further specified that the access charge reforms undertaken
in the USF/ICC Transformation Order would ``generally apply to
competitive [local exchange carriers (LECs)] via the [competitive local
exchange carrier (CLEC)] benchmarking rule,'' which allows competitive
local exchange carriers to tariff interstate access charges ``at a
level no higher than the tariffed rate for such services offered by the
incumbent LEC serving the same geographic area.''
11. In the USF/ICC Transformation Further Notice of Proposed
Rulemaking (FNPRM) (76 FR 78384, Dec. 16, 2011), the Commission
committed to transition originating access charges to bill-and-keep and
sought further comment on how to make that transition. It also
specifically sought comment on the appropriate treatment of 8YY
originating access, including the ``need for a distinct 8YY
resolution.'' There was wide variation in 8YY originating access
charges when the Commission capped most 8YY originating access charges
at their 2011 rates in the USF/ICC Transformation Order. As a result,
such rates continue to vary widely among carriers. Database query
charge rates, for example, range from $0.0015 to $0.015 per query.
C. 8YY Arbitrage and Abuse
12. The unique routing of, and compensation for, 8YY calls have
created opportunities for arbitrage and other abuse of the intercarrier
compensation system. As AT&T describes it, ``originating access charges
for 8YY calls inherently invite fraud and abuse, because they create a
mismatch in pricing signals'' and carriers ``are increasingly
exploiting this arbitrage opportunity, and . . . increasingly focusing
their efforts on 8YY calling now that most terminating access charges
have gone to bill-and-keep.'' Moreover, as the Commission observed in
the USF/ICC Transformation FNPRM, ``because the calling party chooses
the access provider but does not pay for the toll call, it has no
incentive to select a provider with lower originating access rates.''
Because 8YY originating access charges have not yet transitioned to
bill-and-keep, neither the originating carrier nor any intermediate
provider that performs tandem switching and transport has an incentive
to use the lowest cost means of routing the call since both may collect
access charges. Incentives for 8YY abuse are further enhanced by the
fact that 8YY access and 8YY Database query rates vary significantly,
creating incentives for some providers to use carriers with higher
rates to increase their revenues. Commenters identify four types of
abuse associated with 8YY calls: traffic pumping, benchmarking abuse,
mileage pumping, and database query abuse.
13. 8YY traffic pumping, or ``robocalling,'' occurs when an access-
stimulating entity enters into a revenue sharing agreement with a local
exchange carrier and then uses auto-dialing equipment to generate
significant amounts of 8YY traffic that the carrier passes on to the
interexchange carrier for payment. This kind of abuse involves the
generation of 8YY traffic that has no legitimate purpose and exists
solely for the purpose of obtaining intercarrier compensation. As AT&T
explains, ``these fraudulent calling schemes cause a wide variety of
harms'' including inundating ``8YY customers with unwanted calls that
increase the 8YY customer's expense,'' and affect ``the ability of
legitimate calls to be completed or cause other systems to be
disrupted.'' As a result, 8YY customers ``must pay for the traffic
pumpers' calls to their numbers, for the time wasted by congested
incoming lines and lost employee productivity, and for the procurement
of remedial services.'' 8YY robocallers have become very sophisticated
and are able to display a different spoofed telephone number for
[[Page 75896]]
each call they place to elude easy detection of their illegitimate
calls.
14. A second type of benchmarking abuse occurs when an originating
carrier in one part of the country sends its toll free calls to a
competitive local exchange carrier located in a different part of the
country where the incumbent local exchange carrier serving that
geographic area has relatively high access charges. As AT&T explains,
some competitive local exchange carriers ``have set themselves up as
8YY `aggregators,' agreeing to handle 8YY calls from many originating
providers.'' The aggregating competitive local exchange carrier hands
off its aggregated 8YY traffic to interexchange carriers in these more
remote areas, thereby allowing the competitive local exchange carrier
to charge higher access charges ``relative to what the provider would
have been able to charge in the incumbent LEC area where the call was
actually placed.''
15. As Bandwidth further explains, toll free aggregators ``that are
inserted into the call path by the originators of Toll Free traffic
routinely ignore the routing instructions in the SMS 800 database.''
These toll free aggregators chosen by the originating carriers route
8YY calls to ``whichever IXC or tandem is willing to pay the highest
rate.'' This kind of arbitrage ``increases the amount of revenue to be
shared, often adds additional hops, and can result in failed calls . .
. driving up costs and disrupting [carriers'] ability to properly
manage their networks.'' These practices can also affect network
management, causing unnecessary network congestion and ultimately
distorting network investment.
16. A third type of 8YY arbitrage is mileage pumping, which occurs
when a carrier artificially inflates the distance it routes an 8YY call
to increase the transport revenues it receives when it hands off an 8YY
call to the interexchange carrier that serves as the 8YY provider.
Mileage pumping occurs when ``a CLEC tariffs a per-mile charge for
transport and then either (i) bills the IXC for transport it does not
actually provide (because it is provided by a different provider) or
(ii) inefficiently routes traffic long distances--sometimes more than a
hundred miles--to inflate the number of miles applied to the per-mile
transport charge.''
17. Finally, there is 8YY Database query abuse, which results from
relatively high and varied database query charges and the fact that
often more than one carrier assesses a database query charge in the
course of routing an 8YY call (i.e., double dipping). A significant
portion of 8YY origination revenues are derived from assessing database
query charges. The ability to assess high database query charges
provides an additional incentive and revenue source for carriers
engaged in other forms of 8YY arbitrage.
D. Recent Procedural History
18. In 2016, the Commission sought comment on a petition filed by
AT&T which, in relevant part, sought forbearance from rules related to
pricing regulation and tariffing of 8YY Database query charges. AT&T
subsequently moved to withdraw its petition and the Commission granted
its motion.
19. In 2017, the Wireline Competition Bureau (Bureau) issued a
Public Notice seeking to update the record in the USF/ICC
Transformation Order dockets on 8YY access charges, in part in response
to an ex parte letter filed by Ad Hoc Telecommunications Users
Committee (Ad Hoc). In its letter, Ad Hoc alleges that there has been
an increase in 8YY-related arbitrage and asks the Commission to reduce
or eliminate incentives for that arbitrage.
20. In 2018, the Commission adopted a further notice of proposed
rulemaking (8YY FNPRM) (83 FR 31099, July 3, 2018) seeking comment on a
proposal to move all 8YY originating access charges to bill-and-keep,
impose a nationwide cap on 8YY Database query charges, and impose a
limit of one query charge per 8YY call. The 8YY FNPRM also invited
commenters to ``propose additional, or alternative, methods for
reforming originating 8YY access charges'' in ways that ``would reduce
abusive practices related to 8YY calls.'' It also sought comment on
potential sources of revenue recovery.
II. Discussion
21. In this document, we take the next steps toward transitioning
intercarrier compensation to bill-and-keep by adopting rules aimed at
curtailing abuse of the 8YY intercarrier compensation regime and
preserving the value of toll free services. As an initial step, and to
avoid further opportunities for arbitrage or rate increases during the
transitions, we cap all originating 8YY end office, tandem switching
and transport, and database query charges at their current rates as of
the effective date of this Order. We then transition each of these rate
elements. We reduce originating 8YY end office charges to bill-and-keep
over three further steps beginning July 1, 2021 and ending July 1,
2023. We also adopt a single uniform nationwide rate cap of $0.001 per
minute for originating 8YY tandem switching and transport access
charges as of July 1, 2021. We reduce database query charges to a cap
of $0.0002 per query in three steps ending July 1, 2023, and as of the
effective date of this Order, we end double dipping by prohibiting
carriers from charging for more than one query per call. These changes,
which are consistent with recommendations in the USTelecom industry
consensus proposal, will lower 8YY calling costs by removing
inefficiencies, reducing incentives for carriers to use TDM networks
and thereby encouraging the adoption of IP-based networks, and
diminishing 8YY intercarrier compensation disputes. In making these
changes to intercarrier compensation for 8YY traffic we continue our
progress toward moving our intercarrier compensation system toward a
bill-and-keep end state and drastically reduce the incentives that have
led to the proliferation of 8YY arbitrage schemes.
E. Transitioning Originating 8YY End Office Charges
22. As proposed in the 8YY FNPRM we transition originating 8YY end
office charges to bill-and-keep. We agree with those commenters that
argue that moving 8YY originating end office charges to bill-and-keep
is the best way to remove the underlying incentives to route calls
inefficiently and generally inflate the charges imposed on 8YY
providers created by the existence of originating access charges for
8YY traffic. We also agree with those commenters that propose a three-
year transition period as one that will give carriers sufficient time
to adjust to this new regime.
23. As the initial step, we cap all intrastate originating 8YY end
office rates not previously capped at their current levels as of the
effective date of this Order. As the Commission explained when it
capped most originating access rates, capping rates ``ensures that no
rates increase during reform'' and also ``minimize disruption to
consumers and service providers by giving parties time, certainty, and
stability'' as they adjust to the changes we make in this document.
24. Then, effective July 1, 2021, we require all local exchange
carriers to bring any intrastate originating 8YY end office access
rates that exceed the comparable interstate rates into parity with the
comparable interstate rates. As the Commission has recognized,
intrastate rates that vary from interstate rates create ``incentives
for arbitrage and pervasive competitive distortions within the
industry.'' By bringing intrastate rates into parity with comparable
interstate rates, this initial step will ``minimize opportunities for
arbitrage
[[Page 75897]]
that could be presented by disparate intrastate rates.''
25. In the USF/ICC Transformation Order, the Commission declined to
cap intrastate originating rates for rate-of-return carriers because it
wanted to ``minimize[ ] the burden intercarrier compensation reform
[would] place on consumers and . . . help manage the size of the access
replacement mechanism.'' The Commission sought comment on whether to
``initially defer the transition to bill-and-keep for originating
access to the states to implement.'' Some state commissions have urged
the Commission to proceed cautiously, if at all, and to allow an
additional time period to transition originating access to bill-and-
keep. In the nine years since the Commission adopted the USF/ICC
Transformation Order, the industry has transitioned the majority of
interstate and intrastate terminating charges to bill-and-keep without
disrupting carriers' ability to operate and update their networks.
Thus, the Pennsylvania Public Utilities Commission's argument that it
would be premature for the Commission to proceed with any further
intercarrier compensation reform because ``the Commission has not yet
fully implemented the initial rate transition for terminating access
charges that it adopted in 2011'' is now moot. Likewise, the
Pennsylvania Public Utilities Commission's concern that a ``notice to
refresh the record is not the proper vehicle to consider and adopt any
comprehensive proposals'' to reform intercarrier compensation is no
longer relevant. We only revise originating access for 8YY services,
not other aspects of intercarrier compensation, and we do so after the
Commission released a further notice of proposed rulemaking (8YY FNPRM)
and a rigorous examination of the record we have received in response
to that FNPRM. We find no reason to further delay the transition of
intrastate originating 8YY access charges for rate-of-return carriers.
To the contrary, we find that bringing some rate-of-return carriers'
intrastate originating 8YY end office access rates to parity and
capping them all will reduce arbitrage with minimal disruption, and
will provide an appropriate starting point for the multiyear transition
of these rates to bill-and-keep that we adopt herein.
26. Although the Commission capped price cap carriers' interstate
and intrastate originating rates in the USF/ICC Transformation Order,
the Commission did not require those carriers to bring originating
intrastate rates to parity with the comparable originating interstate
rates. If a price cap carrier's capped originating intrastate end
office rates are above the comparable interstate rates, that carrier is
required to reduce its intrastate rates to interstate levels on July 1,
2021.
27. After reducing or capping intrastate 8YY end office rates, we
next transition all intrastate and interstate originating 8YY end
office charges from their capped amounts to bill-and-keep in two equal
reductions. Effective July 1, 2022, we reduce all originating 8YY end
office rates to half of their capped levels. Then, effective July 1,
2023, we reduce all originating 8YY end office rates to bill-and-keep.
28. Moving originating 8YY end office charges to bill-and-keep is
consistent with the Commission's long-held determination that bill-and-
keep will be the end state for all access charges, including
originating access. It therefore aligns with the Commission's adoption
of bill-and-keep for local exchange carriers' terminating end office
access charges in the 2011 USF/ICC Transformation Order as well as the
Commission's decision that wireless providers cannot impose access
charges. Indeed, as Ad Hoc observes, ``[t]he legitimacy of the use of
bill-and-keep as a mechanism for access traffic has not been the
subject of serious debate for some time.''
29. We also agree with those commenters that argue that moving to
bill-and-keep is the best approach to reducing (or eliminating)
incentives for 8YY arbitrage and other abuse. Under our existing rules,
the interexchange carrier is unable to choose the originating call path
and must pay the local exchange carrier's charges to originate the
call, and there is evidence that carriers routinely ignore the routing
direction provided by the 8YY provider in the 8YY Database. This
mismatch in incentives is ``what inherently creates the opportunity for
arbitrage and fraud,'' as originating local exchange carriers not only
lack incentives to minimize intercarrier compensation charges but
actually have an incentive to inflate those charges. As Ad Hoc
explains, ``[b]ecause the choosing party has no incentive to select the
provider with the lowest access charges, there is no competitive
pressure on those charges. But there are powerful incentives for
unscrupulous actors to take advantage of this broken market by
generating traffic to 8YY numbers for no purpose other than to inflate
the access charge revenues that are ultimately paid by toll free
service customers.'' Bill-and-keep, by contrast, ``will incentivize
efficient call routing and will benefit the public interest,'' as the
originating ``LEC would recover its costs from its end user''--or from
existing recovery mechanisms--and will face competitive pressure to
make cost-efficient routing decisions.
30. The Commission previously adopted bill-and-keep as the default
methodology for all intercarrier compensation traffic and recognized
that adopting bill-and-keep ``imposes fewer regulatory burdens and
reduces arbitrage and competitive distortions inherent in the current
[intercarrier compensation] system, eliminating carriers' ability to
shift network costs to competitors and their customers.'' We find no
merit to arguments that 8YY traffic should be excluded from our actions
to move intercarrier compensation to bill-and-keep. Contrary to some
commenters' claims, apart from the obligation of 8YY providers to pay
the long-distance costs, there is nothing unique about 8YY traffic that
militates in favor of exempting such traffic from a bill-and-keep
regime. Bill-and-keep itself remains ``competitively neutral, treating
all carriers equally.'' And, moving end office charges to bill-and-keep
will significantly reduce 8YY arbitrage, given that end office charges
represent a majority of all originating access charges. In sum, we
agree that adopting bill-and-keep for 8YY end office charges ``fosters
competition, is simple to establish and administer, and addresses
arbitrage,'' and ``the `competitive distortions' 8YY access charges
create.''
31. Some commenters argue against moving to bill-and-keep and
instead urge us to adopt narrower, more targeted rules to prohibit
specific 8YY arbitrage or abusive practices or simply pursue
enforcement through the Commission's Enforcement Bureau or the courts.
Targeted enforcement actions are important, but insufficient because
enforcement under our current rules for the provision of 8YY services
would not be able to address the underlying incentives that drive 8YY
arbitrage and abuse. While adopting rules narrowly targeting specific
practices would likely result in parties revising their arbitrage
schemes to circumvent the specific prohibitions, adopting narrower
solutions would also be ``impractical and unworkable as a matter of
day-to-day implementation,'' and would continue to place the burden of
detection and enforcement on 8YY providers, rather than on the carriers
that are abusing the current access charge regime. We also agree with
AT&T that there is a risk that ``ex ante prohibitions will not deter
bad actors from pursuing traffic-pumping or other arbitrage schemes,
and the result of any such system will inevitably be extensive ex post
litigation and billing disputes.''
