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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 ) ) Sprint Corporation ) ) Petition for Declaratory Ruling Concerning) File No. ISP-95-002 Section 310(b)(4) and (d) and the Public) Interest Requirements of the Communications) Act of 1934, as amended ) ) Petition for Declaratory Ruling Concerning) File No. ISP-96-003 Section 310(b)(4) and (d) of the ) Communications Act of 1934, as amended) ) ) DECLARATORY RULING AND ORDER Adopted: June 25, 1998 Released: June 26, 1998 By the Chief, International Bureau : I. INTRODUCTION 1. In this Order, we determine that Sprint Corporation ("Sprint") need no longer be designated as a dominant carrier on the U.S.-France and U.S.-Germany routes. In light of the approach to foreign investment adopted by the Commission, we also remove any special reporting requirements imposed on Sprint as a result of the investments in Sprint by Deutsche Telekom ("DT") and France T‚l‚com ("FT"). II. BACKGROUND 2. In Sprint Declaratory Ruling I, the Commission approved the proposed ten percent equity investments each by FT and DT in Sprint. In granting the petition, however, the Commission concluded that Sprint's alliance with DT and FT, at that time the monopoly carriers in Germany and France respectively, created an unfair advantage over other U.S. carriers offering services to those markets. The Commission therefore imposed a number of conditions and safeguards on Sprint's operation on the U.S.-France and U.S.-Germany routes. First, the Commission classified Sprint as a dominant carrier for the provision of service on the U.S.-France and U.S.-Germany routes. Second, it required Sprint to obtain permission to operate additional circuits on the U.S.-France and U.S.-Germany route only upon a showing that France and Germany, respectively, have liberalized markets for alternative infrastructure and basic switched voice resale. Third, the Commission required Sprint to comply with nondiscrimination and reporting requirements. Fourth, Sprint was required to obtain a written commitment from FT to lower its accounting rate to the same range as the U.S.-U.K. and U.S.-Germany accounting rates. 3. The Commission has already determined that DT and FT met the conditions necessary to allow Sprint to operate additional circuits on the respective routes, and the U.S-France settlement rate of ($0.10) is below the benchmark rate set by the Commission. In the Foreign Participation Order, the Commission indicated that Sprint may seek removal of the remaining conditions by filing a request with the Commission. It did so on March 25, 1998, requesting the Commission remove Sprint's dominant carrier designation and the special reporting requirements. We put the petition on public notice. MCI Telecommunications Corporation ("MCI") filed an opposition to removing Sprint's dominant carrier status. Cable and Wireless, Inc. ("CWI") filed a petition supporting Sprint's petition, and Cegetel, S.A. ("Cegetel") and BellSouth Corporation ("BellSouth") filed comments, to which Sprint replied. SBC Communications, Inc. ("SBC") also filed reply comments. III. DISCUSSION 4. Dominant Carrier Status Sprint argues that dominant carrier status is unwarranted as a result of the World Trade Organization's ("WTO") Agreement on Basic Telecommunications ("WTO Basic Telecom Agreement") and the Commission's decisions implementing U.S. commitments in that Agreement. It contends, in any case, that it is not affiliated with DT and FT for purposes of the Commission's rules and should be subject, therefore, to the same requirements as other foreign carriers with business relationships with dominant foreign carriers short of affiliation. As explained further below, we agree that Sprint should no longer be regulated as dominant on the U.S.-Germany and U.S.-France routes because the aggregate investments of DT and FT no longer present a significant potential impact on competition in the U.S. international services market as a result of changes in market conditions in France and Germany. 5. The Commission has determined that carriers affiliated with foreign carriers with market power should be regulated as dominant. In the Foreign Carrier Entry Order, the Commission established the standard for affiliation as greater than 25 percent interest or a controlling interest at any level. In addition, the Commission concluded that a U.S. carrier should be regulated as dominant where it has foreign carrier investment that falls below the 25 percent affiliation threshold but which nonetheless presents a significant potential impact on competition. Although, as Sprint notes, the Foreign Participation Order dropped the requirement to notify the Commission of foreign investment below 25 percent, it did not change the standard of affiliation established in the Foreign Carrier Entry Order. Thus, in order to determine whether to maintain the dominant carrier designation, we need to determine whether the investments by FT and DT still pose a significant potential impact on competition in the U.S. market for international services. In fact, in Sprint Declaratory Ruling I, the Commission stated that it would regulate Sprint as a dominant carrier for the provision of U.S. international services on the U.S.- France and U.S.-Germany route until Sprint can demonstrate that there is no substantial risk of anticompetitive effects in the U.S. international services market from its affiliation with FT and DT. 6. Before making that determination, however, we must decide whether to aggregate the interests of FT and DT in Sprint. In determining whether a significant potential impact on competition in the U.S. market exists where there is more than one foreign carrier, the Commission looks at whether the carriers are likely to act in concert. Sprint contends that the Commission did not find in the Sprint Declaratory Ruling I that DT and FT were likely to act in concert and that there is no such evidence. But the Commission did make such a determination, based on the existence of the joint venture among FT, DT and Sprint, concluding that it would affect the provision of international services in the United States. The Commission stated that the interests of FT and DT in Sprint "must be aggregated because the carriers also have joined forces through" a joint venture. That joint venture still exists, so the Commission will continue to aggregate the interests of FT and DT in making an affiliation determination. 