Calling Party Pays: FCC Proceedings

In two proceedings, the FCC is investigating whether -- or how much -- calling party pays (CPP) pricing should apply to the wireless industry. These inquiries could reshape the industry.

The primary proceeding was developed from the FCC's Notice of Inquiry to obtain information from the wireless industry and its consumers regarding wireless CPP pricing. The FCC based its proceeding on the observation that the pricing of wireline and wireless service is fundamentally different.

Currently, U.S. wireline subscribers do not pay additional charges to receive phone calls, whereas most commercial mobile radio service (CMRS) subscribers do. As a result, the FCC wanted to know "whether this difference between wireline and wireless service hinders the rate at which CMRS services are accepted by consumers as a close substitute for wireline service."

To implement CPP, however, the local exchange carrier (LEC) must provide the CMRS carrier either with sufficient information to bill the calling party directly or with a billing service, much like the long-distance (toll) charges that now appear on local telephone bills. Under this scenario, the outgoing charges for calls to wireless subscribers would appear on the monthly bill provided to the calling party by the LEC.

QUESTIONS With this background, the FCC asked six specific questions in its proceeding.

*Current availability of CPP. The FCC wanted to know the extent to which the various LECs made CPP available and how many CMRS carriers and their subscribers actually used CPP. The FCC also wanted to know about additional issues that may be associated with applying CPP to wireless calls.

Perhaps more importantly, the FCC wanted to know why CPP is not offered more broadly and if new CMRS competition might result from a broader availability of CPP. The FCC wanted to know what actions, if any, it should take to remove CPP barriers in case it decides that enhancing access to CPP is an appropriate pro-competitive goal.

Finally, the FCC asked whether recent developments -- including increased competition in the CMRS market, the related decrease in CMRS rates and the implementation of reciprocal compensation for LEC-CMRS interconnection arrangements -- create sufficient incentives for CMRS carriers to refrain from charging their own subscribers for incoming calls. This question highlights the parallel nature of CPP and LEC-CMRS reciprocal compensation issues.

*Demand stimulating effects. Some people in the wireless industry have argued that CPP can help balance the flow of calls to and from CMRS networks and stimulate demand for wireless services. For example, the FCC noted that 80% of CMRS network traffic originates from CMRS phones, with the remaining 20% from the wireline network. The FCC has asked for similar industry data about wireless calling patterns.

The FCC also is uncertain if the balance in incoming and outgoing traffic reported in other countries (which tend to use wireless CPP pricing) is attributed to CPP service or other factors. In particular, the FCC wanted to know whether the relative pricing of wireless and wireline service in countries where CPP is common was a significant factor in determining usage patterns.

The FCC did state that no one really knows how CPP will affect wireless demand. Some industry sources believe CPP can increase the demand for CMRS services, either by increasing the minutes of usage or the number of subscribers. The FCC has asked for industry comments on these issues.

Typically, startup PCS carriers offer subscribers the first minute of incoming calls free. The FCC asked whether this pricing encourages consumers to subscribe to mobile telephony services, to subscribe to digital systems, to disclose their mobile phone numbers and to keep their wireless phones turned on. The FCC also asked whether this pricing more evenly balances traffic to and from wireless networks.

*Pricing issues. The FCC noted that pricing implicit in a CPP service could be significantly different from the typical pricing structure for CMRS and local wireline service in the United States, so it asked about the pricing structure of CMRS and wireline services both here and abroad.

Specifically, the FCC noted that the pricing structure implicit in CPP service is similar to the pricing structure for local wireline and wireless services in many foreign countries. There, wireless and wireline subscribers pay a flat fee for unlimited calls received but pay per-minute charges for all calls initiated. Thus, the FCC reasoned that, contrary to some parties' expectations, the differences in pricing between local telephone service and the CPP service option could deter some calls from wireline to mobile subscribers and may hinder efforts to minimize distinctions between telephony service provided on wireline and wireless networks.

Here, I think that the FCC has missed the point. The PCS "first incoming minute free" plans highlight that wireless subscribers don't want to pay airtime for calls they don't initiate (and can't control). Few subscribers give out their cellular numbers, and many don't even know their numbers.

If CPP were the norm, more wireless subscribers would want incoming calls, although they would tell their friends which phone numbers generate airtime charges. This is similar to what subscribers do in the Washington area, where the suburban area codes have both free and toll exchanges (when called from downtown).

*Consumer protection issues. Many state regulatory agencies and consumer groups have raised consumer protection issues related to the existing amount of CPP charges. Some state regulatory agencies have required carriers to implement various techniques to inform the calling party that the call being placed is a toll call. The FCC asked how the calling party can best be informed of charges for calls to CMRS phones, including the magnitude of these charges.

The FCC also asked whether notifying the calling party, prior to the completion of the call, that he will be required to pay for the call is a sufficient mechanism to create a binding contractual agreement obligating the calling party to make the payment. This is one area in which the wireless industry needs to growup. When I place a long-distance (toll) call, there's no magic. I place the call, and I expect to pay for it. What's the difference between calling Baltimore and calling a wireless number in Baltimore?

*Technical issues. The FCC observed that CPP billing requires various infrastructure, contractual and billing collection modifications. In order to charge incoming calls to the calling party, the mobile carrier must have access to billing collection information (e.g., the caller's name and address) for the calling party. But this information would be unavailable in some circumstances and could result in uncollectible revenues for the CMRS carrier.

This is another area in which the wireless industry needs to grow up. Again, taking the toll-call analogy, there is simply no dispute that the calling party will pay the toll charges. CMRS carriers need the same assurances. Perhaps this will mean the FCC must encourage the various LECs and CMRS carriers to bill for CPP calls, with a net settlement mechanism between carriers.

*Legal issues. Finally, the FCC asked about any legal issues that might result from FCC decisions regarding imposition or implementation of CPP. Specifically, the FCC is concerned that it has backed itself into a corner by reasoning that CPP regulation was a billing to be regulated by a state as a term or condition under which service is provided, and is not subject to federal pre-emption under the Communications Act.

On the other hand, the FCC also has ruled that LECs have an obligation to provide access to unbundled network elements, including billing information. The Eighth Circuit Court of Appeals, in its Iowa Utilities Board decision, concluded that the Commission has authority to order LECs to interconnect with CMRS carriers and has the authority to issue rules of special concern to CMRS providers.

In a full employment act for common-carrier attorneys, the FCC asked about the scope of its authority to require LECs to provide billing information and services that will enable CMRS providers to offer CPP services, and to require CPP arrangements between LECs and CMRS carriers. Unless the FCC can be persuaded that it has the power to proceed, the CPP inquiry will come to a screeching halt.

FOLLOW THE MONEY Usually, in assessing the likely LEC and CMRS reaction to this inquiry, I would suggest following Deep Throat's advice during the Watergate scandal: "Follow the money!" I can envision independent CMRS carriers vigorously supporting CPP, and LECs opposing it. After all, why should a LEC favor a billing plan that would increase its bills as well as its difficulty of billing? But since many significant wireless carriers are owned by LECs (Southwestern Bell, Bell Atlantic and Sprint in the Washington area), the situation is confusing.

Meanwhile, the FCC has another CPP-type proceeding that could realign the parties' positions. Southwestern Bell Mobile Systems (SBMS) has asked the FCC to rule that its practices of charging in whole-minute increments and billing for incoming calls is protected by the Communications Act as a matter of federal law. SBMS would like to use this ruling as a defense in the numerous state-court class-action suits that attack its wireless billing practices.

In this proceeding, all CMRS carriers should be asking the FCC to assume authority over CPP and to pre-empt state law. If the FCC were to accept this position, then the camel's nose would slide well under the tent of universal CPP billing availability.