This month’s edition of New Paradigm Resources Group, Inc.’s (NPRG) CLEC Issues deals with the question of reciprocal compensation between CLECs and ILECs for Internet traffic provided and terminated by competitive local exchange carriers. Our analysis is predicated on two assumptions. One is that the entity demanding compensation is a certificate CLEC subject to the rights and responsibilities of the Federal Telecom Act of 1996 and all relevant state laws and regulations. The other assumption is that, if the purpose of a given telephone call is to connect ultimately to an Internet Service Provider (ISP), the traffic to the CLEC is local when terminated on the CLEC switch that hosts the ISP.

Currently the issue of allowable reciprocal compensation for ISP traffic is mired in regulatory uncertainty. Many states have ruled favorably requiring traffic exchange payments for ISP traffic, but the bulk of these decisions have been in the narrow context of complaint cases, and not of generic rule makings. The FCC has taken up the issue but is haunted by the same jurisdictional rate setting problems it confronted on loop pricing two years ago. In addition, the FCC is considering wholesale changes in access pricing that would bring dialup ISP traffic under the umbrella of the federal access regime. The stakes are high enough for Court battles to follow whatever regulatory clarity is gained from the FCC early next year.