US FCC decides against RP telcos

The US Federal Communications Commission (FCC) en banc has affirmed the findings of its international bureau that Philippine telecommunication companies engaged in ‘whipsawing’ when they unilaterally raised their termination rates allegedly to the detriment of American carriers led by AT&T and WorldCom Inc. (formerly MCI).

Local carriers said they will appeal the order to the FCC itself or to the regular US courts. Globe Telecom, for its part, revealed that it is currently evaluating all options available to it and will take whatever legal action is necessary to protect its interests in this matter.

For his part, PLDT Global chief Alfredo Panlilio told The STAR that he does not expect the new FCC ruling to affect interim agreements on termination rates already entered into with US carriers. "Even with the bureau’s order, we were already engaged in negotiations. What the FCC is merely saying is that the bureau had basis to issue that order during that time," he said.

In dismissing the motion for review filed by Philippine carriers, the FCC said its bureau was correct in finding that there was market failure notwithstanding the existence of competing Philippine carriers. First, PLDT ‘whipsawed’ US carriers by threatening and then following through on the threat to disrupt circuits to force a rate increase on AT&T and MCI. Second, Globe and four other non-dominant Philippine carriers acted with PLDT in the exercise of market power to ‘whipsaw’ US carriers.

It added that the fact that US and Philippine carriers have already entered into interim agreements and service has been restored on the US-Philippines route subsequent to the March 10, 2003 bureau order does not moot the finding of the order that there was whipsawing.

"Further, it is not clear that the commercial dispute between US and Philippine carriers has been brought to conclusion. AT&T and MCI have interim agreements with the Philippine carriers. Any future final agreements are subject to continued negotiation," the FCC emphasized.

In March of last year, the FCC international bureau headed by Donald Abelson ruled in favor of complainants AT&T and WorldCom and found Philippine carriers including Philippine Long Distance Telephone Co. (PLDT), Smart Communications, Globe, Bayan Telecommunications, Digital Telecommunications, and PLDT subsidiary Subic Telecom guilty of ‘whipsawing,’ thereby harming US consumers.

The FCC defines whipsawing as a broad range of anti-competitive behavior by foreign carriers possessing market power in which the foreign firms exploit that market power in negotiating settlement rates with competitive US telco carriers. If a US carrier does not pay the said cost settlement rate for terminating its international traffic, it will lose business to a US rival that is willing to pay the higher rate

AT&T and WorldCom claimed that Philippine carriers conspired to unilaterally increase their termination rates, or the amount that they charge US telcos for calls landing in the Philippines, from eight to 12 cents for landline calls and from 12 to 16 cents for mobile calls effective Feb. 1 of last year.

Abelson also ordered US carriers to stop making payments to Philippine telcos until the rates are rolled back to pre-Feb. 1, 2003 levels.

Philippine carriers appealed the international bureau’s decision to the FCC en banc. They claimed there could have been no whipsawing because the Philippine market is competitive; the order violated the principles of comity and treaty obligations and was arbitrary and capricious; and that the bureau exceeded the bounds of its delegated authority.

Globe said in a statement that as the FCC en banc order itself states, traffic between Philippine and US carriers continue to flow and settlements continue to be made, pursuant to the interim agreements entered into between the two carriers prior to the issuance of the new order.

"The FCC’s latest order also explicitly stated that it was not making any findings of collusion in relation to the ongoing investigation being conducted by the US Department of Justice on the possibility of anti-competitive practices among Philippine carriers relative to their conduct in the termination rate dispute with US carriers," Globe legal services head Caridad Gonzales said.

The US DOJ has conducted an independent inquiry into possible violation by Philippine carriers of US anti-trust or anti-monopoly laws when they conspired to raise their termination rates. The Honolulu grand jury is currently conducting an inquiry into the matter and has summoned Philippine telco officials to testify on the matter. If the grand jury finds that there is probable cause for finding that Philippine carriers may have violated anti-trust laws, then appropriate charges will be filed with the regular US courts.

But even before this latest FCC order, the body has lifted the stop-payment order upon notification by US carriers that Philippine carriers ceased blocking traffic to the US and that circuits were fully restored.

The commission added that it is encouraged that US carrier circuits on the US- Philippines route have been restored per interim agreements between US and Philippine carriers, and that negotiations toward a final agreement have resumed.

"The public interest is generally served where parties are free to negotiate commercial arrangements that tend to be more cost-based. In our 2004 ISP Reform Order, we found that the ISP can inhibit US carrier flexibility in arriving at agreements and that exempting its application from certain routes would enable US carriers to negotiate more commercial arrangements. We are hopeful that the actions we took in that decision will facilitate a resolution among the US and Philippine carriers," it added.