Access Charge Reform 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Historical Problems Separations process apportions costs inter/intrastate and reflects universal service and desirability of low local rates Local Transport Restructure – TIC or RIC charge is 70% of revenues or $2.9 B out of $4 B SLC capped; CCL recovers the rest 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Need for Reform IXCs and ILECs agree that access charges exceed economically efficient levels and must be reduced Current charges create incentives for uneconomic bypass i.e. CCL charges There is an over allocation of costs to interstate jurisdiction ILECs are inefficient 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Need for Reform ILECs can price squeeze by raising rivals’ costs in IXC market ILECs are subject to competition from availability from UNEs 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Alternatives to CCL rate Recover costs in excess of SLCs through – – – – – 7/12/2016 Flat-per-line charge paid by IXCs Bulk billing based on MOUs or revenues Capacity charge - # and type of trunks ordered from ILEC Trunk port charge Trunk port and line port charge ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Two Approaches to Access Charge Reform Market-based approach Prescriptive approach 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Market Based Approach Rely on potential and actual competition from new facilities-based providers and entrants purchasing UNEs to drive costs towards economic costs Two phases Phase 1 – show local market has been opened to competition Phase 2 – show actual competition exists – 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Prescriptive Approach Marketplace forces alone are not sufficient FCC must require LECs to move prices to more economically-efficient levels 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Market-based Pros/Cons Pros – – Cons – – 7/12/2016 Create incentives for ILECs to open markets Allows market forces rather than regulation to determine how quickly prices move towards costs Prices may not move as fast as prescriptive Difficult to determine evidence of competitive entry ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Prescriptive Pros/Cons Pros – – Cons – – 7/12/2016 FCC can move prices more quickly Avoid need for competitive entry criteria Requires FCC to make detailed determination of prices Requires FCC to determine how much of embedded costs ILECs recover ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Access Charge Reform Decision Effective 1/1/98 SLC charges Res. - Primary Lines capped at $3.50; secondary lines $5.00 Single line bus. $3.50 Multiline bus. - 9.00/line/mo (avg now is $6.92/line/mo) 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Access Charge Reform Effective 1/1/98 7/12/2016 PICC - Presubscribed Interexchange Carrier Charge flat rate per line charge to IXCs to keep SLC low and lower CCL in 1998, max. PICC is $0.53/line/mo for res and single line bus. Non-primary res. PICC is $1.50/line/mo Multiline bus. Is $2.75 1/1/99 increase by $1.50 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 PICC increase 7/1/99 Max PICC raised to $1.04/line/mo for res. And single line business Non-primary res. PICC is $2.53/line/mo Lowered switched access charge (CCL rate) 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Changes effective 2/1/00 Eliminates residential and single line business PICC Reduces over time the PICC for multiline business until it is eliminated in most areas 7/12/2016 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 SLC Increases Increases SLC charge of residential and single line business – – – – 7/12/2016 7/1/2000 $4.35 7/1/2001 $5.00 7/1/2002 $6.00 7/1/2003 $6.50 ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979 Removes Implicit Subsidies – – – 7/12/2016 $650 million in implicit universal service support from access charges replaces it with an explicit, portable universal service fund charge ensures affordable phone service for high-cost areas. ECO 436 Industry Studies Seminar David G. Loomis 309-438-7979