Policies and Rules for Alternative Incentive-Based Regulation of Comsat Corporation

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 25 and 61

[IB Docket No. 98-60; FCC 99-17]

Policies and Rules for Alternative Incentive-Based Regulation of

Comsat Corporation

AGENCY: Federal Communications Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

[[Page 14395]]

SUMMARY: In this document, the Commission adopts a policy of incentive-

based price regulation for Comsat Corporation in its provision of

services in ``non-competitive'' INTELSAT markets. The Commission also

adopts a streamlined process to determine in the future when Comsat

INTELSAT markets should be redefined as non-dominant in response to the

introduction of competition. In April 1998, the Commission reclassified

Comsat as a non-dominant carrier for most of its services, on most of

its routes, and eliminated all rate regulation regarding its provision

of INTELSAT services in markets deemed ``competitive''. That decision

eliminated rate regulation in markets accounting for approximately 92

percent of Comsat's INTELSAT revenues. Roughly eight-percent of

Comsat's INTELSAT revenues--those derived from ``non-competitive''

INTELSAT services markets--remained subject to rate of return

regulation. This document addresses the eight-percent.

EFFECTIVE DATE: February 9, 1999.

FOR FURTHER INFORMATION CONTACT: Michael McCoin, International Bureau,

Satellite Policy Branch, (202) 418-0774, or email at [email protected];

Sande Taxali, International Bureau, Satellite Policy Branch, (202) 418-

0786, or email at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report

and Order in IB Docket No. 98-60, FCC 99-17, adopted February 4, 1999,

and released February 9, 1999. The complete text of this Commission

Report and Order is available for inspection and copying during the

weekday hours of 9:00 a.m. to 4:30 p.m. in the Commission's Reference

Center, Room 239, 1919 M Street, N.W., Washington, D.C., or may be

purchased from the Commission's duplicating contractor, International

Transcription Service, (202) 857-3800, 2131 M Street, N.W., Washington,

D.C. 20036. The complete text is also available under the file name

fcc99017.txt or fcc99017.wp on the Commission's internet site at http:/

/www.fcc.gov/Bureaus/International/Orders/1999.

Summary of the Report and Order

1. This Report and Order eliminates rate of return regulation and

applies incentive-based price regulation to Comsat's provision of

INTELSAT services in ``non-competitive'' markets. Customers immediately

benefit by the lowering or capping of prices in Comsat's INTELSAT

``non-competitive'' switched-voice, private line, and occasional-use

video services markets. This incentive-based regulation is

administratively less burdensome to both Comsat and the Commission.

Additionally, the Report and Order adopts a more expedient process by

which newly ``competitive'' markets may be redefined as non-dominant.

2. Since 1985, the Commission has regulated Comsat as a dominant

carrier in its provision of INTELSAT services in all markets. In April

1998, in the Comsat Non-Dominant Order & NPRM, 63 FR 25811, the

Commission partially granted Comsat's request by reclassifying it as

non-dominant in INTELSAT markets deemed ``competitive''. The Commission

denied, however, Comsat's request for reclassification as a non-

dominant carrier in its INTELSAT services markets deemed ``non-

competitive''. The Commission stated, nevertheless, that it would

consider the adoption of an alternative incentive-based regulation in

the ensuing Report and Order, in lieu of continuing rate of return

regulation. In 1998, Comsat's ``non-competitive'' INTELSAT service

markets accounted for roughly eight-percent or $19 million of Comsat's

INTELSAT revenue.

3. The Comsat Non-Dominant Order & NPRM tentatively concluded that

any alternative incentive-based price regulation should (a) remain in

effect for an indefinite period, (b) allow all users of Comsat's

service to ``non-competitive'' markets to benefit from a

``competitive'' or ``transaction'' rate rather than the non-discounted

tariff rate that would result from Comsat's uniform pricing commitment,

and (c) allow all users of Comsat's service to ``non-competitive''

markets to benefit from reduced rates due to increases in efficiency

and productivity. Comsat offers high volume users, like AT&T, Sprint,

and MCI, significantly discounted tariff and contract rates for

switched-voice service. These discounted rates may reflect both the

economies of scale inherent in providing high volume service and

increased pressure on Comsat to match the lower rates offered by its

competitors in ``competitive'' markets. It is unclear whether users

seeking service in ``non-competitive'' markets are in a position to

take advantage of such discounted or transaction rates or whether they

generally must pay the higher non-discounted tariff rates. Thus,

Comsat's uniform pricing for switched-voice service, even if adopted as

a commitment, would not necessarily lead to lower, more competitive

rates for all users in ``non-competitive'' markets. Comsat Non-Dominant

Order & NPRM, 13 FCC Rcd. 14083 at paragraph 165. In addition, the

Commission said that an ``alternative incentive-based'' price procedure

should be simple to implement and noncumbersome. A regulatory policy

here should; promote proper efficiency incentives for Comsat; benefit

consumers through lower rates in the dominant markets; and relieve the

Commission from administratively burdensome rate of return regulation

of Comsat in these markets. All parties commenting in the proceeding

generally agreed with these principles expressed by the Commission,

including the need for a simple and less administratively burdensome

regulation.

4. The specific alternative incentive-based price regulation plan

adopted for Comsat's ``non-competitive'' INTELSAT markets consists of

the following: First, Comsat will institute an immediate four-percent

annual rate reduction for switched-voice services in ``non-

competitive'' markets. This actually decreases rates below those

currently charged in ``competitive'' switched-voice markets. Existing

switched-voice tariff rates remain in place as an option for those

customers whose aggregate circuit volume would otherwise result in a

lower rate. Second, current tariff rates for private line service in

``non-competitive'' markets are capped indefinitely. This follows a

recent across-the-board rate reduction of eight-percent in Comsat's

private line service market. Third, an immediate one-time rate

reduction of four-percent in Comsat's ``non-competitive'' and

``competitive'' occasional-use video service markets is enacted.

Moreover, the incentive-based regulation adopted further requires

Comsat to refrain from raising rates for an indefinite period in all of

its ``non-competitive'' INTELSAT markets. Finally, it mandates that

Comsat apply any tariff reduction in its ``competitive'' INTELSAT

markets to its ``non-competitive'' INTELSAT markets.

5. Overall, the alternative incentive-based regulation adopted in

the Report and Order guarantees certain rate reductions and caps rates

as long as Comsat is regulated as a dominant carrier in the respective

markets at issue. In effect, customers receive the benefits of

potential increases in productivity regardless of whether such

productivity increases actually occur. This benefit to customers should

provide Comsat with a real incentive to increase efficiency and

productivity.

6. Additionally, this Report and Order establishes a streamlined

process for declaring Comsat's INTELSAT markets non-dominant and no

longer subject to price regulation as they become ``competitive''. The

process, particularly, requires Comsat to file a

[[Page 14396]]

petition with the Commission requesting that a particular market or

markets be reclassified as non-dominant. For the ``non-competitive''

switched-voice and private line service markets, Comsat must include

evidence that the market is served by a United States carrier through

submarine cable facilities. For occasional-use video markets, Comsat

must include evidence that another satellite carrier is providing

transmit and receive (uplink and downlink) occasional-use video

service. The specific type of information required in this showing

includes the (a) name of the cable or satellite provider, (b) the

country or countries where the new cable circuit or occasional-use

video services provision exists, and (c) the estimated capacity

available from the competitor. In our recent decision approving the

World Com/MCI merger, we noted that upgrades in recently constructed

underseas fiber cables can substantially increase transport capacity on

existing cables and can be implemented in less than a year. While we

found that the World Com/MCI merger would increase concentration in

each of three international transport market regions, we also found

that it was unlikely to result in anticompetitive effects, given the

low barriers to entry and substantial amounts of transport capacity not

controlled by MCI or World Com. See Memorandum Opinion and Order, CC

Docket No. 97-211, FCC 98-255, 13 FCC Rcd. 21520 (1998) at paragraphs

100-101. Comsat must support its filing with an affidavit. For

switched-voice and private line services, a country listed as being

served by cable on the Circuit Status Reports is considered prima facie

evidence that the market is competitive since the capacity available on

a submarine cable can be rapidly expanded to meet demand. The showing

requirements of this process is consistent with the analysis in the

Comsat Non-Dominant Order & NPRM, in which evidence of a cable circuit

for switched-voice and private line service, and evidence of another

carrier for occasional-use video service, provided the standard from

which to assess Comsat's market power. Parties would have the

opportunity to challenge a Comsat petition for reclassification by

either refuting the evidence submitted by Comsat or showing that the

particular market at issue has unique characteristics that would allow

Comsat to exercise market power, despite the presence of a cable

circuit for switched-voice and private line service or service being

provided by another satellite carrier for occasional-use video service.

Final Regulatory Flexibility Analysis

7. As required by section 603 of the Regulatory Flexibility Act

(``RFA''), an Initial Regulatory Flexibility Analysis (``IRFA'') was

incorporated in the Comsat Non-Dominant Order & NPRM. See 5 U.S.C. 603.

The RFA, see 5 U.S.C. 601 et seq., has been amended by the Contract

With America Advancement Act of 1996, Pub. L. No. 104-121, 110 Stat.

847 (1996) (``CWAAA''). Title II of the CWAAA is the Small Business

Regulatory Enforcement Fairness Act of 1996 (``SBREFA''). See Comsat

Corporation, Order and Notice of Proposed Rulemaking, 13 FCC Rcd 14083

(1998) at Appendix C. The Commission then sought written public comment

in that proceeding, including comments on the IRFA. No party filed

comments in response to the IRFA. This Report and Order promulgates no

new rules and our action here does not affect the previous analysis in

the Comsat Non-Dominant Order & NPRM. The Commission certifies that

there will be no significant effect on a substantial number of small

entities.

A. Need for and Objectives of Rules

8. In this Report and Order, the Commission eliminates cumbersome

rate of return regulation and replaces it with an alternative

incentive-based price regulation. In addition, the Commission

streamlines the process whereby Comsat's INTELSAT markets may be

reclassified as non-dominant. Currently, revenue from its markets that

are still classified as dominant account for approximately eight-

percent of its INTELSAT revenues. The modification to these processes

will result in administratively less burdensome and more efficient

procedures for both the Commission and Comsat.

B. Summary of Significant Issues Raised by Public Comments in Response

to the Regulatory Flexibility Analysis

9. No comments were submitted in direct response to the RFA.

C. Description and Estimates of the Number of Small Entities to Which

the Rules Will Apply

10. The RFA generally defines the term ``small entity'' as having

the same meaning as the terms ``small business'', ``small

organization'', and ``small governmental jurisdiction''. See 5 U.S.C.

601(6). The RFA has been amended by the Contract With America

Advancement Act of 1996, Public Law No. 104-121, 110 Stat. 847 (1996)

(``CWAAA''). See 5 U.S.C. 601 et. seq. Title II of the CWAAA is the

Small Business Regulatory Enforcement Fairness Act of 1996

(``SBREFA''). In addition, the term ``small business'' has the same

meaning as the term ``small business concern'' under the Small Business

Act. See 5 U.S.C. 601(3) (incorporating by reference the definition of

``small business concern'' in 15 U.S.C. 632). Pursuant to the RFA, the

statutory definition of a small business applies ``unless an agency,

after consultation with the Office of Advocacy of the Small Business

Administration and after opportunity for public comment, establishes

one or more definitions of such term which are appropriate to the

activities of the agency and publishes such definition(s) in the

Federal Register.'' 5 U.S.C. 601(3). A small business concern is one

which (1) is independently owned and operated, (2) is not dominant in

its field of operation, and (3) satisfies any additional criteria

established by the Small Business Administration (``SBA'').

11. The Commission has not developed a definition of small entities

specifically applicable to this situation. Therefore, the applicable

definition of small entity is the definition under the SBA rules

applicable to Communications Services, ``Not Elsewhere Classified.''

This definition provides that a small entity is one with no more than

$11.0 million annual receipts. 13 CFR 121.201, Standard Industrial

Classification (SIC) Code 4899. According to the Census Bureau data,

there were a total of 848 communications services in operation in 1992

that fall under the category of Communications Services, Not Elsewhere

Classified. Of those, approximately 775 reported annual receipts of

$9.999 million or less and qualify as small entities. 1992 Economic

Census Industry and Enterprise Receipts Size Report, Table 2D, SIC 4899

(U.S. Bureau of the Census data under contract to the Office of

Advocacy of the U.S. Small Business Administration). The census report

does not provide more precise data. Comsat Corporation is the only

business effected by the policy enacted in this Report and Order. Its

annual receipts are in excess of $11.0 million and, therefore, it does

not fall into the classification of a ``small business''. Accordingly,

the number of small businesses impacted by the policy change here is

zero.

D. Description of Projected Reporting, Recordkeeping and Other

Compliance Requirements

12. The Commission adopts no new reporting requirements in this

Report and Order.

[[Page 14397]]

E. Steps Taken To Minimize Significant Economic Burden on Small

Entities, and Significant Alternatives Considered

13. This Report and Order promulgates no new rules or policies that

would effect small business concerns. The policies it does advance,

however, should positively impact the effectiveness and efficiency of

Comsat Corporation, the only business entity effected.

F. Report to Congress

14. The Commission shall send a copy of this Report and Order,

including the status of the FRFA in a report to Congress pursuant to

the Small Business Regulatory Enforcement Fairness Act of 1996, 5

U.S.C. 801(a)(1)(A). Since this Report and Order promulgates no new

rules and does not affect the IRFA in the Comsat Non-Dominant Order and

NPRM, it is not necessary to publish an FRFA in the Federal Register.

Ordering Clauses

15. Accordingly, it is ordered, that Comsat Corporation's proposal

in IB Docket 98-60, to establish an alternative incentive-based price

regulation in lieu of rate of return regulation in ``non-competitive''

INTELSAT service markets for the provision of switched-voice, private

line, and occasional-use video, is granted, to the extent indicated

herein, and Comsat shall be subject to an alternative incentive-based

price regulation in the markets for which it remains dominant, as

described in this Report and Order.

16. It is further ordered, pursuant to authority contained in

sections 4(i), 201(b), and 203-205 of the Communications Act of 1934,

as amended, 47 U.S.C. 154(i) and 201(b), and 203-205, respectively, and

sections 201(c)(5), 201(c)(11), and 401 of the Communications Satellite

Act, as amended, 47 U.S.C. 721(c)(5), 721 (c)(11), and 741,

respectively, we adopt the incentive-based price regulation to the

extent indicated herein.

17. It is further ordered, that the International Bureau shall have

delegated authority to approve petitions from Comsat to redefine any

markets served by Comsat from a dominant to a non-dominant status.

18. Comsat Corporation is afforded 30 days from the date of release

of this Report and Order to decline the alternative incentive-based

price regulation as specified herein. Failure to respond within this

period will constitute formal acceptance of the requirements in this

Report and Order.

List of Subjects

47 CFR Part 25

Satellites communication.

47 CFR Part 61

Tariffs.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 99-7253 Filed 3-24-99; 8:45 am]

BILLING CODE 6712-01-U