VIII. Comments on Proposed Decision
The proposed decision of ALJ Thomas R. Pulsifer in this matter was mailed to the parties in accordance with Pub. Util. Code Section 311(d) and Rule 77.1 of the Rules and Practice and Procedure. Comments were filed on ______________, and reply comments were filed on ______________.
1. Under Section 251(b)(5) of the Telecommunications Act of 1996 (Act), each carrier has the duty to establish reciprocal compensation arrangements for the transport and termination of local telecommunications traffic.
2. The question of whether termination of ISP traffic requires the payment of reciprocal compensation charges depends, in part, on whether such traffic is defined as local or interstate in accordance with the Act.
3. The services provided by an ISP may involve the transmission of information over the Internet beyond the local calling area in which the ISP modem is located, and may, in fact, span the globe.
4. The movement of data over the Internet is separate and distinct from the transmission of telecommunications over the public switched telephone network with respect to the structure of the network, the mode of transmission, the nature of the service provider, and the nature of the service rendered, and the costs of rendering the service.
5. The requirement for reciprocal compensation for call termination in interconnection agreements under the provisions of the Act only applies to local telephone traffic originating and terminating within the same local calling area.
6. Under the 1996 Act, state regulatory commissions have the responsibility to determine which calls will be defined as or treated as "local" calls for purposes of making reciprocal compensation applicable to such calls when handled by more than one carrier within parameters established by the FCC.
7. The determination of whether a call is local is predicated upon identifying the point at which the call is "terminated" as defined by the Act.
8. Under the Act, "termination" is defined as "the switching of traffic that is subject to Section 251(b)(5) at the terminating carrier's end office switch (or equivalent facility) and delivery of that traffic from that switch to the called party's premises."
9. The function of end office switching is only performed by a telecommunications carrier over the public switched telephone network, and no such switching is performed by an ISP after the call is delivered to the ISP modem.
10. To the extent an ISP requires telecommunications services for transport of its information service, the ISP does not provide such service, but separately obtains such service from an underlying interexchange carrier.
11. There are no end offices located at or connected to any Internet web sites that are switched or otherwise manipulated by the ISP in the processing of information service functions.
12. Unlike a calling party using the services of an interexchange telecommunications carrier, a calling party connecting to an ISP modem does not do so for the purpose of originating or terminating telephone toll service, and incurs no separate charge for toll service by calling the ISP.
13. In a Declaratory Ruling released February 26, 1999, the FCC used an "end-to-end" analysis to conclude that calls placed to ISPs are interstate, and thus that reciprocal compensation is not required under the Act for such calls.
14. The end-to-end analysis underlying the FCC Declaratory Ruling presumed that the termination point of an ISP call is the location of the web site(s) ultimately accessed by the originating caller, rather than the end office switch serving the modem connection by which the call is delivered to the ISP.
15. Because a call to an ISP may frequently involve accessing multiple web sites or Internet destinations, the single end-to-end analogy derived from descriptions of long distance toll calls is not schematically accurate in the context of ISP-bound calls.
16. On March 24, 2000, the D.C. Circuit Court vacated and remanded the Declaratory Ruling on the grounds that the FCC failed to explain why its end-to-end analysis was applicable to determining whether reciprocal compensation was owed for a carrier's termination of a call to an ISP.
17. Since the FCC has to date failed to provide an explanatory rationale in response to the D.C. Circuit directive to justify its end-to-end analysis in the context of reciprocal compensation, those FCC findings have no binding authority with respect to this decision.
18. Internet communications utilizing dial-up telephone connections is composed of two discrete functions: (1) a telecommunications service provisioned by a local exchange carrier by which the end user connects to the ISP modem through a local call, and (2) an information service which is provisioned by the ISP either through its own web site or over the Internet.
19. Under the Act, "telecommunications" is defined as the "transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." (47 USC 153(43).)
20. The Act defines "information services" as "the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control or operation of a telecommunications system or the management of a telecommunications service." (47 USC 153(20).)
21. As part of the information service provided by the ISP, the ISP converts the customer's analog messages into data packets which are individually routed through its modem to host computer networks located throughout the world.
22. The relevant determinant of whether ISP traffic is local is whether the rate centers associated with the telephone number of an originating caller and the telephone number dialed to connect to the ISP modem are both located in the same local exchange.
23. If the rate centers associated with the telephone number of the end user originating the call and the telephone number used to access the ISP modem lies within a single local calling area, then such call is a local call.
24. The traffic-sensitive telecommunications network functions that are required for a typical CLEC to terminate ISP traffic are no different from the traffic-sensitive functions required to terminate local calls of any other end user of the CLEC.
25. The fact that ISP traffic flows predominantly in one direction does not reduce or eliminate the costs involved in terminating such traffic, nor justify the denial of reciprocal compensation to any carrier (either ILEC or CLEC) terminating such traffic.
26. Reciprocal compensation treats carriers fairly since each carrier only pays (and is compensated for) the actual traffic flows that a carrier terminates on behalf of a separate originating carrier.
27. Although no party provided precise measures of the volume of ISP traffic terminated by particular carriers, it is generally true that CLECs, as a group, terminate much greater volumes of ISP-bound traffic than do the ILECs.
28. Among the CLECs that actively participated in this proceeding, there is a greater market concentration in serving business customers, with particular focus on ISPs, as opposed to serving residential customers.
29. The fact that specialized market niches may develop, such as service to ISPs, is not necessarily anticompetitive, but merely reflects the workings of a competitive market.
30. The payment of reciprocal compensation for the termination of ISP traffic in accordance with the provisions of the Act does not result in incentives to impair competition, to avoid implementing new technologies to serve customers seeking Internet access, or otherwise impair the technological development of the competitive infrastructure in California.
31. The elimination of reciprocal compensation for ISP traffic would deny CLECs their present source of funding for terminating ISP calls, thereby impairing CLECs' competitive incentive to serve ISPs, or else, could result in higher charges to ISPs for phone service which might be passed on to end users.
32. With less competitive options for obtaining local exchange service, ISPs could become more dependent on ILECs for their service, thereby reducing competition and potentially impairing ISP service options or increasing ISP charges passed through to its end use subscribers.
33. The payment of reciprocal compensation to CLECs for the termination of ISP traffic in accordance with the provisions of the Act does not result in "windfall" profits.
34. The only relevant costs for purposes of evaluating whether reciprocal compensation rates are excessive are traffic-sensitive costs incurred in the transport and switching of terminating traffic.
35. In accordance with the Act, the termination costs of the ILEC are used as a proxy of CLEC termination costs for purposes of reciprocal compensation.
36. In accordance with the Act, the proper cost standard for reciprocal compensation is TELRIC which is not disaggregated by class of customer, but rather uniformly applies to all customers served over the same facilities.
37. CLECs do not serve ISPs using different terminating facilities than they use for terminating local traffic of other customers.
38. While CLECs' network facilities may be configured differently from those typically used by the ILECs, those facilities are used to serve customers connecting to the CLEC system. Since any cost differences relating to those facilities are attributable to originating traffic, not terminating traffic, those differences do not impact reciprocal compensation.
39. While the ILECs failed to quantify a reasonably precise measure of the average duration of ISP-bound calls in comparison to voice-related calls, they generally established that ISP-bound calls tend to have a longer duration than voice calls.
40. Even to the extent ISP-bound calls have a longer duration than the average of all local calls, reciprocal compensation rates do not overcompensate for such longer duration as long as the fixed cost of call set up is separately charged on a per-call basis rather than a per-minute basis.
41. Pacific's reciprocal compensation rate separately applies the fixed call set up costs on a per call basis while Verizon's reciprocal compensation rate applies only a single blended rate on a per-minute basis.
42. There is no basis to find that ISP calls necessarily experience a higher call completion rate compared with calls to other service-oriented businesses where call completion is important.
43. There is no basis to find that trunk-to-trunk switching is used exclusively to terminate ISP calls, or that any related cost differentials impact traffic-sensitive termination costs subject to reciprocal compensation.
44. There is no basis to find that alleged differences in line concentration in the termination of ISP traffic compared with other local traffic results in lower traffic-sensitive termination costs subject to reciprocal compensation.
45. There is no basis to find that the switches utilized by the CLECs have less complete functionality than do ILEC switches, or that CLEC switches are unable to perform call origination functions.
46. To the extent that the ILEC may not fully recover reciprocal compensation payments for ISP traffic through residential charges, the appropriate remedy is not to relieve the ILEC of its obligations to pay third parties for services rendered, including call termination of ISP traffic.
47. Although ILECs have the obligation to pay reciprocal compensation of termination of ISP traffic, they also have the opportunity to increase their profitability by pursuing their own market opportunities to tap into the Internet market and other advanced technology options.
