Reciprocal Compensation

1
Reciprocal Compensation

• The duty to establish reciprocal compensation
  arrangements for the transport and termination of
  telecommunications
• State commission to determine negotiated terms
  and conditions are just and reasonable
• If provide for the mutual and reciprocal recovery
  by each carrier of costs associated with the
  transport and termination on each carriers
  network facilities of calls that originate on the
  network facilities of the other carrier
• Such costs determined on the basis of a
  reasonable approximation of the additional costs
  of terminating such calls
• Bill and Keep possible

2
The problem with ISPs

• Highly asymmetrical traffic
• Large payments from ILECs to DLECs
• Was the largest income source for many DLECs

3
Traffic to ISPs

• Local or interstate?
• Regarded as local by many State commissions
• February 1999 FCC orderinterstate by virtue of
  end-to-end analysisdont terminate at
  ISPanalogous to access service
• March 2000 DC Circuit vacated that conclusionwhy
  not telephone exchange service? Why are ISPs not
  like other businesses that use communication
  services to provide goods and services to
  customers?

4
The FCCs Response

• NPRM FCC 01-131, April 19, 2001
• Traffic delivered to ISPs is information access
  and so not subject to reciprocal compensation (
  and so interstate in nature and subject to the
  FCC)
• Interim, transitional recovery scheme
• First six months, ISP-bound traffic capped at a
  rate of .0015/MOU next 18 months, capped at
  .0010/MOU thereafter capped at .0007/MOU
• ILEC has to exchange all local traffic at this
  rate
• Cap on ISP-bound traffic subject to compensation,
  previous amount plus 10 growth factor
• Rebuttable presumption that traffic that exceeds
  31 ratio is ISP-bound traffic

5
How long can the interim scheme last?

• July 8, 2008
• DC Circuit Court of Appeals ordered the FCC to
  provide valid legal justification for its interim
  rules by November 5, 2008, or the interim rules
  would be vacated
• FCC hasnt responded to the Courts requests for
  justification of its interim approach for 6 years

6
And theres more . . .

• NPRM FCC 01-132
• Proceeding to update inter-carrier compensation
  rules
• Examine Bill-and-Keep arrangements
• Examine various compensation arrangements, both
  local and access
• Still no decision

7
Inter-carrier compensation
8
Missoula Proposal

• Move intrastate rates to interstate levels
• Three year transition period
• Different tracks (smaller ILECs treated
  differently)
• Offset revenue losses for the ILECs by
• Increasing SLC to 10.00
• Creating yet another 2.225 billion fund

9
ATT-Verizon Proposal

• Proposed in September of 2008
• Uniform termination rate of .0007 for all
  traffic regardless of jurisdiction or carrier
• Increase of SLC to 10.50
• Lost revenues by ILECs recovered from USF

10
FCCs November 4 Meeting

• Former FCC Chair tried to ram through a proposal
  (combining some elements of the ATT/Verizon
  proposal) to change inter-carrier compensation
  and the USF all without time for comment---failed
• Mentioned in National Broadband Plan as a
  necessary step to be taken