FCC Decisions Challenge Local Competitors' Business Plans
More than five years after enactment of the Telecommunications Act of 1996,
the FCC has dramatically changed carrier-to-carrier payment mechanisms that had
spurred Competitive Local Exchange Carriers (CLECS) to enter local telephone
markets previously served almost exclusively by Incumbent Local Exchange
Carriers (ILECs). ILECs and long-distance carriers hail the FCC's decisions as
removing distortions in the competitive marketplace that unfairly favored the
new competitors, while CLECs see the changes as betrayals of the FCC's
commitment to foster competition that eliminate the underpinnings for crucial
business decisions and investments by competitors. In contentious proceedings,
the FCC (1) preempted state decisions that CLECs receive reciprocal compensation
for terminating calls to information service providers (ISPs) and (2)
established benchmarks for reasonable tariffed CLEC access charges for local
handling of interstate long-distance calls from interexchange carriers' (IXCs')
customers. In spite of the FCC's efforts to buffer the blow by gradually
transitioning in the changes, the decisions jeopardize millions of dollars in
revenues for CLECs.
The 1996 Act requires carriers to pay each other "reciprocal
compensation" when one of them hands off a call for the other to transport
and terminate. Previously, ILECs had charged competing carriers regardless of
whether the ILEC was delivering traffic to the competitor for transport and
termination or receiving traffic that the ILEC would terminate. The states
generally ruled that the reciprocal compensation requirement applies to the call
that connects a local customer with an Internet provider in its local calling
area.
Since calls from customers to their Internet providers were almost all in one
direction, the Bell companies found that they had to make huge payments to CLECs
when they delivered their customers Internet access calls to the CLEC - charges
that amounted to hundreds of millions of dollars each year. In contrast, the
CLECs had no comparable "reciprocal" payments to make to the ILEC
because Internet providers did not call the ILECs' customers back. Some CLECs
were even set up solely to collect this one-way flow of money for carrying
traffic between the BOCs and Internet providers. The controversy intensified
when a federal court held that the FCC had not adequately explained its decision
that a customer's call to its dial-up Internet service provider is not a local
call, but...
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