DA 95-846 Federal Communications Commission Record 10 FCC Red No. 9

II. BACKGROUND Before the 2. AT&T and MCI sought waivers of the Commission's Federal Communications Commission International Settlements Policy (ISP) to introduce their Washington, D.C. 20554 country direct services (USADirect and CALL USA, re spectively) throughout Mexico at settlement rates of $.35 per minute for Rate Bands 1-3 and $1.20 per minute for In the Matter of Rate Bands 4-8 (effective 12/1/92 through 12/31/93). On June 4, 1993, the International Facilities Division of the American Telephone and USP-93-W-056 Common Carrier Bureau ("Division") denied AT&T's and Telegraph Co.; MCI's waiver requests.2 AT&T, MCI and Sprint filed state USP-93-W-057 ments in support of Telmex's petition.3 No opposition to MCI Telecommunications Corp. Telmex's petition has been filed. Petitions for Waiver of the International Settlements Policy for a Change in the III. DISCUSSION Accounting Rate for Switched Voice Services 3. Telmex did not participate in the underlying proceed with Mexico. ing. It asserts, however, that Section 1.106 of the Commis sion's Rules permits a person adversely affected by a Commission action to seek reconsideration if it has shown ORDER ON RECONSIDERATION "good reason why it was not possible for him to participate in the earlier stages of the proceeding."4 We need not Adopted: April 19, 1995; Released: April 26, 1995 decide whether Telmex has satisfied this standard, because the magnitude of the settlements payments to Mexico and By the Chief, International Bureau: the unique complexity of the Mexican settlement rate structure are such that the public interest requires us to address the issues raised by Telmex.5 I. INTRODUCTION 4. In denying AT&T's and MCI's waiver requests, the 1. Telefonos de Mexico, S.A. de C.V., ("Telmex") seeks Division found that the proposed settlement rates would reconsideration of an order which denied the requests of contravene the Commission's ISP,6 noting that: 1) the rates AT&T and MCI to increase the settlement rates paid to were higher than the existing rates for the USADirect Telmex for country direct services. 1 Settlement rates in service available in Rate Band 8,7 2) the carriers failed to Mexico are already much too high, and Telmex has not show that the proposed rates would improve the settle demonstrated a cost-based justification for this increase. ments deficit with Mexico, or would otherwise be in the Since we find no other reason to allow such a settlement public interest, and 3) the carriers made no attempt to rate increase, Telmex's Petition for Reconsideration is de justify these proposed rates on a cost basis.8 nied. 5. Telmex's main argument on reconsideration is not that the proposed settlement rates for USADirect and Call USA are consistent with the ISP, but that an exception to the ISP is warranted.9 In support, Telmex asserts that its efforts to restructure Mexico's telecommunications infra structure justify a departure from the ISP. Telmex asserts generally that it is upgrading its telecommunications infra-

1 In the Matter of American Telephone and Telegraph Company in an effort to address concerns over the rapidly increasing and MCI Telecommunications Corp. USP-93-W-056, USP-93-W- settlements deficit incurred by the United States vis-a-vis the 057, 8 FCC Red 3901 (Int. Fac. Div. 1993) ("Order"). See infra, rest of the world. See Implementation and Scope of Uniform note 2. Settlements Policy for Parallel International Communications 2 Authority formerly delegated to the Common Carrier Bureau Routes, 51 Fed. Reg. 4736 (1986); recon. 2 FCC Red 1118 (1987); to grant such waivers now rests with the International Bureau. fur. recon. 3 FCC Red 1614 (1988). See generally, Amendment of Parts 0,1,25,43,64 and 73 of the While MCI's waiver request proposed to provide CALL USA Commission©s Rules to Reflect a Reorganization Establishing the for the first time, the proposed settlement rate is still considered International Bureau, 9 FCC Red 7050 (1994). an increase under the ISP because the proposed rate is higher 3 See Letter, dated July 21, 1993, from Michael B. Fingerhut, than the rate previously offered to AT&T for its USADirect Sprint to William F. Caton, Acting Secretary, Federal Commu service. 47 C.F.R. §64.1001 (b). nications Commission ("Sprint Letter"); Letter dated July 23, 8 Order at f t 9-16. In its Order, the Division noted that, 1993, from Stephen C. Garavito, AT&T to William F. Caton, because the settlement rates paid by AT&T for USADirect Acting Secretary, Federal Communications Commission service in Rate Band 8 are the same for dial traffic originating ("AT&T Letter"); Letter, dated July 14, 1993 from Jodi L. Coo in the U.S. and terminating in Rate Band 8, the carriers would per, MCI to William F. Caton, Acting Secretary, Federal Com "be hard pressed, on the basis of cost, to justify the introduction munications Commission ("MCI Letter"). of a settlement rate for USADirect which is higher than the 4 Telmex Petition at pp. 2,3. rate for dial traffic," even had they attempted to do so. Order at 5 C.f., In Re Application of Central Mobile Radio Phone Service 1 12. 65 F.C.C.2d 648 (1977); In Re Application of Cable Television of 9 Telmex Petition at pp. 3-10; see also Sprint Letter, at pp. 1,2; Puerto Rico, San Juan Puerto Rico 49 F.C.C. 2d 617 (1974). MCI Letter at pp. 2,3. 6 The ISP requires uniform settlement rates, accounting rates and division of tolls for U.S. international carriers on parallel routes. It encourages accounting rate reductions by U.S. carriers

4482 10 FCC Red No. 9 Federal Communications Commission Record DA 95-846 structure, adjusting prices to reflect cost, and introducing 9. Telmex next argues that the Division acted unreason competition. Telmex therefore would have us deviate from ably in comparing the proposed settlement rates to the the principle that settlement rates should reflect cost. existing settlement rates for USADirect service because reli 6. We support Telmex's efforts to align its pricing struc ance on such comparisons will "discourage foreign carriers ture more closely to cost, but the proposed settlement rates from implementing new services with U.S. Carriers... in for USADirect and CALL USA would depart from these the future." Telmex Petition at p.9,n.!2. However, we rou efforts. We also do not believe that Telmex has shown that tinely rely on such comparative data. In fact, our rules this settlement rate increase for country direct services is require that such data accompany any proposed change in essential to its efforts to upgrade its infrastructure. If gen accounting rates. 47 C.F.R. § 64.1001(e)(f). Moreover, eral assertions that rates increases support infrastructure Telmex has submitted no evidence to support this argu development and a transition to a more competitive envi ment. In addition, this position also directly contravenes ronment sufficed to justify a waiver of the ISP, it would be the ISP and the waiver standard established by the Com difficult to deny waivers. The ISP could be eviscerated. mission in the Phase I Report and Order. 13 Mexico already receives the largest net settlement payments 10. Finally, Telmex argues that, if the record contains no based upon settlement rates that are not justified by cost. 10 evidence of whipsawing, and "proposed rates are not high 7. Further, it is our understanding that the improve er than rates for like services currently in effect," the ments and realignments in Telmex's communications infra burden of proof shifts to the Commission to justify its structure include investment in technologically advanced refusal to permit the proposed change. 14 We find that the equipment — the presence of which has resulted in the proposed rates are, in fact, higher than rates for like ser increased availability of telecommunications service vices currently in effect. 15 As the Division noted in its throughout Mexico. These factors should lower the unit Order, in 1992 AT&T paid a settlement rate of $1.10 per cost of providing service, and permit lower settlement rates. minute (day) and $.74 per minute (night) for the However, the settlement rates for U.S. billed calls to Mexi USADirect services available from four cities located in co that expired December 31, 1994 are among the highest Rate Band 8. 16 Thus, the proposed settlement rate of $1.20 rates U.S. carriers have with any foreign administration. per minute (Rate Bands 4-8) is clearly an increase which We note the U.S. carriers' ongoing settlement rate negotia Telmex has not justified based on underlying costs. More tions with Telmex and hope that they will produce signifi over, Telmex's argument that the burden of proof some cantly reduced rates. how shifts in the circumstances it cites is unsupported by 8. We reject Telmex's argument, initially advanced by any authority. Even in the absence of whipsawing, the AT&T and MCI, that because country direct services are a burden remains with the party seeking waiver. substitute for Mexican operator assisted service, the pro 11. We recognize that Mexico has taken significant posed settlement rate is an "increase" only if it is higher strides to introduce competition into its telecommunication than those settlement rates applicable to operator assisted market, and also to move calling prices more in line with calls. 11 The question of whether the proposed settlement costs. However, non-cost-based increases in the settlement rate for country direct service has increased is better re rates would undermine these efforts, and are inconsistent solved by reference to the previous settlement rate applied with the ISP. to USADirect service than by reference to the settlement rate applied to a different service with different costs. 12 For example, the cost to Telmex of a service utilizing a Mexico- IV. CONCLUSION based operator employed by Telmex obviously differs from 12. For the reasons stated above, we deny Telmex's Peti the cost to Telmex that is associated with a country direct tion for Reconsideration. call — where a U.S. (not Mexican) operator is used to complete the call.

10 Between 1985 and 19Q3, the U.S. net settlements payment to would result in a decrease in net settlement payments to Mexi Mexico totaled $4.3 billion. In 1993 alone Telmex received $720 co, and would benefit U.S. citizens in Mexico. AT&T Letter at million, five times more than the second largest payment. pp. 1-3; see also MCI Letter at pp. 2,3. We also reject these Trends in the International Telecommunications Industry Through arguments for the reasons set forth in the Order. Order at 1 f 1992, Industry Analysis Division (IAD), FCC, March 1994 14,15,n.27. (1985-1992 data); 1993 Section, 43.61 International Telecom 12 See e.g., Telefonica at f 18. munications Data, IAD, FCC, November 21, 1994 (1993 data). 13 Telmex also argues that the facts of this case differ from The average settlement payment per minute for U.S. billed those in American Telephone and Telegraph Company and MCI telephone service to Mexico in 1993 was 65c/minute. This com Communications Corporation, 5 FCC Red 4618 (Com. Car. Bur. pares with an average rate of 15c/minute for calls to Canada, 1990) (Telefonica), where the Common Carrier Bureau found and with a global average of 55e/minute. 1993 Section, 43.61 that trie proposed accounting rate increases did not serve the International Telecommunications Data, IAD, FCC, November public interest. It thus argues that it was improper for the 21, 1994. As stated in the Division's Order, we have seen no Division to cite that case here. However, the Division merely persuasive evidence that implementing the proposed settlement cited Telefonica as an example of the general policy that the rates for country direct services would decrease net payments to accounting rate increases are not in the public interest. Mexico. Order, at p.4, nn.26, 27. 14 Telmex Petition at p. 11. 11 Telmex Petition at p.lO,n.l4; AT&T Letter at pp. 2,3. AT&T 15 Order at 1f 8-16. unpersuasively restates this argument in its letter supporting 16 Order at n.7 Telmex's Petition for Reconsideration. AT&T Letter at pp. 2,3. 17 See, e.g., Phase I Report and Order, 6 FCC Red at 3554-5. However for the reasons stated in f 8, infra, we continue to reject this argument. In its letter, AT&T also restates its posi tion that the proposed settlement payments for USADirect

4483 DA 95-846 Federal Communications Commission Record 10 FCC Red NO. 9

V. ORDERING CLAUSES 13. Accordingly, IT IS ORDERED that the Petition for Reconsideration filed by Telmex IS DENIED. 14. This order is issued under Section 0.261 of the Commission's Rules and is effective upon adoption. Peti tions for reconsideration under section 1.106 or applica tions for review under Section 1.115 of the Commission's Rules may be filed within 30 days of the public notice of this order (see Section 1.4(b)(2)).

FEDERAL COMMUNICATIONS COMMISSION

Scott Blake Harris Chief, International Bureau

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