FCC Clarifies Transition of Intrastate Switched Access Rates and Calculation of Eligible Recovery Under the USF/ICC Transformation Order

June 08, 2012

Intrastate Access Rate Structure. On June 5, 2012, the FCC’s Wireline Competition Bureau issued an Order1 to clarify several aspects of the ICC Transformation Order.2 In the first step toward the transition to a bill-and-keep regime, the ICC Transformation Order mandates a reduction in certain terminating intrastate switched access rates on July 1, 2012, that is equal to one-half of the difference between the carrier’s intrastate switched access revenues resulting from intrastate switched demand in Fiscal Year 2011 as compared to the same demand priced at corresponding interstate rates for the same period.3 The Bureau clarified that the reductions in intrastate switched access rates may be made to the rate levels for any intrastate switched access rate element as long as the rate elements taken together result in a reduction of aggregate intrastate access revenues equal to the total reduction mandated for 2012. In the second step, on July 1, 2013, the specified intrastate switched access rates are required both to be at parity with interstate access rate levels and to conform to the carrier’s interstate rate structure.4  

In the ICC Transformation Order, the FCC prohibited carriers from increasing any intrastate rates that are lower than their functionally equivalent interstate rates.5 In the Clarification Order, the Bureau noted that whether intrastate switched access rates must be reduced in 2012 for a given carrier is based upon the measurement of aggregate revenues, not based on a comparison of one rate element to another rate element. Thus, the Bureau concluded that prohibiting increases to specific intrastate access rate elements is inconsistent with a transition plan based upon moving aggregate revenue levels to interstate rates using the interstate access rates and rate structure. If a carrier has an intrastate rate for a particular rate element that is below its functionally equivalent interstate rate element, it cannot comply with both the prohibition on increasing rates and the requirement to transition to interstate rates using the interstate switched access rate structure. In fact, a carrier desiring to move to the interstate rate structure in 2012 may need to establish new rate elements, which on its face, could be seen to violate the prohibition on intrastate switched access rate increases in 2012. Accordingly, the Bureau clarified that for carriers required to make reductions to intrastate switched access rates in 2012, achievement of unified rate levels and a rate structure based on the carrier’s interstate rate structure overrides the prohibition on rate element increases included in the transition rules. The Bureau clarified that “a carrier required to make intrastate rate reductions in 2012 may increase individual intrastate switched access rate element levels to levels above comparable interstate rate element levels in 2012 without violating the prohibition on raising intrastate switched access rates as long as the overall reduction principle [based on aggregate revenues] is satisfied.”6 For example, a carrier could adopt the interstate rate structure for its intrastate switched access services and price out each rate element so that the intrastate revenues will reflect the overall revenue reductions required in step 1 in 2012. Furthermore, the Bureau clarified that, for carriers required to make intrastate switched access rate reductions in 2012, any intrastate switched access rate element that is below the functionally equivalent interstate switched access rate must be increased to the interstate level no later than July 1, 2013. Such increase will not violate the prohibition on raising intrastate switched access rates. Finally, the Bureau also clarified that FCC rules do not require a proportionate reduction to each intrastate access rate element, rather reductions may be made to any intrastate switched access rate element so long as the lowered rates produce the required reduction in revenues.7  

Waiver of USF Contribution Date Rule. The Bureau also granted a limited waiver of rule 54.712 and other rules to permit carriers to charge the second quarter 2012 universal service contribution factor until July 3, 2012, instead of July 1, 2012. In an earlier order, the Bureau established an effective date of July 3, 2012, for the 2012 annual access charge tariff filing for incumbent LECs.8 The Commission moved the annual access charge tariff effective date from July 1, 2012 to July 3, 2012 because, pursuant to Section 204(a)(3) of the Act, carriers filing their tariff revisions on 15 days’ notice would have been filing their tariffs over a weekend.

Carriers may recover the costs of universal service fund (“USF”) contributions by passing through an explicit charge to customers which would typically be set forth in their access tariff filings. Rule 54.712 provides: “[i]f a contributor chooses to recover its federal universal service contribution costs through a line item on a customer’s bill the amount of the federal universal service line-item charge may not exceed the interstate telecommunications portion of that customer’s bill times the relevant contribution factor.”9 This rule would require carriers to have a different USF contribution rate for the first two days of July that would need to be reflected in their annual tariff filings. To avoid this administrative burden, for incumbent LECs and competitive LECs filing an annual access charge tariff filing in 2012, the Bureau granted a limited waiver of rule 54.712, to allow such carriers to charge the universal service contribution factor for the second quarter 2012, until July 3, 2012, at which time carriers must begin charging the third quarter 2012 factor.

The Bureau also granted a waiver that permits and encourages, but does not require, states to move their effective dates for intrastate access tariff filings from July 1, 2012 to July 3, 2012.10 In the Clarification Order, the Bureau granted a limited waiver of section 51.911(b) of the FCC’s rules to allow CLEC rates to become effective on July 3, 2012 instead of July 1, 2012. The ICC Transformation Order, however, allowed CLECs an extra 15 days from the effective date of the tariff to which a CLEC is benchmarking its rates to make its filings.11 It is not clear whether this 15-day period now starts on July 3 rather than July 1.

Finally, the Bureau also clarified that demand associated with non-CMRS reciprocal compensation traffic exchanged pursuant to a bill-and-keep arrangement should not be included in an ILEC’s calculation of its Eligible Recovery.

Please feel free to contact us should you want to discuss the clarifications set forth in the Order. We would be pleased to assist you in preparing and submitting your access tariff revisions.

Russell M. Blau  

Tamar E. Finn   

1 Connect America Fund et al., WC Docket No. 10-90 et al., Order, DA 12-870 (June 5, 2012) (“Clarification Order” or “Order”). 
2 Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed Rulemaking, FCC 11-161, 26 FCC Rcd 17663, 18149, ¶ 1404 (2011) (“ICC Transformation Order”). 
3 47 C.F.R. §§ 51.907(b)(2); 51.909(b)(2); 51.911(b). 
4 47 C.F.R. §§ 51.907(c); 51.909(c). 
5 47 C.F.R. §§ 51.907(b)(2); ICC Transformation Order, ¶ 798. 
6 Clarification Order, ¶¶ 7-8. 
7 Clarification Order, ¶ 9. 
July 3, 2012 Annual Access Charge Tariff Filings, WCB/Pricing File No. 12-07, Order, DA 12-482, at 1 (Wireline Bureau, March 28, 2012). 
47 C.F.R. § 54.712. 
10 Clarification Order, ¶ 17. 
11 ICC Transformation Order, ¶ 807.

This article was originally published by Bingham McCutchen LLP.