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A. 1. a.(1)(a) i) a) 1. 1. 1. a.(1)(a) i) a) By the Chief, Telecommunications Division:  Y - x` ` c I. INTRODUCTION ă  Y-x1.` ` In this Order we grant IDC America, Inc. ("IDCAmerica") authority,  Y-pursuant to Section 214 of the Communications Act of 1934, as amended,S* xP>-ԍXx47 U.S.C.  214 (1997).(#S TEST  KDDJAP4  to resell non Y-interconnected international private lines between the United States and Japan. X* xP-ԍXxWe note that authority has been granted previously to KDDAmerica and ITJAmerica to provide noninterconnected international private lines between the United States and Japan. In the KDDAmerica Order, the International Bureau found that KDDAmerica's affiliate, Kokusai Denshin Denwa Co., Ltd. ("KDDJapan") has market power in the facilitiesbased international private line market and therefore, KDDAmerica warranted regulation as a dominant carrier. The Bureau further found that Japan offers effective competitive opportunities ("ECO") for U.S. carriers to resell noninterconnected international private lines. In the ITJAmerica Order, we found that ITJAmerica's affiliate, International Japan, Inc. ("ITJJapan") does not have market power in the facilitiesbased international private line market, and no ECO analysis was needed. These carriers are the two other facilitiesbased (Type I) private line  zP"-providers in Japan, in addition to International Digital Communications, Inc. ("IDCJapan"). See KDD America, Application for Section 214 Authority to Resell Noninterconnected Private Line Services  zPQ$-Between the United States and Various International Points, Order, Authorization and Certificate, 11 FCC Rcd 11329 (1996) ("KDDAmerica Order"); ITJ America, Inc., Application for Section 214 Authority to Resell Noninterconnected Private Line Services Between the United States and Various  zP&-International Points, Order, Authorization and Certificate, ITC96275 (Oct. 29, 1996) ("ITJAmerica Order"). (#Ɔ Pursuant to"0*((o"  Y-the Foreign Carrier Entry Order, we find that authorizing  TEST IDCAmerica to resell this service serves the public interest by increasing competition in the U.S. international services market and providing consumers with more price competition and service choices.  Y-x` ` hh@hpp  xx 0] II. BACKGROUND ă  Yy-x2. ` ` IDCAmerica is a Delaware corporation and a whollyowned subsidiary of  Yb-IDCJapan./Xb* xP-ԍXxApplication of IDCAmerica, Inc. for Section 214 Authority to Provide Noninterconnected Private  xP -Line Services Between the United States and Japan, ITC96685 at 1, 9 (filed Dec. 20 1996) ("IDCAmerica Application"). (#/ IDCJapan is a Japanese corporation providing international facilitiesbased  YK-(Type I) telecommunications services in Japan.^BK* xP -ԍXxThe Telecommunications Business Law ("Telecom Law") in Japan refers to facilitiesbased carriers as  xP -Type I carriers. Type II carriers (resellers) are subdivided into Special Type II and General Type II. Type II carriers providing international services are known as Special Type II carriers, while Type II carriers providing domestic services in Japan are categorized as either Special or General Type II carriers based on the scale of their networks. Special Type II carriers serve an unspecified number of general subscribers and have a scale of facilities exceeding 500 circuits for 1,200 bps conversion, or  zP-serve locations outside Japan (e.g., international value added networks). See KDD America Order, 11 FCC Rcd at 11330, 11333. (#^ On December 20, 1996, IDCAmerica filed an application to obtain Section 214 authority to provide noninterconnected international private lines as a nondominant carrier to Japan. The application was placed on public notice on January 3, 1997; no comments were received.  Y -x III. DISCUSSION pp x  Y -x3. ` ` Because a foreign carrier owns greater than 25 percent of the capital stock of  Y-IDCAmerica, the Commission's Foreign Carrier Entry Order requires us to review its  Y-application for service to Japan under the framework established in that order.& * zP"-ԍXxMarket Entry and Regulation of Foreignaffiliated Entities, Report and Order, 11 FCC Rcd 3873, 3912  zP-( 102) (1995) ("Foreign Carrier Entry Order"), recon. pending.  The Commission defined affiliation to include an ownership interest of greater than 25 percent, or a controlling interest at any level, in a  zP~-U.S. carrier by a foreign carrier. Id. at 3909, 391112 ( 95, 103106). (# The  Yh-Commission in the Foreign Carrier Entry Order stated that carriers seeking to provide international services to countries in which they have an affiliate with market power must demonstrate that the affiliated market offers effective competitive opportunities ("ECO") for  Y%-U.S. carriers seeking to offer like services.%* zP#-ԍXxForeign Carrier Entry Order at 392630 ( 139148) and Appendix A,  63.01(r)(7).(#Ơ If an applicant's foreign affiliate does not have  Y-market power in the destination market, we do not conduct an ECO analysis.Wr* zP1&-ԍXxId. at 3912 ( 102). (#W The"0*(("  Y-Commission also stated in the Foreign Carrier Entry Order that it will continue to consider other public interest factors that may weigh in favor of, or against, granting the application.  r"2N  x'r"2N4.'  X-x A. MARKET POWER  Y-x4. ` ` In the Foreign Carrier Entry Order, the Commission found that applications from foreign carriers that hold market power raise the greatest potential for anticompetitive conduct, particularly where U.S. carriers are not allowed to compete effectively in those  YL-markets. The Foreign Carrier Entry Order defines market power as "the ability of the carrier to act anticompetitively against unaffiliated U.S. carriers through control of bottleneck  Y -services or facilities on the foreign end." * zP -ԍXxId. at 3917 ( 116). Regulation of International Common Carrier Services, Report and Order, 7 FCC Rcd 7331, 7334 (1992). (# Bottleneck services or facilities are "those that are necessary for the provision of international services, including intercity or local access  Y -facilities on the foreign end."B "* zP-ԍXxId.(#B Our concern with IDCAmerica's application is thus whether its affiliate, IDCJapan, possesses sufficient bottleneck control to discriminate against U.S. carriers providing noninterconnected private line service between the United States and Japan. Such discrimination could distort competition in the U.S. market among IDCAmerica and other international private line carriers.  Yh-x5. ` ` IDCAmerica seeks to provide noninterconnected international private line service between the United States and Japan. The record indicates that IDCAmerica does  Y:-not have a resale (Special Type II) affiliate in Japan that resells international private lines.W :* xP-ԍXxIDCAmerica Application at 3. (#W Therefore, we find that IDCJapan does not have market power as an international private line reseller in Japan.  Y-x6. ` ` We must examine the underlying facilitiesbased market also, however, because IDCJapan operates as a facilitiesbased international private line carrier, and resellers ultimately depend on the underlying facilities to provide their resale service. Thus, we must determine whether IDCAmerica's affiliate, IDCJapan, has market power in the underlying facilitiesbased market that could enable IDCJapan to act anticompetitively against U.S. carriers seeking to provide noninterconnected international private line resale service to Japan. x"=D 0*((="Ԍ Y-x7. ` ` Our market power analysis focuses on traditional antitrust principles: \* zPy-ԍXxMotion of AT&T Corp. to be Declared NonDominant for International Service, Order, FCC 96209 at  zPC- 3779 (rel. May 14, 1996) ("AT&T International NonDominance Order"); Motion of AT&T Corp. to be Reclassified as a NonDominant Carrier, 11 FCC Rcd 3271, 329394 (1995).(#Ƅ(1) IDC Y-Japan's market share; (2) the supply elasticity of the market; * xP-ԍXxThere are two factors that determine supply elasticities in the market. The first is the supply of 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  zP -suppliers can enter the market relatively easily and add to existing capacity. AT&T International Non zPp -Dominance Order at  48. (#Ɛ (3) the demand elasticity of  Y-IDCJapan's customers;6 Zh * xP -ԍXxDemand elasticity or responsiveness is the propensity of customers to switch carriers or otherwise change the amount of services they purchase from a carrier in response to relative changes in price and  zP{-quality. Id. at  42(#6 and (4) IDCJapan's cost structure, size and resources.  Y-x 8. ` ` Within the underlying facilitiesbased market, we examine first the domestic market for terminating private lines at the Japanese destination, as an international private line carrier operating in the United States ultimately relies on a facilitiesbased carrier in Japan to reach the Japanese end user. A carrier controlling bottleneck facilities and services in the domestic market for terminating private lines could discriminate in favor of an affiliate competing in the noninterconnected international private line resale market by offering its affiliate superior technical quality, faster provisioning or preferential rates. Second, we examine the facilitiesbased international private line market. If a carrier were to exercise market power in the facilitiesbased international private line market, it could similarly discriminate in favor of an affiliated international private line reseller by offering the reseller preferential rates or conditions of service. For instance, if IDCJapan has market power in this market, it could discriminate in favor of IDCAmerica by provisioning international private lines faster than other carriers; giving higher quality international private lines and better service; and offering better rates (e.g., volume discounts) not available to competing carriers. x  Y4-x` ` 1. Domestic Market for Terminating International Private Lines (#`  Y-x9. ` ` While the Japanese Ministry of Posts and Telecommunications ("MPT") permits IDCJapan to provide domestic services, IDCJapan states that it does not provide  Y-them._ * xP$-ԍ XxIDCAmerica Application at 3. (#_ Instead, IDCJapan leases facilities from Type I domestic carriers under tariff pursuant to nondiscriminatory terms, rates and conditions to originate and terminate its"0*(("  Y-international private line traffic in Japan.* zPy-ԍXxId. Additionally, we recognize that almost all Type II and international Type I telecommunications carriers, including IDCJapan, depend on Nippon Telephone and Telegraph's ("NTT") local access networks to reach the end user. NTT has a 93 percent market share of all domestic calls (local and longdistance combined) and 82.8 percent of the private line circuits. Review of the Future Status of NTT, MPT (Sept. 1995). (# Based on the record, we find that IDCJapan does not have market power in the domestic market for terminating private lines.  X-x ` ` 2. International Facilities Market  X-  Y-x  10. ` ` IDCAmerica indicates that for the fiscal year that ended in March 1996, IDCJapan had 16.6 percent of the Japanese market for international private lines (as measured by the number of circuits) and 18.7 percent of the international private line revenues. x  Y1-x 11. ` ` IDCAmerica implies that there is sufficient supply elasticity by stating that the Commission has already recognized the ample supply of unsold, or sold but unused capacity  Y -on undersea fiber optic cables between the United States and Japan. z* zP.-ԍXxId. (citing KDD America Order, 11 FCC Rcd at 11336 ( 16)). (#Ƌ And, IDCAmerica indicates that there are three facilitiesbased (Type I) international carriers (IDCJapan, ITJJapan and KDDJapan) and contends that there will be additional facilitiesbased providers of international private lines in the near future, such as the facilitiesbased (Type I) satellite providers in Japan.  Yy-x 12. ` ` IDCAmerica asserts that because the Commission found that demand elasticity  Yb-was high for international private lines in Japan in the KDD America Order, there is no  YM-reason to reach a different conclusion with respect to IDCAmerica's application.JM * zP -ԍXxId. at 5. (#J IDCAmerica contends that the subscribers of international private lines are sophisticated users of telecommunications services and if IDCJapan raised its prices above the rate charged by the other international private line carriers, customers would switch to another carrier.  Y-x 13. ` ` As for IDCJapan's size, cost structure and resources, for fiscal year ending in March 1996, IDCJapan's total sales revenue for all international telecommunication services with all countries was 52 billion yen (approximately $510 million), which amounted to fifteen percent of the Japanese telecommunications market. IDCAmerica states that IDCJapan is the second largest international Type I carrier but it is well behind the largest international facilitiesbased carrier, KDDJapan, in terms of market share in total revenues and number of circuits. IDCAmerica contends that IDCJapan cannot use its relatively small size, cost  Y9-structure and resources to act in an anticompetitive manner.H9* zP&-ԍXxId.(#H ""0 0*((<"Ԍ Y-x 14. ` ` Finally, IDCAmerica argues that grant of its application serves the public interest by promoting additional competition in the U.S. communications market.  