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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 ) ) Telmex/Sprint Communications, L.L.C.) ) Application for Authority under ) File No. ITC-97-127 Section 214 of the Communications) Act for Global Authority to Operate as an ) International Switched Resale Carrier) Between the United States and ) International Points, Including Mexico) ORDER Adopted: August 7, 1998 Released: August 7, 1998 By the Chief, International Bureau: I. INTRODUCTION 1. In this Order, we find that Telmex/Sprint Communications, L.L.C. ("TSC") has demonstrated that it has satisfied the conditions set forth in the October 30, 1997 TSC Order as conditions precedent to the effectiveness of TSC's Section 214 authorization. We accordingly authorize TSC to commence service consistent with the terms and conditions set forth in its authorization. The Commission will address the significant issues raised in opposition to this authorization in a timely way in the pending application for review of the TSC Order. II. BACKGROUND 2. On February 27, 1997, TSC filed an application to obtain Section 214 authority to provide international switched resale services between the United States and all international points, including Mexico. TSC proposed to resell Sprint's facilities-based services. On October 30, 1997, the International Bureau conditionally granted TSC's authorization. More specifically, the Bureau found that in order for TSC's authorization to become effective, TSC's affiliate, Tel‚fonos de M‚xico, S.A. de C.V. ("Telmex") would be required to demonstrate that it had offered to amend its operating agreements with U.S. carriers to implement a monthly proportionate return methodology for the redistribution of southbound traffic. In addition, the Order required Telmex to demonstrate that it had offered other U.S. carriers the one-stop shopping and Paid 800 service agreements on the same terms and conditions as it has made such agreements available to Sprint. 3. On November 14, 1997, counsel for TSC filed a letter with the Commission stating that Telmex had satisfied the conditions set forth in the TSC Order. TSC attached copies of letters from Telmex to AT&T, MCI and WorldCom that purported to (a) offer to amend Telmex's operating agreements with each of those carriers to implement the 1/1/1 proportionate return methodology; and (b) offer those carriers one-stop shopping and Paid 800 agreements on the same terms and conditions on which Telmex has made such agreements available to Sprint. On November 25, 1997 AT&T filed a letter objecting to Telmex's Paid 800 service agreement offer. The International Bureau convened a status conference on December 1, 1997. On January 9, 1998, counsel for TSC filed a letter with the Commission stating that Telmex had amended its Paid 800 service offer to AT&T, MCI and WorldCom. TSC attached to this letter copies of letters from Telmex to AT&T, MCI and WorldCom revising Telmex's previous offer of the Paid 800 service agreements. In response, AT&T, MCI and Americatel Corporation ("Americatel") filed letters generally objecting to Telmex's Paid 800 service offer as insufficient. On May 26, 1998, TSC filed a letter clarifying Telmex's Paid 800 service offer and stating that all conditions for the 214 authorization had been met. MCI, AT&T, Americatel, Westel International ("Westel") and IXC Communications, Inc. ("IXC") filed letters opposing Telmex's claim that it had fulfilled the conditions. Counsel for TSC filed a letter with the Commission on June 22, 1998, clarifying the record with respect to two points, which was opposed by MCI, AT&T and Americatel. MCI and AT&T also subsequently made an ex parte presentation to the Commission. III. DISCUSSION 4. As noted above, pursuant to the TSC Order, TSC's Section 214 authorization can only become effective once Telmex demonstrates that it has offered: 1) to amend its operating agreements with U.S. carriers to implement a monthly proportionate return methodology for the redistribution of southbound traffic; 2) other U.S. carriers one-stop shopping agreements under the same terms and conditions on which Telmex has made such agreement available to Sprint; and 3) other U.S. carriers Paid 800 service agreements on the same terms and conditions on which Telmex has made such agreement available to Sprint. We will now consider whether Telmex has satisfied each of these conditions in turn. 5. Methodology for calculating proportionate return. In its November 14 letter, TSC states that Telmex offered to amend its operating agreements with AT&T, MCI and WorldCom to implement a monthly proportionate return methodology for the redistribution of southbound traffic. None of the U.S.- licensed carriers filed an objection to the sufficiency of Telmex's offer. At the December 1, 1997 status conference, there was general agreement among the U.S. carriers that Telmex had satisfied this condition of TSC's Section 214 authorization. We therefore conclude that Telmex has fulfilled its requirement to offer to amend its operating agreements with AT&T, MCI and WorldCom to implement a monthly proportionate return methodology for the redistribution of southbound traffic. 6. One-stop shopping agreements. In its November 14, 1997 letter, TSC states that Telmex offered other U.S. carriers one-stop shopping agreements on the same terms and conditions as it has made such agreement available to Sprint. At the December 1, 1997 status conference, there was general agreement among the U.S. carriers that Telmex had satisfied this condition of TSC's Section 214 authorization. AT&T, however, in its June 5, 1998 letter, states that Telmex has not yet agreed to the operating procedures requested by AT&T. In its June 22, 1998 letter, Telmex informs the Commission that it has in fact reached agreement with AT&T on operating procedures and AT&T will be able to commence service. In that same letter, Telmex confirms that all issues relating to the negotiation of one- stop shopping agreements between it and AT&T and MCI have been resolved. MCI claims that Telmex has not yet documented necessary operating procedures and processes. While these operational procedures are certainly necessary to commence service, the underlying agreements with AT&T and MCI are sufficient to fulfill Telmex's obligation to offer all other U.S. carriers one-stop shopping agreements on the same terms and conditions as it has made such agreement available to Sprint. Therefore, we conclude this condition is satisfied. 7. Paid 800 service agreements. In its November 14, 1997 letter, TSC states that Telmex offered other U.S. carriers Paid 800 service agreements on the same terms and conditions as it has made such agreement available to Sprint. AT&T objected to Telmex's Paid 800 service offer in its November 25, 1997 letter. At the status conference, Telmex agreed to amend its Paid 800 service to make it consistent with the Commission's International Settlements Policy (ISP). More specifically, Telmex offered to include Paid 800 traffic in proportionate return calculations for international message telephone service traffic and to make the offer retroactive to January 1996, when Telmex initiated this service with Sprint. On January 9, 1998, counsel for Telmex filed a letter with the Commission indicating that it had amended its Paid 800 service offers to U.S. carriers consistent with its representations at the December 1, 1997, status conference. Further, Sprint filed a letter clarifying the nature of its service agreement with Telmex. AT&T, MCI and Americatel filed letters with the Commission objecting to Telmex's amended Paid 800 service offer. 8. The U.S. carriers argue that Telmex attempted to place conditions or limitations on its offer that the International Bureau should find unacceptable. Specifically, they claim that Telmex's offer to include Paid 800 traffic in proportionate return calculations is conditioned on all U.S. correspondents reaching agreement with Telmex by February 1, 1998. In its May 26, 1998 letter, TSC clarifies that Telmex's offer is not conditioned on its reaching such an agreement by February 1, 1998. Rather, Telmex's offer to provide Paid 800 traffic on a retroactive basis and subject to proportionate return will remain open until agreements are reached with U.S. carriers on the same terms and conditions as have been made available to Sprint. In their June 5, 1998 letters, MCI and Westel contend that the Paid 800 offer is still conditioned on agreement by all U.S. carriers, pointing to a letter from Telmex to MCI. But that Telmex letter makes clear that it is only the truing-up of traffic that is affected by the agreement or rejection of a Paid 800 agreement with all potential U.S. carriers. Telmex's June 22, 1998, letter reaffirmed the Paid 800 arrangement was without conditions. In light of TSC's letters of clarification, we find that Telmex has indeed offered U.S. carriers Paid 800 service agreements on the same terms and conditions as it has made such an agreement available to Sprint. 9. Second, U.S. carriers object to Telmex's offer because it fails to lay out specifically how Telmex will include Paid 800 traffic retroactively in proportionate return calculations. In order for the offer to be complete, MCI claims that it "needs to know the amount of traffic that will be sent to it; how that amount is calculated; the time in which the true-up will be completed; and a timetable that will enable MCI to determine when the processes will be completed." AT&T argues that Telmex is willing to true-up traffic only after an extended period of time and that the Commission should require Telmex to compensate U.S. carriers before its 214 authorization goes into effect or, at most, no later than 60 days thereafter. 10. At the December 1, 1997 status conference, Telmex conceded that, consistent with the Commission's ISP, Telmex must include Paid 800 traffic in its proportionate return calculations retroactive to January 1996. Under the ISP, U.S. carriers must receive proportionate return traffic from foreign carriers in a non-discriminatory manner. The ISP does not further specify how or when such traffic is allocated among U.S. carriers, or even which types of traffic must be included in proportionate return. Consistent with the ISP, Telmex is required to distribute Paid 800 traffic to U.S. carriers on a non- discriminatory basis, retroactive to January 1996. Telmex agreed to do so in its January 9, 1998 letter and confirmed in its June 22, 1998 letter that it has made two proposals to AT&T and MCI with respect to the methodology for truing up Paid 800 traffic. AT&T and MCI have not accepted Telmex's proposals. MCI argues that Telmex's true-up proposals are incomplete and lack essential information. AT&T states that Telmex has provided inconsistent information concerning the amount of money owed to AT&T and has failed to provide needed traffic data. 11. We do not agree with AT&T or MCI that agreement on the method and timing for true-up of traffic is necessary in order to fulfill the Section 214 condition. The TSC Order required only that Telmex offer U.S. carriers Paid 800 service agreement on the same terms and conditions as it has made such agreement available to Sprint. That it has done. We do reiterate, however, that our ISP requires Telmex to true-up Paid 800 traffic retroactive to January 1996. We will continue to monitor this true-up process closely. We instruct the parties to report back to us within one month of the date of release of this Order on the true-up arrangements which have been negotiated. 12. U.S. carriers also object to Telmex's offer on the grounds that it is limited to northbound traffic only. They insist that they should be able to take advantage of this service for southbound traffic also. For the following reasons, we disagree. The TSC Order required only that Telmex offer other U.S. carriers Paid 800 service agreements on the same terms and conditions as it has made such agreement available to Sprint. In its letters to U.S. carriers clarifying its Paid 800 service agreement offer, Telmex states that its agreement with Sprint governs only northbound traffic. Additionally, Sprint states in its January 20, 1998 letter that its Paid 800 agreement with Telmex only covers northbound traffic. The TSC Order did not require Telmex to offer U.S. carriers a Paid 800 service agreement that exceeds in scope Telmex's agreement with Sprint. Because Telmex offered U.S. carriers the same agreement that it has with Sprint, we find that Telmex's offer satisfies the requirements of the TSC Order and the Commission's rules. 13. We note that a number of the issues raised by carriers regarding Paid 800 will be affected by our decision in a companion order today rejecting the settlement rate proposed by Sprint for Paid 800 service. We found in that Order that Sprint had not established that lowering settlement rates for northbound Paid 800 traffic would benefit consumers through improved services, increased competition or lower rates. 14. Finally, the U.S. carriers argue that Telmex impermissibly made its offer subject to any contrary future rulings by the Commission or Cofetel, the Mexican telecommunications regulator. We disagree for the following reasons. First, there is no evidence to support a belief that Cofetel would insist that Telmex maintain exclusive arrangements with U.S. carriers in contravention of Commission rules. Second, were Cofetel to make such a ruling, it would not restrict our ability to ensure that U.S.-licensed carriers in correspondence with Telmex comply with Commission rules, including our ISP and "no special concessions" rule. Third, should Telmex take actions in response to Commission rulings, we can always review those actions for consistency with the terms of TSC's license. We therefore conclude that this conditional language in Telmex's offer does not restrict our ability to ensure that U.S. carriers receive nondiscriminatory treatment by Telmex. 15. We therefore find that Telmex has offered to all U.S. carriers Paid 800 service agreements on the same terms and conditions as it has made such agreement available to Sprint. In addition, we find that Telmex has agreed to include Paid 800 traffic in proportionate return calculations and has made its offer to U.S. carriers retroactive to January 1996, when it initiated this service with Sprint. 16. U.S. carriers present a number of other reasons why the Commission should not allow TSC to commence service. They argue that Mexico does not afford competitive conditions to U.S. carriers; Telmex's proposed settlement rates for 1998 and 1999 do not comply with the Commission's Benchmarks Order and the surcharge imposed on international calls is discriminatory. Americatel urges the Commission to revoke the authorization because there are inadequate competitive safeguards in Mexico. MCI points out that the Bureau relied on certain expectations in granting the 214 authorization and none of the Bureau's expectations have been met. 17. We recognize that the issues raised in the responsive pleadings are extremely important. The Bureau did have certain expectations in issuing the 214 authorization regarding issuance of Mexican regulations on resale and accounting separation, as well as a quick end to the discriminatory surcharge on international calls. We acknowledge that these expectations have not yet been met and other issues have been raised that merit careful consideration. The Commission will consider these expectations and issues in the pending application for review of the TSC Order and in the decision on Sprint's application for approval of a new settlement rate with Telmex. This Order addresses only the very narrow subject of whether the conditions set out in the TSC Order have been met. 18. MCI and AT&T also allege that Telmex has entered into yet another exclusive cross- border service arrangement with Sprint in violation of the Commission's rules. In addition, AT&T alleges that Telmex may be illegally diverting away from AT&T Telmex-operator handled O+ collect traffic. MCI alleges that Telmex is discriminating against MCI's Mexican affiliate in its Plan LADA Operadores. MCI and AT&T also indicate that Telmex is discriminating against its competitors in private line provisioning in violation of its commitment made in the context of the TSC Order, and that Telmex is discriminating in its provision of international payphone services. Finally, Westel alleges that Mexico's proportionate return policy unfairly favors Telmex. We reiterate that all U.S.-authorized carriers continue to be subject to our "no special concessions" rule and are forbidden to benefit from any exclusive or preferential arrangements with Telmex that have not been previously approved by the Commission. Should we determine that Sprint or any other U.S.-authorized carrier is benefitting from a special concession or that TSC is violating any of the terms of this authorization, we will take appropriate enforcement action. We decline, however, to delay the effectiveness of TSC's authorization on the basis of these allegations. The scope of our analysis in this Order is the fulfillment of the narrow conditions specified in the TSC Order. As indicated previously, these allegations are more appropriately addressed in other proceedings. Moreover, any further delay would deprive consumers of the benefit of competition from TSC. 19. We emphasize that we are very concerned by allegations which have been raised with respect to anticompetitive activities by Telmex affecting competition in the U.S. international services market. We will continue to monitor conditions in this market closely to ensure that anticompetitive conduct by TSC or its affiliates does not adversely affect competition in this market. MCI and AT&T suggest that the Bureau impose a number of conditions as part of authorizing TSC to commence service to address concerns with anticompetitive activities. Many of the conditions proposed by AT&T and MCI relate to the original grant of authority and, as noted above, will be addressed by the Commission in other proceedings. We have decided, however, to condition grant of this authorization expressly on TSC or its affiliates not engaging in anticompetitive actions which will give TSC an unfair advantage in the U.S. international services market. If we find evidence of such anticompetitive conduct, we reserve the right to impose substantial forfeitures or suspend or terminate this authorization for failure to meet the conditions of the grant. 20. AT&T asked that any order issued by the Bureau not become effective for a period of ten days in order to provide AT&T with an opportunity to seek a stay. We conclude that the public interest does not warrant further delaying TSC's commencement of service, which will benefit U.S. consumers by introducing additional competition in the international services market. IV. CONCLUSION 21. In conclusion, we find that TSC's affiliate, Telmex, has fulfilled all the conditions requisite to the effectiveness of TSC's Section 214 authorization. We remind TSC and Telmex that they remain subject to all the factors and conditions upon which we concluded in October 1997 that grant of TSC's 214 application would serve the public interest. V. ORDERING CLAUSES 22. Accordingly, it is HEREBY ORDERED that TSC's Section 214 authorization IS EFFECTIVE, subject to compliance with this Order and those factors and conditions contained in the TSC Order. 23. IT IS FURTHERED ORDERED that this authorization is conditioned on TSC or its affiliates not engaging in anticompetitive actions which give TSC an unfair advantage in the U.S. international services market. 24. 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