In the Maner of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 Inter-Carrier Compensation for ISP-Bound Traffic
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FCC Declaratory Rulings › In the Maner of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 Inter-Carrier Compensation for ISP-Bound Traffic
Text
In the Maner of
Federal Communications Commission
Before the
Federal Communications Commission
Washington, D.C. 20554
FCC 99-38
Implementation of the Local Competition
Provisions in the Telecommunications Act
of 1996
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CC Docket No. 96-98
Inter-Carrier Compensation
for ISP-Bound Traffic
CC Docket No. 99-68
Declaratory Ruling in CC Docket No. 96-98 and Notice of Proposed Rulemaking in CC
Docket No. 99-68
Adopted: February 25, 1999
Released: February 26. 1999
NPRM Comment Date:
April 12, 1999
NPRM Reply Date:
April 27, 1999
By the Commission: Commissioner Ness issuing a statement; Commissioner Furchtgon-Roth
not participating: and Commissioner Powell concurring and issuing a
statement.
I. INTRODUCTION
1. The Commission and the Common Carrier Bureau (Bureau) have received a
nwnber of requests to clarify whether a local exchange carrier (LEC) is entitled to receive
reciprocal compensation for traffic that it delivers to an information service provider,
particularly an Internet service provider (ISP). 1 Generally, competitive LECs (CLECs)
1 See, e.g., Petitions for Reconsideration and Clarification of Action in Rulemaking Proceedings, 6 I Fed.
Reg. 53,922 (1996); Petition for Partial Reconsideration and Clarification of MFS Communications Co., Inc. at
28: Letter from Richard J. Metzger. General Counsel for ALTS, to Regina M. Keeney, Chief, Common Carrier
Bureau, FCC (June 20, 1997) (AL TS Letter); Pleading Cycle Established for Comments on Request by AL TS for
Clarification of the Commission's Rules Regarding Reciprocal Compensation for Information Service Provider
Traffic. CCB/CPD 97-30, DA 97-1399 (rel. July 2, 1997) (ALTS letter Notice); Letter from Edward D. Young,
Senior Vice President & Deputy General Counsel for Bell Atlantic, and Thomas J. Tauke, Senior Vice President
-- Government Relations for Bell Atlantic. to Hon. William E. Kennard, Chairman, FCC (July I, I 998)
ission's Rules Regarding Reciprocal Compensation for Information Service Provider
Traffic. CCB/CPD 97-30, DA 97-1399 (rel. July 2, 1997) (ALTS letter Notice); Letter from Edward D. Young,
Senior Vice President & Deputy General Counsel for Bell Atlantic, and Thomas J. Tauke, Senior Vice President
-- Government Relations for Bell Atlantic. to Hon. William E. Kennard, Chairman, FCC (July I, I 998). This
question sometimes has been posed more narrowly, i.e., whether an incumbent LEC must pay reciprocal
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contend that this is local traffic subject to the reciprocal compensation provisions of section
25l(b)(5) of the Communications Act of 1934 (Act), as amended by the Telecommunications
Act of 1996. 2 Incumbent LECs contend that this is interstate traffic· beyond the scope of
section 25l(b)(5). After reviewing the record developed in response to these requests. we
conclude that ISP-bound traffic is jurisdictionally mixed and appears to be largely interstate.
This conclusion, however, does not in itself determine whether reciprocal compensation is due
in any particular instance. As explained below, parties may have agreed to reciprocal
compensation for ISP-bound traffic, or a state commission, in the exercise of its authority to
arbitrate interconnection disputes under section 252 of the Act, may have imposed reciprocal
compensation obligations for this traffic. In the absence, to date. of a federal rule regarding
the appropriate inter-carrier compensation for this traffic, we therefore conclude that parties
should be bound by their existing interconnection agreements, as interpreted by state
commissions.
II. BACKGROUND
2. Identifying the jurisdictional nature and regulatory treatment of ISP-bound
communications requires us to determine how Internet traffic fits within our existing
regulatory framework. We begin, therefore, with a brief description of relevant terminology
and technology
parties
should be bound by their existing interconnection agreements, as interpreted by state
commissions.
II. BACKGROUND
2. Identifying the jurisdictional nature and regulatory treatment of ISP-bound
communications requires us to determine how Internet traffic fits within our existing
regulatory framework. We begin, therefore, with a brief description of relevant terminology
and technology. We then turn to the specific matter of LEC delivery of ISP-bound
communications.
compensation to a competitive LEC (CLEC) that delivers incumbent LEC-originated traffic to ISPs. Because the
pertinent provision of the 1996 Act pertains to all LECs. we examine this issue in the broader context. 47
u.s.c. § 25l(b)(5).
For purposes of this Declaratory Ruling. we refer to providers of enhanced services and providers of
information services as ESPs. a category which includes Internet service providers, which we refer to here as
ISPs. As the Commission stated in the Access Charge Reform Order. the term "enhanced services." defined in
the Commission's rules as "services. offered over common carrier transmission facilities used in interstate
communications, which employ computer processing applications that act on the format, content, code, protocol
or similar aspects of the subscriber"s transmined information; provide the subscriber additional, different, or
restructured information; or involve subscriber interaction with stored information," 47 C.F.R. § 64.702(a), is
quite similar to "information services," defined in the Act as offering "a capability for generating, acquiring,
storing, transforming, processing, retrieving. utilizing. or making available information via telecommunications."
47 U.S.C. § 153(20). Access Charge Refonn. CC Docket No. 96-262, First Report and Order, 12 FCC Red
15982. 16131-32 n.498 (1997) (Access Charge Reform Order), aff'd sub nom. Southwestern Bell Tel. Co. v.
FCC, 153 F.3d 523 (8th Cir. 1998). See also Federal-State Joint Board on Universal Service, CC Docket No.
96-45
retrieving. utilizing. or making available information via telecommunications."
47 U.S.C. § 153(20). Access Charge Refonn. CC Docket No. 96-262, First Report and Order, 12 FCC Red
15982. 16131-32 n.498 (1997) (Access Charge Reform Order), aff'd sub nom. Southwestern Bell Tel. Co. v.
FCC, 153 F.3d 523 (8th Cir. 1998). See also Federal-State Joint Board on Universal Service, CC Docket No.
96-45. Report to Congress, 13 FCC Red 11501, at 11516 (1998) (Universal Service Report to Congress)
(reiterating Commission· s conclusion that the 1996 Act's definitions of telecommunications services and
information services "essentially correspond to the pre-existing categories of basic and enhanced services").
: Telecommunications Act of 1996. Pub. L. No. 104-104, 110 Stat. 56, codified at 41 U.S.C. § 151 et seq.
(1996 Act).
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A. The Internet and ISPs.
3. The Internet is an international network of interconnected computers enabling
millions of people to communicate with one another and to access vast amounts of
information from around the world. 3 The Internet functions by splitting up information into
"small chunks or 'packets· that are individually routed ... to their destination.""' With
packet-switching, "even two packets from the same message may travel over different physical
paths through the network ... which enables users to invoke multiple Internet services
simultaneously, and to access information with no knowledge of the physical location of the
service where the information resides. "5
4. An ISP is an entity that provides its customers the ability to obtain on-line
information through the Internet. ISPs purchase analog and digital lines from local exchange
carriers to connect to their dial-in subscribers.6 Under one typical arrangement. an ISP
customer dials a seven-digit number to reach the ISP server in the same local calling area
service where the information resides. "5
4. An ISP is an entity that provides its customers the ability to obtain on-line
information through the Internet. ISPs purchase analog and digital lines from local exchange
carriers to connect to their dial-in subscribers.6 Under one typical arrangement. an ISP
customer dials a seven-digit number to reach the ISP server in the same local calling area.
The ISP, in tum, combines "computer processing, information storage, protocol conversion,
and routing with transmission to enable users to access Internet content and services. "
7 Under
this arrangement. the end user generally pays the LEC a flat monthly fee for use of the local
exchange network and generally pays the ISP a flat. monthly fee for Internet access. 8 The
ISP typically purchases business lines from a LEC, for which it pays a flat monthly fee that
allows unlimited incoming calls.
5. Although the Commission has recognized that enhanced service providers (ESPs).
including ISPs. use interstate access services.Q since 1983 it has exempted ESPs from the
47 U.S.C. § 230: see also Reno v. American Civil Liberties Union, 117 S. Ct. 2329. 2334 (1997).
• Universal Service Report to Congress. 13 FCC Red at 11531. 11532.
Id
6 Id at 11532.
7 Id at 11531.
1 The Commission has acknowledged the significance of end users being able to place local. rather than toll.
calls to ISPs, in analyzing, among other things. universal service issues. See. e.g .. Federal-State Joint Board on
Universal Service. Report and Order. 12 FCC Red 8776. 9142-43, 9159, 9160 (1997) (Universal Service Order);
Universal Service Report to Congress. 13 FCC Red at 11541-42.
9 See. e.g .. MTS and WA TS Market Structure, CC Docket No. 78-72. Memorandum Opinion and Order. 97
FCC 2d 682, 711 ( 1983) (MTS/WA TS Market Structure Order) ("[a)mong the variety of users of access·service
are ... enhanced service providers"); Amendments of Part 69 of the Commission's Rules Relating to Enhanced
Service Providers. CC Docket No. 87-215. Order
Congress. 13 FCC Red at 11541-42.
9 See. e.g .. MTS and WA TS Market Structure, CC Docket No. 78-72. Memorandum Opinion and Order. 97
FCC 2d 682, 711 ( 1983) (MTS/WA TS Market Structure Order) ("[a)mong the variety of users of access·service
are ... enhanced service providers"); Amendments of Part 69 of the Commission's Rules Relating to Enhanced
Service Providers. CC Docket No. 87-215. Order. 3 FCC Red 2631 ( 1988) (ESP Exemption Order) (referring to
"certain classes of exchange access users. including enhanced service providers"); Amendments of Part 69 of the
Commission's Rules Relating to Enhanced Service Providers. CC Docket No. 87-215, Order. 2 FCC Red 4305,
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payment of certain interstate access charges. '0 Pursuant to this exemption. ESPs are treated as
end users for purposes of assessing access charges, and the Commission permits ESPs to
purchase their links to the public switched telephone network (PSTN) through intrastate
business tariffs rather than through interstate access tariffs.
11 Thus. ESPs generally pay local
business rates and interstate subscriber line charges for their switched access connections to
local exchange company central offices.'~ In addition. incumbent LEC expenses and revenue
associated with ISP-bound traffic traditionally have been characterized as intrastate for
separations purposes. 13 ESPs also pay the special access surcharge when purchasing special
access lines under the same conditions as those applicable to end users.'~ In the Access
Charge Reform Order, the Commission decided to maintain the existing pricing structure
pursuant to which ESPs are treated as end users for the purpose of applying access charges. 15
4306 ( 1987) (ESPs, "like facilities-based interexchange carriers and resellers, use the local network to provide
interstate services"): Access Charge Reform Order
as those applicable to end users.'~ In the Access
Charge Reform Order, the Commission decided to maintain the existing pricing structure
pursuant to which ESPs are treated as end users for the purpose of applying access charges. 15
4306 ( 1987) (ESPs, "like facilities-based interexchange carriers and resellers, use the local network to provide
interstate services"): Access Charge Reform Order. 12 FCC Red at 16131-32 (infonnation service providers "may
use incumbent LEC facilities to originate and tenninate interstate calls").
10 The exemption was adopted at the inception of the interstate access charge regime to protect certain users
of access services, such as ESPs. that had been paying the generally much lower business service rates from the
rate shock that would result from immediate imposition of carrier access charges. See MTSIW A TS Market
Structure Order. 97 FCC 2d at 715.
11
Amendments of Part 69 of the Commission ·s Rules Relating to Enhanced Service Providers. CC Docket
No. 87-215, Order, 3 FCC Red 2631. 2635 n.8. 2637 n.53 ( 1988) (ESP Exemption Order).
i: ESP Exemption Order. 3 FCC Red at 2635 n.8. 2637 n.53. The subscriber line charge (SLC) is an access
charge imposed on end users to recover at least a portion of the cost of the interstate portion of LEC facilities
used to link each end user to the public switched telephone network (PSTN).
13 Amendments of Part 69 of the Commission·s Rules Relating to the Creation of Access Charge
Subelements for Open Network Architecture. CC Docket No. 89-79. Notice of Proposed Rulemaking. 4 FCC
Red. 3983. 3987-88 ( 1989).
14 See 47 C.F.R. § 69.5(a) ("End user charges shall be computed and assessed upon public end users, and
upon providers of public telephones ... . "):see also ..i7 C.F.R
TN).
13 Amendments of Part 69 of the Commission·s Rules Relating to the Creation of Access Charge
Subelements for Open Network Architecture. CC Docket No. 89-79. Notice of Proposed Rulemaking. 4 FCC
Red. 3983. 3987-88 ( 1989).
14 See 47 C.F.R. § 69.5(a) ("End user charges shall be computed and assessed upon public end users, and
upon providers of public telephones ... . "):see also ..i7 C.F.R. § 69.5(c) ("Special access surcharges shall be
assessed upon users of exchange facilities that interconnect these facilities with means of interstate or foreign
telecommunications to the extent that carrier"s carrier charges are not assessed upon such interconnected usage.").
See also 47 C.F.R. § 69.2(m) (End user means "any customer of an interstate or foreign telecommunications
service that is not a carrier except that a carrier other than a telephone company shall be deemed to be an 'end
user' when such carrier uses a telecommunications service for administrative purposes and a person or entity that
offers telecommunications services exclusively as a reseller shall be deemed to be an 'end user' if all resale
transmissions offered by such reseller ongmate on the premises of such reseller.").
ii Access Charge Reform Order. 12 FCC Red at 16133-34. On August 19, 1998, the U.S. Court of Appeals
for the Eighth Circuit affinned the Commission's Access Charge Reform Order. Specifically, the court found
that the Commission's decision to exempt information services providers from the application ofinterstate access
charges (other than SLCs) was consistent with past precedent. did not unreasonably discriminate in favor of ISPs,
did not constitute an unlawful abdicauon of the Commission's regulatory authority in favor of the states, and did
not deprive incumbents of the ability to recover their pertinent costs. Southwestern Bell Telephone Co. v. FCC,
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providers from the application ofinterstate access
charges (other than SLCs) was consistent with past precedent. did not unreasonably discriminate in favor of ISPs,
did not constitute an unlawful abdicauon of the Commission's regulatory authority in favor of the states, and did
not deprive incumbents of the ability to recover their pertinent costs. Southwestern Bell Telephone Co. v. FCC,
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Thus, the Commission continues to discharge its interstate regulatory obligations by treating
ISP-bound traffic as though it were local.
6. The Internet provides citizens of the United States with the ability to communicate
across state and national borders in ways undreamed of only a few years ago. The Internet
also is developing into a powerful instrumentality of interstate commerce. In 1997. we
decided that retaining the ESP exemption would avoid disrupting the still-evolving
information services industry and advance the goals of the 1996 Act to "preserve the vibrant
and competitive free market that presently exists for the Internet and other interactive
computer services. "16 This Congressional mandate underscores the obligation and commitment
of this Commission to foster and preserve the dynamic market for Internet-related services.
We emphasize the strong federal interest in ensuring that regulation does nothing to impede
the growth of the Internet -- which has flourished to date under our "hands off' regulatory
approach -- or the development of competition. We are mindful of the need to address the
jurisdictional question at issue here. and the effect the jurisdictional determination may have
on inter-carrier compensation for ISP-bound traffic, in a manner that promotes efficient entry
by providers of both local telephone and Internet access services, and that, by the same token,
does not encourage inefficient entry.
B. Incumbent LEC and CLEC Delivery of ISP-Bound Traffic.
7
ddress the
jurisdictional question at issue here. and the effect the jurisdictional determination may have
on inter-carrier compensation for ISP-bound traffic, in a manner that promotes efficient entry
by providers of both local telephone and Internet access services, and that, by the same token,
does not encourage inefficient entry.
B. Incumbent LEC and CLEC Delivery of ISP-Bound Traffic.
7. Section 251(b)(5) of the Act requires all LECs "to establish reciprocal
compensation arrangements for the transport and termination of telecommunications."
17 In the
Local Competition Order, this Commission construed this provision to apply only to the
transport and termination of "local telecommunications traffic." 18 In order to determine what
153 F.3d 523, 542 (8th Cir. 1998).
16 Access Charge Reform Order. 12 FCC Red at 16134. See also 41 U.S.C. § 230(b)(2) ("It is the policy of
the United States to preserve the vibrant and competitive free market that presently exists for the Internet and
other interactive computer services, unfenered by federal or State regulation.").
11 47 U.S.C. § 251(bX5).
18 See 47 C.F.R. § 51. 70 I; Implementation of the Local Competition Provisions in the Telecommunications
Act of 1996, First Report and Order, CC Docket Nos. 96-98, 95-I85, I I FCC Red I5499, 160I3 (I996) (Local
Competition Order), ajf'd in part and vacated in part sub nom. Competitive Telecommunications Ass ·n v. FCC,
117 F.3d 1068 (8th Cir. I997) (CompTe[), affd in part and vacated in part sub nom. Iowa Utils. Bd. v. FCC,
120 F.3d 753 (8th Cir. I 997) (Iowa Utils. Bd. ), aff'd in part and rev 'din part sub nom. AT&T Corp. v. Iowa
Utils. Bd., 119 S. Ct. 721 (1999); Order on Reconsideration, I I FCC Red 13042 (1996); Second Order on
Reconsideration. 11 FCC Red 19738 ( 1996); Third Order on Reconsideration and Further Notice of Proposed
Rulemaking. 12 FCC Red 12460 ( 1997): further recon. pending. State commissions that considered this issue
reached the same conclusion. See
rt and rev 'din part sub nom. AT&T Corp. v. Iowa
Utils. Bd., 119 S. Ct. 721 (1999); Order on Reconsideration, I I FCC Red 13042 (1996); Second Order on
Reconsideration. 11 FCC Red 19738 ( 1996); Third Order on Reconsideration and Further Notice of Proposed
Rulemaking. 12 FCC Red 12460 ( 1997): further recon. pending. State commissions that considered this issue
reached the same conclusion. See. e.g., Petition of the Southern New England Tel. Co. for a Declaratory Ruling
Concerning Internet Servs. Provider Traffic, Docket No. 97-05-22, Decision, at 9 (Conn. Comm 'n September 17,
1997): Order Instituting Rulemaking on the Commission's Own Motion into Competition for Lbcal Exchange
Service, R.95-04-04, Decision 98-10-057, at 7 (Cal. Comm'n October 28, 1998); Southwestern Bell Tel. Co. v.
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compensation is due when two carriers collaborate to deliver a call to an ISP. we must
determine as a threshold matter whether this is interstate or intrastate traffic. In general. an
originating LEC end user's call to an ISP served by another LEC is carried (1) by the
originating LEC from the end user to the point of interconnection (POI) with the LEC serving
the ISP; (2) by the LEC serving the ISP from the LEC-LEC POI to the ISP·s local server;
and (3) from the ISP' s local server to a computer that the originating LEC end user desires to
reach via the Internet. If these calls terminate at the ISP's local server (where another
(packet-switched) "call" begins), as many CLECs contend, then they are intrastate calls. and
LECs serving ISPs are entitled to reciprocal compensation for the "transport and termination"
of this traffic. If, however, these calls do not terminate locally, incumbent LECs argue. then
LECs serving ISPs are not entitled to reciprocal compensation under section 251 (b )(5).
8
server (where another
(packet-switched) "call" begins), as many CLECs contend, then they are intrastate calls. and
LECs serving ISPs are entitled to reciprocal compensation for the "transport and termination"
of this traffic. If, however, these calls do not terminate locally, incumbent LECs argue. then
LECs serving ISPs are not entitled to reciprocal compensation under section 251 (b )(5).
8. CLECs argue that, because section 25l(b)(5} of the Act refers to the duty to
establish reciprocal compensation arrangements for the "transport and termination of
telecommunications," 19 a transmission "terminates" for reciprocal compensation purposes when
it ceases to be "telecommunications."20 "Telecommunications" is defined in the Act 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."21
CLECs contend that, under this definition. Internet service is not "telecommunications" and
that the "telecommunications" component of Internet traffic terminates at the ISP's local
server. In addition, CLECs and ISPs argue that, given that ESPs are exempt from paying
certain interstate access charges11 and that. as a result. the PSTN links serving ESPs are
treated as intrastate under the separations regime, the services that CLECs provide for ISPs
Public Util. Comm 'n of Texas. M0-98-CA-43. slip op. at 7 (W.D. Tex. June 16, 1998). Section 251 of the Act
makes clear that interstate traffic remains subJect to the Commission's jurisdiction under section 201. See 47
U.S.C. § 251(i) ("Nothing in this section shall be construed to limit or otherwise affect the Commission's
authority under section 201."). See also Comp Tei. 117 F.3d at 1075 (Commission acted within its jurisdiction in
allowing incumbent LECs to cotrect. on an interim basis
f the Act
makes clear that interstate traffic remains subJect to the Commission's jurisdiction under section 201. See 47
U.S.C. § 251(i) ("Nothing in this section shall be construed to limit or otherwise affect the Commission's
authority under section 201."). See also Comp Tei. 117 F.3d at 1075 (Commission acted within its jurisdiction in
allowing incumbent LECs to cotrect. on an interim basis. access charges for interstate calls traversing the
incumbent LECs' local switches for which the interconnecting carriers pay unbundled local switching element
charges); 47 U.S.C. § 152(a) (Commission has jurisdiction over "all interstate and foreign communications by
wire").
JQ 47 U.S.C. § 25l(b)(5) (emphasis added,).
:o See. e.g.. RCN Telecom Services (RCN) Comments at 6; Teleport Communications Group Inc. (TCG)
Comments at 4-5; WorldCom. Inc. Comments at 8-9. Citations to parties' comments in this Declaratory Ruling
and Notice of Proposed Rulemaking refer to comments filed in response to the ALTS le11er Notice.
:i 47 u.s.c. § 153(43).
--
We discuss the ESP exemption. supra.
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must be deemed local.23 Incumbent LECs contend. however, that the "telecommunications"
terminate not at the ISP's local server. but at the Internet site accessed by the end user. in
which case these are interstate calls for which. they argue. no reciprocal compensation is
due. 24
III. DISCUSSION
9. The Commission has no rule governing inter-carrier compensation for ISP-bound
traffic. Generally speaking, when a call is completed by two (or more) interconnecting
carriers. the carriers are compensated for carrying that traffic through either reciprocal
compensation or access charges. When two carriers jointly provide interstate access (e.g .. by
delivering a call to an interexchange carrier (IXC)), the carriers will share access revenues
received from the interstate service provider
ly speaking, when a call is completed by two (or more) interconnecting
carriers. the carriers are compensated for carrying that traffic through either reciprocal
compensation or access charges. When two carriers jointly provide interstate access (e.g .. by
delivering a call to an interexchange carrier (IXC)), the carriers will share access revenues
received from the interstate service provider. Conversely, when two carriers collaborate to
complete a local call, the originating carrier is compensated by its end user and the
terminating carrier is entitled to reciprocal compensation pursuant to section 251(b)(5) of the
Act. Until now, however, it has been unclear whether or how the access charge regime or
reciprocal compensation applies when two interconnecting carriers deliver traffic to an ISP.
As explained above, under the ESP exemption, LECs may not impose access charges on ISPs;
therefore, there are no access revenues for interconnecting carriers to share. Moreover, the
Commission has directed states to treat ISP traffic as if it were local, by permitting ISPs to
purchase their PSTN links through local business tariffs. As a result, and because the
Commission had not addressed inter-carrier compensation under these circumstances, parties
negotiating interconnection agreements and the state commissions charged with interpreting
them were left to determine as a matter of first impression how interconnecting carriers
should be compensated for delivering traffic to ISPs, leading to the present dispute.
A. Jurisdictional Nature of Incumbent LEC and CLEC Delivery of ISP-Bound Traffic.
IO. As many incumbent LECs properly note.~
5 the Commission traditionally has
determined the jurisdictional nature of communications by the end points of the
communication and consistently has rejected attempts to divide communications at any
intermediate points of switching or exchanges between carriers. In Bel/South MemoryCal/, for
23 See. e.g., American Communications Services. Inc
raffic.
IO. As many incumbent LECs properly note.~
5 the Commission traditionally has
determined the jurisdictional nature of communications by the end points of the
communication and consistently has rejected attempts to divide communications at any
intermediate points of switching or exchanges between carriers. In Bel/South MemoryCal/, for
23 See. e.g., American Communications Services. Inc. (ACS!) Comments at 5; Adelphia Communications
Corporation (Adelphia), et al., Comments at 12-13: AL TS Lener at 6-7; ALTS Reply at 2, 13; Cox
Communications, Inc. (Cox) Comments at 5; America Online. Inc. (AOL) Comments at 7-8; AT&T Corp.
Comments at 4.
2' See, e.g. Ameritech Operating Cos. (Ameritech) Comments at 13; BellSouth Corporation (BellSouth)
Reply at 4-6; Southwestern Bell Tel. Co .. Pacific Bell, Nevada Bell (SBC) Reply at 5; United States Telephone
Association (UST A) Comments at 5-6.
21 See, e.g., Ameritech Comments at 13; BellSouth Reply at 4-6; SBC Reply at S; USTA Comments at 5-6.
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example, the Commission considered the jurisdictional nature of traffic that consisted of an
incoming interstate transmission (call) to the switch serving a voice mail subscriber and an
intrastate transmission of that message from that switch to the voice mail apparatus. 26 The
Commission determined that the entire transmission constituted one interstate call. because
"there is a continuous path of communications across state lines between the caller and the
voice mail service. "27 The Commission· s jurisdictional determination did not turn on the
common carrier ·status of either the provider or the services at issue;28 BellSouth MemoryCall
is not. therefore, distinguishable on the grounds that ISPs are not common carriers.
11. Similarly, in Teleconnect. the Bureau examined whether a call using Teleconnecf s
"All-Call America" (ACA) service
d the
voice mail service. "27 The Commission· s jurisdictional determination did not turn on the
common carrier ·status of either the provider or the services at issue;28 BellSouth MemoryCall
is not. therefore, distinguishable on the grounds that ISPs are not common carriers.
11. Similarly, in Teleconnect. the Bureau examined whether a call using Teleconnecf s
"All-Call America" (ACA) service. a nationwide 800 travel service that uses AT &rs
Megacom 800 service, is a single, end-to-end call.29 Generally, an ACA c;ill is initiated by an
end user from a common line open end; the call is routed through a LEC to an AT&T
Megacom line, and is then transferred from AT & T to T eleconnect by another LEC. 30 At that
point, Teleconnect routes the call through the LEC to the end user being called. 31 The Bureau
rejected the argument that the (ACA) 800 call used to connect to an interexchange carrier's
(IXC) switch was a separate and distinct call from the call that was placed from that switch.32
The Commission affirmed. noting that "both court and Commission decisions have considered
the end-to-end nature of the communications more significant than the facilities used to
complete such communications. According to these precedents, we regulate an interstate wire
communications under the Communications Act from its inception to its completion. "33 The
26 Petition for Emergency Relief and Declaratory Ruling Filed by BellSouth Corporation. 7 FCC Red 1619
( 1992) (BeflSourh MemoryCal[).
-
Id. at 1620.
28 Id at 1621-22. Indeed. the Commission expressly noted that, although BellSouth 's "voice mail service is
an enhanced service. that fact does not limit our authority to preempt." Id. at 1622 n.44.
29 Teleconnect Co. v. Bell Telephone Co of Penn. E-88-83. JO FCC Red 1626 (1995) (Teleconnect),
aff'd sub nom. Southwestern Bell Tel Co v. FCC. I 16 F.3d 593 (D.C. Cir. 1997).
30 Id. at 1627.
31 Id. at 1627-28.
32 Id at 1626.
33 Id. at 1629 (citing NARUC v FCC. 746 F.2d 1492. 1498 (D.C. Cir
service is
an enhanced service. that fact does not limit our authority to preempt." Id. at 1622 n.44.
29 Teleconnect Co. v. Bell Telephone Co of Penn. E-88-83. JO FCC Red 1626 (1995) (Teleconnect),
aff'd sub nom. Southwestern Bell Tel Co v. FCC. I 16 F.3d 593 (D.C. Cir. 1997).
30 Id. at 1627.
31 Id. at 1627-28.
32 Id at 1626.
33 Id. at 1629 (citing NARUC v FCC. 746 F.2d 1492. 1498 (D.C. Cir. 1984) (concluding that a physically
intrastate in-WA TS line. used to terminate an end-to-end interstate communication, is an interstate facility subject
to Commission regulation)). See also United States v. AT&T. 57 F. Supp. 451, 454 (S.D.N.Y. 1944) (the Act
contemplates the regulation of interstate wire communication from its inception to its completion), aff'd sub nom.
Hotel Astor v United States. 325 U.S. 837 ( 1945): New York Telephone Co., 76 FCC 2d 349, 352-53 ( 1980)
(physically intrastate foreign exchange facilities used to carry interconnected interstate traffic are subject to
federal jurisdiction).
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Commission concluded that "an interstate communication does not end at an intermediate
switch .... The interstate communication itself extends from the inception of a call to its
completion, regardless of any intermediate facilities. "34 In addition, in Southwestern Bell
Telephone Company, the Commission rejected the argument that "a credit card call should be
treated for jurisdictional purposes as two calls: one from the card user to the interexchange
carrier's switch, and another from the switch to the called party" and concluded that
"switching at the credit card switch is an intermediate step in a single end-to-end
communication. "35
12. Consistent with these precedents,36 we conclude, as explained further below. that
the communications at issue here do not terminate at the ISP's local server, as CLECs and
ISPs contend,37 but continue to the ultimate destination or destinations
tch to the called party" and concluded that
"switching at the credit card switch is an intermediate step in a single end-to-end
communication. "35
12. Consistent with these precedents,36 we conclude, as explained further below. that
the communications at issue here do not terminate at the ISP's local server, as CLECs and
ISPs contend,37 but continue to the ultimate destination or destinations. specifically at a
Internet website that is often located in another state. 38 The fact that the facilities and
apparatus used to deliver traffic to the ISP' s local servers may be located within a single state
does not affect our jurisdiction. As the Commission stated in Bel/South MemoryCall. "this
Commission has jurisdiction over. and regulates charges for, the local network when it is used
in conjunction with the origination and termination of interstate calls."39 Indeed, in the vast
majority of cases, the facilities that incumbent LECs use to provide interstate access are
located entirely within one state:
10 Thus. we reject MCI WorldCom's assertion that the LEC
34 Teleconnect. 10 FCC Red at 1629.
ii In the Matter of Southwestern Bell Tel. Co .. CC Docket No. 88-180, Order Designating Issues for
Investigation, 3 FCC Red 2339, 2341 (1988) (Southwestern Bell Tel. Co.).
36 Although the cited cases involve interexchange carriers rather than ISPs. and the Commission has
observed that "it is not clear that ISPs use the public switched network in a manner analogous to IXCs," Access
Charge Reform Order, 12 FCC Red at 16133. the Commission's observation does not affect the jurisdictional
analysis.
37 See, e.g., ACSI Comments at 5; Adelphia. et al.. Comments at 12-13; ALTS Letter at 6-7; Cox
Comments at 5.
31 This conclusion is fully consistent with Bel/South MemoryCa/I. Although MCI WorldCom relies on
Bel/South MemoryCall to support its argument that the ISP is the relevant endpoint for purposes of the
jurisdictional analysis (see Lener from Richard S. Whitt. Director -- Federal Affairs/Counsel
e.g., ACSI Comments at 5; Adelphia. et al.. Comments at 12-13; ALTS Letter at 6-7; Cox
Comments at 5.
31 This conclusion is fully consistent with Bel/South MemoryCa/I. Although MCI WorldCom relies on
Bel/South MemoryCall to support its argument that the ISP is the relevant endpoint for purposes of the
jurisdictional analysis (see Lener from Richard S. Whitt. Director -- Federal Affairs/Counsel. MCI WorldCom.
Inc .. to Magalie R. Salas. Secretary. FCC (October 2. 1998)). there. as here, the Commission analyzed the
communication from its inception to the "transmission· s ultimate destination." Bel/South Memory Call. 7 FCC
Red at 1621.
39 Bel/South MemoryCall. 7 FCC Red at 1621.
40 See Louisiana Public Serv Comm ·n v. FCC. 476 U.S. 355, 360 (1986).
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facilities used to deliver traffic to ISPs must cross state boundaries for such traffic to be
classified as interstate. 41
13. We disagree with those commenters that argue that, for jurisdictional purposes.
ISP-bound traffic must be separated into two components: an intrastate telecommunications
service, provided in this instance by one or more LECs. and an interstate information service.
provided by the ISP.42 As discussed above, the Commission analyzes the totality of the
communication when determining the jurisdictional nature of a communication.43 The
Commission previously has distinguished between the "telecommunications services
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.~
Although the Commission concluded that ISPs do not appear to offer "telecommunications
service" and thus are not "telecommunications carriers" that must contribute to the Universal
Service Fund,45 it has never found that "telecommunications" end where "enhanced" service
begins. To the contrary, in the context of open network architecture (ONA) elements
ired to contribute to universal service.~
Although the Commission concluded that ISPs do not appear to offer "telecommunications
service" and thus are not "telecommunications carriers" that must contribute to the Universal
Service Fund,45 it has never found that "telecommunications" end where "enhanced" service
begins. To the contrary, in the context of open network architecture (ONA) elements. for
example, the Commission stated that "an otherwise interstate basic service ... does not lose
its character as such simply because it is being used as a component in the provision of a[n
• 1 See Lener from Richard S. Whin. Director -- Federal Affairs/Counsel. MCI WorldCom. Inc .. to Magalie
R. Salas. Secretary. FCC (October 19. 1998) (MCI WorldCom Ex Porte). For this reason. we also reject CLEC
arguments that provision of such services by a Bell Operating Company (BOC) violates section 271 of the Act
unless the BOC has received authorization to provide in-region lnterLATA service. See. e.g.. MCI WorldCom
Ex Porte at 4. Section 271 does not bar BOC provision of interstate access services. such as interLA TA
information access. See Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the
Communications Act of 1934, as amended. CC Docket No. 96-149, 11 FCC Red 21905. 21962-63 (Non-
Accounring Safeguards Order) ("When a BOC is neither providing nor reselling the interLA TA transmission
component of an information service that may be accessed across LAT A boundaries, the statute does not require
that service to be provided through a section 2n separate affiliate.").
4
~ See. e.g.;RCN Comments at 6: TCG Comments at 4-5: WorldCom Comments at 8-9.
43 See United States v. AT&T. 57 F. Supp. 451. 453-55 (S.D.N.Y. 1944), af!"d, 325 U.S. 837 (1945).
44 Universal Service Order, 12 FCC Red at 9179-81. We disagree with MCI WorldCom 's claim that the
Commission determined in the Universal Service Order that there are two distinct transmissions when an end
user contacts the Internet
CN Comments at 6: TCG Comments at 4-5: WorldCom Comments at 8-9.
43 See United States v. AT&T. 57 F. Supp. 451. 453-55 (S.D.N.Y. 1944), af!"d, 325 U.S. 837 (1945).
44 Universal Service Order, 12 FCC Red at 9179-81. We disagree with MCI WorldCom 's claim that the
Commission determined in the Universal Service Order that there are two distinct transmissions when an end
user contacts the Internet. MCI WorldCom Ex Porte at 4. In that order. the Commission discussed various
"connections" involved with Internet access but in no way implied that any "transmission" or "traffic" terminated
or originated at any intermediate point. See Unrversal Service Order. 12 FCC Red at 9180. As discussed, supra,
MCI WorldCom's similar assenions regarding the Non-Accounting Safeguards Order are equally unpersuasive.
MCI WorldCom Ex Porte at 4.
•s Id at 9180. We confirmed this view in the Universal Service Report to Congress. Universal Service
Report to Congress at 13 FCC Red 11522-23.
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enhanced] service that is not subject to Title II. "46 The 1996 Act is consistent with this
approach. For example, as amended by the 1996 Act, Section 3(20) of the Communications
Act defines "information services" as "the offering of a capability for generating. acquiring.
storing, transforming, processing, retrieving, utilizing. or making available information via
telecommunications. "47 This definition recognizes the inseparability, for purposes of
jurisdictional analysis, of the information service and the underlying telecommunications.
Although it concluded in the Universal Service Report to Congress that ISPs do not provide
"telecommunications" as defined in the 1996 Act,48 the Commission reiterated the traditional
analysis that ESPs enhance the underlying telecommunications service.49 Thus. we analyze
ISP traffic for jurisdictional purposes as a continuous transmission from the end user to a
distant Internet site.
14
ns.
Although it concluded in the Universal Service Report to Congress that ISPs do not provide
"telecommunications" as defined in the 1996 Act,48 the Commission reiterated the traditional
analysis that ESPs enhance the underlying telecommunications service.49 Thus. we analyze
ISP traffic for jurisdictional purposes as a continuous transmission from the end user to a
distant Internet site.
14. Some CLECs note that the language of section 252(d)(2) provides for the
recovery of the costs of transporting and terminating a "call. "50 Although the 1996 Act does
not define the term "call," these CLECs argue that it is used in the 1996 Act in a manner that
implies a circuit-switched connection between two telephone numbers. 51 For example,
Adelphia contends that a "call" takes place when two stations on the PSTN are connected to
each other. 52 A call "terminates." according to Adelphia, when one station on the PSTN dials
46 See Filing and Review of Open Network Architecture Plans. 4 FCC Red I, 141 ( 1988) ("when an
enhanced service is interstate (that is, when it involves communications or transmissions between points in
different states on an end-to-end basis). the underlying basic services are subject to Title II regulation"), aff d sub
nom. People of State of Cal. v. FCC, 3 F.3d 1505 (9th Cir. 1993). See, e.g., Amendment of Section 64.702 of
the Commission· s Rules and Regulations. 2 FCC Red 3072, 3080 (1987) ("carriers must provide efficient
nondiscriminatory access to the basic service facilities necessary to support their competitors' enhanced
services"): vacated on other grounds sub nom. People of State of Cal. v. FCC. 905 F.2d 1217 (9th Cir. 1990).
See also Bel/South MemoryCa//, 7 FCC Red at 1621 (rejecting "two call" argument as applied to interstate call to
voice mail apparatus, even though voice mail is an enhanced service).
47 47 U.S.C. § 153(20) (emphasis added): see also 41 C.F.R
essary to support their competitors' enhanced
services"): vacated on other grounds sub nom. People of State of Cal. v. FCC. 905 F.2d 1217 (9th Cir. 1990).
See also Bel/South MemoryCa//, 7 FCC Red at 1621 (rejecting "two call" argument as applied to interstate call to
voice mail apparatus, even though voice mail is an enhanced service).
47 47 U.S.C. § 153(20) (emphasis added): see also 41 C.F.R. § 64.702(a) (enhanced services are provided
"over common carrier transmission facilities used in interstate communications").
48 Universal Service Report to Congress. 13 FCC Red at 11536-40. See also Universal Service Order, 12
FCC Red at 9180 n.2023.
49 See Universal Service Report to Congress. 13 FCC Red at 11540. See also Universal Service Order 12
FCC Red at 9180 n.2023 (~eferencing Amendment of Section 64. 702 of the Commission's Rules and Regulations,
2 FCC Red 3072, 3080 ( 1987)).
so 47 U.S.C. § 252(d)(2). See, e.g.. Adelphia, et al., Comments at 15.
~
1 See. e.g., Adelphia. et al., Comments at 15-20; Adelphia, et al., Reply at 5, 9-10, TCG Comments at 3-4;
WorldCom Comments at 6-7.
~= See, e.g.. Adelphia, et al., Comments at 15-16.
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another station, and the second station answers. 53 Under this view. the "call" associated with
Internet traffic ends at the ISP' s local premises. 54
15. We find that this argument is inconsistent with Commission precedent. discussed
above, holding that communications should be analyzed on an end-to-end basis. rather than by
breaking the transmission into component parts. The examples cited by CLECs~
5 to support
the argument that calls end at the called number are not dispositive. The statutory sections
upon which they rely were written to apply to specific situations, all of which, as far as we
can tell, involve traditional telephony connections between two called numbers, as opposed to
the novel circumstance of Internet traffic. 56
16
into component parts. The examples cited by CLECs~
5 to support
the argument that calls end at the called number are not dispositive. The statutory sections
upon which they rely were written to apply to specific situations, all of which, as far as we
can tell, involve traditional telephony connections between two called numbers, as opposed to
the novel circumstance of Internet traffic. 56
16. Nor are we are persuaded by CLEC arguments that, because the Commission has
treated ISPs as end users for purposes of the ESP exemption, an Internet call must terminate
at the ISP' s point of presence. 57 The Commission traditionally has characterized the link from
an end user to an ESP as an interstate access service. 58 In the MTS/WATS Market Structure
Order, for instance, the Commission concluded that ESPs are "among a variety of users of
access service" in that they "obtain local exchange services or facilities which are used, in part
or in whole, for the purpose of completing interstate calls which transit its location and,
commonly, another location in the exchange area."59 The fact that ESPs are exempt from
access charges and purchase their PSTN links through local tariffs does not transform the
nature of traffic routed to ESPs. That the Commission exempted ESPs from access charges
indicates its understanding that ESPs in fact use interstate access service; otherwise. the
exemption would not be necessary. 60 We emphasize that the Commission's decision to treat
l; Id.
ll Id. at 15-16, 19-20: Adelphia. et al.. Reply at 18 n.32.
50 See. e.g .• 47 U.S.C. §§ 222(d)(3). 223(a)(l). 271(c)(2){B){x), and 2710).
~'See, e.g., ACSI Comments at 5: Adelphia. et al.. Comments at 12-13: ALTS Letter at 6-7: ALTS Reply
at 2. 13: Cox Comments at 5: AOL Comments at 7-8: AT&T Comments at 4.
sa See. e.g., MTS/WA TS Market Structure Order, 97 FCC 2d at 715: Amendments of Part 69 of the
Commission's Rules Relating to Enhanced Service Providers, CC Docket Nd. 87-215. Notice of Proposed
Rulemaking
{B){x), and 2710).
~'See, e.g., ACSI Comments at 5: Adelphia. et al.. Comments at 12-13: ALTS Letter at 6-7: ALTS Reply
at 2. 13: Cox Comments at 5: AOL Comments at 7-8: AT&T Comments at 4.
sa See. e.g., MTS/WA TS Market Structure Order, 97 FCC 2d at 715: Amendments of Part 69 of the
Commission's Rules Relating to Enhanced Service Providers, CC Docket Nd. 87-215. Notice of Proposed
Rulemaking. 2 FCC Red 4305 ( 1987).
s
9 MTSIW A TS Market Structure Order, 97 FCC 2d at 860; see also Amendments of Part 69 of the
Commission's Rules Relating to Enhanced Service Providers, CC Docket No. 87-215, Notice of Proposed
Rulemaking. 2 FCC Red 4305.
60 See. e.g., MTS/WA TS Market Structure Order. 97 FCC 2d at 860. See also Access Charge Refonn, CC
Docket No. 96-262. Notice of Proposed Rulemaking. 11 FCC Red 21354 at 21478 ("although ESPs may use
incumbent LEC facilities to originate and terminate interstate calls, ESPs should not be required to pay interstate
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ISPs as end users for access charge purposes and. hence, to treat ISP-bound traffic as local.
does not affect the Commission ·s ability to exercise jurisdiction over such traffic.
61
17. CLECs also argue that the traffic they deliver to ISPs must be deemed either
"telephone exchange service"62 or "exchange access. "63 They contend that ISP traffic cannot
be "exchange access," because neither LECs nor CLECs assess toll charges for the service.
CLEC delivery of ISP traffic is, therefore, according to CLECs, "telephone exchange service."
a form of local telecommunications for which reciprocal compensation is due. 64 As discussed
above, however, the Commission consistently· has characterized ESPs as "users of access
service" but has treated them.as end users for pricing purposes.65 Thus. we are unpersuaded
by this argument.
18. Having concluded that the jurisdictional nature of ISP-bound traffic is determined
by the nature of the end-to-end transmission between an end user and the Internet
tion is due. 64 As discussed
above, however, the Commission consistently· has characterized ESPs as "users of access
service" but has treated them.as end users for pricing purposes.65 Thus. we are unpersuaded
by this argument.
18. Having concluded that the jurisdictional nature of ISP-bound traffic is determined
by the nature of the end-to-end transmission between an end user and the Internet. we now
must determine whether that transmission constitutes interstate telecommunications. Section
2(a) of the Act grants the Commission jurisdiction over "all interstate and foreign
communication by wire. "66 Traffic is deemed interstate "when the communication or
transmission originates in any state. territory, possession of the United States. or the District
of Columbia and terminates in another state, territory, possession, or the District of
access charges") (emphasis added).
• 1 Indeed. the Eighth Circuit found that "the Commission has appropriatelv exercised its discretion to require
an ISP to pay intrastate charges for its line and to pay the SLC . . . , but not to pay the per-minute interstate
access charge." Southwestern Bell Tel Co. v. FCC. 153 F.3d at 543 (emphasis added).
6" "Telephone exchange service" means "(A) service within a telephone exchange. or within a connected
system of telephone exchanges within the same exchange area operated to furnish to subscribers
intercommunicating service of the character ordinarily furnished by a single exchange. and which is covered by
the exchange service charge, or (B) comparable service provided through a system of switches, transmission
equipment. or other facilities (or combination thereof) by which a subscriber can originate and tenninate a
telecommunications service." 47 U.S.C. § 153(47).
63 "Exchange access" is defined as "the offering of access to telephone exchange services or facilities for the
purpose of the origination or tennination of telephone toll services." 47 U .S.C. § 153( 16)
system of switches, transmission
equipment. or other facilities (or combination thereof) by which a subscriber can originate and tenninate a
telecommunications service." 47 U.S.C. § 153(47).
63 "Exchange access" is defined as "the offering of access to telephone exchange services or facilities for the
purpose of the origination or tennination of telephone toll services." 47 U .S.C. § 153( 16). "Telephone toll
services" is defined as "telephone service between stations in different exchange areas for which there is made a
separate charge not included in contracts with subscribers for exchange service." 47 U.S.C. § 153(48).
64 See. e.g., Adelphia. et al., Reply at 5-9.
61 MTSIW A TS Market Structure Order. 97 FCC 2d at 860: see also Amendments of Part 69 of the
Commission·s Rules Relating to Enhanced Service Providers, CC Docket No. 87-215. Notice of Proposed
Rulemaking, 2 FCC Red 4305 ( 1987). See also 47 C.F.R. § 69.2(b) (defining "access service" as "services and
facilities provided for the origination or tennination of any interstate or foreign telecommunications").
•• 47 U.S.C. § 152(a).
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Columbia. "67 In a conventional circuit-switched network. a call that originates and terminates
in a single state is jurisdictionally intrastate, and a call that originates in one state and
terminates in a different state (or country) is jurisdictionally interstate. The jurisdictional
analysis is less straightforward for the packet-switched network environment of the Internet.68
An Internet communication does not necessarily have a point of "termination" in the
traditional sense. An Internet user typically communicates with more than one destination
point during a single Internet call. or "session," and may do so either sequentially or
simultaneously. In a single Internet communication. an Internet user may. for example. access
websites that reside on servers in various states or foreign countries
not necessarily have a point of "termination" in the
traditional sense. An Internet user typically communicates with more than one destination
point during a single Internet call. or "session," and may do so either sequentially or
simultaneously. In a single Internet communication. an Internet user may. for example. access
websites that reside on servers in various states or foreign countries. communicate directly
with another Internet user, or chat on-line with a group of Internet users located in the same
local exchange or in another country. 69 Further complicating the matter of identifying the
geographical destinations of Internet traffic is that the contents of popular websites
increasingly are being stored in multiple servers throughout the Internet, based on "caching"
or website "mirroring" techniques.
70 After reviewing the record. we conclude that. although
some Internet traffic is intrastate, a substantial portion of Internet traffic involves accessing
interstate or foreign websites.
71
19. Although ISP-bound traffic is jurisdictionally mixed, incumbent LECs argue that
it is not technically possible to separate the intrastate and interstate ISP-bound traffic. n In the
current absence of a federal rule governing inter-carrier compensation, however. we do not
find it necessary to reach the question of whether such traffic is separable into intrastate and
interstate traffic. 73
20. Our determination that at least a substantial portion of dial-up ISP-bound traffic is
interstate does not, however. alter the current ESP exemption. ESPs, including ISPs. continue
67 Universal Service Report to Congress. 13 FCC Red at 11555.
68 See, e.g.. Kevin Werbach. Digital Tornado: The Internet and Telecommunications Policy. OPP Working
Paper No. 29, at 45 (Mar. 1997) (D1g11al Tornado).
69 See. e.g .. Digital Tornado at 45. See also Adelphia. et al.. Reply at 11 n.21.
70 See, e.g., MCI WorldCom Ex Paree at 7.
71 See, e.g., Adelphia, et al., Comments at 22: Lener from Edward D
Service Report to Congress. 13 FCC Red at 11555.
68 See, e.g.. Kevin Werbach. Digital Tornado: The Internet and Telecommunications Policy. OPP Working
Paper No. 29, at 45 (Mar. 1997) (D1g11al Tornado).
69 See. e.g .. Digital Tornado at 45. See also Adelphia. et al.. Reply at 11 n.21.
70 See, e.g., MCI WorldCom Ex Paree at 7.
71 See, e.g., Adelphia, et al., Comments at 22: Lener from Edward D. Young, Senior Vice President &
Deputy General Counsel for Bell Atlantic. and Thomas J. Tauke. Senior Vice President -- Government Relations
for Bell Atlantic. to Hon. William E. Kennard. Chairman. FCC (July 1, 1998) at An. 2; Compuserve Comments
at 4: Lener from B. Jeannie Fry. Director of Federal Regulatory Affairs, SBC Communications, Inc .. to Magalie
R. Salas, Secretary. FCC (May 13. 1998) An. at 7: WorldCom Reply at 8-9.
72 Even if it is technically impossible to separate the intrastate and interstate ISP traffic, it may be possible
for LECs to determine whether dial-up traffic is in fact destined for an ISP.
73 We note that in Section IV. infra. we seek comment on the separability of such traffic and whether the
Commission should exe'rcise exclusive jurisdiction over inter-carrier compensation for all ISP-bound traffic.
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to be entitled to purchase their PSTN links through intrastate (local) tariffs rather than through
interstate access tariffs. 74 Nor, as we discuss below. is it dispositive of interconnection
disputes currently before state commissions.
B. Inter-Carrier Compensation for Delivery of ISP-Bound Traffic.
21. We find no reason to interfere with state. commission findings as to whether
reciprocal compensation provisions of interconnection agreements apply to ISP-bound traffic.
pending adoption of a rule establishing an appropriate interstate compensation mechanism.
We seek comment on such a rule in Section IV, below.
22. Currently, the Commission has no rule governing inter-carrier compensation for
ISP-bound traffic
to interfere with state. commission findings as to whether
reciprocal compensation provisions of interconnection agreements apply to ISP-bound traffic.
pending adoption of a rule establishing an appropriate interstate compensation mechanism.
We seek comment on such a rule in Section IV, below.
22. Currently, the Commission has no rule governing inter-carrier compensation for
ISP-bound traffic. In the absence of such a rule, parties may voluntarily include this traffic
within the scope of their interconnection agreements under sections 251 and 252 of the Act.
even if these statutory provisions do not apply as a matter of law. Where parties have agreed
to include this traffic within their section 251 and 252 interconnection agreements, they are
bound by those agreements, as interpreted and enforced by the state commissions.
23. Although we determine, above, that ISP-bound traffic is largely interstate, parties
nonetheless may have agreed to treat the traffic as subject to reciprocal compensation. The
Commission's treatment of ESP traffic dates from 1983 when the Commission first adopted a
different access regime for ESPs. 75 Since then, the Commission has maintained the ESP
exemption, pursuant to which it treats ESPs as end users under the access charge regime and
permits them to purchase their links to the PSTN through intrastate local business tariffs
rather than through interstate access tariffs. As such, the Commission discharged its interstate
regulatory obligations through the application of local business tariffs. Thus. although
recognizing that it was interstate access. the Commission has treated ISP-bound traffic as
though it were local. In addition. incumbent LECs have characterized expenses and revenues
associated with ISP-bound traffic as intrastate for separations purposes.
76
24. Against this backdrop. and in the absence of any contrary Commission rule
h the application of local business tariffs. Thus. although
recognizing that it was interstate access. the Commission has treated ISP-bound traffic as
though it were local. In addition. incumbent LECs have characterized expenses and revenues
associated with ISP-bound traffic as intrastate for separations purposes.
76
24. Against this backdrop. and in the absence of any contrary Commission rule.
parties entering into interconnection agreements may reasonably have agreed, for the purposes
u ESPs also have cenain flat-rated interstate offerings available to them. See, e.g., GTE Telephone
Operating Cos. GTOC Transminal No. 1148. CC Docket No. 98-79. FCC No. 98-292, Memorandum Opinion
and Order (rel. October 30, 1998), recon. pending.
75 MTS/WATS Marker Structure Order. 97 FCC 2d at 715.
76 Not all incumbent LECs characterize Internet traffic as intrastate traffic for separations purposes.· In
January. 1998, SBC indicated that it planned to allocate I 00 percent of the costs associated with Internet traffic.
which it previously had classified as local. to the interstate jurisdiction. See Letter from B. Jeannie Fry, Director
of Federal Regulatory Affairs. SBC Communications .. Inc .. to Ken Moran, Chief, Accounting and Audits
Division, FCC (Jan. 20. 1998).
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of determining whether reciprocal compensation should apply to ISP-bound traffic. that such
traffic should be treated in the same manner as local traffic. When construing the parties·
agreements to determine whether the parties so agreed. state commissions have the
opportunity to consider all the relevant facts, including the negotiation of the agreements in
the context of this Commission's longstanding policy of treating this traffic as local. and the
conduct of the parties pursuant to those agreements. For example
same manner as local traffic. When construing the parties·
agreements to determine whether the parties so agreed. state commissions have the
opportunity to consider all the relevant facts, including the negotiation of the agreements in
the context of this Commission's longstanding policy of treating this traffic as local. and the
conduct of the parties pursuant to those agreements. For example. it may be appropriate for
state commissions to consider such factors as whether incumbent LECs serving ESPs
(including ISPs) have done so out of intrastate or interstate tariffs; whether revenues
associated with those services were counted as intrastate or interstate revenues: whether there
is evidence that incumbent LECs or CLECs made any effort to meter this traffic or otherwise
segregate it from local traffic, particularly for the purpose of billing one another for reciprocal
compensation; whether, in jurisdictions where incumbent LECs bill their end users by message
units. incumbent LECs have included calls to ISPs in local telephone charges; and whether. if
ISP traffic is not treated as local and subject to reciprocal compensation, incumbent LECs and
CLECs would be compensated for this traffic. These factors are illustrative only; state
commissions, not this Commission, are the arbiters of what factors are relevant in ascertaining
the parties' intentions. Nothing in this Declaratory Ruling, therefore, necessarily should be
construed to question any determination a state commission has made, or may make in the
future. that parties have agreed to treat ISP-bound traffic as local traffic under existing
interconnection agreements.
77 Finally. we note that issues regarding whether an entity is
properly certified as a LEC if it serves only or predominantly ISPs are matters of state
jurisdiction.
78
25. Even where parties to interconnection agreements do not voluntarily agree on an
inter-carrier compensation mechanism for ISP-bound traffic
reat ISP-bound traffic as local traffic under existing
interconnection agreements.
77 Finally. we note that issues regarding whether an entity is
properly certified as a LEC if it serves only or predominantly ISPs are matters of state
jurisdiction.
78
25. Even where parties to interconnection agreements do not voluntarily agree on an
inter-carrier compensation mechanism for ISP-bound traffic. state commissions nonetheless
may determine in their arbitration proceedings at this point that reciprocal compensation
77 This analysis is not inconsistent with our conclusion in the Local Competition Order that section
251 (b )(5) reciprocal compensation obligations should apply only to traffic that originates and tenninates within
state-defined local calling areas. Local Compet111on Order. 11 FCC Red. at 16013. In so construing the
statutory obligation, we did not preclude panics from agreeing to include interstate traffic (or non-local intrastate
traffic) within the scope of their interconnection agreements. so long as no Commission rules were otherwise
violated. See 47 U.S.C. § 252(a)( I) (panics may negotiate and enter into a binding agreement without regard to
the standards set forth in section 251 (b) and ( c) ).
78 See, e.g., Complaint of WorldCom Technologies. Inc. against New England Tel. and Tel. Co. for alleged
breach of interconnection tenns entered into under Section 251 and 252 of the Telecommunications Act of 1996.
D.T.E. 97-116. at 13 (Mass. Comm·n October 26. 1998) (requesting information from panics regarding whether
cenain CLECs have been or are established solely (or predominantly) for the purpose of delivering traffic to
ISPs, particularly ISPs affiliated with the CLECs in question. and stating that these facts might affect such
CLECs' regulatory status); Lener from B. Jeannie Fry. Director of Federal Regulatory Affairs. SBC
Communications. Inc .. to Magalie R. Salas. Secretary. FCC (May 13
ding whether
cenain CLECs have been or are established solely (or predominantly) for the purpose of delivering traffic to
ISPs, particularly ISPs affiliated with the CLECs in question. and stating that these facts might affect such
CLECs' regulatory status); Lener from B. Jeannie Fry. Director of Federal Regulatory Affairs. SBC
Communications. Inc .. to Magalie R. Salas. Secretary. FCC (May 13. 1998) at Tab 5 (carrier's webpage
advertisement invites parties to offer "free internet access while getting paid for it"). We believe the state
commissions are capable of assessing whether and to what extent these and other anomalous practices are
inconsistent with the statutory scheme (e.g.. definition of a carrier) and thereby outside the scope of any
determination regarding inter-carrier compensation.
3704
Federal Communications Commission
FCC 99-38
should be paid for this traffic. The passage of the 1996 Act raised the novel issue of the
applicability of its local competition provisions79 to the issue of inter-carrier compensation for
ISP-bound traffic. Section 252 imposes upon state commissions the statutory duty to approve
voluntarily-negotiated interconnection agreements and to arbitrate interconnection disputes.
As we observed in the Local Competition Order, state commission authority over
interconnection agreements pursuant to section 252 "extends to both interstate and intrastate
matters. "80 Thus the mere fact that ISP-bound traffic is largely interstate does not necessarily
remove it from the section 2511252 negotiation and arbitration process.
81 However. any such
arbitration must be consistent with governing federal law. 81 While to date the Commission
has not adopted a specific rule governing the matter, we note that our policy of treating ISP-
bound traffic as local for purposes of interstate access charges would, if applied in the
separate context of reciprocal compensation, suggest that such compensation is due for that
traffic.
26
wever. any such
arbitration must be consistent with governing federal law. 81 While to date the Commission
has not adopted a specific rule governing the matter, we note that our policy of treating ISP-
bound traffic as local for purposes of interstate access charges would, if applied in the
separate context of reciprocal compensation, suggest that such compensation is due for that
traffic.
26. Some CLECs construe our rules treating ISPs as end users for purposes of
interstate access charges as requiring the payment of reciprocal compensation for this traffic. 83
Incumbent LECs contend, however, that our rules preclude the imposition of reciprocal
compensation obligations to interstate traffic and that. pursuant to the ESP exemption, LECs
carrying ISP-bound traffic are compensated by their end user customers -- the originating end
user or the ISP. 84 Either of these options might be a reasonable extension of o~ rules. but
the Commission has never applied either the ESP exemption or its rules regarding the joint
provision of access to the situation where two carriers collaborate to deliver traffic to an ISP.
As we stated previously. the Commission currently has no rule addressing the specific issue of
inter-carrier compensation for ISP-bound traffic. 85 In the absence of a federal rule. state
79 See 47 U.S.C. §§ 251. 151.
80 local Competition Order. 11 FCC Red at 15544; see also id. at 15547 (sections 251 and 252 "address
both interstate and intrastate aspects of interconnection. services, and access to unbundled network elements").
II Id
12 Cf 47 U.S.C. § 25 l(i) ("Nothing in this section shall be construed to limit or otherwise affect the
Commission's authority under section 201.").
13 See note 26, supra, and accompanying text.
1• See. e.g., Lener from Gary L. Phillips. Director of Legal Affairs, Ameritech. to Magalie Salas, Secretary,
FCC (November 20, 1998). Ameritech argues
d access to unbundled network elements").
II Id
12 Cf 47 U.S.C. § 25 l(i) ("Nothing in this section shall be construed to limit or otherwise affect the
Commission's authority under section 201.").
13 See note 26, supra, and accompanying text.
1• See. e.g., Lener from Gary L. Phillips. Director of Legal Affairs, Ameritech. to Magalie Salas, Secretary,
FCC (November 20, 1998). Ameritech argues. inter alia, that the Commission held in the local Competition
Order that reciprocal compensation does not apply to the transport and termination of interstate traffic. Id, An.
A. at 6. It further argues that Commission rules do in fact address inter-carrier compensation for ISP traffic. In
the usual case, two LECs jointly providing interstate access service share access revenues; because the
Commission exempts ISPs from the payment of access charges, however, LECs carrying ISP traffic are limited
to revenues they collect from their end user customers. Id., An. A, at 7.
15 We seek comment on an appropriate compensation mechanism in Section IV, below.
3705
Federal Communications Commission
FCC 99-38
commissions that have had to fulfill their statutory obligation under section 252 to resolve
interconnection disputes between incumbent LECs and CLECs have had no choice but to
establish an inter-carrier compensation mechanism and to decide whether and under what
circumstances to require the payment of reciprocal compensation. Although reciprocal
compensation is mandated under section 251 (b )( 5) only for the transport and termination of
local traffic. 86 neither the statute nor our rules prohibit a state commission from concluding in
an arbitration that reciprocal compensation is appropriate in certain instances not addressed by
section 25l(b)(5), so long as there is no conflict with governing federal law
nsation. Although reciprocal
compensation is mandated under section 251 (b )( 5) only for the transport and termination of
local traffic. 86 neither the statute nor our rules prohibit a state commission from concluding in
an arbitration that reciprocal compensation is appropriate in certain instances not addressed by
section 25l(b)(5), so long as there is no conflict with governing federal law. 87 A state
commission's decision to impose reciprocal compensation obligations in an arbitration
proceeding -- or a subsequent state commission decision that those obligations encompass ISP-
bound traffic -- does not conflict with any Commission rule regarding ISP-bound traffic. 88 By
the same token, in the absence of governing federal law, state commissions also are free not
to require the payment of reciprocal compensation for this traffic and to adopt another
compensation mechanism.
27. State commissions considering what effect, if any, this Declaratory Ruling has on
their decisions as to whether reciprocal compensation provisions of interconnection
agreements apply to ISP-bound traffic might conclude, depending on the bases of those
decisions, that it is not necessary to re-visit those determinations. We recognize that our
conclusion that ISP-bound traffic is largely interstate might cause some state commissions to
re-examine their conclusion that reciprocal compensation is due to the extent that those
conclusions are based on a finding that this traffic terminates at an ISP server, but nothing in
this Declaratory Ruling precludes state commissions from determining, pursuant to contractual
principles or other legal or equitable considerations. that reciprocal compensation is an
appropriate interim inter-carrier compensation rule pending completion of the rulemaking we
initiate below.
16 See 47 C.F.R. 51.70l(a); Local Competition Order. 11 FCC Red at 16013.
17 As noted
, but nothing in
this Declaratory Ruling precludes state commissions from determining, pursuant to contractual
principles or other legal or equitable considerations. that reciprocal compensation is an
appropriate interim inter-carrier compensation rule pending completion of the rulemaking we
initiate below.
16 See 47 C.F.R. 51.70l(a); Local Competition Order. 11 FCC Red at 16013.
17 As noted. section 25 J(bX5) of the Act and our rules promulgated purSuant to that provision concern inter-
carrier compensation for interconnected local telecommunications traffic. We conclude in this Declaratory
Ruling, however, that ISP-bound traffic is non-local interstate traffic. Thus, the reciprocal compensation
requirements of section 25 l(bX5) of the Act and Section 51. Subpan H (Reciprocal Compensation for Transpon
and Termination of Local Telecommunications Traffic) of the Commission's rules do not govern inter-carrier
compensation for this traffic. As discussed. supra, in the absence a federal rule, state commissions have the
authority under section 252 of the Act to determine inter-carrier compensation for ISP-bound traffic.
11 As noted. in other contexts we have directed the states to treat such traffic as local. See ESP Exemption
Order, 3 FCC Red 2631, 2635 n.8. 2637 n.53.
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Federal Communications Commission
FCC 99-38
IV. Notice of Proposed Rulemaking (CC Docket No. 99-68)
A. Discussion.
28. We do not have an adequate record upon which to adopt a rule regarding inter-
carrier compensation for ISP-bound traffic. We do believe. however, that adopting such a
rule to govern prospective compensation would serve the public interest. As a general matter.
we tentatively conclude that our rule should strongly reflect our judgment that commercial
negotiations are the ideal means of establishing the terms of interconnection contracts. We
seek comment on two alternative proposals for implementing such a regime
. We do believe. however, that adopting such a
rule to govern prospective compensation would serve the public interest. As a general matter.
we tentatively conclude that our rule should strongly reflect our judgment that commercial
negotiations are the ideal means of establishing the terms of interconnection contracts. We
seek comment on two alternative proposals for implementing such a regime. Until adoption
of a final rule, state commissions will continue to determine whether reciprocal compensation
is due for this traffic. As discussed above, the Commission's holding that parties'
agreements, as interpreted by state commissions, should be binding also applies to those state
commissions that have not yet addressed the issue.
29. For the traffic at issue here, we tentatively conclude that a negotiation process,
driven by market forces, is more likely to lead to efficient outcomes than are rates set by
regulation. In addition, setting a rate by regulation appears unwise because the actual
amounts, need for, and direction of inter-carrier compensation might reasonably vary
depending on the underlying commercial relationships with the end user, and who ultimately
pays for transmission between its location and the ISP. 89 We acknowledge that. no matter
what the payment arrangement, LECs incur a cost when delivering traffic to an ISP that
originates on another LEC's network. We believe that efficient rates for inter-carrier
compensation for ISP-bound traffic are not likely to be based entirely on minute-of-use
pricing structures. In particular, pure minute-of-use pricing structures are not likely to reflect
accurately how costs are incurred for delivering ISP-bound traffic. For example. flat-rated
pricing based on capacity may be more cost-based. Parties also might reasonably agree to
rates that include a separate call set-up charge. coupled with very low per-minute rates. These
economic characteristics of this traffic are likely to make voluntary agreements among the
parties easier to reach
ect
accurately how costs are incurred for delivering ISP-bound traffic. For example. flat-rated
pricing based on capacity may be more cost-based. Parties also might reasonably agree to
rates that include a separate call set-up charge. coupled with very low per-minute rates. These
economic characteristics of this traffic are likely to make voluntary agreements among the
parties easier to reach. For these reasons. we propose that inter-carrier compensation rates for
ISP-bound traffic be based on commercial negotiations undertaken as part of the broader
interconnection negotiations between incumbent LECs and CLECs. We seek comment below
on two alternative proposals to govern the negotiations with respect to ISP-bound traffic.
30. We tentatively conclude that. as a matter of federal policy, the inter-carrier
compensation for this interstate telecommunications traffic should be governed prospectively
by interconnection agreements negotiated and arbitrated under sections 251 and 252 of the
Act. Resolution of failures to reach agreement on inter-carrier compensation for interstate
19 When an end user effectively purchases a telecommunications-based service from more than one service
provider, it can pay for the costs of the underlying telecommunications either directly to the telecommunications
service provider. or indirectly through the other service provider. which in tum pays the telecommunications
provider. Both sets of arrangements exist today.
3707
or interstate
19 When an end user effectively purchases a telecommunications-based service from more than one service
provider, it can pay for the costs of the underlying telecommunications either directly to the telecommunications
service provider. or indirectly through the other service provider. which in tum pays the telecommunications
provider. Both sets of arrangements exist today.
3707
Federal Communications Commission
FCC 99-38
ISP-bound traffic then would occur through arbitrations conducted by state commissions,
which are appealable to federal district courts. As with other issues on which parties petition
state commissions for arbitration under section 252 of the Act. if a ·state commission fails to
act, the Commission will assume the responsibility of the state commission within 90 days of
being notified of such failure. 90 This proposal could help facilitate the policy goals set forth
above by forcing the parties to hold a single set of negotiations regarding rates. terms. and
conditions for interconnected traffic and to submit all disputes regarding interconnected traffic
to a single arbitrator. We seek comment on this tentative conclusion.
31. We also seek comment on an alternative proposal that we adopt a set of federal
rules governing inter-carrier compensation for ISP-bound traffic pursuant to which parties
would engage in negotiations concerning rates, terms. and conditions applicable to delivery of
interstate ISP-bound traffic. These negotiations would commence on the effective date of the
adopted rule but could proceed in tandem with broader interconnection negotiations between
the parties. We realize. however, that the success of any negotiation over rates is likely to
depend on the availability of the swift and certain resolution of disputes, and the structure of
the resolution process. For example, the Commission, through delegation to the Common
Carrier Bureau
date of the
adopted rule but could proceed in tandem with broader interconnection negotiations between
the parties. We realize. however, that the success of any negotiation over rates is likely to
depend on the availability of the swift and certain resolution of disputes, and the structure of
the resolution process. For example, the Commission, through delegation to the Common
Carrier Bureau. might resolve such disputes, at the request of either party, through an
arbitration-like process, following a discrete period of voluntary negotiation. We seek
comment on how such an approach would operate procedurally and what costing standards the
Commission might use in arbitrating disputes. We also seek comment on how this proposal
compares with a broad interconnection negotiation in which most disputes are resolved by a
state arbitrator but disputes regarding ISP-bound traffic are resolved through a federal
arbitration-like process. We also seek comm~nt on whether it is possible, as a technical
matter, to segregate intrastate and interstate ISP-bound traffic and whether any federal rules
we adopt should apply to all intrastate and interstate ISP-bound traffic.
32. We also seek comment on whether the Commission has the authority to establish
an arbitration process that is final and binding and not subject to judicial review. For
instance, we note that parties might agree to binding arbitration pursuant to the Administrative
Dispute Resolution Act.
91 We seek comment on whether and how such a system should be
implemented. In particular, we seek comment on the desirability of arbitration before an
arbitrator selected by the parties. as provided by the Administrative Dispute Resolution Act. as
opposed to a federal or state decision-maker. 92
33. We also invite parties to submit alternative proposals for inter-carrier
compensation for interstate ISP-bound traffic that will advance our policy goals in this area.
90 47 U.S.C. § 252(e)(5).
91
Administrative Dispute Resolution Act, Pub. L. No
bitrator selected by the parties. as provided by the Administrative Dispute Resolution Act. as
opposed to a federal or state decision-maker. 92
33. We also invite parties to submit alternative proposals for inter-carrier
compensation for interstate ISP-bound traffic that will advance our policy goals in this area.
90 47 U.S.C. § 252(e)(5).
91
Administrative Dispute Resolution Act, Pub. L. No. 101-552, 104 Stat. 2738, codified at 5 U.S.C. § 571
et seq.
9
' See 5 U.S.C. § 577.
3708
Federal Communications Commission
FCC 99-38
For example, Ameritech has proposed basing inter-carrier compensation for ISP-bound traffic
on sharing the incumbent LEC' s revenue associated with the interconnected ISP-bound
traffic.93 We also request parties to comment on how any alternatives they propose will
advance the Commission's goals of ensuring the broadest possible entry of efficient new
competitors. eliminating incentives for inefficient entry and irrational pricing schemes. and
providing to consumers as rapidly as possible the benefits of competition and emerging
technologies.
34. We are aware that disputes may arise regarding various terms and conditions for
inter-carrier compensation for ISP-bound traffic. Although many such disputes could be
resolved through a negotiation and arbitration process, we seek comment on whether there are
any issues under our two proposals above that we can and should address in the first instance
through rules rather than through arbitration. We request parties to comment on the need for
rules pertaining to such matters and. to the extent that parties believe that rules are
appropriate, the substance and degree of specificity of such rules. We emphasize. however,
that we do not seek comment on whether interstate access charges should be imposed on ESPs
as part of this proceeding. We recently reaffirmed that exemption in the Access Charge
Reform Order, and we do not reconsider it here. 94
35
g to such matters and. to the extent that parties believe that rules are
appropriate, the substance and degree of specificity of such rules. We emphasize. however,
that we do not seek comment on whether interstate access charges should be imposed on ESPs
as part of this proceeding. We recently reaffirmed that exemption in the Access Charge
Reform Order, and we do not reconsider it here. 94
35. Pursuant to section 252(i) of the Act, 95 interconnection agreements often have
clauses (often referred to as "most-favored nation" or "MFN" provisions) that allow parties to
select. to varying degrees of specificity. provisions from other parties' interconnection
agreements with that particular LEC. We understand that an arbitrator recently permitted a
CLEC to exercise MFN rights to opt into an interconnection agreement that an incumbent
LEC previously had negotiated \\ith another CLEC.96 That interconnection agreement,
executed in July 1996, has a three-year term. The arbitrator concluded that the new CLEC
was entitled to opt into the agreement for a new three-year term. thus raising the possibility
that the incumbent LEC might be subject to the obligations set forth in that agreement for an
indeterminate length of time. without any opportunity for renegotiation. as successive CLECs
opt into the agreement. 97 We seek comment. therefore. on whether and how section 252(i)
and MFN rights affect parties' ability to negotiate or renegotiate terms of their interconnection
agreements.
93 See Lener from Gary L. Phillips. Director of Legal Affairs, Ameritech, Inc .. to Magalie R. Salas,
Secretary, FCC (July 17, 1998).
9• Access Charge Refor,,; Order. 12 FCC Red at 16133.
Q) 47 U.S.C. § 252(i).
% See Lener from Michael E. Glover. Associate General Counsel, Bell Atlantic, to Magalie R. Salas,
Secretary. FCC (October 28. 1998). at 2. An. 3 at 6-8.
97 Id.
3709
n
agreements.
93 See Lener from Gary L. Phillips. Director of Legal Affairs, Ameritech, Inc .. to Magalie R. Salas,
Secretary, FCC (July 17, 1998).
9• Access Charge Refor,,; Order. 12 FCC Red at 16133.
Q) 47 U.S.C. § 252(i).
% See Lener from Michael E. Glover. Associate General Counsel, Bell Atlantic, to Magalie R. Salas,
Secretary. FCC (October 28. 1998). at 2. An. 3 at 6-8.
97 Id.
3709
Federal Communications Commission
FCC 99-38
36. As discussed above. not all ISP-bound traffic is interstate. We seek comment on
whether we should adopt rules for the interstate traffic that would coexist with state rules
governing the intrastate traffic, or whether it is too difficult or inefficient to separate intrastate
ISP-bound traffic from interstate ISP-bound traffic. We further seek comment on the
technical and practical implications of requiring the separation of intrastate and interstate ISP-
bound traffic. In addition. we seek comment on the implications of various proposals
regarding inter-c'arrier compensation for ISP-bound traffic on the separations regime. such as
the appropriate treatment of incumbent LEC revenues and payments associated with the
delivery of such traffic. This Commission is mindful of concerns that our jurisdictional
analysis may result in allocation to different jurisdictions of the costs and revenues associated
with ISP-bound traffic,98 and we wish to make clear that we have no intention of permitting
such a mismatch to occur. With respect to current arrangements, we note that this order does
not alter the long-standing determination that ESPs (including ISPs) can procure their
connections to LEC end offices under intrastate end-user tariffs, and thus for those LECs
subject to jurisdictional separations both the costs and the revenues associated with such
connections will continue to be accounted for as intrastate.
B. Procedural Matters.
1. Ex Parte Presentations.
37
order does
not alter the long-standing determination that ESPs (including ISPs) can procure their
connections to LEC end offices under intrastate end-user tariffs, and thus for those LECs
subject to jurisdictional separations both the costs and the revenues associated with such
connections will continue to be accounted for as intrastate.
B. Procedural Matters.
1. Ex Parte Presentations.
37. This Notice of Proposed Rulemaking is a permit-but-disclose notice-and-comment
rulemaking proceeding. Ex Parte presentations are permitted, in accordance with the
Commission's rules, provided that they are disclosed as required. 99
2. ·Initial Regulatory Flexibility Analysis.
38. As required by the Regulatory Flexibility Act (RF A), 100 the Commission has
prepared this Initial Regulatory Flexibility Analysis (IRF A) of the possible significant
economic impact on small entities by the policies and rules proposed in the Notice of
Proposed Rulemaking (Notice). Written public comments are requested on the IRF A. These
comments must be filed by the deadlines for comment on the remainder of the Notice. and
should have a separate and distinct heading designating them as responses to the IRF A. The
Commission will send a copy of the A"otice. including the IRF A, to the Chief Counsel for
91 See Lener from James Bradford Ramsay. Assistant General Counsel, National Association of Regulatory
Utility Commissioners, to Magalie R. Salas. Secretary. FCC (December 14, 1998).
9Q See genera/ly47 C.F.R. §§ 1.1200. 1.1202. 1.1204, 1.1206.
100 See 5 U.S.C. § 603. The RFA. see 5 U.S.C. § 601 et seq., has been amended by the Contract With
America Advancement Act of 1996. Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the
CW AAA is the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREF A).
3710
R. Salas. Secretary. FCC (December 14, 1998).
9Q See genera/ly47 C.F.R. §§ 1.1200. 1.1202. 1.1204, 1.1206.
100 See 5 U.S.C. § 603. The RFA. see 5 U.S.C. § 601 et seq., has been amended by the Contract With
America Advancement Act of 1996. Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the
CW AAA is the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREF A).
3710
Federal Communications Commission
FCC 99-38
Advocacy of the Small Business Administration (SBA), in accordance with the RF A. 5 U.S.C.
§ 603(a).
39. Need for and Objectives of the Proposed Rules. We tentatively conclude that we
should adopt a rule regarding inter-carrier compensation for ISP-bound traffic that strongly
reflects our judgment that commercial negotiations are the ideal means of establishing the
terms of interconnection contracts. We seek comment on two alternative proposals for
implementing such a regime. Until adoption of a final rule, state commissions will continue
to determine whether reciprocal compensation is due for this traffic. In light of comments
received in response to the Notice, we might issue new rules or alter existing rules.
40. Legal Basis. The legal basis for any action that may be taken.pursuant to the
Notice is contained in Sections 1, 2, 4, 201, 202, 274, and 303(r) of the Communications Act
of 1934, as amended, 47 U.S.C. §§ 151. 152, 154, 201, 202, 251. 252, and 303(r).
41. Description and Estimate of the Number of Small Entities That May Be Affected
by the Notice of Proposed Rulemaking. The RF A directs the Commission to provide a
description of and, where feasible, an estimate of the number of small entities that might be
affected by proposed rules. The RF A defines the term "small entity" as having the same
meaning as the terms "small business." "small organization." and "small business. concern"
under Section 3 of the Small Business Act
y the Notice of Proposed Rulemaking. The RF A directs the Commission to provide a
description of and, where feasible, an estimate of the number of small entities that might be
affected by proposed rules. The RF A defines the term "small entity" as having the same
meaning as the terms "small business." "small organization." and "small business. concern"
under Section 3 of the Small Business Act.
101 A small business concern is one which: (1) is
independently owned and operated; (2) is not dominant in its field of operation: and
(3) satisfies any additional criteria established by SBA. 102 The SBA has defined a small
business for Standard Industrial Classification (SIC) category 4813 (Telephone
Communications, Except Radiotelephone) to be an entity with no more than 1.500
employees. 103 Consistent with prior practice. we here exclude small incumbent local exchange
carriers (LECs) from the definition of "small entity" and "small business concern." 1o.i
Although such a company may have 1,500 or fewer employees and thus fall within the SBA' s
definition of a small telecommunications entity. such companies are either dominant in their
field of operations or are not independently owned and operated. Out of an abundance of
caution. however, for regulatory flexibility analysis purposes, we will consider small
incumbent LECs within this present analysis and use the term "small incumbent LECs" to
refer to any incumbent LEC that arguably might be defined by SBA as a small business
concern.
101 See 5 U.S.C. § 601(3) (incorporating by reference the definition of "small business concern" in
5 U.S.C. § 632). The Commission may also develop additional definitions that are appropriate to its activities.
JO:
15 u.s.c. § 632.
io; See 13 C.F.R. § 121.201.
1°"' See. e.g.. Local Competition Order, 11 FCC Red at 16150.
3711
arguably might be defined by SBA as a small business
concern.
101 See 5 U.S.C. § 601(3) (incorporating by reference the definition of "small business concern" in
5 U.S.C. § 632). The Commission may also develop additional definitions that are appropriate to its activities.
JO:
15 u.s.c. § 632.
io; See 13 C.F.R. § 121.201.
1°"' See. e.g.. Local Competition Order, 11 FCC Red at 16150.
3711
Federal Communications Commission
FCC 99-38
42. Total Number of Telephone Companies Affected. The United States Bureau of the
Census (the Census Bureau) reports that at the end of 1992. there were 3.497 firms engaged
in providing telephone services. as defined therein. for at least one year. 105 This number
includes a variety of different categories of carriers. including local exchange carriers (both
incwnbent and competitive), interexchange carriers. competitive access providers. cellular
carriers, mobile service carriers. operator service providers. pay telephone operators. PCS
providers, covered SMR providers, and resellers. It seems certain that some of those 3.497
telephone .service firms may not qualify as small entities because they are not "independently
oMied or operated." 106 For example. a PCS provider that is affiliated with an interexchange
carrier having more than 1.500 employees would not meet the definition of a small business.
It seems reasonable to conclude, therefore. that fewer than 3,497 telephone service firms are
either small entities or small incwnbent LE Cs that may be affected by this Notice.
43. Local Exchange Carriers. Neither the Commission nor the SBA has developed a
definition of small providers of local exchange services. The closest applicable definition
under the SBA' s rules is for telephone communications companies other than radiotelephone
(wireless) companies. The most reliable source of information regarding the nwnber of LECs
LE Cs that may be affected by this Notice.
43. Local Exchange Carriers. Neither the Commission nor the SBA has developed a
definition of small providers of local exchange services. The closest applicable definition
under the SBA' s rules is for telephone communications companies other than radiotelephone
(wireless) companies. The most reliable source of information regarding the nwnber of LECs.
nationwide of which we are aware appears to be the data that we collect annually in
connection with the Telecommunications Relay Service (TRS). 107 According to our most
recent data. 1,3 71 companies reported that they were engaged in the provision of local
exchange services. 108 Although it seems certain that some of these carriers are not
independently oMied and operated, or have more than 1.500 employees. or are dominant, we
are unable at this time to estimate with greater precision the nwnber of LECs that would
qualify as small business concerns under the SBA's definition. Consequently. we estimate
that fewer than 1.3 71 small providers of local exchange service are small entities or small
incumbent LE Cs that may be affected by the jVotice.
44. Description of Projected Reporting. Recordkeeping and Other Compliance
Requirements. As a result of rules that we may adopt. incwnbent LECs and CLECs may be
required to discern the amount of traffic carried on their networks that is bo.und for ISPs. In
addition. such incwnbent LECs and entrants may be required to produce information
regrading the costs of carrying ISP-bound traffic on their networks.
105 United States Department of Commerce. Bureau of the Census. 1992 Census of Transportation.
Communications. and Utilities: Establishment and Firm Si:e, at Firm Size 1-123 (1995) (1992 Census).
106 15 U.S.C. § 632(a)(I).
101 FCC. Telecommunicat10ns Industry Revenue: TRS Fund Worksheet Data, Figure 2 (Number of Carriers
Paymg into the TRS Fund by Type of Carner) (Nov. 1997).
IOI Id.
3712
105 United States Department of Commerce. Bureau of the Census. 1992 Census of Transportation.
Communications. and Utilities: Establishment and Firm Si:e, at Firm Size 1-123 (1995) (1992 Census).
106 15 U.S.C. § 632(a)(I).
101 FCC. Telecommunicat10ns Industry Revenue: TRS Fund Worksheet Data, Figure 2 (Number of Carriers
Paymg into the TRS Fund by Type of Carner) (Nov. 1997).
IOI Id.
3712
Federal Communications Commission
FCC 99-38
45. Steps Taken to Minimize Significant Economic Impact on Small Entities. and
Alternatives Considered. As noted above. we propose to adopt rules that may require
incumbent LECs and CLECs to discern the amount of traffic carried on their networks that is
bound for ISPs. 109 We anticipate that if we adopt such rules, incumbent LECs and CLECs.
including small entity incumbent LEC and CLECs, will be able to receive compensation for
the delivery of ISP-bound traffic that they might not otherwise receive. The Notice also
requests comment on alternative proposals.
46. Federal Rules that May Duplicate. Overlap, or Conflict with the Proposed Rules.
None.
3. Comment Filing Procedures.
4 7. Pursuant to Sections 1.415 and 1.419 of the Commission's rules. 4 7 C.F .R. §§
1.415, 1.419, interested parties may file coniments on or before April 12, 1999, and reply
comments on or before April 2 7, 1999. Comments may be filed using the Commission· s
Electronic Comment Filing System (ECFS) or by filing paper copies. 110
48. Comments filed through the ECFS can be sent as an electronic file via the
Internet to <http://www.fcc.gov/e-file/ecfs.html>. Generally, only one copy of an electronic
submission must be filed. If multiple docket or rulemaking numbers appear in the caption of
this proceeding, however, commenters must transmit one electronic copy of the comments to
each docket or rulemaking number referenced in the caption. In completing the transmittal
screen. commenters should include their full name. Postal Service mailing address
Generally, only one copy of an electronic
submission must be filed. If multiple docket or rulemaking numbers appear in the caption of
this proceeding, however, commenters must transmit one electronic copy of the comments to
each docket or rulemaking number referenced in the caption. In completing the transmittal
screen. commenters should include their full name. Postal Service mailing address. and the
applicable docket or rulemaking number. Parties may also submit an electronic comment by
Internet e-mail. To get filing instructions for e-mail comments. commenters should send an e-
mail message to ecfs@fcc.gov and include "get form <your e-mail address>" in the body of
the message. A sample form and directions will be sent in reply.
49. Parties that choose to file by paper must file an original and four copies of each
filing. All filings must be sent to the Commission's Secretary. Magalie Roman Salas, Office
of the Secretary, Federal Communications Commission. 445 Twelfth St., S.W .. Room TW-
A325, Washington, DC 20554.
50. Parties that choose to file by paper should also submit their comments on diskette.
These diskettes should be submitted to: Wanda Harris. Federal Communications Commission,
Common Carrier Bureau. Competitive Pricing Division. 445 Twelfth St., S. W., Fifth Floor,
Washington, DC 20554. Such a submission should be on a 3.5 inch diskette formatted in an
IBM compatible format using WordPerfect 5.1 for Windows or compatible software. The
1
0<i
See~~ 28-36. supra.
110 See Electronic Filing of Documents in Ru/emaking Proceedings, 63 Fed. Reg. 24,121 (1998).
3713
ion,
Common Carrier Bureau. Competitive Pricing Division. 445 Twelfth St., S. W., Fifth Floor,
Washington, DC 20554. Such a submission should be on a 3.5 inch diskette formatted in an
IBM compatible format using WordPerfect 5.1 for Windows or compatible software. The
1
0<i
See~~ 28-36. supra.
110 See Electronic Filing of Documents in Ru/emaking Proceedings, 63 Fed. Reg. 24,121 (1998).
3713
Federal Communications Commission
FCC 99-38
by a cover letter and should be submitted in "read only" mode. The diskette should be clearlv
labelled with the commenter's name, proceeding (including the docket number in this case,
CC Docket No. 99-68); type of pleading (comment or reply comment); date of submission;
and the name of the electronic file on the diskette. The label should also include the
following phrase "Disk Copy - Not an Original." Each diskette should contain only one
party's pleadings, preferably in a single electronic file. In addition. commenters must send
diskette copies to the Commission· s copy contractor, International Transcription Service. Inc ..
1231 20th Street, N.W., Washington, DC 20036.
V. Ordering Clauses
51. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i) and (j). 201-209,
251, 252, and 403 of the Communications Act. as amended. 47 U.S.C. §§ 151, 154(i), 154(j),
201-209, 251, 252 and 403, that this Notice of Proposed Rulemaking IS HEREBY
ADOPTED and comments ARE REQUESTED as described above.
52. IT IS FURTHER ORDERED that the Commission's Office of Public Affairs,
Reference Operations Division. SHALL SEND a copy of this Notice of Proposed
Rulemaking, including the Initial Regulatory Flexibility Analysis. to the Chief Counsel for
Advocacy of the Small Business Administration.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
Secretary
3714
ARE REQUESTED as described above.
52. IT IS FURTHER ORDERED that the Commission's Office of Public Affairs,
Reference Operations Division. SHALL SEND a copy of this Notice of Proposed
Rulemaking, including the Initial Regulatory Flexibility Analysis. to the Chief Counsel for
Advocacy of the Small Business Administration.
FEDERAL COMMUNICATIONS COMMISSION
Magalie Roman Salas
Secretary
3714
Separate Statement
of
Commissioner Susan Ness
February 25, I 999
Re:
Implementation of the Local Competition Provisions in the Telecommunications Act of
1996 (CC Docket 96-98); and inter-carrier Compensation/or ISP-Bound Traffic (CC
Docket No. 99-68)
This proceeding is one of unusual importance and unusual complexity.
The debate over reciprocal compensation for ISP-bound traffic is important for three main
reasons. First, the issues we review here involve access to the Internet, a unique.
extraordinary, and ever-evolving national and international network of networks that is rapidly
transforming communication. commerce. and communities. Second, reciprocal compensation
may substantially affect the nature and the extent of local telephone competition, which was a
principal objective of the Telecommunications Act of 1996. Third, any decision in this area
may affect relationships between state and federal regulatory authorities, who must work in
harmony to achieve successful implementation of the Telecommunications Act.
The debate is comp/ ex because it involves the application of legal precedents from the early
1980s to services and carrier arrangements that were unimaginable only a few short years ago,
as well as provisions of the 1996 Act that have already led to considerable controversy and
litigation. We must grapple with equities that may be quite different when viewed
prospectively than when viewed retrospectively. A further complication is that reciprocal
compensation involves certain issues that can better be assessed by state public utility
commissions than by the FCC
ort years ago,
as well as provisions of the 1996 Act that have already led to considerable controversy and
litigation. We must grapple with equities that may be quite different when viewed
prospectively than when viewed retrospectively. A further complication is that reciprocal
compensation involves certain issues that can better be assessed by state public utility
commissions than by the FCC. and yet it also implicates important national interests affecting
access to an interstate (and international) service.
At the end of the day. however. I believe the case boils down to elementary and
straightforward propositions. Switched network telephone calls to Internet service providers
are inherently interstate, which is the decision most consistent with our prior creation of an
ESP exemption from interstate access charges -- and with the interstate and international
nature of the Internet. But to say this is not to overrule, undermine, or prevent state
commission decisions that construe interconnection agreements to require reciprocal
compensation for ISP-bound traffic. It was. and remains, reasonable for the states (and
federal district courts) to so rule. given our prior decisions -- and the practices of the ILECs
themselves -- to treat this traffic as local.
1
1 Since 1983. the Commission has consistently and consciously pennitted enhanced service providers. a
category that now includes Internet service providers (ISPs) to connect to their customers using local business
lines. See. e.g .. MTS and WATS Marker Structure. 97 FCC 2d 682, 715, para. 83 (1983) (subsequent history
omitted). Enhanced service providers use "inrersrare access" but pay "local business exchange service rates."
Id. (emphasis added); see also Amendments of Pan 69 of the Commission's Rules Relating ro Enhanced Service
3715
providers (ISPs) to connect to their customers using local business
lines. See. e.g .. MTS and WATS Marker Structure. 97 FCC 2d 682, 715, para. 83 (1983) (subsequent history
omitted). Enhanced service providers use "inrersrare access" but pay "local business exchange service rates."
Id. (emphasis added); see also Amendments of Pan 69 of the Commission's Rules Relating ro Enhanced Service
3715
And, although we are declaring that there are national interests that must be respected on a
going-forward basis, it may well be that these interests can be protected without changing the
long-standing decision to treat this traffic as local. One could readily imagine. for example.
that states will not seek to assess per-minute fees on Internet-bound calls. just as the FCC has
repeatedly resisted entreaties to do so. One can also reasonably foresee that. even if ISP-
bound traffic continues to be handled by the state commissions under the usual 251/252
process, the parties themselves (in voluntarily negotiated agreements) or the state commissions
(if called upon to arbitrate agreements between incumbents and new entrants) will in future
agreements address the issues associated with ISP-bound traffic in ways that avoid some of
the obvious anomalies and competitive distortions that may result from some of the current
ILEC-CLEC arrangements.
In short, I believe the decision we have adopted is one that ( 1) comports with the law. (2) is
fair both to incumbent local exchange carriers and to competitive local exchange carriers. (3)
does not unravel the core determinations of the more than two dozen state. commissions that
have addressed this issue, ( 4) sets the stage for future determinations that will eliminate or at
least attenuate any anomalies inherent in current compensation arrangements, and (5)
preserves this Commission's ability to safeguard the innovative, competitive. and unregulated
character of the Internet
does not unravel the core determinations of the more than two dozen state. commissions that
have addressed this issue, ( 4) sets the stage for future determinations that will eliminate or at
least attenuate any anomalies inherent in current compensation arrangements, and (5)
preserves this Commission's ability to safeguard the innovative, competitive. and unregulated
character of the Internet. I hope that parties responding to the Notice of Proposed
Rulemaking will focus on ways in which all of these objectives may continue to be advanced.
Providers, 3 FCC Red. 2631. 2635 n.8 (1988) ("enhanced service providers generally pay local business rates
and interstate subscriber line charges for their swnched access connections to local exchange company central
offices") (emphasis added); accord id. at 2637 n.53.
This decision was not altered by passage of the Telecommunications Act of 1996. After that law was
passed, we expressly reiterated that ISPs "purchase services from incumbent LECs under the same intrastate
tariffs available to end users" and determined that. if •intrastate rate structures fail to compensate incumbent
LECs adequately for providing service to customers with high volumes of incoming calls. incumbent LECs may
address their concerns to srare regulators.· Access Charge Reform, 12 FCC Red. 15982. 16132, para. 342 &
16135, para. 346 (1997), aff'd Southwestern Bell Telephone Co. v. FCC. 153 F.3d 523 (8th Cir. 1998)
(emphasis added). The Eighth Circuit explicitly recognized that the manner in which Internet-bound traffic is
treated is a product of FCC "discretion.· Southwestern Bell Telephone, 153 F.3d at 543. It is significant that,
in the aforementioned Access Charge Reform proceeding. we implicitly affirmed both the FCC's ultimate
authority over this traffic and the state commissions· competence to handle it unless and until directed
otherwise
citly recognized that the manner in which Internet-bound traffic is
treated is a product of FCC "discretion.· Southwestern Bell Telephone, 153 F.3d at 543. It is significant that,
in the aforementioned Access Charge Reform proceeding. we implicitly affirmed both the FCC's ultimate
authority over this traffic and the state commissions· competence to handle it unless and until directed
otherwise. It is especially telling that the Southwesrem Bell Telephone decision, acknowledging the
Commission's ultimate authority over such inherently interstate traffic. came from a coun that was otherwise
quite resistant to FCC encroachment on matters that it deemed to be on the states' side of a "horse-high. hog-
tight, and bull-strong fence.· Iowa Utilities &I. v. FCC. 120 F.3d 753, 800 (8th Cir. 1997), rev'd in peninenr
pan, AT&T Corp. v. Iowa Utilities Bd .. 119 S. Ct. 721 (1999).
3716
February 25. 1999
SEPARATE STATEMENT OF COMMISSIONER MICHAEL K. PO\VELL,
CONCURRING
Re:
Declaratory Ruling in CC Docket No. 96-98 and Notice of Proposed Rulemaking in
CC Docket No. 99-68, Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996 (CC Docket No. 96-98) and Inter-Carrier
Compensation for ISP-Bound Traffic (CC Docket No. 99-68).
I write separately to explain the bases upon which I concur in this action.
Specifically, based on the long inquiry that has led to our action today. I agree with the
majority that LEC-to-LEC Internet-bound traffic is properly classified as jurisdictionally
interstate. Because of this agreement, and in light of the serious governmental interests
implicated, I believe it is appropriate for the Commission to consider whether the current
method of determining intercarrier compensation for this traffic at the state level continues to
be appropriate. I believe, however, that in a well-meaning effort to preserve existing state
decisions regarding reciprocal compensation for this traffic
nt, and in light of the serious governmental interests
implicated, I believe it is appropriate for the Commission to consider whether the current
method of determining intercarrier compensation for this traffic at the state level continues to
be appropriate. I believe, however, that in a well-meaning effort to preserve existing state
decisions regarding reciprocal compensation for this traffic. we have strayed into areas best
left to state authorities and may have unwiningly muddled our jurisdictional analysis.
As the anached decision correctly points out, a number of the Commission's
precedents indicate that the jurisdictional nature of communications should be determined by
the end points of the communication (i.e., by looking at the entire communication as "one
call"). I believe this method of evaluating jurisdiction remains valid and important,
especially considering the growing number of creative and complex methods for transmining
and transporting communications. Indeed, the challenge of packet networks is that they
make it nearly impossible (at present) to trace accurately the route of a single communication
to its destination, especially given that each packet of which the communication is comprised.
may take a different route before reassembling at the intended destination. These and other
technological developments will continue to frustrate traditional geographic boundaries.
Our decision that LEC-to-LEC Internet-bound traffic is interstate in nature
fundamentally calls into question a number of state decisions that applied reciprocal
compensation to LEC-to-LEC Internet-bound traffic based primarily or exclusively on the
view. which we herein reject, that this traffic is local. I agree with the majority that this
conclusion does not, in itself, dictate how or whether carriers of this traffic should be
compensated, nor does this conclusion determine whether this Commission or state
commissions should establish compensation arrangements
n to LEC-to-LEC Internet-bound traffic based primarily or exclusively on the
view. which we herein reject, that this traffic is local. I agree with the majority that this
conclusion does not, in itself, dictate how or whether carriers of this traffic should be
compensated, nor does this conclusion determine whether this Commission or state
commissions should establish compensation arrangements. I likewise agree that not all state
decisions to apply reciprocal compensation to this traffic share this basis, and that, as a
general matter, there may be other bases upon which state commissions could continue these
compensation schemes even after the action we take here.
But even given the fact that our decision today does not necessarily undermine each of
the state decisions. I think the most prudent course would have been for us to decline to
speculate on what bases there may be for upholding those decisions. The decisions
themselves are not before us and it is properly for state authorities to explore the
3717
ramifications of our action today on those decisions. Furthermore. having reviewed a
number of the state decisions in this area, I am persuaded that the underlying facts, analytical
underpinnings and applicable law vary enormously from state to state. We cannot, even in
the most carefully worded or sweeping dicta, address all of these variations meaningfully.
That said, I might support some of the majority's suggested rationales for preserving
existing state decisions, but cannot embrace others because I am unpersuaded either that they
are sensitive to the wide variations in the facts, analysis and legal contexts or that the
benefits of such rationales substantially exceed their potential risks. I put in the first
category the view that state decisions applying reciprocal compensation to LEC-to-LEC
Internet-bound traffic should be preserved where the state or reviewing court finds that the
parties agreed to compensate each other for this traffic in this way
ons in the facts, analysis and legal contexts or that the
benefits of such rationales substantially exceed their potential risks. I put in the first
category the view that state decisions applying reciprocal compensation to LEC-to-LEC
Internet-bound traffic should be preserved where the state or reviewing court finds that the
parties agreed to compensate each other for this traffic in this way. Sections 251 and 252 of
the Act express a clear preference for negotiations as the primary method for carriers to
determine the terms of interconnection, and the Act allows parties to agree even to terms that
do not satisfy the requirements of these sections. Thus, I firmly believe that if a state
commission or court interpreting state law determines that carriers agreed to apply reciprocal
compensation to this traffic, those carriers should be held to the terms of their agreement.
Furthermore, I have no strong objection to our dicta to the extent it suggests that state
commissions or reviewing courts may identify other justifications for preserving state
decisions to apply reciprocal compensation to this traffic under state law. If we had included
only this rationale as a basis upon which states could uphold their existing decisions, my
concerns with our decision today would have been significantly reduced.
But rather than merely acknowledging generally the possibility of state law bases on
which we believe such agreements can be sustained, we have chosen to proffer other specific
bases. I am concerned, however, that the other theories proffered here are legally and
analytically unsound, may prospectively hinder our ability to address the public policy
concerns that led us to assert jurisdiction here in the first place, and yet do very little
retroactively to preserve state-sanctioned agreements. As such, I decline to subscribe to
certain of the dicta in our decision
c
bases. I am concerned, however, that the other theories proffered here are legally and
analytically unsound, may prospectively hinder our ability to address the public policy
concerns that led us to assert jurisdiction here in the first place, and yet do very little
retroactively to preserve state-sanctioned agreements. As such, I decline to subscribe to
certain of the dicta in our decision.
First, I decline to subscribe to any suggestion that the state decisions could be
preserved based on the theory that we had essentially delegated responsibility to state
commissions to approve or determine compensation arrangements for LEC-to-LEC Internet-
bound traffic. Unquestionably, we have in the past declined to apply certain types of
existing federal compensation or charges to traffic flowing to enhanced service providers
(ESPs) from individual LECs. As the decision appears to ackn~wledge, however, we have
never made a conscious, affirmative choice to defer in similar fashion to local compensation
measures for the situation we face here (i.e., intercarrier compensation for LEC-to-LEC
Internet-bound traffic). I do not question that a state may have understandably analogized the
ESP precedent to this case. But no matter how apt the analogy to the facts before us now,
one cannot assume delegated authority by analogy. Thus, I cannot support any suggestion
that the Commission has heretofore delegated authority to state commissions to impose
reciprocal compensation on this traffic.
·
3718
d traffic). I do not question that a state may have understandably analogized the
ESP precedent to this case. But no matter how apt the analogy to the facts before us now,
one cannot assume delegated authority by analogy. Thus, I cannot support any suggestion
that the Commission has heretofore delegated authority to state commissions to impose
reciprocal compensation on this traffic.
·
3718
Second, I decline to subscribe to the dicta in this decision to the extent it suggests that
the state decisions can be preserved because state commissions and this Commission share
jurisdiction for implementing the sections 251 and 252 of the Act.
I fully agree that the states, to the extent they acted pursuant to their statutory
obligation to arbitrate and approve interconnection agreements, acted reasonably in the
absence of a clear federal rule. Nonetheless, I fail to see how such reasonableness will be a
defense to claims that our jurisdictional analysis conflicts with that of a state. Such
reasonableness does little to preserve those state decisions most likely to be disturbed by our
"one call" jurisdictional analysis, namely, decisions based primarily or exclusively on a "two
call" theory. In shon, I think touching on the issue of shared jurisdiction muddles our
conclusion that there is federal jurisdiction with respect to these questions. 1 I remain open to
considering any reasonable compensation scheme (including delegating authority to states) but
would have preferred to do so on the basis of our interstate authority, rather than on shared
jurisdiction.
In closing, I wish to note that I would have preferred to avoid making tentative
conclusions in the Notice section of today's decision. Indeed, in light of the complexity of the
remain open to
considering any reasonable compensation scheme (including delegating authority to states) but
would have preferred to do so on the basis of our interstate authority, rather than on shared
jurisdiction.
In closing, I wish to note that I would have preferred to avoid making tentative
conclusions in the Notice section of today's decision. Indeed, in light of the complexity of the.
analysis, the importance of the issues and the long inquiry leading up to this decision, some
may find it strange that our tentative conclusion in favor of state-level arbitrations would leave
the method of establishing intercarrier compensation for this traffic virtually unchanged. I
encourage commenters to provide information on both sides of this imponam issue so that we
can assess more fully which compensation scheme is best.
For these reasons, I cannot fully suppon our decision today, and thus I concur in it. I
wish to commend, however, my colleagues and our dedicated staff for their diligence and
patience in wrestling with these knotty legal and policy issues.
A!ly shared jurisdiction theory raises cenain questions, such as: what are the limits of federal authority
in crafting a compensation regime? Although the recent Supreme Coun decision in AT&T Corp. v. Iowa
Utilities Board begins co answer this question. the Coun's answer may not be entirely complete. For example,
in affinning the Commission's pricing jurisdiction. the Coun states: "While it is true that the 1996 Act entrusts
state commissions with the job of approving interconnection agreements . . . and granting exemptions to rural
LECs •... these assignments ... do not logically preclude the Commission's issuance of rules ro guide the
stare commission judgments." AT&T Corp. v. Iowa Urils. Bd., 119 S. Ct. 721 (1999) (opinion of the coun.
section II) (emphasis added)
s: "While it is true that the 1996 Act entrusts
state commissions with the job of approving interconnection agreements . . . and granting exemptions to rural
LECs •... these assignments ... do not logically preclude the Commission's issuance of rules ro guide the
stare commission judgments." AT&T Corp. v. Iowa Urils. Bd., 119 S. Ct. 721 (1999) (opinion of the coun.
section II) (emphasis added). Other than affirming the approach taken in the Commission's underlying order,
however, the Coun provided little guidance regarding the level of specificity with which the Commission can
"guide the state commission judgments.·
3719
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.