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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Teleglobe USA Inc. ) ) Application for Authority Pursuant to) ) File No. I-T-C-96-020 Section 214 of the Communications Act) of 1934, as Amended, to Acquire and ) Operate Facilities for the Provision of) International Services Between the) United States and International Points) ) Application for Authority Pursuant to) ) File No. I-T-C-96-411 Section 214 of the Communications Act) of 1934, as Amended, to Acquire and ) Operate Facilities for the Provision of) International Services Between the) United States and International Points) Other than Canada Using the CANUS-1) Cable System ) ORDER, AUTHORIZATION AND CERTIFICATE Adopted: May 20, 1997 Released: May 22, 1997 By the Chief, Telecommunications Division: I. Introduction 1. In this Order, Authorization and Certificate ("Order") we grant Teleglobe USA, Inc. ("TGUSA"), authority to acquire and operate facilities on the CANUS-1, CANTAT-3 and TPC-4 cable systems for the provision, on a non-dominant basis, of switched, private line and other authorized services from the United States to international points other than Canada. We subject TGUSA's authorization to the conditions set forth below. We also grant Teleglobe International Corp. ("TIC") authority to acquire and operate capacity on CANUS-1 for the provision of Internet services in the United States. II. Background 2. TGUSA, a Delaware corporation, is a wholly-owned subsidiary of Teleglobe Inc. ("TGI"), a Canadian telecommunications holding company. Among TGI's other holdings is Teleglobe Canada Inc. ("TGC"), the monopoly provider of overseas telecommunications services in Canada. However, neither TGC nor any of its affiliates provides service between the United States and Canada. TGI also directly owns 50 percent of the international transmission facilities of the CANUS-1 cable system, which lands at one end in the United States and at the other end in Canada. Optel Telecommunications Inc. ("Optel"), a U.S. corporation of which a TGI subsidiary has a 20 percent interest, owns the remaining 50 percent. 3. On January 11, 1996, TGUSA filed an application requesting authorization to acquire and operate facilities for the provision of switched, private line and other authorized services from the United States to international points other than Canada. As part of its request, TGUSA sought authority to acquire and operate facilities on the CANTAT-3 cable system, which lands on the North American side in Canada, and the TPC-4 cable system, which has a Canadian spur in addition to a U.S. landing. TGUSA also requested classification as a non- dominant common carrier for all services and routes for which its application sought authority to serve. 4. Before action had been taken on the application, the Commission implemented streamlined processing procedures to govern applications for global Section 214 authorization on those routes where a carrier has no affiliation with a foreign carrier possessing market power and where no party has contested the application at issue. As a result, TGUSA filed a separate request pursuant to the streamlined processing procedures for authority to provide limited global facilities-based services. As part of an agreement with AT&T to prevent it from contesting this application, TGUSA agreed to a condition that its authorization would exclude authority to route U.S. international traffic through Canada. TGUSA's authorization took effect on September 27, 1996, allowing TGUSA to acquire and operate facilities for the provision of switched and private line service to all points other than Canada and those countries on the Commission's exclusion list. TGUSA does not currently have authorization to use facilities on either CANTAT-3 or the Canadian spur of TPC-4. 5. Accordingly, on October 2, 1996, TGUSA filed a letter requesting the Commission to act on its still pending CANTAT-3 application to the extent that it requests authority to acquire capacity on CANTAT-3 and TPC-4. TGUSA asks for authority to "hard patch" to those cables using leased droit de passage ("DDP") terrestrial facilities owned by Stentor from the U.S./Canada border to the respective cableheads. TGUSA contends that authorization would "enhance competitive choice but create no opportunities for discrimination against unaffiliated U.S. carriers." 6. On July 23, 1996, TGUSA filed a similar application requesting authority to acquire and operate facilities on the CANUS-1 cable system for the provision of switched, private line and other authorized services from the United States to international points other than Canada. TGUSA states that "[e]ach end-to-end U.S.-to-overseas circuit will be owned by TGUSA and its overseas correspondent, in the normal fashion for bilateral direct interconnections, and no part of such circuit will be owned or controlled by TGC." TGUSA notes that CANUS-1 connects directly into CANTAT-3 with no break-out into the Canadian public switched network. For both applications, TGUSA certifies that it has no affiliation with any carrier that controls bottleneck facilities in any destination route it seeks to serve. 7. AT&T and MCI argue against allowing TGUSA to route traffic through Canada because Canada's regulatory environment discriminates against U.S. carriers by requiring the "maximum use of Canadian facilities" in the routing of Canadian traffic. Authorization, they contend, would allow TGUSA to carry U.S. international traffic through Canadian facilities at a time when U.S. carriers do not have the same opportunities to carry Canadian international traffic through U.S. facilities. AT&T also argues that authorization of TGUSA's applications would create an unfair competitive advantage by giving TGUSA the ability to mix Canadian and U.S. traffic and thereby settle U.S. traffic with foreign carriers at TGC's accounting rates where such rates are lower than U.S. accounting rates, and to gain disproportionate return traffic for its U.S. operation. Further, in relation to TGUSA's CANTAT-3 application, AT&T argues that if TGUSA does receive authorization to route U.S. international traffic through Canada, the Commission should at the least require that Canada's accounting rates public be made public. AT&T, however, states in response to TGUSA's CANUS-1 application that such a condition could do nothing to prevent an unfair competitive advantage until Canada repeals its "maximum use" law. 8. TGUSA responds to AT&T's and MCI's criticism by arguing that Canada's regulatory regime, such as its "maximum use" law, is not relevant to consideration of the applications at issue because TGUSA has no affiliation with any carrier that controls bottleneck facilities in the destination markets it seeks to serve. TGUSA contends that AT&T and MCI are attempting to revive the "effective market access test" for an applicant's "primary markets"--an approach that the Commission rejected in its Foreign Carrier Entry Order in favor of the route- specific effective competitive opportunities ("ECO") analysis. TGUSA notes that the applications at issue do not seek authority to serve Canada, the only destination where it has an affiliation with a facilities-based carrier. TGUSA adds that its request to use CANUS-1 does not involve the use of any TGC bottleneck facilities inasmuch as a circuit on CANUS-1 becomes a U.S. facility once TGUSA purchases an Indefeasible Right of Use for such circuit. 9. TGUSA further argues that it lacks an incentive to route U.S. traffic to its affiliate in Canada for reclassification as Canadian because those minutes would generate no additional incremental return traffic for its affiliate, but would nonetheless require payment of a full outbound settlement. In addition, TGUSA states that the competitive U.S. market compels U.S. carriers like TGUSA to flow back to users a portion of the return revenues generated by outbound minutes. Thus, according to TGUSA, an incremental minute that does not contribute to return revenue would result in a net loss for TGUSA. TGUSA also argues that several European carriers have obtained facilities-based entry into the United States through investments in U.S. carriers at a time when none of their home markets offered the competitive opportunities opponents of TGUSA's applications now demand of Canada. 10. On October 15, 1996, TIC, an affiliate of TGUSA, requested by letter authority to acquire and operate capacity on CANUS-1 to provide international Internet services in the United States on a non-common carrier basis. TIC notes that Condition 6 of the CANUS-1 landing license requires Commission approval before a Teleglobe affiliate can acquire CANUS-1 facilities. The Commission has interpreted this condition to apply to both common carrier and non-common carrier operations. III. Discussion A. Section 214 Authorization 11. The Commission determined in the Foreign Carrier Entry Order that foreign carriers seeking to provide U.S. international services to destination countries in which they have market power must demonstrate that such destination countries offer effective competitive opportunities for U.S. carriers to offer like services. The Commission stated that it would apply the ECO analysis only to Section 214 applications from foreign carriers, or certain affiliates of foreign carriers, with market power in destination countries that potentially could be leveraged to the detriment of unaffiliated U.S. carriers providing international telecommunications services to those countries. Thus, we agree with TGUSA that, because it has no affiliation with any carrier that controls bottleneck facilities in the destination markets it seeks to serve, we need not conduct an ECO analysis of the destination markets for which the applications at issue seek authority to serve. 12. In the Foreign Carrier Entry Order, the Commission also determined that it would continue to consider other public interest factors that may weigh in favor of, or against, granting the application. Our review of the public interest factors related to TGUSA's applications supports authorization. The Executive Branch has not raised any national security, law enforcement, foreign policy or trade concerns with this application. Moreover, we believe the conditions we attach below to TGUSA's authorization respond to the concerns raised by AT&T and MCI by ensuring that no advantages accrue to TGUSA or its affiliated companies as a result of Canada's regulatory environment or accounting rates. First, TGUSA has requested, and we hereby require it, to "hard patch" to the cablehead whenever it connects into CANTAT-3 and TPC-4 via Canada. Thus, TGUSA is prohibited from routing traffic through the Canadian public switched network in connecting with any capacity acquired pursuant to this grant at a time when U.S. carriers like AT&T and MCI do not have the same opportunities to carry Canadian international traffic through U.S. facilities. As a second precaution, we require that TGUSA use only that capacity on CANTAT-3, TPC-4 and CANUS-1 that it has acquired. We believe this prohibition against TGUSA's use of any capacity that an affiliated company has acquired on those cables responds to AT&T's concern by reducing TGUSA's ability to mix Canadian and U.S. traffic and thereby settle U.S. traffic with foreign carriers at TGC's accounting rates where such rates are lower than U.S. accounting rates, and to gain disproportionate return traffic for its U.S. operation. 