VIII. Comments on Proposed Decision
The alternate order of Commissioners Neeper and Duque in this matter was mailed to the parties in accordance with Pub. Util. Code Section 311(d) and Rule 77.6 of the Rules and Practice and Procedure. Comments were filed on ______________, and reply comments were filed on ______________.
1. Under Section 251(b)(5) of the Telecommunications Act of 1996 (Act), each carrier has the duty to establish reciprocal compensation arrangements for the transport and termination of only local telecommunications traffic.
1. The question of whether termination of ISP traffic requires the payment of reciprocal compensation charges depends on whether such traffic is defined as local or interstate in accordance with the Act.
2. The movement of data over the Internet in the case of a call to an ISP is a continuation of the transmission of communications over the public switched telephone network.
3. The requirement for reciprocal compensation for call termination in interconnection agreements under the provisions of the Act only applies to local telephone traffic originating and terminating within the same local calling area.
4. Under the 1996 Act, state regulatory commissions currently have the responsibility to determine which calls will be defined as or treated as "local" calls for purposes of making reciprocal compensation applicable to such calls when handled by more than one carrier with binding FCC precedent.
5. The determination of whether a call is local is predicated upon identifying the point at which the call is "terminated" as defined by the Act.
6. Under the Act, "termination" is defined as "the switching of traffic that is subject to Section 251(b)(5) at the terminating carrier's end office switch (or equivalent facility) and delivery of that traffic from that switch to the called party's premises."
7. To the extent an ISP requires telecommunications services for transport of its information service, the ISP does not provide such service, but separately obtains such service from an underlying interexchange carrier.
8. In a Declaratory Ruling released February 26, 1999, the FCC used an "end-to-end" analysis to conclude that calls placed to ISPs are interstate, and thus that reciprocal compensation is not required under the Act for such calls.
9. Since the FCC's Declaratory Ruling, the FCC concluded that advanced services provided to ISPs are exchange access because they enable the end user to communicate with the ultimate destination in another exchange.
10. Consistent with past decisions that concluded calls to the Internet are jurisdictionally interstate, the end-to-end analysis underlying the FCC Declaratory Ruling concluded that the termination point of an ISP call is the location of the web site(s) ultimately accessed by the originating caller, rather than the end office switch serving the modem connection by which the call is delivered to the ISP.
11. Because a call to an ISP may frequently involve accessing multiple web sites or Internet destinations, the single end-to-end analogy derived from descriptions of long distance toll calls is schematically accurate in the context of ISP-bound calls.
12. On March 24, 2000, the D.C. Circuit Court vacated and remanded the Declaratory Ruling on the grounds that the FCC failed to explain why its end-to-end analysis was applicable to determining whether reciprocal compensation was owed for a carrier's termination of a call to an ISP.
13. The record shows that many of the modems connected to CLEC switches are owned not by ISPs but by the CLEC.
14. For ICG, 65% of all of ICG's ISP traffic is routed directly to the Internet bypassing the ISP modem.
15. The record shows that end users do not communicate with a modem, the modem merely changes the protocol of the communication.
16. Under the Act, "telecommunications" is defined as the "transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." (47 USC 153(43).)
17. The Act defines "information services" as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control or operation of a telecommunications system or the management of a telecommunications service." (47 USC 153(20).)
18. As part of the information service provided by the ISP, the ISP converts the customer's analog messages into data packets which are individually routed through its modem to host computer networks located throughout the world.
19. The modem is often owned by the CLEC and is any event only an intermediate point through which telecommunications is transmitted between end users and the Internet.
20. ISPs transport communications initiated by the end user located in one exchange to its ultimate destination in another exchange.
21. A telecommunication sent to an ISP does not terminate at the ISP for the simple reason that it is transmitted from the ISP to subscriber designated destinations on the Internet.
22. Even if the rate centers associated with the telephone number of the end user originating the call and the telephone number used to access the modem lies within a single local calling area, then such call is not a local call because the modem does not belong to the ISP, and the modem is only an intermediate point in the communication.
23. The traffic-sensitive telecommunications network functions that are required for a typical CLEC to terminate ISP traffic are different from the traffic-sensitive functions required to terminate local calls of any other end user of the CLEC.
24. When a CLEC's end-office switches a call bound to the Internet, switching is performed because the end-user calls the ISP modem not as its ultimate destination, but to use the modem as a means to reach the Worldwide Web.
25. CLECs terminating ISP-bound traffic process such traffic through their switch on a high volume, tandem trunk-to-trunk basis rather than a trunk to line basis.
26. No CLEC witness refuted the facts showing that trunk-to-trunk switching is used exclusively to terminate ISP calls.
27. Pac-West's switching is "low cost tandem switching" and in discovery Pac-West admitted it had no line side connections for Types 6 and 8 customers.
28. Although no party provided precise measures of the volume of ISP traffic terminated by particular carriers, it is generally true that CLECs, as a group, terminate much greater volumes of ISP-bound traffic than do the ILECs.
29. Among the CLECs that actively participated in this proceeding, only one serves any residential customers, and that one had only a small number of residential customers served by reselling Pacific's service, which actually leaves Pacific to make any reciprocal compensation payments.
30. The fact that specialized market niches may develop, such as service to ISPs, while not necessarily anti-competitive, in the case of ISP market the record strongly suggests that regulatory loophole in reciprocal compensation provision of the Act combined with unique ISP traffic characteristics have created exploitable conditions.
31. The payment of reciprocal compensation for the termination of ISP traffic establishes incentives to impair competition, to avoid implementing new technologies to serve customers seeking Internet access, or otherwise impair the technological development of the competitive infrastructure in California.
32. The record shows that in states rejecting reciprocal compensation, the cost of Internet did not increase with rejection of reciprocal compensation.
33. There are no facts establishing that without reciprocal compensation there will be fewer competitive options for obtaining local exchange service, that ISPs could become more dependent on ILECs for their service.
34. The payment of reciprocal compensation to CLECs for the termination of ISP traffic may produce significant profit for CLECs that focus on ISPs.
35. The only relevant costs for purposes of evaluating whether reciprocal compensation rates are excessive are traffic-sensitive costs incurred in the transport and switching of terminating traffic.
36. In accordance with the Act, the termination costs of the ILEC are used as a proxy of CLEC termination costs for purposes of reciprocal compensation.
37. CLECs serve ISPs using different terminating facilities than they use for terminating local traffic of other customers.
38. While the ILECs did not precisely measure of the average duration of ISP-bound calls in comparison to voice-related calls, they generally established that ISP-bound calls tend to have a longer duration than voice calls.
39. Because ISP-bound calls have a longer duration than the average of all local calls, reciprocal compensation rates overcompensate CLECs for such calls.
40. Pacific's reciprocal compensation rate separately applies the fixed call set up costs on a per call basis while Verizon's reciprocal compensation rate applies only a single blended rate on a per-minute basis.
41. There is basis to find that ISP calls necessarily experience a higher call completion rate compared with standard calls.
42. There is basis to find that trunk-to-trunk switching is used exclusively to terminate ISP calls, and indirectly can cause cost differentials impact on traffic-sensitive termination costs subject to reciprocal compensation.
43. There is basis to find that alleged differences in line concentration in the termination of ISP traffic compared with standard traffic results in lower traffic-sensitive termination costs subject to reciprocal compensation.
44. There is basis to find that the switches utilized by the CLECs have less complete functionality than do ILEC switches, or that CLEC switches are configured differently because they rarely perform call origination functions.
45. The one-way nature of ISP traffic and certain CLECs' focus on ISPs have led to the establishment of Points of Interconnection by CLECs close to their switches and far from the originating switch, leaving the ILEC with transporting the call long distances.
46. Flat rate residential telephone rates of ILECs do not include charges for reciprocal compensation payments.
47. To the extent that the ILEC may not fully recover reciprocal compensation payments for ISP traffic through residential charges, ILECs currently absorb current liabilities for reciprocal compensation.
48. Even if the ISPs currently served by the CLECs were instead served by the ILECs, the ILECs would still incur costs to terminate such ISP calls on their own facilities.
49. The CLECs do not pass any of the reciprocal compensation payments to ISPs
50. The CLECs provided no evidence that without the extra profits from reciprocal compensation their service to ISPs would not be profitable.
51. There is evidence that CLEC services provided to ISPs is priced above cost, and no contrary evidence was introduced.
52. There is no evidence that it is probable that prices to ISPs would go up without reciprocal compensation.
53. There are no facts establishing that without reciprocal compensation there will be fewer competitive options for obtaining local exchange service, or that ISPs could become more dependent on ILECs for their service.
54. The only evidence in the record shows that in states rejecting reciprocal compensation, Internet access is just as affordable as in California and did not increase with rejection of reciprocal compensation.
55. The ILEC proposed bill-and-keep approach to recover any ISP call termination costs fairly recognizes the effects of FCC's exemption for ISPs from access charges.
56. Bill-and-keep produces results more fair than reciprocal compensation since terminating carriers (either ILEC or CLEC) would incur minimal ISP call termination costs while the originating carrier (either ILEC or CLEC) would incur the greater call origination, transport, and tandem costs.
57. The FCC has recognized that bill-and-keep may be an appropriate substitute for reciprocal compensation where originating and terminating traffic flows are roughly in balance, but ISP traffic is not local.
58. Since ISP traffic flows are not local, the use of bill-and-keep would be consistent with FCC criteria for the use of such an alternative.
59. CLECs record all traffic they terminate by the number called.
60. The evidence shows CLECs know the identity of the ISPs they serve.
61. The evidence shows that ISPs publicize the telephone numbers they make available to their customers for dial up access.
62. The evidence shows CLECs can attain these numbers with minimal effort.
63. The proponents of the bill-and-keep alternative have provided a practical implementation methodology by which ISP-related terminating minutes could be properly identified and excluded from the billing base subject to reciprocal compensation.
64. The use of bill-and-keep would be consistent with the underlying principle of cost causation.
65. The proponents of the bill-and-keep alternative have provided practical implementation methodologies by which ISP-related terminating minutes could be identified and excluded from the billing base subject to reciprocal compensation.
1. This proceeding is not intended to revisit issues of whether ISP traffic is interstate or intrastate for state or federal jurisdictional purposes.
2. This proceeding has been bifurcated, with the first phase limited to consideration of whether the existing Commission policy calling for reciprocal compensation to apply to ISP-bound calls should continue or be replaced with an alternative approach.
3. Issues relating to the propriety of disparate rating and routing points for ISP-related calls (as well as for other categories of calls) is outside the scope of Phase 1 of this proceeding, but has been deferred to a subsequent phase of the proceeding.
4. In accordance with the authority delegated to the states under the Act, this Commission has discretion to determine whether or not ISP-bound traffic should be treated as local traffic subject to reciprocal compensation.
5. ISP-bound traffic does not meet the criteria prescribed under the Act to be treated as local traffic subject to reciprocal compensation on the same basis as for other local traffic.
6. Even though reciprocal compensation is not required for ISP traffic by law under the Act, this Commission still may prescribe that reciprocal compensation be paid for such traffic on the same basis as for other local traffic if warranted by a review of relevant facts.
7. As a preferred outcome in negotiations among carriers, the reciprocal compensation provisions applicable to interconnection agreements should not apply to the termination of calls to ISPs as they do to any other local calls in the manner prescribed under the Act.
8. There is nothing discriminatory in requiring that reciprocal compensation not apply to the ISP termination of calls since the same applies to all carriers.
9. It is not in the public interest to require the ILEC to compensate the CLEC for ISP traffic calls in conformance with the reciprocal compensation provisions of applicable interconnection agreements.
10. It is not inequitable that ILECs incur additional originating transport costs related to CLEC-served ISPs which they can not recover just as CLECs may incur costs in terminating ISP traffic and not recover such costs through reciprocal compensation.
11. Internet communications utilizing dial-up telephone connections is not composed of two discrete functions: (1) a telecommunications service provisioned by a local exchange carrier by which the end user connects to the ISP modem through a local call, and (2) an information service which is provisioned by the ISP either through its own web site or over the Internet.
12. Because of the vast difference in the flow of traffic in one direction, reciprocal compensation for ISP traffic does not treat carriers fairly even though each carrier only pays (and is compensated for) the actual traffic flows that a carrier terminates on behalf of a separate originating carrier.
13. The ISP call-originating carrier bears extra transport and tandem costs.
14. ISP traffic is not local.
15. Reciprocal compensation is not required under the Telecommunications Act.
16. Reciprocal compensation for ISP traffic creates inequitable results and hence is contrary to public policy.
IT IS ORDERED that:
1. The Commission hereby adopts bill-and-keep as a preferred outcome in future interconnection agreements applicable to traffic bound to Internet Service Providers.
2. The ALJ is directed to promptly issue a ruling directing parties to file comments concerning the scope and disposition of any remaining issues that may require resolution in this rulemaking.
This order is effective today.
Dated __________________, at San Francisco, California.
