FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN December 4, 2019 The Honorable Charles E. Grassley United States Senate 135 Hart Senate Office Building Washington, DC 20510 Dear Senator Grassley: Thank you for your letter regarding the Commission s order to address access arbitrage schemes. I agree that the Commission should stop efforts to exploit the intercarrier compensation system through which phone companies pay each other for carrying and completing calls. In particular, some local phone companies make arrangements with providers of high- volume calling services (like  free conference calling and chat lines) to inflate their incoming call traffic and artificially increase their access charge revenues. These  access stimulation schemes result in excessive charges to long-distance companies that far exceed the costs of completing the calls, and they ultimately cost American consumers an estimated $60 to $80 million each year. That s why the FCC adopted a Report and Order in September to eliminate the financial incentives to engage in this wasteful arbitrage. First, to eliminate the use of our intercarrier compensation system to subsidize  free high-volume calling services, the Order shifted the financial responsibility for paying certain access charges to the access-stimulating carriers that are responsible for generating them. Second, recognizing the evolving nature of these schemes, we closed a loophole that allowed access-stimulating carriers to profit from high-volume calling even without using a revenue sharing agreement. At the same time, in response to concerns raised by rural carriers regarding the draft order, the Commission calibrated the new rules to avoid ensnaring rural carriers that have higher ratios of inbound to outbound calling traffic but are not engaged in access stimulation. Additionally, to ensure that parties have enough time to come into compliance with our rules, the Order adopted a reasonable transition period for carriers to implement any changes to their tariffs and billing systems. With these steps, we believe we can combat gaming of our intercarrier compensation system. Please let me know if I can be of any further assistance. Sincerely () FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN December 4, 2019 The Honorable Cindy Axne U.S. House of Representatives 330 Cannon House Office Building Washington, DC 20515 Dear Congresswoman Axne: Thank you for your letter regarding the Commission s order to address access arbitrage schemes. I agree that the Commission should stop efforts to exploit the intercarrier compensation system through which phone companies pay each other for carrying and completing calls. In particular, some local phone companies make arrangements with providers of high- volume calling services (like  free conference calling and chat lines) to inflate their incoming call traffic and artificially increase their access charge revenues. These  access stimulation schemes result in excessive charges to long-distance companies that far exceed the costs of completing the calls, and they ultimately cost American consumers an estimated $60 to $80 million each year. That s why the FCC adopted a Report and Order in September to eliminate the financial incentives to engage in this wasteful arbitrage. First, to eliminate the use of our intercarrier compensation system to subsidize  free high-volume calling services, the Order shifted the financial responsibility for paying certain access charges to the access-stimulating carriers that are responsible for generating them. Second, recognizing the evolving nature of these schemes, we closed a loophole that allowed access-stimulating carriers to profit from high-volume calling even without using a revenue sharing agreement. At the same time, in response to concerns raised by rural carriers regarding the draft order, the Commission calibrated the new rules to avoid ensnaring rural carriers that have higher ratios of inbound to outbound calling traffic but are not engaged in access stimulation. Additionally, to ensure that parties have enough time to come into compliance with our rules, the Order adopted a reasonable transition period for carriers to implement any changes to their tariffs and billing systems. With these steps, we believe we can combat gaming of our intercarrier compensation system. Please let me know if I can be of any further assistance. Sincerely, (J FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN December 4, 2019 The Honorable Dave Loebsack U.S. House of Representatives 1211 Longworth House Office Building Washington, DC 20515 Dear Congressman Loebsack: Thank you for your letter regarding the Commission s order to address access arbitrage schemes. I agree that the Commission should stop efforts to exploit the intercarrier compensation system through which phone companies pay each other for carrying and completing calls. In particular, some local phone companies make arrangements with providers of high- volume calling services (like  free conference calling and chat lines) to inflate their incoming call traffic and artificially increase their access charge revenues. These  access stimulation schemes result in excessive charges to long-distance companies that far exceed the costs of completing the calls, and they ultimately cost American consumers an estimated $60 to $80 million each year. That s why the FCC adopted a Report and Order in September to eliminate the financial incentives to engage in this wasteful arbitrage. First, to eliminate the use of our intercarrier compensation system to subsidize  free high-volume calling services, the Order shifted the financial responsibility for paying certain access charges to the access-stimulating carriers that are responsible for generating them. Second, recognizing the evolving nature of these schemes, we closed a loophole that allowed access-stimulating carriers to profit from high-volume calling even without using a revenue sharing agreement. At the same time, in response to concerns raised by rural carriers regarding the draft order, the Commission calibrated the new rules to avoid ensnaring rural carriers that have higher ratios of inbound to outbound calling traffic but are not engaged in access stimulation. Additionally, to ensure that parties have enough time to come into compliance with our rules, the Order adopted a reasonable transition period for carriers to implement any changes to their tariffs and billing systems. With these steps, we believe we can combat gaming of our intercarrier compensation system. Please let me know if I can be of any further assistance. ~ Sincerely, AjitV.Pai FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN December 4, 2019 The Honorable Joni Ernst United States Senate 730 Hart Senate Office Building Washington, DC 20510 Dear Senator Ernst: Thank you for your letter regarding the Commission s order to address access arbitrage schemes. I agree that the Commission should stop efforts to exploit the intercarrier compensation system through which phone companies pay each other for carrying and completing calls. In particular, some local phone companies make arrangements with providers of high- volume calling services (like  free conference calling and chat lines) to inflate their incoming call traffic and artificially increase their access charge revenues. These  access stimulation schemes result in excessive charges to long-distance companies that far exceed the costs of completing the calls, and they ultimately cost American consumers an estimated $60 to $80 million each year. That s why the FCC adopted a Report and Order in September to eliminate the financial incentives to engage in this wasteful arbitrage. First, to eliminate the use of our intercarrier compensation system to subsidize  free high-volume calling services, the Order shifted the financial responsibility for paying certain access charges to the access-stimulating carriers that are responsible for generating them. Second, recognizing the evolving nature of these schemes, we closed a loophole that allowed access-stimulating carriers to profit from high-volume calling even without using a revenue sharing agreement. At the same time, in response to concerns raised by rural carriers regarding the draft order, the Commission calibrated the new rules to avoid ensnaring rural carriers that have higher ratios of inbound to outbound calling traffic but are not engaged in access stimulation. Additionally, to ensure that parties have enough time to come into compliance with our rules, the Order adopted a reasonable transition period for carriers to implement any changes to their tariffs and billing systems. With these steps, we believe we can combat gaming of our intercarrier compensation system. Please let me know if I can be of any further assistance. Sincerely, vi~ Ajit V. Pai FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN December 4, 2019 The Honorable Steve King U.S. House of Representatives 2210 Rayburn House Office Building Washington, DC 20515 Dear Congressman King: Thank you for your letter regarding the Commission s order to address access arbitrage schemes. I agree that the Commission should stop efforts to exploit the intercarrier compensation system through which phone companies pay each other for carrying and completing calls. In particular, some local phone companies make arrangements with providers of high- volume calling services (like  free conference calling and chat lines) to inflate their incoming call traffic and artificially increase their access charge revenues. These  access stimulation schemes result in excessive charges to long-distance companies that far exceed the costs of completing the calls, and they ultimately cost American consumers an estimated $60 to $80 million each year. That s why the FCC adopted a Report and Order in September to eliminate the financial incentives to engage in this wasteful arbitrage. First, to eliminate the use of our intercarrier compensation system to subsidize  free high-volume calling services, the Order shifted the financial responsibility for paying certain access charges to the access-stimulating carriers that are responsible for generating them. Second, recognizing the evolving nature of these schemes, we closed a loophole that allowed access-stimulating carriers to profit from high-volume calling even without using a revenue sharing agreement. At the same time, in response to concerns raised by rural carriers regarding the draft order, the Commission calibrated the new rules to avoid ensnaring rural carriers that have higher ratios of inbound to outbound calling traffic but are not engaged in access stimulation. Additionally, to ensure that parties have enough time to come into compliance with our rules, the Order adopted a reasonable transition period for carriers to implement any changes to their tariffs and billing systems. With these steps, we believe we can combat gaming of our intercarrier compensation system. Please let me know if I can be of any further assistance. Sincerely, AjitV.Pai