DISSENTING STATEMENT OF

**COMMISSIONER HAROLD FURCHTGOTT-ROTH**

# Re: Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and Inter-Carrier Compensation for ISP-Bound Traffic, Order on Remand and Report and Order, CC Docket Nos. 96-98, 99-68. {#re-implementation-of-the-local-competition-provisions-in-the-telecommunications-act-of-1996-and-inter-carrier-compensation-for-isp-bound-traffic-order-on-remand-and-report-and-order-cc-docket-nos.-96-98-99-68. .Appendix-Heading}

To some observers, the Telecommunications Act of 1996 ("1996 Act"), in
general, and sections 251 and 252 (47 U.S.C. §§ 251 and 252), in
particular, have become unnecessary inconveniences. The poster child for
those who proclaim the 1996 Act's failure is reciprocal compensation. It
has led to large billings -- some paid, some unpaid -- among
telecommunications carriers. These billings have not shrunk, in large
part because the Commission's interpretation of the pick-and-choose
provision of the Act (47 U.S.C. § 252(i)) has led to unstable contracts,
with perverse incentives for renegotiation.

Reciprocal compensation is an obscure and tedious topic. It is not,
however, a topic that Congress overlooked. To the contrary, in
describing reciprocal compensation arrangements in sections 251 and 252,
Congress went into greater detail than it did for almost any other
commercial relationship between carriers covered in the 1996 Act. Among
other things, Congress mandated that reciprocal compensation
arrangements would be:

\(1\) made by contract; (2) under State supervision; (3) at rates to be
negotiated or arbitrated; and (4) would utilize a bill-and-keep plan
only on a case-by-case basis under specific statutory conditions. *See*
47 U.S.C. §§ 251(b)(5), 252(a), 252(b), 252(d)(2).

Faced with these statutory mandates, how should the large billings for
reciprocal compensation be addressed? Renegotiating contracts would be
the simple market solution, only made precarious by our pick-and-choose
rules. Another solution would be to seek review of reciprocal
compensation agreements by State commissions. Other solutions would be
for this Commission to change its pick-and-choose rules or to issue
guidelines for State commission decisions (*see AT&T Corp. v. Iowa
Utilities Bd.*, 525 U.S. 366, 385 (1999)).

Each of these solutions, of course, would reflect at least a modicum of
respect for States, their lawmakers, their regulators, federal law, and
the Congress that enacted the 1996 Act. Each would also be consistent
with, and respectful of, the prior ruling on reciprocal compensation by
the Court of Appeals for the D.C. Circuit. *See Bell Atlantic Tel. Cos.
v. FCC*, 206 F.3d 1 (D.C. Cir. 2000).

There is, however, one solution that is not respectful of other
governmental institutions. It is a solution that places under exclusive
federal jurisdiction broad expanses of telecommunications. It is a
solution that does not directly solve the problem at hand. It is a
solution that can be reached only through a twisted interpretation of
the law and a vitiation of economic reasoning and general common sense.
That solution is nationwide price regulation. That is the regrettable
solution the Commission has adopted.

The Commission's decision has broad consequences for the future of
telecommunications regulation. In holding that essentially all
packetized communications fall within federal jurisdiction, the
Commission has dramatically diminished the States' role going forward,
as such communications are fast becoming the dominant mode. Whatever the
merits of this reallocation of authority, it is a reallocation that
properly should be made only by Congress. It certainly should not be
made, as here, by a self-serving federal agency acting unilaterally.

There is doubtlessly underway a publicity campaign by the proponents of
today's action. It will spin nationwide mandatory price regulation as
"deregulation." It will spin the abandonment of States and contracts as
"good government."

The media might be spun by this campaign. The public might be spun. But
it will be far more difficult to convince the courts that the current
action is lawful.

**A Flawed Order From Flawed Decisionmaking**

Today's order is the product of a flawed decisionmaking process that
occurs all too frequently in this agency. It goes like this. First, the
Commission settles on a desired outcome, based on what it thinks is good
"policy" and without giving a thought to whether that outcome is legally
supportable. It then slaps together a statutory analysis. The result is
an order like this one, inconsistent with the Commission's precedent and
fraught with legal difficulties.

In March 2000, the Court of Appeals for the D.C. Circuit vacated the
Commission's conclusion that section 251(b)(5) does not apply to calls
made to Internet service providers ("ISPs"). *See Bell Atlantic*, 206
F.3d at 9. The court ruled that, among other things, the Commission had
not provided a "satisfactory explanation why LECs that terminate calls
to ISPs are not properly seen as 'terminating . . . local
telecommunications traffic,' and why such traffic is 'exchange access'
rather than 'telephone exchange service.'" *Id.*

The Commission has taken more than a year to respond to the court's
remand decision. My colleagues some time ago decided on their general
objective -- asserting section 201(b) jurisdiction over ISP-bound
traffic and permitting incumbent carriers to ramp down the payments that
they make to competitive ones. The delay in producing an order is
attributable to the difficulty the Commission has had in putting
together a legal analysis to support this result, which is at odds with
the agency's own precedent as well as the plain language of the statute.

Today, the Commission rules, once again, that section 251(b)(5) does not
apply to ISP-bound traffic. In a set of convoluted arguments that
sidestep the court's objections to its previous order, the Commission
now says that ISP-bound traffic is "information access," which, the
Commission asserts, is excluded "from the universe of
'telecommunications' referred to in section 251(b)(5)" (Order ¶¶ 23, 30)
-- despite the Commission's recent conclusion in another context that
"information access" is not a separate category of service exempt from
the requirements of section 251. *See Deployment of Wireline Services
Offering Advanced Telecommunications Capability*, Order on Remand, 15
FCC Rcd 385, ¶¶ 46-49 (1999) ("*Advanced Services Remand Order*").

The result will be another round of litigation, and, in all likelihood,
this issue will be back at the agency in another couple of years. In the
meantime, the uncertainty that has clouded the issue of compensation for
ISP-bound traffic for the last five years will continue. The Commission
would act far more responsibly if it simply recognized that ISP-bound
traffic comes within section 251(b)(5). To be sure, this conclusion
would mean that the Commission could not impose on these communications
any rule that it makes up, as the agency believes it is permitted to do
under section 201(b). Rather, the Commission would be forced to work
within the confines of sections 251(b)(5) and 252(d)(2), which, among
other things, grant authority to State commissions to decide on "just
and reasonable" rates for reciprocal compensation. 47 U.S.C. §
252(d)(2). But the Commission surely could issue "rules to guide the
state-commission judgments" regarding reciprocal compensation (*Iowa
Utilities Bd.*, 525 U.S. at 385) and perhaps could even put in place the
same compensation scheme it orders here. At the same time, the confusion
that this order will add to the agency's already bewildering precedent
on Internet-related issues would be avoided.

> **The Commission's Previous Order and**
>
> **the Court's Remand Decision**

To see how far the Commission has come in its attempt to assert section
201(b) jurisdiction over ISP-bound traffic, let us briefly review the
court's decision on the Commission's previous order, which receives
little attention in the order released today. In its previous order,
issued in February 1999, the Commission focused on the jurisdictional
nature of ISP-bound traffic. *See Implementation of the Local
Competition Provisions in the Telecommunications Act of 1996;
Inter-Carrier Compensation for ISP-Bound Traffic*, Declaratory Ruling,
14 FCC Rcd 3689 (1999) ("*Reciprocal Compensation Declaratory Ruling*").
Applying an "end-to-end" analysis, the agency concluded that calls to
ISPs do not terminate at the ISP's local server, but instead continue to
the "ultimate destination or destinations, specifically at a\[n\]
Internet website that is often located in another state." *Id.* ¶ 12.
Based on this jurisdictional analysis, the Commission ruled that a
substantial portion of calls to ISPs are jurisdictionally interstate,
and it described ISP-bound traffic as interstate "access service." *Id.*
¶¶ 17, 18. The Commission reasoned that, since reciprocal compensation
is required only for the transport and termination of *local* traffic,
section 251(b)(5)'s obligations did not apply to ISP-bound calls. *See
id.* ¶¶ 7, 26.

> **1. The Court Asked the Commission Why ISPs Are Not Like Other Local
> Businesses**

The court vacated the Commission's decision. It held that, regardless of
the jurisdictional issue, the Commission had not persuasively
distinguished ISPs from other businesses that use communications
services to provide goods or services to their customers. *See Bell
Atlantic*, 206 F.3d at 7. In the court's view, the Commission had failed
to explain why "an ISP is not, for purposes of reciprocal compensation,
'simply a communications-intensive business end user selling a product
to other consumer and business end-users.'" *Id.* (citation omitted).

> **2. The Court Asked the Commission Why Calls Do Not Terminate at
> ISPs**

The court also questioned the Commission's conclusion that a call to an
ISP did not "terminate" at the ISP. "\[T\]he mere fact that the ISP
originates further telecommunications does not imply that the original
telecommunication does not 'terminate' at the ISP." *Id.* The court
concluded that, "\[h\]owever sound the end-to-end analysis may be for
jurisdictional purposes," the Commission had failed to explain why
treating these "linked telecommunications as continuous works for
purposes of reciprocal compensation." *Id*.

> **3. The Court Asked the Commission How Its Treatment of ISP-Bound
> Traffic Is Consistent with Its Treatment of Enhanced Service
> Providers**

The court also wondered whether the Commission's treatment of ISP-bound
traffic was consistent with the approach it applies to enhanced service
providers ("ESPs"), which include ISPs. *See id.* at 7-8. The Commission
has long exempted ESPs from the access charge system, effectively
treating them as end-users of local service rather than long-distance
carriers. The court observed that this agency, in the Eighth Circuit
access charge litigation, had taken the position "that a call to an
information service provider is really like a call to a local business
that then uses the telephone to order wares to meet the need." *Id.* at
8. The court rejected as "not very compelling" the Commission's argument
that the ESP exemption is consistent with the understanding that ESPs
use interstate access services. *Id.*

> **4. The Court Asked the Commission Whether ISP-Bound Traffic is
> "Exchange Access" or "Telephone Exchange Service"**

Finally, the court rejected the Commission's suggestion that ISPs are
"users of access service." *Id*. The court noted that the statute
creates two statutory categories -- "telephone exchange service" and
"exchange access" -- and observed that on appeal, the Commission had
conceded that these categories occupied the field. *Id.* If the
Commission had meant to say that ISPs are users of "exchange access,"
wrote the court, it had "not provided a satisfactory explanation why
this is the case." *Id.*

**The Commission's Latest Order**

Today, the Commission fails to answer any of the court's questions.
Recognizing that it could not reach the desired result within the
framework it used previously, the Commission offers up a completely new
analysis, under which it is irrelevant whether ISP-bound traffic is
"local" rather than "long-distance" or "telephone exchange service"
rather than "exchange access."

In today's order, the Commission concludes that section 251(b)(5) is not
limited to local traffic as it had previously maintained, but instead
applies to all "telecommunications" traffic except the categories
specifically enumerated in section 251(g). *See* Order ¶¶ 32, 34. The
Commission concludes that ISP-bound traffic falls within one of these
categories -- "information access" -- and is therefore exempt from
section 251(b)(5). *See id.* ¶ 42. The agency wraps up with a
determination that ISP-bound traffic is interstate, and it thus has
jurisdiction under section 201(b) to regulate compensation for the
exchange of ISP-bound traffic. *See id.* ¶¶ 52-65.

The Commission's latest attempt to solve the reciprocal compensation
puzzle is no more successful than were its earlier efforts. As discussed
below, its determination that ISP-bound traffic is "information access"
and, hence, exempt from section 251(b)(5) is inconsistent with
still-warm Commission precedent. Moreover, its interpretation of section
251(g) cannot be reconciled with the statute's plain language.

**1.** Today's decision is a complete reversal of the Commission's
recent decision in the *Advanced Services Remand Order.* In that order,
the Commission rejected an argument that xDSL traffic is exempt from the
unbundling obligations of section 251(c)(3) as "information access."
Among other things, the Commission found meritless the argument that
section 251(g) exempts "information access" traffic from other
requirements of section 251. *Id.* ¶ 47. Rather, the Commission
explained, "this provision is merely a continuation of the equal access
and nondiscrimination provisions of the Consent Decree until superseded
by subsequent regulations of the Commission." *Id.* According to the
Commission, section 251(g) "is a transitional enforcement mechanism that
obligates the incumbent LECs to continue to abide by equal access and
nondiscriminatory interconnection requirements of the MFJ." *Id.* The
Commission thus concluded that section 251(g) was not intended to exempt
xDSL traffic from section 251's other provisions. *See id.* ¶¶ 47-49.

In addition, the Commission rejected the contention that "information
access" is a statutory category distinct from "telephone exchange
service" and "exchange access." *See id.* ¶ 46.[^1] It pointed out that
"'information access' is not a defined term under the Act, and is
cross-referenced in only two transitional provisions." *Id.* ¶ 47. It
ultimately concluded that nothing in the Act suggests that "information
access" is a category of services mutually exclusive with exchange
access or telephone exchange service. *See id.* ¶ 48.

The Commission further determined that ISP-bound traffic is properly
classified as "exchange access." *See id.* ¶ 35. It noted that exchange
access refers to "access to telephone exchange services or facilities
for the purpose of originating or terminating communications that travel
outside an exchange." *Id.* ¶ 15. Applying this definition, and citing
the *Reciprocal Compensation Declaratory Ruling*, the Commission
reasoned that the service provided by the local exchange carrier to an
ISP is ordinarily exchange access service, "because it enables the ISP
to transport the communication initiated by the end-user subscriber
located in one exchange to its ultimate destination in another exchange,
using both the services of the local exchange carrier and in the typical
case the telephone toll service of the telecommunications carrier
responsible for the interexchange transport." *Id.* ¶ 35.

The *Advanced Services Remand Order* was appealed to the D.C. Circuit.
*See WorldCom*, 2001 WL 395344. The Commission argued to the court in
February that the term "information access" is merely "a holdover term
from the MFJ, which the 1996 Act supersedes." *WorldCom, Inc. v. FCC*,
Brief for Respondents at 50 (D.C. Cir. No. 00-1002). Its brief also
emphasized that section 251(g) was "designed simply to establish a
transition from the MFJ's equal access and nondiscrimination provisions
. . . to the new obligations set out in the statute." *Id.*

Today, just two months after it made those arguments to the D.C.
Circuit, the Commission reverses itself. It now says that section 251(g)
exempts certain categories of traffic, including "information access,"
entirely from the requirements of section 251(b)(5) and that ISP-bound
traffic is "information access." *See* Order ¶¶ 32, 34, 42. The
Commission provides nary a word to explain this reversal.

Of course, the Commission's conclusions in the *Advanced Services Remand
Order* that ISP-bound traffic is "exchange access" and that the term
"information access" has no relevance under the 1996 Act were themselves
reversals of earlier Commission positions. In the *Non-Accounting
Safeguards Order*,[^2] the Commission concluded, relying in part on a
purported distinction between "exchange access" and "information
access," that ISPs "do not use exchange access as it is defined by the
Act." *Id.* ¶ 248. In that order, the Commission was faced with
determining the scope of section 272(e)(2), which states that a Bell
operating company \["BOC"\] "shall not provide any facilities, services,
or information regarding its provision of exchange access to \[a BOC
affiliate\] unless such facilities, services, or information are made
available to other providers of interLATA services in that market on the
same terms and conditions." 47 U.S.C. § 272(e)(2). The Commission
rejected the argument that BOCs are required to provide exchange access
to ISPs, reasoning that ISPs do not use exchange access. *See
Non-Accounting Safeguards Order* ¶ 248. In making that decision, the
Commission relied on the language of the statute as well as the MFJ's
use of the term "information access." *See id.* ¶ 248 & n. 621. As the
Commission explained, its "conclusion that ISPs do not use exchange
access is consistent with the MFJ, which recognized a difference between
'exchange access' and 'information access.'" *Id.* ¶ 248 n.621.

