Missoula Plan Reforming Intercarrier Compensation Submitted at FCC by LECs

“That’s not a good sign,” an industry observer said: “They're obviously trying to head this off before it gets any momentum.” In its own statement, NARUC was noncommittal; the plan essentially emerged from meetings the group sponsored. Neither are Verizon and Qwest signing on.

The plan, already backed by many rural LECs, added other rural LEC supporters. “We, the Missoula supporters, believe that we have a workable plan that will transition from the old narrow band world to the new world,” Joel Lubin, AT&T vp, said in a call with reporters. “It once and for all attempts to address intercarrier compensation,” he said. “And it does it in a way that’s not a flash cut. It’s measured, balanced. It creates a transition.”

The plan calls for a gradual, 4-year “rebalancing” to a single compensation rate for most calls. Along the way, small and medium carriers would enjoy higher rates than the largest carriers. To compensate smaller carriers for revenue lost to lower rates, the cap on the subscriber line charge (SLC) would rise in 4 annual steps. For the smallest carriers’ customers, that rise would go from today’s $6.50 to $10; for medium carriers, the SLC would grow from $6.50 to $8.75.

If small carriers’ “recovered” sums shrank more, they could recover shortfalls via a new restructuring mechanism. To pay for the rebalancing, the plan also would increase Universal Service Fund charges. The filing notes that the number of small LECs (7.3 million loops) and mid-sized LECs (12.5 million loops) is much smaller than the several hundred million loops the largest carriers control.

A change from the March proposal is simplification of steps in the transition to unified rates, a source said. The new plan offers a compromise of sorts to wireless carriers, long distance companies and CLECs, making them responsible for calls only to the tandem switch, saving them 0.18 cents a minute in payments on the terminating end of calls.

Intrastate mirroring on the terminating end would be mandatory for larger carriers, but voluntary for small rural carriers. State mirroring on the originating end would be voluntary. The plan includes incentives to encourage states to mirror the plan’s interstate provisions. The plan has a uniform set of technical and financial requirements for call completion that would be mandatory for all states.

The proposal triggered outbursts of invective. “I just finished reviewing their so-called consumer benefit plan and I'm so mad I'm still shaking. It’s so disingenuous,” said Billy Jack Gregg, dir. of the W. Va. Consumer Advocate Div. For example, buried in the text is that USF charges would have to increase 20-25%, said Gregg, who represented NASUCA in the NARUC forum’s months of meetings.

NASUCA dropped out of the talks early this year when it became clear the plan wouldn’t benefit consumers, Gregg said: “Our concerns and consumer concerns were shunted aside last January when they embarked on this plan that they've now presented. It still looks very much like it did before, just more dressed up.”

NASUCA, cable operators, wireless carriers and CLECs stand united in dislike of the plan, named for meetings held in Montana. “While the undersigned organizations and entities may not agree on every aspect of intercarrier compensation reform, they oppose the Missoula Plan,” their statement said: “The Missoula Plan does not serve the interests of consumers because it does not adequately address and in many cases would exacerbate problems with the current intercarrier compensation and universal service systems -- e.g., uneconomic regulatory distinctions and incentives for inefficiency.”

Summarizing the plan, NASUCA said it mainly would help medium- to high-volume customers by generally reducing long distance rates through cost cuts and eliminating federal universal service assessments on long distance service. The NARUC summary said low volume users might see small increases, averaging $1.50 per month. Lifeline customers would be exempt from subscriber line increases, but would benefit from lower toll charges. NARUC plans a session at next week’s summer meetings in San Francisco to explain the proposal to industry and regulators.

Analysts for Stifel, Nicolaus Mon. predicted close FCC scrutiny of the proposal. “It’s premature to project winners and losers with much confidence, given the uncertainties, including those raised by the objections of other parties and the failure of other recent reform efforts,” they said: “We do note the initiative has more RLEC support than a previous coalition’s plan, and we expect it to generate some press headlines today and tomorrow, and to become the focus of much telecom industry debate in coming months.”

Lubin hopes wireless carriers and other parties give the plan a thorough reading, he said: “I'm quite optimistic that when people step back and thoughtfully look at the plan they will see the benefits.” Intercarrier compensation needs overhaul, he added, urging “a transition from the litigation and the disputes that we have to a rational transition to the broadband world… Always the question has to be, if not this, what’s the alternative? Right now I don’t see any alternative out there that has the breadth of support that we have.”

“One of the things that we really look for in the rural industry is stability in order to provide investment incentives,” Bob DeBroux of TDS Telecom, a company backing the plan, said: “That’s one of the things that we just haven’t had for a very long time.”