FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
VERIZON CALIFORNIA, INC.,
Plaintiff-Appellant,
v.
MICHAEL R. PEEVEY; LORETTA M.
LYNCH; CARL W. WOOD; GEOFFREY No. 04-16382
F. BROWN; SUSAN P. KENNEDY, in
their official capacities as D.C. No.
Commissioners of the Public CV-03-03441-CW
Utilities Commission of the State
of California, and not as
individuals; PAC-WEST TELECOMM,
INC.,
Defendants-Appellees.
10757
10758 VERIZON CALIFORNIA v. PEEVEY
PAC-WEST TELECOMM, INC.,
Counter-claimant-Appellant,
v.
VERIZON CALIFORNIA, INC.,
Counter-defendant-Appellee,
v.
PAC-WEST TELECOMM, INC., No. 04-16394
Cross-claimant-Appellant,
v. D.C. No.
CV-03-03441-CW
MICHAEL R. PEEVEY; LORETTA M. OPINION
LYNCH; CARL W. WOOD; GEOFFREY
F. BROWN; SUSAN P. KENNEDY, in
their official capacities as
Commissioners of the Public
Utilities Commission of the State
of California, and not as
individuals,
Cross-defendants-Appellees.
Appeals from the United States District Court
for the Northern District of California
Claudia Wilken, District Judge, Presiding
Argued and Submitted
June 12, 2006—San Francisco, California
Filed September 7, 2006
Before: Pamela Ann Rymer, Thomas G. Nelson, and
William A. Fletcher, Circuit Judges.
Opinion by Judge Rymer
10762 VERIZON CALIFORNIA v. PEEVEY
COUNSEL
Burton A. Gross, Munger, Tolles & Olson, San Francisco,
California, for the plaintiff-appellant/cross-appellee.
D. Anthony Rodriguez, Morrison & Foerster, San Francisco,
California, for defendant-appellee/cross-appellant Pac-West
Telecomm, Inc.
Lindsay M. Brown, California Public Utilities Commission,
San Francisco, California, for defendants-appellees/cross-
appellees Commissioners of the Public Utilities Commission.
OPINION
RYMER, Circuit Judge:
These appeals arise out of a dispute between local
exchange carriers over the identification of internet-bound
traffic, and compensation for delivery of telephone calls to
internet service providers and for calls that appear to the cus-
tomer to be made within a local area code but in fact are not.
One of the carriers, Verizon California, Inc., had an exclusive
franchise within California before passage of the Telecommu-
nications Act of 1996, 47 U.S.C. § 151 et seq. However, the
Act established a competitive system whereby “incumbent”
VERIZON CALIFORNIA v. PEEVEY 10763
local exchange carriers such as Verizon must share their net-
works with “competitive” carriers such as Pac-West Tele-
comm, Inc. It also provides that disagreements are to be
referred for arbitration to the state public utility commission,
in this case, the California Public Utilities Commission
(CPUC). Verizon and Pac-West entered into an interconnec-
tion agreement in 1996, but when they reached an impasse in
negotiating a new agreement in 2001 and referred the dispute
to the CPUC, the commission ruled in Pac-West’s favor that
(1) during the interim period before a new agreement was in
place, the parties’ 1996 agreement continued in force such
that Verizon must continue to pay reciprocal compensation
for delivery of internet-bound calls at pre-existing rates rather
than at the lower capped rates set by the Federal Communica-
tions Commmission (FCC) that apply to new contractual obli-
gations; (2) Pac-West could exclude calls to paging services
before applying an FCC presumption that when terminated
calls are more than three times the number of originated calls,
the excess calls are bound for internet service providers; and
(3) Pac-West is entitled to reciprocal compensation for traffic
that appears to originate and terminate within a single
exchange by virtue of Pac-West’s assignment of a number
that appears to be “local,” but in fact is not — so-called “Vir-
tual Local” or “VNXX” traffic. The CPUC ruled in Verizon’s
favor that Verizon is entitled to collect call origination
charges for its cost of transporting Virtual Local traffic to a
distant point of interconnection. The district court found that
the commission’s decision was not arbitrary or capricious.
Both parties appeal. We agree with the district court, and
therefore affirm all rulings except for the commission’s deter-
mination that Pac-West may disregard paging traffic for pur-
poses of computing the presumptive volume of traffic bound
for an internet service provider (ISP). As to that issue, federal
law is to the contrary. Accordingly, we reverse and remand
the ruling on calls to paging customers.
10764 VERIZON CALIFORNIA v. PEEVEY
I
A
Until passage of the Telecommunications Act, local tele-
phone service was provided primarily by a single company
within each local area that had an exclusive franchise to serve
an authorized territory within the state. The Act replaced this
system with a competitive regime under which incumbent
local exchange carriers, or ILECs, such as Verizon, are
obliged to permit competitive local exchange carriers, or
CLECs, such as Pac-West, to interconnect “at any technically
feasible point within the [ILEC’s] network.” 47 U.S.C.
§ 251(c)(2)(B). Interconnection allows customers of one LEC
to call the customers of another, with the calling party’s LEC
(the “originating” carrier) transporting the call to the connec-
tion point, where the called party’s LEC (the “terminating”
carrier) takes over and transports the call to its end point. To
ensure that each LEC is fairly compensated for such calls, the
Act requires interconnected LECs to “establish reciprocal
compensation arrangements” with one another “for the trans-
port and termination of telecommunications.” 47 U.S.C.
§251(b)(5). Under a reciprocal compensation arrangement,
the originating LEC must compensate the terminating LEC
for delivering its customer’s call to the end point. The FCC
has determined that this reciprocal compensation requirement
applies only “to traffic that originates and terminates within
a local area.” In re Implementation of the Local Competition
Provisions in the Telecomms. Act of 1996, 11 F.C.C. Rcd.
15499, 16013, ¶ 1034 (Aug. 8, 1996) (subsequent history
omitted) (the Local Competition Order). Thus, “[t]he Act pre-
serves the legal distinctions between charges for transport and
termination of local traffic and interstate and intrastate
charges for terminating long-distance traffic.” Id. at 16013,
¶ 1033.
Under the Act, ILECs and CLECs have a duty to negotiate
in good faith the terms of their network sharing, including
VERIZON CALIFORNIA v. PEEVEY 10765
rates of reciprocal compensation. 47 U.S.C. § 251(c)(1). A
voluntary agreement reached by the parties need not conform
to all of the requirements of § 251, 47 U.S.C. § 252(a)(1), and
the state public utility commission reviews voluntary agree-
ments only for limited purposes, 47 U.S.C. § 252(e)(2)(A).
