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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 ) ) Americatel Corporation ) ) File No. ITC-96-263 Application for Authority to Establish) and Operate Facilities for the Provision) of Interconnected Private Line Service, ) and to Provide on a Resale Basis ) Interconnected and Non-Interconnected ) Private Line Services Between Points in) the U.S. and Points in Chile ) ) Frontier Communications Services, Inc.) ) File No. ITC-96-372 Application for Authority Pursuant to) Section 214 of the Communications Act) of 1934, as Amended, to Resell Private ) Lines Between the United States and Chile) ) Telef˘nica Larga Distancia ) de Puerto Rico, Inc. ) ) File No. ITC-96-318 Application Pursuant to Section 214 for) Authority to Resell Private Lines) Interconnected with the Public Switched ) Network for Provision of Switched Services) Between the United States and Chile) ORDER AND AUTHORIZATION Adopted: August 7, 1998 Released: August 10, 1998 By the Chief, Telecommunications Division: I. Introduction 1. Americatel Corporation (Americatel), Frontier Communications Services, Inc. (Frontier), and Telef˘nica Larga Distancia de Puerto Rico, Inc. (TLD) filed applications requesting authorization, pursuant to Section 214 of the Communications Act of 1934, to resell international private lines for the provision of switched services (also known as International Simple Resale or ISR) between the United States and Chile. In this Order and Authorization (Order), we find that Chile does not at this time afford resale opportunities equivalent to those available under U.S. law. We also find that the benchmark settlement rate condition for the provision of switched basic services over resold international private lines on the U.S.-Chile route has not yet been satisfied. In addition, we reject Americatel's alternative request for waiver of Section 63.18(e) of the Commission's Rules as inconsistent with the rule's underlying goal of preventing one-way bypass of the settlement rate system. We therefore deny without prejudice the applications of Americatel, Frontier and TLD to resell international private lines for the provision of switched services between the United States and Chile. II. Discussion 2. Section 63.18(e) of the Commission's Rules requires that an applicant requesting authorization to provide switched services over resold private lines between the United States and a WTO Member country such as Chile show either that the destination country affords resale opportunities equivalent to those available under U.S. law or that settlement rates for at least 50 percent of the settled U.S.-billed traffic between the United States and that country are at or below the relevant benchmark settlement rate adopted in the Commission's Benchmarks Order. To satisfy the Commission's equivalency criteria, an applicant must demonstrate that the destination country provides U.S. carriers with: (1) the legal right to resell international private lines, interconnected at both ends, for the provision of switched services; (2) nondiscriminatory charges, terms and conditions for interconnection of foreign domestic carrier facilities for termination and origination of international services, with adequate means of enforcement; (3) competitive safeguards to protect against anticompetitive and discriminatory practices affecting private line resale; and (4) fair and transparent regulatory procedures, including separation between the regulator and the operator of international facilities-based services. 3. Americatel, Frontier and TLD assert that Chile meets all four criteria of the Commission's equivalency test. AT&T and MCI, however, argue that Chile fails to satisfy the equivalency test requirement of providing nondiscriminatory charges for interconnection. They contend that Chile's access charge system leads to higher interconnection charges for international calls that terminate in Chile than it does for international calls that originate in Chile and for domestic long distance calls. Under the current system, TLD's affiliate Compa¤ia de Telefonos de Chile ("CTC") -- which has the only ubiquitous facilities-based local exchange network in Chile -- can collect an access charge of approximately 32 cents per minute for international calls that terminate in Chile. This access charge is approximately ten times the access charge for international calls originating in Chile and five times the access charge for domestic long distance calls. Any carrier interconnecting to CTC's public switched network must pay this access charge regardless of whether the traffic travelled through the traditional settlement rate system or over international private lines. Americatel, Frontier and TLD respond that the access charges imposed on international calls that terminate in Chile are nondiscriminatory because they apply equally to U.S. and Chilean carriers that provide switched services over resold private lines from the United States to Chile. In the alternative, Americatel has requested a waiver of Section 63.18(e) of the Commission's Rules, arguing that approval of ISR on the U.S.-Chile route will serve the underlying purpose of the rules governing ISR by reducing settlement rates on the route without leading to one-way bypass of the settlement rate system. 4. As the Commission has previously acknowledged, Chile has made "commendable progress in liberalizing its telecommunications markets, fostering competition and devising competitive safeguards to enable new entrants to compete effectively." Despite our general enthusiasm for the competitive strides made in Chile, we have serious concerns about discrimination in Chile's access charge regime. We find that the asymmetry in Chile's access charges favors Chile-U.S. traffic over U.S.-Chile traffic. Approval of ISR between the United States and Chile would allow a carrier to bypass the traditional settlement rate system on the route by sending traffic over private lines into Chile. Regardless of whether the traffic on the U.S.-Chile route travelled through the traditional settlement rate system or over international private lines, though, the carrier interconnecting to CTC's public switched network would have to pay a much higher access charge to CTC to terminate international traffic in Chile than it would to originate traffic there. Chile's access charge on terminating international traffic, in effect, represents an unbundled national network component (domestic transportation and termination) of the settlement rates on that route, ensuring that an above-cost subsidy is paid to CTC no matter how the traffic arrives in Chile. We find no economic justification for charging carriers operating in the United States an amount to terminate an international call in Chile that exceeds by tenfold the amount charged to carriers operating in Chile for originating the same type of call travelling over the same network. Moreover, we believe Chile's access charge regime creates significantly greater economic incentives to send traffic on the route northbound from Chile than southbound from the United States. We therefore conclude that approval of ISR on the U.S.-Chile route would lead to unilateral evasion of the settlement rate system, exacerbate the U.S. net settlements deficit and ultimately increase the likelihood that U.S. ratepayers would have to pay higher rates. As a result, we find that Chile fails to afford resale opportunities equivalent to those available under U.S. law. 5. In the Foreign Participation Order, the Commission determined that satisfaction of the benchmark settlement rate condition adopted in the Benchmarks Order would address the concern about one-way bypass of the settlement rate system in the context of private line resale between the United States and a WTO Member country. The condition provides that carriers may not use their authorized international private lines for the provision of switched basic services between the United States and a non-equivalent WTO Member country until the Commission has determined that settlement rates for at least 50 percent of the settled U.S.-billed traffic between the United States and that country are at or below the benchmark. No party to this proceeding has demonstrated that settlement rates for at least 50 percent of the settled U.S.-billed traffic on the U.S.-Chile route are at or below the relevant benchmark of 19 cents. Moreover, Commission data indicate that no settlement rates on the U.S.-Chile route are at or below the benchmark rate. We therefore deny the applications of Americatel, Frontier and TLD to resell international private lines for the provision of switched services between the United States and Chile at this time. 6. We also reject Americatel's alternative request for waiver of Section 63.18(e) of the Commission's Rules. We grant waivers only when such relief would not undermine the policy objective of the rule in question and would otherwise serve the public interest. In the Foreign Participation Order, the Commission encouraged the development of services such as ISR that generally place downward pressure on international settlement rates "to the greatest extent possible consistent with our goal of preventing the market distortions that result from one- way bypass." Because approval of ISR on the U.S.-Chile route would lead to one-way bypass of the settlement rate system, we find that grant of Americatel's request for waiver of Section 63.18(e) of the Commission's Rules would be inconsistent with the rule's underlying goal of preventing one-way bypass of the settlement rate system. III. Ordering Clauses 7. Accordingly, IT IS ORDERED, pursuant to Sections 1, 2, 4(i), 214 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154(i), 214 and 303(r), and Sections 63.10, 63.18 and 63.21 of the Commission's Rules, 47 C.F.R.  63.10, 63.18 & 63.21, that the application of Americatel Corporation, File No. ITC-96-263, for authority to resell international private lines for the provision of switched services between the United States and Chile IS DENIED without prejudice. 8. IT IS FURTHER ORDERED, pursuant to pursuant to Sections 1, 2, 4(i), 214 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154(i), 214 and 303(r), and Sections 63.10, 63.18 and 63.21 of the Commission's Rules, 47 C.F.R.  63.10, 63.18 & 63.21, that application of Frontier Communications Services, Inc., File No. ITC-96-372, for authority to resell international private lines for the provision of switched services between the United States and Chile IS DENIED without prejudice. 9. IT IS FURTHER ORDERED, pursuant to pursuant to Sections 1, 2, 4(i), 214 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154(i), 214 and 303(r), and Sections 63.10, 63.18 and 63.21 of the Commission's Rules, 47 C.F.R.  63.10, 63.18 & 63.21, that application of Telef˘nica Larga Distancia de Puerto Rico, Inc., File No. ITC- 96-318, for authority to resell international private lines for the provision of switched services between the United States and Chile IS DENIED without prejudice. 10. IT IS FURTHER ORDERED, pursuant to pursuant to Sections 1, 2, 4(i), 214 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154(i), 214 and 303(r), and Sections 1.3 and 63.18 of the Commission's Rules, 47 C.F.R.  1.3 & 63.18, that Americatel Corporation's request for waiver of Section 63.18(e) of the Commission's Rules IS DENIED. 11. This Order is issued pursuant to 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 of the Commission's Rules, 47 C.F.R.  1.106, or applications for review under Section 1.115 of the Commission's Rules, 47 C.F.R.  1.115, may be filed within 30 days of the public notice of this Order (see Section 1.4(b)(2) of the Commission's Rules, 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane Cornell Chief, Telecommunications Division International Bureau