Telecom Industry Remains Divided on Access Reform.

Business Editors

CHICAGO--(BUSINESS WIRE)--June 3, 2004

Continued disparity between long-distance companies and the local exchange carriers is making access reform consensus difficult to achieve, according to a report by Fitch Ratings.

One of the most significant and controversial regulatory issue relates to access charges, a.k.a. intercarrier compensation. Long-distance carriers currently pay local exchange companies based on the level of traffic originated or terminated on local exchange networks. Generally Incumbent Local Exchange Carriers (ILECs), and especially rural telecom operators, want a revenue-neutral solution while long-distance players want a total elimination of access payments.

The collapse of the Intercarrier Compensation Forum, created to foster a consensus in the telecom industry over access charges, is evidence of the difficultly in reaching an agreement, the report notes. The widest support is forming around 'bill and keep' solution, whereby industry participants keep all revenues they bill.

Fitch believes that the most likely party to benefit from access reform is the consumer with cost reductions flowing through to the end-user in the form of price competition. Fitch also believes that some level of reform - whether all-inclusive or solely addressing VoIP - will ultimately result in a reduction of access revenues for local exchange carriers. The extent to which the carriers can offset revenue erosion through diversified services will be a key determination of credit profiles.

The report, 'Telecom Access Reform: Widespread Support May be Impossible,' is a supplement to a Fitch Ratings special report titled 'The Potential VoIP Effect on the Local Exchange Carrier Industry,' released May 2004. Both reports can be found www.fitchratings.com.