SBC-CA contends that, pursuant to current FCC rules, all but limited switched access traffic must be terminated over access trunks, and that this traffic is subject to switched access charges. According to SBC-CA, switched access traffic (with limited exceptions) is traffic that originates from an end user physically located in one local exchange and delivered for termination to an end user physically located in a different local exchange. SBC-CA says that this includes traffic using Internet Protocol (IP) over the Public Switched Telecommunications Network (PSTN) either at the originating or terminating end of the call, or for transmission in the middle of the call (e.g., IP-PSTN, PSTN-IP, or PSTN-IP-PSTN). SBC-CA asserts that the use of IP technology does not change whether or not it is switched access traffic. SBC-CA contends that existing tariffs contain various methods to deal with the occasional lack of geographically accurate endpoint information. SBC-CA says the Commission should find IP-PSTN traffic is subject to access charges to protect SBC-CA against unlawful access charge avoidance schemes that could jeopardize the affordability of local rates until the FCC completes its pending work on intercarrier compensation and Voice over Internet Protocol (VoIP) traffic. Finally, SBC-CA recognizes that some switched access traffic may be improperly delivered to SBC-CA or MCIm by a third party, and proposes a method to address such traffic, which may include blocking such traffic if authorization is obtained from the Commission.

MCIm believes SBC-CA's proposed language in NIM Appendix § 25 is unnecessary since virtually the same proposed language is in Reciprocal Compensation Appendix § 16. MCIm asserts that SBC-CA's proposed language is vague, ambiguous and confusing and will lead to disputes. MCIm contends SBC-CA's proposed language has the effect of imposing switched access terms, conditions and rates on VoIP and other enhanced service traffic in direct conflict with FCC's long-standing access charge exemption for enhanced (information) services, including internet service provider (ISP)-bound traffic. MCIm claims state regulation of this traffic is preempted by the FCC, and that this proceeding is not the proper forum to seek modification to FCC's rules. As such, MCIm says that, pending completion of the FCC's further inquiry into these matters, the FCC's interim compensation scheme for ISP-bound traffic should apply for transport and termination of VoIP and other enhanced services traffic.

With one exception discussed below, SBC-CA's proposed language is adopted.

With these three issues, parties present disputes regarding NIM Appendix § 25, and Reciprocal Compensation §§ 16 and 18. Parties agree that the disputes do not involve PSTN-IP-PSTN traffic (i.e., "IP in the middle"). That is, parties agree on "the proper intercarrier compensation arrangements for `IP in the middle traffic.' " (MCIm Opening Brief, page 172.) That compensation includes access charges where appropriate (i.e., traffic that originates in one local exchange and terminates in another local exchange), and reciprocal compensation where appropriate (i.e., traffic that originates and terminates within one local exchange).

Parties also agree that the "status quo" should be maintained until the FCC concludes its current inquiries into intercarrier compensation and IP-enabled services, including VoIP.47 Parties agree that FCC rules now exempt certain enhanced (information) services traffic from access changes. Parties disagree whether or not that FCC exemption applies to IP traffic, including VoIP. SBC-CA says:

    "Both parties assert that, until the FCC issues new access charge rules applicable to IP-PSTN traffic, this Commission should apply existing compensation rules to such traffic. [footnote deleted.] Both parties claim their proposed contract language does this; obviously, one of the parties is wrong." (Opening Brief, page 170.)

The approach generally used in this arbitration decision is to apply the result reached in the 2001 ICA, and/or the status quo, unless new fact or law justifies a change. That is the approach for this issue as well.48 For the following reasons, the status quo is determined to be as stated by SBC-CA, and SBC-CA's proposed language is adopted.

The general regulatory status quo is clear: calls originating and terminating in the same exchange are subject to reciprocal compensation; calls originating and terminating in different exchanges are subject to switched access charges. This is true despite the originating or terminating location of the call, or technology used, with limited exception.

The reason to maintain this system is also clear. The industry compensation scheme is based on this system. Changes must be done recognizing the effects, if any, on such things as: (a) programs that ensure accessible and affordable telephone service, (b) reasonable intercarrier compensation that efficiently and equitably recovers costs from customers and provides a reasonable opportunity for shareholders to earn a return on investment, and (c) creating fair competitive opportunities on a technology neutral basis. To do otherwise invites disruption and inefficient outcomes.

Moreover, the existing system is generally based on the geographic location of customers. This system may change. For now, however, the assigning of NPA/NXX codes largely permits reasonable compensation based on the FCC's current scheme. CLECs, like MCIm, tend to honor the physical locations in assigning numbers in order to enable reasonable use of the 911 emergency system. SBC-CA asserts that adequate systems are in place to provide reasonable compensation for the few calls where the physical location cannot be determined.

According to SBC-CA, the exception to this system is enhanced service provider (ESP) traffic, including ISP-bound traffic. The dispute here is whether or not the FCC's exemption for ESP traffic includes IP-PSTN traffic. The most reasonable reading is as presented by SBC-CA. As SBC-CA convincingly says:

    "The FCC's so-called `ESP exemption' does not exempt interexchange IP-PSTN traffic from access charges. Under the ESP exemption, in certain circumstances `enhanced service providers are treated as end users for purposes of [the FCC's] access charge rules.' [footnote deleted.] But that exemption applies only to an ESP's use of the PSTN as a link between the ESP and its subscribers. A traditional ESP-bound call uses the PSTN only as a link between an end user and its ESP to obtain access to the ESP's information service (e.g., for internet access). The FCC exempted ESPs from access charges for such calls, where the calls are delivered from the ESP's subscribers to the ESP's `location in the exchange area.' [footnote deleted.] As the FCC subsequently described its ESP exemption, that exemption carves ESPs out from the access charge obligation when they `use incumbent LEC networks to receive calls from their customers.' [footnote deleted.] In other words, the FCC `determined that exempted [ESPs] should not be subjected to originating access charges for ESP-bound traffic.' [footnote deleted.]

    "The interexchange IP-PSTN traffic at issue here, on the other hand, uses LEC switching facilities and the PSTN to deliver telephone calls from one end user that subscribes to an IP service to another end user that receives a telecommunications service over the PSTN. In other words, this traffic is not `ESP-bound,' but is `PSTN-bound' in the exact same fashion as a traditional telephone call. Similarly, IP-PSTN service providers do not merely `use incumbent LEC networks to receive calls from their customers,' [footnote deleted.] but they use the PSTN to terminate calls from their customers to non-customers in other exchanges (IP-PSTN traffic), or to receive calls from non-customers in other exchanges (PSTN-IP traffic) - just like traditional long-distance telephone calls. In short, the FCC's limited ESP exemption simply does not apply to these services. [footnote deleted.]" (SBC-CA's Opening Brief, pages 178-79, emphasis included in original.)

SBC-CA says it agrees with MCIm that IP-PSTN traffic is an information service for the person on the IP end of the call, but disagrees with MCIm that the FCC has made such a ruling. Even if it is an information service, SBC-CA correctly says:

    "The FCC rule that governs reciprocal compensation expressly excludes `traffic that is interstate or intrastate exchange access, information access, or exchange services for such access' from reciprocal compensation. Thus, even assuming that the FCC one day rules that IP-PSTN traffic is an information service, any proposal to require reciprocal compensation for such traffic when it is interexchange again runs directly afoul of the FCC's current rules." (Opening Brief, page 179 citing 47 C.F.R. § 51.701(b)(1), emphasis added.)

MCIm argues that the only rate available for intercarrier compensation for the VoIP traffic at issue here is the FCC's ISP compensation rate of $0.0007 per minute of use from the FCC's ISP Remand Order. SBC-CA correctly points out, however, that this is an interim compensation scheme with rates lower than reciprocal compensation rates only for traffic delivered to ISPs. It is to limit, if not end, regulatory arbitrage through serving ISPs. IP-PSTN traffic, however, is not traffic delivered to ISPs, and cannot qualify for the $0.0007 rate intended for ISP-bound traffic.

Importantly, it would be bad public policy to adopt MCIm's recommendation in advance of the FCC's determination because to do so would encourage deployment of this technology based on regulatory decisions rather than the merits of the technology. The arbitration decision here should be technology neutral.

SBC-CA also proposes language specifying procedures for third party traffic inappropriately delivered over local interconnection trunks. SBC-CA's language is adopted to provide a reasonable procedure for parties to work cooperatively to obtain proper terminating access charges.

In support of its alternative view, MCIm says that as long ago as the Computer Inquiry in 1966, the FCC has drawn a distinction between basic and enhanced services. Any service that undergoes a net protocol conversion, according to MCIm, is an information or enhanced service. MCIm argues that IP traffic involves a net protocol conversion; is, therefore, an information or enhanced service; and, as an information service, is not subject to access charges. To the contrary, as explained above, not all information or enhanced services quality for the ESP exemption.

MCIm argues that VoIP is a nascent technology and should not be required to pay rates that include subsidies for the traditional network. Rather, it should be permitted to develop without these unreasonable burdens, according to MCIm.

To the contrary, IP and VoIP have the potential of dramatically changing the telecommunications industry. Intercarrier compensation, including compensation related to IP and VoIP, is the subject to current inquiry at the FCC. This arbitration decision should not prejudge the outcome or give an advantage to any technology. To the fullest extent possible, this decision should maintain the status quo until the FCC determines otherwise. The FCC will make that decision when it is appropriate to do so. In the meantime, the status quo is best accomplished by adopting SBC-CA's proposed language.

MCIm also argues that geographic distinctions are not relevant for IP calls, as found by the FCC in its ISP Remand Order. To the contrary, while the FCC declined to rely on geographic location, MCIm itself says "the ISP Remand Order makes clear that the federal intercarrier compensation regime applies to all ISP-bound traffic..." (MCIm Opening Brief, page 191, emphasis added.) That is, it is ISP-bound, not necessarily all IP and/or VoIP traffic.

SBC-CA's propose NIM Appendix § 25 is virtually the same as Reciprocal Compensation Appendix § 16. SBC-CA does not explain why the same language needs to be repeated. As a result, SBC-CA shall delete the language in NIM Appendix § 25, and shall state "intentionally omitted." Alternatively, SBC-CA shall state:

    a. for NIM Appendix § 25.1: "See Reciprocal Compensation Appendix § 16.1" and

Thus, with this one exception, SBC-CA's proposed language is adopted.

Reply Comments on DAR

In reply comments, Joint CLECs urge reversal of the DAR on this issue. Joint CLECs contend that the DAR goes "well beyond" the scope allowed by the FCC. (Reply Comments, page 3.) To the contrary, the result of the arbitration is to adopt SBC-CA's proposed language, with limited exception. Nothing in that language goes "well beyond" the scope allowed under the FCC's orders. Rather, as SBC-CA shows, it is a careful application of existing compensation rules.

Further, Joint CLECs assert the DAR does not maintain the status quo, but imposes new and unauthorized access charges on all IP traffic. This is not correct. The FCC is soon expected to issue new intercarrier compensation rules. Until that occurs, both SBC-CA and MCIm propose language they assert applies existing rules. For the reasons explained above, SBC-CA's language, with limited exception, does the better job of satisfying that goal, and is adopted.

12.13. Issue Recip Comp 18

Parties refer to the results in NIM 26 and recommend the same outcome. Consistent with that outcome, MCIm's proposed language is adopted for NIM Appendix § 22, and Reciprocal Compensation Appendix §§ 2.1 and 7.

47 SBC-CA cites four proceedings: (1) In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Notice of Proposed Rulemaking, 16 F.C.C. Rcd. 9610, FCC 01-132 (2001) ("Intercarrier Compensation NPRM"); (2) In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Further Notice of Proposed Rulemaking, 20 F.C.C. Rcd. 4685, FCC 05-33 (2005); (3) In the Matter of IP-Enabled Services, WC Docket No. 04-36, Notice of Proposed Rulemaking, 19 F.C.C. Rcd. 4863, FCC 04-28 (2004) ("IP-Enabled Services NPRM"); and (4) Pleading Cycle Established for Grande Communications' Petition for Declaratory Ruling Regarding Intercarrier Compensation for IP-Originated Calls, WC Docket No. 05-283, DA 05-2680 (FCC Public Notice Oct. 12, 2005).

48 SBC-CA asserts the FCC has determined that IP-PSTN services are subject to FCC's exclusive federal jurisdiction and this Commission has no independent state authority to establish unique terms and conditions for IP-PSTN traffic, including VoIP traffic. (SBC-CA Opening Brief, page 168, citing In the Matter of Vonage Holdings Corp. Petition for Declaratory Ruling Concerning an Order of the Minnesota Public Utilities Commission, WC Docket No. 03-211, Memorandum Opinion and Order, 19 F.C.C. Rcd. 22404, FCC 04-267 (2004) ("Vonage Preemption Order"), petition for review pending, California v. FCC, No. 05-70007 (9th Cir).) SBC-CA continues, however, saying that the Commission is a deputized federal regulator and has the duty to ensure the ICA is consistent with federal law. In SBC-CA's view, that means applying the FCC's existing rules on IP-PSTN traffic pending an FCC determination otherwise.

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