The FCC 8YY Report and Order (Order) in Docket 18-156 which began a transition to bill-and-keep for many originating 8YY switched access charges became effective on December 27, 2020.  The very next day, the ILEC association USTELECOM, filed a Petition for Reconsideration (PFR) of one aspect of the Order – the FCC’s refusal to allow new sources of revenue for price cap ILECs to recover lost 8YY revenue.  

In the Order, the Commission stated that ILECs were perfectly capable of using existing revenue sources to recover any 8YY revenues they may lose.

Like rate-of-return carriers, we find that price cap carriers should look to the existing rules to determine how to adjust to the changes we make today to our intercarrier compensation system.  We decline to adopt the suggestion of some commenters that we revise our Eligible Recovery rules to allow price cap carriers to include 8YY originating access revenues in their Eligible Recovery calculations. Instead, consistent with our move to bill-and-keep, price cap carriers may increase their Subscriber Line Charges or their Access Recovery Charges, to the extent they are otherwise able to do so.  There is no compelling evidence in the record that further change to our recovery mechanisms is warranted. In fact, parties have not provided any meaningful data regarding the amount of revenue price cap carriers as a whole derive from 8YY originating access charges, or how such revenues should be considered as part of the Eligible Recovery calculations.  (Docket 18-156, Report and Order, para, 94).

USTELECOM, however, claims that the Commission’s refusal to allow ILECs additional revenue sources is useless for carriers that are at the cap for their revenue sources.

Without the ability to recover costs associated with originating 8YY traffic revenue from their own customers, some carriers face important revenue shortfalls with no recourse. This is particularly the case where price cap carriers have reached the Commission-specified maximum voice service rate of $30 or have no “headroom” remaining in the eligible recovery formula to adjust their rates.  In those cases, absent a new recovery mechanism, carriers are left without any means of recovering their origination costs.  (USTELECOM Petition for Reconsideration, at p. 3).

This is especially egregious because although the FCC mandates a fixed cap for local telephone service of $30 per month (including dial tone plus additional costs such as subscriber line charges), a recent study found that actual local rates are higher.

The Commission annually conducts a survey of fixed voice services for the purposes of determining reasonable comparability benchmarks for Eligible Telecommunications Carriers (ETCs) that receive universal service support.  Based on the survey, the Commission calculates an average urban rate, and then calculates two standard deviations from that rate in order to determine the maximum rates ETCs can charge for provisioning service in rural areas...The Public Notice reported that “[b]ased on the survey results, the 2021 urban average monthly [voice] rate is $33.73. Therefore, the reasonable comparability benchmark for voice services, two standard deviations above the urban average, is $54.75. Under the Commission’s rules, each ETC, including competitive ETCs providing fixed voice services, must certify . . . that the pricing of its basic residential voice services is no more than $54.75.  (id., at p. 7).

As a result of this analysis, USTELECOM requests the Commission to allow price cap ILECs to increase their Residential Rate Ceiling from $30 to $31 per month to provide them with a sufficient source to pay for 8YY calls.  As an alternative it could accept a Frontier/Windstream proposal to increase the Subscriber Line Charge by $0.15 for two years.

Going forward, the PFR will be reviewed by an FCC that will either be majority Democrat or consist of two Democrats and two Republicans as it does today.  It will be interesting to see the new FCC’s approach to an issue pitting medium and large companies against raising prices for consumers.  The view here is that price cap ILECs have a legitimate argument – they should be permitted to recover their costs from their customers, and this would be impossible for many of them if the current rules stand.  However, when many in the industry think of price cap companies, they think of giants such as Verizon and AT&T obviously well equipped to handle any 8YY revenues lost rather than the smaller companies not as well prepared.   Thus, this legitimate case may not pass muster in a new consumer-oriented FCC.