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Market AnalysisV`(#(#  X- ` `  a.Market Share``"(#v15  X -` `  b.Supply and Demand Elasticity``"(#v19  X!-` `  c.Cost Structure, Size and Resources``"(#v25  X"-` `  d.Control of Bottleneck Facilities``"(#v28  Xh#-` `  i.hh,Access to Facilities``"(#v30  XQ$-` `  ii.hh,Pricing Issues``"(#v34  X:%-B.` ` Forbearance``"(#v56  X#&-C.` ` Regulatory Status to Canada, the Dominican Republic and Venezuela X``"(#v60  X '-IV.Conclusion``"(#v65  X'- V.Ordering Clauses``"(#v70 "(0*0*0*'"Ԍ X-ԙG< I. Introduction ă  X-1.` ` We grant, subject to certain conditions that we impose on an interim basis, GTE Hawaiian Telephone Company, Inc.'s (GTE Hawaii) petition for reclassification as a nondominant carrier in the Hawaiian market for international message telephone service (IMTS). GTE Hawaii is subject to significant IMTS competition, which has resulted in a dramatic decrease in its market share for IMTS since the Commission classified it as dominant in 1985. Additionally, there is sufficient supply and demand elasticity in this market as a result of the increased number of wellestablished carriers offering IMTS in  X1-Hawaii. With the exception of five de minimis routes, we accordingly conclude that GTE Hawaii faces effective competition in the provision of IMTS from Hawaii on all routes for which it requests reclassification.  X -2.` ` In addition, GTE Hawaii is the sole facilitiesbased carrier reporting Hawaii  X -billed revenues for IMTS on five small international routes. TI yO9-ԍThese five routes are Comoros, Equatorial Guinea, Saint Helena, Somalia, and Afghanistan. These routes individually and  X -collectively constitute a de minimis share of total Hawaii billed revenue for IMTS. We  X-conclude below that the economic costs of imposing dominant carrier regulation on these de  X-minimis routes exceed the public interest benefits. Accordingly, we shall forbear from imposing dominant carrier regulation on these routes under our new authority in the  XS-Telecommunications Act of 1996.SXTI {O\-ԍPub. L. No. 104104, 110 Stat. 56 (1996), codified at 47 U.S.C.  151 et seq. (1996 Act).  X%-3.` ` Although we find that GTE Hawaii no longer dominates Hawaii's IMTS market, we are concerned that, as the incumbent local exchange carrier (LEC) in Hawaii, its control of local exchange and exchange access facilities potentially gives GTE Hawaii an incentive and ability to disadvantage its IMTS competitors through improper allocation of  X-costs, discrimination, or other anticompetitive conduct. We therefore grant GTE Hawaii's petition for reclassification as a nondominant IMTS carrier subject to safeguards imposed on an interim basis to protect against potential abuses of the local exchange by GTE Hawaii in the provision of IMTS. Our grant of GTE Hawaii's petition is subject to the outcome of the  Xm-InRegion proceeding,&mTI {O -ԍXSee Implementation of the NonAccounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as amended; Regulatory Treatment of LEC Provision of Interexchange Services Originating  {O!-in the LEC's Local Exchange Area, CC Docket No. 96149, Notice of Proposed Rulemaking, FCC 96 {Od"-308 (released July 18, 1996) (InRegion NPRM or InRegion proceeding). (# which addresses issues pertaining to independent LEC provision of  XX-international service within LEC local service areas.XTI yO$-ԍXBy independent LECs, we refer to exchange telephone companies, including GTE Hawaii, other than the Bell Operating Companies (BOCs).(#ƽ "*0 0*(("  X-4.` ` Specifically, we require that GTE Hawaii establish a separate affiliate to  X-provide its IMTS. This affiliate must comply with the requirements of the Fifth Report and  X-Order of the Commission's Competitive Carrier proceeding.NTI {OM-ԍXSee infra n.22.(#N These requirements are the same as the safeguards that have applied for more than ten years to affiliates of independent LECs that are regulated as nondominant in their provision of interstate, domestic  X-interexchange service under the rules established in the Competitive Carrier proceeding. We also require that GTE Hawaii treat its IMTS affiliate as a nonregulated affiliate under the Commission's joint cost and affiliate transactions rules, just as the independent LEC affiliates are now treated in their provision of interstate, domestic interexchange services. In addition,  X7-we find that the equal access and nondiscrimination requirements established in the GTE  X" -Consent Decree(" ZTI {O- -ԍXSee United States v. GTE Corporation, 603 F.Supp. 730 (D.C. Cir. 1984) (accepting with modifications  {O -consent decree submitted by GTE and U.S. government (GTE Consent Decree)) (U.S. v. GTE Corp.).(#( apply to GTE Hawaii until superseded by Commission regulation under the terms of Section 251(g) of the 1996 Act. These requirements will govern its dealings with its IMTS affiliate unless and until the Commission rules otherwise.  X -5.` ` We believe these safeguards are sufficient and necessary interim measures to limit GTE Hawaii's ability to leverage its market power in the local exchange to obtain market power in the Hawaii IMTS market. Our reclassification of GTE Hawaii as nondominant in its provision of IMTS will not become effective until GTE Hawaii implements these safeguards. These safeguards will remain in place at least until the Commission has  XU-completed the InRegion proceeding and adopted rules of general applicability to govern the independent LECs' provision of "inregion" international service.  X-6.` ` Finally, we classify GTE Hawaii as a dominant carrier in its provision of all international services to the Dominican Republic and Venezuela, based on the framework  X-established in International Services and Section 63.10 of the rules. GTE Hawaii's international service affiliate will also be subject to dominant carrier regulation under  X-International Services on these routes, unless we rule otherwise in a future proceeding. We note that, because it will be subject only to the dominant carrier requirements of Section 63.10(c) of the rules, GTE Hawaii's affiliate will not be subject to price cap regulation and will not be required to file cost support with its tariffs for service to the Dominican Republic and Venezuela.  X0-3: II. Background ă  X-  X-A.` ` Classification of GTE Hawaii as a Dominant IMTS Carrier in International  V-Competitive Carrier(#`  X!-7.` ` The Commission found in International Competitive Carrier that GTE Hawaii did not face effective competition in the Hawaii IMTS market. The record indicated that""0*((!" GTE Hawaii's international competitors had only recently entered the market and had little  X-market penetration. The Commission also found that, as the incumbent monopoly provider of local exchange and exchange access services, GTE Hawaii could exclude meaningful  X-competition through discriminatory practices.&TI {O4-ԍXInternational Competitive Carrier Policies, Report and Order, 102 FCC 2d 832,  4749 (1985), recon.  {O-denied, 60 RR 2d 1435 (1986) (International Competitive Carrier). The Commission in International  {O-Competitive Carrier also classified certain other carriers serving noncontiguous domestic points as dominant in their provision of IMTS. (# The Commission, therefore, determined that GTE Hawaii would be regulated as dominant in the provision of IMTS. The Commission also stated its intention to revisit the regulatory status of particular noncontiguous local exchange carriers (including GTE Hawaii) as other carriers began to offer international  X_-telephone service to and from their markets.e_TI {O -ԍInternational Competitive Carrier at  48. e  X1- B.` ` Current Regulation of GTE Hawaii's IMTS(#`  X -8.` ` As a dominant carrier, GTE Hawaii is subject to price cap regulation (with its constraints on pricing flexibility and its attendant filing requirements) in its provision of  X -IMTS.  HTI {O-ԍXSee Policy and Rules Concerning Rates for Dominant Carriers, 5 FCC Rcd 6786 (1990) (LEC Price  {O-Cap Order).(# Under price caps, GTE Hawaii must, depending on the type of tariff, file a tariff on either 14, 45 or 120 days' notice, instead of the oneday notice required of nondominant carriers. The Commission's decision to place GTE Hawaii's IMTS under price caps was designed to prevent the carrier from setting excessive rates for its IMTS. The Commission  Xy-noted in the LEC Price Cap Order, however, that the presence of strong competitors such as AT&T, MCI and Sprint in the Hawaiian IMTS market made it highly unlikely that GTE  XM-could sustain excessive rates.K MTI {O-ԍXId. at 6817.(#K Moreover, as a dominant carrier, GTE Hawaii has been required to obtain prior Commission approval to add capacity on authorized routes and to  X-convey submarine cable capacity , 6 TI {O-ԍXSee Streamlining the International Section 214 Authorization Process and Tariff Requirements, Report  {O-and Order, IB Docket No. 95118, FCC 9679,  4445 (released Mar. 13, 1996) (Streamlining Order).  {O -In our recent Streamlining Order, we replaced the prior approval requirement for conveyance of cable capacity with a notification requirement. We also eliminated prior approval requirements to add, modify, or delete circuits on authorized routes as they apply to carriers such as GTE Hawaii that are  {O"-regulated as dominant for reasons other than having foreign affiliations. Id. at  13.(# and must obtain our prior approval before discontinuing, reducing or impairing service on a particular route. " 0*(("  X-C.` ` GTE Hawaii Petition  X-  X-9.` ` GTE Hawaii contends that the Commission should now regulate GTE Hawaii  X-as nondominant for IMTS based on the criteria the Commission used in International  X-Competitive Carrier to regulate GTE Hawaii as a dominant carrier for IMTS.( TI {O-ԍXPetition of GTE Hawaiian Telephone Company Incorporated for Reclassification as a Nondominant  {O-International MTS Carrier, CC Docket No. 85107 (filed May 22, 1995) (GTE Hawaii Petition). Parties filing comments in opposition to this petition are: AT&T Corp. (AT&T), the State of Hawaii, MCI Corporation (MCI), and Pacwest Telecommunications Corporation (Pacwest). GTE Hawaii filed several  {O, -ex parte documents in support of its petition.(#( It argues that it faces effective competition in the Hawaii IMTS market and no longer has market power in  Xc-this market.U c~TI yO -ԍXGTE Hawaii Petition at 2, 3.(#U By reclassifying GTE Hawaii as nondominant, GTE Hawaii argues, the public interest will be served by removing regulatory impediments and allowing GTE Hawaii to be a  X5-more effective competitor in the IMTS market.H5TI {O-ԍXId. at 2.(#H Reclassification of GTE Hawaii from dominant to nondominant would subject it to streamlined Title II regulation, and would remove its IMTS from price cap regulation. GTE Hawaii's IMTS tariffs could be filed on no less than one days' notice. GTE Hawaii additionally argues that it qualifies for nondominant  X -carrier regulation in its provision of service to Canada pursuant to the International Services,  X -despite its affiliation with two local exchange carriers in that market. TI {O-ԍXGTE Hawaii Petition at 2, 2628 (citing Regulation of International Common Carrier Services, 7 FCC  {O-Rcd 7331 (1992) (International Services)).(# It also concedes that it  X -would be considered dominant under International Services for service to the Dominican  X-Republic and Venezuela, "where a GTE subsidiary is the dominant local exchange carrier."O TI yOE-ԍGTE Hawaii Petition at 2, n.2.O GTE Hawaii's foreign affiliates in the Dominican Republic and Venezuela provide  Xj-international as well as domestic telecommunications services in those two countries. j TI {O-ԍXSee GTE Telecom Incorporated, Application for Authority Pursuant to Section 214 of the Communications Act of 1934, as amended, and Section 63.01 of the Commission's Rules and  {O9 -Regulations for International Resale Switched Service and Facilitiesbased Service to Various Countries, ITC 95443, DA 961546, Order, Authorization and Certificate, n.13 (International Bur., released Sept.  {O!-16, 1996) (GTE Telecom Order).(#  "<B0*((H"  X-D.` ` InRegion Proceeding  X- 10.NPRM INREGION` ` To implement the 1996 Act, the Commission has commenced a series of  X-rulemakings, many of which will impact GTE Hawaii. For example, in the InRegion  X-NPRM,nTI {O!-ԍXINREGION NPRMSee InRegion NPRM.