Many smaller Local Telephone Carriers, both ILECs and CLECs, have been experiencing problems collecting payments on their invoices for intercarrier compensation from larger, incumbent carriers. This Educational Briefing discusses the nature of the problem and options to address it.
In 2011, the FCC adopted new rules reforming intercarrier compensation, including both reciprocal compensation for local traffic and access charges for interexchange calls. In short, the new rules establish a process under which disparate compensation schemes are unified and then largely phased out by 2020. In the meantime, the FCC continues to allow LECs to recover some of their costs for originating and terminating other service providers’ traffic on their networks. The FCC’s 2011 order also included rules for so-called “access stimulation,” falsification of call identification information to avoid charges, and application of charges for LECs’ handling of VoIP traffic, among others. (The new rules are under court appeal, but remain in effect.)
The FCC expected the industry would simply follow the rules and pay intercarrier compensation as required, during the phase-out to mandatory bill and keep (“B&K”). As many smaller LECs have come to learn the hard way, this has not been the case. Bigger carriers are flouting the rules by “challenging” intercarrier compensation invoices on a variety of seemingly specious grounds and, in many cases, resorting to self-help by short-paying or not paying any charges whatsoever. These uncollectibles can be a serious problem for a smaller carrier.
Why are we seeing this behavior by large carriers?
While acknowledging there are legitimate billing disputes, many of the larger carriers seem to be refusing to pay otherwise valid invoices to reduce operating costs. The 4th Circuit affirmed a trial court’s finding that Sprint established a business strategy of challenging invoices for reciprocal compensation for VoIP-originated traffic as a cost-cutting measure. Central Tel. Co. of Virginia, Inc. v. Sprint, 715 F.3d 501 (4th Cir.), cert denied, __ U.S. ___ (2013). And reports from industry members show Sprint is not alone.
Large carriers are emboldened by the FCC’s refusal to adjudicate a collection complaint by a LEC against another carrier, even as a counterclaim against a charge the LEC’s rates are unreasonable. So small carriers have been left to:
- accept the status quo and write off the bills;
- negotiate a traffic agreement with bigger carriers for very little compensation; or
- sue the big carrier in court and incur substantial legal costs.
However, the situation is not hopeless. LECs can include language in their tariffs that awards them attorney fees in the event of a successful lawsuit to recover intercarrier compensation. The FCC will still hear complaints, including informal complaints raised in a letter, when a LEC alleges the bigger carrier violated FCC rules (other than allegations that the failure to pay intercarrier compensation is a rule violation). These rule violations sometimes occur as part of an effort to reduce intercarrier compensation payments to smaller LECs. For example, big carriers sometimes block calls from, or intended for, a LEC’s customers. A carrier may strip ANI or Caller ID information from calls from, or to, a LEC’s customers. These actions violate FCC rules, and the Commission has taken a hard line against these, and other, types of rule violations. In the event a LEC has evidence of these occurrences, it may wish to consider filing an informal complaint. Even though the FCC will not consider collection issues, FCC action on these other violations may provide the LEC leverage to resolve intercarrier compensation issues.
Moreover, under the right circumstances, a small LEC might file an informal complaint seeking the establishment of through routes with the large carrier and a division of revenue therefrom. Such requests are permissible under Section 201(a) after a public hearing to determine whether the request is in the public interest. The LEC must be a common (and not, a connecting) carrier and be able to demonstrate (at a bare minimum) that the larger carrier is simply not paying intercarrier compensation under the FCC’s rules. This is not a remedy for normal billing disputes and is the outcome is not certain. However, it may help small LECs under the right facts.
When a party files an informal complaint, FCC staff normally summons the parties to discuss the problem and possible settlement. Historically, the staff will push the offending carrier hard to stop its rule violations, most especially those that involve call blocking, and to reach settlement with the other carrier. FCC staff involvement that examines a big carrier’s operations and strategies can possibly be used to counter the big carrier’s leverage on the billing dispute. An informal complaint seeking a decision establishing through routes for the affected carriers and a division of revenues therefrom is a wild card. In order to obtain settlement and close the informal complaint without further staff investigation, bigger carriers may be motivated to reach agreement on unpaid bills, and at more reasonable terms than might otherwise occur. Moreover, filing an informal complaint is one of the most cost-effective things a small carrier can do. The costs are much lower than those associated with filing suit in court.
While these are general strategies that might help a LEC with an intercarrier compensation collection problem, each case must be analyzed individually. Please contact the attorney responsible for your account with any questions regarding this Educational Briefing, or contact Robert Jackson at rhj@commlawgroup.com.