However, if the state public utility commission is asked to
resolve open issues by means of compulsory arbitration, 47
U.S.C. § 252(b)(1), the Act requires that it “ensure that such
resolution and conditions meet the requirements of section
251 [of the Act], including the regulations prescribed by the
[FCC] pursuant to section 251 . . . .” 47 U.S.C. § 252(c)(1);
see also 47 U.S.C. § 252(e)(2)(B).
Two wrinkles in the reciprocal compensation regime of
§ 251 are at the crux of this appeal. First, there was confusion
from day one about whether the reciprocal compensation
requirement should apply to local calls made via modem to an
ISP. Following a tortured history that we do not detail, the
issue was resolved (for now) when the FCC concluded in
2001 that ISP-bound calls are not subject to reciprocal com-
pensation. In re Implementation of the Local Competition
Provisions in the Telecomms. Act of 1996; Intercarrier Com-
pensation for ISP-Bound Traffic, 16 F.C.C. Rcd. 9151, 9189,
¶ 82 (Apr. 27, 2001) (the ISP Remand Order).1 In the ISP
1
In In re Implementation of the Local Competition Provisions in the
Telecomms. Act of 1996; Intercarrier Compensation for ISP-Bound Traf-
fic, 14 F.C.C. Rcd. 3689 (Feb. 26, 1999) (ISP Order), the FCC applied an
“end to end” analysis of ISP traffic, treating the user’s call to the ISP in
conjunction with the ISP’s connection to the internet, to conclude that ISP-
bound “local” calls were in fact interstate calls and thus not subject to
reciprocal compensation under federal law. State commissions were free
to come out differently. CPUC issued two generic rulemaking decisions
in 1999 under which all existing interconnection agreements providing
reciprocal compensation for local calls were interpreted to include ISP-
bound calls. Order Instituting Rulemaking and Investigation on the Com-
mission’s Own Motion into Competition for Local Exchange Service,
CPUC Decision No. 98-10-057, 82 C.P.U.C. 2d 492, 1998 WL 1109251
(Oct. 22, 1998), modified on rehearing by CPUC Decision No. 99-07-047,
10766 VERIZON CALIFORNIA v. PEEVEY
Remand Order, the FCC held that § 251(g) carves out a cate-
gory of telecommunications traffic not subject to the recipro-
cal compensation requirement of § 251(b)(5), id. at 9165-66,
¶¶ 31-32, and that ISP-bound traffic is within this category,
id. at 9166-67, ¶ 34. The FCC prohibited reciprocal compen-
sation for termination of calls to an ISP for carriers that did
not exchange traffic prior to the order. Id. at 9188-89, ¶ 81.
For carriers that were already exchanging traffic prior to the
order, the FCC established an interim regime according to
which reciprocal compensation rates for ISP-bound calls were
capped, with the rate cap declining over time toward zero. Id.
at 9155-57, ¶¶ 7-8, 9186-87, ¶¶ 77-78. This was done to elim-
inate the regulatory arbitrage opportunity available to CLECs.
Also, “[i]n order to limit disputes and costly measures to iden-
tify ISP-bound traffic,” the FCC adopted
a rebuttable presumption that traffic exchanged
between LECs that exceeds a 3:1 ratio of terminating
to originating traffic is ISP-bound traffic subject to
the compensation mechanism set forth in this Order.
. . . Carriers that seek to rebut this presumption, by
showing that traffic above the ratio is not ISP-bound
traffic or, conversely, that traffic below the ratio is
ISP-bound traffic, may seek appropriate relief from
their state commissions pursuant to section 252 of
the Act.
1999 WL 703040 (July 22, 1999) (the Generic Internet Orders). However,
we invalidated the Generic Internet Orders on the ground that the com-
mission “lacks authority under the Act to promulgate general ‘generic’
regulations over ISP traffic.” Pac. Bell v. Pac-West Telecomm., Inc., 325
F.3d 1114, 1125 (9th Cir. 2003). Meanwhile, the D.C. Circuit reversed and
remanded the ISP Order for “want of reasoned decision-making.” Bell Atl.
Tel. Cos. v. FCC, 206 F.3d 1, 3 (D.C. Cir. 2000). On remand the FCC
again concluded that ISP-bound calls are not subject to reciprocal compen-
sation. ISP Remand Order, 16 F.C.C. Rec. at 9189, ¶ 82. Although the
D.C. Circuit reversed once more, WorldCom, Inc. v. FCC, 288 F.3d 429,
433-34 (D.C. Cir. 2002), it left the rules set out in the ISP Remand Order
in place. Accordingly, the ISP Remand Order remains binding.
VERIZON CALIFORNIA v. PEEVEY 10767
Id. at 9157, ¶ 8. Finally, the FCC stated that “[t]he interim
compensation regime we establish here applies as carriers
renegotiate expired or expiring interconnection agreements. It
does not alter existing contractual obligations, except to the
extent that parties are entitled to invoke contractual change-
of-law provisions.” Id. at 9189, ¶ 82. With the promulgation
of these rate caps, “state commissions will no longer have
authority to address this issue” after June 14, 2001.2 Id.
The second wrinkle in the reciprocal compensation regime
concerns VNXX traffic. Telephone numbers generally consist
of ten digits in the form of NPA-NXX-XXXX. The first three
digits indicate the Numbering Plan Area (or NPA), commonly
known as the area code, and the next three digits refer to the
exchange code. Under standard industry practice, area codes
and exchange codes generally correspond to a particular geo-
graphic area served by an LEC. These codes serve two func-
tions: the routing of calls to their intended destinations, and
the rating of calls for purposes of charging consumers. Each
NPA-NXX code is assigned to a rate center, and calls are
rated as local or toll based on the rate center locations of the
calling and called parties. When the NPA-NXX codes of each
party are assigned to the same local calling area, the call is
rated to the calling party as local; otherwise it is a toll call, for
which the calling party must normally pay a premium.
VNXX, or “Virtual Local” codes are NPA-NXX codes that
correspond to a particular rate center, but which are actually
assigned to a customer located in a different rate center. Thus
a call to a VNXX number that appears to the calling party to
be a local call is in fact routed to a different calling area. The
CPUC has determined that VNXX traffic should be rated to
consumers as a local call, meaning that the originating LEC
cannot charge the calling customer a toll despite the long-
distance nature of the call’s physical routing. In re Competi-
2
The ISP Remand Order provided that its rulings would go into effect
“30 days after publication in the Federal Register.” Id. at 9204, ¶ 112.
10768 VERIZON CALIFORNIA v. PEEVEY
tion for Local Exchange Service, CPUC Decision No. 99-09-
029, 1999 WL 1127635, *11 (Sept. 2, 1999) (the VNXX Deci-
sion). In the course of its decision, the CPUC also stated:
We conclude that all carriers are entitled to be fairly
compensated for the use of their facilities and related
functions performed to deliver calls to their destina-
tion, irrespective of how a call is rated based on its
NXX prefix. Thus, it is the actual routing points of
the call, the volume of traffic, the location of the
point of interconnection, and the terms of the inter-
connection agreement—not the rating point—of a
call which properly forms a basis for considering
what compensation between carriers may be due.
Id. at *19. VNXX numbers are often assigned to ISP custom-
ers by CLECs, thus allowing the ISP to serve internet users
outside the ISP’s local calling area without subjecting such
users to toll charges.
B
Within a few months of the effective date of the 1996 Tele-
communications Act, Verizon (then GTE California) and Pac-
West entered into a negotiated interconnection agreement
under which Verizon paid Pac-West reciprocal compensation
for ISP-bound local calls terminated by Pac-West (the 1996
contract). Paragraph 9.02 of the 1996 contract established an
initial term of one year, stated that it could be terminated by
either party upon 60 day’s notice, and provided that
the other party at any time during such 60 day
period, may request negotiation of a new intercon-
nection agreement, in which case interconnection
shall continue between the Parties in full accordance
with all of the terms of this Agreement pending exe-
cution of a replacement interconnection agreement
within 125 days from the date the agreement termi-
VERIZON CALIFORNIA v. PEEVEY 10769
nates. If parties are unable to come to agreement
within 125 days, both parties agree to seek resolution
from the CPUC.
Neither party exercised the option until 2001. However,
shortly after the ISP Remand Order was issued, Verizon took
the position that reciprocal compensation payments for
internet-bound traffic were no longer required. Pac-West
objected to Verizon’s unilateral imposition of the FCC’s new,
capped rate structure, and requested resolution by the CPUC.
An ALJ ruled in favor of Pac-West on September 27, 2001,
and the CPUC affirmed that ruling in January 2002. Order
Denying the Complaint of Verizon California Inc. Against
Pac-West Telecomm., Inc., CPUC Decision No. 02-01-062
(Jan. 24, 2002). The CPUC held that the 1996 agreement’s
change-of-law provision did not cover the ISP Remand Order,
and so compensation for ISP-bound traffic was not subject to
the FCC’s new rate caps.3 Id.
On October 10, 2001, Verizon exercised its right to termi-
nate the 1996 agreement, effective December 9, 2001. On
December 3, Pac-West, in turn, requested negotiation of a
new agreement, thereby invoking the 125-day contract rene-
gotiation period in Paragraph 9.02. Several issues remained
outstanding as April 13, 2002 — the end of the 125-day
period — approached. Accordingly, on April 3, 2002, Verizon
filed an emergency motion with the CPUC, invoking Para-
graph 9.02 to request an expedited order establishing a tempo-
rary agreement with Pac-West pending adoption of a new
interconnection agreement. In particular, Verizon requested
that the reciprocal compensation rates applicable to ISP-
bound local traffic be set in the interim agreement in confor-
mance with the lower rates specified in the ISP Remand
Order. On April 12, 2002, one day before the end of the 125-
day negotiation period, CPUC Commissioner Michael R.
Peevey imposed an interim agreement. He noted that the par-
3
This ruling has not been challenged.
10770 VERIZON CALIFORNIA v. PEEVEY
ties had failed to negotiate a provision in their existing agree-
ment as to what terms would govern in the event of contract
termination without a successor agreement, and found the
only defensible alternative was to continue the status quo
agreement for the interim period. With regard to reciprocal
compensation for ISP-bound calls in particular, Commis-
sioner Peevey ruled that the 1996 agreement’s payment
schedule would continue to apply instead of the FCC’s
capped rates, but that compensation exchanged during the
interim period would be subject to later adjustment by the
CPUC. On April 26, 2002, the CPUC adopted Commissioner
Peevey’s order in its entirety.
No progress having been made, on June 13, 2002 Verizon
petitioned the CPUC for arbitration of a new agreement pur-
suant to § 252(b). The arbitrator issued a final report (the
Final Arbitrator’s Report) on February 10, 2003 that adopted
Verizon’s position with regard to reciprocal compensation
rates for ISP-bound traffic in the interim period, ruling that an
interconnection agreement “becomes an ‘expiring’ one when
the ILEC gives notice to that effect, and the new intercarrier
compensation arrangement [mandated by the ISP Remand
Order] should thus become effective at the inception of nego-
tiations.” The arbitrator also determined that “[l]ocal traffic to
customers reasonably identifiable as paging carriers will not
be considered ISPs in the [interconnection agreement] when
the [ISP Remand Order] is implemented, unless the order
clearly and finally establishes otherwise.” Finally, as to
VNXX traffic, the arbitrator ruled that “[w]hether or not a call
is ‘local’ depends solely upon the NPA-NXXs of the calling
and called parties . . . and does not depend upon the routing
of the call, even if it is outside the local calling area.” An arbi-
trated interconnection agreement, consistent with the arbitra-
tor’s report, was filed by the parties on February 18, 2003.
On May 22, 2003, the CPUC modified and adopted the
Final Arbitrator’s Report (Arbitration Decision). The com-
mission overturned the arbitrator’s ruling on reciprocal com-
VERIZON CALIFORNIA v. PEEVEY 10771
pensation for ISP-bound traffic under the interim agreement,
holding that the FCC’s rate caps could not be applied retroac-
tively from the effective date of the new (2003) agreement. It
noted that the FCC had stated in the ISP Remand Order that
the order “does not alter existing contractual obligations,
except to the extent that parties are entitled to invoke contrac-
tual change-of-law provisions.” One commissioner dissented
on the footing that the 1996 agreement expired on April 14,
2002, and that “with the expiration of the interconnection
agreement, the rates contained in the FCC’s ISP Remand
Order became effective.” The CPUC adopted the arbitrator’s
position on paging traffic and reciprocal compensation for
VNXX calls. With respect to VNXX calls, however, the
CPUC further ruled that Verizon was entitled to collect call
origination charges, or COCs, from Pac-West, so as to com-
pensate Verizon for the transport of VNXX calls over long
distances.
Verizon challenged these rulings in district court. Both par-
ties, and the CPUC, filed cross-motions for summary judg-
ment. The district court granted the CPUC’s cross-motion
regarding call origination charges on VNXX traffic, and the
CPUC’s and Pac-West’s cross-motions regarding interim
reciprocal compensation, paging traffic, and VNXX recipro-
col compensation. Verizon appeals the adverse rulings with
respect to interim reciprocal compensation, paging traffic, and
VNXX reciprocal compensation. Pac-West cross-appeals
judgment for Verizon on VNXX call origination charges.
