California Stays Course on Reciprocal Compensation

California regulators Tuesday reaffirmed an earlier ruling that
determined calls made to the Internet are essentially local.

California’s affirmation conflicts with the Federal Communications
February ruling that calls to Internet providers are interstate
in nature. However, the FCC granted states the right to decide reciprocal
compensation disputes while it conducts an in-depth investigation.

The California Public Utilities
ruling requires that Pacific Bell and GTE pay competitive local exchange carriers
millions of dollars in reciprocal compensation feed.

The decision is a blow to Pac Bell and GTE, which had asked the CPUC to
reconsider their June ruling that classified calls to the Net as local.

Briana Gowing, GTE spokesperson, said the incumbent exchange carrier
completely disagrees with the CPUC decision and that GTE has never paid
reciprocal compensation fees for ISP traffic.

“We have always believed that calls made to the Internet are interstate
calls, not local exchanges,” Gowing said.

“The Telecom Act created a loophole for competitors to interpret that voice
regulations could carry over to data. GTE has never paid reciprocal
compensation fees when calls are identified as ISP traffic.”

Under federal law, local phone companies must pay one another a fee when
they handle a local call from each other’s customers. That includes calls
placed by Pac Bell and GTE customers to Internet service providers who use
competing phone companies for local service.

Pac Bell has been keeping their reciprocal compensation money owed to
competitors in an escrow account. In June, the CPUC affirmed an
arbitrator’s report ruling that Pacific Bell is required to compensate
Stockton-based telephone company Pac-West nearly $50 million for routing
calls to the Internet.

On July 22, the CPUC denied Pac Bell’s request for another hearing about
their order to pay Pac West what they owe.

Wally Griffin, Pac West chief executive office, said that Pac Bell was
running out of options in their fight against paying reciprocal
compensation fees.

“I think Pac Bell is running out of bullets for their gun,” Griffin said.
“They are going to have to pay-up soon. If not, we’ll see them in court again.”

Griffin added it was certainly good news that the CPUC remains consistent
in their finding that calls to the Internet are local.

Bill Mashek, Pac Bell spokesperson, said that the California commissioners,
like the FCC, wanted to wait and review the impact reciprocal compensation
payments make on the industry, outside of an arbitrated hearing.

“While the commission decided not to rehear its earlier decision, it’s
obvious all five commissioners want a full review of the financial and
economic impact reciprocal compensation fees make on the industry,” Mashek

“In the meantime the FCC has a complete review of intercarrier compensations rulings in the works. The entire reciprocal compensation process is pending.”

Mashek confirmed that Pac Bell will continue to make timely payments for
voice reciprocal compensation fees, but that monies for termination of
local data calls would continue to be funneled into an escrow account where
distribution proceedings remain pending.

Commissioner Richard A. Bilas said that the order correctly denies a
rehearing for GTE and Pac Bell, but added that reciprocal compensation
issues would benefit from a general review.

“Although I have had several opportunities to decide certain aspects of
reciprocal compensation, I am still left with the impression that this commission would benefit from a generic proceeding.” Bilas added that “One
possible vehicle is the local competition docket.”

Having informed incumbents of the regulatory path to take for a full review
of reciprocal compensation payments in California, Bilas said the issue may be resolved before the end of the year.

“It is my intention for a generic proceeding to begin in the very near future and to have a decision ready for the commission in a few months.”

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