D.C. Circuit Upholds FCC Denial of Traffic Pumping Tariff
An appeals court gave its nod to a 2011 FCC attempt to curb “traffic pumping” schemes, approving Friday an FCC decision forbidding a CLEC from imposing access charges on long-distance providers for calls to non-paying customers. The U.S. Court of Appeals for the D.C. Circuit upheld 3-0 the commission’s ruling that a Northern Valley tariff violated the FCC’s 2004 Access Charge Reform order. Industry officials downplayed the long-term significance of the court decision, as it dealt with an FCC action that took place before the 2011 USF/intercarrier compensation order set the industry on a glide path toward bill-and-keep. Still, some traffic pumping cases are pending before the commission under the old rules.
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The case involved agreements between South Dakota CLEC Northern Valley and various conference calling companies that obtained service from Northern Valley for no charge. When Northern Valley changed its tariff’s definition of “end user” to include those who hadn’t purchased any service provided by the CLEC, that violated Section 201(b) of the Telecom Act, the FCC found in 2011 (http://fcc.us/19PW6Pd). The commission had explained that CLECs can only tariff long-distance carriers for access to “end users” of a telecommunications service, which under the commission’s ILEC access charge regime is “a customer of a service that is offered for a fee,” the commission had wrote.
"We conclude that the FCC reasonably interpreted and applied the relevant regulations,” wrote Judge Brett Kavanaugh on behalf of the three-judge panel, which also included Chief Judge Merrick Garland and Senior Judge Raymond Randolph. “Nothing in the Communications Act precludes the FCC’s approach in this case, as Northern Valley’s counsel appropriately acknowledged at oral argument. ... We uphold the FCC’s decision that CLECs may not rely on tariffs to charge long-distance carriers for access to CLECs’ non-paying customers."
"We hope today’s decision and the FCC’s reform of intercarrier compensation rates will once and for all help end arbitrage schemes that game the system and harm consumers,” said Verizon spokesman Ed McFadden. An FCC spokesman said the agency was “pleased” with the decision. Northern Valley attorneys did not respond to requests for comment.
"Traffic pumping was a huge expense problem,” said an interexchange carrier executive familiar with the case. In some states there were more access minutes associated with “companies that had almost no customers” than with a larger provider, the executive said. “Until traffic pumping came along, these rural areas didn’t have a lot of traffic.” But as the FCC’s USF/ICC order ultimately brings termination charges down to zero, this problem will fade, the executive said.
The glide path, which began July 1, 2012 -- the date of the first annual access tariff after the release of the USF/ICC order -- is six years for price cap carriers and eight years for rate of return carriers. CLECs have to mirror the competing ILEC rate, an FCC official said. Until then, there are some pending public complaints to the agency’s Enforcement Bureau. According to the FCC, there is one pending formal complaint and seven primary jurisdictional referrals, or cases in which a federal court has issued an order referring traffic pumping issues to the commission under the old rules.