FCC Order Requires Traffic Pumping LECs to Pay Intermediate Carrier Charges

FCC Order Requires Traffic Pumping LECs to Pay Intermediate Carrier Charges

On September 27, 2019, the FCC released an order which updates the traffic pumping rules.  The order updates the definition of access stimulation for ILECs and CLECs, and once a LEC meets that definition that LEC must change its tariff and must pay for intermediate carrier’s charges. Although access stimulation was addressed in the FCC’s 2011 USF/ICC Transformation Order, according to the FCC’s order, the problem of establishing “free” conference calling, chat lines, and other high-volume services in rural exchanges specifically to engage in arbitrage schemes that ultimately cost consumers money persists. The FCC found that despite the 2011 strategies to reduce arbitrage, the number of access stimulated minutes has not dropped.  The FCC believes this is because, “access stimulation schemes have adapted to shrinking end office termination charges and now seek to take advantage of access charges that have not yet transitioned or are not transitioning to bill-and-keep.” Based upon this finding, the Commission decided to take additional measures. The new rules are aimed at eliminating the financial incentives of the access stimulation.

Currently, a carrier is engaged in access stimulation if:

• it has a revenue sharing agreement with an entity that results in a net payment to the other party (including affiliates), and
• it has an interstate terminating-to-originating traffic ratio of at least 3:1 in a calendar month or has more than a 100% growth in interstate originating and/or terminating switched access minutes of use in a month compared to the same month in the preceding year.

The FCC has retained the above definition and added alternative criteria where there is no revenue sharing agreement, with distinctions for CLECs and rate-of-return carriers.  The following traffic triggers will apply if there is no revenue sharing agreement:

A rate-of-return carrier is an access stimulator if:

• the interstate terminating-to-originating traffic ratio is at least 10:1 in an end office in a 3-calendar month period and has 500,000 minutes or more of interstate terminating MOU/month in the same end office in the same three calendar month period.

A CLEC is an access stimulator if:

• the interstate terminating-to-originating traffic ratio is at least 6:1 in an end office in a calendar month.

Once the traffic trigger is met under either the current or newly adopted criteria, the access stimulator must:

• self-report to the FCC, IXCs and intermediate carriers (an entity that carries or processes traffic at any point between the final Interexchange Carrier in a call path and a LEC engaged in Access Stimulation);
• remove terminating switched access for tandem switching and terminating tandem switched transport from it tariffs within 45 days and must not bill terminating switched access tandem transport charges to IXCs or Intermediate Access Providers;
• designate, if needed, an Intermediate Access Provider that will provide terminating switched access tandem switching and terminating switched access tandem transport service to the traffic pumping LEC. The traffic pumping LEC will assume financial responsibility for the Intermediate Access Provider’s charges;
• not tariff tandem switching and terminating tandem switched transport between the tandem and end office;
• adjust (only if a rate-of-return carrier) the 2011 Base Period Revenue for CAF funding to remove any increases in revenue requirement resulting from access stimulation activities during the relevant measuring period.

A carrier will continue to be a traffic pumper until the following occurs:

A rate-of-return carrier is no longer deemed an access stimulator when (a) all revenue sharing agreements are terminated, (b) the terminating-to-originating traffic ratio falls below 10:1 for six consecutive months, (c) the interstate MOU/month falls below 500,000 for six consecutive months and (d) it does not have more than a 100% growth in interstate originating and/or terminating switched access minutes of use in a month compared to the same month in the preceding year.

A CLEC is no longer deemed an access stimulator when (a) all revenue sharing agreements are terminated and (b) interstate terminating-to-originating traffic ratio falls below 6:1 in an end office in a calendar month.

Note that these rules will affect both the regulated rate-of-return companies and their affiliated CLECs.  Companies will need to monitor their traffic ratios to ensure they do not meet the originating-to-terminating triggers.  If you do meet these ratio triggers but are not a traffic pumper, you may be able to file a waiver with the FCC.

If you have any questions please contact John Kuykendall at jkuydendall@jsitel.com or Valerie Wimer  vwimer@jsitel.com by email or 301-459-7590.