California Regulators Postpone Compensation Ruling
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Affordable Internet access for Californians was on the line this week when the state's Public Utilities Commission decided to defer action on a fee dispute between incumbent and local exchange carriers.
CPUC Commissioner Josiah Neeper said the dispute between the carries boiled down to two issues. Whether Pacific Bell must pay reciprocal compensation to Pac-West Telecomm Inc. for termination of Internet traffic calls, and what the amount due should be.
Both issues hinge in part on whether Internet-bound traffic is a local or long-distance call. The high stakes argument in California is further flamed by the fact that nearly 30 percent of the world's Internet traffic is reported to emanate from the state.
Interconnection agreements between the carries include a provision for reciprocal compensation payments. Under most reciprocal compensation agreements, when a local call starts with one phone company and ends up being placed to another company's network, the first company has to pay the second company to terminate the call.
Pacific Bell owes the CLEC, which provides dial-up access to some of the nation's largest ISPs, $46 million in reciprocal compensation payments.
Pacific Bell proposes that local calls be defined as all connections made less that 12-miles from the rate centers of the calling and terminating parties. That would classify most ISP-bound traffic as interstate in nature and exempt from reciprocal compensation fees.
Pac-West Chief Executive Officer Wally Griffin said he couldn't imagine a scenario without reciprocal payment.
"We've built our business plan around our contracts with carriers. Dropping the payment would have a significant impact on our ability to raise capital and serve our customers. We'd have to pass costs along to the ISPs, who would in turn have to pass them to Internet users. Our rural customers would be hardest hit by a PUC decision for Pac Bell."
California is one of a dozen states that are currently reviewing their regulation of reciprocal compensation because in February, the Federal Communications Commission classified calls to the Internet as interstate in nature. Pacific Bell was quick to challenge the October 1998 California PUC order that had reaffirmed calls to the Internet as local in nature.
In April, a state-appointed arbitrator ruled against Pacific Bell in the billing dispute with Pac-West and other California CLECs. Administrative Law Judge Mattson ordered Pacific Bell to pay Pac-West their reciprocal compensation fees and further urged all parties concerned to "stay-the-course" and remain in line with the previous decision made by California State commissioners.
Rather than pay Pac-West reciprocal compensation monies, Pacific Bell filed for a hearing with the CPUC. Meanwhile, the disputed payments were placed into an escrow account pending further review by the California commission.
Pacific Bell spokesperson Bill Mashek said "we don't mind paying Pac-West for local calls our customers make to their network. But the FCC says Internet calls are interstate calls."
Mashek said that an Internet call might originate in Sonoma County and go all over the U.S. before ending, and unlike a brief local call, the connection can last for hours. Pacific Bell contents that Pac-West is using their network to connect people to the Internet and have Pacific Bell pay for every minute someone is online. According to Mashek, in the interest of fairness, reciprocal charges should not apply.
California Commissioner Neeper said he was inclined to agree with the FCC opinion that ISP-bound call traffic is like a long-distance call. Notwithstanding his own predilection, Neeper called for a generic proceeding, rather than further arbitration to settle the reciprocal compensations issues in California.
Neeper said a "generic proceeding will permit consideration of the full range of issues relevant to the determination of ISP-bound traffic as local or interstate and whether reciprocal compensation is the proper means of intercarrier compensation.
The Commissioner added that "any attempt to prejudge FCC or this Commission is premature if down within and arbitration proceeding, which is limited to only two parties whereas the issues affect many other competitive carriers and consumers."
Commissioner Henry M. Duque concurred that the California Commission move slowly to develop a deliberate policy based on a full record with all the affected groups participating in the decision.
Duque said that the CPUC needed to take a "prudent approach to the decision and muddle through to a final resolution."