2. Discussion

Since the motions of both Roseville and Citizens ask for essentially the same form of relief, we shall address them on a combined basis. Citizens and Roseville essentially seek to be treated in the same manner as Pacific and Verizon with respect to memorandum accounting requirements that have previously been established for ISP traffic.

As a basis for their respective motions, the movants make reference to the memorandum accounts for ISP-related reciprocal compensation that were authorized in D.00-05-024 for Pacific and Verizon. In that decision, we concluded that because the legal issues relating to reciprocal compensation for ISP traffic had not been finally resolved, the use of memorandum accounts would provide for quantification of the disputed amounts involved as transactions were being made. In this way, parties would presumably not have to reconstruct the disputed amounts after the fact. Movants claim they are in a similar situation with respect to reciprocal compensation payments they must make for ISP-bound traffic under their interconnection agreements. Accordingly, they seek a similar remedy for themselves. The movants here similarly argue that the issue of the propriety of ISP payments still has not been finally resolved in California. Yet since movants filed their original motions, a significant development has occurred. On April 27, 2001, the FCC issued an Order that adopts new rules governing intercarrier compensation for telecommunications traffic delivered to ISPs. Therefore, the premise underlying the motions that the treatment of ISP traffic had not been decided in California is no longer entirely accurate in view of the subsequently issued FCC Order. The disposition of the motions for memorandum accounts must be made in light of the findings and directives set forth in the FCC Order.

An underlying premise for setting up memorandum accounts is that current transactions booked into the accounts will be subject to a retroactive adjustment at some point in the future. Yet, the FCC Order makes no provision for any retroactive adjustments to reciprocal compensation billings that were made prior to the effective date of the FCC Order.³ Instead, the FCC Order expressly states that it does not alter existing contractual obligations, except to the extent that parties are entitled to invoke contractual change-of-law provisions. Likewise, the FCC Order does not preempt any state commission decision regarding compensation for ISP-traffic for the period prior to the effective date of the regime adopted therein.⁴ Therefore, there would be no need for memorandum account tracking or true up past payments reciprocal compensation to the extent that the FCC Order has no retroactive applicability. Instead, the FCC expressly preserves states' rights to determine the treatment of such traffic for periods preceding the effective date of the FCC Order.

The establishment of a memorandum account also presumes some methodology or criteria by which ISP-bound traffic could be properly segregated from other forms of traffic. In its order, however, the FCC makes no provision for segregating ISP-bound traffic from other forms of traffic for billing purposes on a forward-looking basis, nor provides any guidelines or criteria as to how such traffic could be accurately segregated and tracked.⁵ In fact, the FCC Order requires that carriers must apply the same rate to all traffic, including the traffic of ISPs, in order to qualify for the rate caps adopted in the Order. The FCC expressly refused to take any action that would result in the establishment of separate intercarrier compensation rates, terms, and conditions for local voice and ISP traffic. The FCC found no evidence in its own record to establish any inherent differences between the costs on any one network of delivering a voice call to a local end user and a data call to an ISP.

The one pending legal challenge whereby current ISP reciprocal compensation payments could conceivably be subject to retroactive treatment relates to the court cases that have been filed by Pacific and Verizon.⁶ As we noted in D.00-05-024, due to Pacific's and Verizon's pending legal appeals of Commission decisions authorizing reciprocal compensation for ISP-bound traffic, the legal issues relating to such obligations have not been finally decided. The reviewing courts may or may not order changes in reciprocal compensation policy, and, if ordered, those changes may or may not be retroactive in whole or part. If the case was remanded and retroactive adjustments were required pursuant to such a court order, the court order could conceivably impact Roseville's and Citizen's reciprocal compensation payments under current interconnection agreements as well.

Thus, to that extent only, the parties' request for memorandum accounting arguably may have some plausible relevance to the reciprocal compensation payments they are currently making. Yet, in view of the subsequent FCC Order addressing ISP-related intercarrier compensation, as referenced above, we find that our previous premises have been significantly modified regarding the uncertainty of whether prior reciprocal compensation payments may be subject to retroactive adjustment. Given subsequent developments since our issuance of D.00-05-024, we no longer find a sufficient basis to justify imposing memorandum accounting requirements on carriers to track reciprocal compensation for ISP-bound traffic.

