XII. General Terms And Conditions

E. Assurance of Payment

16. Should Assurance of Payment Requirements be State-Specific or Interdependent?

SBC seeks to be able to require assurance of payment if Level 3 fails to establish satisfactory credit by having made 12 consecutive timely payments, or fails to timely pay an undisputed bill, in another state. SBC states that such failure by Level 3 in another state gives SBC reason to be concerned that Level 3 may not timely pay its bills in California.

Level 3 proposes that its credit-worthiness in California be based solely on its payment performance in California. Level 3 argues that its California operations should not be penalized for its inability to pay its bills in another state.

This Commission arbitrated this issue between SBC and Level 3 in 2000. Here, as in the 2000 arbitration, Level 3 fails to convincingly show that its payment history outside of California is irrelevant to its creditworthiness in California.⁴² Accordingly, I resolve GT&C-1 by rejecting Level 3's proposed language in § 7.2.

17. Time for Determining Satisfactory Credit

Level 3 proposes that it be considered to have satisfactory credit if, in the last 12 consecutive months, it has received no more than two past due notices for undisputed bills. SBC opposes this, and proposes that Level 3 must have made 12 consecutive months of timely payments in order to be deemed to have satisfactory credit.

SBC's proposal would allow it to demand assurance of payment for one late payment. This is excessive. However, Level 3's proposal to preclude assurance of payment until it has failed to make timely payment three times within the last 12 months is unduly lax. Consistent with the policy enunciated in the FCC's Verizon Policy Statement,⁴³ I adopt terms under which Level 3 shall be deemed to have satisfactory credit if it has received no more than one past due notice.⁴⁴

SBC witness Egan points out that the Commission has previously adopted SBC's proposed language, citing to the 2000 arbitrations between Level 3 and SBC and between AT&T and SBC. Those arbitrations raised the general issue of whether past payment history is an appropriate criterion for establishing satisfactory credit, not the specific issue before us regarding what constitutes satisfactory past payment history.

SBC notes that the FCC determined that its Verizon Policy Statement addresses interstate access agreements and is not binding on interconnection agreements. Indeed, the FCC rejected a challenge to SBC's Section 271 application on the basis that SBC's generic interconnection agreement did not comport with the Verizon Policy Statement on the issue of security deposit requirements. In doing so, however, the FCC noted that SBC's security deposit requirements are not binding on any carrier absent the carrier's voluntary agreement to them or a finding, in arbitration by a state commission, that they are just and reasonable.⁴⁵

Accordingly, I resolve GT&C-2 as follows:

· Level 3's proposed § 7.2.1 is rejected, except that it shall reference "no more than one valid past due notice" instead of "no more than two valid past due notices."

18. What Constitutes Credit Impairment?

Level 3 proposes that the impairment of its creditworthiness must be "significant and material" in order to trigger SBC's ability to request assurance of payment. SBC opposes this language as ambiguous and dispute-provoking, proposes that impairment be determined "from information available from financial sources, including but not limited to Moody's, Standard and Poor's, and the Wall Street Journal" and including "investor warning briefs, rating downgrades, and articles discussing pending credit problems."

I agree with SBC's concern that the term "significant and material" is unduly ambiguous and subject to dispute. However, SBC's proposed language is equally so. For example, it does not protect against SBC requesting assurance of payment for negative statements by non-authoritative sources, or incorrect statements, or statements of de minimus credit impairment.

In response to my stating these concerns at hearing, SBC offered alternative language that specifically defines the circumstances that would constitute credit impairment under this section. Level 3 opposes this alternative language, but does not articulate its objections to it. I adopt SBC's alternative language as it provides clarity and certainty as to what constitutes credit impairment.

A second dispute with respect to this issue concerns the baseline date against which Level 3's credit is to be compared. Level 3 proposes that its credit be assessed by reference to the effective date of this agreement. SBC proposes that Level 3's credit be assessed by reference to "today" or a date that is a reasonable proxy for "today."⁴⁶

I adopt SBC's proposed reference to October 27, 2004. It is reasonable to permit SBC to request assurance of payment in the event that Level 3 suffers a credit impairment between now and the effective date of the agreement.

Accordingly, I resolve GT&C-3 by adopting the following language for GT&C § 7.2.2:

At any time on or after October 27, 2004, there has been a significant and material impairment of the established credit, financial health, or creditworthiness of Level 3 as compared to October 27, 2004. For purposes of this provision, a significant and material impairment is a downgrade by Standard and Poor's and/or Moody's credit rating service from Level 3's rating as of October 27, 2004.

19. Prerequisite to Requesting Assurance of Payment

Level 3 proposes that SBC not be permitted to request assurance of payment unless SBC has complied with the agreement's terms for issuing invoices and dispute resolution. SBC appreciates Level 3's intent, but objects to this clause as overbroad because it would prohibit SBC from requesting a security deposit for Level 3's failure to pay, even if Level 3's failure to pay had nothing to do with any shortcoming in SBC's invoicing.

The undisputed language in this provision provides that Level 3 is excused from making a security deposit if the nonpayment is subject to a bona fide dispute as to which Level 3 has complied with the agreement's dispute resolution requirements. Level 3 proposes that it need only "substantially comply" with the agreement's dispute resolution requirements in order for this caveat to apply. SBC opposes qualifying Level 3's obligation to comply with the provision. I adopt SBC's position. The agreement is intended to set out the parties' obligations. Qualifying those obligations by using the term "substantial compliance" undermines the clarity and purpose of the agreement.

Accordingly, I resolve GT&C-4 as follows:

· Level 3's proposed inserts to § 7.2.3 "for the individual State" and "substantially" are rejected, as discussed at VII.A.1. Level 3's proposed language regarding SBC's compliance with invoice and dispute resolution requirements is rejected, and shall be replaced with the following phrase: "provided that Level 3's failure to pay or dispute a bill did not result from SBC's failure to comply with the Agreement's requirements with respect to presentation of invoices and dispute resolution."

20. Reasonableness of Request for Assurance of Payment

Level 3 proposes that it be permitted to dispute the reasonableness of a request for assurance of payment. Level 3's language is rejected, and SBC's language is adopted. The agreement sets out the terms under which SBC may request assurance of payment. Level 3 may dispute whether SBC has complied with the terms, but the reasonableness of the terms has been taken into account in establishing the terms.

Accordingly, I resolve GT&C-5 by rejecting Level 3's disputed proposed language for GT&C §§ 7.8 through 7.8.1.

F. Billing and Payment of Charges

21. Under What Circumstances May SBC Disconnect Services for Nonpayment?

The undisputed portion of GT&C § 8.8.1 provides that failure to pay owed charges within the time specified shall be ground for termination of the services under the agreement. Level 3 proposes to add the caveat that the billing party must comply with the termination procedures, not only as specified in the agreement, but also as "otherwise set forth in applicable law." SBC objects to this phrase as ambiguous.

This issue is similar to NIM-7 discussed at Section V.B, and I resolve it accordingly. The agreement sets out the parties' current understanding and agreement as to their respective obligations, and the intervening law provisions of the contract provide that parties may take advantage of intervening law to the extent that it impacts the terms of this agreement. According, I resolve GT&C-6 by rejecting Level 3's proposed addition to GT&C § 8.8.1.

22. What Products and Services May SBC Discontinue for Level 3's Failure to Pay Undisputed Charges?

Level 3 proposes that SBC should be permitted to discontinue only those products and services for which Level 3 has failed to pay undisputed charges. SBC proposes that it be able to discontinue all products and services for failure to pay any undisputed charges.

As SBC points out, the termination provision can be invoked only upon nonpayment of undisputed charges. By definition, therefore, the failure to pay at issue would not be based on any dispute or confusion that is relevant or limited to a particular product or service. On the other hand, however, discontinuing all services in response to nonpayment of one service can have unintended adverse consequences to innocent end-users of paid services. With this concern in mind, I resolve this issue consistent with the 2000 arbitration between AT&T and SBC where the arbitrator ordered that disconnection be limited to those services with undisputed unpaid charges.⁴⁷

The parties also dispute whether the nonpaying party must remit unpaid charges within ten days (SBC's position) or 30 days (Level 3's position) of receipt of notice of unpaid charges, or face disconnection of services. Thirty days is excessive. Level 3 is already permitted 30 days to pay its bills before notice of unpaid charges is given. It is reasonable that Level 3 be required to make payment within ten days after that.

Also in dispute is whether a failure to pay undisputed bills "shall" (SBC's position) or "may" (Level 3's position) be ground for disconnection. Level 3 does not specifically address this dispute. I adopt SBC's proposal. "May" is unduly ambiguous, and the use of the word "shall" does not mandate that SBC disconnect the services if it sees fit not to, only that is a ground for doing so.

Accordingly, I resolve GT&C-7 by adopting the disputed language in § 9.2 as follows:

· Level 3's proposed term "may" is rejected, and SBC's proposed term "shall" is adopted.

· Level 3's proposed language limiting disconnection of services to the specific services for which undisputed payment has not been made is adopted.

· Level 3's proposed term "thirty (30) Calendar" is rejected, and SBC's proposed term "ten (10) Business Days" is adopted.

23. Should SBC be Permitted to Suspend Acting on New and Pending Orders on the Day the Billing Party has Sent a Second Late Payment Notice?

SBC proposes that it be entitled to suspend acting on new and pending orders on the day that it sends a second late payment notice for undisputed charges. Level 3 opposes this date because it occurs before Level 3 receives the second notice, and before the date for terminating services. I agree that SBC's right to suspend action on new and pending orders should not predate its other remedy of terminating services. I adopt SBC's proposed language, except that it shall be modified to correspond the date that it may suspend acting on new and pending orders to the date by which Level 3's late payment and/or dispute requirements are due under § 9.2.

Accordingly, I resolve GT&C-9 as follows:

· SBC's proposed § 9.5.1 is modified to read, "If, after the time allotted under §§ 9.2 and 9.3, the non-paying party has not remitted payment and/or complied with the dispute provisions, the Billing Party may also exercise any or all of the following options:"

· SBC's proposed §§ 9.5.1.1 through 9.7.2.2 are adopted.

· Consistent with the resolution GT&C-8 above, Level 3's proposed language limiting suspension of services to the specific services for which undisputed payment has not been made is adopted.

G. Intervening Law

The intervening law provision of the agreement purports to reserve the parties' rights to invoke changes of law affecting the terms and conditions of this agreement. SBC proposes to overwhelm this provision with language that, among other things, (1) attempts to recount the status of all legal proceedings that are now, or may in the future be, under further regulatory or judicial review that may affect issues in this agreement; (2) reiterates the parties' reservation of rights with respect to certain issues that are contained in other sections of the agreement; and (3) references, at length, a separate agreement by the parties that will have expired by the time this agreement takes effect. Level 3 objects to SBC's proposed additional language as "bloated" and filled with "confusing and unnecessary minutiae [that] creates uncertainty and the potential for future litigation as the parties dispute the other's interpretation."

SBC defends its proposed language as more apt to resolve a potential disagreement over what does or does not qualify as an intervening law event. To the contrary, listing pending and potential litigation does not resolve whether and which of their myriad of potential resolutions might qualify as "intervening" or changed law. Nor does it resolve disputes over what those resolutions might mean.

SBC requests that, even if the Commission rejects its proposed language for §§ 21.1, 21.2 and 21.3, it approve § 21.4 that specifies a procedure for the parties to invoke a change of law. Level 3 does not address this particular disputed language or identify its objections to it.

Accordingly, I resolve GT&C-10 as follows:

· SBC's proposed language in § 21.1 is rejected. Most of this language unnecessarily lists certain legal proceedings that may result in a change of law. The proposed language stating the parties' reservation of rights is redundant of § 21.2. The language stating the effect of invalidation, modification or stay is redundant and/or inconsistent with the procedures for invoking this provision under SBC's proposed § 21.4.

· SBC's proposed language in § 21.2 is rejected. The statement that the agreement may incorporate arbitrated provisions is unnecessarily redundant of undisputed language in § 21.1. Other language unnecessarily lists certain legal proceedings that may result in a change of law. The language regarding SBC's obligation to provide UNEs is unnecessarily redundant of the parties' general reservation of rights as well as other, separate reservation of rights applicable to UNEs contained elsewhere in the agreement.

· SBC's proposed language in § 21.3 is rejected. It unnecessarily describes the subject of a separate agreement between the parties that will have expired by the effective date of this agreement, and that in any event is adequately identified in the parties' undisputed language. The proposed language describing the status of SBC's invocation of the FCC's ISP Compensation Plan, or lack thereof, and reservation of rights with respect to that plan is unnecessarily redundant of the parties' general reservation of rights as well as other, separate reservation of rights applicable to ISP compensation contained elsewhere in the agreement.

· SBC's proposed language in § 21.4 is adopted. It describes a reasonable process for parties to invoke the intervening law provisions.

· As discussed at VI.A, the second sentence in § 21.1 shall be modified to read "If any of the rates, terms and/or conditions herein, or any of the laws or regulations that were the basis or rationale for such rates, terms and/or conditions in the Agreement, or any applicable state tariff, are invalidated, modified, or stayed by any effective action of any state or federal regulatory or legislative bodies or courts of competent jurisdiction, or if any applicable state tariffs are adopted, the Parties shall expend diligent efforts [....]"

D. Assignment

SBC proposes that Level 3 not be allowed to assign or transfer this agreement to its affiliate if the affiliate already has an interconnection agreement with SBC. SBC states that, otherwise, an affiliate could get out of its existing agreement and adopt this one without having to negotiate a replacement agreement.

SBC fails to show how transfer of this agreement to a Level 3 affiliate with a separate agreement in another state could lead to difficulties. This agreement deals with Level 3's operations in California, and confers no rights or authorities for Level 3 to operate outside the jurisdiction of the CPUC in another state. Similarly, there is no evidence that an agreement approved by another state confers rights or authorities to operate in California. The 2000 arbitration between SBC and Level 3 addressed and rejected SBC's proposed limitation on assignment,⁴⁸ and SBC offers no basis for reversing that prior resolution.

Accordingly, I resolve GT&C-11 by rejecting SBC's proposed language in § 29.1.

⁴² A.00-04-037, Final Arbitrator's Report (September 5, 2000), pp. 24-25.

⁴³ Verizon Petition for Emergency Declaratory and Other Relief, Policy Statement, WC Docket No. 02-202, FCC 02-337 (rel. Dec. 23, 2002) (Verizon Policy Statement).

⁴⁴ Level 3 asserts that its proposal is consistent with the Verizon Policy Statement. However, Level 3's proposed language would permit two late payments without triggering the security deposit requirement, while the Verizon Policy Statement permits only one late payment.

⁴⁵ Application of SBC Communications Incl., et al. for Authorization to Provide In-Region, InterLATA Services in Michigan, WC Docket 03-138, 18 F.C.C. Rcd. 19,024 (rel. Sept. 17, 2003), at ¶182.

⁴⁶ Although SBC originally proposed August 1, 2004, as the baseline date, it offers October 27, 2004, in its alternative language.

⁴⁷ Application of AT&T Communications of California, Inc. for Arbitration of an Interconnection Agreement with Pacific Bell Telephone Company, A.00-01-022, Final Arbitrator's Report, p. 398.

⁴⁸ Level 3 Communications, LLC Petition for Arbitration with Pacific Bell Telephone Company, A.00-04-037, Final Arbitrator's Report.