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                                                       DA 97-1342

Before the
                            FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C.  20554


In the Matter of)
     )     
Sprint Corporation    )
     )          
Application to Operate Additional)     File Nos. ITC-97-075
Facilities on the U.S.-Germany Route   )             ISP-95-002
Pursuant to Section 214 of the   )
Communications Act of 1934, as amended )


                          ORDER AND AUTHORIZATION

     Adopted:  June 25, 1997     Released:  June 26, 1997

By the Chief, International Bureau:

I.   INTRODUCTION
       
     1.    In December 1995, the Commission granted, subject to certain conditions,
Sprint's petition to allow Deutsche Telekom (DT) and France Telecom (FT) to make ten
percent equity investments each in Sprint Corporation (Sprint).  As one condition of its
decision, the Commission ruled that two competitive milestones must be met in Germany and
France before Sprint would be allowed to operate additional circuits on its U.S.-Germany and
U.S.-France routes.  On February 5, 1997, Sprint filed an application to remove the circuit
restriction on its U.S.-Germany route and to allow Sprint to operate additional circuits on that
route.  In this order, we find that Sprint has demonstrated that the two milestones, alternative
infrastructure and switchless resale, have been met in Germany.  Although significant
liberalization steps remain to be accomplished in Germany, such as the establishment of an
independent regulator, we find that Germany has reached these limited milestones.  We
therefore grant Sprint's request to operate additional circuits on its U.S.-Germany route.

II.   BACKGROUND

     2.    In the Sprint Declaratory Ruling, the Commission concluded that the proposed
ten percent equity investments each by DT and FT in Sprint were not inconsistent with the
public interest, and the Commission thus approved Sprint's petition.  In granting the petition,
however, the Commission concluded that Sprint's alliance with DT and FT, the monopoly
carriers in Germany and France respectively, created an unfair advantage over other U.S.
carriers offering services to those markets.  The Commission therefore imposed a number of 
conditions and safeguards on Sprint's operation of circuits on its U.S.-Germany and U.S.-
France routes.  For example, the Commission imposed dominant carrier regulation on Sprint's
provision of U.S. international services on these two routes.  Dominant carriers must, among
other things, obtain prior Section 214 authority to acquire and operate additional circuits. 
The Commission also ruled that Sprint would not be allowed to operate any additional circuits
on its U.S.-Germany and U.S.-France routes until two milestones have been met in Germany
and France:  the "implementation of alternative infrastructure competition" and "the existence
of opportunities to provide basic switched voice resale."  The Commission noted that the
circuit restriction "may be removed on a route-by-route basis" if Sprint chooses to seek
removal one country at a time.

     3.    To meet the first milestone, the Commission required that U.S.-affiliated
entities be allowed to develop alternative infrastructure networks to provide already liberalized
services, including data communications and closed user group services but not public
switched voice services.  The second milestone, basic switched voice resale, involves voice
services offered to the public using the facilities of an underlying carrier.  "To meet [the
resale] milestone," the Commission stated, "it is sufficient that the reseller simply provide its
own billing functions, and no switching or other functions for itself."  This type of resale is
known as rebilling, or switchless resale.  U.S.-affiliated entities must be allowed to offer such
service, and the service must be able to carry traffic to and from the United States.  The
Commission explained that these two milestones are "two forms of competition [that] will
start the process of adapting to competition" as Germany and France allow full facilities and
services competition beginning on January 1, 1998.  Given the DT and FT ownership
interests in Sprint, the Commission reasoned that linking additional circuit capacity to the
attainment of two competitive milestones would "provide further incentives for the French and
German Governments and FT and DT to continue to liberalize their telecommunications
markets before 1998."

     4.    On February 5, 1997, Sprint filed an application seeking to remove the circuit
restriction on its U.S.-Germany route and to operate additional circuits on that route.  Sprint
asserts that the two milestones have been met in Germany.  Sprint requests authority under
Section 214 to operate one 155 Mbps STM-1 on the TAT-12/13 submarine cable system with
connecting terrestrial facilities in order to provide service between the United States and
Germany.  ACC Corp. (ACC), BT North America Inc. (BTNA), MCI Telecommunications
Corporation (MCI), and Vebacom GmbH (Vebacom) filed comments opposing the
application.  AT&T Corp. (AT&T) filed a petition to deny the application.  Sprint filed an
opposition in response and attached a statement by DT.