(#n the Commission has sought comment on whether it should continue to apply the  X-existing separation requirements of the Fifth Report and Order to independent LECs as a prerequisite for nondominant regulatory treatment in the provision of interstate, domestic  Xg-interexchange services originating in their local exchange areas.OgZTI {Or -ԍXId. at  108.(#O The Commission expressed its belief that, regardless of its determination of whether the independent LECs should be classified as dominant or nondominant if they provide inregion, interstate, domestic interexchange services directly, some level of separation may be necessary between an independent LEC's interstate, domestic interexchange operations and its local exchange  X -operations.O TI {O-ԍXId. at  158.(#O The Commission also tentatively concluded that it should apply the same regulatory approach that it adopts for an independent LEC's provision of interstate, domestic interexchange services originating within its local service area to an independent LEC's provision of international services originating within its local service area.  X- 11.` ` The InRegion proceeding does not modify the Commission's separate  Xl-framework, adopted in International Services, for regulating U.S. international carriers (including BOC affiliates or independent LECs ultimately authorized to provide inregion international services) 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  X-in the foreign destination market.D~TI {OA-ԍId. at n.191.D  X-;] III. Discussion ĐlU  X- A. ` `  Regulation of GTE Hawaii as Dominant or Nondominant under International  V-Competitive Carrier (#`  X-  Xs- 12.` ` Since 1980, the Commission has distinguished between carriers with market power (dominant carriers) and those without market power (nondominant carriers) for  XE-purposes of Title II rate and entry regulation.(ETI {O%-ԍXSee Policy & Rules Concerning Rates for Competitive Common Carrier Services and Facilities  {O%-Authorizations Therefor, CC Docket No. 79252 (Competitive Carrier), First Report & Order, 85 FCC  {O&-2d 1 (1980); Second Report & Order, 91 FCC 2d 59 (1982); recon., 93 FCC 2d 54 (1983); Third  {Od'-Report & Order, 48 Fed. Reg. 46,791 (1983); Fourth Report & Order, 95 FCC 2d 554 (1983), vacated,"d'0*(('"  {O-AT&T v. FCC, 978 F.2d 727 (1992), cert. denied, MCI Telecommunications Corp. v. AT&T, 113 S.Ct.  {OZ-3020 (1993); Fifth Report & Order, 98 FCC 2d 1191 (1984); Sixth Report & Order, 99 FCC 2d 1020  {O$-(1985), rev'd, MCI Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985); see 47 C.F.R.   {O-61.3(o) (dominant carrier is defined as "[a] carrier found by the Commission to have market power (i.e., power to control prices)").(#Ɯ If a common carrier is determined to be "non"E0*(("ԫdominant," Title II regulatory requirements are "streamlined." The Commission has applied standard principles of antitrust analysis to determine whether a carrier possesses market power  X-in the provision of the relevant service in the relevant geographic market.NTI {O -ԍXMotion of AT&T Corp. to be Declared NonDominant for International Service, Order, FCC 96209  {O -(released May 14, 1996) (AT&T International Nondominance Order); Competitive Carrier, First Report  {O -and Order, 85 FCC 2d at 21; Motion of AT&T to be Reclassified as a NonDominant Carrier, 11 FCC  {Oa -Rcd 3271, 329394 (1995) (AT&T Domestic Nondominance Order); Revisions to Price Cap Rules for  {O+ -AT&T Corp., 10 FCC Rcd 3009, 3016 (1995) (Commercial Services Order); Competition in the  {O -Interstate Interexchange Marketplace, CC Docket No. 90132, Report and Order, 6 FCC Rcd 5880,  {O -5888 (1991) (First Interexchange Competition Order), recon., 6 FCC Rcd 7569 (1991), further recon., 7 FCC Rcd 2677 (1992).(#Ƹ This analysis includes a focus on: (1) market share, (2) the demand elasticity of a carrier's customers, (3) the supply elasticity of the market, (4) a carrier's cost structure, size and resources, and (5)  X-control of bottleneck facilities.t\ TI {O-ԍXSee InRegion NPRM at  133; AT&T International Nondominance Order  at  36; see also Commercial  {O-Services Order at 3016 (describing demand elasticity); First Interexchange Competition Order at 5888 (describing supply elasticity).(#t  X_- 13.` ` The Commission first applied its dominant/nondominant regulatory scheme to  XH-U.S. international carriers in 1985.eHTI {O-ԍXSee International Competitive Carrier.(#e The Commission held that IMTS (including international switched services) and nonIMTS (including private line services) are separate product markets. The Commission also held that, in applying the dominant/nondominant regulatory scheme for international services, every destination country constituted a separate geographic  X -market.& LTI {O-ԍXInternational Competitive Carrier at  37. The Commission also found all foreignowned carriers to be  {O-dominant for all services to all countries. Id. at  7273, and 84; see infra Section III. C. The Commission recently further streamlined the Title II regulation of nondominant international carriers.  {OE -Streamlining Order at  77, and 8081.(# As discussed in Section II. A., supra, the Commission distinguished Hawaii (and certain other noncontiguous domestic points) from the continental United States in defining  X -the relevant geographic market.iZ :TI {O#-ԍXInternational Competitive Carrier at  4749; see also InRegion NPRM at  129 (inviting comment on the geographic market definition for purposes of determining whether a BOC affiliate or independent LEC possesses market power in the provision of inregion, international services).(#i "\0*(("  X-  14.` ` With the possible exception of routes where GTE Hawaii is the sole facilities X-based provider reporting Hawaii billed revenue for IMTS TI yOb-ԍXBased on the latest Commission statistics for Hawaii billed IMTS traffic, there are only five routes where GTE Hawaii is the only facilitiesbased provider reporting billed revenue from Hawaii: Comoros,  {O-Equatorial Guinea, Saint Helena, Somalia, and Afghanistan. See 1994 Section 43.61 International Traffic Data for Hawaii, Market Shares, Message Telephone Service, Report prepared 9/20/96 by Linda Blake, Common Carrier Bureau Industry Analysis Division, pursuant to 1994 Section 43.61  {OL-[International Telecommunications] Data[, January 1996] (FCC 1994 Hawaii IMTS Report) (report outlines Hawaii billed IMTS revenues for international points and AT&T's, GTE Hawaii's, MCI/Western Union International's, Sprint's, and all other carriers' relative market shares for such service). With the exception of GTE Hawaii, facilitiesbased IMTS carriers incorrectly excluded the U.S. Virgin Islands from their Hawaii IMTS traffic reports. Therefore, even though GTE Hawaii was the sole carrier reporting U.S. billed traffic for the U.S. Virgin Islands, we are not including this destination, which is reported as an international point, in our analysis of routes where GTE Hawaii is the sole facilities based carrier reporting U.S. billed revenues from Hawaii. These routes account for 0.00045  {O -percent of total U.S. billed revenue for Hawaii IMTS traffic. See id.(# or where it corresponds with  X-affiliated carriers and could potentially derive market power from those relationships, TI {O -ԍXGTE Hawaii is affiliated with carriers in Canada, the Dominican Republic and Venezuela. See infra Section III. C.(#Ʊ the record indicates that GTE Hawaii's market position does not vary substantially from one geographic market to the next. With the exception of the five routes where GTE Hawaii is the sole facilitiesbased provider reporting billed revenue for Hawaii, we do not believe that differences in GTE Hawaii's market shares among countries require us to conduct a routespecific market analysis. In addition, there is nothing in the record that suggests there are any critical distinctions among markets on the basis of other factors, such as demand and supply elasticities, conditions of entry, or GTE Hawaii's size and resources that would require a  X -routebyroute analysis.{ TI {O-ԍXSee also AT&T International Nondominance Order at  33. (#{ In general, U.S. facilitiesbased suppliers may enter all markets much more easily than a decade ago, whether through direct operating agreements, indirect  X -transit arrangements, or "switched hubbing" via U.S. international private lines.c rTI {O-ԍXSee id. at  35. (# c In fact, nothing in the record suggests that entry barriers vary substantially among geographic  X -markets.H TI {Os -ԍXSee id. (#H Moreover, the enactment of the 1996 Act should stimulate new competition for IMTS service. Thus, with the exception of the routes where GTE Hawaii is the sole facilitiesbased provider reporting Hawaii billed revenue for IMTS or where it corresponds with affiliated carriers, we conclude that GTE Hawaii's market position for IMTS does not differ materially among routes and we need not generally make specific routebyroute findings. We will analyze separately these routes where GTE Hawaii is the sole facilitiesbased carrier reporting Hawaii billed revenues for IMTS and those routes where GTE Hawaii, " 0*(( " through its parent company GTE, is affiliated with foreign carriers on particular U.S.  X-international routes.]!TI {Ob-ԍXSee infra Sections III. B C.(#]  X-` ` 1. Market Analysis  X-` `  a.Market Share  X_-15.` ` We first analyze GTE Hawaii's IMTS market share in order to assess its market power. GTE Hawaii's IMTS market share has declined significantly since the  X1-Commission classified it as a nondominant IMTS carrier in 1985. According to the most  X -recent formally compiled FCC statistics on Hawaii billed IMTS traffic, GTE Hawaii has a  X -billed revenue share of 29.2 percent.s" ZTI {O-ԍXFCC 1994 Hawaii IMTS Report.(#s GTE Hawaii has a billed revenue market share above  X -70 percent but less than 100 percent# TI yO-ԍXAs noted previously, we separately discuss the five routes where GTE Hawaii is the sole facilitiesbased  {OQ-carrier reporting U.S. billed revenues for Hawaiian IMTS at Section III. C. infra.(# for only 2 of the 170 international locations.}$ FTI {O-ԍ1994 FCC 1994 Hawaii IMTS Report (excluding the U.S Virgin Islands). } GTE Hawaii's tariffed rates for these two international points are the same as to other countries  X -within the same region.% TI {OG-ԍXGTE Hawaii's international tariffed rates are "regionalized," i.e., GTE Hawaii offers the same rates,  {O-depending on the class of service, to all other countries within the same region. See GTE Hawaiian Telephone Company, Inc., Tariff F.C.C. No. 1, Section II.B.2.b.(4), Schedule 2, Region Africa (including Nambia); GTE Hawaiian Telephone Company, Inc., Tariff F.C.C. No. 1, Section II.B.2.b., Schedule 1.3, Region Europe (including Andorra). (# While GTE Hawaii's market shares in certain countries continue to be high, on the whole we find that such high market shares are not an obstacle to granting GTE Hawaii's petition in the absence of barriers to entry which might prevent GTE Hawaii's  Xy-competitors from continuing to gain market share in those countries. O&y TI {O-ԍ See supra  14.O  XK-16.` ` The decline in GTE Hawaii's overall IMTS market share may be due in part to GTE Hawaii's equal access and nondiscrimination obligations. GTE Hawaii states that, "[w]hen an end office is converted to equal access, . . . it loses 100 percent of its IMTS  X-customers, and must win them back through marketing efforts after conversion."_'TI {O#-ԍGTE June 11, 1996, ex parte letter at 2._ GTE Hawaii explains that it "loses" these customers because, under the equal access balloting and " '0*((" presubscription processes, Hawaiian customers cannot select GTE Hawaii as their international  X-service provider when an end office is converted to equal access.(TI {Ob-ԍXId. ("[d]uring the presubscription balloting process [for end offices converting to equal access,] Hawaii customers select a preferred interexchange carrier for both interstate and international service[; GTE  {O-Hawaii] . . . has never appeared on the equal access ballot because [under the GTE Consent Decree] it  {O-could not provide interstate service a prerequisite for ballot participation"); see also id. ("[a]fter conversion of an end office to equal access [and completion of the presubscription process, GTE Hawaii] may contact customers to determine if they would like to use it for their international traffic";  {O-see also id. ("[f]or new subscribers served by an equal access end office, the customer is queried as to his preferred interstate and international carriers[; GTE Hawaii] . . . is included on the list of potential international providers").