[Federal Register Volume 64, Number 56 (Wednesday, March 24, 1999)]
[Notices]
[Pages 14239-14243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7159]



[[Page 14239]]

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FEDERAL COMMUNICATIONS COMMISSION

[CC Docket No. 96-98; FCC 99-38]


Inter-Carrier Compensation for ISP-bound Traffic.

AGENCY: Federal Communications Commission.

ACTION: Clarification.

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SUMMARY: On February 26, 1999, the Commission released a document in CC 
Docket No. 96-98 concluding that dial-up traffic bound for Internet 
service providers is largely interstate and thus subject to federal 
jurisdiction. The document also makes clear that parties are bound by 
their existing interconnection agreements, as construed by state 
commissions. Parties may have agreed that ISP-bound traffic should be 
subject to reciprocal compensation, or a state commission, in the 
exercise of its statutory authority to arbitrate interconnection 
disputes, may have imposed reciprocal compensation obligations for this 
traffic. In either case, parties are bound by their contracts.

FOR FURTHER INFORMATION CONTACT: Tamara Preiss, Attorney, Common 
Carrier Bureau, Competitive Pricing Division, (202) 418-1520.

SUPPLEMENTARY INFORMATION: This summarizes the Commission's Declaratory 
Ruling in CC Docket No. 96-98, Implementation of the Local Competition 
Provisions in the Telecommunications Act of 1996, FCC 99-38, adopted 
February 25, 1999, and released February 26, 1999. The file in its 
entirety is available for inspection and copying during the weekday 
hours of 9:00 a.m. to 4:30 p.m. in the Commission's Reference Center, 
room 239, 1919 M St., N.W., Washington D.C., or copies may be purchased 
from the Commission's duplicating contractor, ITS, Inc. 1231 20th St., 
N.W., Washington, D.C. 20036, phone (202) 857-3800.

Analysis of Proceeding

I. Introduction

    1. The Commission and the Common Carrier Bureau (Bureau) have 
received a number of requests to clarify whether a local exchange 
carrier (LEC) is entitled to receive reciprocal compensation for 
traffic that it delivers to an information service provider, 
particularly an Internet service provider (ISP). Generally, competitive 
LECs (CLECs) contend that this is local traffic subject to the 
reciprocal compensation provisions of Section 251(b)(5) of the 
Communications Act of 1934 (Act), as amended by the Telecommunications 
Act of 1996. Telecommunications Act of 1996, Public Law 104-104, 110 
Stat. 56, codified at 47 U.S.C. 151 et seq. (1996 Act). Incumbent LECs 
contend that this is interstate traffic beyond the scope of Section 
251(b)(5). After reviewing the record developed in response to these 
requests, the Commission concludes that ISP-bound traffic is 
jurisdictionally mixed and appears to be largely interstate. This 
conclusion, however, does not in itself determine whether reciprocal 
compensation is due in any particular instance. As explained, parties 
may have agreed to reciprocal compensation for ISP-bound traffic, or a 
state commission, in the exercise of its authority to arbitrate 
interconnection disputes under Section 252 of the Act, may have imposed 
reciprocal compensation obligations for this traffic. In the absence, 
to date, of a federal rule regarding the appropriate inter-carrier 
compensation for this traffic, the Commission therefore concludes that 
parties should be bound by their existing interconnection agreements, 
as interpreted by state commissions.

II. Background

    2. Identifying the jurisdictional nature and regulatory treatment 
of ISP-bound communications requires us to determine how Internet 
traffic fits within the Commission's existing regulatory framework.
A. The Internet and ISPs
    3. The Internet is an international network of interconnected 
computers enabling millions of people to communicate with one another 
and to access vast amounts of information from around the world. The 
Internet functions by splitting up information into ``small chunks or 
`packets' that are individually routed . . . to their destination.'' 
Federal-State Joint Board on Universal Service, CC Docket No. 96-45, 
Report to Congress, 13 FCC Rcd 11501 (1998) (Universal Service Report 
to Congress). With packet-switching, ``even two packets from the same 
message may travel over different physical paths through the network . 
. . which enables users to invoke multiple Internet services 
simultaneously, and to access information with no knowledge of the 
physical location of the service where the information resides.'' Id.
    4. An ISP is an entity that provides its customers the ability to 
obtain on-line information through the Internet. ISPs purchase analog 
and digital lines from local exchange carriers to connect to their 
dial-in subscribers. Under one typical arrangement, an ISP customer 
dials a seven-digit number to reach the ISP server in the same local 
calling area. The ISP, in turn, combines ``computer processing, 
information storage, protocol conversion, and routing with transmission 
to enable users to access Internet content and services.'' Id. Under 
this arrangement, the end user generally pays the LEC a flat monthly 
fee for use of the local exchange network and generally pays the ISP a 
flat, monthly fee for Internet access. The ISP typically purchases 
business lines from a LEC, for which it pays a flat monthly fee that 
allows unlimited incoming calls.
    5. Although the Commission has recognized that enhanced service 
providers (ESPs), including ISPs, use interstate access services, since 
1983 it has exempted ESPs from the payment of certain interstate access 
charges. Pursuant to this exemption, ESPs are treated as end users for 
purposes of assessing access charges, and the Commission permits ESPs 
to purchase their links to the public switched telephone network (PSTN) 
through intrastate business tariffs rather than through interstate 
access tariffs. Thus, ESPs generally pay local business rates and 
interstate subscriber line charges for their switched access 
connections to local exchange company central offices. In addition, 
incumbent LEC expenses and revenue associated with ISP-bound traffic 
traditionally have been characterized as intrastate for separations 
purposes. ESPs also pay the special access surcharge when purchasing 
special access lines under the same conditions as those applicable to 
end users. In the Access Charge Reform Order, the Commission decided to 
maintain the existing pricing structure pursuant to which ESPs are 
treated as end users for the purpose of applying access charges. Access 
Charge Reform, CC Docket No. 96-262, First Report and Order, 62 FR 
31868 (June 11, 1997) (Access Charge Reform Order). Thus, the 
Commission continues to discharge its interstate regulatory obligations 
by treating ISP-bound traffic as though it were local.
    6. The Internet provides citizens of the United States with the 
ability to communicate across state and national borders in ways 
undreamed of only a few years ago. The Internet also is developing into 
a powerful instrumentality of interstate commerce. In 1997, the 
Commission decided that retaining the ESP exemption would avoid 
disrupting the still-evolving information services industry and advance 
the goals of the 1996 Act to ``preserve the vibrant and competitive 
free market that presently exists for the Internet and other 
interactive computer services.'' Access Charge Reform Order.

[[Page 14240]]

This Congressional mandate underscores the obligation and commitment of 
this Commission to foster and preserve the dynamic market for Internet-
related services. The Commission emphasizes the strong federal interest 
in ensuring that regulation does nothing to impede the growth of the 
Internet--which has flourished to date under the Commission's ``hands 
off'' regulatory approach--or the development of competition. The 
Commission is mindful of the need to address the jurisdictional 
question at issue here, and the effect the jurisdictional determination 
may have on inter-carrier compensation for ISP-bound traffic, in a 
manner that promotes efficient entry by providers of both local 
telephone and Internet access services, and that, by the same token, 
does not encourage inefficient entry.
B. Incumbent LEC and CLEC Delivery of ISP-Bound Traffic
    7. Section 251(b)(5) of the Act requires all LECs ``to establish 
reciprocal compensation arrangements for the transport and termination 
of telecommunications.'' 47 U.S.C. 251(b)(5). In the Local Competition 
Order, this Commission construed this provision to apply only to the 
transport and termination of ``local telecommunications traffic.'' See 
47 CFR 51.701; Implementation of the Local Competition Provisions in 
the Telecommunications Act of 1996, First Report and Order, CC Docket 
Nos. 96-98, 95-185, 61 FR 45476 (August 29, 1996) (Local Competition 
Order). In order to determine what compensation is due when two 
carriers collaborate to deliver a call to an ISP, the Commission must 
determine as a threshold matter whether this is interstate or 
intrastate traffic. In general, an originating LEC end user's call to 
an ISP served by another LEC is carried (1) by the originating LEC from 
the end user to the point of interconnection (POI) with the LEC serving 
the ISP; (2) by the LEC serving the ISP from the LEC-LEC POI to the 
ISP's local server; and (3) from the ISP's local server to a computer 
that the originating LEC end user desires to reach via the Internet. If 
these calls terminate at the ISP's local server (where another (packet-
switched) ``call'' begins), as many CLECs contend, then they are 
intrastate calls, and LECs serving ISPs are entitled to reciprocal 
compensation for the ``transport and termination'' of this traffic. If, 
however, these calls do not terminate locally, incumbent LECs argue, 
then LECs serving ISPs are not entitled to reciprocal compensation 
under section 251(b)(5).
    8. CLECs argue that, because Section 251(b)(5) of the Act refers to 
the duty to establish reciprocal compensation arrangements for the 
``transport and termination of telecommunications,'' a transmission 
``terminates'' for reciprocal compensation purposes when it ceases to 
be ``telecommunications.'' ``Telecommunications'' is defined in the Act 
as ``the transmission, between or among points specified by the user, 
of information of the user's choosing, without change in the form or 
content of the information as sent and received.'' 47 U.S.C. 153(43). 
CLECs contend that, under this definition, Internet service is not 
``telecommunications'' and that the ``telecommunications'' component of 
Internet traffic terminates at the ISP's local server. In addition, 
CLECs and ISPs argue that, given that ESPs are exempt from paying 
certain interstate access charges and that, as a result, the PSTN links 
serving ESPs are treated as intrastate under the separations regime, 
the services that CLECs provide for ISPs must be deemed local. 
Incumbent LECs contend, however, that the ``telecommunications'' 
terminate not at the ISP's local server, but at the Internet site 
accessed by the end user, in which case these are interstate calls for 
which, they argue, no reciprocal compensation is due.

III. Discussion

    9. The Commission has no rule governing inter-carrier compensation 
for ISP-bound traffic. Generally speaking, when a call is completed by 
two (or more) interconnecting carriers, the carriers are compensated 
for carrying that traffic through either reciprocal compensation or 
access charges. When two carriers jointly provide interstate access 
(e.g., by delivering a call to an interexchange carrier (IXC)), the 
carriers will share access revenues received from the interstate 
service provider. Conversely, when two carriers collaborate to complete 
a local call, the originating carrier is compensated by its end user 
and the terminating carrier is entitled to reciprocal compensation 
pursuant to Section 251(b)(5) of the Act. Until now, however, it has 
been unclear whether or how the access charge regime or reciprocal 
compensation applies when two interconnecting carriers deliver traffic 
to an ISP. As explained, under the ESP exemption, LECs may not impose 
access charges on ISPs; therefore, there are no access revenues for 
interconnecting carriers to share. Moreover, the Commission has 
directed states to treat ISP traffic as if it were local, by permitting 
ISPs to purchase their PSTN links through local business tariffs. As a 
result, and because the Commission had not addressed inter-carrier 
compensation under these circumstances, parties negotiating 
interconnection agreements and the state commissions charged with 
interpreting them were left to determine as a matter of first 
impression how interconnecting carriers should be compensated for 
delivering traffic to ISPs, leading to the present dispute.
A. Jurisdictional Nature of Incumbent LEC and CLEC Delivery of ISP-
Bound Traffic
    10. As many incumbent LECs properly note, the Commission 
traditionally has determined the jurisdictional nature of 
communications by the end points of the communication and consistently 
has rejected attempts to divide communications at any intermediate 
points of switching or exchanges between carriers. In BellSouth 
MemoryCall, for example, the Commission considered the jurisdictional 
nature of traffic that consisted of an incoming interstate transmission 
(call) to the switch serving a voice mail subscriber and an intrastate 
transmission of that message from that switch to the voice mail 
apparatus. Petition for Emergency Relief and Declaratory Ruling Filed 
by BellSouth Corporation, 7 FCC Rcd 1619 (1992) (BellSouth MemoryCall). 
The Commission determined that the entire transmission constituted one 
interstate call, because ``there is a continuous path of communications 
across state lines between the caller and the voice mail service.'' Id. 
The Commission's jurisdictional determination did not turn on the 
common carrier status of either the provider or the services at issue; 
BellSouth MemoryCall is not, therefore, distinguishable on the grounds 
that ISPs are not common carriers.
    11. Similarly, in Teleconnect, the Bureau examined whether a call 
using Teleconnect's ``All-Call America'' (ACA) service, a nationwide 
800 travel service that uses AT&T's Megacom 800 service, is a single, 
end-to-end call. Teleconnect Co. v. Bell Telephone Co. of Penn., E-88-
83, 10 FCC Rcd 1626 (1995) (Teleconnect). Generally, an ACA call is 
initiated by an end user from a common line open end; the call is 
routed through a LEC to an AT&T Megacom line, and is then transferred 
from AT&T to Teleconnect by another LEC. At that point, Teleconnect 
routes the call through the LEC to the end user being called. The 
Bureau rejected the argument that the (ACA) 800 call used

[[Page 14241]]

to connect to an interexchange carrier's (IXC) switch was a separate 
and distinct call from the call that was placed from that switch. The 
Commission affirmed, noting that ``both court and Commission decisions 
have considered the end-to-end nature of the communications more 
significant than the facilities used to complete such communications. 
According to these precedents, the Commission regulates an interstate 
wire communications under the Communications Act from its inception to 
its completion.'' Id. The Commission concluded that ``an interstate 
communication does not end at an intermediate switch. . . . The 
interstate communication itself extends from the inception of a call to 
its completion, regardless of any intermediate facilities.'' Id. In 
addition, in Southwestern Bell Telephone Company, the Commission 
rejected the argument that ``a credit card call should be treated for 
jurisdictional purposes as two calls: one from the card user to the 
interexchange carrier's switch, and another from the switch to the 
called party'' and concluded that ``switching at the credit card switch 
is an intermediate step in a single end-to-end communication.'' In the 
Matter of Southwestern Bell Tel. Co., CC Docket No. 88-180, Order 
Designating Issues for Investigation, 3 FCC Rcd 2339 (1988) 
(Southwestern Bell Tel. Co.).
    12. Consistent with these precedents, the Commission concludes, as 
explained, that the communications at issue here do not terminate at 
the ISP's local server, as CLECs and ISPs contend, but continue to the 
ultimate destination or destinations, specifically at a Internet 
website that is often located in another state. The fact that the 
facilities and apparatus used to deliver traffic to the ISP's local 
servers may be located within a single state does not affect the 
Commission's jurisdiction. As the Commission stated in BellSouth 
MemoryCall, ``this Commission has jurisdiction over, and regulates 
charges for, the local network when it is used in conjunction with the 
origination and termination of interstate calls.'' BellSouth 
MemoryCall. Indeed, in the vast majority of cases, the facilities that 
incumbent LECs use to provide interstate access are located entirely 
within one state. Thus, the Commission rejects MCI WorldCom's assertion 
that the LEC facilities used to deliver traffic to ISPs must cross 
state boundaries for such traffic to be classified as interstate.
    13. The Commission disagrees with those commenters that argue that, 
for jurisdictional purposes, ISP-bound traffic must be separated into 
two components: an intrastate telecommunications service, provided in 
this instance by one or more LECs, and an interstate information 
service, provided by the ISP. As discussed, the Commission analyzes the 
totality of the communication when determining the jurisdictional 
nature of a communication. The Commission previously has distinguished 
between the ``telecommunications services component'' and the 
``information services component'' of end-to-end Internet access for 
purposes of determining which entities are required to contribute to 
universal service. Federal-State Joint Board on Universal Service, 
Report and Order, 62 FR 32862 (June 17, 1997) (Universal Service 
Order). Although the Commission concluded that ISPs do not appear to 
offer ``telecommunications service'' and thus are not 
``telecommunications carriers'' that must contribute to the Universal 
Service Fund, it has never found that ``telecommunications'' end where 
``enhanced'' service begins. To the contrary, in the context of open 
network architecture (ONA) elements, for example, the Commission stated 
that ``an otherwise interstate basic service . . . does not lose its 
character as such simply because it is being used as a component in the 
provision of a[n enhanced] service that is not subject to Title II.'' 
Filing and Review of Open Network Architecture Plans, 54 FR 3453 
(January 24, 1989). The 1996 Act is consistent with this approach. For 
example, as amended by the 1996 Act, Section 3(20) of the 
Communications Act defines ``information services'' as ``the offering 
of a capability for generating, acquiring, storing, transforming, 
processing, retrieving, utilizing, or making available information via 
telecommunications.'' 47 U.S.C. 153(20) (emphasis added). This 
definition recognizes the inseparability, for purposes of 
jurisdictional analysis, of the information service and the underlying 
telecommunications. Although it concluded in the Universal Service 
Report to Congress that ISPs do not provide ``telecommunications'' as 
defined in the 1996 Act, the Commission reiterated the traditional 
analysis that ESPs enhance the underlying telecommunications service. 
Universal Service Report to Congress. Thus, the Commission analyzes ISP 
traffic for jurisdictional purposes as a continuous transmission from 
the end user to a distant Internet site.
    14. Some CLECs note that the language of section 252(d)(2) provides 
for the recovery of the costs of transporting and terminating a 
``call.'' Although the 1996 Act does not define the term ``call,'' 
these CLECs argue that it is used in the 1996 Act in a manner that 
implies a circuit-switched connection between two telephone numbers. 
For example, Adelphia contends that a ``call'' takes place when two 
stations on the PSTN are connected to each other. A call 
``terminates,'' according to Adelphia, when one station on the PSTN 
dials another station, and the second station answers. Under this view, 
the ``call'' associated with Internet traffic ends at the ISP's local 
premises.
    15. The Commission finds that this argument is inconsistent with 
Commission precedent holding that communications should be analyzed on 
an end-to-end basis, rather than by breaking the transmission into 
component parts. The examples cited by CLECs to support the argument 
that calls end at the called number are not dispositive. The statutory 
sections upon which they rely were written to apply to specific 
situations, all of which, as far as the Commission can tell, involve 
traditional telephony connections between two called numbers, as 
opposed to the novel circumstance of Internet traffic.
    16. Nor is the Commission persuaded by CLEC arguments that, because 
the Commission has treated ISPs as end users for purposes of the ESP 
exemption, an Internet call must terminate at the ISP's point of 
presence. The Commission traditionally has characterized the link from 
an end user to an ESP as an interstate access service. In the MTS/WATS 
Market Structure Order, for instance, the Commission concluded that 
ESPs are ``among a variety of users of access service'' in that they 
``obtain local exchange services or facilities which are used, in part 
or in whole, for the purpose of completing interstate calls which 
transit its location and, commonly, another location in the exchange 
area.'' MTS and WATS Market Structure, CC Docket No. 78-72, Memorandum 
Opinion and Order, 48 FR 10319 (March 11, 1983) (MTS/WATS Market 
Structure Order). The fact that ESPs are exempt from access charges and 
purchase their PSTN links through local tariffs does not transform the 
nature of traffic routed to ESPs. That the Commission exempted ESPs 
from access charges indicates its understanding that ESPs in fact use 
interstate access service; otherwise, the exemption would not be 
necessary. The Commission emphasizes that its decision to treat ISPs as 
end users for access charge purposes and, hence, to treat ISP-bound 
traffic as local, does not affect the Commission's ability to exercise 
jurisdiction over such traffic.

[[Page 14242]]

    17, CLECs also argue that the traffic they deliver to ISPs must be 
deemed either ``telephone exchange service'' or ``exchange access.'' 
They contend that ISP traffic cannot be ``exchange access,'' because 
neither LECs nor CLECs assess toll charges for the service. CLEC 
delivery of ISP traffic is, therefore, according to CLECs, ``telephone 
exchange service,'' a form of local telecommunications for which 
reciprocal compensation is due. As discussed, however, the Commission 
consistently has characterized ESPs as ``users of access service'' but 
has treated them as end users for pricing purposes. Thus, the 
Commission is unpersuaded by this argument.
    18. Having concluded that the jurisdictional nature of ISP-bound 
traffic is determined by the nature of the end-to-end transmission 
between an end user and the Internet, the Commission must determine 
whether that transmission constitutes interstate telecommunications. 
Section 2(a) of the Act grants the Commission jurisdiction over ``all 
interstate and foreign communication by wire.'' 47 U.S.C. 152(a). 
Traffic is deemed interstate ``when the communication or transmission 
originates in any state, territory, possession of the United States, or 
the District of Columbia and terminates in another state, territory, 
possession, or the District of Columbia.'' Universal Service Report to 
Congress. In a conventional circuit-switched network, a call that 
originates and terminates in a single state is jurisdictionally 
intrastate, and a call that originates in one state and terminates in a 
different state (or country) is jurisdictionally interstate. The 
jurisdictional analysis is less straightforward for the packet-switched 
network environment of the Internet. An Internet communication does not 
necessarily have a point of ``termination'' in the traditional sense. 
An Internet user typically communicates with more than one destination 
point during a single Internet call, or ``session,'' and may do so 
either sequentially or simultaneously. In a single Internet 
communication, an Internet user may, for example, access websites that 
reside on servers in various states or foreign countries, communicate 
directly with another Internet user, or chat on-line with a group of 
Internet users located in the same local exchange or in another 
country. Further complicating the matter of identifying the 
geographical destinations of Internet traffic is that the contents of 
popular websites increasingly are being stored in multiple servers 
throughout the Internet, based on ``caching'' or website ``mirroring'' 
techniques. After reviewing the record, the Commission concludes that, 
although some Internet traffic is intrastate, a substantial portion of 
Internet traffic involves accessing interstate or foreign websites.
    19. Although ISP-bound traffic is jurisdictionally mixed, incumbent 
LECs argue that it is not technically possible to separate the 
intrastate and interstate ISP-bound traffic. In the current absence of 
a federal rule governing inter-carrier compensation, however, the 
Commission does not find it necessary to reach the question of whether 
such traffic is separable into intrastate and interstate traffic.
    20. The Commission's determination that at least a substantial 
portion of dial-up ISP-bound traffic is interstate does not, however, 
alter the current ESP exemption. ESPs, including ISPs, continue to be 
entitled to purchase their PSTN links through intrastate (local) 
tariffs rather than through interstate access tariffs. Nor, as the 
Commission discusses, is it dispositive of interconnection disputes 
currently before state commissions.
B. Inter-Carrier Compensation for Delivery of ISP-Bound Traffic
    21. The Commission finds no reason to interfere with state 
commission findings as to whether reciprocal compensation provisions of 
interconnection agreements apply to ISP-bound traffic, pending adoption 
of a rule establishing an appropriate interstate compensation 
mechanism. The Commission seeks comment on such a rule In the Matter of 
Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-
Bound Traffic, CC Docket Nos. 96-98, 99-68, FCC 99-38, Declaratory 
Ruling in CC Docket No. 96-98 and Notice of Proposed Rulemaking in CC 
Docket No. 99-68 (rel. February 26, 1999).
    22. Currently, the Commission has no rule governing inter-carrier 
compensation for ISP-bound traffic. In the absence of such a rule, 
parties may voluntarily include this traffic within the scope of their 
interconnection agreements under Sections 251 and 252 of the Act, even 
if these statutory provisions do not apply as a matter of law. Where 
parties have agreed to include this traffic within their section 251 
and 252 interconnection agreements, they are bound by those agreements, 
as interpreted and enforced by the state commissions.
    23. Although the Commission determines that ISP-bound traffic is 
largely interstate, parties nonetheless may have agreed to treat the 
traffic as subject to reciprocal compensation. The Commission's 
treatment of ESP traffic dates from 1983 when the Commission first 
adopted a different access regime for ESPs. Since then, the Commission 
has maintained the ESP exemption, pursuant to which it treats ESPs as 
end users under the access charge regime and permits them to purchase 
their links to the PSTN through intrastate local business tariffs 
rather than through interstate access tariffs. As such, the Commission 
discharged its interstate regulatory obligations through the 
application of local business tariffs. Thus, although recognizing that 
it was interstate access, the Commission has treated ISP-bound traffic 
as though it were local. In addition, incumbent LECs have characterized 
expenses and revenues associated with ISP-bound traffic as intrastate 
for separations purposes.
    24. Against this backdrop, and in the absence of any contrary 
Commission rule, parties entering into interconnection agreements may 
reasonably have agreed, for the purposes of determining whether 
reciprocal compensation should apply to ISP-bound traffic, that such 
traffic should be treated in the same manner as local traffic. When 
construing the parties' agreements to determine whether the parties so 
agreed, state commissions have the opportunity to consider all the 
relevant facts, including the negotiation of the agreements in the 
context of this Commission's longstanding policy of treating this 
traffic as local, and the conduct of the parties pursuant to those 
agreements. For example, it may be appropriate for state commissions to 
consider such factors as whether incumbent LECs serving ESPs (including 
ISPs) have done so out of intrastate or interstate tariffs; whether 
revenues associated with those services were counted as intrastate or 
interstate revenues; whether there is evidence that incumbent LECs or 
CLECs made any effort to meter this traffic or otherwise segregate it 
from local traffic, particularly for the purpose of billing one another 
for reciprocal compensation; whether, in jurisdictions where incumbent 
LECs bill their end users by message units, incumbent LECs have 
included calls to ISPs in local telephone charges; and whether, if ISP 
traffic is not treated as local and subject to reciprocal compensation, 
incumbent LECs and CLECs would be compensated for this traffic. These 
factors are

[[Page 14243]]

illustrative only; state commissions, not this Commission, are the 
arbiters of what factors are relevant in ascertaining the parties' 
intentions. Nothing in this Declaratory Ruling, therefore, necessarily 
should be construed to question any determination a state commission 
has made, or may make in the future, that parties have agreed to treat 
ISP-bound traffic as local traffic under existing interconnection 
agreements. Finally, the Commission notes that issues regarding whether 
an entity is properly certified as a LEC if it serves only or 
predominantly ISPs are matters of state jurisdiction.
    25. Even where parties to interconnection agreements do not 
voluntarily agree on an inter-carrier compensation mechanism for ISP-
bound traffic, state commissions nonetheless may determine in their 
arbitration proceedings at this point that reciprocal compensation 
should be paid for this traffic. The passage of the 1996 Act raised the 
novel issue of the applicability of its local competition provisions to 
the issue of inter-carrier compensation for ISP-bound traffic. Section 
252 imposes upon state commissions the statutory duty to approve 
voluntarily-negotiated interconnection agreements and to arbitrate 
interconnection disputes. As the Commission observed in the Local 
Competition Order, state commission authority over interconnection 
agreements pursuant to section 252 ``extends to both interstate and 
intrastate matters.'' Local Competition Order. Thus the mere fact that 
ISP-bound traffic is largely interstate does not necessarily remove it 
from the section 251/252 negotiation and arbitration process. However, 
any such arbitration must be consistent with governing federal law. 
While to date the Commission has not adopted a specific rule governing 
the matter, the Commission notes that its policy of treating ISP-bound 
traffic as local for purposes of interstate access charges would, if 
applied in the separate context of reciprocal compensation, suggest 
that such compensation is due for that traffic.
    26. Some CLECs construe the Commission's rules treating ISPs as end 
users for purposes of interstate access charges as requiring the 
payment of reciprocal compensation for this traffic. Incumbent LECs 
contend, however, that the Commission's rules preclude the imposition 
of reciprocal compensation obligations to interstate traffic and that, 
pursuant to the ESP exemption, LECs carrying ISP-bound traffic are 
compensated by their end user customers--the originating end user or 
the ISP. Either of these options might be a reasonable extension of the 
Commission's rules, but the Commission has never applied either the ESP 
exemption or its rules regarding the joint provision of access to the 
situation where two carriers collaborate to deliver traffic to an ISP. 
As the Commission stated, it currently has no rule addressing the 
specific issue of inter-carrier compensation for ISP-bound traffic. In 
the absence of a federal rule, state commissions that have had to 
fulfill their statutory obligation under section 252 to resolve 
interconnection disputes between incumbent LECs and CLECs have had no 
choice but to establish an inter-carrier compensation mechanism and to 
decide whether and under what circumstances to require the payment of 
reciprocal compensation. Although reciprocal compensation is mandated 
under section 251(b)(5) only for the transport and termination of local 
traffic, neither the statute nor the Commission's rules prohibit a 
state commission from concluding in an arbitration that reciprocal 
compensation is appropriate in certain instances not addressed by 
section 251(b)(5), so long as there is no conflict with governing 
federal law. 47 CFR 51.701(a); Local Competition Order. A state 
commission's decision to impose reciprocal compensation obligations in 
an arbitration proceeding--or a subsequent state commission decision 
that those obligations encompass ISP-bound traffic--does not conflict 
with any Commission rule regarding ISP bound traffic. By the same 
token, in the absence of governing federal law, state commissions also 
are free not to require the payment of reciprocal compensation for this 
traffic and to adopt another compensation mechanism.
    27. State commissions considering what effect, if any, this 
Declaratory Ruling has on their decisions as to whether reciprocal 
compensation provisions of interconnection agreements apply to ISP-
bound traffic might conclude, depending on the bases of those 
decisions, that it is not necessary to re-visit those determinations. 
The Commission recognizes that the Commission's conclusion that ISP-
bound traffic is largely interstate might cause some state commissions 
to re-examine their conclusion that reciprocal compensation is due to 
the extent that those conclusions are based on a finding that this 
traffic terminates at an ISP server, but nothing in this Declaratory 
Ruling precludes state commissions from determining, pursuant to 
contractual principles or other legal or equitable considerations, that 
reciprocal compensation is an appropriate interim inter-carrier 
compensation rule pending completion of the rulemaking initiated In the 
Matter of Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, Inter-Carrier Compensation for ISP-
Bound Traffic, CC Docket Nos. 96-98, 99-68, FCC 99-38, Declaratory 
Ruling in CC Docket No. 96-98 and Notice of Proposed Rulemaking in CC 
Docket No. 99-68 (rel. February 26, 1999).

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 99-7159 Filed 3-23-99; 8:45 am]
BILLING CODE 6712-01-U