Thus, in reversing itself yet again, the Commission here follows a
time-honored tradition. When it is expedient to say that ISPs use
"exchange access" and that there is no such thing as "information
access," that is what the Commission says. *See Advanced Service Remand
Order* ¶¶ 46-48. When it is convenient to say that ISPs use the local
network like local businesses, then the Commission adopts that approach.
*See Access Charge Reform*, First Report and Order, 12 FCC Rcd 15982, ¶
345 (1997). And, today, when it helps to write that ISPs use
"information access," then that is what the Commission writes. The only
conclusion that one can soundly draw from these decisions is that the
Commission is willing to make up whatever law it can dream up to suit
the situation at hand.

Nevertheless, there is one legal proposition that the Commission has,
until now, consistently followed -- a fact that is particularly
noteworthy given the churn in the Commission's other legal principles.
The Commission has consistently held that section 251(g) serves only to
"preserve\[\] the LECs' existing equal access obligations, originally
imposed by the MFJ." *Operator Communications, Inc., D/B/A Oncor
Communications*, Memorandum Opinion and Order, 14 FCC Rcd 12506, ¶ 2 n.5
(1999).[^3] Today's order ignores this precedent and transforms section
251(g) into a categorical exemption for certain traffic from section
251(b)(5). It is this transformation -- much more than the shell game
played with "information access" and "exchange access" -- that is most
offensive in today's decision.

**2.** The Commission's claim that section 251(g) "excludes several
enumerated categories of traffic from the universe of
'telecommunications' referred to in section 251(b)(5)" (Order ¶ 23)
stretches the meaning of section 251(g) past the breaking point. Among
other things, that provision does not even mention "exclud\[ing\],"
"telecommunications," "section 251(b)(5)," or "reciprocal compensation."

Section 251(g), which is entitled, "Continued enforcement of exchange
access and interconnection requirements," states in relevant part:

> On and after February 8, 1996, each local exchange carrier, to the
> extent that it provides wireline services, shall provide exchange
> access, information access, and exchange services for such access to
> interexchange carriers and information service providers in accordance
> with the same equal access and nondiscriminatory interconnection
> restrictions and obligations (including receipt of compensation) that
> apply to such carrier on the date immediately preceding February 8,
> 1996 under any court order, consent decree, or regulation, order, or
> policy of the Commission, until such restrictions and obligations are
> explicitly superseded by regulations prescribed by the Commission
> after February 8, 1996.

47 U.S.C. § 251(g).

As an initial matter, it is plain from reading this language that
section 251(g) has absolutely no application to the vast majority of
local exchange carriers, including those most affected by today's order.
The provision states that "each local exchange carrier . . . shall
provide \[the enumerated services\] . . . in accordance with the same
equal access and nondiscriminatory interconnection restrictions and
obligations . . . *that apply to such carrier on the date immediately
preceding February 8, 1996*." *Id.* (emphasis added). If a carrier was
not providing service on February 7, 1996, no restrictions or
obligations applied to "such carrier" on that date, and section 251(g)
would appear to have no impact on that carrier. The Commission has thus
repeatedly stated that section 251(g) applies to "Bell Operating
Companies" and is intended to incorporate aspects of the MFJ.
*Applications For Consent To The Transfer Of Control Of Licenses And
Section 214 Authorizations From Tele-Communications, Inc., Transferor To
AT&T Corp., Transferee.*, Memorandum Opinion and Order, 14 FCC Rcd 3160,
¶ 53 (1999); *see also* cases cited *supra* note 3. Accordingly, by its
express terms, section 251(g) says nothing about the obligations of most
CLECs serving ISPs, which are the primary focus of the Commission's
order.

Moreover, it is inconceivable that section 251(g)'s preservation of
pre-1996 Act "equal access and nondiscriminatory interconnection
restrictions and obligations" is intended to displace section
251(b)(5)'s explicit compensation scheme for local carriers transporting
and terminating each other's traffic. Prior to passage of the 1996 Act,
there were no rules governing compensation for such services, whether or
not an ISP was involved. It seems unlikely, at best, that Congress
intended the absence of a compensation scheme to preempt a provision
explicitly providing for such compensation.[^4] At the very least, one
would think Congress would use language more explicit than that seized
upon by the Commission in section 251(g).

Finally, if, as the Commission maintains, section 251(g) "excludes
several enumerated categories of traffic from the universe of
'telecommunications' referred to in section 251(b)(5)" (Order ¶ 23), why
does section 251(g) not also exclude this traffic from the "universe of
'telecommunications'" referred to in the rest of section 251, or,
indeed, in the entire 1996 Act? As noted, section 251(g) nowhere
mentions "reciprocal compensation" or even "section 251." In fact, there
appears to be no limiting principle. It would thus seem that, under the
Commission's interpretation, the traffic referred to in section 251(g)
is exempt from far more than reciprocal compensation -- a consequence
the Commission is sure to regret. *See*, *e.g.*, *Implementation of the
Local Competition Provisions in the Telecommunications Act of 1996;
Interconnection Between Local Exchange Carriers and Commercial Mobile
Radio Service Providers*, First Report and Order 11 FCC Rcd 15499, ¶ 356
(1996) (concluding that "exchange access" provided to IXCs is subject to
the unbundling requirements of section 251(c)(3)).

\* \* \*

The end result of today's decision is clear. There will be continued
litigation over the status of ISP-bound traffic, prolonging the
uncertainty that has plagued this issue for years. At the same time, the
Commission will be forced to reverse itself yet again, as soon as it
dislikes the implication of treating ISP-bound traffic as "information
access" or reading section 251(g) as a categorical exemption from other
requirements of the 1996 Act. The Commission could, and should, have
avoided these consequences by applying its original analysis in the
manner sought by the court.

[^1]: This aspect of the *Advanced Services Remand Order* was remanded
    to the Commission by the D.C. Circuit because of its reliance on the
    vacated *Reciprocal Compensation Declaratory Ruling*. *See WorldCom,
    Inc. v. FCC*, No. 00-1062, 2001 WL 395344, \*5-\*6 (D.C. Cir. Apr
    20, 2001).

[^2]: *Implementation of the Non-Accounting Safeguards Of Sections 271
    and 272 of the Communications Act of 1934, as Amended*, First Report
    and Order and Further Notice of Proposed Rulemaking, 11 FCC Rcd
    21905 (1996) ("*Non-Accounting Safeguards Order*").

[^3]: *See* *also*, *e.g.*, *Application for Review and Petition for
    Reconsideration or Clarification of Declaratory Ruling Regarding U S
    West Petitions To Consolidate Latas in Minnesota and Arizona*,
    Memorandum Opinion and Order, 14 FCC Rcd 14392, ¶ 17 (1999) ("In
    section 251(g), Congress delegated to the Commission sole authority
    to administer the 'equal access and nondiscriminatory
    interconnection restrictions and obligations' that applied under the
    AT&T Consent Decree."); *AT&T Corporation, et al., Complainants*,
    Memorandum Opinion and Order, 13 FCC Rcd 21438, ¶ 5 (1998)
    ("Separately, section 251(g) requires the BOCs, both pre- and
    post-entry, to treat all interexchange carriers in accordance with
    their preexisting equal access and nondiscrimination obligations,
    and thereby neutralize the potential anticompetitive impact they
    could have on the long distance market until such time as the
    Commission finds it reasonable to revise or eliminate those
    obligations.").

[^4]: The case of IXC traffic is thus completely different. There was a
    compensation scheme in effect for such traffic prior to enactment of
    the 1996 Act -- the access charge regime. Because reciprocal
    compensation and the access charge regime could not both apply to
    the same traffic, the Commission could reasonably conclude that the
    access charge regime should trump the reciprocal compensation
    provision of section 251(b)(5). *See Competitive Telecommunications
    Ass'n v. FCC*, 117 F.3d 1068, 1072-73 (8th Cir. 1997). Here, there
    is no pre-1996 Act compensation scheme to conflict with reciprocal
    compensation. As the Commission has stated, "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." *Reciprocal Compensation
    Declaratory Ruling* ¶ 26.