(#  X-17.` ` This decline in market share, however, is also likely a result of competitors  X-offering long distance and international calling plans.)TI {O -ԍXSee GTE Hawaii Petition, Exhibit I. This exhibit contains competitors' advertisements in Hawaii.(#Ơ The decline in GTE Hawaii's market share is evidence that GTE Hawaii faces effective competition in Hawaii and that removal of dominant carrier regulation is warranted.  XH-18.` ` Based on the most recent data available to the Commission, we have identified five markets in which GTE Hawaii is the sole facilitiesbased carrier reporting Hawaii billed IMTS revenue. These routes account for 0.00045 percent of total Hawaii billed revenue for  X -IMTS traffic. As explained infra, we believe that it is appropriate to forbear from imposing dominant carrier regulation for the provision of IMTS to those countries.  X -` `  b.Supply and Demand Elasticity  X-19.` ` Two factors determine supply elasticities in a market.w*2 TI {Ou-ԍXSee First Interexchange Competition Order at 5888.(#w The first is the supply capacity of existing competitors: supply elasticities tend to be high if existing competitors have or can easily acquire significant additional capacity in a relatively short time period. The second factor is low entry barriers: supply elasticities tend to be high even if existing suppliers lack excess capacity if new suppliers can enter the market relatively easily and add to existing capacity. The State of Hawaii argues that GTE Hawaii has not proven that the  X-supply and demand elasticities for Hawaii IMTS are indicative of a competitive market.Z+ TI yO}!-ԍ XState of Hawaii Comments at 13.(#Z  X-20.` ` GTE Hawaii notes that the Commission determined in International  X-Competitive Carrier that GTE Hawaii had the ability to exert market power because other  X-carriers employed relatively few circuits to provide international service from Hawaii.,T TI {O&-ԍXGTE Hawaii Petition at 9 (citing International Competitive Carrier at 832).(#Ɗ GTE Hawaii contends that its competitors now have acquired interests in cables and can lease" ,0*((Q"  X-satellite circuits as a means of carrying IMTS traffic.S-TI yOy-ԍXGTE Hawaii Petition at 10.(#S One way that carriers transport Hawaiian IMTS traffic is to "backhaul" the traffic from Hawaii to their U.S. mainland facilities before sending it to foreign points. GTE Hawaii argues that there is sufficient cable capacity existing between Hawaii and the U.S. mainland to allow competitors to acquire  X-additional capacity to satisfy demand..XTI yO-ԍXGTE Hawaii Petition at 11. The cables between Hawaii and the U.S. mainland are HAW4 (2 x 280  yOu-Mbps fiber pairs), HAW5 (3 x 560 Mbps fiber pairs), and TPC5 (4.8 Gbps x 2 fiber pairs). (# The State of Hawaii disputes GTE Hawaii's claim  X-regarding cable capacity and the number of circuits available to competitors.W/TI yO -ԍXState of Hawaii Comments at 3.(#W It argues that over 120,000 circuits referenced in GTE Hawaii's exhibits are "future." As a result, the State of Hawaii claims that the evidence submitted is inadequate to make a determination on the supply elasticities of the Hawaiian IMTS market.  X -21.` ` The record evidence on cable capacity between Hawaii and the U.S. mainland supports GTE Hawaii's contention regarding supply elasticity. No carrier participating in the proceeding disputes that competitors can acquire capacity to meet their needs to provide IMTS  X -from Hawaii.0 @TI yO-ԍXWe note that the Commission has recently granted cable landing licenses for cables extending between  {O-the U.S. mainland and Hawaii, and between Guam and Hawaii. In the Matter of Hawaii Express  {OX-Communications, L.L.C., DA 961170 (released July 24, 1996) and In the Matter of Guam Telecom Ltd.,  {O"-LC., 10 FCC Rcd 12104 (released Nov. 3, 1995). Also pending is an application for a cable that would extend between Guam, the Philippines, Hong Kong, the People's Republic of China and the Republic of  {O-Korea. Orient Express Communications, L.L.C. File No. SCL95011.(# We disagree with the State of Hawaii that the evidence submitted by GTE Hawaii regarding the availability of circuits is inadequate. GTE Hawaii's Exhibit E references the TPC5 cable and is listed as "future digital," and Exhibit F shows the capacity on this cable to be 120,960 circuits. That portion of the TPC5 cable which extends from the U.S. mainland through Hawaii to Guam and Japan is now operational, and carriers have acquired capacity on it. A segment running directly from the U.S. mainland to Japan has a readyforservice date of December 31, 1996. Any decisions regarding future available capacity on this cable would be made by the consortium of owners of the TPC5 cable in accordance with the TPC5 Construction and Maintenance Agreement, not solely by GTE  X-Hawaii.1 TI {Ow!-ԍXSee Joint Application for a License to Land and Operate a High Capacity Digital Submarine Cable Network Between and Among the United States Mainland, the State of Hawaii, the Island of Guam and  {O #-Japan, 7 FCC Rcd 7674 (Com. Car. Bur. 1992) and Joint Application for Authorization Under Section 214 of the Communications Act of 1934, as amended, to Construct, Acquire Capacity in and Operate a High Capacity Digital Submarine Cable Network Between and Among the United States Mainland, the  {Oc%-State of Hawaii, the Island of Guam and Japan, 7 FCC Rcd 7758 (Com. Car. Bur. 1992).(#ƨ We believe that the increased cable capacity from Hawaii both to the U.S. mainland and to international points supports the argument that supply elasticity is high in Hawaii. " >10*(("Ԍ X-ԙ22.` ` Demand elasticity or responsiveness is the propensity of GTE Hawaii's customers to switch carriers or otherwise change the amount of services they purchase from  X-GTE Hawaii in response to relative changes in price and quality.k2TI {OK-ԍXSee Commercial Services Order at 3016.(#k High demand elasticities indicate customers' willingness and ability to switch to or from a carrier in order to obtain price reductions and desired features. GTE Hawaii argues that equal access in Hawaii allows  X-customers a choice of many IMTS carriers.S3ZTI yO-ԍXGTE Hawaii Petition at 12.(#S GTE Hawaii uses the term "addressability" to describe the proportion of demand that is addressable by alternative providers. Statistics submitted by GTE Hawaii support its claim that customers do in fact choose among the  XH-various IMTS providers.4"HTI {O -ԍXSee GTE June 3, 1996 ex parte letter. In the first six months of 1996, there were 61,888 PIC changes. The figures were not broken down by international PIC changes, but GTE Hawaii claims that the PIC churning of 10% of customers is probably representative of PIC changes experienced by its international division.(#ƀ There are a number of wellestablished competitors offering IMTS in Hawaii, including AT&T, MCI, and Sprint. It is therefore unlikely that GTE Hawaii would be able to raise its IMTS rates without losing customers to an alternative provider. In addition, the Commission has determined in previous decisions that business and residential customers are highly demandelastic, and they will switch carriers in order to obtain price  X -reductions.w5 TI {OZ-ԍXSee e.g., AT&T Domestic Nondominance at  6366.(#w  X -23.` ` GTE Hawaii submitted information to support the Commission's determination that business customers are highly demandelastic, that is, that they are willing to switch carriers to obtain desired features. GTE Hawaii's petition contains information on large  Xb-customers lost to competitors over the past few years.X6bf TI yOy-ԍXGTE Hawaii Petition, Exhibit J.(#X GTE Hawaii asserts that "[a] substantial portion of the IMTS traffic in Hawaii is generated by business users . . . . [and that] GTE Hawaii[] has lost many of its business customers to competitors that can offer both  X-interexchange and international services."K7 TI yO-ԍGTE Hawaii Petition at 18.K Under the GTE Consent Decree, GTE Hawaii was previously not allowed to provide interexchange service, and therefore it could not be a "onestop" service provider. We note that when GTE Hawaii filed its petition for nondominant  X-status, it was subject to the GTE Consent Decree and prohibited from offering domestic interexchange service. As a result, GTE Hawaii could not be a "onestop" service provider.  X-Since filing its petition, Congress has enacted the 1996 Act, which lifted the restriction of the" 70*(("  X-GTE Consent Decree on GTE Hawaii entering the interexchange market.^8TI {Oy-ԍXSee 1996 Act. Section 601(a)(2) of the 1996 Act removes the GTE Consent Decree restrictions. The Conference Report makes clear that GTE Hawaii is allowed to enter the interexchange market: "No provision in the Communications Act should be construed as creating or continuing in any way the GTE Consent Decree's prohibition on GTE or its operating companies' entry into the interexchange market." Joint Explanatory Statement of the Committee of Conference, H.R. Rep. No. 458, S. Rep. No. 230, 104th Cong., 2d Sess. at 199 (1996).(#^ Although the record suggests that many of GTE Hawaii's customers have switched carriers, the record otherwise supports the conclusion that the Hawaiian IMTS market is highly demandelastic.  X-24.` ` Based on the increased number of competitors and increased supply of cable and satellite capacity, as well as evidence that customers are sensitive to the price of IMTS and actually choosing among competitors, we find that there is sufficient supply and demand elasticity to support a conclusion that GTE Hawaii faces effective competition in the Hawaii IMTS market.  X -` `  c.Cost Structure, Size and Resources  X -25.` ` GTE Hawaii is a whollyowned subsidiary of GTE Corporation (GTE), whose operating companies comprise the largest affiliation of independent LECs in the United States.  X -At the time of International Competitive Carrier, GTE Hawaii's competitors were new to the market, had small market shares and few facilities, and did not provide a sufficient degree of  X-competition to prevent anticompetitive conduct.9BTI {O-ԍXSee International Competitive Carrier at  48; International Competitive Carrier on recon. at  14.(#ƴ In addition, GTE Hawaii controlled 100 percent of the local exchange market. Today, there are a number of wellestablished international carriers that have cut GTE Hawaii's IMTS market share considerably. The local exchange and exchange access markets continue to be dominated by GTE Hawaii and will  X8-likely continue to be until local competition develops in the State of Hawaii.:&8TI {O-ԍXSee GTE May 24, 1996 ex parte letter. This letter contains the final rules for local competition adopted by the Hawaii Public Utilities Commission on May 17, 1996. In addition, GTE supplied information on  {OO-a number of carriers seeking authority to provide local service. See GTE January 19, 1996, March 12,  {O-1996, and May 6, 1996 ex parte letters. (# .  X -26.` ` We found in the AT&T International Nondominance Order that even a carrier the size of AT&T, which enjoys resource advantages, scale economies, longterm relationships  X-with suppliers and ready access to capital, does not necessarily possess market power.; TI {OQ#-ԍXAT&T International Nondominance Order at  67 (citing AT&T Domestic Nondominance Order at  73).(#Ƴ The same is true in this case. Although GTE Hawaii may have certain historical advantages as both the local monopoly and, at one point, the international monopoly, we believe that  X-advantage in the IMTS market has been effectively eroded. Unlike in the AT&T International  X-Nondominance proceeding, none of the commenters here raised the issue of GTE Hawaii" ;0*((" using its size and resources to obtain favorable treatment by foreign correspondents. In addition, there is no evidence that such favorable treatment has been granted to GTE Hawaii.  X-27.` ` GTE Hawaii does have economies of scope that competitors lack by virtue of its control of the local exchange and dominant position in that market. However, as previously mentioned, wellestablished competitors are operating in the Hawaii IMTS market, and rules for local competition have been established. The record on market share, demand and supply elasticity, and GTE Hawaii's cost structure, size and resources supports the conclusion that, unlike in 1985, GTE Hawaii now faces effective competition in Hawaii. Although it continues to control bottleneck facilities, we believe that, with proper safeguards, we can allow GTE Hawaii to take advantage of its economies of scope and to provide IMTS on a nondominant carrier basis without hindering competition in the Hawaii IMTS market.  X -  X -` `  d.Control of Bottleneck Facilities  X -28.` ` The principal concern with GTE Hawaii's request for reclassification as a nondominant IMTS carrier is whether it may be able to leverage its control of bottleneck local exchange and exchange access facilities and services to exercise market power in the provision of IMTS. GTE Hawaii's control of such facilities and services raises two major areas of concern: unlawful discrimination in the provision of exchange access services and improper allocation of costs to its regulated core business that would properly be attributable to its IMTS offerings.  X-29.` ` The Commission historically has addressed this concern with respect to independent LEC provision of interstate, domestic interexchange service by adopting regulatory safeguards as a condition of nondominant carrier regulation. The Commission of  X-course is considering this issue in the InRegion NPRM, and the rules adopted in that proceeding will apply to GTE Hawaii. As discussed below, we will as an interim measure require GTE Hawaii to observe, as a condition of reclassification as a nondominant IMTS  Xg-carrier, the requirements adopted in the Competitive Carrier Fifth Report and Order. These requirements apply to independent LECs that are regulated as nondominant in their provision of interstate, domestic interexchange services. We believe that these safeguards are sufficient,  X$-at least during the period necessary for the Commission to complete its InRegion NPRM, to  X- protect against potential abuses of the local exchange by GTE Hawaii in the provision of IMTS.  X -` `  i. hh,Access to Facilities(#h  X"-30.` ` Access to local exchange facilities is an important element for any international telecommunications provider. A customer making an international call must send the call initially through the local network. When a carrier controls this initial link and also competes in the adjacent international services market, there is a potential for anticompetitive conduct.  X@&-The Commission in its InRegion NPRM recently described various ways in which a BOC potentially could use its market power in the provision of local exchange and exchange access"+';0*((%"  X-service to discriminate against its domestic interLATA service competitors.<ZTI {Oy-ԍXSee InRegion NPRM at  139 (describing the potential for a BOC to provide its affiliates' interLATA competitors with poorer quality interconnection; to unnecessarily delay requests to interconnect; to disrupt service).(# The Commission also expressed concern that these examples of potential anticompetitive behavior are relevant to an independent LEC's provision of international service originating within its  X-local service area.q=TI {OV-ԍXInRegion NPRM at  158 (stating that some level of separation may be necessary between an independent LEC's interstate, domestic interexchange operations and its local exchange operations to minimize the potential for improper cost allocation and discrimination against interexchange competitors) and  160 (tentatively concluding that an independent LEC's provision of international service originating in its local service area raises the same concerns with leveraging market power as the LEC's provision of interstate, domestic interexchange services).(#q  X-31.` ` When International Competitive Carrier was decided, the two types of bottleneck facilities GTE Hawaii controlled were the local loop used to access an IMTS carrier, and the facilities used for traffic leaving Hawaii for international points. AT&T argues that we should continue to regulate GTE Hawaii as dominant because it continues to control bottleneck local exchange facilities. Furthermore, AT&T contends that GTE Hawaii has used its local monopoly to benefit its IMTS business. For example, instead of offering options to consumers, AT&T believes that GTE Hawaii has referred consumers directly to its  X -own IMTS facilities when the consumer dials "0."L> d TI yO-ԍXAT&T Comments at 2.(#L AT&T also believes that GTE Hawaii may have supplied its IMTS business with proprietary information derived from its local  X -exchange business.H? TI {Oe-ԍXId. at 2.(#H  X-32.` ` Pacwest and AT&T note that GTE Hawaii's international service competitors must rely on GTE Hawaii because most international traffic originating and terminating in  Xd-Hawaii is carried over GTE Hawaii's local exchange facilities.s@d TI {O-ԍ XPacwest Comments at 3; see also AT&T Comments at 5.(#s In spite of the GTE Consent  XO-Decree's equal access requirement, Pacwest maintains, there are no safeguards to prevent GTE Hawaii from abusing its control over the local network to provide competitors with inferior  X#-facilities and service quality.SAZ#TI {O"-ԍXPacwest Comments at 45; see also AT&T Comments at 3, n.2. AT&T argues in the alternative that, despite equal access, GTE Hawaii could provide any affiliate superior access to technical information, or develop and install newer or more efficient exchange access arrangements.(#S Pacwest is concerned that, while the GTE Consent Decree requires GTE to provide equal access, this does not necessarily mean that GTE Hawaii will ":A0*(( " provide equal service quality, installation, maintenance, information about users and  X-capabilities, and plans for its own network.OBTI yOb-ԍXPacwest Comments at 4.(#O  X- 33.` ` GTE Hawaii maintains that the institution of access charges, equal access and  X-presubscription have eroded its bottleneck control.VCXTI yO-ԍXGTE Hawaii Petition at 5, 14.(#V As a result, it claims it lacks the ability to exclude meaningful competition through discriminatory practices. GTE Hawaii claims that AT&T's allegations regarding GTE Hawaii's abuse of the local exchange, including the  X_-improper dissemination of proprietary information, are unsubstantiated.RD_TI yO -ԍXGTE Hawaii Reply at 910.(#R It counters AT&T's claim that GTE Hawaii operators steer customers dialing "0" to GTE Hawaii by stating that it worked with AT&T on developing a script for its operators to prevent this from occurring. This script gives customers the option of choosing among all the IMTS providers, and GTE claims that there has not been one complaint from any of the interexchange carriers alleging  X -any misconduct by GTE's operators.E xTI {O-ԍXSee GTE January 19, 1996 ex parte letter containing the GTE Operator Services Operating Practices. (#ƨ  X -` `  ii. hh,Pricing Issues(#h  X-!34.` ` In addition to obtaining physical access to facilities, competitors must also pay the LEC for such access. A dominant LEC is in a position to improperly allocate costs to give the LEC an unfair advantage over its competitors. It also is in a position to otherwise increase the prices its competitors pay for access to essential facilities. The State of Hawaii argues that GTE Hawaii does not provide any facts to substantiate its claims that it is no  X-longer dominant in the IMTS market because it does not set prices.WF TI yO-ԍXState of Hawaii Comments at 3.(#W Pacwest argues that, because GTE Hawaii also owns most local exchange facilities, competitors rely on GTE's  X-pricing in order to enter the market.OGTI yO:-ԍXPacwest Comments at 3.(#O Pacwest cites as an example the fact that GTE Hawaii's high capacity access facilities are priced on an Individual Case Basis (ICB) rather than tariffed as a generalized service offering, thus creating an opportunity for GTE Hawaii to  X-discriminate against competing international service providers.OH* TI yO#-ԍXPacwest Comments at 8.(#O GTE Hawaii disagrees, stating that the rates for Interstate High Capacity Digital DS3 are generally tariffed on the island of Oahu, and are only developed on an ICB basis on the other islands because of the "| H0*((n"  X-limited demand for DS3 service at these locations.PITI yOy-ԍXGTE Hawaii Reply at 12.(#P In addition, ICB tariffs are placed on 45 days' notice with cost support which must meet Commission requirements.  X-"35.` ` Pacwest contends that accounting separation alone will not prevent crosssubsidization and notes a recent Hawaii Public Utilities Commission (HPUC) proceeding where the HPUC found that GTE Hawaii failed to provide "reliable, relevant, and probative information." Pacwest's concern is that, if the data supplied by GTE Hawaii is inaccurate,  X_-instances of crosssubsidizing would not be detectable.PJ_XTI yOh -ԍ XPacwest Comments at 7.(#P MCI asserts that GTE Hawaii "has failed to structurally separate itself in order to provide noncompetitive and competitive  X1-services."KK1TI yO -ԍXMCI Comments at 1.(#K MCI "believes that structural separation should be imposed . . . as a condition  X -precedent to granting GTE Hawaii[] the relief it seeks."BL xTI {OC-ԍXId.(#B MCI maintains that structural separation "is the best way to achieve 'arm's length' transacting between affiliated  X -entities[.]"BM TI {O-ԍXId.(#B  X -#36.` ` GTE Hawaii argues that the Commission has recognized in the past the  X -inefficiencies that result from structural separation.SN TI yO-ԍ XGTE Hawaii Petition at 7.(#S GTE Hawaii maintains that there are several mechanisms already in place that are designed to prevent crosssubsidization and  Xy-anticompetitive behavior between its international operations and its local exchange business.ROy, TI yOV-ԍXGTE Hawaii Petition at 7.(#R It notes, for example, that its international operations and local exchange business have  XK- separate accounts (but do not have separate books of account); the international division obtains local exchange and exchange access services at tariffed rates; and, while GTE Hawaii owns transmission and switching equipment for both its local and international divisions, these divisions do not jointly use any such equipment. GTE Hawaii states that these safeguards will  X-remain in place if it is reclassified as a nondominant carrier for IMTS.P TI {O\"-ԍXSee GTE Hawaii Petition at 7; see also GTE June 11, 1996 ex parte letter. (#ƛ GTE Hawaii believes these safeguards provide sufficient protection to assure the public and its competitors  X-that its actions are fair and in strict compliance with the law and regulation.CQN TI {O%-ԍXId. (#C "Q0*(("  X-$37.` ` GTE Hawaii argues it cannot exclude competition through such measures as  X-preemptive investment making subsequent entry by competitors unprofitable.YRTI yOb-ԍXGTE Hawaii Petition at 14.(#Y It also argues that it cannot engage in a vertical price squeeze, where a company that controls an  X-essential facility raises the price of that facility above cost.BSXTI {O-ԍXId.(#B Such a facility would be one that cannot be economically duplicated and which must be purchased by others to compete against GTE Hawaii. GTE Hawaii cites to the availability of over 180,000 circuits as proof of the availability of sufficient essential facilities to carry Hawaiian international traffic. In addition, GTE Hawaii argues that it is unable to engage in predatory pricing or cross XH-subsidize its IMTS offerings from its less competitive services.ITHTI {O -ԍXId. at 16.(#I GTE Hawaii notes that competitive safeguards exist through the Commission's ongoing jurisdiction over nondominant carriers, the complaint process, price caps for its noncompetitive services, and the Commission's full audit powers.  X -%38.` ` We note first that, as GTE Hawaii claims, its rates for high capacity lines do appear, according to records at the Commission, to be generally tariffed where there is  X -sufficient demand (i.e., on Oahu), but not for the other islands. We find that no evidence has been submitted to suggest that GTE Hawaii has discriminated in its provision of such high capacity access.  XM-&39.` ` We are not entirely convinced that GTE Hawaii could successfully engage in  X6-predation.U6|TI {Oc-ԍXSee, e.g., InRegion NPRM at  137 (finding it questionable whether a BOC affiliate could successfully engage in predation in the interLATA services market).(# We do not agree with GTE Hawaii, however, that it necessarily lacks the ability to engage in anticompetitive behavior such as improper allocation of costs or "price  X-squeeze."V TI yO-ԍXAbsent appropriate regulation, GTE Hawaii could potentially raise the price of access to all international carriers, including its own international division. This would cause competing international carriers to raise their retail rates in order to remain profitable. GTE Hawaii could then capture additional market share by not raising its international prices to reflect the increase in access charges. Although GTE Hawaii would report little or no profit on its international service offerings, GTE Hawaii would receive higher access revenues from unaffiliated international carriers and increased international revenues caused by its increased share of international traffic. If GTE Hawaii were to raise its access rates high  {O#-enough, it would be impossible for international service competitors to compete effectively. See In {O#-Region NPRM at  141. (# We nevertheless believe that current market conditions which GTE Hawaii faces in its provision of access service and the price cap method by which such services are regulated have been effective in constraining GTE Hawaii's ability to engage in such activities. "V0*((p"Ԍ X-'40.` ` GTE Hawaii points to the number of circuits available for carriage of traffic for Hawaii as evidence that competitors can purchase facilities in order to compete. Those facilities are not, however, the facilities that raise the concern about possible price squeezes; interstate access service is the essential element that must be purchased in order to compete.  X-Those facilities currently are controlled by GTE Hawaii. PRICE CAPSGTE Hawaii's provision of  X-interstate access service is subject to the Commission's price cap rules.YWTI yO-ԍX47 C.F.R.  61.4 61.49.(#Y Under pure price cap regulation, prices charged by individual companies are capped by a formula that reflects the productivity for the industry as a whole. Since improper allocation of costs by an individual LEC cannot change the industrywide cap, a LEC's power to change prices by misallocating costs is eliminated. This is unlike rateofreturn regulation, where an individual company's prices are based directly on its own costs.  X -(41.` ` It is true that the Commission has not implemented "pure" price cap regulation, in that LECs can select a "low option" price cap "package" which includes a "sharing/low end adjustment" provision. Under that provision, a LEC's own costs can to some degree be reflected in its price cap if that LEC's earnings are significantly above or below the industry average. Since improper allocation of costs could reduce a LEC's earnings on interstate access, a LEC could potentially use the sharing/lowend provision to set its price cap higher than it otherwise would be. Several carriers have selected the low option price cap package, including GTE Hawaii.  X-)42.` ` Our examination of GTE Hawaii's price cap indexes show that GTE Hawaii is pricing its interstate access services significantly below cap. Since the purpose of misallocating costs would be to raise the price cap in order to price services as high as possible, evidence that a LEC is pricing below cap is an important indication that the LEC is not engaging in such a scheme. As contained in its 1996 annual access tariff filing, GTE Hawaii filed the carrier common line rate at $1.95 per minute of use although the cap is $2.94 per minute of use. Its filed actual price index (API) for the traffic sensitive basket is 78.03 even though the cap is 85.18, and its filed API for the trunk basket is 70.06 even though its cap is 83.17. (We also note that the filed API for the interexchange basket, which includes IMTS, is also below cap. The API is 100.74 even though the cap is 109.29). This evidence shows that it is highly unlikely that GTE Hawaii is improperly allocating its IMTS costs to its exchange access services. These findings also suggest that the pricing of interexchange access  X -service is being constrained by competition or the threat of competition in the access market rather than by government regulation. If it is being constrained by competition, then it would not be feasible for GTE Hawaii to improperly allocate the cost of its IMTS to its regulated access services in the near future, or to otherwise price its access offerings in an  X!-anticompetitive manner.  X#-*43.` ` Despite these regulatory and market constraints on GTE Hawaii's cost allocation and pricing behavior, we remain concerned that GTE Hawaii's control of local exchange and exchange access facilities potentially gives GTE Hawaii an incentive and ability"Q%XW0*(('$" to disadvantage its competitors through improper allocation of costs, discrimination, or other anticompetitive behavior. The Commission raised a substantially similar concern in the  X-Competitive Carrier proceeding in considering the appropriate treatment of the independent  X-LECs' provision of interstate, interexchange services, i.e., that the independent LECs might  X-have the potential to engage in costshifting and anticompetitive conduct.ZXTI {O!-ԍSee Fifth Report and Order at 1198.Z In the Competitive  X-Carrier Fourth Report and Order, the Commission determined that, with a certain amount of separation, interexchange carriers affiliated with independent LECs should be regulated as  Xg-nondominant.ZYgZTI {Or -ԍFourth Report and Order at 57579. Z In the Competitive Carrier Fifth Report and Order, the Commission clarified that, in order to qualify for nondominant treatment, the affiliate of an independent LEC providing interstate, domestic interexchange services must: (1) maintain separate books of account; (2) not jointly own transmission or switching facilities with its affiliated exchange telephone company; and (3) acquire any services from its affiliated exchange telephone  X -company at tariffed rates, terms and conditions.VZ TI {O-ԍFifth Report and Order at 1198.V The Commission observed that these separation requirements would provide some "protection against costshifting and anticompetitive conduct" by an independent LEC that could result from its control of local  X -bottleneck facilities.F[ ~TI {O-ԍId. at 119899.F The Commission further concluded that any interstate, interexchange services offered directly by an independent LEC (rather than through a separate affiliate) or through an affiliate that did not satisfy the specified conditions would be subject to dominant  Xl-carrier regulation.F\lTI {O--ԍId. at 119899.F Independent LEC affiliates providing interstate, domestic interexchange services are treated, for purposes of the LECs' accounting, as a nonregulated affiliate under  X>-the Commission's joint cost and affiliate transactions rules.]>TI {O-ԍXSee 47 C.F.R.  32.27, 64.901904; Separation of Costs of Regulated Telephone Service from Costs of  {O[-Nonregulated Activities, ,Report and Order CC Docket No. 86111, 2 FCC Rcd 1298 (1987) (Joint Cost  {O%-Order), recon., 2 FCC Rcd 6283 (1987) (Joint Cost Reconsideration Order), further recon., 3 FCC Rcd  {O-6701 (1988), aff'd sub nom. Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C.Cir. 1990); see also  {O-Bell Operating Company Provision of OutofRegion Interstate, Interexchange Services, CC Docket No.  {O -9621, FCC 96288, Report and Order,  2, 23, and 39 (released July 1, 1996) (Interim BOC Domestic  {OM!-OutofRegion Order).(#Ư The Commission's determination  X'-in Competitive Carrier was for "interstate, domestic, interexchange telecommunications  X-services," and did not specifically address international services.n^TI {O$-ԍXSee Fourth Report and Order, 95 FCC 2d at 554. (#n  X-+44.` ` We believe that application of the separation safeguards that were adopted in  X-the Competitive Carrier Fifth Report and Order as a condition of our granting GTE Hawaii's"^0*((" petition will provide sufficient protection against potential abuses by GTE Hawaii in its  X-provision of IMTS pending resolution of the InRegion proceeding. We find no basis for distinguishing between an independent LEC's ability and incentive to improperly allocate costs, discriminate against, or otherwise disadvantage unaffiliated domestic interexchange competitors as opposed to international service competitors. Indeed, we recently found "no practical distinctions between a BOC's ability and incentive to improperly allocate costs, discriminate against, or otherwise disadvantage unaffiliated domestic interexchange as opposed  Xa-to international service competitors."k_aTI {O-ԍInterim BOC Domestic OutofRegion Order at  17.k We therefore granted several BOC Section 214 applications to resell outofregion international switched services subject to the same conditions that the Commission adopted as a condition for nondominant treatment of BOC  X -provision of outofregion, interstate, domestic interexchange services.E` ZTI {O' -ԍId. at  2.E Further, in the In X -Region NPRM, the Commission tentatively concluded that it should apply the same regulatory approach that it adopts for an independent LEC's provision of interstate, domestic interexchange services originating within its local service area to an independent LEC's  X -provision of international services originating within its local service area.Ra TI {Oa-ԍInRegion NPRM at  160.R Although the  X -Commission has not adopted the Fifth Report and Order separation requirements as rules applicable to the independent LECs' provision of international services, the Common Carrier Bureau used the separation requirements to classify as nondominant an independent LEC  Xj-affiliate's international service.b\j~TI {O-ԍXSee Petition of the Puerto Rico Telephone Authority for Declaratory Ruling that a Subsidiary Corporation Offering Interstate and International Message Telephone Service Off of the Island of Puerto  {O+-Rico is Nondominant, 3 FCC Rcd 5675 (Com. Car. Bur. 1988) (Puerto Rico Declaratory Ruling).(#Ɔ  X<-,45.` ` We also believe that imposition of the Fifth Report and Order separation safeguards will not impose an unreasonable burden on GTE Hawaii in its provision of IMTS. No party has offered any credible evidence in this proceeding to suggest that applying the  X-Fifth Report and Order separation requirements to GTE Hawaii's provision of IMTS would constitute burdensome regulation. Further, the Commission recently found that the  X-"safeguards [established in the Fifth Report and Order] have worked reasonably well and generally have been effective . . . in deterring the improper allocation of costs and unlawful discrimination [in the independent LECs' provision of interstate, domestic, interexchange  X-services]."RcTI {O#-ԍInRegion NPRM at  146.R Further, we do not believe that imposition of these separation safeguards will"4 c0*(("  X-prevent GTE Hawaii from competing effectively in the IMTS market.d^TI {Oy-ԍXSee generally Interim BOC Domestic OutofRegion Order at  24. ("the entry of interexchange carriers  {OC-affiliated with independent LECs over the past decade serves as evidence that the[ Fifth Report and  {O -Order] conditions will not prevent the BOCs from competing effectively").(#Ɖ Application of the separation safeguards to GTE Hawaii's provision IMTS will provide GTE Hawaii with the benefits of nondominant carrier regulation, while protecting ratepayers and competition in the U.S. international services market.  X-  -46.` ` Specifically, we find that GTE Hawaii is eligible for nondominant carrier regulation of its IMTS subject to the condition that GTE Hawaii establish a separate legal entity to provide that service. Its IMTS affiliate must: (1) maintain separate books of account from its affiliated LECs; (2) not jointly own transmission or switching facilities with its affiliated LECs; and (3) take any tariffed services from its affiliated LECs pursuant to the  X -terms and conditions of the LECs' generally applicable tariff.e TI yO-ԍXThis provision applies only to services for which GTE Telecom's affiliated LECs are required to file a tariff, not to detariffed services such as billing and collection. (# Although we require this IMTS affiliate to maintain its corporate structure as a separate legal entity from GTE Hawaii and other LEC affiliates, we do not require that its separate books of account comply with our  X -Part 32 rules.f| FTI {O-ԍXSee Interim BOC Domestic OutofRegion Order at  23. Books of account refer to the financial accounting system a company uses to record, in monetary terms, the basic transactions of a company. These books of account reflect the company's assets, liabilities, and equity, and the revenues and expenses from operations. Each company has its own separate books of account. The Commission's Part 32 rules, the Uniform System of Accounts (USOA), prescribe the books of account for the telephone companies. The Part 32 USOA, however, is not required to be kept by affiliates of a  {O~-telephone company. These affiliates maintain their own separate books of account. Id. at  23, n.62. (# Further, except for the ban on joint ownership of transmission and switching facilities, we will permit GTE Hawaii's IMTS affiliate and its affiliated LECs to share  X -personnel and other resources or assets.qg TI {O-ԍSee Interim BOC Domestic OutofRegion Order at  22. q GTE Hawaii's IMTS affiliate may be staffed by its LEC affiliates' personnel, housed in affiliated LEC offices, and use affiliated LEC marketing or other services. To the extent MCI argues that we should require full structural separation between GTE Hawaii and its IMTS affiliates, MCI has not submitted persuasive evidence in this proceeding that the benefits of such separation outweigh the costs. Moreover, the Commission to date has not required full structural separation of the independent LEC affiliates in their provision of domestic interstate, interexchange services. We therefore find  X-no basis to do so at this time.hTI {O#-ԍXFull structural separation was set forth in Computer II. Under Computer II, AT&T was required to provide customer premise equipment (CPE) and enhanced services through fully separate corporate entities with separate books, officers and employees, operating facilities, computer facilities, and physical location, as well as separate operating, marketing, installation and maintenance personnel. Joint  {O&-marketing was also prohibited. Amendment of Section 64.702 of the Commission's Rules and  {O'-Regulations (Computer II), 77 FCC 2d 384 (1980), recon., 84 FCC 2d 50 (1980),  further recon., 88"'g0*(('"  {O-FCC 2d 512 (1981), aff'd sub nom., Computer and Communications Industry Ass'n v. FCC, 693 F. 2d  {OZ-198 (D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983). (#"$h0*(("Ԍ X-ԙ  .47.` ` Pacwest is concerned that the separate accounts which GTE Hawaii has established for its international and local exchange divisions may not prevent cross X-subsidization if GTE Hawaii's IMTS is removed from price caps.i$TI yO-ԍXIn the HPUC proceeding cited by Pacwest in its comments at page 6, the HPUC was extremely critical of GTE Hawaii. In reviewing GTE Hawaii's request for a rate increase, the HPUC stated that GTE Hawaii "has not been open, cooperative, and forthcoming in the production of information", and went on to say: "The company needs to change its attitude and be fully forthcoming in its disclosure of relevant information in all of its dockets, both those that are ongoing and those that will come before  {O -the commission in the future." HPUC Decision and Order No. 13950 (filed June 9, 1995). (#Ɲ GTE Hawaii explains that it maintains discrete international accounts to capture costs directly associated with IMTS, and that it allocates all joint and common costs to international operations following the  X-separations principles used in Part 36 of the Commission's rules.`jZTI {O-ԍXSee GTE Petition, Exhibit C, Affidavit of Karen E. SunaharaTeruya, Manager Separations and Access Costs; 47 C.F.R. Part 36. In general, Part 36 of the Commission's rules establishes procedures and principles for separating local exchange carrier costs for state and interstate service.(#`  X_-  /48.` ` As explained above, we require as a condition to grant of GTE Hawaii's petition that the carrier establish a separate affiliate to provide its IMTS. The affiliate must  X1-maintain separate books of account. To help ensure that GTE Hawaii properly allocates the costs of any services provided to its IMTS affiliate, we also will require GTE Hawaii to treat its IMTS affiliate as a nonregulated affiliate for purposes of GTE Hawaii's accounting under  X -the Commission's joint cost and affiliate transactions rules,k TI {O]-ԍX47 C.F.R.  32.27, 64.901904; see also Interim BOC Domestic OutofRegion Order at  22, and 3540.(#Ʒ just as independent LEC  X -affiliates are now treated in their provision of interexchange, interstate services.nl TI {O-ԍSee Interim BOC Domestic OutofRegion Order at  2.n   X -  049.` ` The Commission's existing accounting safeguards for affiliate transactions were  X-developed in the Joint Cost Order and are codified in Parts 32 and 64 of our rules.{mTI {O-ԍXSee Joint Cost Order; 47 C.F.R. Parts 32 and 64.(#{ The Part 64 cost allocation rules prescribe how carriers separate the costs of regulated activities from the costs of nonregulated activities, where the nonregulated activities are performed  XM-directly by the carrier rather than through an affiliate.]nM>TI {O<$-ԍSee 47 C.F.R.  64.901.] The Part 32 affiliate transactions  X6-rules prescribe the way local exchange carriers record their costs, for Title II accounting  X-purposes, when the regulated carrier does business with its nonregulated affiliates.doTI {O'-ԍXSee 47 C.F.R.  32.27.(#d These"bo0*(()" rules are designed to prevent local exchange carriers from imposing the costs and risks of their competitive ventures on local telephone ratepayers. These rules do not require carriers or their affiliates to charge any particular prices for assets transferred or services provided; rather, they require carriers to use certain specified valuation methods in determining the  X-amounts to record in their Part 32 accounts, regardless of the prices charged.bpTI {O-ԍXSee Joint Cost Order at 1313.(#b  X-   Xv-150.` ` The fact that the provision of IMTS is regulated under Title II does not per se eliminate the potential for improper allocation of costs between GTE Hawaii's competitive (international) and noncompetitive (local exchange and exchange access) services. The Commission has required on an interim basis that the BOCs treat their interexchange, interstate service affiliates as nonregulated for accounting purposes "to minimize the possibility that a BOC could improperly shift the costs of its interstate, interexchange  X -operations to its regulated local exchange and exchange access ratepayers."q& ZTI {O-ԍXInterim BOC Domestic OutofRegion Order at  39; see also id. at  22 (requiring BOCs to treat their interexchange affiliates for accounting purposes as nonregulated affiliates "[t]o help ensure that the  {O-BOCs properly allocate the costs of any services provided to the interexchange affiliate . . . ."); see also  {OU-id. at  19.(# The Commission also noted that this requirement is consistent with the current practice of independent LECs that treat their affiliates providing interexchange services as nonregulated  X -for exchange carrier accounting purposes. r HTI {O-ԍXSee Interim BOC Domestic OutofRegion Order at  39; see also NYNEX Application for Authority Pursuant to Section 214 of the Communications Act of 1934, as amended, to Provide International Services from Certain Parts of the United States to International Points through Resale of International  {O-Switched Services, ITC96125, et al., Order, Authorizatoin and Certificate, DA 961169, at  20  {O-(International Bur., released July 24, 1996) (NYNEX et al. Order) ("[b]ecause the cost allocation and affiliate transaction rules are an important component of our accounting safeguards, we find, as did the  {OX-Commission in the BOC Domestic OutofRegion Order, that these rules should apply to [the] . . . provision of outofregion international switched resale services [by the international services affiliates of NYNEX Corp., Bell Atlantic Corporation, and Ameritech Corporation]"). (#  For the same reasons, we find that application of our cost allocation and affiliate transaction rules is a necessary and sufficient interim measure  X{-to minimize the possibility that GTE Hawaii could improperly shift the costs of its affiliated  Xd-international operations to its regulated local exchange and exchange access ratepayers.vsd TI {O5 -ԍ See Interim BOC Domestic OutofRegion Order at  39. v  X6-251.` ` The application of the interim safeguards as a condition to our grant of GTE Hawaii's petition will be an effective complement to existing equal access and  X-nondiscrimination safeguards established under the GTE Consent Decree that continue to  X-apply to GTE Hawaii. The equal access and nondiscrimination requirements established under  X-the GTE Consent Decree remain in effect "until such restrictions or obligations are explicitly"s0*(("  X-superseded by regulations prescribed by the Commission[.]"btTI yOy-ԍSection 251(g) of the Act, 47 U.S.C.  251(g).b Specifically, the GTE Consent  X-Decree prohibited GTE from discriminating against the various interexchange carriers in: (1) the establishment and dissemination of technical information and interconnection standards; (2) interconnection and use of exchange services or facilities, or the charges for each element of services; and (3) the provision of new exchange access and the planning for and  X-implementation of the construction or modification of facilities used to provide such access.^uXTI {O-ԍU.S. v. GTE Corp., 603 F. Supp. at 739.^  Xz-The GTE Consent Decree also required that GTE provide all interexchange carriers access  Xe-that is equal in type, quality and price.BveTI {O -ԍId. at 743.B  X7-352.` ` GTE Hawaii recognizes that these equal access and nondiscrimination  X -safeguards continue to apply to it under the 1996 Act, and that, as used in the GTE Consent  X -Decree, the term "interexchange" included the provision of international service.4w |TI {O8-ԍXSee GTE June 11, 1996, ex parte letter at 2;  see also United States v. GTE Corp. at 751, n.92 where the court states that the Decree specifically exempts telecommunications services between Hawaii and points outside the United States from the prohibition against the GTE Operating Companies' provision of interexchange services. If the Decree had sought to exclude international service from the definition of interexchange service, this footnote would have been unnecessary.(#4 We see no basis for distinguishing between interexchange service and international service for purposes  X -of GTE Hawaii's equal access and nondiscrimination obligations.Xx . TI {O-ԍSee GTE Telecom Order at  25.X The equal access and  X -nondiscrimination safeguards established in the GTE Consent Decree apply to GTE Hawaii and will govern its dealings with its IMTS affiliate until such time as the Commission may determine otherwise pursuant to Section 251(g) of the 1996 Act.  Xn-453.` ` We also note that the nondiscrimination obligations of the GTE Consent Decree  XY-apply to GTE Hawaii's handling of customer proprietary network information (CPNI). According to GTE Hawaii, its customer service employees are instructed that they are not allowed to share any information with GTE Hawaii's international employees obtained from  X-customers regarding their choice of international carrier.y TI {O!-ԍXSee GTE Hawaii Petition, Exhibit D, affidavit of Jeffrey A. Maldondo, Associate General Counsel and Assistant Secretary, GTE Hawaii.(# In addition, employees in GTE Hawaii's international division are not provided access to the databases which contain customer proprietary information. GTE Hawaii submits that it has established procedures to "y0*((" review and approve database system access to ensure that only employees whose job functions  X-require such access are authorized.zTI {Ob-ԍXSee GTE January 19, 1996 ex parte letter at 4. GTE Hawaii also established certain CPNI safeguards required under the Commission's Open Network Architecture (ONA) proceeding. (#  X- 554.` ` GTE Hawaii must continue to observe all CPNI safeguards mandated by the  X-GTE Consent Decree and prior Commission proceedings until the Commission rules otherwise. We note that Section 702 of the 1996 Act added a new Section 222 to the  Xx-Communications Act of 1934, codifying the confidentiality of CPNI.G{Xx"TI yOK -ԍX1996 Act  702 (1996). This section added a new, selfexecuting Section 222 to the Communications Act of 1934, as amended, which sets forth restrictions on the use of CPNI obtained by telecommunications carriers in providing telecommunications services to customers.(#G The Commission has already commenced a rulemaking to clarify the CPNI requirements imposed on all  XJ-telecommunications carriers by the 1996 Act.|^JBTI {O=-ԍXImplementation of the Telecommunications Act of 1996: Telecommunications Carriers Use of Customer  {O-Proprietary Network Information and Other Customer Information, Notice of Proposed Rulemaking, CC  {O-Docket Nol 96115, FCC 96221 (released May 16, 1996) (CPNI NPRM or CPNI proceeding).(#ƒ The Commission's rulemakings on the 1996 Act may impose additional requirements on international operations of independent LECs, or may reduce them, but until that time, GTE Hawaii must continue to adhere to the equal access  X -and nondiscrimination requirements established in the GTE Consent Decree. To the extent that the 1996 Act requires more of GTE Hawaii, or imposes greater restrictions on its use of  X -CPNI, the statute, of course, governs.O} h TI {O-ԍSee CPNI NPRM at  3.O  X - 655.` ` Nothing in this order should be viewed as a prejudgment of what regulatory  X-requirements the Commission will adopt in the InRegion proceeding for the independent  X-LECs' provision of international service within their local service areas. Our conclusion that GTE Hawaii is eligible for nondominant carrier regulation in its provision of IMTS on all  XQ-international routes except the U.S.Dominican Republic and U.S.Venezuela routesX~Q TI {O-ԍXSee infra Section III. C.(#X is subject to its implementation of certain conditions that we impose on an interim basis,  X#-pending the outcome of the InRegion proceeding. We base our decision on three record findings. First, GTE Hawaii faces effective competition in the Hawaii IMTS market on most U.S. international routes. Second, the record supports forbearance from dominant carrier regulation on five routes where GTE Hawaii is the sole facilitiesbased provider reporting  X-Hawaii billed revenues for IMTS.V TI {O%-ԍ  See infra Section III. B.V And, third, that the regulatory safeguards that we impose as a condition of reclassification, in conjunction with current statutory equal access and nondiscrimination requirements, will provide sufficient and necessary interim protection against potential abuses of the local exchange by GTE Hawaii in its provision of IMTS. "0*((P" These regulatory safeguards are the same as those that have applied for more than ten years to affiliates of independent LECs that are regulated as nondominant in their provision of  X-interstate, domestic interexchange service under the rules adopted in the Competitive Carrier  X-proceeding. These safeguards will remain in place at least until the Commission has  X-completed the InRegion proceeding and adopted rules of general applicability to govern the independent LECs', including GTE Hawaii's, provision of international service within their local service areas.  XN-B.` ` Forbearance  X -756.` ` As noted in Section III. A. , the most recent data formally compiled by the Commission reveals that there are only five countries in which GTE Hawaii is the only  X -facilitiesbased carrier reporting Hawaii billed revenue for IMTS. These are: Comoros, Equatorial Guinea, Saint Helena, Somalia, and Afghanistan. Based on the record developed in this proceeding, we believe that it is appropriate to forbear from imposing dominant carrier regulation for IMTS to these locations.  X-857.` ` Under new Section 10 of the Communications Act of 1934, as added by the 1996 Act, the Commission must forbear from imposing any regulation "in any or some geographic markets" if we determine that: (1) enforcement of such regulation is not necessary to ensure that rates are just and reasonable or not unjustly or unreasonably discriminatory; (2) enforcement of such regulation is not necessary for the protection of consumers; and (3)  X -forbearance from applying such provision is consistent with the public interest.O TI yO-ԍX47 U.S.C.  160(a).(#O Moreover, as part of the determination, the Commission must also consider whether forbearance from enforcing regulation will promote competitive market conditions, including the extent to which forbearance will enhance competition among providers of telecommunications  X-services.OXTI yO-ԍX47 U.S.C.  160(b).(#O  X-958.` ` As to the first two prongs, as discussed in Section III. A. , there are a multitude of means for U.S. carriers to route their international traffic, even on "thin" routes that may not warrant establishing direct facilities to a particular location. There is no evidence in the record of substantial barriers to immediate entry by additional U.S. carriers for the provision  X&-of faciltiesbased service on these five routes.Z&TI yO"-ԍXIndeed, other U.S. facilitiesbased carriers may be serving one or more of these five routes from Hawaii.  {O#-Given the low level of actual billed revenue to each country, see infra  59 ,  it is possible that other carriers' customers did not make or receive calls to or from these locations.(#Ƃ The potential for additional competition itself  X-can ensure that prices continue to remain just and reasonable,m TI {O&-ԍSee AT&T International Nondominance Order at  96.m and we believe that it will do so. We also note that the tariffed rates to these five locations are the same as to other"0*((Z"  X-countries within the same region.aTI yOy-ԍXAs noted above, GTE Hawaii's international tariffed rates are "regionalized" in that GTE Hawaii offers  {OA-the same rates, depending on the class of service, to all other countries within the same region. See GTE Hawaiian Telephone Company, Inc., Tariff F.C.C. No. 1, Section II.B.2.b.(6), Schedule 2.2, Region Africa (including Comoros, Somalia, Equatorial Guinea, and Saint Helena); GTE Hawaiian Telephone Company, Inc., Tariff F.C.C. No. 1, Section II.B.2.b.(21), Schedule 7.2, Region Indian Ocean (including Afghanistan).(#a Faced with such evidence, therefore, we conclude that dominant carrier regulation to these five locations is not required to ensure rates are just and  X-reasonable or to otherwise protect consumers.  X-:59.` ` As to the last prong, the Commission has consistently held that, when the economic costs of regulation exceed the public interest benefits, the Commission should  Xv-reconsider the validity of continuing to impose such regulation on the market.yvBTI {Oi -ԍXSee AT&T Domestic Nondominance Order at  32 and n.90.(#y The Commission's most recent data reveal that the actual amount of Hawaii billed revenue for  XH-IMTS to each location is de minimis compared to the overall Hawaii billed revenue for  X3-IMTS._3TI {O-ԍXSee FCC 1994 Hawaii IMTS Report.(#_ These routes account for 0.00045 percent of the total Hawaii billed revenue for  X -IMTS.L f TI {O3-ԍXSee id.(#L Actual billed revenues to each country are also de minimis: Comoros ($12),  X -Equatorial Guinea ($85), Saint Helena ($84), Somalia ($10) and Afghanistan ($194).F TI {O-ԍXSee id.(#F  X -Hawaii billed minutes for IMTS to each location is likewise de minimis: Comoros (one minute), Equatorial Guinea (10 minutes), Saint Helena (29 minutes), Somalia (one minute)  X -and Afghanistan (19 minutes). TI {O-ԍXSee 1994 Section 43.61 International Communications Data, Linda Blake, Industry Analysis Division, Common Carrier Bureau, FCC (January 1996), Table A8.(# With such small amounts, we believe that we cannot justify  X -the economic costs of dominant carrier regulation for routes with such de minimis traffic. In such circumstances, dominant carrier regulation can actually impede, rather than promote competitive market conditions, including deterring competition among providers of telecommunications services. Accordingly, we will forbear from applying dominant carrier regulation on these five international routes.  X%- C.` ` Regulatory Status to Canada, the Dominican Republic and Venezuela     X-;60.` ` Finally, GTE Hawaii also requests that it be granted nondominant status for service to Canada, notwithstanding its affiliation with British Columbia Telephone Company (BC Tel) and Quebec Telephone (Quebec Tel). BC Tel and Quebec Tel are monopoly local"0*(("  X-exchange carriers in Canada.DTI yOy-ԍAT&T Comments at 5.D GTE Hawaii states that neither BC Tel nor Quebec Tel provides long distance or international service. GTE Hawaii states that all U.S. carriers interconnect directly with StentorCanadian Network Management (Stentor) for U.S.Canada traffic. Stentor is an association of regional telephone companies, including BC Tel and Quebec Tel, which provides interprovincial services in Canada and international service  X-between Canada and the United States.kXTI {O-ԍXSee GTE June 21, 1996 ex parte letter.(#k GTE Hawaii concedes that it owns more than fifty  Xv-percent of BC Tel, which constitutes an affiliation under the Commission's rules.[vTI yO -ԍX47 C.F.R.  63.01(r)(1) (1995).(#[ GTE Hawaii, however, contends that it cannot dictate any aspect of Stentor's routing of traffic to or  XH-from the United States and that "GTE's Canadian affiliates  have no ability to discriminate in  X1-favor of GTE Hawaii[]."qZ1zTI {O\-ԍXSee GTE June 21, 1996 ex parte letter; see also GTE Hawaii Petition at 27 (asserting that GTE's Canadian affiliates have no ability to discriminate in favor of GTE Hawaii through preferential operating agreements, preferential routing of traffic, access, interconnection "or in any other way").(#q GTE Hawaii states that "[t]here are no ownership interests in  X -[Stentor,]"# TI {Og-ԍXSee GTE June 21, 1996 ex parte letter ("[Stentor] is simply an alliance of the major telephone  {O1-companies in Canada which makes decisons [sic] with respect to handling telecommunications traffic").(## and that BC Tel is one of ten voting members of Stentor and that Quebec Tel  X -does not have a vote.c TI {O-ԍSee GTE June 21, 1996 ex parte letter.c GTE Hawaii states that Stentor delivers the traffic to the appropriate local telephone compnay, including BC Tel and Quebec Tel, for termination at the local  X -exchange.K TI yO-ԍGTE Hawaii Petition at 27.K GTE Hawaii asserts that "[t]hus, there is no direct interface between GTE  X -Hawaii[] . . . and its Canadian affiliates with respect to international communications."S TI yO-ԍXGTE Hawaii Petition at 27.(#S GTE Hawaii states that because it deals only with Stentor for all arrangements for HawaiiCanada  X-traffic, all settlements are handled exclusively with Stentor.TI yO-ԍXGTE Hawaii Petition at 27. GTE Hawaii also explains that Stentor itself does not own any facilities and is not owned by its members. Stentor is supported by member companies. Settlement agreements among the companies reimburse them for their costs of originating and terminating calls, and for use of the transport facilities within their territories. Any revenue remaining from the revenue pool after these  {O #-settlements is then shared based on the traffic that was handled by each entity. See GTE September 13,  {O#-1996, ex parte letter. (#ƈ  Xb-<61.` ` AT&T recommends that the Commission deny GTE Hawaii's request for reclassification for service to Canada. AT&T claims that GTE Hawaii has not met its burden to demonstrate that BC Tel does not control bottleneck facilities in Canada that can be used to"4&0*((" discriminate against unaffiliated carriers.  X-=62.` ` In 1992, the Commission modified its 1985 policy that treated U.S. foreignowned common carriers as dominant in their provision of international services to all foreign markets. Specifically, the Commission adopted a framework for regulating U.S. international carriers 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  X_-the destination market._TI {O-ԍXSee International Services at 7334; see also Market Entry and Regulation of Foreignaffiliated Entities,  {O -11 FCC Rcd 3873 (1995) (Foreign Carrier Entry Order) (reaffirming the basic framework for classifying and regulating a carrier as dominant based upon its foreign carrier affiliations as set forth in  {O4 -International Services). The Commission considers to be "foreignaffiliated" those U.S. carriers with a greater than 25 percent interest or controlling interest at any level held by a foreign carrier, as well as  {O -those U.S. carriers with interests of more than 25 percent in, or control of, a foreign carrier. Foreign  {O -Carrier Entry Order at  7892 and 24551. Carriers regulated as dominant on particular U.S. international routes are subject to specific regulatory requirements set forth in Section 63.10(c) of the rules, 47 C.F.R.  63.10(c). These carriers are not subject to price cap regulation, nor are they required to file cost support with their tariffs.