********************************************************    
                         NOTICE
********************************************************

This document was converted from
WordPerfect to ASCII Text format.

Content from the original version of the document such as
headers, footers, footnotes, endnotes, graphics, and page numbers
will not show up in this text version.

All text attributes such as bold, italic, underlining, etc. from the
original document will not show up in this text version.

Features of the original document layout such as
columns, tables, line and letter spacing, pagination, and margins
will not be preserved in the text version.

If you need the complete document, download the
WordPerfect version or Adobe Acrobat version, if available.

*****************************************************************
                                Before the
                     Federal Communications Commission
                          Washington, D.C. 20554


In the Matter of        ) 
                        )       CC Docket No. 79-252
Motion of AT&T to be Declared   )
Non-Dominant for International Service           )       


                         ORDER ON RECONSIDERATION

        Adopted:        September 30, 1998               Released:       October 5, 1998  

By the Commission:

        1.      In this decision, we deny petitions seeking reconsideration of our Order declaring
AT&T non-dominant in the market for international message telephone services (IMTS).  We
reaffirm our conclusion that AT&T no longer possesses sufficient market power to merit dominant
carrier regulation in the IMTS market.  We conclude that relieving AT&T of the regulatory burdens
associated with dominant carrier regulation will serve the public interest by promoting competition in
international telecommunications services.
        
                                BACKGROUND

        2.      In the Competitive Carrier proceeding, the Commission defined a dominant carrier as
one that "possesses market power" and noted that control of bottleneck facilities was "prima facia
evidence of market power requiring detailed regulatory scrutiny."  The Commission also concluded
that, if a common carrier was determined to be "non-dominant," the regulatory requirements of Title
II of the Communications Act, as amended, would be "streamlined."  Specifically, tariffs filed by
non-dominant carriers would be presumed lawful and would be subject to reduced notice periods.

        3.       The Commission first applied its dominant/non-dominant carrier regulatory
classification to U.S. international carriers in 1985 and concluded that (1) AT&T was dominant in the
provision of IMTS and (2) all other IMTS providers (e.g., Sprint and MCI), except the
non-contiguous domestic carriers, were not dominant.  The Commission determined that, for
international service, demand and supply elasticity revealed two major product markets, IMTS and
non-IMTS, and that every destination country constituted a separate geographic market.  The
Commission also concluded that no carrier -- including AT&T -- was dominant in the provision of
non-IMTS service for any geographic market.  In addition, the Commission found all foreign-owned
carriers to be dominant for all service to all countries.

        4.      The Commission modified the rules in 1992 so as to regulate U.S. international
carriers, both U.S.- and foreign-owned, as dominant on routes where an affiliated foreign carrier has
the ability to discriminate in favor of its U.S. affiliate through control of bottleneck services or
facilities in the destination market.  The Commission reaffirmed this policy in the Foreign Carrier
Entry Order and, most recently, in the Foreign Participation Order.  The Commission also
concluded that dominant carrier regulation should apply to U.S. carriers in their provision of
international basic service on particular routes where a co-marketing or other arrangement, including
an alliance, with a foreign carrier with market power presents a substantial risk of anticompetitive
effects in the U.S. international services market.   
        
        5.      In October 1995, the Commission found that, although AT&T retained the ability to
control prices for some de minimis domestic, interstate, interexchange services, AT&T did not have
the ability unilaterally to control prices in the overall domestic, interstate, interexchange market.  The
Commission found that continuing such regulation harmed market performance by stifling innovation
and imposing compliance costs on AT&T.  The Commission deferred AT&T's request to be
reclassified as non-dominant in its provision of international service, including IMTS.

        6.      On November 8, 1995, AT&T filed an ex parte letter seeking to be declared non-
dominant for international markets on the grounds that evidence in the record established that it
lacked market power under our standards for determining dominance.  The Commission sought public
comment and twelve parties opposed AT&T's motion.

        7.      In its Order granting AT&T's petition to be declared non-dominant in international
services, the Commission undertook a four-part analysis to determine if AT&T had market power for
the provision of IMTS within any geographic market -- that is, between the United States and any
international point.  The Commission analyzed: (1) market share; (2) the demand elasticity of
AT&T's customers; (3) the supply elasticity of the market; and (4) AT&T's cost structure, size, and
resources.  The Commission also examined why U.S. international calling prices were higher than
U.S. domestic long distance calling prices.  The Commission used AT&T's market position on a
worldwide basis as a surrogate for a route-by-route analysis, with two exceptions: (1) it scrutinized
individually AT&T's market position on particular routes that had not supported facilities-based entry
by competing U.S. carriers; and (2) it applied a route-specific approach to analyze the competitive
impact of AT&T's affiliations and alliances with foreign carriers on particular U.S. international
routes.  With the exception of these routes, the Commission concluded that analyzing AT&T's market
power on a worldwide basis was an acceptable surrogate for a route by route analysis of each of more
than 200 international locations. 

        8.      The Commission found that AT&T's market share for the provision of IMTS had
declined from 98.5 percent in 1985 to 72.7 percent in 1991 to 59 percent in 1994.  In comparison,
AT&T's share of domestic interexchange traffic declined from 90 percent in 1985 to 55.2 percent in
1994.  The Commission found that, although AT&T's share of IMTS traffic was a few percentage
points higher than its share of domestic traffic, AT&T had lost market share faster in the international
than in the domestic market.  The Commission concluded that there was no reason based on market
share to regulate AT&T differently in the international than in the domestic market.  The
Commission also found that AT&T's market share had similarly declined in the 76 countries for
which it had a greater than 90 percent market share and the 18 countries where it had a 100 percent
market share in 1991.  In these countries, AT&T's average market share (weighted by revenues) fell
from 95 percent in 1991 to 74 percent by 1994.  The Commission noted that the trend suggested that
these declines would continue.  With respect to these countries, where AT&T's market share was
significantly greater than the average, the Commission concluded that the high market shares were not
an obstacle to declaring AT&T non-dominant in the absence of barriers to entry that would prevent
AT&T's competitors from continuing to gain market share.

        9.       With respect to demand elasticity, the Commission found substantial evidence that
AT&T's customers are highly price sensitive and that the evidence supports our conclusion that
AT&T alone could not raise and sustain prices above a competitive level for international services. 
For instance, the Commission found those consumers who make over $15 per month in international
calls switch carriers over 25 percent more often than average, and that even the remainder of
international consumers (those averaging under $15 per month) switch carriers at a higher rate than
customers that make no international calls.  The Commission found that an increasing percentage of
AT&T's international "dial 1+" service customers were selecting discount plans rather than paying
AT&T's basic rates.  In 1989, the percentage of AT&T's international "dial 1+" service traffic on
discount plans was zero.  By 1994, this percentage had increased to 60 percent.  By comparison, calls
made under AT&T's True Promotions plans accounted for only 53 percent of Domestic basket 1
traffic in 1994.  The Commission stated that these data indicate that IMTS customers are responsive
to market signals, including price, and are consistent with the conclusion that AT&T's own price
elasticity is high, and that customers are likely to switch carriers to take advantage of price
promotions.

        10.     To measure supply elasticity, the Commission looked at the ability of U.S. carriers
to (1) obtain operating agreements in other countries and (2) obtain submarine cable capacity in a
timely fashion.  The record in this case showed that multiple U.S. carriers have operating agreements
to all but the smallest IMTS markets that account for less than one-tenth of one percent (0.1 percent)
of international revenue.  The Commission concluded that new U.S. facilities-based suppliers may
obtain operating agreements and enter the market much more easily than a decade ago.  The
Commission also noted that while AT&T owned 85 percent of the U.S. end of TAT-6 and 7 in 1985,
its ownership share of submarine cables had declined to 43 percent in 1996.  In 1995, AT&T's
ownership share of the total submarine cable capacity worldwide amounted to 21.6 percent.  In
addition, AT&T did not have a lead role in several cables: PTAT, CANUS-1/CANTAT-3, and the
North Pacific Cable Network.  Though commenters raised several concerns regarding access to
international facilities, the Commission stated that those issues "were the subject of contractual
arrangements with regard to specific submarine cable facilities" and encouraged carriers to raise their
concerns in the context of Commission oversight of Construction and Maintenance Agreements
(C&MA's) for future cable facilities.  The Commission concluded that there is a sufficiently elastic
supply to mitigate any potential exercise of unilateral market power by AT&T.

