Because communication networks were being used in ways that undermined the rate structure established to recover interstate public telephone service costs, the U.S. Federal Communications Commission (FCC) created a special access surcharge. This charge applied to interstate private lines that could connect with local public telephone service (“leaky PBX“). Such facilities allowed persons to make interstate calls that avoided interconnection (access) rates associated with interstate public telephone calls. The special access surcharge recovered interstate public telephone service revenue that was lost when persons used private networks to transport calls interstate.
In its 1983 order establishing the special access surcharge, the FCC set the de facto rate. The order reasoned:
we note that private lines attached to a PBX are capable of ‘leaking’ into the local exchange. Because most private lines are connected to PBXs, most private lines are capable of leaking. Although one might assume that all private lines would leak if capable of doing so, we are aware of some private lines connected to PBXs that actually may not be used in connection with local exchange services to make interstate calls. We believe a fair estimate of the number of such lines would be 20 percent of all private lines. Thus, we estimate that 80 percent of all private lines do leak through a PBX or other patching or switching device. We shall assume that 8 percent of all communications made over such lines are interstate, based on the latest data available to us on average subscriber line usage for interstate MTS and WATS services. Eight percent of 80 percent is 6.4 percent, which represents the proportion of all private line usage that ‘leaks’ into the local exchange. We further assume, based on estimates submitted in this proceeding, that nonpremium carriers would pay approximately $400-$500 in monthly carrier usage charge under the access charge plan. Taking 6.4 percent of these figures, we arrive at a range of approximately $25-$32 per month per line. We will select the lower end of this range, $25, as a conservative estimate of what the interim surcharge should be.[1]
Under the regulations, a local-exchange telephone company had the opportunity to estimate and justify a different rate for a special access surcharge.[2] Apparently none did. At least for the large local-exchange telephone companies, the special access surcharge has remained at $25 per voice-grade-equivalent circuit from 1983 to the present.
The economic circumstances relevant to the special access surcharge have changed considerably since 1983. Most private line traffic is now non-voice traffic. Interstate public telephone service is now generally much cheaper than $25 per month. A special access surcharge applied to a DS3 line would raise the current price of that line more than ten-fold. In the mid-1980s, regulations were amended to permit customers to certify that a private line is not capable of being interconnected with a local exchange telephone line. Customers could thus get the special access surcharge waived. Such waivers would now seem relevant to almost all the voice-grade-equivalent circuits in private networks.
How the special access surcharge has been applied in practice isn’t clear. Local telephone companies’ special access surcharge revenue rose from 1993 to a peak of roughly $46 million in demand year 2001.[3] From demand years 1991 to 2008, the minimum, median, and maximum share of the special access surcharge in total special access and trunking revenue was 0.25%, 0.43% and 0.83%. From 1993 to 2008 the ratio shows no clear trend.[4] Thus the ratio does not indicate the rapid growth of IP-based networks across that period. While the special access surcharge rate of $25 has endured since 1983, it apparently hasn’t been consistently applied.
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Data: online spreadsheet of special access surcharge revenue for selected telephone companies, 1991-2008 (Excel version).
Notes:
[1] FCC, Petitions for reconsideration of MTS and WATS Market Structure, CC Docket No. 78-72, 97 FCC 2d 682 (1983), para. 88.
[2] See 47 CRF 69.115 (special access surcharge regulations).
[3] Calculated from tariff data in the Price Cap Review Dataset. The 2001 peak is scaled up to an industry estimate using a dataset coverage ratio of 75%.
[4] Based on tariff date included in the Price Cap Review Dataset. The telephone companies included in the data for 1991 and 1992 are a subset of those included in subsequent years.