Federal Regulatory Affairs 2300 N St. NW, Suite 710 Washington DC 20037 www.frontier.com March 20, 2012 Marlene H. Dortch Secretary Federal Communications Commission 445 12 th St., S.W. Washington, D.C. 20554 Re: A National Broadband Plan for Our Future, GN Docket No. 09-51; Establishing Just and Reasonable Rates for Local Exchange Carriers, WC Docket No. 07-135; Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92; Connect America Fund, WC Docket No. 10-90; High Cost Universal Service Support, WC Docket No. 05-337; Federal-State Joint Board on Universal Service, CC Docket No. 96-45 Dear Ms. Dortch: On March 16, 2012, Kathleen Abernathy, Chief Legal Officer and Executive Vice President, Government and Regulatory Affairs, Frontier Communications, and the undersigned met with Michael Steffen, Legal Advisor to Chairman Genachowski; Sharon Gillett, Chief, Wireline Competition Bureau; Rebekah Goodheart, Associate Bureau Chief, Wireline Competition Bureau, and Travis Litman, Legal Advisor, Wireline Competition Bureau. The participants discussed the Petition for Clarification that Frontier filed with Windstream, 1 which requested the Commission clarify that it did not intend to flash cut existing originating intrastate access rates for VoIP-terminating access traffic to the interstate rate level. Frontier explained the significant adverse effect such an action could have on revenue since there is no originating access transition currently in place that would harmonize originating intrastate or interstate rates. Further, such a rate change would create significant arbitrage opportunities as the originating provider cannot determine whether the call terminates to a VoIP provider or on the PSTN. The discussion was consistent with points made in the Petition and also the attached handout. Frontier stressed that the clarification described above is the best path forward. However, should the Commission decide not to issue the proposed clarification as proposed, we discussed alternative measures that would be required. If the Commission decides that the interstate rate is the applicable end rate for the VoIP-PSTN traffic at issue, then the Commission also must allow originating carriers an adequate transition period to adjust to the revenue loss and/or provide a revenue recovery mechanism. Any recovery mechanism established for the access shift would 1 See Petition for Reconsideration and/or Clarification filed by Frontier Communications Corp. and Windstream Communications, Inc. ( Petition ), WC Docket 10-90, et al., at 21-29 (filed Dec. 29, 2011). 1
need to be contained within the Universal Service Fund s new budget of $4.5B, which includes Connect America Fund recovery. The Commission could delay the effective date of the rate change for a number of years. This has the advantage of limiting additional recovery from the Fund and increasing the likelihood that the Commission will fully address the originating access transition already contemplated in the Notice of Proposed Rulemaking. In another scenario, the Commission would need to provide a recovery mechanism for lost originating access revenues immediately, which would impact the size of the Fund. Pursuant to Section 1.1206(b) of the Commission s rules, this letter is being filed electronically with your office today. Please feel free to contact me with any further questions. Sincerely, Michael D. Saperstein, Jr. Director of Federal Regulatory Affairs Frontier Communications (202) 223-6807 cc: Michael Steffen Sharon Gillett Rebekah Goodheart Travis Litman Attachment
Originating Access Rate Reform and VOIP Terminating Traffic Kathleen Abernathy Chief Legal Officer and Executive Vice President, Regulatory and Government Affairs Mike Saperstein Director, Federal Regulatory Affairs March 16, 2012 business customers in our markets 1
Changes to Originating Access Would be Inconsistent with the Order s Intent Frontier and Windstream filed a Petition for Clarification asking the FCC to confirm that VoIP-terminating traffic remains subject to the appropriate jurisdictional origination access rates Some parties have claimed that the FCC s Reform Order would subject all such traffic to the interstate rate Tariff challenges are now pending in each of Frontier s 27 states of operation; FCC action is needed There was no discussion of originating access rate changes related to VoIP traffic prior to the Order s release The Order repeatedly states that the FCC has deferred consideration of originating access reform The Order does not allow for recovery of any such impacts despite its stated desire to avoid flash-cuts business customers in our markets 2
Arbitrage Opportunities and Impacts Frontier has no way of knowing the technology of the provider terminating the call IXCs would be incented to overstate the amount of VoIP-terminating traffic in order to pay a lower rate This is a long-term arbitrage problem Unlike terminating access, there is no transition in place to harmonize intrastate and interstate rates Originating access jurisdiction has never been disputed for calls that terminate on the PSTN or VoIP The exact impact of a flash-cut to interstate originating access rates for traffic terminating as VoIP is difficult to assess Because no recovery is contemplated, such a change would have an immediate meaningful adverse revenue impact Potentially offsetting impacts have yet to be realized Phantom traffic continues business customers in our markets 3