good morning may please the court burton gross appearing on behalf of arise in california the appellant and cross appellee in this matter pursuant to the court's schedule in water we will address now only the issues on horizons cross appeal i'd like to start intent of the i guess pee wee man to order now as the court is aware there are actually two periods within the seventeen month gap period the first period is a four month period from december two thousand and one to april two thousand and two which is the period after horizon hadn't focused germination right but prior to the date on which the contract was due to expire and then the second period is the thirteen month period beginning on april thirteenth two thousand and two which was the period after the contract was due to expire the reasons why the f c c cash would go into effect differ a little bit for those two periods so i want to address them separately and i'd like to turn first to the thirteen month period after the contract was due to expire another is a sentence that requires it to impose circle compensation on expiring or expired contracts including expiring contracts the only situation in which you can do that is if there is in fact an existing contractual obligation that compels a rate higher than the f c c caps now section nine point zero two of the agreement which is the provision that was at issue when we're talking about the latter period the period after april thirteenth two thousand and two that does not state any intent by the parties one way or the other establishes no substantive rule of any kind with respect to whether was typical compensation should be paid or to spec to any other aspect of the nature of the ongoing interconnection agreement that will occur after that  entitled to do is to establish an interim arrangement but yes even if the contract was continued because the contract in that situation would be an expiring contract within the language of the first sentence i just don't understand going to affect as carriers renegotiate expired or expiring contracts parties don't renegotiate contracts at the very beginning they renegotiate contracts at the end and in this part in this contract there was a cap rights well they have to negotiate with reference to the cap rates but at the time that the contract becomes an expiring contract the f c c has kept rates go into effect because the word has means during while we're at the same or subject to the cap now it means that if there is a contract that does not contain an actual obligation to pay rates above the f c c caps and that's the situation here even if the c p c was extending the contract as they claimed during th period after it will thirteenth two thousand and two there clearly was not an obligation to pay rates higher than the f c c is calf's during that time period as soon as the parties actually invoked the renegotiation provisions in existing and existing  first sentence and the second sentence is to conclude that the words existing contractual obligation in the second sentence mean a contractual obligation that actually requires payment of are several compensation at a rate that is different than what the f c c had in mind i agree and that's sort of the situation the second sentence of paragraph eighty two would be the applicable sentence and you would have a situation where where the f c c is caps could not go into effect but where you have a situation where there's a contract that does not create such an obligation and it certainly does not create such an obligation with respect to the period after after abel thirteenth two thousand and two then the first sentence of paragraph eighty two is the controlling one this is also the only interpretation that is distant with the shows as a policy matter to impose the company to impose the obligation for another thirteen months it was ignoring the f c c is admonition that its rates and its capture go into effect to the maximum extent possible so again paragraph eighty one further reinforces my interpretation of paragraph eighty two i will also say that that interpretation is dictated by the fourth sentence a paragraph eighty two the fourth sentence of paragraph eighty two is the sense two the the only thing that the state commission could do is give effect to the f c c caps as would be consistent both with the other language in paragraph eighty two and with the language immediately preceding it in paragraph eighty one i do want to point out alas for the period after april thirteenth two thousand and two the rise and is clearly entitled to the benefit of the f c c these caps that's because as of that date the contract by its expressed terms expired now the contract has in section one point zero two provisions that clearly established a specific timeline for expiration of the contract it provides first that if a party wants to terminate the contract it can do so on sixty days notice and then it provides for one and only one one hundred twenty five day extension period if the other party chooses to renegotiate that's what pact was did and it's not understood that the end of that renegotiation period was on april thirteenth two thousand and two so on that date the contract had in fact expired again it's true that the c p you see on the day before at least one commissioner of the c p c established a new interim arrangement that would establish what the terms of interconnection would be during the post expiration period but that doesn't change what the at what the actual language of the contract means with respect to whether the contract expired and i should mention that t agreement with for arising expired on april thirteenth two thousand and two see if you see cannot run away from that statement it and that finding was in fact correct as a matter of law the contract expired on that date and at least a these caps should have gone into effect now i do want to very briefly touch upon the period prior to that the four month period that i mentioned at the beginning during that period the first sentence of paragraph eighty two had