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A. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a)#&J\  P6Q &P#"5@^.=f\\3==\i.=.3\\\\\\\\\\==iii\zzpG\zpfzz=3=j\=\fQfQ=\f3=f3f\ffQG=f\\\QH(H_.====IK=\f\\\\\QzQzQzQzQG3G3G3G3f\\\\ffff\\f\\\\pf\\\QQQzQzQzQ\\\\ffIfGfG=Gf\fz3zKff\QQfGfGN@.c\=\\\\\\7<\7\7==\\\==\\=\=7t=eeeeioo.Iji2Z\\yeCpj`vZefeloPpPj`e~~tro.=f\\3==\i.=.3\\\\\\\\\\==iii\zzpG\zpfzz=3=j\=\fQfQ=\f3=f3f\ffQG=f\\\QH(H_=\\\\=f===\\@\=G=.=\\\\(\=7\i=\Ie77=jc.=7<\\zzzzGGGGipf\\\\\\QQQQQ3333\f\\\\\e\ffff\fa8DocumentgDocument Style StyleXX` `  ` a4DocumentgDocument Style Style . 2k kqva6DocumentgDocument Style Style GX  a5DocumentgDocument Style Style }X(# a2DocumentgDocument Style Style<o   ?  A.  a7DocumentgDocument Style StyleyXX` ` (#` 2t2  oBibliogrphyBibliography:X (# a1Right ParRight-Aligned Paragraph Numbers:`S@ I.  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Further, AT&T provides no explanation for the growing difference in settlement rates between the first and second year of the agreement.  S-  Q9.` ` AT&T attempts to justify these rates by arguing that they result in savings in the first   couple of years, and the proposal will ultimately lead to costbased rates in the third year. Our calculations   Mshow, however, that there are only modest savings in its net settlement payments to KDD under the   alternative settlement arrangement, and there would be little change in its net settlement payment per U.S.   billed minute, a measure of AT&T's financial settlement cost. Therefore, the arrangement's benefit to U.S.  S -  .consumers is not apparent. In addition, the arrangement lacks a firm commitment to costbased rates in  S -  the third year. Without a more concrete proposal as to what the rates will be in the third year, it is   yimpossible to determine how this arrangement would promote either marketoriented termination charges or competition in this market.  S-  10.` ` In general, we believe settlement rates are significantly higher than economic costs. This   is almost certainly the case for service between the Japan and the United States, where the current   yaccounting rate is more than double the rate of any other high income, industrialized country. We believe   jcompetitive market conditions would result in a much lower settlement rate than the proposal negotiated   by AT&T and KDD. We note, for example, that the rate to be paid by AT&T to terminate service in   !Japan would exceed by a wide margin the rate we recently adopted for high income countries. In   addition, the agreement lacks any assurance that the rate in 1998, which is yet to be negotiated, would approach a costbased level.  S-  o11.` ` We find, therefore, that AT&T has not adequately justified the difference in settlement   -rates nor has it demonstrated convincingly that the alternative settlement arrangement will promote market  oriented prices and competition. It is not our intention to discourage U.S. carriers from negotiating   alternative settlement arrangements with dominant carriers by this decision. We expect such an   arrangement, however, to move the rate clearly toward costbased levels and result in lower net settlement   payments, whether it is based on an accounting rate that is divided equally or, as is the case here, an   asymmetric rate structure. If an asymmetric rate structure is involved, information showing that the U.S.   carrier's net settlement payment per U.S.billed minute with the foreign carrier would be measurably lower   Lwith the proposed alternative arrangement than it would be with the current accounting rate would be an   indication that the arrangement moves the rate in the direction of costbased levels and is likely to produce   .significant savings in the net settlement payment in comparison to the current arrangement. In addition,   ?a showing that the proposed rates are based on the economic costs of terminating calls in the two   countries, and the arrangement is consistent with recent Commission decisions on accounting rates, would   increase the chance that an alternative settlement arrangement with a dominant carrier would be approved.   Of course, we also expect the U.S. carrier to demonstrate that marketoriented pricing and competition will be promoted.  S%-  n12.` ` Finally, a flexible settlement arrangement, including asymmetric rates, may be appropriate   with a dominant foreign carrier in a country which has not met the ECO test if there is a firm commitment   yin the proposal to negotiate a rate that is comparable to lower U.S. settlement rates that are now in effect"=' ,l(l(,,+"   [with other developed countries having more competitive markets, like the United Kingdom (7), Sweden   (8.5), or Canada (10). Similarily, a firm commitment to the immediate introduction of new forms of   competition such as international simple resale may lend support to a proposal's acceptability. The   carriers, of course, could agree to retain the traditional, symmetric accounting rate arrangement. In this   case, the settlement rate should more clearly move toward existing U.S. settlement rates with developed   countries where competitive markets have not emerged, like Germany (10.5) and France (13), and   achieve such a rate in the final stage of the agreement. No matter what form the ultimate agreement   between AT&T and KDD takes, however, we expect that the new agreement would capture at least the   savings that would have occurred under the agreement we reject here. In order to reach a new agreement   =expeditiously, we encourage AT&T to resume bilateral discussions with KDD in an effort to negotiate a new settlement arrangement with these concerns in mind.  S -35 Ordering Clauses ă  S6 -  `13.` ` Accordingly, IT IS ORDERED THAT AT&T's request, on behalf of itself and AT&T Alascom, is DENIED.  S -  14.` ` IT IS FURTHER ORDERED that AT&T shall immediately resume negotiations with KDD   to reduce settlement rates in a manner that is consistent with the guidelines set forth in this order and that it will use it best efforts to reach agreement in an expeditious manner.  S-15.` ` IT IS FURTHER ORDERED that MCI's opposition to AT&T's filing is granted.  Sk-  16.` ` This order is issued under Section 0.261 of the Commission's Rules and is effective upon   adoption. 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 the date of public notice of this Order (see C.F.R. Section 1.4(b)(2)). ` `  hh,FEDERAL COMMUNICATIONS COMMISSION ` `  hh,Diane J. Cornell ` `  hh,Chief, Telecommunications Division ` `  hh,International Bureau