A federal court ruled against Northern Valley Communications, a rural CLEC, in its appeal of an FCC order that prevented the South Dakota-based telco from charging access fees to long-distance carriers in a practice known as access stimulation or "traffic pumping."
The ruling could spell the end of the practice. While technically legal in South Dakota, traffic pumping raised concerns at the FCC, because rather than simply charging for long-distance calls handled by local telcos, those telcos often turned it into a profitable enterprise by teaming with high-volume call businesses--such as the once-ubiquitous adult chat services, or free conferencing services--to rack up greater-than-normal access charges billed to the major carriers.
"As a result of an access stimulation scheme, the long distance companies are forced to recover the inflated access costs from all of their customers, even though many of them do not use the services that caused the stimulation in demand," the FCC said on its traffic pumping information page.
FCC regulators stated in 2011 that "The local company's profits from such an arrangement are typically so great that its charges become unreasonable and unlawful under FCC regulations."
Further, the FCC had stated that conference calling services and other high-volume businesses were not "end users" that needed rural carriers to enable the calls. The federal appeals court agreed with the FCC in its decision, according to an Argus Leader article.
Northern Valley downplayed the decision. CEO James Groft told the Leader that the CLEC has been operating in accordance with the FCC ruling for the past three years, and that losing the appeal won't affect its business.
The traffic pumping controversy came to a head in 2009 as major telcos like Verizon (NYSE: VZ) and AT&T (NYSE:T), wrapped up in lawsuits with several rural telcos over call billing, petitioned the FCC to look at the practice. Missouri and Iowa tackled the problem of access fees by introducing bills to reduce charges, but traffic pumping remains legal in South Dakota.
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