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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-1928 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of) ) Pacific Bell Communications ) ) Application pursuant to ) ITC-96-692 Section 214 of the Communications Act ) of 1934, as Amended, to Offer ) International Facilities-Based ) Switched and Private Line Services ) From Out-of-Region States ) ORDER, AUTHORIZATION AND CERTIFICATE Adopted: September 5, 1997 Released: September 9, 1997 By the Chief, Telecommunications Division: I. Introduction 1. In this order, we grant the application filed by Pacific Bell Communications (PBComm) to provide international facilities-based switched and private line services that originate outside of the SBC Communications Inc. (SBC)/Pacific Telesis Group (PacTel) region and terminate in all international points except Chile and South Africa. We find that PBComm's provision of these services is subject to non-dominant carrier regulation. II. Background 2. In its original application, PBComm, a California corporation, certified that it is a wholly-owned subsidiary of PacTel. PBComm subsequently amended its application to reflect that PacTel merged with SBC on April 1, 1997, making PBComm an indirect wholly- owned subsidiary of SBC. SBC owns Southwestern Bell Telephone Company (SWBT), and within the PacTel region, Pacific Bell and Nevada Bell. 3. PBComm's application sought authority to provide on a non-dominant basis international facilities-based switched and private line services originating outside the SBC/PacTel region and terminating in all international points except those listed on the Commission's exclusion list. As a result of the SBC/PacTel merger, PBComm became affiliated with three foreign carriers: VTR SA, a Chilean carrier; Telkom South Africa Ltd. (Telkom S.A.), the monopoly telecommunications provider in South Africa; and Diax Holding AG, a new entity that plans to begin offering telecommunications services in Switzerland in January 1998. PBComm therefore amended its application to remove Chile and South Africa from its proposed points of termination. MCI filed a petition to deny PBComm's application, to which PBComm responded. III. Discussion A. Provision of Out-of-Region Service and the MCI Petition to Deny. 4. Upon enactment, the Telecommunications Act of 1996 (1996 Act) allowed the Bell Operating Companies (BOCs) and their affiliates to provide interLATA services, including international services, that originate outside of their in-region states. Through the common ownership of SBC, PBComm is affiliated with three BOCs: PacBell, Nevada Bell, and SWBT. Consistent with the 1996 Act, therefore, PBComm seeks authority to provide international facilities-based switched and private line services originating from points outside the SBC/PacTel in-region states. PBComm asserts that a grant of its application will increase competition in, and reduce prices for, international services. 5. MCI contends that PBComm's termination of international return traffic in the SBC/PacTel region, pursuant to the Commission's proportionate return policy, "constitutes the provision of interLATA in-region services under Section 271(j) of the 1996 Act." As a result, MCI argues, the Commission should deny PBComm's application "to the extent that [PBComm] would terminate international services in the combined [SBC/PacTel] in-region states before these companies are authorized . . . to provide in-region interLATA service." 6. MCI notes that Section 271(j) treats certain calls that originate out-of-region as in-region traffic. Specifically, this section provides that "800 service, private line service, or their equivalents that -- (1) terminate in an in-region State of that [BOC], and (2) allow the called party to determine the interLATA carrier, shall be considered an in-region service." MCI observes that, in the case of an international call originating overseas, neither the calling nor the called party chooses the U.S. interLATA carrier in the same manner as in the case of domestic calls. It argues, however, that PBComm will receive international return traffic in exchange for generating outbound facilities-based traffic to a given foreign carrier, and that PBComm will have SBC/PacTel terminate that in-region return traffic. MCI thus reasons that PBComm can exercise the kind of control over the choice of terminating carrier for such return traffic that a called party can exercise domestically with respect to similar traffic. Because such traffic raises similar competitive and ratepayer concerns, MCI maintains that it should be treated as in-region under Section 271(j). 7. Moreover, MCI asserts, PBComm could negotiate with foreign administrations to receive only that return traffic terminating in the SBC/PacTel region. MCI observes that, under such an arrangement, SBC/PacTel "would receive an unusually `rich' mix of return traffic with a disproportionate volume of calls for which it could keep the entire accounting rate and not have to pay out terminating access charges to another LEC." MCI petitions the Commission to require that, during the period that PBComm is precluded from terminating any return traffic in-region, it must hand off that return traffic to other non-affiliated international carriers for termination in the SBC/PacTel region. 8. PBComm responds that, under the Commission's proportionate return policy, "no U.S. customer `selects' PBComm as their interLATA carrier" and thus return traffic cannot be considered in-region under Section 271(j). Moreover, PBComm argues, MCI's claim would require BOCs to obtain in-region approval prior to providing out-of-region services, which is contrary to the intent of the 1996 Act. Finally, PBComm states that its return traffic will be distributed randomly across the country. 9. The International Bureau denied a substantially similar claim raised by MCI in a previous proceeding. For the same reasons discussed there, we reject MCI's petition. MCI's assertion that international return traffic should be considered a service "equivalent" to 800 or private line service is inconsistent with the plain language of Section 271(j). Section 271(j) is clear and unambiguous in its requirement that, to be considered an "equivalent" service, the service must not only terminate "in-region," but the called party must also determine the interLATA carrier. International return traffic is controlled by the carrier of the originating customer, which assigns it to U.S. facilities-based international carriers pursuant to the Commission's proportionate return policy for allocating return traffic among U.S. carriers. The called party does not determine the U.S. interLATA carrier. We therefore reject MCI's argument that, under Section 271(j), international return traffic constitutes an in- region service. 10. We also are not persuaded by MCI's generalized allegations that there are competitive risks posed by BOC termination of in-region return traffic that require us to "look beyond the literal meaning of the `called party' clause" of Section 271(j). The only specific competitive concern discussed by MCI is the concern that PBComm could negotiate with foreign carriers to receive only that return traffic terminating in-region. The Commission recently reaffirmed that the activity described by MCI would constitute a special concession prohibited by the terms of Section 63.14 of the Commission's rules to the extent that a U.S. carrier entered into such an arrangement that the foreign carrier did not offer to similarly situated U.S. carriers. The Commission observed that, if a U.S. carrier negotiates such a "grooming" arrangement with a foreign carrier on a particular route, it must submit the arrangement to the Commission for public comment and review in circumstances where the agreement deviates from existing arrangements with other U.S. carriers. The Commission concluded that opposing parties would have ample opportunity to make their arguments "in the event a BOC interLATA affiliate or any other U.S. international carrier seeks to establish an arrangement for grooming return traffic." We therefore deny MCI's petition. 11. We find that PBComm's proposed international service to points where it is not affiliated with an existing carrier will enhance competition in the international services market. We find, therefore, that the public interest is served by a grant of this application. To the extent that Section 271 permits PBComm to terminate in-region switched traffic that is routed over its international private line facilities, we specifically impose our Section 43.51(e) filing requirements on any agreements that PBComm negotiates to route such traffic to the SBC/PacTel region via PBComm's private line facilities. B. Regulatory Treatment. 12. PBComm seeks to provide service on a non-dominant basis. U.S. carriers' provision of international services is subject to dominant carrier regulation on particular routes in two circumstances: where the Commission has determined that a U.S. carrier can exercise market power on the U.S. end of a particular route; and where the Commission has determined that a foreign affiliate of the U.S. carrier has market power on the foreign end of a particular route (i.e., the ability to adversely affect competition in the U.S. international services market). 13. Domestic Market Power. Consistent with the Commission's policy governing the BOCs' provision of out-of-region, interstate, domestic interexchange services, the International Bureau (Bureau) recently determined that the BOCs and their affiliates are subject to non-dominant regulatory treatment in the provision of international services from out-of-region states. The Bureau also removed interim separation requirements that it previously had imposed on BOC affiliates as a condition of non-dominant treatment of out-of- region international services. The Bureau concluded that the BOCs do not have, upon entry or soon thereafter, the ability to raise the price of out-of-region international services by restricting their output of such services, even if such services are offered on an integrated basis with local exchange and exchange access services. We therefore find that PBComm's affiliation with SBC does not subject its provision of international services originating outside the SBC/PacTel region to dominant carrier regulation. 14. Foreign Affiliations. The Commission also regulates 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 the destination market. PBComm does not propose to offer facilities-based services on routes where it is affiliated with a carrier that offers service in the destination market. PBComm removed Chile and South Africa from its proposed points of termination because of its affiliation with foreign carriers in those countries. SBC's interest in Diax Holding AG does not raise issues that might preclude PBComm from offering facilities-based services to Switzerland on a non- dominant basis at this time because Diax Holding AG presently does not provide telecommunications services in Switzerland, rather it plans to initiate services in January 1998. As a result, we conclude that PBComm may provide the authorized services on a non- dominant basis. IV. Conclusion 15. In light of the above, we find that a grant of PBComm's application will serve the public interest under Section 214 of the Act by increasing competition in international services. We therefore grant PBComm's application for authority to provide international facilities-based switched and private line services originating outside the SBC/PacTel region and terminating in all international points except Chile, South Africa, and those countries listed on the Commission's exclusion list. We also find that PBComm's provision of these services should be subject to non-dominant carrier regulation. We deny MCI's petition to deny PBComm's application. V. Ordering Clauses 16. Accordingly, IT IS HEREBY ORDERED that application File No. ITC-96-692 IS GRANTED and Pacific Bell Communications is authorized to provide on a non-dominant basis international facilities-based switched and private line services that originate from outside the SBC Communications Inc. (SBC) and Pacific Telesis Group (PacTel) in-region states and terminate in all international points except Chile, South Africa, and the countries listed in the Commission's exclusion list. 17. IT IS FURTHER ORDERED that any agreements that PBComm negotiates with foreign carriers to route U.S. in-bound switched traffic to the SBC/PacTel region via its authorized international private lines are subject to the filing requirements of Section 43.51(e) of the Commission's Rules. See 47 C.F.R.  43.51(e). 18. IT IS FURTHER ORDERED that MCI's Petition to Deny PBComm's application IS DENIED. 19. 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 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)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell, Chief Telecommunications Division International Bureau