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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 ) ) Stratos Mobile Networks (USA) LLC, ) ITC-98-287-TC IDB Mobile Communications, Inc., Stratos ) Global Corporation, and NewTel Enterprises ) Limited ) ) MarineSat Communications Network, Inc., ) ITC-98-288-TC Maritime Telecommunications Network, Inc., ) ICG Satellite Services, Inc., Stratos Holdings, ) Inc., and Stratos Acquisition Corporation ) ) Applications pursuant to Section 214 of the ) Communications Act of 1934, as amended, to ) transfer control of Section 214 Authorizations ) ) Maritime Telecommunications Network, Inc. ) 9713587 and Stratos Acquisition Corporation, ) ) Application for consent to assignment of ) point-to-point microwave radio station license ) ) Maritime Telecommunications Network, Inc. ) 807-DSE-AL-98 and Stratos Acquisition Corporation ) ) Application to assign earth station authorizations ) ORDER AND AUTHORIZATION Adopted: July 28, 1998 Released: August 5, 1998 By the Chief, Telecommunications Division: I. Introduction 1. In this Order, we authorize Stratos Mobile Networks (USA) LLC ("Stratos USA"), IDB Mobile Communications, Inc. ("IDB Mobile"), and Stratos Global Corporation ("Stratos") to transfer control of Section 214 authorizations to NewTel Enterprises Limited ("NewTel"). We also authorize MarineSat Communications Network, Inc. ("MCN") and Maritime Telecommunications Network, Inc. ("MTN"), and ICG Satellite Services ("ICG") to transfer Section 214 authorizations to Stratos Holdings, Inc. ("Stratos Holdings") and Stratos Acquisition Corporation ("Stratos Acquisition"). Furthermore, we grant MTN's applications regarding assignment of point-to-point microwave radio station licenses and earth station authorizations to Stratos Acquisition. We also impose dominant carrier regulation on these authorizations for service on the U.S.-Canada route. We find that a grant of these applications will serve the public interest under Sections 214 and 310(b)(4) of the Communications Act of 1934, as amended (Act). We also find that, with the exception of the U.S.-Canada route, non-dominant carrier regulation should apply to the routes serviced by the applicants. II. Background 2. Stratos USA, a Delaware corporation, is authorized to provide international maritime satellite services, international aeronautical satellite services, international land mobile satellite services, and international basic switched and private line services to various international points on both facilities and resale bases. IDB Mobile, also a Delaware corporation, is authorized to provide various international mobile satellite services. MTN, a Colorado corporation, is a U.S. provider of satellite services with global facilities-based and resale authority as well as specific authority to provide services over the INMARSAT, ANIK E1, ANIK E2, Solidaridad I, Solidaridad II, Statsionar 1 and Statsionar 4 satellites. MCN, a Delaware corporation, is a Florida-based provider of satellite communications for commercial ships, private vessels, off-shore platforms, and land-based mobile units. MCN has authorization to operate as a facilities-based and resale carrier between the United States and various international points. In addition, MCN has pending an application to provide Inmarsat services. ICG, a Delaware corporation, currently controls MTN and MCN. 3. NewTel, the incumbent supplier of telecommunications services in Newfoundland and Labrador, seeks to control Stratos USA and IDB Mobile through the acquisition of an approximately 52.86% interest in Stratos, the current holding/parent company for both Stratos USA and IDB Mobile. Stratos Acquisition and MTN will merge, with Stratos Acquisition as the surviving corporation, and Stratos Holdings, the holding company for Stratos Acquisition, will also acquire 100% of MCN. Because Stratos also serves as the parent company of Stratos Holdings, NewTel will indirectly control MCN and Stratos Acquisition/MTN through its interest in Stratos. As NewTel is controlled by BCE, Inc., a Canadian holding company, the transferors also will become affiliated with other incumbent carriers in Canada upon authorization of the transfers of control. 4. Teleglobe Canada was affiliated with IDB Mobile and Stratos USA through its 29.17% interest in Stratos Wireless at the time the applications were filed. Teleglobe has since divested its interest in Stratos Wireless and, so, is no longer affiliated with any of the applicants. Teleglobe is presently the Canada's Signatory to Inmarsat, but recently sold this service to Stratos Wireless, subject to Canadian Government approval. 5. The present applications were removed from streamlined processing because COMSAT Corporation, through its COMSAT Mobile Communications unit ("COMSAT"), filed comments on May 20, 1998 in which it opposed the transfer of control applications. In response, Stratos Global, Stratos Holdings and Stratos Acquisition (the "Stratos Companies"), NewTel, and ICG, MTN, and MCN filed replies on June 3, 1998. COMSAT filed a response to these comments. No other party opposed the pending applications. III. Discussion 6. The applicants maintain that a grant of the instant applications is in the public interest because it will provide them with the financial resources necessary to innovate and to remain strong competitors in the market for mobile satellite services, thereby enabling them to offer U.S. consumers both reduced prices and increased choices. COMSAT contends that the applications "[r]ather than promoting competition and the public interest . . . involve the consolidation of market power by foreign carriers, with substantial risks of abuse of their foreign monopoly affiliations. In addition, COMSAT argues that Stratos Global and its affiliates warrant close scrutiny because the companies have engaged in unlawful conduct and requests that the Commission deny the applications, or in the alternative, condition any transfer of control. A. Standard of Review 7. We review these applications under the standards set forth in the Foreign Participation Order. In that order, the Commission adopted an open entry standard for applications from service suppliers of World Trade Organization (WTO) Members, such as Canada. The Commission adopted a strong presumption that a carrier's affiliation with a carrier in a WTO Member country does not pose competitive concerns. The Commission also adopted a strong presumption that indirect ownership of a common carrier radio licensee by an entity from a WTO Member country serves the public interest. Thus, the Commission stated that it would grant such authorizations expeditiously in all but the exceptional case in which an application presents a very high risk to competition that cannot be addressed by imposing additional conditions on the authorization. B. Competitive Analysis 8. COMSAT argues that the instant applications create a very high risk to competition on the U.S.-Canada route. COMSAT asserts that NewTel and Teleglobe are monopoly providers and argues that the applicants plan to utilize subsidized facilities and services from these foreign monopoly affiliates, thereby enabling them to engage in predatory pricing. Since Teleglobe is no longer affiliated with the Stratos Companies, COMSAT's concerns with anticompetitive conduct based on that affiliation are no longer relevant and we need not address them. We conclude that, even if NewTel were the provider of monopoly telecommunications services in Newfoundland and Labrador, the status of NewTel as a monopoly in these markets, by itself, does not pose a high risk to competition. We do not believe that, given its size, NewTel would give the applicants the ability to raise prices in the U.S. market unilaterally or to otherwise possess the ability to present a high risk to competition in the U.S. market for international telecommunications services. 9. COMSAT attempts to prove that applicants are likely to engage in anticompetitive behavior by arguing that the price that the applicants charge for some Inmarsat services ($2.50/min.) is below the cost of providing such service and made possible only through subsidies from Canadian affiliates. Thus, COMSAT is arguing that the applicants could price certain services too low, rather than too high. We find that COMSAT fails to demonstrate that the combined companies could engage in predatory pricing or even that they would have the incentive or ability to engage in such a pricing strategy. As the Stratos Companies point out, COMSAT charges some of its customers the same price as the applicants propose to charge. In addition, the Stratos Companies state that their charges include a healthy margin over the Space Segment Utilization Charge that Signatories pay to Inmarsat for space segment, thus allowing Stratos USA to cover not only its average variable costs, but its fixed costs as well. Finally, the Stratos Companies note that, as a condition of becoming Canada's signatory to Inmarsat, Stratos Wireless has agreed to the removal of all restrictions on routing Inmarsat traffic. Thus, COMSAT, as well as any other provider of Inmarsat services, will be able to route traffic through Canada, including from land-earth stations located in the United States, if there is a cost advantage to be gained from such routing. Given these facts we conclude that there is no evidence that applicants could engage in predatory pricing based on the transfer of control. Thus, we cannot find a very high risk to competition on this basis. 10. COMSAT also alleges that the transfers of control could pose a very high risk to competition because Stratos and IDB have not abided by Commission rulings or their own Section 214 authorizations. Specifically, COMSAT states that Stratos and IDB are operating in violation of the Inmarsat Act and IDB Mobile is violating FCC authorizations by refusing to pay COMSAT, the U.S. Signatory, for the use of Inmarsat space segment by IDB's U.S. land-earth stations, instead purporting to purchase that space segment from a foreign signatory. We take very seriously any allegations that our rules are being violated, but allegations of impropriety do not by themselves necessarily create a very high risk to competition. The Stratos companies are currently disputing COMSAT's claim to be the exclusive provider of Inmarsat space segment for U.S.-originated shore-to-ship traffic in an independent proceeding. We will address COMSAT's concerns in that proceeding. We find no evidence in the record to support COMSAT's allegations that Stratos and IDB are acting inconsistently with certifications made to the Commission. 11. Finally, COMSAT argues that the applications pose a very high risk to competition because applicants can route traffic through affiliated carriers and we will not have sufficient ability to detect any anticompetitive behavior. COMSAT alleges that, because the Canadian carriers are beyond the Commission's jurisdiction, the Commission will not be able to monitor or police many of the potential abuses the applicants will be able to engage in by taking advantage of their affiliations with monopoly providers. We disagree with COMSAT. Stratos and IDB have agreed to be regulated as dominant carriers on the U.S.-Canada route. Since both Stratos and IDB have 214 certificates, if we detect anticompetitive behavior on that route to the benefit of the applicants, we can take appropriate action. Therefore, we conclude that the applications do not pose a very high risk to competition and, as required by the Foreign Participation Order, we will grant them. C. COMSAT's Request to Impose Conditions on the Applicants 12. If the Commission allows the license transfers, COMSAT proposes a number of conditions be imposed on applicants and their transferees. These are: 1) apply dominant carrier regulation to each carrier for all routes in which the carrier utilizes affiliate facilities, as well as all services on the U.S.