fcc imposes pricing rules for international calls

Brushing aside protests that its actions tread on other nations` sovereignty, the agency claims a mandate to establish an efficient worldwide communications network.

by STEPHEN N. BROWN

The Federal Communications Commission (fcc) has stepped on the toes of governments worldwide by limiting the per-minute fees that American telecommunications carriers pay to foreign carriers when they receive, in their own country, a call that originates in the United States. The current "per-minute settlement fees" are expensive, ranging from approximately 25 cents to several dollars. The fcc`s benchmark prices are one-fourth of the current fees and are supposedly meant to resemble a foreign carrier`s actual cost of receiving a call from the United States.

As a prelude to its decision, the agency marshaled economic arguments: "U.S. consumers pay an average [of] 88 cents per minute for international calls [but]...an average [of] 13.5 cents per minute for domestic long-distance calls...[even though] the difference in cost of the underlying facilities between the two services is minimal....In 1996, the U.S. settlement deficit totaled $5.4 billion, double what it was in 1990. Conservative estimates put at least 70% of that total as an above-cost subsidy from U.S. consumers to foreign carriers."

The benchmark prices vary from nation to nation and according to the economic development of each nation. The details appear in the final order of the International Bureau`s docket 96-261. The order does not take effect until January 1, 1998, and allows foreign carriers one year to reduce their fees.

Many of these carriers were livid. They complained that the agency lacks the jurisdiction to impose such a pricing regime on them and that such action infringes on their own governments` sovereignty. The agency brushed aside these protests, saying it has a "mandate under the [U.S.] Communications ActUto make available a rapid, efficient worldwide wire and radio communications service with adequate facilities and reasonable charges."

This provocative statement suggests the U. S. Congress has extended a worldwide mandate to the fcc, which claims it has jurisdiction over "foreign communications that originates or terminates in the United States." The U.S. Senate may not share the fcc`s opinion. The Senate Governmental Affairs Committee has for months investigated whether the Clinton Administration broke U.S. laws on campaign contributions, but several potential witnesses left the country. They were not pursued because, in the words of the fbi agent assigned to assist the committee, "...[its] authority stops at the Pacific Ocean line." If a Senate committee recognizes the legal limits of its own jurisdiction, then the regular lawful procedures of the U.S. government are not the forces motivating the fcc. Its action is an exercise of political power and another facet of the Clinton Administration`s aggressive foreign trade policy.

The agency confirmed this by straying into ideological territory when responding to Telekom Malaysia`s arguments. That carrier said the new rates would cause a huge loss of revenue and have "dire economic" effects for developing countries` telecommunications infrastructure. Instead of being silent or saying that these countries have the skill and imagination to replace the lost revenues, the fcc hoisted its flag of economic doctrine: "[S]ettlement revenues no longer provide secure financing for investment in telecommunications infrastructure.... Open and competitive markets that welcome private capital offer a more reliable and sustainable means to finance infrastructure development." Apparently the fcc has a vision of private capital, probably from the United States and Western Europe, permeating other countries` telecommunications infrastructures now run or heavily influenced by the home government.

Relations with Japan

This is an ongoing theme of American foreign trade policy and a contentious issue that affects telecommunications trade between the United States and Japan. In September 1996--and after nearly a year of waiting--the fcc granted kdd America, a subsidiary of Kokusai Denshin Denwa (kdd) of Japan, the authority to sell non-interconnected private-line (ipl) service between Japan and the United States. In its order the fcc said, "We are concerned that Japan`s [one-third] foreign ownership cap prevents U.S. carriers from gaining control of an ipl facilities-based carrier [in Japan]." at&t opposed kdd`s application for several reasons, but a major one was that Japan`s government owns a large portion of Japan`s telecommunications companies. This did not persuade the fcc to deny kdd`s application. However, the agency expressed approval of at&t`s point, suggesting a commingling of interests between Japan`s top telecommunications regulatory agency, the Ministry of Posts and Telecommunications (mpt), and the companies the ministry regulates: "We are concerned about mpt`s 5% ownership of kdd-Japan, and ntt`s [Nippon Telegraph & Telephone, Japan`s largest telephone company] 13% ownership of kdd-Japan [because] mpt owns [two-thirds] of ntt."

At the request of the U.S. State and Commerce Departments earlier this year, the fcc withheld its approval of ntt`s and kdd`s licenses to offer telecommunications services in the United States and linked approval to Japan`s alleviation of its restrictions on foreign ownership of Japan`s telecommunications infrastructure. The fight quickly spread to the bilateral accord regarding ntt increasing its purchases of American-made equipment. Renewal of the agreement was scheduled for late 1997 but Japan balked, insisting the licensing issue be settled first.

This fractiousness spread to the settlements docket, too. Foreign carriers challenged the basis for the fcc`s benchmark prices, saying it had no reasonable data about a carrier`s actual costs to complete a call. The agency responded that the carrier could petition for a new price, but the carrier would have to provide data showing that its "costs are higher than the established benchmark." To kdd this looked like a ruse to acquire cost information about its system. The company told the fcc it had no right to such data. Deutsche Telekom was more clever, suggesting it would provide such data if it were handled confidentially.

kdd is wise to be cautious because cost data is an effective tool in controlling international trade and administering sanctions. Consider the recent tussle between Cray Research, an American maker of supercomputers, and its Japanese rival, nec Corp. In 1996, nec won a competitive bid to sell supercomputers to the National Center for Atmospheric Research, which is closely associated with the National Science Foundation. Cray filed a complaint with the U.S. Commerce Department alleging that the $35 million price for nec`s computers was only 25% of the cost. The department agreed that nec was engaged in an anticompetitive practice and planned to impose a 450% tariff on nec`s supercomputers. nec responded by filing a suit with the U.S. Court of International Trade to suspend the Commerce Department`s actions. None of this would have happened if nec`s costs were a mystery.

Despite the quarrels between the United States and Japan, there are some areas where the parties work together. Last July, at&t joined kdd in offering international private-line service at 155 Mbits/sec from San Francisco, CA, and Tokyo via dedicated circuits on undersea fiber-optic cables. Fiber`s bandwidth is perfect for Internet service providers, and Japan`s first customer is the Internet Initiative of Japan. As this service spreads to other nations, Internet telephony will increase. This fits with the fcc`s actions because, as departing chairman Reed Hundt said, "We were able to use the Internet as a wedge." The agency told foreign governments that if they did not agree with the agency`s lower settlement rates, international telephone traffic to their countries would move to the Internet and bypass their carriers.

These disputes suggest the Clinton Administration`s foreign trade policy is based on reciprocity--"If you let us into your markets, you can enter ours"--but the fcc has indicated that it will not apply reciprocity to nations that are participants in the World Trade Organization`s (wto`s) telecommunications agreements. Signatories are supposed to grant each other most-favored-nation status, meaning that foreign telecommunications companies and domestic ones receive the same treatment from the host nation. Japan and Western Europe are unconvinced. The European Union issued a statement suggesting the fcc might use "broad and unclear public service factors" to determine foreign companies` entry into America`s domestic markets.

The wto`s Basic Telecom Agreement, like the fcc`s final order in IB-96-261, does not take effect until January 1, 1998. Events in the coming year will determine whether the fcc is successful in imposing its pricing regime on foreign nations. There is one irony in this: State utility commissions and regional Bell operating companies have successfully resisted the fcc`s pricing rules for interconnection (see Lightwave, September 1997, page 36). Are foreign nations easier targets for the fcc? q