Before the
Federal Communications Commission
Washington, D.C. 20554

In the Matter of

Implementation of the Local Competition
Provisions in the Telecommunications Act
of 1996

Intercarrier Compensation
for ISP-Bound Traffic
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CC Docket No. 96-98

CC Docket No. 99-68

ORDER ON REMAND AND REPORT AND ORDER 

Adopted:  April 18, 2001	Released:  April 27, 2001

By the Commission:  Chairman Powell issuing a statement; Commissioner Furchtgott-Roth 
dissenting and issuing a statement.

TABLE OF CONTENTS
Paragraph No.

I.          INTRODUCTION	1
II.	EXECUTIVE SUMMARY	3
III.	BACKGROUND	9
IV.	DISCUSSION	18
A.	Background	18
B.	Statutory Analysis	23
1. 	Introduction	24
2. 	Section 251(g) Excludes Certain Categories of Traffic from 
	the Scope of Telecommunications Subject to Section 251(b)(5)	31
3. 	ISP-Bound Traffic Falls within the 
	Categories Enumerated in Section 251(g)	42
4. 	Section 251(i) Preserves the Commissions
 	Authority to Regulate Interstate Access Services	48
5. 	ISP-Bound Traffic Falls Within the 
	Purview of the Commissions Section 201 Authority	52

C.	Efficient Intercarrier Compensation Rates and Rate Structures	66
1.	CPNP Regimes Have Distorted the 
	Development of Competitive Markets	67
2.	Intercarrier Compensation for ISP-bound Traffic	77
3.	Relationship to Section 251(b)(5)	89

D.	Conclusion	95
V.	Procedural Matters	96
A.	Final Regulatory Flexibility Analysis	96
1. 	Need for, and Objectives of, this Order on Remand and 
	Report and Order	97
2. 	Summary of Significant Issues Raised by the 
	Public Comments in Response to the IRFA	99
3. 	Description and Estimate of the Number of Small Entities to 
	Which Rules Will Apply	103
4. 	Description of Projected Reporting, Recordkeeping, and 
	Other Compliance Requirements	109
5. 	Steps Taken to Minimize Significant Economic Impact on 
	Small Entities, and Significant Alternatives Considered	110

VI.	Ordering Clauses	112

I. INTRODUCTION
1. In this Order, we reconsider the proper treatment for purposes of intercarrier 
compensation of telecommunications traffic delivered to Internet service providers (ISPs).  We 
previously found in the Declaratory Ruling  that such traffic is interstate traffic subject to the 
jurisdiction of the Commission under section 201 of the Act  and is not, therefore, subject to the 
reciprocal compensation provisions of section 251(b)(5).   The Court of Appeals for the District 
of Columbia Circuit held on appeal, however, that the Declaratory Ruling failed adequately to 
explain why our jurisdictional conclusion was relevant to the applicability of section 251(b)(5) 
and remanded the issue for further consideration.   As explained in more detail below, we modify 
the analysis that led to our determination that ISP-bound traffic falls outside the scope of section 
251(b)(5) and conclude that Congress excluded from the telecommunications traffic subject to 
reciprocal compensation the traffic identified in section 251(g), including traffic destined for 
ISPs.  Having found, although for different reasons than before, that the provisions of section 
251(b)(5) do not extend to ISP-bound traffic, we reaffirm our previous conclusion that traffic 
delivered to an ISP is predominantly interstate access traffic subject to section 201 of the Act, 
and we establish an appropriate cost recovery mechanism for the exchange of such traffic.
2. We recognize that the existing intercarrier compensation mechanism for the 
delivery of this traffic, in which the originating carrier pays the carrier that serves the ISP, has 
created opportunities for regulatory arbitrage and distorted the economic incentives related to 
competitive entry into the local exchange and exchange access markets.  As we discuss in the 
Unified Intercarrier Compensation NPRM,  released in tandem with this Order, such market 
distortions relate not only to ISP-bound traffic, but may result from any intercarrier 
compensation regime that allows a service provider to recover some of its costs from other 
carriers rather than from its end-users.  Thus, the NPRM initiates a proceeding to consider, 
among other things, whether the Commission should replace existing intercarrier compensation 
schemes with some form of what has come to be known as bill and keep.   The NPRM also 
considers modifications to existing payment regimes, in which the calling partys network pays 
the terminating network, that might limit the potential for market distortion.  The regulatory 
arbitrage opportunities associated with intercarrier payments are particularly apparent with 
respect to ISP-bound traffic, however, because ISPs typically generate large volumes of traffic 
that is virtually all one-way -- that is, delivered to the ISP.  Indeed, there is convincing evidence 
in the record that at least some carriers have targeted ISPs as customers merely to take advantage 
of these intercarrier payments. Accordingly, in this Order we also take interim steps to limit the 
regulatory arbitrage opportunity presented by ISP-bound traffic while we consider the broader 
issues of intercarrier compensation in the NPRM proceeding.
II. EXECUTIVE SUMMARY
3. As presaged above, we must wrestle with two difficult issues in this Order:  first, 
whether intercarrier compensation for ISP-bound traffic is governed by section 251 or section 
201; and, if the latter, what sort of compensation mechanism should apply.  The first question is 
difficult because we do not believe it is resolved by the plain language of section 251(b)(5) but, 
instead, requires us to consider the relationship of that section to other provisions of the statute. 
Moreover, we recognize the legitimate questions raised by the court with respect to the rationales 
underlying our regulatory treatment of ISPs and ISP traffic.  We seek to respond to those 
questions in this Order.  Ultimately, however, we conclude that Congress, through section 
251(g),  expressly limited the reach of section 251(b)(5) to exclude ISP-bound traffic.  
Accordingly, we affirm our conclusion in the Declaratory Ruling that ISP-bound traffic is not 
subject to the reciprocal compensation obligations of section 251(b)(5).
4. Because we determine that intercarrier compensation for ISP-bound traffic is 
within the jurisdiction of this Commission under section 201 of the Act, it is incumbent upon us 
to establish an appropriate cost recovery mechanism for delivery of this traffic.  Based upon the 
record before us, it appears that the most efficient recovery mechanism for ISP-bound traffic may 
be bill and keep, whereby each carrier recovers costs from its own end-users.  As we recognize in 
the NPRM, intercarrier compensation regimes that require carrier-to-carrier payments are likely 
to distort the development of competitive markets by divorcing cost recovery from the ultimate 
consumer of services.  In a monopoly environment, permitting carriers to recover some of their 
costs from interconnecting carriers might serve certain public policy goals.  In order to promote 
universal service, for example, this Commission historically has capped end-user common line 
charges and required local exchange carriers to recover any shortfall through per-minute charges 
assessed on interexchange carriers.   These sorts of implicit subsidies cannot be sustained, 
however, in the competitive markets for telecommunications services envisioned by the 1996 
Act.  In the NPRM, we suggest that, given the opportunity, carriers always will prefer to recover 
their costs from other carriers rather than their own end-users in order to gain competitive 
advantage.  Thus carriers have every incentive to compete, not on basis of quality and efficiency, 
but on the basis of their ability to shift costs to other carriers, a troubling distortion that prevents 
market forces from distributing limited investment resources to their most efficient uses.
5. We believe that this situation is particularly acute in the case of carriers delivering 
traffic to ISPs because these customers generate extremely high traffic volumes that are entirely 
one-directional.  Indeed, the weight of the evidence in the current record indicates that precisely 
the types of market distortions identified above are taking place with respect to this traffic.  For 
example, comments in the record indicate that competitive local exchange carriers (CLECs), on 
average, terminate eighteen times more traffic than they originate, resulting in annual CLEC 
reciprocal compensation billings of approximately two billion dollars, ninety percent of which is 
for ISP-bound traffic.   Moreover, the traffic imbalances for some competitive carriers are in fact 
much greater, with several carriers terminating more than forty times more traffic than they 
originate.   There is nothing inherently wrong with carriers having substantial traffic imbalances 
arising from a business decision to target specific types of customers.  In this case, however, we 
believe that such decisions are driven by regulatory opportunities that disconnect costs from end-
user market decisions.  Thus, under the current carrier-to-carrier recovery mechanism, it is 
conceivable that a carrier could serve an ISP free of charge and recover all of its costs from 
originating carriers.  This result distorts competition by subsidizing one type of service at the 
expense of others.
6. Although we believe this arbitrage opportunity is particularly manifest with 
respect to ISP-bound traffic, we suggest in the NPRM that any compensation regime based on 
carrier-to-carrier payments may create similar market distortions.  Accordingly, we initiate an 
inquiry as to whether bill and keep is a more economically efficient compensation scheme than 
the existing carrier-to-carrier payment mechanisms.  Alternatively, the record developed in that 
proceeding may suggest modifications to carrier-to-carrier cost recovery mechanisms that 
address the competitive concerns identified above.  Based upon the current record, however, bill 
and keep appears the preferable cost recovery mechanism for ISP-bound traffic because it 
eliminates a substantial opportunity for regulatory arbitrage.  We do not fully adopt a bill and 
keep regime in this Order, however, because there are specific questions regarding bill and keep 
that require further inquiry, and we believe that a more complete record on these issues is 
desirable before requiring carriers to recover most of their costs from end-users.  Because these 
questions are equally relevant to our evaluation of a bill and keep approach for other types of 
traffic, we will consider them in the context of the NPRM.  Moreover, we believe that there are 
significant advantages to a global evaluation of the intercarrier compensation mechanisms 
applicable to different types of traffic to ensure a more systematic, symmetrical treatment of 
these issues.
7. Because the record indicates a need for immediate action with respect to ISP-
bound traffic, however, in this Order we will implement an interim recovery scheme that: (i) 
moves aggressively to eliminate arbitrage opportunities presented by the existing recovery 
mechanism for ISP-bound by lowering payments and capping growth; and (ii) initiates a 36-
month transition towards a complete bill and keep recovery mechanism while retaining the 
ability to adopt an alternative mechanism based upon a more extensive evaluation in the NPRM 
proceeding.  Specifically, we adopt a gradually declining cap on the amount that carriers may 
recover from other carriers for delivering ISP-bound traffic.  We also cap the amount of traffic 
for which any such compensation is owed, in order to eliminate incentives to pursue new 
arbitrage opportunities.  In sum, our goal in this Order is decreased reliance by carriers upon 
carrier-to-carrier payments and an increased reliance upon recovery of costs from end-users, 
consistent with the tentative conclusion in the NPRM that bill and keep is the appropriate 
intercarrier compensation mechanism for ISP-bound traffic.  In this regard, we emphasize that 
the rate caps we impose are not intended to reflect the costs incurred by each carrier that delivers 
ISP traffic.  Some carriers costs may be higher; some are probably lower.  Rather, we conclude, 
based upon all of the evidence in this record, that these rates are appropriate limits on the 
amounts recovered from other carriers and provide a reasonable transition from rates that have (at 
least until recently) typically been much higher.  Carriers whose costs exceed these rates are (and 
will continue to be) able to collect additional amounts from their ISP customers.  As we note 
above, and explain in more detail below, we believe that such end-user recovery likely is the 
most efficient mechanism.
8. The basic structure of this transition is as follows:
	*	Beginning on the effective date of this Order, and continuing for six months, 
intercarrier compensation for ISP-bound traffic will be capped at a rate of $.0015/minute-
of-use (mou).  Starting in the seventh month, and continuing for eighteen months, the rate 
will be capped at $.0010/mou.  Starting in the twenty-fifth month, and continuing through 
the thirty-sixth month or until further Commission action (whichever is later), the rate will 
be capped at $.0007/mou.  Any additional costs incurred must be recovered from end-users. 
These rates reflect the downward trend in intercarrier compensation rates contained in 
recently negotiated interconnection agreements, suggesting that they are sufficient to 
provide a reasonable transition from dependence on intercarrier payments while ensuring 
cost recovery.

	*	We also impose a cap on total ISP-bound minutes for which a local exchange carrier 
(LEC) may receive this compensation.  For the year 2001, a LEC may receive 
compensation, pursuant to a particular interconnection agreement, for ISP-bound minutes 
up to a ceiling equal to, on an annualized basis, the number of ISP-bound minutes for which 
that LEC was entitled to compensation under that agreement during the first quarter of 
2001, plus a ten percent growth factor.  For 2002, a LEC may receive compensation for 
ISP-bound minutes up to a ceiling equal to the minutes for which it was entitled to 
compensation in 2001, plus another ten percent growth factor.  In 2003, a LEC may receive 
compensation for ISP-bound minutes up to a ceiling equal to the 2002 ceiling.  These caps 
are consistent with projections of the growth of dial-up Internet access for the first two years 
of the transition and are necessary to ensure that such growth does not undermine our goal 
of limiting intercarrier compensation and beginning a transition toward bill and keep.  
Growth above these caps should be based on a carriers ability to provide efficient service, 
not on any incentive to collect intercarrier payments.  

	*	Because the transitional rates are caps on intercarrier compensation, they have no 
effect to the extent that states have ordered LECs to exchange ISP-bound traffic either at 
rates below the caps or on a bill and keep basis (or otherwise have not required payment of 
compensation for this traffic).  The rate caps are designed to provide a transition toward bill 
and keep, and no transition is necessary for carriers already exchanging traffic at rates 
below the caps.

	*	In order to limit disputes and costly measures to identify ISP-bound traffic, we 
adopt a rebuttable presumption that traffic exchanged between LECs that exceeds a 3:1 ratio 
of terminating to originating traffic is ISP-bound traffic subject to the compensation 
mechanism set forth in this Order.  This ratio is consistent with those adopted by state 
commissions to identify ISP or other convergent traffic that is subject to lower intercarrier 
compensation rates.  Carriers that seek to rebut this presumption, by showing that traffic 
above the ratio is not ISP-bound traffic or, conversely, that traffic below the ratio is ISP-
bound traffic, may seek appropriate relief from their state commissions pursuant to section 
252 of the Act.

	*	Finally, the rate caps for ISP-bound traffic (or such lower rates as have been 
imposed by states commissions for the exchange of ISP-bound traffic) apply only if an 
incumbent LEC offers to exchange all traffic subject to section 251(b)(5) at the same rate.  
An incumbent LEC that does not offer to exchange section 251(b)(5) traffic at these rates 
must exchange ISP-bound traffic at the state-approved or state-negotiated reciprocal 
compensation rates reflected in their contracts.  The record fails to demonstrate that there 
are inherent differences between the costs of delivering a voice call to a local end-user and a 
data call to an ISP, thus the mirroring rule we adopt here requires that incumbent LECs 
pay the same rates for ISP-bound traffic that they receive for section 251(b)(5) traffic.

III. BACKGROUND
9. In the Declaratory Ruling released on February 26, 1999, we addressed the 
regulatory treatment of ISP-bound traffic.  In that order, we reached several conclusions 
regarding the jurisdictional nature of this traffic, and we proposed several approaches to 
intercarrier compensation for ISP-bound traffic in an accompanying Intercarrier Compensation 
NPRM.  The order, however, was vacated and remanded on appeal.   This Order, therefore, 
again focuses on the regulatory treatment of ISP-bound traffic and the appropriate intercarrier 
compensation regime for carriers that collaborate to deliver traffic to ISPs.
10. As we noted in the Declaratory Ruling, an ISPs end-user customers typically 
access the Internet through an ISP server located in the same local calling area.   Customers 
generally pay their LEC a flat monthly fee for use of the local exchange network, including 
connections to their local ISP.   They also generally pay their ISP a flat monthly fee for access to 
the Internet.   ISPs then combine computer processing, information storage, protocol 
conversion, and routing with transmission to enable users to access Internet content and 
services. 
11. ISPs, one class of enhanced service providers (ESPs),  also may utilize LEC 
services to provide their customers with access to the Internet.  In the MTS/WATS Market 
Structure Order, the Commission acknowledged that ESPs were among a variety of users of 
LEC interstate access services.   Since 1983, however, the Commission has exempted ESPs 
from the payment of certain interstate access charges.   Consequently ESPs, including ISPs, are 
treated as end-users for the purpose of applying access charges and are, therefore, entitled to pay 
local business rates for their connections to LEC central offices and the public switched 
telephone network (PSTN).   Thus, despite the Commissions understanding that ISPs use 
interstate access services, pursuant to the ESP exemption, the Commission has permitted ISPs to 
take service under local tariffs.
12. The 1996 Act set standards for the introduction of competition into the market for 
local telephone service, including requirements for interconnection of competing 
telecommunications carriers.   As a result of interconnection and growing local competition, 
more than one LEC may be involved in the delivery of telecommunications within a local service 
area.  Section 251(b)(5) of the Act addresses the need for LECs to agree to terms for the mutual 
exchange of traffic over their interconnecting networks.  It specifically provides that LECs have 
the duty to establish reciprocal compensation arrangements for the transport and termination of 
telecommunications.   The Commission determined, in the Local Competition Order, that 
section 251(b)(5) reciprocal compensation obligations apply only to traffic that originates and 
terminates within a local area, as defined by state commissions. 
13. As a result of this determination, the question arose whether reciprocal 
compensation obligations apply to the delivery of calls from one LECs end-user customer to an 
ISP in the same local calling area that is served by a competing LEC.   The Commission 
determined at that time that resolution of this question turned on whether ISP-bound traffic 
originates and terminates within a local area, as set forth in our rule.   Many competitive LECs 
argued that ISP-bound traffic is local traffic that terminates at the ISPs local server, where a 
second, packet-switched call then begins.   Thus, they argued, the reciprocal compensation 
obligations of section 251(b)(5) apply to this traffic.  Incumbent LECs, on the other hand, argued 
that no reciprocal compensation is due because ISP-bound traffic is interstate 
telecommunications traffic that continues through the ISP server and terminates at the remote 
Internet sites accessed by ISP customers. 
14. The Commission concluded in the Declaratory Ruling that the jurisdictional 
nature of ISP-bound traffic should be determined, consistent with Commission precedent, by the 
end points of the communication.   Applying this end-to-end analysis, the Commission 
determined that Internet communications originate with the ISPs end-user customer and 
continue beyond the local ISP server to websites or other servers and routers that are often 
located outside of the state.   The Commission found, therefore, that ISP-bound traffic is not 
local because it does not originate[] and terminate[] within a local area.   Instead, it is 
jurisdictionally mixed and largely interstate, and, for that reason, the Commission found that the 
reciprocal compensation obligations of section 251(b)(5) do not apply to this traffic.    
15. Despite finding that ISP-bound traffic is largely interstate, the Commission 
concluded that it had not yet established a federal rule to govern intercarrier compensation for 
this traffic.   The Commission found that, in the absence of conflicting federal law, parties could 
voluntarily include ISP-bound traffic in their interconnection agreements under sections 251 and 
252 of the Act.   It also found that, even though section 251(b)(5) does not require reciprocal 
compensation for ISP-bound traffic, nothing in the statute or our rules prohibits state 
commissions from determining in their arbitrations that reciprocal compensation for this traffic is 
appropriate, so long as there is no conflict with governing federal law.   Pending adoption of a 
federal rule, therefore, state commissions exercising their authority under section 252 to arbitrate, 
interpret, and enforce interconnection agreements would determine whether and how 
interconnecting carriers should be compensated for carrying ISP-bound traffic.   In the 
Intercarrier Compensation NPRM accompanying the Declaratory Ruling, the Commission 
requested comment on the most appropriate intercarrier compensation mechanism for ISP-bound 
traffic. 
16. On March 24, 2000, prior to release of a decision addressing these issues, the court 
of appeals vacated certain provisions of the Declaratory Ruling and remanded the matter to the 
Commission.   The court observed that, although [t]here is no dispute that the Commission has 
historically been justified in relying on this [end-to-end] method when determining whether a 
particular communication is jurisdictionally interstate,  the Commission had not adequately 
explained why the jurisdictional analysis was dispositive of, or indeed relevant to, the question 
whether a call to an ISP is subject to the reciprocal compensation requirements of section 
251(b)(5).   The court noted that the Commission had not applied its definition of termination 
to its analysis of the scope of section 251(b)(5),  and the court distinguished cases upon which 
the Commission relied in its end-to-end analysis because they involve continuous 
communications switched by interexchange carriers (IXCs), as opposed to ISPs, the latter of 
which are not telecommunications providers.   As an independent reason to vacate, the court 
also held that the Commission had failed to address how its conclusions fit . . . within the 
governing statute.   In particular, the court found that the Commission had failed to explain 
why ISP-bound traffic was not telephone exchange service, as defined in the Act. 
17. In a public notice released June 23, 2000, the Commission sought comment on the 
issues raised by the courts remand.   The Public Notice specifically requested that parties 
comment on the jurisdictional nature of ISP-bound traffic, the scope of the reciprocal 
compensation requirement of section 251(b)(5), and the relevance of the concepts of 
termination, telephone exchange service, exchange access service, and information 
access.   It invited parties to update the record by responding to any ex parte presentations filed 
after the close of the reply period on April 27, 1999.  It also sought comment on any new or 
innovative intercarrier compensation arrangements for ISP-bound traffic that parties may have 
considered or entered into during the pendency of the proceeding.
IV. DISCUSSION
A. Background
18. The nature and character of communications change over time.  Over the last 
decade communications services have been radically altered by the advent of the Internet and the 
nature of Internet communications.  Indeed, the Internet has given rise to new forms of 
communications such as e-mail, instant messaging, and other forms of digital, IP-based services. 
 Many of these new services and formats have been layered over and integrated with the existing 
public telephone systems.  Most notably, Internet service providers have come into existence in 
order to facilitate mass market access to the Internet.  A consumer with access to a standard 
phone line is able to communicate with the Internet, because an ISP converts the analog signal to 
digital and converts the communication to the IP protocol.  This allows the user to access the 
global Internet infrastructure and communicate with users and websites throughout the world.  In 
a narrowband context, the ISP facilitates access to this global network.
19. The Commission has struggled with how to treat Internet traffic for regulatory 
purposes, given the bevy of its rules premised on the architecture and characteristics of the 
mature public switched telephone network.  For example, Internet consumers may stay on the 
network much longer than the design expectations of a network engineered primarily for voice 
communications.  Additionally, the bursty nature of packet-switched communications skews 
the traditional assumptions of per minute pricing to which we are all accustomed.  The regulatory 
challenges have become more acute as Internet usage has exploded.  
20. The issue of intercarrier compensation for Internet-bound traffic with which we 
are presently wrestling is a manifestation of this growing challenge.  Traditionally, telephone 
carriers would interconnect with each other to deliver calls to each others customers.  It was 
generally assumed that traffic back and forth on these interconnected networks would be 
relatively balanced.  Consequently, to compensate interconnecting carriers, mechanisms like 
reciprocal compensation were employed, whereby the carrier whose customer initiated the call 
would pay the other carrier the costs of using its network.
21. Internet usage has distorted the traditional assumptions because traffic to an ISP 
flows exclusively in one direction, creating an opportunity for regulatory arbitrage and leading to 
uneconomical results.  Because traffic to ISPs flows one way, so does money in a reciprocal 
compensation regime.  It was not long before some LECs saw the opportunity to sign up ISPs as 
customers and collect, rather than pay, compensation because ISP modems do not generally call 
anyone in the exchange.  In some instances, this led to classic regulatory arbitrage that had two 
troubling effects:  (1) it created incentives for inefficient entry of LECs intent on serving ISPs 
exclusively and not offering viable local telephone competition, as Congress had intended to 
facilitate with the 1996 Act; (2) the large one-way flows of cash made it possible for LECs 
serving ISPs to afford to pay their own customers to use their services, potentially driving ISP 
rates to consumers to uneconomical levels.  These effects prompted the Commission to consider 
the nature of ISP-bound traffic and to examine whether there was any flexibility under the statute 
to modify and address the pricing mechanisms for this traffic, given that there is a federal 
statutory provision authorizing reciprocal compensation.   In the Declaratory Ruling, the 
Commission concluded that Internet-bound traffic was jurisdictionally interstate and, thus, not 
subject to section 251(b)(5).  
22. In Bell Atlantic, the court of appeals vacated the Declaratory Ruling and 
remanded the case to the Commission to determine whether ISP-bound traffic is subject to 
statutory reciprocal compensation requirements.  The court held that the Commission failed to 
explain adequately why LECs did not have a duty to pay reciprocal compensation under section 
251(b)(5) of the Act and remanded the case to the Commission.
B. Statutory Analysis
23. In this section, we reexamine our findings in the Declaratory Ruling and conclude 
that ISP-bound traffic is not subject to the reciprocal compensation requirement in section 251(b) 
because of the carve-out provision in section 251(g), which excludes several enumerated 
categories of traffic from the universe of telecommunications referred to in section 251(b)(5).  
We explain our rationale and the interrelationship between these two statutory provisions in more 
detail below.  We further conclude that section 251(i) affirms the Commissions role in 
continuing to develop appropriate pricing and compensation mechanisms for traffic -- such as 
Internet-bound traffic -- that travels over convergent, mixed, and new types of network 
architectures. 
1. Introduction
24. In the Local Competition Order, the Commission determined that the reciprocal 
compensation provisions of section 251(b)(5) applied only to what it termed local traffic rather 
than to the transport and termination of interexchange traffic.   In the subsequent Declaratory 
Ruling, the Commission focused its discussion on whether ISP-bound traffic terminated within a 
local calling area such as to be properly considered local traffic.  To resolve that issue, the 
Commission focused predominantly on an end-to-end jurisdictional analysis.
25. On review, the court accepted (without necessarily endorsing) the Commissions 
view that traffic was either local or long distance but faulted the Commission for failing to 
explain adequately why ISP-bound traffic was more properly categorized as long distance, rather 
than local.  The Commission had attempted to do so by employing an end-to-end jurisdictional 
analysis of ISP traffic, rather than by evaluating the traffic under the statutory definitions of  
telephone exchange service and exchange access.  After acknowledging that the Commission 
has historically been justified in relying on end-to-end analysis for determining whether a 
communication is jurisdictionally interstate, the court stated:  But [the Commission] has yet to 
provide an explanation of why this inquiry is relevant to discerning whether a call to an ISP 
should fit within the local call model of two collaborating LECs or the long-distance model of a 
long-distance carrier collaborating with two LECs.   After reviewing the manner in which the 
Commission analyzed the parameters of section 251(b)(5) traffic in the Declaratory Ruling, the 
court found that the central issue was whether a call to an ISP is local or long distance.   The 
court noted further that [n]either category fits clearly.  
26. Upon further review, we find that the Commission erred in focusing on the nature 
of the service (i.e., local or long distance) and in stating that there were only two forms of 
telecommunications services -- telephone exchange service and exchange access -- for purposes 
of interpreting the relevant scope of section 251(b)(5).   Those services are the only two 
expressly defined by the statute.  The court found fault in the Commissions failure to analyze 
communications delivered by a LEC to an ISP in terms of these definitions.   Moreover, it cited 
the Commissions own confusing treatment of ISP-bound traffic as local under the ESP 
exemption and interstate for jurisdictional purposes.   
27. Part of the ambiguity identified by the court appears to arise from the ESP 
exemption, a long-standing Commission policy that affords one class of entities using interstate 
access -- information service providers -- the option of purchasing interstate access services on a 
flat-rated basis from intrastate local business tariffs, rather than from interstate access tariffs used 
by IXCs. Typically, information service providers have used this exemption to their advantage 
by choosing to pay local business rates, rather than the tariffed interstate access charges that 
other users of interstate access are required to pay.   In fending off challenges from those who 
argued that information service providers must be subject to access charges because they provide 
interexchange service, the Commission has often tried to walk the subtle line of arguing that the 
service provided by the LEC to the information service provider is an access service, but can 
justifiably be treated as akin to local telephone exchange service for purposes of the rates the 
LEC may charge.  This balancing act reflected the historical view that there were only two kinds 
of intercarrier compensation:  one for local telephone exchange service, and a second (access 
charges) for long distance services.  Attempting to describe a hybrid service (the nature being an 
access service, but subject to a compensation mechanism historically limited to local service) 
was always a bit of mental gymnastics.
28. The court opinion underscores a tension between the jurisdictional nature of ISP-
bound traffic, which the Commission has long held to be interstate, and the alternative 
compensation mechanism that the ESP exemption has permitted for this traffic.  The court seems 
to recognize that, if an end-to-end analysis were properly applied to this traffic, this traffic would 
be predominantly interstate, and consequently long distance.  Yet it also questions whether this 
traffic should be considered local for purposes of section 251(b)(5) in light of the ESP 
exemption, by which the Commission has allowed information service providers at their option 
to be treated for compensation purposes (but not for jurisdictional purposes) as end-users.
29. The court also expresses consternation over what it perceives as an inconsistency 
in the Commissions reasoning.  On the one hand, the court observes, the Commission has 
argued that calls to ISPs are predominantly interstate for jurisdictional purposes because they 
terminate at the ultimate destination of the traffic in a distant website or e-mail server (i.e., the 
one call theory).  On the other hand, the court notes, the Commission has defended the ESP 
exemption by analogizing an ISP to a high-volume business user, such as a pizza parlor or travel 
agent, that has different usage patterns and longer call holding times than the average customer.  
 The court questioned whether any such differences should not, as some commenters argued, 
lend support to treating this traffic as local for purposes of section 251(b)(5).  As discussed in 
further detail below, while we continue to believe that retaining the ESP exemption is important 
in order to facilitate growth of Internet services, we conclude in section IV.C.1, infra, that 
reciprocal compensation for ISP-bound traffic distorts the development of competitive markets.  
30. We respond to the courts concerns, and seek to resolve these tensions, by 
reexamining the grounds for our conclusion that ISP-bound traffic falls outside the scope of 
section 251(b)(5).  A more comprehensive review of the statute reveals that Congress intended to 
exempt certain enumerated categories of service from section 251(b)(5) when the service was 
provided to interexchange carriers or information service providers.  The exemption focuses not 
only on the nature of the service, but on to whom the service is provided.  For services that 
qualify, compensation is based on rules, regulations, and policies that preceded the 1996 Act and 
not on section 251(b)(5), which was minted by the Act.  As we explain more fully below, the 
service provided by LECs to deliver traffic to an ISP constitutes, at a minimum, information 
access under section 251(g) and, thus, compensation for this service is not governed by section 
251(b)(5), but instead by the Commissions policies for this traffic and the rules adopted under 
its section 201 authority. 
2. Section 251(g) Excludes Certain Categories of Traffic from the Scope 
of Telecommunications Subject to Section 251(b)(5)
a. Background
31. Section 251(b)(5) imposes a duty on all local exchange carriers to establish 
reciprocal compensation arrangements for the transport and termination of 
telecommunications.    On its face, local exchange carriers are required to establish reciprocal 
compensation arrangements for the transport and termination of all telecommunications they 
exchange with another telecommunications carrier, without exception.  The Act separately 
defines telecommunications as the transmission, between or among points specified by the 
user, of information of the users choosing, without change in the form or content of the 
information as sent and received. 
32. Unless subject to further limitation, section 251(b)(5) would require reciprocal 
compensation for transport and termination of all telecommunications traffic, -- i.e., whenever a 
local exchange carrier exchanges telecommunications traffic with another carrier.  Farther down 
in section 251, however, Congress explicitly exempts certain telecommunications services from 
the reciprocal compensation obligations.  Section 251(g) provides: 
On or after the date of enactment of the Telecommunications Act of 1996, each 
local exchange carrier . . . 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 the date of enactment 
of the Telecommunications Act of 1996 under any court order, consent decree, or 
regulation, order, or policy of the [Federal Communications] Commission, until 
such restrictions and obligations are explicitly superseded by regulations 
prescribed by the Commission after such date of enactment. 
33. The meaning of section 251(g) is admittedly not transparent.  Indeed, section 
251(g) clouds any plain reading of section 251(b)(5).  Nevertheless, the Commission believes the 
two provisions can be read together consistently and in a manner faithful to Congresss intent. 
b. Discussion
34. We conclude that a reasonable reading of the statute is that Congress intended to 
exclude the traffic listed in subsection (g) from the reciprocal compensation requirements of 
subsection (b)(5).   Thus, the statute does not mandate reciprocal compensation for exchange 
access, information access, and exchange services for such access provided to IXCs and 
information service providers.  Because we interpret subsection (g) as a carve-out provision, the 
focus of our inquiry is on the universe of traffic that falls within subsection (g) and not the 
universe of traffic that falls within subsection (b)(5).  This analysis differs from our analysis in 
the Local Competition Order, in which we attempted to describe the universe of traffic that falls 
within subsection (b)(5) as all local traffic.  We also refrain from generically describing traffic 
as local traffic because the term local, not being a statutorily defined category, is particularly 
susceptible to varying meanings and, significantly, is not a term used in section 251(b)(5) or 
section 251(g).  
35. We agree with the court that the issue before us requires more than just a 
jurisdictional analysis.  Indeed, as the court recognized, the 1996 Act changed the historic 
relationship between the states and the federal government with respect to pricing matters.  
Instead, we focus upon the statutory language of section 251(b) as limited by 251(g).  We believe 
this approach is not only consistent with the statute, but that it resolves the concerns expressed by 
the court in reviewing our previous analysis.  Central to our modified analysis is the recognition 
that 251(g) is properly viewed as a limitation on the scope of section 251(b)(5) and that ISP-
bound traffic falls under one or more of the categories set forth in section 251(g).  For that 
reason, we conclude that ISP-bound traffic is not subject to the reciprocal compensation 
provisions of section 251(b)(5).  We reach that conclusion regardless of the compensation 
mechanism that may be in place for such traffic under the ESP exemption. 
36. We believe that the specific provisions of section 251(g) demonstrate that 
Congress did not intend to interfere with the Commissions pre-Act authority over 
nondiscriminatory interconnection . . . obligations (including receipt of compensation)  with 
respect to exchange access, information access, and exchange services for such access 
provided to IXCs or information service providers.  We conclude that Congress specifically 
exempted the services enumerated under section 251(g) from the newly imposed reciprocal 
compensation requirement in order to ensure that section 251(b)(5) is not interpreted to override 
either existing or future regulations prescribed by the Commission.   We also find that ISP-
bound traffic falls within at least one of the three enumerated categories in subsection (g).
37.  This limitation in section 251(g) makes sense when viewed in the overall context 
of the statute.  All of the services specified in section 251(g) have one thing in common:  they are 
all access services or services associated with access.   Before Congress enacted the 1996 Act, 
LECs provided access services to IXCs and to information service providers in order to connect 
calls that travel to points  both interstate and intrastate  beyond the local exchange.  In turn, 
both the Commission and the states had in place access regimes applicable to this traffic, which 
they have continued to modify over time.  It makes sense that Congress did not intend to disrupt 
these pre-existing relationships.   Accordingly, Congress excluded all such access traffic from 
the purview of section 251(b)(5). 
38. At least one court has already affirmed the principle that the standards and 
obligations set forth in section 251 are not intended automatically to supersede the Commissions 
authority over the services enumerated under section 251(g).  This question arose in the Eighth 
Circuit Court of Appeals with respect to the access that LECs provide to IXCs to originate and 
terminate interstate long-distance calls.  Citing section 251(g), the court concluded that the Act 
contemplates that LECs will continue to provide exchange access to IXCs for long-distance 
service, and continue to receive payment, under the pre-Act regulations and rates.   In 
CompTel, the IXCs had argued that the interstate access services that LECs provide properly fell 
within the scope of interconnection under section 251(c)(2), and that, notwithstanding the 
carve-out of section 251(g), access charges therefore should be governed by the cost-based 
standard of section 252(d)(1), rather than determined under the Commissions section 201 
authority.  The Eighth Circuit rejected that argument, holding that access service does not fall 
within the scope of section 251(c)(2), and observing that it is clear from the Act that Congress 
did not intend all access charges to move to cost-based pricing, at least not immediately.   
Neither the court nor the parties in CompTel distinguished between the situation in which one 
LEC provides access service (directly linking the end-user to the IXC) and the situation here in 
which two LECs collaborate to provide access to either an information service provider or IXC.  
In both circumstances, by its underlying rationale, CompTel serves as precedent for establishing 
that pre-existing regulatory treatment of the services enumerated under section 251(g) are carved 
out from the purview of section 251(b).
39.  Accordingly, unless and until the Commission by regulation should determine 
otherwise, Congress preserved the pre-Act regulatory treatment of all the access services 
enumerated under section 251(g).  These services thus remain subject to Commission jurisdiction 
under section 201 (or, to the extent they are intrastate services, they remain subject to the 
jurisdiction of state commissions), whether those obligations implicate pricing policies as in 
CompTel or reciprocal compensation.    This analysis properly applies to the access services that 
incumbent LECs provide (either individually or jointly with other local carriers) to connect 
subscribers with ISPs for Internet-bound traffic.  Section 251(g) expressly preserves the 
Commissions rules and policies governing access . . . to information service providers in the 
same manner as rules and policies governing access to IXCs.   As we discuss in more detail 
below, ISP-bound traffic falls under the rubric of information access, a legacy term carried 
over from the MFJ. 
40. By its express terms, of course, section 251(g) permits the Commission to 
supersede pre-Act requirements for interstate access services.  Therefore the Commission may 
make an affirmative determination to adopt rules that subject such traffic to obligations different 
than those that existed pre-Act.  For example, consistent with that authority, the Commission has 
previously made the affirmative determination that certain categories of interstate access traffic 
should be subject to section 251(c)(4).   Similarly, in implementing section 251(c)(3), the 
Commission has required incumbent LECs to unbundle certain network elements used in the 
provision of xDSL-based services.   In this instance, however, for the reasons set forth below,  
we decline to modify the restraints imposed by section 251(g) and instead continue to regulate 
ISP-bound traffic under section 201.
41. Some may argue that, although the Commission did not analyze subsection (g) in 
the Declaratory Ruling, a passing reference to section 251(g) in one paragraph of the 
Commissions brief filed with the court in that proceeding suggests that the argument we make 
here has been specifically rejected by the court.  We disagree.  Because our analysis of 
subsection (g) was not raised in the order, the court, under established precedent, probably did 
not consider the argument when rendering its decision.   Indeed, subsection (g) is not mentioned 
in the courts opinion.
3. ISP-Bound Traffic Falls within the Categories Enumerated in Section 
251(g)
42. Having determined that section 251(g) serves as a limitation on the scope of 
telecommunications embraced by section 251(b)(5), the next step in our inquiry is to determine 
whether ISP-bound traffic falls within one or more of the categories specified in section 251(g): 
exchange access, information access, and exchange services for such access provided to IXCs 
and information service providers.  Regardless of whether this traffic falls under the category of 
exchange access -- an issue pending before the D.C. Circuit in a separate proceeding  - - we 
conclude that this traffic, at a minimum, falls under the rubric of information access, a legacy 
term imported into the 1996 Act from the MFJ, but not expressly defined in the Communications 
Act.
a. Background
43. Section 251(g) by its terms indicates that, in the provision of exchange access, 
information access, and exchange services for such access to IXCs and information service 
providers, various pre-existing requirements and obligations including receipt of compensation 
are preserved, whether these obligations stem from any court order, consent decree, or 
regulation, order or policy of the Commission. (Emphasis added.)  Similarly, in discussing this 
provision, the Joint Explanatory Statement of the Committee of Conference explicitly refers to 
preserving the obligations under the AT&T Consent Decree.   
b. Discussion
44. We conclude that Congresss reference to information access in section 251(g) 
was intended to incorporate the meaning of the phrase information access as used in the AT&T 
Consent Decree.   The ISP-bound traffic at issue here falls within that category because it is 
traffic destined for an information service provider.   Under the consent decree, information 
access was purchased by information service providers and was defined as the provision of 
specialized exchange telecommunications services . . . in connection with the origination, 
termination, transmission, switching, forwarding or routing of telecommunications traffic to or 
from the facilities of a provider of information services.   We conclude that this definition of 
information access was meant to include all access traffic that was routed by a LEC to or 
from providers of information services, of which ISPs are a subset.   The record in this 
proceeding also supports our interpretation.   When Congress passed the 1996 Act, it adopted 
new terminology.  The term information access is not, therefore, part of the new statutory 
framework.  Because the legacy term information access in section 251(g) encompasses ISP-
bound traffic, however, this traffic is excepted from the scope of the telecommunications 
subject to reciprocal compensation under section 251(b)(5).
45. We recognize, as noted earlier, that based on the rationale of the Declaratory 
Ruling, the court indicated that the question whether this traffic was local or interstate was 
critical to a determination of whether ISP-bound traffic should be subject to reciprocal 
compensation.   We believe that the courts assessment was a result of our statement in 
paragraph nine of the Declaratory Ruling that 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.   We were mistaken to 
have characterized the issue in that manner, rather than properly (and more naturally) interpreting 
the scope of telecommunications within section 251(b)(5) as being limited by section 251(g).  
By indicating that all local calls, however defined, would be subject to reciprocal 
compensation obligations under the Act, we overlooked the interplay between these two inter-
related provisions of section 251 -- subsections (b) and (g).  Further, we created unnecessary 
ambiguity for ourselves, and the court, because the statute does not define the term local call, 
and thus that term could be interpreted as meaning either traffic subject to local rates or traffic 
that is jurisdictionally intrastate.  In the context of ISP-bound traffic, as the court observed, our 
use of the term local created a tension that undermined the prior order because the ESP 
exemption permitted ISPs to purchase access through local business tariffs,  yet the 
jurisdictional nature of this traffic has long been recognized as interstate.  
46. For similar reasons, we modify our analysis and conclusion in the Local 
Competition Order.   There we held that "[t]ransport and termination of local traffic for 
purposes of reciprocal compensation are governed by sections 251(b)(5) and 251(d)(2)."  We 
now hold that the telecommunications subject to those provisions are all such 
telecommunications not excluded by section 251(g).  In the Local Competition Order, as in the 
subsequent Declaratory Ruling, use of the phrase "local traffic" created unnecessary ambiguities, 
and we correct that mistake here.
47. We note that the exchange of traffic between LECs and commercial mobile radio 
service (CMRS) providers is subject to a slightly different analysis.  In the Local Competition 
Order, the Commission noted its jurisdiction to regulate LEC-CMRS interconnection under 
section 332 of the Act  but decided, at its option, to apply sections 251 and 252 to LEC-CMRS 
interconnection.   At that time, the Commission declined to delineate the precise contours of or 
the relationship between its jurisdiction over LEC-CMRS interconnection under sections 251 and 
332,  but it made clear that it was not rejecting section 332 as an independent basis for 
jurisdiction.   The Commission went on to conclude that section 251(b)(5) obligations extend to 
traffic transmitted between LECs and CMRS providers, because the latter are 
telecommunications carriers.   The Commission also held that reciprocal compensation, rather 
than interstate or intrastate access charges, applies to LEC-CMRS traffic that originates and 
terminates within the same Major Trading Area (MTA).   In so holding, the Commission 
expressly relied on its authority under section 251(g) to preserve the current interstate access 
charge regime to ensure that interstate access charges would be assessed only for traffic 
currently subject to interstate access charges,   although the Commissions section 332 
jurisdiction could serve as an alternative basis to reach this result.  Thus the analysis we adopt in 
this Order, that section 251(g) limits the scope of section 251(b)(5), does not affect either the 
application of the latter section to LEC-CMRS interconnection or our jurisdiction over LEC-
CMRS interconnection under section 332.
4. Section 251(i) Preserves the Commissions Authority to Regulate 
Interstate Access Services
48. Congress also included a savings provision  subpart (i)  in section 251, which 
provides that [n]othing in this section shall be construed to limit or otherwise affect the 
Commissions authority under section 201.   Under section 201, the Commission has the 
authority to regulate the interstate access services that LECs provide to connect end-users with 
IXCs or information service providers to originate and terminate calls that travel across state 
lines.  
49. We conclude that subpart (i) provides additional support for our finding that 
Congress has granted us the authority on a going-forward basis to establish a compensation 
regime for ISP-bound traffic.   When read as a whole, the most natural reading of section 251 is 
as follows:  subsection (b) sets forth reciprocal compensation requirements for the transport and 
termination of telecommunications; subsection (g) excludes certain access services (including 
