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Ext. of Lines, DA 95-846//$ $/63.01 Contents of Applications/$ $/300.214 Extension of Lines/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) American Telephone and ) USP-93-W-056 Telegraph Co.; ) MCI Telecommunications Corp. ) USP-93-W-057 ) Petitions for Waiver of the International ) Settlements Policy for a Change in the) Accounting Rate for Switched Voice Services ) with Mexico. ) ORDER ON RECONSIDERATION Adopted: April 19, 1995 Released: By the Chief, International Bureau: I. INTRODUCTION 1. Telefonos de Mexico, S.A. de C.V., ("Telmex") seeks reconsideration of an order which denied the requests of AT&T and MCI to increase the settlement rates paid to Telmex for country direct services. Settlement rates in Mexico are already much too high, and Telmex has not demonstrated a cost-based justification for this increase. Since we find no other reason to allow such a settlement rate increase, Telmex's Petition for Reconsideration is denied. II. BACKGROUND 2. AT&T and MCI sought waivers of the Commission's International Settlements Policy (ISP) to introduce their country direct services (USADirect and CALL USA, respectively) throughout Mexico at settlement rates of $.35 per minute for Rate Bands 1-3 and $1.20 per minute for Rate Bands 4-8 (effective 12/1/92 through 12/31/93). On June 4, 1993, the International Facilities Division of the Common Carrier Bureau ("Division") denied AT&T's and MCI's waiver requests. AT&T, MCI and Sprint filed statements in support of Telmex's petition. No opposition to Telmex's petition has been filed. III. DISCUSSION 3. Telmex did not participate in the underlying proceeding. It asserts, however, that Section 1.106 of the Commission's Rules permits a person adversely affected by a Commission action to seek reconsideration if it has shown "good reason why it was not possible for him to participate in the earlier stages of the proceeding." We need not decide whether Telmex has satisfied this standard, because the magnitude of the settlements payments to Mexico and the unique complexity of the Mexican settlement rate structure are such that the public interest requires us to address the issues raised by Telmex. 4. In denying AT&T's and MCI's waiver requests, the Division found that the proposed settlement rates would contravene the Commission's ISP, noting that: 1) the rates were higher than the existing rates for the USADirect service available in Rate Band 8, 2) the carriers failed to show that the proposed rates would improve the settlements deficit with Mexico, or would otherwise be in the public interest, and 3) the carriers made no attempt to justify these proposed rates on a cost basis. 5. Telmex's main argument on reconsideration is not that the proposed settlement rates for USADirect and Call USA are consistent with the ISP, but that an exception to the ISP is warranted. In support, Telmex asserts that its efforts to restructure Mexico's telecommunications infrastructure justify a departure from the ISP. Telmex asserts generally that it is upgrading its telecommunications infrastructure, adjusting prices to reflect cost, and introducing competition. Telmex therefore would have us deviate from the principle that settlement rates should reflect cost. 6. We support Telmex's efforts to align its pricing structure more closely to cost, but the proposed settlement rates for USADirect and CALL USA would depart from these efforts. We also do not believe that Telmex has shown that this settlement rate increase for country direct services is essential to its efforts to upgrade its infrastructure. If general assertions that rates increases support infrastructure development and a transition to a more competitive environment sufficed to justify a waiver of the ISP, it would be difficult to deny waivers. The ISP could be eviscerated. Mexico already receives the largest net settlement payments based upon settlement rates that are not justified by cost. 7. Further, it is our understanding that the improvements and realignments in Telmex's communications infrastructure include investment in technologically advanced equipment -- the presence of which has resulted in the increased availability of telecommunications service throughout Mexico. These factors should lower the unit cost of providing service, and permit lower settlement rates. However, the settlement rates for U.S. billed calls to Mexico that expired December 31, 1994 are among the highest rates U.S. carriers have with any foreign administration. We note the U.S. carriers' ongoing settlement rate negotiations with Telmex and hope that they will produce significantly reduced rates. 8. We reject Telmex's argument, initially advanced by AT&T and MCI, that because country direct services are a substitute for Mexican operator assisted service, the proposed settlement rate is an "increase" only if it is higher than those settlement rates applicable to operator assisted calls. The question of whether the proposed settlement rate for country direct service has increased is better resolved by reference to the previous settlement rate applied to USADirect service than by reference to the settlement rate applied to a different service with different costs. For example, the cost to Telmex of a service utilizing a Mexico-based operator employed by Telmex obviously differs from the cost to Telmex that is associated with a country direct call -- where a U.S. (not Mexican) operator is used to complete the call. 9. Telmex next argues that the Division acted unreasonably in comparing the proposed settlement rates to the existing settlement rates for USADirect service because reliance on such comparisons will "discourage foreign carriers from implementing new services with U.S. Carriers...in the future." Telmex Petition at p.9,n.12. However, we routinely rely on such comparative data. In fact, our rules require that such data accompany any proposed change in accounting rates. 47 C.F.R.  64.1001(e)(f). Moreover, Telmex has submitted no evidence to support this argument. In addition, this position also directly contravenes the ISP and the waiver standard established by the Commission in the Phase I Report and Order. 10. Finally, Telmex argues that, if the record contains no evidence of whipsawing, and "proposed rates are not higher than rates for like services currently in effect," the burden of proof shifts to the Commission to justify its refusal to permit the proposed change. We find that the proposed rates are, in fact, higher than rates for like services currently in effect. As the Division noted in its Order, in 1992 AT&T paid a settlement rate of $1.10 per minute (day) and $.74 per minute (night) for the USADirect services available from four cities located in Rate Band 8. Thus, the proposed settlement rate of $1.20 per minute (Rate Bands 4-8) is clearly an increase which Telmex has not justified based on underlying costs. Moreover, Telmex's argument that the burden of proof somehow shifts in the circumstances it cites is unsupported by any authority. Even in the absence of whipsawing, the burden remains with the party seeking waiver. 11. We recognize that Mexico has taken significant strides to introduce competition into its telecommunication market, and also to move calling prices more in line with costs. However, non-cost-based increases in the settlement rates would undermine these efforts, and are inconsistent with the ISP. IV. CONCLUSION 12. For the reasons stated above, we deny Telmex's Petition for Reconsideration. V. ORDERING CLAUSES 13. Accordingly, IT IS ORDERED that the Petition for Reconsideration filed by Telmex IS DENIED. 14. This order is issued under Section 0.261 of the Commission's Rules and is effective upon adoption. Petitions for reconsideration under section 1.106 or applications for review under Section 1.115 of the Commission's Rules may be filed within 30 days of the public notice of this order (see Section 1.4(b)(2)). Federal Communications Commission Scott Blake Harris Chief, International Bureau