- Canada route; 2) require that applicants and transferees disclose within thirty days, on a continuing basis, any agreements among affiliates, including Teleglobe Canada, for any equipment and services; 3) require that applicants and transferees certify that they will purchase any equipment and services from affiliates only at competitive rates; 4) require that applicants and transferees certify that they will not discriminate in favor of their affiliates in the provision of any service; 5) require that applicants certify that they will route all U.S.-originated traffic to U.S. land-earth stations; and 6) require that the applicants certify that they will route all U.S. land-earth station traffic through U.S. Signatory space segment. 13. We decline to impose the suggested conditions. Some of the suggested conditions are covered by our "no special concessions" rule, which prohibits U.S.-licensed carriers from agreeing to accept special concessions granted by foreign carriers that possess market power in a relevant market on the foreign end of a U.S. international route. Thus NewTel, for example, is not allowed to discriminate in favor of any of the applicants on the U.S.-Canada route for any services. This means that service has to be provided in a nondiscriminatory manner. On routes other than the U.S.-Canada, we do not believe that there is a significant potential for anticompetitive behavior as none of the applicants or their affiliates have market power other than in Canada. It would be difficult to act anticompetitively in the absence of market power. 14. As noted above, Stratos and IDB, as well as MCN and MTN, agree that they will be regulated as dominant on the U.S.-Canada route. This means that they will have to file advance notice of tariffs; maintain a limited form of structural separation; submit quarterly traffic and revenue reports; report quarterly on provisioning and maintenance services provided by a foreign affiliates; and provide a quarterly circuit status report. In addition, the existing licenses already require the companies to 1) file with the FCC any written or oral agreements entered into with Teleglobe relating to routing of U.S. traffic through Teleglobe's facilities, and 2) purchase or obtain Teleglobe's services at published rates. These conditions will remain in place notwithstanding the transfer of control. We believe these conditions are sufficient to prevent anticompetitive behavior or to actually reveal that anticompetitive behavior is occurring, at which point we can take further action. 15. There are other generally applicable conditions that will prevent anticompetitive activities. As a non-dominant carrier on all routes, other than Canada, the applicants will be subject to regulation under Title II of the Act. Specifically, Title II requires carriers to offer international services under rates, terms and conditions that are just, reasonable, and not unduly discriminatory (Sections 201 and 202), and Title II carriers are subject to the Commission's complaint process (Sections 206-209). Title II carriers also are required to file tariffs pursuant to our streamlined tariffing procedures (Sections 203 and 205). 16. Finally, with respect to the last two conditions suggested by COMSAT, we agree with the applicants that these go to the issues we will consider in the Competitive Access Proceeding. To impose such conditions now would be to prejudge the outcome of that proceeding. 17. Since we are not adopting COMSAT's proposed conditions for the reasons described above, we need not get to the question of whether imposition of additional conditions would be inconsistent with the U.S. commitments under the World Trade Organization. IV. Conclusion 18. For the reasons described above, we authorize Stratos USA, IDB Mobile and Stratos Global to transfer control of Section 214 authorizations to NewTel. We also authorize MCN, MTN, and ICG to transfer Section 214 authorizations to Stratos Holdings and Stratos Acquisition. Furthermore, we find that it would serve the public interest, convenience and necessity pursuant to Sections 310(b)(4) and 310(d) to grant MTN's applications regarding assignment of point-to-point microwave radio station licenses and earth station authorizations to Stratos Acquisition. We also impose dominant carrier regulation on these authorizations for service on the U.S.-Canada route only. V. Ordering Clauses 19. Upon consideration of the application and in view of the foregoing, IT IS HEREBY CERTIFIED that the present and future public convenience and necessity require the grant of the present applications. 20. Accordingly, IT IS HEREBY ORDERED that application File No. ITC-98-287-TC IS GRANTED, and the transfer of control of Stratos USA's and IDB Mobile's Title II authorizations to NewTel is authorized. 21. IT IS FURTHER ORDERED that application File No. ITC-98-288-TC IS GRANTED, and the transfer of control of MTN's and MCN's Title II authorizations to Stratos Acquisition and Stratos Holdings is authorized. 22. IT IS FURTHER ORDERED that application File No. 9713587 IS GRANTED, and the assignment of MTN's point-to-point microwave radio license to Stratos Acquisition is authorized. 23. IT IS FURTHER ORDERED that application File No. 807-DSE-AL-98 IS GRANTED, and the assignment of MTN's earth station authorizations to Stratos Acquisition is authorized. 24. IT IS FURTHER ORDERED that the applicants will be subject to dominant carrier regulation under Section 63.10 of the rules on the U.S.-Canada route, and that non-dominant carrier regulation should apply to all other routes serviced by the applicants. 25. IT IS FURTHER ORDERED that all terms and conditions of any Commission orders granting authority to Stratos USA, IDB Mobile, MTN, or MCN shall remain in effect. 26. 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 date of the public notice of this order. (See Section 1.4(b)(2).) FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau