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Saving $1 million in 1 month … and $1.5 billion a year

by: Pam Arluk, Assistant Chief, Pricing Policy Division

August 14, 2012

Saving consumers $1 million in one month is a pretty good accomplishment.  That’s exactly what a small team of analysts at the FCC did this month as they pored over the detailed price lists – called tariffs – that flood into the FCC once annually.

These tariffs cover the regulated prices – called access charges – that phone companies charge each other for handing off calls. Filed on July 1 every year, tariffs are normally routine.  But not this year.  July 1, 2012 marked the beginning of historic reforms at the FCC that will eventually do away with this archaic access charge system.  Access charges – part of a broader system called intercarrier compensation, or ICC – indirectly impose billions in hidden costs on consumers.  They have become a convoluted, contentious revenue stream that is not only exploited for unfair gain but also distorts decisions about markets and technologies.  We estimate that eliminating these hidden costs will unleash over $1.5 billion in annual benefits to consumers.

The Connect America Fund and Intercarrier Compensation reforms adopted by the FCC last year address these problems by phasing out access charges over a number of years, starting last month.  To ease the transition, carriers especially hard-hit by the loss in revenues will temporarily receive some relief, including through the FCC’s Universal Service Fund.

We asked carriers to calculate their access revenues for the last year to give us a baseline for the entire transition.  It was important to make sure carriers got it right, because overstating revenues now would affect every year of the transition.

So we suspended the tariffs when they came in to give our experts more time to review and investigate the figures.  In the past month, we worked with carriers and found errors that overstated revenues by about $1 million: $1 million that would be paid for by consumers and small businesses.  These were honest mistakes.  The carriers agreed with our analysis and corrected their tariffs.

So, last week, with $1 million saved, we were able to let these carriers go forth using their corrected tariffs.   More tariffs remain outstanding.  The team continues to work with those carriers to eliminate other errors as we make this historic transition away from the old ICC system – and toward the $1.5 billion in annual benefits to consumers once these hidden fees are gone.

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