Kansas Local Exchange Carriers Say FCC Plan To Detariff Telephone Access Charges Will Be Devastating

July 6, 2020 – A group of thirty-two Kansas rural rate-of-return local exchange carriers (RLECs) have submitted comments[1] in response to the FCC’s Notice of Proposed Rulemaking which proposes to “deregulate and detariff” various end-user charges associated with interstate access service offered by incumbent local exchange carriers.[2]

In its April 2020 NPRM, the FCC has targeted five Telephone Access Charges for detariffing: the Subscriber Line Charge, the Access Recovery Charge, the Presubscribed Interexchange Carrier Charge, the Line Port Charge, and the Special Access Surcharge. The NPRM also proposes to prohibit all carriers from separately listing Telephone Access Charges on customers’ bills.

In their comments, the Kansas RLECs assert that “[i]f the Commission were to eliminate ex ante pricing regulation and tariffing of telephone access charges it would be devastating to Kansas RLECs.”[3] The comments focus on two of the telephone access charges set for detariffing: the Subscriber Line Charge (SLC) and the Access Recovery Charge (ARC). The federal SLC is $6.50 and the ARC is $3, which amounts to $9.50 per subscriber. The Kansas RLECs argue they will be unable to recover the revenue associated with the SLC and ARC unless the FCC revises its plan to detariff those charges.

State Rate Regulation Correlated To State USF Support Makes Detariffing The SLC & ARC Unworkable

To start things off, the Kansas RLECs disagree with the FCC’s belief that “in many states deregulating and detariffing Telephone Access Charges will not affect the overall rate customers pay for telephone service.”[4] The group explains that Kansas RLECs’ end user rates are “still highly regulated” under Kansas law, especially those of RLECs that receive Kansas universal service fund (KUSF) support.

In order to remain eligible for its full amount of KUSF support, a Kansas RLEC must maintain its local service rates at the statewide affordable rate – currently $17.75 for residential, and $20.75 for business, which is required to be $3 higher than the residential rate.

If an RLEC loses $9.50 per line under the detariffing plan, how can the RLEC make up for that? Raise its rates?

The Kansas RLECs explain that in theory, an RLEC that receives KUSF could elect to charge a rate different than the statewide affordable rate in order to recover lost telephone access charges. But, if an RLEC were to do this, under Kansas law the RLEC will have its KUSF support reduced “by an amount equal to the difference between the revenue the company could receive if it elected [to charge the statewide affordable rate] and the revenue received by the company.”[5]

Kansas RLECs have another method to obtain a higher residential rate, albeit a more time-consuming and costly way. A Kansas RLEC can have its individual “statewide affordable rate” declared higher than $17.75 by the Kansas Corporation Commission (KCC) through the “rate case” process. There is no guarantee, however, that a Kansas RLEC will have its residential or business rate increased by $9.50, the per month loss each line would experience under the FCC’s proposal.

Further complicating the rate case process, the RLECs explain, the KUSF has been capped at $30 million in annual high cost support for RLECs, and the cap has been reached. Any increase in KUSF for an RLEC would result in pro-rate reductions for all other KUSF support recipients. Under this zero-sum game, if all KUSF recipients pursued additional funding to account for an elimination of the SLC and ARC, any RLEC’s support increase would likely be negated by reductions related caused by other RLECs’ increases.[6]

Next, the Kansas RLECs address the question of whether the KCC can add a state SLC if the FCC’s detariffing plan is approved. The answer, they say, is no. The Kansas statutory scheme for rate regulation does not explicitly provide for a state SLC, which means the KCC cannot create line item charges not already specifically authorized by Kansas law or the FCC.[7] Therefore, the FCC “would need to provide express authority for RLECs to charge one or more new line-item flat fees to replace the revenue lost through detariffing the SLC and ARC.” This of course would negate the FCC’s proposed detariffing. Nor can a Kansas RLEC unilaterally add a line item charge to make up for losing the SLC and ARC.

If Kansas RLECs are unable to charge subscribers the federal SLC ($6.50) and ARC ($3), they will lose $114 per residential or single line business customer per year. The RLECs provide an example of what that could look like. For a Kansas RLEC with 3,000 total residential and single line business customers, this would equate to a loss of $342,000 per year. The Kansas RLECs claim that elimination of the $9.50 received through the SLC and ARC “would impose a loss of some 34.86% of residential per-line rate revenue – an unsustainable burden for Kansas RLECs already facing statutory reductions in KUSF support that will render them unable to achieve their respective regulatorily approved revenue requirements.”[8]

The Solution: A Case-By-Case Approach Or General Exemption For Rate-Of-Return Carriers

The Kansas RLECs urge the FCC to adopt a case-by-case approach “to determin[e] where and under what circumstances ex ante pricing regulation should be eliminated and detariffing of Telephone Access Charges required.”[9]

In the NPRM, the FCC asked whether it should “take a more case-by-case approach and find that rate regulation is unnecessary only in locations where at least one of the following conditions is met: (1) in an incumbent local exchange carrier’s study area, where there is at least one unaffiliated voice provider available in 75% of the populated census blocks; (2) in areas where the Eligible Telecommunications Carrier is subject to the reasonable comparability benchmark; or (3) in states where intrastate rates have been deregulated.”[10]

Under an alternative deregulation scheme, the FCC would “also eliminate ex ante pricing regulation and require detariffing of Telephone Access Charges for incumbent local exchange carriers in study areas where states have deregulated the rates charged for the intrastate portion of local voice services.”[11] In such circumstances, “a carrier’s current ability to adjust its end-user rates due to state deregulation means that federal deregulation and detariffing of Telephone Access Charges will not result in increased prices for voice services.”[12]

The Kansas RLECs support the creation of “a list of areas where there is state retail rate pricing flexibility” using information from carriers certifying that “the intrastate portion of local voice services are no longer subject to state price controls.” They say this list where detariffing applies should be updated periodically and publicly available online. And, the list could be updated as necessary to account for states’ re-implementation rate regulation of the intrastate portion of local voice services.

The Kansas RLECs support another alternative to the FCC’s detariffing proposal – a general exemption for RLECs subject to rate-of-return regulation, which will allow “such carriers to maintain existing revenue streams without the imposition of new regulatory costs at the state or federal level.”[13]

A General Detariffing Will Negatively Impact Universal Service By: (1) Disrupting Jurisdictional Cost Separations, And (2) Eroding Intrastate Revenue Through The Adoption Of “Safe Harbors”

Finally, the Kansas RLECs argue that a general detariffing will negatively impact universal service. First, the RLECs argue the proposed detariffing of federal end-user per-line charges will negatively disrupt jurisdictional cost separations by shifting “cost recovery responsibility from interstate to intrastate jurisdictions.”[14] They say this is problematic because there is no sufficient intrastate mechanism “for shifting the means of such recovery,” and warn of an unfunded mandate. This will increase pressure on existing state cost recovery mechanisms, some of which will be insufficient, jeopardizing RLECs’ ability to meet their state and federal service obligations – carriers of last resort, reasonably comparable service, and reasonably comparable rates. All things considered, these results outweigh any claimed benefit to consumers from the proposed detariffing.

Second, the Kansas RLECs argue that the FCC’s proposed safe harbor treatment of ILEC revenue “could result in factually unsupported disruption of existing separations and a reductio of intrastate revenues subject to assessment for contribution to the [KUSF], and could unreasonably subject consumers to increased federal USF assessments.”[15]

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[1] Comments Of Kansas Rural Local Exchange Carriers, WC Docket No. 20-71 (July 6, 2020) (Kansas RLEC Comments), https://ecfsapi.fcc.gov/file/107061432626318/FINAL%20Kansas%20RLEC%20NPRM%20Comments%2007062020.pdf.

[2] Eliminating Ex Ante Pricing Regulation and Tariffing of Telephone Access Charges, WC Docket No. 20-71, Notice Of Proposed Rulemaking, FCC 20-40 (Apr. 1, 20202) (FCC NPRM), https://docs.fcc.gov/public/attachments/FCC-20-40A1.pdf.

[3] Kansas RLEC Comments at ¶ 2.

[4] FCC NPRM at ¶ 46.

[5] Kansas RLEC Comments at ¶ 3 (citing K.S.A. 66-2005(d)).

[6] Kansas RLEC Comments at ¶ 5.

[7] Kansas RLEC Comments at ¶ 6.

[8] Kansas RLEC Comments at ¶ 7.

[9] FCC NPRM at ¶ 53.

[10] FCC NPRM at ¶ 53.

[11] FCC NPRM at ¶ 58.

[12] Id.

[13] Kansas RLEC Comments at ¶ 11.

[14] Kansas RLEC Comments at ¶ 17.

[15] Kansas RLEC Comments at ¶ 18.