International Settlements Policy Reform

AGENCY:

Federal Communications Commission.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Federal Communications Commission proposes to remove the International Settlements Policy (ISP) from all U.S. international routes except Cuba. Eliminating the ISP will enable more market-based arrangements between U.S. and foreign carriers on all U.S. international routes. The Federal Communications Commission seeks comment on a proposal to enable the Commission to better protect U.S. consumers from the effects of anticompetitive conduct by foreign carriers in instances necessitating Commission intervention. Specifically, it seeks comments on proposals and issues regarding the application of the Commission's benchmarks policy.

DATES:

Submit comments on or before August 18, 2011, and replies on or before September 2, 2011.

ADDRESSES:

You may submit comments, identified by Docket No. 11-80, by any of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
• Federal Communications Commission's Web Site: http://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting comments.
• People with Disabilities: Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by e-mail: FCC504@fcc.gov, phone: 202-418-0530 or TTY: 202-418-0432.

For detailed instructions for submitting comments and additional information on the rulemaking process, see the SUPPLEMENTARY INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT:

Kimberly Cook, David Krech or James Ball, Policy Division, International Bureau, FCC, (202) 418-1460 or via the Internet at Kimberly.Cook@fcc.gov, David.Krech@fcc.gov and James.Ball@fcc.gov.

SUPPLEMENTARY INFORMATION:

This is a summary of the Commission's Notice of Proposed Rulemaking in IB Docket No. 11-80, FCC 11-75, adopted May 12, 2011, and released May 13, 2011. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center, Room CY-A257, 445 12th Street, SW., Washington, DC 20554. The document also is available for download over the Internet at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-11-75A1.pdf . The complete text also may be purchased from the Commission's copy contractor, Best Copy and Printing, Inc. (BCPI), located in Room CY-B402, 445 12th Street, SW., Washington, DC 20554. Customers may contact BCPI at its web site: http://www.bcpiweb.com or call 1-800-378-3160.

Comment Filing Procedures

Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated above. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by hand delivery. See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

• Electronic Filers: Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) at http://fjallfoss.fcc.gov/ecfs2/. See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
• Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number.

Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

○ All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St., SW., Room TW-A325, Washington, DC 20554. The filing hours are 8 a.m. to 7 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building.

○ Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

○ U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street, SW., Washington DC 20554.

Summary of Notice of Proposed Rulemaking

1. Introduction

In the Notice of Proposed Rulemaking (NPRM), the Federal Communications Commission proposes to remove the International Settlements Policy (ISP) from all U.S. international routes except Cuba. Further, the Commission seeks comment on ways to improve its rules and procedures to enhance its ability to prevent and respond to anticompetitive behavior by foreign carriers in a timely and effective manner. Specifically, the Commission seeks comment on issues and proposals related to the Commission's benchmarks policy and competitive safeguards against anticompetitive behavior. The Commission believes removing the ISP from the remaining international routes will provide U.S. carriers greater flexibility to negotiate lower settlement rates on those routes. The Notice of Proposed Rulemaking seeks comment on whether removal of the ISP from virtually all of the remaining ISP routes will, on balance, result in lower rates and otherwise benefit U.S. consumers. The Notice of Proposed Rulemaking requests comment on whether there are any competitive concerns on a particular U.S. international route that we should consider prior to removing the ISP from that route.

2. ISP

Removing the ISP from the U.S. international routes except Cuba would require amendments to certain Commission rules, and the Notice of Proposed Rulemaking seeks comment on alternatives for amending the Commission's rules, including sections 64.1001, 64.1002 and 43.51. Sections 64.1001 and 64.1002 specify the requirements and procedures that implement the ISP. Section 43.51 specifies the contract filing requirements that apply to U.S. carriers. The Commission proposes to amend section 64.1001 and portions of section 64.1002 which currently codify the ISP and related procedures in the Commission's rules. The Commission also proposes to modify section 43.51 of our rules to reflect the removal of the ISP on all routes except Cuba.

3. Contract Filing

The Commission proposes to require that U.S. carriers file agreements, amendments to agreements (whether written or oral), and rates for the provision of services (hereinafter referred to collectively as “agreements”) when the agreed-upon rates are above benchmark. The requirement would apply to all U.S. international routes involving any foreign correspondent, dominant or non-dominant, for which U.S. outbound rates are above benchmark regardless of whether the ISP previously had been removed from that route or benchmarks had been temporarily achieved at some point in the past. The Commission proposes that the filing requirement also apply when any provision in the contract has the effect of bringing the settlement rate above benchmark even though the stated contract rate is at or below benchmark.

The Commission would consider actions in response to above-benchmark situations on an ad hoc basis. Furthermore, upon the filing of an agreement implementing an above-benchmark rate, the International Bureau would issue a public notice of the filing. Alternatively, rather than requiring the filing of an agreement, the Notice of Proposed Rulemaking requests comment on requiring U.S. carriers to file a notice of any agreement (whether written or oral) that includes rates that are above benchmark. This approach would give the Commission the authority to require a U.S. carrier to file the agreement in particular circumstances, but would not require U.S. carriers to file all agreements with the Commission. The Commission might exercise that authority where there is a competitive concern on a particular route or where the Commission receives a complaint from a carrier or from a consumer with respect to that route. The Notice of Proposed Rulemaking proposes retaining the Commission's authority to require U.S. carriers to file agreements and rates for the provision of services on international routes involving any foreign correspondent at any time and upon reasonable request. It proposes to retain the current practice of considering any such agreement filed pursuant to the ISP available for public inspection, and considering all other such agreements not routinely available for public inspection.

4. Enhanced Competitive Safeguards

The Notice of Proposed Rulemaking seeks comment on various competitive safeguards, including the presumption of anticompetitive behavior, possible procedures to expedite Commission action, and remedies for findings of anticompetitive behavior.

5. Benchmark Issues

In specific, limited circumstances, the Commission proposes to apply benchmark rates to indirect routing arrangements that U.S. carriers have with third-party carriers in other countries to provide services on U.S. international routes. The Notice of Proposed Rulemaking proposes to apply the Commission's benchmark policy on a case-by-case basis to indirect routing on international routes that are found to be subject to anticompetitive conduct by foreign carriers where additional remedies are required. In applying benchmark rates to reorigination of traffic under the limited circumstances specified above, the Commission would not permit any U.S. carrier serving the international route indirectly to pay a fee to a third-party carrier in an intermediate country for reorigination of traffic greater than the established benchmark rate for termination of traffic to the destination country. The Commission would not impose the restriction except after prior notice and opportunity for comment. The Commission would provide notice and opportunity for comment as part of the order suspending U.S. carrier payments for termination services with carriers in the destination country. The Commission believes that existing benchmark rates would be a sufficient cap on fees paid by U.S. carriers for reorigination of traffic to a destination country on an international route where there is continuing anticompetitive conduct. The notice and comment process described above would give affected carriers an opportunity to contest the reasonableness of applying the benchmark rate for charges above the benchmark rate applicable to the particular destination route subject to the notice. If adopted, the restriction would be imposed by order and removed upon a finding that the anticompetitive conduct on the international route had ceased or under other circumstances that the Commission determined appropriate based upon the record in a particular case. The Notice of Proposed Rulemaking also requests comment on whether there may be other circumstances under which the Commission should apply benchmark rates to alternative or indirect routing arrangements. In particular, it requests comment on a broader approach than that described above if such an approach would allow the Commission to more effectively respond to anticompetitive behavior under certain circumstances.

