What Are Access Charges?

Access charges are regulated fees that local telephone carriers assess on long-distance carriers, wireless providers, and end users for the use of the local exchange network to originate or terminate telecommunications calls. They represent the primary mechanism through which local exchange carriers recover the cost of the physical infrastructure connecting individual subscribers to the broader public switched telephone network. The framework governing access charges sits at the intersection of telecommunications engineering, economic regulation, and policy, and has been shaped by successive Federal Communications Commission proceedings since the divestiture of AT&T in 1984.

Access charges arise because the telephone network is built on interconnection between carriers operating different segments: a long-distance call must enter the local network at the originating end and exit through a local network at the terminating end. Each local carrier assesses a per-minute or flat fee for providing this access. The level of these fees, who pays them, and how the underlying costs are allocated have been contested regulatory questions for four decades.

Originating and Terminating Access

Access charges are assessed at two points in a call's path. Originating access charges are paid by the long-distance carrier for connecting a call from the calling party's local loop to the interexchange network. Terminating access charges are paid for delivering the call from the interexchange network to the called party's local loop. In the legacy circuit-switched network, these charges were specified in carrier tariffs filed with the FCC under 47 CFR Part 69, which defined the categories of network elements eligible for access charge recovery and the rate structures applicable to each. FCC access charge reform orders from 1997 established the framework distinguishing subscriber line charges paid by end users from carrier access charges paid by interexchange carriers, separating the recovery of non-traffic-sensitive loop costs from usage-sensitive switching costs.

Intercarrier Compensation Reform

The growth of Voice over IP (VoIP) and wireless traffic created significant arbitrage opportunities under the legacy regime, because different rate structures applied depending on the technical path a call traversed rather than its economic function. Carriers engaged in access stimulation, the practice of generating artificially high call volumes to collect terminating access revenues, and phantom traffic disputes arose when call routing obscured which carrier was responsible for originating access charges. The FCC's 2011 Connect America Fund order required carriers to cap most intercarrier compensation rates and reduce terminating rates over a transition period to a bill-and-keep methodology, under which carriers recover termination costs from their own subscribers rather than from originating carriers. FCC intercarrier compensation proceedings and the transition to bill-and-keep describe the schedule and conditions governing this multi-year rate reduction.

Rate Setting and Cost Recovery

Access charge rates are set through a cost-of-service methodology in which carriers file cost studies with state and federal regulators to justify the level of charges needed to recover their investment in local exchange plant. Price cap regulation, adopted by the FCC in 1991 for large incumbent local exchange carriers, shifted the framework from cost-of-service to a productivity-indexed cap on the revenue carriers can collect, providing incentives for efficiency improvement. Rate-of-return regulation remains available to smaller rural carriers, which continue to recover costs through a formula tied to a permitted rate of return on their invested capital. 47 CFR Part 69 access charges regulations in the Electronic Code of Federal Regulations defines the current categories, rate elements, and reporting requirements applicable to carriers subject to federal access charge tariffing obligations.

Applications

Access charges have applications in a range of fields, including:

• Long-distance telephone service cost accounting and carrier settlement
• Universal service fund contributions and rural broadband cross-subsidy mechanisms
• VoIP service interconnection agreements between providers and incumbent carriers
• Mobile termination rate negotiations between wireless and wireline operators
• Regulatory cost modeling for telecommunications network infrastructure investment analysis