WPC` 2fBJZlCourier3|j  Times New Roman@`7X@HP LaserJet 4M 844A_1 LPT2HPLA4MPC.PRSx  @\EX@ X4#Xw PE37=XP##Xj\  P6G; XP#2g 5kCourierCG TimesCourierTimes New RomanTimes New Roman BoldTimes New Roman ItalicCG TimesCG Times ItalicTimes New Roman Bold ItalicArial Bold"i~'^09]SS999S]+9+/SSSSSSSSSS99]]]Sxnxxng?Snxgx]nxxxxn9/9aS9S]I]I9S]/9]/]S]]I?9]SxSSIC%CW9+Wa999+999999S9]/xSxSxSxSxSxxInInInInI>/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""fx6X@`7X@7jC:, Xj\  P6G;XP7nC:,Xn4  pG;X\5hC:,-Xh*f9 xr G;XXW!@(#,9h@\  P6G;hPy.X80,IX\  P6G;PH5!,,5\  P6G;,P\{,W80,-?W*f9 xr G;X8wC;,D=Xw PE37XP 6uC;,M^Xu&_ x7XX6jC:,]LXj9 xOG;X6ND,ys$2pPG;y.\80, [\4  pG; a$I,',II4  pG;X@'!,^^@2PG;^Peasures in this Notice to encourage settlement rates to move closer to cost.2` X4ЊhA#Xj\  P6G; XP#   #Xj\  P6G; XP#Before the X4\ Federal Communications Commission  *xxXFCC 96484 @Washington, D.C. 20554  X4In the Matter of hhCq)  Xv4` `  hhCq)IB Docket No. 96261  X_4International Settlement RateshhCq) ` `    X14 Notice of Proposed Rulemaking ă  X 4 Adopted: December 19, 1996qppReleased: December 19, 1996 By the Commission: Comment Date: February 7, 1997 Reply Comment Date: March 10, 1997  Xy4- TABLE OF CONTENTS ă  Xb4`(#i Paragraph  XK'` (#qNumbers ă  X4I.INTRODUCTION `"(#14  X4II.BACKGROUND`!(#525  X4III.DISCUSSION`T!(#2691  X4A.` ` Benchmark Methodology`T!(#3138  X4B.` ` Benchmarks`T!(#3957  X4XX` ` 1.X Benchmark Rates Based on Tariffed(# XX` ` X Components Prices(# `T!(#3955  X|4XX` `  a.Ranges Based on Level of(# ` `  Economic Development`T!(#4353  XN4` `  b.CountrySpecific Benchmarks`T!(#5455  X74XX` ` 2.X Alternative Benchmark Methodologies(# `T!(#5657  X 4C.` ` Implementation of Benchmarks`T!(#5891  X 4` ` 1. Transition to Benchmarks`T!(#5868  X4` ` 2. Application of Benchmark Settlement Rates to(# ` `  Countries Committed to Competitive Reform`T!(#6974  X 4` ` 3. Applying Benchmarks to Address`(#(# ` `  Anticompetitive Behavior`T!(#7586  X"4` ` 4. Enforcement Proposals`T!(#8790  X#4` ` 5. Effect of Settlement Rate Reductions on U.S. ` `  Collection Prices``"(#91  XQ%4IV.CONCLUSION`T!(#9294  X:&4V.PROCEDURAL ISSUES AND ORDERING CLAUSES` (#95107 "(0*0*0*'"  X'` `   I.hhCIntroduction  X41.` ` This Notice of Proposed Rulemaking presents proposals for revising our benchmark settlement rates for international message telephone service (IMTS) between the  X4United States and other countries. This Notice represents the next step in an ongoing effort by the Commission, many foreign governments, and multilateral organizations such as the International Telecommunication Union (ITU) and the Organization for Economic Cooperation and Development (OECD) to reform the international accounting rate system. A multilateral consensus has emerged that the traditional accounting rate system must be reformed because it results in settlement rates that are substantially above costs and creates  X 4competitive distortions and inefficiencies in the global telecommunications market.j\ ; {O '#X\  P6G;IP#эXSee, e.g., ITUT Recommendation D.140, "Accounting Rate Principles for International Telephone Services," Geneva (1992) (calling for costbased, nondiscriminatory and transparent accounting rates).  {O) 'See also paras. 1516, infra.(#j We  X 4concur with the need for reform, and to that end, propose measures in this Notice to encourage settlement rates to move closer to cost.  X 42.` ` We believe that revisions to our benchmark rates are necessary because the current benchmarks have been rendered obsolete by the significant changes occurring in the global telecommunications market in recent years. In particular, we believe our benchmark rates should be revised to reflect recent technological improvements, their associated cost reductions, and the market structure changes occurring in the global telecommunications market. We also believe these revisions are necessary to move settlement rates closer to the actual costs incurred by foreign carriers to terminate international traffic. As described in  X#4detail below, this Notice is part of a broadbased effort by the Commission to reform the international accounting rate system and thereby help ensure lower international calling prices for consumers.  X43.` ` We are committed to achieving settlement rates that more closely resemble the level that would be established in a competitive market for termination of international services. We believe that in such a competitive market settlement rates would be close to the incremental cost of providing international termination service. We recognize, however, that moving to costbased settlement rates will require a significant adjustment for many countries. We therefore recommend a transition period for implementation of our new benchmark rates to ensure that this adjustment does not unduly disrupt foreign carriers' operations, particularly for foreign carriers from developing countries.  X44.` ` In this Notice, we solicit comment on four issues. First, how should benchmark settlement rates be calculated? Second, how long should the transition to benchmark rates last? In particular, should we provide a longer transition for developing countries and should we provide additional flexibility beyond any transition for countries committed to introducing competition? Third, what enforcement mechanisms are necessary to ensure carriers make progress in negotiating settlement rates within the benchmarks? Finally,"#0*((!" can the benchmark rates be used to address to competitive problems in the U.S. IMTS market?  X' ` `  II.hhCBackground  X45.` ` Our goals in this Notice are the same as the goals we stated in our Foreign  Xx4Carrier Entry Order:x; {O'#X\  P6G;IP#эXMarket Entry and Regulation of ForeignAffiliated Entities, Report and Order, IB Docket 9522, 11  {O'FCC Rcd 3873 (1995) (Foreign Carrier Entry Order).(# (1) to promote effective competition in the global market for communications services; (2) to prevent anticompetitive conduct in the provision of international services or facilities; and (3) to encourage foreign governments to open their communications markets. Accomplishing these goals will help us to reach our objective under the Communications Act: ensuring that consumers and businesses in the United States are provided with reasonably priced, high quality, and technologically advanced international  X 4service.\ $; yO'#X\  P6G;IP#эXOur mandate under the Communications Act is to make available a rapid, efficient worldwide wire and  {O'radio communications service with adequate facilities and reasonable charges. 47 U.S.C.  151. See  {OW'Foreign Carrier Entry Order at 10.(#ƀ We believe the current abovecost accounting rate system is a significant impediment to achieving our goals in this proceeding because it restrains the development of competition in U.S. and foreign markets, creates the potential for distortions in the U.S.  X 4market for IMTS, and significantly increases prices for U.S. consumers. H; {O'#X\  P6G;IP#эXSee, e.g., Policy Statement on International Accounting Rate Reform,11 FCC Rcd 3146 at  8 (1996)  {On'("Accounting Rate Policy Statement").(#  X}46.` ` The current accounting rate system was developed as part of a regulatory tradition that international telecommunications services were supplied through a bilateral  XO4correspondent relationship between national monopoly carriers.ZZO; {O'#X\  P6G;IP#эXWe note that this tradition is not compelled by the international legal regime. See Article 9, International Telecommunication Regulation (Melbourne, 1988) and Article 31, Constitution of the International Telecommunication Union (Nice, 1989).(#Z An accounting rate is the price a U.S. facilitybased carrier negotiates with a foreign carrier for handling one minute of international telephone service. It was originally intended to allow each carrier to recover its  X 4costs for terminating an international call.=  ; {O!'#X\  P6G;IP#эXSee, e.g., Regulation of International Accounting Rates, CC Docket No. 90337 (Phase II), Second  {OK"'Report & Order and Second Further Notice of Proposed Rulemaking, 7 FCC Rcd 8040, n.3 (1992).(#= Each carrier's portion of the accounting rate is referred to as the settlement rate. In almost all cases, the settlement rate is equal to onehalf of the negotiated accounting rate. At settlement, each carrier nets the minutes of service it originated against the minutes the other carrier originated. The carrier that originated more""0*((" minutes of service pays the other carrier a net settlement payment calculated by multiplying  X4the settlement rate by the number of imbalanced traffic minutes.; yOb'#X\  P6G;IP#эXEvery carrier is required to file a copy of its settlement agreements with the Commission. 47 C.F.R.  43.51.(#  X47. ` ` The principal problem with the traditional accounting rate system is that in most cases, settlement rates greatly exceed the underlying costs of providing the service in  X4question, i.e., terminating an international call. It is not unusual for settlement rates to be between five and ten times a reasonable estimate of the underlying cost of terminating an  Xa4international call.a ; {O2 '#X\  P6G;IP#эXSee para. 34, infra.(#ƀ Such significantly inflated settlement rates represent a major subsidy from U.S. consumers, carriers and their shareholders to foreign carriers and raise prices for international services to U.S. consumers many times above the costs of providing those services. They also distort IMTS market performance and restrict market growth.  X 48.` ` The United States paid roughly $5 billion in settlements to the rest of the world  X 4in 1995, up from $2.8 billion in 1990.  ; yO:'#X\  P6G;IP#эXNet U.S. payments over the last ten years are shown in Appendix A, and the countries to which the largest outpayments were made are listed in Appendix B.(# The U.S. outpayment results in part from the fact that U.S. consumers make more telephone calls to foreign countries than foreign consumers make to the United States. In fact, the size of the imbalance between U.S.outbound and inbound  X4minutes has accelerated in recent years, as the chart in Appendix C demonstrates.  ; yOM'#X\  P6G;IP#эXPart of the increase in this imbalance may be attributable to transit traffic, or traffic routed through the United States to foreign destinations. The rise of transit traffic may benefit U.S. carriers through increased revenues, but it does not fundamentally change the adverse impact on U.S. consumers of the growing imbalance of outbound versus inbound minutes.(# To the extent that these settlement payments exceed the actual costs foreign carriers incur in terminating U.S.originated calls, they represent a significant subsidy to foreign carriers.  XM4Based on our estimate of the costs of international termination services, M ; {O'#X\  P6G;IP#эXSee paras. 5051, infra.(#Ƅ we estimate that at least threequarters of the $5 billion in outpayments is such a subsidy from U.S. consumers, carriers and their shareholders to foreign carriers.  X49.` ` U.S. consumers pay on average 16 a minute for a domestic long distance call, but they pay 99 a minute for an international call. Yet, the difference in cost between providing domestic long distance and international service is no more than a few cents. As a result of recent technological advances, the underlying costs of providing telephony are becoming virtually distance insensitive. For example, because of new fiber optic technology, the cost of undersea cables on a per circuit basis is only one eighth of what it was seven years ago. We anticipate that increased competition in international satellite services will bring"g 0*((" similar potential benefits to countries that are not now served by undersea cables and comparable land facilities. Differences in underlying costs therefore do not explain why international services are so much more expensive than domestic long distance services. The difference is attributable in part to limited competition in the IMTS market and in part to the inflated settlement rates paid by U.S. carriers to terminate traffic in foreign markets.  Xv4 10.` ` Inflated prices for international services restrict growth in the market for those services, both in the United States and in foreign countries. Past experience in the U.S. domestic market and in other countries has shown that calling patterns are highly price  X14elastic. . 1; yO '#X\  P6G;IP#эXIn Chile, for example, competition in the longdistance and international market led to price decreases that increased the size of that market significantly. According to one report, international calls increased  {O: '95.9 percent in January 1995 over January 1994. See Valenzuela, Isabel Margarita. "Telecommunications Industry Sector Analysis: Chile 1995." U.S. Embassy Report, Santiago Chile (June 1995) at p.5. In the United States, starting in 1984, the Commission phased in subscriber line charges (SLCs) for residential and business telephone customers with concomitant reductions in per minute access charges. As SLCs were phased in, per minute interstate toll charges were reduced by an equal amount, resulting in significant reductions in interstate toll prices. From 1984 through 1989, interstate rates dropped by 31 percent, largely due to SLC phaseins (but also including other factors  {O'such as increased competition). See FCC Monitoring Report, May 1996, Table 5.4 and 5.10. As a result of these changes, demand increased by a significant amount an average of 13 percent per year  {OF'during the period 1986 through 1990. See FCC Monitoring Report, May 1996, Table 4.4. After the phasein, reductions in toll rates ceased and annual demand growth reverted to 7 percent.(#Ƶ We anticipate, therefore, that reductions in the price of international telephone service would significantly stimulate traffic flows, thereby increasing revenues for U.S. and foreign carriers. A more robust market for international services will provide additional financing for network infrastructure and result in a more ubiquitous global telecommunications network. Policies that encourage such expansion of the global network are vital in light of the fact that some two thirds of the world's population have no access to a  X 4telephone. " ; {O'#X\  P6G;IP#эXSee, e.g., Mitch Ratcliffe, "Everywhere Else: Global Developments Working On Very Different Agendas," Digital Media, November 6, 1995. President Clinton discussed the importance of expanding access to telecommunications in underserved areas in an address to the Australian Parliament in Canberra, Australia, November 20, 1996.(#ƭ  Xy4 11.` ` The subsidies embedded in most current settlement rates also create significant competitive distortions in the rapidly growing international market for telecommunications services. These distortions impede the Commission's policy of creating greater competition in the IMTS market in order to lower international calling prices for U.S. consumers. An example of possible anticompetitive distortions in the U.S. market resulting from abovecost settlement rates is "oneway bypass," which could occur if a foreign carrier from a country that does not permit private line resale opportunities equivalent to those available under U.S. law were permitted to terminate its traffic inbound to the U.S. market over resold international private lines, which are not subject to settlement rates. The foreign carrier would receive an abovecost settlement rate to terminate U.S. outbound traffic in its market," 0*((" while unilaterally cutting its own costs by bypassing the accounting rate system to terminate its switched traffic inbound to the U.S. market over resold private lines. Indeed, the potential for harm to U.S. carriers and consumers from such "oneway bypass" exists even if a foreign carrier does not enter the U.S. market, but instead terminates its traffic via private lines provided by an unaffiliated carrier in the U.S. market. In this case, the foreign carrier would gain a significant cost advantage over U.S. carriers in the global market because it still would be collecting abovecost settlement rates to terminate traffic in its market while U.S. carriers would not be collecting such rates to terminate traffic in the U.S. market.  X14 12.` ` Recent service innovations in the international market accentuate the market distortions caused by abovecost settlement rates. Callback exemplifies the dilemmas and  X 4benefits posed by such service innovations.\ ; yO| '#X\  P6G;IP#эXCallback enables a customer in one country to access a dialtone in another country and carriers to bill  {OD 'customers at the latter country's collection rate. See generally, Via USA, Ltd. et al., 9 FCC Rcd 2288  {O'(1994); on recon., 10 FCC Rcd. 9540 (1995).(#Ɛ The traditional settlement rate system assumes that a customer's physical location determines the place of origin of an international call, with the carrier in the originating country paying a settlement rate to the carrier in the terminating country. By means of callback, however, the customer in effect chooses which country he or she wishes to be the originating country and which will be the terminating country. In cases where the call is between a competitive market and a monopoly market, the competitive market (with competitive pressure on the retail prices charged for IMTS) will almost always be the less expensive point of origination. The caller would presumably choose to originate his or her call from the competitive market. As a result, so long as callback is legally possible and technically comparable to conventional IMTS, competitive markets will see their balance of traffic with monopoly markets shift to a very heavy imbalance of outbound versus  X4inbound minutes.; yO'#X\  P6G;IP#эXAn excellent example of such a shift in traffic patterns is Hong Kong, where callback is legal and has been extensively promoted. According to Hong Kong's Office of the Telecommunications Authority, traffic between the United States and Hong Kong (where Hong Kong Telecom International enjoys a monopoly over international voice traffic) shifted over a period of eighteen months from a balance of onetoone to an imbalance in October 1996 of seven minutes outbound from the United States to Hong Kong to one minute inbound from Hong Kong to the United States.(#ƒ  X4 13.` ` There are other technological developments that accentuate the market distortions caused by abovecost settlement rates. For example, the routing of bilateral traffic through third countries has become increasingly prevalent as a means to arbitrage settlement rate differences. Such rerouting can be helpful in undercutting the settlement rate system, but it can also lead to inefficient traffic routing patterns that are not aligned with underlying economic network costs. Use of the Internet also has emerged as an alternative to higher priced IMTS. Though internet traffic and switched voice traffic are carried over virtually identical facilities, the price for internet service is far cheaper because switched traffic is subject to international settlement rates, while internet traffic is exchanged outside of the traditional accounting rate system." d 0*(("Ԍ X4ԙ 14.` ` Already, the traditional settlement rate system is under significant pressure to reform as a result of the recent transformations in market structures occurring in many countries. In order to promote the development of their communications sectors, many countries are rapidly moving from the old model of monopoly providers to competitive markets for telecommunications services. The United States, which first introduced competition into long distance and international services in the early 1980's, has moved toward removal of barriers to competition in local markets this year with the enactment the  X_4Telecommunications Act of 1996._; {O'#X\  P6G;IP#эXTelecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56, to be codified at 47 U.S.C.   {O '151, et. seq.(# In Europe, the member states of the European Union have pledged to dismantle competitive barriers by January 1, 1998. Currently, the members of the World Trade Organization (WTO) are engaged in talks to liberalize trade in basic telecommunications services. If the WTO's Group on Basic Telecommunications (GBT) is successful in reaching an agreement by its deadline of February 15, 1997, the international market for telecommunications services will become far more open and competitive than at present.  X 415.` ` Consistent with these market pressures, settlement rate reform has been the focus of much attention in recent years in international fora. For example, both the International Telecommunication Union (ITU) and the Organization for Economic Cooperation and Development (OECD) have been actively studying accounting rate reform and members of both organizations have reached a consensus on the need for such reform. In a speech last June, Dr. Pekka Tarjanne, SecretaryGeneral of the ITU, reflected multilateral consensus on the need for accounting rate reform, arguing that "the situation is not  X4sustainable."#$; yO'#X\  P6G;IP#эX"Americas Geopolitical Challenges: Trade in telecom services," Dr. Pekka Tarjanne, SecretaryGeneral, International Telecommunications Union, ITU Forum Opening, Rio de Janeiro, June 1015, 1996.(## ITU Recommendation D.140 calls for countries to adopt nondiscriminatory,  X4costoriented and transparent accounting rates.|; {O'#X\  P6G;IP#эXITUT Recommendation D.140, "Accounting Rate Principles for International Telephone  Services," Geneva (1992).(# Work in the OECD similarly has focused on  X4the principles of transparency, nondiscrimination and costbased pricing.; {O_'#X\  P6G;IP#эXSee, e.g.,"International Telecommunication Pricing Practices and Principles: A Progress Review," OECD, Paris (1995).(#  X416.` ` The Australian delegation to the WTO's GBT has argued that the service of terminating international telecommunications traffic, "telecommunications termination services," should be provided on a costbased, nondiscriminatory basis. Mexico and Sweden have explored accounting rate reform as well, and the United Kingdom has joined the United States in trying to reform the accounting rate system by improving its transparency. The United Kingdom now publishes its accounting rates with all OECD member nations and has"70 0*((+"  X4stated that in December of this year it will publish its rates to all countries.; {Oy'#X\  P6G;IP#эXSee "U.K. to Open up International Telecommunications Services: BTMercury Duopoly Ended." DTI Press Release, June 6, 1996, P/96/416.(# Perhaps most farreaching of all is the contemplated move in Europe after January 1, 1998 to reject the traditional accounting rate system for intraEuropean calls in favor of a system of domestic call termination charges.  X417.` ` We support the work done in international fora to reform the traditional settlement rate system and we propose to intensify our efforts to achieve multilateral consensus on measures to reform the settlement rate system to achieve costbased, transparent and nondiscriminatory charges for terminating international calls. For example, we propose to work with U.S. carriers and other U.S. government agencies to suggest measures the ITU could undertake to promote more rapid progress in achieving costbased rates. Recommendation D.140 has contributed to the progress in reducing settlement rates, but we believe additional steps by the ITU would encourage more rapid movement in this direction. We also will continue supporting the work of the OECD on settlement rate issues. Additionally, we will encourage regional organizations like APEC (Asian Pacific Economic Cooperation), InterAmerican Telecommunications Commission (CITEL) and the European Union to consider ways to reform the international settlement rate system. We solicit comments on alternative approaches to reforming the international accounting rate system, including multilateral approaches through institutions like the ITU.  X4418.` ` We believe, however, that in light of the significant technological and market changes occurring in the global telecommunications market we should go beyond these multilateral steps to encourage settlement rate reform. Given the rapidly increasing imbalance between U.S.outbound and inbound traffic and the slow pace of change internationally, we believe we should act domestically to encourage lower settlement rates and ultimately,  X4international calling prices to U.S. consumers."; {O'#X\  P6G;IP#эXSee para. 5, supra.(# We have a statutory mandate to ensure that consumers pay reasonable charges for communications service. Current prices for international service are substantially inflated, in part as a result of abovecost accounting rates. In addition, we believe it is unfair for consumers and carriers from the United States and other competitive markets to continue to subsidize foreign carriers by paying international settlement rates that exceed the costs foreign carriers incur in terminating calls.  X 419.` ` We emphasize that the measures we propose here are intended to fulfill our statutory mandate to ensure reasonable telephone rates. These measures are directed at U.S. carriers and the settlement rates they pay to foreign carriers. They are necessary because the level of international settlement rates has an effect on the price paid by U.S. consumers for IMTS. We believe the Commission has the authority under Sections 1, 4(i) 201205 and 303" 0*((H"  X4(r) of the Communications Act of 1934, as amended, relevant case law,$; {Oy'#X\  P6G;IP#эXSee Communications Act Sections 1, 2, 3(17), 201, 202 and 205; RCA Communications v. United States,  {OC'43 F. Supp. 851 (S.D.N.Y. 1942). See also Communications Act Section 4(i) ("The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this Act, as may be necessary in the execution of its functions.").(# and international  X4regulations,; yON'#X\  P6G;IP#эXInternational Telecommunication Regulations (Melbourne, 1988); Constitution of the International Telecommunication Union (Nice, 1989).(# to take the steps described in this Notice. We ask parties to comment on these steps, including our authority to undertake them.  X420.` ` We believe that the most effective way to ensure settlement rate reform that results in reasonable international calling prices is through the development of competitive markets for IMTS. Effective competition on both ends of an international call would ultimately drive international termination charges closer to costs and erode the subsidy embedded in current settlement rates. To the extent possible, therefore, we seek through our policies to reform the traditional accounting rate system and encourage the development of  X 4competitive markets for the termination of international services. ; {O'#X\  P6G;IP#эXSee Accounting Rate Policy Statement at  2.(#ƕ  X 421.` ` In our Accounting Rate Policy Statement, we announced a significant change in our approach to international settlement rates. As a way of encouraging a more competitive  X 4international market, we expanded beyond our private line resale policy. ; {O'#X\  P6G;IP#эXSee Regulation of International Accounting Rates, CC Docket No. 90337, Phase II, First Report and  {O'Order, 7 FCC Rcd 559 (1991). Our private line resale policy permits U.S. carriers to resell their international private lines to provide switched services to countries that afford resale opportunities equivalent to those available under U.S. law as an alternative to terminating traffic via the traditional settlement rate system.(#. to endorse new services that encourage alternatives to the traditional accounting rate system in the  X4international market.R ; {O'#X\  P6G;IP#эXAccounting Rate Policy Statement at  2123.(#ƙ We pledged also to tailor our settlement rate policies to reflect diverse  X}4national market structures.}; {O '#X\  P6G;IP#эXId. at  4,  2441.(#Ƅ In particular, we announced our intention to develop settlement rate policies which differentiate among competitive markets, noncompetitive markets, and  XO4developing countries with special infrastructure needs.uOv; {Ov#'#X\  P6G;IP#эXId. at  24.(#u "8 0*(("Ԍ X422.` ` #Xj\  P6G; XP#Our recent Flexibility Ordert; {Oy'#X\  P6G;IP#э#Xw PE37=XP##X\  P6G;IP#XRegulation of International Accounting Rates, CC Docket No. 90337, Phase II, Fourth Report and  {OC'Order, FCC 96459 (rel. December 3, 1996) ("Flexibility Order").(#t took a further critical step in reforming our settlement rate policies by recognizing that we should allow for entirely new alternatives to the traditional correspondent accounting rate model where competitive markets exist in both the originating and terminating markets. We sought to encourage the development of  X4competitive markets for the origination and termination of international calls. Accordingly,  X4the Flexibility Order establishes a more flexible framework which permits carriers to take their international traffic off the traditional settlement rate system where competitive conditions permit and to negotiate alternatives for terminating international calls that more  XN4closely track underlying costs.N$; {O# '#X\  P6G;IP#эXPursuant to the Flexibility Order, U.S. carriers may negotiate alternative international settlement payment arrangements that deviate from the requirements of the Commission's International Settlements Policy (ISP) where appropriate market and regulatory conditions permit. The Commission noted that the ISP, with its requirements of the equal division of accounting rates, nondiscriminatory treatment of U.S. carriers, and proportionate return of inbound traffic, can have anticompetitive effects in markets  {O 'where there is effective competition. Flexibility Order at  13. For background on the Commission's  {O'ISP, see Implementation and Scope of the International Settlements Policy for Parallel Routes, CC  {O'Docket No. 85204, Report and Order, 51 Fed. Reg. 4736 (Feb. 7, 1986) (ISP Order), modified in part  {Ok'on recon., 2 FCC Rcd 1118 (1987), further recon., 3 FCC Rcd 1614 (1988). See also Regulation of  {O5'International Accounting Rates, CC Docket 90337, Report and Order, 6 FCC Rcd 3552 (1991), on  {O'recon.,7 FCC Rcd 8049 (1992).(#  X 423.` ` Despite the farreaching changes occurring in the international services market, in the short term many countries are likely to continue to have monopoly carriers or limited competition. As long as settlement rates remain substantially above costs, these countries may have a disincentive to introduce competition in their telecommunications markets in order to protect the subsidy in abovecost accounting rates, notwithstanding the overall economic and development benefits that would accrue from a robust, competitive telecommunications sector. We therefore tentatively conclude that we cannot rely solely on market forces to achieve timely reform of accounting rates in markets with no or limited competition.  