BELLS OFFER VARIED OPINIONS ON INTERCARRIER COMPENSATION REFORM

Commission had asked carriers in notice of proposed rulemaking (01-92) for views on unifying disparate carrier compensation programs such as reciprocal compensation for local call completion and access charges for interexchange access. Agency suggested using bill & keep, which essentially means carriers wouldn’t pay each other and instead would recover costs from their end-user customers.

BellSouth said unifying intercarrier compensation could lead to more efficiency while meeting FCC’s goals of encouraging competition and letting market “reward innovation in provision of telecom services.” And bill & keep is feasible way to do it, BellSouth said, because it “eliminates the market distortions, some of which the Commission has confronted, created by carrier- to-carrier payments.” However, Verizon said bill & keep was appropriate as compensation scheme for local call handling, replacing reciprocal compensation, but not as replacement for access charge process. Even for local calls, FCC ought to use bill & keep as default, letting carriers first try to work out mutually beneficial arrangements, Verizon recommended. Verizon official said in interview that filing doesn’t “rule out” unified intercarrier compensation but tells FCC it’s long process that shouldn’t begin until CALLS plan expires in 2005 and other access reform processes take place.

In general, FCC shouldn’t “jump into such a major shift without carefully analyzing the results and thinking through all the possible ramifications,” Verizon said in filing. “As the Commission and the industry learned from the experience with reciprocal compensation for Internet-bound calls, clever providers can game compensation systems for their own personal benefit to the detriment of consumers and the industry overall.” Emphasizing its concern about using bill & keep as access charge replacement, Verizon said: “At this point, it is far from clear whether the public would benefit from an elimination of the access charge regime.” Furthermore, states would have to buy into plan, Verizon said. “Many of the benefits of bill & keep -- simplicity, reduction of administrative burden, etc. -- will be lost if there were inconsistent federal and state intercarrier compensation regimes.”

BellSouth agreed that state variations could impede uniform adoption of bill & keep for access but said problem could be surmounted: “In order for bill & keep to operate as intended, it must be implemented uniformly across state and interstate jurisdictions. A prerequisite to moving exchange access to bill & keep is to remove the subsidies that remain in intrastate access charges… While the Commission need not shoulder the responsibility of any single state, it should provide guidance and incentives that enable state commissions to achieve subsidy-free rates.”

SBC took similar stance on access charges, saying FCC “cannot eliminate access charges without first ensuring that there are federal and state end user recovery mechanisms in place.” Agency would have to “tackle the difficult issues of implicit subsidies and universal service reform,” SBC said. Company recommended 3- part process: (1) FCC and states must ensure that implicit subsidies are eliminated. (2) FCC “should adopt bill and keep rules that apply consistently to the exchange of all telecommunications traffic between a LEC network and another carrier’s network.” At same time, agency should establish “federal end user recovery mechanism and requirements for state end user recovery mechanisms.” (3) FCC “should give all carriers pricing flexibility for wholesale and retail services.” SBC said that in bill & keep environment “ILECs must have the same flexibility as other carriers.”

Much of Verizon’s filing was devoted to urging FCC to crack down on “fraudulent misuse of telephone numbers.” The carrier said some local competitors were using numbers “to make toll calls look like direct-dial local calls,” naming former Brooks Fiber, now part of WorldCom, as one of them. “This is not merely inefficient and another case of regulatory arbitrage,” Verizon said. “Such fraudulent misuse of numbers effectively steals service from other carriers.” Those carriers obtain numbers for geographic areas where they actually have no facilities and don’t intend to serve customers there, Verizon said. Instead, they assign those numbers to customers located elsewhere in state or in another state, it said. However, local switch thinks long distance calls to those customers are local and doesn’t charge them as toll calls. Verizon said Me. PUC cracked down on Brooks.

Sprint offered strong support, although it said FCC should wait a while before implementing bill & keep for interstate access. In general, Sprint said it thought bill & keep “offers substantial public interest benefits and… concerns raised in the NPRM regarding the potential economic inefficiencies associated with a bill & keep plan are exaggerated.” Like BellSouth, Sprint said FCC had legal authority to adopt bill & keep but cautioned agency to defer implementation for access traffic until access reform plans for big and small telcos were fully implemented.

Among other views expressed in more than 40 comments filed with FCC: (1) Cal. PUC departed slightly from other state regulators by saying “modified” bill & keep plan might work -- one aimed only at local and ISP-bound traffic, but not interstate access. (2) PCIA agreed with CTIA that bill & keep made sense for wireless interconnection but cautioned against mandating it for one-way paging. For paging, bill & keep should be permissive, PCIA said. (3) Z-Tel Communications devoted much of its filing to concerns about overly high ILEC rates for unbundled local switching. FCC should bar ILECs “from imposing usage-based, per- minute charges on unbundled local switching,” Z-Tel said. (4) Speaking for govt. phone users, General Services Administration said bill & keep was “the best compensation method” and should be implemented for all types of traffic, including interexchange access. “The patchwork of existing intercarrier compensation arrangements creates opportunities for arbitrage and presents barriers to competition.”