[Federal Register Volume 64, Number 57 (Thursday, March 25, 1999)]
[Rules and Regulations]
[Pages 14394-14397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7253]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 25 and 61

[IB Docket No. 98-60; FCC 99-17]


Policies and Rules for Alternative Incentive-Based Regulation of 
Comsat Corporation

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission adopts a policy of incentive-
based price regulation for Comsat Corporation in its provision of 
services in ``non-competitive'' INTELSAT markets. The Commission also 
adopts a streamlined process to determine in the future when Comsat 
INTELSAT markets should be redefined as non-dominant in response to the 
introduction of competition. In April 1998, the Commission reclassified 
Comsat as a non-dominant carrier for most of its services, on most of 
its routes, and eliminated all rate regulation regarding its provision 
of INTELSAT services in markets deemed ``competitive''. That decision 
eliminated rate regulation in markets accounting for approximately 92 
percent of Comsat's INTELSAT revenues. Roughly eight-percent of 
Comsat's INTELSAT revenues--those derived from ``non-competitive'' 
INTELSAT services markets--remained subject to rate of return 
regulation. This document addresses the eight-percent.

EFFECTIVE DATE: February 9, 1999.

FOR FURTHER INFORMATION CONTACT: Michael McCoin, International Bureau, 
Satellite Policy Branch, (202) 418-0774, or email at [email protected]; 
Sande Taxali, International Bureau, Satellite Policy Branch, (202) 418-
0786, or email at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order in IB Docket No. 98-60, FCC 99-17, adopted February 4, 1999, 
and released February 9, 1999. The complete text of this Commission 
Report and Order is available for inspection and copying during the 
weekday hours of 9:00 a.m. to 4:30 p.m. in the Commission's Reference 
Center, Room 239, 1919 M Street, N.W., Washington, D.C., or may be 
purchased from the Commission's duplicating contractor, International 
Transcription Service, (202) 857-3800, 2131 M Street, N.W., Washington, 
D.C. 20036. The complete text is also available under the file name 
fcc99017.txt or fcc99017.wp on the Commission's internet site at http:/
/www.fcc.gov/Bureaus/International/Orders/1999.

Summary of the Report and Order

    1. This Report and Order eliminates rate of return regulation and 
applies incentive-based price regulation to Comsat's provision of 
INTELSAT services in ``non-competitive'' markets. Customers immediately 
benefit by the lowering or capping of prices in Comsat's INTELSAT 
``non-competitive'' switched-voice, private line, and occasional-use 
video services markets. This incentive-based regulation is 
administratively less burdensome to both Comsat and the Commission. 
Additionally, the Report and Order adopts a more expedient process by 
which newly ``competitive'' markets may be redefined as non-dominant.
    2. Since 1985, the Commission has regulated Comsat as a dominant 
carrier in its provision of INTELSAT services in all markets. In April 
1998, in the Comsat Non-Dominant Order & NPRM, 63 FR 25811, the 
Commission partially granted Comsat's request by reclassifying it as 
non-dominant in INTELSAT markets deemed ``competitive''. The Commission 
denied, however, Comsat's request for reclassification as a non-
dominant carrier in its INTELSAT services markets deemed ``non-
competitive''. The Commission stated, nevertheless, that it would 
consider the adoption of an alternative incentive-based regulation in 
the ensuing Report and Order, in lieu of continuing rate of return 
regulation. In 1998, Comsat's ``non-competitive'' INTELSAT service 
markets accounted for roughly eight-percent or $19 million of Comsat's 
INTELSAT revenue.
    3. The Comsat Non-Dominant Order & NPRM tentatively concluded that 
any alternative incentive-based price regulation should (a) remain in 
effect for an indefinite period, (b) allow all users of Comsat's 
service to ``non-competitive'' markets to benefit from a 
``competitive'' or ``transaction'' rate rather than the non-discounted 
tariff rate that would result from Comsat's uniform pricing commitment, 
and (c) allow all users of Comsat's service to ``non-competitive'' 
markets to benefit from reduced rates due to increases in efficiency 
and productivity. Comsat offers high volume users, like AT&T, Sprint, 
and MCI, significantly discounted tariff and contract rates for 
switched-voice service. These discounted rates may reflect both the 
economies of scale inherent in providing high volume service and 
increased pressure on Comsat to match the lower rates offered by its 
competitors in ``competitive'' markets. It is unclear whether users 
seeking service in ``non-competitive'' markets are in a position to 
take advantage of such discounted or transaction rates or whether they 
generally must pay the higher non-discounted tariff rates. Thus, 
Comsat's uniform pricing for switched-voice service, even if adopted as 
a commitment, would not necessarily lead to lower, more competitive 
rates for all users in ``non-competitive'' markets. Comsat Non-Dominant 
Order & NPRM, 13 FCC Rcd. 14083 at paragraph 165. In addition, the 
Commission said that an ``alternative incentive-based'' price procedure 
should be simple to implement and noncumbersome. A regulatory policy 
here should; promote proper efficiency incentives for Comsat; benefit 
consumers through lower rates in the dominant markets; and relieve the 
Commission from administratively burdensome rate of return regulation 
of Comsat in these markets. All parties commenting in the proceeding 
generally agreed with these principles expressed by the Commission, 
including the need for a simple and less administratively burdensome 
regulation.
    4. The specific alternative incentive-based price regulation plan 
adopted for Comsat's ``non-competitive'' INTELSAT markets consists of 
the following: First, Comsat will institute an immediate four-percent 
annual rate reduction for switched-voice services in ``non-
competitive'' markets. This actually decreases rates below those 
currently charged in ``competitive'' switched-voice markets. Existing 
switched-voice tariff rates remain in place as an option for those 
customers whose aggregate circuit volume would otherwise result in a 
lower rate. Second, current tariff rates for private line service in 
``non-competitive'' markets are capped indefinitely. This follows a 
recent across-the-board rate reduction of eight-percent in Comsat's 
private line service market. Third, an immediate one-time rate 
reduction of four-percent in Comsat's ``non-competitive'' and 
``competitive'' occasional-use video service markets is enacted. 
Moreover, the incentive-based regulation adopted further requires 
Comsat to refrain from raising rates for an indefinite period in all of 
its ``non-competitive'' INTELSAT markets. Finally, it mandates that 
Comsat apply any tariff reduction in its ``competitive'' INTELSAT 
markets to its ``non-competitive'' INTELSAT markets.
    5. Overall, the alternative incentive-based regulation adopted in 
the Report and Order guarantees certain rate reductions and caps rates 
as long as Comsat is regulated as a dominant carrier in the respective 
markets at issue. In effect, customers receive the benefits of 
potential increases in productivity regardless of whether such 
productivity increases actually occur. This benefit to customers should 
provide Comsat with a real incentive to increase efficiency and 
productivity.
    6. Additionally, this Report and Order establishes a streamlined 
process for declaring Comsat's INTELSAT markets non-dominant and no 
longer subject to price regulation as they become ``competitive''. The 
process, particularly, requires Comsat to file a

[[Page 14396]]

petition with the Commission requesting that a particular market or 
markets be reclassified as non-dominant. For the ``non-competitive'' 
switched-voice and private line service markets, Comsat must include 
evidence that the market is served by a United States carrier through 
submarine cable facilities. For occasional-use video markets, Comsat 
must include evidence that another satellite carrier is providing 
transmit and receive (uplink and downlink) occasional-use video 
service. The specific type of information required in this showing 
includes the (a) name of the cable or satellite provider, (b) the 
country or countries where the new cable circuit or occasional-use 
video services provision exists, and (c) the estimated capacity 
available from the competitor. In our recent decision approving the 
World Com/MCI merger, we noted that upgrades in recently constructed 
underseas fiber cables can substantially increase transport capacity on 
existing cables and can be implemented in less than a year. While we 
found that the World Com/MCI merger would increase concentration in 
each of three international transport market regions, we also found 
that it was unlikely to result in anticompetitive effects, given the 
low barriers to entry and substantial amounts of transport capacity not 
controlled by MCI or World Com. See Memorandum Opinion and Order, CC 
Docket No. 97-211, FCC 98-255, 13 FCC Rcd. 21520 (1998) at paragraphs 
100-101. Comsat must support its filing with an affidavit. For 
switched-voice and private line services, a country listed as being 
served by cable on the Circuit Status Reports is considered prima facie 
evidence that the market is competitive since the capacity available on 
a submarine cable can be rapidly expanded to meet demand. The showing 
requirements of this process is consistent with the analysis in the 
Comsat Non-Dominant Order & NPRM, in which evidence of a cable circuit 
for switched-voice and private line service, and evidence of another 
carrier for occasional-use video service, provided the standard from 
which to assess Comsat's market power. Parties would have the 
opportunity to challenge a Comsat petition for reclassification by 
either refuting the evidence submitted by Comsat or showing that the 
particular market at issue has unique characteristics that would allow 
Comsat to exercise market power, despite the presence of a cable 
circuit for switched-voice and private line service or service being 
provided by another satellite carrier for occasional-use video service.

Final Regulatory Flexibility Analysis

    7. As required by section 603 of the Regulatory Flexibility Act 
(``RFA''), an Initial Regulatory Flexibility Analysis (``IRFA'') was 
incorporated in the Comsat Non-Dominant Order & NPRM. 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. 104-121, 110 Stat. 
847 (1996) (``CWAAA''). Title II of the CWAAA is the Small Business 
Regulatory Enforcement Fairness Act of 1996 (``SBREFA''). See Comsat 
Corporation, Order and Notice of Proposed Rulemaking, 13 FCC Rcd 14083 
(1998) at Appendix C. The Commission then sought written public comment 
in that proceeding, including comments on the IRFA. No party filed 
comments in response to the IRFA. This Report and Order promulgates no 
new rules and our action here does not affect the previous analysis in 
the Comsat Non-Dominant Order & NPRM. The Commission certifies that 
there will be no significant effect on a substantial number of small 
entities.

A. Need for and Objectives of Rules

    8. In this Report and Order, the Commission eliminates cumbersome 
rate of return regulation and replaces it with an alternative 
incentive-based price regulation. In addition, the Commission 
streamlines the process whereby Comsat's INTELSAT markets may be 
reclassified as non-dominant. Currently, revenue from its markets that 
are still classified as dominant account for approximately eight-
percent of its INTELSAT revenues. The modification to these processes 
will result in administratively less burdensome and more efficient 
procedures for both the Commission and Comsat.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the Regulatory Flexibility Analysis

    9. No comments were submitted in direct response to the RFA.

C. Description and Estimates of the Number of Small Entities to Which 
the Rules Will Apply

    10. The RFA generally defines the term ``small entity'' as having 
the same meaning as the terms ``small business'', ``small 
organization'', and ``small governmental jurisdiction''. See 5 U.S.C. 
601(6). The RFA has been amended by the Contract With America 
Advancement Act of 1996, Public Law No. 104-121, 110 Stat. 847 (1996) 
(``CWAAA''). See 5 U.S.C. 601 et. seq. Title II of the CWAAA is the 
Small Business Regulatory Enforcement Fairness Act of 1996 
(``SBREFA''). In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. See 5 U.S.C. 601(3) (incorporating by reference the definition of 
``small business concern'' in 15 U.S.C. 632). Pursuant to the RFA, the 
statutory definition of a small business applies ``unless an agency, 
after consultation with the Office of Advocacy of the Small Business 
Administration and after opportunity for public comment, establishes 
one or more definitions of such term which are appropriate to the 
activities of the agency and publishes such definition(s) in the 
Federal Register.'' 5 U.S.C. 601(3). A small business concern is one 
which (1) is independently owned and operated, (2) is not dominant in 
its field of operation, and (3) satisfies any additional criteria 
established by the Small Business Administration (``SBA'').
    11. The Commission has not developed a definition of small entities 
specifically applicable to this situation. Therefore, the applicable 
definition of small entity is the definition under the SBA rules 
applicable to Communications Services, ``Not Elsewhere Classified.'' 
This definition provides that a small entity is one with no more than 
$11.0 million annual receipts. 13 CFR 121.201, Standard Industrial 
Classification (SIC) Code 4899. According to the Census Bureau data, 
there were a total of 848 communications services in operation in 1992 
that fall under the category of Communications Services, Not Elsewhere 
Classified. Of those, approximately 775 reported annual receipts of 
$9.999 million or less and qualify as small entities. 1992 Economic 
Census Industry and Enterprise Receipts Size Report, Table 2D, SIC 4899 
(U.S. Bureau of the Census data under contract to the Office of 
Advocacy of the U.S. Small Business Administration). The census report 
does not provide more precise data. Comsat Corporation is the only 
business effected by the policy enacted in this Report and Order. Its 
annual receipts are in excess of $11.0 million and, therefore, it does 
not fall into the classification of a ``small business''. Accordingly, 
the number of small businesses impacted by the policy change here is 
zero.

D. Description of Projected Reporting, Recordkeeping and Other 
Compliance Requirements

    12. The Commission adopts no new reporting requirements in this 
Report and Order.

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E. Steps Taken To Minimize Significant Economic Burden on Small 
Entities, and Significant Alternatives Considered

    13. This Report and Order promulgates no new rules or policies that 
would effect small business concerns. The policies it does advance, 
however, should positively impact the effectiveness and efficiency of 
Comsat Corporation, the only business entity effected.

F. Report to Congress

    14. The Commission shall send a copy of this Report and Order, 
including the status of the FRFA in a report to Congress pursuant to 
the Small Business Regulatory Enforcement Fairness Act of 1996, 5 
U.S.C. 801(a)(1)(A). Since this Report and Order promulgates no new 
rules and does not affect the IRFA in the Comsat Non-Dominant Order and 
NPRM, it is not necessary to publish an FRFA in the Federal Register.

Ordering Clauses

    15. Accordingly, it is ordered, that Comsat Corporation's proposal 
in IB Docket 98-60, to establish an alternative incentive-based price 
regulation in lieu of rate of return regulation in ``non-competitive'' 
INTELSAT service markets for the provision of switched-voice, private 
line, and occasional-use video, is granted, to the extent indicated 
herein, and Comsat shall be subject to an alternative incentive-based 
price regulation in the markets for which it remains dominant, as 
described in this Report and Order.
    16. It is further ordered, pursuant to authority contained in 
sections 4(i), 201(b), and 203-205 of the Communications Act of 1934, 
as amended, 47 U.S.C. 154(i) and 201(b), and 203-205, respectively, and 
sections 201(c)(5), 201(c)(11), and 401 of the Communications Satellite 
Act, as amended, 47 U.S.C. 721(c)(5), 721 (c)(11), and 741, 
respectively, we adopt the incentive-based price regulation to the 
extent indicated herein.
    17. It is further ordered, that the International Bureau shall have 
delegated authority to approve petitions from Comsat to redefine any 
markets served by Comsat from a dominant to a non-dominant status.
    18. Comsat Corporation is afforded 30 days from the date of release 
of this Report and Order to decline the alternative incentive-based 
price regulation as specified herein. Failure to respond within this 
period will constitute formal acceptance of the requirements in this 
Report and Order.

List of Subjects

47 CFR Part 25

    Satellites communication.

47 CFR Part 61

    Tariffs.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 99-7253 Filed 3-24-99; 8:45 am]
BILLING CODE 6712-01-U