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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Sprint Communications Company L.P.) ) Petition for Waiver of the ) File No. ISP-97-M-701 International Settlements Policy) For Establishment of a Settlement Rate ) For Paid 800 Service with Mexico) ORDER ON RECONSIDERATION Adopted: August 7, 1998 Released: August 7, 1998 By the Chief, International Bureau: I. INTRODUCTION 1. On October 17, 1997, Sprint Communications Company L.P. (Sprint) filed a request for modification, pursuant to the Commission's International Settlements Policy (ISP), for a change in the settlement rate for Sprint's Paid 800 service between Sprint and Telmex. For the reasons detailed below, we reject Sprint's modification request. II. BACKGROUND 2. Sprint's Paid 800 service with Telmex allows a caller in Mexico to initiate an international call to a U.S. toll-free number. The caller pays Telmex for a Mexico-U.S. international call and Telmex pays settlement for this traffic to Sprint. At Sprint's international gateway switch, Sprint routes the call to a local exchange carrier ("LEC") switch where the call is reoriginated as a domestic U.S. call. The LEC switch queries the domestic 800 database to determine which interexchange carrier should handle the call and then hands it off to that carrier for termination. 3. Sprint's petition proposes that effective January 1, 1996, the settlement rate for Paid 800 Service for traffic between Mexico and Sprint's U.S. service area would be $0.15/minute during the day and $0.10/minute at night. These rates are substantially lower than the prevailing rates for International Messaging Telephone Service ("IMTS") traffic during 1996 and 1997. Because no objections to or comments regarding Sprint's request were filed within the applicable 21-day pleading period, Sprint's request was deemed granted on November 11, 1997. 4. On November 25, 1997, AT&T Corp. (AT&T) filed an Opposition to Sprint's request for modification. Because AT&T's Opposition raised significant issues concerning the applicable settlement rate for the provision of international Paid 800 service between the United States and Mexico, the International Bureau released a Public Notice seeking comment on AT&T's Opposition. The Public Notice also stated that during the pendency of this proceeding, Sprint's request for modification would continue to be deemed granted and Sprint's proposed settlement rate for Paid 800 service on the U.S.-Mexico route would remain in effect. On January 5, 1998, Sprint filed comments in support of its request for modification and MCI filed comments in support of AT&T's November 25, 1997 Opposition. On January 20, 1998, AT&T and MCI filed comments opposing the Sprint request. III. DISCUSSION 5. Under the ISP, Sprint bears the burden of demonstrating that it is in the public interest for us to permit a settlement rate arrangement for its Paid 800 service that is different from its other IMTS options on the U.S.-Mexico route. To make this demonstration, Sprint must show that its non-uniform rate for Paid 800 service would benefit U.S. consumers through improved services, increased competition and lower rates. Because we find that Sprint has failed to demonstrate that it is in the public interest to treat its Paid 800 service differently under the ISP than its IMTS traffic, we reject Sprint's request. 6. Sprint argues that its Paid 800 service is very different from the services subject to the IMTS settlement rate, such as international direct dialed calls ("IDD"), Home Country Direct ("HCD"), international 800 ("I-800") or operator collect services. Sprint distinguishes Paid 800 service from the other services based on the technology employed and the costs incurred using Sprint's system. More specifically, Sprint states that it invented a means by which Paid 800 calls could be routed automatically and directly to domestic U.S. 800 service providers. Sprint's system allows Telmex to charge the calling party for delivering the call to Sprint's international gateway switch and allows the 800 subscriber to pay a domestic rate for the domestic portion of the call. Sprint further asserts that its Paid 800 offering is "sufficiently novel and unique to have earned a patent." 7. Sprint also claims that the cost of handling a Paid 800 call under its system is substantially less than that of a typical IMTS or HCD call. Sprint states that it does not incur the expense of carrying the call to its ultimate destination, nor does it incur billing and collection expenses for terminating Paid 800 services. Consequently, Sprint argues that Paid 800 traffic should not be settled at the same rates applicable for IMTS, I-800 or HCD calls. 8. AT&T and MCI argue that Sprint has not justified why its Paid 800 traffic should be treated differently under the ISP from other forms of IMTS traffic. First, AT&T and MCI point out that from 1996 until the present, Sprint has been the only carrier that has received Paid 800 traffic from Telmex. As such, the carriers claim that Sprint has been the beneficiary of an exclusive arrangement that is prohibited under the Commission's "no special concessions" rule. Second, AT&T and MCI argue that Sprint's agreement with Telmex constitutes a "whipsaw" since other U.S. carriers desiring to participate with Telmex in offering Paid 800 service must agree to allow Telmex to pay a lower settlement rate than has been agreed to for IMTS traffic. In addition, AT&T and MCI argue that the Sprint agreement violates the ISP's non-discrimination requirements because it was not made available to all U.S. carriers on the same date as well as on the same terms. 9. AT&T and MCI also argue that under the Commission's policies, Paid 800 services should be treated as IMTS for the purposes of applying uniform accounting rates. MCI points out that for years they and other carriers have treated Paid 800 traffic as IMTS traffic for settlement purposes. Similarly, AT&T states that it has been completing Paid 800 traffic for over ten years. In each of the 75 countries with which AT&T currently provides Paid 800 service, that traffic is treated as IMTS traffic, settled at the same accounting rate as other IMTS traffic, allocated to U.S. carriers under proportionate return, and available in both directions. 10. AT&T and MCI disagree with Sprint that Paid 800 is sufficiently different in terms of the technology employed and the costs incurred in trasnporting the call that it should be subject to a lower settlement rate. MCI argues that, on balance, there are no significant differences between the handling of a Paid 800 call and an IMTS call to warrant the tremendous disparity in settlement rates proposed by Sprint. MCI contends that this is because Paid 800 calls and inbound IMTS calls share the same network facilities and incur virtually the same costs. AT&T adds that Sprint's patent does not make this service different from other IMTS traffic. According to AT&T, many forms of IMTS offered today are subject to patents. In addition, AT&T observes that there are other forms of implementation of Paid 800 service which it and other carriers have used, and that these have all been treated as IMTS for purposes of settlement. 11. AT&T also notes that a reduced settlement rate is not necessary to implement Paid 800 service from a foreign country. Rather, Telmex can still offer Paid 800 service at the higher IMTS settlement rate, just as other foreign carriers have offered this service on other routes at the prevailing IMTS rate. Indeed, AT&T argues that if the lower settlement rate is allowed, Telmex will have the ability and incentive to bypass the higher IMTS settlement rate. According to AT&T, Telmex could send IMTS calls to a U.S. 800 number, where they would gain access to a second dial tone and be routed to the end user. 12. We find that Sprint has not demonstrated that its Paid 800 service should be subject to a lower settlement rate than its IMTS on the U.S.-Mexico route. First, Sprint has not demonstrated that its Paid 800 service is a fundamentally different service from other IMTS. While Sprint has described certain differences in the ways that Paid 800 and IMTS calls are terminated, Sprint has not provided any evidence of differences in the actual costs of providing these services. Moreover, Sprint has not demonstrated that any differences in costs that may exist are so large as to justify the difference between Sprint's proposed settlement rate for Paid 800 service (10-15 cents), and the prevailing IMTS average per minute settlement rates (32 cents in 1996 and 39.5 cents in 1997). Indeed, Sprint's own practice of providing this service on other routes subject to the prevailing IMTS rates undermines its contention that it is a fundamentally different service. 13. If we were to approve Sprint's modification request, other U.S. carriers wishing to provide this service in correspondence with Telmex would be forced to accept the same lower settlement rate proposed by Sprint. This lower rate is more favorable to Telmex than the prevailing rate for IMTS traffic because Telmex would pay less to send Paid 800 traffic to the United States than IMTS traffic. The lower rate would reduce Telmex's overall costs on this route by reducing the dollar value of settlement payments owed to U.S. carriers. This would raise the net settlement payments from U.S. carriers who would be left with a lower amount of settlement payments from Telmex to "net out" against their traffic sent to Telmex, all of which is settled at the higher IMTS rate. Because the agreement only covers northbound traffic, neither Sprint nor other U.S. carriers can take advantage of the lower rate for southbound traffic. U.S. carriers would then be forced to pass along these higher settlement costs to U.S. consumers in the form of higher calling prices. Therefore, allowing the lower settlement rate for Paid 800 traffic would put upward pressure on U.S. calling prices and thus would not be in the public interest. 14. Finally, Sprint has provided no evidence that the lower settlement rate for Paid 800 is necessary in order for Sprint to continue to offer Paid 800 service. In fact, Sprint's own practice of settling this traffic on different routes at the IMTS rate undermines the argument that Paid 800 traffic should be treated differently under the ISP. Under these circumstances, we cannot approve the proposed settlement rate for Paid 800 service on the U.S.-Mexico route. Sprint has not demonstrated that U.S. consumers would benefit from the proposed change through improved services, increased competition or lower rates. IV. CONCLUSION 15. We find that the proposed changes in the Paid 800 settlement rates between Sprint and Telmex are not in the public interest. We therefore deny Sprint's modification request. V. ORDERING CLAUSES 16. Accordingly, IT IS ORDERED that Sprint's request for modification pursuant to the Commission's International Settlements Policy for establishment of a settlement rate for Paid 800 Service with Mexico IS DENIED. 17. This order is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's rules may be filed within 30 days of the public notice of this order (see Section 1.4(b)(2) of the Commission's rules). FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, International Bureau