[[Page 75898]]
And despite requests for targeted enforcement against, for example,
``robocalling-enabled arbitrage or other bad practices,'' commenters do
not provide specifics that would allow us to identify these ``bad
practices,'' or what specific measures we should take to curtail them.
Without eliminating the financial incentives to engage in arbitrage,
the Commission would continually find itself reacting to new arbitrage
schemes designed to exploit our rules, given the creativity and
adaptability of entities engaging in arbitrage. We conclude that
focusing on the next steps in transitioning 8YY access rates to ``bill-
and-keep eliminates the financial incentives'' for 8YY arbitrage and is
more likely to eliminate these practices than targeted measures.
32. For similar reasons, we also decline to adopt Aureon's proposal
that instead of modifying our intercarrier compensation rules we adopt
a blanket prohibition against ``8YY abuse as an unjust and unreasonable
practice.'' Aureon offers no details about the types of conduct it
would have us prohibit, let alone how we could effectively enforce such
a prohibition. Further, nothing in Aureon's submission or in the record
supports its assertion that merely adopting an amorphous prohibition
against 8YY abuse would lead industry to ``work cooperatively and take
the legal and technical actions necessary to prevent unlawful 8YY
calls.'' Aureon's contention that the Commission's ``indirect
approaches, which have so far focused upon financial incentives and
modifications to intercarrier compensation, have not stopped access
arbitrage'' is not supported by the facts. In 2011, before the USF/ICC
Transformation Order took effect, terminating access arbitrage was
estimated to cost carriers and their customers as much as $330 million
to $440 million annually. By 2019, that estimate declined to $60
million to $80 million, a dramatic reduction that we believe was
largely the result of the Commission's reform efforts. The rules we
adopted last year in the access arbitrage proceeding appear to be
further reducing the costs of terminating access arbitrage. The rules
we adopt in this document are another step in the Commission's
``comprehensive intercarrier compensation reform,'' and continue our
effort to address, over time, carriers' incentives and ability to abuse
our intercarrier compensation rules.
33. We find unnecessary suggestions that we adopt rules requiring
local exchange carriers to offer direct connections to interexchange
carriers. AT&T, for example, proposes that we adopt a rule requiring
that local exchange carriers either offer direct connections to
interexchange carriers for originating 8YY access or, if the
originating carrier refuses to do so, require the local exchange
carrier to assume financial responsibility for delivering the call to
the interexchange carrier. AT&T argues that its proposal would
alleviate concerns that tandem providers would be unable to charge for
their services if the Commission moved tandem switching and transport
to bill-and-keep because tandem providers have no end users. But the
non-zero rate cap we adopt for tandem switching and transport as we
continue our transition ultimately to bill-and-keep will allow
intermediate tandem providers to charge for their services, obviating
any need to adopt AT&T's proposal. Moreover, we agree with Aureon that
AT&T's proposal would not accomplish the goals of this proceeding.
34. Other, more detailed direct connection proposals are both
unnecessary to achieve the objectives of this proceeding and create
additional challenges. For example, West's proposal that we require all
carriers to negotiate bilateral direct connections in good faith would
require us to determine whether such negotiations were undertaken in
good faith, a factual question which would be difficult to resolve.
O1's proposal that we mandate that carriers offer direct connections
``to requesting carriers that send or receive at least four T-1s of
originating/terminating traffic per month'' extends to issues beyond
the scope of this proceeding and the current record does not provide a
sufficient basis for us to evaluate the impact these proposals would
have on the industry.
35. We likewise decline requests that we undertake other broad
changes to our intercarrier compensation system in this proceeding,
such as transitioning all originating access charges to bill-and-keep
or addressing ``all of the remaining intercarrier compensation
transition issues'' stemming from the USF/ICC Transformation Order
holistically rather than in a piecemeal fashion. Such broad changes
would be inconsistent with the incremental approach the Commission has
taken to intercarrier compensation reform and the transition to bill-
and-keep, which is designed to provide carriers the necessary time and
flexibility to adapt their businesses to the changes we adopt without
undue disruption. Those proposals would also ``fail[] to account in any
way for the differences between 8YY originating access functionality
and terminating access functionality,'' most notably network functions,
such as database queries, that are particular to 8YY traffic.
36. We also decline suggestions to issue a second further notice of
proposed rulemaking to seek comment on ``more refined proposals'' for
combating 8YY abuses. Issuing another further notice would only create
uncertainty and unnecessarily delay our ability to address 8YY
arbitrage schemes and eliminate the harms such schemes continue to
inflict on both consumers and on 8YY subscribers.
37. We also disagree with parties that suggest the record contains
insufficient data to justify adopting new rules to combat 8YY
arbitrage. According to AT&T, for example, ``arbitrage and fraud in
connection with 8YY calling have become widespread and are growing.''
In quantifying that growth, AT&T specifies that in 2008, 8YY traffic
was 64% of all originating traffic and by 2019, it had grown to 83% of
all originating traffic. Verizon echoes AT&T's claims, alleging that
8YY abuse is ``proliferating since terminating access rates have
transitioned to bill-and-keep.'' Given AT&T and Verizon's role as 8YY
providers and the relatively comprehensive market data they have access
to, we find their characterizations of the 8YY market to be an
acceptable basis for the actions we take. Furthermore, 8YY subscribers
concur in this assessment. The record also makes clear that 8YY
subscribers ``have seen an increase in the number of fraudulent calls
terminating to their toll free numbers'' and that ``fraudulent access
stimulation in the 8YY market is not an isolated problem.'' 8YY
customers have had to ``pay for the traffic pumpers' calls to their
numbers, for the time wasted by congested incoming lines and lost
employee productivity, and for the procurement of remedial services
from companies that provide voice network security services . . . .''
And in a 2016 survey conducted by the Toll Free Number Administrator,
35% of all Toll Free Responsible Organizations reported that traffic
pumping was a ``key obstacle facing the industry.'' The Toll Free
Number Administrator estimates that up to 20% of toll free minutes for
some carriers could be the result of traffic pumping. This and other
evidence convince us of the pressing need to reform the 8YY access
charge regime. Reducing the costs of 8YY arbitrage is more than
sufficient justification for the rules we adopt in this Order, and the
record regarding the burdens 8YY arbitrage imposes on carriers, toll
free subscribers, and consumers is extensive. Various carriers describe
a ``wide variety of harms'' that 8YY schemes cause ranging from
unwanted calls and
[[Page 75899]]
increased expenses to call completion issues. While Ad Hoc explains
that its members have seen an increase in the number of fraudulent
calls terminating to their toll free numbers, resulting in tied up
lines, lost productivity, and the need for unnecessary remedial
expenses such as voice network security services. Critics of the record
in this proceeding set too high an evidentiary threshold for Commission
action; have not submitted data in the record to support their
position; and fail to acknowledge the prevalence of 8YY arbitrage or
the harms caused by such arbitrage.
38. We are also unpersuaded by commenters arguing that moving
originating end office charges to bill-and-keep would enable IXCs to
reap windfall profits. Instead, we agree with GCI that ``[e]liminating
the implicit subsidies in the current system cannot fairly be described
as a `windfall'; rather, it will incentivize efficient call routing and
will benefit the public interest.'' In fact, the Commission rejected
similar arguments when it moved terminating end office charges to bill-
and-keep, finding that a significant proportion of interexchange
carriers' reduced access expenses were likely to be passed through to
benefit consumers. We expect that the cost savings resulting from our
new rules will flow through to interexchange carriers' customers, in
the form of lower prices or better service or both, and we therefore
decline to require interexchange carriers to pass through the benefits
they receive as some commenters have suggested.
39. We disagree with Public Knowledge that the approach we take in
this document ``will allow IXCs to `double dip' by charging 8YY
subscribers fees to own an 8YY number as well as charging LECs that
route the 8YY calls'' resulting in a ``windfall'' for interexchange
carriers. The rules we adopt in this document do not allow an
interexchange carrier to charge a local exchange carrier for
originating a call. To the contrary, moving originating 8YY end office
charges to bill-and-keep will foreclose any carrier's ability to assess
those intercarrier charges. Indeed, the premise of bill-and-keep is
that carriers rely on their own end users, rather than other carriers,
to recover their costs. At the same time, 8YY providers will continue
to be responsible for the long-distance charges for calls placed to
their 8YY numbers.
40. There is also no reason to believe that moving 8YY end office
access charges to bill-and-keep will lead to an appreciable increase in
rates for local service. As Ad Hoc points out, ``in wireless markets,
the bill-and-keep framework has been in place for years and no
separate, toll free specific charges have been imposed on callers.'' In
fact, charges for wireless calling plans declined even as access
charges for wireless calls moved to bill-and-keep. There is no reason
to expect a different outcome here.
41. Relatedly, we are unpersuaded by commenters' unsupported
assertions that moving to bill-and-keep will somehow hamper rural local
exchange carriers' ability to meet the broadband needs of their
customers. Our rules provide a revenue recovery system for lost
interstate 8YY revenue for the rate-of-return local exchange carriers
and we leave it to the states to handle the substantially smaller
impact on intrastate 8YY revenue. Furthermore, as important as we find
broadband deployment, we continue to reject the suggestion that we
should preserve inefficiencies in our intercarrier compensation regime
to implicitly subsidize carriers' efforts to deploy broadband.
42. Contrary to the views expressed by some commenters that appear
to profit as middlemen in the existing intercarrier compensation
regime, we find that interexchange carriers' customers, and consumers
in general, will benefit from our efforts to address 8YY abuses. By
reducing the incentives for local exchange carriers to engage in 8YY
arbitrage, we expect to see a reduction in, or elimination of, such
arbitrage. As AT&T points out, bill-and-keep ``shifts originating costs
to end user charges, where they can be disciplined by competition.''
This will result in inflated costs being ``competed away, which will
make the overall system more efficient and permit 8YY calling to occur
at efficient (and still robust) levels.''
43. The reforms we adopt here do not alter the fact that the toll
portion of an 8YY call will still be paid by the called party, not the
calling party, thereby preserving the toll free nature of 8YY calls.
Thus, arguments by some parties that 8YY calls would no longer be
``free'' with the imposition of bill-and-keep are misplaced. For the
same reason, we find that concerns that Teliax and others have raised
about potential false advertising claims related to 8YY calling are
groundless; the calls will remain toll free to consumers even after
this Order takes effect. It is also worth noting that consumers have
always paid for service from their local provider as a component of any
toll free call.
44. With respect to issues of self-help that some commenters have
raised, we reiterate our previous statements cautioning parties to be
mindful of ``their payment obligations under the tariffs and contracts
to which they are a party.'' We continue to discourage providers from
engaging in self-help except to the extent that such self-help is
consistent with the Communications Act of 1934, as amended (the Act),
our regulations, and applicable tariffs. Disallowing self-help, whether
in the access stimulation context or not, would be inconsistent with
existing tariffs, some of which permit customers to withhold payment
under certain circumstances.
45. Transition. We find that the multiyear transition period that
we adopt for moving originating 8YY end office access charges to bill-
and-keep ``affords a reasonable period [for carriers to] make
adjustments'' to reduce these rates to bill-and-keep. We amend
Sec. Sec. 51.907 and 51.909 of our rules to effectuate this transition
for price cap and rate-of-return carriers and rely on the application
of the existing benchmark requirements in Sec. Sec. 51.911(c) and
61.26 of our rules to apply this same transition to tariffed rates
charged by competitive local exchange carriers. We begin by capping all
intrastate and interstate originating 8YY end office rates that are not
already capped as of the effective date of this Order. Next, we require
carriers to bring their intrastate originating 8YY end office rates
that exceed their interstate originating 8YY end office rates into
parity with their interstate rates as of July 1, 2021. In doing so, we
``balance the importance of starting the first step of reform as
quickly as possible with the practical realities that billing system
implementation and tariff revisions'' will take some time. This step of
our transition provides a ``gradual rate reduction of intrastate to
interstate charges,'' followed by a 12-month period before the next
rate reduction to enable carriers to ``appropriately adjust and phase
in revenue changes.'' Additionally, these rate reductions and those
scheduled for July 1, 2022 and July 1, 2023 are timed to coincide with
annual access tariff filing dates, minimizing administrative burdens on
filing entities and on the Commission. The transition period exceeds
the two-year transition for originating 8YY access rates on which the
Commission sought comment in the USF/ICC Transformation FNPRM. It also
closely parallels the transition proposed in the 8YY FNPRM by reducing
rates in three steps over a three-year transition. Several commenters
support transitions of similar duration, and we find that a three-year
transition with rate changes
[[Page 75900]]
tied to the annual access tariff filings benefits both carriers and
consumers.
46. Some commenters advocate for a shorter transition period, or
even for no transition at all. They suggest that the costs of 8YY
arbitrage are significant enough to justify a more rapid transition.
However, we find that allowing no transition or only a single year
would not give providers adequate time to adapt their business plans to
accommodate the move to bill-and-keep. Other commenters argue for a
longer transition, some as long as the transition provided to move
terminating end office charges to bill-and-keep. We agree, however,
with those commenters that argue that a six- or nine-year transition,
like the one the Commission adopted for terminating end office access
charges, would inappropriately ``perpetuate incentives for the
originating . . . carriers involved to engage in traffic pumping and
other arbitrage schemes,'' and ``allow perpetrators of fraud and
traffic pumping to eke out [additional] years of access revenues.'' In
2011, transitioning to bill-and-keep was a relatively untested concept.
By now, carriers have had over eight years to adapt to bill-and-keep
and have successfully accomplished that transition for terminating end
office rates. Carriers have also been on notice since at least 2011
that the Commission plans to move all intercarrier compensation to
bill-and-keep. The multiyear transition we adopt today for originating
access charges means that carriers will have had eleven years to
prepare for the elimination of 8YY originating end office rates. We
find that the transition period we adopt strikes the appropriate
balance between providing carriers adequate lead time to adjust to the
new rules, ``while still moving quickly to the desired end state of
bill-and-keep.''
47. Our decision is also influenced by the fact that the revenues
affected by this Order are likely to be smaller than those affected as
a result of the USF/ICC Transformation Order. In the USF/ICC
Transformation Order, the Commission reduced most terminating
intrastate rates to interstate rates, capped most originating
intrastate and interstate charges for price cap carriers and
originating interstate charges for rate-of-return carriers at 2011
levels, and reduced carriers' Eligible Recovery by 10% annually for
price cap carriers and 5% annually for rate-of-return carriers. By
contrast, according to NTCA estimates, rural local exchange carriers'
(RLECs) total originating 8YY access revenues for the 12 months from
July 2019 through June 2020 were approximately $30.3 million. In
addition, the record shows that while 8YY arbitrage has increased in
recent years as a percentage of originating traffic, overall
originating traffic and therefore originating access revenues have
declined. Thus, we find that moving originating end office access
charges for 8YY calls to bill-and-keep will have a smaller relative
impact on carriers than did the rules the Commission adopted in the
USF/ICC Transformation Order. Accordingly, we find that a multiyear
transition ending July 1, 2023 is reasonable for moving originating 8YY
end office charges to bill-and-keep.