13. In compliance with the conditions imposed in Optel's cable landing license for CANUS-1, we also note that "a copy [must be filed] of any contract, understanding or agreement, or a summary containing the essential terms, conditions and rates, entered into with Teleglobe, its affiliates, or any partnerships or joint ventures in which Teleglobe is a participant for the sale or lease of any capacity on CANUS-1" before TGUSA may use any capacity on CANUS-1. We find that, with this and the other safeguards discussed above in place, the proposed acquisition and operation of capacity on CANUS-1, CANTAT-3 and TPC-4 for the provision of switched, private line and other authorized services from the United States to international points other than Canada would serve the public interest under Section 214 of the Act by increasing competition in the U.S. international telecommunications market. For the same reasons that we grant TGUSA's CANUS-1 application, we also grant TIC's request for authority to acquire and operate CANUS- 1 capacity on a leased or IRU basis from Optel in connection with its provision of Internet services in the United States. B. Non-Dominant Treatment 14. In the International Services Order, the Commission modified its 1985 policy that treated foreign-affiliated U.S. carriers as dominant in their provision of all international services to all foreign markets. Specifically, the Commission adopted a framework for regulating U.S. international carriers as dominant only on routes where an affiliated foreign carrier has the ability to discriminate in favor of its U.S. affiliate through control of bottleneck services or facilities in the destination market. TGUSA's applications request authority to acquire and operate facilities on CANUS-1, CANTAT-3 and TPC-4 for the provision of switched, private line and other authorized services from the United States to international points other than Canada. Because Canada is the only market where TGUSA has an affiliation with a carrier that controls bottleneck facilities, we find that TGUSA qualifies for non-dominant treatment on all routes for which the applications at issue seek authority to serve. IV. Conclusion 15. In light of the above, we find that a grant of TGUSA's applications, subject to the conditions set forth in this Order, will serve the public interest under Section 214 of the Act by increasing competition in international services, expanding the range of new and innovative services and allowing more efficient use of existing international telecommunications facilities. We also find that TGUSA qualifies for non-dominant regulatory treatment on all routes that its applications request authorization to serve. We therefore grant TGUSA's application for authority to acquire and operate facilities on CANUS-1, CANTAT-3 and TPC-4 for the provision, on a non-dominant basis, of switched, private line and other authorized services from the United States to international points other than Canada. We also grant TIC authority to acquire and operate CANUS-1 capacity on a leased or IRU basis from Optel in connection with its provision of Internet services in the United States. V. Ordering Clauses 16. Upon consideration of TGUSA's applications, IT IS CERTIFIED that the present and future public convenience and necessity require a grant of TGUSA's applications to acquire and operate facilities on the CANUS-1, CANTAT-3 and TPC-4 cable systems for the provision of switched, private line and other authorized services from the United States to international points other than Canada SUBJECT TO THE CONDITIONS SET FORTH IN PARAGRAPHS 19, 20 AND 21 OF THIS ORDER. 17. Accordingly, IT IS ORDERED, pursuant to Section 214 of the Communications Act of 1934, as amended, 47 U.S.C.  214, and Sections 63.10 and 63.18 of the Commission's Rules, 47 C.F.R.  63.10 & 63.18, that the application of TGUSA, File No. I-T-C-96-020, IS GRANTED, authorizing TGUSA to acquire and operate facilities on the CANTAT-3 and TPC-4 cable systems for the provision, on a non-dominant basis, of switched, private line and other authorized services from the United States to international points other than Canada. 18. IT IS FURTHER ORDERED, pursuant to Section 214 of the Communications Act of 1934, as amended, 47 U.S.C.  214, and Sections 63.10 and 63.18 of the Commission's Rules, 47 C.F.R.  63.10 & 63.18, that the application of TGUSA, File No. I-T-C-96-411, IS GRANTED, authorizing TGUSA to acquire and operate facilities on the CANUS-1 cable system for the provision, on a non-dominant basis, of switched, private line and other authorized services from the United States to international points other than Canada. 19. IT IS FURTHER ORDERED that TGUSA shall "hard patch" to the cablehead whenever it connects into the CANTAT-3 and TPC-4 cable systems via Canada whether by DDP terrestrial facilities or, with regard to CANTAT-3, the CANUS-1 cable system. TGUSA shall at no time use the Canadian public switched network in connecting with any capacity acquired pursuant to this grant. 20. IT IS FURTHER ORDERED that TGUSA shall only use capacity on the CANTAT-3, TPC-4 and CANUS-1 cable systems that it has acquired. TGUSA shall at no time use the capacity that any affiliated company has acquired on those cables for the provision of its authorized services. 21. IT IS FURTHER ORDERED that "a copy [must be filed] of any contract, understanding or agreement, or a summary containing the essential terms, conditions and rates, entered into with Teleglobe, its affiliates, or any partnerships or joint ventures in which Teleglobe is a participant for the sale or lease of any capacity on CANUS-1[,]" in compliance with the conditions imposed in Optel's cable landing license for CANUS-1, before TGUSA may use any capacity on the CANUS-1 cable system. 22. IT IS FURTHER ORDERED that TIC's request for authority to acquire and operate CANUS-1 capacity on a leased or IRU basis from Optel in connection with its provision of Internet services in the United States IS GRANTED. 23. This Order is issued pursuant to Section 0.261 of the Commission's Rules, 47 C.F.R.  0.261, and is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's Rules, 47 C.F.R.  1.106, or applications for review under Section 1.115 of the Commission's Rules, 47 C.F.R.  1.115, may be filed within 30 days of the public notice of this Order (see Section 1.4(b)(2) of the Commission's Rules, 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau