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Tech InitInitialize Technical Style. k I. A. 1. a.(1)(a) i) a) 1 .1 .1 .1 .1 .1 .1 .1 Technicala2IndentedLeft-indented textC S'A.` ` 25ePleadingHeader for Numbered Pleading PaperE!n    X X` hp x (#%'0*,.8135@8:%7777777777>>>1eOIIOC=OO%+OCbOO=OI=COOhOOC%%47%17171%777U7777%+77O77155;%%%%,%77O1O1O1O1O1bII1C1C1C1C1%%%%O7O7O7O7O7O7O7O7O7O7O1O7O7O7O7O7=7O7O1O1I1I1C1C1C1O7O7O7O7O7,7%7%%%7+O7bO=+N&27%177777"RR7!SS7R!%%117n%%77ln%1n%!N%<<>,?>77?%-77[U%%7>%7777777777>>>1eOIIOC=OO%+OCbOO=OI=COOhOOC%%47%17171%777U7777%+77O77155;N%71n77%n=%b%%11&7n%l+%OO%77777%S7>%S7,OOOOOO=7111111I111117777777<7777777"5^!)22SN!!28!2222222222888,\HCCH=8HH!'H=YHH8HC8=HH^HH=!!/2!,2,2,!222N2222!'22H22,006!!!!(!22H,H,H,H,H,YCC,=,=,=,=,!!!!H2H2H2H2H2H2H2H2H2H2H,H2H2H2H2H282H2H,H,C,C,=,=,=,H2H2H2H2H2(2!2!!!2'H2YH8'N#-2!,22222KK2LL2K!!,,2d!!22bd!,d!N!778(98229!)22SN!!28!2222222222888,\HCCH=8HH!'H=YHH8HC8=HH^HH=!!/2!,2,2,!222N2222!'22H22,006G!2,d22!d8!Y!!,,#2d!b'!HH!22222!L28!L2(7!9-!2KKK,HHHHHHYC====!!!!HHHHHHH8HHHHHH82,,,,,,C,,,,,2222222722222222x<9@`b,"5^*7FSS$77Sp*7*.SSSSSSSSSS77pppSffoxffxx7Jo]oxfxfS]xff]]A.AFS7SSJSJ.SS..J.xSSSSAA.SJoJJAC.CZ*7777C7SSfSfSfSfSfSooJfJfJfJfJ7.7.7.7.oSxSxSxSxSxSxSxSxS]JfSxSxSxS]JxSfSfSfSfSoJoJfJfJfJxSxSxSxSxSCS7S777SJxSoSAN:*WSASSSSSS.4}}S2~~S}277]]S77SS7]72N7[[pC`pSS`*7FSS$77Sp*7*.SSSSSSSSSS77pppSffoxffxx7Jo]oxfxfS]xff]]A.AFS7SSJSJ.SS..J.xSSSSAA.SJoJJAC.CZv7S]SS7S777]]:S7A7o]*ASSSS.S7~.Sp7~SC[227`W*724S}}}Sffffffoffff7777xoxxxxxpxxxxx]fSSSSSSSoJJJJJ....SSSSSSS[SSSSSJS2<Z?"5^.=M\\'==\|.=.3\\\\\\\\\\==|||\ppzpp=Qzfzpp\fppffG3GM\=\\Q\Q3\\33Q3\\\\GG3\QzQQGI2Ic.====I=\\p\p\p\p\p\zzQpQpQpQpQ=3=3=3=3z\\\\\\\\\fQp\\\\fQ\p\p\p\p\zQzQpQpQpQ\\\\\I\=\===\Q\z\GN@.`\G\\\\\\39\7\7==ff\==\\=f=7N=dd|Ii|\\i.=M\\'==\|.=.3\\\\\\\\\\==|||\ppzpp=Qzfzpp\fppffG3GM\=\\Q\Q3\\33Q3\\\\GG3\QzQQGI2Ic=\f\\=\===ff@\=G=zf.G\\\\2\=3\|=\Id77=i`.=79\\ppppppzpppp====z|fp\\\\\\\zQQQQQ3333\\\\\\\d\\\\\Q\ S' S' Federal Communications Commission`~(#cDA 982498 ă   yxdddy Qb Before the   X FEDERAL COMMUNICATIONS COMMISSION  S'&2Washington, D.C. 20554 ă In the Matter of) ) CABLE & WIRELESS, INC.) )  S'Application for Authority Pursuant to)ppFile No. ITC2141998051500326  S'Section 214 of the Communications Act)ppPrevious File No. ITC98380 of 1934, as Amended, to Provide Resold and) FacilitiesBased Switched and Private Line) Service between the United States and China)  S ' ORDER, AUTHORIZATION, AND CERTIFICATE  S '_ Adopted: December 2, 1998 Released: December 8, 1998 Ã  SX' By the Chief, Telecommunications Division:  S'P I. Introduction ă 1. In this Order, we grant Cable & Wireless, Inc. (CWI) authority to provide switched and private line international telecommunications services on a facilities and resale basis between the United States and China. We classify CWI as a dominant carrier in its provision of service to China.  S' mOII. Background  S' 2. CWI is a common carrier that has received numerous authorizations under Section 214 of  Sx'the Communications Act of 1934, as amended,Lx yO'ԍX47 U.S.C. 214.(#L to provide switched and private line services between the United States and international points throughout the world on both a facilities and resale basis. CWI is an indirect, wholly owned subsidiary of Cable and Wireless, plc (C&W plc). 3. CWI requests authority to acquire interests in facilities previously authorized by the Commission in order to provide international basic switched, private line, data, television, and business  S'services to China.X yO!'ԍXCable & Wireless, Inc., Application File No. ITC98380 (filed May 15, 1998) (CWI Application).(#Ƙ CWI also requests authority to resell the international services of other authorized U.S. carriers for the provision of international switched, private line, data, television, and business  S8'services to China. We placed CWIs application on public noticev8 {O$'ԍXSee Public Notice, Report No. TEL157B (May 29, 1998).(#v and received petitions to deny from AT&T Corp. (AT&T), WorldCom, Inc. (WorldCom), and MCI Telecommunications Corporation (MCI)." z0*''88L "Ԍ S'ԙ PIII. Discussion  S'  S'4. The rules and standards adopted in the Commissions Foreign Participation OrderL^  {O'ԍXRules and Policies on Foreign Participation in the U.S. Telecommunications Market, Report and Order  {O'and Order on Reconsideration, 12 FCC Rcd 23,891 (1997), recon. pending (Foreign Participation  {O'Order) FPOCITE .(#L apply to this application. Because China is not a member of the World Trade Organization (WTO), we examine whether CWI's application is subject to the Commissions effective competitive opportunities (ECO) test. An applicant must satisfy the ECO test if it is a carrier, or controls a carrier, or is affiliated with a carrier within the meaning of Section 63.18(h)(1)(i)(B) of the Commissions rules, that has sufficient market power in the destination nonWTO market to affect  S'competition adversely in the U.S. market."  {OP 'ԍXSee 47 C.F.R.  63.18(h)(5), (6); see also id. 63.18(h)(1)(i)(B)  H1IB (defining an affiliation to include in part "[a] greater than 25 percent ownership of capital stock, or controlling interest at any level, in the applicant by a foreign carrier, or by any entity that directly or indirectly controls or is controlled by a foreign carrier, or that is under direct or indirect common control with a foreign carrier").(# If we authorize CWI to provide service to China, we must also determine whether to impose our international dominant carrier safeguards on CWI in its  Sr'provision of service on that route due to the market power of an affiliated carrier operating in China.Xr  {O'ԍXSee 47 C.F.R. 63.10.(#X We address first the question whether CWI's Section 214 application is subject to the ECO analysis and whether it is in all other respects consistent with the public interest, convenience, and necessity.  S ' A. Section 214 Authorization 5. CWI certifies that the Shenda Telephone Company (Shenda) is an affiliate operating in  SZ'China that meets the Commissions definition of affiliation in Section 63.18(h)(1)(i)(A)WZj  {Od'ԍXSee 47 C.F.R.  63.18(h)(1)(i)(A) (defining affiliation as [a] greater than 25 percent ownership of capital stock, or controlling interest at any level, by the applicant, or by any entity that directly or indirectly controls or is controlled by it, or that is under direct or indirect common control with it, in a  {O'foreign carrier, or in any entity that directly or indirectly controls a foreign carrier). See infra para. SHENDAOPS15 for a discussion of Shenda's operations in China.(#W but does not meet the definition of affiliation in Section 63.18(h)(1)(i)(B). CWI states that its parent, C&W plc, possesses a noncontrolling 49 percent ownership interest in Shenda. Because the C&W plc interest in Shenda is not controlling, CWI maintains that its affiliation with Shenda is not of the type described in  S'Section 63.18(h)(1)(i)(B)  {Ox!'ԍX47 C.F.R. 63.18(h)(1)(i)(B); see supra note  H1IB5 .(#ƀ and therefore does not trigger application of the ECO test. CWI correctly observes that the ECO test is not triggered by affiliations described in paragraph (A) of Section  Sj'63.18(h)(1)(i) unless the affiliation also falls within the meaning of paragraph (B) (because the  SD'applicant's greaterthan25percent or controlling shareholder controls the foreign carrier); or the"D,p(p(88"  S'applicant itself controls the foreign carrier.   {Oh'ԍXSee 47 U.S.C. 63.18(h)(5), (6) (applying the ECO test to a nonWTO destination market where the  {O2'applicant is a foreign carrier, "controls a foreign carrier ... or has an affiliation within the meaning of paragraph (h)(1)(i)(B) of this section with a foreign carrier in the destination country") (emphasis  {O'added); see also Foreign Participation Order  140 ("[W]e will apply the ECO test where a U.S.  {O'carrier, or a company that owns more than 25 percent of a U.S. carrier, owns a controlling interest in a foreign carrier than has market power in a nonWTO country.") (emphasis added). (# As the Commission observed in the Foreign Participation  S'Order, when it modified its rules to apply the ECO test to U.S. carriers' investments in some foreign carriers, "there can be significant risks to competition when a U.S. carrier [or a greaterthan25percent  S'or controlling shareholder] owns a controlling interest in a foreign carrier with market power."d H  {Ot 'ԍXForeign Participation Order  140.(#d By contrast, a greaterthan25 percent, but noncontrolling, interest in a foreign carrier represents a level of influence over the foreign carrier that is "sufficiently attenuated" such that application of the ECO  S'test is not appropriate. ^  {O'ԍXMarket Entry and Regulation of ForeignAffiliated Entities, Report and Order, 11 FCC Rcd 3873, 87  {OX'(1995) (Foreign Carrier Entry Order), recon. granted in part, denied in part, and deferred in part in  {O"'Foreign Participation Order, supra note FPOCITE4.