Discussion

The majority of Telscape calls terminated by Pac-West are calls to dial-up Internet Service Providers (ISPs) from customers residing outside the local calling areas in which the ISPs are located. For routing purposes, these are interexchange calls but because the ISPs' access numbers are in the customers' local calling areas, the calls are otherwise treated as local calls, i.e., the customers do not incur any toll charges in connection with the calls. These are so-called "virtual NXX" (VNXX) calls. The parties agree that 84% of the traffic at issue in this case is VNXX traffic.¹

Telscape does not dispute the factual accuracy of the Pac-West invoices. Instead, Telscape argues that it is not obligated to pay the invoices because:

1. The Commission lacks jurisdiction to hear this case. According to Telscape, it is a "collection action" that seeks "damages" from Telscape. Accordingly, it has to be brought in Superior Court rather than before the Commission.

2. The Federal Communications Commission has exempted calls to ISPs from state regulation.

3. Pac-West's local tariff does not apply to ISP-bound calls.

4. Pac-West's local tariff does not apply to VNXX calls.

5. A two-year federal statute of limitations applies to the Pac-West claims rather than the three-year state statute relied on by Pac-West.

For the reasons set out below, we reject each of these arguments.

A. Commission Jurisdiction to Hear the Case

Telscape characterizes this case as a collection action no different from an action by a utility against a customer for failure to pay a local phone bill. In support of this position, Telscape cites a series of cases in which the Commission declined to hear billing disputes between utilities and their customers. All the Commission cases cited by Telscape deal either with a customer that seeks reparations from a utility under Sections 734, 735 and 736 of the Public Utilities Code² or a customer that seeks damages beyond the reparations allowed by those Code sections.³ This case is different. It involves a dispute between two utilities about the correct application of a tariff and related questions of state and federal law. These are issues squarely within our jurisdiction.

In support of its argument that we lack jurisdiction to hear this case, Telscape further alleges that Pac-West is seeking damages and that we have no statutory authority to award damages. But that argument mischaracterizes the case. Pac-West is seeking a decision that it is entitled to payment for call termination services under its local tariff and an order directing Telscape to make such payment. Under Section 701 of the Public Utilities Code, we have broad regulatory power over public utilities in this state including the power to "do all things...which are necessary and convenient in the exercise of such power and jurisdiction." We conclude that a decision interpreting Pac-West's local tariff and an order directing that Telscape make payments in accordance with terms of the tariff are among those "necessary and convenient" things.

Indeed, to concede that we lack power to enforce our own orders would be to abandon our basic duty under the Constitution of the State of California and the Public Utilities Code to ensure that regulated utilities in this state charge "just and reasonable" rates and otherwise carry out the obligations imposed on them by our laws.

B. Federal Pre-emption of ISP-bound Calls

We have considered the federal pre-emption arguments advanced by Telscape in a series of other cases in recent months. In each case, we have concluded that the Federal Communications Commission has not exempted ISP-bound traffic exchanged between CLECs from state regulation.⁴ In D.06-06-055, Pac-West Telecomm, Inc. v. AT&T Communications of California, Inc. et al., (Pac-West v. AT&T), whose facts closely resemble the facts in this case, we specifically considered the situation in which two CLECs exchange traffic some of which is ISP-bound. AT&T in that case asserted that the Federal Communications Commission's so-called "ISP Remand Order"⁵ pre-empted state tariffs and established a federally mandated bill-and-keep regime for all ISP-bound traffic. We concluded to the contrary that

"AT&T cannot rely on ¶ 81 of the ISP Remand Order as a justification for insisting that the ISP-bound traffic it exchanges with Pac-West must be handled on a bill-and-keep basis, because we agree with Pac-West that only ILECs that have made the mirroring offer described in ¶ 89 of the Remand Order are free to invoke the bill-and-keep arrangements set forth in ¶ 81. As a CLEC, AT&T cannot make a mirroring offer, and so cannot invoke ¶ 81."⁶

Having decided that Federal law does not mandate a bill-and-keep arrangement for ISP-bound traffic exchanged between CLECs, we further found that application of a local tariff to fix rates for call termination was appropriate:

"We also conclude that Pac-West's intrastate tariff is the appropriate source to look to for the compensation that AT&T must pay Pac-West for terminating ISP-bound calls."⁷

The facts in this case differ immaterially from the facts in Pac-West v. AT&T, and accordingly we conclude here, as we concluded there, that (1) the ISP Remand Order does not pre-empt state jurisdiction over CLEC-to-CLEC ISP-bound traffic and (2) the terminating carrier's intrastate tariff sets the compensation that the originating carrier must pay to the terminating carrier.

C. Application of the Local Tariff to ISP-bound Calls

Telscape argues that Pac-West has applied the wrong section of its tariff to most of the calls in dispute. Pac-West's claim for compensation is based on Section 12.1.2 of its tariff Schedule Cal. CLC 1-T, relating to the completion of local calls and intra-LATA calls.⁸ According to Telscape, any call to an Internet Service Provider is a non-local call that is subject instead to Section 13.1 of the Pac-West tariff. The pertinent part of Section 13.1 reads as follows:

"If the Commission decides that traffic to Internet Service Providers (ISPs) is non-local, then Non-Local ISP (NOLISP) Switched Access will apply to such traffic. NOLISP traffic is traffic to an ISP where the originating and terminating numbers are assigned to rate centers in the same local calling area. When NOLISP traffic is completed over Local Interconnection Trunks, the terms, conditions, and reciprocal compensation methods and rates will be specified in the Companies' Interconnection Agreement. When NOLISP traffic is completed over FG-D trunks, the terms, conditions and access rates that apply to other interexchange calls will apply." [Emphasis supplied.]

The fundamental problem with Telscape's argument that Section 13.1 should be applied to the ISP-bound portion of the calls terminated by Pac-West is that we have never found that ISP-bound traffic is non-local. Since we have never made the finding that triggers the application of Section 13.1, it is irrelevant to this case.

D. Application of the Local Tariff to VNXX Calls

Telscape argues that whether or not Section 13.1 of the Pac-West tariff applies to them, VNXX calls are categorically exempt from Section 12.1.2 because they are not local calls. While it is true that VNXX calls originate and terminate in different rate centers, for regulatory purposes we have treated such calls as local for rating purposes since our so-called "VNXX decision" in 1999.⁹ This practice of treating VNXX calls as local calls for rating purposes was recently affirmed by the 9^th Circuit in Verizon Cal., Inc. v. Peevey, 462 F.3d 1142 at 1155:

"[I]n the CPUC's view, reciprocal compensation turns on whether a call is local, and determining whether a call is local based on the NPA-NXXs of the calling and called parties, not the routing of the call, is consistent with the CPUC's traditional call-rating regime, industry-wide practice, and recognition of essential differences between the parties' network architectures."

In reaching this conclusion, the 9^th Circuit specifically recognized that "VNXX numbers are often assigned to ISP customers by CLECs thus allowing the ISP to serve Internet users outside the ISP's local calling area without subjecting such users to toll charges."¹⁰ We conclude that Pac-West appropriately applied Section 12.1.2 of its tariff to the VNXX calls originated by Telscape customers.

E. Applicable Statute of Limitations

Telscape argues that the two-year federal statute of limitations contained in the Federal Communications Act¹¹ applies to this action rather than the three-year state statute. The basis for this argument is that the calls in question are "jurisdictionally interstate" and therefore subject to the federal limitations period. This argument substantially depends on Telescape's second argument, above, that the FCC has exempted ISP-bound calls exchanged between CLECs from state regulation. Because we rejected the exemption argument, there is no basis for concluding that the federal limitations period should apply. Accordingly, the three-year limitation period under California law applies.

¹ Telscape Exhibit 3 (Compton Reply Testimony), pp. 1-3; Pac-West Exhibit C (Sprague Reply Testimony), p. 1. Although the parties agree on the percentage of VNXX traffic, the record does not establish what portion of that traffic went to ISPs. However, it appears from the testimony that most, if not all, of the VNXX traffic was also ISP-bound traffic and vice-versa.

² Section 734 deals with the situation where the Commission has found that a utility has overcharged its customers and directs the utility to refund the excess charges. Section 735 gives the customers the right to sue the utility in the Superior Court in the event the utility disobeys the Commission's refund order. Section 736 establishes a three-year statute of limitations for such complaints.

³ Garcia v. PT&T Co. (1980) 3 CPUC2d 534 rejects a customer's attempt to rescind a Yellow Pages contract and recover "consequential" damages beyond the reparations he may seek under the P. U. Code. Marie Quan Mak (Quan Back Lean) v. PT&T Co. (1971) 72 CPUC 735 rejects a customer's claim for damages for alleged tortuous conduct by a utility. National Communications Center Corp. v. PT&T Co. (1979) 2 CPUC2d 533 disallowed a set-off claim by a utility for overdue Yellow Pages bills against a customer's award for reparations for a utility's overbilling.

⁴ See e.g., D.07-09-050, Cox California Telecom, LLC vs. Global NAPS California, Inc.(2007) where we suspended the license of Global NAPS until it paid nearly a million dollar in termination fees owed to Cox. Although these fees were incurred pursuant to the terms of an interconnection agreement as opposed to the application of a tariff, the federal pre-emption argument we rejected was essentially identical to the argument raised by Telscape in this case.

⁵ Order on Remand and Report and Order, CC Docket Nos. 96-98 and 99-68 (FCC 01-131), released April 27, 2001, 16 FCC Rcd 9151.

⁶ D.06-06-055 at 23.

⁷ Ibid.

⁸ Section 12.1.2 provides, in pertinent part: The Company will complete local calls and intraLATA calls, as defined by the distance between the rate centers associated with the calling and called parties' telephone numbers, for incumbent local exchange carriers and competitive local exchange carriers with which the company has direct of indirect interconnections. The terms, conditions and compensation methods for handling such calls will be negotiated on a case-by-case basis; provided that, where no agreement is in place for the completion of such calls, the rates provided in the Tariff, following, shall be charged to originating carrier for calls terminated by the Company of for which the Company provides transit (tandem switching) service.

The termination rate established pursuant to Section 12.1.2 is a fixed charge of $0.002 per call plus $0.001 per minute of use.

⁹ In re Competition for Local Exchange Service, D.99-09-029 (September 2, 1999).

¹⁰ Id. at 1148.

¹¹ 47 U.S.C. § 415.