Opposition Mounts to Bill-and-Keep for Toll-Free 8YY Originating Access

November 6, 2018 | by Andrew Regitsky

Opposition Mounts to Bill-and-Keep for Toll-Free 8YY Originating Access

In June, the FCC released a Further Notice of Proposed Rulemaking (FNPRM) in Docket 18-156 to eliminate carriers taking advantage of the arbitrage existing in the current toll-free 8YY access structure. This structure enables toll-free calls to serve as profit centers for some carriers. As the FCC stated:

Under our current rules, the LEC that originates an 8YY call is entitled to charge the IXC that terminates the 8YY call originating access charges for the specific services provided, which would typically include originating end office switching, database queries, interoffice transport and, often, tandem switching and transport. The amount of access charges an originating LEC receives for such calls is dependent on the applicable switching and transport rates, including the number of miles that are subject to the transport charge, which is billed on a per-minute, per-mile basis. In some cases, the originating LEC and a third-party tandem provider bill the IXC separately, but some intermediate carriers submit one bill for originating and tandem and transport charges to the IXC and subsequently reimburse the originating carrier pursuant to an agreement between the originating LEC and the tandem carrier...Thus, in the case of 8YY traffic, originating carriers involved in the call have incentives to route calls in ways that maximize the compensation they receive—regardless of whether they receive those access revenues directly or indirectly, via shared revenue arrangements. Moreover, the current system encourages bad actors to place fraudulent, or otherwise illegitimate, robocalls with the sole purpose of generating originating access revenues. These inflated charges raise costs for both IXCs and 8YY subscribers, which have no control over the choice of originating and intermediate providers. (FCC Docket 18-156, Further Notice of Proposed Rulemaking, released June 8, 2018, at paras. 16-17.) 

According to the Commission, the problem could be solved completely by transitioning all interstate and intrastate originating toll-free end office and tandem switching and transport charges to bill-and-keep over a three-year period. 

However, in the FNPRM comment cycle and through visits and letters to the FCC, many carriers have made it clear that they believe a move to bill-and-keep would be overkill and unfair. For example, ITTA noted that the number of toll-free switched access minutes are decreasing, suggesting a more targeted approach is possible:

In that regard, we noted that...although 50 percent or greater of [our] members’ originating interstate access minutes are attributable to 8YY calls, at the same time their originating 8YY access minutes decreased by a range of 20 to 50 percent from 2011 through 2016, suggesting that there should be standards the Commission can establish to help pinpoint sources of whatever 8YY abuse and arbitrage there may be in lieu of adopting the excessive proposals contained in the FNPRM. (Docket 18-156, October 26, 2018 ITTA letter to FCC).

Moreover, ITTA pointed out that 8YY access charges are not reciprocal, meaning that if the Commission moves rates to bill-and-keep, only the originating carrier would lose revenues, and the public would suffer:

If the Commission implements bill-and-keep for [8YY] charges, originating LECs will either have to absorb the revenue loss or recoup the lost revenues from their customers. Neither scenario is in the public interest...[T]he former scenario would have the effect of diverting capital away from broadband deployment. The latter scenario would shift the costs of 8YY services from businesses to ratepayers, such that consumers who do not place 8YY calls will end up subsidizing them, rather than the costs being borne by the businesses and their customers that are the beneficiaries of 8YY services. This cost shifting to ratepayers would fundamentally contravene the notion that such services are toll-free. (Id.).

WTA added that lost 8YY revenues from a move to bill-and-keep would hinder rural ILEC (RLEC) efforts to build broadband networks.

However, WTA believes that existing abuses can and should be directly addressed and eliminated, and that there is no need at this time to eliminate most or all of the originating access and transport revenues of wholly innocent carriers by transitioning them to bill-and-keep. Particularly at a time when RLECs are struggling to meet the broadband deployment demands of the Commission and their rural customers and when it is not clear whether budgetary reform can provide sufficient high cost support for the needed broadband deployment, the Commission should not reduce or eliminate other critical RLEC revenue streams. (Docket 18-156, October 4, 2018 WTA letter to FCC).

O1 cautions that moving the entire industry to bill-and-keep for the bad actions of a few would destroy the market for innocent intermediate carriers. Moreover, the Commission should tackle this issue as part of its efforts to stop unwanted robocalls.

Rather than "seriously jeopardize market competition" by eliminating compensation due to innocent network providers for their roles in call routing and other services necessary for call completion, the Commission should focus its efforts to eliminate fraud associated with 8YY calls in the proceedings aimed to address unlawful Robocalls. In that docket, the Commission is working together with industry to "identify specific, enforceable criteria for targeting illegal calls that cannot be abused while ensuring providers have sufficient flexibility available to adapt to dynamic calling patterns." (Docket 18-156, O1 Reply Comments, filed October 1, 2018, at p. 6).

Finally, Public Knowledge insinuated that the record the FCC is working with in this proceeding is very limited:

There is not enough evidence in the Commission’s record to overhaul the current 8YY system. The evidence in the record is severely limited and almost exclusively provided by AT&T. Before moving forward, the Commission should conduct a data collection from the major IXCs to produce all relevant information they have regarding their claims in this proceeding that have informed the proposals in the FNPRM and put that information in the public record. (Docket 18-156, Public Knowledge Reply Comments, filed October 1, 2018 at p. 8). 

The FCC is expected to issue its Order in this proceeding in the next few months. Despite its aversion to access arbitrage, it is hard to envision the Commission quickly moving all originating 8YY traffic to bill-and-keep. The feeling here is that the Commission will either take a more targeted approach or move to bill-and-keep over a longer transition period (i.e., six years), with opportunities for rural ILECs to recover at least some of their lost access revenues through other mechanisms.