FCC Modifies Intercarrier Compensation Rules for Originating Toll VoIP Traffic; Clarifies Funding Rules for Connect America Fund, Phase I

Revised Compensation Rules for Originating VoIP Traffic

On April 25, 2012, the Federal Communications Commission (FCC) issued an order that permits local exchange carriers (LECs) to impose higher charges for originating intrastate toll calls that begin or end in VoIP format. Previously, in its USF/ICC Transformation Order the FCC determined that effective Dec. 29, 2011, originating access charges for such intrastate toll calls would be capped at the level of the LEC’s normally lower interstate charges. To see our advisory, click here.

Some smaller incumbent LECs (led by Frontier and Windstream) argued that the revenue losses they would experience under that original ruling were unfair, particularly because their networks used traditional TDM (time-division multiplexed) technology. The FCC accepted the policy argument that the reduction in revenue imposed by its original ruling was too harsh, but—at the urging of Comcast and other cable operators—stuck by its policy of technology neutrality, and ruled that CLECs originating traffic in IP-format were also allowed to impose higher originating access charges on intrastate toll calls. Large incumbent LECs with significant operations as long distance carriers (e.g., Verizon and AT&T) generally opposed the rule change.

The FCC’s new decision establishes a transitional rate rule, under which intrastate VoIP toll traffic will be subject to intrastate rates for approximately two years. The new rule will be effective forty-five (45) days after publication in the Federal Register, and will remain in effect until July 1, 2014. After that time carriers will be permitted to tariff default rates for such traffic equal to the carrier’s interstate originating access rates, and such rates will then be subject to the Commission’s long-term plan to phase down all compensation to bill-and-keep. Other than the changes described here, this latest order does not affect the Commission’s other rules regarding compensation for VoIP traffic.

Carriers may implement this new rule by amending existing tariffs. The FCC explained that the applicable intrastate originating access rate is the LEC’s otherwise-existing intrastate originating access rate. For price cap LECs (and CLECs benchmarking to those rates) the default rate will be the originating access rates as capped by the FCC’s Nov., 2011 USF ICC Transformation Order; and for rate of return LECs (and CLECs benchmarking to those rates) the default rate will be the intrastate originating access rates as of the date the tariff is filed addressing origination charges for intrastate toll VoIP traffic.

Clarification of CAF Phase I Funding
The FCC also clarified certain aspects of its funding rules for Phase 1 of the newly created Connect America Fund (CAF). Specifically, the Commission will permit carriers seeking incremental support in Phase 1 to receive credit for deploying broadband to certain unserved locations that are located in census blocks that have partial access to broadband services. CAF support recipients can satisfy network deployment obligations by building in locations identified on the National Broadband Map as served (rather than unserved), if the carrier certifies to the Commission that: (1) the locations within the affected census blocks are in fact unserved by broadband; and (2) the Map reflects that the only provider of fixed broadband to the location is the incumbent carrier itself.

Davis Wright Tremaine advises clients on VoIP and telecommunications intercarrier compensation matters. Please contact us if you would like additional information about these issues.