CPUC defends its rulings in all respects.
II
“We review de novo the district court’s grant[s] of sum-
mary judgment.” U.S. W. Commc’ns, Inc. v. Wash. Utils. &
Transp. Comm’n, 255 F.3d 990, 994 (9th Cir. 2001). We also
“review de novo whether the arbitrated agreements are in
compliance with the Act and the implementing regulations,”
and “review all other issues under an arbitrary and capricious
10772 VERIZON CALIFORNIA v. PEEVEY
standard.” Id. A state commission’s decision is arbitrary and
capricious if the decision “was not supported by substantial
evidence,” or the commission made a “clear error of judg-
ment.” Pac. Bell, 325 F.3d at 1131 (internal quotation marks
omitted).
III
The central issue on appeal is whether the ISP Remand
Order should govern compensation for ISP-bound traffic
exchanged between the parties during the period from Decem-
ber 3, 2001 (when Pac-West requested renegotiation), or from
April 13, 2001 (when the 125-day contractual period for rene-
gotiation expired), until CPUC handed down its arbitration
decision approving a new, arbitrated interconnection agree-
ment. Verizon advances a number of reasons why the decision
is arbitrary. It argues that extending its obligation to pay inter-
carrier compensation at rates above the FCC’s caps violates
Paragraph 82 of the ISP Remand Order which, as of June 14,
2001, stripped all state commissions of authority to impose
any rate structure other than that set forth in the order. While
Verizon recognizes that the ISP Remand Order excepts
enforcement of an “existing contractual obligation,” it main-
tains that the exception is inapplicable here because, at least
after April 13, 2002, there was no contractual agreement
between the parties requiring payment of reciprocol compen-
sation for internet-bound traffic at rates higher than the FCC’s
caps. In effect, Verizon contends, the CPUC’s decision sim-
ply perpetuates through the back door the generic rulemaking
that this court invalidated in Pacific Bell. Verizon submits that
the Arbitration Decision also violates the ISP Remand Order
because the order directs that the FCC’s capped rates go into
effect “as” carriers renegotiate “expired or expiring” intercon-
nection agreements. In its view, the 1996 agreement began
“expiring” as of December 3, 2001 when Pac-West requested
renegotiation and was “expired,” at the latest, as of April 13,
2001 when the renegotiation period ended. Thus, Verizon
posits, the interim interconnection agreement imposed by
VERIZON CALIFORNIA v. PEEVEY 10773
CPUC was itself a new agreement subject to the FCC’s rate
cap.
[1] We hold that the CPUC did not act in derogation of fed-
eral law by extending the status quo, that is, in continuing the
reciprocal compensation terms of the 1996 agreement after
Pac West requested renegotiation and until the new (2003)
interconnection agreement was in place. There is no question
that the FCC caps apply to the 2003 agreement. However,
when the parties couldn’t agree within the contractual time
frame, it fell to the CPUC, pursuant to the 1996 agreement,
to decide how interconnection would be governed in the
meantime. Neither the Act nor the ISP Remand Order
requires reversal of the CPUC’s interim directive. This is so
for two independent reasons.
[2] First, it does not appear that federal law applies to the
Interim Order. Parties who enter into a voluntary interconnec-
tion agreement need not conform to the requirements of the
Act, 47 U.S.C. § 252(a)(1), and a state commission need not
review such agreements for compliance with § 251, 47 U.S.C.
§ 252(e)(2). Accordingly, if Verizon and Pac-West had
reached a new private agreement imposing reciprocal com-
pensation on ISP-bound traffic above the FCC’s mandated
rate caps for the duration of the interim negotiation period,
that agreement would be binding on the parties regardless of
the ISP Remand Order. If Verizon and Pac-West had reached
such an agreement with the assistance of a private arbitrator,
the conclusion would be no different. Only if the parties
sought mandatory arbitration from the commission under
§ 252(b)(1) would the restrictions of the Act, and thus the ISP
Remand Order’s interpretation of § 251(b)(5), apply to the
interconnection agreement. 47 U.S.C. § 252(c).
[3] Verizon did not invoke § 252(b)(1) in requesting an
emergency interim agreement. Rather, it cited Paragraph 9.02
of the 1996 agreement. Indeed, it does not appear that Verizon
could have requested compulsory arbitration under the Act.
10774 VERIZON CALIFORNIA v. PEEVEY
While Paragraph 9.02 of the 1996 agreement provides that
parties may seek resolution by the CPUC “within 125 days”
of Pac-West’s request to negotiate a new agreement,
§ 252(b)(1) of the Act may be invoked only “[d]uring the
period from the 135th to the 160th day (inclusive) after the
date on which an incumbent local exchange carrier receives
a request for negotiation under this section . . . .” The parties
were not yet within this period when Verizon made its emer-
gency plea to the CPUC.
The fact that Verizon invoked a contractual provision, and
could not invoke the Act, in requesting the commission’s
assistance, suggests that the CPUC in imposing an interim
agreement acted as an ordinary private arbitrator not subject
to the restrictions of the Act. Such a role for the commission
is contemplated by the Act. Section 252(a)(2) provides that
“[a]ny party negotiating an agreement under this section may,
at any point in the negotiation, ask a State commission to par-
ticipate in the negotiation and to mediate any differences aris-
ing in the course of the negotiation.” A commission acting in
this capacity is not required by the Act to implement the pro-
visions of § 251. See 47 U.S.C. § 252(c) (requiring only com-
missions acting in their compulsory arbitration capacity
pursuant to § 252(b) to implement § 251). We therefore
believe that Paragraph 9.02 of the 1996 agreement gave the
CPUC freedom to impose any terms it believed necessary on
a temporary basis to resolve the parties’ disagreement.
Alternatively, even if the commission were required to
comply with the ISP Remand Order, we are persuaded that it
did. Paragraph 82 of the ISP Remand Order controls the
application of the FCC’s new rate caps. This paragraph pro-
vides in relevant part that “[t]he interim compensation regime
we establish here applies as carriers renegotiate expired or
expiring interconnection agreements. It does not alter existing
contractual obligations . . . .” 16 F.C.C. Rec. at 9189, ¶ 82.
This means that for the new FCC rate caps to apply, the par-
ties must be renegotiating an “expiring or expired” agreement
VERIZON CALIFORNIA v. PEEVEY 10775
and application of the new rates would not “alter existing con-
tractual obligations.”
[4] Verizon relies on both prongs but for different time
periods — the period after April 13, 2002 and before approval
of the 2003 agreement, and the period between December 4,
2001 and April 13, 2002. While not perfectly clear, the Arbi-
tration Decision reflects the commission’s determination that
the interim agreement represents an extension of Verizon’s
existing contractual obligations in the 1996 agreement, rather
than an entirely new agreement. Substantial evidence supports
this determination, given that the Interim Order characterized
the interim agreement as “the temporary extension of the old
interconnection agreement.” As the district court observed,
this is not an issue of federal law answered by the ISP
Remand Order, but rather is an issue governed by state con-
tract law and principles. See Pac. Bell, 325 F.3d at 1128 (cit-
ing S.W. Bell v. Pub. Util. Comm’n, 208 F.3d 475, 485 (5th
Cir. 2000)). In light of Paragraph 9.02 of the 1996 agreement,
which Verizon invoked in requesting an interim agreement
and which grants the commission unqualified authority to
arbitrate the parties’ disputes, the CPUC’s interpretation of
the nature of the interim agreement resolves its status.
Because the 1996 agreement remained in effect after April 13,
2002, it was not, as Verizon insists, “expired.” It follows that
the CPUC’s ruling in the Arbitration Decision that the FCC
rate caps did not apply during this period was not arbitrary
and capricious, but was in fact dictated by its earlier intent to
continue the 1996 agreement in force in the interim.
Nor was the 1996 agreement “expiring” once Pac-West
demanded renegotiation such that application of the FCC rate
caps thereafter was required. Whether or not this agreement
was “expiring” at that time — a process which, we suppose,
begins to happen whenever a notice of termination is given —
the FCC rate caps would alter the existing 1996 contractual
obligations which were alive as of December 3, 2001 when
renegotiation was requested. In any event, we have no diffi-
10776 VERIZON CALIFORNIA v. PEEVEY
culty concluding that Verizon places too much weight on the
language in Paragraph 82 of the ISP Remand Order that rate
caps apply “as carriers renegotiate.” It seems clear in context
that when the FCC said that the rate caps were to apply “as
carriers renegotiate” their interconnection agreements, it
meant for the caps to apply to the renegotiation, not to trans-
actions that take place during the renegotiation. Put differ-
ently, compliance with the ISP Remand Order requires LECs
to incorporate the FCC’s rate caps prospectively into the new
interconnection agreement produced through renegotiation.
This construction is not only grammatically plausible, it
allows LECs to continue to abide by the terms of existing
agreements, as they must, without changing those terms retro-
actively, even as they negotiate a new agreement that incorpo-
rates the FCC rate caps. In sum, to impose the new rate caps
during the renegotiation period of an expiring contract would
be to alter an “existing” contractual obligation, an outcome
forbidden by the ISP Remand Order itself.
Verizon’s related argument, that the CPUC ran afoul of
Paragraph 82’s proscription against a state commission’s
determining appropriate compensation for ISP-bound traffic,
fares no better. Once the CPUC determined pursuant to its
authority under Paragraph 9.02 of the 1996 agreement that the
terms of that agreement temporarily continue in effect, the
FCC rate caps do not apply in the first place. Therefore, the
CPUC made no “determination” about appropriate reciprocal
compensation to which Paragraph 82’s bar could pertain.
Although Verizon correctly notes that an extension theory (by
contrast to its own take that the interim agreement was a new
agreement) delays ultimate implementation of the new rate
caps, nothing in the ISP Remand Order expressly precludes
a state commission from making a decision of the sort the
CPUC made here.
[6] Verizon suggests that there was no longer any basis for
it to pay reciprocal compensation for ISP-bound traffic once
the CPUC’s Generic Internet Rulings were overturned by
VERIZON CALIFORNIA v. PEEVEY 10777
Pacific Bell in 2003. We disagree. The commission had
issued two generic rulemaking orders that concluded that ISP
traffic was intrastate for jurisdictional purposes and local for
purposes of interconnection agreements. However, as the
FCC had defined ISP traffic as “interstate” for jurisdictional
purposes in the ISP Remand Order, we held that the CPUC
lacked authority under the Act to promulgate general “gener-
ic” regulations over ISP traffic. We noted that the commis-
sion’s only authority over interstate traffic is the authority
under § 252 to approve new arbitrated interconnection agree-
ments and to interpret existing ones. In other words, Pacific
Bell simply voided generic orders that purported to affect
existing interconnection agreements without reference to any
single, specific agreement; it had nothing to do with commis-
sion arbitrations of particular agreements such as occurred
here. Thus, Verizon’s obligation to pay reciprocal compensa-
tion for ISP-bound traffic arises from its own agreement and
the Arbitration Decision’s interpretation of the 1996 agree-
ment, not from the Generic Internet Rulings. While the 1996
agreement does not explicitly mention ISP-bound traffic, it
does require Verizon to compensate Pac-West for the termina-
tion of all “local” calls. The CPUC’s determination that calls
destined for a local ISP are “local” within the meaning of the
1996 agreement is reasonable. Even the FCC has abandoned
the notion, adopted in the original ISP Order but rejected by
the D.C. Circuit, that ISP-bound calls are not local. Accord-
ingly, during the December 3, 2001 to April 13, 2002 period,
the 1996 agreement remained an “existing contractual obliga-
tion” with regard to reciprocal compensation for ISP-bound
traffic, thereby rendering the FCC rate caps inapplicable.
IV
Verizon argues that the CPUC violated federal law govern-
ing the measurement of internet-bound traffic subject to the
FCC’s capped rates by allowing Pac-West to remove paging
traffic from the total pool of terminated calls in computing the
presumptive volume of ISP-bound traffic under the ISP
10778 VERIZON CALIFORNIA v. PEEVEY
Remand Order. Rather than identifying and separately mea-
suring internet-bound calls, Pac-West opted to rely on the
FCC’s 3-to-1 ratio separating ISP-bound calls from non-ISP-
bound calls not subject to the FCC’s capped rates. However,
the CPUC, and the district court, allowed Pac-West to sub-
tract out from the pool subject to the 3:1 ratio the calls Pac-
West terminates to paging carriers. We agree with Verizon
that this traffic, that is, calls to paging companies that are not
ISP-bound, is already accounted for by the FCC’s presump-
tive ratio, which provides that for every one minute of traffic
Pac-West originates, three minutes of traffic Pac-West termi-
nates will be deemed to be non-ISP traffic.
[7] This issue turns entirely on the interpretation of para-
graphs 8 and 79 of the ISP Remand Order. For the sake of
efficiency, the order adopts a presumption that traffic exceed-
ing a 3:1 ratio of terminating calls to originating calls is ISP-
bound and thus, subject to compensation on a capped basis.
This relieves both CLECs and ILECs of the burden of actually
establishing how many calls are ISP-bound and how many are
not. Thus, if Pac-West were hypothetically to originate 100
calls and terminate 1,000 calls, 300 of the terminated calls are
presumptively non-ISP-bound calls and 700 are presump-
tively ISP-bound calls. However, the presumption is rebutta-
ble; a CLEC that wants to rebut the numbers produced by
applying the 3:1 ratio may show that traffic above the ratio is
not ISP-bound, or an ILEC may show that traffic below it is
ISP-bound. The order thus allows a CLEC to show that the
actual number of non-ISP-bound calls exceeds the presump-
tive number. What the commission’s determination does, by
contrast, is to allow Pac-West to add the number of calls iden-
tifiable as actually non-ISP-bound to the presumptive number.
Returning to the hypothetical, if Pac-West were able to iden-
tify 50 paging calls that are not ISP-bound, under the commis-
sion’s ruling it could exclude those 50 calls yet still rely on
the presumption that 300 of its terminated calls are non-ISP-
bound. In our view this is arbitrary, because the 50 non-ISP-
bound calls are subsumed in the numerator, that is, all non-
VERIZON CALIFORNIA v. PEEVEY 10779
ISP-bound calls are already included in the presumptive 3 to
1 ratio unless the CLEC shows that the ratio isn’t an accurate
enough reflection of reality. The only thing that Pac-West
shows by identifying 50 paging calls is that 50 of its termi-
nated calls are in fact not ISP-bound; it does not thereby show
that 350 of its terminated calls are not ISP-bound. Put differ-
ently, to permit Pac-West to pull paging traffic out of the pool
of terminated calls before the presumptive ratio is applied
allows it to receive reciprocal compensation for all identifi-
able non-ISP-bound calls plus three times the number of orig-
inated calls — without any showing that it is not fairly
compensated according to the 3:1 ratio.
We are not persuaded by the district court’s observation
that the end result is the same whether paging calls are
excluded from the pool of terminated traffic before or after
the presumptive ratio is applied. In its view, either approach
is equally correct; in ours, each is equally incorrect. Under the
construct of the ISP Remand Order, paging calls as a category
of non-ISP-bound traffic should not be excluded at all
because the whole universe of non-ISP-bound traffic (of
which paging calls are part) is included in the pool both
before and after the presumptive ratio is applied.
Applying the 3:1 ratio to the total pool of all terminated
calls is an imminently reasonable approach. If there were no
presumption as to the normal ratio between terminated and
originated calls, parties would be forced to go to great lengths
to distinguish ISP-bound from non-ISP-bound traffic. The
presumption helps to avoid unnecessary work as it should
accord with industry experience in the main. Assuming the
ratio is a mostly accurate reflection of reality, both parties
should be satisfied with how the ratio plays out in practice
and neither ILECs nor CLECs should have an undue incentive
to employ costly measures to rebut it. Although Pac-West
protests that rebutting the 3:1 presumptive relationship
between terminated and originated calls is harder under Veri-
zon’s reading than under CPUC’s, it is hard precisely because
10780 VERIZON CALIFORNIA v. PEEVEY
the ratio closely tracks reality. It is no answer that it would be
easier for Pac-West to chip away at the pool before applying
the 3:1 ratio, for to do so would defeat the whole point of pre-
suming a relationship of all terminated to all originated calls.
The CPUC argues that paging traffic is excludable as a
matter of state law because paging carriers are not telephone
corporations, but this argument is flawed for similar reasons.
Just as the FCC’s presumption does not apply only to traffic
terminated to non-paging carriers, it is also not limited only
to traffic terminated to telephone corporations.
[8] We conclude that the CPUC erred in its Arbitration
Order by allowing Pac-West to remove all paging traffic from
the pool of total terminated traffic in calculating ISP-bound
calls for purposes of applying the FCC’s 3:1 ratio.
V
Finally on its appeal, Verizon contends that the decision to
impose reciprocal compensation on Virtual NXX traffic was
arbitrary and capricious as the CPUC provided no meaningful
explanation for it and, in any event, the decision contradicts
the commission’s own rule, established in the VNXX Deci-
sion, that intercarrier compensation determinations for such
traffic are properly based on the routing points — not the rat-
ing points — of a call. See VNXX Decision, 1999 WL
1127635, at *19.
[9] We disagree that CPUC failed to explain its decision.
The CPUC adopted the Final Arbitrator’s Report, which
explains the VNXX reciprocal compensation ruling as fol-
lows:
Whether or not a call is “local” depends solely upon
the NPA-NXXs of the calling and called parties as
established by Verizon’s traditional local calling
areas, and does not depend upon the routing of the
VERIZON CALIFORNIA v. PEEVEY 10781
call, even if it is outside the local calling area. This
is consistent with the Commission’s consistent man-
ner of rating calls, is an industry wide practice, and
recognizes the essential difference in the parties’
respective network architectures . . . . Intercarrier
compensation obligations between these two carriers
must be consistent with this precept unless the
underlying rule is changed.
Thus, the ruling is not without rationale; in the CPUC’s view,
reciprocal compensation turns on whether a call is local, and
determining whether a call is local based on the NPA-NXXs
of the calling and called parties, not the routing of the call, is
consistent with CPUC’s traditional call rating regime,
industry-wide practice, and recognition of essential differ-
ences between the parties’ network architectures.
[10] Neither does the VNXX reciprocal compensation rul-
ing represent an arbitrary departure from CPUC’s earlier
VNXX Decision. The VNXX Decision addressed two issues:
the appropriate rating to customers of VNXX calls and the
appropriate intercarrier compensation for such calls. As to
rating, the CPUC ordered that “[c]alls shall be rated in refer-
ence to the rate center of the assigned NXX prefix of the cal-
led party,” regardless of the called party’s physical location.
VNXX Decision, 1999 WL 1127635, at *19. That ruling did
not, however, affect intercarrier compensation for VNXX
calls. As to this issue, the CPUC ordered that
[t]he compensation exchanged between carriers
related to the origination, switching, and routing of
calls shall consider the actual routing points of the
call, the volume of traffic, the location of the point
of interconnection, and the terms of the interconnec-
tion agreement in situations where different rating
and routing points are used.
Id. Verizon relies on the requirement that compensation
arrangements should “consider the actual routing points of the
10782 VERIZON CALIFORNIA v. PEEVEY
call,” as opposed to the (local) rating point, to show that the
VNXX Decision and the Arbitration Decision are irreconcil-
able. However, we do not believe that the VNXX Decision
must be read as Verizon suggests.
First, it is not evident from the VNXX Decision that the
CPUC had reciprocal compensation in mind when it sug-
gested that actual routing points should be considered in
determining intercarrier compensation. Rather, the commis-
sion’s main concern appears to be compensation to the origi-
nating LEC, paid by the terminating LEC. Reciprocal
compensation, by contrast, is paid by the originating LEC to
the terminating LEC. The language upon which Verizon relies
is expressly limited to “[t]he compensation exchanged
between carriers related to the origination, switching, and
routing of calls”; there is no reference to the termination of
calls, the source of reciprocal compensation obligations. The
CPUC’s discussion further supports this interpretation,
because it focuses on the compensation due to ILECs in
exchange for their transporting VNXX calls out of the local
calling area, but makes no mention of compensation due to
CLECs for terminating those calls. See, e.g., id. at *17 (“We
conclude that, whatever method is used to provide a local
presence in a foreign exchange, a carrier may not avoid
responsibility for negotiating reasonable intercarrier compen-
sation for the routing of calls from the foreign exchange
merely by redefining the rating designation from toll to
local.”); id. (“Incumbents are entitled to fair compensation for
the use of their facilities in the transport and termination of
foreign exchange traffic.”); id. at *19 (“We conclude that all
carriers are entitled to be fairly compensated for the use of
their facilities and related functions performed to deliver calls
to their destination, irrespective of how a call is rated based
on its NXX prefix.”). Accordingly, the VNXX Decision does
not apply on its face to reciprocal compensation arrange-
ments.
Regardless, the VNXX Decision does not establish a clear
rule as to whether such compensation is ever appropriate. The
VERIZON CALIFORNIA v. PEEVEY 10783
effect of the decision is to require parties to “consider” physi-
cal routing in negotiating a compensation agreement; physical
routing is but one of several considerations, and it does not
dictate compensation. Therefore, a reciprocal compensation
arrangement for VNXX calls does not necessarily violate its
command. Balancing the considerations identified by the
CPUC is fact-intensive, and the CPUC was careful to note
that “the record at this point does not provide a sufficient
basis to adopt appropriate preferred outcomes for intercarrier
compensation arrangements for the transport and delivery of
traffic involving different rating and routing points.” Id. In
short, the commission declined to issue any broad rule relative
to intercarrier compensation for VNXX traffic. This being the
case, we cannot say that its Arbitration Decision is plainly
inconsistent with the VNXX Decision, or such a radical change
of course from it that the Arbitration Decision may only stand
with more expansive reasoning.
VI
Pac-West’s cross-appeal also involves VNXX traffic, both
non-ISP bound and ISP bound. While Pac-West supports the
CPUC’s decision to allow reciprocal compensation for Virtual
NXX traffic, it challenges the decision to allow call origina-
tion charges for the same traffic. In a nutshell, its position is
that once CPUC (correctly, in its view) decided that non-ISP
VNXX traffic is rated and billed as “local traffic” for pur-
poses of reciprocal compensation, it cannot then decide that
VNXX traffic is also interexchange traffic such that ILECs
can collect call origination charges.4 In doing this, Pac-West
4
As the First Circuit recently explained, “[l]ocal traffic stays within the
boundaries of a local calling area. Interexchange (or ‘non-local’) traffic
crosses the boundaries of a local calling area and is generally subject to
toll or long-distance charges paid by the calling party.” Global NAPs, Inc.
v. Verizon New England, Inc., 444 F.3d 59, 62-63 (1st Cir. 2006). Such
traffic may be a “local toll” call which crosses the boundaries of local call-
ing areas but stays within a local access and transport area, or a “long dis-
tance” call that crosses the boundaries of local calling areas. Id. at 63 n.1.
10784 VERIZON CALIFORNIA v. PEEVEY
maintains, the CPUC created a “hybrid” version of traffic that
it lacks authority to do. The primary reason is that, as Pac-
West sees it, 47 C.F.R. § 51.703(b) precludes collection of
origination charges for any calls subject to reciprocal compen-
sation.
The CPUC, on the other hand, submits that it is inappropri-
ate to rely on § 703(b) because Virtual Local traffic is similar
to Extended Area Service and Foreign Exchange Service. It
points out that if the centers for two exchanges are within
twelve miles of one another, the calls between those
exchanges are generally rated as local calls whereas, if the
rate centers are more than twelve miles apart, the calls
between the two are rated as toll calls. Accordingly, as it
explained in the Arbitration Decision, for rating purposes,
Virtual Local traffic is a local call but for routing purposes,
it is an interexchange call because it terminates outside of the
originating calling area. Separating the two, the commission
says, is not unusual for, as an example, the FCC has done the
same thing with high-speed service. The CPUC sees no incon-
sistency with federal law and disclaims having created a
hybrid category, asserting that instead it balanced the benefits
that a carrier is receiving for its use of another carrier’s net-
work with its obligation to compensate the other carrier for
transporting Virtual Local calls. Verizon, in turn, emphasizes
that otherwise, it incurs an uncompensated cost to “long haul”
VNXX traffic to a distant point of interconnection between
the carriers that distorts marketplace investments by CLECs
like Pac-West and forces ILECs such as Verizon to provide
an unwarranted subsidy. The problem, from its perspective,
lies in the CPUC’s decision establishing intercarrier compen-
sation for this traffic, not in its ruling that Pac-West must pay
Verizon for the cost of transporting the traffic to a distant
point of interconnection.
[11] We agree that § 703(b), read in isolation, appears to
bar a VNXX transport charge, but we conclude that it does
not have such an effect in this case. Section 703(b) provides
VERIZON CALIFORNIA v. PEEVEY 10785
that “[an] LEC may not assess charges on any other telecom-
munications carrier for telecommunications traffic that origi-
nates on the LEC’s network.” However, as the CPUC and the
district court recognized, the FCC has expressly excluded
interexchange traffic from the reach of § 703(b). As
§ 701(b)(1) provides, § 703(b) does not apply to “telecommu-
nications traffic that is interstate or intrastate exchange access,
information access, or exchange services for such access.” 47
C.F.R. § 51.701(a)-(b). Here, the CPUC applied its own bal-
ancing test in determining as a matter of fair compensation
policy that VNXX traffic is subject to reciprocal compensa-
tion as “local” traffic; it did not make that determination
under the Telecommunications Act or the FCC’s rules for
reciprocal compensation. Rather, the CPUC determined that
VNXX traffic is interexchange traffic that is not subject to the
FCC’s reciprocal compensation rules. Arbitration Decision at
4 n.3; Rehearing Decision at 7. This comports with the
CPUC’s prior determination that § 703(b) must be read in
conjunction with § 701, and that any call rated as a toll call
within a local access and transport area is exchange access
traffic. In re Global NAPs, Inc., CPUC Decision No. 02-06-
076, 2002 WL 31521502 at *5, *12-14 (June 27, 2002).
[12] This case is therefore not controlled by the Virginia
Arbitration Order, where the FCC Wireline Competition
Bureau considered whether to adopt Verizon’s proposal to be
compensated for transport of local calls to financial intercon-
nection points outside the local calling area. In re Petition of
WorldCom, Inc., 17 F.C.C. Rcd. 27039, 2002 WL 1576912
(July 17, 2002) (Virginia Arbitration Order). The Bureau con-
cluded that § 703(b) precludes originating carriers from
charging transport for “local” traffic subject to federal recip-
rocal compensation. While similar in many respects, the Vir-
ginia Arbitration Order is critically different in that it was
concerned with traffic that originates on the LEC’s network
and is subject to reciprocal compensation under federal law,
whereas the CPUC found that VNXX calls are interexchange
traffic that is not subject to the FCC’s reciprocal compensa-
10786 VERIZON CALIFORNIA v. PEEVEY
tion rules. That the CPUC did not deem VNXX traffic local
for purposes of federal law also distinguishes this case from
others relied upon by Pac-West, Mountain Commc’ns, Inc. v.
FCC, 355 F.3d 644 (D.C. Cir. 2004); MCImetro Access
Transmission Servs, Inc. v. BellSouth Telecomms., Inc., 352
F.3d 872 (4th Cir. 2003); and S.W. Bell Tel. Co. v. Pub. Utils
Comm’n of Tex., 348 F.3d 482 (5th Cir. 2003). In each, the
court overturned rulings that allowed collection of charges by
an ILEC for traffic that originated and terminated in the same
calling area and was deemed local for purposes of federal law.
None required consideration of § 701 and its exceptions to
§ 703.
Pac-West further contends that the COC ruling is contrary
to the ISP Remand Order which preempts state commissions
from imposing any intercarrier compensation not provided for
in the order. We disagree, as the ISP Remand Order was
exclusively concerned with the operation of § 251(b)(5) of the
Act and the imposition of reciprocal compensation charges on
ISP-bound traffic. The order holds that ISP-bound traffic does
not fall within § 251(b)(5), and so is not subject to the recip-
rocal compensation requirement. As the district court also
noted, it addressed charges that may properly be imposed by
the receiving carrier for receipt and handling of traffic, but
does not govern charges imposed by the originating carrier for
the delivery of VNXX traffic. Accordingly, this ruling has no
effect on the determination of whether collection of call origi-
nation charges for ISP-bound VNXX traffic is appropriate.
See Global NAPs, Inc., 444 F.3d at 72 (holding that “the ISP
Remand Order does not clearly preempt state authority to
impose access charges for interexchange VNXX ISP-bound
traffic”).
For the same reason, the FCC’s imposition of rate caps on
ISP-bound traffic, and simultaneous preemption of state
authority to address compensation for ISP-bound traffic, are
not relevant. Those rate caps are intended to substitute for the
reciprocal compensation that would otherwise be due to
VERIZON CALIFORNIA v. PEEVEY 10787
CLECs for terminating local ISP-bound traffic. They do not
affect the collection of charges by ILECs for originating
interexchange ISP-bound traffic. As this issue was not before
the FCC when it crafted the ISP Remand Order, the order
does not preclude the CPUC’s ruling.
Finally, Pac-West submits that the decision to allow call
origination charges was not supported by substantial evi-
dence, and was arbitrary and capricious, as the CPUC failed
to cite any record evidence in support of its conclusion that
Pac-West could distinguish VNXX from non-VNXX traffic
for purposes of complying with the ruling. Pac-West posits
that this conclusion is not only contrary to testimony in the
record, but that it rests on the presumption that Pac-West
could establish a means for separating VNXX from non-
VNXX traffic in the future, thus implicitly conceding that no
such means currently exist.
[13] The CPUC’s conclusion that Pac-West is able to dis-
tinguish VNXX traffic from local traffic that is first trans-
ported long-distance to a Pac-West switch and then back to
the original calling area rests on statements by Pac-West wit-
nesses that “Pac-West knows where its network ends” and the
call is picked up by the customer. Since that is the end of Pac-
West’s responsibility for the call, it should also be the rele-
vant end point of the call for purposes of determining whether
the call is local or VNXX. The record indicates that traffic
studies are common in the industry and that Pac-West could
conduct such studies to separate the calls that are not subject
to reciprocal compensation but are subject to access charges.
Other state commissions have reached similar conclusions,5 so
5
See, e.g., AT&T Commc’ns of Ill., Inc. et al. Verified Petition for Arbi-
tration, 2003 Ill. PUC LEXIS 715, *288-89, *303-04 (Aug. 26, 2003); In
re Arbitration of the Interconnection Agreement Between Global NAPs
and Verizon-Rhode Island, 2002 R.I. PUC LEXIS 20, *49 (Oct. 16, 2002);
Petition of Global NAPs, Inc., Pursuant to Section 252(b) of the Tele-
comms. Act of 1996 for Arbitration to Establish an Interconnection Agree-
ment with Verizon New Engl., Inc., 2002 Mass. PUC LEXIS 65, *49-54
(Dec. 12, 2002).
10788 VERIZON CALIFORNIA v. PEEVEY
we cannot say that the CPUC’s determination is without sup-
port.
VII
We conclude that the CPUC’s Arbitration Decision was not
arbitrary and capricious in determining that during the interim
period between a request to renegotiate an interconnection
agreement or after the contractual period for renegotiation has
run and adoption of a “new” agreement, the “old” agreement
continued in effect such that Verizon must pay reciprocal
compensation for delivery of internet-bound calls at pre-
existing rates rather than at the lower capped rates set by the
FCC that apply to new contractual obligations; that Pac-West
is entitled to reciprocal compensation for Virtual NXX traffic;
and that Verizon is entitled to collect call origination charges
for virtual traffic. We therefore affirm the district court’s
judgment as to these issues. However, we also conclude that
the commission’s determination that Pac-West could disre-
gard paging traffic for purposes of computing the presumptive
volume of ISP-bound traffic is incorrect. As to that issue, we
reverse and remand.
Each party shall bear its own costs.
AFFIRMED IN PART; REVERSED AND REMANDED,
IN PART.