In D.00-05-024, we concluded that in view of uncertainty regarding the outcome of pending legal challenges to prior Commission decisions regarding reciprocal compensation, the identification of disputed amounts would be less contentious if carriers kept track of disputed payments in memorandum accounts as transactions occurred. In D.00-05-024, we presumed benefits could be gained by keeping track of disputed payments as they are being made as opposed to attempting to reconstruct the amounts at issue after the fact. An order mandating memorandum accounting, however, presupposes that the appropriate accounting entries to be made are readily quantifiable and can be properly segregated from other costs. Yet, at the time we issued D.00-05-024, it was not yet clear to what extent measuring such payments was complex and litigious. Only after the evidentiary hearings in R.00-02-005, did the full extent of the complexity and litigiousness come fully to light.

In adopting D.00-05-024, however, we did not conduct a detailed evidentiary probe into the feasibility of a tracking mechanism for ISP traffic. At the time we adopted D.00-05-024, we did not have the evidentiary record subsequently developed in R.00-02-005 concerning the extent of claimed difficulties in accurately identifying and tracking qualifying minutes of traffic terminated to an ISP to access Internet web sites. In its pleading, Pac-West cites various references from the record in R.00-02-005 regarding the ISP cost tracking issue. Roseville's and Citizen's motions fail to refute the evidence that has been presented in R.00-02-005 concerning carriers' difficulty in separately identifying tracking ISP traffic that would not be subject to reciprocal compensation. Yet, Roseville and Citizens expect carriers to identify at their switches the volume of traffic specifically being delivered to ISPs without explaining what methodology they want carriers to use.

Accordingly, the fact that we required memorandum accounting in D.00-05-024 is not dispositive of the motions of Roseville and Citizens presently before us. We issued D.00-05-024 based upon the limited information that was before us at the time. A more complete body of factual evidence has now been developed in R.00-02-005 and further guidance has been provided by the recently issued FCC Order. We must rule upon the Roseville and Citizens motions in view of the more updated information concerning the feasibility of separately measuring ISP traffic.

We find that in view of the problematic nature of measuring ISP traffic under currently developed accounting and billing systems as presented in R.00-02-005, our original presumption in D.00-05-024 regarding the ease of setting up memorandum accounts segregating ISP traffic has been called into question. It is not necessary to find that tracking such ISP traffic is "impossible." We merely recognize the complexity of the measurement issues involved.

In view of the additional evidence presented in R.00-02-005 and the findings of the FCC Order, we now conclude that there is insufficient basis to grant the motions before us to order memorandum accounting and to segregate Citizen's and Roseville's ISP transactions that have already occurred. To the extent different compensation policies are adopted with respect to ISP traffic on a going forward basis, any necessary memorandum accounting or tracking requirements for past transactions becomes moot.

In any event, irrespective of whatever records the CLECs may or may not keep of reciprocal compensation receipts, Roseville and Citizens on their own initiative can keep track of the total reciprocal compensation payments that they make to each of the CLECs. To the extent that some retroactive adjustment to reciprocal compensation paid by Roseville or Citizens conceivably might be granted by a subsequent court order, the payment records kept by Roseville and Citizens would still be available to develop some pro forma proration of disallowable ISP payments if necessary.

In conclusion, the premises that we relied upon in adopting the memorandum accounting requirements in D.00-05-024 have been materially modified by the subsequent development of the record in our own ISP proceeding, R.00-02-005, and by the issuance of the FCC Order regarding Intercarrier Compensation for ISP-bound Traffic. These additional developments provide additional information regarding (1) the problematic nature of separately tracking ISP-bound traffic, and (2) the unlikelihood that retroactive adjustments of reciprocal compensation payments will happen for either Roseville or Citizens. In the light of this additional information, we find no basis to impose memorandum accounting requirements as proposed in the motions of Roseville and Citizens. Accordingly, each of the motions is hereby denied.