F. Adopting a Joint Tandem Switched Transport Access Service Rate Cap
for Originating 8YY Traffic
48. Next, to reduce incentives for arbitrage with respect to 8YY
originating tandem switching and transport rates while preserving the
role of independent tandem providers, we move rates for these services
toward bill-and-keep by adopting the proposal made by USTelecom that we
impose a single nationwide tariffed joint tandem switched transport
access service rate cap of $0.001 per minute for originating 8YY
traffic. We amend Sec. Sec. 51.907 and 51.909 of our rules to
effectuate this transition for price cap and rate-of-return carriers
and rely on the application of the existing benchmark requirements in
Sec. Sec. 51.911(c) and 61.26 of our rules to apply this same
transition to tariffed rates charged by competitive local exchange
carriers. In the interest of reducing administrative burdens, we allow
carriers to implement any necessary changes as part of their next set
of annual tariff revisions, and make the cap effective July 1, 2021. To
prevent gamesmanship in the interim, we cap all intrastate and
interstate originating toll free tandem switching and transport rates
at their current levels as of the effective date of this Order.
49. Although the Commission proposed moving these rates to bill-
and-keep in the 8YY FNPRM, we agree with commenters that doing so at
this stage would leave uncompensated those intermediate providers that
do not serve end customers. We remain committed to moving all
intercarrier compensation to bill-and-keep and by taking this interim
step toward that goal, we leave for further consideration questions of
the network edge and how intermediate providers will be compensated
when we reach a full bill-and-keep-regime. Allowing carriers to charge
for tandem switching and transport service under a uniform nationwide
rate cap will preserve independent tandem service providers' role in
routing originating 8YY traffic until we complete the transition of
these rates to bill-and-keep.
50. In the meantime, we find that instituting a single uniform
tandem switching and transport rate cap ``will immediately remove the
largest incentive to create [8YY] arbitrage schemes.'' Because
originating carriers and intermediate providers currently charge
interexchange carriers for transport on a distance-sensitive, per-
minute, per-mile basis, they have an incentive to engage in ``mileage
pumping, inefficient routing and aggregation of 8YY traffic to high
rate areas.'' AT&T, for example, describes mileage pumping schemes in
which ``a CLEC tariffs a per-mile charge for transport and then either
(i) bills the IXC for transport it does not actually provide . . . or
(ii) inefficiently routes traffic long distances--sometimes more than a
hundred miles--to inflate the number of miles applied to the per-mile
transport charge.'' As Verizon explains, ``as long as 8YY tandem-
switched transport rates remain high, and continue to vary from LEC to
LEC, there will be strong incentives for carriers to engage in such
arbitrage schemes.'' We agree with USTelecom that, because ``the lack
of uniformity in current rate structures tend[s] to distort the market
by incenting 8YY call origination and aggregation in remote areas,''
setting a nationwide cap on originating 8YY tandem switching and
transport rates will reduce 8YY arbitrage, particularly abuses related
to 8YY benchmarking. Although they do not necessarily agree with the
level of the rate cap, several intermediate providers agree that we
should cap the rate for tandem switching and transport. Inteliquent,
for example, ``emphasized its agreement with USTelecom that the
Commission should adopt a nationwide tandem rate to address any abuses
in tandem charges assessed for 8YY-related costs.''
51. In addition to eliminating incentives for 8YY benchmarking and
mileage pumping, a single nationwide tandem switching and transport
rate cap for 8YY traffic constitutes another transitional step in the
process of achieving the Commission's longer term goal of moving all
intercarrier compensation to bill-and-keep. Furthermore, if we
transition 8YY originating end office charges to bill-and-keep without
also taking action to begin the transition of originating 8YY tandem
switching and transport charges toward bill-and-keep by reducing those
rates, we could create incentives for carriers to shift the focus of
their 8YY arbitrage schemes to tandem switching and transport charges.
Such a shift
[[Page 75901]]
would not be unlike the shift in arbitrage practices that occurred when
the Commission moved terminating end office rates to bill-and-keep but
left certain terminating tandem switching and transport rates in place.
52. We agree with commenters that it is premature to move
originating toll free tandem switching and transport charges to full
bill-and-keep, as proposed in the 8YY FNPRM. As commenters including
AT&T, CenturyLink, and independent tandem providers argue, because
intermediate tandem providers generally do not serve end-user
customers, moving tandem switching rates to bill-and-keep--which is
premised on carriers obtaining compensation from their end users--could
strand them without a clear source of revenue. Commenters observe that
the result could be to ``disincentivize investment in tandem
facilities,'' and ``limit[] the benefits tandem services provide to the
entire public switched network.'' We agree that independent tandem
services add important ``network redundancy and alternative routing
options,'' and ``are a fundamental component of today's
telecommunications network.'' Mindful of the importance of these
attributes, our institution of an interim national rate cap retains
``an IXC payment obligation for tandem functionality utilized for
originating 8YY traffic,'' and preserves independent tandem providers'
ability to receive compensation for the services they provide.
53. Some parties claim that today's reforms will shift financial
incentives to engage in 8YY traffic stimulation to interexchange
carriers, or allege that interexchange carriers are responsible for the
increase in access charges they must pay because IXCs have encouraged
their 8YY customers to increase their use of toll free services. These
assertions are unsupported by the record. Commenters provide no
explanation as to how interexchange carriers either drive or would
engage in such arbitrage, nor do they offer any evidence that such
schemes exist. These commenters also fail to acknowledge that by moving
8YY end office charges to bill-and-keep and moving to a uniform
nationwide tandem switched transport access service rate cap, we reduce
incentives for all carriers to engage in 8YY arbitrage.
54. FailSafe Communications, Inc., (FailSafe) requests that we
provide an indefinite exemption from bill-and-keep for 8YY access
traffic associated with small and medium-sized business end users with
less than 24 phone lines, arguing that the ``loss of the [carrier
access billing] contribution'' would upset its current business model
targeted at small and medium-sized businesses. We do not find that such
an exemption is justified. FailSafe fails to recognize that to the
extent that its clients are the recipients of 8YY calls, they will
benefit from lower access prices paid by their 8YY provider. To the
extent FailSafe's business model relies on intermediate carriers being
paid for tandem switching and transport, we provide a uniform tariffed
rate for those services. Furthermore, FailSafe does not offer a
justification for the broad waiver it requests for access traffic
associated with small and medium-sized business end users, nor does it
explain how such a waiver could be operationalized.
55. We also decline to adopt the alternative proposal the
Commission sought comment on in the 8YY FNPRM that would have imposed
mileage limitations on 8YY transport charges and would have
transitioned originating 8YY tandem switching and transport rates to
bill-and-keep, but only where the ``originating carrier also owns the
tandem.'' There is no basis in the record for treating some tandem and
transport providers owned by originating providers differently than
independent tandem providers. Further, this proposal would allow abuse
by independent tandem providers to continue unchecked.
56. Upon review of the record, we now reject proposals to impose
specific distance-based mileage caps such as a ten-mile flat distance
cap, mileage limits that ``vary by the type of market,'' or a cap based
on the ``shortest practicable direct route.'' We find these and other
suggestions in the record concerning tandem switching and transport
overly narrow and therefore unlikely to be as successful in curtailing
abuse as adopting a single, uniform rate cap. Any attempt to cap just
8YY transport mileage would only create incentives to abuse other
aspects of the rate. In addition, commenters that recommend a mileage
cap have provided insufficient data to allow us to determine the
appropriate distance for a mileage cap, if we were to adopt one.
Alternatively, ITTA recommends that we require competitive local
exchange carriers to benchmark tandem and transport rates to the
``charges of the ILEC in the market where 8YY traffic originates.'' We
find this approach would be administratively burdensome and potentially
unworkable given the difficulties inherent in determining ``where [an
8YY] call originates,'' difficulties that will only increase with the
evolution of new technologies.
57. Instead, we find that the most workable interim solution to
addressing arbitrage of toll free tandem switching and transport rates
in connection with intercarrier compensation for 8YY traffic is to set
a single nationwide joint tandem switched transport access service rate
cap of $0.001 per minute as an interim step toward moving these
services toward bill-and-keep. USTelecom proposes this rate as part of
its consensus proposal and states that this rate ``would address
negative incentives that currently exist in the market while allowing
legitimate cost recovery and providing a level competitive playing
field for all market participants.'' USTelecom explains that ``$0.001
remains an `above cost' rate' '' and that ``rates at and below $0.001
exist today and CLECs currently provide service in those areas at those
rates due to the ILEC benchmarking rule.'' According to USTelecom, a
rate of $0.001 per minute is approximately at the midpoint of rates
currently assessed by its larger members. In addition, USTelecom
members that own tandem switches ``agree to provide service at this
rate'' and find no reason to charge higher existing rates given their
agreement.
58. Bandwidth, a facilities-based competitive local exchange
carrier that operates an interexchange network to provide 8YY service,
agrees with the USTelecom proposal, explaining that, in Bandwidth's
experience ``without revenue sharing, a tandem charge of $0.001 should
be sufficient to recover an IP tandem provider's costs of delivering
the traffic to the [Responsible Organization].'' According to Bandwidth
the $0.001 per minute rate ``is likely high enough to enable a revenue
share of $0.0005-7,'' suggesting that costs to provide tandem switching
may in fact be lower than $0.001 per minute. As Bandwidth also
explains, adopting a higher rate could retard the transition to IP
networks by perpetuating a high rate for TDM switching. Indeed,
although independent tandem providers may be more reliant than other
carriers on revenues from these services, their filings in the record
of this proceeding also make clear that they rely principally on lower-
cost IP-based switching and transport to provide service and are
therefore likely to have lower costs than carriers that operate legacy
TDM-based networks. Given this record evidence, we find that a cap of
$0.001 per minute will allow carriers, including intermediate tandem
providers, a reasonable level of compensation for providing 8YY tandem
switching and transport services as we transition all 8YY access rates
[[Page 75902]]
ultimately to bill-and-keep. Allowing carriers to charge as much as
$0.001 per minute for tandem switching and transport also addresses
concerns that intermediate providers would not receive compensation for
8YY traffic routed over their networks. Given the support for a uniform
nationwide rate cap in general, particularly from intermediate
providers such as Inteliquent and Bandwidth, we concur that a uniform
cap is suitable, notwithstanding the potentially variable nature of
transport service.
59. Unsurprisingly, even among carriers that support a uniform rate
cap, not all carriers support the $0.001 per minute rate for joint
tandem switched transport access services. In particular, Inteliquent
proposes a nationwide uniform rate cap of $0.0017 per minute, which it
describes as a national average tandem usage rate it calculated using
its own internal traffic data. Inteliquent claims its proposed rate is
``based on those charged by the largest ILECs, which in turn were based
originally on cost studies.'' Yet, Inteliquent fails to acknowledge
that those cost studies are almost three decades old and, given the
generally declining costs of providing telecommunications service,
those dated cost-based rates almost certainly overstate carriers'
current costs. Moreover, the fact that a broad consensus of USTelecom
member companies is willing to accept a lower rate would appear to
confirm that Inteliquent's average rate is unlikely to reflect the
USTelecom member companies' current costs. Inteliquent also argues that
``picking an arbitrary, unweighted number that might be sufficiently
compensatory to some carriers in some circumstances is not a form of
`averaging' '' accepted by courts. But, of course, there is nothing
arbitrary about the rate cap of $0.001 that we adopt.
60. Inteliquent's preferred approach, however, would be the
adoption of a higher rate cap of $0.002814/minute that would include
tandem switching, transport, and what it refers to as ``dedicated
tandem charges'' as the ``best method'' to avoid harming competitive
tandem providers like Inteliquent. Our rules governing tandem-switched
transport access services currently exclude flat rated charges for
transport of traffic over dedicated transport facilities. We similarly
exclude such dedicated charges from the rules we adopt here for joint
tandem switched transport access services. The Commission sought
comment on the possible inclusion of ``fixed charges'' in the 8YY FNPRM
but, apart from Inteliquent's suggestion, the record is devoid of any
discussion of the potential implications of including dedicated
transport services in our rate cap. Inteliquent's claim that if we do
not incorporate dedicated tandem charges into the uniform tandem
switching and transport rate, incumbent LECs will simply increase the
rates for those charges is misplaced. Those charges were capped by the
USF/ICC Transformation Order at their 2011 levels, with the exception
of rate-of-return carriers' intrastate traffic, which represents a
small minority of all 8YY traffic. We also have some concern that
setting a toll free tandem switching and transport rate cap inclusive
of dedicated transport charges could overcompensate at least some
competitive tandem providers. If, as Inteliquent explains, dedicated
tandem charges are ``disproportionally levied by incumbent LECs,'' then
adopting a higher unified rate for tandem switching, transport and
dedicated transport would offer a windfall to the competitive carriers
that do not typically charge for those services and increase, rather
than decrease, the cost of 8YY services. As we continue to proceed
incrementally in the implementation of bill-and-keep for 8YY traffic,
we will monitor the impact of this Order on toll free dedicated
transport charges and will revisit the issue if our actions in this
Order adversely impact competition for these services.
61. After careful review of the record, we find that a rate cap of
$0.001 will reasonably compensate providers for tandem switching and
transport access services while we consider how best to move all
intercarrier compensation to a bill-and-keep regime. As we make that
transition, there is no legal requirement that we establish purely
cost-based rates. The rate cap we adopt here is not intended primarily
to reflect carriers' costs but is instead intended to ensure a
reasonable transitional rate as part of our transition of originating
toll free tandem switching and transport rates to bill-and-keep. The
Commission has previously delineated the merits of bill-and-keep as a
rate methodology and affirms those benefits here. Carriers that believe
this cap provides insufficient revenue recovery may seek a Total Cost
and Earnings Review provided for in this Order.
62. Implementation. To achieve this nationwide uniform cap,
effective July 1, 2021, we require that tandem providers eliminate
existing tandem switching charges and transport charges for originating
8YY traffic, and instead subsume charges for both tandem switching and
transport into a single joint tandem switched transport access service
rate element not to exceed $0.001 per minute. The new rate structure we
adopt will compensate the tandem provider for the use of its facilities
whenever it provides either or both elements of a joint tandem switched
transport access service. We find that requiring carriers to combine
their tandem switching and transport rates into a single per minute
rate element is ``simpler to implement'' than an approach that keeps
the two separate, reducing the burden on carriers that must implement
the new rules.
63. To give tandem providers adequate time to implement our rate
cap, we require carriers to file tariffs that comply with the interim
rate cap for originating 8YY tandem switching and transport rates
effective July 1, 2021. We find that this period of time provides
carriers with a reasonable timeframe in which to transition their rates
to the $0.001 per minute cap, and allows for implementation of
necessary changes to billing systems and the filing of required tariff
changes as part of carriers' annual tariff revisions. At the same time,
to avoid gamesmanship before July 1, 2021, we cap all existing toll
free tandem switching and transport rates as of the effective date of
this Order.
64. A longer transition, such as the one we adopt for moving
originating 8YY end office charges to bill-and-keep, is unnecessary in
this instance because tandem switching accounts for a smaller
proportion of total originating access charges, and carriers will still
be able to charge intercarrier compensation for toll free tandem
switching and transport and will not need to find alternative sources
of revenue for their tandem switching and transport costs during this
transition. Adopting a longer transition, on the other hand, would
unnecessarily prolong carriers' incentives to engage in 8YY arbitrage
and could delay carriers' transition to IP-enabled services.