        11.     The Commission also concluded that AT&T's cost structure, size and superior
resources are not alone persuasive evidence of market power.  The Commission noted, for instance,
that AT&T faces large, well-financed competitors that involve multi-billion dollar investments from
the predominant carriers in three of the four largest European Union countries, with MCI and Sprint
having total toll service revenues of $11.7 billion and $6.8 billion, respectively, compared to AT&T's
$36.9 billion.  Although several parties alleged anticompetitive harm from AT&T's global alliances,
the Commission concluded that these allegations were unsupported.  However, the Commission also
noted that anticompetitive harm would result if one of AT&T's partners used its bottleneck control to
discriminate against rivals or consistently benefit the alliance.  The Commission re-emphasized that
our rules did not permit AT&T to enter into exclusive arrangements or receive special concessions,
and invited carriers to bring to our notice any patterns of discrimination in access to foreign
bottleneck facilities that favor the AT&T alliance.

        12.     Finally, the Commission concluded that IMTS prices were high due to imperfections
in the U.S. international market, particularly the high accounting rates that increase the profits of
foreign monopolists.  The Commission also recognized that while AT&T does not have the unilateral
ability to set prices, AT&T still has sufficient market share to have some effect on overall market
performance.  Accordingly, the Commission welcomed AT&T's voluntary pricing commitments as a
means of spurring competition.

                                DISCUSSION

        13.     Petitioners raise three substantive arguments on reconsideration: (1) AT&T continues
to have market power in the U.S IMTS market and should be regulated as a dominant carrier; (2)
because AT&T's global alliance partners have market power in their home markets, AT&T should be
regulated as dominant on those routes where its foreign partner has the ability to discriminate against
other U.S. carriers; and (3) the Commission should deny AT&T non-dominant status because AT&T
is using its bottleneck control over cable landing stations to discriminate against other U.S. carriers. 
We address each of these arguments below.

        14.     In addition to the issues addressed below, one petitioner, ABS-CBN, urges the
Commission to require AT&T to assist ABS-CBN in acquiring capacity on a minimum of two cable
systems, Trans Pacific Cable-5 (TPC-5) and the Asia Pacific Cable Network (APCN), in which
AT&T holds an ownership interest.  We conclude that, with respect to TPC-5, ABS-CBN's petition
is moot because ABS-CBN has acquired the capacity it sought.  Further, we note that APCN has no
landing points in the United States.  Because we have no jurisdiction with respect to cables, such as
APCN, that do not land on any U.S. point, we deny ABS-CBN's petition relating to APCN.  
        
        A.      AT&T's Individual Market Power

        15.     MFS urges us to reverse our finding that AT&T lacks individual market power in the
U.S. international services market, because (1) AT&T continues to have the ability to control prices
for IMTS and (2) AT&T still has control over bottleneck facilities.  MFS states that the Commission
erred in "downplaying" AT&T's role in setting IMTS prices by concluding that structural problems
with the international accounting rate system, rather than AT&T, were responsible for causing IMTS
rates to be higher than rates for domestic telecommunications services.  MFS argues that AT&T's
"size and market share" give it the unique ability to manipulate the accounting rate systems and keep
rates high.  MFS also argues that AT&T has an unfair competitive advantage over its competitors
because its control of bottleneck facilities gives it the ability to obtain operating agreements that only
a handful of other carriers can obtain.

        16.     We are not persuaded by these arguments.  In the 1996 AT&T International Non-
Dominance Order, the Commission concluded that AT&T lacks market power in the U.S. IMTS
market because, inter alia, (1) AT&T's overall market share of U.S. international calls declined from
98.5 percent in 1985 to 59 percent in 1994; (2) IMTS customers were highly responsive to price
signals and likely to switch carriers if prices were raised; (3) supply capacity was sufficiently elastic
to constrain AT&T's market behavior; and (4) because AT&T faced several large, well-financed
competitors, including MCI and Sprint, its structure, size and resources were not alone sufficient to
exercise market power.  

        17.     MFS does not present any evidence to contradict the Commission's finding that
AT&T lacks unilateral market power, other than simply to restate an excerpt from the 1996 AT&T
International Non-Dominance Order indicating that AT&T may have the ability to "have some effect"
on IMTS pricing.  We note that the test for "market power" is the power to control prices, rather
than just to have some effect on prices.  We also note, moreover, that the Commission specifically
found that "AT&T does not have the unilateral ability to set prices and should not be regulated as
dominant."  Thus, we conclude that MFS's argument that AT&T has the ability unilaterally to raise
prices is unsupported by the record.     

        18.     We also find that MFS' argument that AT&T has market power because it controls
bottleneck facilities is similarly without merit.  MFS argues that AT&T's "control over bottleneck
facilities" gives it the ability to obtain operating agreements with more foreign correspondents, and on
more favorable terms, than other carriers.  Here, too, MFS does not provide any evidence to
support its claim but simply refers to statements in the AT&T International Non-Dominance Order to
the effect that "a large number of carriers" have been unable to get operating agreements.  
Although the Commission did state its concern that some carriers had been unable to obtain operating
agreements, the Commission also concluded that "multiple U.S. carriers have operating agreements to
all but the smallest IMTS markets that account for less than one-tenth of one percent (0.1 percent) of
international revenue" and that "new U.S. facilities-based suppliers may obtain operating agreements
and enter the market much more easily than a decade ago."  Further, we expect that, as members of
the World Trade Organization (WTO) implement their market access commitments for the provision
of international services under the Agreement on Basic Telecommunications concluded last year,
AT&T's competitors will be able to obtain operating agreements from new entrants as well as
incumbent carriers in WTO countries.  We also reaffirm the Commission's finding that alternative
routing arrangements are increasingly available to U.S. carriers.  Since the 1996 AT&T International
Non-Dominance Order and conclusion of the WTO agreement we have, in fact, increased the number
of countries through which we permit U.S. carriers to hub their IMTS traffic.  We expect that, with
the accelerated trend towards competition in foreign markets, and the resulting downward pressure on
accounting rates, we will continue to see additional countries emerge as hubs for U.S. traffic.  For
these reasons, we reaffirm our finding that AT&T does not control bottleneck facilities that give it
market power in the U.S. IMTS market.     

        19.      Recent developments reinforce our conclusion that AT&T lacks market power in the
U.S. international services market.  AT&T's overall market share has fallen further to 49.3 percent in
1996.  We also note that submarine cable capacity has increased significantly, with the result that
AT&T has even less of an ability than previously to control prices by restricting supply.  In short,
we see no basis for reversing the conclusion the Commission reached in 1996 that AT&T lacks
market power in the IMTS market.

        B.      AT&T's Global Alliances
        
        20.     MFS, Sprint, and WorldCom urge the Commission to regulate AT&T as dominant on
routes where its global alliance partner has market power.  Sprint also urges the Commission to
regulate AT&T as dominant in its provision of IMTS to France and Germany.  We do not further
address Sprint's argument with respect to France and Germany because it is now moot.  We also
reject MFS's claim that in this proceeding the Commission used the standard of "individual market
power" rather than "market power" as a new test to determine if AT&T and its global alliances
should be regulated as dominant.  The Commission has previously used the term "individual market
power" synonymously with "unilateral market power" to distinguish it from possible oligopolistic
behavior, or price coordination, by AT&T, MCI, and Sprint.  We clarify that "individual market
power" does not constitute a new test that the Commission applied to review whether AT&T should
be regulated as dominant on particular routes due to its global alliances.   
         
        21.     We do not agree that we should impose our Part 63 dominant carrier rules on AT&T
on routes where its global alliance partners may have market power in their home markets.  Sprint
suggests that we do so because AT&T Uniworld Carrier Services ("Uniworld"), the joint venture
between Unisource and AT&T, creates incentives for AT&T's global alliance partners to discriminate
against AT&T's competitors.  Sprint, therefore, urges the Commission to "revisit its apparent
assumption that only direct equity investments by one carrier in another carrier" should be regulated
as dominant.  Sprint incorrectly describes our policy in this regard.  As the Commission stated
recently in the Foreign Participation Order, our dominant carrier regulations apply to a U.S. carrier's
provision of a service on a particular route "where a co-marketing agreement or other non-equity
arrangement with a foreign carrier presents a substantial risk of anticompetitive harm in the U.S.
international services market.  The Commission also stated that "applying dominant classification to
all non-equity arrangements, absent a finding of substantial risk of competitive harm, would impose
an unnecessary burden."  The Commission noted that non-equity arrangements generally raised
fewer concerns with respect to the potential for anticompetitive harm than equity arrangements.

      22.   We disagree with Sprint that AT&T's foreign partners have the same incentive to
discriminate against AT&T's competitors whether they buy stock in AT&T or form a joint venture
with it such as Uniworld.  Sprint argues that AT&T and its partners have invested substantial sums
in Uniworld and have strong financial incentives to see it succeed and to favor it over other
competitors, such as Sprint's Global One venture with France Telecom and Deutsche Telecom.  We
note, however, that despite initial press reports that AT&T and Unisource would merge all of their
operations in Europe to create a company with 5,000 employees and over $1 billion in revenue,
AT&T states that such a merger did not in fact take place.  Instead, the record shows that Uniworld
is a marketing alliance that uses the services provided by licensed carriers (including the Unisource
partners) to design and market intra-European closed user group voice services (i.e., business
networks) for large multi-national customers throughout Europe.  Although Unisource partners may
have some incentive to favor Uniworld by refusing to provide AT&T's U.S. competitors the
underlying carrier services or to discriminate against them in some way, we believe that AT&T's
Uniworld partners have a far greater incentive to serve all carriers on the same terms.  First, the
European Union has ordered Unisource and Uniworld to provide service on a nondiscriminatory
basis.  Second, the foreign carrier will collect the same charges whether it provides the service to
Uniworld or AT&T's competitors, and is not likely to refuse to provide underlying transmission
service to a carrier who requests such service.  Hence, we do not find on this record a substantial risk
of competitive harm that requires us to regulate AT&T as dominant because of its global alliances. 
We also note that our dominant carrier rules apply to providers of telecommunications services
between the United States and foreign points but not to traffic that originates and terminates entirely
outside the United States, such as Uniworld's intra-European services.  Thus, even if Sprint were
able to show that Unisource carriers have a financial incentive to discriminate against its Global One
venture in providing transmission services to compete with Uniworld's intra-European service
offerings, we do not have jurisdiction to address that issue and, in any event, the dominant carrier
safeguards that Sprint urges us to impose on AT&T would not provide an effective remedy. 

      23.   Several petitioners also cite the potential for discriminatory accounting rate treatment
by AT&T's global alliance partners in urging the Commission to impose dominant carrier regulation
on AT&T.  The Commission concluded in its Order that discriminatory accounting rate treatment
was insufficient grounds for regulating AT&T as dominant but invited carriers to notify it of "any
patterns of discrimination in access to foreign bottleneck facilities that favor the AT&T alliance."
The petitioners in response allege that AT&T's alliance partners: (1) reduced the accounting rate for
AT&T but not for AT&T's competitors; (2) refused to offer AT&T's competitors the lower rate at
the same effective date as for AT&T; or (3) refused to activate circuits until completing accounting
rate negotiations.  AT&T, however, states that it did not seek or accept any special concessions
from a foreign carrier, and, furthermore, urged its global alliance partners in writing to comply with
the Commission's policies requiring nondiscriminatory accounting rate treatment for all U.S.
carriers.  We find that no discrimination actually occurred because AT&T did not accept the
favorable treatment it allegedly was offered.  We also find that there is no evidence that AT&T's
global alliances partners engaged in any discriminatory practices after AT&T, in writing, urged them
to comply with the Commission's rules requiring nondiscriminatory accounting rate practices.  Thus,
we conclude that AT&T's global alliance partners did not use control over bottleneck facilities to
discriminate against AT&T's rivals in the markets contested by Worldpartners and Uniworld.  We
also note that petitioners concerns are addressed by more narrowly tailored remedies, such as our
International Settlements Policy (ISP).  We reiterate that our ISP requires nondiscriminatory
accounting rates, division of tolls and proportionate return traffic, and we note that our precedent
specifically prohibits the types of discrimination that petitioners allege.  With respect to the
additional discrimination that WorldCom alleges may result, we note that our ISP, our "No Special
Concessions" rule, and circuit status and traffic reporting requirements protect U.S. carriers from
potential discrimination in favor of AT&T with regard to access to facilities by foreign carriers with
market power.  Thus, we conclude that dominant carrier regulation is not necessary to remedy any
preferential treatment on accounting rates that AT&T may receive from foreign carriers.  

      24.   We also do not adopt WorldCom's suggestion that the Commission require AT&T to
make a binding commitment not to accept a more favorable accounting rate arrangement from any of
its global alliance partners until all U.S. carriers with operating agreements with that foreign carrier
have been offered the same arrangement.  Such a requirement, we believe, would most likely result
in delaying the introduction of accounting rate reductions, without enhancing our ability to enforce the
ISP.  

      C.    Submarine Cable Stations

      25.   Sprint states that, although it agrees with the Commission that there is a sufficient
supply of submarine cable capacity, the AT&T International Non-Dominance Order does not address
Sprint's concerns that AT&T is using its bottleneck control over cable landing stations to deny Sprint
(1) access to capacity it owns and (2) the right to obtain cable restoration when cables fail.  In
particular, Sprint points to AT&T's delays in activating circuits that Sprint has requested (e.g., on
TAT 12/13) and an ongoing dispute relating to restoring Sprint-owned PTAT's service on other
cables (TAT-9, TAT-10, and TAT-11) which AT&T manages.  Sprint, therefore, requests the
Commission to "clarify whether AT&T has any regulatory obligations as a result of its special
position with respect to these facilities."  

      26.   Though Sprint accurately states that, as a matter of physical necessity, only one digital
access cross-connect switch (DACS) or demultiplexer can receive the 155 Mbps fiber circuit at the
U.S. cable head, it is also true that the owners of a submarine cable can choose to land the cable at
any one of several cable landing stations, including stations not owned or operated by AT&T.  The
number of cable stations not owned by AT&T now includes seven of eight cable stations that have
become operational or for which plans have been finalized since 1996.  Thus, it is not clear that
AT&T has a bottleneck at the cable landing station for purposes of our "market power" analysis.  In
addition, any of the submarine cable's owners (including Sprint) who are dissatisfied with the cable
landing station's operations are free to raise their complaints in accord with the process established by
each submarine cable's Construction and Maintenance Agreement (C&MA), the basic ownership
agreement.  Submarine cable owners typically resolve disputes about these issues by a majority vote
of 50 percent or greater, and none of the owners, including AT&T, holds a majority vote. 
Although Sprint may believe it has not been treated fairly, the record does not show that AT&T has
exercised market power to discriminate against Sprint or any other U.S. carrier in its management of
U.S. cable station facilities.  For these reasons, the Commission concluded in its 1996 Order, and we
affirm now, that disputes over "contractual arrangements," such as access to and restoration of cable
facilities, do not warrant continued classification of AT&T as dominant for IMTS.

      27.   In addition, the record shows that AT&T has substantially fulfilled the voluntary
commitments it made in 1996 concerning nondiscriminatory operation of the cable facilities. 
Specifically, with respect to Sprint's circuit activation and restoration claims, AT&T states it (1)
reduced the TAT 12/13 circuit activation intervals (i.e., the period between receiving a request and
activating a circuit) to 7 days for intra-office and 20 days for inter-office activation and (2) reached
agreement with Sprint concerning restoring a failure on TAT 12/13 by using PTAT and restoring a
failure on PTAT by using TAT 12/13.  Sprint did not oppose AT&T's claim that it fulfilled its
voluntary commitments with respect to activating circuits and providing restoration.  Accordingly, we
find that there is no evidence in the record that AT&T denied Sprint access to cable capacity it owns
or did not provide restoration when cables failed.

                                CONCLUSION

      28.   For the foregoing reasons, we affirm our finding that AT&T lacks market power in
the international services market and should be regulated as a non-dominant carrier.

                             ORDERING CLAUSES

      29.   Accordingly, it is HEREBY ORDERED that petitions for reconsideration filed by
MFS, Sprint, MCI, WorldCom, and ABS-CBN are DENIED.

                              FEDERAL COMMUNICATIONS COMMISSION


                              Magalie Roman Salas
                              Secretary