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Stop Settlement Payment Order on U.S. - Pakistan Route

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Released: March 5, 2013

Federal Communications Commission

DA 13-341

Before the

Federal Communications Commission

Washington, D.C. 20554

In the matter of
)
)

Petition for Protection from Anticompetitive
)
Behavior and Stop Settlement Payment Order on
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IB Docket No. 12-324
the U.S.-Pakistan Route
)
)
)
)
)

MEMORANDUM OPINION AND ORDER

Adopted: March 5, 2013

Released: March 5, 2013

By the Chief, International Bureau:

I.

INTRODUCTION

1. By this Memorandum Opinion and Order, we seek to protect U.S. consumers from the effects
of anticompetitive behavior and to promote competitive, cost-based termination rates on the U.S.-Pakistan
route. We find that recent and ongoing actions by certain Pakistani long distance international carriers
(Pakistani LDI carriers) to set rate floors over previously negotiated rates with U.S. carriers for
termination of international telephone calls to Pakistan are anticompetitive and require action to protect
U.S. consumers in accordance with Federal Communications Commission policy and precedent. Their
continuation would result in a substantial increase in the cost of and repress demand for calling Pakistan.
We therefore grant the petition filed by Vonage Holdings Corp. (Vonage), modified as recommended by
AT&T, Inc. (AT&T), and order all U.S. carriers with Commission authorizations permitting the provision
of facilities-based international switched voice services on the U.S.-Pakistan route to suspend
immediately all U.S. carrier payments to Pakistani LDI carriers for termination services that are in excess
of the rates that were in effect immediately prior to the rate increase on or around October 1, 2012.

II.

BACKGROUND

2.
Vonage is a provider of international communications services from the United States
using third party U.S. and international carriers to terminate its traffic overseas. U.S. carriers separately
negotiate with Pakistani LDI carriers rates for the termination of telephone traffic. On October 3, 2012,
Vonage filed a petition requesting that the Commission issue an order stopping U.S. settlement payments
to certain Pakistani LDI carriers.1 In its petition, Vonage states that the Pakistani LDI carriers have

1 See Petition for Protection from Anticompetitive Behavior and Stop Settlement Payment Order on the U.S.-
Pakistan Route
, IB Docket No. 12-324 (filed Oct. 3, 2012) (Vonage Petition). Vonage alleges that the following
Pakistani LDI carriers have colluded to engage in anticompetitive behavior: Pakistan Telecommunication Company
Limited (PTCL), Multinet Pakistan (Private) Limited, 4B General International (Private) Limited, Wi-tribe Pakistan
Limited, Dancom Pakistan (Private) Limited, Wise Communication System (Private) Limited, Worldcall Telecom
(continued....)

Federal Communications Commission

DA 13-341

established a new International Clearing House (ICH) exchange for all international incoming calls to
Pakistan, creating a monopoly provider of international termination in Pakistan. Vonage states that as a
result, there has been approximately a 400% increase in the termination rates to be paid by international
telecommunications carriers for terminating calls into Pakistan to more than $0.088 per minute. Vonage
notes that it offers consumers a plan with unlimited domestic and international calling to more than 60
countries for a set price per month.2 Vonage states that the increase in termination rates has forced it to
charge its customers significantly more for calls to Pakistan thus resulting in harm to U.S. consumers.3
3.
According to Vonage, the Pakistani LDI carriers submitted in 2011 to the Competition
Commission of Pakistan (CCP) an application seeking an exemption from the Pakistan Competition Act
of 2010 to allow them to create the ICH exchange. The Pakistani LDI carriers later withdrew the
application and the CCP subsequently issued an order in February of 2012 disposing of the application
and identifying concerns with the application. In that order, the CCP outlined the following details of the
agreement to create the ICH exchange (ICH Plan): (1) it assigns the rights of 13 Pakistani LDI carriers to
terminate incoming international traffic to the Pakistan Telecommunication Company Limited (PTCL),
the incumbent telecommunications service provider in Pakistan; (2) each Pakistani LDI carrier is to
suspend and keep suspended all interconnection capacities in relation to incoming international traffic to
Pakistan ; (3) PTCL is to act as the sole Pakistani LDI operator with the right to exclusively terminate all
incoming traffic to Pakistan; (4) PTCL is to sell its call terminating services to foreign carriers at the
approved settlement rates of the Pakistan Telecommunications Authority (PTA); and (5) each Pakistani
LDI carrier will get a pre-determined fixed quota from PTCL to terminate calls on its network, and
receive a fixed share of revenues generated from all incoming international traffic.4 On August 28, 2012,
the CCP sent a Policy Note to the PTA and the Ministry of Information Technology of Pakistan (MOIT),
warning that the ICH Plan was illegal under Pakistan’s Competition Act.
4.
Vonage states in its petition that the MOIT, despite the order of the CCP, nevertheless
issued a directive calling for the implementation of the ICH Plan. Subsequently, the Pakistani LDI
carriers, PTA and MOIT moved forward with the ICH Plan and have implemented the rate increase to
more than $0.088 per minute as of October 1, 2012.
5.
In its petition, Vonage requested that the Commission require U.S. carriers to stop
settlement payments to the Pakistani LDI carriers until the ICH Plan is abrogated and international
termination rates are re-established at cost-based levels on the U.S.-Pakistan route.5 Vonage also
requested that the Commission immediately impose temporary requirements on U.S. carriers prohibiting

(...continued from previous page)
Limited, ADG (Private) Limited, Link Direct International (Private) Limited, Telecard Limited, Circle Net
Communications Pakistan (Private) Limited, Wateen Telecom Limited, Redtone Telecommunications Pakistan
(Private) Limited, and Telenor LDI Communications (Private) Limited.
2 See Vonage Petition at 6.
3 See id. at ii.
4 See id. at Attachment B.
5 According to unpublished 2011 International Telecommunications Data, the following carriers serve the U.S.-
Pakistan route: AT&T, MCI, Sprint, Bharti Airtel, France Telecom, iBasis/KPN, IDT Corp., New Century, Pacifica
Telecom/ITE, Primus Telecomm, Reach Services, Reliance Communications, Telecom Colombia USA, Telecom
Italia Sparkle, Telecom New Zealand, Telstra, and Telia Sonera. 2011 Section 43.61 International
Telecommunications Data,
Table A1 (not yet publicly available) (2011 Section 43.61 International
Telecommunications Data
).
2

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DA 13-341

all U.S. carriers from paying the Pakistani LDI carriers anything more than the termination rate to
Pakistan in effect prior to October 1, 2012, while it considers its request to stop all settlement payments.6
6.
On October 31, 2012, the International Bureau issued a Public Notice requesting
comment on Vonage’s petition.7 KDDI Global, LLC (KDDI) filed comments and AT&T filed reply
comments in support of Vonage’s petition. Vonage also filed reply comments. We did not receive any
comments opposing the allegations of anticompetitive conduct in the Vonage petition.
7.
KDDI states that the Pakistani LDI carriers have colluded with one another, as well as
with the PTA and MOIT to create the ICH exchange to funnel all incoming international traffic through a
monopoly carrier, PTCL.8 KDDI states that rates prior to October 1, 2012 for call termination to Pakistan
had been based on cost, averaging $0.02 per minute, and the rate hike to $0.088 per minute after the
creation of the ICH presents a significant increase.9
8.
AT&T contends in its reply that the Pakistani carriers’ actions violate the Commission’s
policies protecting U.S. consumers against anticompetitive conduct by foreign carriers to force above-cost
settlement rate increases.10 However, AT&T suggests that, instead of issuing a full stop payment order as
requested by Vonage, the Commission issue an order prohibiting increased U.S. settlement payments
above the rates that existed before October 1, 2012, prior to the anticompetitive conduct.11 In response to
AT&T’s reply comments, Vonage stated it supports the issuance of an order prohibiting payment of any
amounts over the settlement rates that prevailed prior to implementation of the ICH Plan.12
9.
Following press reports that, pursuant to a court order, the PTA had withdrawn its
mandate of the increased rate and implementation of ICH Plan,13 the International Bureau requested a
status update from the parties. In response, AT&T filed an ex parte letter explaining that it had asked its
correspondent long distance carrier in Pakistan to clarify the current status of the settlement rate on the
U.S.-Pakistan route.14 AT&T notes that its correspondent carrier responded on December 17, 2012, that
the increased rate of $0.088 per minute remains in effect.15 On January 23, 2013, Vonage filed a second
ex parte letter reiterating that the increased rate of $0.088 per minute for termination into Pakistan is still
in effect and “is not cost-based and appears to be the result of concerted action among Pakistan carriers,
even if the new rate is no longer mandated by the PTA.”16 On February 22, 2013, it was reported that a

6 Vonage Petition at 16.
7 See Petition for Protection from Anticompetitive Behavior and Stop Settlement Payment Order on the U.S.-
Pakistan Route
, Public Notice, DA No. 12-1738, IB Docket No. 12-324, 27 FCC Rcd 13429 (Int’l Bur. 2012).
8 See KDDI Comments at 1.
9 Id. at 2.
10 See AT&T Reply at 1.
11 Id. at 1, 4-6.
12 See Letter from Ulises R. Pin, Counsel for Vonage, to Marlene H. Dortch, Secretary, Federal Communications
Commission, IB Docket No. 12-324 (filed Dec. 14, 2012) (Vonage December 14 Letter).
13 See, e.g., PTA Withdraws Clearing House Directive, THE EXPRESS TRIBUNE WITH THE INTERNATIONAL HERALD
TRIBUNE, Dec. 5, 2012. The PTA actions were in response to a Stay Order issued by the Lahore High Court to
suspend the PTA’s and MOIT’s previous actions establishing the ICH Plan.
14 See Letter from James Talbot, General Attorney, AT&T, to Marlene H. Dortch, Secretary, Federal
Communications Commission, IB Docket No. 12-324 (filed Dec. 19, 2012).
15 Id.
16 See Letter from Ulises R. Pin, Counsel for Vonage, to Marlene H. Dortch, Secretary, Federal Communications
Commission, IB Docket No. 12-324 (filed Dec. 23, 2012).
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DA 13-341

two-member bench of the Pakistan Supreme Court suspended the Lahore High Court’s Stay Order on the
ICH Plan and directed the Pakistani LDI carriers to approach the CCP to resolve the issue.17 The practical
effect of the suspension of the Stay Order would appear to put back in place the ICH Plan unless and until
the CCP rules against it. Vonage notes that so long as these artificially high rates remain in place,
whether pursuant to the ICH Plan or concerted action among the Pakistani LDI carriers, they will
continue to harm U.S. consumers, necessitating the need for Commission action.18

III.

DISCUSSION

10.
We review below the process established and indicia required by the Commission to
consider claims of anticompetitive conduct, and apply the indicia to the information in this record. For
the reasons set forth below, we grant Vonage’s request that we impose requirements on U.S. carriers in
response to the anticompetitive conduct by Pakistani LDI carriers. Specifically, we adopt the relief
proposed by AT&T and supported by Vonage, and order U.S. carriers to suspend increased payments
above the rates that existed before October 1, 2012, immediately prior to the anticompetitive conduct.
We have coordinated our action with the United States Trade Representative (USTR) and the State
Department.

A.

Commission Policy and Process

11.
The Commission maintains several safeguards designed to protect U.S. consumers from
anticompetitive conduct by foreign carriers and other types of market failures.19 Included among the
safeguards is a process by which the Commission may consider petitions such as that filed by Vonage
alleging anticompetitive harm.20 The Commission has recognized that, under certain circumstances,
“carriers with market power might be free to act anticompetitively, ultimately harming U.S. customers
through artificially inflated costs for call termination.”21 The Commission regards “certain actions as
indicia of potential anticompetitive conduct by foreign carriers including, but not limited to: (1)
increasing settlement rates above benchmarks; (2) establishing rate floors, even if below benchmarks, that
are above previously negotiated rates; or (3) threatening or carrying out circuit disruptions in order to
achieve rate increases or changes to the terms and conditions of termination agreements.”22 The
Commission also regards partial circuit blockages as indicia of anticompetitive behavior.23

B.

Application of Indicia of Anticompetitive Behavior

12.
Vonage argues that the rate increase meets the Commission’s standard for finding
anticompetitive conduct as it establishes a rate floor above previously negotiated rates. Vonage further
argues that the Pakistani LDI carriers’ actions have created a rebuttable presumption of harm to the public
interest. AT&T and KDDI both point out that the unilateral rate increase represents a rate floor that was

17 See, e.g., SC Suspends LHC’s Stay on Tax on Incoming Calls, THE EXPRESS TRIBUNE WITH THE INTERNATIONAL
HERALD TRIBUNE, Feb. 22, 2013.
18 Id.
19 See International Settlements Policy Reform, IB Docket Numbers 11-80, 05-254, 09-10, RM-11322, Report and
Order, FCC 12-145, 27 FCC Rcd 15521 (2012) (2012 ISP Reform Order); International Settlements Policy Reform:
International Settlement Rates
, IB Docket Nos. 02-234 and 96-21, First Report and Order, 19 FCC Rcd 5709 (2004)
(2004 ISP Reform Order).
20 See 47 C.F.R. § 64.1002(d); 2012 ISP Reform Order, 27 FCC Rcd at 15532, ¶ 22.
21 See 2004 ISP Reform Order, 19 FCC Rcd at 5729, ¶ 40.
22 Id. at 5731, ¶ 45.
23 See 2012 ISP Reform Order, 27 FCC Rcd at 15536, ¶ 35.
4

Federal Communications Commission

DA 13-341

not commercially negotiated.24 Under this arrangement, U.S. carriers must pay a predetermined rate for
termination of traffic higher than the rates previously negotiated with Pakistani LDI carriers. We
therefore agree and find that the joint action of the Pakistani LDI carriers meets one criteria of
anticompetitive behavior listed in the Commission’s 2004 ISP Reform Order, i.e., the establishment of a
rate floor, even if below benchmarks, above previously negotiated rates.
13.
The record reflects that the new $0.088 per minute rate is the minimum settlement rate
for all inbound international telephone traffic for Pakistan, and this rate floor is significantly above the
previous levels of approximately $0.02 per minute.25 Moreover, the rate floor does not permit additional
commercial negotiation below that level. There is nothing on the record demonstrating that the rate
increases are cost-based or otherwise reasonable. We note that based upon the most recently available
international traffic and revenue data from U.S. carriers prior to October 1, 2012, the average termination
rate for Pakistan was $0.031 per minute while the U.S. calling rate to call Pakistan in 2011 was $0.044
per minute.26 The average U.S. calling rate for all international points was $0.041 per minute.27 Calls
from the United States to Pakistan over the public switched telephone network (PSTN) totaled more than
240 million minutes in 2011 resulting in $10.5 million in U.S. calling charges.28 The increase of
settlement rates on the U.S.-Pakistan route from an average of $0.02 per minute to $0.088 per minute
would more than double costs to U.S. callers, costing them millions of dollars in extra charges and
substantially repressing demand for calling to Pakistan.
14.
We find anticompetitive the Pakistani LDI carriers’ actions demanding a substantial rate
increase above previously negotiated rates in a way that amounts to a rate floor. By establishing the ICH
Plan, the Pakistani LDI carriers acted in concert to impose unilaterally this rate floor without engaging in
meaningful negotiations with U.S. carriers and foreclosing future separate negotiations between U.S. and
individual LDI correspondent carriers.29 The involvement of the PTA and MOIT in the concerted actions
of the Pakistani LDI carriers to implement a rate floor does not change the anticompetitive nature of the
actions or affect the Commission’s ability to act on this matter.30 And, in any event, the Commission has
the authority to issue an order to U.S. carriers prohibiting the payment of increased rates to protect U.S.
consumers from anticompetitive behavior.31

24 See KDDI Comments at 2; AT&T Reply at 3-4; Letter from James Talbot, General Attorney, AT&T, to Marlene
H. Dortch, Secretary, Federal Communications Commission, IB Docket No. 12-324 (filed Dec. 19, 2012).
25 See KDDI Comments at 2; Letter from Ulises R. Pin, Counsel for Vonage, to Marlene H. Dortch, Secretary,
Federal Communications Commission, IB Docket No. 12-324 (filed Jan. 23, 2013).
26 2011 Section 43.61 International Telecommunications Data.
27 Id.
28 Id. We note that this number does not include voice over Internet protocol (VOIP) minutes that would make the
minute total on the route even higher.
29 See, e.g., AT&T Corp. Emergency Petition for Settlements Stop Payment Order and Request for Immediate
Interim Relief and Petition of WorldCom, Inc. for Prevention of "Whipsawing" On the U.S.-Philippines Route,
IB
Docket No. 03-38, Order, 18 FCC Rcd 3519 at 3528, ¶ 12 (Int'l Bur. 2003) (Philippines Order) (finding that the
Philippine carriers engaged in concerted action to extract the same rate increase).
30 See Petition of AT&T Inc. for Settlements Stop Payment Order on the U.S.-Tonga Route, IB Docket No. 09-10,
Order and Request for Further Comment, 24 FCC Rcd 8006 at 8013-18, ¶¶ 20-33 (Int’l Bur. 2009) (Tonga Stop
Payment Order
) (discussing the Commission’s authority to address anticompetitive conduct in order to protect the
public interest).
31 See Tonga Stop Payment Order, 24 FCC Rcd at 8016-18, ¶¶ 28-33.
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DA 13-341

C.

Suspension of Payment of Increased Rates

15.
For these reasons, we grant Vonage’s petition as modified to provide the relief proposed
by AT&T32 and supported by Vonage.33 Thus, in lieu of issuing a full stop payment order, we hereby
prohibit U.S. carriers from paying any Pakistani LDI carrier settlement or termination rates in excess of
the previously negotiated rates in effect prior to the rate increase that occurred on or around October 1,
2012. Our order prohibiting the payment of the increased rate will be effective immediately and remain
in place until such a time as the Commission or International Bureau, on delegated authority, issues a
public notice lifting the order. We seek cessation of the current unilateral rate and renewal of an
opportunity for U.S. carriers to negotiate termination rates separately with Pakistani LDI carriers. Our
action here is consistent with Commission policy and precedent.34
16.
We note that Vonage had also requested that during the pendency of its petition, we issue
temporary measures “prohibiting all U.S. carriers from paying the Pakistani LDI carriers anything more
than the current termination rate to Pakistan, without prejudice to the Commission’s findings on the
instant petition.”35 As noted in this Memorandum Opinion and Order, we instead adopt the remedy
proposed by AT&T and supported by Vonage prohibiting U.S. carriers from paying any Pakistani LDI
carrier settlement or termination rates in excess of the previously negotiated rates in effect prior to the rate
increase that occurred on or around October 1, 2012. Because our actions today effectively address
Vonage’s petition, and, given Vonage’s support of AT&T’s proposed remedy that we adopt today, we
find it unnecessary to impose any interim remedies.

IV.

ORDERING CLAUSES

17. IT IS ORDERED that the Vonage Petition is hereby GRANTED as modified to provide the
relief proposed by AT&T and supported by Vonage.
18. IT IS FURTHER ORDERED that all facilities-based carriers subject to Commission
jurisdiction having a correspondent agreement for direct termination of U.S. traffic on the U.S.- Pakistan
route with any or all of the following Pakistani LDI carriers -- Pakistan Telecommunication Company
Limited (PTCL), Multinet Pakistan (Private) Limited, 4B General International (Private) Limited, Wi-
tribe Pakistan Limited, Dancom Pakistan (Private) Limited, Wise Communication System (Private)
Limited, Worldcall Telecom Limited, ADG (Private) Limited, Link Direct International (Private)

