Academic journal article Federal Communications Law Journal

From International Competitive Carrier to the WTO: A Survey of the FCC's International Telecommunications Policy Initiatives 1985-1998

Academic journal article Federal Communications Law Journal

From International Competitive Carrier to the WTO: A Survey of the FCC's International Telecommunications Policy Initiatives 1985-1998

Article excerpt


In the December 1998 issue, the Federal Communications Law Journal published a law review article surveying the Federal Communication Commission's (FCC or Commission) international policy initiatives between 1985 and 1998.(1) As that article explained, one of the centerpieces of the FCC's international policies was its Benchmarks Order, in which the FCC unilaterally imposed maximum benchmarks on the amount U.S. carriers may pay their foreign correspondents to hand off U.S.-originated International Message Telecommunications Service (IMTS) traffic.(2) As that law review article further argued, the FCC's actions raised serious questions from both a legal and overall policy perspective.

Less than one month after the Federal Communications Law Journal published that article, however, the D.C. Circuit Court of Appeals in Cable & Wireless v. FCC (C&W)--to the unbridled giddiness of the FCC and to the dismay of various parties representing over 100 foreign governments, regulators, and telecommunications companies(3)--upheld the FCC's Benchmarks Order in its "entirety."(4) In doing so, the D.C. Circuit has not only placed major areas of previously settled case law in flux, but--even assuming arguendo the court ruled correctly--also has approved nakedly the FCC's role of "cartel manager" and destroyed what little chance there was to avoid an all-out international telecommunications trade war.


In upholding the Commission's Benchmarks Order, the C&W court's arguments essentially fell into two broad categories: In the first category, the court concluded that the Commission reasonably exercised its ratemaking authority under the Communications Act.(5) In support of this decision, the court held that: (a) the FCC had sufficient jurisdiction under the Communications Act to impose settlement rate benchmarks; (b) the Commission had adequately demonstrated its use of the Tariff Components Rate methodology; and (c) the FCC's actions were a legitimate exercise of its authority under the Mobile-Sierra doctrine.(6) As demonstrated below, however, the court was only able to reach this conclusion by ignoring well-settled ratemaking jurisprudence.

In the second category, the court apparently concluded that if the political stakes are high enough, mercantile trade concerns can trump legal precedent, economic theory, and the factual record itself. To wit, the court both upheld the FCC's argument that benchmarks were necessary to protect U.S. firms against ephemeral price squeeze behavior by foreign firms and found that--international comity aside--the FCC's actions in toto did not violate international law.(7) Indeed, in finding that the Commission's actions "to strengthen the bargaining position of domestic telecommunications companies in negotiations with their foreign counterparts"(8) were a legitimate exercise of the FCC's "public interest" authority, the court violated the heretofore golden rule that the "Commission is not at liberty ... to subordinate the public interest to the interest of `equalizing competition among competitors."(9) Each category is discussed more fully below.

A. The Demise of Ratemaking Law

1. Jurisdictional Issues

The court held that there were essentially three reasons why the FCC could assert jurisdiction to impose settlement rate benchmarks. First, the court held that the FCC was not asserting jurisdiction over foreign carriers or foreign telecommunications in violation of the Communications Act.(10) Rather, the FCC was asserting jurisdiction only over the settlement rates that U.S. carriers must pay their foreign corespondents for termination of U.S.-originated traffic. While the court was quick to point out that both it and the FCC were engaging in legal hair-splitting--that is, "that regulating what domestic carriers may pay and regulating what foreign carriers may charge appear to be opposite sides of the same coin"(11)--the court reasoned that:

   by focusing only on the Order's effects on foreign carriers, petitioners
   overlook the crucial economic reality that makes the Commission's position
   that it is only regulating domestic carriers reasonable: Because domestic
   carriers operate in a competitive market, they face a serious dilemma when
   they bargain with monopolist foreign carriers. … 
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