Industry Gives Thumbs Down to FCC Proposal to Eliminate “Telephone Access Charges”

July 23, 2020 | by Andrew Regitsky

Industry Gives Thumbs Down to FCC Proposal to Eliminate “Telephone Access Charges”

In comments filed on July 6, 2020, most of the industry rejected an FCC proposal to eliminate ex ante pricing regulation and mandatory tariffing of several monthly access charges ILECs have been assessing to end users since interstate access charges began in the 1980’s.  If the proposal become effective, it would have the practical effect of eliminating these charges completely.

It is important to note that these charges (described below), which the Commission calls “Telephone Access Charges,” are separate from the per minute access charges ILECs assess to IXCs.  Those charges are not impacted by this proposal.

To the extent CLECs file their own Telephone Access Charges (which they are not required to do), they too would be covered by the Commission’s proposal.

The agency released its proposal on April 1, 2020 in a Notice of Proposed Rulemaking in Docket 20-71, because it believes that as competition for voice services has increased, Telephone Access Charges are unnecessary to ensure that end user local service rates are just and reasonable.  Thus, according to the Commission, the costs of calculating and tariffing these charges now outweigh the benefits and cause confusing telephone bills for consumers.  These charges include:

Subscriber Line Charges (SLC) - The mechanism through which LECs recover a portion of the costs of their local loops through a flat per-line monthly fee.  For price cap LECs, there are three categories of caps on the SLC: a primary residential or single-line business cap, a non-primary residential cap, and a multi-line business cap.  For rate-of-return LECs, there are only two categories: a residential or single-line business cap and a multi-line business cap.

Access Recovery Charge (ARC) - A charge created in 2011 to mitigate some of the revenues lost when some switched access charges transitioned to bill-and-keep.

Presubscribed Interexchange Carrier Charge (PICC) - Price cap LECs may assess this monthly flat-rate charge on the presubscribed IXC to which calls are routed by default—of a multi-line business subscriber.  PICCs recover a portion of interstate loop costs not recovered by SLCs.

Line Port Charge - Line ports connect subscriber lines to the switch in a LEC’s central office.  The costs associated with line ports include the line card, protector, and main distribution frame.  The Line Port Charge is a monthly end-user charge that recovers costs associated with digital lines, such as integrated services digital network (ISDN) line ports, to the extent those port costs exceed the costs for a line port used for basic, analog service.

Special Access Surcharge – A $25 monthly charge assessed on trunks that could “leak” traffic into the public switched network to address the problem of a “leaky private branch exchange (PBX).” A “leaky PBX” can arise where large end users that employ multiple PBXs in multiple locations lease private lines to connect their various PBXs. This charge is almost never assessed today.

The proposal would prohibit ILECs from billing customers for Telephone Access Charges through separate line items on their bills.  Importantly, since some of these charges are used to calculate contributions to the Universal Service Fund (USF), the Commission proposes ways to provide certainty in calculating such contributions and support to ensure USF funding stability once these charges are eliminated.  

Specifically, the FCC proposes that rate-of-return ILECs that use their SLC revenues to provide Broadband Loop Support (BLS) to the Connect America Fund (CAF) use $6.50 for residential and single-line business lines and $9.20 for multi-line business lines (the maximum Subscriber Line Charge amounts) to calculate their CAF BLS going forward.  Using these fixed amounts rather than a tariffed rate, would ensure that these carriers will continue to be able to calculate CAF BLS.  Rate-of-return ILECs would also be required to calculate CAF inter-carrier compensation charges using the maximum Access Recovery Charge that could have been assessed on the day preceding the detariffing of that charge.

To further ensure continued stability of the USF and other federal programs, the Commission offers two alternative proposals for allocating interstate and intrastate revenues for voice services after Telephone Access Charges are detariffed.  The first would establish an interstate safe harbor of 25 percent for local voice services provided by LECs, with the option for such carriers to file individualized traffic studies to establish a different allocation.  The second proposal would adopt bright-line rules for the allocation of interstate and intrastate revenues for all end-user voice services currently tariffed at the federal level—those offered by ILECs as well as those offered by CLECs.

To allow affected carriers sufficient time to amend their tariffs and billing systems, the agency proposes a transition that would permit carriers to detariff Telephone Access Charges with a July 1 effective date, as part of their annual access tariff filings following the effective date of the Order and would require carriers to detariff these charges no later than the second annual tariff filing date following the effective date of the Order.

Much of the opposition to the Commission’s proposal comes from state commissions which argue that their rules would not allow intrastate rates to increase to enable ILECs to recover lost interstate Telephone Access Revenues.  For example, the New York Public Service Commission notes that:

[I]n New York almost every Incumbent LEC (other than Verizon New York Inc. and Frontier Communications, Inc.) operates under cost-of-service regulation, meaning that intrastate revenue requirements and cost-of-services are developed by relying, in part, on the FCC’s separations rules. The NYPSC determines the rate-of-return for most Incumbent LECs, and the allowable intrastate rate-of-return is based solely on intrastate jurisdictional costs, expenses, and revenues. Insofar as interstate access charges are designed to recover jurisdictionally interstate costs, there is no legal mechanism in New York for the Incumbent LECs to recover their lost interstate revenues through increases to intrastate rates. (Docket 20-71, Comments of New York Public Service Commission, filed July 6, 2020 at p. 2).

INCOMPAS, which represents competitive carriers, explains that those state regulations which limit ILEC revenue recovery, would also limit CLEC revenue recovery.  They also implore the Commission to understand that due to the pandemic, smaller carriers are already stretched to the limit and would need a long transition to update state tariffs, billing systems, marketing and advertising materials, and customer contracts.

ILECs already concerned about state regulations limiting their revenue recovery also point out that they would be hurt because of their inability to increase retail rates for large enterprise customers in long-term contracts.

In sum, industry reply comments are due on August 4, 2020, but based on the industry response so far, it looks like this Commission proposal has a rough road ahead of it.