32 See AT&T Reply at 2, 4-6.
33 See Vonage December 14 Letter.
34 See 2012 ISP Reform Order, 27 FCC Rcd 15521; 2004 ISP Reform Order, 19 FCC Rcd 5709. See also AT&T
Corp. Emergency Petition for Settlements Stop Payment Order and Request for Immediate Interim Relief and
Petition of WorldCom, Inc. for Prevention of "Whipsawing" On the U.S.-Philippines Route,
IB Docket No. 03-38,
Order on Review, 19 FCC Rcd 9993 (2004) (Philippines Order on Review); Philippines Order, 18 FCC Rcd 3519;
AT&T Corp. Proposed Extension of Accounting Rate Agreement for Switched Voice Service with Argentina,
Order,
11 FCC Rcd 18014, 18017, ¶11 (1996) (Argentina Order) ("The Commission will not allow foreign monopolists to
undermine U.S. law, injure U.S. carriers or disadvantage U.S. consumers."); Sprint Communications Company, L.P.,
Request for Modification of the International Settlements Policy to Change the Accounting Rate for Switched Voice
Service with Mexico,
Memorandum, Opinion and Order, 13 FCC Red 24998, 25000-01, ¶ 6 (1998) (Mexico Order)
("The Bureau has strictly enforced the Commission's regulations against whipsawing."). See also Cable & Wireless
v. FCC, 166 F.3d 1224, 1226 (D.C. Cir. 1999) (“The FCC has long sought to protect U.S. carriers and U.S.
consumers from the monopoly power wielded by foreign telephone companies in the international
telecommunications market."). See also Tonga Stop Payment Order, 24 FCC Rcd 8006; Petition of AT&T Inc. for
Settlements Stop Payment Order on the U.S.-Tonga Route,
IB Docket No. 09-10, Second Order and Request for
Further Comment, 24 FCC Rcd 13769 (Int’l Bur. 2009) (Tonga Second Order).
35 See Vonage Petition at 16.
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DA 13-341

Limited, Telecard Limited, Circle Net Communications Pakistan (Private) Limited, Wateen Telecom
Limited, Redtone Telecommunications Pakistan (Private) Limited, and Telenor LDI Communications
(Private) Limited -- shall immediately inform the International Bureau of any settlement or termination
rate increase imposed effective on or around October 1, 2012, by any or all of these Pakistani LDI carriers
for direct termination of U.S. switched voice traffic on the U.S.-Pakistan route.
19. IT IS FURTHER ORDERED that all facilities-based carriers subject to Commission
jurisdiction having a correspondent agreement for direct termination of U.S. traffic on the U.S.-Pakistan
route with any or all of the Pakistani LDI carriers listed above shall not pay the increment above the
negotiated settlement or termination rate by which such prior rate was increased effective on or around
October 1, 2012, by any or all such Pakistani LDI carriers for direct termination of U.S. switched voice
traffic on the U.S.-Pakistan route (“October 1, 2012 Termination Rate Increment”) until such time as the
Commission or the International Bureau, under delegated authority, issues a Public Notice removing this
prohibition. All facilities-based carriers subject to Commission jurisdiction may continue to pay any
settlement or termination rate in effect prior to the October 1, 2012 Termination Rate Increment.
20. IT IS FURTHER ORDERED that all facilities-based carriers subject to Commission
jurisdiction having a correspondent agreement for direct termination with any of the above-listed
Pakistani LDI carriers on the U.S.-Pakistan route shall notify the Commission immediately if they are
informed by any or all of the Pakistani LDI carriers that they are no longer required to pay any settlement
or termination rate increase imposed effective on or around October 1, 2012 for direct termination of U.S.
switched voice traffic on the U.S.-Pakistan route.
21. This Memorandum Opinion and Order is issued pursuant to sections 1, 2, 4(i)-(j), 5, 201-205,
211, 214, and 303(r), and 309 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 152,
154(i)-(j), 155, 201-205, 211, 214, 303(r), 309 and sections 0.51, 0.261, 43.51, 63.14, and 64.1001 of the
Commission's rules, 47 C.F.R. §§ 0.51, 0.261, 43.51, 63.14, and 64.1001, and is EFFECTIVE UPON
RELEASE.
FEDERAL COMMUNICATIONS COMMISSION
Mindel De La Torre
Chief
International Bureau
7

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