Discussion

To ensure continuity of service, interconnection must continue during the interval of time between the expiration of the parties' existing agreement and the effectiveness of a successor agreement. Since the parties failed to negotiate a provision in their existing agreement as to what terms would govern in the event of contract termination without a successor agreement, it falls upon the Commission to impose an interim arrangement.

Verizon seeks a Commission order imposing unilateral interim changes in the terms of interconnection prior to arbitration, and over the objections of PacWest. While Verizon proposes interim adoption of its "template," Pac-West counters that its own "template" version should be adopted, if any changes are imposed by the Commission. Yet, there are no facts before the Commission at this juncture upon which to base a determination as to which of the competing "templates" (i.e., the Verizon version or the Pac-West version) is preferable as an interim agreement.

Based on its review of the existing Verizon agreements available for "opt-in," Pac-West states it would not voluntarily interconnect with Verizon under terms and conditions of any of them. If Pac-West found any such available interconnection agreement acceptable, it would have already opted into it.⁶ Likewise, there is no basis to compel Pac-West to take the terms and conditions of Verizon's preferred "template" without providing Pac-West the opportunity to present in an arbitration its position on those terms and conditions which it perceives as unacceptable or undesirable.

Accordingly, neither of the alternatives proposed by Verizon is defensible as the basis for an interim agreement since each alternative would impose unilateral changes in the terms of interconnection without arbitration. There is no evidentiary record before the Commission as a basis to impose interim changes in the Interconnection Agreement that favor Verizon and disadvantage Pac-West, or vice-versa. Even though changes would apply only on an interim basis, they could still be unduly burdensome to the extent a carrier is required to modify its network, procedures, etc. only to have to change them again once a successor agreement is adopted.

The only defensible alternative, therefore, is to continue the status quo agreement for the interim period. Both parties shall therefore be required to continue to be bound by the terms of the existing interconnection agreement until a successor agreement can be negotiated or arbitrated. During the interim period until a final successor agreement is implemented, all terms and conditions under the existing contract shall continue in place, including the payment of reciprocal compensation for Internet traffic. This directive is consistent with the FCC Remand Order and the Commission's own holdings in D.02-01-062 in which it stated that the interconnection agreement between Verizon and Pac-West will become subject to the FCC's restructured rates "at the time carriers renegotiate expired or expiring interconnection agreements." Since carriers have not yet concluded such renegotiations, the existing reciprocal compensation provisions continue in place.

The parties shall be directed, however, to include as an issue subject to arbitration, what differing terms and conditions, if any, should be applicable during the interim period between April 14, 2002, and the effective date of the successor agreement. In order to facilitate implementing any adjustments that may be subsequently applied to this interim period, each of the parties shall be required to retain adequate books and records relating to services provided and related payments made during the interim period subject to the existing interconnection agreement.

Verizon was granted leave on April 11 to file a reply to Pac-West's response. In its reply, Verizon argues that the Commission should not impose the old interconnection agreement on the parties because this would violate intent of the contract, as well as the terms of the FCC's Order on Remand and prior Commission's decisions. Verizon argues that it has properly terminated the contract, and that Section 9.02 of the contract provides that it cannot continue in effect indefinitely while the parties negotiate a successor agreement. More specifically, Section 9.02 provides that if the parties cannot reach a new agreement in 125 days, they should seek resolution from the Commission. By creating a limited 125-day window in which the agreement would continue in effect during negotiations, Verizon argues that the parties expressed their intent that the agreement should not continue in effect after the close of that window.

I find Verizon's argument unconvincing. The stated intent of Section 9.02 is that parties would execute a replacement agreement within 125 days of the date that the agreement terminates. This has not happened. Parties have failed to reach any agreement concerning what terms of interconnection would apply after the 125-day window, beyond agreeing to seek resolution from the Commission. Therefore, since both parties have agreed to submit to the Commission's determination of what happens after April 13, Verizon cannot properly claim that temporary continuation of the existing contract violates parties' "intent." By leaving the dispute resolution in the hands of the Commission, each party took the risk that the Commission may reach an outcome with which one or the other would disagree.

Thus, the Commission can properly order temporary continuation of the existing contract pending parties' negotiation or arbitration of a replacement contract. The fact that Verizon may disagree with such a resolution cannot be construed as violation of the mutual "intent" under the contract since both parties agreed to submit to the Commission's resolution, whatever that resolution may be. I therefore find nothing that violates the "intent of the parties" by temporarily extending the term of the existing agreement beyond April 13.

By waiting until only 10 days before expiration of the 125-day window for the Commission to resolve the dispute, Verizon failed to provide sufficient time for the Commission to adjudicate any substantive changes in the terms of the old interconnection agreement that would be fair to both sides. Thus, by its delay in bringing this action to the Commission, and by its contractual agreement to defer to the Commission on this dispute, Verizon must bear the responsibility for accepting the resolution provided by the Commission given such short notice.

As a compromise, Verizon would agree to the terminated interconnection agreement remaining in effect pending Commission approval of a successor agreement, with the proviso that, effective April 14, 2002, Verizon not be required to pay Pac-West any compensation for Internet-bound traffic in excess of the FCC's interim rates. Verizon attaches to its reply a document entitled "Settlement Agreement and Release" which it asks the Commission to adopt to implement the terms of its compromise proposal.

Verizon's request that it be immediately relieved from the current contract's obligation's to pay reciprocal compensation for Internet-bound traffic in excess of the FCC's interim rates is a contested issue which cannot be finally decided through this ruling. Under the Remand Order, the FCC's capped rates are to take effect "as carriers renegotiate expired or expiring interconnection agreements." The parties have not yet renegotiated the expiring interconnection agreement. At this point, they have only agreed to disagree, and to leave it to the Commission to resolve how to continue interconnection after the end of the 125-window period, until the parties renegotiate or arbitrate a replacement interconnection agreement.

Further consideration will be necessary to determine whether a Commission order providing for the temporary extension of the existing contract terms constitutes a change of the existing contract such that implementation of the FCC rate caps is triggered. For the interim period, however, the status quo shall remain in effect, including the provisions for payment of reciprocal compensation for Internet traffic. The Commission can take up the question of whether the provisions of the FCC Remand Order are triggered immediately upon the termination of the 125-window period, or whether the existing rates continue until a replacement agreement takes effect following negotiation and/or arbitration of the parties.

Verizon raises the concern that Pac-West is a credit risk, and that merely ordering an accounting of transactions, subject to later adjustment, will not provide for a neutral outcome. Verizon claims that allowing Pac-West to "hold the money" while this issue of compensation is being resolved significantly disadvantages Verizon. Verizon's concerns on this point, as raised in a footnote in its reply comments, does not provide a full development of all of the relevant factual considerations with respect to the risk of nonpayment by Pac-West based on its credit worthiness. A further record would need to be developed before consideration could be given to measures to address Verizon's claims regarding Pac-West's ability to make payment of any subsequent adjustments that may be ordered. This issue is properly taken up in any subsequent arbitration proceeding between the parties, but not in this ruling.

⁶ 47 U.S.C. 252 (a), (b) and (e), as amended by the Telecommunications Act of 1996.