Cybertelecom Federal Internet Law & Policy An Educational Project

Intercarrier Compensation

When a customer places a telephone call, and the call goes onto an ILEC (Incumbent Local Exchange Carrier), then onto a CLEC (Competitive Local Exchange Carrier), and then is terminated at an ISP (Internet Service Provider), the ILEC owes the CLEC reciprocal compensation for the termination of the call. Thus, reciprocal compensation is basically a settlement mechanism for telephone traffic transferred between two local networks.  This arrangement is pursuant to the FCC Interconnection Order. The money follows the calls.  But most ISP calls are from users and terminated to ISPs.  This potentially means a lot of money flowing from ILECs to CLECs who have ISPs as customers. The ISPs are considered "end users" pursuant to FCC rules. Therefore the call is a local call. ILECs are claiming, however, that the call to an ISP is a long distance transmission, is not terminated, and therefore reciprocal compensation does not apply. Many ILECs are refusing to pay CLECs the reciprocal compensation. Of course, given that many CLECs are (were) start-ups with thin profit margins, this imposes (imposed) a significant economic harm on the CLECs servicing ISPs.

Broadband Plan Recommendations

• Recommendation 4.8: The FCC should ensure that special access rates, terms and conditions are just and reasonable.

Historical Background

Derived From: Intercarrier Compensation: One Component of Telecommunications Reform, CRS Report to Congress (April 28, 2005)

In a "network industry" such as telecommunications, customers benefit the more people (or companies or websites or databases) they can reach over the network to which they subscribe. Thus, if there is more than one network, consumer benefit is maximized when those networks are interconnected. For most of the 20th century, telephone service was provided by government sanctioned monopoly. When public policy changed and competitive provision of service was permitted, the incumbent providers were required to allow the new entrants to interconnect with their networks in a nondiscriminatory fashion to complete calls made to the incumbents' customers. Otherwise, the incumbents could have used their dominant position to refuse to interconnect with the smaller networks of the new entrants, or to impose onerous interconnection terms and conditions on the entrants, and the latter would have been impeded in their ability to attract and serve customers.

Today, most electronic communications require the use of more than one carrier's network to be completed. For example:

• local wireline telephone calls originate on the network of the calling party's local exchange carrier and terminate on the network of the called party's local exchange carrier (which may be a competing local exchange carrier or an adjacent local exchange carrier rather than the caller's local exchange carrier) or the called party's cellular carrier.
• long distance calls originate on the network of the calling party's local exchange carrier, pass to the network of the calling party's long distance carrier, and then terminate on the network of the called party's local exchange carrier.
• wireless telephone calls originate on the network of the calling party's wireless carrier, are transported over wirelines (typically leased by the wireless carrier from a wireline carrier),19 and then terminate on the network of the called party's local exchange carrier or wireless carrier.
• end-user connections (dial-up or broadband) to information service providers originate on the network of the subscriber's (calling party's) local exchange carrier or broadband provider (wireline, wireless, or cable), may be transported over an intermediate carrier's (transit) network, and terminate on the network of the carrier serving the ISP (the called party).

While sometimes the calling party and called party have the same local or wireless carrier, or sometimes the calling party purchases its local and long distance service from the same carrier, in most cases completion of a call requires the use of more than one carrier's network.

The calling party only pays the local, long distance, or wireless carrier to which it subscribes; it makes no payments to the called party's carrier. And today only in the case of wireless service does the called party pay anything to its carrier for calls received. As a result, a system is needed to compensate the other carriers whose networks are used to complete the call.

