Updating the Intercarrier Compensation Regime To Eliminate Access Arbitrage, 40908-40915 [2020-13183]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 85, Number 131 (Wednesday, July 8, 2020)]
[Rules and Regulations]
[Pages 40908-40915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13183]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 51, 54, 61, and 69

[WC Docket No. 18-155; FCC 20-79; FRS 16861]


Updating the Intercarrier Compensation Regime To Eliminate Access 
Arbitrage

AGENCY: Federal Communications Commission.

ACTION: Order on reconsideration.

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SUMMARY: In this document, the Federal Communications Commission 
responds to a petition for reconsideration of the Access Arbitrage 
Order filed by Iowa Network Services d/b/a Aureon Network Services 
(Aureon) in Iowa. Upon review of the record, we dismiss Aureon's 
Petition as procedurally defective, and independently, and in the 
alternative, deny it on substantive grounds.

DATES: The denial of the petition for reconsideration was effective 
June 11, 2020.

ADDRESSES: The complete text of this document is available for 
inspection and copying during normal business hours in the FCC 
Reference Information Center, Portals II, 445 12th Street SW, Room CY-
A257, Washington, DC 20554, or at the following internet address: At 
https://docs.fcc.gov/public/attachments/FCC-20-79A1.pdf.

FOR FURTHER INFORMATION CONTACT: For further information, please 
contact Victoria Goldberg, Pricing Policy Division, Wireline 
Competition Bureau, at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
on Reconsideration (Order) in WC Docket No. 18-155, adopted June 11, 
2020 and released June 11, 2020. The full text of this document is 
available on the Commission's website at https://docs.fcc.gov/public/attachments/FCC-20-79A1.pdf.

I. Introduction

    1. In the 2019 Access Arbitrage Order (84 FR 57629, Oct. 28, 2019), 
we tackled, once again, the troublesome use of ``free'' conference 
calling, chat lines, and certain other services operated out of rural 
areas to take advantage of inefficiently high access charges allowed 
under the existing intercarrier compensation regime. As we explained, 
access stimulation schemes adapted to shrinking end office termination 
charges by taking advantage of access charges that had not transitioned 
or were not transitioning to bill-and-keep. As such, these schemes were 
structured to ensure that interexchange carriers (IXCs) would pay high 
tandem switching and tandem switched transport charges to access-
stimulating local exchange carriers (LECs) and to the intermediate 
access providers chosen by those access-stimulating LECs. We also found 
that the vast majority of access-stimulation traffic was bound for LECs 
that subtended two centralized equal access (CEA) providers, Iowa 
Network Services d/b/a Aureon Network Services (Aureon) in Iowa and 
South Dakota Network, LLC (SDN) in South Dakota.
    2. To eliminate the financial incentives to engage in access 
arbitrage, we adopted 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 an 
IXC to the access-stimulating LEC end office or its functional 
equivalent. To facilitate the implementation of the rules in Iowa and 
South Dakota, we also modified the section 214 authorizations for 
Aureon and SDN to permit traffic terminating at access-stimulating LECs 
that subtend those CEA providers' tandems to bypass the CEA tandems.
    3. Now Aureon seeks reconsideration of the Access Arbitrage Order. 
In its Petition, Aureon reiterates several of the arguments it made on 
the record in the Access Arbitrage proceeding. In particular, Aureon 
objects to our decision to adopt rules making access-stimulating LECs 
responsible for paying for tandem switching and transport services, and 
argues that we should instead have adopted one of its proposals--either 
to ban access stimulation or to require consumers placing calls to 
access-stimulating LECs to pay their IXCs an additional charge for each 
such call. Aureon also objects to our decision to modify its section 
214 authorization, and it argues that we should have addressed its cost 
and rate complaints that are at issue in other Commission proceedings. 
Upon review of the record, we dismiss Aureon's Petition as procedurally 
defective, and independently, and in the alternative, deny it on 
substantive grounds.

II. Background

    4. The Commission has been combating access stimulation for more 
than a decade. Traditionally, access-stimulating LECs relied on the 
existence of high end office terminating switched access rates in rural 
areas that allowed them to increase their revenue by inflating their 
terminating call volumes through arrangements with entities that offer 
high-volume calling services. Because LECs entering traffic-inflating 
revenue-sharing agreements were not required to reduce their access 
rates to reflect their increased volume of minutes, 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). As a result, IXCs and their customers had to pay 
those inflated intercarrier compensation charges.
    5. In the 2011 USF/ICC Transformation Order (76 FR 73830, Nov. 29, 
2011), the Commission found that access-stimulating LECs were 
``realiz[ing] significant revenue increases and thus inflated profits 
that almost uniformly [made] their interstate switched access rates 
unjust and unreasonable.'' The record showed that the ``total cost of 
access stimulation to IXCs [had] been more than $2.3 billion over the 
[preceding] five years'' and that ``Verizon estimate[d] the overall 
costs to IXCs to be between $330 and $440 million per year.'' The 
Commission explained that all long distance customers ``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 today's above-cost intercarrier compensation rates.'' 
The Commission also found that ``[a]ccess stimulation imposes undue 
costs on consumers, inefficiently diverting capital away from more 
productive uses such as broadband deployment,'' and that it ``harms 
competition by giving companies that offer a `free' calling service a 
competitive advantage over companies that charge their customers for 
the service.''
    6. The Commission sought to eliminate the detrimental effect of

[[Page 40909]]

access stimulation on all American consumers by requiring LECs to 
refile their interstate switched access tariffs at lower rates if: (1) 
The LEC has a revenue-sharing agreement; and (2) the LEC either has (a) 
a 3:1 ratio of terminating-to-originating traffic in any month or (b) 
has more than a 100% increase in traffic volume in any month measured 
against the same month during the previous year. These rules were 
``narrowly tailored to address harmful practices while avoiding burdens 
on entities not engaging in access stimulation.'' The LECs that were 
thereby identified as being engaged in access stimulation were, for the 
most part, required to change their tariffs for end office access 
charges. A rate-of-return LEC was required to file its own cost-based 
tariff under section 61.38 of the Commission's rules and could not file 
based on historical costs under section 61.39 of the Commission's rules 
or participate in the NECA traffic-sensitive tariff. A competitive LEC 
was required to benchmark its tariffed end office access rates to the 
rates of the price cap LEC with the lowest interstate switched access 
rates in the state.
    7. In the USF/ICC Transformation Order, the Commission transitioned 
end office terminating access charges to bill-and-keep. The Commission 
found that the transition to bill-and-keep would help reduce access 
stimulation by reducing ``competitive distortions inherent in the 
intercarrier compensation system and eliminating carriers' ability to 
shift network costs to competitors and their customers.'' At the same 
time, the Commission transitioned tandem switching and transport 
charges to bill-and-keep for price cap carriers when the terminating 
price cap carrier owns the tandem in the serving area, 47 CFR 51.907. 
For rate-of-return carriers, the Commission capped terminating 
interstate and intrastate transport charges at interstate levels.
    8. In September 2017, in light of developments that had occurred in 
the relevant markets since the USF/ICC Transformation Order, the 
Wireline Competition Bureau (Bureau) sought to refresh the record on 
several issues, including the transition of the remaining tandem 
switching and transport charges to bill-and-keep. The comments that the 
Bureau received suggested that, in response to the reforms adopted in 
the USF/ICC Transformation Order, access stimulation schemes had 
adapted to shrinking end office termination charges and sought to take 
advantage of access charges that have not yet transitioned or are not 
transitioning to bill-and-keep. It appeared that access stimulation 
schemes had restructured to take advantage of the tandem switching and 
tandem switched transport charges that IXCs pay to access-stimulating 
LECs. The access stimulation schemes often involved carriers that 
billed ``excessive transport charges, including lengthy per-mile, per-
minute charges to remote areas on large volumes of stimulated'' 
traffic.
    9. In 2018, the Commission adopted a Notice of Proposed Rulemaking 
(Access Arbitrage Notice) (83 FR 30628, June 29, 2018) proposing to 
eliminate the financial incentive to engage in access arbitrage by 
giving access-stimulating LECs two alternatives for connecting to IXCs. 
First, the access-stimulating LEC could choose to be financially 
responsible for calls delivered to its network; in this situation, IXCs 
would no longer pay for the delivery of calls to the access-stimulating 
LEC's end office or the functional equivalent. Second, instead of 
accepting this financial responsibility, the access-stimulating LEC 
could choose to accept direct connections either from the IXC or an 
intermediate access provider of the IXC's choice; this alternative 
would permit IXCs to bypass intermediate access providers selected by 
the access-stimulating LEC. The Commission also sought comment on 
revising the access stimulation definition, on moving all traffic bound 
for an access-stimulating LEC to bill-and-keep, and on additional 
arbitrage schemes and ways to eradicate them.
    10. The Commission also sought comment on whether it should modify 
the section 214 authorizations of Aureon and SDN, which were granted 
almost 30 years ago. When the then-Common Carrier Bureau adopted the 
section 214 authorizations which formed the regulatory foundation for 
the CEA providers, it included a mandatory use provision for Aureon, 
and an apparent mandatory use provision for SDN. These mandatory use 
provisions required IXCs delivering terminating traffic to a LEC 
subtending one of these CEA tandems to deliver the traffic to the CEA 
tandem rather than indirectly through another intermediate access 
provider or directly to the subtending LEC. In the Access Arbitrage 
Notice, the Commission proposed to eliminate the mandatory use 
requirement as it pertains to traffic terminating at access-stimulating 
LECs because, among other things, delivery of such high volumes of 
traffic was not the reason that CEA providers were authorized.
    11. The Commission received over 140 formal comments and ex parte 
communications, and over 2,500 ``express'' comments in response to the 
Access Arbitrage Notice. In the Access Arbitrage Order, we found that 
the rules adopted in the USF/ICC Transformation Order resulted in a 
dramatic reduction in costs to IXCs--from approximately $330 million to 
$440 million annually reported in 2010 to between $60 million and $80 
million annually reported in 2019--and ``effectively discouraged rate-
of-return LEC access stimulation activity.'' We also found that since 
terminating end office access rates had transitioned to bill-and-keep 
they were no longer driving access stimulation. Instead, we found that 
access arbitrage schemes were taking advantage of terminating tandem 
switching and transport service access charges which, unlike end office 
switching charges, had not yet transitioned or are not transitioning to 
bill-and-keep. We also found that 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 CEA providers, to be included in the call path. We further 
explained that the tariffed tandem and transport access charges of CEA 
providers with mandatory use requirements served as a price umbrella 
for similar services offered by intermediate access providers pursuant 
to commercial agreement, thus inviting access arbitrage. The 
intermediate access provider would attract traffic to its facilities by 
offering a small discount from the applicable tariffed CEA rate.
    12. In the Access Arbitrage Order, we adopted three key rule 
modifications of relevance here. First, to reduce the use of the access 
charge system to subsidize high-volume calling services, we adopted 
rules making access-stimulating LECs--rather than IXCs--financially 
responsible for the tandem switching and tandem switched transport 
access charges for the delivery of terminating traffic from IXCs to the 
access-stimulating LECs' end offices or their functional equivalents. 
Second, we modified the definition of access stimulation to include two 
new alternative triggers without a revenue-sharing component. Third, to 
facilitate our new rules, we modified the Aureon and SDN section 214 
authorizations to eliminate the mandatory use requirements insofar as 
they apply to traffic being delivered to access-stimulating LECs. We 
therefore enabled ``IXCs to use whatever intermediate access provider 
an access-stimulating LEC that otherwise subtends Aureon or SDN 
chooses.'' We reasoned that our action would ``allow IXCs to directly 
connect to access-stimulating LECs

[[Page 40910]]

where such connections are mutually negotiated and where doing so would 
be more efficient and cost-effective.''
    13. In November 2019, Aureon filed its Petition seeking 
reconsideration of the Access Arbitrage Order. Aureon requests that we: 
(a) Reconsider our rules requiring access-stimulating LECs to pay 
tandem switching and transport charges and instead either ban access 
stimulation or, in the alternative, require callers to high-volume 
calling services to pay for additional fees to cover the costs of the 
IXCs' access charges; (b) retain the mandatory use provisions of the 
section 214 authorizations for Aureon and SDN; and (c) reconsider what 
Aureon characterizes as additional financial burdens on CEA providers 
created by our reforms.
    14. We released a Public Notice announcing the filing of the 
Petition and established deadlines for Oppositions and Replies to the 
Petition. We received Oppositions from AT&T, Verizon and Sprint, and a 
Reply from Aureon.
    15. Any interested party may file a petition for reconsideration of 
a final action in a rulemaking proceeding, 47 CFR 1.429(a). 
Reconsideration ``may be appropriate when the petitioner demonstrates 
that the original order contains a material error or omission, or 
raises additional facts that were not known or did not exist until 
after the petitioner's last opportunity to present such matters,'' 47 
CFR 1.429(b). Petitions for reconsideration that do not warrant 
consideration by the Commission include those that: ``[f]ail to 
identify any material error, omission, or reason warranting 
reconsideration; [r]ely on facts or arguments which have not been 
previously presented to the Commission; [r]ely on arguments that have 
been fully considered and rejected by the Commission within the same 
proceeding;'' or ``[r]elate to matters outside the scope of the order 
for which reconsideration is sought,'' 47 CFR 1.429(l)(1)-(3), (5). The 
Commission may consider facts or arguments not previously presented if: 
(1) They ``relate to events which have occurred or circumstances which 
have changed since the last opportunity to present such matters to the 
Commission'', 47 CFR 1.429(b)(1); (2) they were ``unknown to petitioner 
until after [their] last opportunity to present them to the Commission, 
and . . . could not through the exercise of ordinary diligence have 
learned of the facts or arguments in question prior to such 
opportunity,'' 47 CFR 1.429(b)(2); or (3) ``[t]he Commission determines 
that consideration of the facts or arguments relied on is required in 
the public interest,'' 47 CFR 1.429(b)(3).

III. Discussion

    16. We consider and dismiss Aureon's Petition as procedurally 
deficient. Separately, we deny the Petition on the merits. In the 
discussion below, we address the Petition's procedural defects and then 
turn to the shortcomings of Aureon's substantive arguments.

A. Aureon's Petition Is Procedurally Defective

    17. Aureon fails to meet the standard to justify reconsideration. 
It does not identify any material error or omission in the Access 
Arbitrage Order; raise facts that were not known or did not exist 
before Aureon's last opportunity to present such matters in the 
underlying rulemaking; or demonstrate that reconsideration would be in 
the public interest. Instead, Aureon's Petition suffers from numerous 
procedural flaws--repeating arguments that Aureon previously raised and 
to which we responded, raising ``new'' arguments that it could have 
made in the underlying proceeding, and presenting arguments that are 
beyond the scope of this proceeding--that warrant dismissal, 47 CFR 
1.429(l).
    18. The Commission Need Not Address Petitions that Repeat Previous 
Arguments. Our rules and precedent are clear that we need not consider 
petitions for reconsideration, such as Aureon's, that ``merely repeat 
arguments we previously . . . rejected'' in the underlying order. 
Nonetheless, Aureon focuses its Petition on arguments it already made. 
Most notably, notwithstanding Aureon's claim to the contrary, in the 
Access Arbitrage Order, we fully considered and rejected its 
recommendations to ban access stimulation or to allow IXCs to charge 
users of access-stimulating services for the access costs associated 
with those services.
    19. We recognize that we are required to `` `consider responsible 
alternatives to [our] chosen policy and to give a reasoned explanation 
for [our] rejection of such alternatives.' '' At the same time, while 
``an agency ordinarily must consider less restrictive alternatives and 
should explain its reasons for failing to adopt such alternatives,'' we 
are required only to provide an explanation of our decision to reject 
any particular proposal.
    20. With respect to Aureon's proposal to ban access stimulation, in 
the Access Arbitrage Order, we recognized Aureon's proposal and found, 
as the Commission concluded in the USF/ICC Transformation Order, that a 
ban would be an overbroad solution. As we explained, we therefore opted 
to ``prescribe narrowly focused conditions for providers engaged in 
access stimulation'' that 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.'' Thus, we fully considered and rejected Aureon's 
proposal.
    21. With respect to Aureon's proposal to require IXCs to charge 
access-stimulation service customers the cost of related access 
charges, we explicitly addressed Aureon's previous, more specific 
proposal that we allow IXCs to charge a penny a minute to their 
customers making calls to access-stimulating LECs. We gave two reasons 
for rejecting Aureon's proposal on the merits, explaining that: (1) 
There was no evidence to suggest that access-stimulation calls cost a 
penny per minute, ``so the proposal would simply trade one form of 
inefficiency for another;'' and (2) ``such an overbroad proposal . . . 
would confuse consumers and unnecessarily spill into, and potentially 
affect, the operation of the more-competitive wireless marketplace.'' 
Aureon now claims that it never intended to propose charging customers 
``a specific price for the call, such as a penny'' and insists that its 
intent was simply to suggest charging customers ``something other than 
zero for a call that has been falsely represented in the past as being 
`free.''' Putting aside Aureon's attempt to recast its proposal, Aureon 
fails to persuade us that our consideration of the concept of IXCs 
charging end users for placing calls to access-stimulating LECs was 
insufficient.
    22. We also fully considered and rejected another request that 
Aureon now repeats: That we not modify its section 214 certification. 
As we explained when we rejected this request, Aureon provided no 
supporting detail for its claim that modifying its section 214 
authorization would negatively affect its ability to provide services 
in rural areas and to maintain its network. We further explained that 
``[o]ur 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.'' As these arguments have been 
``fully considered and rejected by the Commission,'' they are 
procedurally improper here.

[[Page 40911]]

    23. Aureon also repeats various other arguments that we addressed 
in the Access Arbitrage Order. For example, Aureon again claims that 
our access arbitrage rules shift costs to ``a few thousand rural 
customers paying for access stimulation services that they never use, 
as the LECs recover their costs from their rural end users.'' The claim 
is incorrect. As we explained in the Access Arbitrage Order, our new 
rules ``shift the recovery of costs associated with the delivery of 
traffic to an access-stimulating LEC's end office from IXCs to the 
LEC.'' And, under our new rules, carriers may respond to the shifting 
financial responsibilities ``in a number of ways--including in 
combination--such as by changing end-user rates,'' selecting less 
costly intermediate access providers or traffic routes, or seeking out 
other revenue sources, such as ``through an advertising-supported 
approach to offering free services or services provided at less than 
cost.''
    24. Aureon also rehashes its previous argument that under the new 
rules, large IXCs ``could engage in arbitrage with respect to wholesale 
IXC transport and transit service.'' In the Access Arbitrage Order, we 
found ``no merit'' to these same arguments because Aureon failed to 
explain how IXCs would accomplish such arbitrage. As we explained, our 
new rules did not shift arbitrage opportunities to IXCs or to any other 
providers.
    25. Aureon also repeats the argument that our new rules could lead 
to call completion problems. In the Access Arbitrage Order, we 
concluded that an 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.'' Finally, Aureon 
again raises concerns about the ``demise'' of its network without 
access-stimulating LECs (one that it does not attempt to square with 
its request to outlaw access stimulation). Aureon raised these concerns 
during the rulemaking proceeding and we dismissed them because Aureon 
provided no data to support its claims.
    26. Apparently recognizing this weakness in its Petition, Aureon 
contends that we should exercise our discretion and consider its 
Petition even though it repeats arguments we have already rejected. 
Yet, to support this contention, Aureon relies on three Commission 
orders denying other petitions for reconsideration. We find none of the 
proffered orders persuasive. The first order is simply inapposite--it 
does not even discuss review of repetitious petitions for 
reconsideration. The second order denies the petitions at issue in part 
because they were repetitive. In the third order, the Commission 
considers a repetitious petition for reconsideration, as Aureon would 
have us do here, but ultimately denies the petition because the 
petitioner failed to demonstrate any material error or omission or to 
raise any new facts, and found that the new arguments were 
unpersuasive. Thus, the orders Aureon cites do little to advance its 
cause. Certainly nothing in those orders requires us to review, much 
less grant, Aureon's Petition to the extent it merely repeats arguments 
it made in the underlying proceeding.
    27. The New Arguments That Aureon Now Makes Should Have Been Known 
to It. Aureon complains for the first time about possible costs it may 
incur related to compliance with the switch in financial responsibility 
for tandem switching and transport services provided to access 
arbitrage customers, claiming that it would be an ``administrative 
nightmare'' if LECs change their status from access-stimulating LECs to 
non-access-stimulating LECs--which it contends incorrectly could take 
place monthly, 47 CFR 61.3(bbb)(2)-(3). Aureon also predicts an 
increase in billing disputes related to the Order. Aureon failed to 
raise these challenges in its various filings in the underlying 
proceeding, and it has provided no explanation why it could not have 
raised these issues before the Access Arbitrage Order was adopted.
    28. Also for the first time, Aureon provides data purporting to 
illustrate that ``Aureon would be prevented from charging a cost-based 
rate above the competitive LEC benchmark rate if access stimulation 
traffic were removed from the CEA network.'' Certainly, Aureon should 
have been able to provide such illustrative data during the rulemaking 
proceeding. The application of the competitive LEC benchmark rule is 
not new, and Aureon was on notice of our proposed course of action with 
respect to access stimulation. Aureon has provided no explanation as to 
why it could not have provided this financial data during the 
rulemaking proceeding (nor, again, how its argument here squares with 
its request to outlaw access arbitrage), 47 CFR 1.429(l); 47 U.S.C. 
405.
    29. Aureon Seeks Reconsideration Based on Issues Beyond the Scope 
of This Proceeding. We also find that Aureon's Petition is procedurally 
deficient and subject to dismissal insofar as it requests that on 
reconsideration we address the rates that Aureon can charge as a CEA 
provider. Aureon complains about ``rate differentials,'' the 
Commission's ``accounting directive'' for CEA service, and the rate 
caps that have applied to Aureon since before the Access Arbitrage 
Order. Aureon also asserts that the reforms adopted in the Access 
Arbitrage Order will prevent it from recovering its costs--because of 
the preexisting cap on its rates--and complains that those same reforms 
``do[ ] not allow Aureon to earn the authorized rate of return or to 
charge just and reasonable rates.'' We dismiss these arguments because 
they are outside the scope of the proceeding. As we explained in the 
Access Arbitrage Order, the rules we adopted in that Order ``do not 
affect the rates charged for tandem switching and transport.'' 
Likewise, nothing in the Access Arbitrage Order affects the method that 
Aureon must use to calculate its rates. Indeed, the issue of Aureon's 
rates and the proper method of calculating those rates are the subject 
of two entirely separate proceedings.

B. Aureon's Petition Fails on the Merits

    30. Although Aureon's Petition warrants dismissal on procedural 
grounds alone, we also find that the Petition fails on the merits. This 
failure provides an alternative and independent basis for rejecting the 
Petition. Contrary to Aureon's claims, the rules we adopted in the 
Access Arbitrage Order accomplish our goal of removing the financial 
incentives to engage in access arbitrage and reducing the use of 
intercarrier compensation to provide implicit subsidies to services 
offered by access-stimulating LECs. It was also reasonable for us to 
find that the rules we adopted are more targeted and more effective 
than a blanket ban on access stimulation or a rule allowing IXCs to 
charge consumers more for calls to access-stimulation services. 
Finally, our decision to modify Aureon's section 214 authorization was 
supported by the record and furthers our goal of shifting financial 
responsibility for access stimulation to the access-stimulating LEC.
1. The Reforms Adopted in the Access Arbitrage Order Are Consistent 
With the Commission's Policy Goals
    31. Our Action Removes Financial Incentives to Engage in Access 
Arbitrage. In both the Access Arbitrage Notice and the Access Arbitrage 
Order, the Commission was clear that the fundamental goal in this 
proceeding was to remove financial incentives to engage in access 
arbitrage. In the USF/ICC Transformation Order, the Commission 
successfully sought to reduce the cost of

[[Page 40912]]

access arbitrage by defining access stimulation and by capping the 
terminating end office rates charged by access-stimulating competitive 
LECs. The Commission also recognized that the transition of all 
terminating end office charges to bill-and-keep would further reduce 
the cost of access arbitrage to IXCs and their customers. In the Access 
Arbitrage Order, we found that the Commission's existing rules worked 
well and reduced the annual cost of access arbitrage to IXCs, and by 
extension their customers, from between $330 million to $440 million 
annually to between $60 million to $80 million annually. We explained 
that, as terminating end office rates fell, those charges no longer 
drove access-stimulation schemes. Despite this history, Aureon seeks to 
attack our decisions in the Access Arbitrage Order, first by arguing 
that ``years of experience have shown that [reforming] the intercarrier 
compensation approach simply does not work'' to curb access arbitrage. 
This argument ignores the evidence presented in the Access Arbitrage 
Order demonstrating that the rules adopted in the USF/ICC 
Transformation Order substantially reduced access arbitrage.
    32. Aureon also ignores the very real benefit of the rules we 
adopted in the Access Arbitrage Order. By making access-stimulating 
LECs financially responsible for the rates charged to terminate traffic 
to their end offices or functional equivalents, we now prevent access-
stimulating LECs from passing the costs of their services--or the 
services of their high-volume calling provider partners--on to IXCs 
and, by extension, the public at large. This may, in turn, cause 
``users to cease using those services, and cause access-stimulating 
LECs or their [high-volume calling provider partners] to terminate the 
calling services altogether.'' This outcome is more than just 
hypothetical. While most of the rules have only been in effect since 
November 2019, we have already received letters from several entities 
stating that they are exiting the access stimulation business. Aureon 
neither acknowledges these developments nor provides any new evidence 
demonstrating that IXCs are, or even could, engage in the type of 
hypothetical arbitrage it theorizes about. Aureon argues that our new 
rules are ineffective at reducing access stimulation, citing the 
behavior of two companies that Aureon believes are taking steps to 
evade our new rules. We stand ready to address and prevent any efforts 
to circumvent our new rules. Indeed, the Wireline Competition Bureau 
has already initiated one such investigation. However, efforts to 
circumvent our rules do not undermine our reasonable predictive 
judgment that the rules adopted in the Access Arbitrage Order will help 
eliminate ``the financial incentives to engage in access arbitrage,'' a 
prediction confirmed by the number of companies that have notified us 
that they have left the access stimulation business. In sum, Aureon's 
Petition does not support its claim that our new rules work at cross-
purposes with our goal.
    33. Our Actions Address the Use of Intercarrier Compensation to 
Provide Implicit Subsidies to Services Offered by Access-Stimulating 
LECs. As we explained in the Access Arbitrage Order and Aureon has now 
acknowledged, prior to the Access Arbitrage Order, ``it was the IXCs' 
customers that subsidized the access costs incurred for a small subset 
of customers to use an access stimulating service.'' Under our new 
rules, a significant benefit of requiring access-stimulating LECs to 
pay for tandem switching and transport is that doing so ends the use of 
intercarrier compensation to implicitly subsidize access stimulation 
services. Yet, Aureon claims that our access arbitrage rules shift 
costs to ``a few thousand rural customers paying for access stimulation 
services that they never use, as the LECs recover their costs from 
their rural end users.'' This argument makes a number of unsupported 
assumptions. First, it assumes that access-stimulation schemes will 
continue to operate out of rural areas, despite the loss of the 
financial incentives in the form of intercarrier compensation revenue 
that led them there in the first place. Second, it assumes that access-
stimulating LECs have customers not engaged in access-stimulation 
schemes and that those customers would remain customers should they 
face higher prices. Finally, it assumes that access-stimulating LECs 
are charging or will charge their non-access-stimulation customers more 
to cover their new costs and fails to consider the possibility that 
access-stimulating LECs will instead pass tandem switching and 
transport charges through to the high-volume calling service providers 
that cause the LECs to incur those costs. The latter possibility 
properly aligns financial incentives by shifting costs to the cost 
causers, which is what we set out to accomplish. And, despite 
significant evidence that access-stimulating LECs have already exited 
the access-stimulation business, we have no evidence that our rules 
have led to an increase in rural rates and we have no evidence that 
future departures from the access-stimulation business will cause such 
increases.
    34. There Is No Reason to Think that the Access Arbitrage Order 
Will Have a Negative Impact on the Commission's Goal of Fostering 
Competition in Rural Areas. Aureon further argues that amending its 
section 214 authorization to exempt traffic delivered to access-
stimulating LECs from the mandatory use provision of that authorization 
is inconsistent with a goal of that section 214 authorization: 
Encouraging long distance competition in rural areas. Aureon does not 
explain how modification of its section 214 authorization to eliminate 
the mandatory use requirement for traffic delivered to access-
stimulating LECs will decrease IXC competition. Rather, Aureon suggests 
that loss of access-stimulation traffic will lead to the ``demise'' of 
its network, which it argues will have a deleterious impact on 
competition in rural areas. Yet, in its Petition, Aureon does not 
explain why it thinks the loss of access-stimulation traffic will lead 
to its demise, nor does it attempt to reconcile the inconsistency 
between its advocacy for an order on reconsideration that prohibits 
access stimulation and its apparent claim that loss of access-
stimulation traffic will cause the Aureon network to collapse and 
eliminate long distance competition in rural Iowa. Furthermore, there 
is no evidence that access-stimulation traffic existed when Aureon 
received its section 214 authorization. Indeed, the section 214 
authorization was granted based on the Commission's understanding that 
the CEA network would be supported primarily by intrastate traffic, not 
interstate traffic. Aureon also fails to acknowledge that another CEA 
provider, Minnesota Independent Equal Access Corporation, does not have 
a mandatory use requirement in its authorization and that SDN has not 
challenged the modification of its section 214 certification in the 
Access Arbitrage Order. Both facts suggest that the mandatory use 
requirement is not necessary for the successful operation of a CEA 
network.
2. The Commission Justifiably Rejected Aureon's Proposals
    35. We continue to find no merit to Aureon's position that either 
its proposed ban on access stimulation or its proposal to allow IXCs to 
charge end users for some of the access costs required to complete a 
call to a high-volume calling service would be better than the more 
nuanced approach we took in the Access Arbitrage Order.

[[Page 40913]]

    36. In its Petition, Aureon argues that by failing to ban access 
stimulation, the new rules will require it to ``maintain large and 
potentially unused capacity to accommodate potential `whipsawing' of 
traffic between networks.'' Aureon fails to explain, however, how these 
issues stem from our access arbitrage rules and in its Petition 
provides no data--such as forecasted capacity requirements or the cost 
to Aureon of engineering its network to accommodate the alleged 
capacity requirements--to support its claims. We fail to see how 
Aureon's allegations about its capacity issues are attributable to the 
new access arbitrage rules. If anything, the issue of capacity on 
Aureon's network likely predates the Access Arbitrage Order.
    37. We are also unpersuaded by Aureon's argument that banning 
access stimulation would be preferable to our current rules because 
under the new rules, rural end users will pay for access stimulation 
services, even if those consumers don't use the services. We disagree 
with Aureon's conclusion. Aureon does not attempt to square these 
unsupported assertions with the fundamental premise of the rules 
adopted in the Access Arbitrage Order: To make the access-stimulating 
LEC--not rural end users--financially responsible for the rates charged 
for stimulated traffic terminated to the LEC's end office or functional 
equivalent. We agree with AT&T that, contrary to Aureon's assertions, 
``the bulk of the access termination costs will be borne by access 
stimulation LECs, the [free calling partners] or their customers--not 
by rural customers who do not use the services.''
    38. Moreover, we agree with AT&T and Sprint that Aureon's proposed 
``ban'' would be unlikely to be effective. Aureon proposed to define 
``High Call Volume Service'' as a high call volume operation marketed 
as free to the end user and to ban services that met that definition. 
Aureon also proposed a blanket prohibition on carrying traffic 
associated with a high-volume calling operation ``with a rebuttable 
trigger of 100,000 minutes per month to a single telephone number 
whereby calls to that number would be prohibited.'' Aureon does not 
explain how we would effectively monitor whether a high-volume calling 
service is marketed as free to end users, however. Nor does Aureon 
explain how we would enforce a prohibition on calls to a single number 
that exceed 100,000 minutes in a given month. If the Commission could 
not effectively identify whether a carrier is providing service to a 
``high call volume operation,'' it would not be able to enforce the 
proposed prohibition against carrying traffic for such providers. In 
addition, carriers could circumvent Aureon's proposed minutes-of-use 
trigger by operating enough telephone numbers for a particular access 
stimulation scheme to keep the call volumes for a single telephone 
number below the 100,000-minute threshold, and if they did so, it 
appears that Aureon would have the same issue with managing capacity 
requirements and call completion. Aureon did not grapple with these 
issues in its comments during the rulemaking proceeding and makes no 
effort to do so in its Petition or its Reply.
    39. Relatedly, Aureon fails to provide any explanation as to how or 
why a ban would be less restrictive than the narrowly focused rules we 
adopted. Confusingly, Aureon asserts that ``[a]ll evidence points to 
Aureon's proposed [ban] as satisfying both the FCC's existing policy . 
. . and being less restrictive and burdensome because no sea-change 
would be required with regard to how . . . the telecommunications 
industry operated'' prior to the adoption of our new access arbitrage 
rules. But, surely a complete ban on access stimulation (if it were 
successful) would result in less traffic being delivered from IXCs to 
CEA providers, not ``higher traffic volumes'' as Aureon suggests. 
Aureon likewise provides no information about the alleged ``sea-
change'' wrought by our new rules beyond saying that it has always been 
the norm for IXCs to pay access charges. Simply because ``it has always 
been done that way'' does not mean that the Commission cannot change 
course. And a change in course was warranted here to reduce the LECs' 
incentives to engage in access stimulation.
    40. Aureon also fails to substantively support its claim that our 
new rules create an ``administrative nightmare.'' Aureon complains that 
it will incur billing costs because LECs could become access 
stimulators one month and then cease to be access stimulators the next, 
resulting in the potential for billing disputes. Aureon provides no 
data to support its concerns about billing costs. Nor does it provide 
any data about how many LECs would change their status monthly, or even 
how many access-stimulating LECs currently subtend its network. 
Moreover, Aureon fails to address the fact that our rules prevent 
access-stimulating LECs not engaged in revenue sharing from changing 
their status more than once every six months, 47 CFR 61.3(bbb)(2)-(3). 
In addition, Aureon does not explain why the reforms adopted in the 
Access Arbitrage Order would lead to increased billing disputes.
    41. Aureon claims that the rules requiring access-stimulating LECs 
to pay Aureon for all terminating CEA services are ``overly broad'' 
because the CEA traffic will be ``some mix of traditional traffic and 
access stimulation traffic.'' Aureon's concerns are misplaced. We 
clearly and intentionally made sure that our rules covered both 
``traditional'' and access-stimulation traffic, shifting ``financial 
responsibility for all tandem switching and transport services to 
access-stimulating LECs.'' As a result, it should make no difference to 
Aureon whether the traffic it delivers to an access-stimulating LEC 
consists entirely of access-stimulation traffic, non-access stimulation 
traffic, or a mix of both.
    42. Finally, Aureon argues that the Commission has, ``in analogous 
contexts, determined that it was not overly broad to prohibit certain 
types of behaviors.'' This argument falls far short of justifying 
Aureon's requested reconsideration. Simply because the Commission has 
chosen to ban certain unrelated practices in unrelated proceedings does 
not mean that we were bound to ban a particular practice in this 
particular proceeding.
    43. Aureon's proposal that we allow IXCs to pass through the costs 
of access stimulation to customers calling access-stimulating LECs also 
fails on the merits. Aureon argues that allowing pass-through charges 
to the users of high-volume calling services sends the correct pricing 
signals whereas, as Aureon implies, the rules adopted in the Access 
Arbitrage Order do not. But Aureon still does not provide any data 
about what the pass-through cost could or should be, it does not 
explain why it provided no such data in the underlying proceeding, nor 
does it explain how we could reach a decision about what would be an 
appropriate charge without such data. Our approach, which places 
financial responsibility on the access-stimulating LECs, is simpler to 
administer and avoids the difficulty of attempting to calculate a pass-
through charge absent relevant data, which, as we recognized in the 
Access Arbitrage Order, is lacking.
    44. In any event, contrary to Aureon's assertion, consumers are 
``provided with more-accurate pricing signals for high-volume calling 
services'' under our new rules. In the Access Arbitrage Order, we moved 
the cost of terminating access charges for stimulated traffic from IXCs 
to access-stimulating LECs, thereby aligning the cost of using high-
volume calling services closer to the actual users of those services. 
As AT&T aptly explains, access-stimulating LECs and

[[Page 40914]]

high-volume calling service providers now ``have a choice to either 
absorb the terminating access cost themselves, or pass them along to 
the users of free calling services.'' If access-stimulating LECs decide 
to pass those costs through to the users of those calling services, 
those services will no longer be free. But, in either case, end users 
will receive more accurate indications of the price of the services 
they use. Our approach is also more consistent with cost causation 
principles because it aligns the ``costs associated with traffic 
destined for `free' conference call services to the carrier directly 
serving the free conference call company rather than to all the 
carriers that deliver conference call traffic that originates all over 
the world.'' We agree with Sprint that ``[a]ligning costs this way . . 
. requir[es] the final carrier--the cost causer access stimulating LEC 
(and ultimately its customers, the conference call company)--to bear 
the costs of decisions they make as to where to place the switch that 
is serving the conference call company.'' Thus, we agree with 
commenters that Aureon has not shown that requiring IXCs to pass 
through costs to end users would be more effective at eliminating 
access arbitrage than our chosen approach. We also reaffirm our 
conclusion that the rules we adopted in the Access Arbitrage Order 
provide customers with more accurate pricing signals than they had 
before our Order.

3. Aureon Fails To Show That Our Decision To Modify Its Section 214 
Authorization Should Be Reconsidered

    45. We also deny on the merits Aureon's request that we reconsider 
the modifications to Aureon's and SDN's section 214 authorizations that 
now explicitly permit IXCs terminating traffic at an access-stimulating 
LEC that subtends either of their CEA tandems to use routes other than 
those CEA tandems to reach the access-stimulating LEC. Aureon raises 
several objections, but none have merit.
    46. To begin with, the reforms adopted in the Order do not prohibit 
any access-stimulating LEC from choosing Aureon or SDN as its 
intermediate carrier and paying them to provide service. Second, Aureon 
argues that we did not consider how changing the mandatory use policy 
would affect competition for long distance services. Although it is not 
clear, Aureon's argument seems to be based on a prediction that a 
reduction of access-stimulation traffic on the Aureon and SDN networks 
as a result of the Access Arbitrage Order will lead to Aureon's demise. 
Relatedly, Aureon complains that it will be harmed because it relied on 
the grant of its section 214 authorization in building and maintaining 
its network. These arguments make little sense for a number of reasons. 
First, the Order does not eliminate the mandatory use requirements as 
they may apply to traffic terminating at non-access-stimulating LECs. 
The mandatory use requirements continue to apply to IXCs delivering 
traffic to dozens of non-access-stimulating LECs that subtend Aureon's 
and SDN's tandems. Third, although we previously dismissed Aureon's 
concerns about the financial impact on Aureon in the Arbitrage Order 
because Aureon provided no data to support its claims, Aureon once 
again failed to provide data supporting its concerns in the Petition.
    47. Aureon raised concerns about the ``demise'' of its network in 
the underlying rulemaking, and we dismissed those concerns because 
Aureon provided no data to support its concerns. AT&T points out that 
merely repeating those arguments without ``put[ting] forward any 
supporting data'' does not provide a basis for reconsideration. While 
Aureon did provide some data in its Reply, it uses the data to spin a 
tale about the hypothetical removal of access-stimulation traffic. Such 
speculation cannot justify Aureon's request for reconsideration. Aureon 
provides three tables showing select information from its most recent 
tariff filing. It manipulates these tables to show revenue shortfalls 
if access-stimulation traffic were to leave its network. However, there 
is evidence in the record that a significant amount of traffic already 
bypasses Aureon's CEA tandem. In addition, Aureon bases its 
calculations on data provided by AT&T in a different proceeding, using 
AT&T's data to calculate the percentage of revenues Aureon may lose in 
its hypothetical. But Aureon never confirms whether AT&T's data is 
correct. So it is difficult to determine, on the basis of the data 
submitted, the actual, verifiable effect of the Access Arbitrage Order 
on Aureon's network. Furthermore, while Aureon appears to claim that 
the Access Arbitrage Order may lead to its demise by taking access-
stimulation traffic off its network, Aureon does not even attempt to 
square that claim with its argument that access stimulation should be 
banned. If Aureon's proposed ban were successful, Aureon would also 
stop carrying access stimulation traffic, which would have the same 
financial impact that Aureon alleges the Access Arbitrage Order will 
have. As Verizon points out, banning access stimulation ``would likely 
cause the same, or even greater, reduction in traffic on CEA providers' 
networks'' as the section 214 modifications.
    48. Next, Aureon claims that the Commission ``authorized the 
mandatory use policy to . . . bring advanced services to rural areas'' 
and therefore its mandatory use authority should not be replaced. 
Aureon is not able to offer support for this claim because the Aureon 
Section 214 Order says nothing about advanced services, which was not a 
commonly used term when the then-Common Carrier Bureau adopted that 
Order in the 1980s. Instead, the Common Carrier Bureau found that the 
mandatory use policy was justified by the revenues that would be 
generated by requiring Northwestern Bell to use the CEA network for 
intrastate, intraLATA toll calls in Iowa. And the Iowa Supreme Court 
relied on the same justification when it upheld the Iowa Utilities 
Board's authorization for the CEA network. We also reject as a reason 
for reconsideration Aureon's assertion that our modification to the 
mandatory use policy is contrary to the Commission's original intent in 
establishing the mandatory use policy--to ensure that tariffed CEA 
rates would remain affordable for AT&T's smaller IXC competitors. To 
the contrary, IXCs carrying terminating access-stimulation traffic 
should be paying less now because they will not be paying tandem 
switching and transport charges for access-stimulation traffic. 
Moreover, Aureon also fails to acknowledge that CEAs were created to 
facilitate rural customers' ability to originate calls through the 
long-distance carrier of their choice. Our changes to Aureon's section 
214 authorization should not have any effect on its ability to provide 
centralized equal access service.
    49. Aureon goes on to claim that we erred in modifying its section 
214 authorization because the mandatory use provisions were in the 
public interest. While we acknowledge that the then-Common Carrier 
Bureau determined that those provisions were in the public interest in 
1988, we also recognize that, at the time, the Common Carrier Bureau 
and others envisioned that the majority of the traffic traversing the 
CEA network would be intrastate. As we explained in the Access 
Arbitrage Order, however, ``[a]ccess stimulation has upended the 
original projected interstate-to-intrastate traffic ratios carried by 
the CEA networks.'' SDN and Aureon ended up acting as a price umbrella 
that allowed access-stimulating LECs and the intermediate access 
providers with which they

[[Page 40915]]

partnered to overcharge for transport, as long as they offered a rate 
that was slightly under the CEA rate. And, ``because the Commission's 
rules disrupt[ed] accurate price signals, tandem switching and 
transport providers for access stimulation [had] no economic incentives 
to meaningfully compete on price.'' The result was that `` `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 intercarrier compensation rates due to 
the distance and volume of traffic.' '' Based on these changed 
circumstances, we find that we properly determined ``that the public 
interest will be served by changing any mandatory use requirement for 
traffic bound to access-stimulating LECs to be voluntary usage'' and 
``that access stimulation presents a reasonable circumstance for 
departing from the mandatory use policy.'' Thus, although the mandatory 
use policy requiring IXCs to use SDN and Aureon for traffic terminating 
at participating telephone companies may have been in the public 
interest in 1988, it is not in the public interest today with respect 
to traffic terminating at access-stimulating LECs.
    50. Aureon also claims that the Commission should have used a 
``less restrictive and less burdensome'' measure when it modified the 
section 214 authorizations. We disagree. Rather than eliminating the 
mandatory use provisions altogether, an option that we considered, we 
modified them only with respect to traffic terminating at access-
stimulating LECs and only because doing so was necessary to effectuate 
our other access stimulation rules. As such, we adopted an approach 
that is narrowly tailored and well suited to the problem of the price 
umbrellas created by mandatory use that access-stimulating intermediate 
providers and their partners were using to their benefit. In the Access 
Arbitrage Order. we found that the ``vast majority'' of access-
stimulation traffic was routed to LECs that subtend Aureon and SDN. 
Given that finding, we decided to modify Aureon's and SDN's section 214 
authorizations to enable IXCs to use whatever intermediate access 
provider an access-stimulating LEC that otherwise subtends Aureon or 
SDN chooses. We reasoned that doing so will allow IXCs to choose more 
efficient and cost-effective routing options--such as direct 
connections--to reach access-stimulating LECs. We do not see--and 
Aureon has not suggested--a ``less restrictive'' mechanism for 
achieving our goal.
    51. Finally, Aureon's assertions regarding the importance of the 
mandatory use provision are belied by information in the record 
indicating that traffic often bypasses its network. Thus, we find no 
merit in Aureon's request that we reconsider our decision to modify its 
section 214 authorization.

IV. Procedural Matters

    52. Paperwork Reduction Act Analysis. This Order on Reconsideration 
does not contain any new or modified information collection 
requirements subject to the Paperwork Reduction Act of 1995, Public Law 
104-13. Thus, it does not contain any new or modified information 
collection burden for small business concerns with fewer than 25 
employees, pursuant to the Small Business Paperwork Relief Act of 2002, 
Public Law 107-198, see 44 U.S.C. 3506(c)(4).
    53. Congressional Review Act. The Commission will not send a copy 
of this Order on Reconsideration to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act, see 5 
U.S.C. 801(a)(1)(A), because no rule was adopted or amended.
    54. Regulatory Flexibility Act Analysis. In the Access Arbitrage 
Order, the Commission provided a Final Regulatory Flexibility Analysis 
pursuant to the Regulatory Flexibility Act of 1980, as amended (RFA). 
We received no petitions for reconsideration of that Final Regulatory 
Flexibility Analysis. In this present Order on Reconsideration, the 
Commission promulgates no additional final rules. Our present action 
is, therefore, not an RFA matter.

V. Ordering Clauses

    55. Accordingly, it is ordered that, pursuant to sections 1, 2, 
4(i), 4(j), 201, 214, 218-220, 251, 252, 403 and 405 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 
154(j), 201, 214, 218-220, 251, 252, 403, 405, and Sec. Sec.  1.47(h), 
1.429, 63.10 and 64.1195 of the Commission's rules, 47 CFR 1.47(h), 
1.429, 63.10 and 64.1195, this Order on Reconsideration is adopted.
    56. It is further ordered that the Petition for Reconsideration 
filed by Iowa Network Services, Inc. d/b/a Aureon Network Services, is 
dismissed and, on alternate and independent grounds, it is denied.
    57. It is further ordered that, pursuant to Sec.  1.103 of the 
Commission's rules, 47 CFR 1.103, this Order on Reconsideration shall 
be effective upon release.

Federal Communications Commission.
Marlene Dortch,
Secretary, Office of the Secretary.
[FR Doc. 2020-13183 Filed 7-7-20; 8:45 am]
BILLING CODE 6712-01-P