PUBLIC NOTICE FEDERAL COMMUNICATIONS COMMISSION 445 TWELFTH STREET, S.W. WASHINGTON, D.C. 20554 DA 99-2286 News media information 202/418-0500 Fax-On-Demand 202/418-2830 Internet: http://www.fcc.gov ftp.fcc.gov Released: October 22, 1999 WIRELESS TELECOMMUNICATIONS BUREAU AND INTERNATIONAL BUREAU COMPLETE REVIEW OF PROPOSED INVESTMENT BY TELFONOS DE MXICO, S.A. DE C.V. IN PARENT OF CELLULAR COMMUNICATIONS OF PUERTO RICO Pursuant to sections 4(i), 214 and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 214, 310(d), and sections 0.261 and 0.331 of the Commission's rules, 47 C.F.R.  0.261, 0.331, the Wireless Telecommunications Bureau (WTB) and the International Bureau (IB) have completed their review of the proposed investment by Telfonos de Mxico, S.A. de C.V. (Telmex) in SBC International-Puerto Rico, Inc. (SBCI-PR), the parent company of Cellular Communications of Puerto Rico, Inc. (CCPR) and an indirect subsidiary of SBC Communications, Inc. (SBC). The Bureaus recently approved SBC's acquisition of control of CCPR's licenses through SBCI-PR. See International Bureau and Wireless Telecommunications Bureau Grant Consent for Transfer of Control of Licenses of Cellular Communications of Puerto Rico, Inc. to SBC Communications, Inc., Public Notice, DA 99-1654, rel. Aug. 18, 1999. The proposed investment by Telmex in SBCI-PR is the second of two transactions involving SBC (and its subsidiaries) and CCPR. In the first transaction, CCPR became an indirect subsidiary of SBC when SBC purchased 100% of the common stock of CCPR, the shares of which are held by SBCI-PR. In the second transaction, which the Bureaus address in this Public Notice, Telmex proposes to acquire fifty percent of the voting equity of SBCI-PR. The parties have stated that SBC will remain in control of CCPR because the corporate governance structure of SBCI-PR, including the Certificate of Incorporation of SBCI-PR, gives SBC control of the Board of Directors and, consequently, the ability to appoint officers and other managers and control the day-to-day operations of CCPR. The Wireless Telecommunications Bureau has determined that Telmex's investment should be treated as a pro forma transfer of control. Section 1.948(b) of the Commission's rules, 47 C.F.R.  1.948(b), provides that a change from less than fifty percent ownership to ownership of fifty percent or more constitutes a transfer of control. Therefore, Telmex's investment involves a transfer of control. WTB has determined that Telmex's investment should be viewed as an insubstantial change in control and, therefore, processed on a pro forma basis because SBC will remain in control after Telmex's investment. Currently, SBC controls CCPR and its licensee subsidiaries through the exercise of absolute voting control. After Telmex's investment, SBC will control by means of its fifty-percent equity holding and the structure created by the corporate governance documents. Further, according to the parties, while Telmex will hold the other fifty percent of the equity of SBCI-PR, Telmex will not have true negative control of the CCPR subsidiaries following this transaction because Telmex's control rights will be circumscribed to certain veto rights pertaining only to issues affecting the economic integrity of its investment. (WTB notes that a change in the corporate governance structure such that SBC does not remain in control on substantially the same terms and conditions or a change in the equity structure such that Telmex would hold more than fifty percent equity in SBCI-PR (or another entity that controls CCPR) would require prior Commission review.) Because all of the wireless licenses involved are used in the provision of a telecommunications service, WTB's forbearance procedures for pro forma transfer of control will apply. The International Bureau has also determined that, under the terms of Telmex's proposed investment, the investment would constitute a pro forma transfer of control of the international authorizations held by CCPR subsidiaries. IB has required SBC to file an application for pro forma transfer of control of these authorizations and, today, has approved that application pursuant to IB's grant stamp procedures. IB also finds that, pursuant to section 310(b)(4) of the Act and the Commission's Foreign Participation Order, 12 FCC Rcd 23,891 (1997), recon. pending, the public interest would be served by allowing Telmex's proposed fifty-percent indirect foreign investment in SBCI-PR. This ruling grants ISP-PDR-19990611-00005 and allows CCPR's common carrier licensees to be owned indirectly by Telmex, other Mexican shareholders of Telmex, and France Telecom, all of whom are from WTO Member countries. This approval allows these entities to own interests indirectly in the licensees without regard to the provisions of section 310(b)(4). If, however, indirect ownership of CCPR's licensee-subsidiaries by other foreign entities (including foreign ownership of Telmex, SBC, and France Telecom) exceeds in the aggregate 25 percent, additional Commission authority would be necessary. With respect to ownership in Telmex, Carso Global Telecom, S.A. de C.V. (CGT) holds 24.06 percent of Telmex's total capital stock and controls Telmex. CGT is a Mexican corporation that is a holding company for telecommunications-related investments. Telmex represents that only Mexican citizens are permitted to hold CGT's shares directly, although a small percentage of CGT's shares are traded (as American Depository Receipts) in the United States. Telmex believes that substantially all of these ADR shares are held by U.S. citizens. Telmex's two other major shareholders are France Telecom, the French telecommunications company (holding approximately 7 percent of Telmex shares), and SBC Communications, Inc. (holding less than 10 percent of Telmex shares). The remainder of Telmex's shares are publicly traded in both the United States and Mexico and are widely held. Overall, Telmex estimates that more than 60 percent of its capital stock is held by U.S. citizens (which includes SBC's shareholdings and shares purchased through the U.S. stock market), just over 30 percent is held Mexican citizens (which includes CGT's 24.06 percent and approximately 6 percent held by Mexican citizens other than CGT), approximately 7 percent is held by France Telecom, and approximately 3 percent is held by citizens of other countries. Pursuant to section 1.103 of the Commission's rules, 47 C.F.R.  1.103, the ruling issued herein is effective upon release of this Public Notice. Petitions for reconsideration under section 1.106 or applications for review under section 1.115 of the Commission's rules, 47 C.F.R.  1.106, 1.115, may be filed within 30 days of release of this public notice. For further information, contact Lauren Kravetz, Wireless Telecommunications Bureau, Commercial Wireless Division at (202) 418-7240, Ramona Melson, Wireless Telecommunica- tions Bureau, Public Safety and Private Wireless Division at (202) 418-0680, or Susan O'Connell, International Bureau at (202) 418-1480. - FCC -