On November 25, the Third Circuit held that states have jurisdiction over Internet Service Provider (ISP) bound traffic exchanged between two competing local exchange carriers (CLECs).

In 2008, Core billed AT&T for terminating local phone calls dating back to 2004, from AT&T’s customers to Core’s ISP customers. AT&T refused to pay, claiming that the traffic had been exchanged on a bill-and-keep basis. Core then filed a complaint with the Pennsylvania Public Utilities Commission (PPUC), which ruled in Core’s favor. AT&T filed suit in federal court, seeking an injunction on the grounds that the PPUC lacked jurisdiction over ISP-bound traffic because such traffic is the exclusive province of the Federal Communications Commission (FCC). The district court found that the PPUC lacked jurisdiction over this traffic; Core and the members of the PPUC appealed to the Third Circuit.

The Third Circuit detailed the history of FCC rulings on the topic of ISP-bound traffic, beginning with its 1999 Declaratory Ruling which found that local ISP-bound traffic was “jurisdictionally mixed” because it “appears to be largely interstate.” Although the Declaratory Ruling was later vacated by the D.C. Circuit, the FCC’s 2001 ISP Remand Order used the term “jurisdictionally mixed” and “interstate” to describe the original ruling and the traffic itself. The Court invoked the concept of “cooperative federalism,” stating that under the Communications Act of 1996,

Congress enlisted the aid of state public utility commissions to ensure the local competition was implemented fairly and with due regard to local conditions and the particular historical circumstances of local regulations under the prior regime.”

In light of this, the Court concluded that neither Congress nor the FCC intended to strip state regulators of jurisdiction over this traffic, as long as that jurisdiction is not exercised in a manner contrary to the regulatory regime for this traffic established by the FCC. Since the PPUC’s order did not contravene the FCC’s substantive rules for this traffic, that order should not have been set aside by the district court.

Although this ruling relates to the now-dated situation of dial-up calls to ISPs, analogous questions may well arise under the FCC’s Open Internet Order, as state regulators try to find a role for themselves in regulating the provision of broadband Internet access service within their respective states.