III.   DISCUSSION

     A.    Alternative Infrastructure

     5.    Sprint states that the German Telecommunications Act of 1996 (TKG)
authorized competition in all telecommunications services other than the public switched
network, effective August 1996.  Sprint notes that the licensing sections of the TKG contain
no foreign ownership restrictions on licensees.  Sprint states that Germany's regulatory
authority, the Federal Ministry of Posts and Telecommunications (BMPT), issued rules
governing the licensing of alternative infrastructure networks in July 1996.  Sprint asserts
that "an abundance" of licenses have been issued, including several with U.S. ownership
interests.  As a result, Sprint claims, the first milestone has been met.

     6.    MCI contends that Sprint "bears a heavy burden" and that it has failed to
provide the extensive documentation necessary for the Commission to determine whether
either milestone has been met.  MCI argues that Sprint must provide any German laws,
regulations, and policies governing the alternative infrastructure market, as well as a list of all
relevant laws, regulations, and policies which have not yet been adopted.  Furthermore, MCI
claims that Sprint must provide a list of all licensees and all interconnection agreements
between alternative infrastructure providers and DT to "help demonstrate that no de facto
barriers to entry exist in the alternative infrastructure market."

     7.    None of the opposing parties disputes Sprint's claim that the BMPT has
licensed several alternative infrastructure providers, but BTNA and Vebacom assert that
legal roadblocks impede the competitive provision of alternative infrastructure networks in
Germany.  Vebacom, for example, argues that the German regulatory framework lacks
adequate safeguards to ensure that new entrants may interconnect on reasonable and non-
discriminatory terms with the public switched network, operated exclusively by DT.  BTNA
claims that the BMPT has yet to adopt ordinances implementing certain requirements imposed
on licensees by the TKG.  As a result, BTNA asserts, operators commencing service prior to
the adoption of these ordinances "may well jeopardize their licenses."  Finally, Vebacom
notes that one of the regulatory ordinances currently in the draft stage purportedly subjects
alternative infrastructure providers to a $23 million network license fee.  Vebacom asserts that
"such exorbitant fees raise significant market barriers to entry for carriers seeking to construct
and operate alternative network infrastructure in Germany."  In addition, Vebacom and
AT&T claim that such fees would be a violation of an E.U. directive, which states that
license fees may only be levied to recover administrative costs.

     8.    Sprint asserts that MCI is "attempt[ing] to manufacture new and more stringent
restrictions on Sprint."  Sprint denies MCI's claim that it bears a heavy burden in this
proceeding, and argues that some of MCI's requests are "nonsensical," including its request
for a "`timetable estimating the dates of adoption for each [relevant] law, regulation, or
policy'" not yet in effect.  Sprint also notes that the German laws and regulations currently
in effect are publicly available. 

     9.    Sprint responds to questions regarding the German government's commitment
to competition by asserting that "[e]very indication is that Germany is serious about adopting
competition as a national policy."  Sprint notes that DT will be regulated as a dominant
carrier, subject to specific interconnection requirements, non-discriminatory provision of
essential services, and unbundling obligations.  DT asserts that the statutory obligations
raised by BTNA "have nothing to do with market entry or the granting of licenses" and apply
to all network operators and service providers, including DT.  Sprint notes that BTNA offers
no evidence that the draft ordinances have hindered Beyernwerk Netkom, an entity that
BTNA acknowledges is a licensed alternative infrastructure provider in Germany.  With
regard to licensing fees, Sprint observes that the BMPT has not approved this proposed
schedule of fees and that it is "highly likely" that the current proposal "will be revamped." 
Sprint claims that even as proposed, the fees are small in comparison to some of the license
fees the Commission has collected, and that DT would be required to pay them as well. 
Moreover, Sprint notes, the existence and level of fees are a matter for the German
government and possibly the European Union, but not the Commission.  Sprint reiterates
that the TKG has opened infrastructure competition, which is all that the first milestone
requires.  DT states that several alternative networks are in operation.

     10.   We first address MCI's request for additional documentation.  We note that
Sprint has already supplied the Commission with a copy of the TKG in English, as well as
information regarding the BMPT's rules governing the licensing of alternative infrastructure
providers.  We conclude that the other material MCI seeks is not essential to our findings in
this proceeding.

     11.   We share the concerns raised by opposing parties regarding barriers that may
restrict the ability of alternative infrastructure providers and other licensees to compete against
the incumbent provider, DT.  In particular, adequate regulatory safeguards are necessary to
protect against the potential that DT may abuse its market power.  Furthermore, it is our
belief that any fee on licensees using an unlimited resource should be based on administrative
costs and applied in a non-discriminatory manner.  

     12.   Notwithstanding these significant concerns, we find that Sprint has
demonstrated that the first interim competitive milestone has been reached.  We note that
removal of the circuit restriction is based on the limited showing that Germany allows U.S.-
affiliated entities to enter the two markets identified in the milestones.  Specifically, the Sprint
Declaratory Ruling imposed the circuit restriction "until the Commission finds that . . .
Germany . . . [p]ermit[s] the provision" by U.S.-affiliated entities of alternative infrastructure
for already liberalized services and basic switched voice resale.  The Commission did not
require Sprint to demonstrate that the German alternative infrastructure and basic switched
voice resale markets satisfy the Foreign Carrier Entry Order's effective competitive
opportunities (ECO) test.  Our examination here requires that Sprint demonstrate that U.S.-
affiliated entities are allowed to provide alternative infrastructure for liberalized services and
basic switched voice resale in Germany.  We find that the TKG does not impose foreign
investment limits on telecommunications licensees.  The record in this proceeding, moreover,
demonstrates that the German government has licensed several alternative infrastructure
providers that have significant foreign ownership interests.  We therefore conclude that
Germany permits the provision of alternative infrastructure networks for liberalized services
by foreign-affiliated entities, including U.S.-affiliated entities.  We thus find that the first
milestone has been satisfied. 

     B.    Basic Switched Voice Resale 

     13.   Sprint asserts that a DT tariff, known as the Dial and Benefit program, makes
switchless resale available in Germany for both domestic and international calls.  Sprint
states that in order to facilitate use of Dial and Benefit as a means to offer switched voice
service, DT will make available electronic billing information and itemized call records to
resale carriers and will offer customer service to resale carriers on a competitively neutral
basis.  In light of the Dial and Benefit tariff, Sprint claims, Germany presently "permits the
provision of switched voice resale/rebilling," and thus the second milestone has been met.

     14.   MCI claims that Sprint must provide additional documentation.  Specifically,
MCI requests that Sprint provide a list of all German laws, regulations, and policies governing
basic switched voice resale, a copy of DT's Dial and Benefit tariff, a description of each DT
tariff designed for use by resale carriers, and a detailed discussion of "comprehensive network
access agreements . . . covering technical conditions" between DT and resale carriers.

     15.   All five of the opposing parties assert that the resale milestone has not been
met in Germany.  BTNA claims that this milestone requires more than a showing that basic
switched services may be legally resold in Germany, because that was the status quo at the
time of the Sprint Declaratory Ruling.  ACC, AT&T, BTNA, and Vebacom all assert that
Germany does not offer any meaningful opportunity to provide basic switched voice resale. 
They contend that the Dial and Benefit tariff is a volume discount plan intended for large
corporate users and is not a suitable vehicle for building a viable switchless resale business. 
AT&T, BTNA, and Vebacom argue that DT does not offer a resale tariff that reflects the
avoided costs of providing services to resale carriers rather than end-users.  Vebacom also
claims that the Dial and Benefit tariff allows resale carriers to offer switched voice services to
large corporate users only.  In its comments, ACC acknowledges that its German affiliate is
negotiating a switchless resale agreement with DT but argues that an agreement will not allow
ACC to earn any net income.  Rather, ACC reports, it seeks the switchless resale agreement
in order to gain an initial foothold in the German switched voice market prior to liberalization
on January 1, 1998.

     16.   BTNA asserts that the Dial and Benefit tariff will not limit Sprint's ability to
leverage DT's monopoly power anticompetitively.  AT&T claims that the Dial and Benefit
tariff will postpone competition in the German switched voice market.  Both Vebacom and
BTNA assert that the terms and conditions of the Dial and Benefit tariff restrict widespread
development of switchless resale.  They argue that the volume discounts offered under the
Dial and Benefit tariff are based on traffic originating from all customer lines connected to a
single network node, or switch.  Traffic originating from multiple network nodes may not be
aggregated to attain the volume necessary to trigger the discount.  BTNA notes that "[v]ery
few individual network nodes have sufficient high-spending customer potential so that a
reseller could have a viable operation buying Dial and Benefit and reselling it to customers in
the area served by that node."  As a result, Vebacom contends, the Dial and Benefit tariff
does not permit carriers to resell switched voice service to all end-users, and thus fails to
satisfy the second milestone's requirement that switched voice services be available to the
general public.  

