News media Information: 202 / 418-0500 Fax-On-Demand: 202 / 418-2830 Internet: http://www.fcc.gov ftp.fcc.gov Federal Communications Commission 1919 M Street, N.W. Washington, D.C. 20554 This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC, 515 F.2d 385 (D.C. Cir. 1974). NEWS Report No. IN 98-45 INTERNATIONAL ACTIONAugust 6, 1998 ONE YEAR ANNIVERSARY OF BENCHMARKS ORDER MARKED BY RAPID DECLINE IN ACCOUNTING RATES On the first anniversary of the adoption of the Commission's Benchmarks Order, international accounting rates have already declined dramatically and are continuing to fall at an increasingly rapid pace. In the first six months since January 1, 1998, the effective date of the Benchmarks Order, the average accounting rate for calls originating from the United States fell by 14.1 percent, almost doubling the rate of decline for the same period in 1997. Moreover, U.S. consumers are benefitting as international calling prices fall and the variety of service alternatives and pricing options expands. The Benchmarks Order establishes rates U.S. carriers may pay their foreign correspondents for terminating international calls. The benchmark rates vary with a country's level of economic development and will take effect over transition periods that reflect differences in economic development. The benchmark rates are: 15› for upper income economies, 19› for upper- and lower- middle income economies, and 23› for lower income economies. The transition period for achieving these rates ranges from one year for upper income economies to five years for lower income economies which also have very low levels of telephone penetration. The increasing number of foreign carriers that have negotiated with U.S. carriers agreements that satisfy the FCC's benchmark settlement rates provides further indication of progress in accounting rate reform. Currently, carriers in twenty-one countries conduct settlements with U.S. carriers at rates that are either at or below the relevant FCC benchmark level for the particular country. These countries account for approximately thirty percent of the total U.S. net settlement minutes. Carriers in another twelve countries have negotiated agreements with U.S. carriers that will bring their settlement rates down to or below the FCC benchmark rate that applies to the country. These twelve countries account for another twenty-two percent of the total U.S. net settlement minutes. Thus, more than fifty percent of U.S. traffic will be settled at rates that already meet the FCC's benchmark standards. The Notice of Proposed Rulemaking adopted at today's Commission meeting proposes another step to bring settlement rates down to competitive levels. It would give U.S. carriers even more flexibility to negotiate settlement arrangements with foreign carriers that depart from traditional agreements based on the Commission's International Settlements Policy (ISP). Previously, the Commission adopted new rules to expand the ability of U.S. carriers to provide switched services over private lines. In addition, the degree of competition in the U.S. telecommunications market should intensify as a result of dramatically liberalized entry by foreign telecommunications carriers and investors into the U.S. market in response to the World Trade Organization Agreement on Basic Telecommunications. Finally, the emergence of privatization and liberalization in many other countries has put further pressure on above-cost accounting rates by increasing the number of carriers that can terminate international service and expanding routing options. Although most rates remain well above competitive levels, FCC efforts and market developments have combined to accelerate the pace at which U.S accounting rates are declining. In the table below, the average U.S. global accounting rate measures the fall in U.S. accounting rates. The global rate is computed by weighting each country's accounting rate with the United States by its minutes of service with the United States relative to total U.S. minutes. Also shown in the table are the annual percentage reductions in the global rate and the cumulative percentage reductions. Except for 1998, the rates are end-of-year figures. 1992 1993 1994 1995 1996 1997 1998 Ave. Accounting Rate $1.03 $0.96 $0.91 $0.82 $0.73 $0.64 $0.55 Annual Reduction 6.8% 5.2% 9.9% 11.0% 12.3% 14.1% Cumulative Reduction 6.8% 11.7% 20.4% 29.1% 37.9% 46.6% The decline in the average accounting rate and the increase in the rate of decline are evidence of the FCC's success in achieving accounting rate reform. The trend is particularly evident toward the end of the period, especially in 1998 when the average global rate has already fallen by 14.1 percent. In fact, the percentage change for 1998 understates, perhaps by a significant amount, the reduction that will be recorded for the entire year because the figure for 1998 includes only the accounting rate changes that occurred in the first half of 1998. The half-year figure for 1998 excludes reductions that will take effect during the second half of the 1998. Although the results for 1998 are not based on the entire year, the reduction in the average global rate already significantly exceeds previous annual reductions. The average U.S. global accounting rate declined by almost fifty percent during the entire period. An accounting rate is used to determine the charge paid by a U.S. carrier to a foreign carrier to terminate a minute of international service. Typically, the charge, known as the settlement rate, is one- half of the accounting rate, which varies among countries. U.S. net settlement payments are based on accounting rates. For further information, contact Ken Stanley, Telecommunications Division, International Bureau, (202) 418-1486. - FCC - Appendix A Countries at or below Benchmark Settlement Rates Australia Austria Belgium Brunei Darussalam Canada Denmark France Germany Italy Jamaica Japan Liechtenstein Luxembourg Monaco Netherlands New Zealand Norway Spain Sweden Switzerland United Kingdom Appendix B Countries Agreeing to Benchmark Settlement Rates Croatia Dominican Republic Egypt Guatemala Republic of Korea Lithuania Mexico South Africa Tanzania Turkey Venezuela Yugoslavia