Prior to MCI's successful legal challenge to the old Bell system's government sanctioned telephone monopoly21 and the consent decree settlement of the federal government's antitrust suit that resulted in the divestiture of AT&T into separate and independent local and long distance companies,22 there was very limited need for intercarrier compensation since there were very few carriers - only monopoly Bell local operating companies, monopoly independent telephone companies, and AT&T (the monopoly Bell long distance company that served both Bell and non-Bell customers). Local service rates were kept low, to foster the goal of universal service, by setting long distance rates far above cost. Sometimes, when an independent telephone company bordered a Bell company service area, "extended area (local) service" ("EAS") was offered in which a local calling area extended beyond the boundary of the independent telephone company into the Bell service area. EAS service was intended to lower rates to subscribers by allowing calls that otherwise would have been high priced long distance calls to be treated as local calls. When the Bell operating companies terminated EAS calls originating on the independent telephone companies' networks, and vice versa, the companies did not charge one another for such termination, even if the traffic between the two carriers was not in balance. Rather, intercarrier compensation followed a system known as "bill-and-keep," in which no payments were made from one carrier to the other, as if traffic were in balance. With respect to compensation from the long distance division of AT&T to the independent telephone companies for originating and terminating long distance calls, these charges were set based on a complex system of cost "separations" and "settlements" that resulted in the AT&T long distance carrier paying intercarrier compensation rates that far exceeded cost in order to subsidize local service. In the internal accounts of the Bell System, too, payments were made from the long distance division to the various local Bell operating companies that resulted in the AT&T long distance carrier paying origination and termination rates that far exceeded cost.

As competitive provision of telecommunications services has been allowed in a piecemeal fashion over the past 30 years, state and federal regulators have regulated the newly necessary intercarrier compensation rates also on a piecemeal basis, allowing or requiring very high or very low rates in order to foster specific public policy objectives rather than requiring intercarrier compensation rates to be set consistently for all calls. As shown in Figure 1, the resulting rates for performing the same termination functions (transport and switching) vary significantly simply because a particular call is interstate vs. intrastate, or because a service provider has been treated as an end user rather than a carrier, or because a call terminates on a wireless network rather than a wireline network. For example:

• in order to maintain low rates for basic local service - to help meet the goal of universal service - state regulatory commissions and the FCC have allowed local exchange carriers to charge long distance carriers significantly above- cost access charges for originating and terminating intrastate and interstate long distance calls. Although the 1996 Act requires the creation of explicit universal service funding mechanisms,23 and the FCC has established a transition process that has lowered interstate access charges closer to cost,24 some implicit universal service subsidies remain in certain intercarrier compensation charges, especially in rural LECs' intrastate access charges that, as shown in Figure 1, average more than five cents per minute.
• in order to promote enhanced services, the FCC has treated enhanced service providers (including ISPs) as end users, rather than carriers. This allows ISPs to purchase lines out of the local carriers' tariffs for business customers, which do not include usage-based charges, rather than out of the tariffs for interexchange carriers, which have usage-based charges for both originating and terminating calls. Since ISP customers often stay online for long periods of time, if ISPs had to pay minute-of-use access rates it would have made it prohibitively expensive to offer flat rated retail service.
• the FCC adopted rules25 to implement statutory language in the 1996 Act requiring reciprocal compensation arrangements for the transport and termination of telecommunications between competing local exchange carriers at rates approximating the "additional costs" of performing those functions.26 These rules covered the local calls of local exchange carriers and the intraMTA calls of CMRS (wireless) carriers.
• since wireless service in the past was seen as a niche service whose customers made a lot of calls but received very few, and not as a substitute for long distance wireline service, wireless providers are required to pay wireline local exchange carriers access charges for the termination of interMTA calls originating on their networks and terminating on wireline networks, but are not allowed to charge other carriers access charges for the termination of interMTA calls received by their subscribers.

These, and other, inconsistencies in intercarrier compensation requirements are incompatible with competitive telecommunications markets.

Regulatory Activity

Order on Remand and report and order AND FURTHER NOTICE OF PROPOSED RULEMAKING

Adopted: November 5, 2008 Released: November 5, 2008

•  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 (D.C. 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.

Background

•  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.

•  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 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.

•  On May 3, 2002, the D.C. 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.

•  On November 5, 2007, Core filed a petition for writ of mandamus with the D.C. 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.

Discussion

In this order, we respond to the D.C. 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.  

. . . . .

HIGH-COST UNIVERSAL SERVICE SUPPORT; UNIVERSAL SERVICE CONTRIBUTION METHODOLOGY; DEVELOPING A UNIFIED INTERCARRIER COMPENSATION REGIME; ET AL.   FCC Issues Order Responding to D.C. Circuit Mandamus and Joint Board Recommended Decision, Seeks Further Comment on Comprehensive Reform.  By Report and Order and Further Notice of Proposed Rulemaking. (Dkt No.  96-45, 96-98, 99-200). Action by:  the Commission. Adopted:  11/05/2008 by Order on Remand. (FCC No. 08-262).
WCB < http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A1.doc >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A2.doc >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A3.doc >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A1.pdf >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A2.pdf >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A3.pdf >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A1.txt >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A2.txt >
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-262A3.txt >

---

• HIGH-COST UNIVERSAL SERVICE SUPPORT; UNIVERSAL SERVICE CONTRIBUTION METHODOLOGY; DEVELOPING A UNIFIED INTERCARRIER COMPENSATION REGIME; ET AL. FCC Issues Order Responding to D.C. Circuit Mandamus and Joint Board Recommended Decision, Seeks Further Comme, FCC 11/8/2008
• July 8, 2008, the court granted a writ of mandamus
  • FCC Has 4 Months to Justify Rule on Payments for Dial-Up Internet Access, CircleID 7/9/2008
• On March 3, 2005, the Commission issued a Further Notice of Proposed Rulemaking continuing its ongoing re-examination of all regulated forms of intercarrier compensation. This Further Notice seeks comment on reform proposals or principles submitted by the following telecommunications industry and interest groups:

• The Cost Based Intercarrier Compensation Coalition (CBICC)
• The Intercarrier Compensation Forum (ICF)
• Alliance For Rational Intercarrier Compensation (ARIC)
• The Expanded Portland Group (EPG)
• The National Association of State Utility Consumer Advocates (NASUCA)
• Western Wireless
• Home/PBT Telecom
• National Association of Regulatory Utility Commissioners (NARUC)
• CTIA - The Wireless Association (CTIA)

Comments on the further notice are due on or before May 23, 2005. Reply comments are due on or before June 22, 2005.

The Commission began this examination in 2001 by issuing a Notice of Proposed Rulemaking to re-examine intercarrier compensation and develop a more unified regime govering payment flows among telecommunications carriers. Since 2001, the Commission has issued a number of orders addressing issues related to intercarrier compensation for ISP-bound traffic and wireless traffic.

Links to Commission documents and to industry/interest group principles and proposals in the Intercarrier Compensation proceeding are provided below.

• Further Notice of Proposed Rulemaking (March 3, 2005) [Acrobat]
  • FCC Moves to Replace Outmoded Rules Governing Intercarrier Compensation., FCC 2/11/2005
    • Creating Order Out of Intercarrier Compensation Chaos, Topix 2/15/2005
    • Powell Rips FCC Delay on Connection Fee Reform, InternetNews 2/11/2005
  • Industry/Interest Group Reform Proposals:
    • CBICC - Filed 9/2/04 [Acrobat]
    • ICF - Filed 10/5/04 [Acrobat]
    • Alliance For Rational Intercarrier Compensation (ARIC) - Filed 10/25/2004
      • Plan [Acrobat]
      • Appendix E Continued: Proposed Rule Revisions - Part 32 [Acrobat]
      • Appendix E: Proposed Rule Revisions - Part 51 [Acrobat]
      • Appendix E Continued: Proposed Rule Revisions - Part 61 [Acrobat]
    • EPG - Filed 11/2/04 [Acrobat]
    • NASUCA - Filed 12/17/04 [Acrobat]
    • Western Wireless [Acrobat]
    • Home/PBT Telecom Proposal[Acrobat]
    • CTIA Principles[Acrobat]
    • NARUC
      • NARUC Principles - Filed 5/5/04 [Acrobat]
      • NARUC Proposal - Filed 3/1/05 [Acrobat]
      • NARUC Presentation - Filed 3/1/05 [Acrobat]
• T-Mobile Declaratory Ruling Report and Order(February 24, 2005) [Acrobat]
• FCC GRANTS PARTIAL FORBEARANCE FROM ISP REMAND ORDER. News Release. News Media Contact: Mark Wigfield at (202) 418-0253, email: Mark.Wigfield@fcc.gov WCB. Contact Monica Desai at (202) 418-7419, FCC 10/15/2004
  • CORE Forbearance Order (October 18, 2004) [Acrobat]
  • 10/18/04 PETITION OF CORE COMMUNICATIONS, INC. FOR FORBEARANCE UNDER 47 U.S.C. SECTION 160(C) FROM APPLICATION OF THE ISP REMAND ORDER.  Denied the petition with respect to rate caps and the mirroring rule, and granted forbearance with respect to the growth caps and new markets rule. WC Docket No. 03-171. Order: Word | Acrobat
    Adelstein Statement: Word | Acrobat
  • Released: 07/18/2003. PLEADING CYCLE ESTABLISHED FOR CORE COMMUNICATIONS, INC. PETITION FOR FORBEARANCE FROM APPLICATION OF THE ISP REMAND ORDER. (DA No. 03-2362). (Dkt No 03-171). Comments Due: 08/29/2003. Reply Comments Due: 09/19/2003. WCB. Contact: Kathy O'Neill or Steve Morris at (202) 418-1520 COMMENTS: August 29, 2003 REPLY COMMENTS: September 19, 2003, FCC 7/21/03

• Joint Petition of MCI WorldCom Communications, Inc., Brooks Fiber Communications of New York, Inc. and Verizon New York Inc. for Preemption of the Jurisdiction of the New York Public Service Commission Pursuant to Section 252(e)(5) of the Communications Act of 1934, as Amended, MOO May 7, 2003
• USTA v FCC, 290 F.3d 415 (DC Cir May 2002) (reversing and remanding the UNE Remand Order)
• CC Docket No. 01-92 April 27, 2001 NPRM Notice of Proposed Rulemaking (April 27, 2001)[Acrobat]

  1. With this Notice of Proposed Rulemaking (NPRM), we begin a fundamental re-examination of all currently regulated forms of intercarrier compensation.  We intend to test the concept of a unified regime for the flows of payments among telecommunications carriers that result from the interconnection of telecommunications networks under current systems of regulation.  Specifically, we seek comment on the feasibility of a bill-and-keep approach for such a unified regime.  We also seek alternative comment on modifications to existing intercarrier compensation regimes.  In sum, we seek to move forward from the transitional intercarrier compensation regimes to a more permanent regime that consummates the pro-competitive vision of the Telecommunications Act of 1996 ("1996 Act"). 

  2. As discussed below, there are currently two general intercarrier compensation regimes:  (1) access charges for long-distance traffic; and (2) reciprocal compensation.  We believe it essential to re-evaluate these existing intercarrier compensation regimes in light of increasing competition and new technologies, such as the Internet and Internet-based services, and commercial mobile radio services ("CMRS").  We are particularly interested in identifying a unified approach to intercarrier compensation-one that would apply to interconnection arrangements between all types of carriers interconnecting with the local telephone network, and to all types of traffic passing over the local telephone network.  The purpose of this NPRM is to seek comment on the broad universe of existing intercarrier compensation arrangements.  In issuing this NPRM, we do not expect that we will extend intercarrier compensation rules to Internet backbones, on which we do not currently impose rate-making regulation.  Neither do we expect to extend compensation rules to other interconnection arrangements that are not currently subject to rate regulation and that do not exhibit symptoms of market failure.   We do, however, seek comment on whether imposing any particular unified intercarrier compensation regime only with respect to rates that we currently regulate would lead to distortions or other problems that would undermine the benefits of that regime.  We emphasize at the outset that we seek an approach to intercarrier compensation that will encourage efficient use of, and investment in, telecommunications networks, and the efficient development of competition.  Consistent with the deregulatory goals of the 1996 Act, we seek an approach to intercarrier compensation that minimizes the need for regulatory intervention, both now and as competition continues to develop.

  3. In a related order that we are adopting today ("ISP Intercarrier Compensation Order"),  we address intercarrier compensation for traffic that is specifically bound for Internet service providers ("ISPs").  We adopt interim measures that, for the next three years, will significantly reduce, but not altogether eliminate, the flow of intercarrier payments associated with delivery of dial-up traffic to ISPs.  In another order that we are adopting today ("CLEC Access Charge Order"),  we address the access charges that long-distance carriers pay to competitive local exchange carriers (CLECs).  We adopt another three-year interim measure, under which CLECs may file tariffs establishing access rates only if their rates are at or below a benchmark rate, to bring CLEC rates closer to incumbent local exchange carrier ("ILEC") rates.

  4. In this NPRM, we envision that a bill-and-keep regime would fulfill the goals of the two interim measures, combined with the larger goal of a unified regime.  We seek comment on our proposal to adopt a bill-and-keep rule to govern local exchange carrier ("LEC") recovery of costs associated with the delivery of ISP-bound traffic after the three-year interim period.  We also seek comment on the potential adoption of a bill-and-keep approach to reciprocal compensation payments governed by section 251 of the 1996 Act, and the eventual application of bill and keep to interstate access charges regulated under section 201 of the Communications Act of 1934, as amended ("Communications Act").  With respect to all categories of currently-regulated intercarrier compensation, we also seek comment on alternative reform measures that would build upon current requirements for cost-based intercarrier payments

• Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, Intercarrier Compensation for ISP-Bound Traffic, CC Docket No. 99-68, Order on Remand and Report and Order FCC 01-131 (rel. April 27, 2001),
  • petition for review , WorldCom, Inc. v. FCC, D.C. Circuit Nos. 01-1218 et al.
  • FCC RESOLVES CARRIER COMPENSATION RULES FOR INTERNET TRAFFIC; RECIPROCAL COMPENSATION RULING AND ACCOMPANYING PROPOSAL FOR A UNIFIED CARRIER COMPENSATION SYSTEM PROVIDE REGULATORY STABILITY AND FAIRNESS FOR CARRIERS. Reciprocal Compensation Ruling and Accompanying Proposal for a Unified Carrier Compensation System Provide Regulatory Stability and Fairness for Carriers. The FCC announced the adoption of new rules to clarify the proper intercarrier Compensation. News Release. News Media Contact: Michael Balmoris at 202-418-0253 CCB. Contact Tamara Preiss at 202-418-1520 Press Release | Order - Text - Word - PDF
  • ISP Remand Order (April 27, 2001)[Acrobat]
    • FCC Completes Long-Awaited Review of Intercarrier Compensation XChange 6/2001
    • FCC To Reduce Fees Paid By Bells, WSJ 4/14/01
    • Reciprocal Compensation Rules Revised, InternetNews 4/19/01
    • FCC vote puts Bell competitors on hold, CNET 4/14/01
• FCC Releases Two Studies on Inter-Carrier Compensation: Studies Propose New Approaches to Inter-Carrier Compensation for Carriers Interconnected with Local Telephone Networks. 12/13/00 Dec 13 fcc
• Released: June 23, 2000. COMMENT SOUGHT ON REMAND OF THE COMMISSION'S RECIPROCAL COMPENSATION DECLARATORY RULING BY THE U.S. COURT OF APPEALS FOR THE D.C. CIRCUIT.Pleading Cycle Established, Comments Due: July 21, 2000, Reply Comments Due: August 4, 2000. (FCC No. 00-227). Dkt No.: CC-96-98, CC-96-68. Contact: Competitive Pricing Division: Rodney McDonald at (202) 418-1520.

  "On February 26, 1999, the Commission released a Declaratory Ruling and Notice of Proposed Rulemaking to address the issue of inter-carrier compensation for the delivery of telecommunications  traffic to an Internet service provider (ISP).1  In the Reciprocal Compensation Ruling, the Commission determined that ISP-bound calls are not local calls subject to reciprocal compensation under our rules implementing section 251(b)(5) of the Act.2  Using an "end-to-end" analysis of these calls, the Commission concluded that ISP-bound calls do not terminate at the ISP's local server, but instead continue to one or more Internet websites that are often located in anoxther state.3  It therefore found that ISP-bound calls are jurisdictionally mixed, largely interstate, and thus not subject to reciprocal compensation.4  The Commission also acknowledged that there was no federal rule establishing an inter-carrier compensation mechanism for such traffic or governing what amounts, if any, should be paid.5  In the absence of a federal rule regarding the appropriate inter-carrier compensation for ISP-bound traffic, the Commission held that parties were bound by their interconnection agreements as interpreted and enforced by state commissions.6  The Commission sought comment, therefore, in the Reciprocal Compensation Ruling, on a federal inter-carrier compensation mechanism for ISP-bound traffic.7

  "On March 24, 2000, the United States Court of Appeals for the D.C. Circuit vacated certain provisions of the Reciprocal Compensation Ruling, and remanded the matter to the Commission.8  The court ruled that the Commission had not adequately justified the application of its jurisdictional analysis in determining whether a call to an ISP is subject to the reciprocal compensation requirement of section 251(b)(5).9  The court noted that (1) the Commission failed to apply its definition of "termination" to its analysis;10 and (2) cases upon which the Commission relied in its end-to-end analysis can be distinguished on the theory that they involve continuous communications switched by IXCs, as opposed to ISPs, which are not telecommunications providers.11  The court also found that a remand was required because the Commission did not provide a satisfactory explanation as to how its conclusions regarding ISP-bound traffic accord with the statutory definitions of "telephone exchange service" and "exchange access service."12

  "We seek comment on the issues identified by the court in its decision.  In particular, we ask parties to comment on the jurisdictional nature of ISP-bound traffic, as well as the scope of the reciprocal compensation requirement of section 251(b)(5), and on the relevance of the concepts of "termination," "telephone exchange service,"13 "exchange access service,"14 and "information access."15  In addition, we seek to update the record in the pending rulemaking proceeding by inviting parties to comment on any ex parte presentations filed after the close of the reply period on April 27, 1999.  Finally, we seek comment regarding any new or innovative inter-carrier compensation arrangements for ISP-bound traffic that parties may be considering or may have entered into, either voluntarily or at the direction of a state commission, during the pendency of this proceeding."

• Bell Atlantic v. FCC (D.C. Circuit March 24, 2000)
  • Feb 2, 1999 FCC Order Vacated by DC Circuit Court.  Text of Bell Atlantic v. FCC March 24, 2000
  • Appeals court overturns FCC Internet traffic order ZDNet 3/24
• FCC Adopts Order Addressing Dial-Up Internet Traffic: FCC Lets States Decide Whether Existing Interconnections Decisions Affected by Ruling; FCC Seeks Comment on Proposals to Govern Future Compensation Agreements. [ Text | Adobe| Wordperfect |News Release & Statements ] 2/25/99.  Declaratory Ruling Docket 96-98.  NPRM Docket 99-68.  Comments Due April 12 1999 Replies Due April 27 1999
  • Answers from Chairman Kennard to Questions Concerning the Action taken by FCC on 2/25/99 Regarding Reciprocal Compensation for Dial-Up Internet Traffic.
  • Separate Press Release from the Office of Commissioner Harold Furchtgott-Roth: FCC Effectively Overturns State Decisions; Opens Door For Internet Access Charges; Furchtgott-Roth Denied Commissioner Rights. 2/25/99
  • FCC Releases Reciprocal Compensation Order, Boardwatch Magazine (May 1999).
  • Reports of Recip Comp's Demise Are Greatly Exaggerated ISP Planet June 1999
  • Reciprocal Compensation Worth More Than $12 Billion, Internet News 05/99
  • Bell Atlantic Files to End Reciprocal Compensation, Internet News 03/99
  • FCC chief: We won't regulate Net USA Today 03/99
  • FCC commissioner cut out of info loop C|NET 03/99
  • Groan! More Net Fees NY Daily News 03/07/99
  • Flat-rate Net access still alive, for now C|NET 03/99
  • Kennard: FCC Decision Won't Result In ISP Charges - Update CNNfn 03/99
  • FCC Leaves Internet Dial-Up As Local Call TechWeb 03/99
• FCC PN (August 18, 1998):
On September 30, 1996, MFS Communications Company, Inc. (MFS) requested in its Petition for Partial Reconsideration and Clarification of the Local Competition Order that the Commission clarify that section 251(b)(5) of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, (Act) is applicable to traffic destined for information service providers. [See CC Docket No. 96-98]
On June 20, 1997, the Association for Local Telecommunications Services (ALTS) filed a letter [See ALTS Proceeding] with the Common Carrier Bureau (Bureau) making a similar request. On July 2, 1997, the Bureau requested public comment on ALTS's letter. The Bureau created an internal file number, CCB/CPD 97-30, for the filing of comments and ex parte documents regarding ALTS's letter. The pleading cycle on ALTS's letter closed on July 31, 1997. On July 2, 1998, ALTS filed a letter with the Bureau withdrawing its request for clarification.
Parties wishing to make ex parte presentations regarding the applicability of reciprocal compensation to traffic bound for information service providers should reference the Local Competition proceeding, CC Docket No. 96-98, which includes the record developed in CCB/CPD 97-30. The Local Competition proceeding will continue to be treated as permit-but-disclose for purposes of the Commission's ex parte rules. See generally 47 C.F.R. §§ 1.1200-1.1206.
• ALTS Request for Clarification of Commission's Rules Regarding Reciprocal Compensation for ISP Traffic. DA 97-1543
• Public Notice.
• ALTS Letter
• Pleading Cycle: Closed July 24, 1997
• Press Release: ALTS Accuses Bell Atlantic of "Flip Flop" on Reciprocal Compensation for Internet Traffic Washington, D.C., November 14, 1997
• Letter to Chairman Kennard -Requested Clarification on Reciprocal Compensation for ISP Traffic November 19, 1997
• TelecomAM is reporting that ALTS has withdrawn the request, stating that since 19 states have ruled on the issue, there is no longer a need for the FCC to address the issue. (July 6, 1998). Nevertheless this remains an open proceeding at the FCC.
• Bell Atlantic Letter. Bell Atlantic Policy Statement: (June 1998).
• FCC PN (August 18, 1998) acknowledging ALTS withdrawal of petition but noting continuation of proceeding under the Local Competition proceeding CC Docket No. 96-98.
• NARUC Resolution on Reciprocal Compensation.

• Petition for Partial Reconsideration and Clarification of the Local Competition Order (da 96-98)
• On September 30, 1996, MFS Communications Company, Inc. (MFS) requested in its Petition for Partial Reconsideration and Clarification of the Local Competition Order that the Commission clarify that section 251(b)(5) of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, (Act) is applicable to traffic destined for information service providers. In otherwords, that reciprocal compensation would be due for traffic terminated to ISPs.
• Remarks of William E. Kennard Chairman of the  Federal Communications Commission to the National Association of Regulatory Utility Commissioners Orlando, Florida November 11, 1998 (As prepared for delivery)
• See remarks in the GTE DSL proceeding stating that the FCC is not considering the question of reciprocal compensation but that it will release a decision soon.

Federal Activity

• Tauzin Demands Additional Info On Reciprocal Compensation (April 18, 2001)
• HR 4445, the Reciprocal Compensation Adjustment Act.
• Sept 13 House Telecom Sub Committee Mark Up Session on HR 4445
• Commerce Subcommittee To Mark Up Reciprocal Comp Bill Newsbytes 9/11
• Jun 22 Subcommittee on Telecommunications, Trade, and Consumer Protection legislative hearing. This hearing will focus on H.R. 4445, to exempt from reciprocal compensation requirements telecommunications traffic to the Internet. Witnesses will be by invitation only.  11:00 a.m. in 2123 RHOB Real Audio Archive
• May 3 House Subcommittee on Telecommunications hearing focusing on H.R. 4202, the Internet Services Promotion Act of 2000 and H.R. 1291, the Internet Access Charge Prohibition Act of 1999. 10:00 am in 2123 RHOB
• Hearing prepared statements.
• During this hearing, Rep. Boucher called for the repeal of the "unfair" Internet fee, reciprocal compensation for ISP terminated local traffic.  His statements do not appear on the webpage of prepared statements but can be heard on the real audio of the hearing.

State Activity

Alaska

        California

• Pac Bell To Fight Ruling On Net Fees
• Nov 7, 2000 sacbee
• California Stays Course on Reciprocal Compensation InternetNews July 28 1999
• Pacific Bell must pay rivals for ISP calls  C|NET June 28 1999
• California Regulators Deal Pacific Bell Loss InternetNews June 28 1999
• ISP Ruling postponed in California, C|NET June 1999
• California Regulators Postpone Compensation Ruling, InternetNews June 4, 1999
• California postpones vote on Net charges, USA Today June 1999
• C|NET reported on 10/23/1998 that the California PUC has ruled against PacBell and GTE, and that the LECs must pay reciprocal compensation for calls terminated to an ISP.  Agency: Telcos to pay for ISP calls, C|NET 10/23/1998.

Florida

Illinois

Title: Ruling: Internet calls are local
Source: Chicago Tribune
Author: Jon Van Issue: Telephone Regulation Description: Judge David Coar of the U.S. District Court for the Northern District of Illinois has ruled that computer dial up calls to the Internet should be classed as regular, local calls for accounting purposes. The case involves a significant amount of money as Ameritech will now need to pay local phone service competitors "reciprocal compensation" for completing the calls. Judge Coar called the reciprocal compensation agreements arcane and stayed his order for 35 days so Ameritech may file an appeal.

Kentuky

Order PUC (pdf) May 16, 2000 (Bell South must comply with its agreement to provide recip comp for ISP Bound traffic)

Massachusetts

• Massachusetts Regulators Give Bell Atlantic Victory Internet News May 20, 1999
• Press Release:  Bell Atlantic-Massachusetts Announces Rebates, Rate Reduction  Result of State Decision to End Unjustified Fees for Internet-Bound Traffic May 21, 1999
• Communications Daily is reporting that Mass has become the 23rd state to rule that traffic to an ISP is local and reciprocal compensation is due.  However, Mass indicates that it will investigate the situation where CLECs are set up simply to funnel traffic to ISPs and take advantage of reciprocal compensation, indicating that CLECs could lose their status.  October 30, 1998.  Mass. New Release (PDF)

Michigan

MSF (WorldCom) has filed for an order with the Michigan Public Service Corporation in order to direct Ameritech Michigan to honor reciprocal compensation with regards to calls terminated to Internet Service Providers. Ameritech is arguing that such calls are not local calls and therefore are not covered by reciprocal compensation. See TelecomAM October 8, 1997. According to MFS, Ameritech owes MFS $193,000 for calls terminated to ISPs.

Nebraska

• C-1960  In the Matter of the Commission, on its own Motion, to conduct an investigation of the interstate or local characteristics of ISPs
• Docket Opened Dec 15, 1998.
• Orders C-1960/PI-25 - Closing Docket - 3/20/01 | C-1960/PI-26 - Procedural Order - 10/5/99 |C-1960/PI-25 - 12/7/99

Comments AT&T | Aliant | Cable USA | ICG Communications - Joseph Gillan | ICG Communications - Edward Tauer | Internet Nebraska | NITA | Sprint | US West - Gibson | US West - Harris | US West - Wilcox | Von Coalition

New York

North Carolina

Ohio

Pennsylvania

Texas

Washington

Wisconsin

Wyoming

Papers

FERUP Intercarrier Compensation Forum, Executive Summary of Intercarrier Compensation and Universal Service Reform Plan,  August 13, 2004. PDF

NARUC Intercarrier Compensation Reform Update  Winter 2004

Florida Public Service Commission White Paper on Internet Pricing: Regulatory Implications and Future Issues September 25, 2000

FCC INTERCARRIER COMPENSATION FOR DIAL-UP ISP TRAFFIC section 251(b)(5) of the Act requires that all local exchange carriers "establish reciprocal compensation arrangements for the transport and termination of telecommunications."

• Order
• Fact Sheet
• Fact Sheet

NTCA's Position: Intercarrier Compensation Revisions Must Account for Rural Differences

The Battle Over Reciprocal Compensation: The FCC's Ongoing Struggle to Regulate Intercarrier Compensation Fees for ISP-bound Traffic, JSTL 9/6/02

Degraba, Bill and Keep as the Efficient Interconnection Regime? A Reply, Review of Net Economics 5/6/02

Wright, Bill and Keep as the Efficient Interconnection Regime?, Review of Net Economics 5/6/02

News

• FCC Chief Pulls Plan to Rework Phone Fees, Wash Post 11/5/2008
• Opposition Grows To 'Intercarrier Compensation Reform' - Martin's latest baby bell gift not going over well., dslreports 10/30/2008
• Intercarrier Compensation Reform' Means Higher Rates - FCC's Martin to once again wade into decade old fight., dslreports 10/15/2008
• FCC May Revamp Phone, ISP Subsidies Dec 4 cnet
• Intercarrier Compensation For ISP Traffic: An Update ISP Planet 2000?

Links

FCC

• FCC Fact Sheet on Recip Comp and ISP
• New Factsheet on "No Consumer Per Minute Charges To Access ISP's". 2/26/99

ALTS HR 4445 Webpage

Make it Fair (USTA Campaign)

MCI Intercarrier Compensation

National Regulatory Research Institute : Reciprocal Compensation : Selected Materials