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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 ) ) Unisource USA, Inc. ) ) Application for Authority Pursuant to ) Section 214 of the Communications Act of 1934,) as amended, to Acquire and Operate Facilities to) File No. ITC-98-001 Provide International Telecommunications ) Services and to Resell Telecommunications) Services of Other Carriers for the Provision ) of International Service to Various Points ) ORDER, AUTHORIZATION AND CERTIFICATE Adopted: April 21, 1998 Released: April 22, 1998 By the Chief, Telecommunications Division: I. INTRODUCTION 1. In this Order we grant Unisource USA, Inc. ("Unisource USA") authority, pursuant to Section 214 of the Communications Act of 1934, as amended, to acquire and operate facilities to provide international services, including international basic switched, private line, data, and business services between the United States and Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Norway, Portugal, Spain and Sri Lanka (the "affiliated routes"). We also grant Unisource USA authority to resell non-interconnected international private lines ("non-interconnected private line resale") and international message telephone service ("IMTS resale") between the United States and the affiliated routes. Finally, we grant Unisource USA authority to resell interconnected private lines ("ISR") to France, Belgium, Denmark, Germany, Luxembourg and Norway immediately and to each of Austria, Finland, Greece, Hungary, Ireland, Italy, Portugal, Spain and Sri Lanka at such time as the Commission determines that at least 50 percent of the settled U.S.-billed traffic on the relevant route is at or below the applicable benchmark settlement rate or that the country affords equivalent resale opportunities. This authority may be exercised by Unisource USA or any current or future wholly-owned subsidiary of Unisource USA. II. BACKGROUND 2. Unisource USA is a wholly-owned subsidiary of Unisource N.V. ("Unisource"), a provider of international telecommunications services. Unisource is a joint venture owned by PTT Telecom BV ("PTT Telecom"), a Netherlands corporation that provides domestic and international telecommunications services in the Netherlands; Telia AB, a Swedish corporation providing domestic and international services in Sweden; and Swisscom Ltd., a Swiss corporation providing domestic and international service in Switzerland. Unisource USA currently has authority to provide international facilities-based and resale services between the United States and the Netherlands, the United Kingdom, Sweden and countries in which Unisource USA has no affiliates. Unisource is currently seeking Section 214 authority to provide service to those countries in which it has an affiliate. We placed the application on public notice. MCI filed a petition to condition the grant of authority. Unisource USA filed a response to that petition. 3. Unisource USA is affiliated with carriers in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Norway, Portugal and Spain, as a result of Unisource's ownership of AT&T-Unisource Communications Services ("AUCS"). These AUCS carriers are all new entrants into their respective markets and provide primarily private network services. Unisource USA is affiliated with new entrants in the Austrian and German markets owned by SwissCom. Unisource owns new entrants in Belgium, France, Germany, Greece, Italy, Luxembourg and Spain. Through Telia AB, Unisource USA is affiliated with Telia A/S, a provider of public international telephony service in Denmark, Telia Finland Oy, a long distance and international telecommunications provider in Finland, Telecom Eireann, the monopoly provider of voice telephony services in Ireland, and Suntel (Pvt) Ltd., a new entrant in Sri Lanka, which does not own any facilities. In addition, through Telia AB, Unisource is affiliated with carriers in Latvia and Lithuania that provide non-voice telecommunications services. Finally, Unisource USA is affiliated with JaszTel Ltd. Telecommunikacios, a new entrant which owns local infrastructure facilities in one region of Hungary. III. DISCUSSION A. Market Entry Analysis 4. We analyze this application from Unisource USA under the rules adopted by the Commission in the Foreign Participation Order, which became effective on February 9, 1998. In that order, the Commission eliminated the effective competitive opportunities ("ECO") test for applications to provide facilities-based and non-interconnected private line resale services and eliminated the equivalency requirement for applications to provide switched resale services between the United States and World Trade Organization ("WTO") Members. Instead the Commission adopted, as a factor of its public interest analysis, a rebuttable presumption that applications for Section 214 authority from carriers to serve WTO Members do not pose concerns that would justify denial of an application on competition grounds. Thus, absent serious concerns raised by the Executive Branch regarding national security, law enforcement, foreign policy or trade issues, or, in the exceptional case where a carrier's entry presents a very high risk to competition in the U.S. market and our safeguards and conditions would be ineffective, we will grant expeditiously Section 214 applications of carriers wishing to serve WTO Members. For applications to provide service to non- WTO countries, the Commission continues to apply the ECO test if the affiliated carrier in the non- WTO country has market power. 5. With the exception of Latvia and Lithuania, the affiliated routes are all WTO Members, entitled to a presumption of entry. The Executive Branch has not raised any concerns in regard to this application and nothing in the record leads us to question the presumption that entry will promote competition in the U.S. international telecommunications market. Unisource USA's affiliates in Latvia and Lithuania do not have market power and therefore are not subject to the ECO test. As a result, we find it in the public interest to grant this application. B. Conditions on Service 6. In the Benchmarks Order, the Commission adopted conditions that apply to authorizations to provide facilities-based services and ISR. With respect to the provision of facilities- based switched or private line services to markets in which a carrier has an affiliate, the settlement rate of the applicant's foreign affiliate must be at or below the relevant benchmark on the affiliated route at the time service is commenced. We imposed this condition in order to reduce the ability of U.S.