NEWSReport No. DC 96-106   ACTION IN DOCKET CASE          November 26, 1996

     
                   COMMISSION ALLOWS NEW FLEXIBILITY IN
                      INTERNATIONAL ACCOUNTING RATES
                     (CC DOCKET NO. 90-337, PHASE II)

     The FCC today took a critical step to promote competition in the international
telecommunications market by adopting rules to permit flexibility in its accounting rate
policies.  The new rules permit U.S. carriers to enter into more economically efficient
arrangements for terminating their international traffic where competitive conditions exist on
the foreign end of an international route.  These rules provide a roadmap for the transition
from the inefficient, high-cost traditional accounting rate system to a competitive market for
originating and terminating international traffic that is more closely patterned on the
competitive market for domestic long distance services in the United States.  The new rules
should increase competitive options for U.S. carriers and result in lower prices and greater
choices for U.S. consumers.

     The Commission's action will allow U.S. carriers to negotiate alternative international
settlement payment arrangements that deviate from the requirements of the Commission's
International Settlements Policy (ISP) with any foreign correspondent in a country that meets
the effective competitive opportunities (ECO) test adopted in the Commission's Foreign
Carrier Entry Order.  Under these rules, for example, a single carrier could provide end-to-
end service between the United States and a foreign market without using an accounting rate. 
Or a carrier could ask competing foreign carriers to bid for the right to terminate and
distribute U.S. traffic in the local national market.  In addition, alternative settlement payment
arrangements may be considered between a U.S. carrier and a foreign correspondent from a
country that does not satisfy the ECO test.  In such cases, a U.S. carrier must demonstrate that
deviation from the ISP will promote market-oriented pricing and competition, while
precluding abuse of market power by the foreign correspondent.

     The Commission adopted the following competitive safeguards to ensure that this new
flexibility policy will not have anticompetitive effects in the U.S. market for international 
services: 1) alternative arrangements between affiliated carriers and those involved in non-
equity joint ventures affecting basic telecommunications traffic must be publicly filed with the
FCC; and 2) alternative arrangements affecting more than 25 percent of the inbound or
outbound traffic on a particular route must be publicly filed with the FCC and not contain
unreasonably discriminatory terms and conditions.

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     This more flexible approach to international accounting rate regulation, the
Commission said, will permit significant progress toward a truly competitive market for
international services.  It will enable U.S. carriers to respond more rapidly to changing
conditions in the global telecommunications market and reduce their call termination costs and
U.S. net settlements payments.  The results will be lower calling prices for consumers.

     The Commission also codified its proportionate return policy, which has long been a
cornerstone of its ISP.  The ISP, which will continue to apply to non-competitive markets,
prevents whipsawing of U.S. carriers by foreign carriers by requiring the equal division of
accounting rates, nondiscriminatory treatment of U.S. carriers, and proportionate  return of
inbound traffic. The Commission said that, by codifying its proportionate return policy, it is
sending a strong signal to foreign carriers which do not operate in competitive markets that it
will not allow discrimination among U.S. carriers by manipulating the allocation of return
traffic.

     Finally, the Commission declined to apply the requirements of its ISP to the global
Mobile Satellite Service (MSS) industry at this time. The Commission reserved the right,
however, to apply its ISP or other safeguards to the MSS industry in the future if market
conditions merit such actions.
 
     Action by the Commission November 26, 1996, by Fourth Report and Order (FCC 96-
549).  Chairman Hundt, Commissioners Quello, Ness, and Chong.

                                   -FCC-

     News Media contact: Patricia A. Chew or Audrey Spivack at (202) 418-0500.
     International Bureau contacts: Diane J. Cornell at (202) 418-1470, Kathryn O'Brien at
(202) 418-0439.