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3-2500-16646-2 P-421/C-05-721 |
STATE
OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE PUBLIC UTILITIES COMMISSION
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FINDINGS OF FACT, CONCLUSIONS AND
RECOMMENDATIONS ON REMAND |
This
matter came on for hearing before Administrative Law Judge Kathleen D. Sheehy
on July 25-26, 2006, in the Small Hearing Room of the Minnesota Public
Utilities Commission,
Victoria Mandell and Richard Thayer, Corporate Counsel,
Ted Smith, Esq., Stoel, Rives, LLP,
Linda S. Jensen, Assistant Attorney General,
STATEMENT OF THE ISSUES
1. How should the interconnection agreement between Qwest and Level 3 be amended to reflect the change in law contained in the Core Forebearance Order, and is the language proposed by the parties consistent with the definition of “ISP-bound traffic” in the ISP Remand Order?
2. What should the effective date of the amendment be?
Based on the evidence in the record, the Administrative Law Judge makes the following:
FINDINGS OF FACT
1. Level 3 is a
2. The original dispute between the parties involved the question whether the ISP Remand Order,[1] in conjunction with the Core Forebearance Order,[2] required Qwest to pay termination compensation to Level 3 for traffic that originates in one local calling area and terminates in another.
3. The ISP Remand Order provides, in relevant part, that traffic bound for an ISP is not “local” traffic for which reciprocal compensation must be paid under 47 U.S.C. § 251(b)(5); but it is instead “information access” under 47 U.S.C. § 251(g), for which the FCC created a hybrid cost-recovery mechanism, incorporating low per-minute rates with a cap on the total volume of traffic and a “new market” restriction limiting compensation to carriers who were exchanging traffic before April 18, 2001. The rate cap selected by the FCC, $.0007 per minute of use (MOU), was the average rate applicable in 2002 under Level 3’s negotiated agreement with SBC.[3]
4. The parties incorporated
this compensation scheme into their interconnection agreement, which the
Commission approved on April 20, 2001. Because
they exchanged no traffic prior to April 18, 2001, the
5. On October 18, 2004, the FCC issued its Core Forebearance Order, which lifted the “new market restriction” and the growth cap restriction on ISP-bound traffic.[4]
6. The parties could not agree
on how to amend the
7. On May 9, 2005, Level 3 filed a Complaint with the Commission, alleging that Qwest breached its contractual obligation to pay reciprocal compensation for Level 3’s ISP-bound traffic pursuant to the Core Forebearance Order; that Qwest failed to negotiate in good faith an amendment reflecting the FCC’s Core Forebearance Order, in violation of the ICA and state law; and various claims under state law. In its request for relief, Level 3 sought, among other things, a declaration that the ICA, as interpreted in accordance with applicable law, requires Qwest to compensate Level 3 for Level 3’s transport of ISP-bound traffic; an order requiring Qwest to pay all past due reciprocal compensation charges, with late payment charges on all past due amounts; an order approving Level 3’s proposed amendment concerning the Core Forebearance Order and requiring the parties to true-up all billing related to their exchange of ISP-bound traffic back to October 8, 2004, the effective date of the Order; penalties and fines pursuant to Minn. Stat. § 237.461 and 237.462; and an award of attorney’s fees.
8. On May 23, 2005, Qwest
filed an Answer and Counterclaim, denying that non-local traffic bound for an
ISP is “ISP bound traffic” as defined in the
9. In its Counterclaim, Qwest asserted that Level 3 violated the change of law provision in the ICA by billing Qwest for traffic that is not covered by the Core Forebearance Order; that Level 3 had breached its obligation under § 13.4 of the ICA to administer the NXX codes assigned to it and to provide “all required information regarding its network for maintaining the LERG in a timely manner”; and that Level 3 had violated the ICA by routing VNXX traffic over LIS trunks. In its request for relief, Qwest requested denial of Level 3’s requests for relief; an order prohibiting Level 3 from assigning NPA-NXX in geographic locations other than where their ISP equipment is located and directing Level 3 to follow the change of law procedures in the ICA to implement the Core Forebearance Order; and the imposition of penalties pursuant to Minn. Stat. § 237.462.
10. On September 27, 2005, Level 3 and Qwest jointly requested a continuance of the prehearing deadlines for filing dispositive motions and the hearing date, so that they could continue their efforts to negotiate a resolution of these issues. On November 30, 2005, Qwest and Level 3 brought cross-motions for summary disposition on all of their claims and counterclaims, and they filed reply briefs on December 14, 2005.
11. The ALJ’s Report and Recommendation on the cross motions for summary disposition was issued January 18, 2006. In brief, the ALJ concluded that the ISP Remand Order addressed only “local” ISP-bound traffic, in which a call is delivered to an ISP located within the originating caller’s local calling area.[5] Based on this conclusion, the ALJ made various recommendations on the claims and counterclaims asserted by the parties.[6]
12. On May 8, 2006, the Commission adopted the ALJ’s recommendations. The Commission said:
In
particular, the Commission is persuaded that the
13. Because the Department and Qwest requested further opportunity to develop the record concerning the appropriate amendment language, the Commission remanded for further proceedings on the issues identified above.[8] In a subsequent order, the Commission remanded the question of the appropriate effective date of the amendment for further proceedings, so that the Commission could address both issues together.[9]
Factual Background and Terms of Existing
14. The ICA permits the exchange of the following types of traffic: (1) Exchange Access (intraLATA Toll non IXC), which is defined in accordance with Qwest’s current intraLATA toll serving areas and excludes toll provided using switched access purchased by an IXC[10]; (2) Jointly Provided Switched Access (interLATA and intraLATA IXC); and (3) Exchange Service or EAS/Local, which is defined as traffic that is originated and terminated within the local calling area determined by the Commission.[11]
15. The
16. The
17. The
18. With regard to the separate
issue of call termination and delivery costs, the
19. Section 13.4 of the
20. The
To the extent that the Existing [laws] are
changed, vacated, dismissed, stayed or modified, then this Agreement and all
contracts adopting all or part of this Agreement shall be amended to reflect
such modification or change of Existing Rules.
Where the Parties fail to agree upon such an amendment within sixty (60)
days from the effective date of the modification or change of the Existing
Rules, it shall be resolved in accordance with the Dispute Resolution
Provisions of this Agreement.[18]
21. In addition, the
Level 3’s Network
22. When
Level 3 filed its Complaint and initial testimony in this matter in 2005, it
was somewhat vague in describing its facilities in
23. In its initial testimony Level 3 explained the market for VNXX service as follows:
Where ISPs, such as Earthlink or AOL, want to offer dial-up Internet access, they contact an ILEC or CLEC to purchase local service. In Level 3’s situation, the ISP subscribes to Level 3’s DID service and is assigned local numbers from the Level 3 switch in the exchanges where dial-up service is being offered and where Level 3 offers service. The ISPs advise their customers of the numbers that the ISPs have been assigned, who then program the numbers into their computers for accessing the Internet. The customers’ computers then dial these local numbers; the calls are routed from the ILEC to Level 3 in exactly the same manner as other local calls; and Level 3 delivers the calls to the ISP being called.[22]
24. In
its original rebuttal testimony, Level 3 corrected Qwest’s assumption that
traffic is carried by Qwest from points throughout
Qwest carries
traffic originated by its customers, to be terminated to Level 3’s customers,
to Level 3’s Single Point of Interconnection within the LATA, as it is required
by federal law to do. Level 3 is
responsible for carrying the traffic to the appropriate Level 3 switch, whether
that switch is in
25. In its testimony on remand,
Level 3’s description of its network in
26. At the media gateway, an
ISP-bound call that originates in
27. Level
3’s architecture in
Qwest’s Competing Product
28. Qwest and its CLEC affiliate, QCC, provide services to ISPs that compete with the services provided by Level 3. QCC’s product is called Wholesale Dial. Through a combination of local exchange service, dedicated transport, and assignment of NPA-NXX numbers to ISP customers in calling areas that are different from the calling areas in which QCC’s NAS is located, Qwest and QCC provide a service that is the functional equivalent of incoming 1-800 toll service, with no payment of access charges.[33] These services are structured and priced differently than Level 3’s service (QCC purchases local exchange service and transport from Qwest at retail rates), but the record is insufficient to permit a comparison of the total cost of Qwest and QCC’s typical arrangement to that of Level 3.
The Proposed Amendments to the
29. Level 3 proposes to amend the
ISP-bound traffic that is originated by a Qwest end user customer and that is delivered to a point of interconnection with CLEC located within the same Qwest local calling area (as approved by the state Commission) as the originating caller, will be compensated. ISP-bound traffic that is originated by a Qwest end user customer, and that is delivered to a point of interconnection with CLEC located outside of the Qwest caller’s local calling area (as approved by the state Commission) as the originating caller [regardless of either the NPA-NXX dialed or whether the CLEC’s end user customer is assigned an NPA-NXX associated with a rate center in which the Qwest customer is physically located (a/k/a “VNXX Traffic”)] will be subject to a bill and keep arrangement. Qwest’s agreement to the terms in this paragraph is without waiver or prejudice to Qwest’s position that it has never agreed to exchange VNXX Traffic with CLEC.[34]
30. The Department’s proposed language is
identical to Level 3’s, except it removes the reference defining VNXX traffic:
ISP-bound traffic
that is originated by a Qwest end user customer and that is delivered to a point of interconnection with CLEC located
within the same Qwest local calling area (as approved by the state Commission)
as the originating caller, will be compensated. ISP-bound traffic that is originated by a
Qwest end user customer, and that is delivered to a point of interconnection
with CLEC located outside of the Qwest caller’s local calling area (as approved
by the state Commission) as the originating caller [regardless of either the
NPA-NXX dialed or whether the CLEC’s end user customer is assigned an NPA-NXX
associated with a rate center in which the Qwest customer is physically
located] will be subject to a bill and
keep arrangement. Qwest’s agreement
to the terms in this paragraph is without waiver or prejudice to Qwest’s
position that it has never agreed to exchange VNXX Traffic with CLEC.[35]
31. The language proposed by Level 3 and the
Department would accordingly define compensable ISP-bound traffic as traffic
that is delivered to a point of interconnection with Level 3 that is located
within the same Qwest local calling area as the originating caller.
32. If this language were adopted, somewhere between 87% and 98% of Level 3’s ISP-bound traffic would qualify for termination compensation, because Level 3 has POIs in several local calling areas. Only traffic that crosses local calling areas before reaching a Level 3 POI would be considered ineligible for termination compensation; for that traffic, the Department and Level 3 propose a bill and keep arrangement.
33. The Department and Level 3 maintain this language is appropriate because (1) it would be good public policy, in the absence of an express directive from the FCC on how to treat ISP-bound traffic that originates and terminates in different local calling areas; (2) it is easy to identify and measure the traffic at the POI; (3) it would minimize future disputes about what constitutes an ISP’s “presence” in the local calling area; and it would not affect the termination points of traditional local and long-distance traffic, since this rating system would be applied only to ISP-bound traffic.
34. This language, however, does not just fill a void in the absence of direction from the FCC; it is inconsistent with the ISP Remand Order, because it requires the payment of termination compensation for traffic that originates and terminates in different local calling areas. The Commission has already determined that that the interim compensation scheme established in the ISP Remand Order and modified by the Core Forbearance Order was not intended to apply to calls routed across local calling area boundaries, whether by VNXX or otherwise.
35. The language proposed by the Department and Level 3 is not necessary in order to implement the Core Forebearance Order, which simply lifts the caps set in the ISP Remand Order.
36. As an amendment to the existing ICA, this
language would be unfair to Qwest in that Qwest would be responsible for both
the cost of originating the traffic (the transport and entrance facility) and
terminating the call (termination compensation). Although Level 3 assumes the cost of transporting
the traffic on its fiber from
37. This language may well be appropriate,
however, in the context of the arbitration of a new
38. In
Level 3’s current agreement with SBC, for example, Level 3 is required to
establish POIs in a certain number of local calling areas in each state;
“Virtual Foreign Exchange” traffic is expressly treated as local traffic for
purposes of compensation; there is a sharing formula for the costs of
origination; and the current agreed-upon rate is $.0004 per MOU until the
agreement terminates, declining to $.00035 per MOU if the parties agree to
continue operating under the contract after it terminates. In the Level 3 agreement with Verizon (which
covers 26 states), “Virtual Foreign Exchange” traffic is expressly defined as
ISP-bound traffic (except for VOIP); and the current agreed-upon rate ranges
from $.0004 to $.00035 subject to certain conditions.[37] Level 3’s agreement with Bell South still
calls for a bill and keep arrangement, because that agreement had no change of
law provision that required incorporation of the terms of the Core Order.[38]
39. Qwest proposes to amend the
ISP-bound traffic that is originated by a
Qwest end user customer and that is delivered to an ISP customer served by CLEC
where the ISP server is physically located
within the same local calling area (as approved by the state Commission) as the
originating caller, will be compensated.
ISP-bound traffic that is originated by a Qwest end user customer, and
is delivered to CLEC where the ISP is physically located outside the Qwest
caller’s local calling areas (as approved by the state Commission) as the
originating caller [regardless of either the NPA-NXX dialed or whether the
CLEC’s end user customer is assigned an NPA-NXX associated with a rate center
in which the Qwest customer is physically located (a/k/a “VNXX traffic”)] will be subject to the applicable
intercarrier compensation regime.
Qwest’s agreement to the terms of this paragraph is without waiver or
prejudice to Qwest’s position that it has never agreed to exchange VNXX traffic
with CLEC.[39]
40. Qwest has indicated that it has no
technology that would enable it to measure the traffic entitled to compensation
using this mechanism, but that it would rely on Level 3 to claim only eligible
traffic under the
41. Qwest’s proposal to subject VNXX traffic to
the “applicable intercarrier compensation regime” is intended to preserve
Qwest’s position that access charges would be payable for ISP-bound traffic
that crosses local calling areas before being delivered to the ISP.[41]
42. Qwest’s language goes farther than necessary to implement the Core Order consistently with the ISP Remand Order. The ISP Remand Order does not address whether an ILEC may collect access charges for ISP-bound calls that cross local calling areas, nor does it appear that either intrastate or interstate access charges would be appropriate when Level 3 pays all costs of transport from its POI in the originating caller’s local calling area to its media gateway and beyond. The inclusion of Qwest’s language making VNXX traffic subject to the “applicable intercarrier compensation regime” would ensure that the current dispute would live long into the future.
43. Furthermore, it is not necessary to define VNXX traffic in the manner suggested by Qwest, or in any manner at all at this time. The Commission has already determined, in denying Qwest’s motion for summary judgment on Qwest’s counterclaims, that Qwest is obligated to continue exchanging this traffic with Level 3 for the duration of the agreement. In their new agreement, the parties are free to negotiate a definition of the term and provide for its treatment.
44. The ALJ recommends that the change of law reflected in the Core Forbearance Order be effected with the following language:
ISP-bound traffic that is originated by a
Qwest end user customer and that is delivered to an ISP customer served by CLEC
where the ISP has a server located within
the same local calling area (as approved by the state Commission) as the originating
caller, will be compensated.
ISP-bound traffic that is originated by a Qwest end user customer, and
is delivered to CLEC where the ISP is physically located outside the Qwest
caller’s local calling area (as approved by the state Commission) as the
originating caller [regardless of either the NPA-NXX dialed or whether the
CLEC’s end user customer is assigned an NPA-NXX associated with a rate center
in which the Qwest customer is physically located] will be subject to a bill and keep arrangement. Qwest’s agreement to the terms of this
paragraph is without waiver or prejudice to Qwest’s position that it has never
agreed to exchange VNXX traffic with CLEC.
45. Use of this language is consistent with the ISP Remand Order. It would have no impact on the way calls are rated (contrary to Qwest’s argument) or on the way Level 3 or any ISP customer designs or builds their networks (contrary to Level 3’s argument). It would change only Qwest’s obligation to pay termination compensation on some portion of the traffic exchanged by the parties pursuant to the ISP Remand Order and the Core Order.
46. The Department contends that Qwest may dispute that compensation is owed if, for example, an ISP has a server in the local calling area, but chooses to outsource most ISP functions to Level 3’s facilities in another state. The above language makes clear that compensation is owed if the ISP has a server in the caller’s local calling area, regardless of where other functions are performed.
Effective Date of Amendment
47. Level 3 contends that the Commission should
order the amendment language to be effective October 8, 2004, the effective
date of the Core Order. Level 3 argues first that the Core Order requires that result, even if
its contract with Qwest does not; Level 3 further argues that it would be
unfair to make the amendment effective on approval by the Commission because “justice
delayed is justice denied.”
48. Qwest contends the amendment language should be effective upon
approval by the Commission. It argues
that in any dispute concerning a change of law, one party will have an
incentive to delay, and the fairest method of addressing it is to have a
uniform policy that any amendment language is effective upon approval.
49. The Department generally agreed with Qwest in its initial
testimony, but it now maintains that because this matter has been pending since
May 2005, the effective date should be May 8, 2006, the date of the
Commission’s order resolving the legal issue underlying this dispute.
50. The Core Order does
not expressly require that the Commission implement its terms effective October
8, 2004, regardless of contractual provisions intended to address a change of
law. [42]
51. Both Level 3 and Qwest have taken extreme positions in
interpreting some aspects of the ISP
Remand Order. Given the complexity
of the issues and the procedural posture in which the parties presented them (a
complaint proceeding as opposed to arbitration, cross motions for summary
disposition, and remand for findings on proposed language), it is not excessive
to take 17 months from the filing of the complaint to obtain resolution. There is nothing inherently unjust about
making the amendment language effective upon approval by the Commission, nor
would it be unjust to use the May 8, 2006 date under the circumstances. Because the
Dated: September 15, 2006.
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/s/ Kathleen D. Sheehy |
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KATHLEEN D. SHEEHY |
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Administrative Law Judge |
NOTICE
Notice is hereby given that,
pursuant to Minn. Stat. § 14.61, and the Rules of Practice of the Public
Utilities Commission and the Office of Administrative Hearings, any party
adversely affected by this Report, may file exceptions pursuant to the schedule
set by the Commission. Exceptions should
be filed with the Executive Secretary, Minnesota Public Utilities Commission,
The Minnesota Public Utilities
Commission will make the final determination of the matter after the expiration
of the period for filing exceptions, or after oral argument, if held. Further notice is hereby given that the
Commission may, at its own discretion, accept or reject the Administrative Law
Judge’s recommendation and that the recommendation has no legal effect unless
expressly adopted by the Commission as its final order.
[1] Order on Remand and Report and Order, In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Intercarrier Compensation for ISP-Bound Traffic, CC Dkt. Nos. 96-98 & 99-68, FCC-01-131 (rel. Apr. 27, 2001) (ISP Remand Order).
[2] Petition of Core Communications, Inc., for Forbearance Under 47 U.S.C. § 160(c) from Application of the ISP Remand Order, FCC 04-241, WC Docket No. 03-171 (rel. Oct. 18, 2004) (Core Forbearance Order).
[3] ISP Remand Order ¶ 85.
[4] Petition of Core Communications, Inc., for Forbearance Under 47 U.S.C. § 160(c) from Application of the ISP Remand Order, FCC 04-241, WC Docket No. 03-171 (rel. Oct. 18, 2004) (Core Forbearance Order).
[5] See, e.g., ISP Remand Order ¶ 10 (“[A]n ISP’s end user customers typically access the Internet through an ISP server located in the same local calling area.”); id. ¶ ¶ 12, 13, 58.
[6] In the Matter of the Complaint of Level 3 Communications, LLC, Against Qwest Corporation Regarding Compensation for ISP-Bound Traffic, Recommendation on Motions for Summary Disposition, OAH 3-2500-16646-2, PUC P-421/C-05-721 (January 18, 2006).
[7]
[8] In the Matter of the Complaint of Level 3 Communications, LLC, Against Qwest Corporation Regarding Compensation for ISP-Bound Traffic, Order Adopting Recommendations and Remanding for Further Proceedings at 11 (May 8, 2006).
[9]
[10]
[11]
[12]
[13] In the Matter of the Petition of Level 3 Communications, LLC, for Arbitration to Resolve Issues Relating to an Interconnection Agreement with Qwest Communications, MPUC P-5733,421/IC-02-1372, Order Resolving Arbitration Issues (December 23, 2002) (Level 3/Qwest Arbitration Order).
[14] Tr. 1:33.
[15]
[16]
[17] COCAG § 2.14.
[18]
[19]
[20] Level 3 Complaint at 4 (May 6, 2005).
[21] Ex. 1 at 11.
[22]
[23] Ex. 3 at 10.
[24] Ex. 5.
[25] The type of circuit between the POI and the media gateway, depending on traffic volume, could be DS3 or OC-3 to OC-48. See Tr. 1:68-69.
[26]
According to Level 3, it uses the term “gateway” to mean “a facility in which
we allow other carriers to access our network”; a “media gateway,” however, is
one that provides modem functionality.
Level 3 may have a “gateway” in
[27] Tr. 1:34, 45, 62; Ex. 5 at 18-19; Ex. 6 at MG-3, MG-4; Ex. 7.
[28] Tr. 1:69-72; Ex. 8.
[29] See Tr. 1:42.
[30] Tr. 1:69.
[31] Tr. 1:31-32.
[32] Tr. 2:80-82.
[33] Ex. 24 at 12-13; Ex.
[34] Ex. 5, MG-1, Attachment 1 (emphasis added).
[35] Ex. 24 at 7 (emphasis added).
[36] In the Matter of the Level 3 Communications,
LLC’s Petition for Arbitration with Qwest Corporation Pursuant to Section
252(b) of the Communications Act of 1934, as Amended by the Telecommunications
Act of 1996, and the Applicable State Laws for Rates, Terms and Conditions of
Interconnection, MPUC Docket No. P-5733,421/1C-06-49, OAH
3-2500-17117-2. A recent arbitration
decision in
[37] See Tr. 1:51-52; Ex. 27 (effective Feb. 10, 2005); Ex. 28 (effective April 1, 2004).
[38] Tr. 1:50.
[39] Ex. 18 at 4-5 (emphasis added).
[40] Tr. 2:49.
[41] Tr. 1:144; 2:9.
[42] The fact that Level 3’s agreement with Bell South still calls for a bill and keep arrangement, because it has no change of law provision, supports the proposition that the Core Order does not abrogate contractual terms concerning changes in law.