Separate Statement by Chairman Hundt

on International Settlement Rates Report and Order

August 7, 1997

Today's actions establishing new benchmarks to guide the prices U.S. carriers pay to terminate international calls will result in billions of dollars in savings for United States consumers and will help promote a more competitive, vibrant international telecommunications market.

Currently, the average price of an international call is 88 cents a minute, compared to a price of 13 cents a minute for a domestic long distance call. This difference stems principally from the monopoly cartel that has long insisted on settlement rate payments that exceed the underlying cost of providing service by a factor often as large as five to ten times. This order and the World Trade Organization Agreement to open the world's telecommunications markets will work together to stimulate greatly the growth and competitiveness of the international market to the benefit of consumers and carriers alike worldwide.

This order will bring extraordinary benefits to consumers here in the United States and worldwide. We estimate in the United States alone that consumers will save over $17 billion over the next six years, based on current market trends. Along with our access reform order earlier this year, this represents the greatest single consumer benefit ever delivered to American consumers in the history of this agency.

As a result of this order and the WTO Agreement, we predict that the average price of an international call will drop from 88 cents today to 20 cents five years from now -- a decrease of almost 80%.

And, we predict the United States market for international services will more than double over the next four years as a result of this order. The world market should enjoy a similar increase.

Over the last several years, an international consensus has developed on need to reform the antiquated settlement rate system. This system dates back over 100 years to the age of the telegraph and historically served as the mechanism for national monopoly telecommunications carriers to set international settlement rates. The ITU and other international organizations have devoted considerable effort to studying settlement rate reform. We have worked closely with foreign countries in these efforts and will continue to do so. We encourage our friends overseas to move forward with us to reform the settlement rate system because it is an integral part of a successful transition to the post-WTO world. We are convinced that a multilateral solution is the best way to reform and we have pledged in the Report & Order we adopt today to reconsider these benchmarks should such a satisfactory multilateral solution be reached.

Today, the Commission is saying that the solution to financing the global communications network cannot be an ever escalating subsidy from American consumers to foreign telephone companies. We are also saying that the global network must be built, and the only way to do so is by following the same laws of competition and market financing that apply everywhere. In 1996, the total net outpayment from US carriers to foreign carriers was $5.4 billion. Over 70% of this outpayment represents a subsidy from US consumers to foreign telecommunications carriers.

Whether we are talking about termination for domestic or international services, there are certain principles that are constant. The principles governing competition in telecommunications, like the laws of physics, are the same whether one is in South Dakota or South Korea. In last year's Telecommunications Act, Congress set forth a number of principles to guide the introduction of competition for local telephone service. Among these principles was the requirement that prices for competitors to interconnect to the incumbent local exchange companies' networks be cost-based and nondiscriminatory. International settlement rates are simply a specialized form of interconnection involving services that cross national borders. The benchmarks we adopt today provide a framework to foster competition in international services by promoting cost-based and nondiscriminatory pricing for international termination services. They also take into account the needs of developing countries by giving carriers from such countries a higher benchmark and a significantly longer period of time to meet their benchmark.

Consumers around the world will receive higher quality service, more service options, and lower rates as settlement rates are reduced to a more cost-based level. Settlement rate reform will also benefit every carrier that provides international services by stimulating growth for international services. The current accounting rate system suppresses global demand by contributing to inflated international calling prices. As settlement rates, and in turn calling prices, are reduced, demand for international services will be stimulated. More importantly, settlement rate reform is essential if carriers that currently benefit from and rely on artificially high settlement rates are to remain viable. Without settlement rate reform, these carriers face being marginalized by a global telecommunications market that will increasingly bypass artificially high-cost routes, either by least-cost routing practices such as call-back, refile and reorigination, or technological innovation such as Internet telephony (which is not subject to the settlement rate system). Only the discipline of a competitive markets can attract the stores of global capital needed to build the global information infrastructure.