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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-2071 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, DC 20554 In the Matter of ) ) BT North America Inc. ) ) Application for Authority under ) File No. ITC-96-439 Section 214 of the Communications ) Act to Acquire and Operate Facilities) for the Provision of International ) Services between the United States ) and the United Kingdom; and ) ) Motion to be Reclassified as a ) File No. ISP-96-007-ND Non-dominant Carrier for International) Services between the United States ) and the United Kingdom ) ORDER AND AUTHORIZATION Adopted: September 25, 1997 Released: September 25, 1997 By the Chief, Telecommunications Division, International Bureau I. INTRODUCTION 1. In this Order, we grant BT North America Inc. (BTNA) authority, pursuant to Section 214 of the Communications Act of 1934, as amended, to provide facilities-based international service between the United States and the United Kingdom. We deny, however, BTNA's request for reclassification as a non-dominant carrier for international services between the United States and the United Kingdom. Instead, BTNA will continue to be regulated as a dominant carrier for all authorized services on the U.S.-U.K. route. II. BAC KGROUND 2. BTNA, a Delaware corporation, is a wholly-owned subsidiary of BT USA Holdings, Inc., (BT USA) a Delaware Corporation. BT USA is a wholly-owned subsidiary of British Telecommunications plc (BT), a company organized under the laws of England and Wales. BT is the largest telecommunications operator in the United Kingdom, providing, among other things, local, long-distance and international telephone service and telecommunications equipment for customers' premises. BTNA is authorized to provide certain U.S. international switched, non-interconnected private line, interconnected private line, and facilities-based services pursuant to Section 214 of the Act. 3. On August 2, 1996, BTNA filed two applications with the Federal Communications Commission (Commission or FCC). First, BTNA requests authority to acquire and operate up to the equivalent of 190 E-1 half-circuits on any and all U.S. common carrier and non-common carrier facilities authorized by the FCC, for international service, including common carrier and non-common carrier submarine cables landing in the United States, intergovernmental organization satellites (such as INTELSAT), U.S.-licensed satellites, and the earth stations used to communicate with these satellites. BTNA also requests authority to acquire and use any necessary domestic and foreign connecting facilities. BTNA seeks to provide international switched, private line, voice, video, data, television and business service on the U.S.-U.K. route on a one-half channel or end-to-end basis. Second, BTNA requests that it be regulated as a non-dominant carrier for all authorized services on the U.S.- U.K. route. Currently, BTNA is regulated as a dominant carrier for its authorized services on the U.S.-U.K. route. 4. On December 2, 1996, BT and MCI Communications Corp. (MCI) (collectively, BT/MCI) filed applications requesting Commission approval of the transfer of control from MCI to BT of licenses and authorizations held by subsidiaries of MCI. BT/MCI sought approval for this transfer in connection with the proposed merger of MCI and BT, under which MCI would be merged into a U.S. subsidiary of BT, and would become a subsidiary of a newly created U.K. company, Concert plc. At the same time, BT's U.K. operations would be placed into a subsidiary of Concert. On August 21, 1997, the Commission approved the merger of BT and MCI, subject to certain conditions and safeguards. 5. We placed BTNA's U.S.-U.K. route applications on public notice on August 9, 1996. Frontier Communications Services Inc. (Frontier) filed comments concerning BTNA's Section 214 application. MCI Telecommunications Corporation (MCI) filed comments in opposition to BTNA's motion for reclassification as a non-dominant carrier. BTNA and the British Embassy filed reply comments in response to Frontier's and MCI's comments. III. DISCUSSION A. BTNA Section 214 Application 6. BTNA's affiliation with a foreign carrier requires us to review its Section 214 application to the United Kingdom under the framework established in the Commission's Foreign Carrier Entry Order. In that Order, the Commission 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 U.S. carriers seeking to offer like services. The Foreign Carrier Entry Order defines market power as the ability of the carrier to act anticompetitively against unaffiliated U.S. carriers through the control of bottleneck services or facilities on the foreign end. Bottleneck services or facilities are those that are necessary for the provision of international services, including inter-city or local access facilities on the foreign end. Alternatively, if an applicant can demonstrate that its foreign affiliate does not have market power in the destination market, we do not conduct an ECO analysis. The 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. These factors 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, or trade concerns raised by the Executive Branch, and the presence of cost-based accounting rates. 7. BTNA asserts that its foreign affiliate, BT, lacks the ability to discriminate against unaffiliated U.S. carriers through control of bottleneck facilities or services. BTNA also asserts that the United Kingdom satisfies each of the four factors of the Commission's ECO test. In addition, BTNA concludes that grant of its application is in the public interest. 8. Frontier does not oppose BTNA's application but raises questions about whether BT offers reasonable and nondiscriminatory charges, terms and conditions for interconnection to its domestic facilities as required by the Foreign Carrier Entry Order. Frontier asserts that BT does not provide timely and reasonably priced access to BT's backhaul facilities and services. The U.K. Government and BTNA respond that BT is required by OFTEL to offer international facilities-based competitors reasonably priced access to BT's backhaul facilities and services. In addition, the U.K. Government and BTNA state that competitive alternatives to BT for backhaul will allow carriers such as Frontier's U.K. affiliate to bypass BT altogether. 