FCC'S ABELSON CONCERNED BY CHINA'S INCREASING SETTLEMENT FEES

China and some other govts., such as Dominican Republic, “decided to set a floor,” Abelson said: “We were setting a ceiling, and they decided to set a floor.” He said FCC was working with State and Commerce depts. “to get a message to our colleagues in China about our deep concern” about applications of their decision. Abelson said goal was “to bring cost of calling down, as we have done already by 50%. And why would a government set up a floor?” He said other govts. also had expressed concerns.

U.S. benchmark proceeding has “tremendous impact” on foreign revenue… and it can be negative” if administrations haven’t moved to fully deregulate their telecom markets, Abelson said: “If we are paying less to terminate a call, then in the end the foreign side may see less money from the U.S.” However, he said that wasn’t always case: “Where the other end of the circuit [has] a market competition [and] a healthy regulatory body that is ensuring competition, you can see an increase in revenue because there is an increase in the volume of calling.” He said countries often benefited from lowering their price: “It’s an elementary economics. If there is no competition on the other end of the circuit, then you might see lowering revenue.”

“The costs of calling internationally are going down regardless of what countries are trying to do. It’s a matter of time,” Abelson said. He said “smart countries who see that take advantage of that trend and get ahead of it. And we thought China was there,” when it approved Internet telephony. “We thought China was making possible this kind of cost chasing to their consumers and to ours.” He said setting floor was “a new approach to an old problem. That’s how you maintain artificial, not market-raised, prices.”

Abelson said FCC hadn’t receive official copy of document from Chinese govt. He said when companies asked for documents from Beijing, “they said [they] didn’t exist. I don’t know how this will play out in the next month.” However, he said Commission received evidence from long distance providers in U.S. about increased rates in China. “We are looking for some transparency from China,” he said.

AT&T spokeswoman said AT&T hadn’t taken official position on situation. She said Chinese govt. had raised termination rates to 17 cents per min. from 2 cents per min. effective Nov. 1. “We are sharing concerns of the Commission on China’s raising the settlement fees. Rates should be cost-based,” spokeswoman said. She said low termination fees meant “competition is flourishing.”

Aside from situation in China, U.S. govt. agencies that deal with telecom trade issues, including U.S. Trade Representative, NTIA and State Dept., have been monitoring steps in other countries to increase termination rates, several sources said. Among those is Dominican Republic, where govt. issued order that all international traffic must have minimum termination rate of 8 cents per min., sources said. Several industry sources said State Dept., Commerce Dept., USTR and NTIA sent joint letter to Dominican Republic govt. expressing concern.

State Dept. and other federal agencies are closely monitoring instances in which termination rate increases have occurred, sources said. Several said State was drafting memorandum that identified which administrations had taken steps to increase termination rates. One source said increased interest in raising termination rates in some countries could be delayed backlash to FCC’s 1997 benchmarks order on international settlement rates. That order was designed to address high termination charges imposed by some countries, particularly those with monopoly service providers. In such cases, termination charges historically were much higher than costs of termination. Benchmark order directed U.S. carriers to pay foreign carriers certain phased-in rate that was more in line with costs, move that sparked resentment in some countries that saw income from that revenue source decline.

Several interagency planning meetings have been held to discuss policy issues related to termination rates, which could be sent to communications and telecom officers in other administrations worldwide, sources said. “They are concerned and they are looking to do something about it,” one industry source said. In case of China, possible course of action by U.S. govt. isn’t clear. China represents significant telecom route in terms of both numbers of consumers and volume of traffic from 3rd countries that’s routed through China, source said. Other countries that U.S. officials are eyeing include Jamaica, Ecuador and Philippines, source said: “For strategic and business reasons we have a lot at stake.”

In case of China, telecom carriers apparently were apprised of rate increase at end of Oct. by other carriers there. Several industry sources noted lack of transparency by China’s Ministry of Information Industry (MII) in decision to increase termination rate floor to 17 cents a min., sources said. Commercial rate had been closer to 2-4 cents per min., source said. “It’s really a significant increase - - we are talking tenfold,” source said. “That’s a fairly drastic action.” Last week, Chinese Premier Zhu Rongji reportedly criticized govt.-owned China Telecom and regulatory officials for raising rates for long distance calls between Hong Kong and China. “This reflects an ignorance of market economics,” he said. Decision affects all international traffic that terminates in China, not just U.S. routes. One source noted that action by China comes within months of major Chinese carriers receiving Sec. 214 authorization by FCC to provide international services out of U.S., including China Telecom. Other concerns by international carriers involve reported action by China Telecom to compensate Hong Kong carriers for detrimental revenue impact as result of international settlement rate increase, in what would amount to version of rebate.

One regulatory aspect that is being watched closely in U.S. is how China’s action on raising floor for international settlement rates will be viewed in light of its World Trade Organization (WTO) market-opening commitments. While China’s initial market-opening commitments involved only handful of cities, govt. signed WTO basic telecom reference paper, source said. That involves “key, procompetitive principles,” including establishment of independent regulatory agency, step that hasn’t yet occurred, one source said. “This is a perfect example of a regulator that doesn’t act independently from the carrier, specifically China Telecom,” source said. WTO-related obligations also include market access commitments for cross-border supply, source said. In telecom, one of 4 modes of supply involves ability to provide telecom services from foreign location into WTO member’s market. “That’s exactly what international communications is,” source said.