Reciprocal Compensation The duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications State commission to determine negotiated terms and conditions are just and reasonable If 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; Such costs determined on the basis of a reasonable approximation of the additional costs of terminating such calls Bill and Keep possible

The problem with ISP’s Highly asymmetrical traffic Large payments from ILECs to DLECs Was the largest income source for many DLECs

Traffic to ISPs Local or interstate? Regarded as local by many State commissions February 1999 FCC order—interstate by virtue of ”end-to-end” analysis—don’t terminate at ISP—analogous to access service March 2000 DC Circuit vacated that conclusion—why not telephone exchange service? Why are ISPs not like other businesses that use communication services to provide goods and services to customers?

The FCC’s Response NPRM FCC 01-131, April 19, 2001: Traffic delivered to ISPs is “information access” and so not subject to reciprocal compensation ( and so interstate in nature and subject to the FCC) Interim, transitional recovery scheme First six months, ISP-bound traffic capped at a rate of $.0015/MOU; next 18 months, capped at $.0010/MOU; thereafter capped at $.0007/MOU ILEC has to exchange all local traffic at this rate Cap on ISP-bound traffic subject to compensation, previous amount plus 10% growth factor Rebuttable presumption that traffic that exceeds 3:1 ratio is ISP-bound traffic

How long can the interim scheme last? July 8, 2008 DC Circuit Court of Appeals ordered the FCC to provide valid legal justification for its interim rules by November 5, 2008, or the interim rules would be vacated FCC hasn’t responded to the Courts’ requests for justification of its interim approach for 6 years

And there’s more . . . NPRM FCC 01-132 Proceeding to update inter-carrier compensation rules Examine Bill-and-Keep arrangements Examine various compensation arrangements, both local and access Still no decision

Inter-carrier compensation

Missoula Proposal Move intrastate rates to interstate levels Three year transition period Different tracks (smaller ILECs treated differently) Offset revenue losses for the ILECs by Increasing SLC to $10.00 Creating yet another $2.225 billion fund

AT&T-Verizon Proposal Proposed in September of 2008 Uniform termination rate of $.0007 for all traffic regardless of jurisdiction or carrier Increase of SLC to $10.50 Lost revenues by ILECs recovered from USF

FCC’s November 4 Meeting Former FCC Chair tried to ram through a proposal (combining some elements of the AT&T/Verizon proposal) to change inter-carrier compensation and the USF all without time for comment---failed Mentioned in National Broadband Plan as a necessary step to be taken