Are Access Fees Destined for Extinction?

Phone companies collect billions of
dollars from one another every year to complete calls, but the federal rules governing compensation between carriers are projected to fundamentally change.

AT&T Corp., Level 3 Communications Inc., SBC Communications Inc. and Sprint Corp. are among a group of nine telecommunications companies supporting a plan to drastically reduce the ‘access charges’ and other fees carriers pay one another to complete calls - eradicating the charges altogether in July 2011.

The proposal also would change the system governing contributions to the Universal Service Fund and allow phone companies to raise the subscriber line charge: a flat fee consumers and businesses pay to help recover the cost of maintaining the local network.

Sprint’s Tom Gerke

The FCC still is evaluating a plan submitted by the Intercarrier Compensation Forum (ICF), one of at least four proposals endorsed by groups to reform the complex web of regulations controlling how phone companies compensate one another to originate and terminate America’s calls.

The commission received a summary of the proposal from the ICF in August, but it was awaiting more details.

“We’re very happy to entertain proposals from companies that are still involved in a negotiated process and we’ll just have to see what further materials the ICF files as we go forward,” says Jeff Carlisle, acting chief of the FCC’s Wireline Competition Bureau.

For years, industry executives have argued a hodgepodge of fee structures has encouraged telecommunications companies to misrepresent where traffic originates, dodge access charges by rerouting calls and exploit rules for purposes regulators did not envision. The evolution in the Internet phone market has accelerated the call for reform.

“The problems with the current system are getting worse every day and are severely hampering the telecommunications industry’s ability to fulfill its promise for new technologies and services,” say Tom Gerke, Sprint executive vice president, general counsel and external affairs, in a statement.

Any proposal for reform is likely to draw heavy scrutiny from rural phone companies because they generate a huge chunk of revenue through access charges and related interconnection fees. In a letter to the FCC, the National Exchange Carrier Association says access charges represent more than $2 billion in revenue for small phone companies and up to 70 percent of their total revenue.

The proposal submitted by the ICF incorporates special provisions for rural phone companies.

A work group comprising 13 members of the National Telecommunications Cooperative Association (NTCA) is “carefully scrutinizing” the rural provisions, says NTCA spokeswoman Aaryn Slafky. NTCA also is evaluating proposals submitted by three other groups: the Expanded Portland Group, the Alliance for Rational Intercarrier Compensation and the Cost-Based Intercarrier Compensation Coalition.

Key Parts of the ICF Plan

A coalition representing nine U.S. telecommunications companies has unveiled a proposal to radically reform the rules governing the fees carriers pay one another to complete calls. Below are some of the key parts of the plan supported by the Intercarrier Compensation Forum.

  • Beginning in July 2008, carriers pay one another a unified termination rate to complete calls despite how regulators classify the traffic.
  • Two years later, carriers pay their peers $0.0000875 a minute to complete a call for all types of traffic, representing a 50 percent decrease from the proposed fee in 2008. A large incumbent like Verizon Communications Inc. today charges 0.6 cents a minute on average to originate or terminate a long-distance phone call, according to the coalition, but the rates can vary widely.
  • Access fees are abolished in July 2011, but eligible rural phone companies still are permitted to charge a terminated transport rate.
  • Phone companies are permitted to increase the subscriber line charge, charging up to $7.25 next summer with a limit of $10 in 2008.
  • End users pay a flat fee every month to support the Universal Service Fund based on every phone number and high-speed Internet connection they have.That means cable companies and DSL providers also would require high-speed Internet customers to contribute to the fund. An ICF spokesman said the new contribution method would increase the amount of money available in the fund by an estimated $2.5 billion.

AT&T Corp.
Level 3 Communications Inc.
National Telecommunications Cooperative Association
SBC Communications Inc.
Sprint Corp.

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