The Act

This arbitration is being conducted under Section 252(b) of the Act, 47 U.S.C. § 252(b). The Act was intended by Congress as a means to encourage competition for local services, which in the past was severely circumscribed by industry structure and regulation. It does so by essentially requiring ILECs' facilities to be made available for use by CLECs in return for compensation according to specified standards. In resolving the disputed issues in this arbitration, the Arbitrator must ensure that the resolution meets the requirements of Section 251 of the Act, including any implementing regulations of the Federal Communications Commission (FCC), adhere to pricing standards mandated by Section 252(d) of the Act, and provide a schedule for implementation of the terms and conditions by the parties to the agreement. (Id.)

The reason for the most vigorous disputes in this arbitration is that Pac-West believes the Act obligates Verizon to bear the cost of accommodating Pac-West's system requirements, which requires Verizon to haul Pac-West traffic longer distances to reach a Pac-West POI, on average, than it would if the traffic were entirely its own. Verizon rejects this conceptual approach, and urges the Arbitrator to adopt a more equitable sharing of this burden. To the extent that Pac-West cannot (or will not) provide its own facilities to haul traffic the additional distances dictated by its geographical reach, comparatively low traffic volume, small customer base, and paucity (as well as concentration) of switches, Verizon seeks to recover its resultant incremental costs, pursuant to the Act.⁴

The result is that the parties, having failed to reach a negotiated accommodation while the FCC and the courts struggle to settle basic statutory and federal constitutional issues relating to compensation standards under the Act, look to the Arbitrator to resolve these strategic questions. To a much greater degree than tactical questions, such as the actual level of Verizon's incremental cost of transporting and switching Pac-West's traffic, there are this issues presented here. Because there is no unambiguous or final solution to some of the "big ticket" issues under current law or regulation, the Arbitrator had no alternative but to resort to equitable solutions on some of this issues.

Pac-West's Motion to Dismiss

On October 3, shortly before the hearing, Pac-West filed a motion to dismiss the entire Petition for Arbitration or, in the alternative, to dismiss or summarily resolve in Pac-West's favor issues that are "related to or require a showing" that Verizon has satisfied FCC's conditions for charging rates for unbundled network elements (UNEs) in accordance with TELRIC costing principles. On October 11 Verizon filed a written response to the motion. Pac-West renewed the motion at the outset of the hearing, and the Arbitrator took it under submission.

The grounds for Pac-West's motion are that all unbundled network element (UNE) rates contained in ICAs must, as a matter of law, be based upon TELRIC costing principles, and the undisputed fact that Verizon's UNE rates are not. Verizon responds that Pac-West does not lease UNEs in California, did not object to the UNE rates during the negotiations, and did not include the institution of TELRIC-based UNE rates among the issues to be arbitrated when the parties filed the Revised Statement of Issues. Thus, argues Verizon, the Arbitrator should not consider the motion.

The parties do not dispute that the Act now requires UNE rates to be determined using costs determined in conformance with TELRIC methodology. (47 U.S.C. Section 252(d)(1); 47 CFR Section 51.503 et seq.). The Arbitrator therefore agrees with Pac-West that "as a matter of law, all UNE rates contained in incumbent interconnection agreements [including the one between the parties here] must be based on TELRIC costing principles, and the burden of proving that the rates comply with TELRIC falls on [Verizon]." (Motion, p. 5.) The Arbitrator also agrees that this Commission "has yet to approve a TELRIC cost study fo [sic] Verizon's California operations or to adopt UNE rates based on approved costs." (Id.) Therefore, Pac-West's alternative motion for summary adjudication of issues is granted to this extent: Wherever the resolution of an issue will require Pac-West to purchase a UNE under the terms of the prospective ICA that is the subject of this arbitration, that UNE shall be purchased at rates required by the current ICA until this Commission has approved TELRIC-based rates for Verizon's purchase of UNEs from Pac-West.

It is the Arbitrator's intent that the status quo be maintained between these parties for the pricing of UNEs until a new pricing standard is effective under the law. As to all other compensation matters the motion is denied, and the Arbitrator's determination of each issue is based upon the arguments and evidence presented by the parties in this arbitration.