Opinion ID: 781586
Heading Depth: 3
Heading Rank: 1

Heading: THE CPUC GENERIC ORDERS AND THE FCC's IMPLEMENTATION ORDERS

Text: 10 On March 18, 1998, the California Telecommunications Coalition (the Coalition), 6 an ad-hoc group of CLECs (including many of the CLEC Appellees), petitioned the CPUC for an order declaring that calls to ISPs should be treated as local traffic subject to reciprocal compensation provisions in interconnection agreements. The CPUC agreed and issued an order on October 22, 1998, Decision No. 98-10-057 (Oct. 22, 1998) (First CPUC Order). 11 In the First CPUC Order, the CPUC concluded that ISP traffic was intrastate for jurisdictional purposes and local for purposes of interconnection agreements. It reasoned that ISP traffic is comprised of two separate components, one of which is a telecommunications service and the other of which is an information service, and that the first of these components — the telephone call to an ISP's modem — terminates at the modem. The CPUC concluded that, if the customer who originates the call and the ISP modem that receives the call are both within the same local calling area, then the call is local, and that reciprocal compensation provisions applicable to interconnection agreements should apply to the[m] as they do to any other local calls. The CPUC therefore ordered that [a]ll carriers subject to interconnection agreements containing reciprocal compensation provisions are directed to make appropriate reciprocal payment called for in such agreements for the termination of ISP traffic which would otherwise qualify as a local call[.] First CPUC Order, Decision No. 98-10-057, at 22. In reaching its decision, the CPUC did not consider or analyze any specific interconnection agreement. 12 After the CPUC issued its order, the FCC addressed whether 47 U.S.C. § 251(b)(5) required reciprocal compensation payments for ISP traffic. In the Matter of Implementation of the Local Competition Provision in the Telecommunications Act of 1996 ( FCC Declaratory Order ), 14 F.C.C.R. 3689 (1999), vacated, Bell Atl. Tel. Co. v. FCC, 206 F.3d 1 (2000). The FCC concluded that ISP traffic does not terminate at an ISP's modem, and should not be considered as comprising two distinct calls. Id. at 3698 (¶ 13). The FCC instead used an end-to-end analysis to conclude that, for jurisdictional purposes, ISP traffic was substantially interstate. Id. at 3701-02 (¶ 18). On the basis of that conclusion, the FCC further determined that the reciprocal compensation provisions of 47 U.S.C. § 251 and its implementing regulations do not govern inter-carrier compensation for ISP traffic. 14 F.C.C.R. at 3706 n. 87 (¶ 26). 13 Because it had not yet promulgated final rules covering inter-carrier payment for ISP traffic, the FCC also concluded that the ILECs and the CLECs could voluntarily include this traffic within the scope of their interconnection agreements. Id. at 3703 (¶ 22). Where the parties have agreed to include this traffic, it held, they are bound by those agreements, as interpreted and enforced by the state commissions. Id. 14 On July 22, 1999, the CPUC modified its First Order in light of the FCC Declaratory Order, repudiating its jurisdictional analysis, but reaching the same result — that reciprocal compensation provisions of applicable interconnection agreements applied to ISP-bound traffic in California. Decision No. 99-07-047, 12 (Jul. 22, 1999) (Second CPUC Order). The CPUC also rejected Appellants' arguments that an evidentiary hearing was warranted, and that the generic orders constituted a wholesale revision of their interconnection agreements. Instead, it emphasized that its generic orders were the product of a rulemaking proceeding, pursuant to the CPUC's legislative authority. In such instances, it held, the requirements are purely statutory and the agency is not circumscribed by the concept of due process or other restrictions applicable to judicial or quasi-judicial proceedings. Id. 15 On March 24, 2000, the D.C. Circuit vacated the FCC Declaratory Order for want of reasoned decisionmaking. Bell Atl. Tel. Co. v. FCC, 206 F.3d 1, 3 (D.C.Cir.2000). The D.C. Circuit rejected the FCC's attempt to extend the end-to-end analysis for the purpose of determining jurisdiction to the broader purpose of determining whether a call to an ISP fits into the local call model of two collaborating local exchange competitors. Id. at 5-6. In its ruling, the D.C. Circuit noted that, [h]owever sound the end-to-end analysis may be for jurisdictional purposes, the Commission has not explained why viewing these linked telecommunications as continuous works for purposes of reciprocal compensation. Id. at 7. The D.C. Circuit vacated the FCC's ruling and remanded the case to the FCC. 16 On April 19, 2001, the FCC announced the adoption of new rules to clarify the appropriate intercarrier compensation for telecommunications traffic delivered to ISPs. In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Intercarrier Compensation for ISP-Bound Traffic, 16 F.C.C.R. 9151, 9152-53 (2001) ( FCC Remand Order ). The FCC reached the same conclusion it had reached in its first order, but through completely different reasoning. Abandoning the local versus interstate distinction, the FCC concluded that § 251(b)(5) applied to all telecommunications traffic except for categories specifically enumerated in § 251(g). The FCC then concluded that ISP-bound traffic falls within one of the § 251(g) exceptions — information access — and therefore was exempt from § 251(b)(5)'s reciprocal compensation requirements. 17 The FCC established a new hybrid interim compensation mechanism for ISP-bound traffic to limit, if not end, the opportunity for regulatory arbitrage while avoiding a market disruptive `flash-cut' to a pure bill and keep 7 regime. FCC Remand Order, 16 F.C.C.R. at 9187 (¶ 77) (emphasis added). The interim provisions include a series of rate caps for ISP-bound traffic that decrease over time, a cap on the total number of minutes for which a local exchange carrier may receive compensation, and a rebuttable presumption that traffic exchanged between carriers that exceeds a 3:1 ratio of terminating to originating traffic is ISP-bound traffic subject to the interim compensation mechanism. Id. at 9155-57(¶ 8). The FCC also stated that in cases where carriers are not exchanging traffic pursuant to the interconnection agreements prior to the adoption of the FCC Remand Order, such carriers will be required to exchange ISP-bound traffic on a bill and keep basis during the interim period. Id. at 9188 (¶ 81). However, the FCC clearly stated that its Remand Order does not alter existing contractual obligations, except to the extent that parties are entitled to invoke contractual change-of-law provisions. Id. at 9189 (¶ 82). 18 On May 3, 2002, the D.C. Circuit held that the FCC could not rely on § 251(g) as authority to create an exception under § 251(b)(5) for ISP-bound traffic, and remanded the FCC Remand Order to the FCC for further proceedings. WorldCom, Inc. v. FCC, 288 F.3d 429, 430 (D.C.Cir.2002). Because that section [§ 251(g)] is worded simply as a transitional device, preserving various [local exchange carrier] duties that antedated the 1996 Act ... we find the Commission's reliance on Section 251(g) precluded. Id. Although the D.C. Circuit rejected the FCC's reasoning with respect to § 251(g), the court declined to make any further determinations with regard to bill-and-keep and the other interim rules. Id. at 434. And significantly, the court did not vacate the Remand Order, reasoning that many of the petitioners themselves favor bill-and-keep, and there is plainly a nontrivial likelihood that the Commission has authority to elect such a system. Id. As a result, the FCC Remand Order remains in effect pending the FCC's proceedings on remand. See, e.g., Allied-Signal, Inc. v. U.S. Nuclear Regulatory Comm'n, 988 F.2d 146, 150-51 (D.C.Cir.1993). 19