(#Ƈ Thus, although CWI is affiliated with Shenda within the meaning Section 63.18(h)(1)(i)(A), this affiliation does not itself trigger ECO because neither CWI, nor its controlling  S'shareholder C&W plc, has a controlling interest in Shenda.   yOd'ԍXCWI's affiliation with Shenda, however, is relevant for purposes of determining CWI's regulatory  {O,'treatment on the U.S.China route. See infra Section III(B).(#  Sv'6. WorldCom and MCI do not contend that CWI or C&W plc has a controlling interest in Shenda or any other carrier operating in China. Rather, they argue that the ECO test applies here because CWI is affiliated with China Telecom within the meaning of the last sentence of Section  S '63.18(h)(1)(i)(B).k Z  yO'ԍWorldCom Petition to Deny at 3; MCI Petition to Deny at 3.k This affiliation, they argue, results from CWI's affiliation with Shenda and the Chinese government's control of both Shenda and China Telecom.  S '7. Petitioners' argument tracks the final sentence of Section 63.18(h)(1)(i)(B), which reads as follows: XA U.S. carrier [here, CWI] also will be considered to be affiliated with a foreign carrier [here, China Telecom] where the foreign carrier [China Telecom] controls, is  S'controlled by, or is under common control with a second foreign carrier [here, Shenda]  S'already found to be affiliated with that U.S. carrier under this section.k  yO"#'ԍX47 C.F.R. 63.18(h)(1)(i)(B) (emphasis added).(#k  Thus, on the basis of this language, petitioners argue that CWI is considered to be affiliated with China Telecom because China Telecom is under common control with Shenda, which is affiliated with CWI under paragraph (A) of Section 63.18(h)(1)(i). "z,p(p(88>"Ԍ S'8. Petitioners' argument is consistent with a strict textual reading of the final sentence of paragraph (B) of Section 63.18(h)(1)(i). We conclude, however, that the Commission did not intend an applicant to be considered an affiliate of a foreign carrier under the common control provision of Section 63.18(h)(1)(i)(B) unless the entity that controls both foreign carriers referenced in that provision has a greaterthan25percent or controlling interest in the applicant. Absent such an interest in the applicant, the foreign carrier (and its controlling shareholder) would have insufficient incentive to use its foreign market power to discriminate in favor of the applicant, because neither the foreign carrier nor its controlling shareholder would derive a direct financial benefit from any discriminatory conduct in favor of the applicant. This conclusion is supported by the Commission's reasoning when it  S'adopted the "greaterthan25percent" affiliation standard in the Foreign Carrier Entry Order. There, the Commission found that "an investment [in a U.S. carrier] greater than 25 percent is large enough to give a foreign carrier substantial influence over the conduct of a U.S. carrier and substantial rewards  S" 'from anticompetitive conduct."i"  {O 'ԍXForeign Carrier Entry Order  83.(#i The Commission specifically declined to include in its definition of  S 'affiliation interests in a U.S. carrier of 25 percent or less, unless the interest is a controlling one.$ Z  yO'ԍXThe Commission has also consistently declined to treat a U.S. carrier as an affiliate of a foreign carrier in circumstances where the U.S. carrier is involved with the foreign carrier in a nonequity joint venture.  {O'As the Commission observed most recently in the Foreign Participation Order, "[n]onequity arrangements can provide a financial incentive for carriers to act jointly in the pursuit of marketing  {O'objectives, but neither carrier derives a direct financial benefit with respect to the other's  {O'telecommunications operations." Foreign Participation Order  224 n.460 (emphasis added) (citing  {O'Foreign Carrier Entry Order  95).(#$  S '9. In the instant case, the Chinese government controls both China Telecom and CWI's affiliate, Shenda Telephone Company. The Chinese government, however, does not have a greaterthan25percent or controlling interest in CWI. Absent such an interest in CWI, we find that China Telecom and the Chinese government have insufficient incentive to use China Telecom's market power to discriminate in favor of CWI. We therefore conclude that it is contrary to Commission policy to consider CWI an affiliate of China Telecom under the final sentence of Section 63.18(h)(1)(i)(B). As a result, we agree with CWI that its application is not subject to the ECO test.  