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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-1319 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of) ) Western Union International, Inc.)File No. ISP-96-004-ND ) Petition for Reclassification as a ) Non-dominant IMTS Carrier ) from Guam to Overseas Points) ORDER Adopted: June 24, 1997Released: June 24, 1997 By the Chief, International Bureau: I. Introduction 1.We grant, subject to limited conditions, Western Union International, Inc.'s (WUI) petition for reclassification as a non-dominant carrier in the Guam market for international message telephone service (IMTS). We conclude that WUI faces effective competition in the provision of all Guam IMTS, with the exception of four routes where WUI is the sole facilities- based IMTS carrier. We find that WUI carries a de minimis amount of traffic to these four locations, and we therefore forbear from imposing dominant carrier regulation on these routes, pursuant to Section 10 of the Communications Act of 1934, as amended. We impose certain safeguards on WUI's Guam-U.K. route because of WUI's relationship, through its parent company MCI Telecommunications Corp. (MCI), to British Telecommunications plc (BT). II. Background 2.Since 1980, the Commission has distinguished between carriers with market power (dominant carriers) and those without market power (non-dominant carriers) for purposes of Title II rate and entry regulation. Non-dominant common carriers are subject to "streamlined" Title II regulatory requirements. The Commission first applied its dominant/non- dominant regulatory scheme to U.S. international carriers in the 1985 International Competitive Carrier proceeding. The Commission held that IMTS (including international switched services) and non-IMTS (including private line services) are separate product markets. The Commission also held that, in applying the dominant/non-dominant regulatory scheme to international services, every destination country constitutes a separate geographic market. Guam, as well as certain other non-contiguous domestic points, was distinguished from the continental United States as a distinct geographic market. 3.In 1985, WUI's predecessor in interest, RCA Global Communications, Inc. (RCA Globcom), had "virtually 100 percent" of the Guam IMTS market. Its first competitor, IT&E Overseas, Inc., entered the market that year and had few customers. Neither WUI nor its predecessor ever provided local exchange or exchange access services on Guam. The Commission determined, however, that back in 1985 the public non-profit local exchange and exchange access provider, the Guam Telephone Authority (GTA), engaged in anticompetitive practices to benefit RCA Globcom by slowing the rate at which interexchange competition could develop on Guam. 4.The Commission found in its 1985 International Competitive Carrier Order that RCA Globcom did not face effective competition in the Guam IMTS market. As a result, the Commission determined that RCA Globcom would be regulated as dominant in the provision of IMTS. At that time, the Commission also stated its intention to revisit the regulatory status of particular non-contiguous carriers (including RCA Globcom) once other carriers began to offer international telephone service in their markets. 5.In its petition for reclassification, WUI asserts that it faces substantial competition from two facilities-based and six resale providers. As a result, WUI argues, its market share has decreased significantly and it no longer possesses market power in the Guam IMTS market. WUI contends that the public interest would be served by reclassifying it as non-dominant and thereby providing WUI with more flexibility to meet the needs of consumers on Guam. No parties filed comments in response to WUI's petition. III. Discussion 6.As an initial matter, we must determine whether to review WUI's Guam IMTS market position on a worldwide or route-by-route basis. With the possible exception of routes where WUI is the sole facilities-based provider or where WUI could potentially benefit from an ownership relationship with a dominant carrier in the destination market, the record in this proceeding indicates that WUI's market power does not differ materially among geographic markets. Although nearly 200 Guam IMTS routes exist, WUI has a market share above 70 percent for service to just 11 international locations, which account for 0.1189 percent of Guam IMTS billed revenues in 1995. Moreover, we find no evidence that entry barriers vary between these 11 routes and WUI's other IMTS routes. As the Commission previously recognized, U.S. facilities-based suppliers generally may enter all markets much more easily than a decade ago, whether through direct operating agreements, indirect transit arrangements, or "switched hubbing." Additionally, the Telecommunications Act of 1996 should stimulate new competition for IMTS service. Consistent with previous Commission decisions, we do not believe that differences in WUI's market share among international routes warrant a route-by- route analysis of WUI's market position. Thus, with the exception of those routes where WUI is the sole facilities-based IMTS provider, we analyze WUI's Guam IMTS market position on a worldwide basis to determine whether it should be reclassified as a non-dominant IMTS provider. 7.We separately analyze those routes where WUI is the sole facilities-based provider reporting Guam billed revenue for IMTS. We also separately examine any route where WUI is related to a foreign carrier that possesses market power in that destination market. A. WUI's Market Power in Guam 8.In determining a carrier's classification, the Commission has applied standard principles of antitrust analysis to decide whether a carrier possesses market power in the provision of the relevant service in the relevant geographic market. This analysis examines: (1) market share; (2) the supply elasticity of the market and the demand elasticity of the carrier's customers; (3) the carrier's cost structure, size, and resources; and (4) control of bottleneck facilities. 9.Market Share. WUI's Guam IMTS market share has declined significantly since the Commission classified its predecessor in interest, RCA Globcom, as a dominant IMTS carrier in 1985. At that time RCA Globcom had "virtually 100 percent" of the Guam IMTS market. In 1992, WUI's share of Guam IMTS billed revenues was 44.2 percent. By 1995, WUI's share had dropped to 31.9 percent. This decline likely results from competitors offering long distance and international calling plans, and is evidence of WUI's inability to control prices. 10.Supply and Demand Elasticity. Two factors determine supply elasticity in a market: the supply capacity of existing competitors and the extent of entry barriers for new competitors. Supply elasticity tends to be high if existing competitors have or can easily acquire significant additional capacity in a relatively short time period. Supply elasticity also tends to be high if new suppliers can enter the market relatively easily and add to existing capacity. 11.WUI notes that the transmission capacity available from multiple sources has increased dramatically since 1985. WUI contends that Trans-Pacific Cable 5 (TPC-5), which carries traffic from the U.S. mainland to Guam and Japan, offers "more capacity . . . alone than the capacity needed for all existing Guam IMTS carriers combined." Additional Guam-U.S. mainland capacity is relevant to an analysis of Guam IMTS supply elasticity because carriers often "backhaul" their Guam IMTS traffic to their U.S. facilities before transporting it to foreign points. We also have recently granted cable landing licenses for cables extending between Guam and Hawaii and between Guam and the Northern Mariana Islands. WUI asserts that although there is an earth station on Guam with a WUI nexus that transmits and receives telecommunications traffic, other carriers either are offering or will soon offer competing earth station services. AT&T, for example, maintains an earth station located at Tanguisson Point, Guam, and PCI Communications, Inc. is authorized to operate an international earth station on Guam to communicate with INTELSAT Pacific Ocean Region satellites. In addition, Sprint's emergence as a facilities-based IMTS carrier offers evidence that low entry barriers exist in the Guam IMTS market. As a result, we believe that the increase in cable and earth station capacity, as well as the addition of a new facilities-based carrier, supports a finding that supply elasticity is high in the Guam IMTS market. 12.Demand elasticity measures the willingness of customers to switch carriers or otherwise change the amount of services they purchase in response to relative changes in price and quality. High demand elasticity indicates that it is unlikely that significant market power exists. 13.The record demonstrates that several of WUI's competitors use promotions, calling plans, and discounts to attract customers in the Guam IMTS market. The fact that WUI's IMTS market share has dropped 28 percent from 1992 to 1995 indicates that customers in Guam are highly demand elastic. 14.Cost Structure, Size and Resources. Although WUI at one time enjoyed certain advantages as a dominant Guam IMTS provider, we believe that those benefits have been effectively eroded. At the time of the International Competitive Carrier Order, WUI's predecessor in interest, RCA Globcom, had a single competitor, IT&E, that was new to the market and did not provide a sufficient degree of competition to prevent anticompetitive conduct. Today, however, a number of well-established international carriers have cut WUI's IMTS market share considerably. In addition to the facilities-based competition provided by IT&E and Sprint, WUI observes that PCI Communications, Access Telecom, Columbia Communications Corp., Asian American Telecom, Island Long Distance, and Micro Business Systems all provide IMTS to Guam consumers. AT&T offers IMTS to and from Guam for its cardholders. 15. WUI is a subsidiary of MCI, the second largest provider of IMTS in the United States after AT&T. With the possible exception of WUI's service to the United Kingdom, which we analyze below, the record offers no evidence to suggest that WUI's size and resources allow it to obtain favorable treatment from foreign correspondents. The Commission, moreover, has concluded that even a carrier the size of AT&T, which enjoys resource advantages, scale economies, long-term relationships with suppliers, and ready access to capital, does not necessarily possess market power. The same conclusion applies in this case. 16.Control of Bottleneck Facilities. WUI states that "it does not, and never did, control Guam's access facilities." Rather, the Guam Telephone Authority is the sole provider of access services to Guam IMTS providers. There is no evidence in the record to suggest that the Guam Telephone Authority currently is engaged in anticompetitive practices to benefit WUI. In addition, the record does not suggest that WUI maintains bottleneck control of international gateways. We therefore find no evidence to indicate that WUI controls bottleneck facilities that could be used to gain market power. 17.We find, based on WUI's low market share, its size and resources, its lack of bottleneck control, and the high supply and demand elasticity in the Guam IMTS market, that unlike in 1985, WUI faces effective competition and no longer warrants classification as a dominant carrier in the provision of IMTS from Guam. B.Forbearance 18.As noted in paragraph 7 above, the most recent data formally compiled by the Commission reveals that WUI is the sole facilities-based carrier reporting Guam billed revenue for IMTS to four international locations. These are: Anguilla, Gabon, Grenada, and Serbia. Based on the record developed in this proceeding, we believe that it is appropriate to forbear from imposing dominant carrier regulation on WUI's provision of IMTS to these locations. 19.Under Section 10 of the Communications Act of 1934, as added by the Telecommunications Act of 1996, 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 and not unjustly or unreasonably discriminatory; (2) enforcement of such regulation is not necessary for the protection of consumers; and (3) forbearance from applying such regulation is consistent with the public interest. Moreover, as part of the determination, the Commission must also consider whether forbearance from enforcing such regulation will promote competitive market conditions, including the extent to which forbearance will enhance competition among providers of telecommunications services. 20.WUI's tariffed rates reveal that the charges for service to Anguilla, Gabon, Grenada, and Serbia are no higher than those that WUI charges for service on routes where it faces effective competition. Moreover, the absence of barriers to entry suggest that facilities- based competition may soon develop on these four routes, as it did on each of the 13 additional routes that WUI served as the sole facilities-based carrier in 1992. As the Commission has noted previously, such potential competition can ensure that prices are just and reasonable. Therefore, we conclude that dominant carrier regulation on routes to these four locations is not necessary to ensure rates are just and reasonable or otherwise to protect consumers. 21.We also note that these routes account for 0.055 percent of the total 1995 Guam billed revenue for IMTS. We find that this traffic is a de minimis amount and therefore we cannot justify the economic costs of dominant carrier regulation for these routes. In such circumstances, dominant carrier regulation can impede, rather than promote, competition among providers of telecommunications services. Accordingly, we will forbear from applying dominant carrier regulation on WUI's IMTS routes to Anguilla, Gabon, Grenada, and Serbia. C.Regulatory Status of Service to the United Kingdom 22.We also must examine whether a potential risk exists that WUI, through its parent company MCI's relationship to BT, may gain anticompetitive advantages on its Guam-U.K. route. In the 1994 BT/MCI Order, the Commission found that BT was the largest telecommunications operator in the United Kingdom and "the principal service provider in the [U.K.] international facilities-based service market." Even though BT's acquisition of a 20 percent interest in MCI did not rise to "affiliated" status within the meaning of the Commission's rules, the Commission determined that the acquisition "may provide BT with the incentive . . . to discriminate in favor of MCI" over competing U.S. international carriers. Rather than regulating MCI as a dominant carrier on its U.S.-U.K. route, however, the Commission imposed limited safeguards that it determined were "sufficient to ensure that the parties do not engage in anticompetitive activities." We believe the same safeguards are warranted in this case. We also note that the Commission has before it a petition regarding the proposed merger between BT and MCI. If that transaction is approved and the Commission imposes any conditions on MCI's IMTS traffic, these safeguards will apply to WUI. IV. Conclusion 23.We conclude that the reclassification of WUI as a non-dominant provider of Guam IMTS to all but four international routes is in the public interest. Our decision is based on the finding that WUI faces effective IMTS competition in Guam. We also forbear from imposing dominant carrier requirements on the remaining four de minimis routes under Section 10 of the Communications Act. As a condition of reclassification, we impose on WUI's Guam- U.K. route the same safeguards that we impose on the U.S.-U.K. route of WUI's parent company, MCI. 24.WUI will still be subject to regulation under Title II of the Communications Act. WUI is required to offer international services under rates, terms and conditions that are just, reasonable and not unduly discriminatory (Sections 201 and 202), and is subject to the Commission's complaint process (Sections 206-209). V. Ordering Clauses 25.Accordingly, it is HEREBY ORDERED that WUI's petition for reclassification as a non-dominant carrier of Guam international message telephone service under International Competitive Carrier Policies, 102 F.C.C.2d 812 (1985), is hereby GRANTED, subject to the conditions set forth in paragraph 26. 26.IT IS FURTHER ORDERED that WUI shall comply with the obligations we imposed on MCI's U.S.-U.K. IMTS route in the BT/MCI Order, 9 FCC Rcd 3960 (1994), and any future conditions we may impose on MCI on the U.S.-U.K. IMTS route. 27.This order is issued under Section 0.261 of the Commission's rules and is effective immediately. Petitions for reconsideration under Section 1.106 or applications for review under Section 1.115 of the Commission's rules may be filed within 30 days of the date of the public notice of this order (see Section 1.4(b)(2) of the Commission's rules). FEDERAL COMMUNICATIONS COMMISSION Peter F. Cowhey Chief, International Bureau