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Reciprocal Compensation
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. This arrangement is pursuant to the FCC Interconnection Order. 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 reciprical 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.
cais.net
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Bell Atlantic's Position
Background
Under existing FCC rules, adopted in 1983, interstate enhanced service providers ("ESPs"), including Internet Service Providers ("ISPs"), are exempted from paying interstate access charges and may purchase originating and terminating facilities from intrastate tariffs. In the recent Access Charge Order, the FCC unlawfully made this "temporary" exemption permanent. The Commission said that it would examine alternative technologies and other means of diverting Internet traffic from the circuit-switched voice network in a pending Notice of Inquiry in the access proceeding, but it said that it would not consider usage-based pricing of local ISP access. Moreover, the FCC has stated in various proceedings that ESP (including Internet) traffic is jurisdictionally interstate even though the 14-year-old access charge exemption remains in effect. See also, K. Werbach, A Digital Tornado: The Internet and Telecommunications Policy (FCC Office of Plans and Policy Working Paper Series) at 40. In addition, in the FCC's August 1996 Interconnection Order, the Commission ruled reciprocal compensation provision of the 1996 Act applies only to the transport and termination of local traffic, not transport and termination of interstate or intrastate interexchange traffic, although it did not rule directly on application of reciprocal compensation to Internet access.
Reciprocal Compensation: Despite the clear FCC language to the contrary, some competitive local exchange providers ("CLECs") have taken the position that Internet traffic is local. As a result, they have begun to bill incumbent carriers usage-based rates under reciprocal compensation agreements for Internet access traffic that terminates at an ISP's premises. See, e.g., Joint Comments of Bell Atlantic and NYNEX Corporation in connection with the FCC's Notice of Inquiry on Usage of the Public Switched Network by Information Service and Internet Access Providers, CC Docket No. 96-263 (filed March 24, 1997). These claimed charges can exceed the state-tariffed rate for the entire end-to-end service, which forces the incumbent to take a loss. This issue was raised at the FCC by a letter from the ALTS, the competitive providers' trade association and a decision is pending. See Comments of Bell Atlantic and NYNEX in CCB/CPD 97-30 (filed July 17, 1997), Reply Comments of Bell Atlantic and NYNEX (filed July 31, 1997). … continues….
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