- licensed carriers to engage in a predatory price squeeze when providing service to an affiliated market. If the foreign affiliate does not provide facilities-based service to terminate international calls, there is no potential for anti-competitive conduct, and the facilities condition does not apply. The Benchmarks Order's benchmark settlement rate is U.S. $0.15 per minute with Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Norway and Portugal. The benchmark settlement rate is U.S. $0.19 per minute for Greece, Latvia and Lithuania. 7. Unisource USA affiliates that provide facilities-based service to terminate international calls are Telia A/S, Telia Finland Oy and Telecom Eireann. Telia A/S and Telia Finland Oy have settlement rates which are below the benchmark, and therefore satisfy the facilities-based condition in the Benchmarks Order. Telecom Eireann's settlement rate is $0.16 and therefore Unisource USA may not provide facilities-based switched or private line service to Ireland until Telecom Eireann's settlement rate is at or below $0.15. 8. In order to provide ISR, the Benchmarks Order requires that settlement rates for 50 percent of the settled U.S.-billed traffic between the United States and that country are at or below the benchmark. We adopted this condition in order to prevent one-way bypass of the accounting rate system. This condition applies regardless of the type of telecommunications service provided by the foreign affiliate. The settlement rates with Belgium, Denmark, France, Germany, Luxembourg and Norway are at or below the relevant benchmark settlement rate and therefore Unisource USA may provide ISR service to those countries immediately. Settlement rates for the other affiliated routes that are WTO Members are not at or below the benchmark settlement rate and therefore Unisource USA may not commence service to Austria, Finland, Greece, Hungary, Ireland, Italy, Portugal, Spain or Sri Lanka until the Commission determines that 50 percent of settled traffic on the relevant route is at or below the applicable benchmark rate. 9. In cases where the ISR benchmark condition is not met, the Foreign Participation Order authorizes the provision of ISR to a WTO Member if the WTO Member provides equivalent resale opportunities. Thus, Unisource USA may provide ISR service to Austria, Greece, Hungary, Ireland, Italy, Portugal, Spain and Sri Lanka upon a finding by the Commission that these WTO Members provide equivalent resale opportunities. Unisource, however, has not attempted to make such a showing in its application. 10. Latvia and Lithuania are not WTO Members. In order to provide ISR to Latvia and Lithuania, 50 percent of settled traffic on the relevant route must be at or below the benchmark rate and the Commission must have determined that the non-WTO Member provides equivalent resale opportunities. Thus Unisource USA may provide ISR to Latvia and Lithuania at such time as it demonstrates to the Commission that each meets the benchmark condition and provides equivalent resale opportunities. C. Regulatory Treatment 11. Commission regulations have traditionally distinguished between "dominant" and "non- dominant" carriers. We have classified carriers operating in the U.S. market, whether U.S.- or foreign-owned, as dominant in their provision of U.S. international services on particular routes in two circumstances: (1) where we have determined that a U.S. carrier can exercise market power on the U.S. end of a particular route; and (2) where we have determined that a foreign carrier has market power on the foreign end of a particular route that can adversely affect competition in the U.S. international services market. Carriers regulated as dominant on a particular route due to an affiliation with a carrier possessing market power on the foreign end of that route are subject to specific safeguards set forth in our rules. In the Foreign Participation Order, we established a presumption that a carrier with less than 50 percent market share on the foreign end should not be subject to dominant carrier safeguards on that route. 12. Unisource USA qualifies for non-dominant regulation on all the affiliated routes, except Ireland, because its affiliates have less than a 50 percent market share in the destination markets. In the absence of any reason to doubt Unisource USA's data, we presume these affiliates do not have market power. Telecom Eireann, however, we presume has market power since it is the monopoly provider of public voice telephony services in Ireland. Although Unisource USA argues that the indirect nature and limited scope of common ownership interests suggest that Unisource USA and Telecom Eireann are not affiliated, Unisource USA has agreed to be regulated as a dominant carrier on the U.S.-Ireland route. We conclude that Unisource USA should be regulated as dominant on the U.S.-Ireland route. 13. As a dominant carrier on the U.S.-Ireland route, Unisource USA will be required to comply with Section 63.10 of our rules. Section 63.10 requires carriers regulated as dominant on a particular route due to a foreign carrier affiliation to: 1) file tariffs one day in advance of effectiveness; 2) maintain a limited form of structural separation between it and its foreign affiliate; 3) file quarterly reports of revenue, number of messages, and number of minutes of both originating and terminating traffic; 4) file quarterly reporting requirements on provisioning and maintenance services provided by its foreign affiliate; and 5) file quarterly circuit status reports. In addition, Unisource will have to comply with certain reporting requirements regarding provision of switched resale services between the United States and Ireland. 14. MCI argues that the Commission should impose a number of additional conditions for Unisource's Section 214 authority to provide service to Ireland because Telecom Eireann retains a monopoly on basic switched domestic and international voice services until January 1, 2000. These include, with respect to service between the United States and Ireland: 1) a requirement to obtain prior approval before adding or discontinuing circuits; 2) a 14-day notice period for tariff changes and a requirement to provide cost support for its tariffs; and 3) a requirement to file traffic and revenue, circuit status and provisioning and maintenance reports on a monthly basis, rather than quarterly. In addition, MCI requests that Unisource USA file with the Commission copies of all contracts, agreements and arrangements with Telecom Eireann that relate to routing of traffic, including transiting traffic, between the United States and Ireland. Finally, MCI says the Commission should require Unisource to publish all contracts, arrangements and agreements that it enters into with another carrier under which Unisource resells that carrier's services; should be prohibited from offering its switched resale services at an average price that is below the average price at which Unisource obtains those services from underlying carriers; and should submit semi-annual reports that demonstrate it has not offered its switched resale services below its average variable costs. 15. We decline to apply these additional conditions. In the Foreign Participation Order, the Commission dealt at length with the issue of safeguards for U.S. carriers affiliated with foreign carriers that have sufficient market power to affect competition adversely in the U.S. market. In that Order, we adopted a targeted approach designed to monitor and detect anti-competitive behavior in the U.S. market without imposing regulations that are more burdensome than necessary. The Commission revised its dominant carrier regulations to eliminate those that were not essential to preventing anti-competitive conduct, while at the same time reserving the right to impose more burdensome conditions in the face of evidence of anti-competitive conduct. As a result, the Commission either eliminated or declined to adopt most of the conditions that MCI requests we now apply to Unisource USA. 16. Specifically, the Commission eliminated the requirement for prior approval before adding or discontinuing circuits and the 14-day notice period for tariffs. It also adopted quarterly reporting requirements on circuit status and provisioning and maintenance, rejecting as "unnecessarily onerous" a request that the reports be filed on a monthly basis. The Commission declined to adopt a requirement for switched resellers proposed by MCI for filing all contracts, agreements and arrangements relating to services and traffic on all routes. But Commission rules already impose filing requirements similar to those MCI requests we impose on Unisource. Similarly, the Commission declined to adopt a prohibition on offering switched resale at an average price below that at which the applicant obtains the services. Finally, the Commission did adopt a reporting requirement for switched resellers, applicable to Unisource USA on the U.S.-Ireland route, that should address MCI's concerns about the potential for anti-competitive conduct on that route. 17. The Commission stated numerous times in the Foreign Participation Order that it retained the authority to impose additional conditions on carriers in the face of anti-competitive behavior. We agree with Unisource USA, however, that there is no basis at this time to impose any special conditions on Unisource USA in view of the absence of any evidence of anti-competitive conduct. Should such evidence be brought to our attention, we will consider the appropriateness of additional conditions. IV. CONCLUSION 18. We conclude that grant of Unisource USA's application to provide service on the affiliated routes is in the public interest. We believe that additional services between the United States and Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Norway, Portugal, Spain and Sri Lanka will promote competition and the introduction of new international telecommunications services. V. ORDERING CLAUSES 19. In view of the foregoing, IT IS HEREBY CERTIFIED that the present and future public convenience and necessity require the grant of this application. 20. Accordingly, IT IS HEREBY ORDERED that File No. ITC 97-470 IS GRANTED and Unisource USA, Inc. is authorized to: 1) provide facilities-based service between the United States and Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Norway, Portugal, Spain and Sri Lanka immediately; 2) provide facilities-based service between the United States and Ireland at such time as Telecom Eireann's settlement rate with its U.S. carrier correspondents is at or below $0.15; 3) resell international private lines not interconnected to the public switched network for the provision of international private line services between the United States and Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Norway, Portugal, Spain and Sri Lanka immediately; 4) provide international switched services using private lines between the United States and Belgium, Denmark, France, Germany, Luxembourg and Norway immediately; 5) provide international switched services using private lines between the United States and Austria, Finland, Greece, Hungary, Ireland, Italy, Portugal, Spain and Sri Lanka at such time as the Commission has determined that 50 percent of the settled traffic on the relevant route is at or below the applicable benchmark rate or the country provides equivalent resale opportunities; and 6) provide international switched services using private lines between the United States and Latvia and Lithuania at such time as 50 percent of the settled traffic on the relevant route is at or below the benchmark rate and the Commission has determined that the country provides equivalent resale opportunities 21. IT IS FURTHER ORDERED that Unisource USA shall be regulated as a dominant carrier on the U.S.-Ireland 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. The quarterly traffic reports filed pursuant to Section 63.10(c) must include the information required by Section 43.61 of the Commission's rules, 47 C.F.R.  43.61, for "facilities resale" on the U.S.- Ireland route. 22. 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 Order and Authorization (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane Cornell Chief, Telecommunications Division