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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-1960 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) AT&T Corp. ) File No. ISP-97-PDR-310 ) Petition for Waiver of the ) International Settlements Policy ) to Change the Accounting Rate ) Arrangement for Switched Voice ) Service with the Dominican ) Republic ) MEMORANDUM OPINION, ORDER AND AUTHORIZATION Adopted: September 10, 1997 Released: September 12, 1997 By the Chief, Telecommunications Division Introduction 1. We have before us a petition by AT&T Corporation ("AT&T") to waive the Commission's International Settlements Policy ("ISP") to introduce an alternative settlement arrangement for switched voice service with a correspondent in the Dominican Republic, All America Cables & Radio ("AAC&R"). AT&T's petition is opposed by the Direcci¢n General de Telecomunicaciones ("DGT") on behalf of the Government of the Dominican Republic on the grounds that approval of the arrangement will impose an adverse financial impact on the Dominican Republic. We do not agree. In addition, on a more general scale, this concern is addressed in the Commission's Benchmark Order where we adopted settlement rate ranges that depend upon a country's level of economic development. We find that the proposed settlement arrangement will move rates toward cost- based levels and satisfy our criteria for flexible arrangements. Therefore, we grant AT&T's petition. Background 2. International communications service markets are undergoing rapid and profound change as more national markets begin to open, new carriers enter the global marketplace, a variety of new services become available, and technology continues to improve. Continued reliance on historic settlement procedures in all situations may impede these developments. In order to foster competitive market conditions, the Commission's Flexibility Order adopted a policy which allows U.S. carriers to negotiate settlement arrangements that depart from the ISP under certain conditions. 3. AT&T, on behalf of itself and AT&T Alascom, seeks a waiver of the Commission's ISP to introduce a flexible arrangement which provides for non-uniform settlement rates for service between the United States and its carrier correspondent in the Dominican Republic, AAC&R. The waiver applies to international switched voice service. The current accounting rate is 80› per minute. No surcharges apply. 4. AT&T proposes a significant change in its current settlement arrangement with AAC&R. There would be higher rates to terminate service in the Dominican Republic than in the United States, but AT&T's rate would decline as traffic volume increases. Beginning April 1, 1997, and lasting for one year, AT&T's termination rate for service transmitted to AAC&R would be 24› per minute for service between 10 million and 30 million minutes. The rate would fall to 22› for service exceeding 30 million minutes. AAC&R's rate would be 10› per minute for all minutes greater than 10 million. There would be no charge for the first 10 million minutes transmitted by either carrier. The agreement does not provide for proportionate return but other U.S. carriers are not excluded from negotiating a similar arrangement with AAC&R. 5. DGT, on behalf of the Government of the Dominican Republic, opposed the waiver stating that under AT&T's proposal hard currency would decline by $25 million in 1997 and this would have a negative impact on the economy, hinder infrastructure investment, and the development of competitive markets. It calls upon the FCC to act cooperatively with the Dominican Republic government rather than acting unilaterally to reform accounting rates. Discussion 6. The Commission's Flexibility Order created guidelines for U.S. carriers to negotiate settlement arrangements with foreign carriers that depart from our ISP. First, the Commission stated that any U.S. carriers may negotiate alternative settlement arrangements with all carriers in a country that satisfies the Commission's effective competitive opportunities ("ECO") test. For a non-ECO country, a U.S. carrier may still negotiate an alternative settlement arrangement, particularly if a non-dominant foreign carrier is the partner in the arrangement, but it must submit sufficient evidence to demonstrate that the flexible arrangement will promote market-oriented pricing and competition and, at the same time, preclude an abuse of market power by the foreign carrier. Additional safeguards apply to arrangements between affiliated carriers if more than twenty five percent of the service on the route is affected. Because the Commission has not determined that the Dominican Republic satisfies the ECO test for international switched message service we will examine this arrangement under the second set of criteria. 7. In the Flexibility Order, the Commission stated that a departure from the ISP may be warranted in the case of a non-dominant U.S. carrier reaching an alternative arrangement with a foreign carrier that does not have economic market power in its home market. Here both AT&T and AAC&R are non-dominant carriers. AT&T estimates that CODETEL's market share for switched service between the Dominican Republic and the United States exceeds seventy percent and the remainder is divided between AAC&R and Tricom. Therefore, this arrangement does not raise concerns of a potential abuse of market power by AAC&R. 8. Nevertheless, approval also requires that the alternative settlement arrangement promote market-oriented pricing and competition in the provision of service between the United States and the Dominican Republic. The Commission's longstanding goal for international settlement arrangements is cost-based rates because they promote economic efficiency and reflect a competitive market outcome. This alternative settlement arrangement, negotiated by AAC&R and AT&T without Commission involvement, promotes market-oriented pricing by producing a large reduction in the rate that will be paid to terminate a minute of service with AAC&R in the Dominican Republic and an even larger reduction in AT&T's net settlement cost per minute to AAC&R. It illustrates the potential impact on rates that can occur in appropriate market conditions when the ISP conditions are relaxed. Moreover, additional competitive behavior may be stimulated as other carriers in both countries respond to this new development. 9. We are sensitive to the problems developing countries may face when above-cost accounting rates, which have produced a large flow of increasing net settlement payments from U.S. carriers, are reduced. We share the concerns expressed by the DGT. That is why we adopted higher benchmark rates and longer transition periods for service involving developing countries than for high income countries in our Benchmarks Order. Countries like the Dominican Republic have additional time and some flexibility in which to make adjustments in settlement rates. We do not believe, however, that denying this particular arrangement is the proper vehicle for addressing DGT's concerns. The agreement between AAC&R and AT&T involves a non-dominant carrier in the Dominican Republic that is responsible for a small share of the service with the United States for a limited duration of one year. Most of the net settlement payments from U.S. carriers to the Dominican Republic go to CODETEL, which is not involved in the arrangement. CODETEL has received most of the almost $1 billion in net settlement payments from U.S. carriers between 1985 and 1995. Therefore, the impact of the arrangement between AT&T and AAC&R on the Dominican Republic economy will be minimal. 10. We find that the alternative settlement arrangement between AT&T and AAC&R will promote market-oriented pricing and competition for service between the United States and the Dominican Republic without raising the risk of an abuse of market power by AAC&R. Therefore, AT&T's proposal is in the public interest. Ordering Clauses 11. Accordingly, IT IS ORDERED that AT&T's alternative settlement arrangement, on behalf of itself and AT&T Alascom, negotiated with AAC&R for service between the United States and the Dominican Republic, File No. ISP-97-PDR-310, is consistent with the Commission's Flexibility Order and in the public interest. The petition is therefore GRANTED. 12. IT IS FURTHER ORDERED that the opposition filed by Direcci¢n General Telecomunicaciones is DENIED. 13. 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 date of public notice of this Order (see C.F.R. Section 1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau