[Federal Register Volume 64, Number 169 (Wednesday, September 1, 1999)]
[Rules and Regulations]
[Pages 47699-47702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22722]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 63
[IB Docket No. 96-261; FCC 99-124]
International Settlement Rates, Report and Order on
Reconsideration and Order Lifting Stay
AGENCY: Federal Communications Commission.
ACTION: Final rule; reconsideration.
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SUMMARY: This document affirms a previous finding that the Commission
has authority under the Communications Act to establish settlement rate
benchmarks and to require U.S. carriers to negotiate settlement rates
that comply with those benchmarks. In addition, the Commission amended
the Section 214 condition for facilities-based service to affiliated
markets, so that it applies only to U.S. affiliates of carriers that
have market power in the destination country. The Commission took this
action in response to petitions for reconsideration filed in this
proceeding.
DATES: Effective October 1, 1999.
FOR FURTHER INFORMATION CONTACT: Lisa Choi, Telecommunications
Division, International Bureau, (202) 418-1480.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order on Reconsideration and Order Lifting Stay, FCC 99-124,
adopted on May 28, 1999, and released on June 11, 1999. The full text
of this Order is available for inspection and copying during normal
business hours in the FCC Reference Room (Room CY-A257) of the Federal
Communications Commission, 445 12th Street, SW, Washington, D.C. 20554.
The document is also available for download over the internet at http:/
/www.fcc.gov/bureaus/international/orders/1999/fcc99124.wp. The
complete text of this Order also may be purchased from the Commission's
copy contractor, International Transcription Service, Inc., 1231 20th
Street, N.W., Washington, D.C. 20036, (202) 857-3800.
[[Page 47700]]
Summary of Report and Order on Reconsideration and Order Lifting
Stay
1. In the Benchmarks Order (62 FR 45758, August 29, 1997), the
Commission established benchmarks that govern the international
settlement rates that U.S. carriers may pay foreign carriers to
terminate international traffic originating in the United States. In
the Final Rule on reconsideration, the Commission upheld its Benchmarks
Order with one modification.
2. In the Benchmarks Order, the Commission calculated the benchmark
rates using foreign carriers' publicly available tariff rates and
information published by the International Telecommunication Union
(ITU). The Commission developed a methodology for calculating the
benchmarks called the ``tariffed component price'' (TCP) methodology.
It grouped countries by their level of economic development, using a
World Bank and ITU classification scheme, and calculated benchmarks
using the TCP methodology for each category. The benchmarks are:
15 cents for upper income countries; 19 cents for upper-middle and
lower-middle income countries; and 23 cents for lower income countries.
3. The Commission established a transition schedule for U.S.
carriers to negotiate settlement rates that comply with the benchmarks.
The transition schedule is also based on level of economic development,
with an additional category for countries with very low levels of
telecommunications network development. Under the transition schedule,
U.S. carriers are required to negotiate settlement rates that comply
with the benchmarks according to the following schedule: one year from
implementation of the Benchmarks Order for carriers in upper income
countries; two years for carriers in upper-middle income countries;
three years for carriers in lower-middle income countries; four years
for carriers in lower income countries; and five years for carriers in
countries with teledensity (lines per 100 inhabitants) less than one.
4. The Philippines Parties, AT&T, and MCI filed petitions
requesting reconsideration or clarification of various aspects of the
Benchmarks Order. The Philippines Parties asserted that the benchmark
rules violate the Due Process Clause of the Fifth Amendment and that
the Commission does not have jurisdiction to adopt benchmark rates. In
the Final Order on Reconsideration, the Commission affirmed its
conclusion in the Benchmarks Order that it has jurisdiction to adopt
settlement rate benchmarks under the Communications Act and relevant
case law. The Commission determined that above-cost settlement rates
paid by U.S. carriers to terminate international traffic are neither
just nor reasonable, and it acted pursuant to its statutory authority
in Section 201(b) of the Communications Act to prohibit U.S. carriers
from continuing to pay such charges. The Commission also concluded that
its benchmarks are consistent with international obligations of the
United States.
5. In the final order on reconsideration, the Commission disagreed
with the Philippines Parties and found that the complaint procedures
satisfy whatever process rights a foreign correspondent may have by
affording them an opportunity to participate in the proceedings.
6. The Commission adopted two authorization conditions in the
Benchmarks Order, one that applies to authorizations to provide
facilities-based service to affiliated markets and one that applies to
all authorizations to provide switched services over facilities-based
or resold international private lines. These two authorization
conditions are intended to address different competitive concerns.
7. The condition for facilities-based service to affiliated markets
addresses the potential for a carrier to engage in a predatory price
squeeze, i.e., to price below the level of its imputed costs when
providing service from the United States to a foreign market where it
has an affiliate. In the Benchmarks Order, the Commission found that a
U.S.-licensed carrier has both the ability and incentive to engage in a
price squeeze when it provides facilities-based service to a market in
which its affiliated foreign carrier provides the terminating service
and collects above-cost settlement rates. The Commission's facilities-
based condition addresses the concern about price squeeze behavior by
requiring that a carrier's settlement rates be at or below the relevant
benchmark before its U.S.-licensed affiliate may provide facilities-
based service on the affiliated route. This condition substantially
reduces the above-cost settlement rates that could be used to execute a
price squeeze on affiliated routes. However, the Commission recognized
in the Benchmarks Order that the facilities-based condition does not
completely eliminate the incentives or the ability of a carrier to
execute a price squeeze because the settlement rate benchmarks are
still above-cost. The Commission therefore decided that it will take
enforcement action if, after the U.S.-licensed carrier has commenced
service to the affiliated market, the Commission discovers that the
carrier has attempted to execute a predatory price squeeze or engaged
in other anticompetitive behavior that distorts market performance.
That action may include a requirement that the foreign affiliate reduce
its settlement rate for the route to a level at or below the best
practices rate the Commission adopted in the Benchmarks Order, 8 cents,
or a revocation of the U.S.-licensed carrier's authorization to serve
the affiliated market. The Commission adopted a rebuttable presumption
that a carrier has distorted market performance if any of the carrier's
tariffed collection rates on the affiliated route are less than the
carrier's average variable costs on that route. For purposes of this
presumption, the Commission adopted a proxy for average variable costs
that is equal to the carrier's net settlement rate plus any originating
access charges.
8. The Commission decided in the Benchmarks Order to apply the
facilities-based condition to existing Section 214 authorization
holders that serve affiliated markets (i.e., those that were authorized
to provide service prior to the January 1, 1998 effective date of the
Benchmarks Order). The Commission required that existing authorization
holders comply with the condition by having their foreign affiliates
negotiate with U.S. international carriers a settlement rate for
affiliated routes that complies with the appropriate benchmark and is
in effect within ninety days of the January 1, 1998 effective date. The
Commission, subsequently, issued a temporary stay of the effectiveness
of the condition for facilities-based service to affiliated markets as
it applies to existing Section 214 authorization holders in a March 30,
1998 Stay Order pending action on reconsideration.
9. The condition for provision of switched services over private
lines, also known as ISR, addresses the potential for ``one-way
bypass'' of the settlements system to occur. To address the concern
about one-way bypass, the Commission adopted an authorization condition
that requires that at least 50 percent of the traffic on a route be
settled at rates at or below the appropriate benchmark level before
carriers may provide switched services over private lines. The
Commission reasoned that, if settlement rates are closer to cost, the
impact of one-way bypass on the level of U.S. settlement payments will
be diminished. As with the condition for facilities-based service to
affiliated markets, the Commission recognized that the condition for
provision of switched services over
[[Page 47701]]
private lines does not completely eliminate the potential for one-way
bypass to occur. The Commission, therefore, decided that it will take
enforcement action if the Commission learns that one-way bypass has
occurred. That enforcement action may include a requirement that
carriers be prohibited from using their authorizations to provide
switched services over private lines on a given route until settlement
rates for at least half of the traffic on that route are at or below
the best practice rate of 8 cents. It could also include a revocation
of carriers' authorizations. The Commission adopted a test for
determining when one-way bypass has occurred. Pursuant to that test,
the Commission will presume that one-way bypass has occurred if the
ratio of outbound to inbound settled traffic increases more than 10
percent in two successive quarterly traffic measurement periods.
10. In the Order on Reconsideration, the Commission declined to
modify the benchmark conditions to require compliance with the best
practice rate rather than the benchmark rates, as AT&T requested. The
Commission concluded that the combination of this requirement and the
tests to detect one-way bypass and price squeeze behavior is sufficient
to prevent anticompetitive distortions in the U.S. market. The
Commission also declined to revise the proxy for average variable costs
for purposes of the Commission's test to detect price squeeze behavior.
The Commission concluded that the more complex test AT&T urged it to
adopt is not necessary for purposes of the test. The Commission's
intent was to adopt a ``bright line'' test with a proxy for average
variable costs that would allow either the Commission or other
interested parties to identify readily whether a carrier is pricing its
services at a predatory level. The Commission thus adopted a proxy for
average variable costs that is based on publicly available data. The
data necessary to calculate a U.S. carrier's net settlement rate are
included in carrier's quarterly traffic reports and information on U.S.
carrier's access charges is available in tariffs filed with the
Commission and in the Commission's annual Monitoring Report. In
contrast, the data necessary to identify all possible average variable
costs will be in the hands of the carrier whose prices are at issue.
Including all variable costs in the test, as AT&T requested, would
defeat the purpose of applying a bright line test.
11. In response to a petition by MCI, the Commission is persuaded
that it should modify the condition for facilities-based service to
affiliated markets to apply solely to U.S. carriers that are providing
service on a route where they have an affiliate with market power. Upon
review of the record, the Commission concluded that there is not a
substantial threat of price squeeze behavior by an integrated carrier
that lacks market power in the foreign market. As a result, the
Commission will apply the condition for facilities-based service to
affiliated markets solely to carriers that are providing service on a
route where they have a foreign affiliate with market power.
12. Given the decision to apply the condition for facilities based
service to affiliate markets solely to carriers that are providing
service on a route where they have an affiliate with market power, the
Commission also decided to include the condition in the section of the
Commission's rules that contains the dominant carrier safeguards,
Sec. 63.10. In the Foreign Participation Order, the Commission
concluded that it would streamline the Section 214 application of any
applicant not otherwise eligible for streamlined processing so long as
the applicant's affiliate is a foreign carrier in a WTO Member country
and the applicant certifies that it will comply with the Commission's
dominant carrier regulations. By our action in this Order, those
regulations now include the condition for facilities-based service to
affiliated markets.
13. For purposes of determining which carriers must comply with the
condition, for facilities-based service to affiliated markets, the
Commission will apply the rebuttable presumption the Commission adopted
in our Foreign Participation Order that foreign carriers with less than
50 percent market share in each relevant market on the foreign end lack
sufficient market power to affect competition adversely in the U.S.
market. For purposes of the condition for facilities-based service to
an affiliated market, the relevant market is international transport
and facilities, including cable landing station access and backhaul
facilities.
14. The Commission also lifted its stay of the effectiveness of the
condition for facilities-based service to affiliated markets as it
applies to Section 214 authorization holders that were authorized to
provide service prior to January 1, 1998. Pursuant to the Benchmarks
Order, existing Section 214 authorization holders that serve affiliated
markets would have been required to negotiate with U.S. international
carriers a settlement rate for affiliated routes that complies with the
appropriate benchmark within ninety days of January 1, 1998, if the
Commission had not issued the Stay Order. In accordance with the Order
on Reconsideration, only Section 214 authorization holders that are
affiliated with a carrier that has market power in the foreign market
must comply with the condition for facilities-based service to
affiliated markets. The Commission will require such existing Section
214 authorization holders to negotiate with U.S. international carriers
a rate for terminating traffic for affiliated routes that complies with
the appropriate benchmark and is in effect within thirty days of the
effective date of the final rule on reconsideration.
Supplemental Final Regulatory Flexibility Analysis
15. As required by the Regulatory Flexibility Act (RFA), an Initial
Regulatory Flexibility Analysis (IRFA) was included in the Notice in IB
Docket No. 96-261 (61 FR 68702 (December 30, 1996), and a Final
Regulatory Flexibility Analysis (FRFA) was included in the Benchmarks
Order. As required by the RFA, the Commission includes the FRFA
contained in the Benchmarks Order as the Supplemental FRFA for this
document. The Commission released a public notice announcing that the
Supplemental FRFA is available to the public (see Public Notice, DA 99-
1655, released, August 18, 1999).
Ordering Clauses
16. Accordingly, it is ordered, pursuant to Sections 1, 2, 4(i),
5(c), 201, 211, 214 and 303(r) of the Communications Act of 1934, as
amended, 47 U.S.C. 151, 152, 154(i), 155(c)(5), 201, 211, 214, and
303(r), and Sec. 1.106 of the Commission's Rules, 47 CFR Part 1.106,
that the AT&T Petition for Partial Reconsideration and the Petition for
Reconsideration of the Philippines Parties are denied.
17. It is further ordered that the MCI Telecommunication Corp.
Petition for Clarification or Reconsideration is granted in part and
denied in part.
18. It is further ordered, pursuant to Sections 1 and 4(i) of the
Communications Act, 47 U.S.C. 151 and 154(i), that the stay of the
effectiveness of the condition for facilities-based service to
affiliated markets as it applies to Section 214 authorization holders
that were authorized to provide service prior to January 1, 1998, is
lifted.
19. It is further ordered, pursuant to Sections 1, 2, 4(i),
5(c)(5), 201, 211, 214 and 303(r) of the Communications Act of 1934, as
amended, 47 U.S.C. 151, 152, 154(i), 155(c)(5), 201, 211, 214, and
303(r), that Part 63 of the Commission's rules, 47 CFR Part 63, is
amended as set forth in the rule changes.
[[Page 47702]]
List of Subjects in 47 CFR Part 63
Communications common carriers, Reporting and recordkeeping
requirements.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
Rule Changes
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR Part 63 as follows:
PART 63--EXTENSION OF LINES AND DISCONTINUANCE, REDUCTION, OUTAGE
AND IMPAIRMENT OF SERVICE BY COMMON CARRIERS; AND GRANTS OF
RECOGNIZED PRIVATE OPERATING AGENCY STATUS
1. The authority citation for Part 63 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 154(j), 160, 161, 201-205,
218, 403, 533 unless otherwise noted.
2. Section 63.10 is amended by adding paragraphs (c)(6) and (e) to
read as follows:
Sec. 63.10 Regulatory classification of U.S. international carriers.
* * * * *
(c)(6) If authorized to provide facilities-based service, comply
with paragraph (e) of this section.
* * *
(e) Except as otherwise ordered by the Commission, a carrier that
is classified as dominant under this section for the provision of
facilities-based services on a particular route and that is affiliated
with a carrier that collects settlement payments for terminating U.S.
international switched traffic at the foreign end of that route may not
provide facilities-based service on that route unless the current rates
the affiliate charges U.S. international carriers to terminate traffic
are at or below the Commission's relevant benchmark adopted in IB
Docket No. 96-261. See FCC 97-280 (12 FCC Rcd 19806 (1997) (62 FR
45758, August 29, 1997)), (available at the FCC's Reference Operations
Division, Washington, D.C. 20554, and on the FCC's World Wide Web Site
at http://www.fcc.gov).
[FR Doc. 99-22722 Filed 8-31-99; 8:45 am]
BILLING CODE 6712-01-P