Welcome to the third issue of HELLERSTEIN REGULATORY & INDUSTRY REVIEW, a monthly free newsletter covering significant regulatory and industry developments in the telecommunications and technology industries. The newsletter is published by Hellerstein & Associates, a telecommunications and technology research group that provides its clients with a competitive edge through market research, regulatory analysis and competitive intelligence.

This issue will discuss the Federal Communications Commission's proposed new rules for International settlements and the actions it will take in accordance with Section 706 of the Telecommunications Act.


In connection to the biennial review, the FCC proposed significant changes to the rules governing international settlement policy and rules. Under the present system which dates back to 1936, competitive carriers were not permitted to negotiate their own settlement rates with US carriers. All negotiations had to be at a bilateral level between the two governments and special agreements between a foreign carrier and a US carrier, including those for less than 50% of traffic were forbidden.

In this NPRM, the FCC proposed to allow carriers from WTO member countries to be able to negotiate their own settlement policies with foreign carriers as long as these carriers lacked market power in their country. The NPRM also proposed that foreign carriers from WTO member countries that have been approved to operate international simple resale between their country and the US be allowed to negotiate their own settlement rates. The FCC also proposed to give US carriers extra flexibility in creating settlement agreements with fledgling foreign carriers for agreements covering less than 25% of the traffic on a particular route; moreover, it allows these same carriers the ability to make agreements without getting prior approval from the FCC. Additionally, carriers choosing to negotiate their own settlement policies are freed from the requirement of filing contracts or settlement information with the FCC. Hellerstein and Associates believes that providing carriers with this extra flexibility will go a long way to helping the new emerging competitive carriers. Allowing foreign carriers to negotiate settlement arrangements with US carriers for less than a proportionate rate will spur competition and lead to lower rates. Competition is the most effective means of bringing down the cost of international calls and thus providing direct benefits to all consumers.

Since 1993 international settlement rates have been declining significantly as more and more countries adopt deregulatory policies, create independent regulators, and divest themselves of ownership of the incumbent operator. These declining rates have greatly benefitted the American consumer as costs for international calls have fallen dramatically. Moreover, this NPRM will both lower the costs of international, and also ensure that these costs continue to drop by allowing even more foreign carriers the opportunity to terminate calls originating from the US.


On Section 706, the FCC took two actions, it issued a Notice of Inquiry (NOI) to examine the issues surrounding a full deployment of advanced broadband services to American consumers and a Notice of Proposed Rulemaking (NPRM) that at its heart provides incumbent LECs with an alternative means, free of incumbent regulations, for entering the data market.

The NOI's goal is to analyze the current marketplace for broadband services and to discover what actions can be taken to encourage the deployment of a national broadband infrastructure, especially in rural areas. The FCC expects to conclude its findings and issue a report by February 1999. Hellerstein & Associates believes strongly that progress in deploying a broadband network should not be impeded by putting limits on technology.

Commissioner Tristani thanked incumbent LECS and CLECs for filing petitions under section 251 and 271 of the Act since this enabled the FCC to act quicker than if they were filed under section 706. As a result, the NPRM was able to focus more on issues relating to section 251 and to respond directly to issues raised in the various 706 petitions filed by the RBOCs. Most importantly, the Commission stated that Section 706 by itself does not grant the FCC the power to forbear from either Section 251 or 271; therefore it denied the RBOC's petitions for large scale changes to LATA boundaries as the necessary action needed to speed the deployment of a broadband infrastructure. However, the FCC did not rule out future modifications to LATA boundaries if these modifications were the best way of encouraging the deployment of a broadband network to schools, libraries, other educational institutions, and to Americans living in rural areas. The NPRM asked for comments from industry and from State Commissions. Commissioner Tristanti stated that she wanted to encourage the State Commissioners to become full partners with her and her fellow Commissioners in all decisions and rulemakings concerning deployment of a national broadband network.

The FCC also instructed the incumbent LECS to unbundle all the different network elements from their data networks, just as they do for their voice networks, and make these elements available to all competitors. The FCC, however, gave ILECs the ability to avoid incumbent regulations on data services by allowing them to create a separate subsidiary for their data operations. The FCC allowed for the creation of separate subsidiaries because it felt that this would be the best way of speeding up the growth of a broadband data network, especially in rural areas. The Commissioners emphasized that they tried to focus on long term solutions and actions that would promote innovation rather than on short term answers. As such, they sought to find different ways to provide the necessary incentives to ILECs to invest and build out a broadband infrastructure covering all 50 states.

Hellerstein and Associates believes that only competition, not regulation, is the most effective means of bringing consumers more services, better quality, and the lowest prices. Thus, we are not as sure as the Commission that a separate subsidiary is the correct pathway to bring about this competition.

The FCC also granted ALT's petition regarding collocation requirements, measures to reduce unnecessary costs and delays in the collocation process, and the feasibility of changing the regulations to allow for collocation of equipment with switching functionality.The NPRM instructs the ILECs to offer CLECs alternative collocation arrangements, including cageless collocation. Congestion and inability to obtain physical collocation in the incumbent LEC's central offices has been one of the top complaints of CLECs. The FCC also granted CLEC's the ability to visit the incumbent LEC's central office if they have been denied physical collocation because of space constraints.

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Topics covered in the HELLERSTEIN REGULATORY & INDUSTRY REVIEW were chosen because of their interest to the work of Hellerstein & Associates. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com .