2. Background
The Federal Communication Commission's (FCC) Universal Service Fund and Intercarrier Compensation Transformation Order (USF/ICC Transformation Order or simply "Order") was released on November 18, 2011. The Order "comprehensively reforms and modernizes the universal service and intercarrier compensation (ICC) systems to ensure that robust, affordable voice and broadband service, both fixed and mobile, are available to Americans throughout the nation."3 The FCC's Order is quite technical, as is this decision. In Appendix D, we set forth the FCC's definitions of various terms used throughout this decision.
In the Order, the FCC adopted a uniform national "bill and keep" framework as the ultimate end state for all telecommunications traffic exchanged with a local exchange carrier (LEC).4 The term "bill and keep" refers to a pricing methodology where interconnecting carriers agree to terminate calls at no charge, i.e., each carrier covers its own costs for termination.5 In taking this approach, the FCC rejected "the notion that only the calling party benefits from a call and therefore should bear the entire cost of originating, transporting, and terminating a call."6 As a result, the FCC abandoned the "calling-party-network-pays" model that has dominated ICC regimes and adopted a multi-year transition process to phase out regulated per-minute ICC charges for terminating access.
The FCC states the rationale for adoption of these changes as follows:
The intercarrier compensation (ICC) system is ... outdated, designed for an era of separate long-distance companies and high per-minute charges, and established long before competition emerged among telephone companies, cable companies, and wireless providers for bundles of local and long distance phone service and other services. Over time, ICC has become riddled with inefficiencies and opportunities for wasteful arbitrage. And the system is eroding rapidly as consumers increasingly shift from traditional telephone service to substitutes including Voice over Internet Protocol (VoIP), wireless, texting, and email. As a result, companies' ICC revenues have become dangerously unstable, impeding investment, while costly disputes and arbitrage schemes have proliferated. The existing system, based on minutes rather than megabytes, is also fundamentally in tension with and a deterrent to deployment of IP networks. The system creates competitive distortions because traditional phone companies receive implicit subsidies from competitors for voice service, while wireless and other companies largely compete without the benefit of such subsidies. Most concerning, the current ICC system is unfair for consumers, with hundreds of millions of Americans paying more on their wireless and long distance bills than they should in the form of hidden, inefficient charges. We need a more incentive-based, market-driven approach that can reduce arbitrage and competitive distortions by phasing down byzantine per-minute and geography-based charges. And we need to provide more certainty and predictability regarding revenues to enable carriers to invest in modern, IP networks.7
The end goal of the FCC is to facilitate the transition to all Internet Protocol (IP) networks in order "to ensure that all Americans are served by networks that support high-speed Internet access - in addition to basic voice service where they live, work, and travel."8
The FCC's Order requires all LECs to bring default non-access reciprocal compensation rates and intrastate terminating access rates into parity with interstate terminating access rates in a two-step process by July 1, 2013. During the first phase of the restructuring, the FCC's formula does not focus on specific rates, but compares certain terminating intrastate revenues resulting from switched demand for FY 2011 to the same demand priced at corresponding interstate rates for the same period. If the intrastate revenues are higher, then the carrier is required to make a reduction in its intrastate switched access rates in 2012. Using the methodology adopted in the transition rules, the reduction in a carrier's intrastate rates on July 3, 2012, is equal to one-half the difference between the compared revenue levels. Required reductions in terminating intrastate rates, as well as any necessary reductions in default non-access reciprocal compensation rates must be made by July 3, 2012,9 using one of the methodologies established by the FCC in the Code of Federal Regulations (CFR), Part 47, specifically, 47 CFR §§ 51.705, 51.711, 51.907, 51.909 and 51.911 and related sections.10 This requirement affects price cap carriers, rate-of-return carriers, and certain competitive local exchange carriers (CLECs) with intrastate terminating switched end office and transport rates, originating and dedicated transport rates and non-access reciprocal compensation tariffed rates that are above the carrier's interstate access rates. Thereafter, LECs are required to reduce their termination and certain transport rates to bill-and-keep, within six years for price cap carriers and within nine years for rate-of-return carriers (as designated at the Federal level).11 The FCC looks to the individual states to monitor the transition of reciprocal compensation and intrastate switched access rates pursuant to its Order, and to ensure that carriers are complying with the framework of the Order and not shifting costs or otherwise seeking to gain excess recovery.12
This Commission has supported the FCC's actions to reform the current ICC regime and to transition access charges and reciprocal compensation to bill and keep.13 Accordingly, on April 24, 2012 the assigned Commissioner issued an Assigned Commissioner's Ruling (ACR) that proposed several actions. First, the ACR proposed that the Commission lower access charge caps, thereby modifying intrastate access charge rules originally adopted in Decision (D.) 06-04-071 and D.07-12-020. These actions would make the intrastate access charges consistent with the FCC's Order. Second, the ACR requested comment on the proposal that the Commission require LECs (both competitive and incumbent) to file advice letters with revised tariffs and certain required supporting data (set forth in Appendix A of the Ruling) for their intrastate access and non-access reciprocal compensation charges, within 10 days of the issuance of this decision. This action would allow for timely Commission staff review and approval of the advice letters amending these tariffs. Third, the ruling sought comment on a proposal to require LECs to provide supporting information, if requested by other carriers, under a Non-Disclosure Agreement.
Comments were filed by the following carriers: Citizens Telecommunications Company of California, Inc. dba Frontier Communications of California, Frontier Communications West Coast, Inc., and Frontier Communications of the Southwest, Inc. (Frontier), Sprint Nextel (Sprint), Cox California Telcom, L.L.C. dba Cox Communications and Charter Fiberlink CA-CCO, LLC (Cox), jointly by Calaveras Telephone Company, Cal-Ore Telephone Company, Ducor Telephone Company, Foresthill Telephone Co., Happy Valley Telephone Company, Hornitos Telephone Company, Kerman Telephone Co., Pinnacles Telephone Co., The Ponderosa Telephone Co., Sierra Telephone company, Inc., The Siskiyou Telephone Company, Volcano Telephone Company, and Winterhaven Telephone Company (jointly, Small LECs), Pacific Bell Telephone Company dba AT&T California, AT&T Communications of California, Inc., TCG San Francisco, TCG Los Angeles, Inc., and TCG San Diego (jointly, AT&T), the California Association of Competitive Telecommunications Companies (CALTEL), Verizon, and Comcast Phone of California, LLC (Comcast). Comcast also filed a motion for party status. Comcast has a direct interest in this proceeding and, for good cause shown, we grant this motion.
3 Order at para. 1.
4 Id. at para. 34.
5 Id. at paras. 737 and 742.
6 Id.
7 Id. at para. 9.
8 Id. at para. 4.
9 See In the Matter of July 3, 2012 Annual Access Charge Tariff Filings, UCB/Pricing File No. 12-07 (DA 12-482), Rel. March 28, 2012.
10 On June 5, 2012, under delegated authority, the FCC's Wireline Competition Bureau (WCB) issued Order DA 12-870, in WC Docket No. 10-90 et al. In this Order, the Bureau clarifies that the required reductions to intrastate switched access rates may be made to the rate level for any intrastate switched access rate so long as the lowered rates produce a reduction in revenues equal to the total reduction required in 2012.
11 Within California, Pacific Bell Telephone Verizon California, Inc. and the three incumbent local exchange carrier (ILEC) affiliates of Frontier Communications Corporation are federal price cap carriers; the remaining ILECs are federal rate-of-return carriers.
12 Order at para. 35.
13 See "Comments of the California Public Utilities Commission And The People Of The State Of California on The Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking," filed April 18, 2011 and February 24, 2012 in In the Matter of Connect America Fund, WC Docket No. 10-90; A National Broadband Plan for Our Future, GN Docket No. 09-51; Establishing Just and Reasonable Rates for Local Exchange Carriers, WC Docket No. 07-135; High-Cost Universal Service Support, WC Docket No. 05-337; Developing an Unified Intercarrier Compensation Regime, CC Docket No. 01-92; Federal-State Joint Board on Universal Service, CC Docket No. 96-45; Lifeline and Link-Up, WC Docket No. 03-109; Universal Service Reform - Mobility Fund, WT Docket No. 10-208.
