WPC! 2J BNLZTimes Roman3|o X #XP\  P6QXP#"S^*8DSS888S^*8*.SSSSSSSSSS..^^^Jxooxf]xx8Axfxx]xo]fxxxxf8.8NS8JSJSJ8SS..S.SSSS8A.SSxSSJP!PZ8*888888888888S.xJxJxJxJxJooJfJfJfJfJ8.8.8.8.xSxSxSxSxSxSxSxSxSxSxJxSxSxSxSxS]SxJxJoJoJoJoJxSfJfJfJfJxSxSxSxSxSxSxS8S8S888SA8xSf.f8f8f8f.xSxSxSxSxSxo8o8o8]A]A]A]Af8f8f8xSxSxSxSxxSfJfJN:*LS8JSSSSS.4}}S2S}2JJS88SS]]8J2t^^\\^^ee*C^.wR)Ewn\1fy\r\Sxx\rHP LaserJet 4 PostScriptHPLA4POS.PRS]\  PChhhhS|P2kK|LX  X- X #XP\  P6Q DXP#"S^2CRddCCCdq2C28dddddddddd88qqqYzoCNzoozzC8C^dCYdYdYCdd88d8ddddCN8ddddY`(`lC2CC!CCCCCCCCCCd8YYYYYYzYzYzYzYC8C8C8C8ddddddddddYdddddodYYYYYYdzYzYzYzYdddddddCdCdCCCdNCdz8zCzCzCz8dddddCCCoNoNoNoNzCzCzCdddddzYzYNF2[dCYddddd7>d<d<$YYdCCddooCYd<d<+oodCCddddCod<d<$YYdCCddooCYfiled Transmittal No. 43 on June 8, 1995 to establish its Tariff F.C.C. No. 2. Under this tariff,  X1-CWS would make available leased transponder services to the winner of the RFP.71g {O-ԍId.7  X -   4. ` ` PAS opposed Transmittal No. 43 on the same grounds as those stated in this   [complaint: that the proposed prices were both predatory and unavailable to CWS's commercial  X -  customers.^ d g {O-  ԍComplaint at 2; see also COMSAT RSI, INC., Application for Authority to Operate as an International Resale  {O-  Carrier for Space Segment Service, 10 FCC Rcd 13712,  13712 (Intl. Bur. 1995) ("RSI Section 214 Order"), appl.  {O~-for review filed, ITC95457 (Nov. 20, 1995). The Commission asked CWS to submit additional cost figures, and CWS filed those   figures with Transmittal No. 61 on September 20, 1995, which modified Transmittal No. 43. On   September 29 and October 5, 1995, the Commission allowed Transmittal Nos. 43 and 61 to go  X-into effect.  g yO-  ԍPublic Notice Rep. Nos. TD1 (Sept. 29, 1995) and TD2 (Oct. 5, 1995). We refer to Transmittals Nos. 43 and 61 (CWS Tariff F.C.C. No. 2) collectively as "Tariff 2."  Xb-   5. ` ` Tariff 2, as modified by Transmittal 61, provides that CWS will make available  XK-  to "an agency of the United States government or a duly authorized agent acting on its behalf"H Kg yO!-ԍTransmittal No. 61 at para. 2.1.H  X4-  satellite Cband and Kuband transmission servicesI 4rg yOW$-ԍTransmittal No. 61 at para. 2.10.I for private network communications.V 4g yO%-ԍJune 8, 1995 cover letter, Transmittal No. 43.V The   federal government or its agents will gain access to the transmissions through government user" ,-(-(ZZ"  X-  terminals.1 g {Oy-ԍId.1 Particular satellite transponders may be reserved one to three years in advance, and  X-  discounts of up to 62.16% off the base price are available for high transmission volumes.HZg yO-ԍTransmittal No. 61 at para. 3.2.H  X-   6. ` ` On June 6, 1995, RSI, another COMSAT subsidiary, submitted a bid in response  X-  lto the RFP, which it won on July 18, 1995.7g yO? -ԍComplaint at 2.7 On September 18, 1995, RSI submitted to the   [Commission a Section 214 application and a tariff application, pursuant to which RSI proposed   =both to purchase the Intelsat space segment under the CWS tariff and to resell the segment to  X_-  CWS under RSI's own tariff. PAS opposed both applications,:_zg yO -ԍ Answer at 5.: but the Commission granted  XH-  RSI's Section 214 application on October 13, 1995,eH g {O-ԍRSI Section 214 Order, 10 FCC Rcd at 13712.e and the RSI tariff became effective five  X1-  days later.1g yO~-ԍFCC Public Notice 60245, Protested Tariff Transmittals, Actions Taken, 10 FCC Rcd 12648 (1995). č PAS filed this complaint on February 21, 1996 and the defendant filed its answer  X -  !on April 5, 1996. Following some limited discovery,  , g yO-  #]\  PCP#э Discovery consisted of interrogatories served by the complainant pursuant to Section 1.729 of the Commission's  {O-rules. See 47 C.F.R.  1.729.  the record closed with the parties'  X -submissions of briefs on November 7, 1996, and reply briefs on November 27, 1996.# g yO:-  J#]\  PCP#эThe complainant filed a motion for leave to file a response to defendant's reply brief together with a response   to defendant's reply brief on January 9, 1997. Defendant filed an opposition to complainant's motion on January   17, 1997. We deny complainant's motion for leave to respond to defendant's reply brief. The simultaneous briefing   schedule established by the staff afforded both parties a full and fair opportunity to present their claims.   wComplainants have failed to show good cause for accepting the unauthorized pleading, particularly since the pleading merely reiterates arguments previously made by the complainant.#  X - Đ X --T III. DISCUSSION ĐlU  X -X` hp x (#%'0*,.8135@8:Complainant contends that defendant cannot claim that losses incurred by its highvolume   discounts will be made up from extra revenue earned during lowvolume usage because under   the flexible terms of Tariff 2, a customer is free to order the high volume services without first"P, ,-(-(ZZ"  X-having paid lowvolume charges.oj yOy-#]\  PCP#эComplainant's Brief at 8. o  X-  2  11. ` ` Complainant further states that defendant has the desire and ability to operate as   a predator in the market. According to complainant, defendant has previously resorted to  X-  !predatory pricing and has the economic incentive and market position to do so again.^Xj {O-  [#]\  PCP#эComplaint at 5 (citing Communications Satellite Corp., Tariff F.C.C. No. 103, 2 FCC Rcd 2420 (1987)  {Ow-  ;("Caribnet")). Comsat subsequently withdrew Tariff F.C.C. No. 103.  Communications Satellite Corp., Tariff F.C.C.  {OA -No. 103, 2 FCC Rcd 5108 (Com. Car. Bur. 1987).    Complainant alleges that whatever revenue losses defendant sustains from Tariff 2 will be made  Xv-  yup through price markups by its subsidiary, RSI.~v~j {O -#]\  PCP#эId. at 5; Complainant's Brief at 10 n.30.~ Finally, complainant says, the Commission   /is not precluded from considering these issues, even though they were presented in PAS's  XH-opposition to CWS's Tariff 2.^Hj yO -#]\  PCP#эComplaint at 3.^  X -  @  12. ` ` Defendant's arguments. Defendant argues that so long as the total revenues of   Tariff 2 exceed its total costs for the duration of Tariff 2, the tariffed offerings are not predatory  X -  and therefore not unjust and unreasonable.g j yO=-#]\  PCP#эAnswer at 8.g When the tariff's total costs are compared with total   revenue for the tenyear projections of Tariff 2, defendant argues, revenues exceed costs.  X -Therefore, it argues, the tariff is not predatory.d! 0 j {O-#]\  PCP#эId.d  X -  X-    13. ` ` Defendant adds that absolute revenues exceed absolute costs at all times under  Xy-  >Tariff 2.^"y j {O-#]\  PCP#эId. at 9.^ Defendant contends complainant has misconstrued the tariff's cost and revenue   figures, because the complainant incorrectly compares average costs over the life of the tariff  XK-  with incremental revenue from just one year (2005).X#KT j {OP -#]\  PCP#эId.X Defendant contends that complainant's   accounting analysis is overly simplistic, while defendant used an accounting methodology that  X-conforms to the manner in which service actually will be provided.o$j yO#-#]\  PCP#эDefendant's Reply Brief at 25. o  X-  3  14. ` ` Defendant adds that it is illogical to assert that CWS intended to make up any   losses in the tariff through its RSI subsidiary, because at the time CWS filed the tariff, CWS had   !no way of knowing that RSI would be the winning bidder. According to defendant, the"v$,-(-(ZZ"   [Commission has already found that CWS made the same rates available to all potential bidders  X-of the DOD contract.%j {Ob-#]\  PCP#эAnswer at 9 (citing RSI Section 214 Order, 10 FCC Rcd 13712, 13715 (1995)).  X-  R 15. ` ` Finally, defendant does not agree that there is a ripe controversy about the   lawfulness of the tariff, because the Commission reviewed complainant's arguments of predatory   and discriminatory pricing during its tariff review and subsequently allowed the tariff to go into  Xv-effect.^&vZj {O -#]\  PCP#эId. at 2.^  XH-` ` 2. Discussion  X -X ` ` a.  Predatory Pricing Background (#  X -   16. ` ` The Commission has determined that predatory pricing is "unjust and  X -  unreasonable" and therefore prohibited by Section 201(b) of the Act.' j {Or-#]\  PCP#эCompetitive Carrier Rulemaking, 77 FCC 2d at 334; see also Defendant's Brief at 2 n.2. In general terms,   predatory pricing involves "deliberately pricing below cost to drive out rivals and raising the  X -  price to the monopoly level after their exit."k( ~j {O-  #]\  PCP#эPrice Cap Performance Review for Local Exchange Carriers, 11 FCC Rcd 858, 870871 (1995)(footnotes  {O-  omitted) ("Price Cap Order")(citing W. Kip Viscusi, John M Vernon & Joseph E. Harrington, Jr., Economics of  {Oj-  Regulation, D.C. Heath and Company at 213 (1992)); Defendant's November 7, 1996 Response at 3 (Defendant's  {O4-  Brief); see also Philip Areeda and Donald Turner, Antitrust Law 151 (1978) (predatory pricing defined as "the   deliberate sacrifice of present revenues for the purpose of driving rivals out of the market and then recouping the losses through higher profits earned in the absence of competition")k Thus, the offense of predatory pricing has two  X-  [elements: a pricing element and a subsequent recoupment element.)^ j {O?-  K#]\  PCP#эPolicy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations  {O -  xTherefor, 77 FCC 2d 308, 334 (1979) ("Competitive Carrier Rulemaking"); see also Brooke Group Ltd. v. Brown  {O-& Williamson Tobacco Corp., 509 U.S. 209, 221, 113 S. Ct. 2578, 2587 (1993)("Brooke Group"). Complainant must prove both elements to substantiate its allegations.  XK-  4 17. ` ` Pricing element. For the purpose of determining predatory pricing, the  X4-  Commission has defined "cost" as "average variable cost" (AVC).*4$j {O "-#]\  PCP#эPrice Cap Order, 11 FCC Rcd at 870871; Defendant's Brief at 3. The Commission has found   that in a competitive setting, price is reduced toward cost, and in the absence of competition,  X-  economic regulation also uses cost (plus a fair return on investment) as a guideline for prices.+j {Om%-#]\  PCP#эCompetitive Carrier Rulemaking, 77 FCC 2d at 334; Defendant's Brief at 2.   K The Commission has defined variable cost as "all access charges and billing and collection costs   attributable to the service as well as other nonfixed costs which would not be incurred if the "H+,-(-(ZZ"  X-  service were not offered.",j {Oy-  Z#]\  PCP#эGTE Tel. v. Operating Cos., 10 FCC Rcd 1573, 1575 (1994)(footnotes omitted); see also Defendant's Brief  yOC-at 4 n.5. Variable costs include, inter alia, cost increments in plant investment   as well as network maintenance and network and customer operations attributable to the new  X-  service.^-"j {O-#]\  PCP#эId.^ Once a complainant has demonstrated that a service is priced below its average   variable cost, the price is presumed predatory, and the defendant bears the burden of disproving  X-predatory intent..^j {O -  #]\  PCP#эCompetition in the Interstate Interexchange Marketplace, 6 FCC Rcd 5880, 5990 n.172 (1991). See also  {O -  William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014 1035-1036 (9th Cir. 1981), cert  {O -denied, 459 U.S. 825 (1982)), and Complainant's Brief at 9 nn.26, 29-30.  Xx-   18. ` ` Recoupment element. The U.S. Supreme Court has recently applied, under the   RobinsonPatman Act, a twopronged test for predatory pricing. Not only must prices be below   average variable costs for some duration, but also "[t]he plaintiff must demonstrate that there is   ya likelihood that the predatory scheme alleged would cause a rise in prices above a competitive   ylevel that would be sufficient to compensate for the amounts expended on predation, including  X -  the time value of money invested in it."Q/ j {O-  Y#]\  PCP#эBrooke Group, 509 U.S. at 225, 113 S.Ct. at 2589; see also Michael L. Denger and John A. Herfort, Predatory  {OZ-Pricing Claims After Brooke Group, 62 Antitrust Law Journal 537, 543 (1994).Q The Court's pronouncement is similar to the  X -  Commission's finding in the Competitive Carrier Rulemaking that predatory pricing is likely to   yoccur only if the predator has "'(1) greater financial staying power than its rivals, and (2) a very   substantial prospect that the losses [it] incurs in the predatory campaign will be exceeded by the  X -profits to be earned after [its] rivals have been destroyed.'"M0 6 j {O-  #]\  PCP#эCompetitive Carrier Rulemaking, 77 FCC 2d at 334 (quoting Areeda and Turner, Predatory Pricing and Related  {O\-Practices under Section 2 of the Sherman Act, 88 Harvard Law Review 697, 698 (1975)).M  X}-   19. ` ` More recent antitrust practice has given increasing weight to an examination of   the probability of recoupment of losses incurred from predatory prices, even in the face of  XO-  evidence that prices are below cost.?1O j {O-  #]\  PCP#эMark E. Weber, The American Airlines Experience: Practical Effects of Liggett on Predatory Pricing Litigation,  yO\ -Antitrust, Fall 1993, at 38, 41, American Bar Association, Section of Antitrust Law. ? It does not suffice to show that a competitor has been  X8-  iinjured. The complainant must show that competition has been injured by the pricing structure.28j {O"-  #]\  PCP#эBrooke Group, 509 U.S. at 223225, 113 S.Ct. at 25882589 (citing Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S. Ct. 1502, 1521, 8 L. Ed.2d 510 (1962)).    ]For investment in belowcost pricing to be rational, the predator must have a reasonable   expectation of recovering, in the form of later monopoly profits, more than the losses it" F2,-(-(ZZ("  X-  suffered.3j {Oy-#]\  PCP#эBrooke Group, 509 U.S. at 223, 113 S.Ct. at 2588. Only where such eventual recoupment is likely will consumers be harmed by lower   yprices. Without recoupment, "predatory pricing produces lower aggregate prices in the market  X-and consumer welfare is enhanced."X4Zj {O-#]\  PCP#эId.X  X-   20. ` ` Probable recoupment and injury to competition cannot be inferred from belowcost  X-  pricing alone,5j {O* -#]\  PCP#эId. at 226; see also Defendant's Brief at 3 n.4. Ĥ because even when a predatory pricing strategy is competitively feasible, it may  Xv-  not be economically profitable due to its high upfront costs.u6(v~j {O -  #]\  PCP#эComsat Corporation Petition for Partial Relief From the Current Regulatory Treatment of Comsat World  {Oo -  KSystems' Switched Voice, PrivateLine, and Video and Audio Services, 11 FCC Rcd 9622, 9632 (1996) ("Comsat  {O9-  Partial Relief Order"); see also Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 589  {O-(1986)("Matsushita Electrical")(Predatory pricing "is rarely tried and even more rarely successful.")u Such a strategy also may not be  X_-  zchosen if more accommodating responses to competition are more profitable.7_n j {O~-#]\  PCP#эComsat Partial Relief Order, 11 FCC Rcd 9622, 9632 (1996). Thus, in the   instant case, complainant must prove not only that the rates in Tariff 2 are priced below average   variable cost for some period of time, it must also demonstrate that defendant has a likelihood it will recoup any possible losses through profits obtained later on through its predatory scheme.   X -X ` ` b.  Decision(#  X -   21. ` ` As an initial matter, we agree with complainant's assertion_8 j yOo-#]\  PCP#эComplaint at 3. _ that the Commission   ]is not precluded from considering in this proceeding the issues of predatory pricing and  X-  <discrimination, even though these issues were presented in PAS's opposition to CWS's Tariff 2.j9 j {O-  #]\  PCP#эSee MCI Telecommunications Corporation v. Pacific Northwest Bell Telephone Co., et al., 5 FCC Rcd 216,  yO-222 (1990) ("[L]egally effective, carrierinitiated tariffs can always be challenged as unreasonable and unlawful.").  j   In reviewing a tariff pursuant to Section 203, the Commission determines whether "compelling   arguments" have been presented that the tariff rates are "patently unlawful" so as to require  XK-  rejection or warrant investigation.:Kj {O!-#]\  PCP#эRSI Section 214 Order, 10 FCC Rcd at 13712. In the Section 208 proceeding before us, however, the  X4-complainant has the burden of proof of establishing a violation of the Act.;(4|j {Oa$-  #]\  PCP#э47 U.S.C.  208; see also Amendment of Rules Concerning Procedures To Be Followed When Formal  {O+%-  Complaints Are Filed Against Common Carriers, 8 FCC Rcd 2614, 261617 (1993); Connecticut Office of Consumer  {O%-  iCounsel v. FCC, 4 FCC Rcd 8130, 8133 (1989), aff'd sub nom. Connecticut Office of Consumer Counsel v. FCC,  {O&-  =915 F. 2d 75 (2d Cir. 1990), cert. denied, 111 S. Ct. 1310 (1991); Directel, Inc. v. American Telephone and"&:,-(-(&"  {O-  Telegraph Company, 11 FCC Rcd 7554, 7560 (Com. Car. Bur. 1996); see generally 47 C.F.R.  1.7201.735 (setting forth procedural rules for formal complaints). "4";,-(-(ZZ"Ԍ X-ԙ  X-  2 22. ` ` We find that complainant has failed to carry its burden of proving that defendant   has violated Section 201(b) of the Act in connection with its Tariff 2 offering. Complainant's   allegations of predatory pricing failed to satisfy the test established by the Supreme Court in  X-  Brooke Group. In particular, complainant failed to prove that, under the pricing structure   zproposed in Tariff 2, defendant's prices are below AVC for at least some period of time. Nor   has the complainant shown that, even if defendant's prices were below AVC, defendant has a  Xa-   likelihood of recouping its earlier losses, in the particular market at issue, through profits earned  XJ-  later through a predatory scheme. We address both prongs of the Brooke Group test in the   paragraphs below. In addition, in examining the complainant's predatory pricing claims, we find   -it significant that the complainant has failed to allege other facts that may have raised the specter  X -  of a Section 201(b) violation outside of the parameters established by Brooke Group. For   [example, complainant has not alleged that defendant has acted or will act in any way to recoup  X -  -its losses from some parallel service. In the absence of such allegation, we conclude that Brooke  X -Group is controlling in this case and compels a rejection of complainant's Section 201(b) claims.  X-` ` (i)  Whether the Prices in Tariff 2 Are Below Average Variable Cost.(#(#  Xl-  4 23. ` ` Complainant maintains that the pricing structure proposed in Tariff 2 gives   evidence of a predatory scheme in its discounts, its flexible terms, its background figures and in the alternate set of cost calculations offered by complainant. We disagree.  X-  C 24. ` ` We find that complainant has failed to show that defendant's highvolume   discounted prices are below its average variable costs. It is incumbent upon the complainant to  X-  demonstrate specific, competent evidence that prices are below costs.<"j yO-  ԍ#]\  PCP#Complainant must show that the facts before us demonstrate predatory pricing, not merely aggressive  {O}-  hcompetition. See Advo, Inc v. Philadelphia Newspapers, 51 F.3d 1191, 1198 (3rd Cir. 1995) ("[A] plaintiff cannot   wanchor its cause on theoretical speculation that a defendant is pricing below [cost].") Low prices that are above cost   are procompetitive. A less than stringent requirement of proof of belowcost pricing would run the risk of chilling  {O-  beneficial price competition. See Matsushita Electrical, 475 U.S. at 594 (refusing to permit an inference of predatory   ,pricing from evidence of rebates and pricecutting activities, noting that "mistaken inferences in [predatory pricing  {Oi-  cases] are especially costly, because they chill the very conduct that antitrust laws are designed to protect."); Atlantic  {O3 -  Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 337338 (1990)("Low prices benefit consumers . . . and so long as they are above predatory levels, they do not threaten competition.") We disagree with  X-  complainant's assertion that Tariff 2 is prima facie predatory because, as complainant alleges,  X-  the 62 percent highvolume discount would drop defendant's revenues below its costs.x= j yOa$-#]\  PCP#эComplaint at 2; Complainant's Brief at 5.x The   .presence of deep discounts alone does not necessarily indicate that the discounted prices are  X-  .below average variable cost. Complainant asserts, for example, that it is "common sense" that   a 62 percent discount on a product that yields a 11.42 percent rate of return means that the"q =,-(-(ZZ"  X-  product is priced below cost.h>j yOy-#]\  PCP#эComplainant's Brief at 5.h The two percentages, however, are not directly comparable.   Complainant incorrectly assumes that these two percentages are measures of the same base figure   yԩ in this case, of defendant's standard service price. Although the 62 percent figure is applied   Lto defendant's standard service price, the 11.42 percent is defendant's authorized rate of return  X-  <that is applied to defendant's capital investment base, not to defendant's prices.?^Xj {O-  #]\  PCP#эSee Communications Satellite Corporation, Investigation into Charges, Practices, Classifications, Rates and  {Ow-  <Regulations, 56 FCC 2d 1101, 1119 (1975);  see also Communications Satellite Corporation, Investigation into  {OA -Charges, Practices, Classifications, Rates and Regulations, 68 FCC 2d 941, 953 app. (1978). Moreover, our   rules do not require common carriers to earn a particular rate of return; the rules merely establish  Xv-  the maximum amount that common carriers may earn.,@v~j {O -  #]\  PCP#эAnnual 1985 Access Tariff Filings, FCC 86379, 1986 WL 290924, at n.16, rel. Sept. 2, 1986. Cf.  {Oo -  Represcribing the Authorized Rate of Return for Interstate Services of Local Exchange Carriers, 5 FCC Rcd 7507,  {O9-  K7532 (1990); accord Amendment of Parts 65 and 69 of the Commission's Rules to Reform the Interstate Rate of  {O-  ZReturn Represcription and Enforcement Processes, 7 FCC Rcd 4688, 4701 (1992); New England Telephone and  {O-  Telegraph Company v. FCC, 826 F.2d 1101, 11081109, cert. denied 490 U.S. 1039 (1989). ("It is true that the   Jcurrent regulatory scheme is asymmetric . . . . Since the Commission has so far declined to set minimum guaranteed rates of return for the carriers . . . carriers must refund excess earnings, but they are not compensated for shortfalls."), Thus, a common carrier could lawfully   Lset its prices at levels that make no contribution to the carrier's return on investment. Because   complainant has not provided the threshold evidence that the overall highvolume discounts in   NTariff 2 are below average variable cost, we need not reach complainant's allegation that   defendant cannot claim that the losses incurred by its highvolume discounts will be made up  X -from extra revenue from lowvolume usage (see supra para. 11).   X -   25. ` ` We also find that complainant has not proven its allegation that Tariff 2 is priced  X -  xbelow average variable cost any point in time.A j yO9-  #]\  PCP#эComplainant maintains that the cost figures stated in Tariff 2 are an accurate measure for determining predatory activity, even if AVC is the cost standard used. Complainant's Reply Brief at 2. In particular, complainant asserts that defendant's   own data show that in the year 2005 defendant's costs will exceed its revenues and that the tariff  X-  is therefore predatory, in violation of Section 201(b).jB j yOc-#]\  PCP#эComplaint at 4.j We agree with defendant, however, that   icomplainant is using the tariff data incorrectly by comparing average annual costs from a tenyear  Xd-  projection of the tariff with the incremental revenue for one year.[Cdj yO!-#]\  PCP#эAnswer at 8.[ We conclude that these data are not directly comparable.  X-   26. ` ` Even if complainant were able to demonstrate that costs were greater than the tariff   for the year 2005, complainant has offered no explanation as to how belowcost pricing in one   year of the tariff's duration would have injured competition. Only when pricing below cost risks   injuring competition is there an anticompetitive effect. In this regard, pricing below cost for a" @C,-(-(ZZ"   limited duration has been upheld where it is not sustained long enough to exclude or drive rivals   out of the market. For example, low prices accompanying new product introductions and   temporary price promotions to induce future sales have not been viewed as predatory, even  X-though they may have been below an appropriate measure of cost.Dj {O4-  #]\  PCP#эSee, e.g., Vollrath Co. v. Samni Corp., 199091 Trade Cases (CCH)  68955 at 63133 (C.D. Cal. 1989) (five month promotion not predatory).  X-   27. ` ` In addition, the average annual cost figures in defendant's tariff, as cited by  Xv-  complainant,^Ev"j yOI -#]\  PCP#эComplaint at 4.^ do not represent an appropriate AVC calculation for the purposes of determining   predatory pricing. The figures in the tariff include a return on invested capital with   Laccompanying corporate income tax payments. A regulated return on invested capital and the   accompanying taxes are not properly included in the calculation of AVC because they are not  X -  a function of the increment of service, i.e., they cannot be avoided by not providing the next  X -service increment.rFL j {Oh-  #]\  PCP#эDefendant's return is derived as a function of its rate base, not as a portion of income from services sold. See  {O2-  ,supra para. 24. See also Price Cap Order, 11 FCC Rcd at 870871. The Price Cap Order defines AVC as "all non {O-  fixed costs [divided by the quantity produced] which would not be incurred if that service were not offered." Id. at  {O-  871 n.41 (citing Policy and Rules Concerning Rates for Dominant Carriers, 4 FCC Rcd 2873, 3115 (1989)); see also  {O-  Continental Airlines Inc. v. American Airlines Inc., 824 F. Supp. 689, 701 (S.D.Tex. 1993)(foregone revenues not   considered in calculating AVC). In addition, if defendant is making a profit from the service in question, as  {O"-  complainant asserts, defendant's price cannot be below AVC. See S. Call and W. Halohan, Microeconomics at 192193 (1983).r  X -   28. ` ` We also conclude that the alternative cost calculation offered by complainantG j yON-  #]\  PCP#эComplainant's Brief at 5. Complainant claims that prices are shown to be below cost when it applies more conventional accounting methods than those used by defendant.    Kdoes not accurately portray defendant's AVC. Complainant's calculation includes an Intelsat Use  X -  Charge (IUC),H" j yOx-  #]\  PCP#эThe IUC is an accounting convention intended to cover not only the operating expenses of the Intelsat system,  yO@-  but also the cost of a proportionate share of capital invested in the Intelsat system.  Intelsat members who use the   hIntelsat system below their proportionate capital investment in the system receive part of their IUC payments back  {O-as a rebate.  Communications Satellite Corporation, Transmittals Nos. 507 and 510, 2 FCC Rcd 3706, 3709 (1987).  which complainant states defendant must pay Intelsat for each additional  X-  transponder used, regardless of the number of transponders used.nIj yOK"-#]\  PCP#эComplainant's Reply Brief at 2.n Defendant states, however,  X{-  that as the number of transponders needed increases significantly, the IUC ceases to apply.lJ{j yO$-#]\  PCP#эDefendant's Reply Brief at 4.l   CWS states that it would negotiate higher volumes with Intelsat through a bulk lease agreement,"d (J,-(-(ZZ"  X-  ksimilar to a special construction tariff.XKj {Oy-#]\  PCP#эId.X  The bulk lease cost would be part of AVC at higher volumes, but that cost may not be the same costpertransponder as the IUC.  X-` ` (ii)  Whether Defendant Is Likely to Recoup Its Losses.  X-   29. ` ` We have concluded that complainant has failed to demonstrate that the pricing   structure in the tariff renders prices below average variable costs. Even if it had made that   demonstration, however, complainant would still need to show that defendant has the likelihood  XH-  <of recovering its predatory losses though later supercompetitive profitstLHZj {OS -#]\  PCP#эSee supra para. 17.t to prove that predatory   .pricing had occurred. Complainant, however, fails to demonstrate any such ability on the part   xof defendant. Complainant asserts that defendant enjoys "numerous competitive advantages" by  X -  virtue of its treaty status with Intelsat^M j yO-#]\  PCP#эComplaint at 6.^ and that, as the market has grown more competitive,  X -  defendant has resorted to anticompetitive conduct.^N |j {O-#]\  PCP#эId. at 5.^ Complainant has not, however, provided any   data to demonstrate the substantial prospect of the impact of defendant's actions on the market,   Lnor has it provided a description or definition of the relevant market, defendant's market share,  X -barriers to entry, or its relative financial power in the market.FO j yOf-  #]\  PCP#эThe Commission has determined that, in general, the space segment service market, which provides satellite  {O.-transmission capacity, is competitive. See Comsat Partial Relief Order, 11 FCC Rcd 9622, 9630 (1996).F  Xy-  2 30. ` ` The only specific market power allegations that complainant raises is defendant's   power over its subsidiary, RSI. We have determined already, however, that the defendant made  XK-  the same rates available to all potential bidders of the DOD contract.P"Kh j {Od-  ԍ#]\  PCP#See RSI Section 214 Order, 10 FCC Rcd at 13715. According to defendant, AT&T Corporation (AT&T)   ,protested to DOD about RSI's selection, but DOD reaffirmed its decision to award the contract to RSI. AT&T then   Zappealed that decision to the Comptroller General of the United States, who, on March 4, 1996, denied AT&T's appeal. Answer at 6 n.9.  CWS therefore could  X4-  have had no reliable plan to recoup any predatory losses through price markups by RSI.yQ4R j yO7!