FCC Struggles for Agreement on Reciprocal Compensation Plan

An 8th floor aide said there appears to be agreement about the “outcome” but not the “legal theory” to support the decision. The problem is “the compensation analysis,” said another staffer. Taking federal jurisdiction of such calls would require addressing what compensation would be appropriate and, to add to the difficulty, which jurisdictional analysis is used could play a role in how compensation for ISP-bound calls should be handled. “A key issue is whether pricing and jurisdiction move together,” an aide said. A proposed order, written by the Wireline Bureau, has been circulating among commissioners for about 3 weeks.

The U.S. Appeals Court, D.C., has twice remanded the FCC’s reciprocal compensation orders as they apply to ISP traffic. In both cases, the FCC asserted federal jurisdiction and said ISP traffic wasn’t subject to the Telecom Act’s reciprocal compensation requirements, but the court, while not disagreeing with that decision, said the FCC hadn’t properly justified it within the language of the Telecom Act. The FCC is making a 3rd try in response to the court’s 2nd remand, issued in May 2002. After its most recent remand, the court left current FCC policy in effect, including pricing limits, while the agency rewrote the rules. The agency in its 2nd order had reduced the payments over a period of time to $.0007 per min.

Reciprocal compensation has been a controversial issue since shortly after the Telecom Act was enacted in 1996. At that time, it was thought the payments -- between local carriers for handling each others’ calls -- would flow in both directions. However, CLECs soon gained many ISP customers and the flow of local calls tended to be in one direction -- from Bell customers to CLEC ISPs. That resulted in larger than expected reciprocal compensation bills to the Bells.

Although there’s no specific deadline for the FCC to respond to the D.C. Circuit’s remand, a forbearance petition by Core Communications is due for action Oct. 8. Core has asked the FCC to forbear from applying the ISP- bound traffic rules on Core. It’s doubtful the FCC would act on the Core matter and not the larger order because they're closely related. Splitting off Core is “doable but not optimal,” said one 8th floor staffer.

“There are a number of legal theories,” FCC Comr. Abernathy said Thurs. in answer to a question at a press breakfast: “It’s very dense. It has to do with a number of different sections of the statute. The core question really is what’s the appropriate pricing for traffic that goes to ISPs.” The Commission has addressed this twice before…and it’s been overturned.” Abernathy said the Commission was deliberately moving slowly and carefully: “We'd just as soon not do this again and it’s a very complex legal analysis about the scope of our authority under the statute.”

The debate, punctuated by a steady stream of ex parte filings by industry parties, is centered on which of 2 sections of the Telecom Act should be used as legal justification for a decision on how to treat reciprocal compensation for ISP-bound calls, with neither section very clear on the issue. In a Sept. 24 white paper, Verizon and BellSouth argued that the FCC should regulate ISP-bound traffic under Sec. 201, which outlines the FCC’s power to regulate interstate traffic and doesn’t talk about reciprocal compensation. Others have argued that ISP-bound traffic should be categorized under Sec. 251(b)(5), which gives LECs the “duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications.” That section has been characterized as applying only to local calls, although the language doesn’t say that specifically. One FCC official said use of Sec. 251(b)(5) would bar the FCC from determining rates for handling ISP-bound calls, meaning the states would have that responsibility.

ALTS has argued that the FCC should conclude “that ISP-bound traffic fits squarely within the parameters of section 251(b)(5)” and that “state commissions are the proper arbiters of rates for ISP-bound traffic.” Time Warner urged the agency to “to hold that the plain language of Section 251(b)(5) applies to ISP-bound traffic, reaffirming a prior FCC finding that ISP traffic should be treated like other traffic since the costs of termination are the same.” Time Warner said in an ex parte filing that it met with FCC staff Sept. 24 to emphasize that “the concerns about arbitrage that in large part spurred the FCC’s decisions in this area are no longer as pressing as they once appeared, since dial-up Internet access is decreasing, not increasing.” The company also argued that “the FCC’s authority to establish compensation rates solely under Section 201 for ISP-bound traffic… is legally questionable and would be likely to create continued uncertainty and disputes.”

Some parties have urged the FCC to rely on both sections, a proposal that Verizon and BellSouth assailed in their white paper: “Any holding that ISP-bound traffic is ‘both’ section 251(b)(5) traffic and section 201 traffic is contrary to the statute and would not survive appellate review. The Commission has unquestioned authority to regulate jurisdictionally interstate traffic under section 201; ISP-bound traffic is jurisdictionally interstate. To read section 251(b)(5) as applying to such interstate traffic would significantly limit the Commission’s regulatory authority because section 252 includes procedural and substantive standards that give private parties authority to negotiate terms and that place authority for implication with state commissions.” One commissioner’s aide said the Sec. 252 implications mentioned by the white paper could lead to jurisdictional problems if the service were deemed interstate and yet the legal justification brought up the possibility of state authority.

To add to the complexity, some say relying on Sec. 210 could harm the intercarrier compensation plan offered recently by the inter-industry Intercarrier Compensation Forum (ICF), which is based on Sec. 251(b)(2). The ICF’s efforts to harmonize divergent intercarrier compensation schemes is partially based on Sec. 251(b)(2) and using a different justification might harm the plan, some members of the group have told the agency. Core Communications told the Commission in a Sept. 24 ex parte filing that Sec. 201 wouldn’t work because ISPs purchase service from LECs, not interstate carriers. “Use of section 201, even in part, to regulate ISP-bound traffic would provide little help to the Commission’s effort to harmonize all intercarrier compensation regimes, as intrastate access traffic and local voice traffic… do not fall within section 201,” Core said. The company said use of “the Commission’s section 253 preemption power provides a more effective statutory means for rate harmonization” and suggested “a partial grant” of Core’s forbearance petition “could provide the Commission with the result it is seeking without having to rely on a jurisdictional theory impermissibly grounded in section 201.”