The FCC is considering changes to its rules for interstate telephone access charges. There is seeming appeal in the Commission's proposal to eliminate ex ante pricing regulation and tariffing regulation for interstate voice services. Unfortunately, its proposal would face state regulatory obstacles, destabilize the Universal Service Fund, and create a First Amendment problem – while conferring no real benefit on consumers. The Commission should drop the proposal.
The Commission's rules impose ex ante pricing regulation and tariffing obligations on the portion of local telephone service used to originate and terminate interstate long-distance calls. States have jurisdiction to impose similar obligations on the intrastate portion of such service. Pursuant to Section 203 of the Communications Act, the Commission imposes five different tariff access charges that are meant to align the rates with the costs of providing interstate voice service. Those charges also furnish a basis for calculating Universal Service Fund contributions.
The Commission's Notice proposes to find that "widespread competition among voice services makes ex ante pricing regulation and tariffing of Telephone Access Charges unnecessary to ensure just and reasonable rates or to otherwise protect customers." There is an important underlying point here. It is no longer the case that voice services are a monopoly. And incumbent local exchange carriers are no longer dominant suppliers. Quite sensibly, the Commission is "concerned that the costs of regulating and tariffing Telephone Access Charges are likely to exceed the benefits, because they impose costs on carriers and hinder carriers' ability to quickly adapt to changing market conditions."
The Commission proposes to require that voice service providers detariff end-user interstate access charges. And it proposes to ban voice providers from listing interstate access charges on their monthly bills to consumers. But none of this is intended or expected to reduce prices for consumers. Rather, the agency's aim is to make those bills simpler or, supposedly, transparent.
Yet as Commissioner Michael O'Rielly pointed out in his statement accompanying the Notice: "I find it somewhat strange and ironic to characterize these charges as deceptive, when it was the FCC that established the various access charges and all of their confusing terminology in the first place, and the item proposes to continue to use the charges as proxies for calculating rate-of-return carriers' Universal Service Fund support." Indeed, consumers who peruse their bills might likely be confused by the sudden changes to rates and disappearance of those fees.
Aside from providing no real benefit to consumers, the Commission's proposal runs into trouble on at least three fronts. First, the proposal depends on the unlikely proposition that state jurisdictions would cooperate in shifting carriers' interstate recovery costs onto intrastate service rates. There is no good reason to think state public utility commissions would go along with significant increases to rates under their jurisdiction. Many state regulators have expressed their opposition to the Commission's proposal.
Second, the Commission's proposal would disrupt universal service revenues that are tied to interstate access charges. Absent access charges, the Commission would have to come up with a workable replacement method for calculating universal service contributions. So far, neither Commissioner O'Rielly nor numerous voice carriers believe that the agency has come up with such a replacement. Universal service shouldn't be put at such a risk.
Third, the Commission's proposal to ban inclusion of access charges on consumers' monthly bills raises a First Amendment issue. Under the Supreme Court's test set forth in Central Hudson Gas & Electric Company v. Public Utilities Commission of California (1985), non-misleading commercial speech regulation is permitted where the government can show: (1) it advances a substantial government interest; (2) it directly and materially advances that interest; and (3) it is not more extensive than necessary to achieve that interest. But for reasons recognized by Commissioner O'Rielly, interstate access charges are not deceptive. The Commission would have difficulty showing that its proposed ban would protect individuals from specific and significant harm – and that such a ban would directly and materially achieve that purpose.
Broader deregulatory reform is needed for voice services. But that reform must come from Congress. In our book #CommActUpdate: A Communications Law Fit for the Digital Age, Free State Foundation President Randolph May, myself, and several colleagues urge Congress to take up that task. The current disparate treatment of voice, video, and data services, based on legacy techno-functional constructs, should be replaced with a market-oriented framework that applies to all digital communications services. Prescriptive rule-based regulation should be jettisoned and competitive concerns should be addressed through case-by-case adjudications based on market power analysis.
Until Congress acts, the Commission should exercise its forbearance authority and pursue deregulatory reforms where it can reduce unnecessary restrictions and costs as well as provide on-balance benefit to consumers. The Commission is on the right track, for instance, in its proposal to pare back unbundling regulations. But, despite its seeming appeal, as a practical matter, the interstate access charge proposal takes a wrong track, and the Commission should discard it.
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