Intercarrier Compensation

Intercarrier Compensation

Intercarrier compensation (ICC) is the system of regulated payments in which carriers compensate each other for the origination, transport and termination of telecommunications traffic. Under the legacy ICC regime, the compensation available to a carrier for originating or terminating a call varied based on the type of carrier (incumbent local exchange carrier, competitive local exchange carrier, wireless provider), the nature of the traffic involved (local, interexchange, ISP-bound), and the direction of traffic (originating or terminating), even though the cost to the carrier generally is the same in all cases. This variability led to widespread disputes and arbitrage opportunities, such as access stimulation and phantom traffic. It also became a deterrent to the deployment of IP networks. In addition, significant controversy existed over the appropriate ICC framework for Voice over Internet Protocol (VoIP) traffic.

In 2011, in response to these developments and the increasing strains placed on the existing intercarrier compensation regime, the Commission adopted the USF/ICC Transformation Order and FNPRM. That item adopted the following reforms:

• Rules to immediately address access stimulation and “phantom traffic.”
• Comprehensive ICC reform based on a uniform, national bill-and-keep framework as the ultimate end state for all telecommunications traffic exchanged with a local exchange carrier (LEC).

o In order to facilitate predictability and stability, the Commission adopted a gradual, measured transition that focused on reducing terminating switched access rates.

• The Commission first required carriers to cap most ICC rates as of the Order’s effective date.
• Thereafter, the Commission required carriers to reduce their termination (and, for some carriers, also terminating transport) rates, and to transition to a bill-and-keep methodology for setting those rates within six years for price cap carriers and nine years for rate-of-return carriers.
• A transitional recovery mechanism that allows incumbent LECs to recover a portion of the ICC revenues they lost as part of the transition to bill-and-keep through limited increases in end-user rates and, where appropriate, universal service support through the Connect America Fund.

The Commission also clarified the prospective payment obligations for VoIP traffic exchanged between a LEC and another carrier and adopted a transitional ICC framework for such traffic. In addition, the Commission clarified certain aspects of compensation for calls between LECs and wireless (Commercial Mobile Radio Services or CMRS) carriers.

In the USF/ICC Transformation FNPRM, the Commission also sought comment on additional topics related to the next steps in reforming the ICC system. Specifically, the Commission sought comment on: (1) the transition of remaining switched access rate elements to bill-and-keep; (2) the appropriate policy framework and legal justification for any needed rules to address IP-to-IP interconnection; and (3) the proper definition of the network “edge” when a bill-and-keep methodology is applied to ICC.

In 2017, the Bureau released a Public Notice inviting interested parties to update the record on issues raised by the Commission in the USF/ICC Transformation FNPRM, including: (1) the network edge for traffic that interconnects with the Public Switched Telephone Network; (2) tandem switching and transport; and (3) transit (the non-access traffic functional equivalent of tandem switching and transport).

The Commission has long recognized that arbitrage opportunities in the ICC system harm consumers, undermine broadband deployment, and distort competition. Accordingly, in June 2018, the Commission initiated a proceeding to further address alleged access arbitrage schemes and released a Notice of Proposed Rulemaking, and in September 2019, a Report and Order and Modification of Section 214 Authorizations addressing certain forms of terminating access arbitrage.

On December 17, 2019, the Commission adopted an Order on Remand and Declaratory Ruling clarifying that VoIP-LEC partnerships may collect end office switched access charges only if one of the partners provides a physical connection to the last-mile facilities used to serve the end user.

The Commission has also addressed alleged access arbitrage schemes affecting originating access charges. On June 8, 2018, the Commission released a Further Notice of Proposed Rulemaking, and on October 9, 2020, a Report and Order addressing arbitrage schemes that affect toll free (8YY) originating traffic, requiring carriers to move some of their 8YY tariffed rates to a bill-and-keep methodology and to reduce other 8YY tariffed rates to comply with new nationwide transitional rate caps.

After adoption of the 2019 Access Arbitrage Order, the Commission was made aware of efforts to exploit perceived loopholes in its Access Stimulation Rules. On July 14, 2022, the Commission adopted a Further Notice of Proposed Rulemaking seeking comment on proposed rules to combat ongoing arbitrage of the Commission’s intercarrier compensation system. On April 20, 2023 the Commission adopted a Second Report and Order establishing rules to close perceived loopholes in its existing Access Stimulation Rules including making Internet Protocol Enabled Service (IPES) Providers subject to those rules.

Principal ICC Commission Actions

• USF/ICC Transformation Order and FNPRM (FCC 11-161)
• Refresh-the-Record Public Notice (DA 17-863)
• Access Arbitrage NPRM (FCC 18-68)
• Access Arbitrage Order (FCC 19-94)
• VoIP Symmetry Declaratory Ruling (FCC 19-131)
• 8YY FNPRM (FCC 18-76)
• 8YY Order (FCC 20-143)
• Access Arbitrage FNPRM (FCC 22-54)
• Access Arbitrage Second Report and Order (FCC 23-31)