65. Network edge. In response to a request in the 8YY FNPRM for
comment on whether a distinct approach to determining the network edge
is necessary in the 8YY context, T-Mobile proposes that we require
carriers to interconnect at ``no more than a few dozen POIs for the
entire country'' instead of at ``hundreds, or even thousands of POIs
across the country.'' It describes existing interconnection
arrangements as an inefficient system that is ``slowing the transition
from legacy transmission platforms and services to those based fully on
internet Protocol.'' NTCA opposes the T-Mobile proposal, claiming that
``the shift of all financial responsibility to RLECs serving relatively
small customer bases
[[Page 75903]]
in remote rural areas for transport to reach distant points would
undermine universal service and the ability to maintain reasonably
comparable rates.'' NTCA also argues that ``moving from existing
network edges would introduce a much greater degree of uncertainty and
exacerbate the potential for confusion or disruption as underlying
network technologies change.'' We decline to implement T-Mobile's
proposal in this proceeding. Mandating such fundamental changes to
carriers' interconnection obligations would have unpredictable
consequences for a wide range of interconnection arrangements and are
best dealt with in a comprehensive fashion in the separate proceedings
where the Commission previously sought comment on issues relating to
intercarrier compensation and the network edge.
66. GCI proposes a four-part plan for determining the default
network edge for 8YY traffic in Alaska. But the record does not provide
any information on the financial implications of its proposal for other
Alaska carriers or the impact of its proposal on carriers' network
build-out and rates, let alone provide other parties sufficient
opportunity to comment on its financial or operational implications.
All of which underscores the need to address GCI's proposal in the
broader context of our network edge proceeding. We therefore decline to
adopt GCI's proposed approach to the network edge for 8YY traffic in
Alaska here.
67. Finally, NTCA raises concerns that if larger providers are no
longer responsible for 8YY transport costs, they may attempt to
``leverage such changes to demand rearrangement of existing
interconnection arrangements and to move the network edges . . . from
existing locations in rural areas to points that may be [great
distances] from the rural areas where those calls originate or
terminate.'' Contrary to NTCA's concerns, although our rules transition
8YY transport and tandem switching access charges incrementally toward
bill-and-keep, they do not alter the fact that interexchange carriers
and wireless carriers continue to be responsible for those charges.
Furthermore, we affirm that nothing we do in this Order is intended to
affect or alter existing network edge arrangements. To address NTCA's
concerns, it requests that we adopt a default rule specifying that:
``(1) The RLECs will be able to choose the point of interconnection in
its service area; and (2) in no event will an RLEC be financially
responsible for transport of calls beyond its service area.'' We
decline to adopt NTCA's proposal as unnecessary, but at NTCA's request,
we take this opportunity to remind all stakeholders that a carrier has
no legal obligation to agree to unilateral attempts to change network
interconnection points. And, on several occasions the Commission has
found that unilateral attempts by a carrier to change its
interconnection point with another carrier that results in increased
costs or inefficient routing of traffic is unjust and unreasonable
under section 201(b) of the Act.
G. 8YY Database Query Charges
68. To continue our transition of all intercarrier compensation to
bill-and-keep, to remove the incentive for arbitrage created by the
existing wide disparity in rates charged for 8YY Database queries, and
to put an end to abuse of the intercarrier compensation system created
by multiple carriers charging for 8YY Database queries for a single
call, we adopt an interim nationwide cap of $0.0002 per 8YY Database
query and limit 8YY Database query charges to a single charge per call
to be assessed by the carrier that originates the call (i.e., no double
dipping). Finally, we adopt a multistep transition to the rate cap of
$0.0002 per query for intrastate and interstate 8YY Database queries to
ensure carriers have sufficient time to adapt their businesses to the
new rate.
1. Preventing Arbitrage by Capping 8YY Database Query Rates Nationwide
69. In response to the negative incentives created by the wide
variety of 8YY Database query charges, and general agreement that there
should be a nationwide database query rate, we transition 8YY Database
query charges to a single, nationwide rate cap of $0.0002. Current
database query rates are widely disparate, ranging from $0.0015 to
$0.015 per query, because of the disparities that existed when the
Commission capped most 8YY Database query charges as part of the
intercarrier compensation reforms it adopted in the USF/ICC
Transformation Order. Although some commenters suggest that the
different query rates may be based in carriers' differing rate
structures, none provide examples of those different structures. This
high degree of variability in rates strongly suggests that some,
possibly many, of these rates do not reflect the costs carriers incur
in providing these services, creating opportunities for 8YY arbitrage.
Generating 8YY Database query charges has become one of the principal
reasons driving the increase in 8YY arbitrage. Additionally, there is
nothing currently stopping more than one carrier in a call path from
querying the 8YY Database and charging the interexchange carrier for
the query. As a result, database query charges make up a
disproportionately high proportion of intercarrier compensation paid by
IXCs. AT&T, for example, reports that 8YY Database query charges
represent 20% of all of its originating access expenses. As AT&T
emphasizes ``[t]he cost to perform an 8YY database dip is very low, and
therefore one would not expect database query charges to represent such
a high percentage of AT&T's overall originating access expense.''
70. We are persuaded that a cap of $0.0002 per database query, as
proposed by USTelecom, is a reasonable nationwide rate cap and will
further our goals of ultimately transitioning all access charges to
bill-and-keep, minimizing access costs, and routing 8YY traffic as
efficiently as possible. USTelecom describes this rate as ``the
estimated cost of performing a database dip.'' Additionally, the fact
that this cap represents the ``agreed upon amount'' by USTelecom's
members, which include companies that range from the largest to some of
the smallest incumbent local exchange carriers, competitive local
exchange carriers, and interexchange carriers, all with widely varying
business models and cost characteristics makes it likely that it will
be sufficient for carriers to recover their costs.
71. We considered suggestions that we adopt a higher rate cap,
including the proposal that we cap database queries at different rates,
for example, the ``national average'' rate of $0.004248 per query. We
agree that ``the Commission should not adopt a higher cap, such as the
national average, because such a cap would simply lock in the
excessive, unregulated rates that many carriers charge today,''
perpetuating opportunities for continued arbitrage.
72. We also considered suggestions that we move 8YY Database query
charges to bill-and-keep. As the Commission recognized in the 8YY
FNPRM, ``the database query is a cost a LEC must incur in order to
route an 8YY call to the proper IXC, either by maintaining its own SCP
database or by paying a third-party SCP for the database query.''
USTelecom agrees that ``providers incur costs associated with the
[database query] function'' and therefore ``does not propose to reduce
the rate to zero.'' The payment of a query charge ultimately supports
the existence of the 8YY Database, which is essential to competition in
the provision of toll free services. That said, such charges
nonetheless remain a component part of access charges generally, to
which the Commission's
[[Page 75904]]
commitment to bring all such charges to a bill-and-keep methodology
applies. In the interim, as USTelecom explains, by setting the
transitional query rate cap at a low, ``near-zero rate'' we will remove
most incentives to engage in 8YY Database query charge abuse while
still allowing carriers to recover their costs. Setting the cap at this
level will also ensure that 8YY customers and, ultimately consumers,
will not bear the burden of unreasonable query charges. As proposed in
the 8YY FNPRM and consistent with our goal of addressing fraud and
arbitrage that affects all 8YY charges, this transition applies to both
interstate and intrastate 8YY Database query charges. Carriers that can
demonstrate higher costs may seek a waiver of the cap pursuant to the
Commission's waiver processes.
2. Adopting a Multistep Transition to the Nationwide Rate Cap
73. To avoid a flash cut in revenue received by carriers for
database queries, as proposed by USTelecom, we implement the nationwide
rate cap for 8YY Database query charges over a multistep transition
period. First, we cap all 8YY Database query charges not previously
capped at their current levels as of the effective date of the Order.
Capping all 8YY Database query rates will serve as an important step in
curbing the arbitrage that currently exists for database query charges.
It will also prevent carriers from gaming our reform efforts by
changing or modifying existing rates in anticipation of the adoption of
the first interim query rate for 8YY Database queries.
74. Second, effective July 1, 2021, we cap 8YY Database query rates
for each carrier at the national average query rate of $0.004248.
(Capped 8YY Database query rates from step one of the transition that
are lower than $0.004248 must remain at those lower capped rates.)
Several commenters supported setting the initial cap at this level.
But, consistent with the USTelecom proposal we make this the second
step of the transition. Setting July 1, 2021 as the effective date for
this step will allow carriers ample time to prepare to transition
higher rates to the cap. We find that adopting an implementation date
of July 1, 2021 for this transitional step will ensure that carriers
have ample time to reduce the ``excessive, unregulated rates that many
carriers charge today'' and therefore ``mitigate this form of
arbitrage.'' Third, effective July 1, 2022, all database query rates
will be transitioned half of the way to the final target rate of
$0.0002. So, if a carrier's database query rate is capped at $0.004248
in the second step, its cap would be $0.002224 on July 1, 2022. If a
carrier's rate cap is below $0.004248, then it will use its capped rate
to arrive at its rate effective July 1, 2022. Finally, effective July
1, 2023, carriers may not charge more than $0.0002 for an 8YY Database
query.
75. Adopting a multistep, multiyear transition period to implement
the 8YY Database query rate cap is consistent with the prior
Commission's actions and will ``provide [the] industry with certainty
and sufficient time to adapt to a changed regulatory landscape'' and
help minimize disruption to consumers and service providers.
Accordingly, we agree with parties that favor a reasonable transition
period to avoid the negative effects that might have resulted from
imposing a ``flash cut'' to the new nationwide cap.
76. Implementation of the database query rate cap and transition
will occur through application of amendments to Sec. 51.907 of our
rules for price cap carriers, Sec. 51.909 of our rules for rate-of-
return carriers, and Sec. 51.911 of our rules for competitive local
exchange carriers.
77. Nearly two decades ago, the Commission declined to subject
competitive local exchange carrier database query charges to the
benchmarking rules because of the dearth of information about such
carriers' query charges in the proceeding before it. This proceeding by
contrast includes robust discussion of competitive providers' database
query charges and we find that given our adoption of a nationwide rate
cap for all database query charges, the simplest and most administrable
manner to implement that change for competitive local exchange carriers
is by applying our benchmark rules to competitive local exchange
carrier database query charges. The competitive local exchange carrier
benchmark rule in Sec. 61.26 of our rules and the benchmarking
requirements for access reciprocal compensation rates in Sec.
51.911(c) of our rules already applies to competitive local exchange
carrier interstate charges, except database query charges. We now amend
Sec. 51.911 of our rules to make clear that beginning July 1, 2021, a
competitive local exchange carrier providing interstate or intrastate
switched exchange access services for use in the delivery of a Toll
Free Call shall not have a tariffed interstate or intrastate Toll Free
Database Query Charge rate that exceeds the rate charged by the
competing ILEC.
3. Limiting 8YY Database Query Charges to One Per 8YY Call, To Be
Assessed by the Originating Carrier
78. To further reduce the abuse of the 8YY Database query, as of
the effective date of this Order, we will eliminate double dipping and
allow only one carrier in a call path to charge a single database query
for each 8YY call. If the originating carrier is unable to conduct the
8YY query or transmit the results of the query, the next carrier in the
call path that is able to do so may conduct the single query and assess
the charge. We agree with the Toll Free Number Administrator that
``multiple dip charges are unnecessary and increase the cost of a call
to a[n 8YY number].'' There is broad support in the record for this
action, with many commenters agreeing that ``there is no legitimate
reason why an IXC should be expected to pay for multiple database
queries.'' We agree that ``a single dip could allow [a] call to be
correctly routed'' and that ``routing information should be carried
with that call until it is terminated.'' Allowing only one query per
call will eliminate an obvious source of 8YY arbitrage and encourage
efficient routing.
79. In the typical 8YY call path, it is the originating carrier
that conducts the query because the query is a necessary prerequisite
to routing the call to the proper 8YY provider. Some commenters support
allowing the originating carrier to assess the database query charge,
while others support allowing the carrier that hands the call off to
the 8YY provider to assess the charge. We find that allowing the
originating carrier to assess the 8YY Database query charge or, if that
carrier is unable to conduct the query or transmit the results of the
8YY query, allowing the next carrier in the call path to assess the
charge, is consistent with long-standing industry practice and fosters
efficient routing of 8YY calls from their inception. Conducting the
database query at the point of initiation of the call, allows the
originating carrier and all subsequent carriers in the call path to use
the correct call routing information to transmit the call. In contrast,
allowing the last carrier that hands the call off to the 8YY provider
to assess the query charge would necessarily entail inefficient routing
up to the point where the final carrier conducts the query.
80. Commenters suggest that some originating carriers' networks may
lack the requisite signaling functionality to pass the results of an
8YY Database query, necessitating an additional query by the next
carrier in the call path. In the very limited instances where an
[[Page 75905]]
originating carrier cannot pass the results of an 8YY Database query,
that carrier is not required to perform a query, and may not charge for
an 8YY Database query. In this circumstance, we allow the next carrier
in the call path to conduct the query and assess the single charge.
Carriers other than the next carrier in the call path after the
originating carrier remain free to perform their own database queries
but may not assess a charge for them. Not allowing intermediate
carriers to assess a second 8YY Database query charge per call should
have a de minimis impact on those carriers' bottom lines generally.
Although the record does not allow us to quantify the number of
carriers that lack these basic signaling capabilities, this likely
involves a subset of rural carriers which are likely to serve a
relatively small fraction of customers and a similarly small fraction
of 8YY calls overall. Intermediate providers that are affected by this
restriction transport such traffic pursuant to voluntary agreements and
can decide whether to renegotiate their contractual arrangements. In
fact, the record shows that competitive local exchange carriers and
interconnected Voice over internet Protocol providers partner with
other providers, including intermediate tandem providers, to perform
the database queries needed ``to determine the IXC serving the dialed
toll free number . . . and then route[] the call to the IXC through an
unaffiliated carrier's tandem switch that is interconnected with the
serving IXC.''
H. Relying on Existing Mechanisms for Revenue Recovery
81. We find that our existing revenue recovery mechanisms are
sufficient to facilitate incumbent local exchange carriers' reasonable
recovery needs as we move originating 8YY end office charges to bill-
and-keep and move to national rate caps for 8YY joint tandem switched
transport service and 8YY Database query charges. Consistent with the
principles of bill-and-keep, competitive local exchange carriers, which
are not subject to prescriptive rate regulation, can decide whether to
recover from their end users any revenues they ``lose'' as a result of
this Order. Accordingly, we decline requests to adopt new recovery
mechanisms specifically tailored to 8YY.
82. The Commission adopted the current rules for Eligible Recovery
as part of the intercarrier compensation reforms it undertook in the
USF/ICC Transformation Order. The Commission designed those rules to
enable price cap and rate-of-return carriers to recover a portion of
the revenues they lost as terminating end office access rates
transitioned to bill-and-keep. Our existing recovery mechanisms reflect
``the differences faced by price cap and rate-of-return carriers.''
Rate-of-return carriers, ``which are generally smaller and less able to
respond to changes in market conditions than are price cap carriers''
require a ``greater degree of certainty'' in connection with
intercarrier compensation reforms. We therefore conclude that it is
reasonable and appropriate to rely on these mechanisms here, especially
insofar as commenters have not demonstrated that they are unable to
recover all or part of their lost revenues through existing federal and
state recovery mechanisms and insofar that these mechanisms permit
rate-of-return carriers to obtain some recovery from explicit universal
service support through Connect America Fund Intercarrier Compensation.
As the Commission provided for in the USF/ICC Transformation Order, we
continue here to provide an opportunity for carriers to request
additional support if needed through a petition for a Total Cost and
Earnings Review. In addition, carriers retain the option of seeking a
waiver of any provision of the Commission's rules.
