12. What are access charges?

Access Charges

Access charges refer to payments made by long-distance carriers to local service providers for originating and terminating calls on local telephone networks. The regulation of access charge rates is therefore a form of price control.

Prior to the breakup of AT&T, regulators established artificially high long-distance rates to subsidize artificially low local service rates. To maintain local calling subsidies after the divestiture of the Bell monopoly, the FCC crafted access charges.

In most instances, a long-distance call originates on the local network, is routed to the long-distance carrier’s network and then terminates on another local network. Long-distance companies pay “access charges” to the local phone companies for carrying their calls on the local networks. The regulated access charges that long-distance companies pay range from less than one cent per minute with the former Bell companies to about 10 cents per minute with smaller, independent telephone companies.

(“Reciprocal compensation,” another type of interconnection pricing, is paid by one local phone carrier to another local carrier to terminate a local call on the latter’s network.)

Interstate access charges are regulated at the federal level, while intrastate charges are regulated by the states. This jurisdictional division is increasingly difficult to maintain as new technologies cross federal/state boundaries. For example, it remains unresolved whether Internet-based calls should incur access charges if terminated on the local network. It was precisely the high cost of access charges that helped prompt the deployment of competitive networks like Voice Over Internet Protocol (VOIP).

Because the distinction between local and long-distance calls is increasingly irrelevant, the FCC has proposed establishing one set of rules for both types of calls, a system known as “bill-and-keep.” Under bill-and-keep, carriers charge their own customers instead of other carriers for originating or terminating calls.