ISP-bound traffic) from that requirement; and subsection (i) ensures that, on a going-forward 
basis, the Commission has the authority to establish pricing for, and otherwise to regulate, 
interstate access services.
50. When viewed in the overall context of section 251, subsections (g) and (i) serve 
compatible, but different, purposes.  Subsection (g) preserves rules and regulations that existed at 
the time Congress passed the 1996 Act, and thus functions primarily as a backward-looking 
provision (although it does grant the Commission the authority to supersede existing 
regulations).  In contrast, we interpret section 251(i) to be a forward-looking provision.  Thus, 
subsection (i) expressly affirms the Commissions role in an evolving telecommunications 
marketplace, in which Congress anticipates that the Commission will continue to develop 
appropriate pricing and compensation mechanisms for traffic that falls within the purview of 
section 201.  This reading of section 251 is consistent with the notion that section 251 generally 
broadens the Commissions duties, particularly in the pricing context.  
51. We expect that, as new network architectures emerge, the nature of 
telecommunications traffic will continue to evolve.  As we have already observed, since 
Congress passed the 1996 Act, customer usage patterns have changed dramatically; carriers are 
sending traffic over networks in new and different formats; and manufacturers are adding 
creative features and developing innovative network architectures.  Although we cannot 
anticipate the direction that new technology will take us, we do expect the dramatic pace of 
change to continue.  Congress clearly did not expect the dynamic, digital broadband driven 
telecommunications marketplace to be hindered by rules premised on legacy networks and 
technological assumptions that are no longer valid.  Section 251(i), together with section 201, 
equips the Commission with the tools to ensure that the regulatory environment keeps pace with 
innovation.   
5. ISP-Bound Traffic Falls Within the Purview of the Commissions 
Section 201 Authority
52. Having found that ISP-bound traffic is excluded from section 251(b)(5) by section 
251(g), we find that the Commission has the authority pursuant to section 201 to establish rules 
governing intercarrier compensation for such traffic.  Under section 201, the Commission has 
long exercised its jurisdictional authority to regulate the interstate access services that LECs 
provide to connect callers with IXCs or ISPs to originate or terminate calls that travel across state 
lines.  Access services to ISPs for Internet-bound traffic are no exception.  The Commission has 
held, and the Eighth Circuit has recently concurred, that traffic bound for information service 
providers (including Internet access traffic) often has an interstate component.    Indeed, that 
court observed that, although some traffic destined for information service providers (including 
ISPs) may be intrastate, the interstate and intrastate components cannot be reliably separated.   
Thus, ISP traffic is properly classified as interstate,   and it falls under the Commissions section 
201 jurisdiction. 
53. In its opinion remanding this proceeding, the court appeared to acknowledge that 
the end-to-end analysis was appropriate for determining the scope of the Commissions 
jurisdiction under section 201, stating that [t]here is no dispute that the Commission has 
historically been justified in relying on this method when determining whether a particular 
communication is jurisdictionally interstate.   The court nevertheless found that we had not 
supplied a logical nexus between the jurisdictional end-to-end analysis (which delineates the 
contours of our section 201 authority) and our interpretation of the scope of section 251(b)(5).  In 
that regard, the court appeared not to question the Commissions longstanding assertion of 
jurisdiction over ESP traffic, of which Internet-bound traffic is a subset.   It did, however, 
unambiguously question whether, for purposes of interpreting section 251(b)(5), the 
jurisdictional end-to-end analysis was dispositive.  Accordingly, the court explained its basis for 
remand as follows:  Because the Commission has not supplied a real explanation for its decision 
to treat end-to-end analysis as controlling [in interpreting the scope of section 251(b)(5)] . . . we 
must vacate the ruling and remand the case.   
54. As explained above, we no longer construe section 251(b)(5) using the dichotomy 
set forth in the Declaratory Ruling between local traffic and interstate traffic.  Rather, we have 
clarified that the proper analysis hinges on section 251(g), which limits the reach of the 
reciprocal compensation regime mandated in section 251(b).  Thus our discussion no longer 
centers on the jurisdictional inquiry set forth in the underlying order.  Nonetheless, we take this 
opportunity to respond to questions raised by the court regarding the differences between ISP-
bound traffic (which we have always held to be predominantly interstate for jurisdictional 
purposes) and intrastate calls to communications-intensive business end user[s],  such as 
travel agencies and pizza parlors. 
55. Contrary to the arguments made by some IXCs, the Commission has been 
consistent in its jurisdictional treatment of ISP-bound traffic.  For compensation purposes, in 
order to create a regulatory environment that will allow new and innovative services to flourish, 
the Commission has exempted enhanced service providers (including ISPs) from paying for 
interstate access service at the usage-based rates charged to IXCs.   The ESP exemption was 
and remains an affirmative exercise of federal regulatory authority over interstate access service 
under section 201, and, in affirming pricing under that exemption, the D.C. Circuit expressly 
recognized that ESPs use interstate access service.   Moreover, notwithstanding the ESP 
exemption, the Commission has always permitted enhanced service providers, including ISPs, to 
purchase their interstate access out of interstate tariffs -- thus underscoring the Commissions 
consistent view that the link LECs provide to connect subscribers with ESPs is an interstate 
access service. 
56. We do not believe that the court's decision to remand the Declaratory Ruling 
reflects a finding that such traffic constitutes two calls, rather than a single end-to-end call, for 
jurisdictional purposes.  The court expressly acknowledged that "the end-to-end analysis applied 
by the Commission here is one that it has traditionally used to determine whether a call is within 
its interstate jurisdiction."   The court also said that "[t]here is no dispute that the Commission 
has historically been justified in relying on this method when determining whether a particular 
communication is jurisdictionally interstate."   And the court appeared to suggest, at least for 
the sake of argument, that the Commission had not misapplied that analysis as a jurisdictional 
matter in finding that ISP-bound traffic was interstate.   We do recognize, however, that the 
court was concerned by how one would categorize this traffic under our prior interpretation of 
section 251(b)(5), which focused on whether or not ISP-bound calls were local.  That inquiry 
arguably implicated the compensation mechanism for the traffic (which included a local 
component), as well as the meaning of the term termination in the specific context of section 
251(b); but neither of these issues is germane to our assertion of jurisdiction here under our 
section 201 authority. 
57. For jurisdictional purposes, the Commission views LEC-provided access to 
enhanced services providers, including ISPs, on the basis of the end points of the 
communication, rather than intermediate points of switching or exchanges between carriers (or 
other providers).   Thus, in the ONA Plans Order, the Commission emphasized that 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 [our 
jurisdiction].   Consistent with that view, when end-to-end communications involving 
enhanced service providers cross state lines, the Commission has categorized the link that the 
LEC provides to connect the end-user with an enhanced service provider as interstate access 
service.   Internet service providers are a class of ESPs.  Accordingly, the LEC-provided link 
between an end-user and an ISP is properly characterized as interstate access. 
58. Most Internet-bound traffic traveling between a LECs subscriber and an ISP is 
indisputably interstate in nature when viewed on an end-to-end basis.  Users on the Internet are 
interacting with a global network of connected computers.  The consumer contracts with an ISP 
to provide access to the Internet.  Typically, when the customer wishes to interact with a person, 
content, or computer, the customers computer calls a number provided by the ISP that is 
assigned to an ISP modem bank.  The ISP modem answers the call (the familiar squelch of 
computers handshaking).  The user initiates a communication over the Internet by transmitting a 
command.  In the case of the web, the user requests a webpage.  This request may be sent to the 
computer that hosts the webpage.  In real time, the web host may request that different pieces of 
that webpage, which can be stored on different servers across the Internet, be sent, also in real 
time, to the user.  For example, on a sports page, only the format of the webpage may be stored at 
the host computer in Chicago.  The advertisement may come from a computer in California (and 
it may be a different advertisement each time the page is requested), the sports scores may come 
from a computer in New York City, and a part of the webpage that measures Internet traffic and 
records the users visit may involve a computer in Virginia.  If the user decides to buy something 
from this webpage, say a sports jersey, the user clicks on the purchase page and may be 
transferred to a secure web server in Maryland for the transaction.  A single web address 
frequently results in the return of information from multiple computers in various locations 
globally.  These different pieces of the webpage will be sent to the user over different network 
paths and assembled on the users display.   
59. The communication taking place is between the dial-up customer and the global 
computer network of web content, e-mail authors, game room participants, databases, or bulletin 
board contributors.  Consumers would be perplexed to learn regulators believe they are 
communicating with ISP modems, rather than the buddies on their e-mail lists.  The proper focus 
for identifying a communication needs to be the user interacting with a desired webpage, friend, 
game, or chat room, not on the increasingly mystifying technical and mechanical activity in the 
middle that makes the communication possible.   ISPs, in most cases, provide services that 
permit the dial-up Internet user to communicate directly with some distant site or party (other 
than the ISP) that the caller has specified. 
60. ISP service is analogous, though not identical, to long distance calling service.  
An AT&T long distance customer contracts with AT&T to facilitate communications to out-of-
state locations.  The customer uses the local network to reach AT&Ts facilities (its point of 
presence).  By dialing 1 and an area code, the customer is in essence addressing his call to an 
out of state party and is instructing his LEC to deliver the call to his long distance carrier, and 
instructing the long distance carrier to pick up and carry that call to his intended destination.  The 
caller on the other end will pick up the phone and respond to the caller.  The communication will 
be between these two end-users.  This analogy is not meant to prove that ISP service is identical 
to long distance service, but is used merely to bolster, by analogy, the reasonableness of not 
characterizing an ISP as the destination of a call, but as a facilitator of communication.
61. Moreover, as the local exchange carriers have correctly observed, the technical 
configurations for establishing dial-up Internet connections are quite similar to certain network 
configurations employed to initiate more traditional long-distance calls.   In most cases, an 
ISP's customer first dials a seven-digit number to connect to the ISP server before connecting to 
a website.  Long-distance service in some network configurations is initiated in a substantially 
similar manner.  In particular, under "Feature Group A" access, the caller first dials a seven-digit 
number to reach the IXC, and then dials a password and the called party's area code and number 
to complete the call.  Notwithstanding this dialing sequence, the service the LEC provides is 
considered interstate access service, not a separate local call.   Internet calls operate in a similar 
manner:  after reaching the ISP's server by dialing a seven-digit number, the caller selects a 
website (which is identified by a 12-digit Internet address, but which often is, in effect, "speed 
dialed" by clicking an icon) and the ISP connects the caller to the selected website.  Such calling 
should yield the same jurisdictional result as the analogous calls to IXCs using "Feature Group 
A" access.
62. Commission precedent also rejects the two-call theory in the context of calls 
involving enhanced services.  In BellSouth MemoryCall, the Commission preempted a state 
commission order that had prohibited BellSouth from expanding its voice mail service -- an 
enhanced service -- beyond its existing customers.   In doing so, it rejected claims by the state 
that the Commission lacked jurisdiction to preempt because, allegedly, out-of-state calls to the 
voice mail service really constituted two calls:  an interstate call from the out-of-state caller to 
the telephone company switch that routes the call to the intended recipient's location, and a 
separate intrastate call that forwards the communication from the switch to the voice mail 
apparatus in the event that the called party did not answer.   The Commission explained that, 
whether a basic telecommunications service is at issue, or whether an enhanced service rides on 
the telephone company's telecommunications service, the Commissions jurisdiction does not 
end at the local switchboard, but continues to the ultimate destination of the call. 
63. The Internet communication is not analogous to traditional telephone exchange 
services.  Local calls set up communication between two parties that reside in the same local 
calling area.  Prior to the introduction of local competition, that call would never leave the 
network of the incumbent LEC.  As other carriers were permitted to enter the local market, a call 
might cross two or more carriers networks simply because the two parties to the communication 
subscribed to two different local carriers.  The two parties intending to communicate, however, 
remained squarely in the same local calling area.  An Internet communication is not simply a 
local call from a consumer to a machine that is lopsided, that is, a local call where one party does 
most of the calling, or most of the talking.  ISPs are service providers that technically modify and 
translate communication, so that their customers will be able to interact with computers across 
the global Internet.   
64. The court in Bell Atlantic noted that FCC litigation counsel had differentiated 
ISP-bound traffic from ordinary long-distance calls by stating that the former "is really like a call 
to a local business" -- such as a pizza delivery firm, a travel reservation agency, a credit card 
verification firm, or a taxicab company -- "that then uses the telephone to order wares to meet the 
need."   We find, however, that this citation to a former litigation position does not require us to 
alter our analysis.  First, the Commission itself has never analogized ISP-bound traffic in the 
manner cited in the agency's brief in Southwestern Bell.  Indeed, in the particular order that the 
Commission was defending in Southwestern Bell, the Commission distinguished ISP-bound 
traffic from other access traffic on other grounds -- e.g., call direction and call holding times  -- 
which have no arguable bearing on whether the traffic is one interstate call (as the Commission 
has always held) or two separate calls (one of which allegedly is intrastate) as some parties have 
contended.  Second, the cited portion of the Commission's brief was not addressing jurisdiction 
at all.  Rather, the brief was responding to a claim that the ESP exemption discriminated against 
IXCs and in favor of ISPs.   Finally, in the very case in which litigation counsel made the cited 
analogy, the Eighth Circuit affirmed the Commission's consistent view that ISP-bound traffic is, 
as a jurisdictional matter, predominantly interstate.   In any event, to the extent that our prior 
briefs could be read to conceptualize the nature of ISP service as local, akin to intense users of 
local service, we now embrace a different conceptualization that we believe more accurately 
reflects the nature of ISP service. 
65. For the foregoing reasons, consistent with our longstanding precedent, we find 
that we continue to have jurisdiction under section 201, as preserved by section 251(i), to provide 
a compensation mechanism for ISP-bound traffic.
C. Efficient Intercarrier Compensation Rates and Rate Structures
66. Carriers currently recover the costs of call transport and termination through some 
combination of carrier access charges, reciprocal compensation, and end-user charges, depending 
upon the applicable regulatory regime.  Having concluded that ISP-bound traffic is not subject to 
the reciprocal compensation obligations of section 251(b)(5), we must now determine, pursuant 
to our section 201 authority, what compensation mechanism is appropriate when carriers 
collaborate to deliver calls to ISPs.  In the companion NPRM, we consider the desirability of 
adopting a uniform intercarrier compensation mechanism, applicable to all traffic exchanged 
among telecommunications carriers, and, in that context, we intend to examine the merits of a 
bill and keep regime for all types of traffic, including ISP-bound traffic.  In the meantime, 
however, we must adopt an interim intercarrier compensation rule to govern the exchange of ISP-
bound traffic, pending the outcome of the NPRM.  In particular, we must decide whether to 
impose (i) a calling-partys-network-pays (CPNP) regime, like reciprocal compensation, in 
which the calling partys network pays the network serving the ISP; (ii) a bill and keep regime in 
which all networks recover costs from their end-user customers and are obligated to deliver calls 
that originate on the networks of interconnecting carriers; or (iii) some other cost recovery 
mechanism.  As set forth more fully below, our immediate goal in adopting an interim 
compensation mechanism is to address the market distortions created by the prevailing 
intercarrier compensation regime, even as we evaluate in a parallel proceeding what longer-term 
intercarrier compensation mechanisms are appropriate for this and other types of traffic.
1. CPNP Regimes Have Distorted the Development of Competitive 
Markets
67. For the reasons detailed below, we believe that a bill and keep approach to 
recovering the costs of delivering ISP-bound traffic is likely to be more economically efficient 
than recovering these costs from originating carriers.  In particular, requiring carriers to recover 
the costs of delivering traffic to ISP customers directly from those customers is likely to send 
appropriate market signals and substantially eliminate existing opportunities for regulatory 
arbitrage.  As noted above, we consider issues related to the broader application of bill and keep 
as an intercarrier compensation regime in conjunction with the NPRM that we are adopting 
concurrently with this Order.  In this Order, however, we adopt an interim compensation 
mechanism for the delivery of ISP-bound traffic that addresses the regulatory arbitrage 
opportunities present in the existing carrier-to-carrier payments by limiting carriers opportunity 
to recover costs from other carriers and requiring them to recover a greater share of their costs 
from their ISP customers.
68. In most states, reciprocal compensation governs the exchange of ISP-bound traffic 
between local carriers.   Reciprocal compensation is a CPNP regime in which the originating 
carrier pays an interconnecting carrier for transport and termination, i.e., for transport from the 
networks point of interconnection and for any tandem and end-office switching.   The central 
problem with any CPNP regime is that carriers recover their costs not only from their end-user 
customers, but also from other carriers.    Because intercarrier compensation rates do not reflect 
the degree to which the carrier can recover costs from its end-users, payments from other carriers 
may enable a carrier to offer service to its customers at rates that bear little relationship to its 
actual costs, thereby gaining an advantage over its competitors.  Carriers thus have the incentive 
to seek out customers, including but not limited to ISPs, with high volumes of incoming traffic 
that will generate high reciprocal compensation payments.   To the extent that carriers offer 
these customers below cost retail rates subsidized by intercarrier compensation, these customers 
do not receive accurate price signals.  Moreover, because the originating LEC typically charges 
its customers averaged rates, the originating end-user receives inaccurate price signals as the 
costs associated with the intercarrier payments are recovered through rates averaged across all of 
the originating carriers end-users.  Thus no subscriber faces a price that fully reflects the 
intercarrier payments.  An ISP subscriber with extensive Internet usage may, for example, cause 
her LEC to incur substantial reciprocal compensation obligations to the LEC that serves her ISP, 
but that subscriber receives no price signals reflecting those costs because they are spread over 
all of her LECs customers.
69. The resulting market distortions are most apparent in the case of ISP-bound traffic 
due primarily to the one-way nature of this traffic, and to the tremendous growth in dial-up 
Internet access since passage of the 1996 Act.   Competitive carriers, regardless of the nature of 
their customer base, exchange traffic with the incumbent LECs at rates based on the incumbents 
costs.    To the extent the traffic exchange is roughly balanced, as is typically the case when 
LECs exchange voice traffic, it matters little if rates reflect costs because payments in one 
direction are largely offset by payments in the other direction.  The rapid growth in dial-up 
Internet use, however, created the opportunity to serve customers with large volumes of 
exclusively incoming traffic.  And, for the reasons discussed above, the reciprocal compensation 
regime created an incentive to target those customers with little regard to the costs of serving 
them  because a carrier would be able to collect some or all of those costs from other carriers 
that would themselves be unable to flow these costs through to their own customers in a cost-
causative manner. 
70. The record is replete with evidence that reciprocal compensation provides 
enormous incentive for CLECs to target ISP customers.  The four largest ILECs indicate that 
CLECs, on average, terminate eighteen times more traffic than they originate, resulting in annual 
CLEC reciprocal compensation billings of approximately two billion dollars, ninety percent of 
which is for ISP-bound traffic.   Verizon states that it sends CLECs, on average, twenty-one 
times more traffic than it receives, and some CLECs receive more than forty times more traffic 
than they originate.   Although there may be sound business reasons for a CLECs decision to 
serve a particular niche market, the record strongly suggests that CLECs target ISPs in large part 
because of the availability of reciprocal compensation payments.   Indeed, some ISPs even seek 
to become CLECs in order to share in the reciprocal compensation windfall, and, for a small 
number of entities, this revenue stream provided an inducement to fraudulent schemes to 
generate dial-up minutes. 
71. For these reasons, we believe that the application of a CPNP regime, such as 
reciprocal compensation, to ISP-bound traffic undermines the operation of competitive 
markets.   ISPs do not receive accurate price signals from carriers that compete, not on the basis 
of the quality and efficiency of the services they provide, but on the basis of their ability to shift 
costs to other carriers.  Efficient prices result when carriers offer the lowest possible rates based 
on the costs of the service they provide to ISPs, not when they can price their services without 
regard to cost.  We are concerned that viable, long-term competition among efficient providers of 
local exchange and exchange access services cannot be sustained where the intercarrier 
compensation regime does not reward efficiency and may produce retail rates that do not reflect 
the costs of the services provided.  As we explain in greater detail in the companion NPRM, we 
believe that a compensation regime, such as bill and keep, that requires carriers to recover more 
of their costs from end-users may avoid these problems.
72. We acknowledge that we did not always hold this view.  In the Local Competition 
Order, the Commission concluded that state commissions may impose bill and keep 
arrangements for traffic subject to section 251(b)(5) only when the flow of traffic between 
interconnected carriers is roughly balanced and is expected to remain so.   The Commission 
reasoned that bill-and-keep arrangements are not economically efficient because they distort 
carriers incentives, encouraging them to overuse competing carriers termination facilities by 
seeking customers that primarily originate traffic.   The concerns about the opportunity for 
cost recovery and economic efficiency are not present, however, to the extent that traffic between 
carriers is balanced and payments from one carrier will be offset by payments from the other 
carrier.  In these circumstances, the Commission found that bill and keep arrangements may 
minimize administrative burdens and transaction costs.   
73. Since that time, we have observed the development of competition in the local 
exchange market, and we now believe that the Commissions concerns about economic 
inefficiencies associated with bill and keep missed the mark, particularly as applied to ISP-bound 
traffic.  The Commission appears to have assumed, at least implicitly, that the calling party was 
the sole cost causer of the call, and it may have overstated any incentives that a bill and keep 
regime creates to target customers that primarily originate traffic.  A carrier must provide 
originating switching functions and must recover the costs of those functions from the 
originating end-user, not from other carriers.  Originating traffic thus lacks the same opportunity 
for cost-shifting that reciprocal compensation provides with respect to serving customers with 
disproportionately incoming traffic.  Indeed, it has become apparent that the obligation to pay 
reciprocal compensation to interconnecting carriers may give rise to uneconomic incentives.  As 
the current controversy about ISP-bound traffic demonstrates, reciprocal compensation 
encourages carriers to overuse competing carriers origination facilities by seeking customers 
that receive high volumes of traffic. 
74. We believe that a bill and keep regime for ISP-bound traffic may eliminate these 
incentives and concomitant opportunity for regulatory arbitrage by forcing carriers to look only 
to their ISP customers, rather than to other carriers, for cost recovery.  As a result, the rates paid 
by ISPs and, consequently, their customers should better reflect the costs of services to which 
they subscribe.  Potential subscribers should receive more accurate price signals, and the market 
should reward efficient providers.   Although we do not reach any firm conclusions about bill 
and keep as a permanent mechanism for this or any other traffic, our evaluation of the record 
evidence to date strongly suggests that bill and keep is likely to provide a viable solution to the 
market distortions caused by the application of reciprocal compensation to ISP-bound traffic. We 
take that observation into account, below, as we fashion an interim compensation mechanism for 
this traffic.
75. Bill and keep also may address the problem regulators face in setting intercarrier 
compensation rates that correlate to the costs carriers incur to carry traffic that originates on other 
networks.  The record suggests that market distortions appear to have been exacerbated by the 
prevalence of excessively high reciprocal compensation rates.  Many CLECs argue that the 
current traffic imbalances between CLECs and ILECs are the product of greediness on the part of 
ILECs that insisted on above-cost reciprocal compensation rates in the course of negotiating or 
arbitrating initial interconnection agreements.   CLECs argue that, because these rates were 
artificially high, they naturally responded by seeking customers with large volumes of incoming 
traffic.  If the parties or regulatory bodies merely set cost-based rates and rate structures, they 
argue, arbitrage opportunities and the resulting windfalls would disappear.   They note that 
reciprocal compensation rates have fallen dramatically as initial agreements expire and the 
parties negotiate new agreements. 
76. We do not believe that the solution to the current problem is as simple as the 
CLECs suggest.   We seek comment in the accompanying NPRM on the potential for a 
modified CPNP regime, such as the CLECs advocate, to solve some of the problems we identify 
here.  We are convinced, however, that intercarrier payments for ISP-bound traffic have created 
severe market distortions.  Although it would be premature to institute a full bill and keep regime 
before resolving the questions presented in the NPRM,  in seeking to remedy an exigent market 
problem, we cannot ignore the evidence we have accumulated to date that suggests that a bill and 
keep regime has very fundamental advantages over a CPNP regime for ISP-bound traffic.  
Contrary to the view espoused by CLECs, we are concerned that the market distortions caused by 
applying a CPNP regime to ISP-bound traffic cannot be cured by regulators or carriers simply 
attempting to get the rate right.  A few examples may illustrate the vexing problems regulators 
face.  Reciprocal compensation rates have been determined on the basis of the ILECs average 
costs of transport and termination.  These rates do not, therefore, reflect the costs incurred by any 
particular carrier for providing service to a particular customer.  This encourages carriers to 
target customers that are, on average, less costly to serve, and reap a reciprocal compensation 
windfall.  Conversely, new entrants lack incentive to serve customers that are, on average, more 
costly to serve, even if the new entrant is the most efficient provider.  It is not evident that this 
problem can be remedied by setting reciprocal compensation rates on the basis of the costs of 
carrier serving the called party (or, in the case of ISP-bound traffic, the CLEC that serves the 
ISP).   Apart from our reluctance to require new entrants to perform cost studies, it is entirely 
impracticable, if not impossible, for regulators to set different intercarrier compensation rates for 
each individual carrier, and those rates still might fail to reflect a carriers costs as, for example, 
the nature of its customer base evolves.  Furthermore, most states have adopted per minute 
reciprocal compensation rate structures.  It is unlikely that any minute-of-use rate that is based on 
average costs and depends upon demand projections will reflect the costs of any given carrier to 
serve any particular customer.  To the extent that transport and termination costs are capacity-
driven, moreover, virtually any minute-of-use rate will overestimate the cost of handling an 
additional call whenever a carrier is operating below peak capacity.   Regulators and carriers 
have long struggled with problems associated with peak-load pricing.   Finally, and most 
important, the fundamental problem with application of reciprocal compensation to ISP-bound 
traffic is that the intercarrier payments fail altogether to account for a carriers opportunity to 
recover costs from its ISP customers.  Modifications to intercarrier rate levels or rate structures 
suggested by CLECs do not address carriers ability to shift costs from their own customers onto 
other carriers and their customers.
2. Intercarrier Compensation for ISP-bound Traffic 
77. We believe that a hybrid mechanism that establishes relatively low per minute 
rates, with a cap on the total volume of traffic entitled to such compensation, is the most 
appropriate interim approach over the near term to resolve the problems associated with the 
current intercarrier compensation regime for ISP-bound traffic.  Our primary goal at this time is 
to address the market distortions under the current intercarrier compensation regimes for ISP-
bound traffic.  At the same time, we believe it prudent to avoid a flash cut to a new 
compensation regime that would upset the legitimate business expectations of carriers and their 
customers. Subsequent to the Commissions Declaratory Ruling, many states have required the 
payment of reciprocal compensation for ISP-bound traffic, and CLECs may have entered into 
contracts with vendors or with their ISP customers that reflect the expectation that the CLECs 
would continue to receive reciprocal compensation revenue.  We believe it appropriate, in 
tailoring an interim compensation mechanism, to take those expectations into account while 
simultaneously establishing rates that will produce more accurate price signals and substantially 
reduce current market distortions.  Therefore, pending our consideration of broader intercarrier 
compensation issues in the NPRM, we impose an interim intercarrier compensation regime for 
ISP-bound traffic that serves to limit, if not end, the opportunity for regulatory arbitrage, while 
avoiding a market-disruptive flash cut to a pure bill and keep regime.  The interim regime we 
establish here will govern intercarrier compensation for ISP-bound traffic until we have resolved 
the issues raised in the intercarrier compensation NPRM.
78. Beginning on the effective date of this Order, and continuing for six months, 
intercarrier compensation for ISP-bound traffic will be capped at a rate of $.0015/minute-of-use 
(mou).  Starting in the seventh month, and continuing for eighteen months, the rate will be 
capped at $.0010/mou.  Starting in the twenty-fifth month, and continuing through the thirty-
sixth month or until further Commission action (whichever is later), the rate will be capped at 
$.0007/mou.  In addition to the rate caps, we will impose a cap on total ISP-bound minutes for 
which a LEC may receive this compensation.  For the year 2001, a LEC may receive 
compensation, pursuant to a particular interconnection agreement, for ISP-bound minutes up to a 
ceiling equal to, on an annualized basis, the number of ISP-bound minutes for which that LEC 
was entitled to compensation under that agreement during the first quarter of 2001, plus a ten 
percent growth factor.  For 2002, a LEC may receive compensation, pursuant to a particular 
interconnection agreement, for ISP-bound minutes up to a ceiling equal to the minutes for which 
it was entitled to compensation under that agreement in 2001, plus another ten percent growth 
factor.  In 2003, a LEC may receive compensation, pursuant to a particular interconnection 
agreement, for ISP-bound minutes up to a ceiling equal to the 2002 ceiling applicable to that 
agreement.  
79. We understand that some carriers are unable to identify ISP-bound traffic.  In 
order to limit disputes and avoid costly efforts to identify this traffic, we adopt a rebuttable 
presumption that traffic delivered to a carrier, pursuant to a particular contract, that exceeds a 3:1 
ratio of terminating to originating traffic is ISP-bound traffic that is subject to the compensation 
mechanism set forth in this Order.  Using a rebuttable presumption in this context is consistent 
with the approach that numerous states have adopted to identify ISP-bound traffic or 
convergent traffic (including ISP traffic) that is subject to a lower reciprocal compensation 
rate.    A carrier may rebut the presumption, for example, by demonstrating to the appropriate 
state commission that traffic above the 3:1 ratio is in fact local traffic delivered to non-ISP 
customers.  In that case, the state commission will order payment of the state-approved or state-
arbitrated reciprocal compensation rates for that traffic.  Conversely, if a carrier can demonstrate 
to the state commission that traffic it delivers to another carrier is ISP-bound traffic, even though 
it does not exceed the 3:1 ratio, the state commission will relieve the originating carrier of 
reciprocal compensation payments for that traffic, which is subject instead to the compensation 
regime set forth in this Order.  During the pendency of any such proceedings, LECs remain 
obligated to pay the presumptive rates (reciprocal compensation rates for traffic below a 3:1 
ratio, the rates set forth in this Order for traffic above the ratio), subject to true-up upon the 
conclusion of state commission proceedings.
80. We acknowledge that carriers incur costs in delivering traffic to ISPs, and it may 
be that in some instances those costs exceed the rate caps we adopt here.  To the extent a LECs 
costs of transporting and terminating this traffic exceed the applicable rate caps, however, it may 
recover those amounts from its own end-users.   We also clarify that, because the rates set forth 
above are caps on intercarrier compensation, they have no effect to the extent that states have 
ordered LECs to exchange ISP-bound traffic either at rates below the caps we adopt here or on a 
bill and keep basis (or otherwise have not required payment of compensation for this traffic).   
The rate caps are designed to provide a transition toward bill and keep or such other cost 
recovery mechanism that the Commission may adopt to minimize uneconomic incentives, and no 
such transition is necessary for carriers already exchanging traffic at rates below the caps.  
Moreover, those state commissions have concluded that, at least in their states, LECs receive 
adequate compensation from their own end-users for the transport and termination of ISP-bound 
traffic and need not rely on intercarrier compensation.  
81. Finally, a different rule applies in the case where carriers are not exchanging 
traffic pursuant to interconnection agreements prior to adoption of this Order (where, for 
example, a new carrier enters the market or an existing carrier expands into a market it 
previously had not served).  In such a case, as of the effective date of this Order, carriers shall 
exchange ISP-bound traffic on a bill-and-keep basis during this interim period.  We adopt this 
rule for several reasons. First, our goal here is to address and curtail a pressing problem that has 
created opportunities for regulatory arbitrage and distorted the operation of competitive markets. 
 In so doing, we seek to confine these market problems to the maximum extent while seeking an 
appropriate long-term resolution in the proceeding initiated by the companion NPRM.  Allowing 
carriers in the interim to expand into new markets using the very intercarrier compensation 
mechanisms that have led to the existing problems would exacerbate the market problems we 
seek to ameliorate.  For this reason, we believe that a standstill on any expansion of the old 
compensation regime into new markets is the more appropriate interim answer.   Second, unlike 
those carriers that are presently serving ISP customers under existing interconnection 
agreements, carriers entering new markets to serve ISPs have not acted in reliance on reciprocal 
compensation revenues and thus have no need of a transition during which to make adjustments 
to their prior business plans.
82. The interim compensation regime we establish here applies as carriers re-
negotiate expired or expiring interconnection agreements.  It does not alter existing contractual 
obligations, except to the extent that parties are entitled to invoke contractual change-of-law 
provisions.  This Order does not preempt any state commission decision regarding compensation 
for ISP-bound traffic for the period prior to the effective date of the interim regime we adopt 
here.  Because we now exercise our authority under section 201 to determine the appropriate 
intercarrier compensation for ISP-bound traffic, however, state commissions will no longer have 
authority to address this issue.  For this same reason, as of the date this Order is published in the 
Federal Register, carriers may no longer invoke section 252(i) to opt into an existing 
interconnection agreement with regard to the rates paid for the exchange of ISP-bound traffic.   
Section 252(i) applies only to agreements arbitrated or approved by state commissions pursuant 
to section 252; it has no application in the context of an intercarrier compensation regime set by 
this Commission pursuant to section 201. 
83. This interim regime satisfies the twin goals of compensating LECs for the costs of 
delivering ISP-bound traffic while limiting regulatory arbitrage. The interim compensation 
regime, as a whole, begins a transition toward what we have tentatively concluded, in the 
companion NPRM, to be a more rational cost recovery mechanism under which LECs recover 
more of their costs from their own customers.  This compensation mechanism is fully consistent 
with the manner in which the Commission has directed incumbent LECs to recover the costs of 
serving ESPs, including ISPs.   The three-year transition we adopt here ensures that carriers 
have sufficient time to re-order their business plans and customer relationships, should they so 
choose, in light of our tentative conclusions in the companion NPRM that bill and keep is the 
appropriate long-term intercarrier compensation regime.  It also affords the Commission 
adequate time to consider comprehensive reform of all intercarrier compensation regimes in the 
NPRM and any resulting rulemaking proceedings.  Both the rate caps and the volume limitations 
reflect our view that LECs should begin to formulate business plans that reflect decreased 
reliance on revenues from intercarrier compensation, given the trend toward substantially lower 
rates and the strong possibility that the NPRM may result in the adoption of a full bill and keep 
regime for ISP-bound traffic.
84. We acknowledge that there is no exact science to setting rate caps to limit 
carriers ability to draw revenue from other carriers, rather than from their own end-users.  Our 
adoption of the caps here is based on a number of considerations.  First, rates that produce 
meaningful reductions in intercarrier payments for ISP-bound traffic must be at least as low as 
rates in existing interconnection agreements.  Second, although we make no finding here 
regarding the actual costs incurred in the delivery of ISP-bound traffic, there is evidence in the 
record to suggest that technological developments are reducing the costs incurred by carriers in 
handling all sorts of traffic, including ISP-bound traffic.   Third, although the process has 
proceeded too slowly to address the market distortions discussed above, we note that negotiated 
reciprocal compensation rates continue to decline as ILECs and CLECs negotiate new 
interconnection agreements.  Finally, CLECs have been on notice since the 1999 Declaratory 
Ruling that it might be unwise to rely on the continued receipt of reciprocal compensation for 
ISP-bound traffic, thus many have begun the process of weaning themselves from these 
revenues.
85. The rate caps adopted herein reflect all these considerations.  The caps we have 
selected approximate the downward trend in intercarrier compensation rates reflected in recently 
negotiated interconnection agreements.  In these agreements, carriers have agreed to rates, like 
those we adopt here, that decline each year of a three-year contract term, and at least one 
agreement reflects different rates for balanced and unbalanced traffic.   For example, the initial 
rate cap of $.0015/mou approximates the rates applicable this year in agreements Level 3 has 
negotiated with Verizon and SBC.   The $.0010/mou rate that applies during most of the three-
year interim period reflects a proposal by ALTS, the trade association representing CLECs, for a 
transition plan pursuant to which intercarrier compensation payments for ISP-bound traffic 
would decline to $.0010/mou.   Similarly, the $.0007/mou rate reflects the average rate 
applicable in 2002 under Level 3s agreement with SBC.   We conclude, therefore, that the rate 
caps constitute a reasonable transition toward the recovery of costs from end-users.
86. We impose an overall cap on ISP-bound minutes for which compensation is due 
in order to ensure that growth in dial-up Internet access does not undermine our efforts to limit 
intercarrier compensation for this traffic and to begin, subject to the conclusion of the NPRM 
proceedings, a smooth transition toward a bill and keep regime.  A ten percent growth cap, for 
the first two years, seems reasonable in light of CLEC projections that the growth of dial-up 
Internet minutes will fall in the range of seven to ten percent per year.   We are unpersuaded by 
the ILECs projections that dial-up minutes will grow in the range of forty percent per year,  but 
adoption of a cap on growth largely moots this debate.  If CLECs have projected growth in the 
range of ten percent, then limiting intercarrier compensation at that level should not disrupt their 
customer relationships or their business planning.  Nothing in this Order prevents any carrier 
from serving or indeed expanding service to ISPs, so long as they recover the costs of additional 
minutes from their ISP customers.  The caps merely ensure that growth in minutes above the 
caps is based on a given carriers ability to provide efficient and quality service to ISPs, rather 
than on a carriers desire to reap an intercarrier compensation windfall.
87. We are not persuaded by arguments proffered by CLECs that requiring them to 
recover more of their costs from their ISP customers will render it impossible for CLECs 
profitably to serve ISPs or will lead to higher rates for Internet access.   First, as noted above, 
this compensation mechanism is fully consistent with the manner in which this Commission has 
directed ILECs to recover the costs of serving ISPs.   Moreover, the evidence in the record does 
not demonstrate that CLECs cannot compete for ISP customers in the growing number of states 
that have adopted bill and keep for ISP-bound traffic or that the cost of Internet access has 
increased in those states.  Second, next-generation switching and other technological 
developments appear to be contributing to a decline in the costs of serving ISPs (and other 
customers).   Third, if reciprocal compensation merely enabled CLECs to recover the costs of 
serving ISPs, CLECs should be indifferent between serving ISPs and other customers.  Instead, 
CLECs have not contradicted ILEC assertions that more than ninety percent of CLEC reciprocal 
compensation billings are for ISP-bound traffic,  suggesting that there may be a considerable 
margin between current reciprocal compensation rates and the actual costs of transport and 
termination.   Finally, there is reason to believe that our failure to act, rather than the actions we 
take here, would lead to higher rates for Internet access, as ILECs seek to recover their reciprocal 
compensation liability, which they incur on a minute-of-use basis, from their customers who call 
ISPs.   Alternatively, ILECs might recover these costs from all of their local customers, 
including those who do not call ISPs.   There is no public policy rationale to support a subsidy 
running from all users of basic telephone service to those end-users who employ dial-up Internet 
access. 
88. We also are not convinced by the claim of CLECs that limiting intercarrier 
compensation for ISP-bound traffic will result in a windfall for the incumbent LECs.   The 
CLECs argue that the incumbents local rates are set to recover the costs of originating and 
terminating calls and that the ILECs avoid termination costs when their end-users call ISP 
customers served by CLECs.  The record does not establish that ILECs necessarily avoid costs 
when they deliver calls to CLECs,  and CLECs have not demonstrated that ILEC end-user rates 
are designed to recover from the originating end-user the costs of delivering calls to ISPs.  The 
ILECs point out that, in response to their complaints about the costs associated with delivering 
traffic to ISPs, the Commission has directed them to seek permission from state regulators to 
raise the rates they charge the ISPs, an implicit acknowledgement that ILECs may not recover all 
of their costs from the originating end-user.  
3. Relationship to Section 251(b)(5)
89. It would be unwise as a policy matter, and patently unfair, to allow incumbent 
LECs to benefit from reduced intercarrier compensation rates for ISP-bound traffic, with respect 
to which they are net payors,  while permitting them to exchange traffic at state reciprocal 
compensation rates, which are much higher than the caps we adopt here, when the traffic 
imbalance is reversed.   Because we are concerned about the superior bargaining power of 
incumbent LECs, we will not allow them to pick and choose intercarrier compensation 
regimes, depending on the nature of the traffic exchanged with another carrier.  The rate caps for 
ISP-bound traffic that we adopt here apply, therefore, only if an incumbent LEC offers to 
exchange all traffic subject to section 251(b)(5)  at the same rate.  Thus, if the applicable rate 
cap is $.0010/mou, the ILEC must offer to exchange section 251(b)(5) traffic at that same rate.  
Similarly, if an ILEC wishes to continue to exchange ISP-bound traffic on a bill and keep basis 
in a state that has ordered bill and keep, it must offer to exchange all section 251(b)(5) traffic on 
a bill and keep basis.   For those incumbent LECs that choose not to offer to exchange section 
251(b)(5) traffic subject to the same rate caps we adopt for ISP-bound traffic, we order them to 
exchange ISP-bound traffic at the state-approved or state-arbitrated reciprocal compensation rates 
reflected in their contracts.   This mirroring rule ensures that incumbent LECs will pay the 
same rates for ISP-bound traffic that they receive for section 251(b)(5) traffic.
90. This is the correct policy result because we see no reason to impose different rates 
for ISP-bound and voice traffic.  The record developed in response to the Intercarrier 
Compensation NPRM and the Public Notice fails to establish any inherent differences between 
the costs on any one network of delivering a voice call to a local end-user and a data call to an 
ISP.   Assuming the two calls have otherwise identical characteristics (e.g., duration and time of 
day), a LEC generally will incur the same costs when delivering a call to a local end-user as it 
does delivering a call to an ISP.   We therefore are unwilling to take any action that results in 
the establishment of separate intercarrier compensation rates, terms, and conditions for local 
voice and ISP-bound traffic.   To the extent that the record indicates that per minute reciprocal 
compensation rate levels and rate structures produce inefficient results, we conclude that the 
problems lie with this recovery mechanism in general and are not limited to any particular type 
of traffic.  
91. We are not persuaded by commenters claims that the rates for delivery of ISP-
bound traffic and local voice traffic should differ because delivering a data call to an ISP is 
inherently less costly than delivering a voice call to a local end-user.  In an attached declaration 
to Verizons comments, William Taylor argues that reciprocal compensation rates may reflect 
switching costs associated with both originating and terminating functions, despite the fact that 
ISP traffic generally flows in only one direction.   If correct, however, this observation suggests 
a need to develop rates or rate structures for the transport and termination of all traffic that 
exclude costs associated solely with originating switching.   Mr. Taylor similarly argues that 
ISP-bound calls generally are longer in duration than voice calls, and that a per-minute rate 
structure applied to calls of longer duration will spread the fixed costs of these calls over more 
minutes, resulting in lower per-minute costs, and possible over recovery of the fixed costs 
incurred.   Any possibility of over recovery associated with calls (to ISPs or otherwise) of 
longer than average duration can be eliminated through adoption of rate structures that provide 
for recovery of per-call costs on a per-call basis, and minute-of-use costs on a minute-of-use 
basis.   We also are not convinced that ISP-bound calls have a lower load distribution (i.e., 
number and duration of calls in the busy hour as a percent of total traffic), and that these calls 
therefore impose lower additional costs on a network.   It is not clear from the record that there 
is any basis to speculate that the busy hour for calls to ISPs will be different than the CLEC 
switch busy hour,  especially when the busy hour is determined by the flow of both voice and 
data traffic.
92. Nor does the record demonstrate that CLECs and ILECs incur different costs in 
delivering traffic that would justify disparate treatment of ISP-bound traffic and local voice 
traffic under section 251(b)(5).  Ameritech maintains that it costs CLECs less to deliver ISP-
bound traffic than it costs incumbent LECs to deliver local traffic because CLECs can reduce 
transmission costs by locating their switches close to ISPs.   The proximity of the ISP or other 
end-user to the delivering carriers switch, however, is irrelevant to reciprocal compensation 
rates.   The Commission concluded in the Local Competition Order that the non-traffic 
sensitive cost of the local loop is not an additional cost of terminating traffic that a LEC is 
entitled to recover through reciprocal compensation. 
93. SBC argues that CLECs should not be entitled to symmetrical reciprocal 
compensation rates for the delivery of ISP-bound traffic, because CLECs do not provide end 
office switching functionality to their ISP customers and therefore do not incur the same costs 
that ILECs incur when delivering local voice traffic.  Specifically, SBC claims that the switching 
functionality that CLECs provide to ISPs is more like a trunk-to-trunk connection than the 
switching functionality normally provided at end offices.   SBC also claims that CLECs are 
able to reduce the costs of delivering ISP-bound traffic by using new, less expensive switches 
that do not perform the functions necessary for both the origination and delivery of two-way 
voice traffic.   Similarly, GTE asserts that new technologies and system architectures make it 
possible for some CLECs to reduce costs by entirely avoiding circuit-switching on calls to 
selected telephone numbers.   CLECs respond, however, that they are in fact using the same 
circuit switching technology used by ILECs to terminate the vast portion of Internet traffic.   In 
any event, it is not evident from any of the comments in the record that the apparent efficiencies 
associated with new system architectures apply exclusively to data traffic, and not to voice traffic 
as well.  ILECs and CLECs alike are free to deploy new technologies that provide more efficient 
solutions to the delivery of certain types of traffic,  and these more efficient technologies will, 
over time, be reflected in cost-based reciprocal compensation rates.  The overall record in this 
proceeding does not lead us to conclude that any system architectures or technologies widely 
used by LECs result in material differences between the cost of delivering ISP-bound traffic and 
the cost of delivering local voice traffic, and we see no reason, therefore, to distinguish between 
voice and ISP traffic with respect to intercarrier compensation.
94. Some CLECs take this argument one step further.  Whatever the merits of bill and 
keep or other reforms to intercarrier compensation, they say, any such reform should be 
undertaken only in the context of a comprehensive review of all intercarrier compensation 
regimes, including the interstate access charge regime.   First, we reject the notion that it is 
inappropriate to remedy some troubling aspects of intercarrier compensation until we are ready to 
solve all such problems.  In the most recent of our access charge reform orders, we recognized 
that it is preferable and more reasonable to take several steps in the right direction, even if 
incomplete, than to remain frozen pending a perfect, ultimate solution.   Moreover, it may 
make sense to begin reform by rationalizing intercarrier compensation between competing 
providers of telecommunications services, to encourage efficient entry and the development of 
robust competition, rather than waiting to complete reform of the interstate access charge regime 
that applies to incumbent LECs, which was created in a monopoly environment for quite 
different purposes.  Second, the interim compensation scheme we adopt here is fully consistent 
with the course the Commission has pursued with respect to access charge reform.  A primary 
feature of the CALLS Order is the phased elimination of the PICC and CCL,   two intercarrier 
payments we found to be inefficient, in favor of greater recovery from end-users through an 
increased SLC, an end-user charge.   Finally, like the CALLS Order, the interim regime we 
adopt here provides relative certainty in the marketplace pending further Commission action, 
thereby allowing carriers to develop business plans, attract capital, and make intelligent 
investments. 
D. Conclusion
95. In this Order, we strive to balance the need to rationalize an intercarrier 
compensation scheme that has hindered the development of efficient competition in the local 
exchange and exchange access markets with the need to provide a fair and reasonable transition 
for CLECs that have come to depend on intercarrier compensation revenues.  We believe that the 
interim compensation regime we adopt herein responds to both concerns.  The regime should 
reduce carriers reliance on carrier-to-carrier payments as they recover more of their costs from 
end-users, while avoiding a flash cut to bill and keep which might upset legitimate business 
expectations.  The interim regime also provides certainty to the industry during the time that the 
Commission considers broader reform of intercarrier compensation mechanisms in the NPRM 
proceeding.  Finally, we hope this Order brings an end to the legal confusion resulting from the 
Commissions historical treatment of ISP-bound traffic, for purposes of jurisdiction and 
compensation, and the statutory obligations and classifications adopted by Congress in 1996 to 
promote the development of competition for all telecommunications services.  We believe the 
analysis set forth above amply responds to the courts mandate that we explain how our 
conclusions regarding ISP-bound traffic fit within the governing statute. 
V. PROCEDURAL MATTERS
A. Final Regulatory Flexibility Analysis
96. As required by the Regulatory Flexibility Act (RFA),  an Initial Regulatory 
Flexibility Analysis (IRFA) was incorporated in the Declaratory Ruling and NPRM.   The 
Commission sought and received written comments on the IRFA.  The Final Regulatory 
Flexibility Analysis (FRFA) in this Order on Remand and Report and Order conforms to the 
RFA, as amended.   To the extent that any statement contained in this FRFA is perceived as 
creating ambiguity with respect to our rules, or statements made in preceding sections of this 
Order on Remand and Report and Order, the rules and statements set forth in those preceding 
sections shall be controlling.
1. Need for, and Objectives of, this Order on Remand and Report and 
Order
97. In the Declaratory Ruling, we found that we did not have an adequate record upon 
which to adopt a rule regarding intercarrier compensation for ISP-bound traffic, but we indicated 
that adoption of a rule would serve the public interest.   We sought comment on two alternative 
proposals, and stated that we might issue new rules or alter existing rules in light of the 
comments received.   Prior to the release of a decision, the Court of Appeals for the District of 
Columbia Circuit vacated certain provisions of the Declaratory Ruling and remanded the matter 
to the Commission. 
98. This Order on Remand and Report and Order addresses the concerns of various 
parties to this proceeding and responds to the courts remand.  The Commission exercises 
jurisdiction over ISP-bound traffic pursuant to section 201, and establishes a three-year interim 
intercarrier compensation mechanism for the exchange of ISP-bound traffic that applies if 
incumbent LECs offer to exchange section 251(b)(5) traffic at the same rates.  During this 
interim period, intercarrier compensation for ISP-bound traffic is subject to a rate cap that 
declines over the three-year period, from $.0015/mou to $.0007/mou.  The Commission also 
imposes a cap on the total ISP-bound minutes for which a LEC may receive this compensation 
under a particular interconnection agreement equal to, on an annualized basis, the number of ISP-
bound minutes for which that LEC was entitled to receive compensation during the first quarter 
of 2001, increased by ten percent in each of the first two years of the transition.  If an incumbent 
LEC does not offer to exchange all section 251(b)(5) traffic subject to the rate caps set forth 
herein, the exchange of ISP-bound traffic will be governed by the reciprocal compensation rates 
approved or arbitrated by state commissions.
2. Summary of Significant Issues Raised by the Public Comments in 
Response to the IRFA
99. The Office of Advocacy, U.S. Small Business Administration (Office of 
Advocacy) submitted two filings in response to the IRFA.   In these filings, the Office of 
Advocacy raises significant issues regarding our description, in the IRFA, of small entities to 
which our rules will apply, and the discussion of significant alternatives considered and rejected. 
 Specifically, the Office of Advocacy argues that the Commission has failed accurately to 
identify all small entities affected by the rulemaking by refusing to characterize small incumbent 
local exchange carriers (LECs), and failing to identify small ISPs, as small entities.   We note 
that, in the IRFA, we stated that we excluded small incumbent LECs from the definitions of 
small entity and small business concern because such companies are either dominant in their 
field of operations or are not independently owned and operated.   We also stated, however, that 
we would nonetheless, out of an abundance of caution, include small incumbent LECs in the 
IRFA, and did so.   Small incumbent LECs and other relevant small entities are included in our 
present analysis as described below.
100. The Office of Advocacy also states that Internet service providers (ISPs) are 
directly affected by our actions, and therefore should be included in our regulatory flexibility 
analysis.  We find, however, that rates charged to ISPs are only indirectly affected by our actions. 
We have, nonetheless, briefly discussed the effect on ISPs in the primary text of this Order. 
101. Last, the Office of Advocacy also argues that the Commission has failed to 
adequately address significant alternatives that accomplish our stated objective and minimize any 
significant economic impact on small entities.   We note that, in the IRFA, we described the 
nature and effect of our proposed actions, and encouraged small entities to comment (including 
giving comment on possible alternatives).  We also specifically sought comment on the two 
alternative proposals for implementing intercarrier compensation  one that resolved intercarrier 
compensation pursuant to the negotiation and arbitration process set forth in Section 252, and 
another that would have had us adopt a set of federal rules to govern such intercarrier 
compensation.   We believe, therefore, that small entities had a sufficient opportunity to 
comment on alternative proposals.  
102. NTCA also filed comments, not directly in response to the IRFA, urging the 
Commission to fulfill its obligation to consider small telephone companies.   Some commenters 
also raised the issue of small entity concerns over increasing Internet traffic and the use of 
Extended Area Service (EAS) arrangements.    We are especially sensitive to the needs of rural 
and small LECs that handle ISP-bound traffic, but we find that the costs that LECs incur in 
originating this traffic extends beyond the scope of the present proceeding and should not dictate 
the appropriate approach to compensation for delivery of ISP-bound traffic.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
103. The rules we are adopting apply to local exchange carriers.  To estimate the 
number of small entities that would be affected by this economic impact, we first consider the 
statutory definition of "small entity" under the RFA.  The RFA generally defines "small entity" 
as having the same meaning as the term "small business," "small organization," and "small 
governmental jurisdiction."   In addition, the term "small business" has the same meaning as the 
term "small business concern" under the Small Business Act, unless the Commission has 
developed one or more definitions that are appropriate to its activities.   Under the Small 
Business Act, a "small business concern" is one that: (1) is independently owned and operated; 
(2) is not dominant in its field of operation; and (3) meets any additional criteria established by 
the SBA.   The SBA has defined a small business for Standard Industrial Classification (SIC) 
categories 4812 (Radiotelephone Communications) and 4813 (Telephone Communications, 
Except Radiotelephone) to be small entities when they have no more than 1,500 employees. 
104. The most reliable source of information regarding the total numbers of certain 
common carrier and related providers nationwide, as well as the numbers of commercial wireless 
entities, appears to be data the Commission publishes annually in its Carrier Locator report, 
derived from filings made in connection with the Telecommunications Relay Service (TRS).   
According to data in the most recent report, there are 4,144 interstate carriers.   These carriers 
include, inter alia, incumbent local exchange carriers, competitive local exchange carriers, 
competitive access providers, interexchange carriers, other wireline carriers and service providers 
(including shared-tenant service providers and private carriers), operator service providers, pay 
telephone operators, providers of telephone toll service, wireless carriers and services providers, 
and resellers.
105. We have included small incumbent local exchange carriers (LECs) in this 
regulatory flexibility analysis.  As noted above, a "small business" under the RFA is one that, 
inter alia, meets the pertinent small business size standard (e.g., a telephone communications 
business having 1,500 or fewer employees), and "is not dominant in its field of operation."   
The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent LECs are not 
dominant in their field of operation because any such dominance is not "national" in scope.   
We have therefore included small incumbent LECs in this regulatory flexibility analysis, 
although we emphasize that this action has no effect on the Commissions analyses and 
determinations in other, non-RFA contexts.
106. 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.   This number contains 
a variety of different categories of carriers, including local exchange carriers, 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 
or small incumbent LECs because they are not "independently owned and operated."   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 small entity telephone service firms 
or small incumbent LECs that may be affected by the decisions and rule changes adopted in this 
proceeding.
107.  Wireline Carriers and Service Providers.  The SBA has developed a definition of 
small entities for telephone communications companies other than radiotelephone companies. 
The Census Bureau reports that there were 2,321 such telephone companies in operation for at 
least one year at the end of 1992.   According to the SBA's definition, a small business 
telephone company other than a radiotelephone company is one employing no more than 1,500 
persons.   All but 26 of the 2,321 non-radiotelephone companies listed by the Census Bureau 
were reported to have fewer than 1,000 employees. Thus, even if all 26 of those companies had 
more than 1,500 employees, there would still be 2,295 non-radiotelephone companies that might 
qualify as small entities or small incumbent LECs.  Although it seems certain that some of these 
carriers are not independently owned and operated, we are unable at this time to estimate with 
greater precision the number of wireline carriers and service providers that would qualify as 
small business concerns under the SBA's definition.  Consequently, we estimate that there are 
fewer than 2,295 small entity telephone communications companies other than radiotelephone 
companies that may be affected by the decisions and rule changes adopted in this proceeding.
108. Local Exchange Carriers, Interexchange Carriers, Competitive Access Providers, 
Operator Service Providers, and Resellers.  Neither the Commission nor the SBA has developed 
a definition particular to small LECs, interexchange carriers (IXCs), competitive access providers 
(CAPs), operator service providers (OSPs), or resellers. The closest applicable definition for 
these carrier-types under the SBA rules is for telephone communications companies other than 
radiotelephone (wireless) companies.   According to our most recent TRS data, there are 1,348 
incumbent LECs and 212 CAPs and competitive LECs.   Although it seems certain that some 
of these carriers are not independently owned and operated, or have more than 1,500 employees, 
we are unable at this time to estimate with greater precision the number of these carriers that 
would qualify as small business concerns under the SBA's definition.  Consequently, we estimate 
that there are fewer than 1,348 incumbent LECs and fewer than 212 CAPs and competitive LECs 
that may be affected by the decisions and rule changes adopted in this proceeding.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
109. The rule we are adopting imposes direct compliance requirements on 
interconnected incumbent and competitive LECs, including small LECs.  In order to comply with 
this rule, these entities will be required to exchange their ISP-bound traffic subject to the rules 
we are adopting above.
5. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
110. In the Declaratory Ruling and Intercarrier Compensation NPRM the Commission 
proposed various approaches to intercarrier compensation for ISP-bound traffic.   During the 
course of this proceeding the Commission considered and rejected several alternatives.   None 
of the significant alternatives considered would appear to succeed as much as our present rule in 
balancing our desire to minimize any significant economic impact on relevant small entities, with 
our desire to deal with the undesirable incentives created under the current reciprocal 
compensation regime that governs the exchange of ISP-bound traffic in most instances.  We also 
find that for small ILECs and CLECs the administrative burdens and transaction costs of 
intercarrier compensation will be minimized to the extent that LECs begin a transition toward 
recovery of costs from end-users, rather than other carriers.
111. Although a longer transition period was considered by the Commission, it was 
rejected because a three-year period was considered sufficient to accomplish our policy 
objectives with respect to all LECs.   Differing compliance requirements for small LECs or 
exemption from all or part of this rule is inconsistent with our policy goal of addressing the 
market distortions attributable to the prevailing intercarrier compensation mechanism for ISP-
bound traffic and beginning a smooth transition to bill-and-keep. 
Report to Congress: The Commission will send a copy of this Order on Remand and Report and 
Order, including this FRFA, in a report to be sent to Congress pursuant to the Congressional 
Review Act.   In addition, the Commission will send a copy of this Order on Remand and 
Report and Order, including the FRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration.  A copy of this Order on Remand and Report and Order and FRFA (or 
summaries thereof) will also be published in the Federal Register. 
VI. ORDERING CLAUSES
112. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i) and (j), 201-209, 251, 
252, 332, and 403 of the Communications Act, as amended, 47 U.S.C.  151, 154(i), 154(j), 
201-209, 251, 252, 332, and 403, and Section 553 of Title 5, United States Code, 5 U.S.C.  553, 
that this Order on Remand and Report and Order and revisions to Part 51 of the Commissions 
rules, 47 C.F.R. Part 51, ARE ADOPTED.  This Order on Remand and Report and Order and the 
rule revisions adopted herein will be effective 30 days after publication in the Federal Register 
except that, for good cause shown, as set forth in paragraph 82 of this Order, the provision of this 
Order prohibiting carriers from invoking section 252(i) of the Act to opt into an existing 
interconnection agreement as it applies to rates paid for the exchange of ISP-bound traffic will be 
effective immediately upon publication of this Order in the Federal Register.
113. IT IS FURTHER ORDERED that the Commissions Consumer Information  
Bureau, Reference Information Center, SHALL SEND a copy of this Order on Remand and 
Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas
Secretary

Appendix A
List of Commenters in CC Docket Nos. 96-98, 99-68

Comments Filed in Response to the June 23, 2000 Public Notice 

Advanced TelCom Group, Inc.; e.spire Communications, Inc.; Intermedia Communications, Inc.; 
KMC Telecom, Inc.; Nextlink Communications, Inc.; The Competitive Telecommunications 
Association  
Alliance for Public Technology 
Association of Communications Enterprises   
Association for Local Telecommunications Services 
AT&T Corp. (AT&T)
BellSouth Corporation  
Cablevision Lightpath, Inc.  
California State and California Public Utilities Commission  
Centennial Communications Corp. (Centennial) 
Florida Public Service Commission  
Focal Communications Corporation, Allegiance Telecom, Inc., and Adelphia Business Solutions, 
Inc.  
General Services Administration  
Global NAPs, Inc.  
ICG Telecom Group, Inc.  
Keep America Connected; National Association of the Deaf; National Association of 
Development Organizations; National Black Chamber of Commerce; New York Institute of 
Technology; Ocean of Know; Telecommunications for the Deaf, Inc.; United States Hispanic 
Chamber of Commerce  
Massachusetts Department of Telecommunications & Energy 
Missouri Public Service Commission  
National Consumers League  
National Exchange Carrier Association, Inc.  
New York Department of Public Service  
Pac-West Telecomm, Inc.  
Pennsylvania Office of Consumer Advocate  
Prism Communications Services, Inc.  
Qwest Corporation 
RCN Telecom Services, Inc. and Connect Communications Corporation  
RNK, Inc.  
Rural Independent Competitive Alliance  
SBC Communications, Inc. (SBC) 
Sprint Corporation (Sprint)
Texas Public Utility Commission  
Time Warner Telecom Inc. (Time Warner)
United States Telecom Association  
Verizon Communications (Verizon)
Western Telephone Integrated Communications, Inc.  
WorldCom, Inc.

Reply Comments Filed in Response to the June 23, 2000 Public Notice

Adelphia Business Solutions, Inc.; Allegiance TeleCom, Inc., Focal Communications 
Corporation, and RCN Telcom Services, Inc.  
AT&T Corp.  
BellSouth Corporation  
Cablevision Lightpath, Inc.  
Cincinnati Bell Telephone Company  
Commercial Internet Exchange Association  
Converscent Communications, LLC  
Covad Communication Company  
Duckenfield, Pace
e.spire Communications, Inc., Intermedia Communications Inc., KMC Telecom, Inc., 
NEXTLINK Communications, Inc., The Association for Local Telecommunications 
Services, and The Competitive Telecommunications Association  
General Services Administration  
Global NAPs, Inc.  
ICG Telecom Group, Inc.  
Keep America Connected; National Association of Development Organizations; National Black 
Chamber of Commerce; New York Institute of Technology; United States Hispanic Chamber 
of Commerce  
Pac-West Telecomm, Inc.  
Prism Communications Services, Inc.  
Qwest Corporation  
Riter, Josephine  
SBC Communications, Inc. (SBC)
Sprint Corporation  
Time Warner Telecom Inc. (Time Warner)
US Internet Industry Association  
United States Telecom Association  
Verizon Communications (Verizon)
Western Telephone Integrated Communications, Inc.  
WorldCom, Inc.  

Comments Filed in Response to the February 26, 1999 Notice of Proposed Rulemaking 

Airtouch Paging  
America Online, Inc. (AOL)
Ameritech
Association for Local Telecommunications Services  
AT&T Corp. (AT&T)
Baldwin, Jesse
Bardsley, June
Bell Atlantic Corporation   
BellSouth Corporation  
Cablevision Lightpath, Inc.  
California Public Utilities Commission  
Choice One Communications  (Choice One)
Cincinnati Bell Telephone Company
Commercial Internet eXchange Association  
Competitive Telecommunications Association  )
Corecomm Limited 
Cox Communications, Inc. (Cox)
CT Cube, Inc. & Leaco Rural Telephone Cooperative, Inc.
CTSI, Inc.  
Florida Public Service Commission  
Focal Communications Corporation   
Frontier Corporation   
General Communication, Inc.  
General Services Administration  
Global NAPs Inc.   
GST Telecom, Inc.  
GTE Services Corporation (GTE)
GVNW Consulting, Inc.
Hamilton, Dwight
ICG Communications 
ICORE, Inc. 
Indiana Utility Regulatory Commission 
Information Technology Association of America 
Intermedia Communications Inc. (Intermedia)
Keep America Connected; Federation of Hispanic Organizations of the Baltimore Metropolitan 
Area, Inc; Latin American Women and Supporters; League of United Latin American 
Citizens; Massachusetts Assistive Technology Partnership; National Association of 
Commissions for Women; National Association of Development Organizations; National 
Hispanic Council on Aging; New York Institute of Technology; Resources for Independent 
Living; Telecommunications Advocacy Project; The Child Health Foundation; The National 
Trust for the Development of African American Men; United Homeowners Association; 
United Seniors Health Cooperative  
KMC Telecom Inc. 
Lewis, Shawn
Lloyd, Kimberly, D.
MCI WorldCom, Inc.  
MediaOne Group (Media One)
Miner, George
Missouri Public Service Commission
National Telephone Cooperative Association  
New York State Department of Public Service   
Pennsylvania Public Utility Commission
Personal Communications Industry Assoc. 
Public Utility Commission of Texas 
Prism Communications Services, Inc. 
RCN Telecom Services, Inc. 
Reinking, Jerome C.
Richmond Telephone Company
RNK Inc.
SBC Communications 
Schaefer, Karl W.
Sefton, Tim
Shook, Ofelia E.
Sprint Corporation 
John Staurulakis, Inc.
Telecommunications Resellers Association
Telephone Association of New England 
Thomas, William J.
Time Warner Telecom Inc. (Time Warner)
United States Telephone Association 
Verio Inc.
Vermont Public Service Board
Virgin Islands Telephone Corporation 
Wisconsin State Telecommunications Association

Reply Comments Filed in Response to the February 26, 1999 Notice of Proposed Rulemaking 

Airtouch Paging
Ameritech
Association for Local Telecommunications Services 
AT&T Corp. 
Bell Atlantic Corporation 
BellSouth Corporation and BellSouth Telecommunications, Inc. 
Competitive Telecommunications Association 
Corecomm Limited (CoreComm)
Cox Communications, Inc. (Cox)
Focal Communications Corporation
General Services Administration
Global NAPs Inc.
GST Telecom Inc.
GTE Services Corporation (GTE)
GVNW Consulting, Inc. 
ICG Communications, Inc
Illinois Commerce Commission
Intermedia Communications Inc.  
KMC Telecom Inc.  
MCI WorldCom, Inc.  
National Exchange Carrier Association, Inc.  
National Telephone Cooperative Association 
Network Plus, Inc. 
New York State Department of Public Services
Pac-West Telecomm., Inc. 
Pennsylvania Public Utility Commission
Personal Communications Industry Association 
Prism Communications Services, Inc. 
Public Service Commission of Wisconsin 
RCN Telecom Services
RNK Telecom 
SBC Communications, Inc.
Sprint Corporation  
Supra Telecommunications & Information Systems, Inc.  
TDS Telecommunications Corporation  
Time Warner Telecom  
United States Telephone Association
US West Communications, Inc.
Verio Inc.
Virgin Islands Telephone Corporation   
Wyoming Public Service Commission  

Appendix B  Final Rules

AMENDMENTS TO THE CODE OF FEDERAL REGULATIONS

Part 51, Subpart H, of Title 47 of the Code of Federal Regulations (C.F.R.) is amended as 
follows:

1. The title of part 51, Subpart H, is revised to read as follows:

Subpart H--Reciprocal Compensation for Transport and Termination of 
Telecommunications Traffic 

2.  Section 51.701(b) is revised to read as follows:

(a)  51.701 Scope of transport and termination pricing rules. 

*****
(b) Telecommunications traffic.  For purposes of this subpart, telecommunications traffic means:

(1) Telecommunications traffic exchanged between a LEC and a telecommunications carrier 
other than a CMRS provider, except for telecommunications traffic that is interstate or 
intrastate exchange access, information access, or exchange services for such access (see 
FCC 01-131, paras. 34, 36, 39, 42-43); or
(2) Telecommunications traffic exchanged between a LEC and a CMRS provider that, at the 
beginning of the call, originates and terminates within the same Major Trading Area, as 
defined in  24.202(a) of this chapter. 
 

3.  Sections 51.701(a), 51.701(c) through (e), 51.703, 51.705, 51.707, 51.709, 51.711, 51.713, 
51.715, and 51.717 are each amended by striking "local" before "telecommunications traffic" 
each place such word appears.

SEPARATE STATEMENT OF CHAIRMAN MICHAEL K. POWELL 

Re:	Implementation of the Local Competition Provisions in the Telecommunications Act of 
1996; Intercarrier Compensation for ISP-Bound Traffic (CC Docket Nos.  96-98, 99-68)

In this Order, we re-affirm our prior conclusion that telecommunications traffic delivered 
to Internet service providers (ISPs) is subject to our jurisdiction under section 201 of the Act.  
Thus, we reject arguments that section 251(b)(5) applies to this traffic.  I firmly believe that this 
Order is supported by reasonable interpretations of statutory provisions that read together are 
ambiguous and, absent a reconciling interpretation, conflicting.  

I also support the fact that this Order, for the first time, establishes a transition 
mechanism that will gradually wean competitive carriers from heavy reliance on the excessive 
reciprocal compensation charges that incumbents have been forced to pay these competitors for 
carrying traffic from the incumbent to the ISP.  This transition mechanism was carefully crafted 
to balance the competing interests of incumbent and competitive telephone companies and other 
parties, so as not to undermine the Acts goal of promoting efficient local telephone competition.

I write separately only to emphasize a few points:

As an initial matter, I respectfully disagree with the objections to our conclusion that 
section 251(g) carves out certain categories of services that, in the absence of that provision, 
would likely be subject to the requirements of section 251(b)(5).   Section 251(b)(5)s language 
first appears to be far-reaching, in that it would seem to apply, by its express terms, to all 
telecommunications.   There is apparently no dispute, however, that at least one category of the 
LEC-provided telecommunications services enumerated in section 251(g) (namely, exchange 
access) is not subject to section 251(b)(5), despite the broad language of this provision.  Indeed, 
the Bell Atlantic Court appears to have endorsed that conclusion.   The question then arises 
whether the other categories of traffic that are enumerated in section 251(g) (including, 
information access) should also be exempted from the application of section 251(b)(5).  We 
answer this question in the affirmative, and no justification (compelling or otherwise) has been 
offered for why only one service  exchange access  should be afforded disparate treatment in 
the construction of section 251(g).  I would note, moreover, that on the only other occasion in 
which the Commission directly addressed the question whether section 251(g) serves as such a 
carve-out, the Commission concluded, as we do here, that it does perform that function. 
 
Nor do I find the position we adopt here irreconcilable with our decision in the Advanced 
Services Remand Order.   In discussing the term information access in that Order, we were not 
addressing the question whether section 251(g) exempts certain categories of traffic provided by 
LECs to ISPs and interexchange carriers from the other requirements of section 251.  Rather, we 
addressed only the relationship between information access and the categories of exchange 
access and telephone exchange service.  Specifically, we decline[d] to find that information 
access services are a separate category of services, distinct from, and mutually exclusive with, 
telephone exchange and exchange access services.   But under the reading of section 251(g) put 
forth in this Order, the question whether information access is distinct from these other services 
is irrelevant.  Because information access is specifically enumerated in section 251(g), it is not 
subject to the requirements of section 251(b)(5), whether or not that category of service overlaps 
with, or is distinct from, telephone exchange service or exchange access.

Similarly, I reject the suggestion that section 251(g) only preserves the MFJ 
requirements.  The language of section 251(g) specifically refers to each local exchange 
carrier, not just to the Bell Operating Companies.   Section 251(g) also expressly refers to any 
regulation, order, or policy of the Commission.   Such clauses support the reading of section 
251(g) that we adopt today. 
 
Finally, I disagree that section 251(g) cannot be construed to exempt certain categories of 
traffic from the requirements of section 251(b)(5), simply because the former provision does not 
include the words exclude or reciprocal compensation or telecommunications.   As I have 
said, our reading that the categories of LEC-provided services enumerated in subsection (g) are 
exempted from reciprocal compensation arises from our duty to give effect to both section 251(g) 
and section 251(b)(5).  I also would point out that section 251(g) does include a specific 
reference to receipt of compensation, just as the services enumerated in that section (e.g., 
exchange access, information access) undeniably involve telecommunications. 

In closing, I would only reiterate that the statutory provisions at issue here are ambiguous 
and, absent a reconciling interpretation, conflicting.  Thus, the Commission has struggled long 
and hard in an effort to give as full a meaning as possible to each of the provisions in a manner 
we conclude is consistent with the statutory purpose.  It would not be overstating matters to 
acknowledge that these issues are highly complex, disputed and elusive, and that what we decide 
here will have enormous impact on the development of new technologies and the economy more 
broadly.  It is for their relentless efforts to wrestle with (and now resolve) these issues that I am 
deeply grateful to my colleagues and our able staff.

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.

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 Acts 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 
Commissions 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 Commissions 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 todays 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

Todays 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 Commissions precedent and fraught with legal difficulties.

In March 2000, the Court of Appeals for the D.C. Circuit vacated the Commissions 
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 courts 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 agencys 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 courts 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 Commissions 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 agencys already bewildering precedent on Internet-
related issues would be avoided.

The Commissions Previous Order and
the Courts 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 courts decision on the 
Commissions 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 ISPs 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 Commissions 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 courts 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 Commissions 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 Commissions 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 Commissions 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 Commissions 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 Commissions Latest Order

Today, the Commission fails to answer any of the courts 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 todays 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 Commissions 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 statutes plain language.

1.   Todays decision is a complete reversal of the Commissions 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 251s 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.   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 MFJs 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 Commissions 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,  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 MFJs 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 
Commissions 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).   Todays 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 todays decision.

	2.  The Commissions 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 todays 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 Commissions 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 others 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.   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 Commissions 
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 todays 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.

  Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; Intercarrier 
Compensation for ISP-Bound Traffic, Declaratory Ruling in CC Docket No. 96-98 and Notice of Proposed 
Rulemaking in CC Docket No. 99-68, 14 FCC Rcd 3689 (1999) (Declaratory Ruling or Intercarrier Compensation 
NPRM).
  See 47 U.S.C.  201, Communications Act of 1934 (the Act), as amended by the Telecommunications Act of 1996, 
Pub. L. No. 104-104, 110 Stat. 56 (1996 Act).  Hereinafter, all citations to the Act and to the 1996 Act will be to the 
relevant section of the United States Code unless otherwise noted.
  47 U.S.C.  251(b)(5).
  See Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000) (Bell Atlantic).
  Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92,  Notice of Proposed Rulemaking, 
FCC 01-132 (rel. April 27, 2001) (Unified Intercarrier Compensation NPRM or NPRM).
  Bill and keep refers to an arrangement in which neither of two interconnecting networks charges the other for 
terminating traffic that originates on the other network.  Instead, each network recovers from its own end-users the 
cost of both originating traffic that it delivers to the other network and terminating traffic that it receives from the 
other network.   Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; 
Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket 
Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499, 16045 (1996) (Local Competition Order), affd in 
part and vacated in part sub nom. Competitive Telecommunications Assn v. FCC, 117 F.3d 1068 (8th Cir. 1997) 
(CompTel), affd in part and vacated in part sub nom. Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997) (Iowa 
Utils. Bd.), affd in part and revd in part sub nom., AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999); Order on 
Reconsideration, 11 FCC Rcd 13042 (1996); Second Order on Reconsideration, 11 FCC Rcd 19738 (1996); Third 
Order on Reconsideration and Further Notice of Proposed Rulemaking, 12 FCC Rcd 12460 (1997); further recon. 
pending.  Bill and keep does not, however, preclude intercarrier charges for transport of traffic between carriers 
networks.  Id.
  47 U.S.C.  251(g).
  Access Charge Reform, CC Docket No. 96-262, First Report and Order, 12 FCC Rcd 15982, 15998-99 (1997) 
(Access Charge Reform Order), affd, Southwestern Bell Telephone Co. v. FCC, 153 F.3d 523 (8th Cir. 1998).
  See, e.g., Letter from Robert T. Blau, BellSouth, to Magalie Roman Salas, Secretary, FCC (November 6, 2000); 
see also Verizon Remand Comments at 2 (Verizon will be billed more than one billion dollars in 2000 for Internet-
bound calls); Letter from Richard J. Metzger, Focal, to Deena Shetler, Legal Advisor to Commissioner Gloria 
Tristani, FCC (Jan. 11, 2001)(ILECs owed $1.98 billion in reciprocal compensation to CLECs in 2000).  On June 
23, 2000, the Commission released a Public Notice seeking comment on the issues raised by the courts remand.  
See Comment Sought on Remand of the Commissions Reciprocal Compensation Declaratory Ruling by the U.S. 
Court of Appeals for the D.C. Circuit, CC Docket Nos. 96-98, 99-68, Public Notice, 15 FCC Rcd 11311 (2000) 
(Public Notice).  Comments and reply comments filed in response to the Public Notice are identified herein as 
Remand Comments and Remand Reply Comments, respectively.  Comments and replies filed in response the 
1999 Intercarrier Compensation NPRM are identified as Comments and Reply Comments, respectively. 
  See, e.g., Verizon Remand Comments at 11, 21.
  See Bell Atlantic, 206 F.3d 1.
  Declaratory Ruling, 14 FCC Rcd at 3691. 
  Declaratory Ruling, 14 FCC Rcd at 3691. 
  Declaratory Ruling, 14 FCC Rcd at 3691. 
  Declaratory Ruling, 14 FCC Rcd at 3691 (citing Federal-State Joint Board on Universal Service, CC Docket No. 
96-45, Report to Congress, 13 FCC Rcd 11501, 11531 (1998) (Universal Service Report to Congress)). 
  The Commission defines enhanced services 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 subscribers transmitted information; provide the subscriber additional, 
different, or restructured information; or involve subscriber interaction with stored information.  47 C.F.R.              
  64.702(a).  The 1996 Act describes these services as information services.  See 47 U.S.C.  153(20) 
(information service refers to the offering of a capability for generating, acquiring, storing, transforming, 
processing, retrieving, utilizing, or making available information via telecommunications.).  See also Universal 
Service Report to Congress, 13 FCC Rcd at 11516 (the 1996 Acts definitions of telecommunications service and 
information service essentially correspond to the pre-existing categories of basic and enhanced services).
  MTS and WATS Market Structure, CC Docket No. 78-72, Memorandum Opinion and Order, 97 FCC 2d 682, 711 
(1983)(MTS/WATS Market Structure Order)(ESPs are [a]mong the variety of users of access service and obtain[] 
local exchange services or facilities which are used, in part or in whole, for the purpose of completing interstate 
calls which transit [their] location and, commonly, another location.). 
  This policy is known as the ESP exemption.  See MTS/WATS Market Structure Order, 97 FCC 2d at 715 (ESPs 
have been paying local business service rates for their interstate access and would experience rate shock that could 
affect their viability if full access charges were instead applied); see also Amendments of Part 69 of the 
Commissions Rules Relating to Enhanced Service Providers, CC Docket 87-215, Order, 3 FCC Rcd 2631, 2633 
(1988) (ESP Exemption Order) (the imposition of access charges at this time is not appropriate and could cause 
such disruption in this industry segment that provision of enhanced services to the public might be impaired); 
Access Charge Reform Order, 12 FCC Rcd at 16133 ([m]aintaining the existing pricing structure  avoids 
disrupting the still-evolving information services industry).
  ESP Exemption Order, 3 FCC Rcd at 2635 n.8, 2637 n.53.  See also Access Charge Reform Order, 12 FCC Rcd at 
16133-35. 
  47 U.S.C.  251-252. 
  47 U.S.C.  251(b)(5). 
  See Local Competition Order, 11 FCC Rcd at 16013 (With the exception of traffic to or from a CMRS network, 
state commissions have the authority to determine what geographic areas should be considered local areas for the 
purpose of applying reciprocal compensation obligations under section 251(b)(5), consistent with the state 
commissions historical practice of defining local service areas for wireline LECs.); see also 47 C.F.R.                    
 51.701(b)(1-2).  For CMRS traffic, the Commission determined that reciprocal compensation applies to traffic that 
originates and terminates within the same Major Trading Area (MTA).  See 47 C.F.R.  51.701(b)(2).
  See, e.g., Petitions for Reconsideration and Clarification of Action in Rulemaking Proceedings, 61 Fed. Reg. 
53922 (1996); Petition for Partial Reconsideration and Clarification of MFS Communications Co., Inc. at 28; Letter 
from Richard J. Metzger, ALTS, to Regina M. Keeney, Chief, Common Carrier Bureau, FCC (June 20, 1997); 
Pleading Cycle Established for Comments on Request by ALTS for Clarification of the Commissions Rules 
Regarding Reciprocal Compensation for Information Service Provider Traffic, CCB/CPD 97-30, DA 97-1399 (rel. 
July 2, 1997); Letter from Edward D. Young and Thomas J. Tauke, Bell Atlantic, to William E. Kennard, Chairman, 
FCC (July 1, 1998).  The Commission later directed parties wishing to make ex parte presentations regarding the 
applicability of reciprocal compensation to ISP-bound traffic to make such filings in CC Docket No. 96-98, the 
local competition proceeding.  See Ex Parte Procedures Regarding Requests for Clarification of the Commissions 
Rules Regarding Reciprocal Compensation for Information Service Provider Traffic, CC Docket No. 96-98, Public 
Notice, 13 FCC Rcd. 15568 (1998). 
  Declaratory Ruling, 14 FCC Rcd at 3693-94. 
  Declaratory Ruling, 14 FCC Rcd at 3694.
  Declaratory Ruling, 14 FCC Rcd at 3695. 
  Declaratory Ruling, 14 FCC Rcd at 3695-3701; see also Petition for Emergency Relief and Declaratory Ruling 
Filed by BellSouth Corporation, Memorandum Opinion and Order, 7 FCC Rcd 1619 (1992) (BellSouth 
MemoryCall), affd, Georgia Pub. Serv. Commn v. FCC, 5 F.3d 1499 (11th Cir. 1993)(table); Teleconnect Co. v. 
Bell Telephone Co. of Penn., E-88-83, 10 FCC Rcd 1626 (1995) (Teleconnect), affd sub nom. Southwestern Bell 
Tel. Co. v. FCC, 116 F.3d 593 (D.C. Cir. 1997).
  Declaratory Ruling, 14 FCC Rcd at 3695-97. 
  Declaratory Ruling, 14 FCC Rcd at 3697.
  Declaratory Ruling, 14 FCC Rcd at 3690, 3695-3703. 
  Declaratory Ruling, 14 FCC Rcd at 3703.
  Declaratory Ruling, 14 FCC Rcd at 3703.
  Declaratory Ruling, 14 FCC Rcd at 3706.
  Declaratory Ruling, 14 FCC Rcd at 3703-06.  The Commission did recognize, however, that its conclusion that 
ISP-bound traffic is largely interstate might cause some state commissions to re-examine their conclusions that 
reciprocal compensation is due to the extent that those conclusions were based on a finding that this traffic 
terminates at the ISPs server.  Id. at 3706.
  Declaratory Ruling, 14 FCC Rcd at 3707-09. 
  See Bell Atlantic, 206 F.3d 1. 
  Bell Atlantic, 206 F.3d at 5.
  Bell Atlantic, 206 F.3d at 5; see also id. at 8 (the Commission had not supplied a real explanation for its decision 
to treat end-to-end analysis as controlling with respect to the application of section 251(b)(5)).
  See Bell Atlantic, 206 F.3d at 6-7. 
  See Bell Atlantic, 206 F.3d at 6-7. 
  Bell Atlantic, 206 F.3d at 8.
  Bell Atlantic, 206 F.3d at 8-9; 47 U.S.C.  153(47) (defining telephone exchange service).
  Public Notice, 15 FCC Rcd 11311.
  Id.; see also 47 U.S.C.  251(g); 47 U.S.C.  153(20). 
  See Digital Economy 2000, U.S. Department of Commerce (June 2000) (Three hundred million people now use 
the Internet, compared to three million in 1994.)
  47 U.S.C.  251(b)(5).
  Local Competition Order, 11 FCC Rcd at 16012.
  Bell Atlantic, 206 F.3d at 5.
  Id.
  Id.
  Id. at 8.
  Id. at 8-9.
  Id.
  Significantly, however, the compensation mechanism effected for this predominantly interstate access traffic is 
the result of a federal mandate, which requires states to treat ISP-bound traffic for compensation purposes in a 
manner similar to local traffic if ISPs so request.  See infra note 105.
  Access Charge Reform Order, 12 FCC Rcd at 16134 (Internet access does generate different usage patterns and 
longer call holding times than average voice usage.).
  Some critics of the Commissions order may contend that we rely here on the same reasoning that the court 
rejected in Bell Atlantic.  We acknowledge that there is a superficial resemblance between the Commissions 
previous order and this one:  Here, as before, the Commission finds that ISP-bound traffic falls outside the scope of 
section 251(b)(5)s reciprocal compensation requirement and within the Commissions access charge jurisdiction 
under section 201(b).  The rationale underlying the two orders, however, differs substantially.  Here the 
Commission bases its conclusion that ISP-bound traffic falls outside section 251(b)(5) on its construction of sections 
251(g) and (i) -- not, as in the previous order, on the theory that section 251(b)(5) applies only to local 
telecommunications traffic and that ISP-bound traffic is interstate.  Furthermore, to the extent the Commission 
continues to characterize ISP-bound traffic as interstate for purposes of its section 201 authority, it has sought in this 
Order to address in detail the Bell Atlantic courts concerns.
  47 U.S.C.  251(b)(5).
  47 U.S.C.  153(43).
  47 U.S.C.  251(g) (emphasis added).
  See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 397 (1999)(It would be a gross understatement to say that the 
Telecommunications Act of 1996 is not a model of clarity.  It is in many important respects a model of ambiguity or 
indeed even self-contradiction. . . .  But Congress is well aware that the ambiguities it chooses to produce in a 
statute will be resolved by the implementing agency. . . . We can only enforce the clear limits that the 1996 Act 
contains.").
  In the Declaratory Ruling, the Commission did not explain the relevance of section 251(g) nor discuss the 
categories of traffic exempted from reciprocal compensation by that provision, at least until the Commission should 
act otherwise.  Reflecting this omission in the underlying order, the Bell Atlantic court does not mention the 
relationship of sections 251(g) and 251(b)(5), nor the enumerated categories of services referenced by subsection 
(g).  Rather, the court focuses its review on the possible categorization of ISP-bound traffic as local, terminology 
we now find inappropriate in light of the more express statutory language set forth in section 251(g). 
  Bell Atlantic, 206 F.3d at 6;  see also AT&T Corp. v. Iowa Utils. Bd., 525 U.S. at 377-87.
  Authority over rates (or receipt of compensation) is a core feature of equal access and nondiscriminatory 
interconnection obligations.  Indeed, one of the Commissions primary goals when designing an access charge 
regime was to ensure that access users were treated in a nondiscriminatory manner when interconnecting with LEC 
networks in order to transport interstate communications.  See National Assn of Regulatory Util. Commnrs v. FCC, 
737 F.2d 1095, 1101-1108, 1130-34 (D.C. Cir. 1984), cert. denied, 469 U.S. 1227 (1985)(NARUC v. FCC).  
  This view is consistent with previous Commission orders construing section 251(g).  The Commission recognized 
in the Advanced Services Remand Order, for example, that section 251(g) preserves the requirements of the AT&T 
Consent Decree (see United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982)(hereinafter AT&T Consent Decree or 
Modification of Final Judgment (MFJ), but that order does not conclude that section 251(g) preserves only MFJ 
requirements.  Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC Docket 
No. 98-147 et al., Order on Remand, 15 FCC Rcd 385, 407 (1999)(Advanced Services Remand Order).  Indeed, the 
ultimate issue addressed in that part of the order was not the status or scope of section 251(g) as a carve-out 
provision at all, but rather the question -- irrelevant for our purposes here -- whether "information access" is a 
category of service that is mutually exclusive of "exchange access," as the latter term is defined in section 3(16) of 
the Act.  See id. at 407-08; see also infra para. 42 & note 76.  By contrast, when the Commission first addressed the 
scope of the reciprocal compensation obligations of section 251(b)(5) in the Local Competition Order, it expressly 
cited section 251(g) in support of the decision to exempt from those obligations the tariffed interstate access services 
provided by all LECs (not just Bell companies subject to the MFJ) to interexchange carriers.  11 FCC Rcd at 16013. 
The Bell Atlantic court did not take issue with the Commissions earlier conclusion that section 251(b)(5) is so 
limited.  206 F.3d at 4.  The interpretation we adopt here -- that section 251(g) exempts from section 251(b)(5) 
information access services provided to information service providers, as well as access provided to IXCs  thus is 
fully consistent with the Commissions initial construction of section 251(g), in the Local Competition Order, as 
extending beyond the MFJ to our own access rules and policies.
  The term exchange service as used in section 251(g) is not defined in the Act or in the MFJ.  Rather, the term 
exchange service is used in the MFJ as part of the definition of the term exchange access, which the MFJ 
defines as the provision of exchange services for the purpose of originating or terminating interexchange 
telecommunications.  United States v. AT&T, 552 F. Supp. at 228.  Thus, the term exchange service appears to 
mean, in context, the provision of services in connection with interexchange communications.  Consistent with that, 
in section 251(g), the term is used as part of the longer phrase exchange services for such [exchange] access to 
interexchange carriers and information service providers.  The phrasing in section 251(g) thus parallels the MFJ.  
All of this indicates that the term exchange service is closely related to the provision of exchange access and 
information access. 
  Although section 251(g) does not itself compel this outcome with respect to intrastate access regimes (because it 
expressly preserves only the Commissions traditional policies and authority over interstate access services), it 
nevertheless highlights an ambiguity in the scope of telecommunications subject to section 251(b)(5) -- 
demonstrating that the term must be construed in light of other provisions in the statute.  In this regard, we again 
conclude that it is reasonable to interpret section 251(b)(5) to exclude traffic subject to parallel intrastate access 
regulations, because it would be incongruous to conclude that Congress was concerned about the effects of 
potential disruption to the interstate access charge system, but had no such concerns about the effects on analogous 
intrastate mechanisms.   Local Competition Order, 11 FCC Rcd at 15869.
  CompTel, 117 F.3d at 1073 (emphasis added).  The court continued that the Commission would be free under 
section 201 to alter its traditional regulatory treatment of interstate access service in the future, but that the standards 
set out in sections 251 and 252 would not be controlling.  Id.
  CompTel, 117 F.3d at 1072 (emphasis added).
  For further discussion of the jurisdictionally interstate nature of ISP-bound traffic, see infra paras. 55-64.  See also 
NARUC v. FCC, 737 F.2d at 1136 (determining that traffic to ESPs may properly constitute interstate access traffic); 
Access Billing Requirements for Joint Service Provision, CC Docket 87-579, Memorandum Opinion and Order, 4 
FCC Rcd 7183 (1989). 
  The Commission has historically dictated the pricing policies applicable to services provided by LECs to 
information service providers, although those policies differ from those applicable to LEC provision of access 
services to IXCs.  Prior to the 1996 Act, it was the Commission that determined that ESPs either may purchase their 
interstate access services from interstate tariffs or (at their discretion) pay a combination of local business line rates, 
the federal subscriber line charges associated with those business lines, and, where appropriate, the federal special 
access surcharge.  See note 105, infra.  We conclude that section 251(g) preserves our ability to continue to dictate 
the pricing policies applicable to this category of traffic.  We do not believe, moreover, that section 251(g) extends 
only to those specific carriers providing service on February 7, 1996.  At the very least, subsection (g) is ambiguous 
on this point.  On the one hand, the first sentence of this provision states that its terms apply to each local exchange 
carrier, to the extent that it provides wireline services, without regard to whether it may be a BOC or a competitive 
LEC.  47 U.S.C.  251(g).  On the other hand, that same sentence refers to restrictions and obligations applicable to 
such carrier prior to February 8, 1996.  Id.  We believe that the most reasonable interpretation of that sentence, in 
this context, is that subsection (g) was intended to preserve pre-existing regulatory treatment for the enumerated 
categories of carriers, rather than requiring disparate treatment depending upon whether the LEC involved came 
into existence before or after February 1996.
  See United States v. AT&T, 552 F. Supp. at 229; Advanced Services Remand Order, 15 FCC Rcd at 406-08.
  See Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC Docket No. 98-
147, Second Report and Order, 14 FCC Rcd 19237 (1997), petition for review pending, Assn of Communications 
Enterprises v. FCC, D.C. Circuit No. 00-1144.  In effect, we have provided for concurrent authority under that 
provision and section 201 by permitting a party to purchase the same service under filed tariffs or to proceed under 
interconnection arrangements to secure resale services.  
  See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 
96-98, Third Report and Order and Fourth Further Notice of Proposed Rulemaking, 15 FCC Rcd 3696, 3775 
(1999).  See also Advanced Services Remand Order, 15 FCC Rcd at 385, 386.  We emphasize that these two 
examples are illustrative and may not be the only instances where the Commission chooses to supersede pre-Act 
requirements for interstate access services. 
  See infra paras. 67-71.
  See, e.g., SEC v. Chenery Corp., 318 U.S. 80, 88 (1943).
  See Worldcom, Inc. v. FCC, No. 00-1022 et al. (D.C. Cir.).  In that proceeding, the Commission has argued that 
the category previously labeled information access under the MFJ is a subset of those services now falling under 
the category exchange access as set forth in section 3(16) of the Act, 47 U.S.C. 153(16), while incumbent LECs 
and others have argued that the two categories are mutually exclusive.  We need not reargue here whether 
information access is a subset of  exchange access or whether instead they are mutually exclusive categories.  
The only issue relevant to our section 251(g) inquiry in this case is whether ISP-bound traffic falls, at a minimum, 
within the legacy category of information access.  Both the Commission and incumbent LECs have agreed that 
the access provided to ISPs satisfies the definition of information access.   
  Joint Explanatory Statement of the Committee of Conference, S. Conf. Rep. No. 230, 104th Cong., 2d Session at 
123 (February 1, 1996).
  United States v. AT&T, 552 F. Supp. at 196, 229.
  See Letter from Gary L. Phillips, SBC, to Jon Nuechterlein, Deputy General Counsel, FCC, at 9 (Dec. 14, 
2000)(stating that section 251(g) applies by its very terms to information access).
  United States v. AT&T, 552 F. Supp. at 196, 229.
  This finding is consistent with our past statements on the issue.  In the Non-Accounting Safeguards Order, we 
found that the access that LECs provide to enhanced service providers, including ISPs, constitutes information 
access as the MFJ defines that term.  Implementation of the Non-Accounting Safeguards of Sections 271 and 272 
of the Communications Act, CC Docket No. 96-149, First Report and Order and Further Notice of Proposed 
Rulemaking, 11 FCC Rcd 21905, 22024 & n.621 (1996).  Although we subsequently overruled our statement in that 
order that ISPs do not also purchase exchange access under section 3(16), we have not altered our finding that the 
access provided to enhanced service providers (including ISPs) is information access.   Advanced Services 
Remand Order, 15 FCC Rcd at 404-05.
  See, e.g., Letter from Gary L. Phillips, SBC, to Jon Nuechterlein, Deputy General Counsel, FCC, at 9 (Dec. 14, 
2000).  Some have argued that information access includes only certain specialized functions unique to the needs 
of enhanced service providers and does not include basic telecommunications links used to provide enhanced 
service providers with access to the LEC network.  See, e.g., Brief of WorldCom, Inc., D.C. Circuit No. 00-1002, et 
al., filed Oct. 3, 2000, at 16 n.12.  The MFJ definition of information access, however, includes the 
telecommunications links used for the origination, termination, [and] transmission of information services, and 
where necessary, the provision of network signalling and other functions.  United States v. AT&T, 552 F. Supp. at 
229 (emphasis added).  Others have argued that the information access definition engrafts a geographic limitation 
that renders this service category a subset of telephone exchange service.  See Letter from Richard Rindler, 
Swindler, Berlin, to Magalie Roman Salas, Secretary, FCC, at 3 (Apr. 12, 2001).  We reject that strained 
interpretation.  Although it is true that information access is necessarily initiated in an exchange area, the MFJ 
definition states that the service is provided in connection with the origination, termination, transmission, 
switching, forwarding or routing of telecommunications traffic to or from the facilities of a provider of information 
services  United States v. AT&T, 552 F. Supp. at 229 (emphasis added).  Significantly, the definition does not 
further require that the transmission, once handed over to the information service provider, terminate within the 
same exchange area in which the information service provider first received the access traffic.
  Bell Atlantic, 206 F.3d at 5.
  Declaratory Ruling, 14 FCC Rcd at 3695 (emphasis added).
  This is the compensation mechanism chosen by the ISPs.  See note 105, infra.
  Local Competition Order, 11 FCC Rcd at 1033-34. 
  47 U.S.C.  332; Local Competition Order, 11 FCC Rcd at 16005-06.
  Local Competition Order, 11 FCC Rcd at 16005-06; see also Iowa Utils. Bd. v. FCC, 120 F.3d at 800 n. 21 
(finding that the Commission had jurisdiction under section 332 to issue rules regarding LEC-CMRS 
interconnection, including reciprocal compensation rules).
  We seek comment on these issues in the NPRM.
  Local Competition Order, 11 FCC Rcd at 16005.
  Id. at 16016.
  Id. at 16016-17.
  Id. at 16017.
  47 U.S.C.  251(i).
  See also Letter from Gary L. Phillips, SBC, to Jon Nuechterlein, Deputy General Counsel, FCC, at 8 (Dec. 14, 
2000).
  For example, section 251 has expanded upon our historic functions by providing us with the authority to set the 
framework for pricing rules applicable to unbundled network elements, purchased under interconnection 
agreements.
  Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523, 543 (8th Cir. 1998) (affirming the jurisdictionally mixed nature 
of ISP-bound traffic).
  Id.
  See, e.g., Louisiana PSC v. FCC, 476 U.S. 355, 375 n.4.
  See Letter from John W. Kure, Qwest, to Magalie Roman Salas, Secretary, FCC (Dec. 8, 2000)(attaching A Legal 
Roadmap for Implementing a Bill and Keep Rule for All Wireline Traffic, at 10-11)(Qwest Roadmap).
  Bell Atlantic, 206 F.3d at 5; see Qwest Roadmap at 4.
  The D.C. Circuit itself has long recognized that ESPs use interstate access.  See, e.g., NARUC v. FCC, 737 F.2d 
at 1136.
  Bell Atlantic, 206 F.3d. at 8.
  Bell Atlantic, 206 F.3d at 7.
  As noted, the Commission has permitted ESPs to pay local business line rates from intrastate tariffs for ILEC-
provided access service, in lieu of interstate carrier access charges.  See, e.g., MTS/WATS Market Structure Order, 
97 FCC 2d at 715; ESP Exemption Order, 3 FCC Rcd at 2635 n.8, 2637 n.53.  ESPs also pay the federal subscriber 
lines charges associated with those business lines and, where appropriate, the federal special access surcharge.  The 
subscriber line charge (SLC) recovers a portion of the cost of a subscribers line that is allocated, pursuant to 
jurisdictional separations, to the interstate jurisdiction.  See 47 C.F.R.  69.152 (defining SLC); 47 C.F.R. Part 36 
(jurisdictional separations).  The special access surcharge recovers for use of the local exchange when private 
line/PBX owners circumvent the conventional long-distance network and yet achieve interstate connections 
beyond those envisioned by the private line service.  NARUC v. FCC, 737 F.2d at 1138.  See 47 C.F.R.  69.115.
  With judicial approval, the Commission initially adopted this access service pricing policy in order to avoid rate 
shock to a fledgling enhanced services industry.  NARUC v. FCC, 737 F.2d at 1136-37.  In the decision affirming 
this pricing policy, the court expressly recognized that ESPs use interstate access service.  Id. at 1136 (enhanced 
service providers may, at times, heavily use exchange access).  The Commission recently decided to retain this 
policy, largely because it found that it made little sense to mandate, for the first time, the application of existing 
non-cost-based interstate access rates to enhanced services just as the Commission was reforming the access charge 
regime to eliminate implicit subsidies and to move such charges toward competitive levels.  Access Charge Reform 
Order, 12 FCC Rcd at 16133, affd, Southwestern Bell Telephone Co., 153 F.3d at 541-42.
  See, e.g., MTS/WATS Market Structure Order, 97 FCC 2d at 711-12, 722; Filing and Review of Open Network 
Architecture Plans, CC Docket No. 88-2, Memorandum Opinion and Order, 4 FCC Rd 1, 141 (1988), affd, 
California v. FCC, 4 F.3d 1505 (9th Cir. 1993) (ONA Plans Order); GTE Telephone Operating Cos., CC Docket 
No. 98-79, Memorandum Opinion and Order, 13 FCC Rcd 22466 (1998).
  Bell Atlantic, 206 F.3d at 3.
  Id. at 5.
  See, e.g., id. at 6, 7  (accepting, arguendo, that ISP-bound traffic is like IXC-bound traffic for jurisdictional 
purposes).
  See, e.g., BellSouth MemoryCall, 7 FCC Rcd at 1620 (voicemail is interstate because there is a continuous path 
of communications across state line between the caller and the voice mail service); ONA Plans Order, 4 FCC Rcd 
at 141 (an enhanced service is subject to FCC authority if it is interstate, that is, when it involves communications 
or transmissions between points in different states on an end-to-end basis).
  ONA Plans Order, 4 FCC Rcd at 141; see also id., Memorandum Opinion and Order on Reconsideration, 5 FCC 
Rcd 3084, 3088-89 (1990), affd, California v. FCC, 4 F.3d 1505 (9th Cir. 1993)(rejecting claim that basic service 
elements, consisting of features and functions provided by telephone companys local switch for benefit of 
enhanced service providers and others, are separate intrastate offerings even when used in connection with end-to-
end transmissions).
  See, e.g., MTS/WATS Market Structure Order, 97 FCC 2d at 711 ([a]mong the variety of users of access service 
are  enhanced service providers); Amendment of Part 69 of the Commissions Rules Relating to Enhanced 
Service Providers, CC Docket No. 87-215, Notice of Proposed Rulemaking, 2 FCC Rcd 4305, 4305, 4306 (1987) 
(noting that enhanced service providers use exchange access service); ESP Exemption Order, 3 FCC Rcd at 2631 
(referring to certain classes of exchange access users, including enhanced service providers).
  See, e.g., Access Charge Reform Order, 12 FCC Rcd at 16131-32; GTE Telephone Operating Cos.,13 FCC Rcd 
at 22478.  Cf. Bell Atlantic, 206 F.3d at 4, 6-7. 
  Of course, the Internet provides applications other than the World Wide Web, such as e-mail, games, chat sites, 
or streaming media, which have different technical characteristics but all of which involve computers in multiple 
locations, often across state and national boundaries.
  See Qwest Roadmap at 4-5, 9-10.
  See, e.g., Verizon Remand Reply at 9 (Internet traffic is indistinguishable from Feature Group A access service).
  See Local Competition Order, 11 FCC Rcd at 15935 n. 2091 (describing "Feature Group A" access service); see 
also MCI Telecomm. Corp. v. FCC, 566 F.2d 365, 367 n.3 (D.C. Cir. 1977), cert. denied, 434 U.S. 1040 (1978).
  BellSouth MemoryCall, 7 FCC Rcd at 1619.
  Id. at 1620.
  Id. at 1621.
  It is important to note that a dial-up call to an ISP will not even be required when broadband services arrive.  
Those connections will be always on and there will be no phone call in any traditional sense.  Indeed, the only 
initiating event will be the end-user interacting with other Internet content or users.  Thus, increasingly, notions of 
two calls become meaningless. 
  Bell Atlantic, 206 F.3d at 8 (citing FCC Brief at 76, Southwestern Bell v. FCC, 153 F.3d 523).
  Access Charge Reform Order, 12 FCC Rcd at 16133-34.
  See FCC Brief at 75-76, Southwestern Bell v. FCC, 153 F.3d 523.
  Southwestern Bell v. FCC, 153 F.3d at 534.
  In the Declaratory Ruling, we stated that, pending adoption of a federal rule governing intercarrier compensation 
for ISP-bound traffic, state commissions would determine whether reciprocal compensation was due for such traffic. 
Declaratory Ruling, 14 FCC Rcd at 3706.  Since that time, most, though not all, states have ordered the payment of 
reciprocal compensation for ISP-bound traffic.  
  47 C.F.R.  51.703(a).
  Recovery from other carriers is premised on the economic assumption that the carrier whose customer originates 
the call has caused the transport and termination costs associated with that call, and the originating carrier should, 
therefore, reimburse the interconnecting carrier for transport and termination.  The companion NPRM evaluates 
the validity of that assumption and tentatively concludes that it is an incorrect premise.
  Cf. Local Competition Order, 11 FCC Rcd at 16043 (symmetrical termination payments to paging providers 
based on ILECs costs might create uneconomic incentives for paging providers to generate traffic simply in order 
to receive termination compensation). 
  47 C.F.R.  51.705 (an incumbent LECs rates for transport and termination shall be established on the basis of 
the forward-looking economic costs of such offerings); 47 C.F.R.  51.711 (subject to certain exceptions, rates for 
transport and termination shall be symmetrical and equal to those that the incumbent LEC assesses upon other 
carriers for the same services).
  Letter from Robert T. Blau, BellSouth, to Magalie Roman Salas, Secretary, FCC (November 6, 2000); see also 
Verizon Remand Comments at 2 (Verizon will be billed more than one billion dollars in 2000 for Internet-bound 
calls); Letter from Richard J. Metzger, Focal, to Deena Shetler, Legal Advisor to Commissioner Gloria Tristani, 
FCC (Jan. 11, 2001)(ILECs owed $1.98 billion in reciprocal compensation to CLECs in 2000).
  Verizon Remand Comments at 11, 21.  Verizon also cites extreme cases of CLECs that terminate in excess of 
eight thousand times more traffic than they originate.  Id. at 21.  See also Letter from Robert T. Blau, BellSouth; 
Melissa Newman, Qwest; Priscilla Hill-Ardoin, SBC; and Susanne Guyer, Verizon, to Dorothy Attwood, Chief, 
Common Carrier Bureau, FCC (Nov. 9, 2000).  
  See, e.g., Verizon Remand Comments at 15 (citing case of CLEC offer of free long distance service to dial-up 
Internet customers, an offer it did not extend to its customers that accessed the Internet via cable modem or DSL 
service); SBC Remand Comments at 45 (citing examples of CLEC offering free service to ISPs that collocated in its 
switching centers and CLECs offering to share reciprocal compensation revenues with ISPs).
  See, e.g., Verizon Remand Comments at 17-18.
  The NPRM that we adopt in conjunction with this Order seeks comment on the degree to which a modified CPNP 
regime might address these concerns. 
  Local Competition Order, 11 FCC Rcd at 16054-55; see also 47 C.F.R.  51.713(b).
  Local Competition Order, 11 FCC Rcd at 16055 (emphases added).
   Id. at 16055.
  We also note that bill and keep arrangements are common among entities providing Internet backbone services, 
where the larger carriers engage in so-called peering arrangements.
  Time Warner Remand Comments at 15-16.
  Time Warner Remand Comments at 16.  Some parties suggest that a bifurcated rate structure (a call set-up charge 
and a minute of use charge) would ensure appropriate cost recovery.  See Sprint Remand Comments at 2-4.  We 
seek comment on this approach in the NPRM.
  See infra note 158.
  We note that many CLECs expressed the same view following adoption of the Declaratory Ruling in 1999, yet 
the problems persist.  See, e.g., Cox Reply Comments at 6 (If termination "rates are too high, this is entirely at the 
ILEC's behest, and should be remedied in the next round of negotiations."). 
  A number of questions must be resolved before we are prepared to implement fully a bill and keep regime where 
most costs are recovered from end-users.  (We say most, not all, costs are recovered from end-users because a bill 
and keep regime may include intercarrier charges for transport between networks.)  These questions include, for 
example, the allocation of transport costs between interconnecting carriers and the effect on retail prices of adopting 
a bill and keep regime that is not limited to ISP-bound traffic.  We seek comment on these and other issues in the 
accompanying intercarrier NPRM.
  Cf. Verizon Remand Reply Comments at 14-15.
  The problem of putting a per minute price tag, in the form of intercarrier payments, where no per minute cost 
exists is exacerbated in the case of local exchange carriers that, in most cases, recover costs from their end-users on 
a flat-rated basis.
  See, e.g., Local Competition Order, 11 FCC Rcd at 16028-29.
  This interim regime affects only the intercarrier compensation (i.e., the rates) applicable to the delivery of ISP-
bound traffic.  It does not alter carriers other obligations under our Part 51 rules, 47 C.F.R. Part 51, or existing 
interconnection agreements, such as obligations to transport traffic to points of interconnection.
  See Texas Public Utility Commission, Docket No. 21982, Proceeding to Examine Reciprocal Compensation 
Pursuant to Section 252 of the Federal Telecommunications Act of 1996, at 36 (July 12, 2000)(applying a blended 
tandem switching rate to traffic up to a 3:1 (terminating to originating) ratio; traffic above that ratio is presumed to 
be convergent traffic and is compensated at the end office rate unless the terminating carrier can prove tandem 
functionality); New York Public Service Commission, Op. No. 99-10, Proceeding on Motion of the Commission to 
Reexamine Reciprocal compensation, Opinion and Order, at 59-60 (Aug. 26, 1999) (traffic above a 3:1 ratio is 
presumed to be convergent traffic and is compensated at the end office rate unless the terminating carrier can 
demonstrate that [the terminating] network and service are such as to warrant tandem-rate compensation); 
Massachusetts Dept. of Telecommunications and Energy, D.T.E. 97-116-C, at 28-29 n.31 (May 19, 1999) (requiring 
reciprocal compensation for traffic that does not exceed a 2:1 (terminating to originating) ratio as a proxy to 
distinguish ISP-bound traffic from voice traffic; carriers may rebut that presumption).
  We note that CLEC end-user recovery is generally not regulated.  As non-dominant carriers, CLECs can charge 
their end-users what the market will bear.  Access Charge Reform, CC Docket No. 96-262, Sixth Report and Order, 
15 FCC Rcd 12962, 13005 (2000) (CALLS Order)(Competitive LECs are not regulated by the Commission and are 
not restricted in the same manner as price caps LECs in how they recover their costs.).  Accordingly, we permit 
CLECs to recover any additional costs of serving ISPs from their ISP customers.  ILEC end-user charges, however, 
are generally regulated by the Commission, in the case of interstate charges, or by state commissions, for intrastate 
charges.  Pursuant to the ESP exemption, ILECs will continue to serve their ISP customers out of intrastate business 
tariffs that are subject to state regulation.  As the Commission said in 1997, if ILECs feel that these rates are so low 
as to preclude cost recovery, they should seek relief from their state commissions.  Access Charge Reform Order, 12 
FCC Rcd at 16134 (To the extent that some 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 state regulators. (emphasis added)).
  Thus, if a state has ordered all LECs to exchange ISP-bound traffic on a bill and keep basis, or if a state has 
ordered bill and keep for ISP-bound traffic in a particular arbitration, those LECs subject to the state order would 
continue to exchange ISP-bound traffic on a bill and keep basis.
  See American Public Communications Council v. FCC, 215 F.3d 51 (D.C. Cir. 2000)(Where existing 
methodology or research in a new area of regulation is deficient, the agency necessarily enjoys broad discretion to 
attempt to formulate a solution to the best of its ability on the basis of available information.).
  47 U.S.C.  252(i) (requiring LECs to make available any interconnection, service, or network element provided 
under an agreement approved under this section to any other requesting telecommunications carrier).  This Order 
will become effective 30 days after publication in the Federal Register.  We find there is good cause under 5 U.S.C. 
 553(d)(3), however, to prohibit carriers from invoking section 252(i) with respect to rates paid for the exchange of 
ISP-bound traffic upon publication of this Order in the Federal Register, in order to prevent carriers from exercising 
opt in rights during the thirty days after Federal Register publication.  To permit a carrier to opt into a reciprocal 
compensation rate higher than the caps we impose here during that window would seriously undermine our effort to 
curtail regulatory arbitrage and to begin a transition from dependence on intercarrier compensation and toward 
greater reliance on end-user recovery. 
  In any event, our rule implementing section 252(i) requires incumbent LECs to make available [i]ndividual 
interconnection, service, or network element arrangements to requesting telecommunications carriers only for a 
reasonable period of time.  47 C.F.R.  51.809(c).  We conclude that any reasonable period of time for making 
available rates applicable to the exchange of ISP-bound traffic expires upon the Commissions adoption in this 
Order of an intercarrier compensation mechanism for ISP-bound traffic.
  Access Charge Reform Order, 12 FCC Rcd at 16133-34.
  See, e.g., Letter from David J. Hostetter, SBC, to Magalie Roman Salas, Secretary, FCC (Feb. 14, 2001), 
Attachment (citing September 2000 Morgan Stanley Dean Witter report that discusses utilization of lower cost 
switch technology); Donny Jackson, One Giant Leap for Telecom Kind?, Telephony, Feb. 12, 2001, at 38 
(discussing cost savings associated with replacing circuit switches with packet switches); Letter from Gary L. 
Phillips, SBC, to Magalie Roman Salas, Secretary, FCC (Feb. 16, 2001) (attaching press release from Focal 
Communications announcing planned deployment of next-generation switching technology at a fraction of the cost 
of traditional equipment); see also infra para. 93.
  The Commission takes notice of the following interconnection agreements:  (1) Level 3 Communications and 
SBC Communications (effective through May 2003):   This 13-state agreement has two sets of rates.  For balanced 
traffic, the rate is $.0032/mou.  For traffic that is out of balance by a ratio exceeding 3:1, the rate starts at 
$.0018/mou, declining to a weighted average rate of $.0007/mou by June 1, 2002.  See PR Newswire, WL PRWIRE 
07:00:00 (Jan. 17, 2001); Letter from John T. Nakahata, Harris, Wiltshire & Grannis, to Magalie Roman Salas, 
Secretary, FCC, Attachment (Jan. 19, 2001).  (2)  ICG Communications and BellSouth (retroactively effective to 
Jan. 1, 2000):   This agreement provides for rates to decline over three years, from $0.002/mou to $0.00175/mou to 
$0.0015/mou.  See Communications Daily, 2000 WL 4694709 (Mar. 15, 2000).  (3) KMC Telecom and BellSouth:  
This agreement provides for a rate of $0.002/mou in 2000, $0.00175/mou in 2001, $0.0015/mou in 2002.  See 
Business Wire, WL 5/18/00 BWIRE 12:50:000 (May 18, 2000).  (4)  Level 3 Communications and Verizon 
(formerly Bell Atlantic) (effective Oct. 14, 1999):  This agreement governs all of the former Bell Atlantic/NYNEX 
states.  The applicable rate declines over the term of the agreement from $.003/mou in 1999 to rates in 2001 of 
$.0015/mou for balanced traffic and $.0012/mou where the traffic imbalance exceeds a 10:1 ratio.  See Letter from 
Joseph J. Mulieri, Bell Atlantic, to Magalie Roman Salas, Secretary, FCC (Nov. 22, 1999)(attaching agreement); see 
also Letter from John T. Nakahata, Harris, Wiltshire & Grannis, to Magalie Roman Salas, Secretary, FCC, at 2 (Jan. 
4, 2001)(reciprocal compensation rate in most recent Level 3  Verizon agreement is now $.0012/mou in all states 
except New York, where the rate is $.0015/mou).
  In the Level 3  SBC agreement, the applicable rate is $.0018/mou for traffic that exceeds a 3:1 ratio; in the 
Level 3  Verizon agreement, the applicable rate is $.0015/mou for balanced traffic and $.0012/mou for traffic that 
exceeds a 10:1 ratio.  See supra note 158.
  See Letter from Jonathan Askin, ALTS, to Magalie Roman Salas, Secretary, FCC, at 3 (Dec. 19, 2000).
  See supra note 158.
  See, e.g., Letter from Jonathan Askin, ALTS, to Magalie Roman Salas, Secretary, FCC (Dec. 18, 2000) (offering 
evidence that dial-up traffic per household will grow only 7%/year from 1998 to 2003 and that dial-up household 
penetration will decline between 2000 and 2003); Letter from Jonathan Askin, ALTS, to Magalie Roman Salas, 
Secretary, FCC (Jan. 9, 2001)(citing, inter alia, Merrill Lynch estimate of 7% annual increased Internet usage per 
user between 1999 and 2003, and PricewaterhouseCoopers study suggesting that Internet usage per user declined 
from 1999 to 2000).
  See, e.g., Letter from Robert T. Blau, BellSouth, to Dorothy Attwood, Chief, Common Carrier Bureau, FCC 
(Dec. 22, 2000) (forecasting 42% annual growth in total Internet access minutes between 2000 and 2003); but see 
Dan Beyers, Internet Use Slipped Late Last Year, Washingtonpost.com, Feb. 22, 2001, at E10 (noting decline in 
average time spent online in 2000).
  See, e.g., Time Warner Remand Comments at 4-5; Centennial Remand Comments at 2, 6-7.
  Access Charge Reform Order, 12 FCC Rcd at 16134; MTS/WATS Market Structure Order, 97 FCC 2d at 720-
721.
  See infra para. 93.
  See Letter from Robert T. Blau, BellSouth, et al., to Dorothy Attwood, Chief, Common Carrier Bureau, FCC, at 
4 (Nov. 3, 2000); SBC Remand Comments at 42, 51, 57.
  We do not suggest that it costs CLECs less to serve ISPs than other types of customers.  New switching 
technologies make it less costly to serve all customers.  If, however, costs are lower than prevailing reciprocal 
compensation rates, then CLECs are likely to target customers, such as ISPs, with predominantly incoming traffic, 
in order to maximize the resulting profit.
  See, e.g., Verizon Remand Comments at 16.
  Id.
  Most CLECs assert that they compete with ILECs on service, not price, and that the rates they charge to ISPs are 
comparable to the ILEC rates for the same services.  See, e.g., Time Warner Remand Comments at 5.  We 
acknowledge, however, that any CLECs that use reciprocal compensation payments to offer below cost service to 
ISPs may be unable to continue that practice under the compensation regime we adopt here.  We reiterate that we 
see no public policy reason to maintain a subsidy running from ILEC end-users to ISPs and their customers.
  See, e.g., Letter from Robert W. McCausland, Allegiance Telecom; Kelsi Reeves, Time Warner Telecom; 
Richard J. Metzger, Focal, R. Gerard Salemme, XO Communications; and Heather B. Gold, Intermedia; to Dorothy 
Attwood, Chief, Common Carrier Bureau, FCC, at 6 (Oct. 20, 2000).
  See, e.g., SBC Remand Reply Comments at 31-32 (explaining how an ILEC may incur additional switching and 
transport costs when its end-user customer calls an ISP served by a CLEC).
  See Access Charge Reform Order, 12 FCC Rcd at 16134; see also MTS/WATS Market Structure Order, 97 FCC 
2d at 721 (the local business line rate paid by ISPs subsumes switching costs).  Moreover, most states have adopted 
price cap regulation of local rates, in which case rates do not necessarily correlate to cost in the manner the CLECs 
suggest.  See Price Caps Standard Form of Telco Regulation in 70% of States, Communications Daily, 1999 WL 
7580319 (Sept. 8, 1999).
  The four largest incumbent LECs  SBC, BellSouth, Verizon, and Qwest  estimate that they owed over $2 
billion in reciprocal compensation for ISP-bound traffic in 2000.  See, e.g., Letter from Robert T. Blau, BellSouth, 
to Dorothy Attwood, Chief, Common Carrier Bureau, FCC (Jan. 16, 2001).
  More calls are made from wireless phones to wireline phones than vice-versa.  The ILECs, therefore, are net 
recipients of reciprocal compensation from wireless carriers.  
  Pursuant to the analysis we adopt above, section 251(b)(5) applies to telecommunications traffic between a LEC 
and a telecommunications carrier other than a CMRS provider that is not interstate or intrastate access traffic  
delivered to an IXC or an information service provider, and to telecommunications traffic between a LEC and a 
CMRS provider that originates and terminates within the same MTA.  See supra  IV.B.
  If, however, a state has ordered bill and keep for ISP-bound traffic only with respect to a particular 
interconnection agreement, as opposed to state-wide, we do not require the incumbent LEC to offer to exchange all 
section 251(b)(5) traffic on a bill and keep basis.  This limitation is necessary so that an incumbent is not required to 
deliver all section 251(b)(5) in a state on a bill and keep basis even though it continues to pay compensation for 
most ISP-bound traffic in that state.  See, e.g., Letter from John W. Kure, Qwest, to Magalie Roman Salas, 
Secretary, FCC (April 2, 2001)(citing, for example, Washington state, where 16% of ISP-bound traffic is subject to 
bill and keep).  In those states, the rate caps we adopt here will apply to ISP-bound traffic that is not subject to bill 
and keep under the particular interconnection agreement if the incumbent LEC offers to exchange all section 
251(b)(5) traffic subject to those rate caps.
  ILECs may make this election on a state-by-state basis.
  Many commenters argue that there is, in fact, no difference between the cost and network functions involved in 
terminating ISP-bound calls and the cost and functions involved in terminating other calls to users of the public 
switched telephone network.  See, e.g., AOL Comments  at 10-12 (there is absolutely no technical distinction, and 
therefore no cost differences, between the way an incumbent LEC network handles ISP-destined traffic and the way 
it handles other traffic within the reciprocal compensation framework.); AT&T Comments at 10-11 ([T]here is no 
economic justification for subjecting voice and data traffic to different compensation rules.  ILECs have not 
demonstrated, and cannot demonstrate, that the costs of transporting and terminating data traffic differ categorically 
from the costs of transporting and terminating ordinary voice traffic.); Choice One Comments at 8 ([C]osts do not 
vary significantly based on whether data or voice traffic is being transmitted.); Corecomm Reply at 2 (network 
functions are identical whether a carrier is providing service to an ISP or any other end-user); Cox Comments at 7 & 
Exhibit 2, Statement of Gerald W. Brock at 2 (None of the distinctions between ISP calls and average calls relate to 
a cost difference for handling the calls.); MediaOne Comments at 4 (LECs incur the same costs for terminating 
calls to an ISP as they do for terminating any other local calls); Time Warner Comments at 9 ([A]ll LECs perform 
the same functions when transporting and delivering calls to ISP end-users as they do when transporting and 
delivering calls to other end-users.  When LECs perform the same functions, they incur the same costs.); Letter 
from Donald F. Shepheard, Time Warner Telecom, to Dorothy Attwood, Chief, Common Carrier Bureau, FCC 
(Feb. 28, 2001)(disputing claim that CLEC switching costs are as low as the ILECs argue). 
  See, e.g., Cox Comments at Exhibit 2, Statement of Gerald W. Brock at 2. 
  See, e.g., Intermedia Comments at 3-4 (arguing that the rates for transport and termination of ISP-bound traffic 
must be identical to the rates established for the transport and termination of local traffic).
  See Verizon Remand Comments, Declaration of William E. Taylor at 14, 17.
  See Time Warner Remand Reply Comments, Exhibit 1, Declaration of Don J. Wood at 14.  See also Letter from 
John W. Kure, Qwest, to Magalie Roman Salas, Secretary, FCC, Attachment at 7-8 (Oct. 26, 2000).
  See Verizon Remand Comments, Declaration of William E. Taylor at 14-15.
  See Time Warner Remand Reply Comments, Exhibit 1, Declaration of Don J. Wood at 10-11.  Time Warner also 
disputes that the average duration of calls to ISPs has been accurately measured to date.  Id. at 11.
  See Verizon Remand Comments, Declaration of William E. Taylor at 17-18.
  See Time Warner Remand Reply Comments, Exhibit 1, Declaration of Don J. Wood at 14-15.
  See Letter from Gary L. Phillips, Ameritech, to Magalie Roman Salas, Secretary, FCC, Attachment at 5 (Sept. 14, 
1999).  See also SBC Remand Comments at 32-33 (referring to Global NAPS Comments, Exhibit 1, Statement of 
Fred Goldstein at 6, which describes CLEC reduction of loop costs through collocation); Letter from Melissa 
Newman, U S West, to Magalie Roman Salas, Secretary, FCC, Attachment at 8 (Dec. 2, 1999).
  See Time Warner Remand Reply Comments, Exhibit 1, Declaration of Don J. Wood at 25. 
  See Local Competition Order, 11 FCC Rcd at 16025. 
  SBC Remand Comments at 33.
  SBC Remand Comments at 33-34 (referring, inter alia, to managed modem switches).
  GTE Comments at 7-8 (noting the existence of SS7 bypass devices that can avoid circuit switching and arguing 
that competitive LEC networks are far less complex and utilize fewer switches than incumbent LEC networks); 
GTE Reply Comments at 16 (compensating competitive LECs based on an incumbent LECs costs inflates the 
revenue that competitive LECs receive); Letter from W. Scott Randolph, GTE, to Magalie Roman Salas, Secretary, 
FCC,  Attachment (Dec. 8, 1999 (new generation traffic architectures may use SS7 Gateways instead of more 
expensive circuit-switched technology). 
  See, e.g., Letter from John D. Windhausen, Jr., ALTS, and H. Russell Frisby, Jr., CompTel, to Kyle Dixon, Legal 
Advisor, Chairman Michael Powell, FCC, at 4-5 (March 16, 2001)(Focal is testing two softswitches, but as of now 
all ISP-bound traffic terminated by Focal uses traditional circuit switches; Allegiance Telecom has a single 
softswitch in its network; Advanced Telecom Group, Inc. is in the testing phase of softswitch deployment; Pac-West 
Telecomm, Inc., does not have any softswitches in its network; e.spire uses only circuit switches to terminate ISP-
bound traffic);Time Warner Remand Reply Comments, Exhibit 1, Declaration of Don J. Wood at 27 (Time Warner 
is deploying fully functional end office switches); Letter from Donald F. Shepheard, Time Warner, to Dorothy 
Attwood, Chief, Common Carrier Bureau, FCC, at 3 (February 28, 2001)(Time Warner does not provide managed 
modem services.  Like the ILECs, Time Warner has an extensive network of circuit switched technology and has 
only just begun to deploy softswitches); Letter from Teresa Marrero, AT&T, to Magalie Roman Salas, Secretary, 
FCC, at 1 (April 11, 2001)(Virtually all of AT&Ts ISP-bound traffic is today terminated using full circuit 
switches.).
  See Time Warner Remand Reply Comments, Exhibit 1, Declaration of Don J. Wood at 28; see also Letter from 
Donald F. Shepheard, Time Warner, to Dorothy Attwood, Chief, Common Carrier Bureau, FCC, at 3 (Feb. 28, 
2001)(if softswitch technology will lower carriers costs, then all carriers, including the ILECs[,] will have 
incentive to deploy them); Letter from John D. Windhausen, Jr., ALTS, and H. Russell Frisby, Jr., CompTel, to 
Dorothy Attwood, Chief, Common Carrier Bureau, FCC, at 4 (February 16, 2001)(same).
  See, e.g., Letter from Karen L. Gulick, Harris, Wiltshire & Grannis, to Magalie Roman Salas, Secretary, FCC, at 
1 (Dec. 22, 2000).
  See CALLS Order, 15 FCC Rcd at 12974.
  The PICC, or presubscribed interexchange carrier charge, and the CCLC, carrier common line charge, are 
charges levied by incumbent LECs upon IXCs to recover portions of the interstate-allocated cost of subscriber 
loops.  See 47 C.F.R.  69.153, 69.154.
  CALLS Order, 15 FCC Rcd at 12975 (permitting a greater proportion of the local loop costs of primary 
residential and single-line business customers to be recovered through the SLC).
  CALLS Order, 15 FCC Rcd at 12977 (The CALLS proposal is aimed to  bring lower rates and less confusion to 
consumers; and create a more rational interstate rate structure. This, in turn, will support more efficient competition, 
more certainty for the industry, and permit more rational investment decisions.).
  Bell Atlantic, 206 F.3d at 8.
  See 5 U.S.C.  603.
  Declaratory Ruling, 14 FCC Rcd at 3710-13.
  See 5 U.S.C.  604.  The Regulatory Flexibility Act, 5 U.S.C.  601 et. seq., was amended by the "Small 
Business Regulatory Enforcement Fairness Act of 1996" (SBREFA), which was enacted as Title II of the Contract 
With America Advancement Act of 1996, Pub.L. No. 104-121, 110 Stat. 847 (1996) (CWAAA).
  Declaratory Ruling and Intercarrier Compensation NPRM, 14 FCC Rcd at 3707.
  Declaratory Ruling and Intercarrier Compensation NPRM, 14 FCC Rcd at 3711.
  See Bell Atlantic, 206 F.3d 1.
  Office of Advocacy, U.S. Small Business Administration ex parte, May 27, 1999; Office of Advocacy, U.S. 
Small Business Administration ex parte, June 14, 1999.
  Office of Advocacy, U.S. Small Business Administration ex parte, May 27, 1999, at 1-3; Office of Advocacy, 
U.S. Small Business Administration ex parte, June 14, 1999, at 2-3.
  Declaratory Ruling and Intercarrier Compensation NPRM, 14 FCC Rcd at 3711.
  Declaratory Ruling and Intercarrier Compensation NPRM, 14 FCC Rcd at 3711.
  See supra paras. 87-88.
  Office of Advocacy, U.S. Small Business Administration ex parte, June 14, 1999, at 3.
  Declaratory Ruling [IRFA], 14 FCC Rcd at 3711 (para. 39); see also Declaratory Ruling, 14 FCC Rcd at 3707-
08 (paras. 30-31).
  NTCA Comments at vi, 15.
  See, e.g., ICORE Comments at 1-7; IURC Comments at 7; Richmond Telephone Company Comments at 1-8.
  5 U.S.C.  601(6).
  5 U.S.C.  601(3) (incorporating by reference the definition of "small business concern" in 5 U.S.C.  632).
  15 U.S.C.  632.
  13 C.F.R.  121.201.
  FCC, Carrier Locator: Interstate Service Providers, Figure 1 (Jan. 2000) (Carrier Locator).
  Carrier Locator at Fig. 1.
  5 U.S.C.  601(3).
  Office of Advocacy, U.S. Small Business Administration ex parte, May 27, 1999, at 1-3; Office of Advocacy, 
U.S. Small Business Administration ex parte, June 14, 1999, at 2-3.  The Small Business Act contains a definition 
of "small business concern," which the RFA incorporates into its own definition of "small business."  See 15 U.S.C. 
 632(a) (Small Business Act); 5 U.S.C.  601(3) (RFA).  SBA regulations interpret "small business concern" to 
include the concept of dominance on a national basis.  13 C.F.R.  121.102(b).  Since 1996, out of an abundance of 
caution, the Commission has included small incumbent LECs in its regulatory flexibility analyses.  See, e.g., 
Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket, 96-98, 
First Report and Order, 11 FCC Rcd 15499, 16144-45 (1996).
  United States Department of Commerce, Bureau of the Census, 1992 Census of Transportation, 
Communications, and Utilities: Establishment and Firm Size, at Firm Size 1-123 (1995) (1992 Census).
  15 U.S.C.  632(a)(1).
  1992 Census at Firm Size 1-123.
  13 C.F.R.  121.201, Standard Industrial Classification (SIC) Code 4813.
  13 C.F.R.  121.201, SIC Code 4813.
  Carrier Locator at Fig. 1.
  Declaratory Ruling, 14 FCC Rcd at 3707-10.
  See supra paras. 67-76 (rejecting application of a reciprocal compensation mechanism to ISP-bound traffic).
  We note, however, that the interim regime we adopt here governs for 36 months or until further action by the 
Commission, whichever is longer.
  5 U.S.C.  801(a)(1)(A).
  See 5 U.S.C.  604(b).
  	To be more precise, section 251(g) refers to certain categories of service provided by LECs to ISPs and 
interexchange carriers.  47 U.S.C.  251(g).  In this statement, I use a short-hand reference to the categories of 
services enumerated in section 251(g).
  	47 U.S.C.  251(b)(5).
  	See cf. Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1, 4 (D.C. Cir. 2000) (Although [section] 251(b)(5) purports to 
extend reciprocal compensation to all telecommunications, the Commission has construed the reciprocal 
compensation requirement as limited to local traffic.).  The Court then went on to conclude that the Commission 
had not provided an adequate explanation of why LECs that carry traffic to ISPs are providing exchange access, 
rather than telephone exchange service.  Id. at 9.  The Court does not appear to have questioned anywhere in its 
opinion the notion that the scope of the reciprocal compensation requirement does not extend to certain categories 
of LEC-provided services, including exchange access.
  	Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; Interconnection 
Between Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Dkt. Nos. 96-98, 95-185, 
First Report and Order, 11 FCC Rcd 15499 (1996),  1034.
  	Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC Dkt. Nos. 98-147 et 
al., Order on Remand, 15 FCC Rcd 385 (1999) (Advanced Services Remand Order); see also WorldCom, Inc. v. 
FCC, No. 00-1002 (D.C. Cir. filed Apr. 20, 2001) (affirming Advanced Services Remand Order on one of the 
alternative grounds proffered by the Commission).
  	Advanced Services Remand Order, 15 FCC Rcd at 406,  46.
  	47 U.S.C.  251(g).
  	Id.
  	Had the language of section 251(g) been limited to the Bell Companies or to court orders and consent decrees, 
for example, perhaps one could construct an argument that Congress meant to limit the scope of section 251(g) to 
the MFJ requirements.
  	Section 251(b)(5) states that all LECs must establish reciprocal compensation arrangements for the transport 
and termination of telecommunications.  47 U.S.C.  251(g) (emphasis added).
  	As the Order suggests, Section 251(g) enumerates exchange access, information access and exchange 
services for such access. 47 U.S.C.  251(g).  For purposes of subsection (g), all of these services are provided by 
LECs to interexchange carriers and information service providers.  These three categories undeniably involve 
telecommunications.  Information access was defined in the MFJ as the provision of specialized exchange 
telecommunications services to information service providers.  United States v. AT&T, 552 F. Supp. 131, 196, 229 
(D.D.C. 1982).  The term "exchange service" as used in section 251(g) is not defined in the Act or in the MFJ.  
Rather, the term "exchange service" is used in the MFJ as part of the definition of the term "exchange access," 
which the MFJ defines as "the provision of exchange services for the purposes of originating or terminating 
interexchange telecommunications."  United States v. AT&T, F. Supp. at 228.  Thus, the term "exchange service" 
appears to mean, in context, the provision of services in connection with interexchange communications.  
Consistent with that, in section 251(g), the term is used as part of the longer phrase "exchange services for such 
[exchange] access to interexchange carriers and information service providers."  All of this indicates that the term 
"exchange service" is closely related to the provision of exchange access and information access, and that all three 
involve telecommunications.

  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).
  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).
  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.).
  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 Assn 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.
 
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