48. Even if the ISPs currently served by the CLECs were instead served by the ILECs, the ILECs would still incur costs to terminate such ISP calls on its own facilities.
49. The ILEC proposed bill-and-keep approach to recover any ISP call termination costs fails to produce symmetrical treatment of carriers.
50. Bill-and-Keep produces asymmetrical results since CLECs would render (at no charge to the ILEC) a disproportionately greater volume of ISP call termination for the benefit of ILEC customers compared with the volume of ISP call termination rendered by ILECs (at no charge) on behalf of CLEC customers.
51. The FCC has recognized that bill-and-keep may be an appropriate substitute for reciprocal compensation where originating and terminating traffic flows are roughly in balance.
52. Since ISP traffic flows are not in balance, the use of bill-and-keep would not be consistent with FCC criteria for the use of such an alternative.
53. The use of bill-and-keep would be inconsistent with the underlying principle of cost causation that the carrier serving the originating caller is responsible for compensating the carrier serving the called party for terminating the call for the benefit of the originating caller.
54. The proponents of the bill-and-keep alternative have failed to provide a practical implementation methodology by which ISP-related terminating minutes could be properly identified and excluded from the billing base subject to reciprocal compensation.
1. This proceeding is not intended to revisit issues of whether ISP traffic is interstate or intrastate for state or federal jurisdictional purposes.
2. This proceeding has been bifurcated, with the first phase limited to consideration of whether the existing Commission policy calling for reciprocal compensation to apply to ISP-bound calls should continue or be replaced with an alternative approach.
3. Issues relating to the propriety of disparate rating and routing points for ISP-related calls (as well as for other categories of calls) is outside the scope of Phase 1 of this proceeding, but has been deferred to a subsequent phase of the proceeding.
4. To the extent that outstanding questions may remain concerning the specific rates to be applied for reciprocal compensation, those issues are deferred to a subsequent phase of the proceeding.
5. While this proceeding generally considered whether ILECs are financially disadvantaged by the payment of reciprocal compensation for ISP calls, the question of whether or how ILECs may seek adjustment of end user rates to offset ISP reciprocal compensation payments is excluded from Phase 1 of the proceeding. Parties were left with the opportunity to seek to raise this issue, if deemed necessary, in addressing the scope of a later phase of the proceeding.
6. In accordance with the authority delegated to the states under the Act, this Commission has discretion to determine whether or not ISP-bound traffic should be treated as local traffic subject to reciprocal compensation.
7. ISP-bound traffic meets the criteria prescribed under the Act to be treated as local traffic subject to reciprocal compensation on the same basis as for other local traffic.
8. Even if reciprocal compensation were found not to be required for ISP traffic by law under the Act, this Commission still may prescribe that reciprocal compensation be paid for such traffic on the same basis as for other local traffic if warranted by a review of relevant facts.
9. As a preferred outcome in negotiations among carriers, the reciprocal compensation provisions applicable to interconnection agreements should apply to the termination of calls to ISPs as they do to any other local calls in the manner prescribed under the Act.
10. There is nothing discriminatory in requiring that reciprocal compensation apply to the ISP termination of calls to by CLECs since the obligation for reciprocal compensation applies to all carriers, not just to the ILECs.
11. It is not confiscatory merely to require the ILEC to compensate the CLEC for terminating such calls in conformance with the reciprocal compensation provisions of applicable interconnection agreements.
12. The question of whether ILECs incur additional originating transport costs related to CLEC-served ISPs does not eliminate the right of CLECs to be compensated for their costs of terminating ISP traffic.
IT IS ORDERED that:
1. The Commission hereby affirms as a preferred outcome that reciprocal compensation provisions of interconnection agreements shall apply to the terminating traffic sent by competitive local exchange carriers (CLECs) to Internet Service Providers (ISPs) in the same manner that those provisions are applied to other local terminating traffic.
2. All carriers subject to interconnection agreements containing reciprocal compensation provisions are directed to make the appropriate reciprocal payment called for in such agreements for the termination of ISP traffic which would otherwise qualify as a local call based on the rating of the call measured by the distance between the rate centers of the telephone number of the calling party and the telephone number used to access the ISP modem until such agreements are ended.
3. The ALJ is directed to promptly issue a ruling directing parties to file comments concerning the scope and disposition of any remaining issues that may require resolution in this rulemaking.
This order is effective today.
Dated ______________________, at San Francisco, California.
