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I.Xa2IndentedLeft-indented text?C ? A.` ` 2?a3IndentedLeft-indented textHP ? ` ` 1. a4IndentedLeft-indented textQp- ? ` `  a.` 'a5IndentedLeft-indented text[ܽ ? ` `  '(1) hh-a6IndentedLeft-indented textdK ? ` `  'hh-(a)42asq}a7IndentedLeft-indented textl݇ ? ` `  'hh-4i)h:a8IndentedLeft-indented textu-b ? ` `  'hh-4:a)ppAa1InterrogatoresStarts with A. at margin, 1 at first indentUZZI.a1OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4$ 2La2OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4/ a3OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4: a4OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4E a5OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4P   2 'ۙda6OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4[   a7OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4f  a8OutlineE+O4*ÿUI. A. 1. a. (1) (a) i) a)4 =(O4WGl *O4q Leventhal6@6wwLeventhal, Senter & Lerman Doc Style*O4ÿUVGl.EQ    #XN\  PXP#2I?rٜKq؝a1DAKBt*3  S'1.` ` a3DAKa1for ordersenter, tab, parnum, two spaces5Q0 6"]J  1. a2InterrogatoroDStarts with A. at margin, 1 at first indentk*<KL2?q{qq]qΟa3InterrogatoroDStarts with A. at margin, 1 at first indentk*<MNa4InterrogatoroDStarts with A. at margin, 1 at first indentk*<OPa5InterrogatoroDStarts with A. at margin, 1 at first indentk*<QRa6InterrogatoroDStarts with A. at margin, 1 at first indentk*<ST2pqqqrSša7InterrogatoroDStarts with A. at margin, 1 at first indentk*<UVa8InterrogatoroDStarts with A. at margin, 1 at first indentk*<WXa4DAKa2DAKS}  X4\ (1)2KKߧK*subhead$uRX` hp x (#%'0*,.8135@8:%7777777777>>>0eOIIOD>OO%*ODaOO>OI>DOOgOOD%%37%07070%777V7777%*77O77055;%;3%%%%%%%%%7%7O0O0O0O0O0aHI0D0D0D0D0%%%%O7O7O7O7O7O7O7O7O7O7O0O7O6O7O7O7>7O0O0O0I0I0I;I0OED0D0D0D0O7O7O7O;O7O;O7%%7%%%7M>;;O7DD,D%D%DO7AO7O7O7O7aOI%I%I%>*>*>*>;D.DD3O7O7O7O7O7O7gOO;D0D0D0O7D%O7>*D%O7E77%%WMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN(BB(37%07777j7#TT7!#TT7T!%%007n&&Bn77lBTn(nBB(AZZ>>n%07\n!"IIIITTenn7TnB@;7>lBBn72KKKL"i~'^#)0<8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""2"2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""M\\>>>\}0>03\\\\\\\\\\>>}}}\rryrr>Qygyrr\grrggF3FM\>\\Q\Q3\\33Q3\\\\FF3\QyQQFI3Ic>0cM>>>0>>>>>>\>\3r\r\r\r\r\yyQrQrQrQrQ>3>3>3>3y\\\\\\\\\gQr\\\\gQ\r\r\r\r\yQyQycyQnrQrQrQrQ\\\c\c\>3>\>>>\\ccyQg3gBg>g;g3y\jy\y\\\yrFrFrF\F\F\FccgBg3gM\\\\\\ygcgFgFgF\g>y\\Fg>g\n0\\=(=WddddddddddddddddddddddddddddddddddddddddNBnnB_\F\\\\\\3;\7;\7>>gg\??n\\nBnnBb\\>g\7"yyyy\njc\}nn\ S' X   ) S'  #&a\  P6G;u&P#Federal Communications Commission`}(#cDA 982401 ă   yx}dddy )Pb Before the Federal Communications Commission  S'"2Washington, D.C. 20554 ă  S4'In the Matter of hhCq) ` `  hhCq)  S'Sprint CommunicationshhCq)  S'Company, L.P.` `  hhCq)ppISP97M708 ` `  hhCq)  S5'Request for Modification ofhhCq)  S'the International Settlements PolicyhhCq)  S'to Change the Accounting RatehhCq)  S 'for Switched Voice Service withhhCq)  Si 'Mexico` `  hhCq)  S '  MEMORANDUM OPINION AND ORDER \  S7'X` hp x (#%'0*,.8135@8:'#X\  P6G;ɒP#эX1991 ISP Order, 6 FCC Rcd at 3552.(#Ɣ The Commission has found that abovecost accounting rates  x^are contrary to the public interest because (a) they contribute to artificially high international calling prices  S 'and (b) they represent a subsidy from U.S. consumers to foreign carriers.@ J Є {Oj' " #X\  P6G;ɒP#эXSee, e.g., 1991 ISP Order, 6 FCC Rcd at 3552 ("the existing abovecost international accounting rate  " structure appears to be the primary reason that U.S. international calling prices are significantly higher than  {O' " U.S. domestic calling prices"); International Settlement Rates, IB Docket 96261, Report and Order, 12 FCC  {O' " Rcd 19806 (1997) (Benchmarks Order), recon. pending, appeal filed, Cable & Wireless, P.L.C. v. FCC, No.  {O' " 971612 (D.C. Cir. filed Sept. 26, 1997) (Benchmarks Order) at  13 ("[c]onservative estimates put at least  " seventy percent of [the] total [1996 settlement payment] as an abovecost subsidy from U.S. consumers to  {O"' " foreign carriers"). See generally, Policy Statement on International Accounting Rate Reform, 11 FCC Rcd 3146 (1996).(#@  S ' e 6.` ` Over the past several years, the Commission has increased its efforts to ensure that  Sk' xaccounting rate arrangements are in the public interest. The Bureau has strictly enforced the  S8' xCommission's regulations against whipsawing 8Є {O#' "g #X\  P6G;ɒP#эXSee, e.g., AT&T Corp.: Proposed Extension of Accounting Rate Agreement for Switched Voice Service with  {Oz$' " Argentina, Order, 11 FCC Rcd 18014 (International Bureau, rel. March 18, 1996); AT&T Corp., MCI  "M Telecommunications Corp., Sprint, LDDS WorldCom: Petitions for Waiver of the International Settlements  {O &' "  Policy to Change the Accounting Rate for Switched Voice Service with Peru, Order and Authorization, 11 FCC Rcd 12107 (International Bureau, rel. May 7, 1996).(#ƚ and the Commission has modified its regulatory policies"8 ,l(l(,,"  S' x"in order to promote low, more costbased, international accounting rates and calling prices." Є {Oh' " #X\  P6G;ɒP#эXRegulation of International Accounting Rates, CC Docket No. 90337, Notice of Proposed Rulemaking, 5 FCC Rcd 4948, 4949 (1990).(# As part  xof this effort, the Commission reformed its ISP in order to promote more costbased accounting rates and  xdirected U.S. carriers to "negotiate with their foreign correspondents accounting rates that are consistent  Sg' xkwith relevant cost trends."< g"Є {O)' " #X\  P6G;ɒP#эX1991 ISP Order, 6 FCC Rcd at 3556. See also Flexibility Order (permitting U.S. carriers to negotiate alternative settlement arrangements that do not comply with the ISP in certain circumstances).(#< The Commission also adopted its Benchmarks Order, which establishes a set  xxof benchmark rates and transition periods within which U.S. carriers are to negotiate settlement rates with  S' xtheir foreign correspondents that comply with these benchmarks.|Є {O ' " #X\  P6G;ɒP#эXPursuant to the Benchmarks Order, U.S. carriers are required to negotiate settlement rates of $0.19 with their foreign correspondents in Mexico beginning on January 1, 2000.(# The Commission recognized in the  S' x}Benchmarks Order that the benchmark rates are still abovecost, and reiterated that its goal remains  S'"settlement rates that reflect incremental costs."Є {O'#X\  P6G;ɒP#эXBenchmarks Order at  44.(#Ƃ  S7' e 7.` ` Applying these Commission policies, we find that the interim rates for 1998 and 1999  S' xcontained in the Sprint Modification Request are not in the public interest. First, we find that the interim  xrates are contrary to the public interest because they do not make adequate progress toward achieving cost x+based settlement rates. Second, we find that denial of the interim rates is necessary to prevent whipsawing. We discuss these findings further below.  S ' e 8.` ` Although the Sprint Modification Request proposes a $0.19 settlement rate with Mexican  S ' xZcarriers by January 1, 2000, as required by the Benchmarks Order, we find that the interim reductions  xremain so far above cost that they do not represent adequate progress in 1998 and 1999 toward costbased  So' xrates.oh Є {Ow' " #X\  P6G;ɒP#эXAlthough annual proportionate reductions are not mandated by the Benchmarks Order, the pace of interim reductions is relevant to our public interest analysis.(# The Commission estimated that costbased settlement rates are likely no higher than $0.06$0.09.o Є {O'#X\  P6G;ɒP#эXBenchmarks Order at  122.(#ƃ  xThe interim settlement rates proposed by Sprint are well in excess of costbased settlement rates. In the  S ' x7Benchmarks Order, the Commission stated that it "expected[ed] carriers to negotiate proportionate annual  S' x^reductions in settlement rates."T Є {O'#X\  P6G;ɒP#эXBenchmarks Order at  172.(#ƃ We note that Sprint's proposed reductions fall far short of the reductions  xthat would be achieved under annual proportionate reductions. Sprint's proposed reduction of $0.02 in  xl1998 from the 1997 settlement rate and an additional $0.03 in 1999 unduly delay settlement rate  S>' xreductions on the U.S.Mexico route. Under the rates proposed in the Sprint Modification Request, 75  xpercent (15.5) of the aggregate reductions required in order to achieve the benchmark rate of $0.19 would  xbe delayed until January 1, 2000. This means that the aggregate U.S. settlement outpayments that would  S' xbe due if the rates in the Sprint Modification Request were to be approved would be at least $200 million  xgreater than the aggregate outpayments that would be due if annual proportionate reductions were"t,l(l(,,"  S' xproposed, according to AT&T's calculations.Є {Oh'#X\  P6G;ɒP#эXSee AT&T Opposition at 5; see also, MCI Opposition at 3.(#Ƥ Accordingly, we find that the interim rates for 1998 and  S' x1999 in the Sprint Modification Request do not make adequate progress toward achieving costbased settlement rates and are thus not in the public interest.  x%]M   S5' e q x%]M 9. ` ` We also note that Telmex has shown no willingness to negotiate lower interim rates with  S' xother U.S. carriers.%ZЄ {O' " #X\  P6G;ɒP#эXSee AT&T Reply to Sprint Opposition, ISP97708 (filed January 13, 1988) (AT&T Reply), at 2. We note  "p that Telmex currently has settlement rates with carriers in other countries that are substantially lower than  {O ' " the interim rates in the Sprint Modification Request. See Ex parte letter to Magalie Roman Salas, Secretary,  " Federal Communications Commission, from Judy Simonson, Government Affairs, Vice President, AT&T,  " October 30, 1998, at 1 (citing information provided by Telmex to the International Telecommunication Union showing that Telmex's lowest settlement rate is 25 per minute).(#% For that reason, we find that denying, in part, the Sprint Modification Request is  xnecessary to safeguard against whipsawing, which can occur when a foreign carrier uses its dominant  xmarket position to play U.S. carriers off one another to impose terms and conditions in accounting rate  xagreements that are unduly favorable to the dominant provider. Frequently, whipsawing takes the form  xyof the foreign carrier isolating a U.S. carrier in an effort to negotiate a favorable accounting rate  xagreement. Once an agreement is reached with the foreign carrier, other U.S. carriers are under substantial  xQpressure to accept the same agreement or risk retaliation by the foreign carrier. The retaliation could take  S ' xseveral forms, some more subtle than others.  Є yO' "} #X\  P6G;ɒP#эXFor example, a foreign carrier could retaliate simply by refusing to negotiate with other U.S. carriers. More  "" aggressive forms of retaliation include diverting a disproportionate share of traffic to the U.S. carrier that  " agreed to the foreign carrier's demands or cutting off circuits of U.S. carriers that refuse to agree to the foreign carrier's terms.(# The risk of whipsawing is particularly acute in cases where  xsuch an accounting rate agreement is reached between affiliates, as in this case. Whipsawing results in  xhigher accounting rates than would otherwise exist if the foreign carrier were not able to play U.S. carriers off one another, to the detriment of U.S. consumers.  S ' e   10.` ` We find AT&T's and MCI's arguments regarding whipsawing to be persuasive. As the  Sl' xpleadings filed in opposition to the Sprint Modification Request indicate, other U.S. carriers have  xattempted to negotiate lower settlement rates with Telmex than Sprint has filed. Those efforts have not  xbeen successful because Telmex has exerted substantial pressure on other U.S. carriers to accept the same  S' xconcessions as agreed to by Sprint. Є {O2'#X\  P6G;ɒP#эXSee, e.g., AT&T Reply at 23.(#ƃ Moreover, as AT&T and MCI point out, the fact that Telmex and  x3Sprint are joint venture partners in TSC could have affected Sprint's willingness to agree to terms and  Sn' x@conditions that are not as favorable as AT&T and MCI seek.nP Є yO^!'#X\  P6G;ɒP#эXAT&T Opposition at 68; MCI Opposition at 34.(#Ǝ If we approve the Sprint Modification  S<' xRequest, Telmex could be expected to exert more pressure on other U.S. carriers to accept the same  S ' xinflated settlement rates to which its joint venture partner Sprint has agreed.^ Є {O$' " #X\  P6G;ɒP#эXSee, e.g., Petition for Waiver of the International Settlements Policy to Change the Accounting Rates for  {OT%'Switched Voice Service with India, ISP98M135, Order, DA 981060 (International Bureau, June 4, 1998).(#^ Indeed, Telmex has refused  xto negotiate lower rates with other U.S. carriers in part because it has argued that the Bureau already"<,l(l(,,n"  S' x*approved the interim rates in the Sprint Modification Request in the TSC Order.Є yOh' " #X\  P6G;ɒP#эXAT&T Reply at 23 (citing Telmex letter stating that the settlement rates in the Sprint Modification Request  "& "are not negotiable" because the Bureau "found Telmex's commitment to reduce its settlement rates to these  " levels to be a significant public interest factor weighing in favor of grant of TSC's [Section 214]  {O' "" application"). In fact, the Bureau made no finding regarding interim rates in the TSC Order or elsewhere.  {O'See infra, para. 13.(#Ɛ We thus deny, in part,  S'the Sprint Modification Request to prevent whipsawing.  Si' e  11.` ` In finding that the interim rates are not in the public interest, we note that the U.S.Mexico  xcroute is of unusual importance because of the high level of traffic and the extent to which traffic is  xunbalanced. The traffic levels on the U.S.Mexico route are so high that U.S. settlement payments to  S' x7Mexican carriers greatly exceed settlement payments to carriers in any other country.""|Є yO ' "" #X\  P6G;ɒP#эXData on U.S. carrier outpayments is contained in annual reports compiled by the Common Carrier Bureau  {O ' "E of the information U.S. carriers file pursuant to Section 43.61 of the Commission's rules. See 47 U.S.C.  "  43.61. The most recent report is entitled "1996 Section 43.61 International Telecommunications Data," January 1998, Industry Analysis Division, Common Carrier Bureau.(#" Mexican carriers  S' xhave received almost $6 billion in settlement payments from U.S. carriers since 1990.Xf Є yO' " #X\  P6G;ɒP#эXAlthough settlement payments to Mexican carriers declined in 1997, they still exceeded $700 million in that  "R year, almost 13 percent of total U.S. payments worldwide. The next highest outpayment country after Mexico in 1997 was China, which received $267.7 million in settlement payments from U.S. carriers.(#Ƴ Under these  xMcircumstances, a relatively small difference in the settlement rate on the U.S.Mexico route can have a  xgsubstantial impact on settlement payments, and, ultimately, on U.S. calling prices. For example, based  xon the U.S. carriers' net traffic outflow to Mexico in 1997 of 1.8 billion minutes, a one cent decrease in  xthe settlement rate would result in a reduction of almost $20 million in outpayments to Mexican carriers.  S ' xAs the Commission noted in its Benchmarks Order, a substantial portion of U.S. settlement payments  xexceed the cost to terminate calls in other countries. The high outpayments to Mexican carriers are fueled  S9 ' xby abovecost accounting rates and rapid growth in U.S. carriers' net traffic outflow to Mexico.9 Є yO_' " #X\  P6G;ɒP#эXThe traffic imbalance on the U.S.Mexico route grew at a compound annual rate of approximately 26% in the years 1993 through 1997.(# The  xportion of U.S. carrier settlement outpayments to Mexican carriers that are abovecost represents a subsidy  xfrom U.S. consumers to foreign carriers. The subsidy from U.S. consumers to Mexican carriers is  x@particularly large because of the tremendous volume of traffic, the traffic imbalance, and the extent to  xwhich accounting rates on the route are abovecost. These particular circumstances provide additional  S:' xxsupport for our finding that the interim reductions for 1998 and 1999 contained in the Sprint Modification  S'Request are not in the public interest.  S' e  12.` ` Sprint argues that the Commission should approve the Sprint Modification Request under  Sq' xthe standard adopted in the Benchmarks Order for "grandfathered" settlement rate agreements, even though  S?' xthe interim reductions are nominal.y?Є yO#'#X\  P6G;ɒP#эXSprint Opposition at 67.(#y We disagree for the following reasons. Sprint's argument refers to  S ' xtthe Commission's statement in the Benchmarks Order that a settlement rate agreement reached prior to  S' xJanuary 1, 1998nЄ {O&'#X\  P6G;ɒP#эXJanuary 1, 1998 was the effective date of the Benchmarks Order.(#ƥ could be found to be in the public interest and thereby "grandfathered" even if it",l(l(,,a"  S' xdoes not comply strictly with the requirements of the Benchmarks Order. The Commission stated that  xsuch "grandfathered" agreements could be found to be in the public interest, provided they achieved the  S' xggoals the Commission set forth in the Benchmarks Order and achieved settlement rates at or below the  Si' xrelevant benchmarks within a reasonable time.iЄ {O'#X\  P6G;ɒP#эXBenchmarks Order at  190.(#ƃ We find that the interim rates in the Sprint Modification  S7' xRequest are not consistent with the goals of the Benchmarks Order because, as discussed above, they delay  xunduly settlement rate reductions on the U.S.Mexico route and do not represent adequate progress in 1998  xand 1999 toward costbased rates. We thus disagree with Sprint's argument that the rates are in the public  xinterest and should be approved under the standard for grandfathered agreements contained in the  Sl'Benchmarks Order.  S' e # 13.` ` Sprint further argues that the Bureau already found in its October 1997 TSC Order& $ZЄ {O ' " #X\  P6G;ɒP#эXApplication for Authority under Section 214 of the Communications Act for Global Authority to Operate  " as an International Switched Resale Carrier Between the United States and International Points, Including  {O ' " Mexico, ITC97127, Order, Authorization and Certificate, DA 972289 (October 30, 1997) (TSC Order),  {M]'application for review pending.(#& the  S' xinterim rates for 1998 and 1999 to be in the public interest.y!FЄ yO'#X\  P6G;ɒP#эXSprint Opposition at 67.(#y Sprint's assertion is incorrect. In fact, the  S ' xQBureau made no finding whatsoever in the TSC Order regarding the interim rates. The Bureau found only  x7that Telmex's agreement to reduce its rates to the $0.19 benchmark by January 1, 2000 was in the public  S= ' x}interest, and we reiterate that finding here in approving that part of the Sprint Modification Request  S ' x*proposing a $0.19 rate from January 1, 2000.T" Є {O' " #X\  P6G;ɒP#эXSpecifically, the Commission found in the TSC Order that "Telmex's commitment to reduce its settlement  {OK' " rate to the applicable benchmark in a timely manner" was in the public interest. TSC Order at  59  {O' "y (emphasis added). See Letter from Regina M. Keeney, Chief, International Bureau, FCC, to Luis L;pez  " Rojo, Chief Executive Officer, Telmex/Sprint Corporation, dated June 2, 1998 (noting that the Bureau did  "/ not, contrary to the claim in a TSC press release, find that Telmex's commitments on interim rates for 1998 and 1999 were a public interest factor in favor of granting TSC a Section 214 authorization).(#T We note that even this $0.19 rate remains far above cost and encourage carriers to negotiate lower rates.  Sr'` `  hhC IV.qConclusion  S ' e A 14.` ` For the abovestated reasons, we grant Sprint's request for the $0.19 rate effective January  xt1, 2000 and deny Sprint's request for the interim rates of $0.375 effective January 1, 1998 and $0.345  xeffective January 1, 1999. We direct U.S. carriers to negotiate lower interim rates that demonstrate reasonable progress toward achieving costbased settlement rates.  S '` `  hhC V.qOrdering Clauses  S' e 15.` ` Accordingly, IT IS ORDERED that Sprint's request to establish a settlement rate with  xDTelmex of $0.375 per minute effective January 1, 1998, and $0.345 per minute effective January 1, 1999 is DENIED.  S' e 16.` ` IT IS FURTHER ORDERED that Sprint's request to establish an accounting rate with Telmex of $0.19 per minute effective January 1, 2000 is GRANTED."T ",l(l(,,N"Ԍ S' e =ԙ17.` ` IT IS FURTHER ORDERED that Sprint and other U.S. carriers shall continue their best  xefforts to achieve interim settlement rate reductions for 1998 and 1999 that comply with the Commission's ISP.  S4' e J18.` ` This order is effective upon adoption. Petitions for reconsideration under Section 1.106  S' xof 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). ` `  hhCFEDERAL COMMUNICATIONS COMMISSION ` `  hhCRegina M. Keeney ` `  hhCChief, International Bureau