Summary
Given that minutes of use on the switched access network is decreasing, the price per minute of access should reflect the reduced calling volume. Also, given that volume is declining, the FCC cannot assume that the marginal cost of terminating de minimis. Its probably the opposite.
Analysis
The Federal Communications Commission is considering a plan authored by FCC Chairman Kevin Martin calling for intrastate access rates to be reduced to the level of interstate access rates, currently at $0.0007 per minutes of use, over a ten-year period. I estimate a low probability (.25) that Chairman Martin's plan will be approved by the FCC in its current form. There is a high probability (.64) that some alternative plan modifying the level of intrastate access rates will be approved by the FCC. It is likely that a vote on Chairman Martin's plan may take place at the FCC's 18 December 2008 meeting.
I base my analysis on positions shared by Commissioners Jonathan Adelstein, Michael Copps, Robert McDowell, and Deborah Tate. On 5 November 2008, Commissioners Adelstein, Copps, McDowell, and Tate issued a joint statement indicating a tentative but growing consensus that intrastate access rates should be reduced to the level of interstate access rates. The Commissioners also shared their preference for a rate reduction scheme that did not unfairly result in increased rates for telephone service subscribers. At least one commissioner, Deborah Tate, has signaled that increased broadband deployment to rural areas should be an outgrowth of intercarrier compensation reform. I expect that the positions of these four commissioners may turn into additional requirements serving to modify the Chairman Martin's plan. I expect revenues derived from access services to decline should the FCC vote to require intrastate access rates be reduced to the level of interstate access rates. Any such decision will only compound the current reduction in access revenues being experienced by carriers given the continued reduction in minutes of use on the switched access network over the past five years.
A reduction in intrastate rates, as proposed by Chairman Martin, is not economically sound. Given the reduction in access minutes of use, price per minute of access use should be increasing given the reduction in demand and increase in marginal costs. I believe that Chairman Martin's assessment that marginal costs for providing switched access is de minimis is unsound.