Y-x15. ` ` Although we have concerns about the Japanese telecommunications market, we conclude that IDCJapan does not have market power in the facilitiesbased international  Y-private line market. Our concerns, as discussed in the KDDAmericah* xP-ԍXxKDDAmerica Order at 1133536 ( 1316).(#h and the ITJAmerica  Yx-Orders,XxX* xP -ԍXxITJ America Order at  13. (#X are that: (1) the supply of international private lines in Japan is somewhat  Yc-restricted,mZc* xP -ԍXxWe note that in 1989, MPT authorized two new common carriers to enter the international services market as Type I carriers in direct competition with KDDJapan, which at that time had a monopoly.  zP -No additional carriers have been authorized to enter this market since that time. Id.(#m (2) MPT restricts entry into the international private line market based on demand, (3) Japan's 33 1/3 percent foreign ownership cap on international private line facilitiesbased providers prevents U.S. carriers from gaining control of such facilities, which  Y -could restrain an incumbent's anticompetitive behavior,HX * xP-ԍXxForeign ownership restrictions preclude U.S. carriers from controlling facilitiesbased international private line carriers. Such restrictions provide a form of protection against competitive pressures  xPi-generated by open capital markets. (#H and (4) international private line prices for the Japanese halfcircuit are significantly higher than for the corresponding U.S.half, which suggests that the Japanese facilitiesbased international private line market lacks vigorous competition. We note that Japan committed to lift its foreign entry and foreign ownership restrictions in the World Trade Organization basic telecommunications negotiations effective January 1998, although it maintains a 20 percent foreign investment restriction for KDDJapan and NTT.  Yf-x16. ` ` We conclude, however, that IDCAmerica's affiliate, IDCJapan, does not have market power in the facilitiesbased international private line market. IDCJapan only has 16.6 percent of the number of international private line circuits and 18.7 percent of the international private line revenues. Furthermore, there is no information in the record that IDCJapan is the sole provider of any service in any particular geographical area. And, we note that IDCJapan's sale's revenue is 52 million yen or 15 percent of the total sales revenue for all international telecommunications services with all countries. This amount is small compared to KDDJapan's sales revenue, which is 248 million yen or 71.2 percent of the international telecommunications services market. Given IDCJapan's low market share and relatively small size compared to KDDJapan, we find that IDCJapan does not have the ability to discriminate against U.S. unaffiliated private line carriers in favor of IDCAmerica.  YR-x17. ` ` Because we find that IDCAmerica's affiliate, IDCJapan, does not have market power in the domestic market for terminating private lines or the international facilitiesbased market, we need not apply the ECO test to IDCAmerica's application. "$* 0*((<"Ԍ X-ԙx B . ADDITIONAL PUBLIC INTEREST FACTORS  Y-x18. ` ` The additional public interest factors that we consider include the general significance of the proposed entry to the promotion of competition in the U.S. communications market, any national security, law enforcement, foreign policy, and trade  Y-concerns raised by the Executive Branch, and the presence of costbased accounting rates.n* zP-ԍXxForeign Carrier Entry Order at 3897 ( 62). (#n  Y_-x19. ` ` The Executive Branch has not raised any national security, law enforcement,  YH-foreign policy, or trade concerns about this application. As we stated in the KDDAmerica  Y3-and the ITJAmerica Orders, however, we are concerned about Japan's high accounting rates and would like to see them decrease. But, we do not find that a reason to deny IDCAmerica's application to enter the noninterconnected international private line market, as proliferation of these services will help put pressure on the abovecost accounting rates. Thus, we find that there are no other countervailing public interest reasons to deny IDCAmerica's application. We believe also that U.S. consumers will benefit by authorization of a new noninterconnected international private line resale carrier serving Japan. We accordingly find it in the public interest to permit IDCAmerica to enter the noninterconnected international private line resale market on the U.S.Japan route. x  XO-x C . REGULATORY STATUS OF IDCAMERICA  Y!-x20. ` ` The final issue to determine is whether to regulate IDCAmerica as dominant  Y -on the U.S.Japan route.V Z* xP-ԍXx47 C.F.R.  63.10 (1996). (#V IDCAmerica requests nondominance because it asserts that its affiliate, IDCJapan, lacks the ability to discriminate against unaffiliated U.S. carriers  Y-through control of bottleneck service or facilities in Japan.Z* xPw-ԍXxIDCAmerica Application at 910. (#Z In addition, IDCAmerica states that it is obligated under Article 7 of the Japanese Telecommunications Business Law to provide nondiscriminatory treatment in providing telecommunications services. And, IDC indicates that Article 31 of the Japanese Telecommunications Business Law requires Type I carries to establish "fair and reasonable" charges under nondiscriminatory tariffs that do not unreasonably limit the use of facilities. IDCAmerica contends that the practical inability of IDCAmerica to discriminate against unaffiliated U.S. carriers and the legal prohibition on IDCAmerica to do so warrants nondominant carrier regulation.  Y -x21. ` ` Given our finding that IDCAmerica's affiliate, IDCJapan, does not have market power in the underlying domestic market for terminating private lines or the international private line facilitiesbased market, we find that IDCJapan does not have the ability to discriminate against unaffiliated U.S. private line carriers in favor of IDCAmerica. " z0*((!" Therefore, we find that IDCAmerica should be regulated as nondominant on the U.S.Japan route. x  Y-x` ` t I V. CONCLUSION ă x  Y-x22. ` ` We find that grant of IDCAmerica's application to resell noninterconnected international private line circuits for service to Japan is in the public interest and consistent with Section 214 of the Communications Act. We classify IDCAmerica as nondominant on the U.S.Japan route for providing international private line resale services. Authorizing IDCAmerica to provide noninterconnected international private line resale service to Japan will benefit consumers by adding another resale carrier on the U.S.Japan route.   Y -N V. ORDERING CLAUSES ă  Y -x23.` ` Accordingly, IT IS ORDERED that application File ITC96685 IS GRANTED and IDC America, Inc. is authorized to resell international private line circuits not interconnected to the public switched network for the provision of international private line services between the United States and Japan.  YM-x24.` ` It is FURTHER ORDERED that IDC America shall comply with Section 203 of the Communications Act, 47 U.S.C.  203, Part 61 and Sections 43.51 and 43.61 of the Commission's Rules, 47 C.F.R. Part 61 and  43.51 and 43.61, and shall file annual  Y-reports of circuit additions in accordance with the requirements set forth in Rules for Filing  Y-of International Circuit Status Reports, CC Docket No. 93157, Report and Order, 10 FCC Rcd 8605 (1995).  Y-x25.` ` It is FURTHER ORDERED that this authorization of IDC America, Inc. to provide resold private line service as part of its authorized services is limited to the provision of noninterconnected private line service only between the United States and Japan, that is, private lines that originate in the United States and terminate in Japan, or that originate in Japan and terminate in the United States. In addition, IDC America may not and IDC America's tariffs must state that its customers may not connect private lines provided over these facilities to the public switched network at either the U.S. or foreign end or both, for the provision of international switched basic services, unless authorized to do so by the Commission upon finding that Japan affords resale opportunities equivalent to those available  Y-under U.S. law, in accordance with Regulation of International Accounting Rates, Phase II,  Y -First Report and Order, 7 FCC Rcd 559 (1991),  Order on Reconsideration and Third  Y!-Further Notice of Proposed Rulemaking, 7 FCC Rcd 7927 (1992), Third Report and Order  Y"-and Order on Reconsideration, FCC 96160, released May 20, 1996.  See also Foreign  Y#-Carrier Entry Order at  133138.  Ya%-x26.` ` This order is issued under Section 0.261 of the Commission's Rules and is effective upon adoption. Petitions for reconsideration under Section 1.106 or applications for"J&0*((`'" review under Section 1.115 of the Commission's Rules may be filed within 30 days of the  Y-public notice of this Order (see Section 1.4(b)(2)). x X` hp x (#%'0*,.8135@8: