Disputed Issues

The following issues, as stated by the parties in the Revised Statement of Unresolved Issues, remain in dispute and are decided by the Arbitrator as follows:

Discussion and Resolution:

The matrix furnished to the Arbitrator as part of the parties' Joint Revised Issues Matrix frames this issue exactly as stated above. Verizon's summary of its position is simply that, "The [ICA's] intercarrier compensation provisions should be consistent with federal law." Pac-West's position summary essentially responds that although the ICA compensation provisions should be "consistent with state and federal law," Verizon's proposed contract language does not properly implement the FCC's ISP Remand Order, and creates new terms that are not consistent with FCC or CPUC regulatory precepts. Although each party's brief devotes extensive discussion to various disputed issues raised by their respective contract proposals, they have done little to explain how there issues are joined in relations to the ICA.

The Arbitrator adopts the following principles to govern the contractual relationship of the parties prospectively in the new ICA. Pac-West's proposed "package" of provisions best reflects these principles, and is adopted by the Arbitrator:

· Whether or not a call is "local" depends solely upon the NPA-NXXs of the calling and called parties as established by Verizon's traditional local calling areas, and does not depend upon the routing of the call, even if it is outside the local calling area. This is consistent with the Commission's consistent manner of rating calls, is an industry wide practice, and recognizes the essential difference in the parties' respective network architectures, as discussed above. Intercarrier compensation obligations between these two carriers must be consistent with this precept unless the underlying rule is changed. To the extent that this result varies from that in the recent GNAPs proceeding, the difference is based upon the different GNAPs proposal, which would have obliterated the distinction between local and toll traffic by creating LATA-wide "local" calls.

· Verizon may not implement the reciprocal compensation rate caps for presumptively ISP-bound traffic set forth in the FCC's ISP Remand Order until it has filed advice letters certifying that it has made mirroring offers to all interconnected carriers in California. This is consistent with previous direction of the Commission to Verizon. Any Verizon actions that fall short of compliance with this requirement are inadequate to satisfy the Commission's test, and may not constitute a basis for imposing rate caps on ISP-bound traffic in the ICA.

· If and when effective, the rate caps in the FCC ISP Remand Order shall govern compensation arrangements only with respect to ISPs. Intercarrier compensation for other local traffic under the ICA will not be driven by that order. Local traffic to customers reasonably identifiable as paging carriers will not be considered ISPs in the ICA when the order is implemented, unless the order clearly and finally establishes otherwise.

· There is a preference for anticipating and resolving contingencies in the ICA, rather than leaving them to other dispute resolution processes. Pac-West's proposed method of doing so is adopted by the Arbitrator in lieu of the alternative absence of closure that would result from Verizon's proposal.

Discussion and Resolution:

Verizon argues that the rules governing intercarrier compensation for Internet traffic set forth in the ISP Remand Order should apply to the traffic Verizon and Pac-West exchanged (1) during the period prior to this arbitration when they were renegotiating an expiring ICA, and (2) not later than the period when they were renegotiating an expired ICA. Pac-West argues that the order specifies that compensation arrangements are to be modified only when the ICA is either expressly amended or renegotiated.

The Arbitrator adopts Pac-West's position. It is the renegotiation of an "expired or expiring" ICA that governs, not the fact that the ICA is either expired or expiring. This is consistent with Decision (D.) 02-01-062, which ruled that Verizon may not unilaterally impose payment reductions, and must wait until carriers renegotiate expired or expiring ICAs.

Discussion and Resolution:

Pac-West has certain customers with endpoints that are not physically located in the local exchanges to which Pac-West has assigned those customers' NXX numbers. Many Pac-West customers are co-located at Pac-West's switch in one local exchange, but have phone numbers for one or more foreign exchanges. Pac-West claims that Verizon must pay reciprocal compensation for these calls.

As the Arbitrator has emphasized above, in recognition of the nature and relationship of these two carriers' respective network architectures, it makes almost no difference whether individual calls are disparately rated or routed, as long as the called and calling numbers are assigned to the same local calling area. Until the governing law conclusively provides otherwise, as long as a call meets the Commission's present test for being rated locally based upon the assigned NPA-NXXs, it should be considered local. This is the same result reached by this Arbitrator on similar facts in relation to PacBell's (now SBA's) proposed ICA with Pac-West. This is an equitable result in light of the testimony in the record as to how all calls are handled by these carriers and in light of the absence of evidence of the actual revenue impact this traffic has on Verizon. Indeed, as Pac-West observes, Verizon has conceded that the location of Pac-West's customers is immaterial to Verizon's transport costs, because Verizon must hand off all traffic to a Pac-West POI.

Discussion and Resolution:

Verizon seeks to have Pac-West pay for hauling a Verizon-originated call to a POI located within the same LATA, but outside the local calling area. Verizon claims that to do otherwise would unfairly subsidize Pac-West's cost of interconnection and choice of network design at Verizon's expense. In addition to incurring higher transport costs for delivering these calls to Pac-West that Verizon would not incur if the calls were its own, Verizon contends that it loses access charges to which it would be entitled for calls for calls that do not originate and terminate in the same local calling area. To remedy these problems Verizon argues that an "appropriate" compensation scheme is needed.

To meet this need Verizon proposes to establish a financial interconnection point (IP) that is different from the physical POI, and make Pac-West financially responsible for delivering traffic to Pac-West's "geographically relevant" IP; Pac-West would be responsible for transporting the traffic to its customer on the other side. Pac-West contends that existing FCC rules govern, and those rules prohibit the imposition of such charges on calls that are local under this Commission's definition.

Pac-West argues that the post-Act costs that Verizon would not otherwise have had to incur but for the advent of CLECs is simply a cost of competition that the Act contemplates. Pac-West points out that Verizon is developing a product of its own, Internet Protocol Routing Service (IPRS), which will offer Verizon's subscribers local access on outbound calls and would not impose or impute access charges on inbound calls. Pac-West implies that the Commission should not confer an unintended long-term competitive advantage on Verizon by providing a short-term solution to this issue in the guise of striving for an equitable division of costs.

The fact that Verizon suffers a sort of economic double jeopardy under Pac-West's system-incurring incremental transport costs and paying reciprocal compensation for the same calls--is troubling to the Arbitrator, and may pose questions of a constitutional dimension. However, these issues will be settled in a decision to be issued by the FCC in a pending rulemaking, In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, FCC 01-032 (Rel. April 27, 2001), (the Intercarrier Compensation NPRM). In the meantime, the Arbitrator is not equipped to resolve such questions in the course of this arbitration. At best the problem calls for an interim solution.

The Commission recently reviewed the applicable principles in Decision (D.) 02-06-076 in Application (A.) 01-11-045 and A.01-12-026 (collectively, the GNAPs application), another ICA arbitration matter. Without reiterating the entire rationale, under circumstances resembling those presented here we decided that GNAPs, the CLEC, may not be assessed transport charges on the ILEC's side of the POI for local calls (as determined solely by the rating points), but that the originator of the call must pay access charges in the form of transport and tandem switching, if applicable, to the terminating ILEC for carrying intraLATA traffic across the ILEC's network to the called party. Finally, D.02-06-076 holds that for calls that are intraLATA in nature, i.e., those beyond 16 miles, traditional access charges will apply.

In this instance, the Arbitrator finds that Pac-West's proposal more closely conforms to currently governing principles than Verizon's. Until the FCC settles the matter in the Intercarrier Compensation NPRM, the current standards must be reflected in the ICA, subject to provisions for handling intervening changes in the law. The Arbitrator therefore adopts Pac-West's proposal.

Discussion and Resolution:

Verizon proposes a two-year contract term, with provision to extend, because of the dynamic nature of the telecommunications industry. Pac-West proposes a three-year term, the industry standard. In light of the risk of conflict posed by the expiration of an ICA, we agree that a three-year term is preferable. Intervening changes to controlling legal and regulatory principles, and the advent of new products and technology, may be accommodated by including appropriate terms, such as change of law provisions, in the ICA.

Discussion and Resolution

Verizon seeks to avoid the inclusion of an "evergreen" provision in the ICA that would potentially keep the terms of the ICA in effect indefinitely after a party has invoked its right to terminate, if renegotiation is underway. Pac-West's proposal would prevent a recurrence of circumstances that have created controversy in this arbitration concerning the effectiveness of its provisions following the conclusion of the contractual period for renegotiation.

Although both parties' proposals have merit, on balance Pac-West's approach poses less risk of controversy and potential harm to the public. The Arbitrator adopts Pac-West's solution.

Discussion and Resolution:

Verizon proposes a provision in the ICA that would enable it to discontinue a service or benefit under the ICA upon thirty days' notice to Pac-West in the event of a change of law that allows it to do so. Pac-West opposes such a provision on the grounds that it would give Verizon unfettered discretion to discontinue the service without affording Pac-West an opportunity to challenge the validity of Verizon's decision.

The Arbitrator agrees with Verizon that Pac-West might wield its proposed alternative provision as a club, rather than using it as a shield. Rule 6, which would require Verizon to file an advice letter in such circumstances, affords adequate protection to Pac-West. To the extent that Verizon's proposal is not in consistent with Rule 6, the Arbitrator adopts it.

Discussion and Resolutions:

Verizon seeks inclusion of an assurance of payment provision in the ICA, and proposes to make the provision unilateral because its own stability has been demonstrated over time. Pac-West does not object to the inclusion of such a provision, but would make it mutual rather than unilateral.

The Arbitrator will not create any presumption concerning the financial fitness or bona fides of either party to this ICA. If an assurance of payment provision is to be included in the ICA, it should be mutual.

Discussion and Resolution:

Verizon contends that if the Arbitrator rejects Verizon's GRIP and VGRIP proposals for sharing transport costs to Pac-West's POIs, then at least it should not have to pay distance-sensitive rates to Pac-West for this transport. Verizon claims that limiting Pac-West to non-distance sensitive rate elements for transport would prevent Pac-West from charging Verizon excessive transport rates when Verizon delivers its originating traffic to a distant Pac-West POI that is not on Verizon's network.

The Arbitrator agrees that Verizon's approach is more equitable than Pac-West's alternative proposal that each carrier be strictly responsible for the costs on its own side of the POI, as it attenuates some of the inequity imposed by the Act by requiring ILECs to accommodate CLECs under the single-POI approach. The Arbitrator therefore adopts Verizon's proposal.

Discussion and Resolution:

In consideration of the Arbitrator's rejection of Verizon's GRIP and VGRIP proposal in resolving Issue No. 4, Verizon's proposal to assess the non-recurring cost of a two-way interconnecting trunk on Pac-West by charging Pac-West one-half of the non-recurring charges is reasonable and equitable. The Arbitrator adopts Verizon's proposal.

Issue No. 17(b): Tandem Trunking Limitations

Discussion and Resolution:

Verizon proposes a provision in the ICA that would limit the amount of traffic at a Verizon tandem, which would enable Verizon to avoid premature exhaust of its tandem switches. Premature tandem exhaust is a concern of the Commission, and such a provision was adopted in Verizon's recent ICA arbitration with GNAPs. Pac-West has advanced no compelling reason why it should be adopted here. The Arbitrator adopts Verizon's proposal.

Discussion and Resolution:

Because Pac-West will be in control of when and how many two-way trunks will be ordered, Verizon should not be held contractually responsible for blocking and similar service problems on two-way trunks.5 The Arbitrator therefore adopts Verizon's position on this issue, subject to revision at Pac-West's option, to make clear that the section does not apply to Verizon maintenance interval deficiencies and Verizon missed installation appointments.

Discussion and Resolution:

This issue pertains to how the parties should measure and bill traffic over interconnection trunks. Pac-West's proposal utilizes standard industry nomenclature for these measurements; Verizon's does not. The Arbitrator adopts Pac-West's proposal and expressly rejects any inconsistent portions of Verizon's proposal.

Issue No. 19: Third Party Carrier Arrangements

Discussion and Resolution:

This issue is concerned with the parties' respective obligations vis a vis transit traffic. The parties do not even frame this issue in the same manner. Accordingly, the Arbitrator adopts both parties' positions: once the level of traffic exchanged between Pac-West and a third-party carrier reaches the DS-1 threshold, Pac-West should directly interconnect with that carrier; provided, however, that in handling Pac-West's transit traffic Verizon shall comply with California Public Utilities Code Section 558.

Discussion and Resolution:

Pac-West contends that Verizon should pay reciprocal compensation to Pac-West for unidentified transit traffic delivered from a third-party carrier to Pac-West; Verizon rejects this contention. The Arbitrator finds that the parties' rights and responsibilities are the same as those he recently adopted for the ICA between SBA and Pac-West: Verizon should have no responsibility to pay reciprocal compensation owed by the third party for such traffic, but has the obligation to exert its best efforts on Pac-West's behalf to provide the necessary information so that Pac-West can collect the reciprocal compensation from the third party.

Issue No. 23: Access to UNEs

Discussion and Resolution:

The parties appear not to have joined this issue, perhaps because they misunderstand each other's position. Verizon is not attempting to restrict Pac-West's access to UNEs through collocation, and there is no dispute that Pac-West should pay for interconnection facilities at UNE rates. The parties should adopt conforming language to merge and harmonize their positions on this issue.

Discussion and Resolution:

Verizon proposes that Pac-West bear the cost of trips Verizon technicians make to a Pac-West customer's premises, where Verizon has confirmed that Pac-West's local service request requires a technician visit, and the work is not completed due to the actions of the customer. Pac-West proposes that Verizon technicians should be dispatched to Pac-West customer locations only upon confirmation from Pac-West; that if, upon arrival, the customer is absent, Verizon should contact Pac-West and allow a reasonable period of time, e.g., 20 minutes, for Pac-West to locate the customer; and that if Verizon fails to meet its due date for installation, it should waive installation charges for the service.

Verizon's proposal is simpler and more rational than Pac-West's, and the Arbitrator adopts it for that reason. If the parties' previous experience indicates that Verizon has abused the need for service requests or failed to keep its appointments with customers, the parties should add reasonable (and rationally related) provisions to impose appropriate economic sanctions.

Issue No. 28: Pac-West Charges to Verizon

Discussion and Resolution:

Verizon's proposal specifies that Pac-West will charge Verizon no more than Verizon charges Pac-West for comparable services, unless Pac-West demonstrates to Verizon that its costs exceed Verizon's costs for those comparable services. Pac-West's proposal would require reciprocal compensation to be "symmetrical": tariffed services should be based on the tariffed rates approved by the Commission.

The Commission has approved both carriers' rates for services. These Commission-approved tariffs apparently extend to the services at issue here. Despite Verizon's lengthy argument to the contrary, on the basis of these facts there is no possibility that the symmetrical application of tariffs which have been reviewed and approved by the Commission will result in overreaching by Pac-West. The Arbitrator therefore adopts Pac-West's proposal.

5 This does not imply that Verizon should not be held responsible for complying with performance incentives and standards independently imposed by the Commission.

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