Summary of USF ICC Reform - ICC Reform

8/3/2019 Summary of USF ICC Reform - ICC Reform

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Summary of USF & ICC

Reform Order & FNPRM

Part III Intercarrier CompensationReform

Chad Duval, Principal


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The material appearing in this presentation is for informational purposes

only and is not legal or accounting advice. Communication of this

information is not intended to create, and receipt does not constitute, a

legal relationship, including, but not limited to, an accountant-client

relationship. Although these materials may have been prepared by

professionals, they should not be used as a substitute for professional

services. If legal, accounting, or other professional advice is required, the

services of a professional should be sought.


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ICC REFORM

Underlying Principles

o Phase out of per minute ICC charges

o Migrate to bill and keep

o Promote the transition to IP networkso Provide a more predictable path for the industry and

investors

o Eliminate hidden subsidies in current system


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ICC REFORM

FCC Conclusions on Bill & Keep

o Market based & less burdensome than alternatives

o Consistent with cost causation principles

o Consumer benefits through reduced rates and/orimproved service quality

o Eliminates arbitrage & market distortions

o Appropriate even if traffic is imbalanced

o Legal authority under Section 251(b)(5) Only applies to termination

Interstate and Intrastate switched access


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ICC REFORM

State Role in Bill & Keep

o Oversee tariffing of intrastate rate reductions

o Interconnection negotiation and arbitration

o Determination of network edge for purposes of billand keep


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ICC REFORM

Rate of Return Carriers

o Transition terminating switched access to bill andkeep

Cap all interstate switched access rates Effective 12/29/11

Originating and terminating

End Office Access Service

Tandem Switched Transport Access Service

Dedicated Transport Access

Other interstate switched access rate elements

Carrier Common Line, as applicable

Information Surcharge


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ICC REFORM


o Transition terminating switched access to bill andkeep

Cap all intrastate switched access rates Effective 12/29/11

Terminating only



Includes reciprocal compensation

No adjustment required/allowed if intrastate is already lowerthan interstate


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ICC REFORM


o Transition terminating switched access andreciprocal compensation to bill and keep

Step 1 (July 1, 2012) 50% transition to interstate May maintain intrastate switched access rate structure; or

Apply interstate rate structure for intrastate rates

Immediately migrate to interstate rates

Apply a transitional rate equal to 50% of the difference

Step 2 (July 1, 2013) 100% transition to interstate


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ICC REFORM



Step 3 (July 1, 2014) 1/3 of difference between interstateand $0.005


Step 5 (July 1, 2016) $0.005


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ICC REFORM



Step 6 (July 1, 2017) 1/3 of difference between $0.005and $0.0007

Step 7 (July 1, 2018) 2/3 of difference between $0.005and $0.0007

Step 8 (July 1, 2019) terminating switched end office

access rates @ $0.0007 Step 9 (July 1, 2020) bill and keep

Tariff filings to remove charges for Terminating End OfficeAccess Charges


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ICC REFORM


o Other Issues

Reforms do not automatically replace existing contracts orinterconnection agreements

Left to change of law, renegotiation and termination clausesin agreements

Originating Access left to FNPRM, beyond cap

Transport (originating and terminating) left to FNPRM,

beyond cap Other rate elements left to FNPRM, beyond cap


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ICC REFORM

Rate of Return Carrierso Eligible Recovery

Rate of Return Baseline

2011 Interstate Switched Access Revenue Requirement*

+ 2011 Intrastate Switched Access Revenues+ 2011 Net Reciprocal Compensation Revenues

- 5% annual reduction

o Recovered from 3 sources Intercarrier Compensation Revenues

Access Recovery Charge (ARC) Connect America Fund (CAF)

* Revenue requirement submitted to NECA for 2011 tariff filing


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ICC REFORM

Rate of Return Carrierso Access Recovery Charge (ARC)

Residential & SLB = $0.50/year for up to 6 years for a maxof $3.00

MLB = $1.00/year for up to 6 years for a max of $6.00 SLC + ARC may not exceed $12.20

Local Rate + SLC + EAS + Surcharges + ARC $30.00 Residential, no benchmark for SLB & MLB

ARC is not mandatory, but will be imputed for CAF

Carriers that forego recovery in 1 year may not recover infuture years

ARC may not be assessed on Lifeline customers

ARC may be determined at the holding company level


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ICC REFORM


o Connect America Fund (CAF) support

Eligible Recovery

- Intercarrier Compensation Revenues- Access Recovery Charge Revenue

= CAF Support

Phases down over time as Eligible Recovery is reduced by

5% each year Obligation to deploy broadband upon reasonable request as

a condition of ICC CAF

CLECs not eligible for ICC CAF


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ICC REFORM

Price Cap Carriers

o Transition terminating switched access and sometransport to bill and keep

Cap all interstate and intrastate switched access rates Effective 12/29/11

Originating and terminating



Dedicated Transport Access

Any rate elements in the traffic sensitive and trunking baskets

Remove rate elements from price cap regulation effective 1/1/12


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ICC REFORM

Price Cap Carriers


Step 1 (July 1, 2012) 50% transition to interstate Terminating switched end office and transport

Originating and terminating dedicated transport

Reciprocal compensation

Step 2 (July 1, 2013) 100% transition to interstate

Terminating switched end office and transport Reciprocal compensation



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ICC REFORM

Price Cap Carriers



Step 5 (July 1, 2016) $0.0007

Step 6 (July 1, 2017) bill and keep

$0.0007 when terminating carrier owns tandem

Step 7 (July 1, 2018) bill and keep for all terminatingtraffic

o CMRS providers transition same as price capcarriers for reciprocal compensation


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ICC REFORM

Price Cap Carriers

o Eligible Recovery

Price Cap Baseline

2011 Interstate Switched Access Revenue subject to reform+ 2011 Intrastate Switched Access Revenue subject to reform

+ 2011 Net Reciprocal Compensation Revenues

- 10% annual reduction

6-year exception for newly converted carriers

Recovered from 3 sources Intercarrier Compensation Revenues

Access Recovery Charge (ARC)

Connect America Fund (CAF)


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ICC REFORM

Price Cap Carriers

o Access Recovery Charge (ARC)

Residential & Single Line Business = $0.50/year for up to 5years for a maximum ARC of $2.50

Multi Line Business = $1.00/year for up to 5 years for amaximum ARC of $5.00

SLC + ARC may not exceed $12.20

Local Rate + SLC + EAS + Surcharges + ARC $30.00

Residential, no benchmark for SLB & MLB ARC is not mandatory, but will be imputed for CAF

purposes

ARC may not be assessed on Lifeline customers


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ICC REFORM

Price Cap Carriers

o Connect America Fund (CAF) support

Eligible Recovery

- Intercarrier Compensation Revenues- Access Recovery Charge Revenue

= CAF Support

Support is transitional, phasing out over 3-years beginning

in 2017 Support must be used to deploy broadband capable

networks as a condition of CAF

CLECs not eligible for ICC CAF


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ICC REFORM

Monitoring Compliance

o Annual filing of the following data ICC Rates

Revenues

Expenses

Demand for the preceding fiscal year

o Filings aggregated at the holding company level

Waiver Requirements

o Similar to USF Reform waiver requirements Total Cost and Earnings Review, including non-regulated

Carriers face a heavy burden


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ICC REFORM

VoIP Traffic originates/terminates in IPformato All VoIP to PSTN traffic under section 251(b)(5)

o Toll VoIP to PSTN = Interstate Access Originating and Terminating

Rates may be tariffed (state or interstate), or;

Interconnection agreement (preferable to tariffs) Subject to arbitration by the State PUC

Traffic subject to VoIP access may be set as the % of VoIP

customers in the stateo All other VoIP to PSTN = Reciprocal Compensation

o Blocking of VoIP traffic is precluded


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ICC REFORM

ICC Reform

o CMRS-LEC Compensation

Non-access = Bill and Keep

Interim transport rule for Rate of Return carriers CMRS chosen interconnection point within LEC territory

LEC responsibility stops at the meet point if CMRSchosen interconnection point is outside LEC territory

Existing interconnection agreements remain in effect

IntraMTA rule applies to all traffic originated/ terminatedwithin the same MTA

Not CLEC transiting traffic

Reciprocal compensation applies


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ICC REFORM

Arbitrage Issues

o Access Stimulation Defined

LEC has entered into a revenue sharing agreement, and;

Payment by the LEC based on billing of access to an IXC

3 to 1 interstate originating to terminating ratio in a givenmonth, or;

More than 100% increase in interstate originating and/orterminating switched access

Compared to the same month in the prior year


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Arbitrage Issueso Access Stimulation Remedies

RoR LEC must file a revised tariff based on prospectivecosts and demand

May not participate in NECA tariff Revenue sharing agreement may be terminated before

revised tariff must be filed (45 days)

CLEC must benchmark access rates to the rates of the pricecap LEC with the lowest rates in the state

Revenue sharing agreement may be terminated beforerevised tariff must be filed (45 days)

Access sharing payments are not properly included as rateof return costs


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ICC REFORM

Arbitrage Issues

o Phantom Traffic Defined

Terminating traffic that lacks identifying informationnecessary to bill the call

Service providers in the call path intentionally remove oralter to avoid paying for termination

Calls that transit another carrier are ripe for arbitrage dueto the # of carriers that access the call record


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ICC REFORM

Arbitrage Issues

o Phantom Traffic

Calling Party Number (CPN) and Charge Number (CN), ifdifferent, required in all call signaling

Applies to all traffic bound for the PSTN, including VoIP

Intermediate carriers must pass along unaltered callsignaling

An entity that neither originates or terminates traffic

that traverses the PSTN

Summary of USF ICC Reform - ICC Reform

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