DA 94-1260Before the

Federal Communications Commission Washington, D.C. 20554

In the Matter of ))

American Telephone & ) File Nos. USP-93-W-296 Telegraph Company ) USP-94-W-096

MCI Telecommunications Corp. ) USP-94-W-131Sprint ) USP-94-W-141

) USP-94-W-209 ) USP-94-W-226 ) USP-94-W-231 ) USP-94-W-249 ) USP-94-W-296 } USP-94-W-300 ) USP-94-W-321 } USP-94-W-329

Petitions for Waiver of the )International Settlements Policy )for a Change in the Accounting )Rate for Switched Voice Service )with Australia, Canada, Japan, the )Netherlands, and the United Kingdom )

MEMORANDUM OPINION, ORDER AND AUTHORIZATION

Adopted: November 14, 1994 Released: November 14, 1994

By the Chief, International Bureau:

I. INTRODUCTION

1. In this order, we consider several petitions for waiver of the Commission's International Settlements Policy (ISP) 1 to permit changes in the accounting rates between the United States and other countries. AT&T has filed nine petitions, 2 MCI has filed two petitions, 3 and Sprint has filed one petition. 4 The Commission staff sent a letter to the U.S. carriers in each

xThe ISP requires uniform settlement rates, accounting rates and division of tolls for U.S. international carriers on parallel routes. See Implementation and Scope of Uniform Settlements Policy for Parallel International Communications Routes. 51 Fed. Reg. 4736 (1986) (ISP Order); Reconsideration. 2 FCC Red 1118 (1987); Further Reconsideration, 3 FCC Red 1614 (1988) . in 1991, the Commission reformed the ISP to encourage and facilitate accounting rate reductions by U.S. carriers. See Regulation of International Accounting Rates. 6 FCC Red 3552 (1991) (Phase I Report and Order) Reconsideration. 7 FCC Red 8049 (1992).

2AT&T, Petition for Waiver, USP-93-W-296, September 24, 1993 (Mercury); AT&T, Petition for Waiver, USP-94-W-096, February 16, 1994 (Netherlands PTT) ,- AT&T, Petition for Waiver, USP-94-W- 131, March 8, 1994 (Unitel) ,- AT&T, Petition for Waiver, USP-94-W-141, March 30, 1994 (British Telecom); AT&T, Petition for Waiver, USP-94-W-209, May 10, 1994 (Stentor) ,- AT&T, Petition for Waiver, USP-94-W-231, May 31, 1994 (Telstra); AT&T, Petition for Waiver, USP-94-W-249, June 16, 1994 (Stentor),- AT&T, Petition for Waiver, USP-94-W-296, July 20, 1994 (Kokusai Denshin Denwa) ,- and AT&T, Petition for Waiver, USP-94-W-300, July 28, 1994 (Mercury).

3MCI, Petition for Waiver, USP-94-W-321, August 15, 1994 (Stentor) and MCI, Petition for Waiver USP-94-W-329, August 24, 1994 (British Telecom). MCI filed another petition for waiver with British Telecom (USP-94-W-034, November 16, 1993) that was superseded by USP-94-W-329.

4 Sprint, Petition for Waiver, USP-94-W-226, May 27, 1994.

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case stating that the companies must await formal staff action before the proposed modifications could be implemented. 5 In this decision, we approve these petitions for waiver to reduce the accounting rates for switched telephone service, including Country Direct-type offerings which include an additional thirty seconds for call set-up time in the calculation of settlement minutes. We reject those parts of the petitions which seek to introduce a higher, non-uniform accounting rate for some service classifications, or to increase the existing surcharge on some collect calls because proponents of these charges have not demonstrated that these requests are in the public interest.

II. SUMMARY OF WAIVER REQUESTS

A. Accounting Rates with Surcharges

2. AT&T's waiver petition with Mercury in the United Kingdom seeks to implement a change in the accounting rate for IMTS and to introduce and establish accounting rates for certain service classifications for the first time. Specifically, the waiver seeks to implement a reduction in the accounting rate for switched voice service from 0.4 Special Drawing Rights (SDR) 6 per minute to 0.3 SDR per minute, and to add thirty seconds to the conversation time of each USADirect message in calculating settlement minutes of such calls. USADirect has not been previously provided in conjunction with Mercury. The extra thirty seconds is equivalent to a surcharge of 0.075 SDR for each USADirect call. 7 The accounting rate for each minute of service would be divided equally between AT&T and Mercury. The proposed effective date is not stated in the petition. AT&T asserts that the proposed change in the accounting rate is in the public interest because: a) the absolute level of the proposed accounting rate and the percentage reduction in the rate represent significant progress toward cost-based accounting rates; b) the reduction recognizes differences in the costs of call completion for USADirect and other IMTS classifications; c) the reduction provides a framework for further accounting rate reductions between the United States and the United Kingdom; and d) the lower accounting rate will produce reductions in net settlement payments to the United Kingdom, which according to AT&T will total

5See Letter from George S. Li to Elaine R. McHale, AT&T, dated October 12, 1993; Letter from George S. Li to Elaine R. McHale, AT&T, dated March 1, 1994; Letter from George S. Li to Elaine R. McHale, AT&T, dated March 22, 1994; Letter from George S. Li to Elaine R. McHale, AT&T, dated April 14, 1994; Letter from George S. Li to Elaine R. McHale, AT&T, dated May 24, 1994; Letter from George S. Li to Marybeth Banks, Sprint, dated June 10, 1994; Letter from George S. Li to Elaine R. McHale, AT&T, dated June 10, 1994; Letter from George S. Li to Elaine R. McHale, AT&T, dated June 30, 1994; Letter from George S. Li to Elaine R. McHale, AT&T, dated August 3, 1994; Letter from George S. Li to Elaine R. McHale, AT&T, dated August 4, 1994; Letter from George S. Li to Jodi L. Cooper, MCI, dated August 29, 1994; and Letter from George S. Li to Jodi L. Cooper, MCI, dated September 9, 1994.

The current exchange rate between the SDR and the U.S. dollar is approximately 1 SDR=$1.50. At this rate, 0.4 SDR equals $0.60.

AT&T filed petitions for waiver for service provided with two other administrations. France Telecom International (See USP-94-W-OS3) and Enterprise Des Postes, Telephones et Telegraphes Swisses (See USP-93-W-295), to implement changes in the accounting rate for IMTS. These revisions were similar to the revisions proposed in the instant petition for waiver involving Mercury's service in that the two other petitions proposed to reduce the accounting rate for IMTS and to institute a surcharge on each USADirect call based on thirty seconds of network utilization time. The Common Carrier Bureau staff notified AT&T that grant of the petitions might not serve the public interest and that AT&T would need formal staff action before it could implement the proposed accounting rate changes. AT&T subsequently withdrew the two petitions and filed new petitions for waiver (See USP-94-W-206 and USP-94-W-134). These petitions proposed an accounting rate for each minute that was slightly higher than the accounting rate that had been proposed in the petitions that were withdrawn, but they did not include a surcharge for USADirect service. The proposed accounting rates were allowed to go into effect.

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$3.6 million per year, and will benefit all of AT&T's IMTS ratepayers.

3. AT&T notes that the proposed IMTS accounting rate is below the Commission's benchmark range8 for Europe, which the Commission set at settlement rates of $0.23 to $0.39 per minute to terminate calls in Europe. AT&T argues that the lower accounting rate will be a new target for negotiations with other countries, particularly in Europe. AT&T also argues that the proposal does not constitute an increase in any existing IMTS accounting rates, unlike other proposals that the Commission has rejected. AT&T also argues that the surcharge for each USADirect call recognizes the increased set-up time needed to establish such a call and in this regard it is similar to other operator-assisted, received collect calls, which also have a surcharge.

4. AT&T's other waiver with Mercury seeks to introduce and establish a surcharge of 4.0 SDR per message for received collect calls, payable to the non-billing administration. This change would be effective retroactively on April 1, 1994. AT&T asserts that the proposed change in the accounting rate is in the public interest because April, 1994 is the earliest possible date for any reduction in the accounting rate, and will lead to reduced U.S. settlement outpayments.

5. AT&T's waiver with the Netherlands PTT seeks to implement a reduction in the accounting rate for switched voice service, including USADirect service, from 0.5 SDR per minute to 0.4 SDR per minute, and to add thirty seconds to the conversation time of each USADirect message in calculating settlement minutes of such calls. The accounting rate would be effective January l, 1994 and be divided on a 50/50 basis. The extra thirty seconds is equivalent to a surcharge of 0.1 SDR for each USADirect message. The surcharge for received collect calls remains 3.0 SDR. AT&T asserts that accounting rate reductions with other administrations are anticipated if this proposal is accepted.

6. AT&T's waiver with Unitel in Canada seeks to implement a reduction in the accounting rates for switched voice service, including USADirect and Unitel's Country Direct service, from $0.28 per minute to $0.26 per minute during the full period and from $0.24 per minute to $0.22 per minute during the reduced period, 9 and to add the equivalent of thirty seconds to the conversation time of each USADirect and Unitel's Country Direct message in calculating settlement minutes of such calls. The result is a surcharge of $0.065 per message for each such call made during the full period and $0.055 per message for each such call made during the reduced period. The surcharge for received collect calls remains $1.00 but the surcharge for calling card service would be reduced from $1.00 to $0.50 per message. The accounting rate would be effective January 1, 1994 and be divided on a 50/50 basis.

7. AT&T's waiver with Telstra in Australia seeks to implement a reduction in the accounting rate for switched voice service, including USADirect and Telstra's Country Direct service, from 0.55 SDR per minute to 0.4 SDR per minute, and to add thirty seconds to the conversation time of each USADirect and Telstra's Country Direct message in calculating settlement minutes for

8The Commission defined its benchmark ranges in terms of settlement rates per minute rather than accounting rates because a settlement rate, being one-half of the accounting rate, represents the payment per minute that is owed by the billing carrier to the administration in the terminal country to terminate a minute of service. See Reflation of International Accounting Rates, 7 FCC Red 8040, 8041 (1992).

The terms "Full Period" and "Reduced Period" are used frequently to identify the peak and the off-peak periods in international communications.

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such calls. 10 The extra thirty seconds is equivalent to a surcharge of 0.1 SDR for each USADirect and Country Direct call. 11 In addition, the waiver seeks to implement a reduction for Global Software Defined Network ("GSDN") service from 0.6 SDR per minute to 0.4 SDR per minute. The accounting rate would be effective July 1, 1994 and be divided on a 50/50 basis.

8. AT&T's waiver with Kokusai Denshin Denwa ("KDD") in Japan seeks to implement a reduction in the accounting rate for switched voice service, including USADirect and KDD's Country Direct service, from 0.75 SDR per minute to 0.6 SDR per minute, and to add thirty seconds to the conversation time of each USADirect and KDD's Country Direct message in calculating the settlement minutes for such calls. The extra thirty seconds is equivalent to a surcharge of 0.15 SDR for each USADirect and KDD's Country Direct call. In addition, the waiver seeks to implement a. reduction in International 56 kbps Switched service from 0.75 SDR per minute to 0.6 SDR per minute, in GSDN service from 0.64 SDR per minute to 0.5 SDR per minute, and in Network Remote Access Overseas service from 0.75 SDR per minute to 0.6 SDR per minute. The surcharge on received collect calls remains at 1.9 SDR. Each accounting rate would be effective October 1, 1994 and be divided on a 50/50 basis.

9. AT&T argues that the proposed accounting rate changes for service with the Netherlands PTT, Unitel, Telstra, and KDD recognize differences in costs between USADirect and other IMTS calls, will produce reductions in net settlements to each country, and benefit all AT&T switched service ratepayers.

10. Table 1 summarizes AT&T's current accounting rates with Mercury, Netherlands PTT, Unitel, Telstra, and KDD, and those rates filed in the petitions for waiver.

AT&T has an operating agreement to provide service with another carrier in Australia, OPTUS, which, like Mercury in the United Kingdom, is a recent entrant into the international market for switched telephone service with the United States. AT&T's operating agreement with OPTUS has a single accounting rate for IMTS and no surcharge on USADirect calls.

There is no surcharge on received collect calls between the United States and Australia.

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Table 1. AT&T's Proposed Changes with Surcharges

Service Classification

Mercury

IMTS

Received Collect Surcharge

USADirect Surcharge

Netherlands PTT

IMTS

Received Collect Surcharge

USADirect Surcharge

Unitel

IMTS

Received Collect Surcharge

Calling Card Surcharge

USA/Country Direct Surcharge

Telstra

IMTS

GSDN

USA/Country Direct Surcharge

KDD

IMTS

Received Collect Surcharge

USA/Country Direct Surcharge

Int'l. 56 kbps Switched Digital

GSDN

Network Remote Access

Current A/R

0.4 SDR

0.5 SDR

3.0 SDR

$0.28 (full) $0.24 (reduced)

$1.00

$1.00

0.55 SDR

0.6 SDR

0.75 SDR

1.9 SDR

0.75 SDR

0.75 SDR

0.75 SDR

Proposed A/R

0.3 SDR

4.0 SDR

0.075 SDR

0.4 SDR

3.0 SDR

0.1 SDR

v $0.26 (full) $0.22 (reduced)

$1.00

$0.50

$0.065 (full) $0.055 (reduced)

0.4 SDR

0.4 SDR

0.1 SDR

0.6 SDR

1 .9 SDR

0.1 5 SDR

0.6 SDR

0.6 SDR

0.6 SDR

Effective Date

Not Stated

4/1/94

Not Stated

1/1/94

1/1/94

1/1/94

1/1/94

1/1/94

1/1/94 1/1/94 1/1/94

7/1/94

7/1/94

7/1/94

10/1/94

10/1/94

10/1/94

10/1/94

10/1/94

10/1/94

B. Non-Uniform Accounting Rates

11. The waivers of MCI, AT&T, and Sprint for service provided with British Telecom (BT) seek to implement changes in the accounting rate for IMTS. 12

IDE Worldcom also filed petitions for waiver with BT. The first petition (IDE Worldcom, Petition for Waiver, USP-94-W-089, January 21, 1994,) is the same as the petitions of AT&T and Sprint except that IDE does not offer operator-assisted service. IDE's second petition (IDE Worldcom, Petition for Waiver, USP-94-W-311, August 9, 1994), which supersedes the January 21 petition, proposes a different accounting rate with BT that is the same as the accounting rate proposed by MCI with BT in its petition described below except for absence of operator-assisted

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Specifically, the waivers of AT&T and Sprint seek to implement a reduction in the IMTS accounting rate from 0.44 SDR per minute for the full period and 0.35 SDR per minute for the reduced period to 0.34 SDR per minute for all IMTS minutes; a reduction in the International 800 (1-800) accounting rate from 0.44 SDR per minute to 0.34 SDR per minute; a reduction from 0.4 SDR per minute to 0.24 SDR per minute for International Virtual Private Line service; 13 a reduction in Country Direct Service14 from 0.44 SDR per minute to 0.31 SDR per minute; and an increase in the surcharge for received collect station-to-station calls from 3.25 SDR per message to 4.0 SDR per message, which is the current surcharge for received collect person-to-person calls. MCI's waiver seeks a reduction in the accounting rate from 0.44 SDR per minute for the full period and 0.35 SDR per minute for the reduced period to 0.33 SDR for all IMTS minutes, including Country Direct Service; and an increase in the surcharge for received collect station-to-station calls from 3.25 SDR per message to 4.0 SDR per message. 15 The effective date for the change would be April 1, 1994 for all service classifications except Country Direct Service, which would be effective December 1, 1993. Each U.S. carrier would divide the accounting rate for each minute of service equally with BT. 16 Each petitioner states that its agreement provides the earliest possible reduction in the accounting rate and U.S. settlements outpayment.

12. AT&T also has filed two waivers with Stentor in Canada which are considered in this order. One seeks to introduce and establish the accounting rate of $0.26 per minute for USADirect and Country Direct service. The other waiver with Stentor seeks to implement a reduction in the accounting rate for 1-800 service from $0.36 per minute during the full period and $0.30 per minute during the reduced period to a single rate of $0.26 per minute. Both accounting rates would be effective May 1, 1994 and be divided on a 50/50 basis. AT&T's current accounting rates with Stentor for switched voice service are $0.26 during the full period and $0.22 during the reduced period. 17

13. MCI also has filed a waiver with Stentor which is considered in this order. This waiver seeks to introduce and establish the accounting rate of $0.26 per minute for Country Direct service, and to reduce the accounting rate for 1-800 service from the current level of $0.42 per minute during the peak period and $0.36 per minute during the off-peak period to $0.36 and $0.30 during these periods, effective July 1, 1994, and to $0.26 for all minutes, effective August 1, 1994. MCI's current accounting rates with Stentor for switched voice service are $0.26 during the full period and $0.22 during the

service. The accounting rate proposed by IDE in its second petition was allowed to go into effect.

This service classification is called Global Software Defined Network Service (GSDN) by AT&T and International Virtual Private Line Service (IVPH) by Sprint.

This service classification is called Worldphone by MCI, USADirect by AT&T, and Sprint Express by Sprint.

MCI's November 16, 1993 petition (n. 3 supra) proposes an accounting rate that is identical to the accounting rate AT&T and Sprint propose.

Sprint states that its operating agreement with BT contains no other modifications. AT&T asserts that "[tine proposed accounting rate agreement is conditioned on changes to the agreement between the parties, including the method for settlements payment and proportionate return." See AT&T/BT Waiver, p.l. AT&T also states in its waiver that the conditions, which have not been submitted to the Commission, will be filed after they are finalized.

17The "Full Period" is 8 A.M. to 6 P.M., Monday through Friday; the "Reduced Period" is 6 P.M. to 8 A.M., Monday through Friday, all day Saturday and Sunday, December 25, and January 1.

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reduced period.

14. Table 2 summarizes U.S. carriers' current accounting rates with BT and the rates filed in their petitions for waiver, and AT&T's and MCI's current and proposed accounting rates with Stentor.

Table 2. Proposed Changes with Non-uniform Accounting Rates

Service Classification

BT (with AT&T & Sprint)

IMTS

Received Collect Surcharge

Current A/R

0.44 SDR (full) 0.35 SDR (reduced)

3.25 SDR (station) 4.0 SDR (person)

Proposed A/R

0 .34 SDR

4.0 SDR 4.0 SDR

Effective Date

4/1/94

4/1/94

I-800

GSDN, VCS, IVPN

0.44 SDR

0.4 SDR

0.34 SDR

0.24 SDR

4/1/94

4/1/94

USA/Country Direct Service 0.44 SDR 0.31 SDR 12/1/93

BT (with MCI)

IMTS 0.44 SDR (full) 0.35 SDR (reduced)

0.33 SDR 4/1/94

Received Collect Surcharge

I-800

Wortdphone/Country Direct

Stentor (with AT&T)

USA/Country Direct Service

I-800

Stentor (with MCI)

Country Direct

I-800

3.25 SDR (station) 4.0 SDR (person)

0.44 SDR

0.44 SDR

0.36 (full) $0.30 (reduced)

$0.36(full) $0.30 (reduced)

4.0 SDR 4.0 SDR

0.33 SDR

0.33 SDR

$0.26

$0.26

$0.26

$0.26

4/1/94

4/1/94

4/1/94

5/1/94

5/1/94

7/1/94

7/1/94

A. Summary of Decision

III. DISCUSSION

15. In this order, we find that AT&T's proposals to reduce the IMTS accounting rate with the Netherlands PTT from 0.5 SDR to 0.4 SDR per minute.

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with Unitel from $0.28 to $0.26 per minute during the full period and from $0.26 to $0.22 per minute during the reduced period, with Telstra from 0.55 SDR to 0.4 SDR per minute, with Mercury from 0.4 SDR to 0.3 SDR per minute, and with KDD from 0.75 SDR to 0.6 SDR per minute are reasonable steps toward bringing accounting rates for service between the United States and the countries served by these administrations closer to costs. Thus, these proposals are in the public interest and are approved. Similarly, we find that AT&T's proposals to reduce the GSDN accounting rates with Telstra, Mercury, and KDD are important steps toward achieving cost-based accounting rates, as is AT&T's proposal to reduce the accounting rates for International 56 kbps service and Network Remote Access service with KDD. These proposals are in the public interest and are also approved. In addition, we find that AT&T's proposal to introduce and establish an accounting rate for 1-800 service with Mercury at 0.3 SDR per minute and to reduce the calling card surcharge with Unitel is in the public interest. We further conclude that the proposal in AT&T's waiver requests with respect to USADirect and Country Direct service to include an additional time element associated with the provision of this service classification is reasonable. Based on the information before us, thirty seconds is a reasonable estimate of the additional time currently required to set up such calls.

16. We conclude that AT&T proposes to introduce an impermissible increase in the surcharge for received collect service with Mercury in violation of our policy on international accounting rates. 18 AT&T has not demonstrated that the increase in the received collect surcharge is in the public interest.

17. In this order, we also approve the proposals of AT&T and Sprint with BT to reduce the accounting rate for Country Direct Service from 0.44 SDR to 0.31 SDR per minute and the proposal of MCI with BT to reduce the accounting rate from 0.44 SDR to 0.33 SDR per minute because they promote our goal of lower, more cost-based accounting rates. We note, however, that the accounting rates between U.S. carriers and BT must be implemented in a fashion that reflects our policy of uniform settlement rates, accounting rates, and division of tolls. We further find that the carriers' proposals to reduce the accounting rate for International Virtual Private Line Service from 0.4 SDR to 0.24 SDR per minute would move the accounting rate for this service closer to costs.

18. We find, however, that the petitions for waiver of AT&T and Sprint with BT contain an accounting rate for IMTS and 1-800 service that is higher than the accounting rate proposed for USADirect and Country Direct service, and that the petitions provide no cost basis for this higher rate. We also find that these waiver requests propose an increase in the received collect surcharge for station-to-station calls that is similarly unsupported. We therefore reject the accounting rates proposed by AT&T and Sprint for IMTS and 1-800 to the extent they exceed the accounting rate proposed for USADirect and Country Direct service, and also reject the proposed increase in the surcharge on received collect station-to-station calls of MCI, AT&T, and Sprint.

19. We also find that AT&T's proposal to reduce the accounting rate with Stentor for 1-800 service would move that rate closer to the cost of providing that service. We therefore approve it. AT&T, however, has provided no

T8We note that the foreign carriers involved in the petitions for waiver all provide service in economically developed, industrialized nations that have technologically advanced telecommunications networks, not unlike the U.S. network. The number of main lines per 100 people in these countries, for example, is about the same as the United States, which had 51.49 in 1991. (See ITU Statistical Yearbook, 1992. Geneva, 1994) All countries are OECD members and three belong to the G-7. The carriers are thus well-positioned to move promptly to implement the terms of ITU Recommendation D.140 that accounting rates for international telephone services should be "cost-orientated" and take into account relevant cost trends, be applied to all relations on a non-discriminatory basis, and be implemented in an expeditious manner, normally within one to five years. CCITT Circular No. 169, COM III/ST, October 7, 1992.

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justification for establishing an accounting rate for 1-800 service and Country Direct service that differs from the accounting rate for IMTS service with Stentor. We therefore reject the accounting rate proposed by AT&T with Steritor for 1-800 service and Country Direct-type service to the extent it exceeds the accounting rate for IMTS service.

20. The accounting rate reductions proposed in the waiver petitions are important steps toward compliance with ITU accounting rate principles and with the Commission's directive to U.S. carriers to negotiate cost-based, nondiscriminatory accounting rates. 19 The reductions put the affected rates either within or below the benchmark ranges established by the Commission. 20 The average reduction proposed by U.S. carriers is approximately 25 percent, and AT&T's proposed accounting rate change with Unitel would match the lowest U.S. rate currently in effect.

21. We also believe that our disposition of the proposed surcharges and non-uniform accounting rates is consistent with the guidelines established by the Commission for reviewing such waiver requests. In its Phase I Report and Order the Commission delegated authority to the Common Carrier Bureau "to consider, on a case-by-case basis, granting ISP waiver requests that include a lower, more economically efficient, cost-based, international accounting rate when supported by a sound analysis of the benefits that will result from the implementation of that rate." 21 The Commission stated that the Bureau should approve accounting rate changes if the changes resulted in a) a more cost- based accounting rate, and b) either a commitment to lower calling prices or some other public interest benefit. 22 The Commission stated, however, that "under our waiver option we would expect to deny certain types of waiver requests, such as non-cost-based increases in, or surcharges to, the accounting rate. . . . " 23

5. Accounting Rate Surcharges

22. AT&T's agreements to reduce the accounting rate between the United States and the Netherlands PTT, and between the United States and Mercury, are conditioned explicitly on inclusion of a separate charge for the USADirect service option that results from adding thirty seconds to the conversation minutes for such calls. Similarly, the agreements with Unitel, Telstra and KDD include a separate charge on the USADirect service option that is based directly on the underlying accounting rate. In order to justify this surcharge, AT&T attempts to distinguish USADirect from other IMTS classifications. Under the proposed accounting rate agreements, thirty seconds would be added to the conversation time of each USADirect and Country Direct

19See Phase I Report and Order. 6 FCC Red at 3555.

The Commission has concluded that a reasonable and conservative settlement rate range for service with Europe is between $0.23 and $0.39 per minute and for Asia and other regions the range is between $0.39 and $0.60 per minute. See Regulation of International Accounting Rates, at p 8041, 8043.

21Phase I Report and Order. 6 FCC Red at 3554. This delegated authority is now within the jurisdiction of the International Bureau. See Order Creating International Bureau, FCC 94-252.

Id. In addition, the Commission made clear its intention to continue using the ISP to prevent whipsawing of U.S. carriers. See id. at 3554, 3555.

23See id. at n. 30.

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message in calculating settlement minutes of such calls. 24 The accounting rate would be divided on a 50/50 basis so the extra thirty seconds is equivalent to a surcharge of 0.1 SDR with the Netherlands PTT and Telstra; of 0.075 SDR with Mercury; of $0.065 during the full period and $0.055 during the reduced period with Unitel; and of 0.15 SDR with KDD for each USADirect call. 25 Therefore, the proposed surcharge for network utilization time is based on the proposed underlying per minute accounting rate for IMTS service with each country.

23. We will approve the additional thirty-second increment as reasonable because of the longer call set-up time required for Country Direct-type service, and not because, as AT&T argues, it is "cost-based." While we are encouraged by AT&T's attempt to bring cost considerations into its accounting rate determinations with the administrations, the proposed additional charge is based on an accounting rate that neither AT&T nor its correspondents argue is cost-based. 26 Moreover, while there may be increased network utilization time associated with a USADirect call, AT&T provides no evidence that adjusting the length of a USADirect call by thirty seconds reasonably reflects the additional costs incurred to provide the service. Thus, even if a USADirect call adds some seconds to conversation time, AT&T does not demonstrate that the added time actually results in an increase in the cost of providing such calls to the Netherlands and Australia by 0.1 SDR, to the United Kingdom by 0.075 SDR, or to Canada by $0.065 during the full period and $0.055 during the reduced period. We also note the contrast between this proposal and the proposals by AT&T and Sprint with BT, which propose a lower accounting rate for USADirect and Country Direct service, 27 as further evidence that a surcharge on USADirect service may not reflect costs.

24. AT&T's argument, however, overlooks an important distinction between how costs are incurred to provide an IMTS call and how those costs are recouped through the accounting rate process. A major portion of the cost of providing an international telephone call is fixed and does not vary with the length of a call. It is incurred to establish the circuit between the calling

24The number of minutes in a call is the "call duration." Call duration for purposes of settlements is measured in "conversation minutes" calculated from the time the called party goes off-hook to the time the called party hangs up the receiver. See CCITT Recommendation D.150. The proposed surcharge consists of adding thirty seconds of network utilization to the total conversation time of each USADirect and Country Direct call. The petition for waiver with Unitel does not state explicitly that thirty seconds are added to the total conversation time for USADirect and Country Direct service, but the surcharge for full and reduced period calls suggest strongly that thirty seconds is the basis for the surcharge.

25AT&T has estimated that 7.1 percent of the U.S. billed minutes were U.S. carrier country direct minutes in 1991. (See AT&T Reply Comments in Comprehensive Evaluation of the Regulation of International Telephone Service, Department of Commerce, Docket No. 92151-2351 at 20.) The proportion of service attributable to country direct service has probably grown since 1991. Moreover, country direct service from the countries involved in this decision may be greater than the proportion for the world as a whole.

In its own petition for waiver, AT&T states the true cost of providing service between the United States and the United Kingdom is 0.15 SDR per minute. (See AT&T/Mercury Waiver at n.4.) AT&T has used the same figure, 0.15 SDR, in other filings before the Commission (See AT&T Petition to Deny Application of BT North America, File No. ITC-93-126, at 38 n. 41; AT&T Reply to Application of BT North America, File No. ITC-93-126 at 26.) Other information suggests that in the case of Australia the lower accounting rate proposed by AT&T may continue to exceed average cost of providing service by a substantial margin. A recent paper suggests that the average cost per minute of a call between Australia and the United States is between A$0.30 and A$0.50, which converts to approximately 0.15 SDR to 0.37 SDR at current exchange rates. According to the authors, most calls are between cities on high volume links and their cost would fall at the lower end of the range. (See Martin Cave and lan Martin, Regulation of International Trade in Telecommunications Services: The Potential Benefit of an Accounting Separation Approach. Presented at Negotiating Group on Basic Telecommunications, October 24, 1994.)

27See Table 2.

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party and the called party and includes signalling the network that a caller wishes to establish a communication path, selecting a circuit and other capital equipment needed for the call, signalling back to complete the circuit, and so on. Once the circuit is established and capital equipment is committed to a call, little additional expense is incurred to maintain service. Thus, the initial, set-up cost of a call is high, whether the call is only a few seconds in duration or several minutes, and the additional cost is quite low.

25. In contrast, the accounting rate process is designed to reimburse administrations on the basis of a call's duration, and therefore is not based on actual costs or way they are incurred. The present reimbursement process is a function of a call's duration measured in minutes of conversation time. For each minute of a call, the billing administration owes an amount equal to the settlement rate. The longer the duration of a call, the greater the settlement payment. The additional time increment for Country Direct-type service recognizes that a circuit is committed to such a call for more time than a international dial call due to the longer set-up time. It is reasonable, therefore, to reflect that time in the reimbursement.

26. AT&T has provided a study28 which supports a finding that, on average, the additional time currently required to set up a Country Direct-type call is approximately thirty seconds. It appears that thirty seconds is a reasonable and generous allowance to apply to Country Direct-type calls. 'a We expect that the time required to set up a Country Direct-type call may decline in the future as it seems to have done in the past. We will, therefore, require AT&T, and any other U.S. carrier proposing to include additional time for Country Direct-type calls, to include in any petitions for waiver of the ISP sufficient information to justify the average additional time required to set up such calls. 30 We look forward to future petitions for waiver of the ISP to further reduce accounting rates to reflect that technological advances.

27. We are also concerned, as we noted above, that allowing additional time for Country Direct-type calls may lead to a proliferation of waivers that include this or similar additional elements in the accounting rate. Accounting rates presently exceed the cost of providing service and in many cases there are substantial differences. Our policy continues to be lower, non- discriminatory, economically efficient, cost-based accounting rates. To ensure continued progress toward this goal, we expect that any proposal including an additional time element for Country Direct-type calls will be accompanied by a reduction in the basic accounting rate and that that accounting rate, including the added time element for Country Direct-type service, will fall within the relevant benchmark range that we have established for the region in

28The study is described in "Incremental Call Processing Time for AT&T Direct Services (USADirect and World Connect) vs. AT&T ILD Calls" filed with the Commission on November 10, 1994.

29Telstra suggests that a Country Direct call requires approximately twenty seconds more time than an average IDD call to set up. See Letter from Deena Sniff, Telstra, to the Commission, October 18, 1994.

Substantiation of the additional time element should be in the form of a studyundertaken during a recent, relevant time period. The study should include, but not be limited to, a description of the study methodology used to estimate the additional time, the sample and data collected to calculate the estimate, the sampling technique used to collect the data, the time period for the data, the statistical methods used to calculate the estimates, the statistical reliability of the estimates, and a discussion of the results. The study should be updated on an timely basis, at least annually.

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which the particular country is located. 31 Further, the extra time element for Country Direct-type calls will remain in effect only for the period when the accounting rate to which it applies is in effect. We also expect accounting rates that include such an additional time element to reflect any changes in the benchmark ranges that may occur.

28. Based on the foregoing discussion, we find that AT&T's proposal to include an additional time element in the calculation of settlement minutes for USADirect and Country Direct-service is in the public interest. In each instance the proposal incorporates a reduction in the basic .accounting rate for IMTS and the resulting accounting rates fall within the relevant benchmark range established by the Commission. Moreover, we believe this step will serve to advance our overall objective of lower, more cost-based, nondiscriminatory, economically efficient accounting rates, and lead to lower net settlement payments than would have otherwise resulted. It is our expectation that as a result of this action U.S. carriers will be in a better position to negotiate further reductions in accounting rates with the administrations in the countries affected by this action and it will also provide an incentive for administrations in other countries to agree to lower accounting rates with U.S. carriers.

29. We are concerned, however, that the implementation of an additional charge for USADirect and Country Direct-type service at a time when accounting rates still exceed costs by a substantial margin may be mistakenly interpreted as an indication that a surcharge accompanied by a reduction in the basic accounting rate is acceptable to this Commission, and may lead to a proliferation of surcharges on Country Direct-type service and other IMTS classifications. Such a development would seriously impede progress toward cost-based, nondiscriminatory accounting rates. We therefore believe that appropriate conditions must be met before we would approve any proposal requesting special treatment for Country Direct-type service or other service classifications. We will monitor closely developments in this area.

B. Non-Uniform Accounting Rates

30. The petitions of Sprint and AT&T to reduce the per minute accounting rate for service provided with BT also seek to differentiate AT&T's USADirect, Sprint's Sprint Express, and BT's Country Direct service from other IMTS classifications. In contrast to the treatment of USADirect service proposed in the AT&T/Mercury waiver, the waivers with BT would establish one accounting rate per minute for IMTS and 1-800, and another, lower accounting rate for Country Direct-type service. Specifically, the proposals call for an accounting rate for Country Direct-type service that would be 0.03 SDR per minute below the accounting rate for other IMTS service classifications. The two accounting rates, 0.34 SDR and 0.31 SDR, differ from the rate proposed by MCI with BT which is 0.33 SDR for all IMTS classifications.

31. In effect, the non-uniform accounting rates include a higher accounting rate on each minute of IMTS and 1-800 service than for Country Direct-type service, and petitioners fail to justify this difference or to demonstrate that the difference is in the public interest. They do not attempt to distinguish Country Direct-type services from other IMTS classifications nor have they presented information or arguments that the higher, proposed accounting rate for all IMTS classifications except Country Direct is justified on the basis of higher costs incurred to provide those service classifications.

In those instances in which a peak/off-peak, a growth-based, or some other accounting rate structure with multiple rates is in effect, we expect that each and every component of the rate structure will fall within the benchmark range that applies to the relation.

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32. The waivers of AT&T and MCI with Stentor propose to establish an accounting rate of $0.26 per minute for USA/Country Direct service and to reduce the accounting rate for 1-800 service from $0.36 during the peak period service and $0.26 during the off-peak period service to $0.26 per minute for all periods. In comparison, the rates for IMTS with Stentor are $0.26 during the full period and $0.22 during the reduced period. To date, the Commission has not distinguished USA/Country Direct service and 1-800 service from other international switched voice service classifications in its accounting rate determinations. Petitioners do not argue nor have they submitted information in the instant petitions for waiver to distinguish either USA/Country Direct service or 1-800 service from IMTS, or to furnish any other basis to establish an accounting rate that is different from the IMTS accounting rate. Moreover, they have presented no showing that the lower accounting rate that is applied to IMTS during the reduced period should not also be applied to USADirect service and 1-800 service, nor have they demonstrated that the proposals are in the public interest. We can find no reason to establish a different accounting rate for USA/Country Direct service and 1-800 service. As a result, implementation of the proposed accounting rate of $0.26 per minute for the two service classifications would produce an impermissible higher accounting rate for USA/Country Direct service and 1-800 service than for IMTS during the reduced period.

33. We are encouraged by the downward movement in accounting rates that these petitions represent and by the fact that the proposed accounting rates with BT are below the benchmark range we set for service with Europe. 32 Based on our analysis of the arguments and information submitted in support of the waiver requests, however, we find that the waivers of MCI, AT&T, and Sprint with BT do not demonstrate that the public interest would be served by the proposed accounting rates for IMTS and 1-800 or that we should depart from the Commission's policy against non-cost based increases in, or surcharges to, accounting rates. Similarly, the waivers of AT&T and MCI with Stentor fail to demonstrate that the public interest would be served by allowing accounting rates for Country Direct-type service and 1-800 service that are different than other IMTS classifications. We reaffirm "our intention to implement Commission policy to preclude the introduction of higher, non-uniform, international accounting rates that exceed the cost of providing service." 33

C. Accounting Rate Increases

34. The waivers of AT&T, MCI, and Sprint propose to increase the surcharge on received collect station-to-station calls between the United States and the United Kingdom. Currently, there is a surcharge of 3.25 SDR per message for station-to-station calls and 4.0 SDR per message for person-to-person. AT&T's waiver with Mercury proposes to introduce a uniform surcharge of 4.0 SDR per message for all received collect calls. Similarly, the waivers of AT&T, MCI, and Sprint with BT propose to implement a single surcharge of 4.0 SDR per message for received collect calls. Inasmuch as the current agreements between U.S. carriers and BT have a 3.25 SDR surcharge for each received collect station-to-station call and a 4.0 SDR surcharge for each received collect person-to-person call, and the petitions for waiver propose a 4.0 SDR surcharge on all received collect calls, that part of the petitions dealing

We note once again, however, that the proposed accounting rates of 0.31 SDR per minute for Country Direct service and 0.34 SDR per minute for other IMTS classifications are significantly higher than AT&T's estimated average cost of 0.15 SDR per minute for service between the United States and the United Kingdom, and AT&T's claim that continuing technological change should lead to further cost reductions in the future. (See AT&T Petition to Deny Application of BT North America File No. ITC-93-126, at 38, n.41.)

See American Telephone and Telegraph Company and MCI Communications Corporation. 5 FCC Red 4618 at 4621.

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with this surcharge constitutes an increase in the surcharge on received collect station-to-station calls. AT&T's proposal with Mercury to impose a single surcharge on this service classification also constitutes an increase in the prevailing accounting rate on service with the United Kingdom. The proposals, as they apply to received collect station-to-station calls, therefore constitute an increase in the accounting rate' surcharge that is currently in effect for that service classification. Petitioners have failed to furnish a cost or other public interest justification to support the increase in the accounting rate surcharge for received collect station-to- station calls. We therefore reject the proposal to increase the surcharge on received collect station-to-station calls.

IV. CONCLUSION

35. We find that the proposed reductions in the accounting rate for switched voice service between AT&T and the Netherlands PTT, AT&T and Mercury, AT&T and Unitel, AT&T and Telstra, and AT&T and KDD are in the public interest because they will bring accounting rates with these administrations closer to the cost of providing service. Implementation of these reductions is likely to result in lower net settlement payments to the countries served by these administrations than the current accounting rates would produce if they remained in effect. Moreover, these changes promote the Commission's objective of lower, more cost-based, economically efficient accounting rates. We also find that AT&T's waivers with these administrations to include an allowance of additional time for USADirect and Country Direct-type service is a reasonable way to account for the added time required to set up such calls, that thirty seconds is a reasonable estimate of the added time, and that the proposed accounting rates fall within our benchmark ranges. We further find, however, that AT&T's waiver with Mercury includes an impermissible non-cost-based increase in the accounting rate surcharge for received collect station-to- station calls and, therefore, deny AT&T's request to increase that surcharge.

36. In addition, we find that the proposals of MCI, AT&T, and Sprint to reduce the accounting rate for switched service with BT are in the public interest because they will align the accounting rates with this administration more closely with the cost of providing service. These reductions are likely to result in lower net settlement payments to the countries served by these administrations than the current accounting rates would produce if they remained in effect. Moreover, these changes promote the Commission's objective of lower, more cost-based, economically efficient accounting rates. We find, however, that AT&T and Sprint propose a higher accounting rate for IMTS service, including 1-800 service, than for Country Direct-type service like USADirect and Sprint Express. The higher accounting rate is not justified on the basis of cost or other differences and thus it is denied. The petitions of AT&T, MCI, and Sprint also seek an impermissible non-cost-based increase in the accounting rate surcharge for received collect station-to-station calls, and the increase is denied. We also note that granting the proposals would result in different accounting rates for service provided by BT with MCI, 0.33 SDR, and by BT with AT&T and Sprint, 0.31 SDR. This would be inconsistent with our uniformity policy. This situation needs to be resolved by the carriers before we allow an accounting rate reduction with BT to be implemented.

37. In past decisions, we have taken steps to remove any U.S. regulatory impediments to the implementation of lower, more cost-based accounting rates, and to streamline the waiver process. These steps include establishing the notification option, stating definitive criteria for the grant of waiver requests, and reducing to 21 days the notice period for obtaining an ISP waiver. We believe these steps have helped to accelerate the introduction of lower accounting rates. In a further attempt to make the accounting rates process more efficient and, at the same time, to be more responsive to concerns expressed by U.S. carriers that petitions for waiver be processed in an expeditious manner, in the future the Chief, Telecommunications Division,

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International Bureau, will have delegated authority to issue decisions concerning petitions for waiver of the

38. Accordingly, IT IS ORDERED that AT&T's petitions for a waiver of the Commission's ISP for service with the Netherlands PTT, Mercury Communications Ltd., Unitel, Kokusai Denshin Denwa, and Telstra are granted except for the increase in the surcharge for received collect station-to-station calls with Mercury, which is DENIED.

39. IT IS FURTHER ORDERED that the petitions for waiver of AT&T and Sprint of the Commission's ISP for service with British Telecom are granted, subject to satisfying the ISP requirement of a uniform accounting rate between U.S. carriers and a foreign carrier on the same route, and of full disclosure in petitions for waiver all changes in the operating agreements between the parties.

40. IT IS FURTHER ORDERED that we deny the portion of AT&T's and Sprint's petitions for waiver requesting a different, higher accounting rate for IMTS and 1-800, and an increase in the surcharge for received collect station-to- station calls.

41. IT IS FURTHER ORDERED that the petition for waiver of MCI Communications of the Commission's ISP for service with British Telecom is granted, subject to the condition of satisfying our ISP requirement of a uniform accounting rate between U.S. carriers and a foreign carrier on the same route, and full disclosure in petitions for waiver all changes in the operating agreements between the parties .

42. IT IS FURTHER ORDERED that we deny the portion of MCI's petition for waiver requesting an increase in the surcharge for received collect station- to-station calls.

43. IT IS FURTHER ORDERED that the Chief, Telecommunications Division, International Bureau, has authority to issue decisions concerned with petitions for waiver of the ISP.

44. This order is issued under Section 0.291 of the Commission's Rules and is effective upon release. Petitions for reconsideration under Section 1.106 or applications for review under Section 1.115 of the Commission's Rules may be filed within 30 days of public notice of this order (see Section 1.4(b) (2)) .

FEDERAL COMMUNICATIONS COMMISSION

_Scott Blake HarrisChief, International Bureau

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