6. Federal Precedent and FCC Rules

Pac-West contends that recent federal decisions preclude the compensation that SureWest is requesting. The first decision cited by Pac-West is the Virginia Arbitration Order,⁹ in which the FCC's Wireline Competition Bureau, acting in the shoes of the Virginia Commission, conducted the arbitration. The Virginia Arbitration Order and the three court cases all rely, at least in part, on FCC Rule 51.703(b) in making their determinations. That rule reads as follows:

A LEC may not assess charges on any other telecommunications carrier for telecommunications traffic that originates on the LEC's network. (Section 51.703(b))

The Virginia Arbitration Order cites § 51.703(b) and asserts, "under these rules, to the extent an incumbent LEC delivers to the point of interconnection its own originating traffic that is subject to reciprocal compensation, the incumbent LEC is required to bear financial responsibility for that traffic." At issue in the arbitration was the right of the CLEC to request to interconnect at a single POI per LATA.

While this Commission refused to defer to the holdings of that order because it was not a decision of the FCC itself,¹⁰ a subsequent decision of the Federal Court of Appeals for the Fourth District addresses that specific point:

When a federal agency delegates its decision-making authority to a subdivision and Congress has expressly permitted such delegation by statute, the decision of the subdivision is entitled to the same degree of deference as if it were made by the agency itself.¹¹

With the 4th Circuit's determination in mind, we will take the Virginia Arbitration Decision into account in resolving this issue. However, SureWest states, and we agree, that the Virginia Arbitration Decision is not on point because it addresses per minute compensation for VNXX traffic rather than paying for the facilities used to transport that traffic.

SureWest asserts that the three federal court cases PacWest cites all pertain to the reasonableness of a charge for transporting traffic, rather than for a payment for facilities. SureWest concludes that the cases are not on point.

First, in the MCIMetro Access Trans. Service v. BellSouth Tele. case cited above, the court considered whether BellSouth can charge MCI for the cost of transporting local calls originating on BellSouth's network to MCI's chosen POI, when that POI happens to be outside of the local calling area where the call originated. The court noted that BellSouth proposed to resolve this perceived inequity by requiring MCI to pay it the incremental cost of transporting traffic destined for MCI's network from the relevant local calling area to the POI. The court attacks this cost-shifting by concluding:

In sum, we are left with an unambiguous rule, the legality of which is unchallenged, that prohibits the charge that BellSouth seeks to impose. Rule 703(b) is unequivocal in prohibiting LECs from levying charges for traffic originating on their own networks, and, by its own terms, admits of no exceptions.

This case is not strictly on point for two reasons: one, the POIs in the instant arbitration are within SureWest's local calling area; and, as SureWest asserts, the case deals with a charge for transporting traffic rather than a charge for facilities.

The second case PacWest cites is Southwestern Bell v. PUC. In that case the ILEC sought review of the Texas PUC's decision that interconnection rates to be paid by the CLEC should recover additional costs incurred by the ILEC in transporting calls to CLECs' designated POI should be cost-based. The district court determined that the transport costs imposed on AT&T by the PUC were charges related to reciprocal compensation under § 51.703(b), rather than interconnection terms under § 251(c)(2), and therefore, in violation of FCC regulations. The Court determined that the district court properly determined that the transport costs imposed on AT&T by Southwestern Bell are governed by the FCC's "reciprocal compensation" rules pursuant to § 51.703(b). Again, we agree with SureWest that this case is not on point because it deals with transporting of calls to the POI.

The third case involves Mountain Communications, Inc. (Mountain). The D.C. Circuit determined that the FCC's decision allowing Qwest Communications International, Inc. (Qwest) to charge Mountain, a commercial mobile radio service (CMRS) carrier, for the facilities used to provide "wide area calling" was arbitrary and capricious. The D.C. Circuit cited the two cases referenced above in making its decision, holding that § 51.703(b) "unequivocal[ly] prohibit[s] LECs from levying charges for traffic originating on their own networks, and, by its own terms, admits of no exceptions."¹²

We agree with SureWest's conclusion that these cases are not on point; they all deal with the location of POIs and a per-minute charge for carrying traffic.

Both SureWest and Pac-West reference D.03-12-020, the Commission's order denying rehearing of D.03-05-031, the decision approving the ICA between Pac-West and Pacific. In that decision, the Commission reiterated its position that VNXX traffic is interexchange traffic, by nature of its termination outside of the originating calling area, not subject to the FCC's reciprocal compensation rules, even though it is rated as a local call to the calling party. Pac-West disagrees with the Commission's rationale that VNXX traffic is outside the scope of the FCC's rules. We do not need to address this issue further, since this case does not involve per-minute compensation for the transport of VNXX traffic.

Pac-West asserts that FCC rules expressly prohibit SureWest from charging Pac-West for the cost of interconnection facilities on SureWest's side of the POI, except to the extent that such charges are proportionate to the relative level of traffic that originates on Pac-West's network, as opposed to originating on SureWest's network. Pac-West states that in this case, the amount of traffic that originates on Pac-West's network and terminates on SureWest's network is de minimis.

Pac-West points to 47 CFR § 51.709(b) which provides:

The rate of a carrier providing transmission facilities dedicated to the transmission of traffic between two carriers' networks shall recover only the costs of the proportion of that trunk capacity used by an interconnecting carrier to send traffic that will terminate on the providing carrier's network.

Pac-West states that in this case, virtually all the traffic currently being carried over the subject interconnection facility is originated by SureWest end users, and only a de minimis amount of the traffic is being terminated by SureWest. As a result, Pac-West concludes that under the FCC's rules, SureWest is not entitled to recover any payment from Pac-West for the portion of the interconnection facilities that are located on SureWest's side of the POI.

SureWest asserts that the FCC's reciprocal compensation rules embodied in §§ 51.703(b) and 51.709(b) do not apply, because the FCC has determined that ISP-bound traffic, which comprises virtually 100% of the traffic associated with the interconnection facilities between Pac-West and SureWest, does not fall within the scope of "telecommunications" which is the subject of § 251(b)(5).

In its ISP remand Order, the FCC defined what constituted the type of traffic subject to reciprocal compensation provisions (known as " § 251(b)(5) traffic"). The FCC concluded that service provided by LECs to deliver traffic to an ISP constitutes "information access" under § 251(g),¹³ and thus, compensation of this service is not governed by § 251(b)(5). The FCC goes on to explain that § 251(g) excludes certain categories of traffic from the scope of "telecommunications" subject to § 251(b)(5). The D.C. Circuit took exception to the legal reasoning behind the FCC's determination that traffic to ISPs was "information access" subject to the carve-out provisions of § 251(g).¹⁴ The D.C. Circuit remanded, but did not vacate, the FCC's rules. Therefore, the FCC's rules are still in effect.

The FCC has not yet issued a final decision on this issue, although it is the subject of an ongoing FCC proceeding. In the interim, the FCC's determination that ISP-bound traffic is not subject to reciprocal compensation provisions still stands. Pac-West asserts that the FCC's rules relating to reciprocal compensation are do apply to ISP-bound calls. According to Pac-West, the ISP Remand Order did not exempt ISP-bound traffic from all FCC rules relating to reciprocal compensation. To the contrary, the FCC expressly held that the ISP Remand Order only affects the rates that are applicable to the delivery of ISP-bound traffic. The FCC states:

This interim regime affects only the intercarrier compensation (i.e., the rates) applicable to the delivery of ISP-bound traffic. It does not alter carriers' other obligations under our Part 51 rules, 47 C.F.R. Part 51....¹⁵

We concur with Pac-West's interpretation of the FCC's rules. Even though the ISP Remand Order placed compensation-related caps on ISP-bound traffic, that order did not change Rules 51.703(b) and 51.709(b). Those rules prohibit ILECs from charging for delivery of ISP-bound calls to CLECs or charging CLECs for the facilities the ILECs use to deliver such traffic. Those rules continue to apply to all traffic, including calls to ISPs.