******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) OPTEL TELECOMMUNICATIONS, INC. ) ) TELEGLOBE INC. ) SCL-92-004-TC ) Application for Authority to Transfer ) Control of the CANUS-1 Submarine Cable ) Landing License ) ORDER AND AUTHORIZATION Adopted: May 8, 1998 Released: May 8, 1998 By the Chief, International Bureau: I. INTRODUCTION 1. In this Order, we grant the application of Optel Telecommunications, Inc. ("Optel") and Teleglobe Inc. ("Teleglobe") to transfer control of Optel from the current shareholders to Teleglobe. At the same time, we modify the conditions imposed on Optel with regard to the operation of the CANUS-1 submarine cable system. II. BACKGROUND 2. Optel is a Delaware corporation, in which 80 percent of the shares are owned by six shareholders and 20 percent by Teleglobe, a Canadian corporation. Teleglobe has numerous subsidiaries, including Teleglobe USA Inc. ("Teleglobe USA") and Teleglobe Canada Inc. Optel holds a license from the Commission to land and operate in the United States the CANUS-1 submarine cable system, a fiber optic cable with landing points in New Jersey and Nova Scotia. The shareholders of Optel have agreed to sell all of their interests in Optel to Teleglobe, at which time Teleglobe would be the sole shareholder of Optel. Optel would continue to be the licensee of CANUS-1. 3. On January 15, 1998, Optel and Teleglobe filed for authority under the Submarine Cable Landing Act to transfer control to Teleglobe. We placed the application on public notice. MCI filed comments. Optel and Teleglobe replied and MCI filed a response. Pursuant to Section 1.767(b) of the Commissions rules, and Executive Order No. 10530, we informed the Department of State of the application. The Department of State, after coordinating with the Department of Commerce's National Telecommunications and Information Administration and the Department of Defense, stated it had no objection to the transfer of control of CANUS-1 and did not request any special conditions for national security purposes. 4. Teleglobe USA currently has authority to provide facilities-based and resale services between the United States and Canada with no restriction on the type of facility used. Prior to that, Teleglobe USA received authority to acquire unlimited capacity specifically on CANUS-1 to provide services to international points other than Canada. III. DISCUSSION A. Transfer of Control 5. The Optel Order states that Optel must obtain Commission approval as required by Ordering Clauses (4), (8) and (9) to: (1) transfer control of Optel; (2) permit Teleglobe to increase its level of ownership from 19.99 percent to 100 percent; and (3) permit Optel to transfer to Teleglobe, a Canadian corporation, greater than five percent of shares presently held by U.S. interests. Teleglobe and Optel argue that the Commission's Foreign Participation Order, which became effective on February 9, 1998, establishes the applicable standard of review of their application. That Order adopted, as a factor of the public interest analysis, a rebuttable presumption that applications for licenses to land and operate cables from entities from members of the World Trade Organization (WTO) do not pose concerns that would justify denial of an application on competition grounds. In addition, the Commission concluded that it would no longer automatically impose a restriction on foreign ownership of cable landing stations. Thus, absent serious concerns raised by the Executive Branch regarding national security, law enforcement, foreign policy or trade issues, or, in the exceptional case where no conditions would adequately address a very high risk to competition, we will grant applications to land and operate cables from entities from WTO Members. 6. We agree with Teleglobe and Optel that the policies enunciated in the Foreign Participation Order apply to this application. We concluded in the Foreign Participation Order that additional foreign investment can promote competition in the U.S. market. We adopted an open entry policy for applications to land and operate submarine cables. Canada is a member of the WTO. Therefore, we conclude that the public interest will be served by permitting Teleglobe to acquire 100 percent of Optel. We also note that we have already found Teleglobe's entry into the U.S. market for international services to be in the public interest. B. Regulatory Conditions 7. In the Optel Order, the Commission imposed a number of conditions in addition to those regarding a change in control of Optel. The Commission did so at that time because we were concerned that the Canadian regulatory policy requiring "maximum use of Canadian facilities" could place U.S. carriers at a disadvantage. The Optel Order noted that U.S. carriers were precluded from using CANUS-1 for intra-Canada or Canada-overseas traffic requirements, while at the same time CANUS-1 could be used to compete for the routing of intra-U.S. and U.S. international traffic through Canada. Thus,we required that: 1) Optel not sell or lease any capacity on CANUS-1 to Teleglobe unless the Commission approves the acquisition of additional capacity; and 2) that Optel file copies of any contracts entered into with Teleglobe for the sale or lease of any capacity on CANUS-1. By requiring Teleglobe to seek additional authorization, the Commission reasoned that it would address any potential anticompetitive conduct through the Section 214 licensing process. 8. MCI claims that these conditions are still necessary to prevent Teleglobe from acting anticompetitively. It also requests that the Commission require Teleglobe to report on a monthly basis the outbound and inbound minutes carried by it or its affiliates over the CANUS-1 cable so as to enable the Commission to detect anticompetitive behavior caused by Teleglobe's use of CANUS-1. MCI argues that Teleglobe could bypass U.S.-third country accounting rates by refiling through Canada. 9. We decline to maintain the condition requiring prior approval for Teleglobe to add capacity on CANUS-1. In the Optel Order and the Commission's reconsideration of that order, the Commission noted that it imposed this condition in order to ensure that Teleglobe's use of CANUS-1 would be subject to Section 214 review. We have since granted Section 214 authorizations to Teleglobe to provide facilities-based service between the United States, Canada and foreign points. We thus agree with Optel and Teleglobe that this condition has been superseded by those Section 214 orders. 10. We also decline to require Teleglobe to provide monthly traffic reports of traffic routed over CANUS-1. We are not persuaded by MCI that transfer of control of CANUS-1 would significantly enhance Teleglobe's ability to bypass U.S.-third country accounting rates. As Optel and Teleglobe note, there is significant circuit capacity between the United States and Canada. We agree that CANUS-1 is not a bottleneck facility -- either between the United States and Canada or anywhere else. There are many other facilities that Teleglobe could use. In fact, we rejected this bypass argument in reconsidering the grant of Optel's license and in the Teleglobe USA 1998 Authorization. On reconsideration, AT&T argued that Teleglobe could use CANUS-1 to circumvent the normal U.S.- European settlements process. The Commission stated that existing rules address any concern about bypass. In the Teleglobe USA 1998 Authorization, the Commission noted that it is unlikely that Teleglobe Canada would have a bargaining advantage over U.S. carriers such that it could negotiate a settlement rate with a third country that was so low that, when combined with the U.S.-Canada settlement rate or other transport cost, it would be more economically attractive than the direct U.S.- third country settlement rate. Given the available circuit capacity, we fail to see why Teleglobe's control of CANUS-1 makes it more likely that Teleglobe would engage in bypass. Therefore, we do not see the need to impose reporting requirements as part of the cable landing license. 11. Consistent with the request of the State Department, we will maintain the condition in Optel's license that requires it to file any contracts it may enter into with Teleglobe for provision of capacity on CANUS-1. We find applying this condition only to Teleglobe to be appropriate, even in a most-favored-nation environment because Teleglobe controls both ends of the cable. It owns 100 percent of the cable landing station in Canada directly and, with its acquisition of 100 percent of the stock of Optel, will indirectly control the landing station in the United States. We believe that control of both ends of the cable may create a potential for anticompetitive discrimination against other carriers that such a reporting requirement can prevent. It is not necessary to require other U.S. carriers using CANUS-1 to abide by the same condition because only Teleglobe is in the position of controlling both ends of the cable. Finally, we agree with Optel and Teleglobe that the condition need not be modified to impose the applicable filing requirement on Teleglobe because Optel remains the licensee. 12. MCI noted in its Reply that the same kind of national security arrangement required in the BT/MCI Order would also be applicable in this case. As Optel and Teleglobe state, neither the Department of Defense nor the Federal Bureau of Investigation have raised any issues with this application. Moreover, the Department of State consulted the Department of Defense prior to informing the Commission that it had no objections to the transfer of control. Therefore, we decline to require any special national security arrangements. IV. CONCLUSION 13. In light of the above, we find that a grant of the application of Optel and Teleglobe to transfer control of Optel from the current shareholders to Teleglobe will serve the public interest. At the same time, we modify the conditions imposed on Optel with regard to the operation of the CANUS-1 submarine cable system to reflect recent Section 214 authorizations granted to Teleglobe. We decline to apply any additional reporting requirements. V. ORDERING CLAUSES 14. We hereby GRANT Optel Telecommunications, Inc. and Teleglobe Inc. authority under the Submarine Cable Landing Act to transfer control of Optel from the current shareholders to Teleglobe. 15. Optel's license to operate CANUS-1 is modified by deleting conditions (6) and (8). Except as so modified, Optel's license remains in full force and effect, including the conditions therein. 16. Optel must notify the Commission within five business days of the effective date of the transfer of control of Optel or of a decision not to effect such transfer of control. 17. This Order is issued under Section 0.261 of the Commission's rules, 47 C.F.R.  0.261 (1996), and is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's rules, 47 C.F.R.  1.106 (1996), or applications for review under Section 1.115 of the Commission's rules, 47 C.F.R.  1.115 (1996), may be filed within 30 days of the date of public notice of this Order and Authorization (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney, Chief International Bureau