FCC eyes intercarrier comp overhaul

The Federal Communications Commission this week began internally reviewing proposals for reforming intercarrier compensation policies, which have been crying out for reform for some time. But it remains to be seen whether the commission will have enough time to follow through on its plans.
[Update: For the latest on these plans, click here.]

“While we believe that the FCC could make some progress and that fundamental changes are coming over the long haul, we are not yet convinced that this commission is likely to institute comprehensive reforms, given the deep divisions, huge complexities, high stakes, serious litigation risk, and tight and congested timetable,” Stifel Nicolaus analysts wrote in a note this morning.

Details on the proposal “remain squishy at this point,” the analysts wrote, “and the details really are devilish and critical in this area.” In general, however, they believe the current FCC proposal would, over a period of years:

- subject all traffic to a new reciprocal compensation methodology, implemented by state regulators, that would drive rates down over time, particularly for access charges, allowing some alternative cost recovery
- focus universal service funds (USF) more on ensuring affordable voice service and promoting broadband (through carrier mandates and some lifeline/linkup money) and less on rural competition, with wireless carriers required to justify their own costs
- shift to a USF contribution system based on telephone numbers instead of interstate/international telecom revenue, at least for residential customers, with the treatment of business customers subject to further consideration.

Under the current draft, Stifel Nicolaus analysts wrote, “Rural incumbents (RLECs) and new competitors (CLECs) would see their access-charge revenues slashed, though it’s possible rural rates would not fall as much as Bell rates (we hear mixed reports), easing some of the RLEC pain…One of the key questions would be the extent to which telcos would be able to replace lost access-charge revenues. Our understanding is the plan would allow rate-of-return RLECs to receive additional USF-like support, but not so the big Bells and other price-cap incumbents, which we believe could be especially difficult for mid-size carriers (e.g., EQ, WIN, FTR, FRP, IWA). Caps on local carrier subscriber line charges (SLCs) would also go up somewhat, and carriers could seek to raise their basic local rates — neither of those steps would be welcomed by consumer groups, though some of the resistance could be undercut by the new broadband mandates.”

“Wireless companies would also benefit from reduced intercarrier compensation payments, but their USF support could be squeezed by elimination of the ‘identical support’ rule and a move to wireless funding based on their own costs instead of ILEC costs,” they added. “We believe that would be problematic for pure-play wireless carriers (e.g., S, USM CYCL), though we would expect much wrangling over implementation details. We also believe wireless carriers and others could have concerns over possible network-architecture rules.”

The proposals create a “window of opportunity” for change, the analysts wrote. “However, the opening doesn’t appear to be very big, and it could close quickly.”

How do YOU think intercarrier comp should be fixed? Post a comment below.

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