2. Procedural Background

Disputes over appropriate intercarrier compensation arrangements for calls involving disparate rating and routing points first arose in Case (C.) 96-10-018, a complaint case between Pac-West (complainant) and Evans and Volcano Telephone Companies (co-defendants). Pursuant to D.97-12-094 issued in that complaint,⁵ the Commission directed that the Commission address on an industry-wide basis the appropriate intercarrier compensation principles applicable to calling arrangements utilizing disparate rating and routing points.

We adopted general principles concerning intercarrier compensation for calls involving disparate rating and routing points in D.99-09-029. We stated in D.99-09-029, that because parties had been unable to agree through arbitration on the treatment of disparate rating and routing of calls, however, issues governing such traffic would be addressed in a further phase of Rulemaking (R.) 95-04-043. Further consideration of these issues was subsequently transferred from R.95-04-043 to R. 00-02-005 which was initiated to establish rules for payment of reciprocal compensation for Internet Service Provider (ISP) traffic.

On April 27, 2001, the FCC released its "Order on Remand and Report and Order" in the matter of reciprocal compensation for ISP-bound traffic,⁶ adopting prospective rules governing intercarrier compensation for delivery of ISP-bound traffic. The FCC's stated intention was to transition from reciprocal compensation to bill-and-keep compensation for delivery of all traffic over which the FCC has jurisdiction. The FCC Order abandoned the previous distinction between "local" and "nonlocal" calls for ISP-bound traffic, and asserted federal jurisdiction over ISP-bound traffic. Nonetheless, because the use of VNXX arrangements is not limited to ISP-bound traffic, compensation issues relating to VNXX traffic that is not ISP-bound were not resolved by the FCC Order.

In D.03-09-005, we closed R.00-02-005, noting that the issues previously designated in that rulemaking had either been resolved by federal order or were subject to resolution through other forums. We noted that the Commission had independently resolved issues as to compensation for VNXX calling arrangements on a case-by-case basis in arbitration of interconnection agreement disputes between the major Incumbent Local Exchange Carriers (ILECs) and Competitive Local Exchange Carriers (CLECs). In D.03-09-005, we concluded that in view of these arbitrated proceedings, no further forum was needed to address intercarrier compensation for VNXX arrangements between CLECs and the major ILECs.

Parties representing Small LECs argued, however, that while those arbitration proceedings addressed intercarrier compensation for specific carriers, those arbitrations involved specific interconnection agreements to which Small LECs were not a party and were excluded from active participation. The Small LECs argued, as a result, that they were completing disparately rated and routed calls at no charge to CLECs. They argued that the impact of the disparate rating and routing arrangements on Small LECs had been aggravated due to the elimination of the revenue and expense pooling process with Pacific that previously had served to ameliorate some of these impacts.

Because their concerns relevant to disparately rated and routed calls had not been addressed in arbitration proceedings, the Small LECs recommended a separate forum be designated to address this issue, either in R.00-02-005, or in the Local Competition Docket (R.95-04-043).

In D.03-09-005, therefore, we designated R.95-04-043 as a forum in which to address Small LECs' concerns on the issue of intercarrier compensation for VNXX calls.

An Administrative Law Judge (ALJ) ruling, issued on December 30, 2004, solicited comments on the scope of issues to be addressed pursuant to D.03-09-005. Opening and reply comments were filed on January 18 and 28, 2005, respectively by a group of Small LECs, as well as by wireless carriers, by Pac-West Telecomm, Inc, and by the California Association of Competitive Telecommunications Companies (CALTEL). Reply comments were also jointly filed by the Commission's Division of Ratepayer Advocates and The Utility Reform Network (TURN).

In response to parties' opening and reply comments filed, a subsequent ruling, issued on April 11, 2005, identified the scope of issues to be addressed through the submission of opening and reply comments. Although parties disagreed on certain details as to the scope of issues to be addressed in this proceeding, there was general consensus on the scope of relevant issues.

Opening comments were filed on May 16, 2005, jointly by a group of Small LECs,⁷ as well as by Verizon West Coast West Inc. (VWC), jointly by Pac-West Telecomm, Inc, MCI, Inc. Level 3 Communications LLC, and the California ISP Association (Joint CLEC Parties), and by Sprint PCS (Sprint). Reply comments were filed on June 3, 2005.⁸

Parties had the opportunity to conduct discovery and to request evidentiary hearings. As directed in the April 11, 2005, ALJ ruling, any party requesting evidentiary hearings was to do so within 10 days after reply comments by filing a motion identifying specific factual disputes for which hearings were purportedly required. No party filed a motion requesting evidentiary hearings. Accordingly, we shall rely upon parties' written comments. No evidentiary hearings are required.

⁵ See Ordering Paragraph 2 of D.97-12-094 which directed that in R.95 04-043/I.95-04-044, the Commission was to consider the appropriate intercarrier compensation for foreign exchange arrangements utilizing disparate rating and routing points.

⁶ In the matter of Implementation of the Local Competition Provisions of the Telecommunications Act of 1996; Intercarrier Compensation for ISP-Bound Traffic. CC Docket 96-98; 99-68; Order on Remand and Report and Order, (FCC 01-131) (released April 27, 2001) (FCC Order).

⁷ The small LECs joining in the joint comments were Calaveras Telephone Company, CAL-ORE Telephone Company, Ducor Telephone Company, Foresthill Telephone Company, Global Valley Networks, Inc., Happy Valley Telephone Company, Honitos Telephone Company, Kerman Telephone Company, Pinnacles Telephone Company, The Ponderosa Telephone Company, Sierrra Telephone Company, Volcano Telephone Company, and Winterhaven Telephone Company.

⁸ Pac-West et al. submitted an errata to their June 3, 2005 comments on June 5, 2005, substituting updated information regarding the rate of $.000640 adopted in D.05-05-031 for Setup per Completed Message.