III. Procedural History and Scope of this Proceeding
The carriers dispute over the treatment of ISP calls was first formally brought before this Commission in the Local Competition proceeding (R.95-04-043/ I.95-04-044). A group of parties identified as the California Telecommunications Coalition (Coalition) filed a motion in that proceeding for a Commission order that the reciprocal compensation provisions under the Act apply to ISP-bound traffic. In D.98-10-057, we granted the motion, concluding that such ISP calls are local and are subject to the reciprocal compensation provisions of applicable interconnection agreements.
On February 25, 1999, the FCC adopted federal rules relating to the question of whether ISP-bound calls constitute local traffic.2 In the Declaratory Ruling, the FCC stated that for jurisdictional purposes, ISP-bound traffic should be analyzed on an end-to-end basis, rather than by breaking the traffic into component parts. The FCC stated that the communications at issue do not terminate at the ISP's local server, but continue on to the ultimate destination or destinations at an Internet web site that is often located in another state. (Declaratory Ruling ¶ 12.) The FCC noted that it had previously distinguished between the "telecommunications component" and the "information services component" of end-to-end Internet access for purposes of determining which entities are required to contribute to universal service. The FCC had also previously concluded that ISPs do not appear to offer "telecommunications service" and thus are not "telecommunications carriers." Nonetheless, the FCC stated it had never found that "telecommunications" end where "enhanced" service begins. (Id., ¶ 13.) The FCC's Order thus found that while ISP-bound traffic is "jurisdictionally mixed," it appeared to be "largely interstate." The FCC rejected the two-component theory for calls to ISPs, applied a one-communication theory, and found that the reciprocal compensation requirement of Section 251(b)(5) of the Act did not govern inter-carrier compensation for ISP-bound traffic.3
The FCC, however, did not decide whether reciprocal compensation would be due in any particular circumstance. Parties could voluntarily agree to reciprocal compensation, or a state regulatory body could impose such payment obligations on carriers in arbitrating interconnection agreement disputes under Section 252 of the Act.
Both GTE California, Incorporated, now known as Verizon California Inc. (Verizon), and Pacific Bell (Pacific) applied for rehearing of D.98-10-057, arguing that because the FCC had determined that calls to ISPs are jurisdictionally interstate, this Commission could not require that those calls be subject to reciprocal compensation. We denied rehearing. In D.99-07-047, we explained that the FCC's Declaratory Ruling did not negate our prerogative to treat ISP-bound calls as local for purposes of reciprocal compensation. Notwithstanding the FCC's designation of ISP-bound traffic as "largely interstate" for jurisdictional purposes, our authority over interconnection agreements pursuant to Section 252 extends to both interstate as well as intrastate matters. Irrespective of how ISP traffic is categorized for jurisdictional purposes, the FCC did not intend to preempt or interfere with state commission decisions regarding compensation for ISP-bound traffic. The FCC declared that: "Until adoption of a final rule, state commissions will continue to determine whether reciprocal compensation is due for this traffic."
Although in D.99-07-047, we upheld our previous decision authorizing the payment of reciprocal compensation for ISP-bound calls under then-existing interconnection agreements, we determined that a more in-depth and comprehensive inquiry into the whole question of ISP reciprocal compensation was warranted for purposes of prospective policy making. Accordingly, this OIR was opened on February 15, 2000, to revisit the reciprocal compensation policies relating to ISP-bound traffic previously addressed in the Local Competition proceeding. In particular, we sought to reexamine the question of whether reciprocal compensation should be required for the delivery of ISP-bound traffic in view of the FCC Declaratory Ruling finding ISP calls to be largely interstate in nature.4
A scoping memo was issued on May 2, 2000, (Scoping Memo) categorizing this proceeding as ratesetting, and bifurcating the proceeding into two phases. Phase 1 of the proceeding was designated to reexamine the question of whether Commission-mandated payment of reciprocal compensation for ISP-bound traffic is appropriate. Depending on the outcome of Phase 1, the need for further proceedings would be determined if specific rates for transport and delivery of ISP-bound traffic needed to be adjudicated. Phase 1 also deferred considerations of issues relating to the use of disparate rating and routing points and related intercarrier compensation issues that were the subject of D.99-09-029. These issues were identified for further consideration in the OIR issued on February 15, 2000, but will be considered in a subsequent phase of the proceeding.
In the Scoping Memo, certain policy issues were designated to be addressed through written comments, and certain factual issues to be addressed through prepared testimony. Opening and reply comments on the policy issues were filed on July 14 and August 4, 2000, respectively. Evidentiary hearings on the factual issues were conducted from August 14 through 29, 2000. Testimony representing the views of the ILECs was offered by Pacific, Verizon, and Roseville Telephone Company (Roseville). Testimony representing the views of CLECs was presented by Pac-West Telecom, Inc. (Pac-West), ICG Telecom Group, Inc. (ICG), Focal Communications Corporation (Focal), and RCN Telecom Services of California (RCN). Other CLECs joined in filing written comments, but did not serve testimony.5 The California Internet Service Providers Association (CISPA) also offered testimony representing the views of its member ISPs. Ratepayer interests were represented by the Commission's Office of Ratepayer Advocates (ORA) and The Utility Reform Network (TURN). Opening and reply briefs were filed on September 18 and October 2, 2000, respectively. Oral arguments were held before the Commission on November 7, 2000. Over 170 exhibits were admitted into the record, with 1898 pages of hearing transcript.
2 FCC Declaratory Ruling in CC Docket No. 96-98 and Notice of Proposed Rulemaking in CC Docket No. 99-68, adopted February 25, 1999 3 Id. 4 On March 24, 2000, the District of Columbia (D.C.) Circuit Court vacated the FCC's declaratory ruling, and remanded the matter. See Bell Atlantic Telephone Companies v. Federal communications Commission, 206 F.3d 1, 5-6 (D.C. Circuit Mar. 24, 2000). The D.C. Circuit found that the FCC had failed to explain adequately why its end-to-end analysis, which had been previously used solely in jurisdictional determinations, was also applicable in determining whether reciprocal compensation was due for termination of ISP calls. In finding that the FCC had not supplied a "real explanation" for its decision to treat end-to-end analysis as controlling, the D.C. Court vacated the ruling and remanded the case. As of this date, a further ruling from the FCC remains pending. Resolution of the remanded issues involved in the declaratory ruling remains a precondition for the FCC's release of its rules concerning intercarrier compensation for ISP-bound traffic and the scope of state PUC authority with respect thereto. Once the issues which are the subject of the FCC's vacated declaratory ruling are resolved, the FCC will presumably issue its rules applicable to intercarrier compensation for ISP-bound traffic. 5 Other CLECs filing comments included AT&T Communications of California, Level 3 Communications, Time Warner Telecom of California, and Western Telephone Integrated Services.
