Posted by Barlow Keener

The intercarrier compensation scheme is a mess. On this all parties agree.  Over the years, the FCC moved from the role of regulator overseeing compensation payments that were enforced through tariffs between carriers to becoming a collector and distributor of billions of dollars of collected funds. There is little  agreement on how to implement a new process that is equitable and politically palatable. Carriers and Commissioners are polarized by the proposals for reform.

On October 28, 2008, FCC Chairman Martin put “comprehensive reform” of intercarrier compensation on the November 4, 2008 FCC agenda. The reason the FCC was tackling this controversial topic on election day was because the D.C. Circuit Court of Appeals had issued an order in Core Communications holding that if the FCC did not issue an order by November 5, 2008 addressing the narrow intercarrier compensation matter arising from the 2001 ISP Remand Order covering dialup ISP traffic, the FCC’s ISP Remand Order would be vacated. The Court required the FCC to provide the “legal reasons” for finding that ISP dial-up traffic is not subject to reciprocal compensation required by the 1996 Telecommunications Act.

The Commission Struggle

On November 3, 2008, the Commissioners came public with press releases revealing a split between Chairman Kevin Martin and the other four commissioners. Martin’s reform proposal had been blocked by all his fellow Commissioners. Why is did this divisiveness appear? The two Republican commissioners, Robert McDowell and Deborah Tate, who have loyally stuck with Martin, split with him over intercarrier compensation reform. Was this because both Martin and Tate are on their way out the door, or were there other reasons?

Once blocked, Martin issued a revised agenda removing the reform item from the November 4, 2008 agenda. The other Commissioners countered with a press release explaining that they were proposing an alternative order that would a) allow for proper rulemaking notice and comments on comprehensive reform and b) narrowly address the Core Communication court remand. The Commissioners’ press release expressed their frustration with the Chairman:

Four Commissioners provided the Chairman bi-partisan, constructive and substantive suggestions … We … are disappointed that the Chairman has withdrawn the fundamental reform item from tomorrow’s agenda.

Chairman Martin countered immediately with his own press release conveying his displeasure:

Those proposals have been with my colleagues for several weeks now. I am disappointed that we will miss the opportunity for comprehensive reform. Instead my colleagues have requested that we once again seek public comment on several proposals.

Martin also countered with comments that will provide any party appealing the Core Communications order with sufficient ammunition to have the FCC’s order overturned: “I remain skeptical that such an order [addressing the IPS Remand Order] which retains artificial and unsupported distinctions between types of Internet traffic will be seen any more favorably by the Court than the  Commissions two previous attempts.” It is as though Martin’s last effort as Chairman to make his mark in Commission history was crushed. Chairman Martin’s statement got it right in one regard: “few other issues before the Commission are as technically complex and involved, with as many competing interests, as are reforming the Intercarrier  Compensation and Universal Service programs.”

The drama continued late into the evening on November 5, 2008, as the FCC released a 430 page order narrowly addressing the D.C. Appeals Court order and addressing comprehensive reform in a notice of proposed rule making. Martin, on the losing end of this struggle, released another critical statement:

Today we tell the U.S. Court of Appeals for the D.C. Circuit … that, after years of deliberation, we are still unready to move forward with comprehensive reform of intercarrier compensation and universal service. Instead, we issue another open-ended Further Notice of Proposed Rulemaking on a variety of approaches for comprehensive reform…I am disappointed by the Commission’s unwillingness to step up and make tough choices to modernize our intercarrier compensation and universal service programs.

Martin provided further ammunition for overturning the FCC’s narrowly crafted Core Communications order:

I am skeptical of today’s response to the Court, which directed us to justify the Commission’s interim intercarrier compensation rules for ISP-bound traffic.. I doubt that an Order that retains artificial and unsupported distinctions between types of IP traffic and maintains an interim rate without establishing an end game will be seen any more favorably by the Court than the Commission’s two previous attempts… I therefore believe that we have failed to respond to the Court.

Martin is right. The current intercarrier compensation system is complex and messy.   And, as is clear from the public disagreement at the FCC, there are no easy answers.    There is the old saying that crisis equals opportunity.  Maybe this is the opportunity the new FCC is looking for.   The FCC can use intercarrier compensation reform to solve the problem of bringing “universal” broadband through fiber to the home facilities (FTTH) and the problem of a lack of alternative service communication choices for all consumers.  A thoughtful and comprehensive regulatory solution for intercarrier compensation reform has the opportunity to solve these two issues.