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Reciprocal Compensation
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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 start-ups with thin profit margins, this imposes a significant economic harm on the CLECs servicing ISPs.

Federal Activity

Docket 01-92 Comments on the further notice are due on or before May 23, 2005. Reply comments are due on or before July 20, 2005. Ex Parte
Unified Intercarrier Compensation Regime Express Your Views!  Comments can be filed with the FCC's Electronic Comment Filing System.  FAQ: How to participate in FCC Proceedings.

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.

  1. Further Notice of Proposed Rulemaking (March 3, 2005) [Acrobat]
  2. Industry/Interest Group Reform Proposals:
    1. CBICC - Filed 9/2/04 [Acrobat]
    2. ICF - Filed 10/5/04 [Acrobat]
    3. Alliance For Rational Intercarrier Compensation (ARIC) - Filed 10/25/2004
      1. Plan [Acrobat]
      2. Appendix E Continued: Proposed Rule Revisions - Part 32 [Acrobat]
      3. Appendix E: Proposed Rule Revisions - Part 51 [Acrobat]
      4. Appendix E Continued: Proposed Rule Revisions - Part 61 [Acrobat]
    4. EPG - Filed 11/2/04 [Acrobat]
    5. NASUCA - Filed 12/17/04 [Acrobat]
    6. Western Wireless [Acrobat]
    7. Home/PBT Telecom Proposal[Acrobat]
    8. CTIA Principles[Acrobat]
    9. NARUC
      1. NARUC Principles - Filed 5/5/04 [Acrobat]
      2. NARUC Proposal - Filed 3/1/05 [Acrobat]
      3. NARUC Presentation - Filed 3/1/05 [Acrobat]
  3. Notice of Proposed Rulemaking (April 27, 2001)[Acrobat]
  4. ISP Remand Order (April 27, 2001)[Acrobat]
  5. CORE Forbearance Order (October 18, 2004) [Acrobat]
  6. T-Mobile Declaratory Ruling Report and Order(February 24, 2005) [Acrobat]

FCC WCB Pricing Policy Division

 

State Activity

    Alaska

TelecomAM (June 4, 1998) reports that GCI, an Alaskan CLEC, is suing Anchorage Telephone Utility (ATU) for reciprocal compensation. GCI argues that ATU is refusing to pay reciprocal compensation for local calls terminated to ISPs. The state PUC said that this issue was outside of its jurisdiction and therefore GCI brought the claim to federal court. GCI states that it had originally attempted to set up a bill and keep arrangement with ATU but ATU insisted on reciprocal compensation. ATU is said to owe $550,000 to GCI.

        California

TelecomAM (September 18, 1998) reports that the Florida PSC has become the 21st state to rule that "local calls to Internet service providers (ISP) are subject to local reciprocal terminating compensation." The PSC has ordered BellSouth to pay appropriate charges to Intermedia, Worldcom, MCI, and TCG.

    Illinois

Communications Daily reports that Illinois Court App has upheld ruling that Ameritech must pay Reciprocal Comp to CLECs for ISP traffic.

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

Phone Company Sues over Net Calls, USA Today (May 26, 1998) "Ameritech Wisconsin is suing a competing telephone company and the state Public Service Commission over access to Internet lines. Ameritech filed a lawsuit Friday in U.S. District Court, saying it should not be forced to pay TCG Milwaukee for handling Internet calls for its customers."

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.

    New York

N.Y. PSC Rules ISP Local Calls Don't Need Special Reciprocal Compensation Rate TelecomAM March 24, 1998

    North Carolina

The N.C. Utilities Commission ruled on February 26, 1998 that calls to Internet Service Provider numbers are local calls. Bell South has reportedly appealed that decision on April 27, 1998, to the U.S. District Court for the Western District of North Carolina but is requesting that the court refer the situation to the FCC for resolution. Communications Daily (8/6/98); C|NET Article (8/6/98).

    Ohio

The Ohio PUC has ruled that Ameritech must pay reciprocal compensation for calls placed to ISPs. Communications Daily reports that this makes Ohio the 21st state to rule that calls to ISPs are local. Communications Daily (8/28/98).

Pennsylvania

Bell Atlantic - Pennsylvania Responds to Coverage of Company's Position on Treatment of Calls to Internet (October 2, 1998).

    Texas

US Court Upholds Texas Ruling That Calls to ISPs Are Local (June 19, 1998)
Source: Telecom AM
Description: Judge Lucius Bunton of the U.S. District Court for the Western District of Texas has upheld the Texas Public Utility Commission (PUC) ruling that local calls ending at Internet service provider (ISP) numbers are local traffic under PUC jurisdiction and subject to local reciprocal terminating compensation payments. SBC had contended that the calls are interstate and the PUC has no authority to approve reciprocal compensation on such connections. [from Benton Foundation]

    Washington

Communications Daily (8/6/98) reports that Washington has ruled that calls to ISPs are local calls.

    Wisconsin

TelecomAM (June 11, 1998) MCI has filed a complaint with the Wisconsin PUC, complaining that Ameritech has failed to pay $1.25 million in reciprocal compensation, pursuant to an Interconnection agreement between the companies. Ameritech has refused to pay the reciprocal compensation for calls terminated to local ISPs.

Wyoming

CIX's Comments before the Wyoming PUC May 7, 1999

Rulemakings

 
CC Docket No. 01-92
April 27, 2001		 Ex Parte Period
Intercarrier Compensation Express Your Views!  Comments can be filed with the FCC's Electronic Comment Filing System (note the docket number on the left) . FAQ: How to participate in FCC Proceedings.
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.		 POC: 

Released June 23, 2000 
CC Docket Nos. 96-98, 99-68		 COMMENTS:  July 21, 2000
REPLY COMMENTS:  August 4, 2000
appealed - Reversed and Remanded
Pending Before FCC

Inter-Carrier Compensation for ISP Bound Traffic

 .
"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 another 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."

For the history and review of the previous FCC ISP-Bound telecom Order, read FCC Releases Reciprocal Compensation Order, Boardwatch Magazine (May 1999).

 FCC Fact Sheet on Recip Comp and ISP

USTA v FCC, 290 F.3d 415 (DC Cir 2002) (reversing and remanding the UNE Remand Order)

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 pending, 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

Feb 2, 1999 FCC Order Vacated by DC Circuit Court.  Text of Bell Atlantic v. FCC March 24, 2000

 Public Notice June 23, 2000.  Point of Contact is Rodney McDonald, Competitive Pricing Division, Common Carrier Bureau, (202) 418-1520.  This is an ex parte permit but disclose proceeding.

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.

Bell Atlantic v. FCC (D.C. Circuit March 24, 2000)

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

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

Answers from Chairman Kennard to Questions Concerning the Action taken by FCC on 2/25/99 Regarding Reciprocal Compensation for Dial-Up Internet Traffic.

New Factsheet on "No Consumer Per Minute Charges To Access ISP's". 2/26/99
 

  • 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
  • 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.

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."
  • 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

    Links
  • ALTS HR 4445 Webpage
  • Make it Fair (USTA Campaign)
  • MCI Intercarrier Compensation
  • National Regulatory Research Institute : Reciprocal Compensation : Selected Materials
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