ENSURING THE EFFICIENT ALLOCATION OF TOLL FREE

NUMBERS

A market-based approach

LESLIE SELZER

COMMON CARRIER BUREAU

FEBRUARY 26, 2001

WHAT ARE THE PROBLEMS?

• Commission rules require toll free numbers to be assigned on a first come/first serve (FCFS) basis.– Some RespOrgs fail to return TF numbers to the

spare pool after the subscriber (sub) has terminated service. Numbers are directly transferred to a new sub.

– Some subs and RespOrgs unlawfully buy/sell TF numbers.

– Others follow the rules. No level playing field.

WHAT ARE THE PROBLEMS? (cont’d)

• TF numbers are inadvertently disconnected.– Some of these numbers are re-connected.– Others are assigned to different subs.

WHY DO THESE PROBLEMS PERSIST?

• Two visions of TF numbering resources currently co-exist: Regulatory and Market. Conflict results.– REGULATORY - Numbers are public resources

that cannot be bought, sold, or transferred. Detailed regulation/enforcement required.

– MARKET- Many subs/RespOrgs provide services that effectively result in numbers being (unlawfully) bought/sold, leased, or transferred.

SOURCES OF CONFLICT

• ASSIGNMENTS - Rules require strict application of FCFS. This may prevent numbers from moving to highest and best use. Conflicts with business practice.

• SECURITY - Subs have no property rights (PR) to assigned numbers. This limits subs’ ability to protect their numbers from reassignment if disconnected. Lack of PR harms subs and results in requests for tougher enforcement.

SOLUTIONS TO CONFLICT

• ENFORCE EXISTING RULES OR ADD ADDITIONAL RULES - December 2000 disconnect and suspend letter focuses on enforcing FCFS.

• MIXED MARKET - Primary market assignment based on FCFS. Permit brokering in secondary market. Define PR.

• PURE MARKET - Permit market to allocate in both primary and secondary markets. Define PR.

BENEFITS OF MARKET-BASED APPROACH

• Numbers are transferred to subs with highest and best use.

• Brokering in secondary market could enhance value of numbers to RespOrgs and subs. For example, could promote greater use of shared vanity numbers.

• Defining subs’ property right would protect against unauthorized disconnects and transfers. Enhance value of numbers.

BENEFITS OF MARKET-BASED APPROACH (cont’d)

• Could reduce incentive to hold numbers. Recognizing the opportunity cost of numbers encourages number holders to dispose of unused numbers. Incentive is to convert numbers into cash by selling them.

• Legalizing market would level playing field. All could participate in market, not just those willing to break the rules.

BENEFITS OF MARKET-BASED APPROACH (cont’d)

• Consistent with pro-market, deregulatory philosophy of Commission/Congress.

• Reduces costs and burdens on RespOrgs, government, and subs.

IMPLEMENTATION ISSUES

• PRIMARY MARKET - May require congressional approval.

• SECONDARY MARKET - Requires FCC to lift its anti-brokering rules and establish ground rules.

• May reduce the need for detailed regulation and enforcement.

CONCLUSION

• A market-based allocation scheme will promote highest and best use of TF numbers.

• Implementing a mixed market allocation approach may be feasible in a reasonable period of time.

• Implementing a full market allocation approach may be more difficult to implement and would likely take longer.

• A market-based allocation scheme for toll free numbers could reduce need for detailed regulation and enforcement.