Intercarrier Compensation Arrangements in the United States

1
Intercarrier Compensation Arrangements in the
United States

• Donald K. Stockdale, Jr.
• Federal Communications Commission
• WIK International Workshop on Bill and Keep A
  New Model for Intercarrier Compensation
  Arrangements?
• 4 April 2006

2
Disclaimer

• The views expressed are my own and do not
  necessarily reflect those of the Commission, its
  staff, or any Commissioner.

3
Overview

• Definitions
• Existing Intercarrier Compensation Regimes
• Problems with the Existing Regimes
• Issues in Reforming Intercarrier Compensation

4
Overview

• Definitions
• Existing Intercarrier Compensation Regimes
• Problems with the Existing Regimes
• Issues in Reforming Intercarrier Compensation

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Definitions

• Intercarrier Compensation (ICC) the rates one
  carrier pays another to originate, transport, or
  terminate traffic
• Calling Party Network Pays Regime (CPNP) Where
  the calling partys network either local
  exchange carrier (LEC) or interexchange carrier
  (IXC) -- pays the called partys network to
  terminate (and possibly transport) a call
• Bill Keep Regime (BK) Where the originating
  and terminating networks bill their own
  subscribers for the cost of origination and
  termination.

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Definitions

• Two-way access (or Transport and Termination)
  the rates an originating local exchange carrier
  (LEC) pays a terminating LEC to complete a local
  call
• One-way Access the rates an interexchange
  carrier (IXC) pays a local exchange carrier
  (LEC) to originate or terminate a long-distance
  call
• End-User Access the rates an end-user
  subscriber pays a LEC to make and receive calls.

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Overview

• Definitions
• Existing Intercarrier Compensation Regimes
• Problems with the Existing Regimes
• Issues in Reforming Intercarrier Compensation

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CLEC CO
ILEC CO
IXC POP
ILEC Tandem
CLEC CO
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CMRS MTSO
BOC Tandem
RLEC CO
CLEC CO
ILEC CO
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Existing Intercarrier Compensation Regimes

• Today, there are at least 4 different
  intercarrier compensation regimes in the United
  States, which distinguish among types of carriers
  and types of services involved.

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Existing Intercarrier Compensation Regimes

• 1. Reciprocal Compensation 2-Way Access
• Rate methodology set by FCC, based on
  forward-looking Long-run Average Incremental Cost
  (LRAIC)
• Actual Rates set by State regulators

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Existing Intercarrier Compensation Regimes

• 2. Interstate Access 1-Way Access
• Rates regulated by FCC either price caps or
  rate of return
• 3. Intrastate Access 1-Way Access
• Rates regulated by the states either incentive
  regulation (including price caps) or rate of
  return

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Existing Intercarrier Compensation Regimes

• 4. ESP Exemption End-User Access
• Traditionally, entities that qualify as enhanced
  service providers could buy interconnection/acces
  s as an end-user subscriber, and avoid access
  charges.
• More recently, certain long-distance calls that
  qualify as information services have been held
  to be exempt from access charges.

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Existing Intercarrier Compensation Regimes

• Examples of Bill-and-Keep Arrangements
• Adjacent LECs for local traffic exchange
  (including for Expanded Area Service (EAS))
• Mobile Wireless Carriers
• Certain Incumbent LECs and Mobile Wireless
  Carriers
• Reasons for bargaining solution

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Existing Intercarrier Compensation Regimes

• Traffic Exchange Among Internet Backbone
  Providers (IBPs)
• Peering Arrangements Where 1 IBP agrees to
  accept and deliver, without charge, traffic
  destined either for its own network or for one of
  its backbone customers.
• Note in a peering arrangement, IBP1 will not
  deliver IBP2s traffic to other IBPs with which
  it has peering arrangements.
• Paid Peering Where one IBP pays another to
  enter into a peering arrangement

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Existing Intercarrier Compensation Regimes

• Traffic Exchange Among Internet Backbone
  Providers (IBPs)
• Transit Agreements Where a customer or smaller
  IBP pays a larger IBP to deliver traffic to or
  from anywhere on the Internet.
• The transit provider generally charges a flat
  monthly fee, which is based on the number and
  capacity of circuits connecting the customer to
  the IBP

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Overview

• Definitions
• Existing Intercarrier Compensation Regimes
• Problems with the Existing Regimes
• Issues in Reforming Intercarrier Compensation

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Problems with the Existing Regimes

• Regulatory Arbitrage Profit seeking behavior by
  a firm caused by inefficient regulation.
• 1. Where a regulated firm is required to set
  different prices for services with a similar cost
  structure. E.g., recip. comp. rates vs. access
  charges
• Ex. 2 Where regulated rates exhibit inefficient
  rate structure or rate level. E.g., ISP
  reciprocal compensation problem.

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Problems with the Existing Regimes

• Terminating Access Monopoly Because the called
  partys LEC controls access to its subscriber, it
  possesses monopoly power over calling parties
  networks with respect to terminating access.

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Overview

• Definitions
• Existing Intercarrier Compensation Regimes
• Problems with the Existing Regimes
• Issues in Reforming Intercarrier Compensation

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Issues in Reforming ICC

• What should be the goals of a unified approach to
  intercarrier compensation?
• Efficient subscription to and use of the network
  by subscribers?
• Efficient design of networks (including location
  of switches and points of interconnection (POIs))
  by carriers?
• Competitive Neutrality?
• Technological Neutrality?

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Issues in Reforming ICC

• What should be the goals of a unified approach to
  intercarrier compensation? (Cont.)
• Preservation of Universal Service
• Ability to deregulate or require less regulatory
  intervention?

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Issues in Reforming ICC

• Should we continue a CPNP regime or adopt BK?
• If CPNP is retained, what changes are needed?
• E.g., should originating access be retained?
• If BK is adopted, what form should it take?
• BK at the central office?
• BK at the tandem?
• BK at some other edge of the network?

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Issues in Reforming ICC

• Under either approach, to what extent should
  intercarrier compensation be governed by
  regulation vs. contract?
• Under either approach, how should we allocate the
  costs of transport and interconnection, if at
  all?
• Relatedly, where, and at how many points, should
  we require networks to establish points of
  (physical) interconnection (POI), if at all?

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Issues in Reforming ICC

• Universal Service Issues How do we insure that
  any reductions in intercarrier revenues to
  carrriers in high cost areas do not undermine our
  universal service policies?
• Transition Issues If it is impossible
  politically to flash cut to a unified approach,
  how should we design the transition?

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Issues in Reforming ICC

• PSTN-IP Interconnection If we retain a CPNP
  regime, what is the efficient rate structure for
  exchanging traffic between PSTN and IP networks?
• How do you balance efficiency versus competitive
  neutrality.

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Issues in Reforming ICC

• Where is the U.S. now in reforming intercarrier
  compensation?

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Contact Information

• Donald K. Stockdale, Jr.
• Phone [phone]
• E-mail donald.stockdale_at_fcc.gov