IV. Overview of the Proceeding

A. Parties' Proposals

The active parties in this proceeding form into two opposing groups. Those parties representing ILECs all seek an immediate end to the existing Commission policy calling for the payment of reciprocal compensation for ISP traffic. The ILECs support an alternative approach characterized as "bill-and-keep," whereby no LEC would compensate any other LEC for delivery of ISP traffic. Instead, each LEC would recover any necessary costs from their own customers for delivery of ISP traffic.

The parties representing CLECs and CISPA oppose the "bill-and-keep" proposal, and advocate instead continuation of the Commission's existing policy regarding the payment of reciprocal compensation for the delivery of dial-up ISP traffic. ORA supports the CLECs' and CISPA's position. TURN expressed neutrality on the issue of intercarrier compensation, but opposed the ILECs in claiming that they suffered financial losses from ISP reciprocal compensation warranting any form of retail ratepayer relief.

B. Summary Conclusions and Framework for Approaching the Issues

As a basis for approaching the issue of reciprocal compensation, we first consider the legal requirements of the Act, and whether, as a matter of law, the provisions of the Act prescribing the payment of reciprocal compensation apply to ISP-bound calls. If a call is found to be local as defined under the Act, and the incoming and outgoing flow of traffic is out of balance, then reciprocal compensation must be paid by law. No further inquiry would be necessary as a basis to require such payment.

If, on the other hand, ISP-bound calls are found not to be local, as defined by the Act, then reciprocal compensation is not required by federal law. Nonetheless, the FCC has given this Commission latitude either to impose reciprocal compensation requirements on ISP-bound traffic, or to refrain from doing so, as deemed appropriate based on other relevant factual considerations.⁶

Based on the record before us in this rulemaking, we conclude that ISP calls meet the criteria for treatment as local calls subject to reciprocal compensation as prescribed under the Act. We conclude that on this basis alone, there are legal grounds to require that reciprocal compensation be applied to ISP-bound calls made over local phone lines. Nonetheless, in the interests of a complete record, we also examine the other factual grounds upon which reciprocal compensation for ISP traffic may be justified as laid out in the OIR. These other factual grounds include the examination of the financial and competitive impacts on both ILECs and CLECs resulting from paying reciprocal compensation for ISP traffic. We also consider the potential effects of alternative policies on ISPs and on the public at large. Based on these factual considerations, we come to the same conclusion, namely, that as a preferred outcome in carriers' negotiations for interconnection agreements, reciprocal compensation should continue to be paid for dial-up ISP traffic in the same manner as for other local traffic.