ICLE Comments to the FCC on Accelerating Network Modernization
I. Introduction and Overview
The International Center for Law & Economics (ICLE) submits these comments in response to the Federal Communications Commission’s (FCC) Notice of Proposed Rulemaking (NPRM) on reforming legacy rules for an all-Internet Protocol (IP) future and accelerating network modernization.[1] ICLE is a nonprofit, nonpartisan research center that applies law & economics methodologies to public policy. Its work promotes sound economic analysis and consumer welfare, particularly in dynamic, technology-driven markets such as telecommunications.
The voice-services market of 2026 bears little resemblance to the market that produced the intercarrier compensation (ICC) framework this proceeding seeks to modernize. Mobile wireless, Voice over Internet Protocol (VoIP), and satellite services now discipline legacy providers and give consumers alternatives that did not exist when the Commission first adopted many of these rules.[2] The regulatory framework, however, has not kept pace.[3] Remaining ICC charges continue to reward carriers for maintaining legacy copper and time-division multiplexing (TDM) infrastructure. Connect America Fund Intercarrier Compensation (CAF ICC) support continues to subsidize delayed modernization. And the Universal Service Fund (USF) contribution factor continues to rise as the assessed revenue base shrinks.[4] These interrelated problems all stem from the same source: the Commission has not yet completed the transition it began more than a decade ago.
ICLE urges the Commission to move forward decisively with the reforms proposed in this NPRM. These comments make two principal points. First, retiring copper networks and completing the transition to all-IP infrastructure would generate substantial consumer and economic benefits, but the current regulatory framework impedes that transition by rewarding delay and preserving obsolete technology. Second, timely phasing out CAF ICC would correct distorted investment incentives, reduce the overall cost of the USF, relieve the burden on consumers who fund it, and reduce pressure for contribution reforms that could impose new regulatory costs on broadband networks and services.
II. Completing the Transition to Bill-and-Keep
The FCC’s efforts to facilitate copper retirement and accelerate the transition to IP-based networks will produce substantial consumer and economic benefits. Yet additional reforms remain necessary. As ICLE has previously explained, the remaining ICC regime continues to distort investment incentives by rewarding carriers that maintain outdated TDM infrastructure.[5] Those distortions slow network modernization, preserve inefficient legacy systems, and divert investment away from next-generation infrastructure.
Completing the transition to a bill-and-keep framework would eliminate those incentives and better align regulatory policy with today’s communications marketplace. Under bill-and-keep, providers recover network costs directly from their own customers rather than through intercarrier access charges tied to legacy networks. That approach would accelerate the transition to all-IP infrastructure, reduce the costs associated with maintaining parallel TDM and IP systems, improve service quality and robocall mitigation, and encourage providers to compete through better and more efficient services rather than through outdated regulatory subsidies.
A. Network Modernization Delivers Substantial Benefits
The FCC has rightly made network modernization a key priority, and many of its recent actions will help accelerate copper retirement.[6] Retiring legacy copper networks and transitioning remaining infrastructure to all-IP systems will produce substantial consumer and economic benefits. Those benefits strongly support eliminating any remaining ICC charges tied to legacy networks.
Maintaining copper infrastructure imposes enormous and growing costs on carriers that have already transitioned—or begun transitioning—to IP-based networks.[7] Providers must maintain aging wire centers, source hardware that manufacturers no longer produce, and rely on a shrinking pool of technicians trained to repair copper facilities.[8] A single outage on a copper line can take days to resolve, while fiber disruptions are often restored within hours.[9] These inefficiencies create substantial deadweight loss by diverting capital away from next-generation infrastructure that could better serve consumers.[10]
The transition to fiber-based IP networks also generates significant operational and consumer benefits. Unlike copper, which degrades over distance and depends on energy-intensive repeaters and TDM switches distributed throughout neighborhoods, fiber transmits data as pulses of light over largely passive infrastructure.[11] That architecture lowers operating costs, improves energy efficiency, and reduces reliance on centralized switching facilities and related real-estate costs.[12] Providers that complete the transition can consolidate infrastructure and reinvest savings into broader deployment and higher-quality service.
IP networks also provide materially better functionality than legacy copper systems.[13] Wideband audio produces clearer calls than the narrowband channels supported by traditional copper networks, improving communications quality for consumers who are hard of hearing or communicating across language barriers.[14] IP infrastructure also enables more effective robocall mitigation, which remains one of Americans’ most persistent communications complaints. The STIR/SHAKEN caller-authentication framework relies on encrypted digital signatures to verify caller identity. That framework cannot operate end-to-end when legacy TDM networks remain in the call path.[15] Even a single TDM hop strips authentication data, creating opportunities for bad actors to evade detection and enforcement.
The Commission’s regulatory framework should reflect where the communications marketplace has already moved. Mobile and VoIP services have largely displaced traditional switched-access lines. As of late 2023, roughly 79% of home phone connections relied on VoIP,[16] while 78% of households were wireless-only.[17] Continuing to incentivize carriers to maintain legacy copper infrastructure in order to preserve ICC revenue streams offers little consumer benefit and instead slows the full transition to modern IP-based communications networks.
B. The ICC Framework Distorts Investment Incentives
The remaining ICC framework creates perverse incentives that encourage carriers to maintain legacy TDM infrastructure instead of transitioning to more efficient IP-based networks.[18] Under current rules, local exchange carriers may continue collecting per-minute access charges for certain TDM-based switched voice services,[19] but risk losing those revenue streams if they fully transition to IP infrastructure. As the NPRM recognizes, this disparity effectively shields TDM technology from normal market forces and weakens incentives to invest in modern IP networks and services.[20] So long as carriers can continue generating access-charge revenue from legacy infrastructure, the business case for upgrading remains weaker than it otherwise would be.
Finalizing the transition to bill-and-keep would eliminate those distorted incentives. Under a bill-and-keep framework, carriers recover costs directly from their own customers, rather than through per-minute termination charges imposed on interconnecting providers.[21] In the 2011 USF/ICC Transformation Order, the FCC concluded that bill-and-keep better aligns incentives toward efficiency, investment, and consumer welfare, and identified it as the intended end state for all ICC regulation.[22] Yet the transition remains incomplete nearly 15 years later. Partial implementation has arguably worsened the problem by allowing carriers that retain legacy networks to continue funding reinvestment in aging infrastructure through access-charge revenues, rather than directing capital toward IP deployment.
The Commission should complete the transition to bill-and-keep. Requiring carriers to recover network costs from their own end users would create stronger incentives to compete on price, quality, and efficiency, rather than preserving outdated regulatory arbitrage opportunities. Eliminating ICC subsidies for legacy technology would accelerate the transition to IP networks, reduce the deadweight loss associated with maintaining parallel TDM and IP systems, and ultimately benefit consumers through lower costs and higher-quality service.
III. The FCC Should Phase Out CAF ICC
The NPRM proposes gradually phasing out CAF ICC support over two years following completion of the transition to bill-and-keep.[23] The FCC should adopt that proposal and prioritize winding down the program as quickly as practicable. CAF ICC was originally designed as a temporary transition mechanism, but it has persisted long after the conditions that justified it began to disappear.
Continuing CAF ICC support distorts investment incentives by subsidizing legacy TDM infrastructure and delaying the transition to modern IP-based networks. The program also imposes growing costs on the broader USF system and, ultimately, on consumers who finance it through rising contribution factors. At the same time, developments in wireless, VoIP, and satellite competition have substantially reduced the risk that consumers will lose access to communications services if legacy copper providers exit the market.
Phasing out CAF ICC alongside completion of the bill-and-keep transition would better align regulatory policy with current market realities, reduce unnecessary USF expenditures, and encourage investment in modern communications infrastructure, rather than continued reliance on outdated subsidy mechanisms.
A. CAF ICC Was Intended as a Temporary Transition Mechanism
When the FCC created the CAF ICC support mechanism, it intended the program to serve as a temporary bridge during the transition to bill-and-keep.[24] In the 2011 USF/ICC Transformation Order, the Commission recognized that reducing terminating switched-access charges would reduce ICC revenues for incumbent local exchange carriers, particularly rate-of-return carriers serving rural and high-cost areas.[25] CAF ICC provided those carriers with temporary support to help them adapt their networks and business models during the transition. From the outset, moreover, the Commission made clear that carriers had been “on notice since at least 2011 that the FCC plans to move all intercarrier compensation to bill-and-keep.”[26]
Because the transition to bill-and-keep remains incomplete, CAF ICC has likewise persisted far longer than originally intended. By focusing primarily on terminating access charges in 2011 and failing to establish a firm sunset date for CAF ICC support, the Commission inadvertently transformed a temporary stopgap into something closer to a permanent subsidy. Continued ICC support payments have insulated legacy TDM infrastructure from normal market pressures and may have encouraged some carriers to retain aging copper networks, rather than invest in modern IP-based systems.[27] A mechanism designed to facilitate transition has instead slowed it.
CAF ICC, like the broader ICC regime, also imposes costs on the communications ecosystem more broadly. Phasing out CAF ICC alongside completion of the bill-and-keep transition would restore efficient investment incentives and redirect scarce capital toward the IP infrastructure consumers increasingly demand.
B. Competition Has Undermined the Justification for CAF ICC
The principal concern surrounding elimination of ICC and CAF ICC support is not that some providers may exit the market, but that consumers in high-cost areas could lose service if those providers are the only available option. That concern made sense when incumbent local exchange carriers (LECs) often served as the sole practical provider of voice service. The communications marketplace has changed dramatically since then.
Mobile wireless, fixed VoIP, and low-earth-orbit satellite broadband services now provide consumers with multiple alternatives to legacy copper networks. Broadband Data Collection (BDC) data as of Dec. 31, 2024, indicate that only 0.8% of census tracts lack a competing non-incumbent LEC with at least one facilities-based residential fixed-voice subscriber.[28] Even where wired alternatives remain limited, mobile wireless coverage has become widely available, while satellite services such as Starlink can support over-the-top voice applications.[29] The Commission’s own data likewise show that, as of December 2024, nearly 79% of American adults lived in wireless-only households, while only 0.9% of households remained landline-only.[30] The competitive conditions that originally justified transitional ICC support no longer exist in most markets.
Competition also addresses concerns about affordability in rural and high-cost areas. In competitive markets, providers that raise prices risk losing customers to mobile, VoIP, satellite, or other competing services. Market competition therefore imposes a more effective and dynamic constraint on prices than a continuing subsidy regime tied to legacy infrastructure. As ICLE has previously explained, phasing out CAF ICC alongside completion of the bill-and-keep transition would restore efficient investment incentives and redirect capital toward modern IP infrastructure, rather than preserving a subsidy framework whose original rationale market developments have largely overtaken.[31]
C. Eliminating CAF ICC Would Reduce USF Costs
Eliminating CAF ICC support would not only encourage the transition to all-IP networks, but also reduce the overall cost of the USF by roughly $300 million annually.[32] That reduction would ease the burden on consumers who ultimately finance the program. As the pool of interstate voice revenues subject to USF assessments continues to shrink, the contribution factor must rise to sustain fixed or growing disbursement obligations. The proposed contribution factor for the second quarter of 2026 is 37.0%.[33] Much of the debate surrounding USF reform has focused on changing the contribution mechanism, but reducing the overall size of the fund would likewise relieve pressure on consumers and ratepayers.
CAF ICC meaningfully contributes to this problem. As part of the high-cost program, CAF ICC provides subsidies to legacy carriers to offset declining ICC revenues as access charges phase down. Continuing those payments not only subsidizes delayed network modernization, as discussed above, but also increases the total disbursements the USF contribution system must support.[34] Phasing out CAF ICC would reduce overall USF spending, easing pressure on the shrinking contribution base and, in turn, reducing upward pressure on the rates consumers pay.
The costs of inaction extend beyond the immediate burden on consumers. The steady rise in the contribution factor has intensified calls for comprehensive reform, including bipartisan congressional proposals to expand the contribution base to broadband providers and large edge providers.[35] Those proposals reflect a growing recognition that relying almost entirely on traditional voice revenues to finance the USF is no longer sustainable. Expanding contribution obligations to broadband services, however, would undermine the broader policy goal of promoting access to advanced communications services. A more straightforward and less distortionary solution is to reduce the size of the fund itself, rather than expanding the range of services and providers subject to USF assessments.
Phasing out CAF ICC—and thereby eliminating a legacy subsidy whose original rationale competition has largely eroded—would reduce USF disbursement obligations and ease pressure for broader contribution reform, without imposing new burdens on the broadband networks and services that consumers and the broader economy increasingly rely upon.
IV. Conclusion
The reforms proposed in this NPRM are the necessary completion of a transition the FCC began 15 years ago. The 2011 USF/ICC Transformation Order correctly identified bill-and-keep as the appropriate end state for ICC and treated CAF ICC support as a temporary bridge to ensure consumers did not lose service during that transition. But what was meant to be a bridge has become a barrier.
The remaining ICC framework now distorts investment incentives, encourages continued reliance on legacy TDM and copper infrastructure, and delays the transition to more efficient IP networks. It also imposes unnecessary costs on the USF and on consumers who support it, even as mobile wireless, VoIP, and satellite alternatives have undermined the market conditions that once justified transitional support.
The Commission should adopt the proposed two-year phaseout of CAF ICC support on an expedited basis and complete the transition of remaining access charges to bill-and-keep. Doing so would align regulation with current market realities, reduce unnecessary subsidy costs, and accelerate investment in the modern communications networks consumers increasingly use and demand.
[1] Reforming Legacy Rules for an All-IP Future; Accelerating Network Modernization, 91 Fed. Reg. 14,408 (proposed Mar. 24, 2026), https://www.federalregister.gov/documents/2026/03/24/2026-05727/reforming-legacy-rules-for-an-all-ip-future-accelerating-network-modernization [hereinafter NPRM].
[2] See generally Geoffrey A. Manne, Kristian Stout & Ben Sperry, A Dynamic Analysis of Broadband Competition: What Concentration Numbers Fail to Capture, Int’l Ctr. for L. & Econ. (June 2021), https://laweconcenter.org/wp-content/uploads/2021/06/A-Dynamic-Analysis-of-Broadband-Competition.pdf; Eric Fruits, Geoffrey A. Manne, Ben Sperry & Kristian Stout, Dynamic Competition in Broadband Markets: A 2024 Update, Int’l Ctr. for L. & Econ. (June 4, 2024), https://laweconcenter.org/wp-content/uploads/2024/06/Broadband-Competition-2024-Update.pdf; Comments of the International Center for Law & Economics, The State of Competition in the Communications Marketplace, GN Docket No. 26-78 (May 21, 2026), https://laweconcenter.org/wp-content/uploads/2026/05/Comp-comments.pdf.
[3] Jeffrey Westling, Subsidizing Obsolescence: How FCC Rules Keep Copper Alive, Truth on the Mkt. (Mar. 18, 2026), https://truthonthemarket.com/2026/03/18/subsidizing-obsolescence-how-fcc-rules-keep-copper-alive.
[4] Comments of the International Center for Law & Economics, Advancing IP Interconnection, Accelerating Network Modernization, and Call Authentication Trust Anchor, WC Docket Nos. 25-304, 25-208 & 17-97, at 6-7 (Jan. 20, 2026), https://laweconcenter.org/wp-content/uploads/2026/01/ICLE-Comments-on-Advancing-IP-Interconnection.pdf [hereinafter ICLE IP Interconnection Comments].
[5] Id.
[6] Reducing Barriers to Network Improvements and Service Changes; Accelerating Network Modernization, Report and Order, WC Docket Nos. 25-209 & 25-208, FCC 26-19 (Mar. 27, 2026), https://docs.fcc.gov/public/attachments/FCC-26-19A1.pdf [hereinafter FCC Network Modernization Order].
[7] Eric Fruits & Brian Albrecht, Paying to Stand Still: Legacy Copper Mandates in a Fiber World, Int’l Ctr. for L. & Econ. (Feb. 27, 2026), https://laweconcenter.org/wp-content/uploads/2026/02/Copper-Retirement-Economics-v2-2026.pdf; Comments of the International Center for Law & Economics, Reducing Barriers to Network Improvements and Service Changes; Accelerating Network Modernization, WC Docket Nos. 25-209 & 25-208 (Aug. 22, 2025), https://laweconcenter.org/wp-content/uploads/2025/08/Comments-on-Copper-Retirement.pdf [hereinafter ICLE Copper Discontinuation Comments].
[8] Id. at 5.
[9] Id.
[10] ICLE IP Interconnection Comments, supra note 4, at 3-5.
[11] Id. at 4.
[12] ICLE Copper Discontinuation Comments, supra note 7, at 5.
[13] ICLE IP Interconnection Comments, supra note 4, at 5-6.
[14] Id. at 5.
[15] Id. at 5-6.
[16] Technology Transitions, Fed. Commc’ns Comm’n, https://www.fcc.gov/tech-transitions (last visited May 21, 2026).
[17] Stephen J. Blumberg & Julian v. Luke, Wireless Substitution: Early Release of Estimates from the National Health Interview Survey, July-December 2024, Nat’l Ctr. for Health Stats., Nat’l Health Interview Survey Early Release Program (June 2025), https://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless202506.pdf.
[18] ICLE IP Interconnection Comments, supra note 4, at 6-7.
[19] NPRM, supra note 1, ¶ 26.
[20] Id. ¶ 19.
[21] Id. ¶ 22.
[22] Connect America Fund et al., Report and Order & Further Notice of Proposed Rulemaking, WC Docket No. 10-90 et al., FCC 11-161, 26 FCC Rcd. 17,663, ¶¶ 742-43 (Nov. 18, 2011), https://docs.fcc.gov/public/attachments/FCC-11-161A1.pdf.
[23] NPRM, supra note 1, ¶ 111.
[24] Id. ¶ 112.
[25] Id.
[26] Access Charge Reform, Report and Order, WC Docket No. 18-155, FCC 20-143, 35 FCC Rcd. 14,099, 14,116 ¶ 50 (Oct. 28, 2020), https://docs.fcc.gov/public/attachments/FCC-20-143A1_Rcd.pdf.
[27] ICLE IP Interconnection Comments, supra note 4, at 6-7.
[28] NPRM, supra note 1, ¶ 12.
[29] See Fruits & Albrecht, supra note 7.
[30] Id.
[31] ICLE IP Interconnection Comments, supra note 4, at 6-7.
[32] NPRM, supra note 1, ¶ 116.
[33] Proposed Second Quarter 2026 Universal Service Contribution Factor, Public Notice, CC Docket No. 96-45, DA 26-218 (Mar. 16, 2026), https://docs.fcc.gov/public/attachments/DA-26-218A1.pdf.
[34] Westling, supra note 3.
[35] Sen. Ben Ray Luján, Press Release, Luján, Fischer Announce Bipartisan, Bicameral Universal Service Fund Working Group (June 12, 2025), https://www.lujan.senate.gov/newsroom/press-releases/lujan-fischer-announce-bipartisan-bicameral-universal-service-fund-working-group.