Sl' 10. The petitioners argue in the alternative that we should scrutinize CWIs relationship with China Telecom and perhaps deny the application because their "close relationship" presents a  S'significant potential impact on competition in the U.S. market.w  {O^'ԍXSee MCI Reply at 5; WorldCom Petition to Deny at 6!7.(#w WorldCom states that C&W plc and China Telecom have forged a longterm alliance that includes crossownership arrangements that give  S'each a stake in the other's prosperity.i4  yO"'ԍ XFor example, WorldCom argues, C&W plc and China Telecom (Hong Kong), a subsidiary of China Telecom, each own major stakes in Hong Kong Telecommunications International, Ltd. (HKTI), and C&W plc is expected to receive a significant stake in China Telecom (Hong Kong) in exchange for  {O$'giving China Telecom additional shares of HKTI. See WorldCom Petition to Deny at 5!6; see also MCI Reply at 4 (stating that C&W plc "wants to further its interests in China, and China Telecom/MII wants to enhance its presence in Hong Kong").(#i Those close ties, WorldCom argues, combined with the lack of any regulatory constraints on China Telecom's activities in China, create an incentive and opportunity",p(p(88" for China Telecom to discriminate in favor of CWI on the U.S.China route. WorldCom argues that the Commission has indicated that it will scrutinize investments and other business ties that may  S'significantly impact the U.S. international telecommunications market.g  {O'ԍXSee WorldCom Petition to Deny at 4!6.(#g It argues that the Commission should require CWI to disclose any and all common equity investments, contracts, or other deals that C&W plc has entered into with China Telecom, the Chinese Ministry of Posts and Telecommunications, or any agencies of the Chinese government, in order to determine whether the relationship  S'requires us to deny this application.WZ  {O 'ԍXSee id. at 6!7.(#W  S' 11. We have never applied the ECO test as a result of nonequity business arrangements or  S'crossownership arrangements between an applicant and a foreign carrier. In the Foreign Carrier  Sr'Entry Order, the Commission decided not to apply the ECO test to nonequity business arrangements between U.S. carriers and their foreign counterparts because these arrangements do not constitute entry into the U.S. market as a common carrier, and neither party derives a direct financial benefit with respect to the other's telecommunications operations. Rather, the Commission said, those alliances  S 'may warrant increased postentry regulatory scrutiny.$   {O`'ԍXSee Foreign Carrier Entry Order  95. The Commission noted, however, that if a U.S. and foreign carrier form a joint venture for the purpose of providing U.S. international basic services that joint venture would require Section 214 authorization and be subject to the Commission's market entry rules.  {O'Id. n.114; see also Foreign Participation Order  224.(# Similarly, crossownership arrangements do not allow either carrier to benefit directly from the other's successes. The Commission decided to apply its market entry tests only where a foreign carrier has an ownership interest in the applicant that  S\'creates an affiliation or where a smaller investment by a foreign carrier in the applicant nevertheless  S6'presents a significant potential impact on competition.r6  {O'ԍXSee Foreign Carrier Entry Order  89; Foreign Participation Order  332 n.679 ("We retain our policy ... of scrutinizing investments of 25 percent or less that present a significant potential impact on  {O@'competition in the U.S. market for international telecommunications services."). In the Foreign  {O 'Participation Order, on reconsideration of the Foreign Carrier Entry Order, the Commission expanded the applicability of the ECO test to include situations where the applicant, or an entity that owns more  {O'than 25 percent of or controls the applicant, controls a foreign carrier that has market power in a non {Of'WTO country. See Foreign Participation Order  140. This is not the case here.(#r We scrutinize other sorts of business  S'relationships only in the context of postentry regulation.""  {O'ԍXSee Foreign Participation Order  224 (concluding that the Commission will apply dominant carrier regulation to a U.S. carrier's provision of service on a particular route where a nonequity arrangement with a foreign carrier with market power presents a substantial risk of anticompetitive harm in the U.S. international services market).(#ƛ  S' 12. Thus, there is no basis for us to go beyond our usual standards in this case. Because, as explained below, we will regulate CWI as a dominant carrier to both China and Hong Kong, postentry regulatory safeguards will be sufficient to detect and deter the kinds of anticompetitive conduct that the petitioners warn may occur. " ,p(p(88"Ԍ S' 13. We know of no other countervailing public interest considerations that would warrant denying the instant application. The Executive Branch has not raised any national security, law enforcement, foreign policy, or trade concerns with this application. Although we are concerned by the high accounting rates of U.S.authorized carriers that terminate international traffic in China, we do not believe that concern warrants denying CWIs authorization. The Commissions benchmark settlement rate policies, together with the Commissions other competitive safeguards, sufficiently address our concerns raised by the high accounting rates on the U.S.China route. We believe that CWIs entry will increase competition in the United States and Chinese markets and thus benefit U.S. consumers. Consequently, we find that the public interest would be served by granting CWI Section 214 authority to provide facilitiesbased and resold telecommunications services between the United States and China.  S ' B. Regulatory Classification  S ' 14. We next examine whether to impose our international dominant carrier safeguards on CWI in its provision of service on the U.S.China route due to the market power of an affiliated carrier operating in China. The Commission defines market power as a carrier's ability to raise price by restricting the output of its services. In the international context, our regulatory approach addresses the ability of a carrier operating in a foreign market to discriminate against unaffiliated U.S. carriers through the control of an input that is necessary for the provision of U.S. international services. The relevant input markets on the foreign end of a U.S. international route are the markets that involve services or facilities necessary for the provision of U.S. international services. Those relevant markets generally include international transport facilities or services, intercity facilities or services, and local  Sh'access facilities or services at the foreign end. The Commission recognized in the Foreign  SB'Participation Order that, for purposes of identifying relevant input markets on the foreign end, it may be appropriate in some instances to examine a discrete geographic region rather than the national  S'market of a foreign country.a  {O\'ԍXSee id.  144!145.(#a  S'15. Shenda, SHENDAOPSCWI's affiliated carrier in China, is licensed to operate as a local carrier in China's Shenzhen Special Economic Zone (SEZ). CWI does not assert that Shenda faces competition in the provision of local exchange service in the Shenzhen SEZ. Thus, we begin our analysis of CWI's regulatory classification on the U.S.China route with reference to Section 63.10(a)(2) of the  S'Commissions rules.Z  {O'ԍX47 C.F.R. 63.10(a)(2); see also id. 63.10(c) (listing the safeguards imposed on carriers classified as "dominant" international carriers).(# That section provides that an authorized carrier that is affiliated with a foreign carrier that is a monopoly provider of communications services in a destination country is  S'presumptively classified as dominant on that route.H  yO#'ԍXSection 63.10(a)(2) is subject to the limited exception stated in paragraph (a)(4) of that section.  {O#'Paragraph (a)(4) states that a U.S. carrier that provides switched services on a route solely through the resale of an unaffiliated U.S. facilitiesbased carrier's international switched services will be presumptively classified as nondominant in its provision of switched services on that route. We discuss  yO*&'the applicability of this exception in para. 6310A419 below.(#H Even if we were to conclude that Shenda is not a monopoly and therefore apply the standard in Section 63.10(a)(3), on the theory that Shenda does not"f ,p(p(88" have a monopoly in the provision of local access facilities or services in the Chinese national market, our analysis would be the same. Section 63.10(a)(3) provides that a carrier that is affiliated with a foreign carrier that is not a monopoly in a destination country and that seeks to be regulated as nondominant on that route bears the burden of submitting information sufficient to demonstrate that its foreign affiliate lacks sufficient market power on the foreign end of the route to affect competition  S8'adversely in the U.S. market.T8  yO'ԍX47 C.F.R. 63.10(a)(3).(#T As explained below, we find that CWI has not met the burden of showing that Shenda lacks sufficient market power in the greater Chinese market to affect competition adversely in the United States. For the same reason, we also find that CWI has not rebutted the presumption of dominance in Section 63.10(a)(2).  Sp'16. While CWI has not attempted to argue that Shenda lacks sufficient market power to affect competition adversely on the route between the United States and the Shenzhen SEZ, CWI nonetheless asks to be regulated as nondominant for provision of services to regions outside the Shenzhen SEZ. It argues that we should consider the SEZ to be a discrete geographic region of China for purposes of  S 'regulatory treatment.] X  {O'ԍXSee CWI Application at 3!4.(#] CWI asks us to find that competitive characteristics in the Shenzhen SEZ are sufficiently distinct from those of the Chinese national market to warrant treating the region as a distinct geographic market for purposes of our market power analysis.  S0'17. We note that, since its establishment in 1980 as Chinas first special economic zone, Shenzhen has been a flagship project in Chinas economic development strategies. Complemented by the proximity of Hong Kong, one of the worlds leading export and import centers, Shenzhen is a major exporting city in its own right. To meet the demands of a major commercial center, the telecommunications services market is welldeveloped compared with the rest of China. The Shenzhen  Sh'SEZ has one of the highest teledensities of all cities in China.m\h  {O'ԍXSee Kim Keung, The Rise of Shenzhe, Asia Inc., Dec. 1993 (available from ); Shenzhen www Information Network, Shenzhen Window (visited Oct. 15, 1998) .(#m  S'18. SHENDAOPERATIONSWe find that CWI has not met its burden of showing that Shenda lacks sufficient market power in the greater Chinese market to affect competition adversely in the United States. Shendas dominant position in a market that generates such a significant portion of Chinas international traffic,  S'the large overall volume of international traffic coming from the Shenzhen SEZ, the importance of the region to the rest of China, and its proximity to Hong Kong, where C&W plc controls the incumbent carrier Hong Kong Telecommunications International Ltd. (HKTI), all indicate a substantial risk to competition that was not present in the International Bureaus recent order authorizing CWI to provide  S'facilitiesbased service to Russia.  {O#'ԍXSee Cable & Wireless, Inc., Order, Authorization, and Certificate, File No. ITC97290, DA 98628 (rel.  {Ox$'Apr. 2, 1998) (Sakhalin Island).(# Whereas CWI demonstrated in that case that its regional foreign affiliates controlled a volume of traffic that was insignificant by any measure compared with the size of Russias market as a whole, it has not shown here that Shendas dominance in such a vital region leaves it unable to affect competition adversely on the entire U.S.China route. We are particularly"j ,p(p(88" concerned in this case that the proximity of Shenzhen to Hong Kong presents a substantial risk of switched traffic being brought into and out of China by CWI through its affiliated operations in Hong Kong on a basis other than the negotiated U.S. carrier settlement rate with China. We find that these concerns justify our imposing dominant carrier regulation on CWIs services to all of China. Therefore, CWI will be classified as a dominant carrier in its provision of switched and private line service between the United States and China. This dominance classification requires only that CWI be structurally separate from its affiliate and that it file certain reports on a quarterly basis regarding its  S'provision of service along the U.S.China route.  {OP'ԍXSee 47 C.F.R.  63.10(c); Foreign Participation Order  161, 232.(#Ɛ  S'19.  6310A4 We note that CWI has existing Section 214 authority to resell the switched services of other U.S. international carriers to China and is classified as nondominant in its provision of such  SH 'service. $H Z  {OB 'ЍXSee Petition of Cable & Wireless, Inc. for Nondominant Status on All Routes Employing Resold International Message Telecommunications Services of Unaffiliated U.S. Carriers, 9 FCC Rcd 6093  {O'(1994); TDX Systems, Inc., Order, Authorization and Certificate, File No. ITC86108, Mimeo No. 6609 (Com. Car. Bur. rel. Sept. 2, 1986).(#ƪ We find that CWI warrants continued regulation as a nondominant provider of switched  S 'services to China for so long as it provides such services only through the resale of unaffiliated U.S. S 'authorized carriers' switched services.^!X F  yO'ЍXSection 63.10(a)(4) of the rules establishes a presumption of nondominance for carriers that provide switched services on affiliated routes solely through the resale of an unaffiliated U.S. facilitiesbased  yOp'carrier's international switched services.(#^ Moreover, because CWI is not affiliated with a carrier that collects settlement payments from U.S. carriers, it is not required to file quarterly traffic reports for its  S 'switched resale service to China pursuant to Section 43.61(c).[" f  {O'ԍXSee 47 C.F.R.  43.61(c).(#[  SZ'20. Petitioners suggest that the close relationships between CWI, China Telecom, and HKTI  S2'warrant explicitly prohibiting CWI from routing U.S.China traffic through Hong Kong.#2  {O'ԍXSee AT&T Petition to Deny at 4!5; WorldCom Petition to Deny at 7!8.(#ƈ We are satisfied, however, that the Commissions postentry regulatory safeguards are sufficient as an initial matter to address these concerns. CWI is already subject to dominant carrier treatment for the U.S. S'Hong Kong route,)$  {O'ԍXSee Public Notice Report No. TEL00031, File No. ITC2141998092100661, DA 982313 (Nov. 12, 1998) (granting authority for CWI to provide facilitiesbased service to Hong Kong on a dominant  {Ov!'carrier basis); see also Cable & Wireless Communications, Inc., Order and Certification, 8 FCC Rcd  {O@"'1664 (1993); TDX Systems, Inc., Order, Authorization and Certificate, File No. ITC86108, Mimeo No. 6609 (Com. Car. Bur. rel. Sept. 2, 1986).(#) which requires the submission of certain quarterly reports, including traffic and revenue reports and circuit status reports. These reports, together with the same reports that CWI will be required to file for the U.S.China route, will enable the Commission and other carriers to detect traffic distortions or other anticompetitive routing and settlement arrangements on the part of CWI. Moreover, CWI receives this authorization subject to all relevant Commission regulations and will face"@$,p(p(88" appropriate action if it engages in practices that distort traffic or revenue flows in ways that violate Commission rules or policies.  S'21. We also note that, because Shenda and China Telecom have sufficient market power to affect competition adversely in the U.S. market, no U.S. carrier may agree to accept special  S8'concessions from Shenda or China Telecom with respect to the services they provide in China.s%8  {O'ԍXSee Foreign Participation Order  150!170.(#s  S' C. Settlement Rate Benchmarks Condition  S'22. The petitioners argue that, if we grant the requested authorization, we should condition it  Sp'on China Telecom's reaching the Commission's benchmark settlement rate of $0.23.&pZ  {Oj 'ԍXSee MCI Petition to Deny at 5!7; WorldCom Petition to Deny at 7.(#Ƃ In the  SH 'Benchmarks Order, the Commission adopted a benchmark settlement rate condition, effective January 1, 1998, for authorizations to provide facilitiesbased switched or private line services to destination  S 'markets where the authorized carrier is affiliated with a foreign carrier.'   {O'ԍXSee International Settlement Rates, IB Docket No. 96261, Report and Order, 12 FCC Rcd 19,806  {OP'(1997), recon. and appeals pending (Benchmarks Order).(# The Commission used the term affiliated market to refer to a market in which an affiliated carrier provides terminating service  S 'and collects settlement rates.Y( H  {O'ԍXBenchmarks Order  208.(#Y The risk of predatory price squeeze behavior that comes from collecting abovecost settlement rates from unaffiliated U.S. rivals presents a threat only if the foreign  SZ'affiliate in fact collects international settlement payments.u)DZ  {O'ԍXAs the Commission explained in the Benchmarks Order, a price squeeze refers to a particular, welldefined strategy of predation that would involve the foreign carrier setting "high" (abovecost) international settlement rates while its U.S. affiliate offers "low" prices for domestic international message telephone service (IMTS) in competition with other carriers. Because the foreign carrier's international termination services are a necessary input for providing IMTS, the foreign carrier can create a situation where the relationship between its "high" international settlement rates and its affiliate's "low" prices for IMTS forces competing carriers either to lose money or to lose customers  {ON'even if they are more efficient than the affiliate. See Benchmarks Order  208.(#u CWI's affiliate, Shenda, does not collect settlement payments from U.S. international carriers, so the affiliation does not present a risk of price squeeze. MCI argues that we should find that CWI is affiliated with China Telecom for purposes of applying the benchmark settlement rate condition. MCI bases its argument on its assertion that the investment relationship between C&W plc, China Telecom, and HKTI presents a significant potential  S'impact on competition in the U.S. international services market.]*  {O#'ԍXSee MCI Petition to Deny at 6.(#] We disagree. Because there is no substantial direct equity stake between CWI and China Telecom, a net settlement outpayment by CWI to China Telecom would under no circumstances constitute an intracorporate transfer. That is, CWI's settlement payments to China Telecom would constitute an actual cost of providing service to the same" x*,p(p(88" extent as any other U.S. carrier's payments. Neither the SEZ nor the larger Chinese market is an  S' affiliated market that would trigger application of the benchmark settlement rate condition. +X  yO@'ԍXCWI will, however, be obligated to comply with such a condition should it become affiliated with a carrier that terminates U.S. international traffic in China and collects settlement payments from U.S. carriers.(#   S' z9IV. Ordering Clauses  S`'  S8'23. Accordingly, IT IS HEREBY CERTIFIED that the present and future public interest, convenience, and necessity require a grant of the present application. Therefore, IT IS ORDERED that application File No. ITC98380 is GRANTED, and CWI is authorized pursuant to Section 63.18(e)(1), (2), and (6), 47 C.F.R. 63.18(1), (2), (6), to provide facilitiesbased and resold services between the United States and China subject to all current and future Commission regulations, including those specifically listed below, as well as the conditions set out below.  S '24. IT IS FURTHER ORDERED that CWI shall comply with the requirements specified in Sections 43.82, 63.14, 63.15(b), 63.19, and 63.21 of the Commissions Rules, 47 C.F.R.  43.82, 63.14, 63.15(b), 63.19, 63.21.  S '25. IT IS FURTHER ORDERED that CWI may not"and CWIs tariffs must state that its customers may not"connect their private lines to the public switched network at either the U.S. or foreign end, or both, for the provision of international switched basic services unless the Commission  S'has authorized the provision of such service. See 47 C.F.R.  63.18(e)(2)(ii)(c), (e)(3)!(4); 63.21(a).  S'26. IT IS FURTHER ORDERED that CWI shall be regulated as a dominant carrier under Section 63.10 of the rules and shall comply with the requirements of paragraph (c) of that section for services between the United States and China.  S'27. IT IS FURTHER ORDERED that CWI shall not agree to accept special concessions from Shenda or China Telecom for the provision of service between the United States and China. Special concessions is defined in Section 63.14(b) of the Commissions rules as amended by the  S'Commissions Foreign Participation Order, FCC 97398.  ST'28. This Order is issued under Section 0.261 of the Commissions Rules and is effective upon adoption. Petitions for reconsideration under Section 1.106 or applications for review under Section 1.115 of the Commissions Rules may be filed within 30 days of the date of public notice of this Order (see Section 1.4(b)(2)). ` `  hhCFEDERAL COMMUNICATIONS COMMISSION  S ' ` `  hhCDiane J. Cornell ` `  hhCChief, Telecommunications Division ` `  hhCInternational Bureau