II. BACKGROUND

Global NAPs, Inc. (GNAPs) is a competitive local exchange carrier that provides telecommunications service to Internet Service Providers (ISPs). GNAPS provides a special service called "Virtual NXX" (VNXX) designed to enable the ISPs' customers to be billed only for a local call to access the Internet via their ISP, even if the customer is located more than 16 miles from the ISP, and the call would ordinarily be a toll call. VNXX traffic is "traffic where the NXX (central office codes) are used to provide locally-rated calling to customers who physically reside beyond the local calling area of the designated NXX code." (D. 02-06-076, p. 24, n. 11.) In other words, calls are rated as local regardless of whether the routing of the calls would ordinarily make them local calls or toll calls. As explained in D. 02-06-076, VNXX traffic differs from ordinary traffic in that its rating and routing points may be disparate. (See D. 02-06-076, pp. 24-28.)

GNAPs filed an application for arbitration of an interconnection agreement with Pacific Bell Telephone Company (Pacific) pursuant to Section 252(b) of the Telecommunications Act of 1996. A few weeks later, GNAPs filed a similar application for arbitration of an interconnection agreement with Verizon California, Inc. (Verizon). In these applications, GNAPs requested arbitration of 13 issues it had been unable to resolve with Pacific and 11 issues it had been unable to resolve with Verizon. Because some of the issues presented in the two applications are the same, the applications were consolidated.

An arbitration hearing was held on February 11, 2002, followed by briefing. The arbitrator, Administrative Law Judge Karen Jones, filed a Draft Arbitrator's Report (DAR) on April 8, 2002, addressing all contested issues.¹ After a round of comments and revisions in response to comments, the Final Arbitrator's report (FAR) was filed and served on May 15, 2002.

In D. 02-06-076, we adopted the Arbitrator's recommendations, with modifications, and approved the resulting Arbitrated Interconnection Agreements.

The Decision resolved the challenging question of how to determine an appropriate method of intercarrier compensation for VNXX traffic. VNXX traffic does not fit easily into existing definitions typically used to determine which type of compensation applies (reciprocal compensation for "local traffic" and access charges, which are higher, for "interexchange" traffic). As we noted in D. 02-06-076, the FCC has recognized that VNXX traffic poses specific intercarrier compensation problems, and though it has called for comment on solutions to those problems, it has not yet resolved them.²

In D. 02-06-076, therefore, we were guided by the basic requirement that carriers should be reasonably compensated for use of their network by other providers (see D. 99-09-029, upon which the Decision relies). Based on the rating points of the calling and called numbers used for VNXX traffic (as opposed to the physical route the call takes), we concluded that "VNXX traffic is local traffic and is subject to reciprocal compensation requirements." (CL 11.) At the same time, the ILECs "should receive compensation for costs associated for the use of their networks for the transmission of traffic with disparate rating and routing points." (CL 3.)

GNAPs filed a timely application for rehearing, to which Pacific and Verizon have responded.