Intercarrier Compensation
Nextel calls to BellSouth
BellSouth pays to terminate Nextel calls
In aggregate, it may cause BellSouth to
increase capacity
2 Theoretical Pricing Schemes
Bill and Keep
Calling Network Pays
Crazy Patchwork of Intercarrier
Compensation Schemes
Long Distance Access Charges
ILEC to CLEC reciprocal compensation
for local interconnection
Price Discrimination
Selling the same product to different
customers for a different price
Must be able to prevent arbitrage
LD Arbitrage
If local interconnection price is less than LD
access charge, there is an incentive to use
arbitrage and terminate LD traffic as local.
Worldcom/MCI, July 2003 accused of doing
this.
ISP Reciprocal Compensation
With "high" terminating rate for local
calls, CLECs have an incentive to
connect users with large terminating
traffic like ISPs.
Popular in late 90’s; 2001 FCC
exempted inbound ISP traffic from
reciprocal compensation
Intercarrier Compensation and
VoIP
IP-to-IP – no charges
PSTN-to-PSTN – regular access charges
IP-to-PSTN
ILECS say access charges
VoIP providers say reciprocal compensation
Other VoIP Complications
Virtual FX arrangement – VoIP
subscriber gets telephone number that
“acts” as a local number
Verizon lawsuit against Vonage
Wireless Interconnection
Should wireless companies get terminating
access charges?
1996 FCC suggested that they should
1996-2002 nothing is done
2002 no tariffs only contracts; FCC gave no
guidance on contracts; left in limbo again
What charges for “transiting” or bridging a
wireless carrier and other carrier?
Access Charges after Divestiture
(1984)
How do Long Distance Companies pay
for Local Network after divestiture?
Types of Local Costs
NTS (non-traffic-sensitive) costs
largest category of costs
subscriber lines, station equipment, inside
wiring, and parts of the central office
TS (Traffic Sensitive) Costs
Local switching,trunking, tandem switching
1980 Access Charge Plan –
Pure I
NTS (non-traffic-sensitive) costs would
be distributed on the basis of minutes
of use.
This plan is called Pure I - all NTS
recovered through TS rates.
1982 Access Charge Plan –
Pure II
Argued that it was inefficient to recover NTS
costs through TS rates.
Pure II recovered NTS costs through fixed
charge per subscriber.
"Every customer would pay a flat (per line)
access charge that did not vary with use, plus
usage based interstate charges that reflected
only usage sensitive facilities.”
1982 Plan cont’d
Commission adopted Pure II as a long-run
goal but had a long transition period and
many special provisions.
NTS costs for 1984 were $8.5 billion for 100
million lines or $85 per line.
Plan had first year phase in of $4 per line for
business and $2 per line for res. This became
known as a SLC charge or subscriber line
charge. Initial business rate changed in 1983
to $6 per line.
FCC changes plan.
SLC delayed until June 1, 1985 and
capped at $4 until 1990.
OCCs were given a 55% discount and
gradually phased out as equal access
became available.
Initial Switched Access Charge
Massive in size 43,000 pages of tariffs,
160,000 pages of support material.
Price was based on RR/Q. Usually based on
historical data - none existed.
CCL Rate declined
5.24 cents per minute (1984)
1 cent per minute originating and 1.53
cents per minute terminating (1990)
Total TS & CCL on both ends went from
17.3 cents in 1984 to 7.8 cents in 1990.
Access Reform History after the
Telecom Act of 1996
Unbundling of network under
Telecom Act of 1996
Pricing for unbundling is based on T[E]LRIC.
Total element long-run incremental cost.
Forward-looking cost standard that looks at
the incremental or additional cost that that
element imposes on the network.
FCC is modifying the TSLRIC methodology to
include joint and common costs and a normal
return on profit.
Subject of much criticism.
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)
Access Charge Reform
Effective 1/1/98
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
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)
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
SLC Increases
Increases SLC charge of residential and
single line business
7/1/2000
7/1/2001
7/1/2002
7/1/2003
$4.35
$5.00
$6.00
$6.50
Removes Implicit Subsidies
$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 highcost areas.
Need for Unified Solution and
Terminating Access monopoly
Antiregulatory solution: Freedom to
deny interconnection
Highly regulatory solution: Cost-based
calling network pays with no implicit
subsidies
Moderately regulatory solution: Bill and
Keep