4. Parties' Positions

a. SureWest's Position:

SureWest asserts that Pac-West should be responsible for a portion of the cost of facilities between SureWest's Central Offices (COs) and their respective POIs with Pac-West's network because Pac-West relies upon these CO to POI facilities to furnish its VNXX¹ service offering which provides Pac-West's customers a region-wide toll-free in-bound service.

According to SureWest, the FCC acknowledges that business plans of the variety that Pac-West has undertaken are rife with arbitrage opportunities. SureWest states that the equitable outcome is to reduce what it terms Pac-West's arbitrage scheme by maintaining in place the arrangement under the existing Interconnection Agreement (ICA) whereby Pac-West pays 50% of the cost of the facilities from SureWest's COs to their respective POIs, instead of requiring SureWest to bear the entire brunt of costs for those facilities which Pac-West relies upon to provision its special service offering.

SureWest states that Pac-West's service offerings generate tremendous volumes of one-way traffic. Pac-West acknowledges that the substantial focus of its "...business is on the provision of call completion services for Internet service providers..."² For ten months in 2004, approximately 387,000,000 minutes originated on SureWest's network and terminated to Pac-West. In that same period, SureWest compensated Pac-West almost $270,000 in reciprocal compensation fees.³

Sure-West indicates that Pac-West's service area map under Attachment A to the Whitmore Testimony shows that Pac-West operates three traffic gathering points in California, designated "SuperPOPs." Those SuperPOPs are located in Stockton, Oakland and Los Angeles. For calls originating in Sure-West's service area, the Pac-West service area map shows that Pac-West transports those calls to Stockton, which is in the LATA to the south of the LATA in which SureWest's service area is located. From the Stockton SuperPOP, the routing of the call depends upon the location of Pac-West's customer. Whitmore confirmed that two of the "local" access telephone numbers operated by ISPWest in the 916 area code are in fact Pac-West VNXX numbers that are rated as local calls for SureWest subscribers. Accordingly, a SureWest subscriber can access a locally-rated dial-up number and have the call travel all the way to Los Angeles before it hits the Internet Service Provider's (ISP's) modem bank.

According to Sure-West, requiring Pac-West to bear a portion of the cost of facilities on SureWest's side of the POI is consistent with Commission precedent. In D.99-09-029, the Commission affirmed that the VNXX arrangement used by Pac-West is permissible. That decision, however states that "incumbents are entitled to fair compensation for the use of their facilities in the transport and termination of foreign exchange traffic."

Sure-West also points to D.03-05-031 in the SBC/Pac-West arbitration proceeding, in which the Commission notes that it would "...refrain from creating an incentive that distorts marketplace investments by requiring incumbents to either subsidize its competitors or shift costs to local exchange customers for inter-exchange traffic that is destined beyond the origination rate center."

b. Pac-West's Position

According to Pac-West, the fact that some of Pac-West's ISP customers are physically located outside of the LATA is irrelevant. In responding to Pac-West's petition for arbitration, SureWest suggests that the fact that Pac-West provides its VNXX service to ISP customers who are located outside of the Sacramento LATA, where SureWest is located, somehow bolsters its entitlement to receive compensation for the facilities it uses to deliver VNXX calls to the local POIs. However, Pac-West asserts that the location of its customers is plainly irrelevant.

Pac-West states that the rationale underlying the compensation principles adopted in D.99-09-029 applies equally whether the called party is physically located in the same LATA, another LATA, or another state. SureWest incurs no more, and no less, cost in any of those cases so long as Pac-West is responsible for the cost of the facilities used to transport calls outside the SureWest local calling area. In no instance is SureWest incurring uncompensated costs. And Pac-West and its customers are bearing 100% of the cost of transporting VNXX calls from the calling parties' local rate centers to the distant point of termination. Therefore, the additional compensation that SureWest is seeking would constitute a windfall.

Pac-West also states that under its tariff for VNXX service, Pac-West is responsible for delivering calls only to the Point of Presence (POP) within the LATA within which a call originates. The customer is then responsible for carrying the call beyond the POP to the customer's location, whether it is at a Pac-West SuperPOP or elsewhere. The customer can obtain the necessary service from another carrier or have calls transported to Pac-West' SuperPOP using service purchased under tariff from Pac-West, which most customers do. Consequently, it is not correct, technically, that Pac-West's VNXX service is an interLATA service.