1. Rate-of-Return Carriers
83. Rate-of-return carriers will continue to calculate their
Eligible Recovery using the methodology adopted in the USF/ICC
Transformation Order and pursuant to Sec. 51.917(d) of our rules. The
Eligible Recovery calculation will allow rate-of-return carriers to
account for most of their total lost 8YY revenues. Because the Eligible
Recovery calculation requires rate-of-return carriers to subtract
expected interstate switched access revenues from Base Period Revenue,
adjusted downward 5% annually, a decline in originating 8YY interstate
switched access revenues resulting from the reforms we make today means
that less revenue will be subtracted from the adjusted Base Period
Revenue. This will increase rate-of-return carriers' Eligible Recovery.
Thus, the Eligible Recovery calculation will reflect rate-of-return
carriers' lost interstate end office and tandem switching and transport
access revenues and allow recovery of those revenues.
84. Consistent with the Commission's rules, and the recommendation
of ITTA, WTA, and USTelecom, rate-of-return carriers will continue to
recover Eligible Recovery through the same two-step process set forth
in the USF/ICC Transformation Order: first through the Access Recovery
Charge, subject to the current caps, and then through Connect America
Fund Intercarrier Compensation, as permitted by the Commission's rules.
In the USF/ICC Transformation Order, the Commission explained that
carriers--especially rate-of-return carriers--likely would not be able
to recover all of their lost revenues through Access Recovery Charges
alone, given the constraints imposed by our caps on permissible Access
Recovery Charges and by the Residential Rate Ceiling. Accordingly, the
Commission allowed incumbent local exchange carriers to rely on Connect
America Fund Intercarrier Compensation to recover Eligible Recovery
that they could not recover through permitted Access Recovery Charges.
85. Consistent with the concept of moving to bill-and-keep, rate-
of-return carriers will continue to look first to their end users for
recovery through the Access Recovery Charge. Some commenters suggest
that we modify the Access Recovery Charge caps for rate-of-return
carriers, but do not offer any specifics on how those caps should be
modified. Rate-of-return carriers can rely on Connect America Fund
Intercarrier Compensation support to recover at least some of the
revenues that they cannot recover through their Access Recovery
Charges.
86. Rate-of-return carriers will recover any Eligible Recovery
permitted by Sec. 51.917(f) of our rules through Connect America Fund
Intercarrier Compensation pursuant to Sec. 54.304 of our rules. We
agree with ITTA that using Connect America Fund Intercarrier
Compensation support in this manner is consistent with the Commission's
mandate under section 254 of the Act to advance universal service
through ``specific, predictable and sufficient'' mechanisms and the
Commission's use of universal service funding as a component of prior
intercarrier compensation reforms.
87. We conclude that concerns that allowing rate-of-return carriers
to continue receiving support from Connect America Fund Intercarrier
Compensation will limit the funds available under the Alaska Plan are
unfounded. As GCI concedes, the Alaska Plan provides ``fixed amounts of
support to participating ILECs and CMRS providers in exchange for
specific, tailored obligations to deploy broadband over a ten-year
period.'' Nothing we do in this Order alters Alaska Plan support.
Accordingly, the rules that we adopt today will not ``upend the
carefully calibrated commitments'' made as part of that Plan.
88. Our rules for calculating rate-of-return Eligible Recovery will
consider
[[Page 75906]]
reductions in originating interstate revenue but not any reductions in
originating intrastate revenue. Although the recovery mechanism
established in the USF/ICC Transformation Order adopted a formal
mechanism for terminating intrastate revenue recovery for rate-of-
return carriers, we adopt a different approach here for several
reasons. The hundreds of millions of dollars in rate-of-return
carriers' annual intrastate revenues potentially affected by the USF/
ICC Transformation Order's reforms dwarf the intrastate revenues at
issue here, which NTCA estimates will be approximately $6.5 million per
year. Further, even the recovery mechanism in the USF/ICC
Transformation Order declined to ensure revenue-neutrality, and we are
not persuaded to go further here, particularly given the comparatively
limited revenues at stake. In addition, in contrast to interstate rate
regulation, intrastate revenue recovery largely is a matter of state
control, presenting a real risk of over-recovery if we were to
establish a formal recovery mechanism for intrastate 8YY origination
charges here. For one, many states have granted local exchange carriers
a significant amount of flexibility regarding intrastate rates. In
addition, in contrast to our regulation of price cap carriers, we have
left rate-of-return carriers' intrastate originating access rates
uncapped--and continue to do so, except with specific respect to 8YY
originating charges as reformed in this Order. Furthermore, we
anticipate that our reform of 8YY originating charges will reduce
billing disputes, leading to some cost savings for local exchange
carriers. The record thus does not demonstrate that a formal recovery
mechanism genuinely is needed here for intrastate 8YY origination
charges above and beyond the recovery possible under state law.
89. We find it unnecessary to adopt ITTA's proposal to ``restart
the timeline'' of the 5% annual reductions in rate-of-return carriers'
Baseline Adjustment Factor or to otherwise adjust the Eligible Recovery
calculation for rate-of-return carriers to accommodate our changes to
the 8YY access charge regime. ITTA fails to provide a basis for
changing the 5% annual reductions which were instituted to approximate
the rate of line losses rate-of-return carriers were experiencing at
the time of the adoption of the USF/ICC Transformation Order. We
therefore decline to modify the 5% annual reduction.
2. Price Cap Carriers
90. Like rate-of-return carriers, we find that price cap carriers
should look to the existing rules to determine how to adjust to the
changes we make today to our intercarrier compensation system. We
decline to adopt the suggestion of some commenters that we revise our
Eligible Recovery rules to allow price cap carriers to include 8YY
originating access revenues in their Eligible Recovery calculations.
Instead, consistent with our move to bill-and-keep, price cap carriers
may increase their Subscriber Line Charges or their Access Recovery
Charges, to the extent they are otherwise able to do so. There is no
compelling evidence in the record that further change to our recovery
mechanisms is warranted. In fact, parties have not provided any
meaningful data regarding the amount of revenue price cap carriers as a
whole derive from 8YY originating access charges, or how such revenues
should be considered as part of the Eligible Recovery calculations.
Without actionable data regarding the revenues price cap carriers might
lose as a result of our reform, and their ability to recover that
revenue from their end users absent rule changes, we are unable to
justify amending the Eligible Recovery calculation. The Commission has
concluded that ``[p]rice cap carriers generally are less dependent than
rate-of-return carriers on interstate access charge revenues and
universal service support, and better able to use various economies of
scale to generate cost-saving efficiencies, thereby reducing the
relative impact of any revenue reductions.'' These same considerations
lead us to conclude that price cap carriers will be able to accommodate
changes in 8YY originating access revenues without the need for new
universal service support. We also find that the transitions we adopt
for today's reforms will give price cap carriers adequate time to adapt
to these changes.
91. We also decline to implement proposals to freeze the annual 10%
reduction in the Price Cap Carrier Traffic Demand Factor or to offset
that annual 10% reduction by the amount of revenues lost as a result of
our reform of 8YY access charges. Although we sought ``quantifiable
data or evidence'' to help us determine what proportion of originating
access revenues are attributable to 8YY calls and, more broadly, the
need for originating local exchange carriers to replace the revenues
they currently obtain from 8YY-related access charges, parties failed
to submit the data we would need to quantify the revenues that price
cap carriers might lose as a result of our reforms. Without that data,
we are unable to justify amending the Eligible Recovery calculation.
Commenters also do not attempt to explain how our reforms to 8YY
originating access charges are related to the Commission's mechanism
designed to estimate line loss for price cap carriers, which is
reflected in the 10% annual reduction. Nor do they claim that the 10%
annual reduction has somehow ceased to reasonably predict line loss
trends. Furthermore, the 10% reduction is applied only to the revenue
reductions included in the Eligible Recovery calculation--required
reductions to a price cap carrier's terminating access revenues.
92. We also decline to adopt suggestions by CenturyLink and ITTA
that we amend our existing revenue recovery rules to allow price cap
carriers to receive Connect America Fund Intercarrier Compensation
support to recover revenues lost as the result of today's reform. In
the USF/ICC Transformation Order, the Commission allowed price cap
carriers to seek recovery from Connect America Fund Intercarrier
Compensation on a transitional basis and phased out such support over
time. The Commission chose to phase out this support for price cap
carriers in part because it adopted measures allowing price cap
carriers the opportunity to receive additional universal service
support through other mechanisms. The same logic applies today. With
the new support mechanisms now phased in, there is no basis to revisit
the phase-out of Connect America Fund Intercarrier Compensation support
``designed to reflect the efficient costs of providing service over a
voice and broadband network.'' Since the adoption of the USF/ICC
Transformation Order, price cap carriers that have chosen to receive
high-cost universal service support have been able to maintain and
improve their networks using universal service support they receive
through the phased-in Connect America Fund mechanisms apart from the
phased-out Connect America Fund Intercarrier Compensation. Therefore,
we decline to extend Connect America Fund Intercarrier Compensation
support to price cap carriers to recover lost 8YY access revenues at
this time.
93. Although we do not adopt a specific revenue recovery mechanism
for price cap carriers, we also do not foreclose those carriers from
recovering reduced revenues through lawful end-user charges such as the
Subscriber Line Charge. Indeed, such end-user recovery is one of the
central tenets of bill-and-keep. Some price cap carriers claim they are
unable to bill their end users to offset reduced 8YY access charge
[[Page 75907]]
revenues given the Commission's limits on end user charges. We note,
however, that certain price cap carriers' tariffs contain end user
charges that are below the Commission's caps on these charges, which
would enable a measure of recovery of reduced 8YY revenues.
94. At the same time, we decline proposals to allow price cap
carriers to pursue recovery through increases in the caps on Subscriber
Line Charges and Access Recovery Charges, or through an increase in the
Residential Rate Ceiling. In regulating end-user charges, the
Commission has always had to account for important consumer interests,
including ``ensuring that all consumers have affordable access to
telecommunications services.'' To ensure that increases in end-user
charges do ``not impact the affordability of rates'' the Commission has
routinely capped such increases. USTelecom does not provide any
justification for its proposed increases of as much as $12 per line per
year to the Subscriber Line Charge after two years. Frontier and
Windstream fail to justify their proposal for two annual increases of
$0.15 per line per month in Subscriber Line Charges for price cap
carriers. Windstream offers no data in support of that proposal.
Frontier justifies the proposal based loosely on the amount of
interstate and intrastate revenue it estimates it would lose should we
adopt the USTelecom proposal without any new revenue recovery mechanism
for price cap carriers. Frontier's estimates, however, appear not to
take into account the extent it can offset 8YY revenue reductions
through remaining room under the existing Access Recovery Charge or
Subscriber Line Charge caps. Moreover, Frontier's proposal would be
applicable to all price cap carriers, and no other price cap carriers
have offered data estimating their anticipated revenue losses. The very
fact that different parties representing price cap carriers make two
such widely varying proposals for Subscriber Line Charge increases in
this proceeding underscores the arbitrary and unsupported nature of
both proposals. Proposals to increase the caps on Access Recovery
Charges are cursory, lack supporting evidence or analysis, and fail to
address the impact of such increases on affordability. Because we are
concerned about affordability, we reject those proposals and the
USTelecom proposal to increase the Residential Rate Ceiling by $1.00 a
month to $31.00 per month. USTelecom offers no information to
demonstrate that there is a meaningful relationship between the revenue
reductions carriers will face as a result of this Order and the ability
of some carriers to recover more revenue through Access Recovery
Charges should we raise the residential rate ceiling by $1 per month.
We also agree with NTCA that USTelecom's proposal to raise the
residential rate ceiling makes no sense with respect to rate-of-return
carriers which have a different revenue recovery mechanism than price
cap carriers. None of these proposals provide an adequate basis for us
to adopt industry-wide pricing rules. Absent adequate justification, we
are also unable to analyze the potential effects on end users of
increases in the Subscriber Line Charge, Access Recovery Charges or the
Residential Rate Ceiling and whether the increases and timing are
reasonable.
3. Case-by-Case Requests for Additional Revenue Recovery
95. We provide an opportunity for revenue recovery through existing
mechanisms to promote an orderly transition in the reform of 8YY
originating access charges. As explained in the USF/ICC Transformation
Order, we do not have a legal obligation to ensure that carriers
recover access revenues lost as a result of reform, absent a showing of
a taking. In that Order, the Commission established a rebuttable
presumption that the revenue recovery mechanisms it adopted would allow
incumbent local exchange carriers to earn a reasonable return on their
investment and established a ``Total Cost and Earnings Review,''
through which a carrier may petition the Commission to rebut that
presumption and request additional support. The Commission identified
factors that it could consider in analyzing requests for additional
support and predicted that the limited recovery permitted would be more
than sufficient to provide carriers reasonable recovery for regulated
services, both as a matter of the constitutional obligations underlying
rate regulation and as a policy matter of providing a measured
transition away from incumbent local exchange carriers' historical
reliance on intercarrier compensation revenues to recovery that better
reflects competitive markets. Nonetheless, the Commission adopted a
Total Cost and Earnings Review to allow individual carriers to
demonstrate that this rebuttable presumption is incorrect and that
additional recovery is needed to prevent a taking. We take the same
approach here and adopt a rebuttable presumption that the existing
revenue recovery mechanisms will allow incumbent local exchange
carriers to earn a reasonable return on investment. We also continue to
make the Total Cost and Earnings Review available to carriers affected
by the 8YY originating access reforms we adopt today.
96. To show that the existing recovery mechanisms are legally
insufficient, a carrier faces a ``heavy burden,'' and must demonstrate
that the regime ``threatens the financial integrity of [the carrier] or
otherwise impedes [its] ability to attract capital.'' As the Supreme
Court has long recognized, when a regulated entity's rates ``enable the
company to operate successfully, to maintain its financial integrity,
to attract capital, and to compensate its investors for the risks
assumed,'' the company has no valid claim to compensation under the
Takings Clause, even if the current scheme of regulated rates yields
``only a meager return'' compared to alternative rate-setting
approaches. We believe that our existing recovery mechanisms provide
recovery well beyond any constitutionally required minimum, and we find
no convincing evidence in the record that those mechanisms will yield
confiscatory results.
97. As we seek to protect consumers from undue rate increases or
increases in contributions to universal service funding, we will
conduct the most comprehensive review of any requests for additional
support allowed by law. Our existing recovery mechanisms go beyond what
might strictly be required by the constitutional takings principles
underlying historical Commission regulations. Therefore, although our
recovery mechanisms do not seek to precisely quantify and address all
considerations relevant to resolution of a takings claim, carriers will
need to address these considerations to the extent that they seek to
avail themselves of the Total Cost and Earnings Review procedure based
on a claim that recovery is legally insufficient.
I. The Benefits of Our Actions Far Outweigh the Costs
98. The record is clear that the benefits of the actions we take
today to move 8YY access charges toward bill-and-keep far outweigh the
costs. By eliminating 8YY arbitrage opportunities based on high and
varying originating end office access rates, tandem switching and
transport rates, and database query rates, we reduce the incidence of
8YY robocalls, incent more efficient (and therefore lower cost) routing
of 8YY calls, and encourage greater competition among 8YY providers on
the basis of quality and price.
1. The Benefits of Our Actions
99. Carriers, 8YY customers, and consumers will all benefit from
better
[[Page 75908]]
quality, lower-priced 8YY services as a result of the actions we take
to move 8YY charges to or toward bill-and-keep. We conclude that there
are at least four ways in which our actions benefit consumers and firms
and enhance the public interest. First, by transitioning interstate and
intrastate end office originating access rates for 8YY calls to bill-
and-keep, moving 8YY tandem switching and transport services and
database query charges to nationally capped low rates, and limiting
database queries to one charge per call, we discourage inefficient
routing designed to maximize 8YY access revenues. Consistent with the
Commission's findings in the USF/ICC Transformation Order, moving
originating 8YY end office access rates to bill-and-keep will move
prices closer to being cost reflective and, as a consequence, ``carrier
decisions to invest in, develop, and market communications services
will increasingly be based on efficient price signals.'' Taken
together, these actions will reduce the access charge and network
operation costs carriers incur, and will provide better investment
incentives. Additionally, reducing 8YY robocalls will mitigate network
congestion, lower the costs of access for 8YY providers and help ensure
that legitimate callers can reach their intended destinations. We
expect some of the carriers' cost savings that will arise from more
efficient network use to be passed on to their 8YY customers in the
form of better service and/or lower prices. Ultimately, this will lead
businesses using 8YY services to provide better service and/or lower
prices to their own customers.
100. Second, our actions will reduce the 8YY originating access
rates paid by interexchange carriers for legitimate 8YY calls. We
estimate that originating end office charges for 8YY services exceed
$56 million annually, and are possibly many times this. Because of our
actions, these end office access expenses will fall to zero over the
next three years. Establishing nationally uniform rate caps for 8YY
tandem switching and transport charges and 8YY Database queries and
reducing the number of queries per call to one will further reduce
interexchange carriers' costs of providing 8YY services. These declines
in access charges will further lower 8YY prices and/or increase
innovation.
101. Third, our actions will encourage carriers to efficiently
transition to IP services. Under the current system of intercarrier
compensation, access revenues can be inflated by inefficiently
exchanging traffic over TDM facilities. Reducing those revenues will
reduce incentives to route traffic inefficiently and to use TDM
facilities which will further encourage the transition to IP services.
As the Commission previously found, taking steps to foster the
transition to IP-based and other advanced communications technologies
``can dramatically reduce network costs and lead to the development of
new and innovative services, devices, and applications, and can also
result in improvements to existing product offerings and lower
prices.''
102. Finally, our reforms will reduce intercarrier compensation
disputes. Carriers will no longer need to devote as many resources to
monitor their 8YY call traffic and dispute 8YY invoices. For end office
switching, billing will not be necessary. Although some of these
benefits are difficult to quantify, together they will be substantial.
2. The Costs of Our Actions
103. The impact of our rule changes on the intercarrier
compensation revenue and expenses of carriers will vary by carrier. To
the extent one carrier's losses are gains to another, for example,
because the amount of access revenue losses on call origination
services for one carrier constitute reduced access expenses for another
carrier, these changes are transfers, and therefore do not of
themselves impact economic efficiency. As such, transfers are not
directly relevant to a cost-benefit analysis. In any case, except to
the extent that there may be some carriers for which 8YY arbitrage is
the core of a narrow business plan, relative to the scale of most
carriers' operations, the impact of our action on any carrier's
revenues will be small, and we expect carriers may make ameliorating
adjustments to their business plans. Despite the fact that some
commenters have sought approval to raise their end user charges in
conjunction with this rulemaking, we expect that robust competitive
pressure for voice services nationwide will limit the extent to which
carriers of all types respond to our rule changes by raising their end
user charges. In any case, the rule changes will provide more efficient
incentives for carriers' pricing decisions, product offerings, and
investments.
104. It is possible that small price increases could occur due to
our actions. Rate-of-return incumbent local exchange carriers may
recover a portion of their lost revenue through a combination of Access
Recovery Charges and Connect America Fund Intercarrier Compensation. We
estimate that the total Universal Service Fund program collection will
increase at most by approximately 0.3% due to our actions. Increases in
Access Recovery Charges will be paid by rate-of-return carriers' end
user customers and increased Connect America Fund Intercarrier
Compensation support will require increases in Universal Service Fund
contributions, partially offsetting the benefits of the price declines
generated by our actions. The costs of higher contributions arise
because they raise prices for end users and hence distort efficient
consumption of interstate services. However, we expect this loss of
efficiency will be small relative to the benefits our actions will
bring, primarily because the inefficiency brought about by higher
contribution rates is small relative to the substantial inefficiency
created by current 8YY arbitrage, and because the revenue impacts of
lower 8YY access charges will only be partially offset by contribution
increases. Moreover, meeting universal service obligations from
contributions is simpler and more transparent than the existing opaque
implicit subsidy system under which carriers pay to support other
carriers' network costs through origination charges.
105. We estimate the costs necessary to update the relevant
carrier's billing systems to be approximately $6 million. We estimate
billing costs as follows. We use a labor cost per hour to implement
billing system changes of $70. We estimate the hourly wage for this
work to be $47, equivalent to the hourly pay for a General Schedule 12,
step 5 employee of the federal government. This rate does not include
non-wage compensation. To capture this, we markup wage compensation by
46%. The result is an hourly rate of $68.62 [= $47 x 1.46], which we
round up to $70. As many as 859 carrier holding companies may be
impacted by our actions. In 2018 on Form 499 filings, 859 holding
companies reported non-zero revenue from per-minute charges for
originating or terminating calls provided under state or federal access
tariff (based on aggregated data from Form 499, line 304.1). These
holding companies vary significantly in size and therefore likely face
varying costs to implement billing system changes. We assume that at
most 100 hours of work is required to adjust billing systems for the
largest holding companies and the most complicated systems, and
conservatively use that figure as the estimate for every holding
company. Thus, our estimate of the costs for billing adjustment is
approximately $6 million [= 859 x $70 x 100]. We acknowledge the limits
of our attempt to
[[Page 75909]]
estimate these costs but believe this approach yields a reasonable
estimate for the purposes of this cost-benefit analysis.
3. On Balance, Benefits Exceed Costs
106. On balance, the benefits of our actions outweigh their costs.
Consumers, 8YY customers, and carriers will benefit as we transition
8YY access charges toward bill-and-keep, reducing the inefficiencies
inherent in 8YY arbitrage, lowering 8YY access charges, causing prices
of 8YY services to fall and innovation to increase, reducing 8YY
congestion, encouraging network modernization, and reducing
intercarrier compensation disputes. Our actions will also reduce
``competitive distortions inherent in the current system, eliminating
carriers' ability to shift network costs to competitors and their
customers.'' There will be some costs imposed, largely due to the need
to collect additional Universal Service Fund contributions to fund
rate-of-return carriers who face losses in 8YY originating access
charges. Nonetheless, the costs of higher retail rates due to any
increase in Access Recovery Charges are likely to be de minimis, and
compliance costs are a small transitional expense. The significant
benefits of our actions more than compensate for the necessary, yet
small costs they impose.
J. Legal Authority
107. In this Order we correct the perverse incentives the current
rules create for local exchange carriers to choose expensive and
inefficient call paths for 8YY traffic. We also continue to advance the
goals and objectives the Commission articulated in the USF/ICC
Transformation Order and take further steps toward the Commission's
goal of adopting a bill-and-keep regime for all intercarrier
compensation.
108. As in the USF/ICC Transformation Order, our statutory
authority to implement changes to the pricing methodology governing the
exchange of traffic with local exchange carriers flows directly from
sections 201(b), 251(b)(5), and 251(g) of the Act. Section 201(b)
permits us to ``prescribe such rules and regulations as may be
necessary in the public interest to carry out the provisions of this
chapter,'' including the provision requiring the ``charges, practices,
classifications, and regulations'' for interstate communications to be
just and reasonable. The new rules we adopt in this Order will help
ensure originating 8YY rates are just and reasonable as required by
section 201(b) and should end the abuse of these charges, including the
artificial inflation of originating access charges.
109. Section 251(b)(5) specifies that local exchange carriers have
a ``duty to establish reciprocal compensation arrangements for the
transport and termination of telecommunications.'' In the USF/ICC
Transformation Order the Commission ``br[ought] all traffic within the
section 251(b)(5) regime.'' In finding that it had the authority to
comprehensively reform intercarrier compensation and move all
interstate and intrastate access charges to bill-and-keep, the
Commission explained that its authority to implement bill-and-keep as
the default framework for the exchange of traffic with local exchange
carriers flows directly from sections 251(b)(5) and 201(b) of the Act.
This comprehensive reform approach necessarily includes originating
access charges. Indeed, the Commission has long held that the absence
of any reference to originating traffic in section 251(b)(5) means
that--apart from access charge rules temporarily preserved by section
251(g)--the originating carrier is barred from charging another carrier
for delivery of traffic that falls within the scope of section
251(b)(5). Section 251(g) of the Act--which preserves existing
``originating access until the Commission adopts rules to transition
away from that system''--provides additional legal authority for our
regulation of origination charges and our continuation of the measured
transition away from historical access charge regimes that the
Commission began in the USF/ICC Transformation Order. Relying on those
sections of the Act, the Commission confirmed that originating charges
for all telecommunications traffic should ultimately move to bill-and-
keep, but capped interstate and certain intrastate originating access
charges in the USF/ICC Transformation Order pending more comprehensive
reform.
110. In considering challenges to the USF/ICC Transformation Order,
the Tenth Circuit held that the Commission's inclusion of originating
access charges in its reform effort was ``reasonable'' and entitled to
deference. The Court also expressly affirmed the Commission's authority
over intrastate originating access charges. The Commission's authority
to take such action for interstate and intrastate originating charges
is thus well settled. Arguments that we lack authority over such
charges or the methodology that should apply to those charges are
entirely without merit.
111. This statutory authority also allows us to establish a
transition plan to reform 8YY originating access charges. We agree with
CenturyLink that ``the Commission can rely on (inter alia) sections
4(i) and 201 through 205 of the Act, which together afford the
Commission broad discretion in establishing carrier rates.'' As the
Commission concluded in the USF/ICC Transformation Order, ``although
the [Act] provides that each carrier will have the opportunity to
recover its costs, it does not entitle each carrier to recover those
costs from another carrier, so long as it can recover those costs from
its own end users and through explicit universal service support where
necessary. We continue this framework today by allowing end user
recovery and, where permitted, explicit universal service support.
II. Procedural Matters
112. 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
are 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.
113. In this Report and Order, we have assessed the effects of
transitioning inter- and intrastate originating 8YY end office and
transport rates to bill-and-keep, and of adopting a single national
rate for originating 8YY tandem switching and transport charges and
database query charges and find that the tariff modifications required
by our rules are both necessary and not overly burdensome. We believe
that many carriers affected by this Report and Order will be small
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 8YY abuse outweigh any burden associated
with the changes (such as making tariff or billing revisions) required
by this Report and Order.
114. 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 this rule is ``non-
major''
[[Page 75910]]
under the Congressional Review Act, 5 U.S.C. 804(2). The Commission
will send a copy of this Report and Order to Congress and the
Government Accountability Office pursuant to 5 U.S.C. 801(a)(1)(A).
115. Final Regulatory Flexibility Analysis. The Regulatory
Flexibility Act as amended (RFA) requires that an agency prepare a
regulatory flexibility analysis for notice and comment rulemakings,
unless the agency certifies that ``the rule will not, if promulgated,
have a significant economic impact on a substantial number of small
entities.'' Accordingly, the Commission has prepared a Final Regulatory
Flexibility Analysis (FRFA) concerning the possible impact of the rule
changes contained in this Report and Order on small entities. The FRFA
is set forth below.
Final Regulatory Flexibility Analysis
116. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the 8YY FNPRM in this proceeding released in June 2018.
The Commission sought written public comments on the proposals in the
8YY FNPRM, including comment on the IRFA. The Commission did not
receive comments specifically directed as a response to the IRFA.
However, the Commission did receive comments from NTCA-The Rural
Broadband Association (NTCA), Iowa Network Services, Inc. d/b/a Aureon
Network Services (Aureon), Public Knowledge, and FailSafe
Communications, Inc., (FailSafe) relating to small entities. This
present Final Regulatory Flexibility Analysis (FRFA) conforms to the
RFA.
A. Need for, and Objectives of, the Report and Order (Order)
117. Arbitrage and fraud have a significant and increasing effect
that undermines the intercarrier compensation system for 8YY calls.
This arbitrage takes on a variety of forms, including traffic pumping
schemes generating large numbers of illegitimate calls to toll free
numbers, so-called benchmarking abuses where competitive local exchange
carriers aggregate other carriers' 8YY traffic to hand it off to 8YY
providers in areas where they can charge higher rates, and ``double
dipping'' schemes where multiple Toll Free Database query charges are
assessed when only one is needed. This 8YY arbitrage results in higher
costs for 8YY providers and customers alike, and ultimately burdens
consumers. Left unchecked, 8YY arbitrage threatens to undermine the
broad array of useful toll free services on which consumers, businesses
and other organizations commonly rely.
118. In the Order, the Commission takes steps to address these
problems by, in some cases, reducing and, in others, eliminating, over
time, most of the 8YY originating access charges that provide the
underlying incentive for 8YY arbitrage schemes, consistent with the
Commission's previous commitment to move all intercarrier compensation
to bill-and-keep. The Commission moves 8YY originating end office
access charges to bill-and-keep over three years, caps 8YY originating
transport and tandem switching charges at a combined rate of $0.001 per
minute, caps 8YY Database query charges needed to route 8YY calls and
transitions these query charges to $0.0002 over three years, and
prohibits carriers from assessing more than one query charge per 8YY
call. We allow carriers to recover lost revenues from these 8YY access
charge reductions to the extent existing mechanisms such as Access
Recovery Charges and Connect America Fund Intercarrier Compensation
allow. By striking at the root of these practices, we eliminate
carriers' incentives to engage in arbitrage for 8YY calls. Our actions
reduce the cost of 8YY calling overall, decrease inefficiencies in 8YY
call routing and compensation, encourage the transition to IP-based
networks, and diminish the frequency and costs of 8YY intercarrier
compensation disputes. Additionally, the policies adopted in the Order
will preserve the value of toll free services for both consumers and
businesses.
B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
119. No comments were filed in response to the IRFA. However,
parties did file comments addressing the impact of proposals in the 8YY
FNPRM on small entities. NTCA, for example, expresses concern that the
approach proposed by the Commission in the 8YY FNPRM would shift
financial responsibility to rural local exchange carriers (LECs)
serving relatively small customer bases in remote rural areas for
transport to reach distant points undermining universal service and
maintaining reasonably comparable rates. NTCA urges the Commission to
ensure that ``any such reforms in the future will not have a negative
precedential impact on reasonable cost recovery otherwise and critical
universal service objectives.'' NTCA also raises interconnection and
``network edge'' issues arising out of a transition to bill-and-keep.
In addition, NTCA expresses concern that a move to bill-and-keep
without default interconnection rules could create new opportunities
for arbitrage and allow providers to dictate unilateral shifts in
``edges'' aimed at reducing their relative financial responsibilities
for transport and thereby shift such costs instead on interconnecting
carriers--and that rural local exchange carriers, serving small rural
customer bases, were at particular risk of suffering serious harm from
such arbitrage. As set forth in the Order, though our rules transition
8YY transport and tandem switching access charges incrementally toward
bill-and-keep, interexchange carriers continue to be responsible for
the payment of access charges during the transition. In addition, our
rules provide a recovery mechanism for rate-of-return local exchange
carriers' interstate revenue reduction. Further, we affirm that nothing
we do in the Order is intended to affect or alter existing network edge
arrangements, and as suggested by NTCA, we clarify that unilateral
attempts by carriers to change network interconnection points may be
unjust and unreasonable in violation of the Act, and carriers have no
obligation to agree to such unilateral attempts to change
interconnection points.
120. Aureon, a provider of centralized equal access (CEA) service
in Iowa, argues that moving tandem switching and transport to bill-and-
keep, as proposed in the 8YY FNPRM, would not be ``just and
reasonable'' under section 201(b) of the Communications Act of 1934, as
amended (the Act) because bill-and-keep would amount to ``zero
compensation'' for intermediate access providers that do not serve end
users. Our adoption of a universal nationwide rate cap for originating
8YY tandem switching and transport obviates this concern by providing
intermediate carriers with a regulated intercarrier compensation rate
for 8YY calls, rather than moving to full bill-and-keep at this time.
Public Knowledge argues that the increased cost and reduced revenues
will make it harder for small rural local exchange carriers to meet the
needs of rural customers, and would have a detrimental impact on the
digital divide.
121. As explained in the Order, however, our rules provide a
revenue recovery system for lost interstate 8YY revenue for the rate-
of-return local exchange carriers about which Public Knowledge
expresses concern and we leave it to the states to handle the
substantially smaller impact on intrastate 8YY revenue. In addition, by
tying 8YY-related rate changes to annual access tariff filings we
minimize the cost
[[Page 75911]]
of implementing 8YY-related tariff revisions.
122. FailSafe, a provider of disaster recovery telecommunications
solutions, for emergency response providers and a wide variety of
enterprise customers, argues that ``[a]n overly-broad Order would
destroy the only Disaster Recovery option available to millions of
[small and medium-sized businesses]. At a minimum, it would price
[small and medium-sized businesses] out of a Disaster Recovery/call
overflow solution due to loss of the [carrier access billing]
contribution'' and requests (1) an indefinite exemption from bill-and-
keep for access traffic associated with small and medium-sized business
end users with less than 24 phone lines and (2) a three-year transition
to bill-and-keep for ``other services related to emergency
communications.'' As the Order explains, to the extent that FailSafe's
clients are the recipients of 8YY calls, they will benefit from lower
access prices paid by their 8YY provider. To the extent FailSafe's
business model relies on intermediate carriers being paid for tandem
switching and transport, the Order provides a uniform tariffed rate for
those services. Furthermore, FailSafe does not offer a justification
for the broad waiver it requests for access traffic associated with
small and medium-sized business end users, nor does it explain how such
a waiver could be operationalized. As to FailSafe's request for a
three-year transition to bill-and-keep for some services related to
emergency communications, the Order provides for a three-year
transition to bill-and-keep for all originating 8YY end office access
charges.
C. Response to Comments by Chief Counsel for Advocacy of the Small
Business Administration
123. 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.
124. 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
125. 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 SBA.
126. 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 30.7
million businesses.
127. 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.''
The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000
or less to delineate its annual electronic filing requirements for
small exempt organizations. Nationwide, for tax year 2018, there were
approximately 571,709 small exempt organizations in the U.S. reporting
revenues of $50,000 or less according to the registration and tax data
for exempt organizations available from the IRS.
128. 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 2017 Census of Governments indicate that there
were 90,075 local governmental jurisdictions consisting of general
purpose governments and special purpose governments in the United
States. Of this number there were 36,931 general purpose governments
(county, municipal and town or township) with populations of less than
50,000 and 12,040 special purpose governments--independent school
districts with enrollment populations of less than 50,000. Accordingly,
based on the 2017 U.S. Census of Governments data, we estimate that at
least 48,971 entities fall into the category of ``small governmental
jurisdictions.''
129. 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. U.S. Census Bureau 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.
130. Local Exchange Carriers. 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. Under the
applicable SBA size standard, such a business is small if it has 1,500
or fewer employees. U.S. Census Bureau data for 2012 show that there
were 3,117 firms that operated for the entire year. Of that total,
3,083 operated with fewer than 1,000 employees. Thus, under this
category and the associated size standard, the Commission estimates
that the majority of local exchange carriers are small entities.
131. Incumbent Local Exchange Carriers. 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. Under the applicable SBA
size standard, such a business is small if it has 1,500 or fewer
employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms
operated the entire year. Of this total,
[[Page 75912]]
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 our actions.
According to Commission data, one thousand 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. Thus, using the SBA's size
standard the majority of incumbent local exchange carriers can be
considered small entities.
132. Competitive Local Exchange Carriers, Competitive Access
Providers, 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,
and under that size standard, such a business is small if it has 1,500
or fewer employees. U.S. Census Bureau 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 Local Exchange Carriers,
competitive access providers, 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, 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 competitive local exchange carriers,
competitive access providers, Shared-Tenant Service Providers, and
Other Local Service Providers are small entities.
133. We have included small incumbent local exchange carriers in
this 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 local exchange carriers are not dominant in their field of
operation because any such dominance is not ``national'' in scope. We
have therefore included small incumbent local exchange carriers in this
RFA analysis, although we emphasize that this RFA action has no effect
on Commission analyses and determinations in other, non-RFA contexts.
134. Interexchange Carriers. Neither the Commission nor the SBA has
developed a small business size standard specifically for interexchange
carriers. The closest applicable NAICS Code category is Wired
Telecommunications Carriers. 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 Bureau data for 2012 indicate that 3,117 firms
operated for the entire 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 interexchange service
providers are small entities.
135. Local Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. The SBA
category of Telecommunications Resellers is the closest NAICS code
category for local 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 the SBA's size standard, such a
business is small if it has 1,500 or fewer employees. U.S. Census data
for 2012 show that 1,341 firms provided resale services during that
year. Of that number, all of which operated with fewer than 1,000
employees. Thus, under this category and the associated small business
size standard, all of these resellers can be considered small entities.
According to Commission data, 213 carriers have reported that they are
engaged in the provision of local resale services. Of these, an
estimated 211 have 1,500 or fewer employees and two have more than
1,500 employees. Consequently, the Commission estimates that the
majority of local resellers are small entities.
136. 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. 2012 U.S. Census Bureau data 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.
137. 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. The closest
applicable size standard under SBA rules is for Wired
Telecommunications Carriers. The applicable SBA size standard consists
of all such companies having 1,500 or fewer employees. U.S. Census
Bureau data for 2012 indicate that 3,117 firms operated during that
year. Of that number, 3,083 operated with fewer than 1,000 employees.
Thus, under this category and the associated small
[[Page 75913]]
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 the rules proposed in the Notice.
138. Prepaid Calling Card Providers. Neither the Commission nor the
SBA has developed a small business definition specifically for prepaid
calling card providers. The most appropriate NAICS code-based category
for defining prepaid calling card providers is Telecommunications
Resellers. This 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 networks operators (MVNOs) are included in this industry. Under
the applicable SBA size standard, such a business is small if it has
1,500 or fewer employees. U.S. Census Bureau 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 prepaid calling card providers can be considered small
entities. According to the Commission's Form 499 Filer Database, 86
active companies reported that they were engaged in the provision of
prepaid calling cards. The Commission does not have data regarding how
many of these companies have 1,500 or fewer employees, however, the
Commission estimates that the majority of the 86 active prepaid calling
card providers that may be affected by these rules are likely small
entities.
139. Wireless Telecommunications Carriers (except Satellite). This
industry is comprised of 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 Bureau data for 2012 show that there
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
1,000 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.
140. The Commission's own data--available in its Universal
Licensing System--indicate that, as of August 31, 2018, there are 265
Cellular licensees that may be affected by our actions. 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.
141. 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 small business size standards. In the Commission's auction for
geographic area licenses in the WCS there were seven winning bidders
that qualified as ``very small business'' entities, and one winning
bidder that qualified as a ``small business'' entity.
142. Wireless Telephony. Wireless telephony includes cellular,
personal communications services, and specialized mobile radio
telephony carriers. The closest applicable SBA category is 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.
For this industry, U.S. Census Bureau data for 2012 show that there
were 967 firms that operated for the entire year. Of this total, 955
firms had fewer than 1,000 employees and 12 firms had 1,000 employees
or more. Thus under this category and the associated size standard, the
Commission estimates that a majority of these entities can be
considered small. 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, more than half of these entities can be
considered small.
143. All Other Telecommunications. The ``All Other
Telecommunications'' category is comprised of establishments 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 annual
receipts of $35 million or less. For this category, U.S. Census Bureau
data for 2012 show that there were 1,442 firms that operated for the
entire year. Of those firms, a total of 1,400 had annual receipts less
than $25 million and 15 firms had annual receipts of $25 million to
$49,999,999. Thus, the Commission estimates that the majority of ``All
Other Telecommunications'' firms potentially 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. We take definitive steps to
address the problems that plague 8YY intercarrier compensation by
reducing or eliminating, over time, the intercarrier compensation
charges that provide the underlying incentive for 8YY arbitrage
schemes. We expect the requirements we adopt in the Order will impose
some
[[Page 75914]]
additional compliance obligations on small entities. In the Order, the
Commission adopts new rules for originating toll free access charges
that will involve reduced 8YY originating access charges, the adoption
of bill-and-keep, and the adoption of nationwide rate caps associated
with 8YY traffic. Some of the changes involve a transitional period to
complete implementation and will require modification of existing
tariffs and filing of these tariff revisions. For small entities that
may be affected, their compliance obligations may also include certain
reporting and recordkeeping requirements to determine and establish
their eligibility to receive revenue recovery from other sources as 8YY
originating access revenue is reduced. The Commission believes the
impacts of reporting, recordkeeping, and/or other compliance
obligations on small entities will be mitigated by the greater
certainty and reduced litigation that should occur as a result of the
reforms adopted.
145. In the Order, the Commission moves 8YY originating end office
access charges to bill-and-keep over approximately three years, caps
8YY originating transport and tandem switching charges at a combined
rate of $0.001 per minute, caps 8YY Database query charges nationwide
and transitions these query charges to $0.0002 over approximately three
years, and prohibits carriers from assessing more than one query charge
per 8YY call. Carriers are allowed to recover lost revenues from these
8YY calls to the extent existing mechanisms such as Access Recovery
Charges and the Connect America Fund Intercarrier Compensation allow.
By adopting policies that strike at the root of these practices, we
eliminate carriers' incentives to engage in arbitrage for 8YY calls,
thereby preserving the value of toll free services for both consumers
and businesses.
146. The rule changes adopted in this Order will require affected
carriers to revise their existing tariffs and internal billing systems.
More specifically, carriers involved in originating toll free calls
will be required to file tariff revisions to remove or revise their
existing tariffs. Affected carriers will also need to file tariff
revisions to modify toll free originating transport charges as these
charges move to bill-and-keep. Tariff revisions will likewise be needed
for the three-year transition period to bill-and-keep for toll free end
office access charges. Similarly, carriers will need to file tariff
revisions to implement the nationwide cap on 8YY Database queries and
the three-year transition of these query charges to $0.0002 per query,
as well as the rule change that allows only one carrier to assess the
toll free database query charge per call. Carriers will also need to
make tariff revisions to recover lost revenues from toll free calls to
the extent existing mechanisms such as Access Recovery Charges and the
Connect America Fund Intercarrier Compensation allow. Nevertheless, the
Commission believes that with the changes to originating 8YY access
charges and 8YY Database query charges, carriers' recordkeeping burdens
may be reduced given the simplification of tariffing and billing that
the Order entails. In particular, the three-year transition adopted by
the Commission is timed to coincide with the annual access tariff
filing dates to minimize the administrative burdens on small entities
as well as other entities that are required to make such filings. These
changes will require carriers to employ the same types of professional
skills they typically employ whenever they file tariffs or make billing
changes, including legal, accounting, and/or tariffing expertise.
147. With regard to the internal billing system changes that will
be necessary for compliance with our Order, the cost of compliance will
vary by carrier. Overall, the Commission estimates the costs necessary
to update the affected carriers' billing systems will be approximately
$6 million. This estimate is conservative since it is based on costs
incurred by the largest carrier holding companies and the costs of
modification of the most complicated systems. The $6 million industry-
wide estimate results in approximately $7,000 of expense per carrier
holding company. Since the Commission is not in a position to determine
the actual costs for small entities, or for any specific entity for
that matter, we have applied our conservative estimate to every holding
company that may be impacted by decision. As we mention above, our
estimate is based on requirements for the largest carrier holding
companies, and thus the actual expense will likely be lower for small
entities.
148. Notwithstanding the compliance costs that small entities will
incur, on balance the Commission believes the benefits of its actions
outweigh their costs. Consumers, 8YY customers, and carriers will
benefit as we transition 8YY access charges toward bill-and-keep,
thereby reducing the inefficiencies inherent in 8YY arbitrage, lowering
8YY access charges, causing prices of 8YY services to fall and
innovation to increase, reducing 8YY congestion, encouraging network
modernization, and reducing intercarrier compensation disputes. The
``competitive distortions inherent in the current system, eliminating
carriers' ability to shift network costs to competitors and their
customers,'' will also be reduced. Thus, the significant benefits of
our actions more than compensate for the necessary costs imposed on
small entities and other carriers.
F. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
149. The RFA requires an agency to describe any significant,
specifically small business, alternatives that it has considered in
reaching its approach, which may include the following four
alternatives may include (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 rules 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.
150. As a general matter, actions taken as a result of our actions
should benefit small entities as well as other service providers by
reducing the inefficiencies inherent in 8YY arbitrage, providing
greater regulatory certainty, and moving toward the Commission's goal
of bill-and-keep for all access charges. Our tailored approach to
allowing carriers different transition timeframes to implement our
different rate changes is designed to balance the circumstances facing
different carrier types and provide all carriers with the necessary
predictability, certainty, and stability to transition from the current
intercarrier compensation system.
151. Transition Periods. To minimize the impact of the changes to
8YY intercarrier compensation adopted in the Order on affected small
entities, as well as other affected service providers we adopt
multistep transition periods for transitioning originating 8YY end
office access rates to bill-and-keep and 8YY Database query charges to
no more than $0.0002 for an 8YY Database query. For end office access
charges, we initially cap all intrastate originating 8YY end office
rates not previously capped at their current levels as of the effective
date of the Order. This first step will ensure against any rate
increases during the transition and will benefit small entities and
other service providers by giving parties time,
[[Page 75915]]
certainty, and stability as they adjust to the changes. Then, effective
July 1, 2021, we require all local exchange carriers to bring any
intrastate originating 8YY end office access rates that exceed the
comparable interstate rates into parity with the comparable interstate
rates. After reducing or capping intrastate 8YY end office rates, we
will transition all intrastate and interstate originating 8YY end
office charges from their capped amounts to bill-and-keep in two equal
annual reductions. Effective July 1, 2022, we reduce all originating
8YY end office rates to half of their capped levels. Then, effective
July 1, 2023, we reduce all originating 8YY end office rates to bill-
and-keep.
152. In a similar fashion, small entities will benefit from the
multistep, multiyear transition period to implement the 8YY Database
query rate cap. Specifically, small entities will avoid the negative
economic effects that might have resulted from imposing a ``flash cut''
to the new nationwide cap. Our actions which are consistent with prior
Commission actions, will provide small entities with certainty and
sufficient time to adapt to a changed regulatory landscape and will
help minimize service disruptions. First, we cap all 8YY Database query
charges not previously capped at their current levels as of the
effective date of the Order. Second, we cap 8YY Database query rates
for each carrier at the national average query rate of $0.004248 for
those carriers whose capped database query rates are not already at or
below $0.004248 or the rate capped in step one of the transition, if
lower than $0.004248, effective July 1, 2021. This step will allow
small entities and other carriers ample time to prepare to transition
higher rates to the cap. Third, all 8YY Database query rates will be
transitioned halfway to the final target rate of $0.0002. If a
carrier's cap rate is below $0.004248, then it will use its capped rate
to arrive at its rate effective July 1, 2022. Finally, effective July
1, 2023, carriers will not be allowed to charge more than $0.0002 for
an 8YY Database query.
153. While the Commission proposed moving 8YY originating tandem
switching and transport rates to bill-and-keep in the 8YY FNPRM, we
instead move rates for these services toward bill-and-keep by adopting
a nationwide tariffed tandem switched transport access service rate cap
of $0.001 per minute for originating 8YY traffic effective July 1,
2021. This approach avoids the economic hardship for small and other
intermediate providers that do not serve end customers, and who would
be uncompensated under bill-and-keep. Making the cap effective July 1,
2021 will reduce the administrative burdens for small entities and
other carriers by allowing carriers to implement any necessary changes
as part of their next set of annual tariff revisions. Further, the
Commissions finds the adopted effective date will provide carriers with
a reasonable timeframe in which to transition their rates to the $0.001
per minute cap and will allow for implementation of necessary changes
to their billing systems. To avoid gamesmanship before July 1, 2021,
however, we cap all existing toll free tandem switching and transport
rates as of the effective date of the Order.
154. The multistep transition periods will allow carriers
sufficient time to adapt to our new rules for 8YY calling and to spread
the financial impact of these changes over three years. By gradually
implementing these changes, we will avoid burdening small entities, and
provide small carriers, as well as other carriers, with adequate time
to adjust to the new rates, while at the same time minimizing existing
arbitrage. We considered adopting shorter transitions or even no
transitions as proposed in the record and rejected them because these
proposed options would not allow carriers sufficient time to implement
the changes we adopt to our system of 8YY intercarrier compensation
rules. We also considered proposals in the record to allow longer
transitions but rejected them since they would unnecessarily perpetuate
the problem of 8YY arbitrage and the burdens it imposes on all carriers
involved in 8YY calling.
155. Finally, as discussed in Section E, we recognize that carriers
involved in providing toll free service may need to revise their
internal billing systems to reflect the rate changes related to the
actions in this Order and to file tariff revisions as necessary.
Although we believe that internal billing system changes will be not be
overly burdensome to make, we reiterate that the transitions we adopt
today will ensure that small entities as well as other carriers have
sufficient time, predictability, and certainty to transition their
tariffs and billing systems to reflect the rates required by our new
rules.
Report to Congress
156. 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.
III. Ordering Clauses
157. Accordingly, it is ordered that, pursuant to sections 1, 2,
4(i), 201-206, 251, 252, 254, 256, 303(r), and 403 of the
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i),
201-206, 251, 252, 254, 256, 303(r), 403, and Sec. 1.1 of the
Commission's rules, 47 CFR 1.1, this Report and Order is adopted.
158. It is further ordered that part 51 of the Commission's rules,
47 CFR part 51, Is Amended as set forth in the Final Rules, and that
such rule amendments shall be effective thirty (30) days after
publication of this Report and Order in the Federal Register, except
for Sec. Sec. 51.907(i)-(k), 51.909(l)-(o), and 51.911(e), which
contain information collections that require approval by the Office of
Management and Budget under the Paperwork Reduction Act. The Commission
directs the Wireline Competition Bureau to announce the effective 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. Sec. 51.907, 51.909, and 51.911 of
the Commission's rules to be revised accordingly.
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, 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).
160. 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, including the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects in 47 CFR Part 51
Communications common carriers, Telecommunications.
Federal Communications Commission.
Marlene Dortch,
Secretary.
Final Rules
For the reasons set forth above, the Federal Communications
Commission amends part 51 of title 47 of the Code of Federal
Regulations as follows:
[[Page 75916]]
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. Effective December 28, 2020, amend Sec. 51.903 by adding paragraphs
(n) through (p) to read as follows:
Sec. 51.903 Definitions.
* * * * *
(n) Toll Free Database Query Charge is a per query charge that is
expressed in dollars and cents to access the Toll Free Service
Management System Database, as defined in Sec. 52.101(d) of this
subchapter.
(o) Toll Free Call means a call to a Toll Free Number, as defined
in Sec. 52.101(f) of this subchapter.
(p) Joint Tandem Switched Transport Access Service is the rate
element assessible for the transmission of toll free originating access
service. The rate element includes both the transport between the end
office and the tandem switch and the tandem switching. It does not
include transport of traffic over dedicated transport facilities
between the serving wire center and the tandem switching office.
0
3. Effective December 28, 2020, amend Sec. 51.905 by revising
paragraph (b)(2) and adding paragraph (d) to read as follows:
Sec. 51.905 Implementation.
* * * * *
(b) * * *
(2) With respect to Transitional Intrastate Access Services,
originating access charges for Toll Free Calls, and Toll Free Database
Query Charges governed by this subpart, LECs shall follow the
procedures specified by relevant state law when filing intrastate
tariffs, price lists or other instruments (referred to collectively as
``tariffs'').
* * * * *
(d) Beginning July 1, 2021, and notwithstanding any other provision
of the Commission's rules in this chapter, only the originating carrier
in the path of the Toll Free Call may assess a Toll Free Database Query
Charge for a Toll Free Call. When the originating carrier is unable to
transmit the results of the Toll Free Database Query to the next
carrier or provider in the call path, that next carrier or provider may
instead assess a Toll Free Database Query Charge.
0
4. Delayed until publication of a document announcing the effective
date, amend Sec. 51.907 by adding paragraphs (i) through (k) to read
as follows:
Sec. 51.907 Transition of price cap carrier access charges.
* * * * *
(i) 8YY Transition--Step 1. Beginning July 1, 2021, and
notwithstanding any other provision of the Commission's rules in this
chapter, each Price Cap Carrier shall:
(1) Establish separate rate elements for interstate and intrastate
toll free originating end office access service and non-toll free
originating end office access service. Rate elements reflecting fixed
charges associated with originating End Office Access Service shall be
treated as non-toll free charges.
(2) Reduce its intrastate toll free originating end office access
service rates to its interstate toll free originating end office access
service rates as follows:
(i) Calculate total revenue from End Office Access Service,
excluding non-usage-based rate elements, at the carrier's interstate
access rates in effect on June 30, 2020, using intrastate switched
access demand for each rate element for the 12 months ending June 30,
2020.
(ii) Calculate total revenue from End Office Access Service,
excluding non-usage based rate elements, at the carrier's intrastate
access rates in effect on June 30, 2020, using intrastate switched
access demand for each rate element for the 12 months ending June 30,
2020.
(iii) If the value in paragraph (i)(2)(ii) of this section is less
than or equal to the value in paragraph (i)(2)(i) of this section, the
Price Cap Carrier's intrastate End Office Access Service rates shall
remain unchanged.
(iv) If the value in paragraph (i)(2)(ii) of this section is
greater than the value in paragraph (i)(2)(i) of this section, the
Price Cap Carrier shall reduce intrastate rates for End Office Access
Service so that they are equal to the Price Cap Carrier's functionally
equivalent interstate rates for End Office Access Rates and shall be
subject to the interstate rate structure and all subsequent rate and
rate structure modifications.
(v) Except as provided in paragraph (i)(2) of this section, nothing
in this section allows a Price Cap Carrier that has intrastate rates
lower than its functionally equivalent interstate rates to make any
intrastate tariff filing or intrastate tariff revisions to increase
such rates. If a Price Cap Carrier has an intrastate rate for an End
Office Access Service rate element that is below the comparable
interstate rate for that element, the Price Cap Carrier may, if
necessary as part of a restructuring to reduce its intrastate rates for
End Office Access Service down to parity with functionally equivalent
interstate rates, increase the rate for an intrastate rate element that
is below the comparable interstate rate for that element to the
interstate rate in effect on July 1, 2021.
(3) Establish separate rate elements for interstate and intrastate
non-toll free originating transport services for service between an end
office switch and the tandem switch and remove its rate for intrastate
and interstate originating toll free transport services consistent with
a bill-and-keep methodology (as defined in Sec. 51.713).
(4) Establish separate rate elements respectively for interstate
and intrastate non-toll free originating tandem switching services.
(5) Establish transitional interstate and intrastate Joint Tandem
Switched Transport Access Service rate elements for Toll Free Calls
that are respectively no more than $0.001 per minute.
(6) Reduce its interstate and intrastate rates for Toll Free
Database Query Charges to no more than $0.004248 per query. Nothing in
this section obligates or allows a Price Cap Carrier that has Toll Free
Database Query Charges lower than this rate to make any intrastate or
interstate tariff filing revision to increase such rates.
(j) 8YY Transition--Step 2. Beginning July 1, 2022, and
notwithstanding any other provision of the Commission's rules in this
chapter, each Price Cap Carrier shall:
(1) Reduce its interstate and intrastate rates for all originating
End Office Access Service rate elements for Toll Free Calls in each
state in which it provides such service by one-half of the maximum rate
allowed by paragraph (a) of this section; and
(2) Reduce its rates for intrastate and interstate Toll Free
Database Query Charges by one-half of the difference between the rate
permitted by paragraph (i)(6) of this section and the transitional rate
of $0.0002 per query set forth in paragraph (k)(2) of this section.
(k) 8YY Transition--Step 3. Beginning July 1, 2023, and
notwithstanding any other provision of the Commission's rules in this
chapter, each Price Cap Carrier shall:
(1) In accordance with a bill-and-keep methodology, refile its
interstate switched access tariff and any state tariff to remove any
intercarrier charges for intrastate and interstate originating End
Office Access Service for Toll Free Calls; and
(2) Reduce its rates for all intrastate and interstate Toll Free
Database Query Charges to a transitional rate of no more than $0.0002
per query.
[[Page 75917]]
0
5. Delayed until publication of a document announcing the effective
date, amend Sec. 51.909 by adding paragraphs (l) through (o) to read
as follows:
Sec. 51.909 Transition of rate-of-return carrier access charges.
* * * * *
(l) 8YY Transition--Step 1. As of December 28, 2020, each rate-of-
return carrier shall cap the rate for all intrastate originating access
charge rate elements for Toll Free Calls, including for Toll Free
Database Query Charges.
(m) 8YY Transition--Step 2. Beginning July 1, 2021, and
notwithstanding any other provision of the Commission's rules in this
chapter, each Rate-of-Return Carrier shall:
(1) Establish separate rate elements for interstate and intrastate
toll free originating end office access service and non-toll free
originating end office access service. Rate elements reflecting fixed
charges associated with originating End Office Access Service shall be
treated as non-toll free charges.
(2) Reduce its intrastate toll free originating end office access
service rates to its interstate toll free originating end office access
service rates as follows:
(i) Calculate total revenue from End Office Access Service,
excluding non-usage-based rate elements, at the carrier's interstate
access rates in effect on June 30, 2020, using intrastate switched
access demand for each rate element for the 12 months ending June 30,
2020.
(ii) Calculate total revenue from End Office Access Service,
excluding non-usage based rate elements, at the carrier's intrastate
access rates in effect on June 30, 2020, using intrastate switched
access demand for each rate element for the 12 months ending June 30,
2020.
(iii) If the value in paragraph (m)(2)(ii) of this section is less
than or equal to the value in paragraph (m)(2)(i) of this section, the
Rate-of-Return Carrier's intrastate End Office Access Service rates
shall remain unchanged.
(iv) If the value in paragraph (m)(2)(ii) of this section is
greater than the value in paragraph (m)(2)(i) of this section, the
Rate-of-Return Carrier shall reduce intrastate rates for End Office
Access Service so that they are equal to the Rate-of-Return Carrier's
functionally equivalent interstate rates for End Office Access Rates
and shall be subject to the interstate rate structure and all
subsequent rate and rate structure modifications.
(v) Except as provided in paragraph (m)(2) of this section, nothing
in this section allows a Rate-of-Return Carrier that has intrastate
rates lower than its functionally equivalent interstate rates to make
any intrastate tariff filing or intrastate tariff revisions to increase
such rates. If a Rate-of-Return Carrier has an intrastate rate for an
End Office Access Service rate element that less than the comparable
interstate rate for that element, the Rate-of-Return Carrier may, if
necessary as part of a restructuring to reduce its intrastate rates for
End Office Access Service down to parity with functionally equivalent
interstate rates, increase the rate for an intrastate rate element that
is below the comparable interstate rate for that element to the
interstate rate on July 1, 2021.
(3) Establish separate rate elements for interstate and intrastate
non-toll free originating transport services for service between an end
office switch and the tandem switch and remove its rate for intrastate
and interstate originating toll free transport services consistent with
a bill-and-keep methodology (as defined in Sec. 51.713).
(4) Establish separate rate elements respectively for interstate
and intrastate non-toll free originating tandem switching services.
(5) Establish transitional interstate and intrastate Joint Tandem
Switched Transport Access rate elements for Toll Free Calls that are
respectively no more than $0.001 per minute.
(6) Reduce its interstate and intrastate rates for Toll Free
Database Query Charges to no more than $0.004248 per query. Nothing in
this section obligates or allows a Rate-of-Return carrier that has Toll
Free Database Query Charges lower than this rate to make any intrastate
or interstate tariff filing revision to increase such rates.
(n) 8YY Transition--Step 3. Beginning July 1, 2022, and
notwithstanding any other provision of the Commission's rules in this
chapter, each Rate-of-Return Carrier shall:
(1) Reduce its interstate and intrastate rates for all originating
End Office Access Service rate elements for Toll Free Calls in each
state in which it provides such service by one-half of the maximum rate
allowed by paragraph (a) of this section; and
(2) Reduce its rates for intrastate and interstate Toll Free
Database Query Charges by one-half of the difference between the rate
permitted by paragraph (m)(6) of this section and the transitional rate
of $0.0002 per query set forth in paragraph (o)(2) of this section.
(o) 8YY Transition--Step 4. Beginning on July 1, 2023, and
notwithstanding any other provision of the Commission's rules in this
chapter, each Rate-of-Return Carrier shall:
(1) In accordance with a bill-and-keep methodology, refile its
interstate switched access tariff and any state tariff to remove any
intercarrier charges for all intrastate and interstate originating End
Office Access Service for Toll Free Calls; and
(2) Reduce its rates for all intrastate and interstate Toll Free
Database Query Charges to a transitional rate of no more than $0.0002
per query.
0
6. Amend Sec. 51.911 by:
0
a. Effective December 28, 2020, adding paragraphs (d); and
0
b. Delayed until publication of a document announcing the effective
date, adding paragraph (e).
The additions read as follows:
Sec. 51.911 Access reciprocal compensation rates for competitive
LECs.
* * * * *
(d) Cap on Database Query Charge. A Competitive Local Exchange
Carrier assessing a tariffed intrastate or interstate Toll Free
Database Query Charge shall cap such charge at the rate in effect on
December 28, 2020.
(e) Transition of cap on Database Query Charge. Beginning July 1,
2021, notwithstanding any other provision of the Commission's rules in
this chapter, a Competitive Local Exchange Carrier assessing a tariffed
intrastate or interstate Toll Free Database Query Charge shall revise
its tariffs as necessary to ensure that its intrastate and interstate
Toll Free Database Query Charges do not exceed the rates charged by the
competing incumbent local exchange carrier, as defined in Sec.
61.26(a)(2) of this chapter.
[FR Doc. 2020-24624 Filed 11-25-20; 8:45 am]
BILLING CODE 6712-01-P