6. Other Issues

Finally, the Notice of Proposed Rulemaking notes that some commenters to the 2005 Notice of Inquiry and commenters in the proceeding regarding the U.S.-Tonga route argued that U.S. carriers have failed to decrease retail calling rates in proportion to the decrease in settlement rate reductions. Commenters argued that this alleged failure to decrease retail calling rates in proportion to any settlement rate reduction harms U.S. consumers and carriers in foreign countries because U.S. consumers pay higher rates than necessary, which results in lower traffic volumes and reduced terminating revenues received by foreign carriers on the international route. U.S. carriers disputed this argument. The Notice of Proposed Rulemaking noted that section 43.61 traffic and revenue data filed by U.S. carriers show that, on average, U.S. carriers appear to have been flowing through settlement rate reductions in U.S. international calling rates. From 1996 to 2009 (comparing the year before the FCC adopted benchmarks to the most recent year for which data are available), the average IMTS settlement rate paid by U.S. carriers decreased by $0.37 per minute, while the average IMTS revenue per minute (an estimate of the average U.S. international calling rate) decreased by $0.66 per minute, more than flowing through settlement rate reductions. The Commission recognizes that this data has certain limitations and may underestimate the level of U.S. international calling rates to some degree. For instance, the IMTS revenue per minute figure is based on revenue reported by facilities-based carriers and, therefore, reflects a mix of wholesale and retail rates. Also, some carriers may not have included non-route-specific calling plan revenue in their revenue figures. We also note that the figures cited above are average numbers and that settlement rates reductions may not have been flowed through uniformly to all segments of the retail market. There is evidence that some U.S. carriers, between 1985 and 2000, increased the retail “basic rates” they charged consumers. Nevertheless, the section 43.61 data covers the entire U.S. facilities-based IMTS industry and all international routes, and shows average IMTS revenue per minute falling much more than the average settlement rate payout. The Commission seeks comment on this issue. In addition to the decrease in the average IMTS settlement rate paid by U.S. carriers as well as a decrease in the average IMTS revenue per minute received by U.S. carriers, the Commission seeks comment on what other data or factors it should consider in evaluating whether U.S. carriers are passing on reductions in settlement rates to the retail rates they charge consumers. The Commission seeks comment on what action, if any, the Commission should consider taking with respect to these issues.

7. Paperwork Reduction Act of 1995 Analysis

The Notice of Proposed Rulemaking proposes new and modified information collection requirements. The Commission, as a part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget (OMB) to comment on the information collection requirements contained in this document, as required by the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we seek specific comment on how we might “further reduce the information collection burden for small business concerns with fewer than 25 employees.”

8. Initial Regulatory Flexibility Analysis

As required by the Regulatory Flexibility Act (RFA), the Commission has prepared this present Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities by the policies and rules proposed in this Notice of Proposed Rulemaking (NPRM). Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments provided on the first page of this NPRM. The Commission will send a copy of this NPRM, including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA). In addition, the NPRM and IRFA (or summaries thereof) will be published in the Federal Register.

A. Need for, and Objectives of, the Proposed Rules

In recent years there has been increased participation and competition in the U.S. international marketplace, decreased settlement and end-user rates, and growing liberalization and privatization in foreign markets. Because of this increase, the Commission believes that it is an appropriate time to re-examine its International Settlements Policy (ISP) and accounting rate policies. In this proceeding, the Commission expects to obtain further information about the competitive status of the U.S. international marketplace. In addition, the Commission solicits comment on a wide variety of proposals to reform its current application of the ISP, benchmark and settlement rate policies.

B. Legal Basis

The Notice of Proposed Rulemaking is authorized under 47 U.S.C. 151, 152, 154(i), 154(j), 201-205, 208, 211, 214, 303(r), 309, and 403.

C. Description and Estimate of the Number of Small Entities to Which the Proposed Rules Will Apply

The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” A small business concern is one which: (1) Is independently owned and operated, (2) is not dominant in its field of operation, and (3) satisfies any additional criteria established by the SBA.

The proposals contained in the Notice of Proposed Rulemaking may directly affect up to approximately 38 facilities-based U.S. international carriers providing IMTS traffic. In the 2009 annual traffic and revenue report 38 facilities-based and facilities-resale carriers reported approximately $5.8 billion in revenues from international message telephone service (IMTS). Of these, three reported IMTS revenues of more than $1 billion, eight reported IMTS revenues of more than $100 million, 10 reported IMTS revenues of more than $50 million, 20 reported IMTS revenues of more than $10 million, 25 reported IMTS revenues of more than $5 million, and 30 reported IMTS revenues of more than $1 million. Based solely on their IMTS revenues the majority of these carriers would be considered non-small entities under the SBA definition. Neither the Commission nor the SBA has developed a definition of “small entity” specifically applicable to these international carriers. The closest applicable definition provides that a small entity is one with 1,500 or fewer employees. We do not have data specifying the number of these carriers that are not independently owned and operated and have fewer than 1,500 employees. Furthermore, because not all agreements between the U.S. and foreign carriers are required to be filed at the Commission, it is difficult to determine how many of these 38 carriers might have agreements with foreign carriers. The Notice of Proposed Rulemaking solicits comments on a wide variety of proposals, and the proposals are intended to promote market-based policies and reduce unnecessary regulatory burdens on all facilities-based U.S. international carriers regardless of size.

D. Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements

The NPRM seeks a wide variety of information on the Commission's ISP, benchmarks and international settlement rates policies. In developing these policies, the Commission implemented various reporting requirements to monitor possible anticompetitive behavior and protect the public interest. The NPRM proposes retaining reporting requirements when carriers agree to above-benchmark rates. The NPRM reserves the right to require the filing of particular contracts when presented with evidence of a violation of the “No Special Concessions” rule or of other anticompetitive behavior related to these matters on a particular route. The NPRM solicits comment on whether the Commission should retain, eliminate or develop new/additional reporting requirements. The NPRM seeks comment on possible safeguards that could be implemented to address specific competitive concerns.

E. Steps Taken To Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered

The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

The proposals in this NPRM are designed to provide the Commission with information to determine whether its existing regulatory regime may inhibit the benefits of lower calling process and greater service innovations to consumers. Because the NPRM is broad and proposals would likely affect only 38 facilities-based carriers, it would be difficult to adopt specific alternatives for the small facilities-based entities. The proposals contained in the NPRM would benefit all entities, including small entities.

The NPRM proposes steps that would minimize the economic impact on all entities, including small entities. For example, the NPRM seeks comment on whether to remove the ISP from certain remaining routes. This proposal would eliminate the burden of seeking prior Commission approval before a carrier could enter into arrangements with foreign carriers. Any changes to our existing policies and rules will expand the ability of all entities, including small entities, to reap the economic benefits of competition. Thus, the NPRM does not propose any exemption for small entities.

F. Federal Rules That May Duplicate, Overlap, or Conflict With the Proposed Rule

None.

9. Ordering Clauses

It is ordered that, pursuant to the authority contained in 47 U.S.C. 151, 152, 154(i), 154(j), 201-205, 208, 211, 214, 303(r), 309 and 403 this Notice of Proposed Rulemaking is adopted.

It is further ordered that notice is hereby given of the proposed regulatory changes to Commission policy and rules described in this Notice of Proposed Rulemaking and that comment is sought on these proposals.

It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of Small Business Administration.

List of Subjects in 47 CFR Parts 0, 43 and 64

• Communications
• Communications common carriers
• Telecommunications
• Telephone

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR Parts 0, 43 and 64 of the Commission rules as follows:

PART 0—COMMISSION ORGANIZATION

1. The authority citation for part 0 continues to read as follows:

Authority: Secs. 5, 48 stat. 1068, as amended; 47 U.S.C. 155.

2. Section 0.453 is amended by revising paragraph (e)(6) to read as follows:

PART 43—REPORTS OF COMMUNICATION COMMON CARRIERS AND CERTAIN AFFILIATES

4. The authority citation for part 43 continues to read as follows:

Authority: 47 U.S.C. 154; Telecommunications Act of 1996, Pub. L. 104-104, secs. 402(b)(2)(B), (c), 110 Stat. 56 (1996) as amended unless otherwise noted, 47 U.S.C. 211, 219, 220 as amended.

Alternative 1 for § 43.51

5. Section 43.51 is amended by revising paragraphs (a)(1) introductory text, (a)(2), and (b)(3), adding paragraph (b)(4), revising paragraphs (d) through (f) and Note 3, and by removing Note 4 to read as follows:

PART 64—MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

7. The authority citation for part 64 continues to read as follows:

Authority: 47 U.S.C. 154, 254(k); secs. 403(b)(2)(B), (c), Public Law 104-104, 110 Stat. 56. Interpret or apply 47 U.S.C. 201, 218, 225, 226, 228, and 254(k) unless otherwise noted.

8. Section 64.1001 is amended by revising paragraph (a) to read as follows: