FCC Proposes Comprehensive Intercarrier Compensation Reform and Transition to Bill-and-Keep Framework

The Federal Communications Commission (FCC or Commission) has released a Notice of Proposed Rulemaking (NPRM) that would fundamentally reshape how telecommunications carriers recover costs for voice services. In 2011, the FCC began transitioning terminating switched access charges to bill-and-keep, where carriers recover network costs directly from subscribers rather than from other carriers. The 2011 reforms left many access charges in place, including originating switched access charges, certain terminating charges, dedicated transport charges, 8YY charges, and SS7 signaling charges. The Commission proposes in this NPRM to complete the transition of all remaining intercarrier access charges to a bill-and-keep framework, eliminate price regulation of end-user telephone charges, and accelerate the industry’s shift to all-IP networks.

Transition to Bill-and-Keep Access Charges

Under the proposed rules, all remaining interstate and intrastate access charges would transition to bill-and-keep over 24 months through three annual reductions: 33% at the first annual tariff filing following the effective date, an additional 33% at the second filing, and a final 34% at the third filing, bringing all charges to zero. This schedule would apply uniformly to both price cap and rate-of-return carriers. As an immediate first step, all remaining uncapped intrastate originating access charges would be capped effective 30 days after final rules are published in the Federal Register.

During this same two-year transition period, the FCC would eliminate all remaining tariff requirements for interstate and international interexchange services. The notice also addresses a critical implementation question: defining the network edge—the point where financial responsibility for transporting traffic shifts between carriers under bill-and-keep. The FCC asks whether each state should designate a single point of interconnection during the transition period, with carriers financially responsible for transporting traffic to that point including any necessary TDM-to-IP conversion costs.

Deregulation of Telephone Access Charges

To enable carriers to recover costs from end users, the FCC would eliminate ex ante pricing regulation and mandatory tariffing requirements for all end-user Telephone Access Charges, including the Subscriber Line Charge, Access Recovery Charge, Presubscribed Interexchange Carrier Charge, Line Port Charge, and Special Access Surcharge. Carriers could begin detariffing these charges with the first annual access tariff filing following the effective date and must complete detariffing no later than the second annual filing. Once detariffed, carriers could set rates based on market conditions subject to just and reasonable rate requirements.

CAF ICC Phase-Out and Universal Service Adjustments

The NPRM proposes a phase out of CAF ICC support for rate-of-return carriers over two years following the completion of the transition to bill-and-keep. Under the proposed rules, carriers would receive 66% of their baseline support amount in the first year after transition, 33% in the second year, and zero beginning in the third year.

For universal service contributions, the FCC proposes adopting a 25% interstate safe harbor for local voice service revenue. For CAF BLS calculations, carriers would use fixed SLC amounts of $6.50 monthly for residential and single-line business lines and $9.20 monthly for multi-line business lines.

Next Steps

This proceeding represents the most comprehensive reform of intercarrier compensation and access charge regulations in over a decade and will fundamentally affect how telecommunications providers recover costs and structure their services. The FCC is seeking comments on whether the 24-month transition period provides sufficient time for carriers to adapt, whether the CAF ICC phase-out appropriately balances stability with the transition to bill-and-keep, how the network edge should be defined during and after the transition to all-IP networks, whether additional funding mechanisms are needed to support rate-of-return carriers’ IP transition, and what impacts the elimination of price regulation for end-user charges might have on cost recovery and consumer rates.

JSI strongly encourages participation in this proceeding through individual comments or coordinated industry filings. Comments will be due 60 days after Federal Register publication, with reply comments due 90 days after publication. Federal Register publication has not yet occurred. For assistance in analyzing these proposals, developing comment strategies, or preparing filings, please contact Brett Hallagan or John Kuykendall.