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                                Before the
                     FEDERAL COMMUNICATIONS COMMISSION
                           Washington D.C. 20554


In the Matter of 

AT&T SUBMARINE SYSTEMS, INC.    )
                        )       File No. S-C-L-94-006
Application for a License to Land and            )
Operate a Digital Submarine Cable System         )
Between St. Thomas and St. Croix in the          )
U.S. Virgin Islands             )

MEMORANDUM OPINION AND ORDER 

Adopted:        October 5, 1998 Released:        October 9, 1998 

By the Commission:

                               INTRODUCTION

        1.      In this decision, we deny the Virgin Islands Telephone Corporation's ("Vitelco")
application for review of the International Bureau's grant of a license to AT&T Submarine Systems,
Inc. ("AT&T-SSI") to land and operate, on a non-common carrier basis, a digital submarine cable
system extending between St. Thomas and St. Croix in the U.S. Virgin Islands.  We find that the
Telecommunications Act of 1996 ("1996 Act") does not require us to regulate AT&T-SSI as a
common carrier and that there are no other public interest reasons for doing so.  Therefore, we
uphold the Bureau's decision to regulate AT&T-SSI as a non-common carrier in its provision of
capacity on the St. Thomas-St. Croix cable system.

                                BACKGROUND

        2.      AT&T-SSI, a wholly-owned subsidiary of AT&T Corp. (AT&T), operates a
submarine cable station in St. Thomas that serves several cable systems, including Americas-1 and
Columbus II.  In its application for a cable landing license in 1994, AT&T-SSI stated that the St.
Thomas cable station was operating at capacity and would not be able to accommodate future growth. 
Accordingly, AT&T-SSI applied for a license to land and operate the St. Thomas-St. Croix cable
system on a non-common carrier basis in which bulk capacity would be sold outright to purchasers on
an indefeasible right of use (IRU) basis.  The St. Thomas-St. Croix system would consist of three
segments:  (1) a cable station at St. Thomas; (2) a submarine cable and system interfaces at the cable
stations at St. Thomas and St. Croix; and (3) a cable station at St. Croix.  AT&T-SSI stated that the
St. Thomas-St. Croix cable system would also provide a "virtual node" in St. Croix that would, in
effect, expand the capacity of the existing St. Thomas cable station by providing a viable alternative
interconnection point for current and future international cable systems in the Caribbean region.  The
system could also be used by authorized carriers to provide alternate routing of inter-island traffic
within the U.S. Virgin Islands.  AT&T-SSI stated that it would offer IRU capacity to all carriers at
market prices, and on the same terms and conditions.  AT&T-SSI stated that its common carrier
affiliate did not have any plans to use the proposed system.  AT&T-SSI stated that, as a non-common
carrier, it did not want to own and operate common carrier cables.   

        3.      The Bureau issued AT&T-SSI a cable landing license on May 8, 1996.  The Bureau
recently approved the pro forma assignment of this license from AT&T-SSI to Transoceanic
Communications, which is also a wholly-owned subsidiary of AT&T-SSI.  For purposes of this
Order, we will continue to refer to AT&T-SSI as the licensee. 


                                DISCUSSION

        4.      The issues before us on review are whether the Bureau erred in concluding that: (1)
AT&T-SSI is not a "telecommunications carrier," as defined in the 1996 Act, and (2) the public
interest does not require AT&T-SSI to operate its cable on a common carrier basis. The petitioner,
Vitelco, is the incumbent provider of local exchange services in the U.S. Virgin Islands.  Vitelco,
along with Telefonica Larga Distancia de Puerto Rico (TLD), an interexchange services provider in
the U.S. Virgin Islands-Puerto Rico market, had previously filed petitions to deny AT&T-SSI's
application because they believed AT&T-SSI should be required to operate the St. Thomas cable
station on a common carrier basis.  For the following reasons, we reject Vitelco's application for
review and find that the Bureau did not err in allowing AT&T-SSI to operate the St. Thomas-St.
Croix cable system on a non-common carrier basis.

        5.      We first address Vitelco's argument that the 1996 Act includes a new statutory
definition of telecommunications carrier which, as applied to the AT&T-SSI cable, requires that the
proposed cable system be operated on a common carrier basis.  As defined in the 1996 Act:

        "The term 'telecommunications carrier' means any provider of telecommunications
        services, except that such term does not include aggregators of telecommunications
        services (as defined in section 226).  A telecommunications carrier shall be treated as
        a common carrier under this Act only to the extent that it is engaged in providing
        telecommunications services, except that the Commission shall determine whether the
        provision of fixed and mobile satellite service shall be treated as common carriage."  

        The Act further defines "telecommunications services" as "the offering of telecommunications
for a fee directly to the public, or to such classes of users as to be effectively available directly to the
public, regardless of the facilities used."  Vitelco argues that, because AT&T-SSI sells cable
capacity to common carriers or consortia of common carriers who sell telecommunications services
directly to the public, AT&T-SSI provides a telecommunications service that is "effectively available
directly to the public."  Vitelco also avers that, because AT&T-SSI's customers are not restricted
from offering telecommunications services to the public, AT&T-SSI is a "telecommunications carrier"
as defined in the 1996 Act.  
        
        6.      We disagree with Vitelco that the activities of AT&T-SSI's customers are relevant to a
determination of whether AT&T-SSI is a telecommunications carrier or a common carrier.  As the
Commission has previously held, the term "telecommunications carrier" means essentially the same as
common carrier.  It does not, as Vitelco suggests, introduce a new concept whereby we must look to
the customers' customers to determine the status of a carrier.  

        7.      The Communications Act of 1934, as amended, defines "common carrier" as "any
person engaged as a common carrier for hire, in interstate or foreign communication by wire ..." 
The Commission's rules define a "communication common carrier" as "any person engaged in
rendering communications for hire to the public."  The courts, in the NARUC I decision, established
a two-part test to determine if common carriage is required:

        "[W]e must inquire, first, whether there will be any legal compulsion ... to serve [the
        public] indifferently, and if not, second, whether there are reasons, implicit in the
        nature of ... [the] operations to expect an indifferent holding out to the eligible user
        public."

      Accordingly, the Commission concluded in Cable & Wireless that, applying the NARUC I
test, a carrier does not have to be regulated as a common carrier if (1) it intends to make
"individualized decisions, whether and on what terms to serve" or (2) the public interest does not
require the carrier to be legally compelled to serve the public indifferently.

      8.    In this case, the Bureau found that, even though AT&T-SSI stated it would provide
cable capacity at market prices, AT&T-SSI would have to engage in negotiations with each of its
customers on the price and other terms which would vary depending on the customers' capacity
needs, duration of the contract, and technical specifications (e.g., transmission speeds, maintenance
levels, reliability criteria, restoration ability, and warranty coverage).  The Bureau thus concluded
that AT&T-SSI would not be providing cable capacity indiscriminately.  On August 14, 1998,
AT&T-SSI informed the Commission that, in light of the difficulty it faced in selling capacity on the
cable, it: (1) requested the Commission to relieve it of the commitment to make its initial offers on
non-discriminatory terms and conditions; (2) would like the flexibility to tailor its initial offers to
what it perceives are an offeree's needs; and (3) would like to clarify that it has the sole discretion to
make individualized decisions on offering bulk capacity to restricted classes of users and the terms of
such offers, and to tailor its capacity offerings to the special requirements of individual customers. 
Since 1998, when the cable was completed, AT&T-SSI has sold only 2 of the 12 optical fiber pairs on
this route.  For the reasons stated by the Bureau, and because of AT&T-SSI's recent statements
concerning its individualized negotiations with potential customers, we conclude that AT&T-SSI will
not sell capacity in the proposed cable indifferently to the public and that, therefore, we are not
required to classify AT&T-SSI as a common carrier on this route under the 1996 Act and the second
part of the NARUC I test.
                                     
      9.    We next consider under the first part of the NARUC I decision whether the public
interest requires common carrier operation of the facility.  We agree with the Bureau that the public
interest does not require AT&T-SSI to operate the cable on a common carrier basis.  In ascertaining
the public interest, the focus of our inquiry here is whether the license applicant has sufficient market
power to warrant regulatory treatment as a common carrier.  In particular, in the past we have
found that if sufficient alternative facilities, including common carrier facilities, are available an
applicant would be unable to charge monopoly rents and hence would not have market power.  

      10.     The two relevant markets we analyze are (1) facilities providing access to the St.
Thomas cable station; and (2) facilities operating between St. Thomas and St. Croix.  There are
three cable systems that interconnect at the St. Thomas station: the Taino-Carib cable which provides
service in the U.S. Virgin Islands; Americas-1, which carries traffic to the U.S. mainland, Trinidad,
and points in South America; and Columbus-II, which connects to the U.S. mainland and Europe. 
The record shows that each of these cables has ample capacity.  Thus, even if AT&T-SSI denies
carriers access to the St.Thomas-St. Croix system, there is an ample supply of alternate cable capacity
that is available to gain access to the St. Thomas cable station.  Moreover, we find that it is not in
AT&T-SSI's economic interests to charge monopoly rents here because the system is a high-capacity
cable which AT&T-SSI is seeking to utilize fully by offering capacity at competitive prices. 
      
      11.   We also conclude that AT&T's cable is not dominating the St. Thomas-to-St. Croix
route and, hence, should not be regulated as a common carrier.  Vitelco's argument has two facets:
(1) Vitelco's microwave facility was the only facility serving this route at that time and was already
operating at capacity, so that the AT&T-SSI cable would have become the only fiber optic facility
available to carriers; and (2) AT&T-SSI's high sunk costs and enormous capacity would prevent
Vitelco or any other carrier from building a cable.  We are not persuaded that either of these
arguments establishes that AT&T-SSI has market power on this route.  First, as the Bureau found,
Vitelco, the incumbent local exchange carrier, currently has its own microwave facilities between St.
Thomas and St. Croix and does not depend on the AT&T-SSI cable to transport its local exchange
traffic between those two points.  If Vitelco's own facilities are inadequate to meet its needs, Vitelco
has several options: it can upgrade its microwave facility, build a new fiber optic cable, or lease space
on the AT&T-SSI cable.  Thus, the AT&T-SSI cable, rather than being a bottleneck facility, in fact
serves as an alternative to Vitelco's own microwave facilities for carrying local traffic on the St.
Thomas-St. Croix route.  In addition, AT&T-SSI notes that the Pan American Cable, which will
operate on a common carrier basis, is scheduled to begin providing service between several
Caribbean points, including St. Thomas and St. Croix, beginning in November 1998.  Second,
Vitelco retains the option of building its own fiber optic cable, and, in fact, stated its intention to do
so.  Although this option may have become less cost-effective because of AT&T-SSI's investment in
its own cable, it nevertheless remains an option that would become more viable if AT&T-SSI engages
in anticompetitive conduct, as Vitelco fears.  The possibility that Vitelco could build such a facility
should also serve as a further incentive to AT&T-SSI to provide competitively-priced offerings. 
Thus, we conclude that sufficient alternative facilities (including common carrier facilities that will
provide service beginning in November 1998) are available, that AT&T-SSI does not have market
power, and that, therefore, we are not required to classify AT&T-SSI as a common carrier on this
route under the 1996 Act and the first part of the NARUC I test.
 
                              ORDERING CLAUSE

      12.   Accordingly, IT IS ORDERED, pursuant to Section 1.115(g) of our rules, 47 C.F.R.
1.115(g), the above-captioned application for review is DENIED.
      
                  FEDERAL COMMUNICATIONS COMMISSION



                  Magalie Roman Salas
                  Secretary