XQ424.` ` This Notice also recognizes, however, that many countries will need time to adjust to more costbased settlement rates. Indeed, many countries already are grappling with the difficult transition from an inefficient, highpriced telephone system to a competitive and lowerpriced structure that will better serve their consumers and economies. A number of countries, for example, are undergoing the politically difficult task of rebalancing rates. We note that current settlement rates are generally much higher in lower income countries than in high income countries and in some countries settlement payments represent a high proportion of total telecommunications revenue. Immediate enforcement of lower benchmark rates could impose a substantial burden on these countries as they seek to develop their telecommunications networks. We therefore propose to implement our benchmarks in a way that provides a longer transition for developing countries and permits flexibility for countries"m 0*((=" that are making the adjustments necessary to introduce competitive reforms and move toward  X4a more costbased system of international settlement rates.yZ; yOb'#X\  P6G;IP#эXWe note that approximately 70% of U.S. net settlement payments are made to developing countries.  {O*'Accounting Rate Policy Statement at  36. Despite this significant outpayment, we propose a longer transition to our benchmarks for developing countries.(#y  X4#Xj\  P6G; XP#  X425.` ` We recognize that our efforts to reform the traditional accounting rate system and reduce settlement rates to a costbased level will require substantial adjustments for many countries in the short term. In the long term, however, we are convinced that these reform efforts will benefit not only U.S. consumers and carriers, but also foreign consumers and carriers. In particular, these reforms will lower international calling prices, which in turn will stimulate additional service growth, expand market size, and increase revenue of U.S. and foreign carriers. This market expansion should lead to greater network buildout, so that the benefits of the global information infrastructure become more widespread.  X '` `   III.hhCDiscussion  X 426.` ` The Commission first adopted benchmark settlement rates in 1992 in conjunction with other procedural reforms to remove U.S. regulatory impediments to cost X4based, economically efficient, nondiscriminatory settlement rates. $; {O+'#X\  P6G;IP#эXRegulation of International Accounting Rates, CC Docket No. 90337, (Phase II), Second Report and  {O'Order and Second Further Notice of Proposed Rulemaking, 7 FCC Rcd 8040 (1992). The benchmark ranges were adopted as "a guideline for the amount which the Commission believes U.S. carriers should be paying foreign correspondents to terminate calls from the U.S." Id. at  8.(# We adopted benchmark settlement rate ranges of 0.165 SDR to 0.275 SDR (2339) to terminate U.S. telephone calls in Europe and 0.275 SDR to 0.42 SDR (3960) to terminate U.S. telephone calls in Asia  XK4and other regions.}!K; {O'#X\  P6G;IP#эXId. at  10, 18.(#} Our goal in setting the benchmark ranges was to support U.S. carriers' efforts to reduce settlement rates to costbased levels as expeditiously as circumstances permitted. U.S. carriers have made important strides in lowering settlement rates since the adoption of our current benchmarks. When we set our current benchmark ranges in 1992, the average U.S. settlement rate was 51.5 per minute. By November 1996 that rate had declined  X4to 36.5 per minute."h ; yO '#X\  P6G;IP#эXThis average settlement rate is a weighted average based on the total minutes of U.S.outgoing traffic.(#  X427.` ` Despite these recent decreases in rates negotiated under our current benchmarks, settlement rates remain significantly above the cost of providing international  X|4service.#Z| ; {O%&'#X\  P6G;IP#эXWe discuss infra, paras. 3132, what we believe to be the appropriate cost standard for settlement rates. As discussed there, we believe that an appropriate standard may be the total service long run incremental cost of terminating international service plus a reasonable contribution to common costs.(#Ɣ Moreover, technological change, increased power of digital technology, and greater"| #0*((" reliance on market forces and competitive behavior have combined to reduce costs and render our existing benchmark ranges obsolete. For these reasons, we believe that our benchmarks should be revised.  X428.` ` We believe that adopting one of the methodologies described below to revise our benchmarks will ensure that they better reflect these changing cost, supply, and market conditions and continue to move settlement rates closer to actual costs. To avoid the problem in the future of our benchmarks not keeping pace with cost reductions, and to encourage further movement toward costbased settlement rates, we propose to periodically revise our benchmarks. We will also consider approaches to benchmarks that more closely approximate incremental costs. We seek comment on how we can ensure that carriers that have committed to achieving settlement rates within the benchmarks are not adversely affected by any revisions to the benchmarks.  X 4 29.` ` We invite interested parties to submit comments on our proposals for revising the benchmark settlement rates, including the methodology for calculating the rates and our proposal for periodic revisions to the rates. We also invite comments on our plan to implement the revised benchmark settlement rates in a manner that will promote our goal of achieving the costoriented, nondiscriminatory, transparent settlement rates necessary for the development of competition in the global telecommunications services market.  X430.` ` We note that the work of the WTO's Group on Basic Telecommunications (GBT) in negotiating an agreement to liberalize trade in basic telecommunications services is scheduled to conclude on February 15, 1997. The United States has been participating in these negotiations. Any commitments that the United States may ultimately make in these negotiations would have to be extended to all WTO members on a Most Favored Nation  X4(MFN) basis. We invite comments on whether each of the proposals in this Notice is consistent with MFN and National Treatment obligations under a potential WTO agreement.  Xg' XA.X` ` Benchmark Methodology (#`  X9431.` ` Ideally, we would let competitive market forces determine the pricing for  X"4termination of international services. As we noted in our Flexibility Order, termination at nondiscriminatory interconnection charges in competitive markets would be an example of  X4such an approach.$; {Oo!'#X\  P6G;IP#эXFlexibility Order at  17.(#ƃ However, such interconnection charges still do not exist in most foreign markets. We believe that a reasonable approximation of the interconnection charges that" Z$0*((Q"  X4would exist in competitive markets is the total service long run incremental cost (TSLRIC)%; {Oy'#X\  P6G;IP#эXReferences to incremental cost throughout this Notice are to TSLRIC. In the Interconnection Order the Commission adopted a version of the TSLRIC costing methodology called total element long run  {O 'incremental cost as the basis for pricing interconnection and unbundled elements. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and Interconnection between  {O'Local Exchange Carriers and Commercial Mobile Radio Service Providers, CC Docket 9698 and CC  {Og'Docket 95185, First Report and Order, FCC 96325 (rel. Aug. 8, 1996) (Interconnection Order) at 678.(# of terminating international service plus a reasonable contribution to common costs.  X432.` ` The TSLRIC of providing international termination services is the additional cost that a firm incurs as a result of providing that service. This cost includes a riskadjusted  X4return on capital.&; {ON '#X\  P6G;IP#эXInterconnection Order at 700.(#Ƈ The term "total service," in the context of TSLRIC, indicates that the cost  Xv4measured is that of providing an entire service, in this case, international termination service.u'v; {O'#X\  P6G;IP#эXId. at 677.(#u The term "long run," in the context of TSLRIC, refers to a period long enough so that all of a  XH4firm's costs become variable or avoidable.i(H4 ; {O-'#X\  P6G;IP#эXId.(#i Because long run incremental cost is the level to which prices would tend in a competitive market, we believe it should be the preferred cost standard for establishing benchmark settlement rates. Prices at an incremental cost level would maximize consumer welfare. In addition, we believe that it may be appropriate for international services to provide a reasonable contribution to the common costs of foreign carriers. Yet, we also believe that if termination services were competitively provided, the  X 4markup over incremental cost reflected in carriers' prices, i.e. their contribution to common costs, would be substantially less than the markup that is reflected in current settlement rates. We seek comment on this analysis, and on the appropriate costs that should be included or excluded from this approach.  XM4 33.` ` Although we believe incremental cost ultimately may be the appropriate standard for estimating termination charges, we recognize that applying this approach to individual countries will not be easy. We do not have, and cannot obtain, the data necessary to calculate such costs for each foreign carrier. We do not have convincing and uptodate  X4studies of foreign carriers' costs,X )x  ; yOh"'#X\  P6G;IP#эXWe are aware of two somewhat dated studies relating to the cost of terminating international calls. The ITU conducted a study to compare costs of telephone calls in developing and industrialized countries. The results of the study are reported in "Follow-up Study of the Costs of Providing and Operating International Telephone Service between Industrialized and Developing Countries," International Telecommunication Union, Geneva, 1990. The cost estimates in that study are based on data reflecting market and supply conditions in 1986, which are unlikely to measure accurately current conditions due to the substantial changes that have occurred in the global telecommunications market in the past"'(0*(('" decade. The data also lack comparability because accounting and reporting systems varied among the countries included in the study, an inconsistency which could not be completely resolved. Data validation was described in the study as problematic and costs were perceived to be incompatible with national network conditions in some countries. Followup Study at 22.(# XThe Tariff Group for European and Mediterranean Basin (TEUREM Group) also conducted a study of the costs among its member countries in order to establish settlement rates for those countries. TEUREM group members are geographically concentrated in Europe and the Mediterranean Basin. The results of the study are reported in ITU Recommendation D.300R "Determination of Accounting Rate Shares in Telephone Relations between Countries in Europe and the Mediterranean Basin," Geneva (1992). The TEUREM Group's study uses the same general methodology that we propose to use to  {O( 'calculate benchmarks. See infra, 3537. However, the changes in market and supply conditions in the industry since the study was undertaken have rendered the data largely obsolete. Consequently, the estimates no longer accurately measure costs. Up to date information, which we propose to use, provides more accurate results for the model.X` hp x (#%'0*,.8135@8:#; {O%'#X\  P6G;IP#эXSee n. 11, supra, for a discussion of experience in the Chilean international market and the U.S. domestic long distance market.(# We believe that the rapid growth in internet usage and callback, which are in part a response to high IMTS prices, are indicators that the elasticity"h$">0*(("" effects of price decreases should be dramatic. The increase in U.S. outgoing traffic that will result from decreased prices and the associated settlement payments should temper any decline in revenue per minute from settlement rates.  X4;60.` ` In addition, the technological means for bypassing the settlements regime are developing rapidly and the current highly inflated settlement rates provide a strong incentive for such bypass. These growing bypass capabilities and incentives mean that the traditional monopolists' revenue streams no longer provide secure financing for investment in  XH4telecommunications infrastructure.Z?H; {O '#X\  P6G;IP#эXDr. Pekka Tarjanne, SecretaryGeneral of the ITU, also has emphasized this point. See, e.g., Submission at ITUTelecommunications Standardization Sector, Study Group 3, Geneva, November, 1115, 1996 at p.6 (Tarjanne Study Group 3 Submission) ("For developing countries, the bigger threat lies in the bypass of the accounting rates system by alternative networks such as voice over data networks (such as Internet or frame relay) international simple resale, private networks, or satellite bypass.").(#Z We believe that open and competitive markets that welcome private capital offer a more reliable and sustainable means to finance infrastructure  X 4development than the traditional monopolybased accounting rate system.@" z; {OE'#X\  P6G;IP#эXFor a discussion of the benefits of competition for network development, see Tarjanne Study Group 3 Submission at 8 ("There is now overwhelming evidence from developing and developed economies alike to support the contention that competition and private enterprise, tempered by regulation, provides the best recipe for telecommunications development.").(#  X 4<61.` ` We nonetheless realize that countries will need time to make the adjustments necessary to introduce competitive reforms. We also recognize additional time may be needed to enable U.S. carriers to negotiate for lower settlement charges with their foreign correspondents without forcing undue disruption of both parties' operations. For example, carriers in many developing countries have significantly distorted rate schedules involving crosssubsidies from users of international services to those using domestic services. These carriers also may have substandard telecommunications infrastructure, including low levels of network buildout and low levels of network reliability. An immediate shift to costbased settlement rates thus could create adjustment problems for carriers in these countries while they are trying to rebalance rates and upgrade their network. Moreover, the difference between current settlement rates and the benchmarks we propose here generally is greater for lower income countries than for upper income countries. Implementation of the benchmarks therefore will require greater reductions in current settlement rates for developing countries than for upper income countries.  X4=62.` ` We therefore propose a transition schedule based on countries' level of economic development that will enable all carriers to achieve rates at or below the benchmarks in a four to five year period. We base the timeframe for full compliance with our benchmarks on a country's level of economic development because, for the reasons discussed in the preceding paragraph, we believe that a U.S. carrier's ability to negotiate a charge that complies with our benchmarks without undue disruption of its or its foreign" d @0*((" correspondent's operations diminishes as the level of economic development decreases. We seek comment on this approach.  X4>63.` ` We propose to require that settlement rates for U.S. carriers with high income countries be at or below our benchmarks within one year of the effective date of our order in this proceeding. Alternatively, we request comment on whether the transition schedule for upper income countries should be two years. For upper middle income and lower middle income countries, we propose to require that settlement rates be at or below our benchmarks within two years. Alternatively, we request comment on whether we should adopt a three year transition schedule for these two middle income categories, or whether we should adopt a three year transition schedule for carriers in the lower middle category only. For U.S. carriers in low income countries, we propose to require that settlement rates be at or below our benchmarks within four years. Alternatively, we request comment on whether the transition schedule for low income countries should be five years. We seek comment on these proposed transition schedules.  X4?64.` ` Additionally, we request comment on whether U.S. carriers should be asked to make reasonable progress in achieving rates at or below the benchmarks throughout the transition period. For example, should we ask U.S. carriers to negotiate a certain percentage reduction annually of the spread between current settlement rates and benchmarks for carriers during the transition period?  X4@65.` ` We also seek comment on alternatives to our proposed transition approach based on level of economic development. For example, we might have U.S. international carriers negotiate settlement rates at or below our proposed benchmarks with all of their foreign correspondents by a date certain. This date could be a defined period, such as two to four years from the effective date of the rules we adopt in this proceeding. If we adopt this approach, should we require U.S. international carriers to demonstrate periodically that they are making progress in negotiating settlement rates at or below our proposed benchmarks? This method would have the advantage of simplicity and consistency for all international routes, but would lack the flexibility inherent in the phasedin approach discussed above. We seek comment on the advantages and disadvantages of this proposal.  X 4A66.` ` Another possibility would be to adopt a single deadline for transition to benchmark settlement rates, but to allow U.S. carriers to request a waiver of this requirement for particular routes. Reasons supporting waivers of the benchmarks might include undue hardship of moving to the benchmark for some countries due to low levels of economic development or similar reasons. Moreover, to the extent governments are making a good faith effort to move to costbased settlement rates by adopting procompetitive policies, this factor might justify a temporary waiver of our benchmark rules. We seek comment on the reasonableness of this approach.  X:&4B67.` ` We also seek comment on whether we should provide an additional period of transition in negotiations with foreign carriers for which annual reductions in the spread"#'@0*((%" between their current settlement rate and their benchmark will exceed a certain percentage, such as twentyfive percent. Alternatively, we seek comment on whether we should provide additional transition time for negotiations with foreign carriers for which transition to the relevant benchmark would entail a loss of greater than a certain percentage of their annual revenue. Such an additional transition period may be necessary to prevent carriers facing significant declines in their accounting rates as a result of our benchmarks from experiencing undue disruptions of their networks. On the other hand, a longer transition period for carriers whose settlement rates are substantially above their benchmark could be seen as rewarding carriers who had previously refused to negotiate accounting rate reductions. We seek comment on the advantages and disadvantages of this proposal. We also invite parties to comment on whether these transition periods would be consistent with the United States' MFN obligations in the event the GBT reaches an agreement on liberalizing trade in basic  X 4telecommunications service.yA ; {Oe '#X\  P6G;IP#эXSee supra,  28.(#y  X 4C68.` ` We reiterate that we believe U.S. carriers' settlement rates should currently be at or below the benchmarks proposed here, particularly with high income, economically developed countries. The transition rate goals and transition periods we propose are not  Xy4intended to be a substitute for the benchmarks proposed in this Notice or to postpone achieving rates at or below the benchmarks.  X6' XX` ` 2.X Application of Benchmark Settlement Rates to Countries  X'Committed to Competitive Reform (#  X4D69.` ` As discussed above, para. 20, we believe the best way to create an alternative to the traditional accounting rate system is to introduce effective competition. Indeed, we believe that in competitive markets our benchmark rates would not be necessary because international call termination rates in such markets will be below any benchmark rates that we adopt. It may, therefore, be appropriate for the Commission to forbear from applying its benchmark rates where there is effective competition for international services on a route and where substantial progress has been made toward achieving rates that represent the incremental cost of terminating international service. We seek comment on whether this would be appropriate.  X 4E70.` ` We also seek comment on whether it would be appropriate to permit additional flexibility in the application of our benchmarks beyond the transition periods we propose here for U.S. carriers and their foreign correspondents in developing countries that have demonstrated an actual commitment to fostering entry and promoting competitive market environments. Such a policy would recognize the challenges to developing countries posed by the introduction of costbased rates and the consequent reduction or elimination of the revenue stream generated by the current system. At the same time, however, it would also encourage the development of competitive markets necessary to achieve costbased settlement rates."j$ZA0*((""Ԍ X4ԙF71.` ` We believe that both foreign and U.S. consumers will ultimately benefit from greater competition in foreign telecommunications markets. Experience in the global telecommunications market has shown that where competitive market structures have been promoted, prices have decreased, service quality has increased, and networks have been expanded. For example, as a result of procompetitive policies at the local loop, investment in  X4networks and cable telephony in the United Kingdom has increased dramatically.,BZ; {O'#X\  P6G;IP#эXSee "Cable: the Emerging Force in Telecoms and Interactive Markets," Ovum Reports, 1996, p.2; "United Kingdom: The Commercial and Regulatory Environment," Datapro Information Services Group, 1996.(#, In Chile, where the telecommunications market has been privatized and liberalized, the number of  X_4telephones more than trebled from 591,000 lines in 1988C_; yO '#X\  P6G;IP#эXSolomon Brothers Inc. "Compania de Telefonos de Chile S.A. American Depository Shares Prospectus" (July 20, 1990) at p.2 ("Solomon Brothers Report").(# to more than 1.8 million in mid XH41995.DHB; yO;'#X\  P6G;IP#эXValenzuela, Isabel Margarita. "Telecommunications Industry Sector Analysis: Chile 1995." U.S. Embassy Report, Santiago Chile (June 1995) at p.4.(# The digitalization of Chile's telecommunications network increased from 37.9 percent  X14in 1988 to 100 percent in early 1995.E1; yO|'#X\  P6G;IP#эXSolomon Brothers Report at p.29.(#ƀ Competition in the market for terminating international services will exert price pressure on settlement rates. We have already seen this in markets that have introduced competition, such as Sweden, where it costs U.S. carriers 9 a minute to terminate an international call. We therefore believe that both network development and settlement rate reductions are best achieved by a policy that promotes the development of competitive markets in developing countries.  X4G72.` ` We thus propose to consider additional flexibility in the application of our benchmarks for U.S. carriers serving countries in the low and middle income development categories. We propose as a threshold requirement that a country demonstrate an actual commitment to promote competition before we will consider additional flexibility. We further propose to allow flexibility based on a more limited commitment to competition for countries that are in the lower middle income and low income categories and whose level of network development is very low. We seek comment on this proposal. We also seek comment on the appropriate measure for determining the level of network development. For example, should we use teledensity or some other measure? We also seek comment on the level of economic and network development to use as thresholds for allowing flexibility in the application of our benchmarks. Additionally, we seek comment on whether we should require a link between any additional flexibility we grant and infrastructure development, and how this might be done.  XN4H73.` ` We propose to leave initiatives on proposals for developing country flexibility to carriers. If a U.S. carrier and its foreign correspondent believe they need additional flexibility beyond any transition rate goals and transition periods we adopt, they may propose" * E0*((" an alternative transition plan. These carriers may, for example, propose a plan allowing additional time to achieve settlement rates within the appropriate benchmark. These carriers may also propose an alternative schedule for achieving settlement rates within the appropriate benchmark that is of several years duration. However, we will seek assurances that these carriers will achieve settlement rates within the benchmarks by the end of the transition plan. By the end of the transition plan the settlement rates between the carriers must be in full compliance with the benchmark rates. We invite interested parties to comment on this approach for allowing additional flexibility in the application of our benchmarks in certain circumstances. We also invite parties to comment on whether this approach would be consistent with the United States' MFN obligations in the event the GBT reaches an  X 4agreement on liberalizing trade in basic telecommunications service.yF ; {O '#X\  P6G;IP#эXSee supra,  30.(#y  X 4I74.` ` We also note that it may be appropriate to consider additional alternatives to our international settlements policies for carriers in developing countries beyond the flexibility  X 4in application of our benchmarks that we propose here.G` Z; yO'#X\  P6G;IP#эXFor example, we might approve an arrangement to provide international services via a VSAT network outside the settlement rate structure between a nondominant carrier in the developing country and U.S. carriers. Or we might approve a proposal that allows for a limited amount of traffic to flow over international private lines, as long as the amount of U.S. inbound traffic from the foreign country over international private lines is in proportion to the amount of U.S. outbound traffic over international private lines to that foreign country. Such a proposal would allow a limited amount of traffic to flow in equal amounts between the United States and the foreign country on international private lines connected at both ends to the public network. It is a more modest commitment to competition by the developing country than full freedom to provide and use international private lines. At the same time, the arrangement may have neutral consequences for U.S. settlement payments while providing the benefits of improved pricing and reliability of service and more efficient use of transmission facilities for selected business customers.(# We seek comment on whether we  X 4should permit such additional alternatives for developing countries.H ; yO'#X\  P6G;IP#эXParties filed comments addressing the issue of how to tailor our settlement policies to address the special circumstances presented by developing countries in our Flexibility proceeding. Because we propose in this proceeding to address that issue as part of our comprehensive review of our settlement rate  {O2'benchmarks, we incorporated the comments from that proceeding into the record here. Flexibility Order at  54.(#  Xy'` ` 3. Applying Benchmarks to Address Anticompetitive Behavior  XK4J75.` ` While we are cognizant of the difficulties some U.S. carriers will face in negotiating settlement rates at or below our benchmarks, the subsidies contained in abovecost settlement rates can distort performance in the IMTS market. These distortions impede the Commission's policy of creating greater competition in the IMTS market in order to lower international calling prices for U.S. consumers. As discussed above, para. 11, there is a great potential for distortion flowing from abovecost settlement rates when a foreign carrier"4H0*((" collecting those rates is able to send its switched service over resold international private lines into the United States, but U.S. carriers are unable to send their traffic over private lines in the reverse direction, and must continue to pay a relatively expensive settlement rate. It has also been argued that foreign carriers could use the subsidy embedded in abovecost settlement rates to crosssubsidize an affiliate providing international services in the U.S. market. According to this argument, a foreign carrier's U.S. affiliate could afford to price its services in the U.S. market below the costs of providing those services because its foreign parent would be earning substantial subsidies from terminating traffic at abovecost settlement rates. However, if a foreign carrier is collecting costbased settlement rates, or if its ability to collect abovecost settlement rates is constrained by the existence of effective competition in its home market, concerns about anticompetitive behavior will be significantly diminished. Therefore, we propose to take into account the level of competitive risk posed by abovecost settlement rates in enforcing our settlement rate benchmarks. We seek comment on this approach. We also seek comment on whether there are safeguards applied by other countries to address these potential anticompetitive concerns that we should consider.  X4K76.` ` We propose to condition various types of authorizations to provide U.S. international services to address the potential market distortions created by abovecost settlement rates. First, when a carrier seeks authorization to provide international facilities XK4based service from the United States to an affiliatedI\K; {O'#X\  P6G;IP#эXThe Commission's Rules provide, inter alia, that a U.S. carrier is considered to be affiliated with a foreign carrier when a foreign carrier owns a greater than twenty five percent interest in, or controls, the  {OV'U.S. carrier. See Foreign Carrier Entry Order at  73 and 47 C.F.R.  63.18(h)(1)(i).(#Ư foreign market, whether to provide switched service or private line service, we propose to condition any authorization to serve that affiliated market on the foreign affiliate offering U.S. licensed international carriers a  X4settlement rate within the benchmark range we are proposing in this Notice. J; {O'#X\  P6G;IP#эXOf course, consistent with the Foreign Carrier Entry Order, no such condition would apply to foreign carriers seeking 214 authorization to serve unaffiliated points.(#  Consistent with our existing International Settlements Policy (ISP), all U.S. carriers would receive the same  X4settlement rate for traffic on that route.KF; {O'#X\  P6G;IP#эXFor a discussion of the Commission's ISP, see n.29, supra.(#Ơ If, after the carrier has commenced service to the affiliated market, we learn that the carrier's service offering has distorted market performance on the route in question, we propose to order that settlement rates to that country be reduced to the bottom of the range (our estimate of costbased termination) or to revoke the  X~4authorization of the carrier to serve the affiliated market.L~; yO#'#X\  P6G;IP#эXAn authorization granted to a facilitiesbased carrier will thus be granted subject to a condition to this effect.(#  XP4L77.` ` We ask for comment on what mechanism or approach we should use to determine when there has been a distortion of competition in the IMTS market and the lower settlement rate should be applied. For example, if a foreign carrier seeks to distort traffic""0 L0*((" flows in order to increase net settlement payments to its foreign affiliate, to evade requirements of our ISP (including our proportionate return and no special concessions rules), or to use substantially abovecost settlement rates on the foreign end to price its services in the U.S. market in an anticompetitive fashion, would such actions constitute distortion of competition? We also invite comment on how the Commission's reporting system could be modified in order to make monitoring and enforcement more effective.  X_4M78.` ` We seek comment on this proposal. We also seek comment on how this proposal would affect the effective competitive opportunities (ECO) test we adopted in our  X14Foreign Carrier Entry Order. For example, should this proposal be used in conjunction with the ECO test, replace the ECO test, or should we modify the ECO test to ensure that it is  X 4compatible with this proposal?eMX ; yO~ '#X\  P6G;IP#эXWe emphasize that the Commission will honor any U.S. obligations undertaken through a WTO agreement on basic telecommunications services. The Commission's ECO test and all other proposals discussed in this section may revisited in light of any WTO obligations.(#e  X 4N79.` ` We emphasize that the purpose of our proposal is to prevent U.S.licensed carriers from distorting the IMTS market through service to affiliated markets with excessive settlement rates. The proposal does not serve as a barrier to market entry for foreign carriers. Under the proposal, we would not limit the ability of foreign carriers to enter the U.S. market. Rather, all U.S.licensed carriers (U.S. or foreignowned) would face similar conditions on service to affiliated foreign markets.  X64O80.` ` We also seek comment on whether it is necessary to apply this safeguard. The concern has been raised that foreign carriers would have the incentive to use the subsidy embedded in abovecost settlement rates to crosssubsidize an affiliate providing international services in the U.S. market. This argument, however, appears to ignore the opportunity costs to the foreign parent of offering service through an affiliate in competition with U.S. carriers that formerly purchased termination service from the parent. In serving its home market directly through its affiliate, the foreign parent would no longer receive the settlement payment it formerly received from U.S. carriers to terminate traffic in that market. We seek comment on this analysis. In particular, we request comment on whether a foreign carrier has  Xg4the incentive or ability to use abovecost settlement rates to crosssubsidize a U.S. affiliate.Ng; {O '#X\  P6G;IP#эXSee, e.g., Foreign Carrier Entry Order at  70.(#Ƙ We also request comment on whether, if a foreign carrier does not have this incentive or ability, competitive safeguards are nonetheless necessary to help ensure that irrational anticompetitive behavior does not occur.  X4P81.` ` Our second proposed condition affects the resale of international private lines to provide switched service, which we believe presents a significant danger of competitive distortion. Currently we address this concern by only permitting the resale of international private lines for switched service to countries which offer equivalent resale opportunities to"!zN0*((% "  X4U.S. carriers.O; {Oy'#X\  P6G;IP#эXSee Regulation of International Accounting Rates, CC Docket No. 90337, Phase II, First Report and  {OC'Order, 7 FCC Rcd 559 (1991).(# We now propose to address this concern by imposing settlement rate conditions on authorizations to resell international private line services to provide switched services.  X4Q82.` ` In the case of international private line resale, traffic is not settled because it is carried over private lines. Therefore, it could be meaningless to require the applicant to reduce its settlement rate to a level within the benchmark range because a pure reseller would not have established a settlement rate with any U.S. correspondent. We accordingly propose to grant carriers' applications for authority to resell international private lines to provide switched service to the United States on the condition that accounting rates on the route or routes in question are within the benchmark range. Under such a rule, if settlement rates are outside the benchmark range, a carrier would not be permitted to use its authorization to provide international private line resale service until such time as settlement rates on the route in question are brought within the benchmark range. When settlement rates are within the benchmark range, the authorization could be used. This condition would also apply to U.S. carriers seeking to provide international private resale line service because they, too, would have the ability to distort competition on the route to the extent they accepted "oneway bypass" traffic from foreign carriers.  XK4R83.` ` If we learn that competition on the route has been distorted in fact, we propose to order all U.S. international carriers to pay settlement rates at the low end of the benchmark range, that is, at a level that we believe represents the actual cost of terminating international traffic in the United States. By ordering all carriers to pay settlement rates at the lower end of the benchmark range for switched traffic, the Commission would eliminate the financial distortion from abovecost settlement rates that makes competitive harm possible. We ask for comment on what mechanism or approach we should use to determine when competition has been distorted and the lower settlement rate should be applied. For example, if our monitoring determines that the inbound to outbound ratio of international switched minutes subject to settlements shifts after such resale is authorized to a country which does not allow inbound resale, should this be considered evidence of "oneway bypass" and qualify as a distortion of competition?  X 4S84.` ` Alternatively, we seek comment on whether we should require that accounting rates on the route or routes in question be at the low end of the benchmark range as a condition of carriers' authorizations to resell international private lines to provide switched service to the United States. We also seek comment on how our proposed treatment of international resale would affect our equivalency test. For example, should this proposal be used in conjunction with our equivalency test, replace our equivalency test, or should we modify our equivalency test to ensure that it is compatible with this proposal? "# $O0*((!"Ԍ X4T85.` ` Of course, we have long taken the view that effective competition will best ensure that settlement rates are set at costbased levels and thereby eliminate the subsidy in abovecost rates. We therefore propose to presume that carriers from countries that have opened their markets to meaningful competition have fulfilled these conditions. We seek comment on this proposal and on whether we should evaluate the competitiveness of a market through an ECO test, or some other means. We also seek comment on whether we should impose these conditions on existing Section 214 certificate holders that serve affiliated markets. We believe that the same potential for distortions in the IMTS market from foreign carriers collecting abovecost accounting rates may also exist with respect to existing authorized carriers. Alternatively, we also seek comment on whether specific safeguards provided for in existing section 214 authorization conditions are sufficient to address these competitive concerns, without the conditions we propose here.  X 4U86.` ` We also invite parties to comment on whether these safeguards would be consistent with the United States' MFN obligations in the event the GBT reaches an  X 4agreement on liberalizing trade in basic telecommunications service.yP ; {O '#X\  P6G;IP#эXSee supra,  30.(#y  Xy' ` ` 4. Enforcement Proposals#Xj\  P6G; XP#  XK4V87.` ` While we expect carriers to negotiate settlement rates at or below our benchmarks within the relevant transition periods, we believe additional steps may be needed to assure adequate progress. We propose to identify foreign carriers that are reluctant to engage in meaningful progress toward negotiating settlement rates at or below the relevant benchmark. Specific factors we would examine to identify such foreign carriers are: (1) lack of a commitment to competitive reforms in the near future; (2) settlement rates significantly above the relevant benchmark and transition rate goals; (3) substantial, rapidly growing net  X4settlement payments, particularly to countries receiving large net settlement payments;Q Z; yO'#X\  P6G;IP#эXThe countries with the largest fifty net settlement payments in 1994, for example, provides a starting point. A list of these countries is presented in Appendix B. This list would be revised as more recent information on U.S. carriers' international communications service is submitted to the Commission pursuant to Section 43.61 of the Commission's Rules. 47 C.F.R.  43.61.(# and (4) an unwillingness to negotiate reasonable settlement rates, as evidenced by continuing high rates and no meaningful change in recent years. We will, however, consider these factors in the context of any unique or unusual problems faced by individual carriers or countries such as unforeseen natural disasters, countries impoverished by armed conflict, or routes that have exceedingly low volumes.  X 4W88.` ` Once we have identified the foreign carriers that have failed to make meaningful progress toward complying with our benchmarks, we propose several steps to reduce settlement rates with those carriers consistent with our new benchmarks. First, we propose to convey to the responsible government authorities our concern about continued high" !BQ0*((H" settlement rates and the lack of meaningful progress, and to seek their support in lowering settlement rates. In our contacts with the responsible government authorities, we propose to emphasize the need for cooperation in achieving the goal of costbased rates; enlist the active participation of government authorities in achieving that goal; cite relevant ITU recommendations such as Recommendation D.140; and suggest further discussions between responsible government authorities. We request comment on whether additional steps in multilateral organizations such as the ITU would be appropriate in such instances.  XH4X89.` ` Second, we would consider stronger steps in those cases where foreign carriers fail to respond to U.S. carriers' initial efforts to achieve settlement rate progress. In each case our actions would apply to U.S. carriers within our jurisdiction, not to their foreign correspondents. We would consider:   X 4MBullet List` ` X Directing U.S. carriers to negotiate settlement rate agreements that provide for a fixed expiration date until a foreign carrier agrees to a reasonable schedule of reductions aimed at reaching the benchmark  X4level.,R; yO '#X\  P6G;IP#эXIn comments filed in the Flexibility proceeding, AT&T suggested that we require that all accounting rate  {O'agreements have annual expiration dates. We stated in our Flexibility Order that we will address AT&T's request, and the comments of the parties opposing it, in this proceeding. Therefore, we  {Oc'incorporated the comments concerning AT&T's proposal into the record here. Flexibility Order at n.113.(#,"a0Bullet List"(#   Xb4` `  Directing U.S. carriers to settle at a rate that is no higher than the transition rate goals until a foreign carrier agrees to a reasonable schedule of reductions aimed at reaching the benchmark level. Each U.S. carrier would then be required to settle with the correspondent at that rate and resume payment at a negotiated rate only after it is determined by the Commission that the lower rate represents adequate progress.(#  X4MBullet List` ` X Directing U.S. carriers to settle at or below the benchmark rate and to continue paying at that rate until the Commission determines that meaningful progress in the form of accounting rate reductions is being made. Normal settlement practices would then resume."0Bullet List"(#   X74MBullet List` ` X Directing U.S. carriers to pay a settlement rate no higher than the benchmark rate."0Bullet List"(#  We invite comments on the advantages and disadvantages of each of our proposed approaches, or on any alternative approaches, to encourage foreign carriers to engage in meaningful settlement rate negotiations that result in settlement rates that are at or below the benchmarks."!"|R0*(( "Ԍ X4ԙ Y90.` ` Finally, we reiterate our commitment to vigorous enforcement of the  X4nondiscrimination requirement of our ISP.S; {Ob'#X\  P6G;IP#эXSee Accounting Rate Policy Statement at  26.(#Ɩ Recent International Bureau actions make clear that discriminatory and retaliatory behavior by foreign carriers in violation of the ISP will not  X4be tolerated,TZ; {O'#X\  P6G;IP#эXSee, e.g., In the Matter of AT&T Corp. Proposed Extension of Accounting Rate Agreement for Switched  {O'Voice Service with Argentina, Order, DA 96378 (rel. March 18, 1996); In the Matter of AT&T Corp., MCI Telecommunications Corp., Sprint, and LDDS WorldCom Petitions for Waiver of the International Settlements Policy to Change the Accounting Rate for Switched Voice Service with Peru, Order and  {O 'Authorization, DA 96696 (rel. May 7, 1996); In the Matter of AT&T Corp. and MCI Telecommunications Corp., Petition for Waiver of the International Settlements Policy to Change the  {O| 'Accounting Rate for Switched Voice Service with Bolivia, Order and Authorization, DA 96714 (rel. May 7, 1996); Letter from Scott Blake Harris, Chief, International Bureau, to Alexander Anthony Arena, The Telecommunications Authority, September 18, 1995; and Letter from Scott Blake Harris, Chief, International Bureau, to Hao Weimin, Deputy Director General, Directorate General of Telecommunications, P&T, October 27, 1995.(#Ɩ and we will continue in the future to take strong actions against foreign carriers in response to complaints of discrimination by U.S. carriers.  Xv'` ` 5. Effect of Settlement Rate Reductions on U.S. Collection Prices .  XH4Z91.` ` As noted above, we seek to reform the traditional settlement rate system in order to provide U.S. consumers with just and reasonable prices for IMTS service. Thus, we seek comment on how to encourage U.S. carriers to reflect the reductions they receive in their settlement rates. If U.S. carriers lowered their rates in response to settlement rate reductions, calling volume would be stimulated. This would not only likely benefit U.S. carriers by increasing their collection revenues, it would also benefit foreign carriers because they could offset lower settlement rate levels with an increase in the number of minutes terminated, thus  X 4moderating the effect of lowering settlement rate levels.U ; {O'#X\  P6G;IP#эXSee n. 11, supra, for a discussion of past experience in the U.S. domestic market and the Chilean long distance market that show calling patterns are highly price elastic.(# It would also further our goal of ensuring that U.S. consumers enjoy international calling prices that are more closely related to underlying costs than are current prices.  XK'` `   IV.hhCConclusion Đ  X4[92.` ` In this Notice, we tentatively conclude that our benchmark ranges for international settlement rates adopted in 1992 no longer accurately reflect supply conditions in the industry and, therefore, need to be revised. We propose to replace our current benchmark ranges with ranges based on level of economic development and foreign carriers' tariffed rates. We request comment on other alternatives to setting benchmark ranges. "#U0*(("Ԍ X4\93.` ` We propose to implement our new benchmarks in a way that promotes competition in the global telecommunications services market and prevents potential anticompetitive conduct in the U.S. market by foreign carriers. We propose a transition period that will enable all carriers to achieve settlement rates at or below the benchmarks within four years. We also propose to provide flexibility in the application of our  X4benchmarks to developing countries that are committed to competitive reforms. Finally, we suggest potential steps that may be required by the Commission if reasonable progress towards costbased settlement rates fails to materialize.  X14]94.` ` We seek comments from interested parties, including foreign governments and carriers, on the options we propose for revising our benchmark settlement rates and our suggestions to implement the benchmarks in a way that promotes competition and deters anticompetitive conduct. We also encourage interested parties to provide additional information and data that will assist us in establishing our benchmark rates.  X '#Xn4  pG;X#` `  V.hhCProcedural Issues  Xy4XA.X` ` #Xj9 xOG; LX#Ex Parte # Xn4  pG;X#Presentations(#`  XL4#Xj\  P6G; XP#^95.` ` This is a nonrestricted noticeandcomment rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided that they are  X 4disclosed as provided in the Commission's rules. See generally 47 C.F.R.  1.1202, 1.1203, and 1.1206.  X' XB.X` ` Initial Regulatory Flexibility Analysis(#`  X4 _96.` ` Pursuant to the Regulatory Flexibility Act of 1990, 5 U.S.C.  601612, the  X4Commission's Initial Regulatory Flexibility Analysis with respect to the Notice of Proposed  X4Rulemaking is as follows:  XW4`97.` ` Reason for Action: The Commission is issuing this Notice of Proposed  XB4Rulemaking seeking comment on possible changes in the benchmark ranges applied to settlement rates for international message telephone service between U.S. facilitiesbased carriers and foreign carriers and related issues. The Commission believes that its benchmark rates should be revised to reflect recent technological improvements, their associated cost reductions, and the market structure changes occurring in the global telecommunications market. We also believe these revisions are necessary to move settlement rates closer to the actual costs incurred by foreign carriers to terminate international traffic  X#4a98.` ` Objectives: The objective of this proceeding is to attain reform in the international accounting rate system and thereby help ensure lower international calling prices for consumers. In particular, this proceeding seeks to remove the primary obstacle to accounting rate reform the anticompetitive effects of substantially abovecost settlement rates. The Commission will achieve this objective by revising its benchmark settlement rates"2'$U0*((,%" so that they more closely resemble the underlying costs of providing international termination services.  X4b99.` ` Legal basis: The Notice of Proposed Rulemaking is adopted pursuant to Sections 1, 4(i), 201205 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 201205, and 303(r).  Xa4c100.` ` Description, potential impact, and number of small entities affected: The Commission has not developed a definition of small entities applicable to international facilitiesbased common carriers. Therefore, the applicable definition of small entity is the definition under the Small Business Administration (SBA) rules applicable to Communications Services, Not Elsewhere Classified. This definition provides that a small entity is expressed  X 4as one with $11.0 million or less in annual receipts.V ; yOi '#X\  P6G;IP#эX13 C.F.R.  121.201, Standard Industrial Classification (SIC) Code 4899.(#ƫ Based on preliminary 1995 data, at present there are 29 international facilitiesbased common carriers that qualify as small entities pursuant to the SBA's definition. The number of small international facilitiesbased common carriers has been growing significantly, and by the end of 1996 that number could increase to approximately 50. The revised benchmark rates will apply to all international facilitiesbased common carriers, including small entities, that enter into an operating agreement with a foreign carrier that provides for the payment of settlement rates. We note that the revised benchmark rates should result in lower settlement rates for carriers. After evaluating the comments in this proceeding, the Commission will further examine the impact of any rule changes on small entities and set forth findings in the Final Regulatory Flexibility Analysis.  X 4The Secretary shall send a copy of this Notice of Proposed Rulemaking to the Chief Counsel for Advocacy of the Small Business Administration in accordance with Section 603(a) of the  X4Regulatory Flexibility Act, Pub. L. No. 96354, 94 Stat. 1164, 5 U.S.C. 601, et seq. (1981).  X4d101.` ` Reporting, recordkeeping and other compliance requirements: None.  X4e102.` ` Federal rules which overlap, duplicate or conflict with the Commission's  Xq4proposal: None.  XE4f103.` ` Any significant alternatives minimizing impact on small entities and consistent  X04with stated objectives: The Notice of Proposed Rulemaking solicits comments on a variety of alternative methodologies for calculating benchmark settlement rates, but these have no impact  X4on small entities. The Notice of Proposed Rulemaking also solicits comments on enforcement mechanisms that may be necessary to support U.S. carriers, including small entities, in their negotiations with foreign carriers. We seek comment on the impact of these alternatives on small entities. ""%XV0*(( "Ԍ X4g104.` ` Comments are solicited: Written comments are requested on this Initial Regulatory Flexibility Analysis. These comments must be filed in accordance with the same  X4filing deadlines set for comments on the other issues in this Notice of Proposed Rulemaking, but they must have a separate and distinct heading designating them as responses to the Regulatory Flexibility Analysis. The Secretary shall send a copy of the Notice to the Chief Counsel for Advocacy of the Small Business Administration in accordance with Section  Xz4603(a) of the Regulatory Flexibility Act, 5 U.S.C.  601, et seq.  XN'#Xn4  pG;X#XC.` ` Comment Filing Procedures#Xj\  P6G; XP#(#  X 4h105.` ` Comments and reply comments should be captioned in IB Docket No. 90337 only. Pursuant to applicable procedures in Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file Initial Comments on or before February 7, 1997, and Reply Comments on or before March 10, 1997. To file formally in this proceeding, you must file an original and four copies of all comments, reply comments, and supporting comments. If you want each Commissioner to receive a personal copy of your comments, you must file an original and nine copies. Comments and reply comments should be sent to Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554, with a copy to Kathryn O'Brien of the International Bureau, 2000 M Street, Room 822, Washington, D.C. 20554. Parties should also file one copy of any documents filed in this docket with the Commission's copy contractor, International Transcription Services, Inc. 2100 M Street, N.W., Suite 140, Washington, D.C. 20037. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C. 20554.  X'  X'XD.` ` Ordering Clauses (#   X4i106.` ` Accordingly, IT IS ORDERED that, pursuant to Sections 1, 4(i), 201205, and 303(r) of the Communications Act of 1994, as amended, 47 U.S.C.  151, 154(i), 201205, and 303(r) a NOTICE OF PROPOSED RULEMAKING is hereby ADOPTED.  X&4j107.` ` IT IS FURTHER ORDERED that the Secretary shall send a copy of this NOTICE OF PROPOSED RULEMAKING, including the regulatory flexibility certification, to the Chief Counsel for Advocacy of the Small Business Administration, in accordance with  X4paragraph 603(a) of the Regulatory Flexibility Act, 5 U.S.C.  601 et seq. (1981). ` `  hhCFederal Communications Commission ` `  hhCWilliam F. Caton ` `  hhCActing Secretary"B&&V0*((B$"Ԍ !@ The Appendices to the Order are Excel and Harvard Graphics Files identified below and are contained in the Zip Version.  X4APPENDIX A  hhC 96484a.prs  X4APPENDIX B hhC96484b.xls  X_4APPENDIX C hhC96484c.prs  X14APPENDIX D hhC96484d.xls  X 4APPENDIX E hhC96484.xls  !@ ԩ  W 4 !@ #Xw PE37=XP#  @@ z #2p}wC s$#I. Introduction and Summary  X4\# o\  PC XP# This report describes a study undertaken by the Commission's International Bureau to develop prices for each of the three network elements identified by the International Telecommunications Union (ITUT) used to provide international telephone service. These prices are used by the Commission to calculate proposed international settlement rate benchmarks in the absence of current, reliable data on the costs foreign carriers incur to terminate international traffic. In this report we describe the structural framework developed to calculate these prices, and the data collection procedures and tariff rate information used as inputs in the model. We explain the estimation procedures used to compute the network element prices, including the underlying assumptions for each element, and present several examples to demonstrate the estimation procedures. We provide a summary of each country's prices and append to the report the underlying basic tariff rate information for each of the countries in the study. When the Commission originally developed and adopted its benchmark settlement rate ranges in 1992, it was unable to estimate foreign telephone administrations' costs to terminate calls from the United States because relevant, reliable information on those costs for international service did not exist in the public domain. Indeed, such information may not have been available to many of the telephone administrations themselves. Useful information needed to develop reliable cost estimates for terminating international service is still largely unavailable to the public. Ideally, the goal of this study would be to estimate foreign telephone administrations' total service long run incremental cost (TSLRIC) of receiving and terminating calls from the"#'V0*((!"  X4United States.W; {Oy'#X\  P6G;IP#эXIn its Interconnection Order the Commission adopted a version of the TSLRIC costing methodology called total element long run incremental cost as the basis for pricing interconnection and unbundled  {O 'elements. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 and Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service  {O'Providers, CC Docket 9698 and CC Docket 95185, First Report and Order, FCC 96325 (rel. Aug. 8,  {Og'1996) (Interconnection Order) at 678.(# In the absence of the cost data needed to perform such a study, this report seeks to develop alternative data to be used in establishing benchmarks that more closely approximate costs than current settlement rates. In particular, we calculate prices for the three network elements that are used to provide IMTS identified by the ITU in Recommendation  X4D.140.XH; {O '#X\  P6G;IP#эXSee ITUT Recommendation D.140, Charging and Accounting Rate Principles for International Telephone Service, Annex A, "Guidelines for the cost elements to be taken into account when  {M/ 'determining accounting rates and accounting rate shares for the international telephone service," Geneva (1995). Recommendation D.140 calls for transparent, costoriented, nondiscriminatory accounting rates.(# These three elements are: (1) international transmission facilities; (2) international switching facilities; and (3) national extension (domestic transport and termination). This report uses foreign carriers' unbundled tariff rates to calculate prices for each of these three elements based on cost components identified by the ITU for each element. We refer to these prices as the "tariffed component price" of each element, and the sum of these prices for each foreign carrier as the "tariffed components price" (TCP).  X 4We note that the TCPs exceed the underlying costs borne by foreign carriers to handle international service because they include a potentially significant profit component, overhead costs that are inappropriate for international service, and various joint and common costs of domestic and international service. We also note that the tariffed prices used to calculate the TCPs are the same tariff rates that a foreign carrier charges to its domestic customers. TCPs for sixty five countries, primarily those with which the United States has its largest calling volume, were completed for the study. The countries represent all geographic regions of the world and various levels of economic development. These sixty five countries  X44accounted for 69 percent of U.S. IMTS minutes in 1994.Yx4 ; yO'#X\  P6G;IP#эXTraffic volumes for 1994 for the countries included in the study are summarized in Appendix A. These figures are taken from "1994 Section 43.61 International Telecommunications Data," Linda Blake, Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission, January 1996. Among major traffic routes, only Canada is omitted from the study due to difficulties in calculating a national extension component from the myriad of local tariffs offered by multiple local carriers in Canada. In 1994, Canada accounted for 22% of IMTS minutes to and from the United States.(#ƹ The TCPs for each country are summarized in Table 1. More detailed results, which include each of the component elements described in this report, are presented in Appendix B. "(:Y0*(("Ԍ")Y0*((" Table 1. Tariffed Components Prices  X4b(per minute) Y ddx ! dd*8t " "Y      aE#a4  p(AC [## I4  pG; I#Country" aER-TCP  aECountry" aETCP    X>u# ^@2PG;^^P#ArgentinaA"R 32.1A JordanA"23.0   Australia"R 18.7 Kenya"42.6A   Austria"R 31.4 Korea"12.8   Bahamas'"R 19.9' Kuwait'".9.0   Barbados"R 12.0 Malaysia"22.4'   Belgiumk"S 14.1k Mexicok"16.8   Bermuda "S@9.9  Netherlands ".9.8k   Brazil"Q 27.8 New Zealand"23.8    ChileQ "R 18.6Q NicaraguaQ "12.3   Colombia "R 18.5 Norway "11.6Q    Costa Rica "R 10.3 P.R. of China "17.7    Czech Republic7 "R 19.07 Pakistan7 "26.7    Denmark "R 14.4 Panama "19.47    Dominican Rep.{ "R 14.5{ Peru{ "16.1    Ecuador "R 10.3 Philippines "23.9{    Egypt "R 17.2 Poland "24.6    El Salvadora"S 11.8a Portugala"23.9    France"R 17.5 Russia"35.4a   Germany"R 19.8 Singapore".7.6   GreeceG"Q 23.0G South AfricaG"16.9   Guatemala"R 10.3 Spain"18.1G   Guyana"R 12.0 Sweden"10.0   Haiti-"Q 30.4- Switzerland-"20.6   Honduras"R 16.6 Taiwan"13.9-   Hong Kongq"S@7.0q Thailandq"17.1   Hungary"R 14.4 Trinidad"14.6q   India"R 31.2 Turkey"17.9   IndonesiaW"Q 35.5W U.A.E.W".7.7   Ireland"R 18.0 United Kingdom"13.0W   Israel"S@8.5 Uruguay"22.3   Italy="R 18.2= Venezuela="23.8   Jamaica"S@8.7 Vietnam"24.7=   Japan"R 19.7 " ! X4#o\  PC XP# Several findings emerge from the study:  Xl4XX` ` TCPs are substantially below the benchmark ranges adopted by the Commission in 1992.(#`  X>4XX` ` TCPS are generally significantly lower than U.S. carriers' current settlement rates, on average 60 percent lower.(#`  X4XX` ` TCPs are much closer to costs than current settlement rates.(#`  X4XX` ` There is substantial variation in the TCPs, ranging from 7 per minute to 43 per minute.(#`  X!4XX` ` Current settlement rates for some countries are lower than their TCPs.(#`  X"4XX` ` There are wide variations in tariff rates among countries.(#`  X#4XX` ` International transmission facility tariffed components range from 2.4 per minute to 25.5 per minute.(#`  Xo%4` ` Local distribution tariffed components range from zero to 25.2 per minute.(#`  XX&4` ` The range of current settlement rates, 9$1.30 per minute, is much wider than the TCP range, 743.(#` "A'*Y0*(($|"Ԍ` `  W4#2p}wC s$#II. Structural Framework  X4# o\  PC XP# The ITUT recommendation that calls for costoriented, nondiscriminatory accounting rates describes the guidelines for cost elements used by telephone administrations to terminate  X4international calls.Z: {O''#X\  P6G;IP#эXSee supra, n.2.(# The ITUT identifies three network elements that are used to provide international telephone service: (1) international transmission facilities, (2) international switching facilities, and (3) national extension. International transmission facilities consist of international terrestrial transmission or submarine cables, international satellite transmission, or a combination of these facilities. The facilities that compose this network element include the links between the earth stations or cable landing stations and the international switching facilities. International switching facilities consist of international switching centers, including their associated transmission and signalling equipment. Finally, the national extension element includes that part of the national exchanges, national transmission facilities, and the local loop (if specified in the agreement) that is used to terminate international telephone service. Each network element has related costs according to the recommendation. The costs are divided into two broad categories: direct costs and indirect or common costs. Direct costs include: (1) investment costs; (2) operation and maintenance costs; (3) rental and lease costs of telecommunications facilities including direct transit leasing costs, where applicable; (4) switched transit costs, where applicable; (5) cost of access to national or local networks, if applicable; and (6) directly attributable research and development costs. Indirect or common costs include: (1) general administration costs; (2) management systems; (3) other research and development; and (4) appropriate taxes. The detailed information identified by the ITUT that would be needed to estimate costbased accounting rates is not publicly available and, therefore, cannot be used to establish such rates. Foreign telephone administrations' tariff rates, however, are available for most countries. Tariff rates that correspond to the network elements of the structural framework adopted by the ITUT in Recommendation D.140 can, therefore, be used to calculate benchmarks that more closely approximate costs than current benchmarks or current settlement rates. The model used in this study to estimate the TCPs is based on the ITUT's structural framework for costoriented accounting rates.  X4The model produces TCPs that exceed foreign termination costs for several reasons. Tariff rates include costs associated with providing retail communications service to consumers which would not be included in costbased settlement rates. There is, for example, an allowance for uncollectible billings in tariff rates that is not included in termination costs for international, wholesale service. Similarly, general overhead expenses associated with retail service are part of the cost of providing retail service, but not international termination"$+ZZ0*(("|" services. Moreover, the retail tariff rates are set in most other countries by monopoly suppliers and, as a result, generally reflect monopoly rents. In short, the model produces TCPs that are well above costs.  W4#2p}wC s$# 4III. Data Collection   X4\ # Xx\  P6Q XP# The first step in the study was to collect information on foreign carriers' tariffed rates. The original study sample included seventyone countries. Sixty of the countries were selected for the study because they represent the largest volumes of international service with the United States. The remaining eleven countries were chosen to ensure proper representation of all geographic regions. These countries accounted for 95 percent of the U.S.  Xf 4international telephone traffic in 1994.[f : yO '#X\  P6G;IP#эXThe countries and their associated minutes of service for 1994 are listed in Appendix A.(# A questionnaire was sent to these seventy one countries seeking tariff information for international dedicated (private line) services from each country to the United States and for local and long distance service within the countries. The information used in the study came from published tariffs or directly from the telephone administrations. The data collection period was the fourth quarter of 1995 through June 1996. During this time, the original  X4information was supplemented with revisions and corrections. Responses from sixtyfive countries contained information that could be used in the study. Thus, six countries were excluded from the study due to data deficiencies. International telephone service between the United States and most countries included in the sample is transmitted over international telephone networks equipped with high speed digital circuits, either T1 (1.544 Mbps) or E1 (2.048 Mbps) circuits. Most telephone administrations offer international dedicated service to their customers using the same type of high capacity circuit. Therefore, for the international facilities component, the questionnaire requested detailed information for all available rates for international dedicated services between the sample countries and the United States, such as the tariff rates for service offerings of all pertinent bandwidths, the transport media used to provide the service offerings, the availability of multiyear pricing plans, and any volume discount options offered  X4to users. There are exceptions. The telephone administrations in Guyana and Haiti, for example, do not publish tariffs for international dedicated circuits, but they offer dedicated service to the United States under negotiated rates. For these two administrations, the highest tariff rate for dedicated service to the United States using a T1 or E1 circuit from another country in the same region is used as a proxy for the tariff rate for service from Guyana and Haiti. For Guyana, the price of an E1 circuit available for international service in Brazil is used. For Haiti, the price for a T1 circuit in Barbados is used. For other telephone administrations that do not offer international dedicated service with either T1 or E1 circuits,"",X[0*((!|"  X4the published tariff rate for the highest bandwidth circuit is used.[\X: yOy'#X\  P6G;IP#эXThe countries that fall into this category are Argentina, Kenya, Nicaragua, and Uruguay. For Argentina, the tariff rate for a 512 Kbps circuit is used in the study. For the others, tariff rates for a 128 Kbps circuit are used in the study.(#[ Tariffs for international dedicated service used in the study are listed in Appendix C.  For the national extension component, the questionnaire solicited detailed information on the existing prices charged to the telephone administrations' customers in each country for domestic direct dialed telephone service. For each country in the sample, information on the tariff rates for all the available rate periods and rate bands was collected, primarily from public telephone directories. This information includes the hours of the day and days of the week when the rates are in effect, and the distances for the rate bands. Information was also collected for volume pricing plans available to customers for domestic telephone service in the sample countries. In addition, information on each countrys network configuration for international telephone traffic, domestic numbering plan, and other related information was collected. Tariffs for domestic telephone service are characterized by substantial structural variations. The number of rate periods, for example, varies from one to five, and the number of mileage rate bands ranges from one to fourteen. Several telephone administrations have tariffs with different rate periods for local service and long distance service. Three of the studied countries (Barbados, Hong Kong, and Kuwait) do not charge their customers for domestic calls. Some administrations offer volume discounts, e.g., Germany, Japan and Norway, which are used in the study. A detailed summary of the tariff rates for domestic public switched telephone service is provided in Appendix D. Data published by the ITUT provide the source for the international switching  X4facilities rate component figures used in the study.X]\: {O'#X\  P6G;IP#эXSee ITUT Recommendation D.300 R, Recommendations for Regional Application, "Determination of accounting rate shares in telephone relations between countries in Europe and the Mediterranean  {O1'Basin," Geneva (1995).(#X The data, which are compiled from information used by the TEUREM member countries to establish accounting rate shares for service among them, have rates for the international exchange component that vary inversely with the level of digitization. A high relative level of digitization is associated with a lower absolute accounting rate share for the international exchange component. This relationship between digitization levels and accounting rate shares suggests that costs decline as the level  X|4of digitization rises.^| : {O9"'#X\  P6G;IP#эXSee infra Section IV.B.(#Ƈ  WN4 #2p}wC s$#IV. Estimation Procedures   Xb4\# Xx\  P6Q XP#The information collected from the responses to the questionnaire, along with ITUT data, is used to estimate a price per minute to terminate switched message telephone service"K-^0*((3|" from the United States. As noted above, the composite of the prices for each network element is referred to as the tariffed component price (TCP). Again, the three network elements are: (1) international transmission facilities; (2) international switching facilities; and (3) costs associated with the local distribution (or national extension) of calls within the country. The methods used to compute the price for each element are discussed below.  X4  Vv4A. International Transmission Facility Tariffed Component Prices Many telephone administrations offer international private line service to their customers using high capacity circuits. Typically, these are 1.5 or 2.0 Mbps circuits. These circuits are functionally equivalent to the dedicated circuits used by telephone administrations to provide IMTS. For international telephony, telephone administrations use high capacity circuits (e.g., 1.5 or 2.0 Mbps facilities) to interconnect with U.S. facilitiesbased carriers. The rates charged by telephone administrations for dedicated private line service, therefore,  X 4are used to estimate their international transmission components._ : yO7'#X\  P6G;IP#эXAs noted, the telephone administrations in Guyana and Haiti do not publish their tariffs for international dedicated service. They do, however, offer the service at rates that are negotiated but not disclosed. In order to include these countries in the study, alternative rates for international dedicated service were used. The rates used as proxies for these countries' unpublished data are the highest available tariff for comparable service in the respective region. For service with Guyana, the tariff for 2.048 Mbps service in Brazil is used. For service with Ecuador, the tariff for 1.544 Mbps service in Barbados is used. (# If an administration offers private line service to its customers using highspeed digital facilities, the rate charged for the service is used to estimate the international transmission facility component. If an administration offers private line service using slower speed facilities, then the tariff rate that applies to such services is used to compute the estimate. Some administrations offer multiyear service options at reduced rates to their customers. Others offer reductions from their tariff rates to customers with large billings. The rates used in the study reflect these options in those situations where they are available. The tariff rates, including the service bandwidth and time period, are shown in Appendix C. Estimating the TCP for international transmission facilities on a basis that is comparable to accounting rates requires converting the monthly private line rates to a charge per minute. The first step in this process is to calculate the number of voice grade circuits that are derived from a private line halfchannel. A 2.048 Mbps halfchannel is comprised of  X|4thirty 64 Kbps circuits.9`X|@: yOm!'#X\  P6G;IP#эXA 1.544 Mbps halfchannel is comprised of twentyfour 64 Kbps circuits, while a 512 Kbps halfchannel is comprised of eight 64 Kbps circuits, and a 128 Kbps halfchannel is comprised of two 64 Kbps circuits.(#9 Each 64 Kbps circuit can be multiplexed to produce voice grade circuits capable of completing switched international calls. Digitization capabilities enable carriers to derive a range of voice grade circuits from a 64 Kbps halfchannel. Typically, U.S. facilitiesbased carriers derive about four voice grade circuits from a 64 Kbps half"7.` `0*((|"ԫ X4channel for IMTS although substantially more circuits are possible.ax: yOy'#X\  P6G;IP#эXMany multiplication factors are used to provide IMTS with the advent of digitization of international circuits in the late 1980s. In the reseller market, for example, 5:1 or 6:1 multiplication factors are common, and figures of 8:1 or 10:1 have been reported. U.S. facilitiesbased carriers generally derive about four voice grade circuits from a half channel for IMTS with foreign administrations. Other things being equal, the cost per minute for the international transmission component is inversely related to the multiplexing ratio that is used. In other words, as the number of circuit per half channel increases, the cost per minute decreases.(# Because the general practice among U.S. carriers is to derive four voice grade circuits from a 64 Kbps halfchannel, a multiplication factor of 4:1 is used in the study. Thus, 120 equivalent voice grade  X4circuits can be derived from a 2.048 Mbps halfchannel.  The second step is to estimate the rate per minute for the voice grade circuits using monthly minutes transmitted over a circuit. Monthly minutes transmitted over international circuits vary from country to country, from carrier to carrier, and from month to month. Recent operating experience of U.S. facilitiesbased carriers suggests that about 8,000 minutes of voice traffic per circuit per month represents a reliable and reasonable usage level for the countries included in the study. This figure represents a usage level of less than twenty percent and, therefore, may be a bit conservative. It suggests that significantly higher levels of usage can be transmitted over international circuits. Nevertheless, a usage level of 8,000 minutes per month is used for all countries in the study. Two examples are presented to demonstrate how this information is used to estimate the TCP for the international transmission facility component.  Xb4Example 1. France. International private line service offered by France Telecom provides an example involving an E1 circuit (2.048 Mbps). France Telecoms monthly tariff rate for an E1 circuit with a lease period of five years for service to the United States is 167,300 French Francs (FF). France Telecom offers a 15 percent discount to customers with a monthly billing of more than 300,000 FF. Because U.S. facilitiesbased carriers generate monthly bills that exceed 300,000 FF, they are entitled to the discount. Allowing for the 15 percent discount in France Telecom's tariff rate reduces the monthly charge to 142,205 FF per circuit, or approximately $27,574 at the current exchange rate between the franc and the U.S. dollar. With thirty 64 Kbps circuits to an E1 halfchannel, a multiplication factor of 4:1, and a usage level of 8,000 minutes per circuit per month, 960,000 minutes are transmitted over an E1 halfchannel in an average month. Thus, France Telecom's monthly tariff rate, after the discount, is equal to an average charge of 2.9 per minute for the international transmission facility component for service from the United States to France.  X 4Example 2. Uruguay. Uruguay provides an example of the procedure used in the study to estimate the international transmission facility component for flat rate private line  X4service transmitted over a circuit with lower bandwidth than an E1 halfchannel (i.e., there is no reduction from the tariff rate for a multiyear lease and no discount for large volume"/a0*((Q|" customers). Service is offered with a 128 Kbps halfchannel. ANTEL's tariff rate for this service, at the current exchange rate of $1=New Pesos 7.53, is $8,131 per month. There are no adjustments in this rate. With two 64 Kbps circuits to a halfchannel, a multiplication factor of 4:1, and a usage level of 8,000 minutes per circuit per month, 64,000 minutes are transmitted over a halfchannel in an average month. Thus, ANTEL's monthly tariff rate is equivalent to an average charge of 12.7 per minute for the international transmission facility component for service between the United States and Uruguay. Table 2 summarizes the TCP for international transmission facilities, which are also included in Appendix B. Table 2. International Transmission Tariffed Component Prices  X 4b(per minute) ^ ! dd*8t " " A dd 088 " "^     aE #a4  p(AC [## I4  pG; I#Country " aE UKTCP  aE Country " aE TCP     X> u# ^@2PG;^^P#ArgentinaD"V^6.7D JordanD"15.9  Australia"V^4.8 Kenya"25.5D Austria"W^8.1 Korea".5.1 Bahamas*"V^5.2* Kuwait*".7.1 Barbados"V^8.6 Malaysia".6.6* Belgiumn"V^3.0n Mexicon".0.9 Bermuda"V^4.5 Netherlands".2.6n Brazil"V^6.6 New Zealand".5.7 ChileT"V^2.9T NicaraguaT".3.8 Colombia"W^5.1 Norway".3.2T Costa Rica"V^3.3 P.R. of China".8.7 Czech Republic:"W^8.1: Pakistan:"14.7 Denmark"V^5.9 Panama".4.7: Dominican Rep.~"V^3.6~ Peru~".5.8 Ecuador "V^2.9  Philippines ".6.5~ Egypt"U>10.4 Poland".4.7  El Salvadord"V^5.9d Portugald".4.6 France"V^2.9 Russia".5.4d Germany"V^4.3 Singapore".5.0 GreeceJ"V^5.2J South AfricaJ".5.2 Guatemala"W^3.1 Spain".4.8J Guyana"V^6.6 Sweden".3.6 Haiti0"V^8.60 Switzerland0".4.4 Honduras"W^3.1 Taiwan".5.70 Hong Kongt"W^5.1t Thailandt".4.0 Hungary"W^6.1 Trinidad".3.6t India"W^8.1 Turkey".5.4 IndonesiaZ"V^6.8Z U.A.E.Z".3.3 Ireland"V^2.7 United Kingdom".2.4Z Israel "V^4.2 Uruguay "12.7 Italy@!"V^4.8@! Venezuela@!".3.7  Jamaica!"V^2.9! Vietnam!".9.3@!   Japan""V^6.5" "" !! X"4#o\  PC XP#  V#4#Xj\  P6G; XP#B. International Switching Facility Tariffed Component Prices Most telephone administrations included in this study publish their tariff rates for international private line service and domestic local and toll service but there is little information in the public domain concerning the international switching facility component. "A'0a0*(($" Carriers in Sweden and the United Kingdom have termination tariffs which could serve as a reference point for international switching costs incurred by a correspondent but these  X4arrangements may not be representative of other countries in the study.)b: yOK'#X\  P6G;IP#эXTelia, the domestic carrier in Sweden, has an interconnect tariff which allows competing international carriers to interconnect with its domestic network. The tariff has two components: a monthly connection point charge of approximately $6,000, and fixed monthly charge of approximately $73 per facility, e.g., 2.048 Mbps circuit. These fixed charges are equivalent to a monthly rate of $0.003 per minute for usage of 8,000 minutes per circuit. (#) In other cases, developing a reasonable estimate is a complex procedure because a correspondents switch is often used for domestic service, both local and long distance calls, and for international service, both originating and terminating calls. Thus, even if relevant information is available, potentially complex cost allocation and relative usage problems would need to be addressed in order to develop separate estimates for the international switching facility component. Fortunately, the ITUT has published information used by TEUREM member  X 4countriesc x: {OC'#X\  P6G;IP#эXRecommendation D.300 R. See supra, n.2#]\  PCIP#. An exchange rate 1.0 SDR = $1.48 is used to convert the TEUREM figures to U.S. dollar figures.(# for telephone settlements among them. These countries base settlements on accounting rate shares for each of the three network elements in this study: international transmission, international exchange, and national extension. The accounting rate shares for each network element, which are denominated in SDR, vary with the proportion of plant capacity composed of digital equipment relative to its total plant capacity. The accounting rate share declines as the digitization capability rises to reflect the greater efficiency of digital equipment. The digitization categories are: (1) 030%, (2) 3160%, and (3) 61100%. To determine settlements for the international exchange component, TEUREM countries use an accounting rate share of 0.0324 SDR (about 4.8) for the first category, 0.0228 SDR (about  XK43.4) for the second category, and 0.129 SDR (about 1.9) for the third category. The accounting rate share figures are calculated from data filed by the member countries. The TEUREM results are based on analyses of operating results conducted by a range of member telephone administrations that provide service in economically developed and  X4developing countries.d: yO['#X\  P6G;IP#эXThe TEUREM group are: Albania, Algeria, Andorra, Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Gibraltar, Germany, Greece, Greenland, Hungary, Ireland, Israel, Italy, Lebanon, Libya, Liechtenstein, Luxembourg, Malta, Monaco, Morocco, Netherlands, Norway, Poland, Romania, San Marino, Spain, Sweden, Switzerland, Syria, Tunisia, Turkey, United Kingdom, Russia, Vatican City State, and Yugoslavia. (# Some TEUREM members have relatively low levels of digitization and others have higher levels. The results presented in D.300, however, do not list the countries that fall into each digitization category. This prevents identifying, for example, any correlation that may exist between the degree of digitization and the level of economic development. We believe, however, that telephone administrations providing service in developing countries are generally more likely to have communications networks that are less"e1 d0*((W" technologically advanced and, therefore, have lower levels of digital equipment than those in  X4developed countries. For purposes of our study, therefore, TEUREM's highest accounting  X4rate share figure for the international exchange component, 0.0324 SDR, is used to estimate the TCPs for the least developed countries in the study. TCPs for the most developed countries use the lowest figure, 0.0129 SDR, and TCPs for other countries in the study use  X4the middle figure, 0.0228 SDR.  X_4 Classification of the countries in this study according to their level of economic  XH4development is based on a World Bank scheme,eH: {O '#X\  P6G;IP#эXSee Social Indicators of Development, World Bank, Washington, D.C. (1996).(#ƺ which is also used by the ITU.fHZ: {OS '#X\  P6G;IP#эXSee World Telecommunications Indicators 1994/1995, International Telecommunications Union, Geneva (1995).(# This classification scheme has four categories:  X 4MBullet ListXX` ` low income, GNP per capita of $726 or less,"0Bullet List"(#`  X 4MBullet ListXX` ` lower middle income, GNP per capita between $726 and $2,895,"0Bullet List"(#`  X 4MBullet ListXX` ` upper middle income, GNP per capita between $2,896 and 8,955; and"0Bullet List"(#`  X 4MBullet ListXX` ` high income, GNP per capita greater than $8,955."j0Bullet List"(#`  Table 3 lists the countries in the study by their level of economic development. b Table 3. Economic Development Classification ^ A dd 088 " " a dd4288 ^ !    aEj#a4  p(AC [## I4  pG; I#Low  aEjLower Middle   aEjUpper Middle  aEjHigh4    X>u# ^@2PG;^^P#Egypt Colombia Argentina Australia GuyanaZ Costa RicaZ BarbadosZ Austria Haiti Dominican Rep. Brazil BahamasZ   Honduras Ecuador Chile Belgium   India@ El Salvador@ Czech Republic@ Bermuda   Kenya Guatemala Greece Denmark@   Nicaragua Indonesia Hungary France   P.R. China& Jamaica& Korea, Rep.& Germany   Pakistan Jordan Malaysia Hong Kong&   Vietnamj Panamaj Mexicoj Ireland     Peru  South Africa  Israelj    Philippines Trinidad & Tobago Italy  P PolandP UruguayP Japan    Russian Fed.  KuwaitP    Thailand  Netherlands 6 Turkey6 6 New Zealand    Venezuela  Norway86    z z z Portugal Singapore8       Spain   T T T Sweden      SwitzerlandT    ! ! ! Taiwan    :" :" :" U.A.E.!    #  #  # U.K."@"2f0*((":" X4#o\  PC XP# ` ` Table 4 presents the international switched facilities tariffed price components, which are also included in Appendix B. Table 4. International Switched Facilities Tariffed Component Prices  X4b(per minute)  Xx4 ^ a dd4288   dda388 " "^ :"    aE#a4  p(AC [## I4  pG; I#CountryC" aEUKTCPC  aECountryC" aETCPa    X>Iu# ^@2PG;^^P#Argentina"V^3.4 Jordan".4.8C Australia"W^1.9 Kenya".4.8 Austria) "W^1.9) Korea) ".3.4 Bahamas "W^1.9 Kuwait ".1.9)  Barbadosm "V^3.4m Malaysiam ".3.4  Belgium "W^1.9 Mexico ".3.4m  Bermuda "W^1.9 Netherlands ".1.9  BrazilS "V^3.4S New ZealandS ".1.9  Chile "V^3.4 Nicaragua ".4.8S  Colombia "V^4.8 Norway ".1.9  Costa Rica9"V^4.89 P.R. of China9".4.8  Czech Republic"V^3.4 Pakistan".4.89 Denmark}"W^1.9} Panama}".4.8 Dominican Rep."V^4.8 Peru".4.8} Ecuador"V^4.8 Philippines".4.8 Egyptc"V^4.8c Polandc".4.8 El Salvador"V^4.8 Portugal".1.9c France"W^1.9 Russian Fed.".4.8 GermanyI"W^1.9I SingaporeI".1.9 Greece"V^3.4 South Africa".3.4I Guatemala"V^4.8 Spain".1.9 Guyana/"V^4.8/ Sweden/".1.9 Haiti"V^4.8 Switzerland".1.9/ Hondurass"V^4.8s Taiwans".1.9 Hong Kong"W^1.9 Thailand".4.8s Hungary"V^3.4 Trinidad".3.4 IndiaY"V^4.8Y TurkeyY".4.8 Indonesia"V^4.8 U.A.E.".1.9Y Ireland"W^1.9 United Kingdom".1.9 Israel?"W^1.9? Uruguay?".3.4 Italy"W^1.9 Venezuela".4.8? Jamaica"V^4.8 Vietnam".4.8   JapanU"W^1.9U U" ! XU4#o\  PC XP#  V>4#Xj\  P6G; XP#C. National Extension Tariffed Component Prices X` hp x (#%'0*,.8135@8:u# ^@2PG;^^P#ArgentinaA"T>22.0A JordanA".2.3 Australia"U>12.0 Kenya"12.3A Austria"U>21.4 Korea".4.3 Bahamas'"U>12.8' Kuwait'"'Zero Barbados"UWZero Malaysia"12.4' Belgiumk"V^9.2k Mexicok"12.5 Bermuda "V^3.5  Netherlands ".5.3k Brazil"U>17.8 New Zealand"16.2  ChileQ "U>12.3Q NicaraguaQ ".3.7 Colombia "V^8.6 Norway ".6.5Q  Costa Rica "V^2.2 P.R. of China ".4.2  Czech Republic7 "V^7.57 Pakistan7 ".7.2  Denmark "V^6.6 Panama ".9.97  Dominican Rep.{ "W^6.1{ Peru{ ".5.5  Ecuador "V^2.6 Philippines "12.6{  Egypt "V^2.0 Poland "15.1  El Salvadora"X^1.1a Portugala"17.4  France"U>12.7 Russia"25.2a Germany"U>13.6 Singapore"$0.7 GreeceG"U>14.4G South AfricaG".8.3 Guatemala"V^2.4 Spain"11.4G Guyana"V^0.6 Sweden".4.5 Haiti-"U>17.0- Switzerland-"14.3 Honduras"V^8.7 Taiwan".6.3- Hong Kongq"UWZeroq Thailandq".8.3 Hungary"V^4.9 Trinidad".7.6q India"U>18.3 Turkey".7.7 IndonesiaW"T>23.9W U.A.E.W".2.5 Ireland"U>13.4 United Kingdom".8.7W Israel"V^2.4 Uruguay".6.2 Italy="V>11.5= Venezuela="15.3 Jamaica"W^1.0 Vietnam"10.6=   Japan"V>11.3 " ! X4#o\  PC XP#  aE#a4  p(AC [## I4  pG; I#  W@4a # 2pPG; s$#V. Summary and Conclusions  XT4# Xj\  P6G; XP#The TCPs are substantially below the Commission's benchmark ranges adopted in 1992, and also are generally significantly lower than the settlement rates between U.S. carriers and foreign telephone administrations. The settlement rates in effect with some administrations, however, are below the TCPs for those administrations, which suggests that the TCPs exceed current costs of handling international calls from the United States. We recognize that using the TCPs as the basis for establishing benchmark settlement rates would not result in rates that are costbased. Nonetheless, we believe that the TCPs can be used to calculate benchmarks in a manner that treats foreign carriers fairly and places some limit on the subsidies in current settlement rates.  !@  APPENDICES TO REPORT ARE EXCEL FILES CONTAINED IN ZIP FILE !@   !@   X@'4APPENDIX A br484a.xls"@'6f0*((+$|"Ԍ X4ԙAPPENDIX B br484b.xls  X4APPENDIX C br484c.xls  X4APPENDIX D br484d.xls