Reciprocal Compensation Decision Resolves Little
 

Bryan Tramont *

On February 26, 1999, the Federal Communications Commission entered its much-anticipated clarification of how the 1996 Act's Section 251(b)(5) reciprocal compensation provision applies to the jurisdictional status of Internet Service Provider-bound traffic. Inter-Carrier Compensation for ISP-Bound Traffic et al., CC Dockets 96-98 and 99-68 (rel. Feb. 26, 1999). The Decision is such a political and legal high-wire act that it actually does little to settle the ongoing dispute between Incumbent Local Exchange Carriers (ILECs) and their Competitive Local Exchange Carrier (CLEC) rivals.

The Decision generated significant internal conflict at the Commission. Commissioner Furchtgott-Roth alleged that the Chairman ignored Commissioner Furchtgott-Roth's request that the item be pulled from the Commission's agenda. Commissioner Furchtgott-Roth thus decided not to participate in the Commission's final decision. Commissioner Furchtgott-Roth also stated that the Chairman's office had directed the staff to withhold information from other Commissioners. Commissioner Powell issued a separate statement questioning the need for the Decision's exploration of various bases for upholding existing state reciprocal compensation decisions.

The Decision did resolve one issue. The FCC held that Internet traffic is generally interstate based on the traditional jurisdictional examination of the complete end-to-end nature of the underlying communication. As interstate traffic, reciprocal compensation would not traditionally be due. The FCC laid to rest two theories that many states had been using to justify their decisions that reciprocal compensation should be paid on ISP-bound traffic. First, it rejected the CLECs' "two-call" approach that subdivided an Internet session into two communications: a local call from the end user to the ISP point of presence and a second call from the ISP to the desired Internet destination. Second, the Commission also rejected the theory that the FCC's ISP access charge exemption mandated reciprocal compensation for ISP-bound traffic. Based on the FCC's conclusion that ISP-bound traffic is largely interstate, it concluded that Section 251(b)(5) and its corresponding regulations do not apply to this traffic.

Yet the Commission undermined its jurisdictional conclusion by leaving reciprocal compensation determinations to state commissions pending a newly-initiated rulemaking on the topic. The FCC concluded that "the mere fact that ISP-bound traffic is largely interstate does not necessarily remove it from the section 251/252 negotiation and arbitration process." The Decision offered two alternative paths that may lead to application of reciprocal compensation to ISP-bound traffic: (1) parties could voluntarily agree to subject ISP-bound traffic to reciprocal compensation; or (2) states could arbitrate reciprocal compensation disputes—based either on a lack of agreement between the parties or "ambiguous" contract provisions—because "state Commission authority over interconnection agreements pursuant to section 252 `extends to both interstate and intrastate matters.'" Yet this decision leaves in place dozens of state decisions finding this traffic to be local—directly contrary to the Commission's jurisdictional finding that such traffic is interstate. Although some state commissions based their decisions on factors unrelated to the federal jurisdictional issue, it is clear that these decisions would have been impacted by an earlier FCC determination.

The Commission's decision seems to be an unfortunate political compromise. Since the very first interconnection agreements were reached, CLECs have received substantial amounts of reciprocal compensation revenue as the months and ultimately years passed without any FCC determination on this issue. Had the FCC acted promptly on the jurisdictional issue, CLEC reliance on these revenues would never have developed nor would states have been forced to resolve these issues without federal guidance. Now, the Commission must sort out an awkward compromise on the fate of reciprocal compensation.


* Bryan Tramont is an attorney specializing in telecommunications and appellate issues at Wiley, Rein & Fielding. He is Chairman of the Common Carrier Subcommittee for the Telecommunications Group.

   

2001 The Federalist Society