Call rate proposals 'will not be passed'

PUBLISHED : Wednesday, 22 October, 1997, 12:00am
UPDATED : Wednesday, 22 October, 1997, 12:00am

Investors looking to buy Asian telecommunications stocks should not be put off by proposals from the United States Federal Communications Commission (FCC) to cut international settlement rates, Salomon Brothers analyst Dan Sherman says.

Mr Sherman said yesterday the likelihood of the benchmark rates being imposed in the way FCC proposed was highly unlikely.

Settlement rates are the fees international carriers pay each other to complete one another's calls.

The result of the recent popularity of call-backs during the past few years is that the US has become a massive payer of fees to other countries.

In a bid to reduce these payments, the FCC recently announced cuts in settlement rates, phased in over differing times according to the country. Potentially the bottom line revenues of all carriers with an imbalance of traffic with the US could be damaged.

'We expect the Asian carriers to meet the benchmarks but over extended transition periods,' Mr Sherman said.

A group of Asian carriers including Hongkong Telecom filed a suit to challenge the FCC's ability to use this system to cut rates.

Next Tuesday, a judge in Washington DC will start the process by directing the suit to the appropriate court. The legal process could take a year, observers said.

Mr Sherman said this was a first line of defence in a strategy to get more time. A second tactic was to turn the problem into a trade issue.

Some indicated they would simply stop receiving traffic from the US, he said.

The final tactic would be to get the issue referred to the International Telecommunications Union where a multilateral agreement surpassing the FCC could be worked out.

A former official of the FCC, in Hong Kong last week, said the commission did not care how settlement rates were lowered - just that they were carried out.