Before the
                FEDERAL COMMUNICATIONS COMMISSION
                      Washington, D.C. 20554

In the Matter of                )
                                )
CABLE & WIRELESS, INC.          )
                                )
Application for Authority Pursuant to)       File No. ITC-214-19980515-00326
Section 214 of the Communications Act)       Previous File No. ITC-98-380
of 1934, as Amended, to Provide Resold and)
Facilities-Based Switched and Private Line)
Service between the United States and China)

              ORDER, AUTHORIZATION, AND CERTIFICATE

Adopted:  December 2, 1998               Released:  December 8, 1998

By the Chief, Telecommunications Division:

                         I.  Introduction

     1.  In this Order, we grant Cable & Wireless, Inc. (CWI) authority to provide switched and private
line international telecommunications services on a facilities and resale basis between the United States and
China.  We classify CWI as a dominant carrier in its provision of service to China.

                         II.  Background

     2.  CWI is a common carrier that has received numerous authorizations under Section 214 of the
Communications Act of 1934, as amended, to provide switched and private line services between the
United States and international points throughout the world on both a facilities and resale basis.  CWI is an
indirect, wholly owned subsidiary of Cable and Wireless, plc (C&W plc).

     3.  CWI requests authority to acquire interests in facilities previously authorized by the
Commission in order to provide international basic switched, private line, data, television, and business
services to China.  CWI also requests authority to resell the international services of other authorized U.S.
carriers for the provision of international switched, private line, data, television, and business services to
China.  We placed CWI's application on public notice and received petitions to deny from AT&T Corp.
(AT&T), WorldCom, Inc. (WorldCom), and MCI Telecommunications Corporation (MCI).

                         III.  Discussion

     4.  The rules and standards adopted in the Commission's Foreign Participation Order apply to
this application.  Because China is not a member of the World Trade Organization (WTO), we examine
whether CWI's application is subject to the Commission's "effective competitive opportunities" (ECO) test. 
An applicant must satisfy the ECO test if it is a carrier, or controls a carrier, or is affiliated with a carrier
within the meaning of Section 63.18(h)(1)(i)(B) of the Commission's rules, that has sufficient market
power in the destination non-WTO market to affect competition adversely in the U.S. market.  If we
authorize CWI to provide service to China, we must also determine whether to impose our international
"dominant carrier" safeguards on CWI in its provision of service on that route due to the market power of
an affiliated carrier operating in China.  We address first the question whether CWI's Section 214
application is subject to the ECO analysis and whether it is in all other respects consistent with the public
interest, convenience, and necessity.

A.  Section 214 Authorization

     5.  CWI certifies that the Shenda Telephone Company (Shenda) is an affiliate operating in China
that meets the Commission's definition of "affiliation" in Section 63.18(h)(1)(i)(A) but does not meet the
definition of "affiliation" in Section 63.18(h)(1)(i)(B).  CWI states that its parent, C&W plc, possesses a
non-controlling 49 percent ownership interest in Shenda.  Because the C&W plc interest in Shenda is not
controlling, CWI maintains that its affiliation with Shenda is not of the type described in Section
63.18(h)(1)(i)(B) and therefore does not trigger application of the ECO test.  CWI correctly observes that
the ECO test is not triggered by affiliations described in paragraph (A) of Section 63.18(h)(1)(i) unless the
affiliation also falls within the meaning of paragraph (B) (because the applicant's greater-than-25-percent
or controlling shareholder controls the foreign carrier); or the applicant itself controls the foreign carrier. 
As the Commission observed in the Foreign Participation Order, when it modified its rules to apply the
ECO test to U.S. carriers' investments in some foreign carriers, "there can be significant risks to
competition when a U.S. carrier [or a greater-than-25-percent or controlling shareholder] owns a
controlling interest in a foreign carrier with market power."  By contrast, a greater-than-25 percent, but
non-controlling, interest in a foreign carrier represents a level of influence over the foreign carrier that is
"sufficiently attenuated" such that application of the ECO test is not appropriate.  Thus, although CWI is
affiliated with Shenda within the meaning Section 63.18(h)(1)(i)(A), this affiliation does not itself trigger
ECO because neither CWI, nor its controlling shareholder C&W plc, has a controlling interest in Shenda.

