Only Rural Carriers Like Embarq Plan for Intercarrier Compensation

Embarq wants to harmonize its intrastate and interstate access rates. So it can cut intrastate rates without losing revenue, it seeks a conditional FCC waiver of price cap rules allowing it to increase its interstate rates. Unified rates would apply until the FCC adopts comprehensive intercarrier compensation and universal service reform. In contrast, AT&T’s proposal for reducing intrastate rates asked the commission to let it increase costs to subscribers and carrier customers. Embarq said the AT&T approach won’t work for rural carriers because higher subscriber charges could scare customers.

AT&T said it would rather the FCC totally overhaul intercarrier compensation than use either Embarq or AT&T’s interim ideas. But if it’s going to implement carrier- specific requests, the FCC shouldn’t do as Embarq asks, the Bell said. “Increasing terminating interstate access rates is exactly the opposite direction” the rates “should be heading,” it said. A better way to offset access loss would be to raise subscriber line charges, the telco said. Embarq hasn’t reached the SLC cap in 15 of its study areas, and the FCC should let the carrier do so, AT&T said.

The cable industry sees the Embarq petition as flawed, NCTA said. The plan “retains disparate termination rates for ‘local’ and ‘interexchange’ traffic,” even though Embarq and the FCC acknowledge that the terminating cost is the same for each, the lobbying group said. “As a result, the primary purported benefit of Embarq’s proposal -- a reduction in arbitrage due to the unification of access charges -- appears to be largely illusory.”

The Embarq petition “is a cynical attempt to shop for a sympathetic forum, and should be rejected,” Sprint Nextel said. The request reacts to recent state commission campaigns to cut Embarq intrastate rates, the wireless carrier said. Embarq is “tellingly silent on the cost basis” for shifting cost recovery between interstate and intrastate, it said. Letting Embarq have its way would be a “step backward” from “rational reform,” it said.

Only rural carriers backed Embarq. The FCC should grant both the AT&T and the Embarq interim proposals to harmonize access rates, meanwhile allowing rate-of-return carriers to recover access by different means, said the National Exchange Carrier Association, the Organization for the Promotion and Advancement of Small Telecommunications Companies and the Western Telecommunications Alliance in a letter to the FCC. They attached comments on AT&T’s proposal they made last week. The groups again suggested a new interim Local Switching Support fund, LSS2, tailored to access recovery.

Rural-serving carriers of girth similar to Embarq’s especially applauded the proposal. “Embarq’s waiver request is a thoughtful and creative response to the dual needs of ensuring the viability of networks serving high-cost and rural areas while simultaneously limiting potential adverse effects on consumers,” said the Independent Telephone & Telecommunications Alliance. Embarq’s request trumps AT&T’s because it would allow access rates to vary by study area, it said. Frontier agreed, saying the Embarq plan doesn’t raise the “thorny intrastate jurisdictional issues” that AT&T’s does because it requires state commission approvals. Embarq and Frontier belong to ITTA.

Embarq’s plan isn’t as state-friendly as it seems, said the Virginia State Corporation Commission. Raising interstate rates in Embarq study areas would be “unfair to many carriers and their customers in … other states,” who would have to pay more to call Embarq customers across state lines, it said.

Embarq’s request beats AT&T’s because it affects neither end-user rates nor the Universal Service Fund, but it’s not without problems, the National Association of State Utility Consumer Advocates commented. Raising interstate access rates “may be going against the trend, but makes sense,” because today’s rates “inadequately compensate incumbent local exchange companies, especially rural ILECs like Embarq, for use of their networks.”

But price-cap carrier Embarq’s revenue-neutral approach is “questionable” because it “assumes that the carrier is entitled to all the revenues involved,” NASUCA said. “Guaranteed revenue recovery is fundamentally contrary to” price-cap regulation, which severs the direct link between a carrier’s costs and prices, it said. And shifting revenue from intrastate to interstate could be problematic given a “long-standing freeze on separations and AT&T’s recent receipt of forbearance” from cost-assignment rules, “the subject of ‘me too’ requests by Verizon and Qwest, and likely to be followed by other companies such as Embarq,” NASUCA said. Problems also could arise in Embarq’s Nevada, Ohio and South Carolina territories, where intrastate rates actually exceed interstate rates -- the reverse of the ratio elsewhere, NASUCA said. As a result, those states’ regulators aren’t likely to approve higher intrastate rates, it said. In those states, Embarq instead should volunteer to cut interstate charges to intrastate levels, an action needing only FCC approval, it said.