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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 ) ) Telef˘nica Larga Distancia de Puerto Rico, Inc. ) File No. ITC-97-653 ) Application Pursuant to Section 214 for Authority ) to Construct, Acquire, and Operate ) Capacity in a Digital Submarine Cable ) System, the PAN AMERICAN Cable System ) MEMORANDUM OPINION, ORDER AND AUTHORIZATI ON Adopted: May 11, 1998 Released: May 15, 1998 By the Chief, Telecommunications Division: I. Introduction 1. In this Order, we grant the application of Telef˘nica Larga Distancia de Puerto Rico, Inc. (TLD) for authority pursuant to Section 214 of the Communications Act of 1934, as amended, 47 U.S.C.  214, to (1) construct, acquire, and operate capacity in a digital submarine cable system, the PAN AMERICAN Cable System (PAN AMERICAN), between the U.S. Virgin Islands, Aruba, Venezuela, Colombia, Panama, Ecuador, Peru and Chile; (2) acquire ownership in two fiber pairs, to be included in PAN AMERICAN, from the owner of the St. Thomas St. Croix Cable System; (3) acquire by lease or other comparable means extension facilities as may be required to extend the capacity of PAN AMERICAN; and (4) activate capacity in PAN AMERICAN and in the aforementioned facilities for the provision of services already authorized by the Commission. We classify TLD as a dominant carrier in its provision of services to Peru, Chile, and Argentina. Finally, we condition TLD's authorization to use these facilities for service to Peru, Chile, and Argentina upon TLD's affiliates' offering U.S. carriers settlement rates at or below the relevant benchmark. 2. TLD filed this application on October 21, 1997. The application was placed on public notice on November 5, 1997. AT&T Corp. (AT&T) filed a Petition to Deny, arguing that TLD has not demonstrated that Peru, Chile, and Argentina offer U.S. carriers effective competitive opportunities (ECO). As detailed below, we deny AT&T's petition and find that TLD has provided sufficient information to comply with Section 214 of the Communications Act and that the authorization would serve the public interest, convenience, and necessity. Therefore, we grant TLD authority to construct, acquire, and operate capacity in PAN AMERICAN, subject to the conditions below. II. Application 3. TLD, a corporation organized under the laws of Puerto Rico, is a common carrier subject to the Communications Act of 1934, as amended. On January 20, 1998, we released a cable landing license (DA 98-81) and an order (DA 98-82) granting nine parties the same authority that TLD requests here with respect to the PAN AMERICAN cable system. 4. TLD proposes to land and operate PAN AMERICAN as a common carrier system extending between landing points at cable stations in St. Thomas, U.S. Virgin Islands; St. Croix, U.S. Virgin Islands; Baby Beach, Aruba; Punto Fijo, Venezuela; Barranquilla, Colombia; Colon, Panama; Panama City, Panama; Punta Carnero, Ecuador; Lurin, Peru; and Arica, Chile. The cable system will be connected with the domestic networks in those countries or territories. Shareholder voting interest in PAN AMERICAN will be divided among several parties as provided in the PAN AMERICAN construction and maintenance agreement. The licensees expect to activate PAN AMERICAN by August 31, 1998. 5. TLD plans to use PAN AMERICAN in providing its authorized services. TLD states that other carriers, including non-owners, may acquire capacity in PAN AMERICAN by lease, IRU, or other arrangements. The minimum investment unit (MIU) assignments for each segment and subsegment of PAN AMERICAN are included in the attachments to DA 98-82. TLD proposes to acquire 48 half-MIUs in PAN AMERICAN, for an ownership interest of 1.04882 percent. 6. TLD states that the facilities covered by this application will be used to supplement its existing cable and satellite facilities. Its existing satellite facilities are satellite circuits between U.S. earth stations and the INTELSAT Atlantic Ocean Region satellites acquired from the COMSAT Corporation pursuant to COMSAT's applicable tariffs. Those circuits are used in conjunction with connecting circuits between the satellites and foreign earth stations provided by TLD's foreign correspondents or, in some instances, other telecommunications entities. TLD's existing submarine cable facilities used to provide service between the United States and some of those locations proposed to be served by PAN AMERICAN consist of circuits in AMERICAS-1 and TCS-1. III. Discussion 7. TLD certifies that it is affiliated with foreign carriers in Spain, Argentina, Chile, Peru, and Romania. It is therefore affiliated with foreign carriers in three countries where PAN AMERICAN will land Argentina, Chile, and Peru. We evaluate this application under the policies adopted by the Commission in its recent Foreign Participation Order. There, the Commission adopted an open entry policy for international Section 214 applicants affiliated with carriers from WTO member countries. 8. In the Foreign Participation Order, the Commission adopted a rebuttable presumption that applications for Section 214 authority to serve WTO member countries do not pose concerns that would justify denial of an application on competition grounds. In adopting the presumption, the Commission found that it could rely on its competitive safeguards instead of an ECO analysis to address concerns of anticompetitive behavior by a foreign carrier with market power. Thus, we will expeditiously grant the Section 214 application of any carrier seeking to serve WTO member countries except in the exceptional case where a carrier's entry presents a very high risk to competition in the U.S. market that cannot be addressed by the Commission's safeguards or by additional conditions. In addition, we may further review applications if the Executive Branch raises serious concerns regarding national security, law enforcement, foreign policy, or trade issues. 9. Because Argentina, Chile, and Peru are members of the WTO, we presume that there is no competition-based reason to deny TLD's application. AT&T's petition to deny, filed before the Foreign Participation Order became effective, argues that Peru, Chile, and Argentina fail to satisfy the ECO test. AT&T has not, however, demonstrated that TLD's entry into the U.S. market and provision of service to those markets raises a very high risk to competition that cannot be addressed by our safeguards or additional conditions. In particular, AT&T has not made the required showing that the Commission's safeguards would be ineffective at preventing anticompetitive conduct by TLD and that as a result TLD would be able to raise the costs of unaffiliated U.S. carriers to the degree that end-user customers would be injured. 10. TLD has made no attempt to demonstrate that its affiliates in Peru, Chile, and Argentina lack sufficient market power to affect competition adversely in the U.S. market. Thus, TLD will be regulated as a dominant carrier pursuant to Section 63.10 of the Commission's rules along those routes. TLD may later petition for reclassification as a non-dominant carrier along any of those routes by showing that its affiliate lacks sufficient market power to affect competition adversely in the U.S. market. Furthermore, as required by the Commission's rules, the TLD has certified that it has not agreed and will not agree to accept special concessions from any foreign carrier. 11. Section 214 of the Communications Act requires the Commission to determine that the authorization of the PAN AMERICAN facilities will serve the public interest, convenience and necessity. The proposed Section 214 authorization will improve the telecommunications infrastructure and enhance services on the routes served by PAN AMERICAN. The Commission has previously stressed the importance of making advanced telecommunications available to further economic development of the Caribbean region. The improvement in telecommunications systems would also improve services to areas in South and Central America. TLD has also stated that other carriers, including non-owners, may acquire capacity in PAN AMERICAN, so the pro-competitive goals of the Commission are met by granting the Section 214 authorization. 12. Accordingly, we conclude that the public interest will be served by granting TLD authority to construct, acquire and operate capacity in PAN AMERICAN. Therefore, IT IS HEREBY CERTIFIED that the present and future public convenience and necessity require a grant of the application, as conditioned below. IV. Ordering Clauses 13. IT IS ORDERED that application File No. ITC-97-221 IS GRANTED and Telef˘nica Larga Distancia de Puerto Rico, Inc., is authorized, pursuant to Section 214 of the Communications Act, as amended, to (1) construct, acquire, and operate capacity in a digital submarine cable system known as the PAN AMERICAN Cable System between the U.S. Virgin Islands, Aruba, Venezuela, Colombia, Panama, Ecuador, Peru and Chile in accordance with the interests indicated in the Attachments; (2) acquire ownership in two fiber pairs, to be included in PAN AMERICAN, from the owner of the St. Thomas St. Croix Cable System; (3) acquire by lease or other comparable means such extension facilities as may be required to extend the capacity of PAN AMERICAN; and (4) activate capacity in PAN AMERICAN and in its facilities for the provision of TLD's authorized services. 14. IT IS FURTHER ORDERED that TLD's tariffs must state that its customers may not resell international private lines or connect them to the public switched network for the provision of international basic telecommunications services unless authorized to do so by the Commission upon a country-specific finding that the Commission will permit the provision of switched services over private lines between the United States and that country. See Market Entry and Regulation of Foreign- Affiliated Entities, Report and Order, 11 FCC Rcd 3873 (1995); Rules and Policies on Foreign Participation in the U.S. Telecommunications Market, Report and Order and Order on Reconsideration, 12 FCC Rcd 23,891 (1997). The limitations in this paragraph are subject to the exceptions contained in Section 63.18(e)(4)(ii) of the Commission's rules, 47 C.F.R. 63.18(e)(4)(ii) (1997). 15. IT IS FURTHER ORDERED that the licensees of PAN AMERICAN shall make available half-interests in PAN AMERICAN capacity to such present and future U.S. carriers as may be authorized by the Commission to acquire such capacity. 16. IT IS FURTHER ORDERED that the Commission retains jurisdiction to reallocate U.S. carriers' interests in capacity herein authorized, as the public interest may require and with any requisite concurrence of the foreign administration or carriers concerned, in order to accommodate additional carriers or for other reasons. 17. IT IS FURTHER ORDERED that TLD shall comply with Sections 43.82, 63.19, and 63.21 and with all other relevant Commission rules and policies. 18. IT IS FURTHER ORDERED that TLD's authorization to provide facilities-based service to Peru, Chile, and Argentina is subject to the conditions specified in International Settlement Rates, Report and Order, 12 FCC Rcd 19,806 (1997), that is, TLD may provide facilities-based service to a region served by an affiliate that terminates U.S. international switched traffic only if that affiliate has in effect a settlement rate with U.S. international carriers that is at or below the Commission's relevant benchmark. See id.  231. 19. IT IS FURTHER ORDERED that TLD shall be regulated as a dominant carrier under Section 63.10 of the rules and shall comply with the requirements of paragraph (c) of that section for services between the United States and Peru, Chile, and Argentina. 20. IT IS FURTHER ORDERED that AT&T's Petition to Deny is DENIED. 21. This Order is issued under Section 0.261 of the Commission's rules, 47 C.F.R.  0.261, 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, 47 C.F.R.  1.106, 1.115, may be filed within 30 days of the date of public notice of this order (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau