The Commercial Internet eXchange Association ("CIX"), by its attorneys, files these comments in response to the April 16, 1999 Request for Comments on Reciprocal Compensation of the Wyoming Public Service Commission. CIX is a trade association that represents almost 150 Internet Service Provider member networks who handle over 75% of the United States' Internet traffic.¹ CIX works to facilitate global connectivity among commercial Internet service providers ("ISPs") in the United States and throughout the world. CIX has been actively involved in the FCC's decisionmaking on a range of Internet issues, and appreciates the opportunity to express its views to the Wyoming Public Service Commission.

CIX has an active interest in this proceeding. CIX members serve customers in the state of Wyoming. In addition, with recent decisions of the FCC, CIX believes it is a critical juncture for regulatory bodies, including the Wyoming Public Service Commission, to develop rules that continue to promote local exchange competition. In CIX's view, competition with the incumbent local exchange carrier ("ILEC") is unequivocally the best course for consumers in the state of Wyoming. The introduction of competitive local exchange carriers ("CLECs") will drive consumer prices to competitive levels, will promote the introduction of new services that consumers demand, and will significantly add to the general economy of the state. The benefits witnessed from the growth of the Internet industry - in terms of consumer friendly pricing, a vast array of consumer choices, new jobs - all confirm that the competitive model, if applied to the local exchange, can tremendously enhance consumer services and the general welfare of the state. Likewise, ISPs are also end-users that benefit from local exchange competition. CLECs are often better able to meet ISP demands for services and, at a minimum, compel the ILEC to respond to that competitive pressure or lose the ISP as customers. Without a healthy CLEC industry and the associated benefits of competition, however, the ILEC monopolist does not serve ISPs, and their customers, nearly as well.

Applying these pro-competitive principles to the reciprocal compensation matter, CIX offers its general response to some of the specific questions raised in the Request for Comments, as follows:

CIX believes that the federal Telecommunications Act of 1996 ("1996 Act") provides ample authority for the states, and appropriate state agencies, to promulgate reciprocal compensation rules and decisions.2 Indeed, Section 252(d)(2)(A) of the federal Communications Act provides that the state commissions shall have authority to determine whether a given reciprocal compensation arrangement is "just and reasonable." 47 U.S.C. § 252(d)(2)(A). Significantly, this provision does not limit the manner in which the state carries out that obligation through adjudication, rulemaking, or any other processes that the states deem appropriate and consistent with federal law.3

In CIX's view, while federal law impacts the Commission's jurisdiction in two ways, it does not affect the conclusion that Wyoming has authority to adopt reciprocal compensation rules. First, the federal law impacts this Commission's authority because, as reaffirmed by the U.S. Supreme Court,4 the FCC has promulgated a set of federal reciprocal compensation rules, found at 47 C.F.R. §§ 51.701-51.717. The Commission's rules cannot conflict with the FCC's reciprocal compensation rules in a manner that would raise federal preemption issues. However, even with the FCC's standards, there are a host of non-conflicting reciprocal compensation decisions that this Commission may reach. As discussed below, the FCC has not precluded the states from adopting rules governing inter-carrier compensation of ISP-bound traffic.

Second, the FCC's Reciprocal Compensation Declaratory Ruling5 finds that traffic from an Internet end-user to its ISP is "jurisdictionally mixed," i.e., including both interstate and intrastate traffic.6 However, the FCC also conceded that "the jurisdictional analysis is less straightforward" for Internet communications,7 and concluded that, even in the absence of voluntary agreement between the parties, the states may determine "at this point that reciprocal compensation should be paid for this [Internet] traffic."8 As the Commission is aware, the FCC is also conducting a rulemaking proceeding to determine what (if any) federal rules should be established on inter-carrier compensation for ISP-bound traffic that vary from the preexisting practice -- developed uniformly by the states -- to treat such traffic under the existing reciprocal compensation arrangements. The FCC has also tentatively concluded that such compensation should be handled under the rubric of the Section 251-252 interconnection negotiations and that disputes should be settled by the state commissions.9 Thus, federal law does not preempt this Commission from adopting rules on the inter-carrier compensation of Internet-bound traffic. Indeed, the FCC has treated ISP traffic "as local" for many years,10 and it correctly treats certain "jurisdictionally mixed" traffic (i.e., CMRS traffic) as local for purposes of reciprocal compensation.11 In CIX's view, this Commission and the FCC have ample authority to adopt a reasoned interpretation of the Section 251-252 obligations, and find that ISP-bound traffic is subject to the Section 251-252 interconnection and inter-carrier compensation processes.

Finally, state resolution of ISP-bound reciprocal compensation matters, along with all other interconnection disputes, would best implement the 1996 Act provisions, designed to promote a stable and competitive local telecommunications market to serve multiple ISPs in a given local market. It is far more efficient for CLECs and ILECs to resolve disputes arising under interconnection agreements at a single primary forum. By contrast, fora at both the state and FCC levels would invite forum shopping, and slow down the resolution of disputes by injecting complex jurisdictional issues. The costs, complexity, and delays associated with a bifurcated state and federal process would, in CIX's view, undermine CLEC deployment in a manner that is contrary to federal and state public policy goals to speed the introduction of local competition.

In CIX's view, the primary impact of reciprocal compensation arrangements, including arrangements that cover ISP-bound traffic, is to foster CLEC entry and competition. Reciprocal compensation impacts the ILEC because it must pay the CLEC for the costs that the ILEC otherwise avoids due to the CLEC's own transport and termination. Because the ILEC is a monopolist with unequal bargaining power, the negotiation process will not produce a reciprocal compensation scheme without the ILEC's legal obligation to pay such reciprocal compensation.

While it encourages competitive entry, reciprocal compensation is also fair to the ILEC. The ILEC benefits from the revenues of the "sent-paid" traffic it hands off to the CLEC, and it avoids the costs associated with the transport and termination of that traffic, which are incurred by the CLEC. Reciprocal compensation obligations correctly require the ILEC to compensate the CLEC for such transport and termination.

Presumably, the current treatment of ISP-bound traffic under existing reciprocal compensation arrangements also impacts the ILECs' facilities in a positive manner, because end-office costs are avoided and continued Internet growth has increased ILEC telecommunications revenues. Prior to the introduction of CLEC competition, ILECs had complained loudly that Internet-bound traffic caused congestion and over-burdened their facilities, especially the end-office facilities serving the ISP's office. The ILECs postulated that traffic levels would overtax their networks and require significant additional end-office investment. Now, however, the CLECs have stepped in to serve ISPs as valued customers (not as burdens), and have taken the wind out of much of the ILECs' argument on end-office congestion. At the same time, the ILECs continue to receive significant revenues from selling second lines, T1 lines, and other services: this increased business of the ILEC is ultimately generated due to the proliferation of the Internet and other third-party data services. Thus, the ILEC appears to benefit with the introduction of CLECs serving ISPs, both because the alleged costs of end-office congestion have been avoided, and because the ILEC's revenues increase from greater telecommunications services meeting the growing demand for Internet and data connectivity.

Obviously, the ILEC would prefer to reduce its costs by eliminating reciprocal compensation obligations; the ILEC's monopoly position is also advanced to the extent that it can obtain regulatory changes that undercut the emergence of CLEC competition. However, the CLECs have certainly enabled the ILECs to avoid the costs of serving ISPs, and deserve to be compensated for the costs associated with the transport and termination of the ISP-bound traffic. Equally significant is the danger of ILEC efforts to dismantle, in a piecemeal fashion, certain types of traffic from the reciprocal compensation obligation.

As a matter of policy, Wyoming would be also well served with a reciprocal compensation rule or policy that ensures CLECs receive adequate compensation from ILECs when CLECs transport and terminate ISP-bound traffic. Consumers would be better off because emerging CLEC growth would continue uninterrupted, promising greater competition in both the price and variety of services; consumers are also the beneficiary as the ILEC reacts to that competition with better services and/or competitive prices. ISPs, and their end-user customers, are also better off when they have a viable CLEC choice of telecommunications offerings which means, in turn, that ISPs can offer new Internet services to the people of Wyoming. A pro-competitive reciprocal compensation policy would also likely encourage new competitive entry by both CLECs and ISPs, adding to the array of services available to consumers. Finally, the general economic impact on the state - measured in terms of jobs and income - is likely bolstered through policies such as pro-competitive reciprocal compensation because it attracts new or additional business opportunities.

CIX appreciates the opportunity to express its views before this Commission. CIX believes that inter-carrier compensation for ISP-bound traffic should be resolved in a manner that promotes competition in the local exchange markets.