ANNUAL SECTION 1377 REVIEW OF TELECOMMUNICATIONS

UNCLAS ROME 001119 SIPDIS DEPT PASS USTR FOR SCHAGRIN; EB/CIP - TFINTON; COMMERCE FOR NTIA SPECK E.O. 12958: N/A TAGS: ECPS ETRD IT SUBJECT: ANNUAL SECTION 1377 REVIEW OF TELECOMMUNICATIONS TRADE AGREEMENTS UNCLASSIFIED PAGE 02 ROME 01119 181741Z REF: SECSTATE 50683 ¶1. THE HIGH COST OF MOBILE TO FIXED TERMINATION RATES, WHICH IS THE FOCUS OF COMPTEL'S FILING UNDER SECTION 1377 OF THE TRADE ACT, WAS A THEME OF THE MARCH 6-7TH U.S./ITALY BILATERAL TALKS ON COMMUNICATIONS POLICY. THE GOI IS COMMITTED TO BRING RATES DOWN, BEGINNING WITH THE FIRST TRANCHE OF RATE CUTS EFFECTIVE JUNE 1, 2003. VERIZON, THE U.S. MINORITY SHAREHOLDER IN OMNITEL-VODAFONE, ARGUES THAT THE HIGH COSTS ARE JUSTIFIABLE. ¶2. COMPTEL'S JANUARY 9TH FILING IN USTR'S 1377 REVIEW PRE-DATED THE COMMUNICATIONS AUTHORITY'S (AGCOM - ITALY'S EQUIVALENT TO THE FCC) DECISION TO MANDATE LOWER TERMINATION RATES. ON FEBRUARY 5TH, AGCOM ANNOUNCED THAT EFFECTIVE JUNE 1, 2003, TERMINATION COSTS WILL BE 14.95 EURO CENTS AND RETENTION COSTS WILL 4.85 CENTS, A REDUCTION OF 12 PERCENT AND 14 PERCENT RESPECTIVELY. REGULATORY OFFICIALS TOLD THE U.S. DELEGATION TO THE MARCH 6-7TH BILATERAL TALKS THAT THEY PLAN TO REDUCE TERMINATION COSTS FURTHER IN 2004 AND 2005, IN THE RANGE OF 20 PERCENT, AND WILL INTRODUCE A NEW BASKET OF FIVE SERVICES SUBJECT TO A PRICE CAP. ¶3. WHILE AGCOM'S DECISION SHOULD ADDRESS THE CONCERNS OF FIXED-LINE OPERATORS, U.S. TELECOM COMPANY, VERIZON, TOLD THE U.S. DELEGATION THAT IT WOULD BE ADVERSELY AFFECTED BY THESE CAPS. VERIZON, WHICH OWNS 23 PERCENT OF ITALY'S SECOND LARGEST MOBILE CARRIER, OMNITEL-VODAFONE, SAID THAT HIDDEN COSTS, SUCH AS THE DEVELOPMENT OF 3G SERVICES AND RESEARCH AND DEVELOPMENT, SHOULD BE TAKEN INTO ACCOUNT. UNCLASSIFIED PAGE 03 ROME 01119 181741Z ¶4. POST WILL CONTINUE TO MONITOR AND REPORT ON AGCOM'S RULE-MAKING ON MOBILE TO FIXED TERMINATION RATES. SEMBLER UNCLASSIFIED > 2003ROME01119 - Classification: UNCLASSIFIED