Congress passes last minute bills in effort to meet World Bank fiber optic funding requirements

fiber optic

By Bill Jaynes
The Kaselehlie Press
May 30, 2017
Palikir, Pohnpei—The FSM Congress has passed two bills which they hope, when taken together will meet the World Bank’s requirements for the largest single project grant in FSM history. The bills now go to the President’s office for consideration.
The two bills had the effect of rejecting in its entirety the contents of the bill submitted by TC&I to transfer some FSMTC assets to a new government owned wholesaler for communications capacity. If taken together the bills would give the wholesaler (Open Access Entity or OAE) access to FSMTC’s fiber optic spur at no charge and would also give FSMTC access at no charge to World Bank funded fiber optic lines that are planned if World Bank decides that their funding conditions have been met.

It is not at all clear whether their compromise decision will be enough to trigger the World Bank funding. Since the bills were presented separately, President Christian could choose to veto one or the other of the bills, or potentially even both. World Bank could decide that the legislation didn’t dig deeply enough to meet their criteria.
The timing for the legislation was critical. FSM has signed agreements with service providers to lay fiber optic cable. Without the World Bank grant, the FSM would have to default on those agreements. According to the Standing Committee on Transportation and Communication (T&C) hearings and its committee report, the cable provider has already been manufacturing the cable. If World Bank funding is not assured, they will not load the cable onto the vessel that will lay that cable on the ocean’s floor.
That time is rapidly approaching. Some decision had to be made by the end of the Congress session and Senators were not pleased with having been put on the spot for such a critical and complex decision.
The World Bank wants to fund fiber optic connectivity for Yap and Chuuk, and is currently in the process of deciding on funding of fiber optic connectivity for Kosrae, but it will not release the funds if mechanisms to allow fair competition on those lines are not in place. It would not fund FSMTC ownership of the cables because a monopoly, even if only a de facto monopoly, could decide to keep things as they are, the Project Coordinator for the cable project said.
The World Bank’s goal is to provide for the opportunity for competitors to enter the telecommunications market in the FSM in order to generate the lowest possible prices for consumers with the best possible service. They want to allow for the innovations that competition often brings to the marketplace.
It’s not at all an unprecedented move. In 1982, AT&T and its subsidiaries had a monopoly in the US telecommunications industry. They controlled everything from the telephones that customers were required to rent if they wanted service, to the lines the signals were carried on. It was only after thatmonopoly was broken up that consumer prices began to fall. Communications innovations skyrocketed and the entire US economy was positively affected.
It wasn’t done overnight. It took years. The process began with an antitrust lawsuit that was filed in 1974 that only finally ended after AT&T, fearing that they may lose the lawsuit, made a conciliatory agreement in 1982.
AT&T’s market was approximately 300 million men, women and children. No one knows whether a potential telecom competitor would be attracted to the FSM market consisting of 105,000 men, women and children—the population of a small US town—but the World Bank wants to ensure that the mechanisms to allow for that possibility are in place before it releases funds for the project. It won’t provide the funding until the FSM has taken the steps to ensure that will be the case.
At issue is access to the HANTRU1 fiber optic spur that provides Pohnpei with fiber optic services. That line is crucial to connecting a new line to Chuuk, but the line belongs to FSMTC, which is paying off a $22 million loan to Rural Utility Services (RUS) for it and associated facilities.
The Executive Branch requested Congress to consider a bill that would have, among other provisions, transferred the ownership of the HANTRU1 spur from FSM Telecommunications Corporation to the FSM Open Access Entity (OAE) along with the loan obligation.
The OAE was provided for under the telecommunications liberalization Act of 2014 but was only recently established as the FSM Telecommunications Cable Corporation, another FSM government corporation.
President Christian, in both his initial transmittal letter that came with the bill and in another letter sent to Congress on May 29, represented the bill to transfer assets and limit satellite usage, among other provisions, as the only acceptable way forward.
During the first T&C Committee hearings on the proposed bill, the question was repeatedly asked if World Bank truly was requiring that ownership of the HANTRU1 fiber optic line be transferred from FSMTC. Committee members who had carefully read the World Bank financing arrangement said that they didn’t see anywhere in that agreement that the World Bank was requiring transfer of ownership of the asset.
The OAE Project Coordinator presented two options but said that the transfer of the HANTRU1 line to OAE, which would then offer wholesale prices on the line that FSMTC and other competitors could purchase is the best way forward.
FSMTC’s CEO Fredy Perman reasoned that the HANTRU1 line was their asset and that their credit rating is leveraged against its assets. Transferring the line to the OAE would affect their ability to do business. He said that the matter was moot anyway since he had received confirmation from RUS that they would not be interested in transferring the balance of the loan to the OAE.
T&C Chairman Senator Victor Gouland instructed the OAE and FSMTC to get together and discuss the issues and come back to the committee with an agreement.
Chief of Staff Leo Falcam told the committee at the beginning of the final hearing on the matter that progress had been made and that an agreement for a possible resolution to the problem was in the works but that it would not likely be done in time and so the bill was still before Congress.
The potential resolution came in the form of an IRU (Indefeasible Right of Use – “indefeasible” essentially means “non-revokable”) that the OAE presented to FSMTC last Thursday. It is unclear how long that document has been in existence but it is clear that it didn’t come into existence last Thursday, and Perman wanted that point to be on the record. But they are still working on it. At press time, no agreement had been made.
Perman pointed out that the IRU for Yap services took two years to negotiate. He said that agreements with other parties on the HANTRU1 line meant that those parties needed to be consulted before any agreements could be made.
Ultimately, Congress struck all of the proposed wording of the bill to transfer the HANTRU1 line to the OAE and other provisions in the bill.
World Bank wanted to be sure that the OAE has access to the HANTRU1 line free of charge in order to establish a competitive environment. Congress passed a bill to require that. It passed another bill to allow free of charge access to FSMTC on the new lines that will be installed for fiber optic connectivity in the other FSM States.
Except for the fact that FSMTC is on the hook for the $22 million dollar loan to land HANTRU1 in Pohnpei, that latter bill could be seen as a competitive advantage over others who might use the line. The Yap delegation voted against that bill on second reading. The other three states voted for it.
A proposed amendment of a few words would have once again exempted FSMTC from Gross Revenue Tax. Off-Journal conversations on that amendment centered on the fact that no public hearings had been held regarding that possibility. Senators decided that it could set a dangerous precedent. When they re-adjourned, the proposed amendment was withdrawn.
It is currently unclear whether or not the bills that Congress passed will meet World Bank requirements for the fiber optic cable grant.