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Federal Communications Commission
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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. IN 97-36 INTERNATIONAL ACTION November 25, 1997

(IB Docket Nos. 97-142 and 95-22)

The Commission today adopted an Order that will significantly increase competition in the U.S. telecommunications market by facilitating entry by foreign service providers and investors. This action will yield substantial benefits for U.S. consumers by reducing prices, providing greater service options, and spurring technological innovation.

The Commission's action underscores the U.S. leadership position in opening the global telecommunications market to competition. On February 15, 1997, the United States and 68 other countries reached a market-opening accord that will fundamentally change the structure of the global telecommunications market. The World Trade Organization (WTO) Basic Telecom Agreement is guided by a worldwide commitment to opening markets, promoting competition, and preventing anticompetitive conduct -- principles that are also at the heart of the landmark Telecommunications Act of 1996. Under the terms of the Agreement, scheduled to take effect January 1, 1998, most of the world's major trading nations made binding commitments to open their telecommunications and satellite markets. In fact, the 69 nations that made commitments account for more than 90 percent of global telecommunications service revenues. Most of these countries will replace traditional regimes of regulated monopoly providers with procompetitive and deregulatory policies. As a result, U.S. companies will be able to enter previously closed foreign markets and develop competing networks for local, long distance, and international services.

This Order, along with a companion Order governing access to non-U.S. licensed satellite systems, takes the steps necessary to open the U.S. market to increased competition. In light of the WTO Basic Telecom Agreement, the market-opening commitments of other WTO Members, and the Commission's improved competitive safeguards governing U.S. international services, the Commission determined that it could replace its previous policy restricting foreign entry with an open entry policy for carriers from WTO Members. With these Orders, the Commission has taken important steps to carry out the letter and spirit of the market-opening commitments made by the United States. As a result, more foreign carriers will soon begin to enter and compete in the U.S. market. U.S. carriers will likewise be able to enter and compete in previously closed foreign markets. In this context, the Commission emphasized that the United States will carefully review the market-opening steps taken by the rest of the world.

Open Entry Policies

In 1995, the Commission adopted the effective competitive opportunities (ECO) test to govern foreign entry into the U.S. telecommunications market. The ECO test allowed foreign applicants to enter the U.S. market if their home markets offered effective competitive opportunities for U.S. companies.

Today's Order replaces the ECO test with an open entry standard for applicants from WTO Members. These applicants will no longer be required to demonstrate that their markets offer effective competitive opportunities in order to: (1) obtain Section 214 authority to provide international facilities-based, resold switched and resold non-interconnected private line services; (2) receive authorization to exceed the 25 percent indirect foreign ownership benchmark in Section 310(b)(4) of the Communications Act for wireless licenses; or (3) receive submarine cable landing licenses. The Commission also removed the equivalency test, a standard similar to the ECO test, for carriers seeking to provide switched services over private lines between the United States and WTO Members. In lieu of the ECO test, the Order presumes that entry is procompetitive and therefore adopts streamlined procedures for granting most applications. The Commission recognized, however, that in some cases safeguards may not adequately constrain the potential for anticompetitive harm. In such instances, the Commission reserved the right to attach additional conditions to an authorization and, in the exceptional case in which an application poses a very high risk to competition that cannot be addressed by safeguards, it reserved the right to deny the authorization.

With regard to carriers from non-WTO Members, the Commission found that circumstances have not changed sufficiently in these countries to allow the Commission to remove the ECO and equivalency tests for these applicants.

Regulatory Safeguards

The Commission also revised the competitive safeguards that apply to the provision of international telecommunications services in the U.S. market. The Order adopts more narrowly tailored safeguards that enhance the Commission's ability to monitor and detect anticompetitive behavior in the U.S. market and modifies or eliminates some existing rules that could hamper competition.

The Commission narrowed the existing "No Special Concessions" rule so that it only prohibits U.S. carriers from entering into exclusive arrangements with foreign carriers that have sufficient market power to affect competition adversely in the U.S. market. To provide more certainty in the market as U.S. carriers negotiate deals with their foreign counterparts, the Order adopts a rebuttable presumption that carriers with less than 50 percent market share in the foreign market lack such market power. U.S. carriers, therefore, may enter into exclusive dealings with such carriers involving, for example, operating agreements and interconnection arrangements. Parties may also argue to the Commission that a carrier with more than 50 percent market share on the foreign end of a route lacks sufficient market power to harm competition and consumers in the U.S. market, and therefore may engage in such exclusive dealings.

The Order also protects the confidentiality of U.S. carriers and consumers by prohibiting carriers from accepting any confidential carrier or U.S. customer information from a foreign carrier without appropriate U.S. carrier or U.S. customer approval.

In the August 1997 Benchmarks Order, the Commission conditioned foreign-affiliated carrier authorizations to provide facilities-based switched or private line services to an affiliated market on compliance with the benchmark settlement rates adopted in that order. In this Order, the Commission declined to apply a similar condition to foreign-affiliated carriers providing resold switched services to affiliated markets because the potential for anticompetitive harm is less in the switched resale context than for facilities-based service. In order to facilitate detection of potential anticompetitive conduct, however, the Commission required carriers providing switched resale service to markets in which they have an affiliate with market power to file quarterly traffic and revenue reports.

The Commission also revised the competitive safeguards that apply to U.S. carriers classified as dominant due to an affiliation with a foreign carrier that has market power on the foreign end of an international route. The Order retains a single-tier dominant carrier regulatory approach and relies in large part on reporting requirements, rather than restrictions on carriers' provision of service, to prevent affiliated carriers from causing harm to competition and consumers in the U.S. market. In particular, the Order replaces the fourteen-day advance notice tariff filing requirement with a one-day advance notice requirement and accords these tariff filings a presumption of lawfulness. It also removes the prior approval requirement for circuit additions or discontinuances on the dominant route. To monitor and detect anticompetitive behavior, the Order requires quarterly reports on traffic and revenue, provisioning and maintenance, and circuit status for the dominant route. The Order also requires a limited form of structural separation between U.S. carriers and their foreign affiliates. As with its No Special Concessions rule, the Commission adopted a rebuttable presumption that a foreign carrier with less than 50 percent market share in the foreign market lacks market power and, therefore, its U.S. affiliate should be presumptively treated as non-dominant. The Commission emphasized that, in the event of anticompetitive conduct, it may issue fines, require additional conditions on a grant of authority, and, if necessary, revoke an authorization.

Finally, the Commission adopted a presumption in favor of alternative settlement arrangements on routes to WTO Members. This presumption may be rebutted with a showing that there are not multiple international facilities-based competitors operating in the foreign market. Action by the Commission November 25, 1997, Report and Order and Order on Reconsideration, (FCC 97-398). Chairman Kennard, Commissioners Ness, Furchtgott-Roth, Powell and Tristani with Chairman Kennard issuing a separate statement.

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News Media contacts: Meribeth McCarrick at (202) 418-0256 or Rosemary Kimball at (202) 418-0511International Bureau contacts: Diane Cornell at (202) 418-1470, Robert McDonald at (202) 418-1476, Adam Krinsky at (202) 418-1099, Doug Klein at (202) 418-0424, Laurie Sherman at (202) 418-0429 or Robert Calaff (202) 418-0420