WPC[# 2;BGT Z73|U )Courier New (TT)Times New Roman (TT)Times New Roman (Italic) (TT)HP LaserJet 5SitHPLAS5SI.WRSx  @,,,&MX@ X4#XP\  P6Q2XP##X\  P6G;/P#X01Í ÍX01Í Í#XP\  P6Q2XP#2 (mdCourier New (TT)Times New Roman (TT)"5^2CRdd$CCdq2C28dddddddddd88qqqYzoCNzoozzC8C^dCYdYdYCdd88d8ddddCN8ddddY`(`l2CCCCPCddYYYYYYzYzYzYzYC8C8C8C8ddddddddddYdddddoddYYYYzYzYzYdddddPdCdCCCdNdoNNF2ZdCYddddd7>d<d<CCYYdCCddCYCdYzzzzCCCCqodYYYYYYYYYYY8888dddddddndddddddCourier New (TT)Times New Roman (TT)Times New Roman (Italic) (TT)Times New Roman (Bold) (TT)footnote reference#4x#Xv@X@#.W!0(Xh0\  P6QhP"5^*8DSS88S^*8*.SSSSSSSSSS..^^^Jxooxf]xx8Axfxx]xo]fxxxxf8.8NS8JSJSJ8SS..S.SSSS8A.SSxSSJP!PZ*8888C8SSxJxJxJxJxJooJfJfJfJfJ8.8.8.8.xSxSxSxSxSxSxSxSxSxSxJxSxSxSxSxS]SxSxJxJoJoJfJfJfJxSxSxSxSxSCS8S888SAxSx]AN:*KS8JSSSSS.4}}S2S}288JJS88SS8J82N8\\^C`^SS`*8DSS88S^*8*.SSSSSSSSSS..^^^Jxooxf]xx8Axfxx]xo]fxxxxf8.8NS8JSJSJ8SS..S.SSSS8A.SSxSSJP!PZv8SJSS8]888JJ:S8A8xx*8SSSS!S8.S^8SC\228`K*824S}}}Jxxxxxxoffff8888xxxxxxx^xxxxxx]SJJJJJJoJJJJJ....SSSSSSS\SSSSSSS29  "5^(1<d<d<CCoodCCddCoCddzzzzzzzzzzCCCCozdddddddYYYYY8888dddddddndddddYd"5^2Coddȧ8CCdr2C28ddddddddddCCrrrdzNdzoȐC8CtdCdoYoYCdo8Co8odooYNCodddYO,Oh2CCCCPCdodddddȐYYYYYN8N8N8N8oddddooooddoddddzodddYYYYYdddooPoNoNCNoddȐoNNF2ldCddddddvvvXMNv6X@DQN@ 6Q%GGGXzcG6X@DQc@2^Y#6?xxxXOXx6X@DQX@. 7PC2X2XP\  P6QXP. y.C8*X/C\  P6QP.$W!0(Xh0\  P6QhP.%I(!X,(\  P6Q,P&{,C8*X(VC*f9 xQX'5PC2X(frXP*f9 xQXXl(7UC2XGXU4  pQX6>vvvXMNv6X@DQN@ 6Q%GGGXzcG6X@DQc@>vvvXd@wNv6NhQNHffoffff8888xoxxxxxpxxxxx]fSSSSSSSoJJJJJ..SSSSSSS\SSSSSJS  A X4 X   w X4x  Federal Communications Commission`x(#FCC 9938 ă   yxdddy Њ*` Before the x Federal Communications Commission  X'-Washington, D.C. 20554 ă  X4In the Matter of hhCq)pp  X4)  Xv4Implementation of the Local Competition )ppCC Docket No. 9698  X_4Provisions in the Telecommunications Actq)  XH4of 1996)  X14)  X 4InterCarrier CompensationhhCq)ppCC Docket No. 9968  X 4for ISPBound TraffichhCq)ppX(#  X 'D  Declaratory Ruling in CC Docket No. 9698 and Notice of Proposed Rulemaking in CC  X 'FDocket No. 9968 Đ\  Xb4Adopted: February 25, 1999hhCqpp Released: February 26, 1999   X4' NPRM Comment Date:April 12, 1999  X'NPRM Reply Date:   April 27, 1999  X4By the Commission: Commissioner Ness issuing a statement; Commissioner Furchtgott-Roth not participating; and Commissioner Powell concurring and issuing a statement.(#   XN':J I. INTRODUCTION Đ\  X 41. The Commission and the Common Carrier Bureau (Bureau) have received a number of requests to clarify whether a local exchange carrier (LEC) is entitled to receive reciprocal compensation for traffic that it delivers to an information service provider,  X4particularly an Internet service provider (ISP). z+ {OT"'ԍ See, e.g., Petitions for Reconsideration and Clarification of Action in Rulemaking Proceedings, 61 Fed. Reg. 53,922 (1996); Petition for Partial Reconsideration and Clarification of MFS Communications Co., Inc. at 28; Letter from Richard J. Metzger, General Counsel for ALTS, to Regina M. Keeney, Chief, Common Carrier Bureau, FCC (June 20, 1997) (ALTS Letter); Pleading Cycle Established for Comments on Request by ALTS for Clarification of the Commission's Rules Regarding Reciprocal Compensation for Information Service Provider  {O>&'Traffic, CCB/CPD 9730, DA 97-1399 (rel. July 2, 1997) (ALTS Letter Notice); Letter from Edward D. Young, Senior Vice President & Deputy General Counsel for Bell Atlantic, and Thomas J. Tauke, Senior Vice President Government Relations for Bell Atlantic, to Hon. William E. Kennard, Chairman, FCC (July 1, 1998). This  {O('question sometimes has been posed more narrowly, i.e., whether an incumbent LEC must pay reciprocal"(,))("Ԍcompensation to a competitive LEC (CLEC) that delivers incumbent LECoriginated traffic to ISPs. Because the pertinent provision of the 1996 Act pertains to all LECs, we examine this issue in the broader context. 47 U.S.C.  251(b)(5).  For purposes of this Declaratory Ruling, we refer to providers of enhanced services and providers of information services as ESPs, a category which includes Internet service providers, which we refer to here as  {O@'ISPs. As the Commission stated in the Access Charge Reform Order, the term "enhanced services," defined in the Commission's rules as "services, offered over common carrier transmission facilities used in interstate communications, which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information," 47 C.F.R.  64.702(a), is quite similar to "information services," defined in the Act as offering "a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications." 47 U.S.C.  153(20). Access Charge Reform, CC Docket No. 96262, First Report and Order, 12 FCC Rcd  {O '15982, 1613132 n.498 (1997) (Access Charge Reform Order), aff'd sub nom. Southwestern Bell Tel. Co. v.  {OL 'FCC, 153 F.3d 523 (8th Cir. 1998). See also FederalState Joint Board on Universal Service, CC Docket No.  {O'9645, Report to Congress, 13 FCC Rcd 11501, at 11516 (1998) (Universal Service Report to Congress) (reiterating Commission's conclusion that the 1996 Act's definitions of telecommunications services and information services "essentially correspond to the preexisting categories of basic and enhanced services"). Generally, competitive LECs (CLECs)"p,))ZZD" contend that this is local traffic subject to the reciprocal compensation provisions of section 251(b)(5) of the Communications Act of 1934 (Act), as amended by the Telecommunications  X4Act of 1996.p= {O'ԍ Telecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56, codified at 47 U.S.C.  151 et seq. (1996 Act). Incumbent LECs contend that this is interstate traffic beyond the scope of section 251(b)(5). After reviewing the record developed in response to these requests, we conclude that ISPbound traffic is jurisdictionally mixed and appears to be largely interstate. This conclusion, however, does not in itself determine whether reciprocal compensation is due in any particular instance. As explained below, parties may have agreed to reciprocal compensation for ISPbound traffic, or a state commission, in the exercise of its authority to arbitrate interconnection disputes under section 252 of the Act, may have imposed reciprocal compensation obligations for this traffic. In the absence, to date, of a federal rule regarding the appropriate intercarrier compensation for this traffic, we therefore conclude that parties should be bound by their existing interconnection agreements, as interpreted by state commissions.  X '<f II. BACKGROUND Đ\  Xy42. Identifying the jurisdictional nature and regulatory treatment of ISPbound communications requires us to determine how Internet traffic fits within our existing regulatory framework. We begin, therefore, with a brief description of relevant terminology and technology. We then turn to the specific matter of LEC delivery of ISPbound communications.  X' ",-(-(ZZ%"Ԍ X'A. The Internet and ISPs.  X43. The Internet is an international network of interconnected computers enabling millions of people to communicate with one another and to access vast amounts of  X4information from around the world.= {O'ԍ 47 U.S.C.  230; see also Reno v. American Civil Liberties Union, 117 S. Ct. 2329, 2334 (1997). The Internet functions by splitting up information into  X4"small chunks or 'packets' that are individually routed . . . to their destination."qZ= {O'ԍ Universal Service Report to Congress, 13 FCC Rcd at 11531, 11532.q With packetswitching, "even two packets from the same message may travel over different physical paths through the network . . . which enables users to invoke multiple Internet services simultaneously, and to access information with no knowledge of the physical location of the  X14service where the information resides."31= {O 'ԍ Id.3  X 44. An ISP is an entity that provides its customers the ability to obtain online information through the Internet. ISPs purchase analog and digital lines from local exchange  X 4carriers to connect to their dialin subscribers.= ~= {O'ԍ Id. at 11532.= Under one typical arrangement, an ISP customer dials a sevendigit number to reach the ISP server in the same local calling area. The ISP, in turn, combines "computer processing, information storage, protocol conversion,  X4and routing with transmission to enable users to access Internet content and services."== {OQ'ԍ Id. at 11531.= Under this arrangement, the end user generally pays the LEC a flat monthly fee for use of the local  Xb4exchange network and generally pays the ISP a flat, monthly fee for Internet access.&b= yO'ԍ The Commission has acknowledged the significance of end users being able to place local, rather than toll,  {O}'calls to ISPs, in analyzing, among other things, universal service issues. See, e.g., FederalState Joint Board on  {OG'Universal Service, Report and Order, 12 FCC Rcd 8776, 914243, 9159, 9160 (1997) (Universal Service Order);  {O'Universal Service Report to Congress, 13 FCC Rcd at 1154142. The ISP typically purchases business lines from a LEC, for which it pays a flat monthly fee that allows unlimited incoming calls.  X45. Although the Commission has recognized that enhanced service providers (ESPs),  X4including ISPs, use interstate access services,I Z = {O0#'ԍ See, e.g., MTS and WATS Market Structure, CC Docket No. 7872, Memorandum Opinion and Order, 97  {O#'FCC 2d 682, 711 (1983) (MTS/WATS Market Structure Order) ("[a]mong the variety of users of access service are . . . enhanced service providers"); Amendments of Part 69 of the Commission's Rules Relating to Enhanced  {O%'Service Providers, CC Docket No. 87215, Order, 3 FCC Rcd 2631 (1988) (ESP Exemption Order) (referring to "certain classes of exchange access users, including enhanced service providers"); Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service Providers, CC Docket No. 87215, Order, 2 FCC Rcd 4305,"',-(-('"Ԍ4306 (1987) (ESPs, "like facilitiesbased interexchange carriers and resellers, use the local network to provide  {OX'interstate services"); Access Charge Reform Order, 12 FCC Rcd at 1613132 (information service providers "may use incumbent LEC facilities to originate and terminate interstate calls").I since 1983 it has exempted ESPs from the" ,-(-(ZZ"  X4payment of certain interstate access charges. $= yO'ԍ The exemption was adopted at the inception of the interstate access charge regime to protect certain users of access services, such as ESPs, that had been paying the generally much lower business service rates from the  {O+'rate shock that would result from immediate imposition of carrier access charges. See MTS/WATS Market  {O'Structure Order, 97 FCC 2d at 715. Pursuant to this exemption, ESPs are treated as end users for purposes of assessing access charges, and the Commission permits ESPs to purchase their links to the public switched telephone network (PSTN) through intrastate  X4business tariffs rather than through interstate access tariffs. = yOB 'ԍ Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service Providers, CC Docket  {O 'No. 87215, Order, 3 FCC Rcd 2631, 2635 n.8, 2637 n.53 (1988) (ESP Exemption Order). Thus, ESPs generally pay local business rates and interstate subscriber line charges for their switched access connections to  X4local exchange company central offices.U Z0 = {On'ԍ ESP Exemption Order,3 FCC Rcd at 2635 n.8, 2637 n.53. The subscriber line charge (SLC) is an access charge imposed on end users to recover at least a portion of the cost of the interstate portion of LEC facilities used to link each end user to the public switched telephone network (PSTN). U In addition, incumbent LEC expenses and revenue associated with ISPbound traffic traditionally have been characterized as intrastate for  X_4separations purposes. X_R = yOb'ԍ Amendments of Part 69 of the Commission's Rules Relating to the Creation of Access Charge Subelements for Open Network Architecture, CC Docket No. 8979, Notice of Proposed Rulemaking, 4 FCC Rcd. 3983, 398788 (1989). ESPs also pay the special access surcharge when purchasing special  XH4access lines under the same conditions as those applicable to end users.:Hr= {Ok'ԍ See 47 C.F.R.  69.5(a) ("End user charges shall be computed and assessed upon public end users, and  {O5'upon providers of public telephones. . . ."); see also 47 C.F.R.  69.5(c) ("Special access surcharges shall be assessed upon users of exchange facilities that interconnect these facilities with means of interstate or foreign telecommunications to the extent that carrier's carrier charges are not assessed upon such interconnected usage.").  {O'See also 47 C.F.R.  69.2(m) (End user means "any customer of an interstate or foreign telecommunications service that is not a carrier except that a carrier other than a telephone company shall be deemed to be an 'end user' when such carrier uses a telecommunications service for administrative purposes and a person or entity that offers telecommunications services exclusively as a reseller shall be deemed to be an 'end user' if all resale transmissions offered by such reseller originate on the premises of such reseller.").: In the Access  X34Charge Reform Order, the Commission decided to maintain the existing pricing structure  X 4pursuant to which ESPs are treated as end users for the purpose of applying access charges.E H= {O#'ԍ Access Charge Reform Order, 12 FCC Rcd at 1613334. On August 19, 1998, the U.S. Court of Appeals  {O#'for the Eighth Circuit affirmed the Commission's Access Charge Reform Order. Specifically, the court found that the Commission's decision to exempt information services providers from the application of interstate access charges (other than SLCs) was consistent with past precedent, did not unreasonably discriminate in favor of ISPs, did not constitute an unlawful abdication of the Commission's regulatory authority in favor of the states, and did  {O''not deprive incumbents of the ability to recover their pertinent costs. Southwestern Bell Telephone Co. v. FCC,"',-(-('"Ԍ153 F.3d 523, 542 (8th Cir. 1998).E " X,-(-(ZZe " Thus, the Commission continues to discharge its interstate regulatory obligations by treating ISPbound traffic as though it were local.  X46. The Internet provides citizens of the United States with the ability to communicate across state and national borders in ways undreamed of only a few years ago. The Internet also is developing into a powerful instrumentality of interstate commerce. In 1997, we decided that retaining the ESP exemption would avoid disrupting the stillevolving information services industry and advance the goals of the 1996 Act to "preserve the vibrant and competitive free market that presently exists for the Internet and other interactive  X14computer services."cZ1X= {O: 'ԍ Access Charge Reform Order, 12 FCC Rcd at 16134. See also 47 U.S.C.  230(b)(2) ("It is the policy of the United States to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.").c This Congressional mandate underscores the obligation and commitment of this Commission to foster and preserve the dynamic market for Internetrelated services. We emphasize the strong federal interest in ensuring that regulation does nothing to impede the growth of the Internet which has flourished to date under our "hands off" regulatory approach or the development of competition. We are mindful of the need to address the jurisdictional question at issue here, and the effect the jurisdictional determination may have on intercarrier compensation for ISPbound traffic, in a manner that promotes efficient entry by providers of both local telephone and Internet access services, and that, by the same token, does not encourage inefficient entry.  XK' B. Incumbent LEC and CLEC Delivery of ISPBound Traffic.  X47. Section 251(b)(5) of the Act requires all LECs "to establish reciprocal  X4compensation arrangements for the transport and termination of telecommunications."Cz= yO1'ԍ 47 U.S.C.  251(b)(5).C In the  X4Local Competition Order, this Commission construed this provision to apply only to the  X4transport and termination of "local telecommunications traffic." v D = {O'ԍ See 47 C.F.R.  51.701; Implementation of the Local Competition Provisions in the Telecommunications  {O_'Act of 1996, First Report and Order, CC Docket Nos. 9698, 95185, 11 FCC Rcd 15499, 16013 (1996) (Local  {O) 'Competition Order), aff'd in part and vacated in part sub nom. Competitive Telecommunications Ass'n v. FCC,  {O '117 F.3d 1068 (8th Cir. 1997) (CompTel), aff'd in part and vacated in part sub nom. Iowa Utils. Bd. v. FCC,  {O!'120 F.3d 753 (8th Cir. 1997) (Iowa Utils. Bd.), aff'd in part and rev'd in part sub nom. AT&T Corp. v. Iowa  {O"'Utils. Bd., 119 S. Ct. 721 (1999); Order on Reconsideration, 11 FCC Rcd 13042 (1996); Second Order on  {OQ#'Reconsideration, 11 FCC Rcd 19738 (1996); Third Order on Reconsideration and Further Notice of Proposed  {O$'Rulemaking, 12 FCC Rcd 12460 (1997); further recon. pending. State commissions that considered this issue  {O$'reached the same conclusion. See, e.g., Petition of the Southern New England Tel. Co. for a Declaratory Ruling Concerning Internet Servs. Provider Traffic, Docket No. 970522, Decision, at 9 (Conn. Comm'n September 17,  {Ow&'1997); Order Instituting Rulemaking on the Commission's Own Motion into Competition for Local Exchange  {OA''Service, R.950404, Decision 9810057, at 7 (Cal. Comm'n October 28, 1998); Southwestern Bell Tel. Co. v."A',-(-('"ԌPublic Util. Comm'n of Texas, MO98CA43, slip op. at 7 (W.D. Tex. June 16, 1998). Section 251 of the Act  {OX'makes clear that interstate traffic remains subject to the Commission's jurisdiction under section 201. See 47 U.S.C.  251(i) ("Nothing in this section shall be construed to limit or otherwise affect the Commission's  {O'authority under section 201."). See also CompTel, 117 F.3d at 1075 (Commission acted within its jurisdiction in allowing incumbent LECs to collect, on an interim basis, access charges for interstate calls traversing the incumbent LECs' local switches for which the interconnecting carriers pay unbundled local switching element charges); 47 U.S.C. 152(a) (Commission has jurisdiction over "all interstate and foreign communications by wire"). In order to determine what",-(-(ZZ" compensation is due when two carriers collaborate to deliver a call to an ISP, we must determine as a threshold matter whether this is interstate or intrastate traffic. In general, an originating LEC end user's call to an ISP served by another LEC is carried (1) by the originating LEC from the end user to the point of interconnection (POI) with the LEC serving the ISP; (2) by the LEC serving the ISP from the LECLEC POI to the ISP's local server; and (3) from the ISP's local server to a computer that the originating LEC end user desires to reach via the Internet. If these calls terminate at the ISP's local server (where another (packetswitched) "call" begins), as many CLECs contend, then they are intrastate calls, and LECs serving ISPs are entitled to reciprocal compensation for the "transport and termination" of this traffic. If, however, these calls do not terminate locally, incumbent LECs argue, then LECs serving ISPs are not entitled to reciprocal compensation under section 251(b)(5).  X 48. CLECs argue that, because section 251(b)(5) of the Act refers to the duty to establish reciprocal compensation arrangements for the "transport and termination of  X 4telecommunications,"T = yOC'ԍ 47 U.S.C.  251(b)(5) (emphasis added).T a transmission "terminates" for reciprocal compensation purposes when  X 4it ceases to be "telecommunications."z\ d = {O'ԍ See, e.g., RCN Telecom Services (RCN) Comments at 6; Teleport Communications Group Inc. (TCG) Comments at 45; WorldCom, Inc. Comments at 89. Citations to parties' comments in this Declaratory Ruling  {ON'and Notice of Proposed Rulemaking refer to comments filed in response to the ALTS Letter Notice.z "Telecommunications" is defined in the Act as "the transmission, between or among points specified by the user, of information of the user's  Xy4choosing, without change in the form or content of the information as sent and received."Ay = yO'ԍ 47 U.S.C.  153(43).A CLECs contend that, under this definition, Internet service is not "telecommunications" and that the "telecommunications" component of Internet traffic terminates at the ISP's local server. In addition, CLECs and ISPs argue that, given that ESPs are exempt from paying  X4certain interstate access chargesT= {O"'ԍ We discuss the ESP exemption, supra.T and that, as a result, the PSTN links serving ESPs are treated as intrastate under the separations regime, the services that CLECs provide for ISPs",-(-(ZZ"  X4must be deemed local.e"= {Oy'ԍ See, e.g., American Communications Services, Inc. (ACSI) Comments at 5; Adelphia Communications Corporation (Adelphia), et al., Comments at 1213; ALTS Letter at 67; ALTS Reply at 2, 13; Cox Communications, Inc. (Cox) Comments at 5; America Online, Inc. (AOL) Comments at 78; AT&T Corp. Comments at 4.e Incumbent LECs contend, however, that the "telecommunications" terminate not at the ISP's local server, but at the Internet site accessed by the end user, in which case these are interstate calls for which, they argue, no reciprocal compensation is  X4due.)Z= {O 'ԍ See, e.g., Ameritech Operating Cos. (Ameritech) Comments at 13; BellSouth Corporation (BellSouth) Reply at 46; Southwestern Bell Tel. Co., Pacific Bell, Nevada Bell (SBC) Reply at 5; United States Telephone Association (USTA) Comments at 56.)  Xv'C III. DISCUSSION Đ\  XH49. The Commission has no rule governing intercarrier compensation for ISPbound traffic. Generally speaking, when a call is completed by two (or more) interconnecting carriers, the carriers are compensated for carrying that traffic through either reciprocal  X 4compensation or access charges. When two carriers jointly provide interstate access (e.g., by delivering a call to an interexchange carrier (IXC)), the carriers will share access revenues received from the interstate service provider. Conversely, when two carriers collaborate to complete a local call, the originating carrier is compensated by its end user and the terminating carrier is entitled to reciprocal compensation pursuant to section 251(b)(5) of the Act. Until now, however, it has been unclear whether or how the access charge regime or reciprocal compensation applies when two interconnecting carriers deliver traffic to an ISP. As explained above, under the ESP exemption, LECs may not impose access charges on ISPs; therefore, there are no access revenues for interconnecting carriers to share. Moreover, the Commission has directed states to treat ISP traffic as if it were local, by permitting ISPs to purchase their PSTN links through local business tariffs. As a result, and because the Commission had not addressed intercarrier compensation under these circumstances, parties negotiating interconnection agreements and the state commissions charged with interpreting them were left to determine as a matter of first impression how interconnecting carriers should be compensated for delivering traffic to ISPs, leading to the present dispute.  X' A. Jurisdictional Nature of Incumbent LEC and CLEC Delivery of ISPBound Traffic.  Xg4 10. As many incumbent LECs properly note,g= {O#'ԍ See, e.g., Ameritech Comments at 13; BellSouth Reply at 46; SBC Reply at 5; USTA Comments at 56. the Commission traditionally has determined the jurisdictional nature of communications by the end points of the communication and consistently has rejected attempts to divide communications at any  X"4intermediate points of switching or exchanges between carriers. In BellSouth MemoryCall,""f ,-(-(ZZ" for example, the Commission considered the jurisdictional nature of traffic that consisted of an incoming interstate transmission (call) to the switch serving a voice mail subscriber and an  X4intrastate transmission of that message from that switch to the voice mail apparatus.= yOK'ԍ Petition for Emergency Relief and Declaratory Ruling Filed by BellSouth Corporation, 7 FCC Rcd 1619  {O'(1992) (BellSouth MemoryCall). The Commission determined that the entire transmission constituted one interstate call, because "there is a continuous path of communications across state lines between the caller and the  X4voice mail service."B"= {O` 'ԍ Id. at 1620.B The Commission's jurisdictional determination did not turn on the  Xv4common carrier status of either the provider or the services at issue;v= {O 'ԍ Id. at 162122. Indeed, the Commission expressly noted that, although BellSouth's "voice mail service is  {O 'an enhanced service, that fact does not limit our authority to preempt." Id. at 1622 n.44. BellSouth MemoryCall is not, therefore, distinguishable on the grounds that ISPs are not common carriers.  X34 11. Similarly, in Teleconnect, the Bureau examined whether a call using Teleconnect's "AllCall America" (ACA) service, a nationwide 800 travel service that uses AT&T's  X 4Megacom 800 service, is a single, endtoend call.  = {O'ԍ Teleconnect Co. v. Bell Telephone Co. of Penn., E8883, 10 FCC Rcd 1626 (1995) (Teleconnect),  {O'aff'dĠsub nom. Southwestern Bell Tel. Co. v. FCC, 116 F.3d 593 (D.C. Cir. 1997).  Generally, an ACA call is initiated by an end user from a common line open end; the call is routed through a LEC to an AT&T  X 4Megacom line, and is then transferred from AT&T to Teleconnect by another LEC.< l = {O'ԍ Id. at 1627.< At that  X 4point, Teleconnect routes the call through the LEC to the end user being called.? = {Oq'ԍ Id. at 162728.? The Bureau rejected the argument that the (ACA) 800 call used to connect to an interexchange carrier's  X4(IXC) switch was a separate and distinct call from the call that was placed from that switch.<  = {O'ԍ Id. at 1626.< The Commission affirmed, noting that "both court and Commission decisions have considered the endtoend nature of the communications more significant than the facilities used to complete such communications. According to these precedents, we regulate an interstate wire  X84communications under the Communications Act from its inception to its completion.">!8"= {O "'ԍ Id. at 1629 (citing NARUC v. FCC, 746 F.2d 1492, 1498 (D.C. Cir. 1984) (concluding that a physically intrastate inWATS line, used to terminate an endtoend interstate communication, is an interstate facility subject  {O#'to Commission regulation)). See also United States v. AT&T, 57 F. Supp. 451, 454 (S.D.N.Y. 1944) (the Act  {Og$'contemplates the regulation of interstate wire communication from its inception to its completion), aff'd sub nom.  {O1%'Hotel Astor v. United States, 325 U.S. 837 (1945); New York Telephone Co., 76 FCC 2d 349, 35253 (1980) (physically intrastate foreign exchange facilities used to carry interconnected interstate traffic are subject to federal jurisdiction).> The"8j!,-(-(ZZU" Commission concluded that "an interstate communication does not end at an intermediate switch. . . . The interstate communication itself extends from the inception of a call to its  X4completion, regardless of any intermediate facilities."P"= {OK'ԍ Teleconnect, 10 FCC Rcd at 1629.P In addition, in Southwestern Bell  X4Telephone Company, the Commission rejected the argument that "a credit card call should be treated for jurisdictional purposes as two calls: one from the card user to the interexchange carrier's switch, and another from the switch to the called party" and concluded that "switching at the credit card switch is an intermediate step in a single endtoend  Xc4communication."#cZ= yOn 'ԍ In the Matter of Southwestern Bell Tel. Co., CC Docket No. 88180, Order Designating Issues for  {O6 'Investigation, 3 FCC Rcd 2339, 2341 (1988) (Southwestern Bell Tel. Co.).  X54 12. Consistent with these precedents,$$5= yO'ԍ Although the cited cases involve interexchange carriers rather than ISPs, and the Commission has  {Ob'observed that "it is not clear that ISPs use the public switched network in a manner analogous to IXCs," Access  {O,'Charge Reform Order, 12 FCC Rcd at 16133, the Commission's observation does not affect the jurisdictional analysis. we conclude, as explained further below, that the communications at issue here do not terminate at the ISP's local server, as CLECs and  X 4ISPs contend,% = {OX'ԍ See, e.g., ACSI Comments at 5; Adelphia, et al., Comments at 1213; ALTS Letter at 67; Cox Comments at 5. but continue to the ultimate destination or destinations, specifically at a  X 4Internet website that is often located in another state.& = {O'ԍ This conclusion is fully consistent with BellSouth MemoryCall. Although MCI WorldCom relies on  {Oe'BellSouth MemoryCall to support its argument that the ISP is the relevant endpoint for purposes of the  {O/'jurisdictional analysis (see Letter from Richard S. Whitt, Director Federal Affairs/Counsel, MCI WorldCom, Inc., to Magalie R. Salas, Secretary, FCC (October 2, 1998)), there, as here, the Commission analyzed the  {O'communication from its inception to the "transmission's ultimate destination." BellSouth Memory Call, 7 FCC Rcd at 1621. The fact that the facilities and apparatus used to deliver traffic to the ISP's local servers may be located within a single state  X 4does not affect our jurisdiction. As the Commission stated in BellSouth MemoryCall, "this Commission has jurisdiction over, and regulates charges for, the local network when it is used  X4in conjunction with the origination and termination of interstate calls."X'z= {O 'ԍ BellSouth MemoryCall, 7 FCC Rcd at 1621.X Indeed, in the vast majority of cases, the facilities that incumbent LECs use to provide interstate access are  Xh4located entirely within one state.y(h = {O%$'ԍ See Louisiana Public Serv. Comm'n v. FCC, 476 U.S. 355, 360 (1986).y Thus, we reject MCI WorldCom's assertion that the LEC"h (,-(-(ZZt" facilities used to deliver traffic to ISPs must cross state boundaries for such traffic to be  X4classified as interstate.)= {Ob'ԍ See Letter from Richard S. Whitt, Director Federal Affairs/Counsel, MCI WorldCom, Inc., to Magalie  {O,'R. Salas, Secretary, FCC (October 19, 1998) (MCI WorldComàEx Parte). For this reason, we also reject CLEC arguments that provision of such services by a Bell Operating Company (BOC) violates section 271 of the Act  {O'unless the BOC has received authorization to provide inregion InterLATA service. See, e.g., MCI WorldCom  {O'Ex Parte at 4. Section 271 does not bar BOC provision of interstate access services, such as interLATA  {OR'information access. SeeĠImplementation of the NonAccounting Safeguards of Sections 271 and 272 of the  {O'Communications Act of 1934, as amended, CC Docket No. 96149, 11 FCC Rcd 21905, 2196263 (Non {O'Accounting Safeguards Order) ("When a BOC is neither providing nor reselling the interLATA transmission component of an information service that may be accessed across LATA boundaries, the statute does not require that service to be provided through a section 272 separate affiliate.").  X4 13. We disagree with those commenters that argue that, for jurisdictional purposes, ISPbound traffic must be separated into two components: an intrastate telecommunications service, provided in this instance by one or more LECs, and an interstate information service,  Xv4provided by the ISP.*vn = {O'ԍ See, e.g., RCN Comments at 6; TCG Comments at 45; WorldCom Comments at 89. As discussed above, the Commission analyzes the totality of the  X_4communication when determining the jurisdictional nature of a communication.+_ = {O'ԍ See United States v. AT&T, 57 F. Supp. 451, 45355 (S.D.N.Y. 1944), aff'd, 325 U.S. 837 (1945). The Commission previously has distinguished between the "telecommunications services component" and the "information services component" of endtoend Internet access for  X 4purposes of determining which entities are required to contribute to universal service.W, = {O]'ԍ Universal Service Order, 12 FCC Rcd at 917981. We disagree with MCI WorldCom's claim that the  {O''Commission determined in the Universal Service Order that there are two distinct transmissions when an end  {O'user contacts the Internet. MCI WorldCom Ex Parte at 4. In that order, the Commission discussed various "connections" involved with Internet access but in no way implied that any "transmission" or "traffic" terminated  {O'or originated at any intermediate point. See Universal Service Order, 12 FCC Rcd at 9180. As discussed,  {OM'supra, MCI WorldCom's similar assertions regarding the NonAccounting Safeguards OrderĠare equally  {O'unpersuasive. MCI WorldCom Ex Parte at 4.W Although the Commission concluded that ISPs do not appear to offer "telecommunications service" and thus are not "telecommunications carriers" that must contribute to the Universal  X 4Service Fund,- = {Od 'ԍ Id. at 9180. We confirmed this view in the Universal Service Report to Congress. Universal Service  {O.!'Report to Congress at 13 FCC Rcd 1152223. it has never found that "telecommunications" end where "enhanced" service begins. To the contrary, in the context of open network architecture (ONA) elements, for example, the Commission stated that "an otherwise interstate basic service . . . does not lose its character as such simply because it is being used as a component in the provision of a[n" :-,-(-(ZZ"  X4enhanced] service that is not subject to Title II."W.= {Oy'ԍ See Filing and Review of Open Network Architecture Plans, 4 FCC Rcd 1, 141 (1988) ("when an enhanced service is interstate (that is, when it involves communications or transmissions between points in  {O 'different states on an endtoend basis), the underlying basic services are subject to Title II regulation"), aff'd sub  {O'nom. People of State of Cal. v. FCC, 3 F.3d 1505 (9th Cir. 1993). See, e.g., Amendment of Section 64.702 of the Commission's Rules and Regulations, 2 FCC Rcd 3072, 3080 (1987) ("carriers must provide efficient nondiscriminatory access to the basic service facilities necessary to support their competitors' enhanced  {O/'services"); vacated on other grounds sub nom. People of State of Cal. v. FCC, 905 F.2d 1217 (9th Cir. 1990).  {O'See also BellSouth MemoryCall, 7 FCC Rcd at 1621 (rejecting "two call" argument as applied to interstate call to voice mail apparatus, even though voice mail is an enhanced service).W The 1996 Act is consistent with this approach. For example, as amended by the 1996 Act, Section 3(20) of the Communications Act defines "information services" as "the offering of a capability for generating, acquiring,  X4storing, transforming, processing, retrieving, utilizing, or making available information via  X4telecommunications."/= {O 'ԍ 47 U.S.C.  153(20) (emphasis added); see also 47 C.F.R.  64.702(a) (enhanced services are provided "over common carrier transmission facilities used in interstate communications"). This definition recognizes the inseparability, for purposes of jurisdictional analysis, of the information service and the underlying telecommunications.  Xv4Although it concluded in the Universal Service Report to Congress that ISPs do not provide  Xa4"telecommunications" as defined in the 1996 Act,0a = {O'ԍ Universal Service Report to Congress, 13 FCC Rcd at 1153640. See also Universal Service Order, 12 FCC Rcd at 9180 n.2023. the Commission reiterated the traditional  XJ4analysis that ESPs enhance the underlying telecommunications service.H1\JV = {OQ'ԍ See Universal Service Report to Congress, 13 FCC Rcdat 11540. See also Universal Service Order 12  {O'FCC Rcd at 9180 n.2023 (referencing Amendment of Section 64.702 of the Commission's Rules and Regulations, 2 FCC Rcd 3072, 3080 (1987)).H Thus, we analyze ISP traffic for jurisdictional purposes as a continuous transmission from the end user to a distant Internet site.  X 4 14. Some CLECs note that the language of section 252(d)(2) provides for the  X 4recovery of the costs of transporting and terminating a "call."}2 z= {O'ԍ 47 U.S.C.  252(d)(2). See, e.g., Adelphia, et al., Comments at 15.} Although the 1996 Act does not define the term "call," these CLECs argue that it is used in the 1996 Act in a manner that  X 4implies a circuitswitched connection between two telephone numbers.3 = {Of!'ԍ See, e.g., Adelphia, et al., Comments at 1520; Adelphia, et al., Reply at 5, 910, TCG Comments at 34; WorldCom Comments at 67. For example, Adelphia contends that a "call" takes place when two stations on the PSTN are connected to  X{4each other.e4{f= {O%'ԍ See, e.g., Adelphia, et al., Comments at 1516.e A call "terminates," according to Adelphia, when one station on the PSTN dials"{ 4,-(-(ZZ"  X4another station, and the second station answers.35= {Oy'ԍ Id.3 Under this view, the "call" associated with  X4Internet traffic ends at the ISP's local premises.36Z= {O'ԍ Id.3  X415. We find that this argument is inconsistent with Commission precedent, discussed above, holding that communications should be analyzed on an endtoend basis, rather than by  X4breaking the transmission into component parts. The examples cited by CLECsh7= {O* 'ԍ Id. at 1516, 1920; Adelphia, et al., Reply at 18 n.32.h to support the argument that calls end at the called number are not dispositive. The statutory sections upon which they rely were written to apply to specific situations, all of which, as far as we can tell, involve traditional telephony connections between two called numbers, as opposed to  X14the novel circumstance of Internet traffic.81~= {O`'ԍ See, e.g., 47 U.S.C.  222(d)(3), 223(a)(1), 271(c)(2)(B)(x), and 271(j).  X 416. Nor are we are persuaded by CLEC arguments that, because the Commission has treated ISPs as end users for purposes of the ESP exemption, an Internet call must terminate  X 4at the ISP's point of presence.9 = {O'ԍ See, e.g., ACSI Comments at 5; Adelphia, et al., Comments at 1213; ALTS Letter at 67; ALTS Reply at 2, 13; Cox Comments at 5; AOL Comments at 78; AT&T Comments at 4. The Commission traditionally has characterized the link from  X 4an end user to an ESP as an interstate access service.:Z j = {O'ԍ See, e.g., MTS/WATS Market Structure Order, 97 FCC 2d at 715; Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service Providers, CC Docket No. 87215, Notice of Proposed Rulemaking, 2 FCC Rcd 4305 (1987). In the MTS/WATS Market Structure  X 4Order, for instance, the Commission concluded that ESPs are "among a variety of users of access service" in that they "obtain local exchange services or facilities which are used, in part or in whole, for the purpose of completing interstate calls which transit its location and,  Xf4commonly, another location in the exchange area.";Zf = {O'ԍ MTS/WATS Market Structure Order, 97 FCC 2d at 860; see also Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service Providers, CC Docket No. 87215, Notice of Proposed Rulemaking, 2 FCC Rcd 4305. The fact that ESPs are exempt from access charges and purchase their PSTN links through local tariffs does not transform the  X84nature of traffic routed to ESPs. That the Commission exemptedĠESPs from access charges indicates its understanding that ESPs in fact use interstate access service; otherwise, the  X 4exemption would not be necessary.<Z = {Oi%'ԍ See, e.g., MTS/WATS Market Structure Order, 97 FCC 2d at 860. See also Access Charge Reform, CC Docket No. 96262, Notice of Proposed Rulemaking, 11 FCC Rcd 21354 at 21478 ("although ESPs may use  yO&'incumbent LEC facilities to originate and terminate interstate calls, ESPs should not be required to pay interstate"&;,-(-( '"Ԍaccess charges") (emphasis added). We emphasize that the Commission's decision to treat"  X<,-(-(ZZ" ISPs as end users for access charge purposes and, hence, to treat ISPbound traffic as local,  X4does not affect the Commission's ability to exercise jurisdiction over such traffic.~=ZX= yO'ԍ Indeed, the Eighth Circuit found that "the Commission has appropriately exercised its discretion to require an ISP to pay intrastate charges for its line and to pay the SLC . . . , but not to pay the perminute interstate  {O'access charge." Southwestern Bell Tel. Co. v. FCC, 153 F.3d at 543 (emphasis added).~  X417. CLECs also argue that the traffic they deliver to ISPs must be deemed either  X4"telephone exchange service"g>z= yO 'ԍ "Telephone exchange service" means "(A) service within a telephone exchange, or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers intercommunicating service of the character ordinarily furnished by a single exchange, and which is covered by the exchange service charge, or (B) comparable service provided through a system of switches, transmission equipment, or other facilities (or combination thereof) by which a subscriber can originate and terminate a telecommunications service." 47 U.S.C.  153(47).g or "exchange access."?  = yOG'ԍ "Exchange access" is defined as "the offering of access to telephone exchange services or facilities for the purpose of the origination or termination of telephone toll services." 47 U.S.C. 153(16). "Telephone toll services" is defined as "telephone service between stations in different exchange areas for which there is made a separate charge not included in contracts with subscribers for exchange service." 47 U.S.C.  153(48). They contend that ISP traffic cannot be "exchange access," because neither LECs nor CLECs assess toll charges for the service. CLEC delivery of ISP traffic is, therefore, according to CLECs, "telephone exchange service,"  X_4a form of local telecommunications for which reciprocal compensation is due.`@_= {O'ԍ See, e.g., Adelphia, et al., Reply at 59.` As discussed above, however, the Commission consistently has characterized ESPs as "users of access  X14service" but has treated them as end users for pricing purposes.A$1l= {ON'ԍ MTS/WATS Market Structure Order, 97 FCC 2d at 860; see also Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service Providers, CC Docket No. 87215, Notice of Proposed  {O'Rulemaking, 2 FCC Rcd 4305 (1987). See also 47 C.F.R.  69.2(b) (defining "access service" as "services and facilities provided for the origination or termination of any interstate or foreign telecommunications"). Thus, we are unpersuaded by this argument.  X 418. Having concluded that the jurisdictional nature of ISPbound traffic is determined by the nature of the endtoend transmission between an end user and the Internet, we now must determine whether that transmission constitutes interstate telecommunications. Section 2(a) of the Act grants the Commission jurisdiction over "all interstate and foreign  X4communication by wire."@BX= yO$'ԍ 47 U.S.C.  152(a).@ Traffic is deemed interstate "when the communication or transmission originates in any state, territory, possession of the United States, or the District of Columbia and terminates in another state, territory, possession, or the District of"b B,-(-(ZZM"  X4Columbia."jC= {Oy'ԍ Universal Service Report to Congress, 13 FCC Rcd at 11555.j In a conventional circuitswitched network, a call that originates and terminates in a single state is jurisdictionally intrastate, and a call that originates in one state and terminates in a different state (or country) is jurisdictionally interstate. The jurisdictional  X4analysis is less straightforward for the packetswitched network environment of the Internet.DZ= {O'ԍ See, e.g., Kevin Werbach, Digital Tornado: The Internet and Telecommunications Policy, OPP Working  {O'Paper No. 29, at 45 (Mar. 1997) (Digital Tornado). An Internet communication does not necessarily have a point of "termination" in the traditional sense. An Internet user typically communicates with more than one destination point during a single Internet call, or "session," and may do so either sequentially or simultaneously. In a single Internet communication, an Internet user may, for example, access websites that reside on servers in various states or foreign countries, communicate directly with another Internet user, or chat online with a group of Internet users located in  X 4the same local exchange or in another country.E = {O'ԍ See, e.g., Digital Tornado at 45. See also Adelphia, et al., Reply at 11 n.21. Further complicating the matter of identifying the geographical destinations of Internet traffic is that the contents of popular websites increasingly are being stored in multiple servers throughout the Internet, based on  X 4"caching" or website "mirroring" techniques.bF H= {O'ԍ See, e.g., MCI WorldCom Ex ParteĠat 7.b After reviewing the record, we conclude that, although some Internet traffic is intrastate, a substantial portion of Internet traffic involves  X 4accessing interstate or foreign websites.(G = {O2'ԍ See, e.g., Adelphia, et al., Comments at 22; Letter from Edward D. Young, Senior Vice President & Deputy General Counsel for Bell Atlantic, and Thomas J. Tauke, Senior Vice President Government Relations for Bell Atlantic, to Hon. William E. Kennard, Chairman, FCC (July 1, 1998) at Att. 2; Compuserve Comments at 4; Letter from B. Jeannie Fry, Director of Federal Regulatory Affairs, SBC Communications, Inc., to Magalie R. Salas, Secretary, FCC (May 13, 1998) Att. at 7; WorldCom Reply at 89.(  Xy419. Although ISPbound traffic is jurisdictionally mixed, incumbent LECs argue that  Xb4it is not technically possible to separate the intrastate and interstate ISPbound traffic.Hb = yO'ԍ Even if it is technically impossible to separate the intrastate and interstate ISP traffic, it may be possible for LECs to determine whether dialup traffic is in fact destined for an ISP. In the current absence of a federal rule governing intercarrier compensation, however, we do not find it necessary to reach the question of whether such traffic is separable into intrastate and  X4interstate traffic.I= {O#'ԍ We note that in Section IV, infra, we seek comment on the separability of such traffic and whether the Commission should exercise exclusive jurisdiction over intercarrier compensation for all ISPbound traffic.  X420. Our determination that at least a substantial portion of dialup ISPbound traffic is interstate does not, however, alter the current ESP exemption. ESPs, including ISPs, continue">I,-(-(ZZ" to be entitled to purchase their PSTN links through intrastate (local) tariffs rather than through  X4interstate access tariffs.HJ\= {Ob'ԍ ESPs also have certain flatrated interstate offerings available to them. See, e.g., GTE Telephone Operating Cos. GTOC Transmittal No. 1148, CC Docket No. 9879, FCC No. 98292, Memorandum Opinion  {O'and Order (rel. October 30, 1998), recon. pending.H Nor, as we discuss below, is it dispositive of interconnection disputes currently before state commissions.   X' B. InterCarrier Compensation for Delivery of ISPBound Traffic.  Xv421. We find no reason to interfere with state commission findings as to whether reciprocal compensation provisions of interconnection agreements apply to ISPbound traffic, pending adoption of a rule establishing an appropriate interstate compensation mechanism. We seek comment on such a rule in Section IV, below.  X 422. Currently, the Commission has no rule governing intercarrier compensation for ISPbound traffic. In the absence of such a rule, parties may voluntarily include this traffic within the scope of their interconnection agreements under sections 251 and 252 of the Act, even if these statutory provisions do not apply as a matter of law. Where parties have agreed to include this traffic within their section 251 and 252 interconnection agreements, they are bound by those agreements, as interpreted and enforced by the state commissions.  Xb423. Although we determine, above, that ISPbound traffic is largely interstate, parties nonetheless may have agreed to treat the traffic as subject to reciprocal compensation. The Commission's treatment of ESP traffic dates from 1983 when the Commission first adopted a  X4different access regime for ESPs.bK= {O'ԍ MTS/WATS Market Structure Order, 97 FCC 2d at 715.b Since then, the Commission has maintained the ESP exemption, pursuant to which it treats ESPs as end users under the access charge regime and permits them to purchase their links to the PSTN through intrastate local business tariffs rather than through interstate access tariffs. As such, the Commission discharged its interstate regulatory obligations through the application of local business tariffs. Thus, although recognizing that it was interstate access, the Commission has treated ISPbound traffic as though it were local. In addition, incumbent LECs have characterized expenses and revenues  X|4associated with ISP-bound traffic as intrastate for separations purposes.L|~= yO 'ԍ Not all incumbent LECs characterize Internet traffic as intrastate traffic for separations purposes. In January, 1998, SBC indicated that it planned to allocate 100 percent of the costs associated with Internet traffic,  {O;"'which it previously had classified as local, to the interstate jurisdiction. See Letter from B. Jeannie Fry, Director of Federal Regulatory Affairs, SBC Communications., Inc., to Ken Moran, Chief, Accounting and Audits Division, FCC (Jan. 20, 1998).  XN424. Against this backdrop, and in the absence of any contrary Commission rule, parties entering into interconnection agreements may reasonably have agreed, for the purposes"70 L,-(-(ZZ8" of determining whether reciprocal compensation should apply to ISPbound traffic, that such traffic should be treated in the same manner as local traffic. When construing the parties' agreements to determine whether the parties so agreed, state commissions have the opportunity to consider all the relevant facts, including the negotiation of the agreements in the context of this Commission's longstanding policy of treating this traffic as local, and the conduct of the parties pursuant to those agreements. For example, it may be appropriate for state commissions to consider such factors as whether incumbent LECs serving ESPs (including ISPs) have done so out of intrastate or interstate tariffs; whether revenues associated with those services were counted as intrastate or interstate revenues; whether there is evidence that incumbent LECs or CLECs made any effort to meter this traffic or otherwise segregate it from local traffic, particularly for the purpose of billing one another for reciprocal compensation; whether, in jurisdictions where incumbent LECs bill their end users by message units, incumbent LECs have included calls to ISPs in local telephone charges; and whether, if ISP traffic is not treated as local and subject to reciprocal compensation, incumbent LECs and CLECs would be compensated for this traffic. These factors are illustrative only; state commissions, not this Commission, are the arbiters of what factors are relevant in ascertaining the parties' intentions. Nothing in this Declaratory Ruling, therefore, necessarily should be construed to question any determination a state commission has made, or may make in the future, that parties have agreed to treat ISPbound traffic as local traffic  XK4under existing interconnection agreements.+M~K= {O'ԍ This analysis is not inconsistent with our conclusion in the Local Competition Order that section 251(b)(5) reciprocal compensation obligations should apply only to traffic that originates and terminates within  {OV'statedefined local calling areas. Local Competition Order, 11 FCC Rcd. at 16013. In so construing the statutory obligation, we did not preclude parties from agreeing to include interstate traffic (or nonlocal intrastate traffic) within the scope of their interconnection agreements, so long as no Commission rules were otherwise  {O'violated. See 47 U.S.C.  252(a)(1) (parties may negotiate and enter into a binding agreement without regard to the standards set forth in section 251(b) and (c)).+ Finally, we note that issues regarding whether an entity is properly certified as a LEC if it serves only or predominantly ISPs are matters of  X4state jurisdiction.N= {O'ԍ See, e.g., Complaint of WorldCom Technologies, Inc. against New England Tel. and Tel. Co. for alleged breach of interconnection terms entered into under Section 251 and 252 of the Telecommunications Act of 1996, D.T.E. 97116, at 13 (Mass. Comm'n October 26, 1998) (requesting information from parties regarding whether certain CLECs have been or are established solely (or predominantly) for the purpose of delivering traffic to ISPs, particularly ISPs affiliated with the CLECs in question, and stating that these facts might affect such CLECs' regulatory status); Letter from B. Jeannie Fry, Director of Federal Regulatory Affairs, SBC Communications, Inc., to Magalie R. Salas, Secretary, FCC (May 13, 1998) at Tab 5 (carrier's webpage advertisement invites parties to offer "free internet access while getting paid for it"). We believe the state commissions are capable of assessing whether and to what extent these and other anomalous practices are  {O"'inconsistent with the statutory scheme (e.g., definition of a carrier) and thereby outside the scope of any determination regarding intercarrier compensation.  X425. Even where parties to interconnection agreements do not voluntarily agree on an intercarrier compensation mechanism for ISPbound traffic, state commissions nonetheless may determine in their arbitration proceedings at this point that reciprocal compensation"rN,-(-(ZZ" should be paid for this traffic. The passage of the 1996 Act raised the novel issue of the  X4applicability of its local competition provisionsPO= {Ob'ԍ See 47 U.S.C.  251, 252.P to the issue of intercarrier compensation for ISPbound traffic. Section 252 imposes upon state commissions the statutory duty to approve voluntarilynegotiated interconnection agreements and to arbitrate interconnection disputes.  X4As we observed in the Local Competition Order, state commission authority over interconnection agreements pursuant to section 252 "extends to both interstate and intrastate  Xx4matters." PxZ= {O 'ԍ Local Competition Order, 11 FCC Rcd at 15544; see also id. at 15547 (sections 251 and 252 "address both interstate and intrastate aspects of interconnection, services, and access to unbundled network elements").  Thus the mere fact that ISPbound traffic is largely interstate does not necessarily  Xa4remove it from the section 251/252 negotiation and arbitration process.3Qa= {O 'ԍ Id.3 However, any such  XJ4arbitration must be consistent with governing federal law.RJF= {OA'ԍ Cf. 47 U.S.C.  251(i) ("Nothing in this section shall be construed to limit or otherwise affect the Commission's authority under section 201."). While to date the Commission has not adopted a specific rule governing the matter, we note that our policy of treating ISPbound traffic as local for purposes of interstate access charges would, if applied in the separate context of reciprocal compensation, suggest that such compensation is due for that traffic.  X 426. Some CLECs construe our rules treating ISPs as end users for purposes of  X 4interstate access charges as requiring the payment of reciprocal compensation for this traffic.`S = {O'ԍ See note 26, supra, and accompanying text.` Incumbent LECs contend, however, that our rules preclude the imposition of reciprocal compensation obligations to interstate traffic and that, pursuant to the ESP exemption, LECs carrying ISPbound traffic are compensated by their end user customers the originating end  XM4user or the ISP.dTM2 = {O0'ԍ See, e.g., Letter from Gary L. Phillips, Director of Legal Affairs, Ameritech, to Magalie Salas, Secretary,  {O'FCC (November 20, 1998). Ameritech argues, inter alia, that the Commission held in the Local Competition  {O'Order that reciprocal compensation does not apply to the transport and termination of interstate traffic. Id., Att. A, at 6. It further argues that Commission rules do in fact address intercarrier compensation for ISP traffic. In the usual case, two LECs jointly providing interstate access service share access revenues; because the Commission exempts ISPs from the payment of access charges, however, LECs carrying ISP traffic are limited  {O!'to revenues they collect from their end user customers. Id., Att. A, at 7. d Either of these options might be a reasonable extension of our rules, but the Commission has never applied either the ESP exemption or its rules regarding the joint provision of access to the situation where two carriers collaborate to deliver traffic to an ISP. As we stated previously, the Commission currently has no rule addressing the specific issue  X4of intercarrier compensation for ISPbound traffic.xUz= yO''ԍ We seek comment on an appropriate compensation mechanism in Section IV, below.x In the absence of a federal rule, state" U,-(-(ZZ" commissions that have had to fulfill their statutory obligation under section 252 to resolve interconnection disputes between incumbent LECs and CLECs have had no choice but to establish an intercarrier compensation mechanism and to decide whether and under what circumstances to require the payment of reciprocal compensation. Although reciprocal compensation is mandated under section 251(b)(5) only for the transport and termination of  X4local traffic,|V= {O'ԍ See 47 C.F.R. 51.701(a); Local Competition Order, 11 FCC Rcd at 16013.| neither the statute nor our rules prohibit a state commission from concluding in an arbitration that reciprocal compensation is appropriate in certain instances not addressed by  X_4section 251(b)(5), so long as there is no conflict with governing federal law.MW|_Z= yOj 'ԍ As noted, section 251(b)(5) of the Act and our rules promulgated pursuant to that provision concern inter {O2 'carrier compensation for interconnected local telecommunications traffic. We conclude in this Declaratory Ruling, however, that ISPbound traffic is nonlocal interstate traffic. Thus, the reciprocal compensation requirements of section 251(b)(5) of the Act and Section 51, Subpart H (Reciprocal Compensation for Transport and Termination of Local Telecommunications Traffic) of the Commission's rules do not govern intercarrier  {OT'compensation for this traffic. As discussed, supra, in the absence a federal rule, state commissions have the authority under section 252 of the Act to determine intercarrier compensation for ISPbound traffic. M A state commission's decision to impose reciprocal compensation obligations in an arbitration proceeding or a subsequent state commission decision that those obligations encompass  X 4ISPbound traffic does not conflict with any Commission rule regarding ISPbound traffic.X = {Oi'ԍ As noted, in other contexts we have directed the states to treat such traffic as local. See ESP Exemption  {O3'Order, 3 FCC Rcd 2631, 2635 n.8, 2637 n.53. By the same token, in the absence of governing federal law, state commissions also are free not to require the payment of reciprocal compensation for this traffic and to adopt another compensation mechanism.  X 427. State commissions considering what effect, if any, this Declaratory Ruling has on their decisions as to whether reciprocal compensation provisions of interconnection agreements apply to ISPbound traffic might conclude, depending on the bases of those decisions, that it is not necessary to revisit those determinations. We recognize that our conclusion that ISPbound traffic is largely interstate might cause some state commissions to reexamine their conclusion that reciprocal compensation is due to the extent that those conclusions are based on a finding that this traffic terminates at an ISP server, but nothing in this Declaratory Ruling precludes state commissions from determining, pursuant to contractual principles or other legal or equitable considerations, that reciprocal compensation is an appropriate interim intercarrier compensation rule pending completion of the rulemaking we initiate below. " X,-(-(ZZ"Ԍ X'  IV. Notice of Proposed Rulemaking (CC Docket No. 9968)\  X'A. Discussion.  X428. We do not have an adequate record upon which to adopt a rule regarding intercarrier compensation for ISPbound traffic. We do believe, however, that adopting such a rule to govern prospective compensation would serve the public interest. As a general matter, we tentatively conclude that our rule should strongly reflect our judgment that commercial negotiations are the ideal means of establishing the terms of interconnection contracts. We seek comment on two alternative proposals for implementing such a regime. Until adoption of a final rule, state commissions will continue to determine whether reciprocal compensation is due for this traffic. As discussed above, the Commission's holding that parties' agreements, as interpreted by state commissions, should be binding also applies to those state commissions that have not yet addressed the issue.  X 429. For the traffic at issue here, we tentatively conclude that a negotiation process, driven by market forces, is more likely to lead to efficient outcomes than are rates set by regulation. In addition, setting a rate by regulation appears unwise because the actual amounts, need for, and direction of intercarrier compensation might reasonably vary depending on the underlying commercial relationships with the end user, and who ultimately  X44pays for transmission between its location and the ISP.LY 4= yO' I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)Ѝ When an end user effectively purchases a telecommunicationsbased service from more than one service provider, it can pay for the costs of the underlying telecommunications either directly to the telecommunications service provider, or indirectly through the other service provider, which in turn pays the telecommunications provider. Both sets of arrangements exist today.L We acknowledge that, no matter what the payment arrangement, LECs incur a cost when delivering traffic to an ISP that originates on another LEC's network. We believe that efficient rates for inter-carrier compensation for ISPbound traffic are not likely to be based entirely on minuteofuse pricing structures. In particular, pure minuteofuse pricing structures are not likely to reflect accurately how costs are incurred for delivering ISPbound traffic. For example, flatrated pricing based on capacity may be more costbased. Parties also might reasonably agree to rates that include a separate call setup charge, coupled with very low perminute rates. These economic characteristics of this traffic are likely to make voluntary agreements among the parties easier to reach. For these reasons, we propose that inter-carrier compensation rates for ISPbound traffic be based on commercial negotiations undertaken as part of the broader interconnection negotiations between incumbent LECs and CLECs. We seek comment below on two alternative proposals to govern the negotiations with respect to ISPbound traffic.  X430. We tentatively conclude that, as a matter of federal policy, the intercarrier compensation for this interstate telecommunications traffic should be governed prospectively by interconnection agreements negotiated and arbitrated under sections 251 and 252 of the Act. Resolution of failures to reach agreement on intercarrier compensation for interstate"!Y,-(-(ZZ " ISPbound traffic then would occur through arbitrations conducted by state commissions, which are appealable to federal district courts. As with other issues on which parties petition state commissions for arbitration under section 252 of the Act, if a state commission fails to act, the Commission will assume the responsibility of the state commission within 90 days of  X4being notified of such failure.CZ= yO'ԍ 47 U.S.C.  252(e)(5).C This proposal could help facilitate the policy goals set forth above by forcing the parties to hold a single set of negotiations regarding rates, terms, and conditions for interconnected traffic and to submit all disputes regarding interconnected traffic to a single arbitrator. We seek comment on this tentative conclusion.  X1431. We also seek comment on an alternative proposal that we adopt a set of federal rules governing intercarrier compensation for ISPbound traffic pursuant to which parties would engage in negotiations concerning rates, terms, and conditions applicable to delivery of interstate ISPbound traffic. These negotiations would commence on the effective date of the adopted rule but could proceed in tandem with broader interconnection negotiations between the parties. We realize, however, that the success of any negotiation over rates is likely to depend on the availability of the swift and certain resolution of disputes, and the structure of the resolution process. For example, the Commission, through delegation to the Common Carrier Bureau, might resolve such disputes, at the request of either party, through an arbitrationlike process, following a discrete period of voluntary negotiation. We seek comment on how such an approach would operate procedurally and what costing standards the Commission might use in arbitrating disputes. We also seek comment on how this proposal compares with a broad interconnection negotiation in which most disputes are resolved by a state arbitrator but disputes regarding ISPbound traffic are resolved through a federal arbitrationlike process. We also seek comment on whether it is possible, as a technical matter, to segregate intrastate and interstate ISPbound traffic and whether any federal rules we adopt should apply to all intrastate and interstate ISPbound traffic.  X432. We also seek comment on whether the Commission has the authority to establish an arbitration process that is final and binding and not subject to judicial review. For instance, we note that parties might agree to binding arbitration pursuant to the Administrative  XN4Dispute Resolution Act.[NX= {OW'ԍ Administrative Dispute Resolution Act, Pub. L. No. 101552, 104 Stat. 2738, codified at 5 U.S.C.  571  {O! 'et seq. We seek comment on whether and how such a system should be implemented. In particular, we seek comment on the desirability of arbitration before an arbitrator selected by the parties, as provided by the Administrative Dispute Resolution Act,  X 4as opposed to a federal or state decision-maker.F\ = {On$'ԍ See 5 U.S.C.  577.F  X4 33. We also invite parties to submit alternative proposals for intercarrier compensation for interstate ISPbound traffic that will advance our policy goals in this area. " F\,-(-(ZZ" For example, Ameritech has proposed basing intercarrier compensation for ISPbound traffic on sharing the incumbent LEC's revenue associated with the interconnected ISPbound  X4traffic.^]= {OK' I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)Ѝ See Letter from Gary L. Phillips, Director of Legal Affairs, Ameritech, Inc., to Magalie R. Salas, Secretary, FCC (July 17, 1998).^ We also request parties to comment on how any alternatives they propose will advance the Commission's goals of ensuring the broadest possible entry of efficient new competitors, eliminating incentives for inefficient entry and irrational pricing schemes, and providing to consumers as rapidly as possible the benefits of competition and emerging technologies.  XH4!34. We are aware that disputes may arise regarding various terms and conditions for intercarrier compensation for ISPbound traffic. Although many such disputes could be resolved through a negotiation and arbitration process, we seek comment on whether there are any issues under our two proposals above that we can and should address in the first instance through rules rather than through arbitration. We request parties to comment on the need for rules pertaining to such matters and, to the extent that parties believe that rules are appropriate, the substance and degree of specificity of such rules. We emphasize, however, that we do not seek comment on whether interstate access charges should be imposed on  X4ESPs as part of this proceeding. We recently reaffirmed that exemption in the Access Charge  X{4Reform Order, and we do not reconsider it here. ^{"= {ON' I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)Ѝ Access Charge Reform Order, 12 FCC Rcd at 16133.   XO4"35. Pursuant to section 252(i) of the Act,@_O= yO'ԍ 47 U.S.C.  252(i).@ interconnection agreements often have clauses (often referred to as "mostfavored nation" or "MFN" provisions) that allow parties to select, to varying degrees of specificity, provisions from other parties' interconnection agreements with that particular LEC. We understand that an arbitrator recently permitted a CLEC to exercise MFN rights to opt into an interconnection agreement that an incumbent  X4LEC previously had negotiated with another CLEC.`D= {O'ԍ See Letter from Michael E. Glover, Associate General Counsel, Bell Atlantic, to Magalie R. Salas, Secretary, FCC (October 28, 1998), at 2, Att. 3 at 68. That interconnection agreement, executed in July 1996, has a threeyear term. The arbitrator concluded that the new CLEC was entitled to opt into the agreement for a new threeyear term, thus raising the possibility that the incumbent LEC might be subject to the obligations set forth in that agreement for an indeterminate length of time, without any opportunity for renegotiation, as successive CLECs  Xi4opt into the agreement.3ai= {O$'ԍ Id.3 We seek comment, therefore, on whether and how section 252(i) and MFN rights affect parties' ability to negotiate or renegotiate terms of their interconnection agreements.";0 a,-(-(ZZ"Ԍ X4ԙ#36. As discussed above, not all ISPbound traffic is interstate. We seek comment on whether we should adopt rules for the interstate traffic that would coexist with state rules governing the intrastate traffic, or whether it is too difficult or inefficient to separate intrastate ISPbound traffic from interstate ISPbound traffic. We further seek comment on the technical and practical implications of requiring the separation of intrastate and interstate ISPbound traffic. In addition, we seek comment on the implications of various proposals regarding intercarrier compensation for ISPbound traffic on the separations regime, such as the appropriate treatment of incumbent LEC revenues and payments associated with the delivery of such traffic. This Commission is mindful of concerns that our jurisdictional analysis may result in allocation to different jurisdictions of the costs and revenues associated  X 4with ISPbound traffic,b = {O 'ԍ See Letter from James Bradford Ramsay, Assistant General Counsel, National Association of Regulatory Utility Commissioners, to Magalie R. Salas, Secretary, FCC (December 14, 1998). and we wish to make clear that we have no intention of permitting such a mismatch to occur. With respect to current arrangements, we note that this order does not alter the longstanding determination that ESPs (including ISPs) can procure their connections to LEC end offices under intrastate enduser tariffs, and thus for those LECs subject to jurisdictional separations both the costs and the revenues associated with such connections will continue to be accounted for as intrastate.  Xy' B. Procedural Matters.  XK'X 1. Ex Parte Presentations. (#  X4$37. This Notice of Proposed Rulemaking is a permitbutdisclose noticeandcomment  X4rulemaking proceeding. Ex ParteĠpresentations are permitted, in accordance with the  X4Commission's rules, provided that they are disclosed as required.pc"= {O'ԍ See generally 47 C.F.R.  1.1200, 1.1202, 1.1204, 1.1206.p  X' X2. Initial Regulatory Flexibility Analysis. (#  X4%38. As required by the Regulatory Flexibility Act (RFA),RdZ= {O'ԍ See 5 U.S.C.  603. The RFA, see 5 U.S.C.  601 et seq., has been amended by the Contract With America Advancement Act of 1996, Pub. L. No. 104121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).R the Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant  Xg4economic impact on small entities by the policies and rules proposed in the Notice of  XR4Proposed Rulemaking (Notice). Written public comments are requested on the IRFA. These  X=4comments must be filed by the deadlines for comment on the remainder of the Notice, and should have a separate and distinct heading designating them as responses to the IRFA. The  X4Commission will send a copy of the Notice, including the IRFA, to the Chief Counsel for"d,-(-(ZZ" Advocacy of the Small Business Administration (SBA), in accordance with the RFA, 5 U.S.C.  603(a).  X4&39. Need for and Objectives of the Proposed Rules. We tentatively conclude that we should adopt a rule regarding intercarrier compensation for ISPbound traffic that strongly reflects our judgment that commercial negotiations are the ideal means of establishing the terms of interconnection contracts. We seek comment on two alternative proposals for implementing such a regime. Until adoption of a final rule, state commissions will continue to determine whether reciprocal compensation is due for this traffic. In light of comments  X34received in response to the Notice, we might issue new rules or alter existing rules.  X 4'40. Legal Basis. The legal basis for any action that may be taken pursuant to the  X 4Notice is contained in Sections 1, 2, 4, 201, 202, 274, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154, 201, 202, 251, 252, and 303(r).   X 4(41. Description and Estimate of the Number of Small Entities That May Be Affected  X4by the Notice of Proposed Rulemaking. The RFA directs the Commission to provide a description of and, where feasible, an estimate of the number of small entities that might be affected by proposed rules. The RFA defines the term "small entity" as having the same meaning as the terms "small business," "small organization," and "small business concern"  X@4under Section 3 of the Small Business Act.e@= {O'ԍ See 5 U.S.C.  601(3) (incorporating by reference the definition of "small business concern" in 5U.S.C.632). The Commission may also develop additional definitions that are appropriate to its activities. A small business concern is one which: (1)is independently owned and operated; (2) is not dominant in its field of operation; and  X4(3)satisfies any additional criteria established by SBA.=f"= yO'ԍ 15 U.S.C.  632.= The SBA has defined a small business for Standard Industrial Classification (SIC) category 4813 (Telephone Communications, Except Radiotelephone) to be an entity with no more than 1,500  X4employees.Kg= {O0'ԍ See 13 C.F.R. 121.201.K Consistent with prior practice, we here exclude small incumbent local exchange  X4carriers (LECs) from the definition of "small entity" and "small business concern."zhD= {O'ԍ See, e.g., Local Competition Order, 11 FCC Rcd at 16150.z Although such a company may have 1,500 or fewer employees and thus fall within the SBA's definition of a small telecommunications entity, such companies are either dominant in their field of operations or are not independently owned and operated. Out of an abundance of caution, however, for regulatory flexibility analysis purposes, we will consider small incumbent LECs within this present analysis and use the term "small incumbent LECs" to refer to any incumbent LEC that arguably might be defined by SBA as a small business concern. "h,-(-(ZZ"Ԍ X4)42. Total Number of Telephone Companies Affected. The United States Bureau of the Census (the Census Bureau) reports that at the end of 1992, there were 3,497 firms engaged  X4in providing telephone services, as defined therein, for at least one year. i= {OM'ԍ United States Department of Commerce, Bureau of the Census, 1992 Census of Transportation,  {O'Communications, and Utilities: Establishment and Firm Size, at Firm Size 1123 (1995) (1992 Census).  This number includes a variety of different categories of carriers, including local exchange carriers (both incumbent and competitive), interexchange carriers, competitive access providers, cellular carriers, mobile service carriers, operator service providers, pay telephone operators, PCS providers, covered SMR providers, and resellers. It seems certain that some of those 3,497 telephone service firms may not qualify as small entities because they are not "independently  XJ4owned or operated."CjJ$= yO 'ԍ 15 U.S.C.  632(a)(1).C For example, a PCS provider that is affiliated with an interexchange carrier having more than 1,500 employees would not meet the definition of a small business. It seems reasonable to conclude, therefore, that fewer than 3,497 telephone service firms are  X 4either small entities or small incumbent LECs that may be affected by this Notice.  X 4*43. Local Exchange Carriers. Neither the Commission nor the SBA has developed a definition of small providers of local exchange services. The closest applicable definition under the SBA's rules is for telephone communications companies other than radiotelephone (wireless) companies. The most reliable source of information regarding the number of LECs nationwide of which we are aware appears to be the data that we collect annually in  Xh4connection with the Telecommunications Relay Service (TRS).kh= {O'ԍ FCC, Telecommunications Industry Revenue: TRS Fund Worksheet Data, Figure 2 (Number of Carriers  {O'Paying into the TRS Fund by Type of Carrier) (Nov. 1997). According to our most recent data, 1,371 companies reported that they were engaged in the provision of local  X:4exchange services.3l:= {O'ԍ Id.3 Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, or are dominant, we are unable at this time to estimate with greater precision the number of LECs that would qualify as small business concerns under the SBA's definition. Consequently, we estimate that fewer than 1,371 small providers of local exchange service are small entities or small  X4incumbent LECs that may be affected by the Notice.  X4+44. Description of Projected Reporting, Recordkeeping and Other Compliance  X4Requirements. As a result of rules that we may adopt, incumbent LECs and CLECs may be required to discern the amount of traffic carried on their networks that is bound for ISPs. In addition, such incumbent LECs and entrants may be required to produce information regrading the costs of carrying ISPbound traffic on their networks. ",l,-(-(ZZ<"Ԍ X4,45. Steps Taken to Minimize Significant Economic Impact on Small Entities, and  X4Alternatives Considered. As noted above, we propose to adopt rules that may require incumbent LECs and CLECs to discern the amount of traffic carried on their networks that is  X4bound for ISPs.Pm= {O8'ԍ See  2836, supra.P We anticipate that if we adopt such rules, incumbent LECs and CLECs, including small entity incumbent LEC and CLECs, will be able to receive compensation for  X4the delivery of ISPbound traffic that they might not otherwise receive. The Notice also requests comment on alternative proposals.  XN4-46. Federal Rules that May Duplicate, Overlap, or Conflict with the Proposed Rules. None.  X ' X3. Comment Filing Procedures. (#  X 4.47. Pursuant to Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file comments on or before April 12, 1999, and reply comments on or before April 27, 1999. Comments may be filed using the Commission's  X4Electronic Comment Filing System (ECFS) or by filing paper copies.nZ= {O'ԍ See Electronic Filing of Documents in Rulemaking Proceedings, 63 Fed. Reg. 24,121 (1998).  Xj4/48. Comments filed through the ECFS can be sent as an electronic file via the Internet to . Generally, only one copy of an electronic submission must be filed. If multiple docket or rulemaking numbers appear in the caption of this proceeding, however, commenters must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the caption. In completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet email. To get filing instructions for email comments, commenters should send an email message to ecfs@fcc.gov and include "get form " in the body of the message. A sample form and directions will be sent in reply.  Xm4049. Parties that choose to file by paper must file an original and four copies of each filing. All filings must be sent to the Commission's Secretary, Magalie Roman Salas, Office of the Secretary, Federal Communications Commission, 445 Twelfth St., S.W., Room TWA325, Washington, DC 20554.  X4150. Parties that choose to file by paper should also submit their comments on diskette. These diskettes should be submitted to: Wanda Harris, Federal Communications Commission, Common Carrier Bureau, Competitive Pricing Division, 445 Twelfth St., S.W., Fifth Floor, Washington, DC 20554. Such a submission should be on a 3.5 inch diskette formatted in an IBM compatible format using WordPerfect 5.1 for Windows or compatible software. The""n,-(-(ZZ!" diskette should be accompanied by a cover letter and should be submitted in "read only" mode. The diskette should be clearly labelled with the commenter's name, proceeding (including the docket number in this case, CC Docket No. 9968); type of pleading (comment or reply comment); date of submission; and the name of the electronic file on the diskette. The label should also include the following phrase "Disk Copy Not an Original." Each diskette should contain only one party's pleadings, preferably in a single electronic file. In addition, commenters must send diskette copies to the Commission's copy contractor, International Transcription Service, Inc., 1231 20th Street, N.W., Washington, DC 20036.  X '9N V. Ordering Clauses Đ\  X 4251. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i) and (j), 201209, 251, 252, and 403 of the Communications Act, as amended, 47 U.S.C.  151, 154(i), 154(j), 201209, 251, 252 and 403, that this Notice of Proposed Rulemaking IS HEREBY ADOPTED and comments ARE REQUESTED as described above.  Xy4352. IT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference Operations Division, SHALL SEND a copy of this Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business AdministrationH. ` `  hhCqFEDERAL COMMUNICATIONS COMMISSION ` ` ` `  hhCqMHagalie Roman Salas ` `  hhCqSecretary "en,-(-(ZZ "   n(# (#   X'=} Separate Statement ~wof %~Commissioner Susan Ness  Xv4\  V 4Re: Implementation of the Local Competition Provisions in the Telecommunications Act of ## V 41996 (CC Docket 9698); and Intercarrier Compensation for ISPBound Traffic (CC  Docket  V 4No. 9968) This proceeding is one of unusual importance and unusual complexity.  X4The debate over reciprocal compensation for ISPbound traffic is important for three main  X{4reasons. First, the issues we review here involve access to the Internet, a unique,  Xd4extraordinary, and everevolving national and international network of networks that is rapidly transforming communication, commerce, and communities. Second, reciprocal compensation may substantially affect the nature and the extent of local telephone competition, which was a principal objective of the Telecommunications Act of 1996. Third, any decision in this area may affect relationships between state and federal regulatory authorities, who must work in  X4harmony to achieve successful implementation of the Telecommunications Act.  X4The debate is complex because it involves the application of legal precedents from the early 1980s to services and carrier arrangements that were unimaginable only a few short years ago, as well as provisions of the 1996 Act that have already led to considerable controversy and litigation. We must grapple with equities that may be quite different when viewed prospectively than when viewed retrospectively. A further complication is that reciprocal compensation involves certain issues that can better be assessed by state public utility commissions than by the FCC, and yet it also implicates important national interests affecting access to an interstate (and international) service. At the end of the day, however, I believe the case boils down to elementary and straightforward propositions. Switched network telephone calls to Internet service providers are inherently interstate, which is the decision most consistent with our prior creation of an ESP exemption from interstate access charges and with the interstate and international  X"4nature of the Internet. But to say this is not to overrule, undermine, or prevent state commission decisions that construe interconnection agreements to require reciprocal compensation for ISPbound traffic. It was, and remains, reasonable for the states (and federal district courts) to so rule, given our prior decisions and the practices of the ILECs  X@&4themselves to treat this traffic as local.o $@&G yO('ԍSince 1983, the Commission has consistently and consciously permitted enhanced service providers, a category that now includes Internet service providers (ISPs) to connect to their customers using local business  {OI*'lines. See, e.g., MTS and WATS Market Structure, 97 FCC 2d 682, 715, para. 83 (1983) (subsequent history  {O+'omitted). Enhanced service providers use "interstate access" but pay "local business exchange service rates." Id."+,,,+"  {O'(emphasis added); see also Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service  {OZ'Providers, 3 FCC Rcd. 2631, 2635 n.8 (1988) ("enhanced service providers generally pay local business rates and interstate subscriber line charges for their switched access connections to local exchange company central  {O'offices") (emphasis added); accord id. at 2637 n.53. This decision was not altered by passage of the Telecommunications Act of 1996. After that law was  {OF'passed, we expressly reiterated that ISPs "purchase services from incumbent LECs under the same intrastate  {O'tariffs available to end users" and determined that, if intrastate rate structures fail to compensate incumbent LECs adequately for providing service to customers with high volumes of incoming calls, incumbent LECs may  {O'address their concerns to state regulators." Access Charge Reform, 12 FCC Rcd. 15982, 16132, para. 342 &  {Ol '16135, para. 346 (1997), aff'd Southwestern Bell Telephone Co. v. FCC, 153 F.3d 523 (8th Cir. 1998) (emphasis added). The Eighth Circuit explicitly recognized that the manner in which Internetbound traffic is treated is a  {O 'product of FCC discretion. Southwestern Bell Telephone, 153 F.3d at 543. It is significant that, in the  {O 'aforementioned Access Charge Reform proceeding, we implicitly affirmed both the FCC's ultimate authority over this traffic and the state commissions' competence to handle it unless and until directed otherwise. It is  {OZ 'especially telling that the Southwestern Bell Telephone decision, acknowledging the Commissions ultimate authority over such inherently interstate traffic, came from a court that was otherwise quite resistant to FCC encroachment on matters that it deemed to be on the states side of a horsehigh, hogtight, and bullstrong  {O'fence. Iowa Utilities Bd. v. FCC, 120 F.3d 753, 800 (8th Cir. 1997), revd in pertinent part, AT&T Corp. v.  {O~'Iowa Utilities Bd., 119 S. Ct. 721 (1999).o "@&H,,,B$"ԌAnd, although we are declaring that there are national interests that must be respected on a goingforward basis, it may well be that these interests can be protected without changing the longstanding decision to treat this traffic as local. One could readily imagine, for example, that states will not seek to assess perminute fees on Internetbound calls, just as the FCC has repeatedly resisted entreaties to do so. One can also reasonably foresee that, even if ISPbound traffic continues to be handled by the state commissions under the usual 251/252 process, the parties themselves (in voluntarily negotiated agreements) or the state commissions (if called upon to arbitrate agreements between incumbents and new entrants) will in future agreements address the issues associated with ISPbound traffic in ways that avoid some of the obvious anomalies and competitive distortions that may result from some of the current ILECCLEC arrangements. In short, I believe the decision we have adopted is one that (1) comports with the law, (2) is fair both to incumbent local exchange carriers and to competitive local exchange carriers, (3) does not unravel the core determinations of the more than two dozen state commissions that have addressed this issue, (4) sets the stage for future determinations that will eliminate or at least attenuate any anomalies inherent in current compensation arrangements, and (5) preserves this Commission's ability to safeguard the innovative, competitive, and unregulated character of the Internet. I hope that parties responding to the Notice of Proposed Rulemaking will focus on ways in which all of these objectives may continue to be advanced. "H,,,!"  XX *=G*(#  X'(# =A; B;X` hp x (#%'0*,.8135@8: