[Federal Register Volume 73, Number 231 (Monday, December 1, 2008)]
[Rules and Regulations]
[Pages 72732-72737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28464]



[[Page 72732]]

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 51, 54, 61, and 69

[WC Docket Nos. 06-122, 05-337, 04-36, 03-109; CC Docket Nos. 01-92, 
99-200, 99-68, 96-98, 96-45; FCC 08-262]


Universal Service Contribution Methodology; High-Cost Universal 
Service Support; IP-Enabled Services; Lifeline and Link Up; Developing 
a Unified Intercarrier Compensation Regime; Numbering Resource 
Optimization; Intercarrier Compensation for ISP-Bound Traffic; 
Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996; Federal-State Joint Board on Universal 
Service

AGENCY: Federal Communications Commission.

ACTION: Clarification.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) took two actions. First, the Commission responded to a 
writ of mandamus that would have vacated the Commission's rules 
governing compensation for ISP-bound traffic had the Commission not 
acted by November 5, 2008. Specifically, the Commission held that 
although ISP-bound traffic falls within the scope of section 251(b)(5) 
of the Communications Act, this interstate, interexchange traffic is to 
be afforded different treatment from other section 251(b)(5) traffic 
pursuant to our authority under section 201 and 251(i) of the Act. The 
Commission thus maintained the $.0007 cap and the mirroring rule. 
Second, the Commission responded to the Comprehensive Reform 
Recommended Decision of the Federal-State Joint Board on Universal 
Service (Joint Board). The Commission is statutorily obligated to 
complete any proceeding regarding subsequent recommendations from the 
Joint Board within one year. The Commission thanked the Joint Board and 
its staff for their hard work in studying these difficult issues and in 
developing their recommendations, but chose not to implement these 
recommendations at this time.

DATES: Effective Date: November 5, 2008.

FOR FURTHER INFORMATION CONTACT: Jennifer McKee, Telecommunications 
Access Policy Division, Wireline Competition Bureau, 202-418-7400 or 
TTY: 202-418-0484 (universal service), or Victoria Goldberg, Pricing 
Policy Division, Wireline Competition Bureau, 202-418-1520 or TTY 202-
418-0484 (intercarrier compensation).

SUPPLEMENTARY INFORMATION: This is the Commission's Order on Remand and 
Report and Order in WC Docket Nos. 06-122, 05-337, 04-36, 03-109; CC 
Docket Nos. 01-92, 99-200, 99-68, 96-98, 96-45, adopted on November 5, 
2008 and released on November 5, 2008. Copies of the Order on Remand 
and Report and Order and Further Notice of Proposed Rulemaking and any 
subsequently filed documents in this matter are or will be available on 
the Commission's Internet site at http://www.fcc.gov and for public 
inspection Monday through Thursday from 8 a.m. to 4:30 p.m. and Friday 
from 8 a.m. to 11:30 a.m. at the FCC Reference Information Center, 
Portals II, 445 12th St., SW., Room CY-A257, Washington, DC 20554. 
Copies of any such documents may also be purchased from the 
Commission's copy contractor, Best Copy and Printing, Inc. (BCPI), 
Portals II, 445 12th St., SW., Room CY-B402, Washington, DC 20554, 
telephone (202) 488-5300, facsimile (202) 488-5563, TTY (202) 488-5672, 
e-mail [email protected]. Accessible formats (computer diskettes, large 
print, audio recording and Braille) are available to persons with 
disabilities by contacting the Consumer & Governmental Affairs Bureau, 
at (202) 418-0531, TTY (202) 418-7365, or at [email protected].

Order on Remand and Report and Order

    1. The actions we take in this order respond to the writ of 
mandamus granted by the United States Court of Appeals for the District 
of Columbia Circuit (DC Circuit) directing the Commission to respond to 
its prior remand of the Commission's intercarrier compensation rules 
for Internet Service Provider (ISP)-bound traffic. As discussed below, 
we conclude that we have authority to impose ISP-bound traffic rules.

A. Background

    2. On February 26, 1999, the Commission issued a Declaratory Ruling 
and Notice of Proposed Rulemaking in which it held that ISP-bound 
traffic is jurisdictionally interstate because end users access 
websites across state lines. Because the Local Competition First Report 
and Order concluded that the reciprocal compensation obligation in 
section 251(b)(5) applied only to local traffic, the Commission found 
in the Declaratory Ruling that ISP-bound traffic is not subject to 
section 251(b)(5). On March 24, 2000, in the Bell Atlantic decision, 
the D.C. Circuit vacated certain provisions of the Declaratory Ruling. 
The court did not question the Commission's finding that ISP-bound 
traffic is interstate. Rather, the court held that the Commission had 
not adequately explained how its end-to-end jurisdictional analysis was 
relevant to determining whether a call to an ISP is subject to 
reciprocal compensation under section 251(b)(5). In particular, the 
court noted that a LEC serving an ISP appears to perform the function 
of ``termination'' because the LEC delivers traffic from the calling 
party through its end office switch to the called party, the ISP.
    3. On April 27, 2001, the Commission released the ISP Remand Order, 
which concluded that section 251(g) excludes ISP-bound traffic from the 
scope of Section 251(b)(5). The Commission explained that section 
251(g) maintains the pre-1996 Act compensation requirements for 
``exchange access, information access, and exchange services for such 
access,'' thereby excluding such traffic from the reciprocal 
compensation requirements that the 1996 Act imposed. The Commission 
concluded that ISP-bound traffic was ``information access'' and, 
therefore, was subject instead to the Commission's section 201 
jurisdiction over interstate communications. The Commission also found 
``convincing evidence in the record'' that carriers had ``targeted ISPs 
as customers merely to take advantage of * * * intercarrier payments'' 
(including offering free service to ISPs, paying ISPs to be their 
customers, and sometimes engaging in outright fraud). It therefore 
adopted an ISP payment regime in order to ``limit, if not end, the 
opportunity for regulatory arbitrage.'' The Commission concluded that a 
bill-and-keep regime might eliminate incentives for arbitrage and force 
carriers to look to their own customers for cost recovery. To avoid a 
flash cut to bill-and-keep, however, the Commission adopted a 
compensation regime pending completion of the Intercarrier Compensation 
proceeding. Specifically, the regime adopted by the Commission 
consisted of: (1) A gradually declining cap on intercarrier 
compensation for ISP-bound traffic, beginning at $.0015 per minute-of-
use and declining to $.0007 per minute-of-use; (2) a growth cap on 
total ISP-bound minutes for which a LEC may receive this compensation; 
(3) a ``new markets rule'' requiring bill-and-keep for the exchange of 
this traffic if two carriers were not exchanging traffic pursuant to an 
interconnection agreement prior to the adoption of the regime; and (4) 
a ``mirroring rule'' that gave incumbent LECs the benefit of the rate 
cap only if

[[Page 72733]]

they offered to exchange all traffic subject to Section 251(b)(5) at 
the same rates. These rate caps reflected the downward trend in 
intercarrier compensation rates contained in then-recently negotiated 
interconnection agreements.
    4. On May 3, 2002, the DC Circuit found that the Commission had not 
provided an adequate legal basis for the rules it adopted in the ISP 
Remand Order. Once again, the court did not question the Commission's 
finding that ISP-bound traffic is jurisdictionally interstate. Rather, 
the court held that section 251(g) of the Act did not provide a basis 
for the Commission's decision. The court held that section 251(g) is 
simply a transitional device that preserved obligations that predated 
the 1996 Act until the Commission adopts superseding rules, and that 
there was no pre-1996 Act obligation with respect to intercarrier 
compensation for ISP-bound traffic. Although the court rejected the 
legal rationale for the compensation rules, the court remanded, but did 
not vacate, the ISP Remand Order to the Commission, and it observed 
that ``there is plainly a non-trivial likelihood that the Commission 
has authority'' to adopt the rules. Accordingly, the rules adopted in 
the ISP Remand Order have remained in effect.
    5. On November 5, 2007, Core filed a petition for writ of mandamus 
with the DC Circuit seeking to compel the Commission to enter an order 
resolving the court's remand in the WorldCom decision. On July 8, 2008, 
the court granted a writ of mandamus and directed the Commission to 
respond to the WorldCom remand in the form of a final, appealable order 
which explains its legal authority to issue the pricing rules for ISP-
bound traffic adopted in the ISP Remand Order . The court directed the 
Commission to respond to the writ of mandamus by November 5, 2008.

B. Discussion

    6. In this order, we respond to the DC Circuit's remand order in 
WorldCom v. FCC, and the court's writ of mandamus in Core 
Communications Inc. Specifically, we hold that although ISP-bound 
traffic falls within the scope of section 251(b)(5), this interstate, 
interexchange traffic is to be afforded different treatment from other 
section 251(b)(5) traffic pursuant to our authority under section 201 
and 251(i) of the Act.
1. Scope of Section 251(b)(5)
    7. As an initial matter, we conclude that the scope of Section 
251(b)(5) is broad enough to encompass ISP-bound traffic. To be sure, 
we acknowledge that, in the Local Competition First Report and Order, 
the Commission found that section 251(b)(5) applies only to local 
traffic, and some commenters continue to press for such an 
interpretation. As other commenters recognize, however, the Commission, 
in the ISP Remand Order, reconsidered that judgment and concluded that 
it was a mistake to read section 251(b)(5) as limited to local traffic, 
given that ``local'' is not a term used in section 251(b)(5). We 
recognize, as the Supreme Court noted in AT&T Corp. v. Iowa Utilities 
Board, that ``[i]t would be a gross understatement to say that the 1996 
Act is not a model of clarity.'' Nevertheless, we find that the better 
view is that section 251(b)(5) is not limited to local traffic.
    8. We begin by looking at the text of the statute. Section 
251(b)(5) imposes on all LECs the ``duty to establish reciprocal 
compensation arrangements for the transport and termination of 
telecommunications.'' The Act broadly defines ``telecommunications'' 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.'' Its scope is not 
limited geographically (``local,'' ``intrastate,'' or ``interstate'') 
or to particular services (``telephone exchange service,'' telephone 
toll service,'' or ``exchange access''). We find that the traffic we 
elect to bring within this framework fits squarely within the meaning 
of ``telecommunications.'' We also observe that had Congress intended 
to preclude the Commission from bringing certain types of 
telecommunications traffic within the section 251(b)(5) framework, it 
could have easily done so by incorporating restrictive terms in section 
251(b)(5). Because Congress used the term ``telecommunications,'' the 
broadest of the statute's defined terms, we conclude that section 
251(b)(5) is not limited only to the transport and termination of 
certain types of telecommunications traffic, such as local traffic.
    9. In the Local Competition First Report and Order the Commission 
concluded that Section 251(b)(5) applies only to local traffic, but 
recognized that ``[u]ltimately * * * the rates that local carriers 
impose for the transport and termination of local traffic and for the 
transport and termination of long distance traffic should converge.'' 
In the ISP Remand Order, the Commission reversed course on the scope of 
section 251(b)(5), finding that ``the phrase `local traffic' created 
unnecessary ambiguities, and we correct that mistake here.'' The ISP 
Remand Order noted that ``the term `local,' not being a statutorily 
defined category, * * * is not a term used in section 251(b)(5).'' The 
Commission found that the scope of section 251(b)(5) is limited only by 
section 251(g), which temporarily grandfathered the pre-1996 Act rules 
governing ``exchange access, information access, and exchange services 
for such access'' provided to interexchange carriers and information 
service providers until ``explicitly superseded by regulations 
prescribed by the Commission.'' On appeal, the DC Circuit left intact 
the Commission's findings concerning the scope of section 251(b)(5), 
although it took issue with other aspects of the ISP Remand Order.
    10. We disagree with commenters who argue that section 251(b)(5) 
only can be applied to traffic exchanged between LECs, and not traffic 
exchanged between a LEC and another carrier. The Commission rejected 
that argument in the Local Competition Order, finding that section 
251(b)(5) applies to traffic exchanged by a LEC and any other 
telecommunications carrier, and adopted rules implementing that 
finding. In a specific application of that principle, the Commission 
concluded that ``CMRS providers will not be classified as LECs,'' but 
nevertheless found that ``LECs are obligated, pursuant to section 
251(b)(5) (and the corresponding pricing standards of section 
252(d)(2)), to enter into reciprocal compensation agreements with all 
CMRS providers.'' No one challenged that finding on appeal, and it has 
been settled law for the past 12 years. We see no reason to revisit 
that conclusion now. While section 251(b)(5) indisputably imposes the 
duty to establish reciprocal compensation arrangements on LECs alone, 
Congress did not limit the class of potential beneficiaries of that 
obligation to LECs.
    11. We also disagree with commenters who argue that section 
252(d)(2)(A)(i) limits the scope of section 251(b)(5). Section 
252(d)(2)(A)(i) provides that a state commission ``shall not consider 
the terms and conditions for reciprocal compensation to be just and 
reasonable'' unless ``such terms and conditions provide for the mutual 
and reciprocal recovery by each carrier of costs associated with the 
transport and termination on each carrier's network facilities of calls 
that originate on the network facilities of the other carrier.'' 
Verizon and others argue that this provision necessarily excludes 
interexchange traffic from the scope of section 251(b)(5), because at 
the time the 1996 Act was passed calls neither originated nor 
terminated on an interexchange carrier's network. We reject this 
reasoning because it

[[Page 72734]]

erroneously assumes that Congress intended the pricing standards in 
section 252(d)(2) to limit the otherwise broad scope of section 
251(b)(5). We do not believe that Congress intended the tail to wag the 
dog.
    12. Section 251(b)(5) defines the scope of traffic that is subject 
to reciprocal compensation. Section 252(d)(2)(A)(i), in turn, deals 
with the mechanics of who owes what to whom, it does not define the 
scope of traffic to which Section 251(b)(5) applies. Section 
252(d)(2)(A)(i) provides that, at a minimum, a reciprocal compensation 
arrangement must provide for the recovery by each carrier of costs 
associated with the transport and termination on each carrier's network 
of calls that originate on the network of the other carrier. Section 
252(d)(2)(A)(i) does not address what happens when carriers exchange 
traffic that originates or terminates on a third carrier's network. 
This does not mean, as Verizon suggests, that Section 251(b)(5) must be 
read as limited to traffic involving only two carriers. Rather, it 
means that there is a gap in the pricing rules in Section 252(d)(2), 
and the Commission has authority under section 201(b) to adopt rules to 
fill that gap.
    13. We also reject Verizon's argument that a telecommunications 
carrier that delivers traffic to an ISP is not eligible for reciprocal 
compensation because the carrier does not ``terminate'' 
telecommunications traffic at the ISP. In the Local Competition Order, 
the Commission defined ``termination'' as ``the switching of traffic 
that is subject to Section 251(b)(5) at the terminating carrier's end 
office switch * * * and delivery of that traffic to the called party's 
premises.'' As the DC Circuit suggested in the Bell Atlantic decision, 
``Calls to ISPs appear to fit this definition: The traffic is switched 
by the LEC whose customer is the ISP and then delivered to the ISP, 
which is clearly the `called party.' '' We agree.
    14. Verizon also argues that the reference to reciprocal 
compensation in the competitive checklist in section 271, which was 
designed to ensure that local markets are open to competition, somehow 
shows that Congress intended to limit the scope of section 251(b)(5) to 
local traffic. We do not see how this argument sheds any light on the 
scope of section 251(b)(5). Congress no doubt included the reference to 
reciprocal compensation in section 271 because section 251(b)(5) 
applies to local traffic, a point that no one disputes. That does not 
suggest, however, that section 251(b)(5) applies only to local traffic.
    15. We need not respond to every other variation of the argument 
that the history and structure of the Act somehow demonstrate that 
section 251(b)(5) is limited to local traffic. At best, these arguments 
show that one plausible interpretation of the statute is that section 
251(b)(5) applies only to local traffic, a view that the Commission 
embraced in the Local Competition First Report and Order. These 
arguments do not persuade us, however, that this is the only plausible 
reading of the statute. Moreover, many of the same arguments based on 
the history and context of the adoption of section 251 to limit its 
scope to local traffic were rejected by the DC Circuit in the context 
of section 251(c). We find that the better reading of the Act as a 
whole, in particular the broad language of section 251(b)(5) and the 
grandfather clause in section 251(g), supports our view that the 
transport and termination of all telecommunications exchanged with LECs 
is subject to the reciprocal compensation regime in sections 251(b)(5) 
and 252(d)(2).
    16. Notwithstanding section 251(b)(5)'s broad scope, we agree with 
the finding in the ISP Remand Order that traffic encompassed by section 
251(g) is excluded from Section 251(b)(5) except to the extent that the 
Commission acts to bring that traffic within its scope. Section 251(g) 
preserved the pre-1996 Act regulatory regime that applies to access 
traffic, including rules governing ``receipt of compensation.'' Here, 
however, the DC Circuit has held that ISP-bound traffic did not fall 
within the section 251(g) carve out from Section 251(b)(5) as ``there 
had been no pre-Act obligation relating to intercarrier compensation 
for ISP-bound traffic.'' As a result, we find that ISP-bound traffic 
falls within the scope of section 251(b)(5).
2. Authority Under Section 201
    17. The section 251(b)(5) finding above, however, does not end our 
legal analysis here. That is because the ISP-bound traffic at issue 
here is clearly interstate in nature and thus also subject to our 
section 201 authority. The Commission unquestionably has authority to 
regulate intercarrier compensation with respect to interstate access 
services, rates charged by CMRS providers, and other traffic subject to 
Commission authority such as ISP-bound traffic. Section 2(a) of the Act 
establishes the Commission's jurisdiction over interstate services, for 
which the Commission ensures just, reasonable, and not unjustly and 
unreasonably discriminatory rates under section 201 and 202. Likewise, 
the Commission has authority over the rates of CMRS providers pursuant 
to section 332 of the Act.
    18. In sections 251 and 252 of the Act, Congress altered the 
traditional regulatory framework based on jurisdiction by expanding the 
applicability of national rules to historically intrastate issues and 
state rules to historically interstate issues. In the Local Competition 
First Report and Order, the Commission found that the 1996 Act created 
parallel jurisdiction for the Commission and the states over interstate 
and intrastate matters under sections 251 and 252. The Commission and 
the states ``are to address the same matters through their parallel 
jurisdiction over both interstate and intrastate matters under Sections 
251 and 252.'' Moreover, section 251(i) provides that ``[n]othing in 
this section shall be construed to limit or otherwise affect the 
Commission's authority under section 201.'' In the Local Competition 
First Report and Order, the Commission concluded that section 251(i) 
``affirms that the Commission's preexisting authority under section 201 
continues to apply for purely interstate activities.''
    19. In implementing sections 251 and 252 in the Local Competition 
First Report and Order, the Commission's treatment of LEC-CMRS traffic 
provides an instructive example. Prior to the 1996 Act, the Commission 
expressly preempted ``state and local regulations of the kind of 
interconnection to which CMRS providers are entitled'' based on its 
authority under sections 201 and 332 of the Act. Nevertheless, in the 
Local Competition First Report and Order, the Commission brought LEC-
CMRS interconnection within the section 251 framework as it relates to 
intraMTA (including interstate intraMTA) traffic. The Commission 
recognized, however, that it continued to retain separate authority 
over CMRS traffic.
    20. Courts confirmed that, in permitting LEC-CMRS interconnection 
to be addressed through the section 251 framework, the Commission did 
not in any way lose its independent jurisdiction or authority to 
regulate that traffic under other provisions of the Act. Thus, although 
the Eighth Circuit invalidated the Commission's TELRIC pricing rules in 
general, it recognized that ``because section 332(c)(1)(B) gives the 
FCC the authority to order LECs to interconnect with CMRS carriers, we 
believe that the Commission has the authority to issue the rules of 
special concern to the CMRS providers, [including the reciprocal 
compensation rules] but only as these provisions apply to CMRS 
providers. Thus, [the pricing] rules * * * remain in full force and 
effect with respect to the CMRS providers, and our order of vacation 
does not apply to them in the CMRS

[[Page 72735]]

context.'' Subsequently, the DC Circuit held that CMRS providers were 
entitled to pursue formal complaints under section 208 of the Act for 
violations of the Commission's reciprocal compensation rules.
    21. We build upon our actions in the Local Competition First Report 
and Order and find here that addressing ISP-bound traffic through the 
section 251 framework does not diminish the Commission's independent 
jurisdiction or authority to regulate traffic under other provisions of 
the Act. Specifically, we retain our authority under section 201 to 
regulate ISP-bound traffic, despite acknowledging that such traffic is 
section 251(b)(5) traffic. With respect to interstate services, the Act 
has long provided us with the authority to establish just and 
reasonable ``charges, practices, classifications, and regulations.'' 
The Commission thus retains full authority to regulate charges for 
traffic and services subject to federal jurisdiction, even when it is 
within the sections 251(b)(5) and 252(d)(2) framework. Because we re-
affirm our findings concerning the interstate nature of ISP-bound 
traffic, which have not been vacated by any court, it follows that such 
traffic falls under the Commission's section 201 authority preserved by 
the Act and that we therefore have the authority to issue pricing rules 
pursuant to that section. This conclusion is reinforced by section 
251(i) of the Act. As the Commission explained in the ISP Remand Order, 
section 251(i) ``expressly affirms the Commission's role in an evolving 
telecommunications marketplace, in which Congress anticipates that the 
Commission will continue to develop appropriate pricing and 
compensation mechanisms for traffic that falls within the purview of 
section 201.'' It concluded that section 251(i), together with section 
201, equips the Commission with the tools necessary to keep pace with 
regulatory developments and new technologies. When read together, these 
statutory sections preserve the Commission's authority to address new 
issues that fall within its section 201 authority over interstate 
traffic, including compensation for the exchange of ISP-bound traffic. 
Consequently, in the ISP Remand Order, the Commission properly 
exercised its authority under section 201(b) to issue pricing rules 
governing the payment of compensation between carriers for ISP-bound 
traffic.
    22. Our result today is consistent with the DC Circuit's opinion in 
Bell Atlantic, which concluded that the jurisdictional nature of 
traffic is not dispositive of whether reciprocal compensation is owed 
under section 251(b)(5). It is also consistent with the DC Circuit's 
WorldCom decision, in which the court rejected the Commission's view 
that section 251(g) excluded ISP-bound traffic from the scope of 
section 251(b)(5), but made no other findings. Finally, this result 
does not run afoul of the Eighth Circuit's decision on remand from the 
Supreme Court in the Iowa Utilities Board litigation, which held that 
``the FCC does not have the authority to set the actual prices for the 
state commissions to use'' under section 251(b)(5). At the time of that 
decision, under the Local Competition First Report and Order, section 
251(b)(5) applied only to local traffic. Thus, the Eighth Circuit 
merely held that the Commission could not set reciprocal compensation 
rates for local traffic. The court did not address the Commission's 
authority to set reciprocal compensation rates for interstate traffic. 
In sum, the Commission plainly has authority to establish pricing rules 
for interstate traffic, including ISP-bound traffic, under section 
201(b), and that authority was preserved by section 251(i).
3. Other Issues
    23. Most commenters urge the Commission to maintain the 
compensation rules governing ISP-bound traffic until the Commission is 
able to complete comprehensive intercarrier compensation reform. These 
parties contend that a higher compensation rate would create new 
opportunities for arbitrage and impose substantial financial burdens on 
wireless companies, incumbent LECs and state public utility 
commissions. They further claim that the existing regime has simplified 
interconnection negotiations.
    24. In the ISP Remand Order, the Commission found that the one-way 
nature of ISP-bound traffic creates significant arbitrage 
opportunities. Due to the unbalanced nature of ISP-bound traffic, the 
Commission observed that reciprocal compensation arrangements created 
enormous incentives for competitive LECs to sign up ISPs as customers. 
The Commission cited evidence that competitive LECs, on average, 
terminated eighteen times more traffic than they originated, resulting 
in annual CLEC reciprocal compensation billings of approximately two 
billion dollars, 90 percent of which was for ISP-bound traffic. The 
Commission concluded that ``the record strongly suggests that CLECs 
target ISPs in large part because of the availability of reciprocal 
compensation payments.'' This undermined the operation of competitive 
markets because competitive LECs were able to recover a 
disproportionate share of their costs from other carriers. To limit 
arbitrage opportunities that arose from ``excessively high reciprocal 
compensation rates,'' the Commission adopted a gradually declining cap 
on intercarrier compensation for ISP-bound traffic, beginning at $.0015 
per minute of use and declining to $.0007 per minute of use, the 
current cap. The Commission derived the rate caps from contemporaneous 
interconnection agreements, in which carriers voluntarily agreed to 
rates comparable to the rate caps adopted by the Commission. The 
interconnection agreements included lower rates for unbalanced traffic 
than for balanced traffic, and the rates declined over time, like the 
rate caps. Although the Commission made no specific findings with 
regard to the actual costs associated with delivering traffic to ISPs, 
it noted evidence in the record that technological advances were 
reducing the costs incurred by carriers when handling all forms of 
traffic. The Commission also noted that ``negotiated reciprocal 
compensation rates continue to decline as ILECs and CLECs negotiate new 
agreements.''
    25. On July 14, 2003, Core Communications, Inc. (``Core'') filed a 
petition pursuant to Section 10 of the Communications Act requesting 
that the Commission forbear from enforcing the rate caps and certain 
other provisions set forth in the ISP Remand Order with respect to the 
exchange of ISP-bound traffic between telecommunications carriers. In 
2004, the Commission denied the petition with respect to rate caps and 
the mirroring rule, determining that Core had satisfied none of the 
three prongs of the statutory test for forbearance. First, the 
Commission found that forbearance from enforcement of the rate caps was 
not consistent with the public interest. To the contrary, the 
Commission concluded that rate caps remained necessary to prevent 
regulatory arbitrage and to promote efficient investment in 
telecommunications services and facilities. Second, the Commission 
found limited potential for discrimination under the rate caps. The 
caps applied to ISP-bound traffic only to the extent that an incumbent 
carrier offered to exchange all traffic at the same rate under section 
251(b)(5). Accordingly, the Commission concluded that Core had not 
proven that the rate caps resulted in impermissible discrimination 
against or between competitive carriers or services. Finally,

[[Page 72736]]

the Commission found that Core had not demonstrated that enforcement of 
the rate caps was not necessary for the protection of consumers. Core 
advanced speculative general claims that the caps caused artificially 
high rates, had forced competitive carriers from the market, and had 
deterred investment in telecommunications services, all to consumers' 
detriment. The Commission rejected these unsupported claims, explaining 
that the rate caps were designed to prevent the subsidization of dial-
up Internet access customers at the expense of consumers of basic 
telephone service and to avoid regulatory arbitrage and discrimination 
between services. For these reasons, the Commission denied Core's 
petition for forbearance insofar as rate caps were concerned.
    26. In 2006, the DC Circuit affirmed our decision not to forbear 
from the rate cap (and the mirroring rule). The Court found reasonable 
the Commission's ``view that the rate caps are necessary to prevent the 
subsidization of dial-up Internet access consumers by consumers of 
basic telephone service'' that would occur if reciprocal compensation 
rates applied to one-way ISP-bound traffic. The Court likewise rejected 
Core's contention that the rate cap was ``unreasonably 
discriminatory,'' both because one-way ISP-bound calls were 
fundamentally different from other forms of traffic and because the 
mirroring rule ensures that ```the caps apply to ISP-bound traffic only 
if an incumbent LEC offers to exchange all section 251(b)(5) traffic at 
the same rate.''' Finally, the Court concluded that the Commission's 
concern that the rate cap was necessary to prevent ```regulatory 
arbitrage' and `distorted economic incentives''' was reasonable.
    27. The policy justifications provided by the Commission in 2001 
for the rules at issue here have not been questioned by any court. In 
addition, the policy justifications provided by the Commission for 
refusing to forbear from enforcement of these rules were upheld by the 
DC Circuit in 2006. We therefore disagree with parties who suggest that 
the Commission, in responding to the DC Circuit's remand in WorldCom, 
must offer detailed new justifications for the ISP intercarrier payment 
regime; we have already offered our justifications for that regime. 
Moreover, both the WorldCom remand and Core writ of mandamus focused on 
the issue of legal authority. We also reject arguments that the 
Commission unlawfully delegated its authority in the ISP Remand Order 
and arguments that the Commission addressed previously in the Core 
Forbearance Order.
    28. The Commission long has stated its intention to move to a more 
unified intercarrier compensation regime. Progress is difficult due to 
competing priorities, such as competition, innovation, universal 
service, and other goals. The Commission recognized in 2001 that ISP-
bound traffic represented a unique arbitrage problem that required 
immediate attention, based on the policy concerns discussed above. The 
Commission remains committed to moving towards a more unified 
intercarrier compensation regime, as evidenced by the Further Notice 
issued in conjunction with this order.
    29. In sum, we maintain the $.0007 cap and the mirroring rule 
pursuant to our Section 201 authority. These rules shall remain in 
place until we adopt more comprehensive intercarrier compensation 
reform.

II. Report and Order--Reform of High-Cost Universal Service Support

    30. In this report and order, we address the ``Recommended 
Decision'' of the Federal-State Joint Board on Universal Service (Joint 
Board), which was released on November 20, 2007. As discussed below, we 
appreciate the great efforts expended by the Joint Board and its staff 
in considering how best to reform the current high-cost support 
mechanism and in developing its recommendations. We choose not to 
implement the recommendations contained in the Comprehensive Reform 
Recommended Decision at this time, however.

A. Background

    31. The 1996 Act amended the Communications Act of 1934 with 
respect to the provision of universal service. In the 1996 Act, 
Congress sought to preserve and advance universal service, while at the 
same time opening all telecommunications markets to competition. 
Section 254(b) of the Act directs the Joint Board and the Commission to 
base policies for the preservation and advancement of universal service 
on several general principles, plus other principles that the 
Commission may establish. Among other things, section 254(b) directs 
that there should be specific, predictable, and sufficient federal and 
state universal service support mechanisms; quality services should be 
available at just, reasonable, and affordable rates; and access to 
advanced telecommunications and information services should be provided 
in all regions of the nation.
    32. The Commission implemented the universal service provisions of 
the 1996 Act in the 1997 Universal Service First Report and Order. 
Among other things, the Commission adopted rules to create explicit 
universal service support mechanisms for customers living in rural and 
high-cost areas. Pursuant to section 254(e) of the Act, an entity must 
be designated as an eligible telecommunications carrier (ETC) to 
receive high-cost universal service support. ETCs may be incumbent 
LECs, or non-incumbent LECs, which are referred to as ``competitive 
ETCs.'' Under the existing high-cost support distribution mechanism, 
incumbent LEC ETCs receive high-cost support for their intrastate 
services based on their costs. Competitive ETCs receive support for 
each line based on the support the incumbent LEC would receive for that 
line in the service area. This support to competitive ETCs is known as 
``identical support.'' The Commission's universal service high-cost 
support rules do not distinguish between primary and secondary lines; 
therefore, high-cost support may go to a single end user for multiple 
connections. Further, the Commission's rules result in subsidizing 
multiple competitors in the same high-cost area.
    33. High-cost support for competitive ETCs has grown rapidly over 
the last several years, placing extraordinary pressure on the federal 
universal service fund. In 2001, high-cost universal service support 
totaled approximately $2.6 billion. By 2007, the amount of high-cost 
support had grown to approximately $4.3 billion per year. In recent 
years, this growth has been due mostly to increased support provided to 
competitive ETCs, which receive high-cost support based on the per-line 
support that the incumbent LECs receive pursuant to the identical 
support rule. Competitive ETC support, in the six years from 2001 
through 2007, has grown from under $17 million to $1.18 billion--an 
annual growth rate of over 100 percent. This ``funded competition'' has 
grown significantly in a large number of rural, insular, or high-cost 
areas; in some study areas more than 20 competitive ETCs currently 
receive support.
    34. To address the growth in competitive ETC support, the Joint 
Board recommended an interim cap on the amount of high-cost support 
available to competitive ETCs, pending comprehensive high-cost 
universal service reform. The Commission adopted this recommendation on 
May 1, 2008.
    35. For the past several years, the Joint Board and the Commission 
have been exploring ways to reform the Commission's high-cost program. 
In the most recent high-cost support

[[Page 72737]]

comprehensive reform efforts, the Joint Board issued a recommended 
decision on November 20, 2007. The Universal Service Joint Board's 
recommended decision included several recommendations to address the 
growth in high-cost support and to reform the high-cost mechanisms. 
Specifically, the Universal Service Joint Board recommended that the 
Commission should: (1) Deliver high-cost support through a provider of 
last resort fund, a mobility fund, and a broadband fund; (2) cap the 
high-cost fund at $4.5 billion, the approximate level of 2007 high-cost 
support; (3) reduce the existing funding mechanisms during a transition 
period; (4) add broadband and mobility to the list of services eligible 
for support under section 254 of the Act; (5) eliminate the identical 
support rule; and (6) ``explore the most appropriate auction mechanisms 
to determine high-cost universal service support.''
    36. On January 29, 2008, the Commission released the Joint Board 
Comprehensive Reform NPRM, seeking comment on the Joint Board's 
Comprehensive Reform Recommended Decision. Pursuant to section 
254(a)(2), the Commission ``shall complete any proceeding to implement 
subsequent recommendations from any Joint Board on universal service 
within one year after receiving such recommendations.''

B. Discussion

    37. We have carefully reviewed the Joint Board's Comprehensive 
Reform Recommended Decision and the comments that were filed in 
response to the Commission's Joint Board Comprehensive Reform NPRM. We 
thank the Joint Board and its staff for their hard work in studying 
these difficult issues and in developing their recommendations. We 
choose not to implement these recommendations at this time, however.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. E8-28464 Filed 11-28-08; 8:45 am]
BILLING CODE 6712-01-P