     17.   ACC requests that the Commission withhold approval of Sprint's application
until 30 days after ACC reports that it has entered into a switchless resale agreement with
DT.  ACC asserts that the resale milestone requires "a written agreement that addresses
potential areas of abuse such as provisioning intervals, service quality, and customer
relations."  ACC argues that an agreement is essential to preclude DT from taking steps to
hinder ACC's ability to attract and serve former customers of DT. 

     18.   Sprint responds that DT's Dial and Benefit tariff allows a reseller to perform
rebilling "in exactly the manner which the Commission stated in [the Sprint Declaratory
Ruling]."  Sprint notes that, according to DT, the Dial and Benefit tariff is available to the
general public on a non-discriminatory basis, and companies may use it to offer rebilling
services to the general public.  DT, moreover, reiterates that it has made electronic billing
and technical support services available for resale carriers.  In addition, Sprint submitted
information demonstrating that, following the close of the comment period in this proceeding,
an ACC subsidiary signed a switchless resale agreement with DT that allows ACC to use the
Dial and Benefit tariff to market voice telephony in Germany.   

     19.   Both Sprint and DT assert that the opposing parties attempt to read entirely
new conditions into the resale milestone.  In response to claims that the Dial and Benefit
tariff does not offer an economically viable resale opportunity, Sprint states that the Sprint
Declaratory Ruling did not address "appropriate rates or rate structures for resale activities." 
Sprint notes that if the Commission were required "to determine that resale was `profitable' in
Germany or that wholesale rates were necessary to permit such profitability," it would be
forced to oversee the development of a new industry "which could take years to develop." 
Sprint provides additional information regarding the Dial and Benefit tariff, but together with
DT, it questions the Commission's jurisdiction to review the tariff.  In addition, Sprint and DT
assert that the Sprint Declaratory Ruling does not require a written agreement, as ACC
requests, to demonstrate the ability to resell in Germany. 

     20.   As an initial matter, we find that MCI's request for all laws governing basic
switched resale is unnecessary.  At the time of the Sprint Declaratory Ruling, the
Commission reported that the German government indicated that "DT may enter into
switchless resale agreements with third parties, as subcontractors, within the current . . .
German legislative framework[]."  MCI provides no evidence that Germany has reversed its
position on this matter.  Nor do we find that the standard we apply to the resale milestone
requires the other material listed by MCI.  

     21.   In the Sprint Declaratory Ruling, the Commission ruled that the resale
milestone is achieved once there "is the existence of opportunities to provide basic switched
voice resale."  We agree with Sprint that DT's Dial and Benefit tariff creates opportunities
for basic switched resale where none previously existed, in contrast to BTNA's claim that
only a legal basis exists for resale.  The recent announcement that ACC and DT have entered
into a switchless resale agreement using the Dial and Benefit tariff further demonstrates that
opportunities exist for basic switched resale.  The Dial and Benefit program allows entities to
offer switchless resale to domestic and international customers, as required in the Sprint
Declaratory Ruling.  The record, moreover, contains no evidence disputing Sprint's assertion
that the Dial and Benefit tariff is available on a non-discriminatory basis.   

     22.   We nonetheless remain concerned about whether the Dial and Benefit tariff will
promote a healthy, viable resale market in Germany.  A competitive market requires multiple
providers offering customers a range of service options.  In addition to ACC's entry, therefore,
we anticipate that other providers will use the Dial and Benefit tariff to offer switchless voice
resale in Germany.  

     23.   Despite these concerns, we find that the availability of the Dial and Benefit
tariff serves as an adequate "interim step" towards full-fledged competition in the German
market.  If switched voice resale services develop on a node by node or niche market basis,
we nonetheless believe that such services satisfy the Commission's requirement that Germany
permit the provision of basic switched voice resale "offered to the public."   In addition, we
find that the ACC-DT switchless resale agreement belies the arguments that the Dial and
Benefit program affords no meaningful opportunity for switchless resale.  Because we find
that the Dial and Benefit tariff creates opportunities for basic switched voice resale, we see no
reason to withhold a grant of Sprint's application until 30 days after ACC alerts the
Commission of its switchless resale agreement.  

