3. Request for a Memorandum Account

Parties' Positions

The Coalition is willing to agree that the establishment of memorandum accounts for tracking ISP traffic is acceptable. The Coalition requests, however, that the requirement for memorandum accounting be made contingent on Pacific paying amounts owed to CLECs under all previously and currently effective Commission-approved interconnection agreements. The Coalition argues that this condition is warranted because Pacific continues to refuse to make such payments to some CLECs although it was directed to do so by the Commission in D.98-10-057 and D.99-07-047.

Since Pac-West is already subject to a separate ALJ ruling requiring it to keep a memorandum account for ISP transactions with Pacific, Pac-West argues that it should be exempted from any generic order for similar accounting. Pac-West opposes the motion, arguing that it is unduly burdensome. RCN objects to being required to separately track its ISP transactions in a memorandum account. RCN and GST do not now separately track and record reciprocal compensation associated with ISP-bound traffic. RCN and GST would incur substantial costs to establish and maintain such separate accounts for no apparent gain. Such accounts would be necessary only if RCN or GST were required to repay reciprocal compensation to Pacific, and as discussed above, that is not likely to occur. If the Commission requires RCN and GST to establish and maintain such accounts, RCN and GST ask to be permitted to recover the costs incurred to establish such accounts from Pacific.

ORA also opposes Pacific's Motion, arguing that Pacific is attempting to subvert established Commission policies, to inject commercial uncertainty, and to erect barriers to entry into the California telecommunications market.

Pac-West and the Coalition argue that if the Commission finds that memorandum accounts are necessary, then Pacific must be subject to the same kind of requirements it seeks to impose on its competitors, but which specifically reflect its own unique status as an incumbent LEC and affiliate of a large ISP.

Furthermore, Pac-West argues, since Pacific Bell Information Services (PBIS) and Pacific are affiliates, the complete array of payments and receipts from each to the other is relevant to the question of the true "net" compensation which Pacific has effectively charged PBIS, and to the determination of the true "net" cost to PBIS of the call termination services provided to it by Pacific. Pac-West thus seeks to have Pacific account for all traffic it directly transmits to ISPs, all traffic utilizing "dial to frame" service, and all traffic to Pacific's separate ISP affiliate. Pac-West believes Pacific's "dial-to-frame" service is a form of foreign exchange service that supports ISP customers.

To the extent another carrier sends ISP-bound traffic to Pacific, Pacific agrees to track that traffic and associated reciprocal compensation revenues. However, Pacific objects to Pac-West's proposal requiring accounting and tracking of its own affiliate transactions when no other carrier is involved. Pacific argues that the accounting only becomes necessary when two carriers are involved.

GTEC fully supports Pacific's motion, and argues that the order on the motion should apply to all carriers subject to similar agreements including GTEC.

Discussion

We conclude that Pacific's request seeking to require the establishment of memorandum accounts for the tracking of ISP traffic is reasonable, and accordingly we grant its request, but require Pacific and GTEC also to establish a memorandum account to track ISP-related reciprocal compensation they receive from other carriers.

Pacific has applied for rehearing of prior Commission decisions authorizing the payment of reciprocal compensation for ISP traffic. If rehearing is denied, Pacific asserts that it will pursue its rights in court. Pacific expects to eventually prevail, including retroactive adjustment of payments it is now making to carriers under previously executed interconnection agreements. If Pacific does prevail, clear accounting now can only make subsequent resolution of the dispute easier.

The reviewing courts may or may not order adjustments, and, if ordered, those adjustments may or may not be retroactive in whole or part. Thus, as Pacific says, the issue involving payment of reciprocal compensation for ISP-bound traffic is simply not finally resolved. We believe that the ultimate quantification of the amounts of money involved in this dispute will become more complex and litigious absent carriers identifying and maintaining records of all ISP-bound traffic and reciprocal compensation revenues that are received pursuant to the applicable interconnection agreements. The rights of all parties can be protected during this period by authorizing the creation and maintenance of memorandum accounts to track all revenues associated with ISP-bound traffic. It is reasonable to require all carriers subject to interconnection agreements with Pacific to establish and maintain an accounting of disputed payments to facilitate subsequent resolution of these matters.⁸ Since GTEC has also filed legal appeals on the ISP issue, we shall extend the memorandum accounting requirement to CLECs' ISP traffic terminated by GTEC.

We agree with Pac-West's request that we grant the request for carriers to maintain a memorandum account only on the condition that Pacific likewise maintain a memorandum account for the associated reciprocal compensation payments it receives from carriers pursuant to the applicable Interconnection Agreements. Pac-West's request is reasonable and we will impose such requirement both on Pacific and GTEC. We shall not, however, require Pacific to record amounts due from its own affiliate since no arms-length transaction is involved.

RCN and GST claim they would incur substantial costs to establish and maintain memorandum accounts for no apparent gain. RCN and GST, however, present no convincing information that any burdens related to keeping the memo account outweigh the need for clear accounting, nor do they provide any estimates showing that the additional record keeping would be unduly costly. RCN and GST present no compelling argument that the record keeping is unnecessary. Rather, given possible uncertainty over the outcome of this matter, it is reasonable to now establish procedures, which will mitigate subsequent disputes.

In their comments on the Draft Decision, RCN and GST argue that the magnitude of any obligation, burden or cost is not the issue. The parties object to the mere fact that the Commission seeks to impose obligations, burdens or costs where none now exist under the terms of their contracts. Thus, GST and RCN ask the Commission to decline Pacific's request to impose tracking requirements that are not found in the parties' contracts. Alternatively, if the Commission requires that they establish and maintain such accounts, and if, PacBell does not prevail on its appeals, then GST and RCN argue that Pacific required to compensate GST and RCN for all costs incurred to establish and maintain such accounts.

The Commission is not limited by the terms of parties' contracts in carrying out its regulatory responsibilities and in imposing necessary accounting requirements, as we do here, to promote a fair and reasonable outcome for all affected interests. Since the carriers' dispute over ISP cost recovery is being litigated in U.S. District Court, however, we decline to address here the issue of cost recovery for each carriers establishing and maintaining the memorandum account.

Nothing in this order, however, should be construed as limiting or prejudging the right of any carrier to seek an order from a civil court for compensation for its costs of establishing and maintaining the memorandum account in the resolution of pending disputes.

We shall not adopt the Coalition's condition that we order Pacific to make payment on reciprocal compensation that carriers claim Pacific already owes them for traffic terminated to ISPs pursuant to previously effective Commission-approved agreements. We rejected a similar condition in D.00-02-023 wherein we imposed similar memorandum accounting requirements on MFSW. We found in D.00-02-023 that although Pacific may be obligated to make such payments pursuant to Commission orders in D.98-10-057 and D.99-07-047, a complaint case filed by MFSW was still pending before the Commission requesting the Commission to order Pacific to make these payments. We concluded that the proper place to address the payment of reciprocal compensation and whether a Commission order has been violated by any of the parties involved, was in that complaint proceeding or a separate proceeding in which MFSW can initiate to seek relief. We declined to tie the prior Interconnection Agreement dispute to the memorandum accounting requirement in D.00-02-023 which was merely intended to preserve the rights of each party for possible future resolution of disputed reciprocal compensation payments arising out of the current Interconnection Agreement. Likewise, for similar reasons, we decline to link the generic requirement for memorandum accounting being addressed here to the parties' separate disputes involving prior contracts.

We shall adopt the condition that Pacific and GTEC track by a memorandum account the reciprocal compensation that each CLEC will pay Pacific or GTEC for traffic that terminates to ISPs served by the ILEC. If Pacific or GTEC somehow wins its appeal and obtains a ruling that inbound ISP traffic is not covered by the reciprocal compensation obligation, such a ruling would apply equally to the traffic Pacific and GTEC terminates to ISPs. Thus, it is equitable to apply the memorandum accounting requirement to Pacific and GTEC for ISP-related reciprocal compensation received from other carriers.