-#]\  PCP#эAnswer at 9; Defendant's Reply Brief at 6.y In   addition, the competition of the bidding process presumably suppressed the opportunity for excess   profits by RSI or any other bidder. Moreover, with several competitors in the space segment   market, there is little likelihood that Comsat will attempt to recoup its losses in the DOD contract" Q,-(-(ZZ "  X-by raising rates in the future.R\j yOy-  #]\  PCP#эThe Commission has stated that the international telecommunications market has become sufficiently  {OA-  competitive to allow partial deregulation of Comsat's tariffs on wholesale space segment services. See Comsat  {O -Partial Relief Order, 11 FCC Rcd 9622, 9630 (1996).  X-   31. ` ` Finally, complainant suggests future market misconduct by defendant based on  X-  defendant's alleged past market behavior, as evidenced by the Caribnet case.OS$j {OX-  #]\  PCP#эComplaint at 5 (citing Caribnet). In that order, the Commission suspended the proposed tariff revisions for   the fivemonth statutory period, commenting that "[W]e are not convinced that the proposed discount is justified   under the doctrine of competitive necessity. The size of the discount . . . suggests an intention to undercut  {O -competitors' prices." Caribnet, 2 FCC Rcd at 2422. O In Caribnet, CWS   proposed to serve the Caribbean basin through Intelsat under tariff rates that were discounted fifty   percent below similar CWS rates for other parts of the world. The Bureau, however, made no  Xx-  final determination in Caribnet concerning whether the tariff should be allowed to go into effect.   The Bureau asked for additional cost data, but the tariff application was withdrawn before the  XL-  Zcost data was presented.TLj {O-#]\  PCP#эSee Communications Satellite Corp., Tariff F.C.C. No. 103, 2 FCC Rcd 5108 (Com. Car. Bur. 1987). In the present case, the Bureau asked for and received additional cost  X5-dataU5j j yOP-#]\  PCP#эThe additional cost data was provided in Transmittal No. 61. and allowed Tariff 2 to become effective.sV5 j {O-#]\  PCP#эSee supra para. 4.s  X -` ` c. Conclusion  X -   32. ` ` We find that complainant has failed to show that defendant's Tariff 2 pricing   structure is below defendant's average variable cost for any period in time. We also find that,   even if it had done so, complainant has failed to show that a likelihood exists that defendant   could recoup its earlier predatory losses through profits earned later through its allegedly   \predatory scheme. Complainant failed to allege other facts that would raise the specter of a   Section 201(b) violation. Therefore, we conclude that complainant has failed to prove that defendant has unlawfully engaged in any acts in violation of Section 201(b) of the Act.  X!- B. ` ` Section 202(a) Issues Unreasonable Discrimination  X  X - ` `  X-    33. ` ` Contentions of the Parties. Complainant alleges that Tariff 2 violates Section   202(a) of the Act because it creates special rates for one group of customers, government   agencies, without providing for similar rates to similarly situated customers and, therefore, is" V,-(-(ZZq"  X-  unreasonably discriminatory.-"k under Section 202(a) of the Act.-W j yOy-  \#]\  PCP#эSection 202(a) of the Act prohibits "any unjust or unreasonable discrimination in charges, practices,   classifications, regulations, facilities or services" for "like" communications services of a regulated common carrier   and prohibits a common carrier from exercising any "undue or unreasonable prejudice or disadvantage" against any person or class of persons, or locality. 47 U.S.C.  202(a).  According to complainant, defendant does not propose to offer   ythe volume discounts in Tariff 2 on a nondiscriminatory basis to any or all users, or even to all  X-   federal government users.yX&j {O3-  #]\  PCP#эComplaint at 2, 5, 7 (citing Caribnet, in which the Commission found in the record with CWS's tariff   "sufficient basis to be concerned that the proposed discount is unreasonably discriminatory in violation of Section  {O -  h202(c)," Caribnet, 2 FCC Rcd 2420, 2422 (1987)). In Caribnet, CWS offered rates for the Caribbean "substantially  {O -below rates for similar services offered by Intelsat to other geographic regions." 2 FCC Rcd at 2421.y Defendant replies that Section 201(b) of the Act permits carriers to   yestablish a separate classification for service to the government, and that its classification here  X-is, therefore, lawful.Yj yO -#]\  PCP#эAnswer at 10 (citing 47 U.S.C.  201(b)); Defendant's Brief at 4. Ġ  Xv-  a !34. ` ` Decision. In alleging a violation of Section 202(a), the complainant must  X_-  [demonstrate that the carrier has discriminated in the provision of "like communication" service   xor has given an "advantage or preference" to a person or group of persons in connection with the   @service. Upon such as showing, the burden shifts to the defendant to show that the  X -  ]discrimination is justified and, therefore, not unreasonable..Z . j {O-  #]\  PCP#эSee Competition in the Interstate Interexchange Marketplace, 6 FCC Rcd 5880, 5903 (1991); MCI  {O-Telecommunications Corp. v. FCC, 917 F.2d 30, 39 (D.C. Cir. 1990). . In a Section 208 complaint  X -  .proceeding, the complainant has the evidentiary burden of establishing disparate treatment.X[ j {O>-#]\  PCP#эId.X   Once discrimination is established, the burden shifts to the defendant carrier to show that the  X -discrimination is reasonable.X\ j {O-#]\  PCP#эId.X  X -   "35. ` ` In the instant case, the sole argument presented by the complainant is that Tariff   2 creates special rates for one group of customers without providing for similar rates to similarly   situated customers. We note that while the complainant raised this Section 202(a) claim in its   complaint, it did not expand on this claim in subsequent pleadings submitted in the proceeding,   including briefs and reply briefs, nor did it otherwise provide or allege additional facts to support   its assertions. As such, the complainant's allegation of a Section 202(a) violation relates only   to the classification afforded the Federal Government. Given the limited record before us, we   /cannot conclude that defendant violated Section 202(a) based solely on the "Government"   yclassification. The classification afforded the Federal Government is presumptively reasonable   under Section 201(b) of the Act, which provides that "All . . . classifications . . . shall be just and   reasonable . . . Provided, That communications . . . may be classified into day, night, repeated,"\,-(-(ZZ"  X-  Zunrepeated, letter, commercial, press,  Government and such other classes as the Commission may  X-  decide to be  just and reasonable . . . . "v]j yOd-#]\  PCP#э47 U.S.C.  201(b) (emphasis added).v In the absence of evidence or arguments that call into   question the presumptive reasonableness of the classification, or that the established class enjoys an undue advantage or preference, we find no basis for a Section 202(a) violation.  X-   #36. ` ` While Section 202(a) prohibits a carrier from discriminating unreasonably among   customers of a service provided under the government service classification permitted in Section  Xc-  1201(a),^cXj {Ol -  #]\  PCP#эTransmittal No. 1876 Order at 701 . Courts have previously held, and the Commission has previously found,   wthat individually negotiated contracts are not unreasonably discriminatory if their terms are made generally available  {O -  <to other similarly situated customers willing and able to meet the contract's terms. Competition in the Interstate  {O -  Interexchange Marketplace, 6 FCC Rcd at 5903 (citing SeaLand Service, Inc. v. ICC, 738 F.2d 1311, 1317 (D.C.Cir.  {O -1984) and MCI Telecommunications Corp. v. FCC, 917 F.2d 30, 38 (D.C. Cir. 1990)).  w "k e find it significant that defendant filed Tariff 2 in response to the specific  XL-  requirements contained in the DOD RFP._Lj {O -#]\  PCP#эCover letters, Transmittals 43 and 61; see also RSI Section 214 Order, 10 FCC Rcd at 13712 (Intl. Bur. 1995). The fact that the tariff is tailored to the DOD RFP,   without more, does not amount to unreasonable discrimination among government agencies, so   long as the tariff remains available upon its stated terms to any "agency of the United States  X -  [government or a duly authorized agent acting on its behalf."g` j yOZ-#]\  PCP#эTariff 2 at para. 2.1. g Under these circumstances, we conclude that Tariff 2 is not unreasonably discriminatory under Section 202(a) of the Act.  X -  IV. CONCLUSION AND ORDERING CLAUSES ĐlU  X-   $37. ` ` We conclude that complainant has failed to sustain its burden of proof in its   jattempt to show that defendant violated Section 201(b) of the Act. The calculations presented   .by complainant do not demonstrate that defendant's revenues are generally, or at any specific   xtime, below its average variable costs; nor does complainant present any market data to show that   [defendant could benefit or has benefitted from its alleged predatory conduct by driving out its   competition and later recouping its losses. We also conclude that offering tariffed services to a   federal government customer class is not an unreasonable classification under Section 202(a) of the Act.  X-   %38. ` ` Accordingly, IT IS ORDERED, pursuant to Sections 4(i), 4(j), 201, 202, 208 of   the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 201, 202, 208 that the abovecaptioned complaint filed by PanAmSat Corporation IS DENIED.  Xi-   &39. ` ` IT IS FURTHER ORDERED that complainant's motion of January 9, 1997, for  XR-leave to file a response to defendant's reply brief is DENIED. ";2 `,-(-(ZZ"Ԍ X-   '40. ` ` IT IS FURTHER ORDERED that the abovecaptioned complaint IS DISMISSED WITH PREJUDICE and that this proceeding IS TERMINATED. ` `  hh,VFEDERAL COMMUNICATIONS COMMISSION############ ` `  hh,VWilliam F. Caton  XH-` `  hh,VActing Secretary