[Federal Register Volume 84, Number 208 (Monday, October 28, 2019)]
[Rules and Regulations]
[Pages 57629-57652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22447]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 51, 61, and 69

[WC Docket No. 18-155; FCC 19-94]


Updating the Intercarrier Compensation Regime To Eliminate Access 
Arbitrage

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission shifts financial 
responsibility for all interstate and intrastate terminating tandem 
switching and transport charges to access-stimulating local exchange 
carriers, and modifies its definition of access stimulation. Under the 
existing intercarrier compensation regime, carriers enter into 
agreements with entities offering high-volume calling services, route 
the calls through interexchange carriers at more expensive rates, and 
profit from the resulting access charge rates which interexchange 
carriers are required to pay. With this action, the Commission moves 
closer toward its goal of intercarrier compensation regime reform by 
reducing the financial incentives to engage in access stimulation.

DATES: 
    Effective date: November 27, 2019.
    Compliance date: Compliance with the requirements in Sec.  
51.914(b) and (e) is delayed. The Commission will publish a document in 
the Federal Register announcing the compliance date.

FOR FURTHER INFORMATION CONTACT: Lynne Engledow, Wireline Competition 
Bureau, Pricing Policy Division at 202-418-1540 or via email at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order and Modification to Section 214 Authorizations, WC Docket No. 
18-155; FCC 19-94, adopted on September 26, 2019, and released on 
September 27, 2019. The full text copy of this document may be obtained 
at the following internet address: https://docs.fcc.gov/public/attachments/FCC-19-94A1.pdf.

I. Background

    1. In the 1980s, after the decision to break up AT&T, the 
Commission adopted regulations detailing how access charges were to be 
determined and applied by LECs when IXCs connect their networks to the 
LECs' networks to carry telephone calls originated by or terminating to 
the LECs' customers. Those regulations also established a tariff system 
for access charges that mandates the payment of tariffed access charges 
by IXCs to LECs. In passing the Telecommunications Act of 1996 (the 
1996 Act), Congress sought to establish ``a pro-competitive, 
deregulatory national policy framework'' for the United States' 
telecommunications industry in which implicit subsidies for rural areas 
were replaced by explicit ones in the form of universal service 
support. In response, the Commission began the process of reforming its 
universal service and ICC systems.
    2. In the 2011 USF/ICC Transformation Order (76 FR 73830, Nov. 29, 
2011), the Commission took further steps to comprehensively reform the 
ICC regime and established a bill-and-keep methodology as the ultimate 
end state for all intercarrier compensation. As part of the transition 
to bill-and-keep, the Commission capped most ICC access charges and 
adopted a multi-year schedule for moving terminating end office charges 
and some tandem switching and transport charges to bill-and-keep.
    3. In the USF/ICC Transformation Order, the Commission found that 
the transition to bill-and-keep would help reduce access stimulation, 
and it also attacked access arbitrage directly. The Commission 
explained that access stimulation was occurring in areas where LECs had 
high switched access rates because LECs entering traffic-inflating 
revenue sharing agreements were not required to reduce their access 
rates to reflect their increased volume of minutes. The Commission 
found that, because access stimulation increased access minutes-of-use 
and access payments (at constant per-minute-of-use rates that exceed 
the actual average per-minute cost of providing access), it also 
increased the average cost of long-distance calling. The Commission 
explained that ``all customers of these long-distance providers bear 
these costs, even though many of them do not use the access 
stimulator's services, and, in essence, ultimately support businesses 
designed to take advantage of . . . above-cost intercarrier 
compensation rates.'' The Commission, therefore, found that the 
terminating end office access rates charged by access-

[[Page 57630]]

stimulating LECs were ``almost uniformly'' unjust and unreasonable in 
violation of section 201(b) of the Communications Act of 1934, as 
amended (the Act).
    4. To reduce financial incentives to engage in wasteful arbitrage, 
the Commission adopted rules that identify those LECs engaged in access 
stimulation and required that such LECs lower their tariffed access 
charges. Under our current rules, to be considered a LEC engaged in 
``access stimulation,'' a LEC must have a ``revenue sharing 
agreement,'' which may be ``express, implied, written or oral'' that 
``over the course of the agreement, would directly or indirectly result 
in a net payment to the other party (including affiliates) to the 
agreement,'' in which payment by the LEC is ``based on the billing or 
collection of access charges from interexchange carriers or wireless 
carriers.'' The LEC must also meet one of two traffic triggers. An 
access-stimulating LEC either has ``an interstate terminating-to-
originating traffic ratio of at least 3:1 in a calendar month, or has 
had more than a 100 percent growth in interstate originating and/or 
terminating switched access minutes-of-use in a month compared to the 
same month in the preceding year.'' An access-stimulating rate-of-
return LEC is required by our current rules to reduce its tariffed 
terminating switched access charges by adjusting those rates to account 
for its projected high traffic volumes. An access-stimulating 
competitive LEC must reduce its terminating switched access charges to 
those of the price cap carrier with the lowest switched access rates in 
the state.
    5. The record makes clear that these rules were an important step 
toward reducing access stimulation and implicit subsidies in the ICC 
system. Before the rules were adopted, Verizon estimated that access 
arbitrage cost IXCs between $330 million and $440 million annually. By 
contrast, IXCs estimate that access arbitrage currently costs IXCs 
between $60 million and $80 million annually. In addition, the record 
shows that the current access stimulation rules have effectively 
discouraged rate-of-return LEC access stimulation activity. The access-
stimulating LECs identified in the record are all competitive LECs. No 
rate-of-return LECs have been identified as engaging in an access 
stimulation scheme.
    6. Terminating end office access rates have now been transitioned 
to bill-and-keep for price cap LECs and competitive LECs that benchmark 
their rates to price cap LECs, and by July 1, 2020, they will 
transition to bill-and-keep for rate-of-return LECs and the competitive 
LECs that benchmark to them. Price cap incumbent LEC terminating tandem 
switching and transport charges likewise have transitioned to bill-and-
keep when such a LEC is the tandem provider and it, or an affiliated 
incumbent LEC, is the terminating end office LEC. As a result, 
terminating end office charges are no longer driving access 
stimulation.
    7. At issue in this proceeding are arbitrage schemes that take 
advantage of those access charges that remain in place for those types 
of terminating tandem switching and transport services which, unlike 
end office switching charges, have not yet transitioned or are not 
transitioning to bill-and-keep. Access stimulators typically operate in 
those areas of the country where tandem switching and transport charges 
remain high and are causing intermediate access providers, including 
centralized equal access (CEA) providers, to be included in the call 
path.
    8. CEA providers are a specialized type of intermediate access 
provider that were formed about 30 years ago to implement long-distance 
equal access obligations (i.e., permitting end users to use 1+ dialing 
to reach the IXC of their choice) and to aggregate traffic for 
connection between rural incumbent LECs and other networks, 
particularly those of IXCs. Three CEA providers are currently in 
operation--Iowa Network Services, Inc. d/b/a Aureon Network Services 
(Aureon), South Dakota Network, LLC (SDN), and Minnesota Independent 
Equal Access Corporation (MIEAC). When the Commission authorized 
Aureon's creation as a CEA, it adopted a mandatory use requirement that 
requires IXCs that deliver traffic to the LECs subtending the Aureon 
tandem to deliver the traffic to the CEA tandem, rather than indirectly 
through another intermediate access provider or directly to the 
subtending LEC. The SDN authorization also includes a similar mandatory 
use requirement. MIEAC's authorization does not provide for mandatory 
use.
    9. In 2018, to address current access stimulation schemes, the 
Commission adopted the Access Arbitrage Notice (83 FR 30628, June 29, 
2018) and proposed to reduce access arbitrage by making the party that 
chooses the call path responsible for the cost of delivering the call 
to the access-stimulating LEC. The proposed rules offered a two-prong 
solution. Under the first prong, an access-stimulating LEC could choose 
to be financially responsible for calls delivered to its network so it, 
rather than IXCs, would pay for the delivery of calls to the LEC's end 
office, or the functional equivalent. Under the second prong, an 
access-stimulating LEC could choose to accept direct connections either 
from the IXC or from an intermediate access provider of the IXC's 
choice, allowing the IXC to bypass intermediate access providers 
selected by the access-stimulating LEC. The Commission reasoned that, 
if the access-stimulating LEC were made responsible for paying the 
costs of delivering calls to its end office, or if the LEC had to 
accept a more economically rational direct connection to its end office 
for high volumes of calls, it would be incentivized to move traffic 
more efficiently. In the Access Arbitrage Notice, the Commission also 
sought comment on possible revisions to the definition of access 
stimulation as well as on additional alleged ICC arbitrage schemes and 
ways to reduce them.

II. Eliminating Financial Incentives To Engage in Access Stimulation

    10. In this document, we adopt rules aimed at eliminating the 
financial incentives to engage in access arbitrage created by our 
current ICC system. Under our existing rules, IXCs must pay tandem 
switching and transport charges to access-stimulating LECs and to 
intermediate access providers chosen by the access-stimulating LEC to 
carry the traffic to the LEC's end office or functional equivalent. 
This creates an incentive for intermediate access providers and access-
stimulating LECs to increase tandem switching and transport charges. 
The result, as AT&T explains, is that ``billions of minutes of long 
distance traffic are routed through a handful of rural areas, not for 
any legitimate engineering or business reasons, but solely to allow the 
collection and dispersal of inflated intercarrier compensation revenues 
to access-stimulating LECs and their partners, as well as intermediate 
providers.''
    11. Commenters offer evidence that there are at least 21 
competitive LECs currently involved in access stimulation. Although 
there are access-stimulating LECs operating in at least 11 different 
states, there is wide agreement that the vast majority of access-
stimulation traffic is currently bound for LECs that subtend Aureon or 
SDN. To put the number of access stimulation minutes in perspective, 
AT&T observes that ``twice as many minutes were being routed per month 
to Redfield, South Dakota (with its population of approximately 2,300 
people and its 1 end office) as is routed to all of Verizon's 
facilities in New York City (with its population of approximately 
8,500,000 people and its 90 end

[[Page 57631]]

offices).'' Sprint explains, that while Iowa contains less than 1% of 
the U.S. population, it accounts for 11% of Sprint's long-distance 
minutes-of-use and 48% of Sprint's total switched access payments 
across the United States. Similarly, South Dakota contains 0.27% of the 
U.S. population, but accounts for 8% of Sprint's total switched access 
payments across the United States.
    12. The record shows that CEA providers' tariffed charges for 
tandem switching and tandem switched transport serve as a price 
umbrella for services offered on the basis of a commercial agreement by 
other providers, meaning the commercially negotiated rates need only be 
slightly under the ``umbrella'' CEA provider rate to be attractive to 
those purchasing the service(s). As AT&T explains:
    Some access stimulation LECs (either directly or via least cost 
routers) offer commercial arrangements for transport. The rates in 
these agreements, however, are well above the economic cost of 
providing transport. Because the only other available alternative is 
the tariffed transport rate of the intermediate provider selected by 
the LEC (such as a centralized equal access provider), that tariffed 
rate acts as a ``price umbrella,'' which permits the access stimulation 
LEC to overcharge for transport service. The access stimulation LEC or 
least cost router can attract business merely by offering a slight 
discount from the applicable tariffed rate for tandem switching and 
transport. Because the Commission's rules disrupt accurate price 
signals, tandem switching and transport providers for access 
stimulation have no economic incentives to meaningfully compete on 
price.

A. Access-Stimulating LECs Must Bear Financial Responsibility for the 
Rates Charged To Terminate Traffic to Their End Office or Functional 
Equivalent

    13. To reduce further the financial incentive to engage in access 
stimulation, we adopt rules requiring an access-stimulating LEC to 
designate in the Local Exchange Routing Guide (LERG) or by contract the 
route through which an IXC can reach the LEC's end office or functional 
equivalent and to bear financial responsibility for all interstate and 
intrastate tandem switching and transport charges for terminating 
traffic to its own end office(s) or functional equivalent whether 
terminated directly or indirectly. These rules effectuate a slightly 
modified version of the first prong of the access-stimulation rule 
proposed by the Commission in the Access Arbitrage Notice and properly 
align financial incentives by making the access-stimulating LEC 
responsible for paying for the part of the call path that it dictates.
    14. After reviewing the record, we decline to adopt the second 
prong of the Commission's proposal that would allow an access-
stimulating LEC to avoid paying for tandem switching and tandem 
switched transport by permitting an IXC to directly or indirectly 
connect to the LEC and pay for that connection, rather than having the 
LEC pay the cost of receiving traffic. We are persuaded by the 
substantial number of commenters that argue that adoption of the first 
prong of the proposal will better address the problem of access 
stimulation and that allowing LECs the alternative of permitting direct 
or indirect connections paid for by the IXC would create a substantial 
risk of stranded investment.
    15. We also modify our definition of access stimulation to capture 
the possibility of access stimulation occurring even without a revenue 
sharing agreement between a LEC and a high-volume calling service 
provider.
1. New Requirements for Access-Stimulating LECs
    16. The approach we adopt in this document--shifting financial 
responsibility for all tandem switching and transport services to 
access-stimulating LECs for the delivery of terminating traffic from 
the point where the access-stimulating LEC directs an IXC to hand off 
the LEC's traffic--has broad support in the record. This shift in 
financial responsibility from IXCs to access-stimulating LECs for 
intermediate access provider charges and access-stimulating LECs' 
tandem switching and tandem switched transport charges is aimed at 
addressing the changes that have occurred in access arbitrage since the 
adoption of the USF/ICC Transformation Order. The record shows that 
billions of minutes of access arbitrage every year are being directed 
to access-stimulating LECs using expensive tandem switching providers 
for conference calling and other services offered for ``free'' to the 
callers, but at an annual cost of $60 million to $80 million in access 
charges to IXCs and their customers. Although only a small proportion 
of consumers call access-stimulating LECs, the costs are spread across 
an IXC's customers. As a result, long-distance customers are forced to 
bear the costs of ``free'' conferencing and other services that only 
some customers use. In attacking this form of cross-subsidization, we 
follow the lead set by the Commission in the USF/ICC Transformation 
Order.
    17. Our new rules eliminate the incentives that access-stimulating 
LECs have to switch and route stimulated traffic inefficiently, 
including by using intermediate access providers to do the same. 
Because IXCs currently pay the LECs' tandem switching and tandem 
switched transport charges and the intermediate access provider's 
access charges, the terminating LEC has an incentive to inflate its own 
charges, and is, at a minimum, insulated from the cost implications of 
its decision to use a given intermediate access provider. Indeed, in 
some cases the terminating LEC may not be merely indifferent to what 
interconnection option is most efficient but may have incentives to 
select less efficient alternatives if doing so would lead it to 
benefit, whether directly or on a corporation-wide basis.
    18. As AT&T observes, making access-stimulating LECs financially 
responsible for traffic terminating to their end offices will be 
effective because it will ``reduce the ability of terminating LECs and 
access stimulators to force IXCs, wireless carriers, and their 
customers [to subsidize], via revenues derived from inefficient 
transport routes, the costs of access stimulation schemes.'' In 
addition, the costs of access stimulation are not limited to the access 
charges paid by IXCs and their customers. Costs also are incurred by 
IXCs in trying to avoid payments to access stimulation schemes whether 
through litigation or seeking regulatory intervention.
    19. Commenters argue that placing the financial responsibility on 
the access-stimulating LEC for delivery of traffic to its end office, 
or functional equivalent, will reduce inefficiencies created by access-
stimulating LECs that subtend intermediate access providers and choose 
to work with high-volume calling service providers that locate 
equipment in remote rural areas without a reason independent of 
arbitraging the current ICC system. We agree with these commenters. As 
CenturyLink explains, this change will ``properly recognize[] that the 
responsibility to pay for the traffic delivery should be assigned to 
the entity that stimulated the traffic in the first place.''
    20. We find unpersuasive arguments that as a result of the USF/ICC 
Transformation Order and the Aureon tariff investigation proceeding 
(addressing rate setting by CEA providers), there are few to no 
problems arising from arbitrage that need to be solved today. The 
record shows that access stimulation schemes are operating in at least 
11 states and are costing IXCs between $60 million and

[[Page 57632]]

$80 million per year in access charges. The record also shows that 
access stimulation is particularly concentrated where CEA providers 
Aureon and SDN received authority from the Commission to construct 
their CEA networks. In granting that authority, the Commission included 
a mandatory use requirement that requires IXCs to route 
telecommunications traffic through the CEA tandems to terminate traffic 
to the participating LECs that subtend those tandems. The CEA 
providers' tariffed rates to terminate traffic ``are premised on 
typical volumes to high-cost rural exchanges.'' We find that these high 
CEA rates create a price umbrella: A price that other intermediate 
access providers can ``slightly undercut'' but still make a profit. As 
a result, ``AT&T and other carriers routinely discover that carriers 
located in remote areas with long transport distances and high 
transport rates enter into arrangements with high volume service 
providers . . . for the sole purpose of extracting inflated ICC rates 
due to the distance and volume of traffic.'' The record shows that 
access stimulation also occurs in states not served by CEA providers 
but to a lesser extent.
    21. Nor do we find persuasive arguments that access stimulation is 
beneficial. The Joint CLECs, for example, allege that more than 5 
million people ``enjoy the benefits'' of high-volume services hosted by 
them on a monthly basis. For its part, HD Tandem claims that ``75 
million unique users this year . . . have called voice application 
services at the rural LECs that HD Tandem terminates to.'' The Joint 
CLECs argue that ``nonprofit organizations, small businesses, religious 
institutions, government agencies, and everyday Americans . . . will 
undoubtedly suffer if these [access stimulation] services are put out 
of business.'' Other parties, including several thousand individual 
users of ``free'' conferencing and other high-volume calling services, 
have filed comments expressing concern that such ``free-to-the-user'' 
services will be eliminated by this action and urging us to retain the 
current regulatory system in light of the purported benefits such 
``free'' services provide. As commenters explain, these arguments are 
both self-serving and inconsistent with our goals in reforming the ICC 
system. The benefits of ``free'' services enjoyed by an estimated 75 
million users of high-volume calling services are paid for by the more 
than 455 million subscribers of voice services across the United 
States, most of whom do not use high-volume calling services. According 
to Sprint, for example, less than 0.2% of its subscribers place calls 
to access stimulation numbers, but 56% of Sprint's access charge 
payments are paid to access-stimulating LECs--leaving IXC customers 
paying for services that the vast majority will never use. We find that 
while ``free'' services are of value to some users, these services are 
available at no charge because of the implicit subsidies paid by IXCs, 
and their costs are ultimately born by IXC customers whether those 
customers benefit from the ``free'' services or not.
    22. Access-stimulating LECs also argue that the Commission should 
find beneficial their use of access-stimulation revenue to subsidize 
rural broadband network deployment. These implicit subsidies are 
precisely what the Commission sought to eliminate in the USF/ICC 
Transformation Order, as directed by Congress in the 1996 Act. Indeed, 
the Commission addressed similar arguments in the USF/ICC 
Transformation Order, where it found that although ``expanding 
broadband services in rural and Tribal lands is important, we agree 
with other commenters that how access revenues are used is not relevant 
in determining whether switched access rates are just and reasonable in 
accordance with section 201(b).'' As Sprint explains, ``this sort of 
implicit cross-subsidy is contrary to the principle that access rates 
should reasonably reflect the cost of providing access service, and 
that subsidies, including universal service support, be explicit and 
`specific.''' Competition also suffers because access-stimulation 
revenues subsidize the costs of high-volume calling services, granting 
providers of those services a competitive advantage over companies that 
collect such costs directly from their customers.
    23. Eliminating the implicit subsidies that allow these ``free'' 
services will lead to more efficient provision of the underlying 
services and eliminate the waste generated by access stimulation. After 
the implicit subsidies are eliminated, customers who were using the 
``free'' services, and who value these services by more than the cost 
of providing them, will continue to purchase these services at a 
competitive price. Thus, the value of the services purchased by these 
customers will exceed the cost of the resources used to produce them, 
which implies both that customers benefit from purchasing these 
services and that network resources are used efficiently. Further, 
users who do not value these services by as much as the cost of 
providing them, including those who undertook fraudulent usages 
designed only to generate access charges, will no longer purchase them 
in the competitive market. Thus, valuable network resources that were 
used to provide services that had little or no value will no longer be 
assigned to such low-value use, increasing efficient utilization of 
network resources.
    24. We find misplaced or, in other cases, simply erroneous, the 
arguments offered by the Joint CLECs in an expert report by Daniel 
Ingberman that argues economic efficiency is enhanced when access-
stimulated traffic is brought to a network with otherwise little 
traffic volume because this allows the small network to obtain scale 
economies. The result, Ingberman claims, would be substantially lower 
prices for local end users, producing relatively large increases in 
consumer surplus. In contrast, if the traffic were placed on a network 
that already carries substantial traffic volumes, the scale effects are 
minimal, and so the benefits to end users of lower prices are also 
minimal. Thus, according to Ingberman, siting new traffic on smaller 
(rural) networks, as access stimulators do, must raise economic well-
being.
    25. We reject Ingberman's claim that lower consumer prices from 
siting new traffic on a smaller network are likely to be significant, 
if they arise at all. The Commission's high cost universal service 
program provides support to carriers in rural, insular, and high cost 
areas as necessary to ensure that consumers in such areas pay rates 
that are reasonably comparable to rates in urban areas. Thus, smaller 
rural carrier rates for end users will always be comparable to larger 
carrier rates whether the smaller carrier is a rural incumbent LEC that 
receives universal service support or is a competitive LEC that does 
not receive such support but competes on price against a rural 
incumbent LEC that does. Given reasonably comparable rates, siting new 
traffic on a smaller network is not likely to significantly lower, and 
may make no difference to, rates charged to end users of the smaller 
network.
    26. Ingberman also fails to establish the validity of his claim 
that increased access traffic on a LEC network would result in lower 
prices to its end-user customers. In particular, he has not established 
that as a practical matter, increasing access traffic on a LEC's 
network lowers the LEC's cost of serving its end-user customers. 
Without lowering such costs, a LEC would have no incentive to lower 
prices to its end-user customers. The access-stimulating LEC would 
simply continue to charge its profit-maximizing price to its retail

[[Page 57633]]

customers, while pocketing the windfall from access arbitrage.
    27. We find several other fundamental problems with the Ingberman 
Report. Although Ingberman acknowledges that IXCs pay terminating 
switched access charges (which are often paid both to intermediate 
access providers and access-stimulating LECs), his model assumes bill-
and-keep pricing. That is, Ingberman assumes away the central issue 
this proceeding must deal with: The use of intercarrier compensation 
charges to fund access stimulators' operations. Consequently, his 
analysis does not take into account the cost that access stimulators 
impose on larger networks and their subscribers. It also fails to model 
access-stimulating services, beyond assuming they bring traffic to the 
smaller network. But these services are delivered in highly inefficient 
ways, relying on unusually expensive calling paths. These services also 
are sold in highly inefficient ways, almost always below the efficient 
cost of delivery of such services. Nor does Ingberman's model account 
for the time and effort taken to generate traffic, often fraudulent, 
for access stimulation, and to develop the complex schemes and 
contracting relationships that generate access-stimulating LEC profits. 
Moreover, there is no recognition of the cost of IXCs engaging in 
otherwise unnecessary, and hence, wasteful, efforts to identify 
fraudulent traffic or to find ways to avoid the abuses of our tariffing 
regime perpetrated by access stimulators. Similarly, the model provides 
no means for estimating the efficiency costs of allowing terminating 
switched access charges that not only exceed marginal cost, but also 
total costs. These are all significant costs for which any model should 
account.
    28. Further, we find misplaced arguments by some commenters that 
there is no evidence that IXCs' customers will benefit from reduced 
access arbitrage. Reducing the costs created by access arbitrage by 
reducing the incentives that lead carriers to engage in such arbitrage 
is a sufficient justification for adopting our rules, regardless of how 
IXCs elect to use their cost savings. The Commission has recognized for 
many years that long-distance service is competitive, and we generally 
expect some passthrough of any decline in costs, marginal or otherwise. 
To the extent passthrough does not occur, IXC shareholders are 
presently subsidizing users of access-stimulating services, which 
distorts economic efficiency in the supply of those services. Even if 
we cannot precisely quantify the effects of past reforms (given the 
many simultaneously occurring technological and marketplace 
developments), as a matter of economic theory, we expect some savings 
to flow through to IXCs' customers or the savings to be available for 
other, beneficial purposes. For example, IXCs will no longer have to 
expend resources in trying to defend against access-stimulation 
schemes, and consumers will be provided with more-accurate pricing 
signals for high-volume calling services. More fundamentally, these 
commenters fail to explain how a policy that enables a below-cost 
(sometimes zero) price for services supplied by high-volume calling 
service providers and general telephone rates that subsidize these 
high-volume calling services could be expected to produce efficient 
production and consumption outcomes.
    29. We also find no merit to arguments that IXCs will be able to 
seize new arbitrage opportunities as a result of the rules we adopt in 
this document. Aureon, for example, argues that IXCs will be 
``incentivized to increase arbitrage traffic volume,'' without 
explaining how IXCs would accomplish such a task. The Joint CLECs argue 
that if the new rules decrease the use of ``free'' conference calling 
services, IXCs will realize greater use of their own conference calling 
products and greater revenue while also benefiting from reduced access 
charges. If our amended rules force ``free'' service providers to 
compete on the merits of their services, rather than survive on 
implicit subsidies, that outcome is to be welcomed because it would 
represent competition driving out inefficient suppliers in favor of 
efficient ones. Nothing we do in this document shifts arbitrage 
opportunities to the IXCs or to any provider; we are attacking implicit 
subsidies that allow high-volume calling services to be offered for 
free, sending incorrect pricing signals and distorting competition. In 
addition, as AT&T explains, IXCs have engaged in a decade-long campaign 
to end the practice of access arbitrage because they and their 
customers are the targets of such schemes.
    30. AT&T expresses concern that IXCs will be obligated to deliver 
access-stimulated traffic to remote tandem locations and to pay the 
related excessive transport fees for connecting to that remote tandem 
if access-stimulating LECs decide to build new end office switches in 
remote areas, and their affiliates decide to deploy new tandem switches 
in similarly remote locations. AT&T therefore suggests that we limit 
the IXCs' delivery obligations to only those tandem switches in 
existence as of January 1, 2019. AT&T does not point to any existing 
legal requirements that an IXC must agree to a new point of 
interconnection designated by an access-stimulating LEC should the 
access-stimulating LEC unilaterally attempt to move the point of 
interconnection. As such, we decline to address AT&T's hypothetical 
concern at this time.
    31. Various commenters have described a practice wherein calls 
routed to an access-stimulating LEC are blocked or otherwise rejected 
by the high-volume calling service provider served by the access-
stimulating LEC and/or the terminating LEC, but then successfully 
completed when rerouted. We make clear that in the case of traffic 
destined for an access-stimulating LEC, when the access-stimulating LEC 
is designating the route to reach its end office and paying for the 
tandem switching and transport, the IXC or intermediate access provider 
may consider its call completion duties satisfied once it has delivered 
the call to the tandem designated by the access-stimulating LEC, either 
in the LERG or in a contract.
    32. We also reject several suggestions that we should not move 
forward with this rulemaking. For example, commenters suggest that we 
issue a further notice of proposed rulemaking to seek additional 
comment on the issues raised in the proceeding, decline to adopt 
changes to address access arbitrage, refocus the proceeding to ensure 
that tandem switching and tandem switched transport access charges 
remain available to subsidize their access stimulation-fueled 
operations, or ``revisit'' the rule's trigger and explore a different, 
mileage-based mechanism. The Joint CLECs, a set of access-stimulating 
LECs, go as far as arguing that we should close this docket without 
taking action. For its part, T-Mobile suggests that we address ongoing 
arbitrage and fraud by enforcing current rules without further 
rulemaking. We disagree with these suggestions; the record shows that 
access arbitrage schemes have adapted to the reforms adopted in 2011. 
We will not postpone adoption of amendments to our rules that address 
the way today's access arbitrage schemes use implicit subsidies in our 
ICC system to warp the economic incentives to provide service in the 
most efficient manner.
    33. We also decline to adopt Wide Voice's alternative suggestions 
that we either cap transport miles charged by access-stimulating LECs 
to 15 miles or hold access-stimulating LECs responsible only for 
transport mileage charges, not switching charges. In support of these 
positions, Wide Voice

[[Page 57634]]

alleges, without offering any support, that transport charges are the 
primary driver of access stimulation. Nor does Wide Voice explain how a 
mileage cap would reduce access arbitrage. By contrast, the record 
demonstrates that reversing the financial responsibility for both 
transport and tandem switching charges will help eliminate access 
arbitrage. Either of these proposals would, however, benefit Wide Voice 
which does not charge for transport.
    34. We also decline to adopt Aureon's suggestion that would allow 
IXCs to charge their subscribers an extra penny per minute for calls to 
access stimulators. There is no evidence that access-stimulating calls 
currently cost a penny per minute, so the proposal would simply trade 
one form of inefficiency for another. We are also concerned that 
adopting such an overbroad proposal to address the stimulation of 
tandem switching and transport charges would confuse consumers and 
unnecessarily spill into, and potentially negatively affect, the 
operation of the more-competitive wireless marketplace and the choices 
consumers have made when selecting wireless calling plans.
    35. At the same time, we remain unwilling to adopt an outright ban 
on access stimulation. As the Commission concluded in the USF/ICC 
Transformation Order, prohibiting access stimulation in its entirety or 
finding that revenue sharing is a per se violation of section 201 of 
the Act would be an overbroad solution ``and no party has suggested a 
way to overcome this shortcoming.'' Instead, the Commission chose to 
prescribe narrowly focused conditions for providers engaged in access 
stimulation. We adhere to that view in this document because there is 
still no suggestion as to how a blanket prohibition could be tailored 
to avoid it being overbroad. We believe the rules we adopt in this 
document strike an appropriate balance between addressing access 
stimulation and the use of intermediate access providers while not 
affecting those LECs that are not engaged in access stimulation. The 
rules adopted in this document are not overbroad. They are consistent 
with the policies adopted in the USF/ICC Transformation Order and are 
the product of notice and record support.
    36. Having concluded that a modified version of the first prong of 
the Commission's proposal in the Access Arbitrage Notice will 
adequately address current access arbitrage practices, we decline to 
adopt the second prong of the proposal. Prong 2 of that proposal would 
have provided access-stimulating LECs an opportunity to avoid financial 
responsibility for the delivery of traffic from an intermediate access 
provider to the access-stimulating LEC's end office or functional 
equivalent by offering to accept direct connections from IXCs or an 
intermediate access provider of the IXC's choice. The record offers no 
support for the adoption of Prong 2 as drafted, and we agree with 
various concerns raised in the record that access-stimulating LECs 
could nullify any benefits of this approach. For example, Prong 2 could 
allow access-stimulating LECs to avoid financial responsibility by 
operating in remote locations where direct connections would be 
prohibitively expensive or infeasible and alternative intermediate 
access providers may be nonexistent or prohibitively expensive. Under 
such circumstances, Prong 2 would be ineffective at curbing the 
practice while increasing disputes over the terms of direct connections 
before the courts and the Commission.
    37. Likewise, even where establishing a direct connection may 
initially appear cost-effective, the ease with which access stimulation 
traffic may be shifted from one carrier to another undermines the value 
of making the investment. After a direct connection premised on high 
traffic volume has been established at an access-stimulating LEC's 
original end office, the access-stimulating LEC or providers of access-
stimulating services could move traffic to a different and more distant 
end office, thus stranding the financial investment to build that 
direct connection with minuscule traffic volume after the access 
stimulation activity has shifted locations. We conclude that requiring 
a shift in financial responsibility for the delivery of traffic from 
the IXC to the access-stimulating LEC end office or its functional 
equivalent is sufficient, at this time, to address the inefficiencies 
caused by access stimulation relating to intermediate access providers. 
The attractiveness of these schemes will necessarily wane once the 
responsibility of paying for any intermediate access provider's charges 
is shifted to access-stimulating LECs. As a general matter, we 
acknowledge that companies can currently, and will continue to be able 
to, negotiate individual direct connection agreements and leave the 
possibility of a policy pronouncement regarding direct connections for 
consideration as part of our broader intercarrier compensation reform 
efforts.
    38. In the Access Arbitrage Notice, the Commission sought comment 
on moving to a bill-and-keep regime all terminating tandem switching 
and tandem switched transport rate elements for access-stimulating LECs 
or the intermediate access providers they choose. Contrary to the 
claims of some commenters, the rules we adopt in this document are 
consistent with our goal of moving toward bill-and-keep. They prohibit 
access-stimulating LECs from recovering their tandem switching and 
transport costs from IXCs, leaving access-stimulating LECs to recover 
their costs from high-volume calling service providers that use the 
LECs' facilities. Likewise, the rules we adopt treat access-stimulating 
LECs as the customers of the intermediate access providers they select 
to terminate their traffic and allow those intermediate access 
providers to recover their costs from access-stimulating LECs. Thus, we 
allow intermediate access providers to continue to apply their tandem 
switching and transport rates to traffic bound for access-stimulating 
LECs, but those rates must be charged to the access-stimulating LEC, 
not the IXC that delivers the traffic to the intermediate access 
provider for termination.
2. Redefining ``Access Stimulation''
    39. In recognition of the evolving nature of access-stimulation 
schemes, we amend the definition of ``access stimulation'' in our rules 
to include situations in which the access-stimulating LEC does not have 
a revenue sharing agreement with a third party. In so doing, we leave 
the current test for access stimulation in place. That test requires, 
first, that the involved LEC has a revenue sharing agreement and, 
second, that it meets one of two traffic triggers. The LEC must either 
have an interstate terminating-to-originating traffic ratio of at least 
3:1 in a calendar month or have had more than a 100% growth in 
interstate originating and/or terminating switched access minutes-of-
use in a month compared to the same month in the preceding year. We add 
two, alternate tests that require no revenue sharing agreement. First, 
under our newly amended rules, competitive LECs with an interstate 
terminating-to-originating traffic ratio of at least 6:1 in a calendar 
month will be defined as engaging in access stimulation. Second, under 
our newly amended rules, we define a rate-of-return LEC as engaging in 
access stimulation if it has an interstate terminating-to-originating 
traffic ratio of at least 10:1 in a three calendar month period and has 
500,000 minutes or more of interstate terminating minutes-of-use per 
month in an end office in the same three calendar month period. These 
factors will be measured as an average over the same three calendar-
month period. Our

[[Page 57635]]

decision to adopt different triggers for competitive LECs as compared 
to rate-of-return LECs reflects the evidence in the record that there 
are structural barriers to rate-of-return LECs engaging in access 
stimulation, and at the same time, a small but significant set of rate-
of-return LECs can experience legitimate call patterns that would trip 
the 6:1 trigger.
    40. We adopt these alternate tests for access stimulation because, 
as one commenter explains, as terminating end office access charges 
move toward bill-and-keep, ``many entities engaged in access 
stimulation have re-arranged their business to circumvent the existing 
rules by reducing reliance on direct forms of revenue sharing.'' Or, as 
another commenter explains, the revenue sharing trigger is creating 
incentives for providers to ``become more creative in how they bundle 
their services to win business and evade'' the rules. We also are 
concerned about a prediction in the record that if we were to adopt the 
rules originally proposed in the Access Arbitrage Notice, without more, 
access-stimulating LECs will cease revenue sharing in an effort to 
avoid triggering the proposed rules, even while continuing conduct that 
is equivalently problematic.
    41. A number of commenters describe ways that carriers and their 
high-volume calling service partners may be profiting from arbitrage 
where their actions may not appear to fit the precise provisions of our 
revenue sharing requirement. For example, T-Mobile reports that some 
LECs create ``shell companies to serve as their intermediate provider, 
and then force carriers to send traffic to that intermediate provider, 
who charges a fee shared with the ILEC.'' Aureon posits that tandem 
provider HD Tandem could receive payment from a LEC or an IXC to 
provide intermediate access service and then share its revenues 
directly with its high-volume calling service affiliate without sharing 
any revenue with the terminating LEC. Also, an access-stimulating LEC 
that is co-owned with a high-volume calling service provider could 
retain the stimulated access revenues for itself, while letting the 
high-volume calling service provider operate at a loss. In those 
situations, the LEC would not directly share any revenues. Likewise, 
Inteliquent suggests that there would be no revenue sharing if the same 
corporate entity that owns a high-volume calling service provider also 
owns an end office, or if switch management is outsourced to a high-
volume calling platform or its affiliate. In those cases, the revenue 
would remain under the same corporate entity and not come from separate 
entities sharing ``billing or collection of access charges from 
interexchange carriers or wireless carriers.'' Because of these 
concerns, we find it reasonable and practical to adopt additional 
triggers in our rules that define access stimulation to exist when a 
LEC has a highly disproportionate terminating-to-originating traffic 
ratio. We, therefore, keep the revenue sharing requirement of Sec.  
61.3(bbb)(1)(i) as is, and adopt two alternative prongs of the 
definition of access stimulation that do not require revenue sharing.
    42. Some commenters have ``no objection if the revenue sharing 
aspect of the definition is eliminated'' and if the Commission were to 
rely solely on traffic measurement data. However, the record shows that 
the current definition has accurately identified LECs engaged in access 
stimulation. We therefore find that the better course is to leave the 
current test in place and add two alternate tests for access 
stimulation that do not include revenue sharing, and have higher 
traffic ratios.
    43. A Higher Traffic Ratio Is Justified When No Revenue Sharing 
Agreement Is in Place. In adopting two alternative tests for access 
stimulation that do not include a revenue sharing component, we are 
mindful of the importance of identifying those LECs engaging in access 
stimulation while not creating a definition that is overbroad, 
resulting in costly disputes between carriers and confusion in the 
market. First, in an effort to be conservative and not overbroad, we 
adopt an alternative test of the access-stimulation definition for 
competitive LECs, which requires a higher terminating-to-originating 
traffic ratio than the 3:1 ratio currently in place. We find that a 6:1 
or higher terminating-to-originating traffic ratio for competitive LECs 
provides a clear indication that access stimulation is occurring, even 
absent a revenue sharing agreement. We could establish a smaller ratio; 
however, we agree with Teliax that tightening the ratio ``would most 
certainly catch normal increases in traffic volumes,'' and thus be 
overinclusive. We also want to protect non-access-stimulating LECs from 
being misidentified. We have selected a 6:1 ratio, which is twice the 
existing ratio and is the ratio recommended by Inteliquent. The 6:1 
ratio should help to capture any access-stimulating competitive LECs 
that decide to cease revenue sharing, as well as any access-stimulating 
competitive LECs that already may have ceased revenue sharing, or that 
currently are not doing so.
    44. This larger ratio is sufficient to prevent the definition from 
ensnaring competitive LECs that have traffic growth solely due to the 
development of their communities. We do not find compelling Wide 
Voice's suggestion that an access-stimulating LEC that exceeds the 6:1 
ratio would have an incentive to try to game the system by obtaining 
more originating traffic, such as 8YY traffic, to stay below the 6:1 
ratio or move traffic to other LECs to avoid tripping the trigger. All 
LECs, not just access-stimulating LECs, should have an incentive to 
obtain more traffic, whether it's originating 8YY traffic or 
terminating traffic. However, there is no evidence that access-
stimulating LECs are currently able to avoid the 3:1 trigger by simply 
carrying more originating traffic or moving traffic, and Wide Voice 
offers no evidence that doing so will be a simple matter for LECs 
seeking to avoid the 6:1 ratio that we are adding to capture LECs 
engaging in this scheme without a revenue sharing agreement. We do not 
include a threshold for number of minutes of interstate traffic carried 
by a competitive LEC to meet the test for an access-stimulating 
competitive LEC because there is no justification in the record for a 
specific number.
    45. We adopt a separate alternative test for determining whether a 
rate-of-return LEC is engaged in access stimulation in part to address 
NTCA and other commenters' concerns that ``eliminating the revenue 
sharing component of the definition of access stimulation . . . could 
immediately have the inadvertent effect of treating innocent RLECs as 
access stimulators when they do not engage in that practice at all.'' 
In adopting a second alternate access-stimulation definition applicable 
only to rate-of-return LECs we recognize that the majority of those 
carriers are small, rural carriers with different characteristics than 
competitive LECs. For example, unlike access-stimulating LECs that only 
serve high-volume calling providers, rate-of-return carriers, which 
serve small communities and have done so for years, would not be able 
to freely move stimulated traffic to different end offices. In 
addition, as NTCA explains, such carriers also may have traffic ratios 
that are disproportionately weighted toward terminating traffic because 
their customers have shifted their originating calls to wireless or 
VoIP technologies. This trend is reflected in the Commission's Voice 
Telephone Services Report-June 2017. We also agree with NTCA that small 
rate-of-return LECs' traffic may be more sensitive to seasonal changes 
in the ratio of their terminating-to-originating access minutes because 
of

[[Page 57636]]

the unique geographical areas they serve and thus may have spikes in 
call volume with a greater impact on traffic ratios than would be 
experienced by carriers with a larger base of traffic spread over a 
larger, more populated, geographical area.
    46. The second alternate definition we adopt strikes an appropriate 
balance. It recognizes the potential that small, non-access-
stimulating, rate-of-return carriers may have larger terminating-to-
originating traffic ratios than competitive LECs and ``avoid[s] 
penalizing innocent LECs that may have increased call volumes due to 
new economic growth,'' for example. NTCA shows that application of a 
6:1 ratio to rate-of-return LECs would identify as access-stimulating 
LECs approximately 4% of rate-of-return LECs that participate in the 
National Exchange Carrier Association (NECA) pool even though they are 
not actually engaged in access stimulation. NTCA and AT&T therefore 
recommend that, for rate-of-return carriers, we adopt a second test for 
access stimulation that is based on a 10:1 traffic ratio combined with 
traffic volume that exceeds 500,000 terminating interstate minutes per 
end office per month averaged over three months. We agree with NTCA and 
AT&T that their proposed 10:1 trigger is reasonable given that a small 
but significant number of rate-of-return LECs that are apparently not 
engaged in access arbitrage would trip the 6:1 trigger; the structural 
disincentives for rate-of-return LECs to engage in access stimulation; 
and the lack of evidence that rate-of-return LECs are currently engaged 
in access stimulation. We also think that a threshold of 500,000 
terminating interstate minutes per month is a reasonable trigger for 
rate-of-return LECs. By its very nature, access stimulation involves 
termination of a large number of minutes per month, as such, excluding 
the smallest rate-of-return carriers from the definition is a sensible 
approach. Thus, for rate-of-return LECs, we adopt a 10:1 ratio as 
demonstrating access stimulation activity when combined with more than 
500,000 interstate terminating minutes-of-use per month, per end 
office, averaged over three calendar months.
    47. We also agree with NTCA that ``any access stimulation trigger 
be based on actual minutes of use as measured by the LEC traversing the 
switch, rather than by reference to billing records.'' This is how the 
ratio is currently calculated and it should remain the case that when 
calculating the current 3:1 terminating-to-originating traffic trigger, 
or the 6:1 or 10:1 triggers adopted in this Order, carriers must look 
to the actual minutes traversing the LEC switch. This combination of a 
traffic ratio and a minutes-of-use threshold for rate-of-return 
carriers is consistent with the Commission's approach in the USF/ICC 
Transformation Order to ensure that the definition is not over-
inclusive but is enforceable. In addition, we find that measuring this 
ratio and the average monthly minutes-of-use threshold over three 
months will adequately account for the potential seasonal spikes in 
calling volumes identified by NTCA.
    48. Although no party has raised concerns about how the existing 
3:1 traffic ratio is calculated, we received specific questions about 
calculating the 6:1 ratio. We clarify that all traffic should be 
counted regardless of how it is routed. Contrary to Wide Voice's 
assertions, originating traffic using tariffed access services counts 
as does originating traffic using a ``least cost router under 
negotiated billing arrangements outside of the access regime.'' All 
originating and terminating interstate traffic should be counted in 
determining the interstate terminating-to-originating traffic ratio. 
This also means that all terminating traffic from all sources, not just 
one IXC, should be counted in determining a traffic ratio.
    49. We recognize the possibility that a LEC may experience 
significant traffic growth and if, for example, such customers include 
one or more inbound call centers, the result could be that its traffic 
exceeds one of the new traffic ratio triggers we adopt. We are not 
aware of any similar problems occurring with the existing 3:1 ratio and 
the record contains no evidence of that happening. Nonetheless, 
consistent with the Commission's decision in the USF/ICC Transformation 
Order, should a non-access-stimulating LEC experience a change in its 
traffic mix such that it exceeds one of the ratios we use to define 
access-stimulating LECs, that LEC will have ``an opportunity to show 
that they are in compliance with the Commission's rules.'' In addition, 
as Sprint correctly points out if a LEC, not engaged in arbitrage, 
finds that its traffic will exceed a prescribed terminating-to-
originating traffic ratio, the LEC may request a waiver. We find these 
alternatives will protect non-access-stimulating LECs from false 
identification as being engaged in access stimulation.
    50. Identifying When a LEC Is No Longer Engaged in Access 
Stimulation. Because we are adding two alternate bases for identifying 
access stimulation, we also must modify the rule that defines when a 
LEC is no longer engaged in access stimulation. The existing rule 
provides that a LEC is no longer engaged in access stimulation when it 
ceases revenue sharing. We amend our rules to provide that a 
competitive LEC that has met the first set of triggers for access 
stimulation will continue to be considered to be engaging in access 
stimulation until it terminates all revenue sharing arrangements and 
does not meet the 6:1 terminating-to-originating traffic ratio; and a 
competitive LEC that has met the 6:1 ratio will continue to be 
considered to be engaging in access stimulation until it falls below 
that ratio for six consecutive months, and it does not qualify as an 
access-stimulating LEC under the first set of triggers.
    51. We amend our rules to provide that a rate-of-return LEC that 
has met the first set of triggers for access stimulation will continue 
to be considered to be engaging in access stimulation until it: (1) 
Terminates all revenue sharing arrangements; (2) does not meet the 10:1 
terminating-to-originating traffic ratio; and (3) has less than 500,000 
minutes of average monthly interstate terminating traffic in an end 
office (measured over the three-month period). A rate-of-return LEC 
that has met the 10:1 ratio and 500,000 minutes-per-month threshold 
will continue to be considered to be engaging in access stimulation 
until its traffic balance falls below that ratio and that monthly 
traffic volume for six consecutive months, and it does not qualify as 
an access-stimulating LEC under the first set of triggers. We find that 
a six-month time frame will accurately signal a change in either a 
competitive LEC's or a rate-of-return LEC's business practices rather 
than identify a short-term variation in traffic volumes that may not 
repeat in the following months.
    52. We also make a minor modification to Sec.  61.3(bbb)(4) which 
states that LECs engaged in access stimulation are subject to revised 
interstate switched access rates. When the rule was adopted in the USF/
ICC Transformation Order, the Commission stated that revised interstate 
switched access rates applied to both rate-of-return LECs and 
competitive LECs. However, the rule adopted in that Order, Sec.  
61.3(bbb)(2), refers to the rate regulations applicable only to rate-
of-return carriers. In the Access Arbitrage Notice, we asked for 
comments on the rules, and received no comments on this issue. We 
therefore modify (now relabeled) Sec.  61.3(bbb)(4) to refer to the 
rate regulations for competitive LECs as well as rate-of-return LECs. 
The revised Sec.  61.3(bbb)(4) therefore specifies that a LEC engaging 
in access stimulation is subject to revised interstate switched

[[Page 57637]]

access charge rules under Sec.  61.26(g) (for competitive LECs), or 
Sec. Sec.  61.38 and 69.3(e)(12) (for rate-of-return LECs).
    53. In response to comments, the rule we adopt specifically states 
that a LEC that is not itself engaged in access stimulation, but is an 
intermediate access provider for a LEC engaged in access stimulation, 
shall not itself be deemed a LEC engaged in access stimulation. In 
addition, some commenters express concern that the breadth of the 
proposed rules may pose adverse consequences for non-access-stimulating 
LECs. NTCA cautions that ``LECs that do not qualify as access 
stimulators under the Commission's rules but which subtend the same CEA 
as those who do [may] be inadvertently affected by the Commission's 
reforms.'' We do not foresee such an issue with the rules. The rules we 
adopt in this document do not alter the financial responsibilities of 
any LEC that is not engaged in access stimulation regardless of whether 
it subtends the same CEA provider as an access-stimulating LEC. We are 
nevertheless concerned about arguments that high-volume calling 
providers may not be considered end users. Thus, we make clear that, 
for purposes of the definition of access stimulation, a high-volume 
calling provider, such as a ``free'' conference calling provider or a 
chat line provider, is considered an end user regardless of how that 
term is defined in an applicable tariff. Thus, a LEC that provides 
service to such a high-volume calling provider will be considered a 
rate-of-return local exchange carrier serving end user(s), or a 
Competitive Local Exchange Carrier serving end user(s).
    54. Having amended our access stimulation rules as they relate to 
the relationship among access-stimulating LECs, ``interexchange 
carriers,'' and ``intermediate access providers'' for the delivery of 
access-stimulated traffic, we agree with AT&T on the need to define 
those terms to provide clarity. We therefore define ``interexchange 
carrier'' to mean ``a retail or wholesale telecommunications carrier 
that uses the exchange access or information access services of another 
telecommunications carrier for the provision of telecommunications'' 
(emphasis added). We define ``intermediate access provider'' to mean 
``any entity that carries or processes traffic at any point between the 
final Interexchange Carrier in a call path and a local exchange carrier 
engaged in access stimulation, as defined by Sec.  61.3(bbb).'' In 
adopting this definition, we recognize the Joint CLECs' concern that 
there may be more than one intermediate access provider in a call path. 
The use of the phrases ``any entity'' and ``any point'' is broad enough 
to allow for more than one intermediate access provider between the 
final IXC and the LEC even though we question the likelihood of this 
hypothetical. And the access-stimulating LEC will choose the 
intermediate access provider(s) to deliver the traffic to the LEC. The 
adopted definitions are slightly different than those proposed in the 
Access Arbitrage Notice to help ensure clarity going forward. We have 
amended our rules under part 51-Interconnection and have also added 
conforming rules applicable to access-stimulating LECs to the relevant 
tariffing sections since these rules will require tariff changes. We 
believe these changes to the rules proposed in the Access Arbitrage 
Notice will allow better ease of reference.
    55. Moreover, we encourage self-policing of our access-stimulation 
definition and rules among carriers. IXCs and intermediate access 
providers, including CEA providers, likely will have traffic data to 
demonstrate infractions of our rules, such as a LEC meeting the 
conditions for access stimulation but not filing a notice or revised 
tariffs as discussed in the Implementation section below. If an IXC or 
intermediate access provider has evidence that a LEC has failed to 
comply with our access-stimulation rules, it could file information in 
this docket, request that the Commission initiate an investigation, 
file a complaint with the Commission, or notify the Commission in some 
other manner.
    56. Finally, we reject several arguments from commenters regarding 
the definition of access stimulation. First, we reject Wide Voice's 
suggestion that we abandon the current definition of access stimulation 
entirely because its usefulness has ``largely expired with the 
sunsetting of the end office.'' This sentiment is belied by commenters 
that confirm the current definition has worked as intended to identify 
LECs engaged in access stimulation. We likewise reject Wide Voice's 
proposed alternative, which would define access stimulation as 
``traffic originating from any LEC behind a CEA tandem with total 
minutes (inbound + outbound) in excess of 1000 times the number of its 
subscribers in its service area.'' We agree with commenters that Wide 
Voice's ``comments are obviously intended to further arbitrage 
activities, rather than stop them.'' Wide Voice is certified as a 
competitive LEC in dozens of states, but has not built out facilities 
in Iowa, South Dakota, and Minnesota. By suggesting that we abandon our 
current definition of access stimulation in favor of one that applies 
only in the states with CEA tandems, Wide Voice and others would be 
free to stimulate access charges without federal regulatory restraint 
in the 47 states that do not have CEA tandems. Furthermore, the 
mathematical formula proposed by Wide Voice is too broad because by 
including originating minutes in the formula, it is not focused on 
eliminating terminating access stimulation.
    57. Second, FailSafe and Greenway suggest that the current access-
stimulation definition be made more restrictive. They both argue that 
the existing traffic growth trigger in the access-stimulation 
definition--which requires that there is more ``than a 100 percent 
growth in interstate originating and/or terminating switched access 
minutes-of-use in a month compared to the same month in the preceding 
year''--could have the unintended consequence of labelling competitive 
LECs as engaged in access stimulation ``simply by beginning to provide 
services'' and thus presumably increasing their volume of traffic from 
no traffic to some traffic. This suggestion and the concern these 
parties raise fail for at least two reasons. First, the 100% traffic 
growth trigger compares a month's switched access minutes with the 
minutes-of-use from the same month in the previous year. A competitive 
LEC that was not in business the previous year would not qualify 
because the absence of any monthly demand in the prior year renders 
this comparison inapposite, and the requisite calculation to satisfy 
the trigger cannot be performed. Second, the 100% traffic growth 
trigger is only one part of that portion of the definition. The 
competitive LEC must also have a revenue sharing agreement, which 
presumably a new non-access-stimulating competitive LEC in Greenway's 
hypothetical would not have. Neither Greenway nor FailSafe cites any 
LEC that has been misidentified as engaged in access stimulation under 
the current definition using the traffic growth trigger. They also do 
not suggest how they would revise the current access-stimulation 
definition to restrict its possible application and avoid the 
misidentification they suggest might result. We find that this 
hypothetical concern is already addressed by the existing rule. 
FailSafe is similarly concerned that this rule would identify emergency 
traffic to its cloud service as access stimulation traffic. This 
concern is unwarranted: our rules do not define types of traffic, but 
rather define certain LECs as being engaged in access

[[Page 57638]]

stimulation. Additionally, LECs that suffer legitimate traffic spikes 
from events such as natural disasters will have the opportunity to 
present relevant evidence if they file waiver requests with the 
Commission.
    58. Third, HD Tandem takes the opposite view and argues that the 
access-stimulation definition should be broadened ``to apply to any 
carrier with a call path that assesses access charges of any kind 
(shared or not) and unreasonably refuses to direct connect, or its 
functional equivalent, with other carriers with reciprocity.'' 
Similarly, CenturyLink proposes that we shift financial responsibility 
to any LEC, including those not engaged in access stimulation, that 
declines a request for direct connection for terminating traffic. Both 
of these suggestions go beyond the issue of access stimulation and the 
current record does not provide a sufficient basis to evaluate the 
impact of either proposal on LECs that are not engaged in access 
stimulation. And, as discussed above, we do not adopt the Commission's 
direct connection proposal, at this time, and also find that nothing in 
the record would justify HD Tandem's suggested expansion of the access-
stimulation definition.
    59. Fourth, we reject Inteliquent's and HD Tandem's suggestions 
that we add a mileage cap to the access-stimulation definition. When 
Inteliquent proposed the 6:1 ratio, it also proposed that the access 
stimulation definition should require that ``[m]ore than 10 miles [be] 
billed between the tandem and the serving end office,'' and that the 
end office have interstate terminating minutes-of-use of ``at least 1 
million in one calendar month.'' We are including a minutes-of-use 
trigger with the new alternate 10:1 traffic ratio for rate-of-return 
LECs. However, we decline to add a cap on transport mileage because as 
HD Tandem admits, a mileage cap ``would not eliminate the use of 
intercarrier compensation to subsidize `free' or `pay services.'' In 
supporting a mileage cap of 15 miles, Wide Voice claims that such a cap 
would reduce the estimated $80 million cost of access stimulation by 
about $54 million. However, Wide Voice's calculations appear to assume 
that all transport costs are eliminated not just those that exceed 15 
miles, and assumes that access-stimulating LECs and the intermediate 
access providers that serve them would not simply adjust their business 
practices to take into account such a cap.
    60. Indeed, a mileage cap would invite access stimulation because a 
LEC could avoid being designated as an access-stimulating LEC and 
incurring the corresponding financial responsibly by limiting its 
transport charges to avoid tripping the mileage cap trigger. For 
example, a definition of access stimulation that included a requirement 
that to fit the definition a LEC bill for 10 miles or more of transport 
would allow a LEC to bill for just under 10 miles of transport while 
having a terminating-to-originating traffic ratio of 1000:1. 
Furthermore, a mileage cap would not deter access-stimulating LECs that 
receive transport from intermediate access providers that do not charge 
mileage, such as Wide Voice and HD Tandem.
    61. We also reject arguments that there was insufficient notice for 
the addition of additional triggers for the definition of access 
stimulation. The Access Arbitrage Notice clearly sought comment on 
changing the definition of access stimulation. Indeed, there was 
express notice that the Commission could adopt a rule ``remov[ing] the 
revenue sharing portion of the definition'' of access stimulation, 
leaving a definition triggered by either a 3:1 traffic ratio or 100% 
year-over-year traffic growth alone. We are not persuaded that 
commenters have identified concerns about a rule relying on the 6:1 or 
10:1 traffic ratios that they should not already have recognized the 
need to raise in response to that express notice.
    62. Some commenters have complained that not enough data was 
submitted in the record in this proceeding. However, in the Access 
Arbitrage Notice, the Commission asked whether there are ``additional, 
more-current data available to estimate the annual cost of arbitrage 
schemes to companies, long distance rate payers, and consumers in 
general''; whether there are ``data available to quantify the resources 
being diverted from infrastructure investment because of arbitrage 
schemes''; whether ``consumers are indirectly affected by potentially 
inefficient networking and cost recovery due to current regulations and 
the exploitation of those regulations''; and whether there are ``other 
costs or benefits'' the Commission should consider. The Commission 
asked for the costs and benefits of its two-prong approach, and the 
``costs and benefits of requiring a terminating provider that requires 
the use of a specific intermediate access provider to pay the 
intermediate access provider's charges.'' The Commission could not have 
been more clear in its request for data. If the commenters are 
dissatisfied with the amount of data provided to the Commission, it 
certainly was not due to the Commission not asking for it.
    63. Contrary to several parties' assertions, the Commission's 
adoption of the 6:1 traffic trigger is not arbitrary and capricious. 
This section of the Order reviews the numerous viewpoints expressed by 
the parties to this proceeding and explains our rationales for our 
decisions. We have considered and provided reasons for rejecting a 
mileage cap, despite the fact that Peerless and West's emphasis on the 
mileage cap arguably is self-serving. Likewise, Peerless and West's 
alleged concern for the impact of our decision on ``innocent LECs'' has 
been addressed several times in this Order. Our concern about 
``innocent rate-of-return LECs'' and our review of the data submitted 
by parties such as NTCA, AT&T, and Inteliquent supports the adoption of 
the 6:1 and 10:1 traffic ratios. We also have explained ways that 
``innocent LECs,'' that have traffic patterns that would cause them to 
surpass the traffic ratios, may seek assistance from the Commission. As 
Peerless and West admit, a court's review of an agency's action is a 
narrow one. Peerless and West cannot discount our extensive review and 
consideration of the numerous viewpoints expressed in this proceeding, 
and our explanation for rejecting or accepting each viewpoint. The fact 
that Peerless and West may disagree with this agency's decision is not 
dispositive. The Commission has gone to great lengths to explain the 
facts found and to articulate a rational connection with the choices 
made.
3. Additional Considerations
    64. Self-Help. Our focus here is on reducing access stimulation, 
and no commenters have argued that limiting self-help remedies will 
further that goal. As the Commission did in the USF/ICC Transformation 
Order, we caution parties to be mindful ``of their payment obligations 
under the tariffs and contracts to which they are a party.'' We 
discourage providers from engaging in self-help except to the extent 
that such self-help is consistent with the Act, our regulations, and 
applicable tariffs. Intercarrier compensation disputes involving 
payment for stimulated traffic have become commonplace, with IXCs 
engaging in self-help by withholding payment to access-stimulating 
LECs. As a result, several commenters request that we address self-help 
remedies in access arbitrage disputes, and others would like us to 
disallow self-help more broadly. We decline those requests. Disallowing 
self-help, whether in the access stimulation context or not, would be 
inconsistent with existing tariffs,

[[Page 57639]]

some of which permit customers to withhold payment under certain 
circumstances.
    65. We also decline to adopt other tariff-related recommendations 
made by commenters. AT&T, for example, suggests that we ``eliminate 
tariffing of tandem and transport access services on access stimulation 
traffic.'' We believe this suggested solution is unnecessary in light 
of the more narrowly drawn solutions to access stimulation that we 
adopt in this document. Furthermore, there are protections provided by 
tariffs--such as the ability to dispute charges described above--that 
should not be eliminated as a result of an unexplored suggestion made 
in passing in this proceeding. AT&T also suggests that we ``make clear 
that LECs can include in their tariffs reasonable provisions that allow 
the LECs to decline to provide [telephone lines and/or access services] 
to a chat/conference provider.'' We decline to suggest tariff language 
changes in this proceeding beyond those necessary to implement our rule 
changes. Each carrier is responsible for its own tariffs and tariff 
changes are subject to the tariff review process.
    66. Mileage Pumping and Daisy Chaining. ``Mileage pumping'' occurs 
when a LEC moves its point of interconnection, on which its mileage-
based, per-minute-of-use transport charges are based, further away from 
its switch for no reasonable business purpose other than to inflate 
mileage charges. ``Daisy chaining'' occurs when a provider adds 
superfluous network elements so as to reclassify certain network 
functions as tandem switching and tandem switched transport, for which 
terminating access is not yet scheduled to be moved to bill-and-keep. 
Because there is nothing in the record to indicate that mileage pumping 
and daisy chaining are significant issues outside of the access 
stimulation context, we decline to adopt a new rule specifically 
addressing these issues. We believe that placing the financial 
obligation for tandem switching and tandem switched transport charges 
on the access-stimulating LEC should eliminate the practices of mileage 
pumping and daisy chaining.
    67. Because our new rules will encourage access-stimulating LECs to 
make more efficient decisions, the rules should negate the need for T-
Mobile's proposal that would establish multiple interconnection points 
nationwide where providers could choose to connect either directly or 
indirectly, and HD Tandem's suggestion that LECs engaged in access 
stimulation be required to offer what HD Tandem terms an ``internet 
Protocol Homing Tandem.'' Both proposals would require us to decide 
what would be efficient for affected providers without the benefit of 
specific, relevant information about their networks. Therefore, we 
decline to adopt these proposals. Any remaining abuses of illegitimate 
mileage pumping or daisy chaining activities after the implementation 
of our new and modified access-stimulation rules can be addressed on a 
case-by-case basis in complaints brought pursuant to section 208 of the 
Act.
    68. Finally, we do not address the merits of several other issues 
raised in the record because they are outside the scope of this 
proceeding or are insufficiently supported with data and analysis. For 
example, some parties used this proceeding as an opportunity to air 
grievances related to a dispute that was twice before the South Dakota 
Public Utilities Commission. We agree with the South Dakota 9-1-1 
Coordination Board and SDN that it is not appropriate to raise a state 
dispute regarding efforts to implement next generation 911 service in 
this rulemaking proceeding in the hope that the Commission will include 
language in this Order to address that particular dispute.
    69. A few parties argue that we should adopt rules regarding the 
rates providers charge for certain services. For example, the Joint 
CLECs suggest that we adopt a ``uniform rate for access-stimulating 
traffic.'' Yet those carriers provide no justification for adopting a 
specific rate, nor does the record otherwise provide a basis to fill 
that void. The Commission previously adopted rate caps for access-
stimulating LECs and the result was a reduction in the cost of 
arbitrage but not its elimination. We therefore take a different 
approach in this Order. The rules we adopt in this document do not 
affect the rates charged for tandem switching and transport. HD Tandem 
and Wide Voice's arguments that we do not address ``rate disparities'' 
or ``equalize compensation'' are misplaced. Our goal is to eliminate 
the incentive for access-stimulation schemes to take advantage of rate 
disparities and unequal compensation opportunities, and we do so by 
reversing the financial responsibility for paying tandem switching and 
transport, from IXCs to access-stimulating LECs, but the rates for 
those services are unaffected. We find that by reversing the financial 
responsibility, customers will receive more accurate price signals and 
implicit subsidies will more effectively be reduced. We are not 
persuaded that continuing to allow access-stimulating LECs to collect 
revenues from access charges, even if ``equalized,'' would eliminate 
the arbitrage problem. To the contrary, such action would provide 
access-stimulating LECs with a protected revenue stream and thus 
encourage arbitrage. HD Tandem also suggests that ``it would be 
problematic for the Commission to involve itself in consumer pricing.'' 
We agree, and the rules we adopt in this document do not require any 
changes to consumer prices.

B. Implementation Issues

    70. We amend our part 51 rules governing interconnection and our 
part 69 rules governing tariffs to effectuate the requirements that: 
(1) Access-stimulating LECs assume financial responsibility for 
terminating interstate or intrastate tandem switching and tandem 
switched access transport for any traffic between the LEC's terminating 
end office or equivalent and the associated access tandem switch; and 
(2) access-stimulating LECs provide notice of their assumption of that 
financial responsibility to all affected parties. To ensure that 
parties have enough time to come into compliance with our rules, we 
adopt a reasonable transition period for parties to implement any 
necessary changes to their tariffs and to adjust their billing systems. 
This Order and the rules adopted herein, except the notice provisions 
which require approval from the Office of Management and Budget (OMB) 
pursuant to the Paperwork Reduction Act (PRA), will become effective 30 
days after publication of the summary of this Order in the Federal 
Register. We give access-stimulating LECs and affected intermediate 
access providers an additional 45 days to come into compliance with 
those rules.
    71. With respect to the new notice provisions in our rules, which 
require OMB approval pursuant to the PRA, within 45 days of PRA 
approval, each existing access-stimulating LEC must provide notice to 
the Commission and to any affected IXCs and intermediate access 
providers that the LEC is engaged in access stimulation and accepts 
financial responsibility for all applicable terminating tandem 
switching and transport charges. As proposed in the Access Arbitrage 
Notice, notice to the Commission shall be accomplished by filing a 
record of its access-stimulating status and acceptance of financial 
responsibility in the Commission's Access Arbitrage docket on the same 
day that the LEC issues such notice to the IXC(s) and intermediate 
access provider(s). This 45-day tariffing and notice time period will 
begin to run for new access-stimulating LECs from the time they meet 
the

[[Page 57640]]

definition of a LEC engaged in access stimulation.
    72. Some commenters have suggested that a longer transition for the 
transfer of financial responsibility is warranted. We disagree. There 
is no reason to allow access-stimulating LECs and the intermediate 
access providers that they choose to use to continue to benefit from 
access arbitrage schemes. A transition period of 45 days after the 
effective date of the rules--or, in the case of a LEC that is newly 
deemed to meet the definition of a LEC engaged in access stimulation, 
45 days after that date--is sufficient time for access-stimulating LECs 
and the affected intermediate access providers to amend their billing 
practices and to make any tariff changes deemed necessary, and to 
prepare to close out then-current billing cycles under previous 
arrangements at that billing cycle's natural end. Commenters have 
argued that a mid-cycle billing change would not be administrable, but 
a mid-cycle change is not required by these rules.
    73. In particular, several commenters argue the draft Order leaves 
too little time for access-stimulating LECs to come into compliance, 
suggesting that an 18-24 month period is warranted to allow them to 
change their business models and avoid the definitional triggers. We 
first note that there is a distinction between how much time it will 
take for an entity to come into compliance with the rules and how much 
time it will take to change their business model in light of the change 
in the rules. There is contrary evidence in the record, suggesting that 
access-stimulating LECs are able to relocate their traffic in days, if 
not hours, rather than weeks and months. Further, nothing in this Order 
either requires or impedes an access-stimulating LEC's ability to make 
changes to their business model should they choose to do so in light of 
the rules we adopt in this document. In addition, the rules provide a 
clear process by which an access-stimulating LEC can transition out of 
being categorized as such. We also reject FailSafe's request for a 
three-year phaseout of access charges due to independent telephone 
companies' provision of services related to emergency communication. 
FailSafe has not identified any concrete examples under which a 
carrier's provision of services related to emergency communication 
would have or will trip the new definition(s) of access stimulation, 
and the record is devoid of any support of FailSafe's concern.
    74. The Joint CLEC's further claim that the 45 day time period for 
implementation leaves ``LECs with no other option but to flash cut 
their primary revenue stream, going from having a lawful means of 
earning profits to having a significant cost center in a matter of 
days.'' As a result, the Joint CLECs argue that the new access 
stimulation rules violate the Takings Clause of the Fifth Amendment of 
the Constitution because they ``eliminate[] access stimulation as a 
revenue stream for the CLECs and provide[] no realistic alternative 
means of compensation for them.'' We consider the precedent on 
government takings and find that this argument is without merit. In the 
Penn Central case, the Supreme Court explained that in evaluating 
regulatory takings claims, three factors are particularly significant: 
(1) The economic impact of the government action on the property owner; 
(2) the degree of interference with the property owner's investment-
backed expectations; and (3) the ``character'' of the government 
action. Those factors do not support a regulatory takings argument 
here.
    75. First, we are not persuaded by the record here that the 
economic impact of our rules is likely to be so significant as to 
demonstrate a regulatory taking. Our rules leave carriers free to 
respond in a number of ways--including in combination--such as by 
changing end-user rates to account for the access-stimulating LEC 
assuming financial responsibility for the intermediate access 
providers' charges for delivering traffic under our rules; or by self-
provisioning or selecting an alternative intermediate access provider 
or route for traffic where that would be a less costly option, or by 
seeking revenue elsewhere, for example, through an advertising-
supported approach to offering free services or services provided at 
less than cost. Although certain commenters cite declarations 
purporting to demonstrate that the new rules would ``both wipe out the 
value of [prior] investments and prevent the CLECs from operating as 
financially viable enterprises,'' we find them unpersuasive. The 
declarations do not meaningfully grapple with the viability of the 
range and potential combination of alternatives for responding to the 
new rules through any analysis of the details of cost data or other 
information associated with such scenarios, instead simply asserting 
that customers inevitably will shift to other providers. Insofar as the 
declarations also express other concerns about the administration of 
the rules without justification for, or quantification of, the likely 
effects, we likewise find them unpersuasive. These shortcomings are 
particularly notable given ``the heavy burden placed upon one alleging 
a regulatory taking.'' In addition, we are not persuaded that 
declarations from three access-stimulating competitive LECs and three 
``free'' conference calling providers would call into question our 
industry-wide rules in any event. Should a given carrier actually be 
able to satisfy the ``heavy burden'' of demonstrating that the rule 
would result in a regulatory taking as applied to it, it is free to 
seek a waiver of the rules.
    76. Second, our actions do not improperly impinge upon investment-
backed expectations of carriers that engaged in access stimulation 
under the 2011 rules. The Commission has been examining how best to 
address problems associated with access stimulation for years, taking 
incremental steps to address it as areas of particular concern arise 
and evolve. This has included seeking comment even on proposals that 
would declare access stimulation per se unlawful, at least in certain 
scenarios. Indeed, the record reveals that under the existing rules 
many disputes have arisen regarding intercarrier compensation 
obligations in the scenarios our new rules are designed to directly 
address. In light of this context, we are not persuaded that any 
reasonable investment-backed expectations can be viewed as having been 
upset by our actions here.
    77. Finally, consistent with the reasoning of Penn Central, we find 
the character of the governmental action here cuts against a finding of 
a regulatory taking, given that it ``arises from [a] public program 
adjusting the benefits and burdens of economic life to promote the 
common good,'' rather than involving a ``physical invasion'' by 
government. In particular, our action in this document substantially 
advances the legitimate governmental interests under the Act of 
discouraging inefficient marketplace incentives, promoting efficient 
communications traffic exchange, and guarding against implicit 
subsidies contrary to the universal service framework of section 254 of 
the Act.
    78. Turning to the other implementation issues. No commenter 
opposed the proposed notice requirements, and others agreed that having 
access-stimulating LECs notify the Commission at the same time they 
notify affected intermediate access providers and IXCs will provide 
transparency and also address concerns raised in the record about 
confusion over whether a LEC is an access-stimulating LEC. Affected 
carriers have had ample notice of these changes, and the PRA approval 
process will provide

[[Page 57641]]

additional time for carriers to prepare before the notice requirement 
comes into effect.
    79. We further amend our rules to require that when a LEC ceases 
engaging in access stimulation in accordance with Sec.  61.3(bbb), the 
LEC must also notify affected IXCs and intermediate access providers of 
its status as a non-access-stimulating LEC and of the end of its 
financial responsibility. We also require that an access-stimulating 
LEC publicly file a record of the end of its access-stimulating status 
and the end of its financial responsibility in the Commission's Access 
Arbitrage docket on the same day that the LEC issues such notice to the 
IXC(s) and intermediate access provider(s). We decline to further 
prescribe the steps necessary to reverse the financial responsibility 
and leave it to the parties to work with each other to make the 
necessary changes in a reasonable period of time.
    80. We believe these changes will reduce complications that could 
arise from coterminous dates for giving notice and for shifting 
financial responsibility. We decline to further prescribe any elements 
of this notice obligation and instead leave it to the parties to 
clearly and publicly manifest their status and intent when providing 
the requisite notice.
    81. Implementation Concerns Are Surmountable. We are not persuaded 
that there are implementation concerns significant enough for us to 
reject the Commission's proposal regarding the shifting of financial 
responsibility as an undue burden on providers. In its comments, SDN 
correctly observes that our rules may well require SDN to amend its 
tariff so that SDN can bill access-stimulating LECs for its services. 
There is no reason to believe that this will be onerous, and SDN has 
not provided evidence of material incremental costs of making the 
necessary changes to implement billing arrangements with subtending 
access-stimulating LECs.
    82. SDN expresses concern that disputes may arise about whether 
certain traffic is access-stimulation traffic. However, traffic will be 
classified based on the status of the terminating LEC--if the 
terminating LEC is an access-stimulating LEC, all traffic bound for it 
will be subject to the changed financial responsibility. We expect that 
the new requirements for such carriers to self-identify will prevent 
the vast majority of potential disputes between IXCs and intermediate 
access providers concerning whether the LEC to which traffic is bound 
is engaged in access stimulation. An intermediate access provider's 
duty to cease billing an IXC for tandem switching and transport 
services attaches only after receiving written notice from an access-
stimulating LEC. Thus, if a LEC engaged in access stimulation fails to 
notify the intermediate access provider (either due to a good faith 
belief that it does not meet the definition of being an access-
stimulating LEC or simply failing to provide the notice, for whatever 
reason), an IXC's recourse is against the LEC, not the intermediate 
access provider.
    83. In their comments, the Joint CLECs assert that the explanation 
in the Access Arbitrage Notice of the intermediate access provider's 
costs that must be borne by an access-stimulating LEC is vague. We 
disagree. The Joint CLECs appear primarily to take issue with the use 
of the word ``normally'' in such an explanation but fail to recognize 
that the explanation that they quote is from the text of the Access 
Arbitrage Notice, not the proposed rule. The proposed rule refers to 
``the applicable Intermediate Access Provider terminating tandem 
switching and terminating tandem switched transport access charges 
relating to traffic bound for the access-stimulating local exchange 
carrier.'' It is a relatively simple matter to determine the charges 
applicable to intermediate access service being provided by an 
intermediate access provider, particularly when the relevant service 
has already been provided for years (albeit with a different billed 
party).
    84. We are similarly unpersuaded that the implementation issues 
raised by the Joint CLECs create issues of real concern. The issues 
raised by the Joint CLECs include: (1) Identifying the relevant 
intermediate access provider when an access-stimulating LEC connects to 
IXCs through multiple such providers; (2) determining how financial 
responsibility should be split when an intermediate access provider 
provides more than the functional equivalent of tandem switching and 
tandem switched transport in the delivery of the call; and (3) the CEA 
providers' rates. We nonetheless clarify that an access-stimulating LEC 
is responsible for all of the charges for tandem switching and tandem 
switched transport of traffic from any intermediate access provider(s) 
in the call path between the IXC and the access-stimulating LEC.

C. Legal Authority

    85. The Commission last attacked access arbitrage in the 2011 USF/
ICC Transformation Order, as part of comprehensive reform of the ICC 
system. The Commission undertook ICC reform informed by three 
principles and interrelated goals, all of which inform the Order we 
adopt in this document. First, the Commission sought to ensure that the 
entities choosing what network to use would have appropriate incentives 
to make efficient decisions. In that regard, in the USF/ICC 
Transformation Order, the Commission found that ``[b]ill-and-keep 
brings market discipline to intercarrier compensation because it 
ensures that the customer who chooses a network pays the network for 
the services the subscriber receives. . . . Thus, bill-and-keep gives 
carriers appropriate incentives to serve their customers efficiently.'' 
As one of the first steps toward bill-and-keep, the Commission adopted 
a multi-year transition period to move terminating end office access 
charges to bill-and-keep.
    86. Second, the Commission endeavored to eliminate implicit 
subsidies, consistent with the mandates of section 254 of the Act. The 
Commission recognized the historical role access charges played in 
advancing universal service policies, finding that ``bill-and-keep 
helps fulfill the direction from Congress in the 1996 Act that the 
Commission should make support explicit rather than implicit'' by 
requiring any such subsidies, if necessary, be provided explicitly 
through policy choices made by the Commission under section 254 of the 
Act.
    87. Third, the Commission weighed the regulatory costs of the steps 
it took in reforming the ICC regime. In so doing, it recognized that 
``[i]ntercarrier compensation rates above incremental cost'' were 
enabling ``much of the arbitrage'' that was occurring. The Commission 
adopted rules aimed at reducing an access-stimulating LEC's ability to 
unreasonably profit from providing access to high-volume calling 
services. Although the Commission concluded that it might theoretically 
have been possible to establish some reasonable, small intercarrier 
compensation rate based on incremental cost, it rejected that approach 
because doing so would lead to significant regulatory burdens to 
identify and establish the appropriate rate(s), an approach the 
Commission sought to avoid in adopting a move toward a bill-and-keep 
methodology. Instead, to address access stimulation, the Commission 
capped the end office termination rates access-stimulating LECs could 
charge.
    88. Based on our review of the record, we find that requiring IXCs 
to pay the tandem switching and tandem switched transport charges for 
access-stimulation

[[Page 57642]]

traffic is an unjust and unreasonable practice that we have authority 
to prohibit pursuant to section 201(b) of the Act. In 2011, when the 
Commission adopted the access-stimulation rules, its focus was on 
terminating end office access charges and it found that the high access 
rates being collected by LECs for access-stimulation traffic were 
unjust and unreasonable under section 201(b) of the Act. Building on 
that legal authority and the Commission's goals for ICC reform in the 
USF/ICC Transformation Order here, we extend that logic to the practice 
of imposing tandem switching and tandem switched transport access 
charges on IXCs for terminating access-stimulation traffic. We find 
that that practice is unjust and unreasonable under section 201(b) of 
the Act and is therefore prohibited.
    89. In the USF/ICC Transformation Order, the Commission sought to 
ensure that the entities choosing the network and traffic path would 
have the appropriate incentives to make efficient decisions and 
recognized that ICC rates above cost enable arbitrage. The Commission 
also sought to eliminate implicit subsidies allowed by arbitrage, 
consistent with section 254 of the Act. Given changes in the access-
stimulation ``market'' after 2011, the access-stimulation rules adopted 
as part of the broader intercarrier compensation reforms in the USF/ICC 
Transformation Order now fail to adequately advance those goals. 
Allowing access-stimulating LECs to continue to avoid the cost 
implications of their decisions regarding which intermediate access 
providers IXCs must use to deliver access-stimulated traffic to the 
LECs drives inefficiencies and leaves IXCs to pass the resultant 
inflated costs on to their customer bases. The rules we adopt in this 
Order, requiring the access-stimulating LEC to be responsible for 
paying those charges, counter the perverse incentives the current rules 
create for LECs to choose expensive and inefficient call paths for 
access-stimulation traffic and better advance the goals and objectives 
articulated by the Commission in the USF/ICC Transformation Order.
    90. Of course, the Commission's focus on the importance of 
efficient interconnection did not begin with the USF/ICC Transformation 
Order. It can also be found, for example, in the initial Commission 
Order implementing the 1996 Act. In that Order, in considering 
telecommunications carriers' interconnection obligations, the 
Commission specified that carriers should be permitted to employ direct 
or indirect interconnection to satisfy their obligations under section 
251(a)(1) of the Act ``based upon their most efficient technical and 
economic choices.'' The focus on efficient interconnection is 
consistent with Congressional direction to the Commission in, for 
example, section 256 of the Act which requires the Commission to 
oversee and promote interconnection by providers of telecommunications 
services that is not only ``effective'' but also ``efficient.'' By 
adopting rules crafted to encourage terminating LECs to make efficient 
choices in the context of access stimulation schemes, the rules are 
thus consistent with longstanding Commission policy and Congressional 
direction.
    91. Likewise, the record reveals that the incentives associated 
with access stimulation lead to artificially high levels of demand, 
often in rural areas where such levels of demand are anomalous and 
largely unaccounted-for by existing network capabilities. This, in 
turn, can result in call completion problems and dropped calls. For a 
number of years, the Commission has sought to address concerns about 
rural call completion problems--a concern that Congress recently 
reinforced through its enactment of section 262 of the Act. Adopting 
rules that help mitigate call completion problems in rural (and other) 
areas thus also harmonizes our approach to access stimulation under 
section 201(b) with those broader policies.
    92. We also conclude that our new rules are more narrowly targeted 
at our concerns regarding the terminating LECs' reliance on inefficient 
intermediate access providers in circumstances that present the 
greatest concern--those involving access stimulation--compared to other 
alternatives suggested in the record, such as adopting rules that would 
regulate the rates of access-stimulating LECs or of the intermediate 
access providers they rely on. The record does not reveal any rate 
benchmarking mechanism that would effectively address our concerns, and 
establishing regulatory mechanisms to set rates based on incremental 
cost, as some parties have suggested, would implicate the same 
administrability concerns that dissuaded the Commission from embarking 
on such an approach in the USF/ICC Transformation Order. We also are 
guided by past experience where attempts to address access stimulation 
through oversight of rate levels have had short-lived success that 
quickly was undone through new marketplace strategies by access-
stimulating LECs.
    93. To the extent that access stimulation activities have the 
effect of subsidizing certain end-user services--allowing providers to 
offer the services to their customers at no charge in many instances--
we also conclude that regulatory reforms that eliminate those implicit 
subsidies better accord with the objectives of section 254 of the Act. 
Specifically, Congress directed that universal service support ``should 
be explicit and sufficient to achieve the purposes'' of section 254. 
Congress established a framework in section 254 for deciding not only 
how to provide support--i.e., explicitly, rather than implicitly--but 
also for deciding what to support. Any implicit subsidies resulting 
from access stimulation are based solely on the whims of the individual 
service providers, which are no substitute for the considered policy 
judgments the Commission makes consistent with the framework Congress 
established in section 254.
    94. These same considerations also independently persuade us that 
it is in the public interest to adopt the access stimulation rules in 
this Order under section 251(b)(5) of the Act. The USF/ICC 
Transformation Order already ``br[ought] all traffic within the section 
251(b)(5) regime.'' In other words, under that precedent ``when a LEC 
is a party to the transport and termination of access traffic, the 
exchange of traffic is subject to regulation under the reciprocal 
compensation framework'' of section 251(b)(5). And it clearly is 
traffic exchanged with LECs that is at issue here. Our rules govern 
financial responsibility for access services that traditionally have 
been considered ``exchange access,'' and providers of such services 
meet the definition of a LEC.
    95. In particular, just as we conclude that our rules reasonably 
implement the ``just and reasonable'' framework of section 201(b) of 
the Act as workable rules to strengthen incentives for efficient 
marketplace behavior and advance policies in sections 251, 254, and 256 
of the Act, we likewise conclude that they are in the public interest 
as rules implementing section 251(b)(5). The Commission explained in 
the USF/ICC Transformation Order that section 201(b)'s statement that 
``[t]he Commission may prescribe such rules and regulations as may be 
necessary in the public interest to carry out the provisions of this 
Act'' gives the Commission broad ``rulemaking authority to carry out 
the `provisions of this Act,' which include Sec.  [ ] 251.'' Indeed, 
the Commission elaborated at length on the theory of its legal 
authority to implement section 251(b)(5) in the USF/ICC Transformation 
Order, which applies to our reliance on that authority here, as well.

[[Page 57643]]

    96. We reject arguments that section 251 of the Act does not 
provide authority for our action here. Although the Joint CLECs contend 
the action here falls outside the scope of ``reciprocal compensation'' 
under section 251(b)(5) because it ``deprives [certain] carriers of 
access revenues without providing any reciprocal benefit,'' they 
approach the issue from an incorrect perspective. In evaluating whether 
a new approach to reciprocal compensation is in the public interest, 
the Act does not require us to ensure that each carrier receives some 
benefit from the change relative to the status quo. Furthermore, our 
actions here are one piece of a broader system of intercarrier 
compensation that takes the form of reciprocal arrangements among 
carriers. As part of this overall framework, carriers have packages of 
rights and obligations that, in some defined cases allow them to 
recover revenues from other carriers and in other cases anticipate 
recovery from end users. By this Order, we simply modify discrete 
elements of that overall framework. We thus reject claims that our 
actions here are not part of reciprocal compensation arrangements for 
purposes of section 251(b)(5).
    97. Nor are we persuaded by arguments that section 251(b)(5) 
authority is absent here because the Commission ``promised a bill-and-
keep regime that is `technologically' and `competitively neutral' '' 
and our rules here allegedly fall short. As a threshold matter, this 
Order does not purport to adopt a bill-and-keep regime for access-
stimulation traffic, but continues the Commission's efforts to address 
arbitrage or other concerns on an interim basis pending the completion 
of comprehensive intercarrier compensation reform. Agencies are free to 
proceed incrementally, ``whittl[ing] away at them over time, [and] 
refining their preferred approach as circumstances change and they 
develop a more nuanced understanding of how best to proceed'' rather 
than attempting to ``resolve massive problems in one fell regulatory 
swoop.'' Further, although this Order cites illustrative examples of 
the types of traffic and types of carriers that have been the focus of 
many access stimulation disputes, the rules we adopt apply by their 
terms whenever they are triggered, without regard to the content or 
type of traffic (e.g., conference calling traffic or otherwise) and 
regardless of the size or location of the access-stimulating carrier.
    98. Finally, even assuming arguendo that the specific Commission 
rules adopted to address access stimulation here were viewed as falling 
outside the scope of section 251(b)(5), our action would, at a minimum, 
fall within the understanding of the Commission's role under section 
251(g) reflected the USF/ICC Transformation Order. As the Commission 
stated there, section 251(g) grandfathers historical exchange access 
requirements ``until the Commission adopts rules to transition away 
from that system,'' including through transitional rules that apply 
pending the completion of comprehensive reform moving to a new, 
permanent framework under section 251(b)(5). The access stimulation 
concerns raised here arise, in significant part, because of ways in 
which the Commission's planned transition to bill-and-keep is not yet 
complete and, in that context, we find it necessary to address 
problematic conduct that we observe on a transitional basis until that 
comprehensive reform is finalized.
    99. We also find unpersuasive arguments that the proposed and 
existing access-stimulation rules are ``discriminatory'' because they 
treat access-stimulating LECs differently than other LECs. Section 
202(a) of the Act prohibits carriers from ``unjust or unreasonable 
discrimination in charges, practices, classifications, regulations, 
facilities, or services for or in connection with like communication 
service, directly or indirectly, by any means or device, or to make or 
give any undue or unreasonable preference or advantage to any 
particular person, class of persons, or locality, or to subject any 
particular person, class of persons, or locality to any undue or 
unreasonable prejudice or disadvantage.'' It is neither unjust nor 
unreasonable to treat access-stimulating LECs differently from non-
access-stimulating LECs. Section 202(a) does not apply to actions 
carriers take in compliance with requirements adopted by the 
Commission, particularly where, as here, the Commission finds those 
rules necessary under an analysis of what is ``just and reasonable.'' 
More generally, actions by the Commission are subject to the 
Administrative Procedure Act requirement that they must not be 
arbitrary and capricious, and courts have found only that the 
Commission ``must provide adequate explanation before it treats 
similarly situated parties differently.'' The existing access-
stimulation rules adopted by the Commission in 2011, which treat 
access-stimulating LECs differently than other LECs, have been reviewed 
and approved by the Tenth Circuit Court of Appeals, which specifically 
held that the rules were not arbitrary and capricious and that the 
Commission had explained its rationale for the differing treatment. The 
rules we adopt in this document, treating access-stimulating LECs 
differently from other LECs, are similarly well-reasoned and justified.
    100. Contrary to the Joint CLECs' claim, making the access-
stimulating LEC, rather than the IXC, responsible for paying 
intermediate access provider(s)' terminating tandem access charges 
simply changes the party responsible for paying the CEA, or other 
intermediate access provider(s), for carrying that traffic. We make the 
party responsible for selecting the terminating call path responsible 
for paying for its terminating tandem switching and tandem switched 
transport. The act of stimulating traffic to generate excessive access 
revenues requires that we treat that traffic differently than non-
stimulated traffic to address the unjust and unreasonable practices it 
fosters, as well as the implicit subsidies access stimulation creates. 
Further, we are not failing to recognize the potential impacts on CEA 
providers if access-stimulation traffic is removed from their networks. 
If a CEA provider's demand changes, the existing tariff rules, 
applicable to the calculation of a CEA provider's tariffed charges, 
will apply--on a nondiscriminatory basis.
    101. Equally meritless is the Wide Voice claim that sections 201(b) 
and 251(b)(5) of the Act ``permit the Commission to establish rate 
uniformity, not rate disparity, which is what would result were the 
Commission to make access stimulators switched access purchasers rather 
than switched access providers. . . . '' Nothing in the text of those 
provisions requires rates to be uniform, however. And, more 
fundamentally, shifting the responsibility for paying a rate does not 
change the rate. In addition, we are moving toward the stated goal of a 
bill-and-keep methodology, not toward establishing a rate for access-
stimulation traffic. We make no changes to rates here and sections 
201(b) and 251(b)(5) of the Act support our adoption of the modified 
access-stimulation rules in this Order. The Joint CLECs also argue that 
making access-stimulating LECs financially responsible for the 
terminating tandem switching and transport of traffic delivered to 
their end offices by adopting the Commission's Prong 1 proposal would 
violate the Tenth Circuit Court of Appeals' holding that section 252(d) 
of the Act reserves to the states the determination of carriers' 
network ``edge.'' Shifting the financial responsibility for the 
delivery of traffic to access-stimulating LEC end offices does not move 
the network edge or affect a state's ability to determine that edge. 
The Joint CLECs' argument is

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misguided. Section 252(d) governs ``agreements arrived at through 
negotiation.'' Just as the Commission's adoption of bill-and-keep as 
the ultimate end state for intercarrier compensation shifts the 
recovery of costs from carriers to end users, here we shift the 
recovery of costs associated with the delivery of traffic to an access-
stimulating LEC's end office from IXCs to the LEC. Our determination to 
shift the recovery of costs associated with the delivery of traffic to 
an access-stimulating LEC's end office from IXCs to the LEC does not 
interfere with ``agreements arrived at through negotiation'' and 
therefore does not affect a state's rights or responsibilities under 
section 252 of the Act with respect to voluntarily negotiated 
interconnection agreements.

III. Modification of Section 214 Authorizations for Centralized Equal 
Access Providers

    102. To facilitate the implementation of the rules we adopt in this 
document, we modify the section 214 authorizations for Aureon and SDN--
the only CEA providers with mandatory use requirements--to permit 
traffic terminating at access-stimulating LECs that subtend those CEA 
providers' tandems to bypass the CEA tandems. By eliminating the 
mandatory use requirements, we enable IXCs to use whatever intermediate 
access provider an access-stimulating LEC that otherwise subtends 
Aureon or SDN chooses. Eliminating the mandatory use requirements for 
traffic bound for access-stimulating LECs will also allow IXCs to 
directly connect to access-stimulating LECs where such connections are 
mutually negotiated and where doing so would be more efficient and 
cost-effective.
    103. Historically, IXCs delivering traffic to LECs that subtended 
the CEA tandems were required to use Aureon's and SDN's tandems, 
because terminating traffic to those LECs was subject to mandatory use 
requirements contained in the CEA providers' section 214 
authorizations. Wide Voice suggests that we ``[b]reak[ ] the CEA 
monopoly'' to the extent needed so that other providers can serve the 
access-stimulating LECs. This Order does that. Sprint suggests that we 
eliminate the CEA mandatory use requirements for the termination of all 
traffic. There is no evidence that doing so would be in the public 
interest, or even that there are other tandem switching and transport 
providers available to serve other LECs subtending the CEA providers. 
This proceeding is focused on access stimulation. We, therefore, adopt 
rules that are narrowly focused on access stimulation.
    104. Aureon and SDN present seemingly opposing views. Aureon wants 
to continue to carry access-stimulation traffic on its CEA network 
because it believes the traffic volumes will drive down its rates to a 
point where arbitrage will not be profitable. At the outset, we note 
there is nothing preventing a CEA provider from voluntarily reducing 
its rates to keep such traffic on its network rather than completely 
forgoing the revenue opportunity. Unlike Aureon, SDN wants the 
Commission to prohibit access-stimulating LECs from using SDN's tandem. 
Because we expect that our adopted rules will effectively remedy the 
incentives associated with the differences in tandem switching and 
tandem switched transport rates between CEA providers and other 
intermediate access providers, we decline to prohibit access-
stimulating LECs from subtending CEA providers.
    105. Aureon complains that if the subtending LECs use direct 
connections instead of the CEA network, there will be increased 
arbitrage, and it would put Aureon out of business. However, evidence 
in the record shows that much of the access-stimulation traffic is 
currently bypassing Aureon's and SDN's networks. Also, intermediate 
access providers, such as the CEA providers, remain free to collect 
payment for their tandem switching and transport services if the 
access-stimulating LEC chooses to use their services. In that 
situation, the intermediate access provider will receive payment from 
the access-stimulating LEC, and may not collect from IXCs. If access-
stimulating LECs decide to move their traffic off of a CEA network and 
the CEA provider has significantly less traffic on its network, the CEA 
provider may file tariffs with higher rates provided that such tariff 
revisions are consistent with our rules applicable to CEA providers. 
Furthermore, neither Aureon nor SDN has provided any data that would 
show that operating a CEA network without the access-stimulating LECs 
would be economically unviable.
    106. Aureon and SDN ask us to reject any proposals that would 
modify their section 214 authorizations. Aureon voices concern that 
requiring access-stimulating LECs to pay for the use of the CEA tandem 
would be a drastic modification to its section 214 authorization. 
Aureon does not explain what would need to change in its section 214 
authorization, and we are not aware of any change that needs to be made 
in this regard. Aureon expresses concern that a modification to its 
section 214 authorization will impact its ability to provide 
competitive services to rural areas, and to maintain its investment in 
its fiber-optic network. Our decision to permit traffic being delivered 
to an access-stimulating LEC to be routed around a CEA tandem does not 
affect traffic being delivered to non-access-stimulating LECs that 
remain on the CEA network, and will not impact Aureon's ability to 
serve rural areas, contrary to Aureon's concern. Similarly, Aureon 
argues that if LECs pay for the terminating traffic, Aureon would need 
to make ``significant changes to the compensation arrangements for CEA 
service, which would render it financially infeasible for the CEA 
network to remain operational.'' But Aureon provides no supporting 
detail for these claims.
    107. When the section 214 authorizations were granted three decades 
ago, there were no individual LECs subtending these CEA providers 
exchanging traffic, particularly terminating traffic, with IXCs at 
close to access-stimulation levels--and no reports of subtending LECs 
that would be sharing excess switched access charge revenue with 
anyone. In fact, the original applications of the Iowa and South Dakota 
CEA providers stated that the majority of their revenues would be for 
intrastate calls. Now, AT&T reports that ``twice as many minutes were 
being routed per month to Redfield, South Dakota (with its population 
of approximately 2,300 people and its 1 end office) as is routed to all 
of Verizon's facilities in New York City (with its population of 
approximately 8,500,000 people and its 90 end offices).'' Access 
stimulation has upended the original projected interstate-to-intrastate 
traffic ratios carried by the CEA networks.
    108. The Commission may modify or revoke section 214 authority to 
address abusive practices or actions when necessary. In this document, 
we find that the public interest will be served by changing any 
mandatory use requirement for traffic bound to access-stimulating LECs 
to be voluntary usage. We determine that access stimulation presents a 
reasonable circumstance for departing from the mandatory use policy.
    109. In sum, it is in the public convenience and necessity that we 
modify the section 214 authorizations for Aureon and SDN to state: 
``The mandatory use requirement does not apply to interexchange 
carriers delivering terminating traffic to a local exchange carrier 
engaged in access stimulation, as that term is defined in section 
61.3(bbb) of the Commission's

[[Page 57645]]

rules.'' We find that this modification is an appropriate exercise of 
our authority under sections 4(i), 214 and 403 of the Act. Only those 
LECs engaged in access stimulation and IXCs delivering traffic to 
access-stimulating LECs will be affected by these changes to Aureon's 
and SDN's section 214 authorizations. Our methodology reflects the 
``surgical approach'' that GVNW Consulting requested the Commission to 
use to address access stimulation. We remind Aureon and SDN that all 
other relevant section 214 obligations remain.
    110. Legal Authority. In addition to our broad legal authority to 
adopt our rules applicable to access stimulation traffic, we have 
specific legal authority to modify the section 214 authorizations for 
Aureon and SDN to eliminate any mandatory use requirements that may be 
applicable to traffic bound for access-stimulating LECs. The Common 
Carrier Bureau (Bureau) adopted the original section 214 certificates 
for Aureon and SDN pursuant to section 214 of the Act. Indeed, whether 
section 214 of the Act was applicable to Aureon's application (which 
preceded SDN's application) was an issue in that proceeding. In the 
end, the Bureau agreed with Aureon's ``view that [Aureon] requires 
Section 214 authority prior to acquiring and operating any interstate 
lines of communications.'' Our modifications to the Aureon and SDN 
section 214 authorizations are an appropriate exercise of the 
Commission's authority under section 214, which gives the Commission 
authority to ``attach to the issuance of the certificate such terms and 
conditions as in its judgment the public convenience and necessity may 
require,'' as well as our authority under sections 4 and 403 of the 
Act.

IV. Procedural Matters

    111. Paperwork Reduction Act Analysis. This document contains 
modified information collection requirements subject to the Paperwork 
Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to 
the Office of Management and Budget (OMB) for review under section 
3507(d) of the PRA. OMB, the general public, and other Federal agencies 
will be invited to comment on the modified information collection 
requirements contained in this proceeding. In addition, we note that 
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 
107-198; see 44 U.S.C. 3506(c)(4), we previously sought specific 
comment on how the Commission might further reduce the information 
collection burden for small business concerns with fewer than 25 
employees.
    112. In this Order, we have assessed the effects of requiring an 
access-stimulating LEC to take financial responsibility for the 
delivery of traffic to its end office or the functional equivalent and 
find that the potential modifications required by our rules are both 
necessary and not overly burdensome. We do not believe there are many 
access-stimulating LECs operating today but note that of the small 
number of access-stimulating LECs in existence, many will be affected 
by this Order. We believe that access-stimulating LECs are typically 
smaller businesses and may employ less than 25 people. However, we find 
the benefits that will be realized by a decrease in the problematic 
consequences associated with access stimulation outweigh any burden 
associated with the changes (such as submitting a notice and making 
tariff or billing changes) required by this Report and Order and 
Modification of Section 214 Authorizations.
    113. Congressional Review Act. The Commission has determined, and 
the Administrator of the Office of Information and Regulatory Affairs, 
Office of Management and Budget concurs, that these rules are non-major 
under the Congressional Review Act, 5 U.S.C. 804(2). The Commission 
will send a copy of this Report and Order and Modification of 214 
Authorization to Congress and the Government Accountability Office 
pursuant to 5 U.S.C. 801(a)(1)(A).
    114. Final Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act of 1980 (RFA), as amended, the Commission 
has prepared a Final Regulatory Flexibility Analysis (FRFA) relating to 
this Report and Order and Modification to Section 214 Authorizations.

V. Final Regulatory Flexibility Analysis

    115. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the notice of proposed rulemaking for the access 
arbitrage proceeding (83 FR 30628, June 29, 2018). The Commission 
sought written public comments on the proposals in the Access Arbitrage 
Notice, including comment on the IRFA. This present Final Regulatory 
Flexibility Analysis (FRFA) conforms to the RFA.

A. Need for, and Objectives of, the Order

    116. Although the Commission's earlier rules, adopted in the USF/
ICC Transformation Order, made significant strides in reducing access 
stimulation, arbitragers have reacted to those reforms by revising 
their schemes to take advantage of access charges that remain in place 
for tandem switching and transport services. New forms of arbitrage now 
command significant resources and create significant costs, which 
together raise costs for consumers. In general, the intercarrier 
compensation regime allows access-stimulating local exchange carriers 
(LECs) to shift the costs of call termination to interexchange carriers 
(IXCs) and their customers via tandem switching and transport rates, 
creating perverse incentives for access-stimulating LECs to route 
network traffic inefficiently in a manner that maximizes those rates. 
IXCs are obligated to pay these charges but are left without any choice 
about how the traffic is routed, and pass those inflated costs along to 
their customers in turn, raising the price for consumers generally.
    117. In this Order, to reduce the incentives to engage in the 
latest iteration of access stimulation, as well as to continue the 
reforms of the USF/ICC Transformation Order, we adopt rules making 
access-stimulating LECs, rather than IXCs, financially responsible for 
the tandem switching and transport service access charges associated 
with the delivery of traffic from the IXC to the access-stimulating LEC 
end office or its functional equivalent.
    118. The rules adopted in this Order will thus require switched 
tandem and transport costs to be charged to the carrier that chooses 
the transport route. This change will encourage cost-efficient network 
routing and investment decisions, and remove the incentives that lead 
to inefficient interconnection and call routing requirements. We also 
modify the definition of access stimulation to include two additional 
traffic volume triggers. We add two higher ratios to capture access-
stimulating LECs that do not have a revenue sharing agreement, which 
would have escaped our current definition.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    119. The Commission did not receive comments specifically 
addressing the rules and policies proposed in the IRFA. FailSafe 
Communications, Inc., a self-described ``end-user'' and small business 
``disaster recovery'' service provider, articulated related concerns 
elsewhere. It requested an exemption from our rules ``for CABS access 
traffic associated with bona-fide SMB [small and medium-sized 
businesses] end users with less than 24 phone lines,'' arguing it and 
its ``Independent

[[Page 57646]]

Telephone Company'' and competitive LEC partners would be adversely 
affected by the Order and the requirements for access-stimulating LECs, 
but failing to propose a less burdensome alternative that would 
mitigate their concerns. FailSafe offers no evidence in support of its 
concern nor any explanation for why the exemption it proposes would 
resolve its concerns. We thus decline to grant such an exemption at 
this time, but note here, as we do in the Order, that affected rate-of-
return LECs and competitive LECs may seek a waiver of our rules, 
particularly in compelling cases that may implicate the provision of 
emergency services.

C. Response to Comments by Chief Counsel for Advocacy of the Small 
Business Administration

    120. Pursuant to the Small Business Jobs Act of 2010, which amended 
the RFA, the Commission is required to respond to any comments filed by 
the Chief Counsel for Advocacy of the Small Business Administration 
(SBA), and to provide a detailed statement of any change made to the 
proposed rules as a result of those comments.
    121. The Chief Counsel did not file any comments in response to 
this proceeding.

D. Description and Estimate of the Number of Small Entities to Which 
the Rules Will Apply

    122. The RFA directs agencies to provide a description of, and, 
where feasible, an estimate of, the number of small entities that may 
be affected by the rules adopted herein. The RFA generally defines the 
term ``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A ``small business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the Small Business 
Administration (SBA).
    123. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. Our actions, over time, may affect small entities that 
are not easily categorized at present. We therefore describe here, at 
the outset, three broad groups of small entities that could be directly 
affected herein. First, while there are industry-specific size 
standards for small businesses that are used in the regulatory 
flexibility analysis, according to data from the SBA's Office of 
Advocacy, in general a small business is an independent business having 
fewer than 500 employees. These types of small businesses represent 
99.9% of all businesses in the United States which translates to 28.8 
million businesses.
    124. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of August 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    125. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' U.S. Census 
Bureau data from the 2012 Census of Governments indicate that there 
were 90,056 local governmental jurisdictions consisting of general 
purpose governments and special purpose governments in the United 
States. Of this number there were 37, 132 General purpose governments 
(county, municipal and town or township) with populations of less than 
50,000 and 12,184 Special purpose governments (independent school 
districts and special districts) with populations of less than 50,000. 
The 2012 U.S. Census Bureau data for most types of governments in the 
local government category show that the majority of these governments 
have populations of less than 50,000. Based on this data we estimate 
that at least 49,316 local government jurisdictions fall in the 
category of ``small governmental jurisdictions.''
    126. Wired Telecommunications Carriers. The U.S. Census Bureau 
defines this industry as ``establishments primarily engaged in 
operating and/or providing access to transmission facilities and 
infrastructure that they own and/or lease for the transmission of 
voice, data, text, sound, and video using wired communications 
networks. Transmission facilities may be based on a single technology 
or a combination of technologies. Establishments in this industry use 
the wired telecommunications network facilities that they operate to 
provide a variety of services, such as wired telephony services, 
including VoIP services, wired (cable) audio and video programming 
distribution, and wired broadband internet services. By exception, 
establishments providing satellite television distribution services 
using facilities and infrastructure that they operate are included in 
this industry.'' The SBA has developed a small business size standard 
for Wired Telecommunications Carriers, which consists of all such 
companies having 1,500 or fewer employees. Census data for 2012 show 
that there were 3,117 firms that operated that year. Of this total, 
3,083 operated with fewer than 1,000 employees. Thus, under this size 
standard, the majority of firms in this industry can be considered 
small.
    127. Local Exchange Carriers (LECs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to local exchange services. The closest applicable NAICS 
Code category is Wired Telecommunications Carriers as defined above. 
Under the applicable SBA size standard, such a business is small if it 
has 1,500 or fewer employees. According to Commission data, census data 
for 2012 shows that there were 3,117 firms that operated that year. Of 
this total, 3,083 operated with fewer than 1,000 employees. The 
Commission therefore estimates that most providers of local exchange 
carrier service are small entities that may be affected by the rules 
adopted.
    128. Incumbent LECs. Neither the Commission nor the SBA has 
developed a small business size standard specifically for incumbent 
local exchange services. The closest applicable NAICS Code category is 
Wired Telecommunications Carriers as defined above. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 3,117 firms operated in that year. Of 
this total, 3,083 operated with fewer than 1,000 employees. 
Consequently, the Commission estimates that most providers of incumbent 
local exchange service are small businesses that may be affected by the 
rules and policies adopted. Three hundred and seven (1,307) Incumbent 
Local Exchange Carriers reported that they were incumbent local 
exchange service providers. Of this total, an estimated 1,006 have 
1,500 or fewer employees.
    129. Competitive Local Exchange Carriers (Competitive LECs), 
Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
and Other Local Service Providers. Neither the Commission nor the SBA 
has developed a small business size standard specifically for these 
service providers. The appropriate NAICS Code category is Wired 
Telecommunications Carriers, as defined above. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
U.S.

[[Page 57647]]

Census data for 2012 indicate that 3,117 firms operated during that 
year. Of that number, 3,083 operated with fewer than 1,000 employees. 
Based on this data, the Commission concludes that the majority of 
Competitive LECS, CAPs, Shared-Tenant Service Providers, and Other 
Local Service Providers, are small entities. According to Commission 
data, 1,442 carriers reported that they were engaged in the provision 
of either competitive local exchange services or competitive access 
provider services. Of these 1,442 carriers, an estimated 1,256 have 
1,500 or fewer employees. In addition, 17 carriers have reported that 
they are Shared-Tenant Service Providers, and all 17 are estimated to 
have 1,500 or fewer employees. Also, 72 carriers have reported that 
they are Other Local Service Providers. Of this total, 70 have 1,500 or 
fewer employees. Consequently, based on internally researched FCC data, 
the Commission estimates that most providers of competitive local 
exchange service, competitive access providers, Shared-Tenant Service 
Providers, and Other Local Service Providers are small entities.
    130. We have included small incumbent LECs in this present RFA 
analysis. As noted above, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer 
employees), and ``is not dominant in its field of operation.'' The 
SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. We have therefore included 
small incumbent LECs in this RFA analysis, although we emphasize that 
this RFA action has no effect on Commission analyses and determinations 
in other, non-RFA contexts.
    131. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a definition for Interexchange Carriers. The closest 
NAICS Code category is Wired Telecommunications Carriers as defined 
above. The applicable size standard under SBA rules is that such a 
business is small if it has 1,500 or fewer employees. U.S. Census data 
for 2012 indicates that 3,117 firms operated during that year. Of that 
number, 3,083 operated with fewer than 1,000 employees. According to 
internally developed Commission data, 359 companies reported that their 
primary telecommunications service activity was the provision of 
interexchange services. Of this total, an estimated 317 have 1,500 or 
fewer employees. Consequently, the Commission estimates that the 
majority of IXCs are small entities that may be affected by our 
proposed rules.
    132. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. The 
Telecommunications Resellers industry comprises establishments engaged 
in purchasing access and network capacity from owners and operators of 
telecommunications networks and reselling wired and wireless 
telecommunications services (except satellite) to businesses and 
households. Establishments in this industry resell telecommunications; 
they do not operate transmission facilities and infrastructure. Mobile 
virtual network operators (MVNOs) are included in this industry. Under 
that size standard, such a business is small if it has 1,500 or fewer 
employees. Census data for 2012 show that 1,341 firms provided resale 
services during that year. Of that number, all operated with fewer than 
1,000 employees. Thus, under this category and the associated small 
business size standard, the majority of these resellers can be 
considered small entities.
    133. Toll Resellers. The Commission has not developed a definition 
for Toll Resellers. The closest NAICS Code Category is 
Telecommunications Resellers. The Telecommunications Resellers industry 
comprises establishments engaged in purchasing access and network 
capacity from owners and operators of telecommunications networks and 
reselling wired and wireless telecommunications services (except 
satellite) to businesses and households. Establishments in this 
industry resell telecommunications; they do not operate transmission 
facilities and infrastructure. Mobile virtual network operators (MVNOs) 
are included in this industry. The SBA has developed a small business 
size standard for the category of Telecommunications Resellers. Under 
that size standard, such a business is small if it has 1,500 or fewer 
employees. Census data for 2012 show that 1,341 firms provided resale 
services during that year. Of that number, 1,341 operated with fewer 
than 1,000 employees. Thus, under this category and the associated 
small business size standard, the majority of these resellers can be 
considered small entities. According to Commission data, 881 carriers 
have reported that they are engaged in the provision of toll resale 
services. Of this total, an estimated 857 have 1,500 or fewer 
employees. Consequently, the Commission estimates that the majority of 
toll resellers are small entities.
    134. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a definition for small businesses specifically applicable to 
Other Toll Carriers. This category includes toll carriers that do not 
fall within the categories of interexchange carriers, operator service 
providers, prepaid calling card providers, satellite service carriers, 
or toll resellers. The closest applicable NAICS Code category is for 
Wired Telecommunications Carriers as defined above. Under the 
applicable SBA size standard, such a business is small if it has 1,500 
or fewer employees. Census data for 2012 shows that there were 3,117 
firms that operated that year. Of this total, 3,083 operated with fewer 
than 1,000 employees. Thus, under this category and the associated 
small business size standard, the majority of Other Toll Carriers can 
be considered small. According to internally developed Commission data, 
284 companies reported that their primary telecommunications service 
activity was the provision of other toll carriage. Of these, an 
estimated 279 have 1,500 or fewer employees. Consequently, the 
Commission estimates that most Other Toll Carriers are small entities 
that may be affected by rules adopted pursuant to the Access Arbitrage 
Notice.
    135. Prepaid Calling Card Providers. The SBA has developed a 
definition for small businesses within the category of 
Telecommunications Resellers. Under that SBA definition, such a 
business is small if it has 1,500 or fewer employees. According to the 
Commission's Form 499 Filer Database, 500 companies reported that they 
were engaged in the provision of prepaid calling cards. The Commission 
does not have data regarding how many of these 500 companies have 1,500 
or fewer employees. Consequently, the Commission estimates that there 
are 500 or fewer prepaid calling card providers that may be affected by 
the rules.
    136. Wireless Telecommunications Carriers (except Satellite). This 
industry comprises establishments engaged in operating and maintaining 
switching and transmission facilities to provide communications via the 
airwaves. Establishments in this industry have spectrum licenses and 
provide services using that spectrum, such as cellular services, paging 
services, wireless internet access, and wireless video services. The 
appropriate size standard under SBA rules is that such a business is 
small if it has 1,500 or fewer employees. For this industry, U.S. 
Census data for 2012 show that there

[[Page 57648]]

were 967 firms that operated for the entire year. Of this total, 955 
firms had employment of 999 or fewer employees and 12 had employment of 
1000 employees or more. Thus under this category and the associated 
size standard, the Commission estimates that the majority of wireless 
telecommunications carriers (except satellite) are small entities.
    137. The Commission's own data--available in its Universal 
Licensing System--indicate that, as of October 25, 2016, there are 280 
Cellular licensees that may be affected by our actions in this 
document. The Commission does not know how many of these licensees are 
small, as the Commission does not collect that information for these 
types of entities. Similarly, according to internally developed 
Commission data, 413 carriers reported that they were engaged in the 
provision of wireless telephony, including cellular service, Personal 
Communications Service, and Specialized Mobile Radio Telephony 
services. Of this total, an estimated 261 have 1,500 or fewer 
employees, and 152 have more than 1,500 employees. Thus, using 
available data, we estimate that the majority of wireless firms can be 
considered small.
    138. Wireless Communications Services. This service can be used for 
fixed, mobile, radiolocation, and digital audio broadcasting satellite 
uses. The Commission defined ``small business'' for the wireless 
communications services (WCS) auction as an entity with average gross 
revenues of $40 million for each of the three preceding years, and a 
``very small business'' as an entity with average gross revenues of $15 
million for each of the three preceding years. The SBA has approved 
these definitions.
    139. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services, and specialized mobile radio 
telephony carriers. As noted, the SBA has developed a small business 
size standard for Wireless Telecommunications Carriers (except 
Satellite). Under the SBA small business size standard, a business is 
small if it has 1,500 or fewer employees. According to Commission data, 
413 carriers reported that they were engaged in wireless telephony. Of 
these, an estimated 261 have 1,500 or fewer employees and 152 have more 
than 1,500 employees. Therefore, a little less than one third of these 
entities can be considered small.
    140. Cable and Other Subscription Programming. This industry 
comprises establishments primarily engaged in operating studios and 
facilities for the broadcasting of programs on a subscription or fee 
basis. The broadcast programming is typically narrowcast in nature 
(e.g., limited format, such as news, sports, education, or youth-
oriented). These establishments produce programming in their own 
facilities or acquire programming from external sources. The 
programming material is usually delivered to a third party, such as 
cable systems or direct-to-home satellite systems, for transmission to 
viewers. The SBA has established a size standard for this industry 
stating that a business in this industry is small if it has 1,500 or 
fewer employees. The 2012 Economic Census indicates that 367 firms were 
operational for that entire year. Of this total, 357 operated with less 
than 1,000 employees. Accordingly we conclude that a substantial 
majority of firms in this industry are small under the applicable SBA 
size standard.
    141. Cable Companies and Systems (Rate Regulation). The Commission 
has developed its own small business size standards for the purpose of 
cable rate regulation. Under the Commission's rules, a ``small cable 
company'' is one serving 400,000 or fewer subscribers nationwide. 
Industry data indicate that there are currently 4,600 active cable 
systems in the United States. Of this total, all but eleven cable 
operators nationwide are small under the 400,000-subscriber size 
standard. In addition, under the Commission's rate regulation rules, a 
``small system'' is a cable system serving 15,000 or fewer subscribers. 
Current Commission records show 4,600 cable systems nationwide. Of this 
total, 3,900 cable systems have fewer than 15,000 subscribers, and 700 
systems have 15,000 or more subscribers, based on the same records. 
Thus, under this standard as well, we estimate that most cable systems 
are small entities.
    142. Cable System Operators (Telecom Act Standard). The 
Communications Act also contains a size standard for small cable system 
operators, which is ``a cable operator that, directly or through an 
affiliate, serves in the aggregate fewer than 1 percent of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' There are approximately 52,403,705 cable video 
subscribers in the United States today. Accordingly, an operator 
serving fewer than 524,037 subscribers shall be deemed a small operator 
if its annual revenues, when combined with the total annual revenues of 
all its affiliates, do not exceed $250 million in the aggregate. Based 
on available data, we find that all but nine incumbent cable operators 
are small entities under this size standard. We note that the 
Commission neither requests nor collects information on whether cable 
system operators are affiliated with entities whose gross annual 
revenues exceed $250 million. Although it seems certain that some of 
these cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, we are unable at this time to 
estimate with greater precision the number of cable system operators 
that would qualify as small cable operators under the definition in the 
Communications Act.
    143. All Other Telecommunications. The ``All Other 
Telecommunications'' industry is comprised of establishments that are 
primarily engaged in providing specialized telecommunications services, 
such as satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing internet services or 
voice over internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry. The 
SBA has developed a small business size standard for ``All Other 
Telecommunications,'' which consists of all such firms with gross 
annual receipts of $32.5 million or less. For this category, U.S. 
Census data for 2012 show that there were 1,442 firms that operated for 
the entire year. Of these firms, a total of 1,400 had gross annual 
receipts of less than $25 million. Thus a majority of ``All Other 
Telecommunications'' firms potentially may be affected by our action 
can be considered small.

E. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities

    144. Recordkeeping and Reporting. The rule revisions adopted in the 
Order include notification requirements for access-stimulating LECs, 
which may impact small entities. Those LECs engaged in access 
stimulation are required to notify affected intermediate access 
providers and affected IXCs of their status as access stimulators and 
of their acceptance of financial responsibility for the tandem and 
transport switched access charges IXCs used to bear. An access-
stimulating LEC must also publicly file a record of its access-
stimulating status and

[[Page 57649]]

acceptance of financial responsibility in the Commission's Access 
Arbitrage docket on the same day that it issues notice to IXC(s) and/or 
intermediate access provider(s).
    145. Rule changes may also necessitate that affected carriers make 
various revisions to their billing systems. For example, intermediate 
access providers that serve access-stimulating LECs will now charge 
terminating tandem switched access rates and transport rates to the 
corresponding LECs, whereas IXCs that serve access-stimulating LECs 
will no longer be required to pay such charges. As intermediate access 
providers cease billing IXCs, and instead bill access-stimulating LECs, 
they will likely need to make corresponding adjustments to their 
billing systems.
    146. This Order may also require access-stimulating LECs to file 
tariff revisions to remove any tariff provisions they have filed for 
terminating tandem switched access or terminating switched access 
transport charges. Although we decline to opine on whether this Order 
requires carriers to file further tariff revisions, affected carriers 
may nonetheless choose to file additional tariff revisions to add 
provisions allowing them to charge access-stimulating LECs, rather than 
IXCs, for the termination of traffic to the access-stimulating LEC. 
These revisions may necessitate some effort to revise the rates (and 
who pays them), including terminating tandem switching rates and 
transport rates. The requirement to remove related provisions, and the 
choice to make any additional revisions, would apply to all affected 
carriers, regardless of entity size. The adopted rule revisions will 
facilitate Commission and public access to the most accurate and up-to-
date tariffs as well as lower rates paid by the public for the affected 
services.
    147. Existing access-stimulating LECs, or LECs who later become 
access-stimulating LECs, will also face similar reporting and 
recordkeeping requirements should they later choose to cease access 
stimulation. These steps are virtually identical as the steps discussed 
above that are required or may be necessary when commencing access 
stimulation, including providing third-party notice, filing a notice 
with the Commission, potential billing system changes, removing tariff 
provisions, and potentially preparing and filing a revised tariff.

F. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    148. The RFA requires an agency to describe any significant 
alternatives that it has considered in developing its approach, which 
may include the following four alternatives (among others): ``(1) the 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities; (3) the use of performance rather than design standards; and 
(4) an exemption from coverage of the rule, or any part thereof, for 
such small entities.''
    149. Transition Period. To minimize the impact of the changes 
affected carriers may need to make under this Order, we implement up to 
a 45 day transition period for the related recordkeeping and reporting 
steps. To give effect to the financial shift of responsibility, we 
require that access-stimulating LECs remove any existing tariff 
provisions for terminating tandem switching or terminating tandem 
switched transport access charges within the same period, i.e., within 
45 days of the effective date of the Order (or, for those carriers who 
later engage in access stimulation, within 45 days from the date it 
commences access stimulation). This will also allow time if parties 
choose to make additional changes to their operations as a result of 
our reforms to further reduce access stimulation. To ensure clarity and 
increase transparency, we require that access-stimulating LECs notify 
affected IXCs and intermediate access providers of their access-
stimulating status and their acceptance of financial responsibility 
within 45 days of PRA approval (or, for a carrier who later engages in 
access stimulation, within 45 days from the date it commences access 
stimulation), and file a notice in the Commission's Access Arbitrage 
docket on the same date and to the same effect. The Commission 
announced the notice aspects of the transition period in the proposed 
rule in the Access Arbitrage Notice, and while several commenters 
voiced support, none cited any specific problems nor concerns 
associated with these notice requirements. These notice requirements 
for such carriers to self-identify will help parties conserve resources 
by limiting potential disputes between IXCs and intermediate access 
providers concerning whether the LEC to which traffic is bound is 
engaged in access stimulation. Such changes are also subject to the 
Paperwork Reduction Act approval process which allows for additional 
notice and comment on the burdens associated with the requirement. This 
process will occur after adoption of this Order, thus providing 
additional time for parties to make the changes necessary to comply 
with the newly adopted rules. Also, being mindful of the attendant 
costs of any reporting obligations, we do not require that carriers 
adhere to a specific notice format. Instead, we allow each responding 
carrier to prepare third-party notice and notice to the Commission in 
the manner they deem to be most cost-effective and least burdensome, 
provided the notice announces the carrier's access-stimulating status 
and acceptance of financial responsibility. Furthermore, by electing 
not to require carriers to fully withdraw and file entirely new tariffs 
and requiring only that they revise their tariffs to remove relevant 
provisions, we mitigate the filing burden on affected carriers.
    150. We recognize that intermediate access providers may need to 
revise their billing systems to reflect the shift in financial 
responsibility and may also elect to file revised tariffs. Though we 
believe the potential billing system changes to be straightforward, to 
allow sufficient time for affected parties to make any adjustments, we 
also grant them the same period from the effective date for 
implementing such changes. Thus, affected intermediate access providers 
have 45 days from the effective date of this rule (or, with respect to 
those carriers who later engage in access stimulation, within 45 days 
from the date such carriers commence access stimulation) to implement 
any billing system changes or prepare any tariff revisions which they 
may see fit to file. The time granted by this period should help 
carriers make an orderly, less burdensome, transition.
    151. These same considerations were taken into account for LECs 
that cease access stimulation, a change that carries concomitant 
reporting obligations and to which we apply associated transition 
periods for billing changes and/or for tariff revisions that, 
collectively, are virtually identical to those mentioned above.
    152. In comments not identified as IRFA-related, centralized equal 
access (CEA) providers Aureon and SDN argued that the potential billing 
changes and tariff revisions that would arise from making LECs 
financially responsible constitute an undue burden that ``would render 
it financially infeasible for the CEA network to remain operational.'' 
Aureon's sole

[[Page 57650]]

support for this assertion is that this change would ``necessitate 
significant changes to the compensation arrangements for CEA service.'' 
We have considered these costs but are not persuaded that these costs 
are significant enough to rise to an undue burden on affected carriers. 
We believe these changes to be straightforward, particularly because 
the identities of the relevant parties will already be known to one 
another because of existing relationships between them, and because 
they have previously charged others for the same services. There is no 
reason to believe that these changes will be onerous and the record is 
bereft of evidence of material incremental costs of making the 
necessary changes to implement billing arrangements with subtending 
access-stimulating LECs. We find no further evidence in the record of 
financial difficulties that CEAs would experience from this switch. In 
addition, we revise the definition of access stimulation to apply only 
to LECs that serve end users. This definitional change will narrow the 
providers who will be deemed access stimulators by excluding CEA 
providers, as they do not serve end users. We also adopt two alternate 
triggers in the access stimulation definition, one for competitive LECs 
and one for rate-of-return LECs, which should further limit the 
applicability of these new rules to small providers.
    153. Report to Congress: The Commission will send a copy of the 
Order, including this FRFA, in a report to be sent to Congress pursuant 
to the Congressional Review Act. In addition, the Commission will send 
a copy of the Order, including this FRFA, to the Chief Counsel for 
Advocacy of the SBA. A copy of the Order and FRFA (or summaries 
thereof) will also be published in the Federal Register.

VI. Ordering Clauses

    154. Accordingly, it is ordered that, pursuant to sections 1, 2, 
4(i), 4(j), 201-206, 218-220, 251, 252, 254, 256, 303(r), and 403 of 
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 
154(j), 201-206, 218-220, 251, 252, 254, 256, 303(r), 403 and Sec.  1.1 
of the Commission's rules, 47 CFR 1.1, this Report and Order and 
Modification of Section 214 Authorizations is adopted.
    155. It is further ordered, pursuant to sections 4(i), 214, and 403 
of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 214, 
403 and Sec. Sec.  1.47(h), 63.01 and 64.1195 of the Commission's 
rules, 47 CFR 1.47(h), 63.10, 64.1195, that the section 214 
authorizations held by Iowa Network Access Division and South Dakota 
Network, LLC, are modified such that the mandatory use requirement 
contained in the authorizations does not apply to interexchange 
carriers delivering terminating traffic to a local exchange carrier 
engaged in access stimulation. These modifications are effective 30 
days after publication of this Report and Order and Modification of 
Section 214 Authorizations in the Federal Register.
    156. It is further ordered that a copy of this Order shall be sent 
by U.S. mail to Iowa Network Access Division and South Dakota Network, 
LLC, at their last known addresses. In addition, this Report and Order 
and Modification of Section 214 Authorizations shall be available in 
the Commission's Office of the Secretary.
    157. It is further ordered that the amendments of the Commission's 
rules are adopted, effective 30 days after publication in the Federal 
Register. Compliance with Sec.  51.914(b) and (e), which contain new or 
modified information collection requirements that require review by OMB 
under the PRA, is delayed. The Commission directs the Wireline 
Competition Bureau to announce the compliance date for those 
information collections in a document published in the Federal Register 
after OMB approval, and directs the Wireline Competition Bureau to 
cause Sec.  51.914 to be revised accordingly.
    158. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order and Modification of Section 214 
Authorizations, including the Final Regulatory Flexibility Analysis, to 
Congress and the Government Accountability Office pursuant to the 
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).
    159. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order and Modification of Section 214 
Authorizations, including the Final Regulatory Flexibility Analysis, to 
the Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects

47 CFR Part 51

    Communications common carriers, Telecommunications.

47 CFR Parts 61 and 69

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary, Office of the Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR parts 51, 61, and 69 as 
follows:

PART 51--INTERCONNECTION

0
1. The authority citation for part 51 continues to read as follows:

    Authority: 47 U.S.C. 151-55, 201-05, 207-09, 218, 225-27, 251-
52, 271, 332 unless otherwise noted.


0
2. Amend Sec.  51.903 by adding paragraphs (k), (l), and (m) to read as 
follows:


Sec.  51.903   Definitions.

* * * * *
    (k) Access Stimulation has the same meaning as that term is defined 
in Sec.  61.3(bbb) of this chapter.
    (l) Intermediate Access Provider has the same meaning as that term 
is defined in Sec.  61.3(ccc) of this chapter.
    (m) Interexchange Carrier has the same meaning as that term is 
defined in Sec.  61.3(ddd) of this chapter.

0
3. Section 51.914 is added to read as follows:


Sec.  51.914   Additional provisions applicable to Access Stimulation 
traffic.

    (a) Notwithstanding any other provision of this part, if a local 
exchange carrier is engaged in Access Stimulation, as defined in Sec.  
61.3(bbb) of this chapter, it shall, within 45 days of commencing 
Access Stimulation, or within 45 days of November 27, 2019, whichever 
is later:
    (1) Not bill any Interexchange Carrier for terminating switched 
access tandem switching or terminating switched access transport 
charges for any traffic between such local exchange carrier's 
terminating end office or equivalent and the associated access tandem 
switch; and
    (2) Shall designate, if needed, the Intermediate Access Provider(s) 
that will provide terminating switched access tandem switching and 
terminating switched access tandem transport services to the local 
exchange carrier engaged in access stimulation and that the local 
exchange carrier shall assume financial responsibility for any 
applicable Intermediate Access Provider's charges for such services for 
any traffic between such local exchange carrier's terminating end 
office or equivalent and the associated access tandem switch.

[[Page 57651]]

    (b) Notwithstanding any other provision of this part, if a local 
exchange carrier is engaged in Access Stimulation, as defined in Sec.  
61.3(bbb) of this chapter, it shall, within 45 days of commencing 
Access Stimulation, or within 45 days of November 27, 2019, whichever 
is later, notify in writing the Commission, all Intermediate Access 
Providers that it subtends, and Interexchange Carriers with which it 
does business of the following:
    (1) That it is a local exchange carrier engaged in Access 
Stimulation; and
    (2) That it shall designate the Intermediate Access Provider(s) 
that will provide the terminating switched access tandem switching and 
terminating switched access tandem transport services to the local 
exchange carrier engaged in access stimulation and that it shall pay 
for those services as of that date.
    (c) In the event that an Intermediate Access Provider receives 
notice under paragraph (b) of this section that it has been designated 
to provide terminating switched access tandem switching or terminating 
switched access tandem transport services to a local exchange carrier 
engaged in Access Stimulation and that local exchange carrier shall pay 
for such terminating access service from such Intermediate Access 
Provider, the Intermediate Access Provider shall not bill Interexchange 
Carriers for terminating switched access tandem switching or 
terminating switched access tandem transport service for traffic bound 
for such local exchange carrier but, instead, shall bill such local 
exchange carrier for such services.
    (d) Notwithstanding paragraphs (a) and (b) of this section, any 
local exchange carrier that is not itself engaged in Access 
Stimulation, as that term is defined in Sec.  61.3(bbb) of this 
chapter, but serves as an Intermediate Access Provider with respect to 
traffic bound for a local exchange carrier engaged in Access 
Stimulation, shall not itself be deemed a local exchange carrier 
engaged in Access Stimulation or be affected by paragraphs (a) and (b).
    (e) Upon terminating its engagement in Access Stimulation, as 
defined in Sec.  61.3(bbb) of this chapter, the local exchange carrier 
engaged in Access Stimulation shall provide concurrent, written 
notification to the Commission and any affected Intermediate Access 
Provider(s) and Interexchange Carrier(s) of such fact.
    (f) Paragraphs (b) and (e) of this section contain new or modified 
information-collection and recordkeeping requirements. Compliance with 
these information-collection and recordkeeping requirements will not be 
required until after approval by the Office of Management and Budget. 
The Commission will publish a document in the Federal Register 
announcing that compliance date and revising this paragraph (f) 
accordingly.

0
4. Amend Sec.  51.917 by revising paragraph (c) as follows:


Sec.  51.917  Revenue recovery for Rate-of-Return Carriers.

* * * * *
    (c) Adjustment for Access Stimulation activity. 2011 Rate-of-Return 
Carrier Base Period Revenue shall be adjusted to reflect the removal of 
any increases in revenue requirement or revenues resulting from Access 
Stimulation activity the Rate-of-Return Carrier engaged in during the 
relevant measuring period. A Rate-of-Return Carrier should make this 
adjustment for its initial July 1, 2012, tariff filing, but the 
adjustment may result from a subsequent Commission or court ruling.
* * * * *

PART 61--TARIFFS

0
5. The authority citation for part 61 continues to read as follows:

    Authority:  47 U.S.C. 151, 154(i), 154(j), 201-205, 403, unless 
otherwise noted.


0
6. Amend Sec.  61.3 by revising paragraph (bbb) and adding paragraphs 
(ccc) and (ddd) to read as follows:


Sec.  61.3  Definitions.

* * * * *
    (bbb) Access Stimulation. (1) A Competitive Local Exchange Carrier 
serving end user(s) engages in Access Stimulation when it satisfies 
either paragraph (bbb)(1)(i) or (ii) of this section; and a rate-of-
return local exchange carrier serving end user(s) engages in Access 
Stimulation when it satisfies either paragraph (bbb)(1)(i) or (iii) of 
this section.
    (i) The rate-of-return local exchange carrier or a Competitive 
Local Exchange Carrier:
    (A) Has an access revenue sharing agreement, whether express, 
implied, written or oral, that, over the course of the agreement, would 
directly or indirectly result in a net payment to the other party 
(including affiliates) to the agreement, in which payment by the rate-
of-return local exchange carrier or Competitive Local Exchange Carrier 
is based on the billing or collection of access charges from 
interexchange carriers or wireless carriers. When determining whether 
there is a net payment under this part, all payments, discounts, 
credits, services, features, functions, and other items of value, 
regardless of form, provided by the rate-of-return local exchange 
carrier or Competitive Local Exchange Carrier to the other party to the 
agreement shall be taken into account; and
    (B) Has either an interstate terminating-to-originating traffic 
ratio of at least 3:1 in a calendar month, or has had more than a 100 
percent growth in interstate originating and/or terminating switched 
access minutes of use in a month compared to the same month in the 
preceding year.
    (ii) A Competitive Local Exchange Carrier has an interstate 
terminating-to-originating traffic ratio of at least 6:1 in an end 
office in a calendar month.
    (iii) A rate-of-return local exchange carrier has an interstate 
terminating-to-originating traffic ratio of at least 10:1 in an end 
office in a three calendar month period and has 500,000 minutes or more 
of interstate terminating minutes-of-use per month in the same end 
office in the same three calendar month period. These factors will be 
measured as an average over the three calendar month period.
    (2) A Competitive Local Exchange Carrier will continue to be 
engaging in Access Stimulation until: For a carrier engaging in Access 
Stimulation as defined in paragraph (bbb)(1)(i) of this section, it 
terminates all revenue sharing agreements covered in paragraph 
(bbb)(1)(i) of this section and does not engage in Access Stimulation 
as defined in paragraph (bbb)(1)(ii) of this section; and for a carrier 
engaging in Access Stimulation as defined in paragraph (bbb)(1)(ii) of 
this section, its interstate terminating-to-originating traffic ratio 
falls below 6:1 for six consecutive months, and it does not engage in 
Access Stimulation as defined in paragraph (bbb)(1)(i) of this section.
    (3) A rate-of-return local exchange carrier will continue to be 
engaging in Access Stimulation until: For a carrier engaging in Access 
Stimulation as defined in paragraph (bbb)(1)(i) of this section, it 
terminates all revenue sharing agreements covered in paragraph 
(bbb)(1)(i) of this section and does not engage in Access Stimulation 
as defined in paragraph (bbb)(1)(iii) of this section; and for a 
carrier engaging in Access Stimulation as defined in paragraph 
(bbb)(1)(iii) of this section, its interstate terminating-to-
originating traffic ratio falls below 10:1 for six consecutive months 
and its monthly interstate terminating minutes-of-use in an end office 
falls below 500,000 for six consecutive months, and it does not engage 
in Access Stimulation as defined in paragraph (bbb)(1)(i) of this 
section.
    (4) A local exchange carrier engaging in Access Stimulation is 
subject to

[[Page 57652]]

revised interstate switched access charge rules under Sec.  61.26(g) 
(for Competitive Local Exchange Carriers) or Sec.  61.38 and Sec.  
69.3(e)(12) of this chapter (for rate-of-return local exchange 
carriers).
    (ccc) Intermediate Access Provider. The term means, for purposes of 
this part and Sec. Sec.  69.3(e)(12)(iv) and 69.5(b) of this chapter, 
any entity that carries or processes traffic at any point between the 
final Interexchange Carrier in a call path and a local exchange carrier 
engaged in Access Stimulation, as defined in paragraph (bbb) of this 
section.
    (ddd) Interexchange Carrier. The term means, for purposes of this 
part and Sec. Sec.  69.3(e)(12)(iv) and 69.5(b) of this chapter, a 
retail or wholesale telecommunications carrier that uses the exchange 
access or information access services of another telecommunications 
carrier for the provision of telecommunications.

0
7. Amend Sec.  61.26 by adding paragraph (g)(3) to read as follows:


Sec.  61.26   Tariffing of competitive interstate switched exchange 
access services.

* * * * *
    (g) * * *
    (3) Notwithstanding any other provision of this part, if a CLEC is 
engaged in Access Stimulation, as defined in Sec.  61.3(bbb), it shall:
    (i) Within 45 days of commencing Access Stimulation, or within 45 
days of November 27, 2019, whichever is later, file tariff revisions 
removing from its tariff terminating switched access tandem switching 
and terminating switched access tandem transport access charges 
assessable to an Interexchange Carrier for any traffic between the 
tandem and the local exchange carrier's terminating end office or 
equivalent; and
    (ii) Within 45 days of commencing Access Stimulation, or within 45 
days of November 27, 2019, whichever is later, the CLEC shall not file 
a tariffed rate that is assessable to an Interexchange Carrier for 
terminating switched access tandem switching or terminating switched 
access tandem transport access charges for any traffic between the 
tandem and the local exchange carrier's terminating end office or 
equivalent.

0
8. Amend Sec.  61.39 by revising paragraph (g) to read as follows:


Sec.  61.39  Optional supporting information to be submitted with 
letters of transmittal for Access Tariff filings by incumbent local 
exchange carriers serving 50,000 or fewer access lines in a given study 
area that are described as subset 3 carriers in Sec.  69.602.

* * * * *
    (g) Engagement in Access Stimulation. A local exchange carrier 
otherwise eligible to file a tariff pursuant to this section may not do 
so if it is engaging in Access Stimulation, as that term is defined in 
Sec.  61.3(bbb). A carrier so engaged must file interstate access 
tariffs in accordance with Sec.  61.38 and Sec.  69.3(e)(12) of this 
chapter.

PART 69--ACCESS CHARGES

0
9. The authority citation for part 69 continues to read as follows:

    Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 
403.


0
10. Amend Sec.  69.3 by adding paragraph (e)(12)(iv) and removing the 
authority citation at the end of the section to read as follows:


Sec.  69.3  Filing of access service tariffs.

* * * * *
    (e) * * *
    (12) * * *
    (iv) Notwithstanding any other provision of this part, if a rate-
of-return local exchange carrier is engaged in Access Stimulation, or a 
group of affiliated carriers in which at least one carrier is engaging 
in Access Stimulation, as defined in Sec.  61.3(bbb) of this chapter, 
it shall:
    (A) Within 45 days of commencing Access Stimulation, or within 45 
days of November 27, 2019, whichever is later, file tariff revisions 
removing from its tariff terminating switched access tandem switching 
and terminating switched access tandem transport access charges 
assessable to an Interexchange Carrier for any traffic between the 
tandem and the local exchange carrier's terminating end office or 
equivalent; and
    (B) Within 45 days of commencing Access Stimulation, or within 45 
days of November 27, 2019, whichever is later, the local exchange 
carrier shall not file a tariffed rate for terminating switched access 
tandem switching or terminating switched access tandem transport access 
charges that is assessable to an Interexchange Carrier for any traffic 
between the tandem and the local exchange carrier's terminating end 
office or equivalent.
* * * * *

0
11. Amend Sec.  69.4 by adding paragraph (l) to read as follows:


Sec.  69.4   Charges to be filed.

* * * * *
    (l) Notwithstanding paragraph (b)(5) of this section, a local 
exchange carrier engaged in Access Stimulation as defined in Sec.  
61.3(bbb) of this chapter or the Intermediate Access Provider it 
subtends may not bill an Interexchange Carrier as defined in Sec.  
61.3(bbb) of this chapter for terminating switched access tandem 
switching or terminating switched access tandem transport charges for 
any traffic between such local exchange carrier's terminating end 
office or equivalent and the associated access tandem switch.

0
12. Amend Sec.  69.5 by revising paragraph (b) and removing the 
authority citation at the end of the section to read as follows:


Sec.  69.5  Persons to be assessed.

* * * * *
    (b) Carrier's carrier charges shall be computed and assessed upon 
all Interexchange Carriers that use local exchange switching facilities 
for the provision of interstate or foreign telecommunications services, 
except that:
    (1) Local exchange carriers may not assess a terminating switched 
access tandem switching or terminating switched access tandem transport 
charge described in Sec.  69.4(b)(5) on Interexchange Carriers when the 
terminating traffic is destined for a local exchange carrier engaged in 
Access Stimulation, as that term is defined in Sec.  61.3(bbb) of this 
chapter consistent with the provisions of Sec.  61.26(g)(3) of this 
chapter and Sec.  69.3(e)(12)(iv).
    (2) Intermediate Access Providers may assess a terminating switched 
access tandem switching or terminating switched access tandem transport 
charge described in Sec.  69.4(b)(5) on local exchange carriers when 
the terminating traffic is destined for a local exchange carrier 
engaged in Access Stimulation, as that term is defined in Sec.  
61.3(bbb) of this chapter consistent with the provisions of Sec.  
61.26(g)(3) of this chapter and Sec.  69.3(e)(12)(iv).
* * * * *

[FR Doc. 2019-22447 Filed 10-25-19; 8:45 am]
 BILLING CODE 6712-01-P