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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-2709 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Western Wireless Corporation and ) File ISP-97-003 Western PCS Corporation ) ) Petition for Determination of the Public Interest ) under 47 U.S.C.  310(b)(4) ) of the Communications Act of 1934, ) as amended ) ORDER Adopted: December 24, 1997 Released: December 29, 1997 By the Chief, Telecommunications Division: I. Introduction 1. In this Order, we grant the petition for a declaratory ruling requested by Western Wireless Corporation (Western) and its wholly owned subsidiary, Western PCS Corporation (Western PCS), to exceed the 25 percent alien ownership benchmark of Section 310(b)(4) of the Communications Act of 1934, as amended. We find that allowing Hutchison Whampoa Limited (HWL), a Hong Kong company, to acquire indirectly a 19.9 percent equity investment in Western PCS, would serve the public interest. Our action allows for a 39.9 percent alien ownership of corporations controlling Western PCS's Personal Communications Services (PCS), associated point-to-point microwave, and Specialized Mobile Radio (SMR) licenses. II. Background 2. Western is a publicly traded corporation that indirectly holds various cellular, PCS, SMR, point-to-point microwave and paging licenses. Western currently owns 100 percent of Western PCS. Western PCS, in turn, owns three subsidiaries holding more than 100 broadband PCS licenses, associated point-to-point microwave licenses, and several SMR licenses. Currently, the level of alien ownership of Western PCS is approximately 15.7 percent. 3. Petitioners seek FCC approval to allow an alien investor to acquire a 19.9 percent minority interest in Western PCS. More specifically, petitioners propose that Hutchison Telecommunications PCS (USA), a British Virgin Islands corporation, would invest approximately $248 million to purchase the 19.9 percent minority interest in Western PCS. The proposed investor is 100 percent indirectly owned by Hutchison Telecommunications Limited (HTL), a Hong Kong corporation. HTL, in turn, is an indirect wholly owned subsidiary of Hutchison Whampoa Limited (HWL), a limited liability company organized in Hong Kong. This investment would raise Western PCS's (and Western's) attributable alien ownership level to approximately 35.6 percent. Because Western PCS's parent, Western, is publicly traded, its exact alien ownership may vary from time to time. Western therefore requests that the Commission allow it to increase aggregate alien ownership to 39.9 percent. 4. Western's petition was placed on public notice on November 10, 1997, directing interested parties to file comments by December 10, 1997, and reply comments by December 22, 1997. Cable and Wireless, Inc. (CWI) filed comments in support of Western's petition. III. Discussion 5. Section 310(b)(4) of the Act establishes a 25 percent benchmark for foreign indirect investment in a common carrier radio licensee, but grants the Commission discretion to allow higher levels of foreign ownership if it determines that such ownership would be consistent with the public interest. Because Western's proposed investment would exceed 25 percent, Section 310(b)(4) requires that we determine whether the proposed investment is in the public interest. 6. In the Foreign Carrier Entry Order, the Commission articulated a public interest standard for Section 310(b)(4) that contains two components. First, under a Section 310(b)(4) analysis we consider whether effective competitive opportunities (ECO) exist in the foreign investor's "home market" for the analogous radio-based service. Next, we examine other factors that relate to whether additional foreign investment in our telecommunications market is in the public interest. A. Effective Competitive Opportunities Analysis 7. The Commission's ECO analysis requires us to determine the appropriate national market and the appropriate market segment for comparison, and then apply the ECO factors. ECO factors include whether de jure, or legal, restrictions exist on U.S. carrier entry in the appropriate market, and whether any de facto, or practical, barriers exist with regard to interconnection policies, competitive safeguards, and the regulatory framework. 8. The Commission stated in the Foreign Carrier Entry Order that an alien entity's appropriate national market should reflect its principal place of business. We agree with petitioners that Hong Kong is the appropriate home market for comparison. As noted above, Hutchison Telecommunications PCS (USA) is 100 percent indirectly owned by HTL, a Hong Kong corporation. HTL, in turn, is an indirect wholly owned subsidiary of HWL, a limited liability company organized in Hong Kong. The petitioners indicate that a majority of HWL's shares is owned by Hong Kong incorporated companies and permanent residents of Hong Kong. In addition, the majority of the directors of HWL and HTL work in Hong Kong on a full time basis and are residents of Hong Kong. The petitioners also indicate that 90 percent of the net book value of all of HWL's investment properties and other properties are held in Hong Kong, and the great majority of HWL's profits is derived from Hong Kong. No party rebuts this claim, and there is no evidence in the record that contradicts petitioners' assertion. As a result, we find that Hong Kong is the appropriate home market for comparison. 9. While Hong Kong was officially transferred to the People's Republic of China (PRC or China) on July 1, 1997, we find no reason to consider the PRC as the appropriate home market for comparison. We agree with the petitioners and CWI that Hong Kong is a separate and distinct market from China for the purposes of our ECO analysis. First, pursuant to the United States-Hong Kong Policy Act of 1992, the United States Government recognizes the 1984 Joint Declaration between the United Kingdom and China. The Joint Declaration elaborates China's basic policies toward Hong Kong. Among other things, the Joint Declaration establishes a "one country-two systems" structure to allow Hong Kong to retain autonomous decision-making authority over all of its own affairs, with the exception of defense and foreign affairs. The Joint Declaration establishes Hong Kong as a Special Administrative Region with its own distinct laws, freedoms and way of life until 2047. 10. On April 4, 1990, the PRC Government adopted the Basic Law of the Hong Kong Special Administrative Region. The Basic Law prescribes the systems to be practiced in Hong Kong "in order to ensure the implementation of the basic polices of the People's Republic of China regarding Hong Kong." The Basic Law requires the Hong Kong Special Administrative Region to "pursue the policy of free trade and safeguard the free movement of goods, intangible assets and capital." The Basic Law allows Hong Kong, using the name "Hong Kong, China" to "participate in relevant international organizations and international trade agreements . . . such as the General Agreement on Tariffs and Trade." Thus, it appears that Hong Kong is permitted to remain a member of the World Trade Organization (WTO) separate and apart from the status of the People's Republic of China. 11. Finally, CWI observes that the Commission continues to distinguish between Hong Kong and China for the purposes of our rules and reporting requirements. For example, the Commission's Benchmarks Order differentiates between Hong Kong and China by applying different settlement rate benchmarks and transition periods to Hong Kong and China. 12. No party contradicts petitioners' and CWI's arguments that Hong Kong is the appropriate market for comparison under our ECO analysis. We find petitioners' and CWI's arguments to be persuasive. We will therefore consider Hong Kong as the appropriate market for comparison. 13. The appropriate market segment for review is determined "by comparing restrictions on U.S. participation in the home market for the particular wireless service in which the foreign investor seeks to participate in the U.S. market." We agree with petitioners that the wireless telecommunications market, including PCS, is the appropriate market segment for our ECO analysis. Hong Kong's Office of Telecommunications Authority (OFTA), which regulates the telecommunications industry in Hong Kong, issued six PCS licenses to operate PCS services in the 1700 to 1900 MHz band on September 30, 1996. According to petitioners, OFTA has also issued five licenses for other mobile telephone services and 31 paging licenses, as well as licenses for other wireless technologies. Petitioners' assertions were unopposed. We therefore agree with petitioners that the wireless telecommunications market, including PCS, is the appropriate market segment for our ECO analysis. 14. Under the Commission's Section 310(b)(4) ECO analysis, we examine whether de jure restrictions exist that limit U.S. investment in, or operation of, a provider of the relevant service in the relevant home market. If U.S. entities are allowed to hold a controlling interest in such a provider, an ECO analysis supports "placing no limit on the level of alien ownership in the U.S. service provider, absent significant de facto barriers." Petitioners state that Hong Kong does not impose any de jure restrictions on U.S. or other foreign entities entering the Hong Kong wireless telecommunications market. Western observes that OFTA has issued wireless telecommunications licenses to several entities with substantial foreign investment. CWI also indicates that OFTA recently distributed 17 Virtual Private Network Licenses, many of which were awarded to foreign-affiliated entities. No party contradicts these assertions. From the record, it appears that Hong Kong has not imposed unreasonable limits on the number of competitors in the Hong Kong wireless telecommunications market. It also appears that Hong Kong does not impose any restrictions on foreign investment in wireless telecommunications enterprises. We therefore conclude that there are no de jure restrictions on U.S. participation in the Hong Kong wireless telecommunications market. 15. A Section 310(b)(4) ECO analysis also considers de facto limitations on U.S. participation in the relevant market "[t]o the extent they are relevant." Petitioners state that Hong Kong does not restrict foreign entry into the Hong Kong wireless telecommunications market by de facto means. Petitioners note that OFTA's main policy objective is to "ensure the widest range of quality telecommunications services to be provided to the community at reasonable costs." Petitioners do not make any demonstration concerning the current availability of reasonable and nondiscriminatory interconnection prices, terms and conditions or the existence of competitive safeguards. Rather, petitioners appear to rely on the existence of multiple, foreign-affiliated competitors in the Hong Kong wireless telecommunications market to show that there are no de facto barriers to U.S. participation. No party contradicts petitioners' assertion and we find no evidence to the contrary. It appears from the record that there is substantial competition in the Hong Kong wireless telecommunications market. Thus, based on this record, we conclude that Hong Kong fully satisfies our de facto requirements. 16. Petitioners also assert that Hong Kong has an effective regulatory regime. They observe that OFTA, established in 1993, serves as the executive arm of the Telecommunications Authority, which is appointed as the statutory body to oversee the regulation of the telecommunications sector in Hong Kong. CWI further asserts that OFTA is an independent regulatory authority. No party contradicts petitioners' and CWI's assertions. As we noted above, competition presently exists in the Hong Kong wireless telecommunications market. The presence of wireless competition suggests that adequate regulatory authority exists to ensure that any de facto barriers in the market for wireless telecommunications services are not a significant impediment to competition. 17. Hong Kong, moreover, has made binding commitments to establish an independent regulator and fair rules of competition. As part of the World Trade Organization (WTO) agreement signed by 69 countries on February 15, 1997, Hong Kong agreed to open its basic telecommunications markets and abide by pro-competitive regulatory policies. These WTO regulatory commitments are binding and enforceable and require, among other things, an impartial, independent regulator and the adoption of competitive safeguards to prevent cross-subsidization, preclude use of carrier information for anticompetitive purposes, and provide the timely disclosure of technical network information. 18. In the Foreign Carrier Entry Order, the Commission decided that a favorable ECO finding can be made if "it is reasonably certain that [such opportunities] will be available in the near future." We expect that Hong Kong will abide by its WTO regulatory commitments by early 1998. If any regulatory problems do arise, however, the United States can use the WTO dispute settlement process to ensure that Hong Kong fulfills its binding obligations. On balance, therefore, we find that the Hong Kong wireless telecommunications market satisfies our ECO analysis under Section 310(b)(4). B. Additional Public Interest Factors 19. Section 310(b)(4) allows the Commission flexibility to refuse levels of foreign ownership above the 25 percent threshold if such ownership is inconsistent with the public interest. As noted, Hong Kong satisfies ECO for wireless telecommunications services, which is one aspect of our public interest determination. The Commission, however, examines other public interest factors as part of its Section 310(b)(4) review. These factors include the general significance of the proposed entry to the promotion of competition in the U.S. market, and any national security, law enforcement, foreign policy, and trade concerns raised by the Executive Branch. 20. Even if we had concerns that Hong Kong may not fully satisfy the requirements of the ECO test for wireless telecommunications services, we would nevertheless be inclined to grant petitioners' request. The WTO agreement and the market- opening commitments by most WTO member countries represent a major change in the global telecommunications market and therefore are an important public interest consideration in our Section 310(b)(4) analysis. Approving petitioners' request under our public interest standard is consistent with this new market environment. We also note that no parties have raised concerns with respect to anticompetitive conduct in the context of this application such as may arise in the case of a carrier which can leverage a foreign bottleneck to gain a competitive advantage over its competitors in the United States. 21. Petitioners, moreover, contend that the additional investment will promote competition in the U.S. telecommunications industry by "enabling Western to develop new services, build network infrastructure more quickly, and introduce new international roaming capabilities." We agree that the proposed investment has significant public interest benefits. As we have previously found, "foreign investment provides capital that can fuel investment in state-of-the-art infrastructure that leads to economic growth and job formation in the U.S. economy and facilitates competition among U.S. carriers both at home and abroad." 22. Finally, we have not been informed of any national security or other foreign policy considerations that might warrant refusal of the application. Accordingly, we conclude that allowing a 19.9 percent equity investment in Western PCS by an indirect, wholly-owned subsidiary of HWL, a Hong Kong company, and allowing Western's aggregate alien ownership to reach 39.9 percent, would serve the public interest. IV. Conclusion 23. We grant Western's and Western PCS's Petition for Declaratory Ruling under Section 310(b)(4) of the Act. We find that the denial of their petition would not serve the public interest. V. Ordering Clauses 24. Accordingly, it is HEREBY ORDERED that the petitioners' request for declaratory ruling IS GRANTED. 25. 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 Diane Cornell Chief, Telecommunications Division International Bureau