4. Sprint Nextel's Request to Adopt the Kentucky ICA

On February 5, 2008, the AT&T ILECs filed their "Petition of the AT&T ILECs for a Declaratory Ruling" at the FCC. The FCC opened WC docket No. 08-23 to address AT&T Petition, and invited interested parties to comment on the Petition by February 25, 2008, with reply comments due by March 3, 2008. The ALJ assigned to this matter determined that we should wait for the FCC to act before moving forward with the proceeding, stating that the FCC was in the best position to interpret its own merger order. However, several months have passed, and the FCC has failed to act on the matter, so we determined that we would move forward to resolve the substance of the application, as several other state commissions have done in recent months.

In its support of its Motion to Dismiss, AT&T states that if the Commission concludes it has concurrent jurisdiction to resolve disagreements about application of Merger Commitment 7.1, it should not exercise that jurisdiction but should instead defer to the FCC. According to AT&T, chaos would ensue if each of the 13 state commissions in which Sprint Nextel have raised the same issue were to individually resolve that issue. AT&T states that allowing the FCC to interpret Merger Commitment 7.1 would ensure uniform national application.

However, seven months have passed since the comments were filed in WC Docket No. 08-23, and the FCC has not issued an order in this matter. In the meantime, a number of state commissions have acted on Sprint Nextel's request, with varying outcomes, and chaos has not resulted. It is a fact of regulation that ICAs vary among the states, as a result of negotiations and arbitrations, and there is no reason that the outcome needs to be uniform across AT&T's service territory.

According to Sprint Nextel, under Merger Commitment 7.1, applicants are entitled to port-in and adopt the Kentucky ICA in California. Sprint Nextel states that because the Kentucky ICA has not previously been approved by the Commission, the Commission's rules for adopting a previously approved ICA as set forth in Rule 7 of the Commission Resolution ALJ 181 do not apply. Sprint Nextel asserts that the sole legal issue is applicants' right to port-in and adopt the Kentucky ICA in California, subject to California state-specific pricing.

In our analysis of AT&T's motion to dismiss, we have disposed of the jurisdictional issue raised by AT&T, and will not address that issue further. In our ruling on AT&T's motion to dismiss, we previously concluded that we have the authority to address Sprint Nextel's request.

AT&T acknowledges that a commitment that AT&T made to the FCC allows the Kentucky agreement to be ported to California, but not jointly, by all applicants, and only after it has been modified, consistent with the terms of that commitment, to conform with California pricing, California performance measures and remedy plans, and other applicable California legal and regulatory requirements. The parties that wish to port the Kentucky ICA to California are Sprint Communications Company L.P., Sprint Spectrum L.P. (as agent for Wireless Co., L.P. and Sprint Telephony PCS, L.P.), and Nextel of California Inc.

On December 13, 2007, AT&T responded to Sprint Nextel's letter explaining that Merger Commitment 7.1 would permit the Kentucky ICA to be ported jointly by one CLEC and one CMRS provider, but not by a consortium consisting of one CLEC and multiple CMRS providers. This is because the Kentucky ICA is an arrangement between an ILEC and one CLEC and one CMRS provider, and in order for it to remain the same contract, it must remain an arrangement between one ILEC and one CLEC and one CMRS provider. AT&T asserts that a deviation from the Kentucky ICA arrangement would surely impact the balance of traffic assumptions that were predicates for the trunking and reciprocal compensation arrangements in the Kentucky ICA.

AT&T claims that applicants are improperly attempting to convert a merger commitment whose sole purpose was to reduce the transaction costs associated with negotiation of an ICA into an arbitrage opportunity. Accordingly, AT&T's letter stated that once applicants inform AT&T which one of the CMRS providers is to be a party to the ICA, AT&T will accept and process the porting request. AT&T indicates that modifying the ICA for use in California will require thousands of modifications. While most such changes will be simple and mechanical, such as carrier name changes, AT&T personnel must review every substantive provision of the Kentucky ICA to assess whether it is in conflict with California law. In its January 23, 2008 filing, AT&T indicated that it expected to provide a redlined version of the Kentucky ICA by February 15, 2008. We assume that AT&T has completed the task of reviewing the Kentucky ICA to determine what must be changed for use in California.

Sprint Nextel rebuts AT&T's assertion that applicants are attempting to create an illicit arbitrage opportunity. AT&T provides no factual support for this suggestion, and Sprint Nextel asserts there is nothing in the Kentucky ICA that requires renegotiation of the ICA if the traffic of either party grows substantially out of balance to the traffic of the other party. Instead, the Kentucky ICA itself does not require both the Sprint CLEC and the Sprint CMRS provider to remain parties to the Kentucky ICA throughout its term, nor does it require renegotiation of the ICA if the traffic exchanged by the parties suddenly grows out of balance. Instead, it contains express provisions that affirmatively contemplate that either Sprint entity can adopt another ICA under § 252(i) and the remaining Sprint entity can continue to operate under the Kentucky ICA even if the remaining entity is the sole CMRS provider.

Sprint Nextel states there is nothing in the Merger Commitments that states that AT&T's "port in" promises to the FCC somehow become "inapplicable" if the balance of traffic in one state is different from that in another where a "port in" ICA has been approved.

Clearly, the key element of the Kentucky ICA is the bill-and-keep provision for the exchange of local traffic. An excerpt from Merger Commitment 7.1 states:

The AT&T/BellSouth ILECs shall make available to any requesting telecommunications carrier any entire effective interconnection agreement...that an AT&T/BellSouth ILEC entered into in any state in the AT&T/BellSouth 22-state ILEC operating territory, subject to state-specific pricing....

A major dispute between the parties is whether the bill-and-keep arrangement in the Kentucky ICA constitutes "state-specific pricing." If so, it would not be covered by Merger Commitment 7.1.

AT&T asserts that the plain language of Merger Commitment 7.1 expressly excludes "state-specific pricing....plans" from the porting commitment. According to AT&T, the bill-and keep arrangement at issue is a state-specific pricing plan. It sets a price-zero-for the transport and termination of traffic by each party. Likewise, the 1996 Act classifies bill-and-keep arrangements as a form of pricing plan, as one of the "Pricing Standards" governed by § 252(d). Subsection (2) of that Section addresses "Charges for transport and termination of traffic."⁶ Simply put, states AT&T, the Act recognizes that bill-and-keep is simply one method to address "charges" for the "recovery of costs," just like any other pricing plan covered by the Act's "Pricing Standards."

According to AT&T, it is plain that the pricing arrangement here is "state-specific." The arrangement was premised on a BellSouth study of the balance of traffic and payments among the contracting entities within the nine BellSouth states. This pricing arrangement is thus ineligible for porting outside those states under the plain terms of Commitment 7.1.

AT&T also states that the fact that bill-and-keep arrangements are inherently state-specific pricing arrangements, and thus, ineligible for porting under Commitment 7.1 is further underscored by the 1996 Act and the Commission rules implementing the Act. The Act requires that reciprocal compensation arrangements "provide for the mutual and reciprocal recovery" of costs "by each carrier" and it contemplates bill-and-keep only as an arrangement to "afford the mutual recovery of costs through the offsetting of reciprocal obligations.⁷

Likewise, the FCC's rules implementing the 1996 Act limit the imposition of bill-and-keep arrangements to the context where "the state commission determines that the amount of telecommunications traffic from one network to the other is roughly balanced with the amount of telecommunications traffic flowing in the opposite direction, and is expected to remain so."⁸ Because a state may require bill-and-keep only for traffic that is roughly balanced, bill-and-keep is necessarily a state-specific pricing arrangement. Traffic that is balanced in one state may not be balanced in another.

Sprint Nextel responds that AT&T incorrectly argues that the merger conditions prohibit the porting of the BellSouth ICA because it contains "state-specific pricing" provisions. Sprint Nextel asserts that it did not enter into a state-specific bill-and-keep arrangement with BellSouth. Rather, Sprint Nextel entered into an agreement with BellSouth to address the exchange of all traffic between all of Sprint CLEC's, Sprint PCS's and BellSouth's operating entities under a bill-and-keep arrangement, regardless of state. These provisions addressed the manner in which Bellsouth would do business with all of the competitive Sprint entities operating in BellSouth's service territories. While effectuation of that agreement required the parties to file ICAs in each state, the intent of the parties was to implement a universal bill-and-keep arrangement.

Further, asserts Sprint Nextel, the bill and keep⁹/facility provisions are identical for every state within the BellSouth operating territories and were not imposed by virtue of a state-arbitration decision or state-cost proceeding.

According to Sprint Nextel, AT&T argues that the bill and keep/facility provisions are a state-specific "pricing plan" because bill-and-keep is mentioned as an alternative within the pricing provisions of § 252(d). According to AT&T, "the 1996 act classifies bill-and-keep arrangements as a form of pricing plan, as one of the `Pricing Standards' governed by § 252(d)." Sprint Nextel asserts that AT&T's argument fails, however, because the bill-and-keep/facility provisions between BellSouth Corporation and Sprint Nextel were not the result of a § 252 state-specific arbitration but were instead pursuant to a voluntarily negotiated arrangement between two companies under § 252(e)(2)(A) which makes no reference to the pricing standards set forth in § 252(d).

Sprint Nextel states that § 252 of the Act sets forth the procedures for state arbitration of the terms and conditions of an ICA under the standards of §§ 251(b) and (c). Section 252(d)(2) sets forth the manner in which a state Commission would determine whether rates for transport and termination are "just and reasonable" when conducting an arbitration. However, § 252 states specifically that an ILEC, upon receiving a request for interconnection "may negotiate and enter into a binding agreement with the requesting telecommunications carrier or carriers." However, the pricing standards of § 252(d)(2)(B)(1) are applicable only to arbitrated provisions. This case involves a negotiated agreement. Sprint Nextel concludes that because those standards apply only to arbitrated agreements, nothing prevents carriers from agreeing to other arrangements. In this case, the bill and keep/facility provisions were knowingly agreed to. It is only when a party seeks to impose bill-and-keep upon the ILEC through a Section 251-252 arbitration that a "roughly balanced" exchange of traffic requirement arises.

AT&T states that while not disputing that the bill-and-keep and facility pricing provisions on the Kentucky ICA are pricing, Sprint Nextel argues that they are not "state-specific pricing" because they are identical for every state within the BellSouth operating territories and were not imposed by virtue of a state-arbitration decision or state-cost proceeding. AT&T finds the contention that pricing is state-specific only if it was arbitrated or otherwise state-mandated is pure invention, with no basis in the language of the merger commitment. Moreover, if, as Sprint Nextel would have it, a negotiated pricing provision could be ported even though exactly the same provisions could not be ported if it were arbitrated, AT&T would have a strong incentive to arbitrate pricing provisions to which it would otherwise be willing to agree. That cannot be the intent. The explicit purpose of the merger commitment was to reduce transaction costs, not to increase them.

Sprint Nextel, while asserting that the provisions at issue were not imposed by virtue of a state-arbitration decision or state-cost proceeding does not explain why that makes a difference. AT&T asserts that it does not. By its plain terms, the merger commitment exempts all "state-specific pricing...plans," without regard to their source, whether they were arbitrated or negotiated. It is just as likely that a negotiated pricing plan for state A would be uneconomic in state B and thus unsuitable for porting to that state, as it is that a state-ordered pricing plan for state A would be uneconomic in state B.

Nor is Sprint Nextel's argument advanced by the proposition that it did not enter into a state-specific...arrangement and the intent of the parties was to implement a universal bill-and-keep arrangement.¹⁰ According to AT&T, the arrangement was not universal. It applied only in the nine states in the BellSouth region, not to the 13 state to which Sprint Nextel now seeks to export it. And it applied only to the two Sprint entities that were parties to the ICA in those state, not to any Nextel entity.

AT&T asserts that a price that makes economic sense in one state may not make sense in certain others-and that applies with just as much force to pricing that is intended for a specific group of states as it does to pricing that is unique to a single state. And the fact that a price makes economic sense in multiple states served by AT&T ILECs does not mean it makes sense in all the rest.

AT&T rebuts Sprint Nextel saying that when BellSouth, Sprint PCS and Sprint CLEC entered into the Kentucky ICA, their traffic was roughly balanced throughout the nine-state BellSouth region, as was the balance of compensation payments for such traffic. In light of that balance, the three parties agreed that the reciprocal compensation arrangement in the BellSouth state would be bill-and-keep. Consistent with the parties' treatment of their reciprocal compensation obligations to each other as a wash in light of the balance of traffic, the parties also agreed to share equally the cost of interconnection facilities between BellSouth and Sprint PCS switches within BellSouth's service area.

We find that AT&T makes a convincing argument that the balance of traffic was a consideration before the parties negotiated a bill-and-keep/facility sharing arrangement for the nine BellSouth states. It does not make sense that the parties would not review their traffic data before agreeing to such a provision. And just because bill-and-keep makes sense for the nine BellSouth states does not mean that it would make sense in other states, where traffic might not be in balance.

The FCC has made it clear that balance of traffic is a requirement for instituting a bill-and-keep arrangement. Rule 51.713(b) states as follows:

A state commission may impose bill-and-keep arrangements if the state commission determines that the amount of local telecommunications traffic from one network to the other is roughly balanced with the amount of local telecommunications traffic flowing in the opposite direction, and is expected to remain so....

Sprint Nextel makes much of the fact that the provisions in the BellSouth region were negotiated, rather than arbitrated or set through state pricing proceedings. However, we concur with AT&T that the merger commitment makes no distinction between negotiated and arbitrated rates. Sprint Nextel is asking the Commission to allow it to port-in the Kentucky ICA. In that case, the Commission will be "imposing" bill-and-keep arrangements and must be cognizant of the requirements of Rule 51.713(b) cited above. We would be in violation of that rule if we were to allow Sprint Nextel to port-in the Kentucky ICA without assuring ourselves that the traffic is roughly balanced. There is nothing in the record of this proceeding to allow us to determine that the traffic between the applicants and AT&T would be balanced, and since the mix of carriers in the instant application is different than the mix in the Kentucky ICA, it may well not be balanced.

The single issue presented to the Commission is whether Sprint Nextel is entitled to port-in to California the Kentucky ICA. We conclude that Sprint Nextel is entitled to port-in the Kentucky ICA for use in California, subject to state-specific pricing. Further, we find the bill-and-keep/facility sharing provisions of the Kentucky ICA to be state-specific pricing, as described in Merger Commitment 7.1, and therefore ineligible for porting to California.

In its opening comments on the PD, AT&T states that the parties have engaged in extensive discussions of the redline ICA that AT&T provided to Sprint Nextel in February. According to AT&T, at last count there were approximately 58 open items concerning contract language (including the bill-and-keep and facility price sharing disagreements). AT&T asks that the PD be modified to reflect that other provisions, in addition to reciprocal compensation, must be negotiated by the parties.

In its comments Sprint Nextel raises the issue of what would happen if the parties cannot reach agreement on some of the remaining issues. Sprint Nextel suggests that if the parties cannot reach agreement on any remaining issues within 30 days of the Commission's decision, they should be allowed to ask the assigned ALJ to immediately convene a PHC to identify a schedule for submission of comments (or, if need be, for submission of testimony and the holding of an evidentiary hearing) for resolution of any open issues.

In essence, Sprint Nextel is asking us to convert this proceeding into an arbitration proceeding under the Telecommunications Act of 1996 (TA96). TA96 sets up a process for parties that are unable to reach agreement on any terms in their ICA to follow before filing an arbitration request with the appropriate state commission. However, this proceeding arose out of a merger commitment, rather than a provision of TA96. We do not have the authority to convert this proceeding into an arbitration proceeding.

We understand that negotiations are ongoing, and we hope that the parties will reach agreement on a negotiated ICA. However, if parties are unable to reach agreement and believe they would benefit from the services of a mediator, they should contact the Chief ALJ to have a mediator assigned to work with them. If the parties are unable to resolve all of the outstanding issues, TA96 sets a process for filing a request for arbitration of open issues.

⁶ 47 U.S.C. § 252(d)(2) (emphasis added).

⁷ 47 U.S.C. § 252(d)(2)(A)(i),(B)(1).

⁸ 47 C.F.R. § 51.713(b).

⁹ In a bill-and-keep arrangement, neither of the two interconnecting carriers charges the other carrier for terminating traffic that originates on the other carrier's network. The FCC has determined that this form of reciprocal compensation for local traffic is appropriate only if the amount of traffic flowing between the two networks is approximately in balance.

¹⁰ Sprint Opp. To Petition at 13.