(#ƈ  X1- >63.` ` We find that regulation of GTE Hawaii as a nondominant carrier to Canada is  X -warranted pursuant to Section 63.10(a)(2) of the Commission's rules.H j TI yO5-ԍX47 C.F.R.  63.10(a)(2) ("A carrier that is, or that has or acquires an affiliation with a foreign carrier that is a monopoly in a destination country will presumptively be classified as dominant for the  {O-provision of international communications services on that route."); see also 47 C.F.R.  63.10(c) ("Any carrier that seeks to defeat the presumption in paragraph[] . . . (a)(2) shall bear the burden of proof upon any issue it raises as to the proper classification of the U.S. carrier."). (#H GTE Hawaii has met its burden to demonstrate that its affiliates in Canada have little ability to influence Stentor or otherwise discriminate against GTE Hawaii's U.S. competitors. Traffic from Hawaii to Canada terminates at Stentor gateway facilities. Stentor then delivers the traffic to the appropriate local telephone company, including BC Tel and Quebec Tel, for termination at the  X -local exchange. Settlements are handled exclusively with Stentor.U TI yOt-ԍXGTE Hawaii Petition at 27. (#U Because neither BC Tel nor Quebec Tel controls nor possesses more than 25 percent of the interests in Stentor, we find that neither is in a position to influence Stentor to discriminate against unaffiliated U.S. carriers. Moreover, BC Tel and Quebec Tel are compensated for their handling of international traffic from Hawaii based on the amount of traffic terminating in thier respective local exchanges, not on the basis of equity shares in Stentor, which is a nonequity association. And, BC Tel and Quebec Tel provide local exchange service in only a limited portion of Canada. In their provision of service to Canada from Hawaii, AT&T and Sprint  X-have market shares that are competitive with GTE Hawaii on the same route.`TI {OL&-ԍSee FCC Common Carrier Statistics (1994).` Thus, contrary to AT&T's assertion, we find that GTE Hawaii has met its burden to overcome the">0*((" presumption of dominance on the U.S.Canada route. We therefore grant GTE Hawaii's request for classification as a nondominant carrier for service to Canada pursuant to the  X-framework established in International Services and Section 63.10 of the rules.  X-?64.` ` Finally, GTE Hawaii concedes that it "would still be considered dominant in accordance with Section 63.10[(a) of the rules] . . . for service to . . . [the] Dominican Republic [and] Venezuela . . . [where] a GTE subsidiary is the dominant local exchange  Xa-carrier." XaTI yO-ԍXGTE Hawaii Petition at 2, n.2. GTE is affiliated with Compania Dominicana de Telefonos, C. Por A. (Codetel) in the Dominican Republic, and Compania Anonima Nacional Telefonos de Venezuela (CANTV) in Venezuela.(#  We agree, and find GTE Hawaii to be dominant in the provision of all international services to the Dominican Republic and Venezuela under the framework  X3-established under Section 63.10(a)(2) of the rules."3TI {O -ԍXCf. GTE Telecom Order (deferring a decision whether to grant GTE Telecom Incorporated's Section 214 application to resell international switched services to two affiliated countries, the Dominican Republic and Venezuela, to allow the parties an additional opportunity to address issues relating to the settlements process that could not be resolved on the record).(#ƫ As such, GTE Hawaii will be subject to the dominant carrier requirements of Section 63.10(c) of the rules for the provision of all  X -international services on these routes. TI yO-ԍXAs a dominant carrier in the provision of all international services to the Dominican Republic and Venezuela, GTE Hawaii is required to file tariffs on 14 days' notice without cost support, "maintain complete records of the provisioning and maintenance of basic network facilities and services procured from its foreign carrier affiliate[s] in those two destination countries] . . .; [o]btain Commission approval  {O-pursuant to Section 63.18 before adding or discontinuing circuits;" and file quarterly traffic reports. See Section 63.10(c), 47 C.F.R.  63.10(c).(#ƍ  X -:C IV. Conclusion ĐlU  X -@65.` ` We reclassify GTE Hawaii as nondominant in the provision of IMTS on most  X-U.S. international routes under the criteria established in International Competitive Carrier  X}-and forbear from imposing dominant carrier requirements on the remaining five de minimis routes under Section 10 of the Act. Two findings form the basis of our decision to reclassify GTE Hawaii as nondominant in its provision of IMTS carrier once it has implemented the safeguards imposed as a condition of our decision: (1) GTE Hawaii faces effective IMTS competition in Hawaii; and (2) statutory and regulatory safeguards will provide sufficient and necessary interim protection against potential abuses of the local exchange by GTE Hawaii in its provision of IMTS.  X- A66.` ` Our reclassification of GTE Hawaii as nondominant under International  X-Competitive Carrier in its provision of IMTS and our forbearing from regulating GTE Hawaii  X-as dominant on the remaining five de minimis routes (other than the Dominican Republic and  X-Venezuela) will become effective upon GTE Hawaii's certifying to the Chief, International"L 0*(("  X-Bureau, that it is in compliance with the safeguards imposed as a condition of this order.QA {Oy-ԍXSee infra  71.(#Q This action will have several effects. First, GTE Hawaii's international service affiliate will not be subject to price cap regulation in its provision of IMTS. The affiliate will not have to submit cost support data that is required for abovecap filings, or the additional information that it is required to be submitted with tariff filings for new services. Second, with the exception of service to the Dominican Republic and Venezuela, GTE Hawaii's international service affiliate will be allowed to file tariffs for its IMTS on one days' notice, without economic or cost support, in the same form as filed by other nondominant carriers, and the  XH-tariffs will be presumed lawful.]HZA {OS -ԍXStreamlining Order at  77.(#] Third, with the exception of those two routes, the Section 214 requirements imposed on GTE Hawaii's provision of IMTS as a dominant carrier will be eliminated and GTE Hawaii's international service affiliate will be subject to the Section 214 requirements of nondominant U.S. international carriers.  X -B67.` ` As a nondominant or forborne provider of IMTS, GTE Hawaii's international service affiliate will still be subject to regulation under Title II of the Communications Act. It is required to offer international services under rates, terms and conditions that are just, reasonable and not unduly discriminatory (Sections 201 and 202), and it is subject to the Commission's complaint process (Sections 206209). Nothing in this order modifies the price cap regulation of GTE Hawaii's exchange access services.  X4-C68.` ` We also here classify GTE Hawaii as a dominant carrier in its provision of all international services to the Dominican Republic and Venezuela based on its affiliations with foreign carriers with market power in those two destinations pursuant to the framework  X-established in International Services and Section 63.10 of the rules. As a carrier regulated as  X-dominant under International Services, GTE Hawaii, in its provision of all international services to the Dominican Republic and Venezuela, is subject to the additional regulatory  X-requirements set forth in Section 63.10(c) of the rules.A yOK-ԍ X Application of these regulatory requirements does not relieve GTE Hawaii of any of its obligations as a  {O-dominant carrier under International Competitive Carrier and the LEC Price Cap Order.(# GTE Hawaii's international service  X-affiliate will also be subject to dominant carrier regulation under International Services on these routes, unless we rule otherwise in a future proceeding. We note that, because it will be subject only to the dominant carrier requirements of Section 63.10(c) of the rules, GTE Hawaii's affiliate will not be subject to price cap regulation and will not be required to file cost support with its tariffs for service to the Dominican Republic and Venezuela.  X-D69.` ` Our classification of GTE Hawaii as a dominant provider of all international  X-services to the Dominican Republic and Venezuela under International Services and Section 63.10(c) of the rules will take effect 15 days after the date of public notice of this order.  X -" F0*(("Ԍ X-'P V. Ordering Clauses ĐlU  X-E70.` ` Accordingly, it is HEREBY ORDERED that GTE Hawaii's motion for reclassification as a nondominant carrier in U.S. international telecommunications markets  X-under International Competitive Carrier Policies, 102 F.C.C.2d 812 (1985) is hereby  X-GRANTED, subject to the conditions set forth in paragraph 71.  Xa-F71.` ` IT IS FURTHER ORDERED that this authorization is subject to the condition that GTE Hawaii establish a separate affiliate for its provision of international service and that this international affilate shall: (1) maintain separate books of account from any affiliated local exchange carrier (LEC); (2) not jointly own transmission or switching facilities with any affiliated LEC; (3) take any tariffed services from the affiliated LEC pursuant to the terms and conditions of the LEC's generally applicable tariff; and (4) be treated as a nonregulated affiliate for purposes of local exchange carrier accounting under the Commission's joint cost and affiliate transactions rules as set forth in Parts 32 and 64 of the Commission's rules.  X-G72.` ` IT IS FURTHER ORDERED that the conditions that attach to the grant of GTE Hawaii's motion as set forth in paragraph 71 will remain in place at least until the  Xd-Commission has completed Implementation of the NonAccounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as amended, and Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC's Local Exchange Area,  X-Notice of Proposed Rulemaking, CC Docket No. 96149, FCC 96308 (released July 18, 1996). The International Bureau reserves the right to modify the conditions of the grant of this motion, as necessary, upon the Commission's adoption of final rules for the independent LECs' provision of inregion international services.  X-H73.` ` IT IS FURTHER ORDERED that GTE Hawaii is classified as a dominant carrier pursuant to Section 63.10(a)(2) of the rules, 47 C.F.R.  63.10(a)(2), for the provision of all international services to the Dominican Republic and Venezuela and shall comply with the requirements of Section 63.10(c) of the rule, 47 C.F.R.  63.10(c). This requirement shall  XR-not relieve GTE Hawaii of any of its obligations as a dominant carrier under International  X=-Competitive Carrier and the LEC Price Cap Order.  X-I74.` ` This order is issued under Section 0.261 of the Commission's rules. The International Bureau's reclassification of GTE Hawaii as nondominant in its provision of  X-IMTS on most U.S. international routes under International Competitive Carrier and its forbearance from regulating GTE Hawaii as dominant on the international routes to Comoros, Equatorial Guinea, Saint Helena, Somalia, and Afghanistan will become effective upon GTE  X"-Hawaii's certifying to the Chief, International Bureau, that it is in compliance with the conditions of this order. The International Bureau's classification of GTE Hawaii as a dominant provider of all international services to the Dominican Republic and Venezuela will take effect 15 days after the date of public notice of this order. Petitions for reconsideration "[%!0*(( $" under Section 1.106 or applications for review under Section 1.115 of the Commission's rules  X-may be filed within 30 days of the date of the public notice of this order (see Section 1.4(b)(2)). ` `  hh,VFEDERAL COMMUNICATIONS COMMISSION ` `  hh,VDonald H. Gips  X -` `  hh,VChief, International Bureau Đ