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                            Before the
                Federal Communications Commission
                      Washington, D.C. 20554

IT&E Overseas, Inc.,            )
                                )
     Complainant,               )
                                )
v.                              )  File No. E-98-31
                                )
Micronesian Telecommunications  )
   Corporation,                 )
                                )
     Defendant.                 )

                  MEMORANDUM OPINION AND ORDER

 Adopted:  August 10, 1998              Released:  August 10, 1998

By the Commission:

                    I.   INTRODUCTION

     1.   In this Memorandum Opinion and Order (Order) we address a formal complaint
filed by IT&E Overseas, Inc. (IT&E), pursuant to Section 208 of the Communications Act of
1934, as amended (the Act).  The Complaint alleges three general claims against Micronesian
Telecommunications Corporation (MTC).  According to IT&E, MTC has: (1) imposed excessive
interstate access charges in violation of Section 201(b) of the Act; (2) discriminated against
IT&E by charging exchange access fees to IT&E, while failing to impute an equivalent level of
access charges to itself or its interexchange affiliate, in violation of Section 202(a) of the Act;
and (3) cross-subsidized its interexchange operations with revenues collected from its local
services in violation of Section 254(k) of the Act.  IT&E requests that we order MTC to cease
and desist these alleged anti-competitive practices and to refund the access charges paid to MTC
by IT&E.   IT&E also asks that we issue monetary forfeitures against, and prescribe access rates
to be adopted by, MTC.  For the reasons discussed below, we deny each of IT&E's three claims
against MTC, and the corresponding prayer for relief.

                    II.  BACKGROUND
   
     2.   IT&E is a facilities-based international and domestic IXC operating in Guam and
the Commonwealth of the Northern Mariana Islands (Northern Marianas).  MTC is the
incumbent local exchange carrier (ILEC) in the Northern Marianas.  MTC provides exchange
access to IXCs, including IT&E and MTC's own affiliate GTE Pacifica Incorporated (GTE
Pacifica), and assesses access charges for such service.  Exchange access service enables IXCs
to originate and terminate long distance calls.  For example, IT&E has a point of presence (POP)
in Saipan, but needs to employ MTC's local exchange access services for the "last mile" transport
of its customers' long distance calls in Northern Marianas.  Similarly, the Guam Telephone
Authority (GTA) is the ILEC in Guam, and IT&E also uses GTA's local exchange service for
the "last mile" transport of its customers' long distance calls in Guam.  Unlike MTC, GTA is a
participating member of the National Exchange Carrier Association (NECA) established pursuant
to Part 69 of the Commission's rules.

     3.   The rates MTC charges for service between the islands of the Northern Marianas
(i.e., inter-island toll rates) are regulated by Northern Marianas' Commonwealth Utility
Commission.  The Federal Communications Commission regulates the rates MTC charges to
IXCs for interstate access to MTC's local network (i.e., access charge rates).  Because MTC is a
GTE company, the Commission's "price-cap" regulations determine how MTC must set its access
rates.  GTE Pacifica's interexchange long distance rates are based upon the averaged rate
schedule established pursuant to Section 254(g) of the Act, and the Commission's Rate
Averaging and Rate Integration Order.  

     4.   IT&E's complaint challenges the interstate access rates charged by MTC, and
alleges various violations of our rules.   Prior to filing this complaint, IT&E filed an application
for review of the Commission's denial of IT&E's petition to reject, suspend and investigate the
revisions proposed by MTC to its FCC Tariff  No. 1 through Transmittal No. 133, which became
effective on August 1, 1997.  MTC's Tariff F.C.C. No. 1 covers its interexchange services.  In
the present proceeding, we do not address IT&E's Application for Review filed with the
Competitive Pricing Division.  Rather, we address in this Order, strictly in the context of a Section
208 proceeding, IT&E's claims arising under Sections 201(b), 202(b), and 254(k) of the Act.         


                    III. DISCUSSION    

     a.   Complainant's Burden of Proof

     5.   The Commission's rules relating to formal complaint proceedings require that "[a]ll
matters concerning a claim, . . . , should be pleaded fully and with specificity."  The rules specify
that the "[p]leadings must contain facts which, if true, are sufficient to constitute a violation of the
Act or Commission order or regulation," and such "[f]acts must be supported by relevant
documentation or affidavit."  Our formal complaint proceedings, unlike court litigation or
administrative-trial type hearings, are often resolved solely on written pleadings.  Pleadings must
provide factual underpinnings for decision on the merits, and thereby provide a complete
identification or description, including the relevant time period, of the communications, services,
or other carrier conduct upon which the complaint is based.   It is well established that, in a
Section 208 proceeding, the complainant has the burden of establishing a violation of the Act or
of the Commission's rules or orders.  As explained more fully below, we conclude that IT&E
failed to carry its burden on each of the claims alleged against MTC.  

     b.   Excessive and Unreasonable Access Charges

     1.   Comparison of MTC and GTA Access Charge Rates
     
      6.  In support of its claim that MTC's access charges are excessive and unreasonable,
IT&E first points to a comparison between MTC's and GTA's access rates.  In particular, IT&E
relies on a chart it prepared that compares MTC with GTA to establish that MTC's rates are
higher than GTA's.  IT&E argues that, because MTC and GTA are similarly situated, the fact
that MTC's rates are higher than GTA's evidences that MTC's rates are unreasonable.  We are
not persuaded, however, that IT&E has demonstrated the threshold premise that MTC and GTA
are similarly situated incumbent LECs.  Rather, we find that there is an important fundamental
difference between MTC and GTA:  GTA is a member of NECA, eligible to participate in
NECA's cost averaging pools.  Since MTC is owned by GTE, it is subject to the Commission's
price cap system and, pursuant to our rules, is not permitted to participate in the NECA pools.  

     7.   Moreover, we agree with MTC that there are intrinsic differences between the
NECA cost averaging plan and the price cap rules that make it difficult to compare rates
determined under the different approaches with any degree of accuracy.  The price cap system
sets a ceiling, or cap, on the prices that LECs can charge for their offerings.  The price cap
system essentially operates through the tariff review process to ensure that rates are within the
parameters that the rules require.  Checks and balances built into the system ensure that rates
remain within a "zone of reasonableness," and periodic review and adjustment serves as a long
term mode of regulation for the LECs subject to it.  By contrast the interstate access rates
charged by NECA participants, such as GTA, reflect the costs underlying the tariffs filed by
NECA.  NECA files its tariffs in accordance with the Commission's rate of return regulations. 
The costs used to calculate the applicable rates for NECA's tariffs are an average of all LECs that
participate in NECA's tariffs.  These calculations reflect any universal service support received
by companies participating in the NECA tariffs.  Through the NECA mechanism, lower cost
LECs contribute to the maintenance of averaged NECA rates.  As such, high cost companies
benefit from NECA's cost averaging process and tariff pooling.  Thus, because GTA is a NECA
participant, GTA's rates do not necessarily reflect GTA's costs.  

     8.   NECA's cost averaging process is unavailable to MTC because it is owned by GTE
and, therefore, governed by the Commission's price cap regulation.  Based on these differences
in price regulation, we are not persuaded by IT&E's claim that MTC and GTA are "similarly
situated" carriers, despite the fact that they serve areas with certain similar geographical
characteristics.  Accordingly, because we find that IT&E has failed to establish that MTC and
GTA are similarly situated, we reject the claim that MTC's access charge rates are unreasonable
because they are higher than GTA's in certain respects. 

     2.   Reasonableness of MTC Rates   

      9.  We likewise reject IT&E's further argument that, even within the price cap
environment, MTC has violated our rules by exceeding the "zone of reasonableness" they
establish.  In particular, IT&E claims that whereas the price cap rules are designed to ensure that
access charges continue to be cost-based, MTC's access charges are not cost-based, and are,
therefore, unreasonable.  With respect to this claim, too, we find that IT&E has failed to prove
its case, as it has not set forth any evidence or analysis to demonstrate that MTC's rates are
beyond a "zone of reasonableness."   To prove its allegation that MTC's interstate access rates are
beyond a "zone of reasonableness" IT&E was required to address their reasonableness under the
requirements of the price cap rules.  Through discovery, IT&E was given access to all
documentation that MTC filed in support of its tariff filings.  IT&E did not use this material
disclosed by MTC, however, to address whether or not the actual requirements of the rules were
met.  Instead, IT&E relied on its comparison of MTC's rates to GTA's rates to support its
argument that MTC's rates go beyond the "zone of reasonableness" established by the price cap
rules.

      10. IT&E's argument that MTC's rates violate the price cap rules is based on the
contention that MTC's rates are not cost based.  The only evidence IT&E provides to support this
contention, however, is the rate comparison chart developed by its consultants, which, as noted
above, shows that MTC's rates on certain access rate elements exceed GTA's rates for
corresponding elements.  Because GTA is a NECA pool participant, GTA's rates do not
necessarily reflect GTA's actual costs.  Thus, no comparison of MTC's rates to GTA's rates could
support a conclusion that MTC's rates are not cost based; this is a prime example of the proverbial
apple-to-orange comparison.  Moreover, IT&E has not seriously challenged MTC's averment that
its annual filings have been investigated, concluded, and allowed to go into effect.  As such,
without more, we cannot find that MTC has not complied with the Commission's price cap rules.  
Thus, IT&E has failed to meet its burden to prove a violation of Section 201(b) of the Act. 

      11. IT&E further asserts that even assuming arguendo that MTC calculated its
interstate access rates in accordance with the Commission's price cap rules, rates that are three
times higher than "similarly situated LECs" are presumptively contrary to the public interest and
the policy of the Commission.  As discussed fully above, because of the differences in how their
access rates are set, we cannot conclude that GTA and MTC are similarly situated, nor, by
extension that MTC's rates are unreasonable in comparison with GTA's rates.

     12.  IT&E also contends, however, that in the Beehive proceeding the Commission
used industry averaging when evaluating the reasonableness of rates.  IT&E asserts that in
Beehive the Commission found the carrier's rates to be unjust and unreasonable under Section
201(b) because they exceeded the prescribed rate of return.   In essence, IT&E asks that we find
MTC's access rates to be unjust and unreasonable by using GTA's rates as the industry average
rates, even though MTC's rates are governed by price cap regulations, not by rate-of-return
regulations like GTA's rates.  

     13.  We are not persuaded that the circumstances underlying the instant proceeding are
similar to Beehive.  In Beehive, the Commission found that Beehive's operating expenses were
unusually high and that the rates based on these expenses were unjust and unreasonable under
Section 201(b) and Beehive failed to provide adequate cost support for its alleged expenses. 
Only after determining that Beehive's cost data was insufficient and unreliable, did the
Commission prescribe rates based on operating expenses of comparable companies computed
from industry average methods.  In the instant proceeding, IT&E has not made any showing that
MTC's rates are unjust and unreasonable because they are based on unusually high operating
expenses as the Commission found in Beehive.  Moreover, IT&E has not presented evidence to
support a threshold finding that MTC's rates are unjust and unreasonable.

     3.   Comparison of Interstate Access Charges and Inter-Island Toll Service 
          Charges

     14.  IT&E further argues that MTC's interstate access charges are unlawful, based on a
comparison of MTC's interstate access rates for originating and terminating calls in the Northern
Marianas with MTC's inter-island toll service charges for island-to-island toll calls within the
Northern Marianas.  Specifically, IT&E avers that MTC assesses IT&E originating interstate
access charges in excess of $0.09 per minute and terminating interstate access charges in excess of
$0.16 per minute for "merely terminating interstate, interexchange traffic from IT&E's POP in
Saipan to an end user in Rota."  IT&E asserts that, in contrast, MTC's charge to end users for
providing inter-island toll service originating from Saipan and terminating in Rota is only $0.15
per minute.  According to IT&E, the disparity between MTC's interstate access charges and its
inter-island toll charges for services involving the same network facilities, communications path,
and functions offers compelling evidence that MTC's access charges have not been established in
full conformance with the Commission's access charge and price cap rules. 

     15.  Our analysis of this argument turns on facts and law that IT&E has neither
controverted nor directly addressed.  The rates being compared are regulated by different
regulatory authorities; MTC's inter-island toll rates are regulated by the Northern Marianas'
Commonwealth Utility Commission and MTC's interstate access charges are regulated by this
Commission.  Moreover, because inter-island toll rates have no relation to interstate access
charges, any comparison between MTC's interstate access charges and its inter-island toll rates
proves nothing.  Thus, we are not persuaded by IT&E's argument, particularly as it is
unsupported by any description or analysis of the differing methodologies by which MTC
established either its interstate access rates or its inter-island toll rates.   IT&E has neither
disputed these facts nor demonstrated through a structured argument and supporting
documentation that the methodologies involved are similar, and therefore, comparable. 
Accordingly, we find that IT&E has failed to provide the Commission with either relevant
documentation or a persuasive argument upon which to base a finding that the comparison of
MTC's interstate access rates to MTC's inter-island toll rates evidences that MTC's interstate
access rates are unreasonable in violation of Section 201(b).

     c.    Preferential Practices

     16.  As a separate claim, IT&E contends that MTC failed to impute to itself, or charge
its affiliate GTE Pacifica, interstate access charges equal to those assessed against IT&E, thereby
giving itself and its affiliate a competitive advantage in the marketplace that constitutes an
unlawful preference in violation of Section 202(a).  IT&E however, has provided neither specific
facts that form the basis for these allegations, nor sufficient supporting documentation in the form
of sworn statements or affidavit(s) that would substantiate the allegations.  The Commission's
formal complaint proceeding rules require fact pleading as opposed to the notice pleading
requirements of the Federal courts.  Thus, the Commission's rules require that a complainant
know and present the specific facts necessary to prove its claim at the time of filing.  The
Commission's rules provide for discovery where the most probative evidence of an alleged
violation is solely within the possession of a defendant carrier.  However, we have recognized that
this allowance does not relieve a complainant of its fact pleading obligation and a complainant
asserting such a basis for deficiency in its complaint is required to demonstrate with evidence a
reasonable basis for its belief that a violation occurred.  Despite having been given numerous
opportunities to identify a factual basis for its belief that MTC gave itself or its affiliate
preferential treatment, IT&E failed to make a basic evidentiary showing.  

     17.  In support of its claim, IT&E submitted the affidavit of John M. Borlas, President
of IT&E, which states that IT&E has "reason to believe" that MTC failed to impute equivalent
access charges to its own interexchange operations and failed to collect such charges from its
affiliate GTE Pacifica.  In the affidavit, however, Mr. Borlas acknowledges that IT&E does not
have first hand knowledge nor supporting documentation as to these allegations and fails to
identify any specific facts on which to base IT&E's asserted "reason to believe."  The affidavit
asserts as justification for IT&E's failure to provide any supporting documentation that such
documentation resides with MTC.  

     18.  Despite IT&E's lack of evidentiary showing, in refutation of IT&E's assertions of
discriminatory treatment, and in response to IT&E's interrogatories, MTC submitted the affidavit
of William S. Early, Controller of MTC and GTE Pacifica, stating that (1) as of January 1998,
MTC has charged and collected from GTE Pacifica all interstate access charges due and owing
pursuant to the applicable and effective interstate access charge tariff, and (2) prior to January
1998, and commencing in 1993, MTC imputed to its own international and interstate operations
an amount equal to what was chargeable under the then-effective interstate access charge tariff. 
During the course of discovery, IT&E challenged the Early affidavit as "self-serving" and asked
the Commission's permission to audit MTC's books of account to verify the assertions in the Early
affidavit.    MTC opposed IT&E's request for permission to audit its books of account on the
ground that they contain competitively sensitive confidential information, and volunteered to have
the accuracy of the affidavit verified by the independent accounting firm of Arthur Andersen. 
Arthur Andersen provided IT&E with its verification/certificates as to the accuracy of the
assertions contained in the Early affidavit.  IT&E moved to strike the Arthur Andersen
verification/certificates on the grounds of deficiency and bias, and moved to be allowed to audit
MTC's books of account by its own accountant and local counsel in the Northern Marianas.  At
a status conference on this motion and also at subsequent status conferences, IT&E was afforded
the opportunity to provide a factual basis for its contention that MTC had failed to impute to itself
or charge its affiliate interstate access charges equal to those MTC charged to IT&E.  IT&E
failed to provide any further basis for that contention and Commission staff denied IT&E's motion
and its request for permission to audit MTC's books of account.  

     19.  In this instance, other than its unsubstantiated representation that IT&E "has
reason to believe" that MTC has engaged in discriminatory, and anticompetitive, access charge
practices, IT&E has failed to provide any facts whatsoever that form the basis of its belief that
MTC has accorded preferential treatment to itself or its affiliate in the assessment of interstate
access charges.  IT&E neglected to compile and submit any evidentiary statements of relevant
facts, rendering the record inherently deficient as to its Section 202(a) discrimination claim. 
Furthermore, IT&E has failed to explain what constraints, if any, rendered it incapable of
compiling and submitting specific facts in the form of sworn statement(s) or affidavit(s) to
substantiate its otherwise bald allegations as to this claim.  

     20.  We find unpersuasive IT&E's tendered justification that its failure to carry its
burden as to its Section 202(a) claim is attributable to IT&E's inability to verify independently
MTC's books of account through an audit conducted by IT&E's accountant and local counsel. 
The Commission's rules and policies never intended that the discovery process in a complaint
proceeding be used as a "fishing expedition" or as the primary means to determine if a claim
exists.  Where, as here, a complainant has failed to allege any specific facts necessary to prove
its claim, it would be contrary to Commission precedent to permit the complainant to use
extraordinary measures to bolster its claim, such as granting IT&E's request to independently
audit MTC's books of account.  It is well established that the burden of proof lies with the
complainant, not with the defendant.

     21.  Thus, we find that IT&E has failed to meet its evidentiary burden of establishing
that MTC gave itself or its affiliate an unreasonable preference or advantage in violation of
Section 202(a).  In particular, we find that IT&E has not demonstrated that MTC failed to
impute to itself or charge to its affiliate GTE Pacifica the equivalent of the access charges MTC
has charged IT&E for using MTC's local network.  Moreover, we find that IT&E has not
identified any other specific instance in which MTC treated itself, or its affiliate GTE Pacifica,
with unreasonable preference or advantage over IT&E.  Thus, we conclude that IT&E has failed
to carry its burden to establish an unreasonable preference in violation of Section 202(a).

     d.   Unlawful Cross-Subsidization Practices

     22.  IT&E alleges that MTC's interexchange rates, which are in some instances below
its access rates, establish that MTC is engaging in unlawful cross-subsidization practices.  IT&E
contends that because MTC offers both interexchange and local exchange services, the
Commission needs to impose additional safeguards to protect MTC's local exchange subscribers
against the potential risk of having to subsidize MTC's interexchange operations.  IT&E argues
that such additional safeguards are also necessary to protect competing IXCs, such as IT&E, from
having to compete with a subsidized competitor.  IT&E asserts that, as a result of MTC's
unreasonably excessive and discriminatory access charges, MTC was able to cross-subsidize the
costs of its competitive interstate, interexchange operations with revenues from its exchange
access services, in violation of Section 254(k) of the Act, and the cost allocation rules, as set
forth in Parts 64 and 69 of the Commission's rules.  IT&E also alleges that because MTC was
not required, prior to 1997, to provide interstate, interexchange services through a separate
affiliate, MTC has had the opportunity to engage in unlawful cross-subsidization and
discriminatory practices. 

     23.  MTC denies that the costs of its interstate interexchange operations were
subsidized by any affiliate.  MTC states that when MTC provided interstate services directly,
i.e., prior to January 1, 1998, MTC's cost of its interstate operations were borne by revenues from
MTC's interstate services, and were recorded in MTC's interstate accounts.  As of January 1,
1998, MTC's long distance affiliate, GTE Pacifica provides interstate and international services to
and from the Northern Marianas.  MTC states that GTE Pacifica maintains its own books and
accounts relating to its service; its interstate costs are borne by revenues received from its
interstate customers -- no affiliate of GTE Pacifica subsidizes its costs.  MTC avers that the
regulated and non-regulated activities of GTE companies are separated in accordance with the
cost allocation manual on file with the Commission.  GTE Pacifica is required to charge rates for
calls between the Northern Marianas and the rest of the United States on the basis of an
integrated structure.  We note that IT&E has neither refuted MTC's assertions, nor provided
relevant facts and corroborating documentation to the contrary.  Standing alone, IT&E's limited,
conclusory allegations do not support a finding of any statutory violations.

     24.  As discussed above, the Commission's rules do not contemplate that a decision in a
Section 208 complaint proceeding will be entered on the basis of the complainant's bald
allegations, uncorroborated by any specific set of facts, or substantiated by relevant
documentation or affidavits.  IT&E's conjectures regarding its Section 254(k) allegations do not
affirmatively establish that MTC did, in fact, engage in unlawful cross-subsidization.  To succeed
with its claim that MTC actually engaged in unlawful practices in violation of Section 254(k),
IT&E was required to develop and validate its claim with relevant statements of fact and
supporting evidence that such cross-subsidization actually occurred.  We conclude that nothing
in the record establishes that MTC did, in fact, cross-subsidize the costs of its competitive
interstate, interexchange operations with revenues from its local services, in violation of Section
254(k) of the Act.  The record is devoid of facts or documentation that would corroborate IT&E's
allegations that MTC actually engaged in cross-subsidization practices.  Likewise, IT&E has
failed to provide any facts that would support a conclusion that MTC acted inconsistently with the
Commission's cost allocation rules.  

                    IV.  CONCLUSION
     
     25.  We conclude that IT&E has failed to establish that MTC's access charges, as
detailed herein, are excessive and therefore unjust and unreasonable under Section 201(b) of the
Act.  We also conclude that IT&E has failed to establish that MTC failed to impute to itself and
charge its affiliate GTE Pacifica access charges in violation of Section 202(a) of the Act.  We
further conclude that IT&E has failed to establish that MTC cross-subsidizes the costs of its
interstate, interexchange operations with revenues from its exchange access services in violation
of Section 254(k) of the Act.  

                    V.   ORDERING CLAUSES

     26.  Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 4(j), 201(b), 202(a),
208, and 254(k) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i),
154(j), 201(b), 202(a), 208, 254(k), that the above-captioned complaint filed by IT&E, IS
DENIED.

     27.  IT IS FURTHER ORDERED THAT MTC's motion to dismiss IS DISMISSED as
moot.

                         FEDERAL COMMUNICATIONS COMMISSION



                         Magalie Roman Salas
                         Secretary