|
Tech Law Journal |
 |
| News, records, and analysis of legislation, litigation, and regulation affecting the computer, internet, communications and information technology sectors | |
|
|
|
| |||||
April 17, 2001 Dear Mr. Rigas: As part of its overall review of the implementation and effectiveness of the Telecommunications Act of 1996 ("the Act"), the Committee on Energy and Commerce currently is examining whether the Act’s reciprocal compensation provisions are working in a manner that, consistent with Congressional intent, fosters telecommunications competition benefitting consumers. As you know, the Act requires that competing carriers of local telecommunications services establish reciprocal compensation agreements, under which the competing companies must pay certain charges to one another for calls that terminate on each other’s network. As the Commission recognized in its 1996 Interconnection Order, the legislative history of Section 251(b)(5) contemplates the "mutual and reciprocal recovery of costs." Implicit in this is the notion that there would be a level playing field among competing local carriers as well as a mechanism for the recoupment of costs associated with such inter-carrier connections, rather than giving any one type of local provider a competitive or financial advantage over others. However, some companies, which reportedly rely heavily upon the revenues generated by reciprocal compensation agreements to fund their business operations, have suggested publicly that eliminating these payments would require them to substantially raise their connection rates for ISP customers (who allegedly would pass those higher costs onto consumers in the form of higher Internet access fees), or else get out of the business. As a result, I wrote to FCC Chairman Powell requesting information in the Agency’s possession regarding the costs associated with reciprocal compensation. However, it is now my understanding that the FCC is not in possession of this critically important information. In order to further the Committee’s understanding of this issue, I also previously wrote to several competitive local exchange carriers to seek such cost information. In that vein, I am writing to you today to seek your assistance as well. Specifically, I am requesting that, pursuant to Rules X and XI of the U.S. House of Representatives, your company provide the Committee with the following information by May 1, 2001: 1. For each of the last four years (1997-2000), identify the entities with which your company had reciprocal compensation agreements, and state the amount of reciprocal compensation payments your company paid to each such entity. 2. For each of the last four years (1997-2000), state the amount of reciprocal compensation payments your company has received from each entity identified in response to Request No. 1. 3. Of the amounts listed in response to Request No. 2, indicate the percentage of total revenues generated by your company that is represented by the reciprocal compensation received by your company in each of those years. 4. Of the amounts listed in response to Request No. 2, indicate the percentage of reciprocal compensation received by your company that is attributable to connections ultimately destined for ISPs, and the percentage of reciprocal compensation received by your company that is attributable to local voice-related connections. 5. Of the amounts listed in response to Request No. 2, specify the actual costs, if any, that are incurred by your company in connection with generating those revenues from each such entity (i.e., connecting calls from that entity’s network), both in absolute terms and as a percentage of such revenues. Provide all supporting documentation for any alleged costs. If the actual costs are not discernable, please provide an estimate of the costs. For those costs that are an estimate, provide the methodology used for the estimation. In responding to this request, please also state: a. whether the cost to connect calls from each such entity is a fixed cost per entity, a fixed cost per connection, a fixed cost per line, or a cost that varies by length of time of the connection or the ultimate customer destination; b. the manner in which the actual reciprocal compensation agreement with each such entity calculates the amount of such payments to your company; c. whether other charges or fees received by your company pursuant to agreements with ultimate destination customers recoup or offset all or part of these same costs and, if so, the amount of such other revenues, and the percentage of such costs recouped from them, and; d. the manner in which your company accounts for reciprocal compensation revenues in its financial statements, and an explanation of how such accounting comports with Generally Accepted Accounting Principles relating to the recognition of revenue. 6. Identify any agreements or arrangements between your company and an ISP, under which your company shares with such entity any portion of the reciprocal compensation received by your company for connecting such calls. Provide all records relating to each such agreement or arrangement, if any, identified in response to this request. 7. Identify any agreements or arrangements between your company and an ISP, under which your company makes any type of payments to such entity for the right to carry local services to its network. Provide all records relating to each such agreement or arrangement, if any, identified in response to this request. 8. Please provide a copy of each and every service agreement between your company and an ISP. Please specify for each ISP the revenues and/or fees that your company receives for providing such service and maintenance on a monthly basis or as otherwise specified in the service agreement. 9. For each and every ISP with which your company has a service agreement, please provide a breakdown of the actual costs associated with maintaining and servicing this customer on a monthly basis or as otherwise specified in the service agreement. If the actual cost is not discernable, provide an estimate of those costs. For those costs that are an estimate, provide the methodology used for the estimation. Thank you for your cooperation in this matter. Sincerely,
Mr. David C. Ruberg Dear Mr. Ruberg: I am writing today to follow-up on a letter I sent to you dated February 15, 2001, regarding this Committee’s review of the implementation and effectiveness of the Telecommunications Act of 1996 ("the Act"), and to request additional information in this regard. As you know, the Committee has been examining whether the Act’s reciprocal compensation provisions are working in a manner that, consistent with Congressional intent, fosters telecommunications competition benefitting consumers. In that regard, I wrote to your company and several other competitive local exchange carriers (CLECs) two months ago requesting information on, among other things, the actual costs associated with the revenues received pursuant to reciprocal compensation agreements. After reviewing those responses, and based on subsequent interviews of CLEC officials by Committee staff, several general conclusions become apparent. First, while there appears to be universal agreement that there are some real costs incurred in terminating calls from a competitor’s network, no one has been able to identify those actual costs to any degree of specificity whatsoever. Instead, based on the current regulatory system, CLECs rely on cost models established by the Federal Communications Commission or the States -- models that originally were designed for wholly different purposes -- to establish proxies for their actual costs to terminate such traffic. In other words, all of the CLECs to which I wrote claimed not to have any information on their actual costs of terminating calls from a competitor’s network. Second, there also appears to be general consensus that these proxies have, historically, been higher than the actual costs of terminating such calls, resulting in a windfall of excess revenue in those situations in which traffic volume between two competitors was not roughly equivalent. As you know, over the past several years reciprocal compensation rates have been on a steep downward trend, as state commissions and inter-carrier agreements have continued to refine the bluntness of the original cost models to focus on only those small costs fairly attributable to the additional cost of terminating a call that originated on another carrier’s network. While some rates today are much lower than they used to be, we still do not know whether they truly represent actual costs or whether they should be lower still. Given the lack of definitive information on such costs, it would seem difficult to make reasoned business judgments or predictions regarding their impact on CLEC operations. Yet, when confronted with the possibility that reciprocal compensation payments may be further reduced or even eliminated, some CLECs have stated that they will be forced to either leave the business or recover these "costs" by significantly raising the fees they charge their own customers -- principally Internet Service Providers (ISPs), which allegedly would pass those increased fees onto their Internet access customers. But this argument assumes several facts to be true that appear, at this point, to be at best unclear -- namely, that there are significant costs incurred in terminating a competitor’s calls, that reciprocal compensation rates reflect those actual costs (and no more), and that the current fees collected from ISP customers do not already, or cannot reasonably, cover such costs. It also assumes a lack of competition in what appears to be a very competitive ISP business. In our continuing effort to examine these issues, I am particularly interested in understanding the cost basis of your agreements with ISP customers. Therefore, I am requesting that, pursuant to Rules X and XI of the U.S. House of Representatives, your company provide the Committee with the following additional information by May 1, 2001: 1. A copy of each and every service agreement between your company and an ISP. Please specify for each ISP the revenues and/or fees that your company receives for providing such service and maintenance on a monthly basis or as otherwise specified in the service agreement. 2. For each and every ISP with which your company has a service agreement, a breakdown of the actual costs associated with maintaining and servicing this customer on a monthly basis or as otherwise specified in the service agreement. If the actual costs are not discernable, provide an estimate of those costs. For those costs that are an estimate, provide the methodology used for the estimation. Thank you for your cooperation in this matter.
| |||||||||
|