been was had  was triggered because the parties were negotiate renegotiating at that point and the contract was expiring the issue then becomes whether under the second sentence of paragraph eighty two there was some existing contractual obligation to pay rates above the bound traffic at all and in fact the only way that pricing ever came to a reciprocal compensation for this traffic was as a result of the commission's generic nine hundred ninety eight internet or where it decided on an industry wide basis for the entire industry that every contract that makes reference to hang paying reciprocal compensation for local traffic it will be deemed that that means also that reciprocal compensation is applicable for speed on traffic that decision the our second argument the argument that the c p c erred by imposing reciprocal compensation on virtual and x x traffic just to go back and and and recap x calls are vienna x calls are current calls that appear local based upon the parties telephone numbers but that are actually connecting parties that are located far apart this is accomplished by the carrier for the called party in this case pac west assigning a local telephone number to a customer who is actually located in a distant exchange the c p u so what's the purpose of that from western point the purpose of that is so because some people like some customers don't want to have people who call them incur toll charges so they want to have a local presence in various places and for that reason it behooves pac west to be able to give those customers local telephone numbers in different places even though they are not physically located in that place so the question comes down do you look at those calls as they are in fact and look at those calls as they are based standpoint of the caller which is the retail rating of the call for the stamp of the call we don't want to situation where the caller ends up being charged long distance charges for a call that appears local based on the telephone number so for that purposes for that purpose w consider the call to be local which is perfectly fine then turn in said that with respect if your carrier compensation we're not concerned about that issue what we're concerned about is avoiding a situation where a carrier can manipulate its into care compensation ninety nine decision the arbitration decision here based its conclusion that the cost should be local and subject it was a pickle compensation entirely upon the fact that the telephone numbers of the calls make it appear distance call this might be long distance charges shouldn't that cost ultimately be assessed to the company who wants a local presence even though it's in skokie illinois or someplace well i think that's right and that's why the we're now actually away getting over to of the call that will determine all forms of it or carrier compensation whether it be transport or reciprocal compensation and by departing from that standard in this decision the c p c violated its own rules now it's be the case that there were there is acquiesced in the commission rely upon as a stray reference at the end of the decision to the one nine hundred ninety eight generic internet order which they suggest somehow means that the c p c has ruled here in v context that these calls are not subject to reciprocal compensation that's simply cannot be true that is saying that us the background on elaborated reference to an earlier decision on a different issue is going to if this rate the central tenant of the stripping out page in calls as it allowed it to depart from the f c c these three to one ratio without rebutting the accuracy of the f c c is ratio and that is something that the f c c does not allow it's clear under paragraphs eight and seventy nine of its order that you either apply the ratio or you provide it but if you rebut it the party needs to actually show that the amount of internet found traffic and it is terminated is not accurately measured by the ratio thank you resolved the party's impasse and kept the one thousand and six agreements in effect until the next agreement became a factor and you take a step back and consider the standard of review that applies to that decision by the commission interconnection it's very important to remember that a party that parties who wish to be interconnected must have an interconnection agreement and the scenario where the agreement ends and the parties go their separate ways one party gives the other  notice of intent to terminate the other does not request negotiation for a new agreement does not state we wish to remain interconnected in that case in a connection eventually ends in sixty days and the parties are no longer interconnected and they go their separate ways but the second scenario when a party request negotiation we wish to remain interconnected which means we must have an interconnection agreement as with this case involved pac westray that notice there's no disput notice and under the contract the parties agreed to this opening one hundred twenty five day negotiation window the contract states that during those one hundred twenty five days all of the terms and conditions remain in effect the contract does not state and a one hundred twenty six the agreement and the parties go their separate ways with negotiations having failed the penalty is terminations of interconnection now in fact verizon argues that's what it meant that they went twenty six there's no longer interconnection and commissioner p b they assigned commissioner who handled the request by horizon to address the rejected that argument and that's in our supplemental excerpts o with commissioner people rejecting the idea that interconnection has ended on what terms does it continue and the agreement states for one hundred twenty five days after a request for renegotiation the terms and conditions that are there in the agreement stand a fact but on day one hundred twenty secs from then until the next agreement becomes effective the c p c will provide the terms and conditions of the parties set up a dispute resolution mechanism and  waited for and took a calculated risk as to what the speakeasy would do in the course of filling in the terms and conditions for what remained a period of the ninety six agreement where does the c p u see yet or looser terms and conditions conflict with the cap imposed by the f c c the c p s say does not have the authority to violate federal law however the c p c here did not violate federal law because it was working within an existing agreement an agreement that provided for a period during which the c p c would provide the terms and conditions of the final phase of the ninety six agreement and the c p c itself acknowledged conceded would have you when the new agreement becomes effective we will take as a given if you will my words that they have c c rate caps and rate structure applies to that new agreement and so they did and there was never any question reservation on the c p c spark about the new agreement but it was this existing allows to commissions to interpret and enforce they cannot interpret or enforce and conflict with federal law but here there is no conflict with federal law and this relates to some of the points the panel was was raising regarding the term expiring and the words in the structure of the renegotiate expired or expiring agreements but it's very important to remember that sentence does not state this applies to existing agreements as carriers we negotiate expired or expiring agreements and you know if you  think that sentence is perhaps ambiguous the next sentence in that very same paragraph removes any ambiguity because it says this does not affect existing contractual obligations in other words we left the phrase existing obligations out of the first sentence for a reason because it doesn't affect them and various courts cited in our papers have held its prospect of only the right structure and its caps apply to new agreements this was an existing agreement commissions interpret in force their powers all the time under contractual agreements and as long as they don't violate federal law it's pretty much their zone subject to a deferential standard of review that's the case here expiration of the one hundred twenty five day window to the c p c continuing all the terms of the agreement to the rate structure not apply until the new agreement becomes effective and again as i mentioned earlier to a specific rejection of the contention that interconnection ans and they won twenty six thirty agreement terminates on day one twenty six and the parties are left completely separate this agreement could have said that document doing the commissions do all the time interpret in the agreements before them they do not violate federal law such thing it's perfectly stated we are not here establishing your carrier compensation we're beginning the process that laid down policy markers if you will included among the things to be considered rerouting points but no where in there is an exclusive emphasis on routing when stated indeed the statement the document reference is you consider interconnection agreements you consider the volume of traffic exchange you consider routing points these are things we'll be looking at and so th reasonable grafting on a portion of an inner exchange access regime without discussing my next was the time was not reasonable but the important thing here is that decision ninety nine did not establish that routing points would control compensation for this traffic trying to prove that three to one ratio is wrong but i see nothing in her allows you to take something out when you're doing the national ratio so i think the question there your honor is what is reasonably consistent with the objective here which was to identify as the traffic and to recognize  traffic backed out of three to one and one party contended the f c c didn't mention all traffic but the f c c itself said it's reasonably consistent to remove toll traffic from this calculation of three to one and the rationale i submit their toll traffic obviously is clear that the parties intended to reach agreement within this negotiation period and that was the intent of the contract however that didn't happen here  the party we had ten days to figure something out was basically what it came down to we didn't have time to negotiate a new agreement we didn't have time to do much of anything because the terms of the contract had already extended section you know to make that fairly clear and that's what we did in this instance we believe that that this agreement did not expire and tell a new interconnection agreement was reached and that was several months later after the arbitration expiring internet connection agreements the parties have not yet expired interconnection agreement at this point they've only agreed to disagree and leave it to the commission to resolve how to continue interconnection after the end of the hundred twenty five day window states in short we find that neither position of the competitive local exchange carriers nor the incumbent local exchange carriers provide a completely satisfactory resolution of the intake into carrier compensation issue and  from the point of interconnection and finishing it over my system if you will to the person your customer's trying to reach so you pay me reciprocal compensation of one of my customers because you know i pay you which the company these charges are one of your customers f compensation from the originator of that traffic so it's reciprocal compensation because someone else or some other carriers customer made a caught our customer we had to finish the call and being very layman in these terms i hope it's not  interfering with the court's question ok issue of what should a carrier compensation arrangements be for being x x traffic and the f c c looking at its existing rules acknowledging there's a rule making under way has been for several years in the virginia arbitration order concluded that the better fit with existing federal rules is true for bed charges like this because traffic that originates on one carriers network and goes to the point of interconnection federal law prohibits that carrier from collecting charges for the traffic c is not allowed to cherry pick the record and find a few phrases that and offer his evidence that it is in fact feasible and workable to base a compensation system on actual routing points and terminations and originating points to work this out other than using rating points that it was the industry standard that there was no feasible alternative and they have c c s words to making a determination and running billing systems in real time that i can tell you where to call begins where it ends rating of the calls by the n p a and x x numbers were the only feasible alternative in this case record evidence identified and i briefed before the commission there is no to say well someday pathways you could develop the functional capability and it's been several years in this case but there's yet to be any definition of a functional capability that could be developed in the future how it helps us in the here and now acknowledged it didn't have a way to work around this other than using the n p a and x x numbers reveals that the c p c overreached in the record disregarded contrary evidence and its own purported evidence was really speculation  conjecture how is packed west disadvantaged by this rule the effect of this really are on or is a path west can't use its single point of interconnection arrangement that it exercises under federal law to avoid these charges back west had to move from a single point american action and build out to be able to meet rising traffic closer if you will to where the traffic begins so the advantage rests with usually with rising as the incumbent select a single point of interconnection in the circuit court cases we've cited in our breeze protect that right and tell state commissions you cannot use a long haul cost causation analysis to compensate if you will i likes for having to carry traffic out to the point they're supposed to carry it to the point and that's our position here your honor thank you very much v n x x calls origination charges may not be imposed the rule seven zero three b is the rule that that they're referring to there that's the rule referring to the identifies the circumstance under which origination charges cannot be imposed the f c c itself the full f c c not the wireline bureau has repeatedly said that that rule applies only only to local traffic it's said that in the intercooler compensation and  m which is sixteen f c c are ninety six ten in paragraph one twelve of that ruling the f c c stated that quote our current reciprocal compensation rules preclude and i like from what state commission you mean as you write well the we agree that it's problematic for the state commission to a cop consider this traffic to be both local and trix change and we don't support that position but we  that's correct this court needs to what this core should do is it should vacate we do not believe that both of those things can be correct we believe that federal law does not compel the simple compensation for for transport of the traffic will be determinative and that was a that there's a good reason to do that the reason to do that is to avoid clacks being able to manipulate into care compensation payments if your care compensation and avoid tran transport fees simply by simply by assigning a local telephone number so that it doesn't appear as though the call is a long distance call i do want to briefly discuss and response of the c p c is a suggestion that there was not substantial evidence in the record that is simply incorrect as well you see if you see you have ample record evidence that pack west knows where its wires and where it delivers calls to its customers in fact see what ifs if you see had in front of it in addition to that was evidence and both comments and briefing from the sea from horizon indicating that the way one would do that if you don't have a telephone  numbers given that the telephone numbers appear local is to do a traffic study what a traffic study is a situation where the carrier takes a look on some sampled basis at the calls that are coming in from horizon and it looks at who those are being terminate doesn't sampling to determine some sort of a factor of the call similar to the one that was used in the three to one ratio that some kind of a factor that would then be used on a going forward base to say well about this percent based on our traffic study this percentage of the calls are to be an x x customers and this percentage of the calls are not to be in excess of x customers that is what the risings comment suggested the commission to do and the commission was fully within its authority to choose to do that the virginia arbitration order did not in any way established an expressed rule against the use of traffic studies to measure this this traffic in fact various state commissions there cited in our brief  thinks it's local the purple person is receiving it thinks it's local but we all know that it isn't that it travels outside the local calling area and the last to see has been grappling with this for at least five years that's when they opened the proceeding to examine this issue and they still get to come out with anything yes we believe so because we have in the past and we do in this case separate waiting and routing and that's what we've done here for grading purposes that is for the amount the amount that customers are paying and think that they should be charged this is a local call because that's what customers things they think they're dialing the local  telephone number that is the area and the first three digits determine what the rating of a call should be and if those are the same from customer to customer even if they're not in the same local calling area we have to rate that and that's fine but we think that there has to be some fairness involved here and they can't just get a windfall and that's what we're trying to do here is just find the best resolution and how we get some from the federal government or from the f