December 17, 2007

Public Interest Comment: Establishing Just and Reasonable Rates for Local Exchange Carriers

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The Proceeding

Federal Communications Commission regulations allow rural phone carriers to charge long-distance phone companies relatively high fees to access their network when the rural carrier transmits a call. The Commission seeks comment on a proposed plan to address allegations that some carriers are improperly generating increased traffic on their networks in order to profit from unreasonable access rates. This practice is referred to as "access stimulation." The increased call traffic often comes from chat lines, conference calling, and similar high-volume services.

Our Findings

  • The Commission's conclusion that access stimulation is an unreasonable practice that violates section 201(b) of the Telecommunications Act is supported by evidence that shows that the rates charged by the carriers that engage in this process are clearly unjust and unreasonable.
  • However, the Commission's proposed solution to the problem is flawed. Any attempt to define the increase in call traffic volume that would trigger a requirement of filing a revised schedule of access charges would be difficult, complicated, and arbitrary.
  • The kind of demand stimulation considered in this proceeding represents an abuse of the regulatory system that does nothing to remedy any potential market failure that might justify regulation of intercarrier compensation.


  • The Commission should ensure that total access charges collect no more revenue than necessary to achieve the Commission's public interest objectives, because access charges on long-distance calls generate substantial costs to society, over and above the revenues they extract from consumers.
  • If the Commission decides to move forward with its proposed regulatory approach of requiring local exchange carriers to file a revised schedule of access charges when call traffic increases by some amount over some time period, the Commission should try to identify the level of demand that minimizes the sum of costs that occur from the wealth transfer from long-distance callers to the local exchange carriers and from the regulatory compliance. 
  • A more effective solution would be for the Commission to forbear from enforcing the mandatory interconnection rules when a long-distance carrier has evidence that access stimulation is occurring.
  • Another solution to the problem of access stimulation would be for the Commission to forbear, in situations where access stimulation occurs, from enforcing the rules that prevent long-distance carriers from passing termination and interconnection charges through directly to the customers who made the calls.