7. CWI argues in support of Sprint that the Commission's decision was a result of an analysis by the Commission under the effective competitive opportunities test (ECO) in the Foreign Carrier Order, a test no longer applicable to carriers from WTO members, such as France and Germany. We do not agree that the determination was based on application of the ECO test; rather it was a determination made in order to decide whether the ECO test applied to the transaction. The ECO test only applied where a U.S. carrier was affiliated with a foreign carrier or where the investment presented a significant potential impact on competition. 8. Both Sprint and CWI also argue that, in light of the WTO Agreement, the Commission cannot make a determination of dominant carrier status on the basis of market conditions of the investing carriers. As we stated in the Foreign Participation Order, however, examining the ability of a carrier to affect competition in the U.S. market is not an impermissible examination of foreign market conditions, but an essential factor in our licensing decisions. 9. In the Sprint Declaratory Ruling I, the Commission cited a number of factors supporting the conclusion that the aggregate investment posed a significant potential impact on competition in the U.S. market for international services. The Commission noted that the transaction involved two of the largest foreign carriers in the world, which control bottleneck facilities in two of the biggest destination markets for U.S. traffic. Most importantly, at the time of the Ruling, FT and DT had monopoly positions in their own countries. This distinguished the Sprint, FT, DT ruling from that applicable to MCI and British Telecom. MCI is regulated as non-dominant, even though BT had invested 20 percent in MCI. The Commission noted that dominant carrier regulation of Sprint was necessary "at least until full infrastructure and services liberalization and procompetitive regulation emerges in France and Germany." It reached this conclusion because of the potential anticompetitive effect on the U.S. market of these foreign market conditions and not because of the market conditions themselves. 10. MCI argues that Sprint has failed to demonstrate that there is no substantial risk of anticompetitive effects in the U.S. market and therefore dominant carrier status continues to be warranted. First, it notes the FT and DT investment is "close to" the 25 percent threshold. We agree with Sprint that an investment does not become an affiliation simply because it is close to the presumptive level of affiliation. Investments below 25 percent must constitute control or pose a risk of having a significant impact on competition in the U.S. international services market. MCI has not shown that either condition exists. 11. MCI also argues that the FT and DT investment is not a passive one, pointing to certain shareholder consent rights. As Sprint notes, we found in the MCI/BT Order and the Sprint Declaratory Ruling I that these consent rights are typical protections against extraordinary corporate actions that could disadvantage a minority shareholder's interest in a corporation. We continue to believe that these consent rights, by themselves, do not constitute control. 12. Finally, MCI contends that DT and FT face minimal competition in their home markets and therefore Sprint should continue to be treated as dominant. Cegetel, noting that FT continues to enjoy a de facto monopoly over virtually all sectors of the French telecommunications market, also argues that the competitive situation in France and on the U.S.-France route has not changed significantly. In addition, Cegetel claims: there is a serious lack of transparency in the French regulatory process; tariffs are not reviewed by the regulator before they become available; France Telecom does not make its cost support information public; and France Telecom is permitted to make customized offerings to large customers in order to preempt competition. 13. We are aware that DT and FT still have by far the largest shares of their respective markets, and that further improvements in the regulatory framework of France and Germany can be made. We acknowledge the concerns raised by commenting parties regarding competitive conditions in France and Germany. For example, we would encourage regulators in France and Germany to adopt a consultative process in which all interested parties can participate. In France, we believe that licensing procedures should be speeded up. We do note that France and Germany are members of the WTO and have made commitments in the basic telecommunications sector. As a result, they are bound to observe transparency and non-discrimination in the regulatory process, as well as certain obligations regarding interconnection. 14. We agree with Sprint that the French and German telecommunications markets are now open to competition. Sprint notes that, as of January 1, 1998, DT and FT lost their protected monopoly status and both now face the prospect of competition in all segments of their respective telecommunications markets. The salient fact is that the monopolies that existed when the Commission imposed dominant carrier status on Sprint no longer exist. France and Germany now allow full competition in all aspects of the relevant telecommunications market and in each country there is an independent regulatory structure charged with promoting competition. Because these markets are now open to competition and recognizing that DT and FT each have only a ten percent investment in Sprint, we find that there is no longer a significant potential impact on competition in the U.S. market for international services. Consistent with the approach adopted in our Foreign Participation Order, we conclude that dominant carrier regulation is no longer required to prevent anticompetitive activities on the U.S.-Germany and U.S.-France routes. 15. Reporting Requirements The Sprint Declaratory Rulings I and II imposed a number of reporting requirements on Sprint designed to prevent Sprint from accepting the benefits of any anticompetitive use of market power by FT or DT. These included: 1) filing quarterly reports on the provisioning and maintenance of facilities and services by FT and DT to Sprint, monthly reports on circuit status for U.S.-France and U.S.-Germany circuits, and quarterly traffic and revenue reports for those routes; 2) filing annual reports detailing the status of the French and German telecommunications markets; 3) a requirement to obtain prior Commission approval before increasing FT's or DT's ownership or voting interest in Sprint; 4) filing any changes to Sprint/FT/DT agreements; and 5) conducting periodic reviews of its public shareholders to ensure compliance with the foreign ownership limitations. In addition, the Sprint Declaratory Ruling II required Sprint to notify the Commission if the ownership interest of any foreign investor exceeds one percent. 16. Sprint argues that the traffic reporting requirements should no longer apply because Sprint is not affiliated with FT and DT. It further argues that the other reporting requirements are incompatible with the Commission's findings in the Foreign Participation Order and should be rescinded. CWI supports Sprint, and none of the other commenters object to removal of the reporting requirements. As the Commission noted in the Foreign Participation Order, the traffic reporting requirements apply to carriers affiliated with foreign carriers with market power in order to aid in the detection of, and help deter, anticompetitive conduct. In light of our conclusion that Sprint is not affiliated with FT or DT, we remove the reporting conditions relating to provisioning and maintenance, circuit status, and traffic and revenue. 17. The approach to foreign investment articulated by the Commission in the Foreign Participation Order leads us to remove the other special reporting conditions applied to Sprint. The Commission stated that, in light of commitments made in the context of the WTO Basic Telecom Agreement, an increasingly competitive telecommunications market environment and improved regulatory tools, we could presume that entry was in the public interest. Based on the presumption of entry, the Commission also revised its rules to require that fewer foreign investments in authorized carriers be reported to the Commission. It raised the level of foreign carrier investment (whether by a single carrier or by multiple carriers that are parties to a contractual relationship) that requires prior notification from 10 percent to greater than 25 percent. Both the presumption and the notification requirement apply to any additional investment by DT or FT in Sprint. We will have the opportunity to address any concerns that we may have about the potential for anticompetitive conduct on the French and German routes at the time we receive notification about a combined investment greater than 25 percent by FT and DT. In the meantime, Sprint will be subject to the general competitive safeguards imposed on all U.S. international carriers. Therefore, there is no longer any need for the special reporting requirements. 18. BOC Issues. BellSouth and SBC do not oppose Sprint's petition but state that any action the Commission takes with respect to Sprint should also be reflected in Commission analysis of Bell Operating Company ("BOC") applications to enter the in-region long distance business under Section 271 of the Communications Act of 1934, as amended (the "Act"). In the Foreign Participation Order, we rejected this argument, finding that allowing an applicant from a WTO Member to enter the U.S. international services market poses neither the same likelihood nor potential degree of harm that entry by a BOC into the market for in-region interLATA service poses. Moreover, the BOCs are subject to a detailed statutory regime that governs their entry into in-region interLATA service under Section 271 of the Act. In considering entry by a foreign applicant into the U.S. international services market, on the other hand, the Commission is required to ensure that such entry is consistent with the public interest, convenience and necessity under Section 214 of the Act. In the Foreign Participation Order, the Commission concluded that, although entry by both types of carriers into new markets may be analogous in a general sense, the differences between the market circumstances of the BOCs and foreign carriers warranted different treatment. Neither BellSouth nor SBC have provided any evidence that would cause us to reconsider this conclusion. V. CONCLUSION 19. Because we find that FT and DT's investment in Sprint no longer poses a significant potential impact on competition in the U.S. market for international services, we conclude that Sprint should be regulated as non-dominant on the U.S.-France and U.S.-Germany route. We also conclude that Sprint should no longer be subject to special reporting requirements in light of the Commission's presumption in favor of foreign investment established in the Foreign Participation Order. VI. ORDERING CLAUSES 20. Accordingly, IT IS ORDERED that the Sprint's request for a declaratory ruling, I-S-P-95- 002 and I-S-P-96-003, is GRANTED. 21. IT IS FURTHER ORDERED that Sprint shall be regulated as a non-dominant carrier, pursuant to Section 214 of the Act, 47 U.S.C.  214, and Section 63.10 of the Commission's Rules, 47 C.F.R.  63.10, on the U.S.-France and U.S.-Germany routes. Therefore, the conditions contained in  140 of the Sprint Declaratory Ruling I are removed. 22. IT IS FURTHER ORDERED that the requirements applicable uniquely to Sprint contained in  145 (quarterly reports on provisioning and maintenance), 146 (monthly circuit status reports), 148 (prior Commission approval for increases in DT or FT ownership in Sprint), 149 (periodic sampling of public shareholders), 150 (filing amendments or modifications to the specific agreements), and 152 (annual progress reports) of the Sprint Declaratory Ruling I are removed. 23. IT IS FURTHER ORDERED that the requirement contained in  18 (notification of one percent increase in foreign ownership) of the Sprint Declaratory Ruling II is removed. 24. IT IS FURTHER ORDERED that MCI's Petition to Deny Sprint's petition IS DENIED. 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 Regina M. Keeney, Chief International Bureau