FCC Seeks Comment on its Plans for USF and Intercarrier Compensation Reform


Earlier this week, the Federal Communications Commission (“FCC”) issued a Notice of Proposed Rulemaking (“NPRM”) seeking comment on its proposal to reform the Universal Service Fund (“USF” or “Fund”) and intercarrier compensation (“ICC”) regulatory regimes.  While the proposal did not provide many details, it did outline the FCC’s plans for the type of comprehensive overhaul that the FCC, industry and Congress have long-stated are broken and in need of reform.

The FCC states that its proposals are designed to achieve four core principles — modernizing and refocusing the USF and ICC to ensure all Americans have access to robust, affordable broadband and to accelerate the transition to Internet Protocol (“IP”) networks; fiscal responsibility; accountability; and use of market-driven and incentive-based policies.  The NPRM includes both near-term and long-term goals for reforming USF and ICC, including converting the existing USF to the Connect America Fund (“CAF”), the fund envisioned by the FCC to bring broadband services to currently un-served and under-served areas of the country, and transitioning ICC to a bill-and-keep or other non-usage based scheme.

Among other things, the FCC seeks comment on the following:

Treatment of VoIP

  • Whether the FCC should focus its analysis on interconnected VoIP or expand its consideration of intercarrier compensation obligations to include other forms of VoIP traffic and whether it should distinguish between “fixed” and “nomadic” interconnected VoIP;
  • While the FCC explicitly states that VoIP “is ‘telecommunications’ traffic, regardless of whether interconnected VoIP service were to be classified as a telecommunications service or an information service,” the FCC declines to adopt a specific proposal for applying ICC to VoIP.  Instead, the FCC seeks comments on several options, including:
    • Immediately adopting a bill-and-keep regime;
    • Immediately imposing a VoIP-specific compensation rate, e.g., the interstate access rate, the reciprocal compensation rate, or some other rate, such as $0.0007;
    • Determining that VoIP should be subject to intercarrier compensation, whether existing rates or VoIP-specific rates, but only as of some future date in the transition of all ICC rates;
    • Determining that VoIP should be subject to the same ICC charges  – interstate access, intrastate access, or reciprocal compensation –  as other voice services, both today and during any future ICC reform transition; or
    • Any other approaches; and
  • Whether the FCC  needs to classify VoIP as telecommunications or information service in order to impose an intercarrier compensation obligations on VoIP traffic.

Universal Service

  • Transitioning the existing high-cost and other funds to the CAF, including: limiting support to one provider in any given unserved area, the appropriate size of the CAF, identifying unserved areas and offering support on a census block basis;
  • Reducing the reimbursement rates for the current high-cost loop support (“HCLS”) program and eliminating the safety net additive component, in order to distribute funding—which has been capped since the 1990s—in a more equitable manner among rural carriers;
  • Phasing out Local Switching Support (“LSS”) or, alternatively, combining LSS and HCLS into a single, more efficient mechanism to support network costs;
  • Setting reasonable guidelines for reimbursements for capital and operating expenses based on benchmarks developed from investments made by comparable companies;
  • Limiting the total support per line any one carrier in the continental United States can receive, absent exceptional circumstances;
  • Streamlining the study area waiver process to eliminate barriers to consolidation and rationalization of service territories;
  • Modifying rules that limit support when acquiring lines from another provider in situations where the acquired lines are substantially unserved by broadband;
  • Phasing out Interstate Access Support beginning in 2012;
  • Eliminating the “Identical support” rule and rationalizing funding for competitive eligible telecommunications carriers (“ETCs”), including wireless ETCs.  The FCC proposes and seeks comment on two alternatives for moving ETC support to CAF: (1) redirecting all available ETC funding, by  20% per year over five years, to the CAF, and (2) redirecting available ETC support to CAF, by 20% per year over five years, but allowing individual mobile providers to demonstrate that some level of continuing support under the current high-cost fund is necessary to achieve universal service goals;
  • Using competitive bidding or reverse auctions to select the lowest bidder for funding to provide broadband in unserved areas or providing the current carrier of last resort for voice services a right of first refusal to provide broadband and voice services for a specified amount of support;
  • Adopting measures to ensure accountability and better track the performance of the fund, including; performance goals; additional reporting requirements from fund recipients to report  deployment, adoption and pricing for their voice and broadband services; and a modified certification and audit process;
  • What role states can and should play in preserving and advancing universal service consistent with a national framework and the goals of the National Broadband Plan.

Intercarrier Compensation

  • Phasing out the current per-minute ICC system and adopting a different methodology for compensation, including bill and keep, flat-rate intercarrier charges, or some other methodology consistent with the FCC’s  goal of addressing arbitrage opportunities and market distortions ;
  • Requiring carriers that have entered into revenue sharing arrangements with high-volume customers (a practice known as traffic pumping or access stimulation) to refile their interstate switched access tariffs within 45  days to incorporate a lower consistent with the volume of their traffic.  For rate-of-return ILECs, the rate would be adjusted to reflect new demand.  For C LECs, the rate would be benchmarked to the  rate of the Bell Operating Company or other largest ILEC in the state;
  • Addressing so called “phantom traffic” to ensure that calls received by the terminating carrier contain sufficient signaling information for that carrier to identify and bill the appropriate provider.  Specifically, the FCC  seeks comment on the following specific proposed rules to address phantom traffic:
    • Requiring  originating service providers and every provider in a call path, to provide signaling information identifying the telephone number of the calling party and, if different, of the financially responsible party; and
    • Prohibiting stripping or altering call signaling information.  Call signaling information includes SS7, MF signaling, such an ANI, and IP signaling, such as signaling within SIP session;
  • Whether the FCC should address all wireless termination rates or leave reform of intrastate wireless termination rates to the states;
  • Issues regarding the sequencing and timing of access charge reform, including:  whether the FCC should reduce all access charges at the same time or address intrastate access charges first, and how carriers would implement ICC reductions in their interconnection agreements;
  • Whether the transition for wireless termination charges, if reduced separately for other intercarrier charges, should be subject to different transition timing;
  • Whether the FCC should Implement a recovery mechanism through the CAF;
  • Whether the FCC should leave to the states the role of reforming intrastate ICC or should use its authority under Section 251 and 252 to unify all intercarrier rates, including intrastate rates;
  • The status of intrastate access reform, as well as different approaches and best practices of states that have undertaken such reform;
  • How much time the FCC should give states to implement ICC reform and whether the FCC should step in if a state fails to act.


  • What steps can the FCC take to promote IP-to-IP interconnection;
  • Whether the FCC should address point of interconnection and network edge issues as part of comprehensive intercarrier reform and, if so, where in the transition timeline these issues should be addressed and how; and
  • Whether the FCC has authority to and should regulate transit services as part of comprehensive ICC reform and how the FCC’s proposed reforms impact the provision of transit services.

Requirements on Fund Recipients

  • Whether and, if so how, the FCC should modify existing eligible telecommunications carrier (“ETC”) requirements as it moves forward with reform, including whether it should or could forbear from requiring that universal service recipients be designated as ETCs at all;
  • What public interest obligations should apply to ETCs as the high-cost program is modernized to advance broadband;
  • Whether the FCC should streamline the core functionality that  ETCs are required to provide, i.e., voice grade access  to the public switched telephone network, local usage, access to emergency services, interexchange services, operator and directory assistance services and toll limitation, to  “voice telephony service” and permit ETCs to provide “voice telephony service” using any technology (wireline, terrestrial wireless, satellite or VoIP);
  • Which key attributes of broadband should be supported by the CAF going forward.  Such as whether broadband should be characterized by speed, functional attributes or in some other way.  For example, in its most recent Broadband Deployment Report, the FCC benchmarked “broadband” as a transmission service that actually enables a user to download content from the Internet at 4 Mbps and to upload such content at 1 Mbps.
  • Whether the FCC should require CAF recipients to test their broadband networks and report the results to USAC on a quarterly basis and subject those results to audit;
  • Whether the FCC should impose notice and discontinuance requirements on recipients;
  • Whether the FCC should impose a coverage requirement on recipients and, if so, whether it imposed different performance metrics for different areas within a provider’s territory or require complete deployment within a specific timeframe;
  • How to assess whether rates for broadband and voice services are affordable and reasonably comparable to rates in urban areas.

Finally, the FCC seeks comments on its legal authority to implement the reforms it proposes in the NPRM.

Comments and reply comments on the treatment of VoIP, phantom traffic and access stimulation are due 30 days and 45 days after publication in the Federal Register.  Comments and reply comments on the remaining apects of the NPRM are due 45 days after publication in the Federal Register and 80 days after publication in the Federal Register, respectively.

A copy of the NPRM is available here https://www.fcc.gov/Daily_Releases/Daily_Business/2011/db0209/FCC-11-13A1.pdf

If you would like further information regarding the issues raised in this Advisory or any other matter, please contact the attorney responsible for your account.  Or you may call us at 703-714-1300 or submit questions to: mail@commlawgroup.com and someone will respond to your concerns.

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