By Matt Nodine, AT&T Assistant Vice President of Federal Regulatory
Turning around an aircraft carrier, if done correctly, takes lead time, requires great care and precision, and depends on a large crew with a variety of skills, all working together in harmony for a common cause.
Intercarrier compensation reform (ICC) is one such ship. Wisely, the FCC began this turn in 2011 with terminating access reform, working with a broad cross-section of industry, consumer groups and policymakers to decisively steer industry away from the arbitrage and schemes of unscrupulous actors, and toward what it termed “market discipline.” With the FCC’s course set, industry charted its path toward greater competition.
Now that we are several years into the FCC’s reforms, it is time to review the state of the marketplace, assess prior reforms, identify weaknesses and address next steps. With our petition for forbearance, which we filed Friday, the FCC can begin the next phase of reform we believe will benefit consumers, increase broadband investment and improve competition.
First, some background. In the 2011 USF/ICC Transformation Order, the FCC did its work well by adopting a regulatory regime that determined that a “uniform national bill-and-keep framework” would be the “ultimate end state” for all telecommunications traffic between carriers. The FCC’s action addressed some of the worst aspects of access arbitrage on the terminating access side, including what the Commission described as “access stimulation.” These so-called “traffic pumpers,” who consistently game the system to grossly inflate providers’ costs – and consumers’ bills – by hundreds of millions of dollars annually, were finally constrained. For many carriers, terminating end office switching rates complete the bill-and-keep transition on July 1, 2017.
The bad news: as in the crowd favorite game of “whack a mole,” no longer able to inflate terminating end office access charges, traffic pumpers morphed their schemes to infect other areas where they fatten their pockets by exploiting remaining regulatory loopholes, rather than by earning profit through investment and network build.
The good news: more of these nefarious practices are addressable by a forward-thinking FCC. Even as the system remains necessarily in transition, now is the time for the FCC to seize the initiative to plug the gaps AT&T identifies.
To that end, AT&T filed this narrowly tailored petition to address two statutory and regulatory shortfalls that promote unreasonable rates, harm consumers, distress broadband investment and are generally inconsistent with the public interest.
First, the FCC should detariff tandem switching and transport access charges for all local exchange carriers (LECs), on all calls to or from LECs engaged in access stimulation. This is a natural follow-on to the Commission’s determination that access stimulation causes unreasonable rates, harms consumers, and injures competition. So long as traffic pumpers are able to generate access bills with high per-minute per-mile transport charges, this anti-competitive practice will continue. The Commission can end this now and reduce this asymmetric system that only encourages arbitrage.
Second, the Commission should require LECs to assess per query “database dip” charges on toll-free calls on a competitive basis. Although not addressed in 2011, this fits naturally with bill-and-keep, as one underlying purpose of that reform was to reject the idea that only one party “should bear the entire cost of originating, transporting, and terminating a call.” The current situation not only discriminates against toll-free customers but increasingly results in tariffed query charges priced well above wholesale market rates – a sure sign of distorted competition. With carriers’ ability to seek competitive rates, these costs will fall more in line with a properly functioning marketplace.
These two requests rely on a simple premise: competition results when carriers offer competitive services at competitive rates. Competition cleans the market, removes the ongoing perverse incentives for traffic pumpers to line their pockets through arbitrage, and furthers the FCC’s worthy goal of market discipline.
By expeditiously granting the petition, the FCC can take the next logical step to strengthen the 2011 policies and enjoy a win-win-win: greater competition, increased consumer benefits, and the promotion of good government itself. This action should prove uncontroversial, at least for those who believe in competition and broadband investment, and serve as the next phase in reducing regulatory arbitrage.
This petition advances the FCC’s goals of market discipline and brings us another step closer in what should be a more fulsome FCC review of originating access reform. More broadly, we encourage the Commission to address the further notice’s questions and complete originating access reform of traffic handling at all stages, and we look forward to engaging the Commission on future thoughts to complete our goals of a properly functioning and efficient marketplace.