     24.   We emphasize, however, that attainment of these two milestones represents
only an interim step towards effective competition in the German telecommunications market
by January 1, 1998.  On February 15, 1997, the German government made binding
commitments to establish an independent regulatory authority and fair rules of competition,
beginning January 1, 1998.  As part of the World Trade Organization (WTO) Agreement on
Basic Telecommunications, Germany signed the Reference Paper, which requires adoption of
pro-competitive policies including an impartial, independent regulator, reasonable and non-
discriminatory interconnection rules, and competitive safeguards to prevent cross-
subsidization, preclude use of carrier information for anticompetitive purposes, and provide
timely disclosure of technical network information.  We believe that further attention must be
devoted to these WTO commitments.  In particular, the adoption and timely implementation
of an effective regulatory framework remain to be accomplished.  We have significant
concerns that the German government has yet to install the new regulatory authority created
by the TKG.  We believe that, with little more than six months remaining before the German
market is fully liberalized, the uncertainty surrounding the regulatory framework is hindering
new competitors' ability to prepare to enter the market.  With regard to the current
proceeding, however, we find that Sprint has demonstrated that the two milestones have been
met in Germany, and we therefore lift the circuit restriction imposed on Sprint's U.S.-
Germany route as a condition of the Sprint Declaratory Ruling.   

     C.    Application to Operate Additional Circuits

     25.   As noted above, Sprint is subject to dominant carrier regulation on its U.S.-
Germany route and thus must obtain prior Section 214 authority to acquire and operate any
additional circuits on that route.  Sprint's application seeks to expand its existing Section 214
authority by operating one 155 Mbps STM-1 on the TAT-12/13 submarine cable system with
connecting terrestrial facilities in order to provide service between the United States and
Germany.  In the Sprint Declaratory Ruling, the Commission stated that "[u]pon Sprint's
demonstration to the Commission that these two milestones have been met, the Commission
will promptly lift this [circuit] restriction from all previously conditioned Section 214
authorizations."  Given our findings above that these two milestones have been satisfied, we
find that the public interest would be served by granting Sprint's application to operate
additional capacity up to one 155 Mbps STM-1 on the U.S.-Germany route.

     26.     In the Sprint Declaratory Ruling, the Commission concluded that the public
interest would be served by granting the DT and FT investments in Sprint, despite the failure
of Germany and France to offer effective competitive opportunities.  The Commission found
that countervailing public interest factors, including the German and French governments'
commitments to liberalization, weighed in favor of granting the petition.  Given the
Commission's earlier public interest finding, we see no reason to apply the Foreign Carrier
Entry Order framework, including the effective competitive opportunities analysis, again in
this proceeding.  In light of the current and planned liberalization taking place in Germany,
we find that a grant of Sprint's application to operate additional capacity up to one 155 Mbps
STM-1 on its U.S.-Germany route serves the public interest.

                             IV.   CONCLUSION

     27.   After careful consideration of the arguments made by all parties, we conclude
that the public interest will be served by lifting the circuit restriction imposed on Sprint's
U.S.-Germany route and allowing Sprint to operate the additional requested capacity on that
route.  We find that the two milestones identified in the Sprint Declaratory Ruling,
implementation of alternative infrastructure networks and the existence of opportunities for
basic switched voice resale, have been met in Germany.  As a result, we lift the circuit
restriction, and pursuant to Section 214, we find that the public interest requires that Sprint be
authorized to increase its capacity up to one 155 Mbps STM-1 on the TAT-12/13 submarine
cable system with connecting terrestrial facilities in order to provide service between the
United States and Germany.

                           V.   ORDERING CLAUSES

     28.   Accordingly, IT IS ORDERED that the circuit restriction imposed on Sprint's
U.S.-Germany route, see Sprint Declaratory Ruling, 11 FCC Rcd 1850, 1873 ( 141) (1996),
is hereby removed.  Sprint has demonstrated that the two milestones have been met in
Germany, and thus removal of the condition is warranted.

     29.   IT IS FURTHER ORDERED that Sprint's application to operate additional
capacity up to one 155 Mbps STM-1 on the TAT-12/13 submarine cable system with
connecting facilities in order to provide service between the United States and Germany IS
GRANTED pursuant to Section 214 of the Communications Act, 47 U.S.C.  214.

     30.   IT IS FURTHER ORDERED that AT&T's Petition to Deny Sprint's application
IS DENIED.

     31.   This order is effective upon adoption.  Petitions for reconsideration under
Section 1.106 of the Commission's rules may be filed within 30 days 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