Telecom Officials Split on Intercarrier Compensation Overhaul

“Given the level of disagreement,” XO Federal Relations Director Lisa Youngers doubts the FCC will comprehensively revamp intercarrier compensation this year, she said. Chairman Kevin Martin has promised a revamp by Nov. 5. But the FCC may carve out discrete issues like phantom traffic, she said. Hank Hultquist, an AT&T vice president, said he’s optimistic the commission will adopt something comprehensive. But it probably will include a multiple-year transition so carriers can adjust, he said.

Intercarrier compensation is a “broken system” that will only get worse, said Jim Kohlenberger, executive director of the VON Coalition. Hultquist agreed, saying the current regime is built around an outdated switched-based model. If it isn’t changed to reflect today’s Internet-powered marketplace, the access charge system will “evaporate,” he said. XO supports an overhaul, but is concerned about a rushed revamp’s unintended consequences, Youngers said. It would be “more prudent” for the FCC to tackle “discrete issues” like phantom traffic and ISP-bound traffic, and ask for comment on comprehensive proposals being considered, she said. Intercarrier compensation isn’t broken, but fixes are needed for phantom traffic and traffic pumping, said NASUCA Chairman David Bergmann.

The panel dissected and divided on Verizon’s plan to apply a $0.0007 per minute uniform terminating access rate to all traffic. Bergmann and Youngers said they're not convinced the FCC has legal authority to preempt states and adjust intrastate rates. Hultquist and Kohlenberger said the commission does. Besides legal rationale, there are practical reasons the FCC can use as basis for revamping compensation, Kohlenberger added. For example, it’s “impossible” for regulators to determine whether state or federal government has jurisdiction over VoIP applications on Facebook, he said. With a uniform rate, they wouldn’t have to, said Kohlenberger.

A $0.0007 rate is arbitrary and doesn’t reflect carriers’ costs, Youngers said. “Nothing” in the record gives a legal basis for it, she added. Adopting the rate for all traffic “boggles the mind,” said Bergmann. For small rural companies, it won’t even cover billing, he added. But Hultquist and Kohlenberger defended the rate, which AT&T and the VON Coalition backed in August. The “growing parts” of the communications industry are already at $0.0007 or less, Hultquist said. Broadband uses bill and keep, while wireless transfer has rates at or below $0.0007, he said.

Bergmann and Youngers condemned Verizon’s recovery mechanism proposal, which would raise subscriber line charge caps and establish a new universal service fund. Access fees and customer charges aren’t interchangeable, Bergmann said. Meanwhile, “polluting of the USF is not appropriate,” Youngers said. A recovery mechanism must be competitively neutral so all carriers can participate, she said. Alternatively, it should only be available to rate-of-return carriers, she said.

Proposals for a bill-and-keep system also got mixed reviews. Last week, the VON Coalition urged the FCC to adopt bill and keep, wherein carriers would charge no access fee and pass terminating costs to customers (CD Oct 6 p6). Bill and keep would create new arbitrage opportunities, Youngers said. In the Internet world, breaking business models is called “innovation,” not arbitrage, Kohlenberger fired back. Bill and keep has been “phenomenal” for the Internet’s growth, he said. AT&T hasn’t officially backed bill and keep, but Hultquist noted the company has supported rates lower than $0.0007. Bergmann isn’t against bill-and-keep arrangements, but only when carriers voluntarily enter them, he said. -- Adam Bender

States Weigh In

On a Tuesday panel, state commissioners said they “generally” don’t support preemption of the states, as Verizon has proposed. On intercarrier compensation, there’s a role for both federal and state agencies, said Commissioner Betty Ann Kane of the District of Columbia Public Service Commission. Kane also is on the National Association of Regulatory Utility Commissioners’ National Regulatory Research Institute board. Verizon has misinterpreted the Telecom Act’s rules on jurisdiction, she said. Florida PSC Commissioner Katrina McMurrian doesn’t want the FCC to preempt states either, but said she'd be open to it if the “right answer” to compensation problems came along.

Three weeks isn’t much time to finish a comprehensive revamp of intercarrier compensation, state commissioners said. They would prefer a more transparent FCC process inviting more comment from stakeholders, they said. The agency should tell the public what plan it’s considering, McMurrian said. The FCC may miss its chance to resolve the issue due to the lack of transparency, Kane said.

States will have few options to save carriers within their borders if the FCC’s overhaul removes revenue those companies need to survive, the state commissioners said. States could grant carriers alternative regulation types, or regulate prices, Kane said. McMurrian is “not sure what we'd be able to do,” she said.

The USF shouldn’t be used to recover revenue, the commissioners said. Kane and McMurrian represent states that contribute to USF more than they take. It’s not government’s role to guarantee profits, and it’s “not in the public interest” to make consumers pay more to that end, Kane said. McMurrian is concerned about any plan that would increase the size of the fund, she said. If USF is used, funds should only go to companies which vitally need them, she said.