PICCs Unfairly Pick on Long Distance Resellers

Posted: 04/1998

Long distance resellers are getting clobbered by new per-line fees known as preferred
interexchange carrier charges, or PICCs.

The Federal Communications Commission (FCC) this year instituted PICCs as an outgrowth
of the Telecommunications Act of 1996. The FCC also recently decreased the amount long
distance carriers must pay local exchange carriers (LECs) to terminate calls on their
networks. But the two pricing changes are not nearly a wash for long distance resellers,
says the Telecommunications Resellers’ Association (TRA).

Sure, the LECs decreased their access fees, which, according to the United States
Telephone Association (USTA), has resulted in $3 billion in savings to long distance
carriers. But while wholesalers typically are not passing on access charge reductions to
their resale carrier customers, many underlying network providers are passing on PICCs to
the long distance resellers they serve, reports the TRA.

That hurts, says Charlie Hunter of Hunter Communication Law Group, TRA’s outside
general counsel. It’ll be especially painful for long distance resellers whose customer
base consists primarily of small- and medium-sized businesses. (And that is the profile of
most TRA members.)

Here’s why. There’s a PICC of $2.75 per line in a multiline business, yet small- and
medium-sized businesses tend not to be high-volume users.

Businesses such as flower stores and pizza parlors typically have lines coming in to
receive orders, but the businesses don’t make many outbound calls on those lines, says TRA
President Ernie Kelly.

"In order to wash out the PICC you have to have a certain amount of usage on the
line," explains Hunter. "If a carrier has a business line it pays $2.75 for and
the business only made $20 of calls a month on that line, you’re not washing the PICC out.
That $2.75 may represent more than your profit margin on that line. If there’s $300 a
month of use on the line, it’s probably a wash."

So who absorbs the cost? Smaller businesses that are already bare-bones operations
might find that steep added charge difficult to digest. Resellers already facing shrinking
margins also will struggle to absorb the costs. And because of the low call volumes of
smaller businesses, resellers can’t really spread around that extra cost.

"The reseller is rocked from all sides," says Hunter.

The FCC has already provided some relief, dropping the charge for Centrex lines down by
nearly 90 percent in some cases. But because LECs cannot or will not provide reliable
information on what line carries what type of service to whom, long distance providers may
not necessarily benefit from this change anyway, says Hunter.

The FCC clearly needs to revisit the PICC issue and address the fact that it has put
the long distance resellers at a distinct disadvantage.

To lift the burden from long distance resellers, TRA is urging the FCC to lower
per-line PICCs for businesses to 53 cents a month. That’s the PICC monthly charge now
levied on single-line businesses and residential primary lines.

TRA also wants the FCC to drive down access charges further, and to ensure that
wholesalers pass on those savings to the carrier customers that resell their services.

But when and whether the FCC will address these issues remains to be seen.

Stay tuned.

Until next time,
Paula Bernier
Editor-in-Chief