| BUSINESSWEEK ONLINE : OCTOBER 11, 1999 ISSUE | ||||||||
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| SPECIAL REPORT
The FCC's Kennard: Fighting for Lower Long-Distance Rates William E. Kennard, Chairman of the Federal Communications Commission, has been implementing a 1997 order designed to lower the rates paid by U.S. phone carriers to foreign carriers to have their international calls connected abroad. The so-called Benchmark Order bars U.S. carriers from accepting such settlement rates if they are above certain set amounts. The effort is part of a worldwide move to deregulate telecommunications markets around the world and to bring phone charges closer to costs. Business Week Correspondent Catherine Yang speaks to FCC Chairman Kennard on Sept. 22, 1999 about the FCC's Benchmark Order and its impact on international phone rates. Q: Why did the FCC implement the Benchmark Order in 1997 requiring foreign carriers to reduce their settlement rates to certain levels? A: We did it to drive down the cost of long distance rates here and around the world. The point is the world is changing fast. Technology and competition are tearing down the old wall of monopoly, and it's happening faster than most people predicted. Over time, this process is absolutely essential to have a seamless global information infrastructure. You can't have countries excluded from terminating traffic because their rates are so above market. The market is going to force them down. All we did is put a policy regime in place to accelerate that process. Q: Do you consider it to be a success? A: Yes. In 1996, the average price of an international long-distance call was 74 cents a minute. By the end of 1998, it was 55 cents per minute, or a 25% decline. And rates are continuing to decline. Q: Is the decline in settlement rates more a result of market forces or of the Benchmark Order itself? A: It's been a one-two punch. Procompetitive policies, such as the benchmark order and the WTO Agreement (an agreement by member states to deregulate their telecommunications markets), were the first punch. The second punch was the marketplace. Q: Is there anywhere where the benchmark order has failed or had less than ideal results? A: The policy has worked quite well. But we're in enforcement mode right now. Overall, 92% of settled minutes are at or below a benchmark rate of 15 cents. We phased in benchmarks based on extent of development in countries. Upper income countries were scheduled to be at benchmark by Jan. 1, 1999, and 92% of them are compliant. Upper middle income countries are scheduled to be at a rate of 19 cents by Jan. 1, 2000, and 80% of those countries are settling minutes at or below that rate. Where most countries are compliant, it's been an overwhelming success. With those that aren't, we're taking enforcement actions. If a U.S. carrier has noncompliant accounting rate agreements, we disallow them. We've done that with Brunei, Singapore and Taiwan. And we're taking enforcement actions in response to complaints against Cyprus and Kuwait. In each instance, so far, the foreign carrier came back with compliant modifications. And Mexico was huge undertaking, in which I was personally involved in for a year to negotiate with my counterpart there and CEOs of MCI and ATT. We finally had a breakthrough in Mexico in June. They reached their 19 cent benchmark six months early. Q: How do you justify taking an action that was seen by many as unilateral? A: This is not the Ugly American trying to enforce its will on rest of the world. This is an effort to update an antiquated regulatory system around the world. Consumers in many countriers are benefiting, esp throughout tye developed world in Canada and European Union. As U.S. carriers reduce accounting rates, the market starts to adjust them downward. It's a situation where we tried for years to arrive at a multinational solution. Frankly, there was not enough support internationally for doing that. The FCC is still interested in a multilateral solution. There are ongoing discussions at the International Telecommunications Union to arrive at a multilateral solution to this problem. In the meantime, the world is changing fast. The Internet is exploding, as is the rise in data traffic on international netwks. Those of us in government can't wait forever to come up with a new policy structure. The old structure is being torn asunder because the competitive world out there is finding ways to circumvent the old outdated monopoly world. Q: Will the courts will continue to uphold its legality? A: Yes, we won in DC Circuit of Appeals (and the case has not gone up the the Supreme Court). Q: As the settlement system weakens, what kind of regime would you like to see replace it? A: Our preference is that this accounting rate system disappear. It is a transitional system in markets where you have monopolies. In a fully competitive marketplace where you don't have bottlenecks, this government-mandated accounting rate structure is unnecessary. I would like us to move toward the day where we don't have to have an accounting rate structure, where there are enough players in the field with ready access to terminate traffic around world, bottlenecks disappear and the market takes over (meaning that parties negotiate what to pay each other for call terminations) To get to that Nirvana, we need to drive down accounting rates. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Dialing for Pennies TABLE: Dialing Abroad Will Never Be the Same Again Coping with the Revolution TABLE: Third World Backlash A Failure to Communicate TABLE: The Trouble with Global Plans ONLINE ORIGINAL: The FCC's Kennard: Fighting for Lower Long-Distance Rates INTERACT E-Mail to Business Week Online | |||
