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                                                           Before the
               Federal Communications Commission
                      Washington, D.C. 20554


In Re Petition of             )
                         )
STAR Telecommunications, Inc. )              File No. ISP-98-PDR-366
                         )
For Declaratory Ruling Regarding an     )
Alternative Accounting Rate        ) 
Arrangement for Service between the     )
United States and Japan       )

                   DECLARATORY RULING AND ORDER

     Adopted:   February 24, 1999                      Released:  February 26, 1999

By the Chief, Telecommunications Division:

     1.   On August 6, 1998, STAR Telecommunications, Inc. ("STAR"), filed a Petition for
Declaratory Ruling pursuant to 64.1002 of the Commission's Rules seeking a ruling that the alternative
settlements arrangement it negotiated with International Digital Communications, Inc. ("IDC") for services
between the United States and Japan is consistent with the public interest and, therefore, should be
approved.  Specifically, STAR seeks approval of an agreement to pay IDC a basic settlement rate of less
than 15 cents per minute, which is the benchmark rate for Japan under the Benchmark Order, and a
different rate for service from STAR that IDC transmits to mobile service carriers for termination in Japan. 
STAR is committed to transmitting a minimum volume of traffic to IDC in the course of each one year
period.  IDC will not transmit any traffic to STAR for termination in the United States. For the reasons
stated below, STAR's alternative settlement arrangement with IDC is approved.

     2.   STAR's Petition was placed on public notice on August 26, 1998.  On September 16,
1998, LDDS WorldCom (later MCI WorldCom) filed a petition in opposition to STAR's Petition
requesting that the Commission deny STAR's request on the grounds that no cost justification has been
provided in support of the difference in the settlement rate for mobile service.  On September 28, 1998,
STAR responded to the opposition filed by MCI WorldCom.

     3.   International communications service markets are changing rapidly as a growing number
of national markets begin to open, new carriers enter the global arena, a wider range of services are offered
to consumers, and technology advances.  As competition emerges in national markets, adherence to historic
settlements procedures for international service between the United States and such markets can impede the
future development of competitive market conditions.  To facilitate the development of competitive
markets, the Commission adopted a policy in its Flexibility Order that allows U.S. carriers to negotiate
settlement arrangements with foreign carriers that depart from the traditional International Settlements
Policy (ISP) under certain conditions.  Permitting departures from historic settlement procedures was
intended to further open international markets by encouraging U.S. carriers to seek market solutions to
terminating international traffic rather than continuing to rely on administrative, non-market determined
settlement arrangements.  The Flexibility Order provided that U.S. carriers could negotiate arrangements
that depart from the ISP with all carriers in another country if that country passes the Commission's
effective competitive opportunities (ECO) test adopted in the Foreign Carrier Entry Order.

     4.   The Commission subsequently modified this threshold standard for permitting alternative
settlement arrangements in the Foreign Carrier Participation Order.  Where a foreign carrier provides
service in a country that is a member of the World Trade Organization (WTO) Basic Telecommunications
Agreement, the Commission adopted a rebuttable presumption that an alternative settlement agreement
would be permitted.  This presumption can be rebutted by a showing that the foreign carrier involved in
the alternative settlement arrangement is not subject to competition from multiple facilities-based carriers
capable of terminating international traffic and serving existing customers in the foreign market.  The
Commission noted that multiple facilities-based carriers in a foreign market would be an indication that
U.S. carriers could safely negotiate alternative settlement arrangements without a concern about the
exercise of market power against U.S. carriers in settlement negotiations.  The Commission retained the
safeguards against the exercise of monopoly power that it adopted in the Flexibility Order, e.g. (i) any
arrangements between affiliated carriers or involving non-equity joint ventures would have to be filed with
the Commission and be publicly available, and (ii) arrangements affecting more than 25 percent of the U.S.
outbound or U.S. inbound traffic on a particular route cannot contain unreasonably discriminatory terms or
conditions.  The Commission also stated that an alternative settlement arrangement could be approved,
even where the presumption in favor of flexibility can be rebutted, if a U.S. carrier seeking approval of
such an arrangement demonstrates that a deviation from the ISP will promote market-oriented pricing and
competition while precluding an abuse of market power by the foreign carrier.

     5.   MCI WorldCom argues that the Commission should deny STAR's Petition because STAR
fails to provide a cost justification for the difference between the settlement rates for wireline service and
mobile service.  MCI WorldCom, however, fails to present evidence to rebut the presumption in favor of
flexibility.  As STAR notes in its Petition, Japan is a WTO member country.  Multiple facilities-based
carriers provide international communications service in Japan, including KDD and Japan Telecom in
addition to IDC.  STAR stipulates that it is not affiliated with IDC nor are the two carriers involved in a
non-equity joint venture affecting the provision of basic communications service on this route.  STAR also
states that IDC is a non-dominant carrier in Japan and estimates that less than two percent of the service
from Japan to the United States will be covered by the alternative settlement arrangement it has negotiated
with IDC. 

          6.   In the Flexibility Order, the Commission noted that where an alternative settlement
arrangement does not trigger the safeguards in that order, the Commission's review generally will focus on
whether the criteria for allowing flexibility have been satisfied.  The Commission, however, reserved the
right to review, and, if necessary, reject the terms and conditions of all alternative settlement arrangements
to ensure that they meet the Commission's policy objectives of achieving market-determined terms and
conditions of payment that approximate competitive levels and will not have a significant adverse impact
on U.S. net settlement payments and resulting traffic volumes.  Taking these criteria into account, we find
no reason to deny STAR's Petition. 

     7.   Although MCI WorldCom correctly notes that STAR has not provided information about
the costs to terminate wireline service and mobile service that would justify the difference between the two
settlement rates, our Flexibility Order does not necessarily require the same rate for these services.  Our
previous orders under the ISP have discouraged different rates for different IMTS service categories unless
these differences can be justified on the basis of different costs, but the purpose of the Flexibility Order is
to encourage departures from traditional settlement arrangements, particularly in competitive market
situations.  If we continue to apply the same standards to flexible settlement arrangements as we have
applied to traditional arrangements, U.S. carriers might be less inclined to negotiate different types of
termination arrangements.  Such a result could thwart our policy to encourage U.S. carriers to enter into
interconnection arrangements with foreign carriers that reflect market forces rather than regulatory rules. 
In STAR's case, it has negotiated an arrangement with IDC in which both carriers agree that different rates
will be used to terminate wireline and mobile service, and at a lower level than IDC has with other U.S.
carriers.

     8.   We, therefore, deny MCI WorldCom's request to deny STAR's Petition for Declaratory
Ruling.  MCI WorldCom has failed to rebut the presumption in favor of the alternative settlement
arrangement between STAR and IDC.  We further find that STAR's proposal will promote market-oriented
pricing and competition, while not posing the threat of an abuse of market power by IDC.  Moreover, we
note that the proposed settlement rate of less than 15 cents complies with the benchmark rate established in
our Benchmark Order for U.S. carriers on the U.S.-Japan route.  We therefore find that STAR's alternative
settlement arrangement with IDC serves the public interest.

     9.   Accordingly, it is ORDERED that STAR's alternative settlement arrangement with IDC
for services to Japan, File No. ISP-97-PDR-366, being found consistent with the Commission's Flexibility
Order and Foreign Carrier Participation Order and in the public interest, is therefore GRANTED.

     10.  It is further ORDERED that MCI WorldCom's Petition to Deny STAR's Petition for
Declaratory Ruling is DENIED.

     11.  This Order is issued under Section 0.261 of the Commission's rules and is effective
immediately.  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 date of public notice of this Order (see
Section 1.4(b)(2) of the Commission's rules).

                              FEDERAL COMMUNICATIONS COMMISSION


                              Rebecca Arbogast
                              Chief, Telecommunications Division