An evaluation of the proposals in the FCC's Intercarrier Compensation Reform Docket related to tandem transit services.

 
  I. INTRODUCTION AND SUMMARY 
 
 II. TANDEM TRANSIT SERVICES: AN OVERVIEW 
 
III. RECENT STATE COMMISSION DEVELOPMENTS 
     A. Background 
     B. Commission Rulings 
        1. Georgia 
        2. New York 
        3. Illinois 
        4. Michigan 
        5. Minnesota 
 
 IV. PROPOSED REGULATIONS CONCERNING TRANSITING IN THE 
     FCC's UNIFIED INTERCARRIER COMPENSATION DOCKET 
     A. The Intercarrier Compensation Docket 
     B. The Missoula Plan 
     C. The 2008 FCC Reform Proposal 
     D. Comments in Response to the Missoula Plan & the 
        Reform Proposal 
        1. Should Transit Providers Be Granted Non-Discriminatory 
           Interconnection Rights? 
        2. Should Tandem Transit Service Providers Ever 
           Serve as a Bill Collector to Help the Terminating 
           Carrier Collect Reciprocal Compensation? 
        3. Is Any Further Regulation of Tandem Transit 
           Providers Necessary and Appropriate? 
        4. If Further Regulation is Necessary, Are ILECs 
           Obligated To Provide Tandem Transit Services? 
        5. Should the FCC Regulate Transit Rates? 
 
  V. A PROPOSAL TO FACILITATE COMPETITION FOR TANDEM 
     TRANSIT SERVICES 
 
 VI. CONCLUSION 

I. INTRODUCTION AND SUMMARY

In November of 2008, as part of its Intercarrier Compensation Reform Docket, (1) the FCC requested comments on a proposal for intercarrier compensation reform offered by former FCC Chairman Kevin Martin and the Staff of the FCC (Reform Proposal). (2) Among his proposed suggestions are regulations related to "tandem transit" services.

Tandem transit services are the switching and transport services that enable the delivery of local telecommunications calls between telecommunications carriers that are not directly connected with each other. These services were historically provided, though not always willingly, by incumbent local exchange carriers (ILECs) such as AT&T, Verizon, and Qwest to enable competitive local exchange carriers (CLECs), cable telephony providers and wireless carriers, to complete calls to and from each other's networks. (3)

A number of state regulatory commissions have recently considered disputes involving tandem transit services provided by Neutral Tandem, Inc., an alternative provider of tandem transit services. (4) These cases appear to be the first ones in the country addressing issues surrounding the provisioning of tandem transit services on a competitive basis. These commissions considered public policy questions such as the benefits of competitive tandem transit service, interconnection rights for tandem transit providers, and financial responsibility for calls that are delivered using competitive tandem transit services.

The Authors suggest that the state commissions generally recognized that public policy interests are served by establishing rules that facilitate the development of competition in the market for tandem transit services. (5) As the state commissions found, competition in the tandem transit market can best be facilitated by affording nondiscriminatory interconnection rights for carriers seeking to deliver tandem transit traffic. The state commissions also generally recognized that the originating carrier--not the transiting provider--should continue to maintain responsibility for paying the costs necessary to deliver the call to the terminating carrier's point of interconnection.

The Authors submit, however, that certain price regulation proposals could harm the development of competition among tandem transit providers. In particular, proposals to require ILECs to provide tandem transit services at prices based on the total element long-run incremental cost rate (TELRIC) (6) methodology seem likely to inhibit the development of competition in this market. The Authors suggest that competition has already developed in this market in many areas. The Authors further suggest that, in markets where facilities-based competition already exists, there does not appear to be a need for any price regulation.