Posted: 02/1999

The PICC
Lost Revenue for IXCs?
By Thomas K. Crowe, Esq.

Recovering the primary interexchange carrier charge (PICC) from end users is becoming
increasingly problematic for interexchange carriers (IXCs). Since its adoption, the
Federal Communications Commission (FCC) has struggled to put rules in place that permit
IXCs to pass the charge through to their end-user customers accurately. Fundamental
operational problems remain, however, and many IXCs are unable to recover the charges
accurately or completely. These continuing problems combined with the prospect of access
charge reform raise the possibility that the FCC could revise the PICC significantly in
the future.

Considering that IXCs are being assessed PICCs for erroneously presubscribed lines,
invalid PICCs and duplicate line counts, the magnitude of the problem cannot be
underestimated. For example, in the case of a hypothetical large end user with a
73,000-line Centrex arrangement, PICCs erroneously assessed at the multiline business rate
of $2.75 yields a PICC assessment of $200,750, as opposed to $22,630 if accurately billed
at the Centrex line rate of 31 cents. The problem will only intensify July 1, as PICC
levels substantially increase.

The PICC

A creation of the FCC’s May 7, 1997, access charge ruling, the PICC is a flat, per-line
charge assessed by the local exchange carrier (LEC) on a customer’s presubscribed IXC. In
the case of an end user that has not preselected a specific IXC, the LEC is permitted to
recover the charge directly from the end user. In reforming access charges, the FCC
determined that common-line costs should be recovered on a flat–not usage–basis, and in
a manner that associates them with who causes the cost–the end user. The FCC’s reformed
1997 access charge plan reduces the carrier common-line charge historically assessed to
IXCs. The FCC established the PICC and increased certain subscriber line charges (SLCs) to
effectuate this objective.

The primary residential and single-line business PICCs are slated to increase almost
100 percent July 1, from 53 cents up to $1.03. The nonprimary residential PICC also is
expected to increase July 1, from $1.50 to up to possibly as high as $2.50, and the
multiline business PICC from $2.75 up to as much as $4.25 (see chart).

These increases originally were set to occur Jan. 1, but were deferred by the FCC until
July 1 to avoid "rate churn." Among other things, price-cap LECs’ annual access
tariff filings are due July 1, and are expected to show reduced access rates. By setting
the next PICC increases to coincide with access tariff reductions, the FCC ensures not
only that the rate adjustments coincide but also that the expected access rate reductions
serve to offset the proposed PICC increases.

The access charge plan calls for primary residential and single-line business PICCs to
continue increasing in subsequent years. Combined with increases in certain SLCs, these
charges are expected ultimately to recover the common-line revenue requirement. As this
occurs, the nonprimary residential and multiline business PICCs are expected to decrease
and ultimately phase out. According to the FCC, the average nonprimary residential PICC is
never expected to exceed $2 and the multiline business PICC is expected to average less
than $1 by 2001.

The Problem

The problem with the PICC is that it is difficult to define or quantify and, for this
reason, difficult for IXCs to recover from their customers. In response to filings by MCI
WorldCom Inc. and Sprint Corp., the FCC has attempted to address these problems. For
example, the FCC ruled in October 1997 that LECs are required to supply IXCs with
customer-specific information regarding the type and number of PICCs to enable IXCs to
more accurately pass the charges on to their customers. This means a LEC is required to
identify the specific number of primary residential, nonprimary residential, single-line
business or multiline business PICCs by presubscribed customers.

The FCC also has adopted rules to facilitate prompt notification between the LEC and
IXC when a new customer presubscribes to an IXC as well as when an IXC terminates a
customer for nonpayment. In the case of a new presubscribed customer, the FCC has ruled
that LECs are required to notify IXCs promptly by identifying new customers on Customer
Account Record Exchange (CARE) transactions so they can avoid a lag in billing the PICCs.
If an IXC terminates a customer account for nonpayment or other tariff violation, the IXC
is not responsible for the applicable PICC if the LEC was notified at least 15 days before
the date on which the LEC determines the IXC’s liability for a given month.

Despite these remedial efforts, problems with the PICC run much deeper.

Most fundamental is the very notion that primary lines can be distinguished from
nonprimary lines. Both MCI WorldCom and GTE Corp. have urged the FCC to eliminate this
distinction since there is no reliable way for a LEC to determine which customers’ line is
the "primary" line. In its comments recently submitted in the FCC’s access
reform proceeding, GTE states, "[W]ithout exception, each attempt to define a primary
residence line in some way places the ILEC (incumbent LEC) in the patently absurd position
of trying to define such things as a customer’s lifestyle, living arrangement or social
relationships."

The FCC in 1997 initiated a rulemaking proceeding to address the definition of a
"primary residential line." The scope of this proceeding also includes
re-examining the definition of single-line business line, user self-certification to
identify primary lines and enforcement issues. In the meantime, however, ILECs have
established differing tariffed definitions to distinguish primary lines.

More Obstacles

As if these problems are not daunting enough, many other significant obstacles to IXC
recovery of PICCs remain. A number of IXCs experience lines mistakenly
"PICC-ed," invalid PICCs or duplicate line counts.

Problems of this nature impose potentially significant costs on IXCs through the risk
of paying inaccurate PICCs that cannot, in turn, be recovered. Inaccurate PICC billing
also incurs a significant price in manpower hours to verify, audit and contest the PICC
charges. In short, PICC billing too often places the IXC in a "trust-me" posture
vis-a-vis the LEC. Another fundamental problem is passing through the PICC to
zero-usage customer accounts. MCI WorldCom raised this problem earlier this year in a
filing with the FCC urging major reforms to the FCC’s access charge rules. Without further
regulatory change, it appears that these problems are likely to continue.

Problems with the PICC must be considered against the backdrop of ongoing access charge
reform. On Oct. 5, the FCC issued a public notice asking parties to refresh the access
charge record in the face of growing industry support for access reform. Both IXCs and
ILECs urged the FCC in comments submitted this fall to initiate further changes in the
access charge plan. IXCs urged major access reform and prescription of rates based on a
cost methodology, while ILECs sought increased pricing flexibility and greater access
charge deregulation. The fact that the FCC is reviewing the need for possible access
changes at this time increases the likelihood that the PICC will be included in the review
process and possibly be modified.

Efficient and accurate PICC recovery is a bottom-line issue for IXCs and is central to
promoting the FCC’s access charge goal of recovering costs from the cost-causer. Whether
the FCC is able to resolve the many implementation problems that currently surround the
PICC will, to a large degree, define the success of its reformed 1997 access charge plan.

Thomas K. Crowe is a Washington-based attorney specializing in communications legal
and regulatory matters. He also is the regulatory counsel for the Society of
Telecommunications Consultants. He can be reached by phone at +1 202 973 2890, by e-mail
at [email protected] or via the web at www.tkcrowe.com.