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IP: Telstra Legal Challenge to FCC
From: David Farber <farber () cis upenn edu>
Date: Wed, 08 Oct 1997 15:16:34 -0400

From: Roger Hicks <RHICKS () clear co nz>
To: "'APPLe'" <apple () apnic net>

FYI .....

2 October 1997

Telstra Legal Challenge to FCC's Failure to Address Global Internet

Australia's leading telecommunications carrier, Telstra Corporation
Limited, today mounted legal action in the US to require the US Federal
Communications Commission (FCC) to address a crucial economic issue
surrounding the future of the global Internet.

In  a court petition, Telstra asked the US Court of Appeals in
Washington D.C. to review an August 1997 FCC Order which adopted
"benchmarks" limiting the settlement payments made by US carriers to
foreign carriers for handling international telephone traffic.

Telstra asserts that the FCC Order failed to address a critical aspect
of the cost equation for international communications.  In particular,
while the FCC's benchmarks order required foreign carriers to establish
more cost-based charges for handling international telephone calls, the
FCC had totally failed to investigate the above-cost fees that US
carriers charge foreign carriers for international capacity needed to
service the burgeoning growth in Internet traffic.

Under the present arrangements, Internet users throughout the world are
subsidising the US carriers and Internet users to the tune of an
estimated US$300 million per annum - a subsidy that could reach
multi-billion dollar levels within several years unless action is taken.

Telstra's Managing Director, International Carrier Business, Mr John
Hibbard, said today that the FCC had failed to even acknowledge this
issue, despite detailed comments from Telstra, supported by several
other international carriers who were also bearing the brunt of the US
carriers' policies.

The FCC Order, released on 18 August, attempts to set benchmarks for
reductions in international settlement rates, which are the fees that
telecommunications carriers charge one another for terminating each
other's international voice and data traffic.

Mr Hibbard stressed that Telstra supported the underlying thrust of the
FCC Order - which attempts to drive international settlement rates
closer to cost, and thereby benefit consumers across the globe.

"But by ignoring the Internet issue, the FCC is effectively seeking to
entrench the global subsidisation of the United States, and in doing so
will disadvantage users in all other countries and potentially undermine
the viability of the Internet," Mr Hibbard said.  


Telstra has argued to the FCC that cost-based arrangements should be
instituted for the Internet as for the public switched telephone network

Mr Hibbard cited the example of Telstra, which two years ago had a total
of 6 megabits per second (Mbps) of international cable capacity across
the Pacific Ocean to provide access to the Internet backbone in the US.
Today that capacity has exploded to reach 130 mbps.  The demand for
additional capacity is growing at 10mbps per month, and that growth rate
is still accelerating.

When the first increments of this capacity were established the traffic
was almost all one-way,  asymmetrically from the US to Australia, as
Australian users accessed web-sites in the US and down-loaded
information and content.  Because of this one-way flow, US carriers
insisted that foreign carriers pay for both half-circuits ie for 100% of
the cost of the capacity, rather than the traditional arrangements
whereby each carrier would pay for its own half circuit.

Today, however, the traffic patterns between the USA and Australia have
changed, and the traffic flow has shifted significantly to around a
70:30 flow in the US-to-Australia vs Australia-to-US direction.  This is
due mainly to US Internet users increasingly drawing on Australian
Internet content and the mirror sites located in Australia. 

Yet US carriers still insist on foreign carriers paying for the cost of
both half-circuits, thereby paying for Internet traffic inbound to the
US, as well as in the outbound direction.

Telstra's volume of international capacity to support the Internet is
forecast to overtake its total capacity for PSTN traffic in 1998.
Telstra's payments to US carriers for Internet leases are expected to
outstrip the net in-payments from PSTN traffic within the course of the
1997/98 financial year.

In the case of Telstra alone, the subsidy to the USA flowing from the
capacity in place for Internet traffic, amounts to approximately US$15
million per annum.

This suggests that by the year 2000, the Internet subsidy to the USA
will dwarf the perceived outbound subsidy contained in settlement rates.

"Unless a fairer means of financing the rapid global expansion of the
Internet is found, that growth will quickly become unsustainable and the
most powerful new communications medium of the 20th century will be
seriously jeopardised," Mr Hibbard said

*    *    *    *

Further information:
David Lording, Public Affairs Manager, Business & International 
Ph: +612 9206 0106 or +61419 217 343
John Stanton, Regional Director, Americas
Ph: +612 9287 5120 or +61419 241 206
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"Photons have neither morals nor visas"  --  Dave Farber 1996

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