3. Proposed Modifications to
D.06-04-071 and D.07-12-020

In D.06-04-071 and D.07-12-020, we reduced access charges for ILECs by requiring the removal of non-cost-based elements from intrastate access rates. In D.06-04-071, we eliminated the non-cost-based elements from the access charges assessed by AT&T and Verizon and permitted them to impose a surcharge on local telephone service to recover lost revenues.¹⁴ In D.07-12-020, we ordered all mid-size ILECs to remove the non-cost-based element or its equivalent effective January 1, 2009.¹⁵ We also ordered the expiration of the surcharges authorized by D.06-04-071 for AT&T and Verizon as of January 1, 2009, i.e., the date the rate freeze on basic residential telephone service was to be lifted. In addition, we determined that the small ILECs "shall include in their next regularly scheduled rate case filing a long-term plan for fully implementing our policy requiring intrastate access charges to be based on cost .... The long-term plan shall extend for no more than two rate case cycles ...."¹⁶

For CLECs, the Commission ruled that "[e]ffective January 1, 2009, competitive carrier's intrastate access charges shall be capped at the higher of AT&T's or Verizon's intrastate access charges, plus 10%, with each rate element provided also capped at the higher of AT&T's or Verizon's comparable intrastate access charge rate element, plus 10 percent."¹⁷ Thus, in order to be consistent with the FCC's objectives, the ACR stated that intrastate terminating access rate levels for all CLECs should now be reduced without any provision for a 10% markup as originally permitted in D.07-12-020.

Parties generally agree that it is appropriate to modify D.06-04-071 but differ on whether modification of D.07-12-020 is required. Cox, in particular, recommends that the Commission not modify the latter decision, because the FCC Order does not require the intrastate access rates of CLECs to match the intrastate access rates of ILECs. Instead, Cox explains that the FCC requires all intrastate switched access rates to reach interstate levels at the second step of the transition period and must reduce their intrastate rate by the 10% mark-up and then calculate the new intrastate terminating and transport charges using the lowered rate. We clarify that the CLECs are to use the intrastate rates in effect as of December 29, 2011 when calculating their new rates. In other words, we clarify that CLECs should implement the FCC Order and modifications thereto based on their existing intrastate and interstate rates in effect as of December 29, 2011.

The Small LECs explain that those Small LECS that receive funding through California High Cost Fund A have already implemented certain changes to their access charges that result in intrastate access rates that are lower than interstate rates. Specifically, the Small LECS note that some carriers are still in the process of implementing D.07-12-020 with full removal of those elements scheduled for completion on May 2014 and state that these companies plan to eliminate the terminating Network Interconnection Charge (NIC) and the Transport Interconnection Charge (TIC) as part of the first step in the access phase-down on July 1, 2012.¹⁸ However, the proposed modification of D.07-12-020 will not modify the requirement that carriers eliminate the NIC and TIC charges from their rates. Affected carriers must still comply with D.07-12-020.

Frontier states that the proposed modification of the decisions is too rushed and does not allow carriers sufficient time to review the full impact of the proposed modifications. We disagree. Carriers have been on notice since November 18, 2011 that these changes will occur. The chart below identifies the steps in the transition. As discussed in the ACR, we find that it is reasonable to follow the FCC's transition timeline for changes to terminating intrastate access rate elements, originating and terminating dedicated transport, and non-access reciprocal compensation charges, as well as the FCC's rules governing this transition (see Appendix A of the FCC Order and modifications thereto).

Figure 9: Intercarrier Compensation Reform Timeline ( Figure 9 in the FCC Order, footnotes omitted)
Effective Date	For Price Cap Carriers and CLECs that benchmark access rates to price cap carriers	For Rate-of-Return Carriers and CLECs that benchmark access rates to rate-of-return carriers
Effective Date of the rules	All intercarrier switched access rate elements, including interstate and intrastate originating and terminating rates and reciprocal compensation rates are capped.	All interstate switched access rate elements, including all originating and terminating rates and reciprocal compensation rates are capped. Intrastate terminating rates are also capped.
July 3, 2012	Intrastate terminating switched end office and transport rates, originating and terminating dedicated transport, and reciprocal compensation rates, if above the carrier's interstate access rate, are reduced by 50% of the differential between the rate and the carrier's interstate access rate.	Intrastate terminating switched end office and transport rates, originating and terminating dedicated transport, and reciprocal compensation rates, if above the carrier's interstate access rate, are reduced by 50% of the differential between the rate and the carrier's interstate access rate.
July 1, 2013	Intrastate terminating switched end office and transport rates, originating and terminating dedicated transport rates, and reciprocal compensation, if above the carrier's interstate access rate, are reduced to parity with interstate access rate.	Intrastate terminating switched end office and transport rates, originating and terminating dedicated transport rates, and reciprocal compensation, if above the carrier's interstate access rate, are reduced to parity with interstate access rate.
July 1, 2014	Terminating switched end office and reciprocal compensation rates are reduced by one-third of the differential between end office rates and $0.0007.*	Terminating switched end office and reciprocal compensation rates are reduced by one-third of the differential between end office rates and $0.005. *
July 1, 2015	Terminating switched end office and reciprocal compensation rates are reduced by an additional one-third of the original differential to $0.0007.*	Terminating switched end office and reciprocal compensation rates are reduced by an additional one-third of the original differential to $0.005.*
July 1, 2016	Terminating switched end office and reciprocal compensation rates are reduced to $0.0007.*	Terminating switched end office and reciprocal compensation rates are reduced to $0.005.*
July 1, 2017	Terminating switched end office and reciprocal compensation rates are reduced to bill-and-keep. Terminating switched end office and transport are reduced to $0.0007 for all terminating traffic within the tandem serving area when the terminating carrier owns the serving tandem switch.	Terminating end office and reciprocal compensation rates are reduced by one third of the differential between its end office rates ($0.005) and $0.0007.*
July 1, 2018	Terminating switched end office and transport are reduced to bill-and-keep for all terminating traffic within the tandem serving area when the terminating carrier owns the serving tandem switch.	Terminating switched end office and reciprocal compensation rates are reduced by an additional one-third of the differential between its end office rates as of July 1, 2016 and $0.0007.*
July 1, 2019		Terminating switched end office and reciprocal compensation rates are reduced to $0.0007.
July 1, 2020		Terminating switched end office and reciprocal compensation rates are reduced to bill-and-keep.*

Accordingly, after consideration of the FCC's Order, the timeline set forth in that Order, the April 24, 2012 ACR, and comments to the ACR, we now order all ILECs and CLECs operating in California to adopt changes to their intrastate access services and rates consistent with the FCC Order, any subsequent modifications, the relevant FCC rules, as adopted or modified or clarified therein, and the clarifications set forth in this decision.

¹⁴ D.06-04-071 at 1.

¹⁵ D.07-12-020 at 1.

¹⁶ Id. at 15.

¹⁷ Id., at 16. See also Conclusion of Law 7 at 22, and Ordering Paragraph 4 at 24.

¹⁸ Small LECs Comments to ACR at 1-2.