ILEC Recovery Mechanisms. To partially compensate ILECs for the reduced revenues they will collect under the new system, the Order permits ILECs to impose a monthly “Access Recovery Charge” (ARC) on wireline telephone service end users. If the ARC does not recover all eligible revenues, the ILEC may also seek support from the CAF. This mechanism permits ILECs to recover much, but not all, of their lost intercarrier compensation revenues. It justifies the partial recovery on the ground that ILECs might be subject to significant revenue shortfalls as demand for traditional landline telephone service declines, which could interfere with their efforts to modernize their networks. The Order refers to the recovery mechanism as “transitional,” but—while it will decline—it will not be phased out entirely unless the FCC takes additional action in response to the Further Notice.

The Order does not establish any recovery method for CLECs, because CLECs are already free to raise end user rates without restriction. This does not appear entirely logical, in that CLECs will be competing against ILECs with ongoing subsidies for their end user rates. Since CLECs will not normally be able to increase rates above ILEC levels, the availability of CAF funding for ILECs but not CLECs appears to continue the tilt of the competitive playing field in ILECs’ favor with respect to subsidized local services.