AT&T BALKS AT WORLDCOM-TELMEX SETTLEMENT RATES PACT
Settlement rates agreement reached late Wed. by Telefonos de Mexico (Telmex) and WorldCom provoked immediate opposition Thurs. from AT&T, which said proposed rates still were “well above” 4 cent per min. cost of providing service. AT&T, contending proposal didn’t conform with Mexico’s World Trade Organization (WTO) commitments, said it planned to oppose proposal at FCC. But deal appeared to have forestalled, for now, U.S. Trade Representative’s taking action by deadline today (Fri.) for carrying concerns over Mexico’s telecom market any further at WTO. USTR official told us U.S. still wasn’t backing down from earlier filing at WTO that would mark first step toward dispute resolution panel if govt. chose to take that route.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Under long-sought WorldCom-Telmex agreement, settlement rates between U.S. and Mexico will be reduced retroactive to Jan. 1 and carriers will continue to cut rates each year after that. Rates will decrease this year to 15.5 cents per min. from current 19 cents, to 13.5 cents next year and to 10 cents in 2003 between 2 carriers. In what companies called “critical part” of agreement, carriers agreed to urge Mexico and U.S. to undertake “as soon as possible after the agreement is effective” regulatory modifications necessary to allow carriers in both countries to negotiate market-based international termination rates starting Jan. 1, 2004. Telmex said it planned to file agreement with both FCC and Mexico’s Federal Telecommunications Commission. Sources said Telmex and WorldCom also agreed to request that govt. agencies eliminate existing regulations in Mexico and U.S. that prevent negotiation of competitive market-based international termination rates. Telmex said agreement was culmination “of long-running, high-level discussions among U.S. and Mexican long distance carriers.”
“I don’t think we are going to have anything new to say,” said one govt. official of today’s deadline. “We intend to keep working with the Mexican government.” Official said USTR wasn’t withdrawing WTO filing made in Dec. that was first step toward taking full-blown case to that international body. In Dec., USTR took first formal step toward dispute settlement panel at WTO on telecom concerns with Mexico. In Feb., U.S. govt. let pass first chance to request creation of panel at dispute settlement body meeting in Geneva. At that time, U.S. officials cited progress that had been made since start of year. Telmex reached agreement with Avantel, WorldCom affiliate in Mexico, and AT&T-affiliated Alestra on issues such as local network interconnection to provide local services. But other U.S. concerns over Mexican telecom market have been lack of effective regulation of Telmex, high interconnection rates, high settlement rates for international traffic.
AT&T contended proposed settlement rates were far above those that existed in competitive countries. “These kinds of rates can only exist in a market like Mexico that restricts competition in the negotiation of rates, lacks an effective regulator and is not committed to providing low-cost, high-quality telecommunications services,” AT&T said. “These settlement rates will require U.S. consumers to provide a $750 million subsidy to Telmex… over the next 3 years.” In 2004, when negotiations on market-based settlement rates would begin, there would be no guarantee that cost-based rates would take effect, AT&T said.
“Although the new rates were announced as the result of an agreement with WorldCom, we believe they set the tone for the rest of the U.S. carriers,” Lehman Bros. said in research note. Accord is important to Telmex, which took in $500 million in settlement revenue in 2000, 5% of its total revenue, Lehman Bros. said. Analysts were surprised that 2001 rate would be retroactive to Jan. because it had been expected that rates would take effect by midyear. Lehman Bros. forecast settlement revenue of $110 million for first half of 2001, meaning that proposal would reduce that figure 18%.
Agreement alone doesn’t necessarily mean USTR won’t pursue WTO case against Mexico at some point, Precursor Group analyst Rudy Baca said. “This is certainly moving in the right direction, which would tend to militate against USTR action,” he said. “But it alone was not the sum and substance of the problems USTR had with Mexico.” Still, USTR of new Bush Administration for now may not be very willing “to push a close ally at a time when it seems to be moving in the right direction.”
While accord represents commercial pact between 2 carriers, it’s being closely watched as first pact of its kind with Telmex to emerge from years of negotiations. “It certainly does not limit what other carriers may or may not be able to negotiate with Telmex,” industry source said. But several sources said proposed agreement could provide marker for terms that Telmex would be interested in seeking with WorldCom’s competitors. Approval of rates at FCC isn’t necessarily fait accompli, source said. In past, Commission occasionally has found that such proposed rates were too high to be in public interest, source said. That was case in 1998 accounting rate agreement between Sprint and Telmex that covered 3-year period, in which 19 cent per min. benchmark rate was reached in 3rd year but first 2 years included much more incremental reductions, source said.