Is ISP-Bound Traffic Local or Interstate?

I. INTRODUCTION On February 26, 1999, the Federal Communications Commission ("FCC" or "Commission") issued a Declaratory Ruling that "ISP-bound traffic is jurisdictionally mixed and appears to be largely interstate."(1) The ruling did not invalidate existing interconnection agreements or preempt the state commissions that had "imposed reciprocal compensation obligations for this traffic."(2) Indeed, according to the Declaratory Ruling, "parties should be bound by their existing interconnection agreements, as interpreted by state commissions."(3) On March 24, 2000, the D.C. Circuit Court of Appeals vacated the Declaratory Ruling and remanded the issue to the FCC.(4) Nevertheless, the D.C. Circuit added that incumbents, in the interim, were "free to seek relief from state-authorized compensation that they believe[d] to be wrongfully imposed."(5) In the rich history of communications policy, this particular issue has proven one of the most curious. On the surface, the dispute appears to hinge on jurisdiction and money. The competitive local exchange carriers ("CLECs") maintain that calls initiated on an incumbent's network and transferred through the CLEC's network to an Internet service provider ("ISP") are local calls subject to termination fees under negotiated interconnection agreements. The incumbent local exchange carriers ("ILECs"), however, maintain that ISP-bound traffic is not local because those calls do not terminate at the ISP, but instead access the Internet, a global medium of communication.(6) Two elements of this dispute have defined communications policy for decades: the jurisdictional tension between federal and state regulators, and the self-interested claims and counterclaims of rival telecommunications providers. This Article focuses primarily on the jurisdictional question: Should the FCC declare ISP-bound traffic interstate, and, thus, place it under its jurisdiction?(7) Alternatively, should state commissions on their own initiative intervene to resolve this dispute between the ILECs and CLECs? The substance of this semantic conflict also takes on importance in the debate: What is a local call, and why does this matter to public regulators? Answering these esoteric questions requires some understanding of the rapid changes in information technologies in recent years. Indeed, lurking below the surface of this dispute is an explosion of emerging technologies that threatens to transform the function and scope of the publicly switched telephone network ("PSTN").(8) Part II of this Article explains how the once invincible PSTN has evolved into a diverse, dynamic "network of networks."(9) Part III presents a broad history of the dual federalism of the FCC and the state commissions. Part IV presents an interpretation of why this issue is far more important to communications policy than merely a bitter dispute over a few billion dollars in claims of reciprocal compensation.(10) Data traffic outweighs voice and is growing at a much faster rate.(11) This dispute--the nature of calls to ISPs--foreshadows many technological developments that could threaten to marginalize the publicly switched network.(12) The failure to ascertain the actual costs of transmitting data through the publicly switched network, and to impose those costs on appropriate providers, could undermine the integrity of the publicly switched network as traffic leaps into the digital future of data packet transmission via Internet Protocol ("IP").(13) While all eyes are focused on the bright, shiny Pretty Amazing New Stuff ("PANS"),(14) federal and state regulators must not neglect the tarnished, copper plain old telephone services ("POTS").(15) Indeed, both require a publicly switched network capable of accommodating emerging technologies such as data packet transmission without being subsumed by them.(16) Part V argues that ISP-bound traffic is interstate in nature, and that state commissions should initiate a generic rulemaking process to resolve this dispute, facilitating the next round of interconnection agreements. …