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FCC Eases International Settlements Regulation

Posted: 06/1999

Regulatory News

FCC Eases International Settlements Regulation
By Kim Sunderland

he Federal Communications Commission (FCC) has approved sweeping reform of the
international settlements policy, deregulating settlement arrangements between U.S.
carriers and foreign nondominant carriers on competitive routes.

In a Report & Order adopted April 15 in Docket No. IB-98-148, the FCC unanimously
approved lifting international settlements policy restrictions on arrangements between
U.S. carriers and foreign nondominant carriers that control 50 percent or less of the
foreign market share. The order also ends the policy for U.S. carriers dealing with
foreign carriers in countries considered competitive. These countries are Canada, Denmark,
France, Germany, Hong Kong, the Netherlands, Norway, Sweden and the United Kingdom.

"While the international settlements policy has been a successful tool in
preventing harmful discrimination against U.S. carriers by foreign monopoly carriers,
[this] action … recognizes that the policy is not necessary on routes where there is
competition on the foreign end of a call," according to the FCC’s report. "In
fact, continued application of the international settlements policy in such circumstances
could impede the further development of competition by restricting the ability of U.S.
carriers to seek lower-cost, innovative arrangements for the termination of U.S. calls
overseas."

The international settlements policy was designed to prevent whipsawing, which is when
a monopoly foreign carrier takes advantage of the U.S. competitive marketplace by playing
one carrier against another. This practice allows a monopoly to get higher rates for
completing international calls that originate in the United States. The policy also
prohibits U.S. carriers from accepting discriminatory terms and conditions for the
termination of traffic in overseas markets, the FCC said in its report.

The reforms adopted this spring "reflect the new realities that exist in the
international telecommunications market," according to the FCC. For example, under
the 1997 World Trade Organization (WTO) Agreement on Basic Telecommunications, 72
countries committed to opening their markets to competition. The FCC reports that in many
of those countries, "new entrants are already providing service to customers at lower
rates and higher standards of service than the former monopoly provider."

U.S. consumers also have benefited from these changes. Settlement rates, which are the
rates that U.S. carriers pay to complete international calls, have declined by an average
of 22 percent since 1998 and consumer prices have dropped on competitive routes, according
to the FCC report.

Specifically, the commission:

  • Eliminated the international settlements policy and contract filing requirements for
    arrangements with foreign carriers that lack market power;
  • Eliminated the international settlements policy for arrangements with all carriers on
    routes where rates to terminate U.S. calls are at least 25 percent lower than the relevant
    settlement rate benchmark previously adopted by the FCC in its Settlement Rate Benchmark
    Order;
  • Adopted changes to contract filing requirements to permit U.S. carriers to file
    arrangements on a confidential basis with foreign carriers with market power on routes
    where the international settlements policy is removed;
  • Adopted procedural changes to simplify accounting rate filing requirements; and
  • Eliminated the flexibility policy in recognition that the reforms to the international
    settlements policy render the flexibility policy largely superfluous.

According to the FCC, the reformed rules will give smaller carriers greater
opportunities and allow the market, rather than regulation, to govern settlement
arrangements between carriers in competitive markets.


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