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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Telstra, Inc. ) File No. ITC-97-320 ) Application for authority pursuant to Section 214 ) of the Communications Act of 1934, as amended, ) to acquire capacity in international facilities ) for the provision of switched and private ) line services between the United States and ) Australia ) MEMORANDUM OPINION, ORDER AND CERTIFICATE Adopted: December 31, 1997 Released: January 2, 1998 By the Chief, International Bureau: I. INTRODUCTION 1. In this Order, we grant Telstra, Inc. ("TI") authority pursuant to Section 214 of the Communications Act of 1934, as amended, to acquire and operate facilities for the provision of switched and private line service between the United States and Australia, subject to the conditions described below. We also find that TI should be regulated as a dominant carrier on the U.S.-Australia route. II. BACKGROUND AND PLEADINGS 2. TI, a Delaware corporation, is affiliated with several foreign carriers. TI is an indirect wholly-owned subsidiary of Telstra Corporation Limited ("Telstra"), which is 100 percent owned by the Commonwealth of Australia and provides local and long-distance service in Australia. TI is authorized to resell certain international telecommunications services to various international points, excluding Australia. TI is also authorized to resell switched services and international private lines, both interconnected and not interconnected to the public switched network, for the provision of switched services between the United States and Australia. 3. On June 10, 1997, TI filed an application to obtain Section 214 authority to provide international facilities-based switched and private line services between the United States and Australia. This authority would allow TI to provide "full" circuits on the U.S.- Australia route, enabling it to provide "end-to-end" service to end users in both countries. TI certifies that it is affiliated within the meaning of Section 63.18(h)(1)(i) the Commission's rules with Telstra, Telstra (U.K.) Limited, Telstra (New Zealand) Limited,and Telecom Services Kiribati Limited. TI states, however, that it has no agreement with Telstra for the provision of switched or private line service to Australia or other points and that TI is not seeking authority to establish a non-standard settlement arrangement with Telstra. 4. AT&T filed a petition to deny TI's application, which TI opposed. AT&T filed a reply to TI's opposition. III. DISCUSSION A. TI's Application to Provide Facilities-Based International Service 5. TI argues that the World Trade Organization ("WTO") commitments of the United States and Australia that will permit access for their facilities-based international carriers deserve "substantial, if not controlling weight" in the Commission's assessment of TI's application. AT&T argues the Commission must review this application under its existing rules. 6. We agree with AT&T that because no new rules are in effect, we will analyze this application under our current regulatory framework. Because TI is a foreign carrier within the meaning of Section 63.18(h)(1)(ii) of the Commission's rules, we must examine TI's application under the framework established in the Foreign Carrier Entry Order. In that Order, the Commission determined that foreign carriers seeking to provide U.S. international services to destination countries in which they have market power must demonstrate that such destination countries offer "effective competitive opportunities" ("ECO") for U.S. carriers to offer like services. The Commission stated it would apply the ECO analysis only to Section 214 applications from foreign carriers, or certain affiliates of foreign carriers, with market power in destination countries that potentially can be leveraged to the detriment of unaffiliated U.S. carriers providing service to those countries. The Commission also determined that it would continue to consider other public interest factors that may weigh in favor of, or against, granting the application. 1. Analysis of TI's Market Power 7. The Foreign Carrier Entry Order defines "market power" as "the ability of the carrier to act anticompetitively against unaffiliated U.S. carriers through the control of bottleneck services or facilities on the foreign end." Bottleneck services or facilities are "those that are necessary for the provision of international services, including inter-city or local access facilities on the foreign end." 8. TI contends that Telstra is no longer treated as dominant in Australia. TI also argues that Telstra does not possess market power in the domestic long-distance and local access markets. In response, AT&T asserts that the Australian regulator has not concluded that Telstra lacks market power. AT&T argues that Telstra is the government-owned, dominant provider of telephone access, local, domestic, long-distance, and international services in Australia. AT&T asserts that Telstra controls approximately 80 percent of the U.S.-Australia route and has the only ubiquitous facilities-based local exchange network. 9. In our recent Australia Resale Order granting Telstra the authority to resell switched services, and international private lines (both interconnected and not interconnected to the public switched network) for the provision of switched services, we found that Telstra controls the only ubiquitous local exchange network in Australia. Accordingly, we found that Telstra possesses market power in Australia. We find no reason to alter our determination in this order. Therefore, under the Foreign Carrier Entry Order, we must determine whether U.S. carriers have effective competitive opportunities to provide facilities- based switched and private line services in Australia. 2. Public Interest Analysis 10. Under the ECO test for facilities-based entry, we examine first the legal, or de jure, ability of U.S. carriers to enter the destination foreign country and provide international facilities-based service. Next, we focus on the actual conditions for entry, including the terms and conditions of interconnection, competitive safeguards, and the regulatory framework. We focus on the overall effect of these four elements on the opportunities for viable operation as a facilities-based carrier in the foreign market. If, however, any of the factors of the ECO test are completely absent, we will deny authority to provide facilities- based service on that route, unless other public interest factors warrant a different result. We also consider as relevant any evidence of existing competition in international facilities- based services. 11. Legal Ability to Enter. We agree with the parties that there are no legal barriers to entry in the Australian market for international telecommunications services. Applicants seeking to provide facilities-based service in Australia must obtain a license from the Australian Communications Authority ("ACA"). There are no restrictions, however, on the number of new carriers that can enter the market or on the foreign ownership of new carriers. 12. During the pleading cycle, TI informed us that the Australian affiliate of Primus Telecommunications Group, Inc. (Primus), a U.S. international carrier, was granted a license to own and operate domestic and international network facilities and provide a full range of services. At that time, TI estimated that applications from about 20 other companies, including affiliates of other U.S. carriers, were currently pending before the ACA and should be granted shortly. Recently, TI advised us that as of December 8, 1997, the ACA has granted a total of 12 carrier licenses in Australia. To date, we have no information that any applicant has been denied a carrier license. This information bolsters our conclusion that there are no legal barriers to entry in Australia. 13. Actual Conditions for Entry. In the Australia Resale Order the International Bureau found that Australia affords U.S. carriers opportunities to resell international private lines to provide switched services which are equivalent to those offered in the United States. Specifically, the International Bureau concluded that Australia affords U.S. carriers the legal right to provide switched services over resold private lines interconnected to the public switched network at both ends; U.S. carriers are able to obtain reasonable and nondiscriminatory interconnection charges, terms, and conditions; Australia's laws provide sufficient protection against anticompetitive practices; and there is sufficient regulatory oversight to protect and promote competition. 14. We find no evidence in this record to alter our determinations about U.S. carriers' actual ability to enter the Australian telecommunications market. AT&T argues that the Australian market fails ECO because: (1) Telstra is not required to offer published, nondiscriminatory interconnection rates; (2) Telstra is permitted to engage in secret interconnection rate deals; (3) Australia relinquishes important regulatory powers to an industry forum, the Telecommunications Access Forum ("TAF"); and (4) Telstra's accounting rate with U.S. carriers far exceeds economic cost. Even if the Commission determines that Australia passes our ECO analysis, AT&T argues that TI and Telstra should be made subject to the conditions and safeguards in the Commission's Benchmarks Order and the Commission's Foreign Participation Order. 15. In our Australia Resale Order, we found no basis for concluding that Telstra is providing or may provide a discriminatory interconnection rate for international traffic on the U.S.-Australia route. We expressed concern about the lack of publication of interconnection agreements, but found that other aspects of Australia's interconnection regime (i.e., the current interconnection prices, the ACCC's ability to require continuation of those prices, and the ACCC's general regulatory powers) help protect against discriminatory conduct. Below, we will address some additional arguments raised by AT&T in this proceeding regarding the arbitration of interconnection disputes, the TAF, and Telstra's accounting rate. 16. AT&T argues that, because there is no legal requirement for nondiscriminatory prices, an arbitration that deals with the pricing of interconnection is meaningless because there is no price against which an arbitrator can resolve a pricing dispute. In addition, AT&T argues that because Australia does not require the publication of negotiated interconnection agreements, a carrier that is dissatisfied with the price of access will not have the essential evidence upon which to pursue a contested complaint, that is, knowledge of the price in an unpublished negotiated agreement. Carriers therefore will not be able adequately to determine whether or not they are the object of price discrimination. 17. In the Australia Resale Order we found that Telstra's current prices for interconnection for originating or terminating switched access for almost all of the international calls compare favorably with rates in New Zealand and the United States. We also noted that although the current interconnection prices are only guaranteed until January 1998, the Australian Competition and Consumer Commission ("ACCC") has the power to continue to require Telstra to provide interconnection at these prices beyond January 1998. We also noted that if a dispute arises during a commercial negotiation, either side may notify the ACCC that a dispute exists. Once notified, the ACCC has the power to determine the terms and conditions of access. Thus, to determine if it is an object of price discrimination, a carrier may compare the price it is offered for interconnection with the current price for originating or terminating switched access. If the offered price is above the current price or if for another reason the carrier believes it is an object of discrimination it may notify the ACCC and the ACCC will arbitrate the dispute. 18. AT&T also argues that the new law relies on an industry forum, the Telecommunications Access Forum ("TAF"), to establish standard terms and conditions for interconnection and to self-regulate interconnection terms and conditions. Such self- regulation, AT&T argues, brings with it the potential for entrenched incumbents to seek delay in order to forestall competition. 19. We do not agree that the new law relies on the TAF to self-regulate interconnection terms and conditions. The TAF submits a draft "access code" with model terms and conditions for interconnection for approval by the ACCC. The final regulatory approval, therefore, is not with the TAF, an industry forum, but rather with the ACCC. 20. Other Public Interest Factors. We also note that AT&T makes a number of arguments with regard to Telstra's accounting rate. AT&T argues that Telstra's current accounting rate is substantially above cost and Telstra is not obligated to disclose any rates it charges carriers from other countries. If we grant this application, AT&T argues, Telstra will have no incentive to reduce its accounting rate. AT&T also argues that if Telstra is required to provide its competitors cost-based access to Telstra's bottleneck facilities at all technically feasible points as a condition of entry, the ability to leverage above-cost settlement rates would be removed. 21. In the Benchmarks Order, the Commission amended its rules, effective January 1, 1998, to require that applications for authority to provide facilities-based switched and private line service to affiliates would be conditioned on the affiliated carrier offering U.S. international carriers a settlement rate for the affiliated carrier at or below the benchmark. Current settlement rates for Australia are $.21 which is above the benchmark rate of $.15 for high income countries. Thus, as of January 1, 1998, TI, as an affiliate of Telstra, will be subject to this condition. B. Regulatory Status 22. TI does not concede that it is a dominant carrier in Australia but agrees to be regulated as dominant on the U.S.-Australia route. Therefore, we do not need to address this issue further, and we will regulate TI as dominant on the U.S.-Australia route. IV. CONCLUSION 23. We conclude that grant of TI's application for facilities-based service on the U.S.-Australia route is in the public interest. We find that U.S. carriers have effective competitive opportunities to provide international facilities-based service in Australia. Further, we will regulate TI as a dominant carrier on the U.S.-Australia route. V. ORDERING CLAUSES 24. Accordingly, IT IS HEREBY CERTIFIED that the present and future public convenience and necessity require a grant of the present application, and IT IS ORDERED that application File No. ITC-97-320 is GRANTED, and Telstra, Inc. ("TI") is authorized to acquire and operate facilities for the provision of switched, private line, and other authorized services between the United States and Australia. 25. IT IS FURTHER ORDERED that the grant of this application is conditioned upon Telstra Corporation Limited negotiating with U.S. international carriers a settlement rate that is in effect and is at or below the relevant benchmark settlement rate adopted in the Benchmarks Order within 90 days of the effective date of that Order. See also Benchmarks Order at  224-227. 26. IT IS FURTHER ORDERED that TI shall be regulated as a dominant carrier on the U.S.-Australia route, pursuant to Section 214 of the Act, 47 U.S.C.  214, and Section 63.10 of the Commission's rules, 47 C.F.R.  63.10, and shall comply with the requirements of paragraph (c) of that section. 27. IT IS FURTHER ORDERED that TI shall comply with Sections 43.51, 43.61, and 43.82 of the Commissions rules, 47 C.F.R.  43.51, 43.61, and 43.82. 28. IT IS FURTHER ORDERED that AT&T's Petition to Deny IS DENIED. 29. This Order is issued under Section 0.261 of the Commission's rules, 47 C.F.R.  0.261 (1996), and is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's rules, 47 C.F.R.  1.106 (1996) or applications for review under Section 1.115 of the Commission's rules, 47 C.F.R.  1.115 (1996), may be filed within 30 days of the date of public notice of this Memorandum Opinion, Order and Certificate (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, International Bureau