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FCC TAKES ON THE ITU OVER INTERNATIONAL SETTLEMENT TARRIFS

Outgoing FCC chairman Reed Hundt is clearly planning to retire from the FCC with all guns blazing. Not worried about irking the European Commission or anyone else, on Thursday Hundt outlined FCC plans to impose its will on the world’s telecom carriers, but primarily those in the developing world. In a move that puts it into conflict with the International Telecommunications Union (ITU), the FCC has set out the maximum international telecoms settlement rates for US international carriers to pay their foreign counterparts. The new rules, which will be phased in over five years, set four maximum per-minute rates that overseas carriers can charge for completing calls from the US. The four charges have been set according to the landing country’s level of economic development – based on foreign carriers’ tariffs as well as ITU and World Bank development classifications, says the US agency. According to the FCC, under present agreements monopoly carriers are able to set tariffs that exceed the underlying cost of providing the service by as much as five to ten times, something that Hundt described as an ever escalating subsidiary from American consumers to foreign telephone companies. He estimates that of the $5.4bn US carriers paid to foreign carriers 70% was over and above the cost of providing the services. The FCC says implementation of the new rules will save US consumers more than $17bn over the next six years and that combined with the WTO Agreement, predicts that the average price of an international call from the US will drop from 88 cents today to 20 cents in five years. These savings for consumers will of course depend upon the US’s largest carriers, including AT&T Corp, MCI Communications Corp and Sprint Corp, passing on the saving to the consumers. Under the new regulations, the FCC says US carriers may either withhold all settlement rate payments to a foreign carrier or limit payments to the set benchmark call- completion rate. While US consumer and carriers are set to benefit, many developing nations will be hit as they are dependent upon their US-sourced settlement rate charges to fund infrastructure build-outs. Analysts suggest that the hardest hit may be telephone monopolies in Asia, including Indonesia’s PT Indosat, Videsh Sachar Nigam of India, Philippine Long Distance Telephone Co which gets more than 50% of its international revenue from call completion fees. The FCC’s unilateral action reflects its impatience with the slow progress made by the ITU on the settlement rate issue. In June, ITU chief, Pekka Tarjanne warned that such an action by the FCC if not supported by the international organization would move the global telecommunications industry toward catastrophe. The FCC is clearly hoping the move will push the ITU into setting similar restrictions on all its member countries, having grown impatient the ITU efforts so far. The rates as set out in the FCC Report and Order, published yesterday, defines four income brackets as well as deadlines for reaching agreement with US carriers. The upper bracket sets settlements rates of 15 cents per minute by Jan 1, 1999. The Upper Middle bracket stipulates a charge of 19 cents per minute by Jan 1, 2000. The Lower Middle group will also have to provide 19 cents per minute settlement rates but by Jan 1, 2001. The bottom or Lower rate requires a 23 cents per minute rate by Jan 1, 2002. As the carriers work toward these figures the FCC said it expects carriers to negotiate proportional annual reductions during the transition period. Hundt added that he did not believe that a unilateral approach was the best way to reform the global market and would therefore reconsider the benchmarks should a satisfactory multilateral agreement be reached. Hundt, who is due to step down from the FCC once a replacement is found, came closer to leaving his position on Wednesday when US President Bill Clinton nominated FCC general counsel William Kennard, as expected, to replace him.

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CBR Staff Writer

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