     6.  WorldCom and MCI do not contend that CWI or C&W plc has a controlling interest in Shenda
or any other carrier operating in China.  Rather, they argue that the ECO test applies here because CWI is
affiliated with China Telecom within the meaning of the last sentence of Section 63.18(h)(1)(i)(B).  This
affiliation, they argue, results from CWI's affiliation with Shenda and the Chinese government's control of
both Shenda and China Telecom.

     7.  Petitioners' argument tracks the final sentence of Section 63.18(h)(1)(i)(B), which reads as
follows:

          A U.S. carrier [here, CWI] also will be considered to be affiliated with a foreign carrier
     [here, China Telecom] where the foreign carrier [China Telecom] controls, is controlled
     by, or is under common control with a second foreign carrier [here, Shenda] already found
     to be affiliated with that U.S. carrier under this section.

Thus, on the basis of this language, petitioners argue that CWI is considered to be affiliated with China
Telecom because China Telecom is under common control with Shenda, which is affiliated with CWI under
paragraph (A) of Section 63.18(h)(1)(i).

     8.  Petitioners' argument is consistent with a strict textual reading of the final sentence of
paragraph (B) of Section 63.18(h)(1)(i).  We conclude, however, that the Commission did not intend an
applicant to be considered an affiliate of a foreign carrier under the common control provision of Section
63.18(h)(1)(i)(B) unless the entity that controls both foreign carriers referenced in that provision has a
greater-than-25-percent or controlling interest in the applicant.  Absent such an interest in the applicant, the
foreign carrier (and its controlling shareholder) would have insufficient incentive to use its foreign market
power to discriminate in favor of the applicant, because neither the foreign carrier nor its controlling
shareholder would derive a direct financial benefit from any discriminatory conduct in favor of the
applicant.  This conclusion is supported by the Commission's reasoning when it adopted the "greater-than-
25-percent" affiliation standard in the Foreign Carrier Entry Order.  There, the Commission found that
"an investment [in a U.S. carrier] greater than 25 percent is large enough to give a foreign carrier
substantial influence over the conduct of a U.S. carrier and substantial rewards from anticompetitive
conduct."  The Commission specifically declined to include in its definition of affiliation interests in a
U.S. carrier of 25 percent or less, unless the interest is a controlling one.

     9.  In the instant case, the Chinese government controls both China Telecom and CWI's affiliate,
Shenda Telephone Company.  The Chinese government, however, does not have a greater-than-25-percent
or controlling interest in CWI.  Absent such an interest in CWI, we find that China Telecom and the
Chinese government have insufficient incentive to use China Telecom's market power to discriminate in
favor of CWI.  We therefore conclude that it is contrary to Commission policy to consider CWI an affiliate
of China Telecom under the final sentence of Section 63.18(h)(1)(i)(B).  As a result, we agree with CWI
that its application is not subject to the ECO test.

     10.  The petitioners argue in the alternative that we should scrutinize CWI's relationship with
China Telecom and perhaps deny the application because their "close relationship" presents a significant
potential impact on competition in the U.S. market.  WorldCom states that C&W plc and China Telecom
have forged a long-term alliance that includes cross-ownership arrangements that give each a stake in the
other's prosperity.  Those close ties, WorldCom argues, combined with the lack of any regulatory
constraints on China Telecom's activities in China, create an incentive and opportunity for China Telecom
to discriminate in favor of CWI on the U.S.-China route.  WorldCom argues that the Commission has
indicated that it will scrutinize investments and other business ties that may significantly impact the U.S.
international telecommunications market.  It argues that the Commission should require CWI to disclose
any and all common equity investments, contracts, or other deals that C&W plc has entered into with China
Telecom, the Chinese Ministry of Posts and Telecommunications, or any agencies of the Chinese
government, in order to determine whether the relationship requires us to deny this application.

