The National Broadband Plan and Its Effect on Intercarrier Compensation

The details of the FCC’s National Broadband Plan have been, for the most part, widely reported since its release in mid-March. But one part of the plan of critical importance to many Tele-Tech customers has garnered little media attention. The broadband plan calls for the elimination of per-minute intercarrier compensation (ICC) charges over a ten-year period.

Most would agree that the current system is unsustainable. The reduction in the number of minutes, arbitrage in the form of phantom traffic and traffic pumping, and the financial incentive to force IP traffic onto the Public Switched Telephone Network (PSTN) to collect access charges all lead to a system that is in need of improvement. The National Broadband Plan addresses these issues and presents a plan for reform.

In the plan, the FCC recommends a three-stage “glide path” that eliminates per-minute ICC charges within ten years and establishes interim solutions to taper arbitrage created by the inadequacies of the current system.

Stage one, which takes place in 2010 and 2011, is the planning period. During this period, the FCC expects to adopt a framework for long-term ICC reform that gradually lowers per minute rates until they hit zero.

During stage one, the FCC also recommends the development of interim rules to reduce arbitrage. As an example, the FCC mentions the possibilities of prohibiting carriers from masking or stripping information necessary for billing, and adopting rules to reduce access stimulation, also known as traffic pumping. No additional detail is included on how the FCC plans to prohibit these activities. Further, the plan calls for the FCC to address ICC rules related to VoIP traffic.

Stage two, taking place from 2012–2016, is when the reforms adopted during stage one will be implemented. Carriers’ intrastate terminating switched access rates, the highest of rates under the current regime, will be gradually reduced to a level equal to the current interstate terminating switched access rates over a period of two to four years. This can mean a 65% to 80% drop in per-minute charges for intrastate switched access depending on the type of carrier. After the intrastate rates have been reduced to interstate levels, the FCC could reduce interstate rates to reciprocal compensation rate levels. This is expected to result in equal per-minute terminating rates for all carriers.

Stage three takes place from 2017-2020. In this final stage, the plans expects that the “elimination of per-minute above-cost charges should encourage carriers to negotiate alternative compensation arrangements for the transport and termination of voice and data traffic.”

ICC is a major revenue stream for many carriers, particularly those serving rural areas. As per-minute ICC charges are phased out, the FCC plans to offset this revenue loss by allowing gradual increases in the subscriber line charge (SLC). And, federal subsidies will remain available under the newly created Connect America Fund (CAF). The plan states, “When calculating support levels under the new CAF, the FCC could impute residential local rates that meet an established benchmark. Doing so would encourage carriers and states to ‘rebalance’ rates to move away from artificially low $8 - $12 residential rates that represent old implicit subsidies to levels that are more consistent with cost.”

As we’ve seen in previous attempts to reform ICC, any plan is likely to be challenged. This time, the FCC recommends, within the plan, that Congress could amend the Communications Act to make the FCC’s authority to reform ICC explicit, which could reduce some of the legal challenges to the FCC’s planned actions.

We want to hear your thoughts on the FCC’s ICC reform plan. Please join the conversation and let us know what you think!