Rate band buy down options help members stay competitive
Over the past few years, we have introduced tools to give members more flexibility to keep rates competitive in their markets. Rate banding, which was applied to special access rates starting in 2006, allows us to set a company’s rates closer to its costs.
Rate band buy down takes rate banding one step further
Recently, we introduced rate band buy down agreements as an option for companies to address competitive situations with lower rates. In a standard RBBD agreement:
- A participant must select a special access rate band lower than the one we assign in the annual access tariff filing.
- The company can choose to buy down the rate bands for DSL voice-data, non-ETS special access or ETS, provided its revenue at the lower rate band is sufficient to cover its direct costs.
- The revenue difference – the buy-down adjustment – is the amount reported to the pool, along with revenue billed at the lower rate.
A company can use the standard RBBD agreement to stay competitive or to maintain a similar rate from one test period to the next, even if cost projections for the company would have it assigned a higher rate for the new test period.
The RBBD-TP (test period) was introduced in the 2015-2016 test period. This type of agreement addresses situations where a company believes it will contribute significantly more to the pool than our projections. Because a test period involves two cost study years, the RBBD-TP results are evaluated in six-month segments.
The RBBD-TP agreement differs slightly from the standard RBBD agreement. Although a buy-down adjustment still exists, the company:
- will not be liable for the buy-down adjustment if its revenue and cost forecasts turn out to be on target with the company’s projections after cost studies are validated;
- will qualify for a partial credit of the buy-down adjustment if the cost and revenue results differ from the forecast and its actual contribution (or net balance) is larger than the one we projected; and
- during the test period, is not required to report the buy-down adjustment provided the costs reported to the pool are no higher than the ones specified in the agreement.
This RBBD-TP option may be beneficial if your company is confident in its forecasts because it will allow you to bill your customers lower rates with the possibility of little or no buy-down adjustment.
Agreement rates can go into effect with the annual tariff filing
Over the past three test periods, 52 RBBD-TP and seven standard agreements were in place. Most agreements were executed at the time of the annual tariff filing. For the upcoming 2018 annual tariff filing, we will identify candidates for RBBD-TP agreements by mid-May. Member service managers will reach out to the candidate companies to solicit interest in pursuing an agreement. If so, they will develop illustrative scenarios showing RBBD-TP results at different levels of cost and revenue misses, helping companies select the appropriate services and rate bands for the agreement.
The standard and test period RBBD agreements are useful tools members can use to offer competitive special access rates to their customers. Your member service manager is happy to answer your questions and work with you on an agreement that best suits your needs.