     11.  We have never applied the ECO test as a result of non-equity business arrangements or cross-
ownership arrangements between an applicant and a foreign carrier.  In the Foreign Carrier Entry Order,
the Commission decided not to apply the ECO test to non-equity business arrangements between U.S.
carriers and their foreign counterparts because these arrangements do not constitute entry into the U.S.
market as a common carrier, and neither party derives a direct financial benefit with respect to the other's
telecommunications operations.  Rather, the Commission said, those alliances may warrant increased post-
entry regulatory scrutiny.  Similarly, cross-ownership arrangements do not allow either carrier to benefit
directly from the other's successes.  The Commission decided to apply its market entry tests only where a
foreign carrier has an ownership interest in the applicant that creates an affiliation or where a smaller
investment by a foreign carrier in the applicant nevertheless presents a significant potential impact on
competition.  We scrutinize other sorts of business relationships only in the context of post-entry
regulation.

     12.  Thus, there is no basis for us to go beyond our usual standards in this case.  Because, as
explained below, we will regulate CWI as a dominant carrier to both China and Hong Kong, post-entry
regulatory safeguards will be sufficient to detect and deter the kinds of anticompetitive conduct that the
petitioners warn may occur.

     13.  We know of no other countervailing public interest considerations that would warrant denying
the instant application.  The Executive Branch has not raised any national security, law enforcement,
foreign policy, or trade concerns with this application.  Although we are concerned by the high accounting
rates of U.S.-authorized carriers that terminate international traffic in China, we do not believe that concern
warrants denying CWI's authorization.  The Commission's benchmark settlement rate policies, together
with the Commission's other competitive safeguards, sufficiently address our concerns raised by the high
accounting rates on the U.S.-China route.  We believe that CWI's entry will increase competition in the
United States and Chinese markets and thus benefit U.S. consumers.  Consequently, we find that the public
interest would be served by granting CWI Section 214 authority to provide facilities-based and resold
telecommunications services between the United States and China.

B.  Regulatory Classification

     14.  We next examine whether to impose our international dominant carrier safeguards on CWI in
its provision of service on the U.S.-China route due to the market power of an affiliated carrier operating in
China.  The Commission defines market power as a carrier's ability to raise price by restricting the output
of its services.  In the international context, our regulatory approach addresses the ability of a carrier
operating in a foreign market to discriminate against unaffiliated U.S. carriers through the control of an
input that is necessary for the provision of U.S. international services.  The relevant input markets on the
foreign end of a U.S. international route are the markets that involve services or facilities necessary for the
provision of U.S. international services.  Those relevant markets generally include international transport
facilities or services, inter-city facilities or services, and local access facilities or services at the foreign end. 
The Commission recognized in the Foreign Participation Order that, for purposes of identifying relevant
input markets on the foreign end, it may be appropriate in some instances to examine a discrete geographic
region rather than the national market of a foreign country.

     15.  Shenda, CWI's affiliated carrier in China, is licensed to operate as a local carrier in China's
Shenzhen Special Economic Zone (SEZ).  CWI does not assert that Shenda faces competition in the
provision of local exchange service in the Shenzhen SEZ.  Thus, we begin our analysis of CWI's regulatory
classification on the U.S.-China route with reference to Section 63.10(a)(2) of the Commission's rules. 
That section provides that an authorized carrier that is affiliated with a foreign carrier that is a monopoly
provider of communications services in a destination country is presumptively classified as dominant on
that route.  Even if we were to conclude that Shenda is not a monopoly and therefore apply the standard in
Section 63.10(a)(3), on the theory that Shenda does not have a monopoly in the provision of local access
facilities or services in the Chinese national market, our analysis would be the same.  Section 63.10(a)(3)
provides that a carrier that is affiliated with a foreign carrier that is not a monopoly in a destination country
and that seeks to be regulated as non-dominant on that route bears the burden of submitting information
sufficient to demonstrate that its foreign affiliate lacks sufficient market power on the foreign end of the
route to affect competition adversely in the U.S. market.  As explained below, we find that CWI has not
met the burden of showing that Shenda lacks sufficient market power in the greater Chinese market to
affect competition adversely in the United States.  For the same reason, we also find that CWI has not
rebutted the presumption of dominance in Section 63.10(a)(2).

     16.  While CWI has not attempted to argue that Shenda lacks sufficient market power to affect
competition adversely on the route between the United States and the Shenzhen SEZ, CWI nonetheless asks
to be regulated as non-dominant for provision of services to regions outside the Shenzhen SEZ.  It argues
that we should consider the SEZ to be a discrete geographic region of China for purposes of regulatory
treatment.  CWI asks us to find that competitive characteristics in the Shenzhen SEZ are sufficiently
distinct from those of the Chinese national market to warrant treating the region as a distinct geographic
market for purposes of our market power analysis.

     17.  We note that, since its establishment in 1980 as China's first special economic zone, Shenzhen
has been a flagship project in China's economic development strategies.  Complemented by the proximity
of Hong Kong, one of the world's leading export and import centers, Shenzhen is a major exporting city in
its own right.  To meet the demands of a major commercial center, the telecommunications services market
is well-developed compared with the rest of China.  The Shenzhen SEZ has one of the highest teledensities
of all cities in China.

     18.  We find that CWI has not met its burden of showing that Shenda lacks sufficient market
power in the greater Chinese market to affect competition adversely in the United States.  Shenda's
dominant position in a market that generates such a significant portion of China's international traffic, the
large overall volume of international traffic coming from the Shenzhen SEZ, the importance of the region to
the rest of China, and its proximity to Hong Kong, where C&W plc controls the incumbent carrier Hong
Kong Telecommunications International Ltd. (HKTI), all indicate a substantial risk to competition that was
not present in the International Bureau's recent order authorizing CWI to provide facilities-based service to
Russia.  Whereas CWI demonstrated in that case that its regional foreign affiliates controlled a volume of
traffic that was insignificant by any measure compared with the size of Russia's market as a whole, it has
not shown here that Shenda's dominance in such a vital region leaves it unable to affect competition
adversely on the entire U.S.-China route.  We are particularly concerned in this case that the proximity of
Shenzhen to Hong Kong presents a substantial risk of switched traffic being brought into and out of China
by CWI through its affiliated operations in Hong Kong on a basis other than the negotiated U.S. carrier
settlement rate with China.  We find that these concerns justify our imposing dominant carrier regulation on
CWI's services to all of China.  Therefore, CWI will be classified as a dominant carrier in its provision of
switched and private line service between the United States and China.  This dominance classification
requires only that CWI be structurally separate from its affiliate and that it file certain reports on a
quarterly basis regarding its provision of service along the U.S.-China route.

     19.  We note that CWI has existing Section 214 authority to resell the switched services of other
U.S. international carriers to China and is classified as non-dominant in its provision of such service.  We
find that CWI warrants continued regulation as a non-dominant provider of switched services to China for
so long as it provides such services only through the resale of unaffiliated U.S.-authorized carriers'
switched services.  Moreover, because CWI is not affiliated with a carrier that collects settlement
payments from U.S. carriers, it is not required to file quarterly traffic reports for its switched resale service
to China pursuant to Section 43.61(c).

     20.  Petitioners suggest that the close relationships between CWI, China Telecom, and HKTI
warrant explicitly prohibiting CWI from routing U.S.-China traffic through Hong Kong.  We are
satisfied, however, that the Commission's post-entry regulatory safeguards are sufficient as an initial
matter to address these concerns.  CWI is already subject to dominant carrier treatment for the U.S.-Hong
Kong route, which requires the submission of certain quarterly reports, including traffic and revenue
reports and circuit status reports.  These reports, together with the same reports that CWI will be required
to file for the U.S.-China route, will enable the Commission and other carriers to detect traffic distortions
or other anticompetitive routing and settlement arrangements on the part of CWI.  Moreover, CWI receives
this authorization subject to all relevant Commission regulations and will face appropriate action if it
engages in practices that distort traffic or revenue flows in ways that violate Commission rules or policies.

     21.  We also note that, because Shenda and China Telecom have sufficient market power to affect
competition adversely in the U.S. market, no U.S. carrier may agree to accept special concessions from
Shenda or China Telecom with respect to the services they provide in China.

C.  Settlement Rate Benchmarks Condition

     22.  The petitioners argue that, if we grant the requested authorization, we should condition it on
China Telecom's reaching the Commission's benchmark settlement rate of $0.23.  In the Benchmarks
Order, the Commission adopted a benchmark settlement rate condition, effective January 1, 1998, for
authorizations to provide facilities-based switched or private line services to destination markets where the
authorized carrier is affiliated with a foreign carrier.  The Commission used the term "affiliated market"
to refer to a market in which an affiliated carrier provides terminating service and collects settlement
rates.  The risk of predatory price squeeze behavior that comes from collecting above-cost settlement rates
from unaffiliated U.S. rivals presents a threat only if the foreign affiliate in fact collects international
settlement payments.  CWI's affiliate, Shenda, does not collect settlement payments from U.S.
international carriers, so the affiliation does not present a risk of price squeeze.  MCI argues that we should
find that CWI is affiliated with China Telecom for purposes of applying the benchmark settlement rate
condition.  MCI bases its argument on its assertion that the investment relationship between C&W plc,
China Telecom, and HKTI presents a significant potential impact on competition in the U.S. international
services market.  We disagree.  Because there is no substantial direct equity stake between CWI and
China Telecom, a net settlement outpayment by CWI to China Telecom would under no circumstances
constitute an intra-corporate transfer.  That is, CWI's settlement payments to China Telecom would
constitute an actual cost of providing service to the same extent as any other U.S. carrier's payments. 
Neither the SEZ nor the larger Chinese market is an "affiliated market" that would trigger application of
the benchmark settlement rate condition.

                      IV.  Ordering Clauses

     23.  Accordingly, IT IS HEREBY CERTIFIED that the present and future public interest,
convenience, and necessity require a grant of the present application.  Therefore, IT IS ORDERED that
application File No. ITC-98-380 is GRANTED, and CWI is authorized pursuant to Section 63.18(e)(1),
(2), and (6), 47 C.F.R.  63.18(1), (2), (6), to provide facilities-based and resold services between the
United States and China subject to all current and future Commission regulations, including those
specifically listed below, as well as the conditions set out below.

     24.  IT IS FURTHER ORDERED that CWI shall comply with the requirements specified in
Sections 43.82, 63.14, 63.15(b), 63.19, and 63.21 of the Commission's Rules, 47 C.F.R.  43.82, 63.14,
63.15(b), 63.19, 63.21.

     25.  IT IS FURTHER ORDERED that CWI may not and CWI's tariffs must state that its
customers may not connect their private lines to the public switched network at either the U.S. or foreign
end, or both, for the provision of international switched basic services unless the Commission has
authorized the provision of such service.  See 47 C.F.R.  63.18(e)(2)(ii)(c), (e)(3) (4); 63.21(a).

     26.  IT IS FURTHER ORDERED that CWI 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 China.

     27.  IT IS FURTHER ORDERED that CWI shall not agree to accept special concessions from
Shenda or China Telecom for the provision of service between the United States and China.  "Special
concessions" is defined in Section 63.14(b) of the Commission's rules as amended by the Commission's
Foreign Participation Order, FCC 97-398.

     28.  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 public notice of this Order (see
Section 1.4(b)(2)).

                         FEDERAL COMMUNICATIONS COMMISSION



                         Diane J. Cornell
                         Chief, Telecommunications Division
                         International Bureau