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Traffic Stimulation

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Traffic Stimulation Before the FEDERAL COMMUNICATIONS COMMISSION Washington, DC 20554 In the Matter of ) ) Establishing Just and Reasonable Rates for Local ) WC Docket No. 07-135 Exchange Carriers ) Reply Comments of the ICORE Companies By: ICORE, Inc. Gary M. Zingaretti Senior Vice President 326 S. 2nd Street Emmaus, PA 18049 610-928-3944 TABLE OF CONTENTS I. INTRODUCTION …......……………..………………….………………………....2 II. DRASTIC CHANGES TO TARIFF RULES ARE UNNECESSARY…….….……2 III. THE COMMISSION MUST IGNORE IXC-RHETORIC………………….........…6 IV. SELF-HELP IS NOT A PERMISSABLE REMEDY……………………………....9 V. THE COMMISSION SHOULD FOCUS ON INTERCARRIER COMPENSATION REFORM FOR ALL CARRIERS……………………………13 VI. CONCLUSION………………………………...………….………………...…......14 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Establishing Just and Reasonable Rates for Local ) WC Docket No. 07-135 Exchange Carriers ) Reply Comments of the ICORE Companies The consulting firm of ICORE, Inc. (ICORE), on behalf of many small, rural incumbent local exchange carriers (ILECs)1, offers these reply comments in the above- captioned proceeding. ICORE provides a variety of consulting, regulatory and network related services to a number of small ILECs serving rural and suburban America. 1 ILECs participating in this filing include: Bascom Mutual Telephone Company (Bascom, OH), Citizens Telephone Company of Kecksburg (Mammoth, PA), Doylestown Telephone Company (Doylestown, OH), Dunbarton Telephone Company (Dunbarton, NH), Fort Jennings Telephone Company (Fort Jennings, OH), Highland Telephone Cooperative (Monterey, VA), Home Telephone Company (Jacob, IL), Hot Springs Telephone Company (Hot Springs, MT), Ironton Telephone Company (Coplay, PA), Kilduff Telephone Company (Kilduff, IA), Lexcom Telephone Company (Lexington, NC), Lynnville Telephone Company (Lynnville, IA), Middle Point Home Telephone Company (Middle Point, OH), Northeast Iowa Telephone Company (Monona, IA), Nova Telephone Company (Nova, OH), Pierce Telephone Company (Pierce, NE), Reasnor Telephone Company (Reasnor, IA), Searsboro Telephone Company (Searsboro, IA), Sherwood Mutual Telephone Company (Sherwood, OH), Sully Telephone Association (Sully, IA), Summit Telephone Company (Fairbanks, AK), Sycamore Telephone Company (Sycamore, OH), Venus Telephone Company (Venus, PA), and Yukon Waltz Telephone Company (Yukon, PA). I. INTRODUCTION ICORE believes that all small, rural ILECs should continue to have access to the currently available interstate traffic sensitive tariff options. Significant changes to these rules are unnecessary and would introduce new regulatory requirements at a time when this Commission has repeatedly granted regulatory relief through forbearance to the mega-BOCs (AT&T, Embarq, Qwest, and Verizon)2. II. DRASTIC CHANGES TO TARIFF RULES ARE UNNECESSARY The vast majority of commenters seem to agree that the Commission need not implement drastic changes to the rules governing the tariffing of traffic-sensitive switched access services by local exchange carriers (“LECs”). The current federal rules provide LECs with several options when it comes to establishing interstate traffic sensitive rates and tariffs. Price Cap regulation limits the prices a carrier can bill for 2 See, e.g., Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33, Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 14853 (2005) (Wireline Broadband Internet Access Services Order), aff’d, Time Warner Telecom v. FCC, No. 05-4769 (and consolidated cases) (3rd Cir. Oct. 16, 2007); Petition of AT&T Inc. for Forbearance Under 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect to Its Broadband Services; Petition of BellSouth Corporation for Forbearance Under Section 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect to Its Broadband Services, WC Docket No. 06-125, Memorandum Opinion and Order, FCC 07-180 (rel. Oct. 12, 2007), pets. for review pending, Nos. 07-1426, 07-1427, 07-1429, 07-1430, 07-1431, 07-1432 (D.C. Cir. filed Oct. 22, 2007); Petition of the Embarq Local Operating Companies for Forbearance Under 47 U.S.C. § 160(c) from Application of Computer Inquiry and Certain Title II Common-Carriage Requirements; Petition of the Frontier and Citizens ILECs for Forbearance Under Section 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules With Respect to Their Broadband Services, WC Docket No. 06-147, Memorandum Opinion and Order, FCC 07-184 (rel. Oct. 24, 2007) (Embarq and Frontier Title II and Computer Inquiry Forbearance Order), pet. for review pending, No. 07-1452 (D.C. Cir. filed Nov. 5, 2007). Verizon also obtained certain relief from Computer Inquiry requirements when its petition for forbearance regarding enterprise broadband services was deemed granted by operation of law. See Verizon Telephone Companies’ Petition for Forbearance from Title II and Computer Inquiry Rules with Respect to their Broadband Services Is Granted by Operation of Law, WC Docket No. 04-440, News Release (rel. Mar. 20, 2006) (announcing that Verizon’s petition for forbearance from certain Title II and Computer Inquiry requirements for enterprise broadband services was granted by operation of law), pets. for review pending, Sprint Nextel et al. v. FCC, No. 06- 1111 (and consolidated cases) (D.C. Cir. filed Mar. 29, 2006). 2 access services without any restrictions on the rate of return that carrier might earn. This regulatory approach, used primarily by larger LECs, focuses on prices rather than earnings to maintain just and reasonable interstate access rates3. Price cap carriers are permitted to earn returns significantly higher, or potentially lower, than those allowed to rate of return incumbent LECs. Even if a price cap LEC earns a significantly high rate of return, it is not subject to complaints for excess earnings. As examples, AT&T, Qwest, and Verizon all operate under Price Cap regulation. It appears that this tariff option is not under review in this docket. The ICORE companies believe that the Commission should review the price cap results of these companies as part of any review of access stimulation. Smaller rural LECs can elect to concur in the tariff filed annually by the National Exchange Carrier Association (“NECA”). The parties to this proceeding seem to conclude that carriers that participate in the NECA tariff should not be impacted by this rulemaking.4 To the extent the Commission seeks to thwart stimulation of network usage, it appears that NECA’s average schedule settlements already provide a sufficient disincentive. As outlined by NECA5, once a LEC has more than 330 access minutes per line per month, their settlements drop dramatically. As illustrated in Table One, a company concurring in the NECA Traffic Sensitive Tariff would experience only a very slight increase in settlements when access minutes increase significantly. In this example, a LEC would increase revenues by only $31,620 when minutes increased by 59,340,000. When evaluating this on a per minute basis, the LEC receives just in excess 3 47 C.F.R. §§61.41-49. 4 See Comments of Iowa Telecommunications Association (“ITA”) @ Page 3, Comments of National Telecommunications Cooperative Association @ Page 5 5 See Comments of the National Exchange Carrier Association (“NECA”) @ Pages 6-7. 3 of 5/100ths of a penny for these “new” minutes. Under NECA’s economics – NECAnomics6 – companies receive lower revenue per minute when minutes increase. As other parties have noted, this end result runs contrary to the finding of this Commission that a LEC incurs the same cost to terminate each minute of traffic.7 ICORE does not support the notion that this incremental rate would be somehow compensatory for the average schedule LEC, but rather offers this information as proof that under NECAnomics, LECs are unlikely to engage in any access stimulation activities. Table One Average Schedules - Increased Traffic Volumes Access Lines 2,000 2,000 Minutes Per Line 330 30,000 Total Minutes 660,000 60,000,000 Central Office Settlement/ Min$ 0.043 $ 0.001 C.O. Settlement$ 28,380 $ 60,000 Incremental Revenue$ 31,620 Incremental Minutes 59,340,000 Incremental Revenue per Minute$ 0.000533 The focus of this investigation seems to be the Commission’s tariff rules included in 47 C.F.R. §61.39. With almost twenty years of history8 to rely on, the §61.39 process has stood the test of time and has proven to yield just and reasonable rates. Even if this Commission were to determine that access stimulation and sharing of revenues were 6 While the telecommunications industry already has enough acronyms and terminology, ICORE describes NECAnomics as the statistical and mathematical gymnastics that NECA performs to develop the Average Schedule formulas each year. NECAnomics relies on regression analysis, sample weights, stratification of the population, and good old fashioned cost allocation make it nearly impossible to challenge their schedules. 7 Comments of Chase Com, Fonepods, FreeConferenceCall.com, and HFT Corp @ Page 13 (“Chase Com”). 8 Comments of the Western Telecommunications Alliance (“WTA”) @ Page 15 4 illegal – which it has not done9 – there are still many valid reasons why a carrier might elect to use §61.39 to file its interstate access tariffs. For instance, NECA’s average schedule changes implemented on July 1, 2006 and July 1, 2007 included such dramatic reductions in revenues that each filing was implemented with a transition mechanism. Through the mechanics of §61.39,
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