FCC proposes new rules to prevent access stimulation

Fraudsters have found another way to game the intercarrier compensation system. In response, the FCC has just proposed new rules to combat this access arbitrage scheme. Here’s how it works.

Current access stimulation rules

The FCC adopted an Access Stimulation Order September 2019. This order made access stimulating LECs bear financial responsibility for the rates charged to terminate traffic to their end office or functional equivalent.

Before this rule change, access stimulating LECs would set high access and termination rates to be paid by upstream Interexchange Carriers (IXCs). Fraudsters would break into PBXs and pump traffic to phone numbers served by the access stimulating LEC. The fraudsters and access stimulating LECs would split the proceeds paid by the IXCs. (We described this scheme in an article on an FCC proposal to curb domestic telecom fraud.

So, that’s it then? No more domestic traffic pumping fraud after the Access Stimulation Order?

Well, not exactly. Fraudsters and access stimulating LECs found another way.

A new loophole

The new tactic is simple: insert an IPES provider in the call path to terminate the call. Under the current rules, an IPES provider is not a LEC and therefore is not subject to the access stimulation rules. (We described this scheme in a recent article, The evolution of access arbitrage schemes.) Here’s how it works:

  1. Upon receiving numbering authority, the IPES provider designates in the LERG a local interconnection partner, i.e., the Hosting LEC.
  2. The IPES provider makes other arrangements for direct connections of inbound and outbound traffic. These arrangements do not go through the Hosting LEC.
Access Arbitrage with a LEC and IPES Provider

Figure 1. Access Arbitrage with a LEC and IPES Provider

In their FNPRM, the Commission cites an ex parte letter from USTelecom, which explains that:

Some IPES Providers claim that the Access Stimulation Rules do not apply to traffic terminating to “IPES numbers,” and therefore the IPES Providers are not responsible for the costs of tandem switching and transport, “regardless that their traffic patterns qualify as access stimulation under the Commission’s rules.”

The proposed remedy

The proposed rules would treat IPES providers the same as LECs for the access stimulation rules. Specifically:

  1. IPES providers would calculate their traffic ratios, as LECs do under the current rules.
  2. If their traffic ratios qualify as access stimulation, then an IPES provider would be responsible for notifying the Commission and affected carriers, just as LECs do under the current rules.
  3. Once notified, Intermediate Access Providers would be prohibited from billing upstream providers for its tariffed access or transport charges to the IPES provider. Instead, it could recover the costs from the IPES provider or the IPES provider’s LEC partner.

Would this work? Yes, it would close this loophole. Seems like we’re playing whack-a-mole, though, doesn’t it?

magnifying glass and cash

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