Subsidizing Obsolescence: How FCC Rules Keep Copper Alive
The Federal Communications Commission (FCC) is close to finishing a long-running transition away from legacy telecom regulation—but outdated rules still pay carriers to stay in the past. Last month, the FCC adopted a notice of proposed rulemaking (NPRM) to eliminate payments to legacy telecommunications carriers that have not upgraded to networks based on internet protocols (IP). The proposal forms part of a broader effort to retire copper networks that rely on costly, outdated time-division multiplexing (TDM) switching and to accelerate the transition to IP-based fiber networks.
As International Center for Law & Economics (ICLE) scholars explained in comments to the FCC in a separate proceeding, intercarrier compensation (ICC) rules still on the books for some rate-of-return regulated carriers—particularly rural and competitive local exchange carriers (LECs)—create perverse incentives. These rules encourage legacy carriers to maintain copper networks to generate revenue from ICC fees.
The FCC should complete ICC reform by fully transitioning to a bill-and-keep model. Under this approach, carriers recover service costs from their own customers, rather than extracting call termination and origination fees from interconnecting carriers. This shift would eliminate remaining arbitrage schemes in which legacy carriers partner with high-traffic callers to stimulate access charges, imposing additional costs on carriers that have already transitioned to IP-based networks.
The agency should also phase out Universal Service Fund (USF) distributions to legacy carriers that rely on subsidies to offset lost ICC revenue. Doing so would reduce strain on the USF and help address concerns about rising contribution fees.