9. We disagree with BTNA that its affiliate lacks market power in the U.K. international services market. In the BT/MCI merger decision, the Commission found, among other things, that BTNA's U.K. affiliate, BT, possessed market power in the U.K. market through its ownership of the only ubiquitous local access network in the United Kingdom. As a result, the Commission applied the "effective competitive opportunities" analysis to the U.K. market. 10. In applying the ECO analysis under Section 214 to the U.K. market, the Commission found that the United Kingdom offers U.S. entities effective competitive opportunities to provide international facilities-based services in the United Kingdom. The Commission concluded that, under the framework established in the Foreign Carrier Entry Order, BT's entry into the U.S. market was in the public interest. Consistent with the Commission's decision in the BT/MCI Merger decision, we find that direct entry into the U.S. market by BT's U.S. affiliate, BTNA, is consistent with the public interest. 11. With respect to Frontier's concerns, we note that in the BT/MCI Merger decision, the Commission found that BT offered reasonable and nondiscriminatory charges, terms and conditions for interconnection to BT's domestic facilities for termination and origination of international services. We therefore find that Frontier's concerns regarding BT's interconnection obligations have been adequately addressed. 12. In addition to our ECO analysis, our Foreign Carrier Entry Order cites other factors that may be considered as part of our overall public interest analysis for foreign carrier entry. These factors include cost-based accounting rates, and any national security or law enforcement issues, foreign policy, or trade concerns raised by the Executive Branch. 13. In the BT/MCI Merger Order, we concluded that BT's settlement rate on the U.S.-U.K. route was a positive public interest factor in favor of BT's entry into the United States market. Consistent with that finding, we also conclude that the U.S.-U.K. settlement rate is a positive public interest factor in favor of BTNA's entry into the United States market. 14. Finally, we note that the Executive Branch did not raise any national security or law enforcement issues, foreign policy, or trade concerns. We therefore conclude that BTNA's entry into the U.S. market is in the public interest. B. BTNA Request for Non-dominant Regulatory Treatment 15. Under the Commission's rules, a carrier that is affiliated with a foreign carrier that is not a monopoly in a destination market and that seeks to be regulated as a non- dominant carrier on that route bears the burden of demonstrating that its foreign affiliate lacks the ability to discriminate against unaffiliated U.S. international carriers through control of bottleneck services or facilities in the destination country. In brief, the applicant must demonstrate that its foreign affiliate lacks market power. 16. BTNA asserts that BT does not have market power in the United Kingdom and that dominant carrier regulation of BTNA's services on the U.S.-U.K. route is no longer justifiable. It argues that growing competition in the U.K. local, domestic long-distance, and international markets prevents BT from controlling bottleneck services or facilities. Even if BT did maintain market power, BTNA states that BT would be prevented by OFTEL's effective regulation of BT from exercising such market power against unaffiliated carriers. 17. MCI opposes BTNA's request for non-dominant regulatory treatment on the grounds that nothing has changed with respect to BT's market power in the U.K. telecommunications market since the Commission decided to regulate BTNA as a dominant carrier. MCI further argues that while BT may be subject to stringent regulation, regulation alone is not a substitute for effective competition. BTNA responds that substantial changes have occurred in the U.K. telecommunications market since the Commission decided in 1995 to regulate BTNA as dominant on the U.S.-U.K. route. In particular, BTNA points to the U.K.'s Department of Trade and Industry (DTI) decision to end BT's and Mercury's duopoly on facilities-based international services and issue additional international facilities licenses to competing carriers. In addition, BTNA reiterates that, because BT faces effective competition in all segments of the U.K. telecommunications market, and because it is subject to effective regulation by OFTEL, BT cannot discriminate against unaffiliated U.S. carriers. In response to MCI's comments, the U.K. Government filed reply comments supporting BTNA's request for non-dominant regulatory treatment. 18. As noted above, the Commission found in the BT/MCI merger decision that BTNA's U.K. affiliate, BT, retains market power in the United Kingdom through its ownership of the only ubiquitous local access network in the United Kingdom. The Commission also found that, while OFTEL plays an active role in protecting against abuse of market power by BT, OFTEL's regulation of BT alone is not sufficient to justify non- dominant regulation on the U.S.-U.K. route. Thus, consistent with the BT/MCI merger decision, we regulate BTNA as a dominant carrier. IV. ORDERING CLAUSES 19. Accordingly, IT IS HEREBY CERTIFIED that the present and future public interest, convenience and necessity require a grant of the present application and IT IS ORDERED that application File No. ITC 96-439 is granted, and BTNA is authorized to provide international facilities-based switched and private line services between the United States and the United Kingdom. 20. IT IS FURTHER ORDERED that BTNA shall be regulated as a dominant carrier for the provision of all its authorized international switched and private line services between the United States and the United Kingdom. 21. 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 public notice of this order (see Section 1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau