Before the
Federal Communications Commission
Washington, D.C.

IB Docket No. 95-22

In the matter of:

Market Entry and Regulation of Foreign-affiliated Entities RM-8355 RM-8392

NOTICE OF PROPOSED RULEMAKING

Adopted: February 7, 1995 Released: February 17, 1995
Comment Date: March 28, 1995
Reply Comment Date: April 28, 1995

By the Commission:Commissioners Quello and Ness issuing separate statements.

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 - 5

II. BACKGROUND  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6 - 19
A.Petitions for Rulemaking  . . . . . . . . . . . . . . . . . . . . . . . 6 - 9
1.AT&T's Petition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 - 8
2.IDB's Petition  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
B.Existing Policy Under Section 214 . . . . . . . . . . . . . . . . . . 10 - 14
C. Existing Policy Under Section 310  . . . . . . . . . . . . . . . . . 15 - 19

III. DISCUSSION . . . . . . . . . . . . . . . . . . . . . . . . . . .  20 - 103
A.Commission Goals  . . . . . . . . . . . . . . . . . . . . . . . . . . 26 - 34
B.Section 214 Standard For Entry By 
  Foreign Carriers  . . . . . . . . . . . . . . . . . . . . . . . . . . 35 - 84
1.International Facilities-based Entry By Foreign Carriers  . . . . . . 35 - 51
a. Regulated Open Entry Under 
    Section 214 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 - 37
b. Effective Market Access  . . . . . . . . . . . . . . . . . . . . . . 38 - 49
c. Other Matters  . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 - 51
2.Definition of Affiliation . . . . . . . . . . . . . . . . . . . . . . 52 - 66
 a.Affiliation for Purposes of Entry Authorization  . . . . . . . . . . 52 - 64
b.Affiliation for Purposes of Post-Entry Regulation . . . . . . . . . . 65 - 66
3.Definition of Facilities-based Carrier  . . . . . . . . . . . . . . . 67 - 71
4.Resale Entry by Foreign Carriers  . . . . . . . . . . . . . . . . . . 72 - 79
a. Resale of Switched Services  . . . . . . . . . . . . . . . . . . . . . .  74
b. Resale of Private Lines  . . . . . . . . . . . . . . . . . . . . . . 75 - 79
5.Other Forms of Market Entry . . . . . . . . . . . . . . . . . . . . . 80 - 83
a. Domestic Interexchange Services  . . . . . . . . . . . . . . . . . . . .  81
b. Enhanced Services  . . . . . . . . . . . . . . . . . . . . . . . . . . .  82
c.Separate Satellite Systems and Other Noncommon Carriers . . . . . . . . .  83
C.Modification of Dominant Carrier and Other Operating
Safeguards  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 - 91
D.Section 310(b)(4) Standard for Radio Licensee Ownership
By Foreign Entities . . . . . . . . . . . . . . . . . . . . . . . . .  92 - 103
1.Application to Common Carrier Licenses  . . . . . . . . . . . . . . . 93 - 96
2.Application to Aeronautical Licenses  . . . . . . . . . . . . . . . . 97 - 98
3.Application to Broadcast Licenses . . . . . . . . . . . . . . . . .  99 - 103

IV. CONCLUSION  . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 - 106

V. ORDERING CLAUSES . . . . . . . . . . . . . . . . . . . . . . . . . 107 - 111

2. We propose to modify our public interest standard for considering foreign carrier applications under Section 214 of the Act to enter the U.S. market to provide international facilities-based services. We seek comment on requiring as an important element of our public interest standard a demonstration that effective market access is, or will soon be, available to U.S. carriers seeking to provide basic, international telecommunications facilities-based services in the primary markets served by the carrier desiring entry. We also would continue to consider other factors as part of our public interest analysis, such as national security, the openness of other telecommunications segments of the foreign carrier's primary markets, and the ability and incentives of the foreign carrier to discriminate against unaffiliated U.S. carriers.

3. In addition, this Notice proposes a specified level of foreign carrier ownership in a U.S. carrier at which the proposed entry standard would apply. We ask whether it is desirable to consider an applicant to be "affiliated" with a foreign carrier for purposes of our new rules when the foreign carrier acquires an ownership interest of a certain minimum level or a controlling interest at any level. We request comment on whether the minimum level of ownership should be set at greater than ten percent, twenty-five percent, or some other level of the capital stock of the applicant. This Notice also clarifies the definition of a facilities-based carrier.

4. Finally, this Notice asks whether the goals of this proceeding would be served by incorporating the proposed effective market access test as an element of the Section 310(b)(4) public interest analysis applicable to foreign entities seeking to acquire an indirect ownership interest of more than 25 percent in U.S. radio licensees. Thus, the Notice asks whether our evaluation of the public interest should consider whether the primary markets of the foreign entity offer effective market access to U.S. licensees to provide the same type of radio-based services as requested in the United States. We also seek comment on other public interest factors we should consider.

5. We seek public comment on whether these proposals are administratively feasible and whether these approaches or other alternatives will best serve our goals.

1.AT&T's Petition

6. AT&T filed a petition for rulemaking on September 22, 1993, requesting that the Commission institute a rulemaking to: (1) comprehensively review the issues arising from foreign carrier participation in the U.S. telecommunications market; and (2) promulgate rules that address "the current regulatory dichotomy between the United States and foreign countries."(n1) AT&T states that the international telecommunications industry is changing from a bilateral services model to a global market, where customers are demanding "seamless" international networks. It argues that U.S. carriers must obtain comparable market access abroad to compete effectively in the provision of basic interexchange and international services. Likewise, it says, foreign carriers wishing to become global are compelled to gain entry to the U.S. market in some manner. According to AT&T, the traditional regulatory concern about "whipsawing" has beenovershadowed by the possibility that a foreign monopoly carrier now may be in a position to provide service originating or terminating in the United States and its home country, whereas U.S. competing carriers would not.

7. First, AT&T proposes that, before approving foreign carrier entry into the United States, the Commission should make a finding as to whether comparable opportunities for U.S. carriers to compete in the home markets of the prospective entrants presently are available or will be available within a reasonable period not to exceed two years.(n2) Second, AT&T states that the Commission should condition any authorization for entry in the U.S. services market by foreign carriers having the ability to discriminate among U.S. carriers in their home markets on the agreement by the foreign carrier to nonstructural safeguards to minimize the opportunity for such discrimination. AT&T states that, at a minimum, the Commission should require: (1) no exclusive arrangements for the provision of basic or enhanced services; (2) proportionate return of foreign-billed traffic; (3) cost-based accounting rates within 30 days; (4) consent of originating and terminating carriers to refile U.S. originating or terminating traffic; (5) interconnection or distribution arrangements in the foreign country that are available to all U.S. carriers; (6) no special concessions certification; and (7) information received from other U.S. carriers to be protected and not used for the benefit of itself or its U.S. affiliate.

8. Several comments were filed in response to AT&T's petition.(n3) Only Sprint supports AT&T's petition. The majorityof the commenters oppose AT&T's petition, arguing generally that AT&T's proposed rules would require "mirror reciprocity," which the opponents claim would be unrealistic given the varied telecommunications systems. They also argue that existing safeguards, especially those contained in the 1992 International Services Order(n4) and the TLD Order(n5) are sufficient to protect competition in the U.S. international and interexchange marketplace.(n6) They support the Commission's policy of deciding market entry questions on a case-by-case basis, so as to take into consideration specific circumstances in each case.(n7)

2.IDB's Petition

9. Issues related to AT&T's petition also were raised in a petition for rulemaking filed by IDB on October 29, 1993.(n8) In this petition, IDB asks the Commission to adopt a uniform definition of a facilities-based carrier for purposes of Commission rules and policies governing international common carriers. IDB states that a uniform definition is important to provide carriers with certainty regarding their reporting obligations and their ability to interconnect international private lines to the U.S. public switched network. IDB proposes that we regulate a carrier as a facilities-based carrier when it obtains the maximum interest in the underlying facility permitted by law. AT&T filed comments against IDB's petition, saying there is a clear definition which need not be changed. MFS International, Inc. (MFS) supports IDB's petition. Because the issues involved in adopting such a definition directly relate to how we regulate U.S. international carriers, we will address IDB's petition in this rulemaking.

B.Existing Policy Under Section 214

10. We currently examine applications filed by foreign carriers or their U.S. affiliates (collectively "foreign carriers") for international Section 214 authority on a case-by-case basis. We balance our policy in favor of open market entry against the potential for undue discrimination by the foreign parent against unaffiliated U.S. carriers. Under this policy, we have authorized foreign carriers to resell international switched services,(n9) non-interconnected private line services, and private line services interconnected to the public switched network ("PSN") upon a determination that the foreign country on the other end of the circuit provides equivalent opportunities to U.S. carriers to resell interconnected private lines.(n10) In addition, we recently authorized several foreign carriers to acquire U.S. international facilities subject to safeguards to protect U.S. carriers providing international service from discrimination.(n11)

11. In recent years, we have addressed the issues raised by foreign carrier market entry in several significant cases. In 1991, we authorized Atlantic Tele-Network, Inc. (ATN), a 100 percent U.S.-owned carrier, to provide facilities-based switched service to Guyana, even though ATN indirectly controlled the monopoly service provider in Guyana.(n12) To protect against potential discrimination that could arise on the U.S.-Guyana route by virtue of ATN's bottleneck control over Guyana's telecommunications infrastructure, we imposed on ATN the same conditions then placed on international common carriers classified as dominant, foreign-owned carriers, as well as other nondiscrimination safeguards.

12. A year later, we approved the acquisition of Telefonica Larga Distancia de Puerto Rico (TLD), a U.S. domestic andinternational long distance carrier, by Telefonica de Espana (Telefonica), the government-controlled monopoly carrier of Spain.(n13) Because TLD would be controlled by the Spanish telecommunications administration, which exercised bottleneck control over Spain's telecommunications infrastructure, we imposed regulatory safeguards to prevent TLD from acting in concert with Telefonica or other foreign carriers to discriminate against U.S. carriers in the terms and conditions of access to foreign markets for the origination and termination of U.S. international traffic. We noted that, in this particular instance, the potential for anticompetitive harm to U.S. carriers was mitigated by the fact that the applications involved a limited number of circuits; traffic would originate only from Puerto Rico and the U.S. Virgin Islands; and no interconnected private line service would be involved. We also considered the benefit to the Puerto Rico government of the capital generated by the privatization of TLD. However, we said that, with respect to future facilities-based applications from TLD (or any carrier affiliated with a foreign carrier), we would assess whether the authority sought posed an additional risk of anticompetitive behavior, and, if so, whether regulatory safeguards would be sufficient to protect against it.

13. In June 1994, we authorized ENTEL-Chile, a Chilean long distance carrier, to acquire the U.S. carrier AmericaTel.(n14) We found that: (1) Chile's market for domestic long distance and international services was increasingly competitive and open to U.S. investment and participation; (2) Chile has increasingly liberalized its telecommunication laws and regulations aimed at promoting competition and preventing discrimination against U.S. and other foreign carriers; and (3) the nondiscrimination safeguards available under Chile's regulatory regime and the safeguards we imposed as a condition of authorization would be sufficient to protect U.S. carriers in their provision of international service between the United States and Chile. We required AmericaTel to submit annual progress reports detailing the status of the telecommunications industry and regulatory regime in Chile and reserved the right to review the terms and conditions of the authorization in the event that the safeguards imposed in the order or by virtue of Chilean regulation failed to sustain competition on the U.S.-Chile route.

14. Shortly thereafter, we reviewed the British Telecommunications plc (BT) acquisition of a non-controlling interest in MCI as part of a global alliance to provide services to customers worldwide.(n15) We found that the terms of the investment did not result in a transfer of control to BT requiring prior FCC approval and that BT's 20 percent investment in MCI, even when combined with other foreign ownership for a total of up to 28 percent foreign ownership in MCI, was permissible under Section 310(b)(4) of the Communications Act. Additionally, we found that MCI's commitments to accept no special concessions and to maintain certain provisioning and maintenance records, combined with the reporting requirements we imposed, adequately protected against the potential for BT to leverage its dominant position in the U.K. telecommunications market to discriminate in favor of MCI over competing U.S. carriers. In so deciding, we took into account the United Kingdom's relatively liberal regulatory regime and the existence of competition in the U.K. domestic telecommunications market.

C. Existing Policy Under Section 310

15. Section 310(b)(4) establishes benchmarks applicable to foreign entities seeking to acquire an ownership interest in the parent company of a U.S. radio licensee. Specifically, Section 310(b)(4) imposes the following benchmarks: 25 percent foreign ownership, 25 percent foreign directors, and no foreign officers. Currently, the Commission examines requests to exceed the Section 310(b)(4) benchmarks on a case-by-case basis, and has generally considered the following factors: national security, the extent of alien participation in the parent holding company, and the nature of the license, including whether the licensee exercises control over content. In addition, the Commission may consider any other public interest factors appropriate.

16. One of Congress' principal reasons for enacting Section 310 of the Communications Act of 1934 was its concern for national security and preventing alien activities against the government during a time of war.(n16) Accordingly, the Commissionhas traditionally sought to ascertain whether a country with which a prospective licensee or its parent is associated enjoys "close and friendly relations with the United States" and, therefore, is not a "national security concern."(n17)

17. The Commission has also traditionally considered the extent of alien participation in the parent corporation of a Title III radio licensee. More specifically, the Commission has considered where the parent corporation is incorporated (the United States or elsewhere); the citizenship of the stockholders, officers and directors of the parent corporation; and whether there are intermediate corporations between the licensee and the parent corporation that are incorporated in the United States, are owned by U.S. citizens or interests, and have U.S. officers and directors.(n18)

18. In addition, the Commission has traditionally considered the type of radio license at issue in assessing whether the public interest would be disserved by foreign ownership in a parent corporation exceeding the Section 310(b)(4) benchmarks. For example, the Commission has concluded that concern about the effect of foreign ownership on national security is lessened when common carrier radio licenses are involved because they are "passive" in nature and the licenses confer no control over the content of transmissions.(n19)

19. Finally, the Commission may also consider other relevant factors, including the furtherance of established Commission policies such as increased competition or the widedissemination of licenses.(n20)

21. Our procompetitive U.S. regulatory policy has permitted a number of foreign carriers to enter the U.S. international and domestic services market to meet customer demands. Many other countries permit various forms of entry into their markets by foreign-based carriers, including many U.S. telecommunications providers. When such entry has been accompanied by regulatory liberalization, countries allowing entry already are experiencing the benefits of competition. We believe both the carriers and the consumers of those countries with liberalized entry policies should receive the benefits of having their carriers compete in the lucrative U.S. market.

22. But many important foreign communications services and facilities markets or market segments remain closed to U.S.competition, even while entities from those markets have entered or seek to enter similar U.S. markets.(n23) As detailed below, asymmetric market access is detrimental to both U.S. service providers and U.S. consumers. Closed foreign markets preserve the market power of foreign entities in their home markets and closed markets may inhibit competition in the provision of global communications services.(n24)

23. Under these circumstances, current policies based on the traditional correspondent services model(n25) may not adequately address questions of market access, undue discrimination and potential anticompetitive effects that arise in today's evolving telecommunications markets, where carriers seek entry on both ends of international circuits. Further, our case-by-case review of foreign carrier applications has caused uncertainty in the market due to the lack of a clear standard for evaluating applications by foreign carriers with different degrees of market power in their home markets. Moreover, there is a risk that case-by-case determinations of the public interest may inadvertently underemphasize the general global interest of the United States in promoting a competitive world market.

24. In addition, our current approach to considering foreign entry into U.S. radio-based telecommunications and broadcast markets through application of Section 310(b)(4) may not be the most effective means of promoting global competition in these areas. It may be that our decisions in public interest determinations under Section 310(b)(4) should more directly consider how the decision will influence the development of a competitive market for international communications services.

25. We believe a rulemaking proceeding would help the Commission to articulate standards to provide more coherent principles to guide its deliberations concerning individual cases. A formal rulemaking also would give foreign entities more certainty when making investment decisions, and provide anincentive for foreign administrations with currently closed markets to consider opening their markets.

A.Commission Goals

26. We have three basic goals in this rulemaking:

1.To promote effective competition in the global market for communications services.

2.To prevent anticompetitive conduct in the provision of international services or facilities.

3.To encourage foreign governments to open their communications markets.

27. The promotion of effective competition in the global market is our primary goal. Such competition will achieve for U.S. consumers reduced rates, increased quality, and new innovative services, including the availability of global communications services. Thus, through this rulemaking, we intend to promote the opportunity for U.S. consumers to choose among multiple suppliers based on innovative offerings, service quality and efficiencies, and price competitiveness. As explained below, the other two goals are necessary to reach this first goal.

28. A necessary step towards obtaining effective competition is the prevention of anticompetitive conduct in the provision of international services or facilities. In a truly competitive global market, entry of foreign carriers into the U.S. international market would be procompetitive. However, because global competition remains highly asymmetric, unrestricted entry by foreign carriers from closed markets into the open U.S. market has the potential to inhibit competition, particularly with respect to the provision of global communications services to high-end users such as multinational companies. For instance, a foreign carrier would be able to acquire 1+ access to U.S. consumers and hold itself out as a ubiquitous provider of U.S. international services while U.S. carriers could not make the same representations in the foreign carrier's home market. In addition, such a carrier would be able to offer its customers benefits such as lower costs and faster provisioning of services provided between its closed markets and the United States.

29. Such conduct by foreign carriers may have anticompetitive effects for several reasons. First, it preserves and maintains a monopoly in the foreign carrier's home market. Second, it allows the foreign entity to use that monopoly to gain a competitive advantage in other markets that are, or could be, competitive, including communications between its foreign home market and the United States, communications in the UnitedStates, and global network services. The foreign competitor has a competitive advantage, and will therefore win customers, not because of its superior business acumen, responsiveness to customers, or technological innovation, but because of its protected status in its home market. The possession of such unmeritorious advantages is a disservice to consumers in all these markets because, in the absence of full competition on the merits by all competitors, consumers do not receive reduced rates, increased quality, and innovation.

30. In general, the potential for exploitation of a foreign carrier's market power is decreased by: (1) access to facilities at both ends of the international connection for all U.S. carriers; and (2) effective competitive safeguards (including interconnection rules) enforced by an appropriate regulatory authority at both ends. Our decision in AmericaTel shows our willingness to accept foreign carrier entry if these two conditions are met. If, however, the foreign carrier is not subject to facilities competition and competitive safeguards, its affiliation with a U.S. carrier or entry into the U.S. market may raise serious competitive questions.

31. Therefore, another key to global competition is foreign market liberalization. It is unlikely competition could thrive if a particular market keeps out some of its most effective global competitors. The demand for seamless global services by business means that U.S. carriers serving the other country must be able to originate traffic from their customers in that country to other markets around the world. Encouraging global competition further means that there needs to be international facilities-based competition on the U.S. and foreign ends of an international route. Open markets permit U.S. carriers to respond to foreign carriers in relevant markets, allowing U.S. carriers to be healthier competitors both at home and abroad. For example, U.S. wireless service providers' participation in foreign countries' cellular markets has strengthened both U.S. and foreign competitors and has resulted in improved service to both foreign and U.S. consumers. Closed markets frustrate all these public interest benefits.

32. Access to the U.S. market through international Section 214 authorizations or Title III licenses may be an appropriate tool to achieve the benefits of competition such as low prices, high quality, and innovation. The benefits U.S. companies would receive by having an outlet for their capital, technology and expertise would be balanced by the same benefits flowing to their foreign counterparts through entry into the U.S. market. Also, access to the U.S. market, as a uniform standard, could be administratively more efficient and less of a burden on the Commission's resources than the drafting of multiple sets of conditions to fit the particular attributes of each foreign market on a case-by-case basis.

33. Therefore, we propose the addition of an effective market entry standard to our public interest analysis of foreign carrier entry applications under Section 214 as a tool to encourage foreign administrations to open their markets to U.S. entities. This, in turn, will eliminate opportunities for foreign entities to engage in conduct that might have anticompetitive effects in the provision of international services or facilities, including undue discrimination or other abuses of bottleneck facilities, and will promote effective global market competition. We also request comment on whether our goals in this proceeding will be furthered by incorporating the effective market access test as an element of our Section 310(b)(4) analysis for Title III common carrier, aeronautical and broadcast license applications.

34. Whatever entry standard we adopt in this proceeding for international Section 214 authorizations will not be an end in itself. It will only be an interim step designed to further the goal of effective competition in the global communications market. Therefore, we expect that, as the trend of liberalization and privatization continues around the world, and more countries permit facilities-based competition for voice and other services, the need for such entry standards will diminish.

B.Section 214 Standard For Entry By Foreign Carriers

1.International Facilities-based Entry By Foreign Carriers

a. Regulated Open Entry Under Section 214

35. Currently our rules do not prohibit foreign-owned or affiliated carriers from acquiring and operating international switched and private line facilities on a common carrier basis in the United States. We have permitted some services by foreign carriers on international routes, including routes where the applicant is affiliated with a foreign carrier. Prior to authorizing entry, we have reviewed the potential effects on competition in the U.S. market. If necessary, we have imposed safeguards to prevent undue discrimination and unfair competition.(n26) In our recent facilities-based authorizations to foreign carriers, we found that our nondiscrimination safeguards were sufficient in part either because of the competition and regulation that existed in the foreign carriers' home market, or because the authority granted was limited in scope.

36. We have followed this course to encourage competitionin the U.S. international services market.(n27) Some have questioned, however, whether the benefits of such competition are undermined when new entrants are able to succeed because of privileged access to closed foreign markets.

37. Our experience leads us to believe that an open entry policy, without explicit standards, may not provide sufficient incentive for foreign markets to open. In addition, in light of demands by multinational firms for end-to-end telecommunications services and "one-stop shopping," safeguards may not compensate for the disadvantages U.S. carriers face when competing against a foreign carrier that operates in both the United States and closed foreign markets. The competitive strengths and abilities of individual service providers -- rather than the regulatory structure of markets -- should determine the success of service providers in the global telecommunications market.(n28)

b. Effective Market Access

38. We tentatively conclude that we should modify our entry standard for international facilities-based carriers to encourage the formation of a competitive global market. We believe that our standard should permit entry into the U.S. international facilities-based services market by foreign-affiliated carriers where the foreign carriers' markets are open to U.S. carriers. Therefore, we believe that an important element of our proposed public interest test should be effective market access for U.S. carriers in the primary international telecommunications markets served by the carrier desiring entry. This access must exist at the time of entry, or in the near future. We also will consider other factors which we have previously applied under our public interest analysis such as national security; the openness of other telecommunications segments of the foreign carrier's primary market; and the ability and incentive of the foreign carrier to discriminate against unaffiliated U.S. carriers.

39. Initially, we request comment on the scope of this Commission's statutory jurisdiction to consider the availability of effective market access to foreign markets as one factor inour public interest analyses under Sections 214 and 310(b)(4) of the Act. Under our authority to regulate foreign commerce in communication by wire and radio,(n29) we have examined the degree of market openness for the purpose of ensuring the efficacy of our competition safeguards.(n30) In order to ensure compliance with our International Settlements Policy, we have also examined the openness of other markets to determine whether equivalent international private line resale opportunities exist.(n31) In this Notice, we seek comment on the scope of our jurisdiction to consider the openness of foreign markets to further the three goals described in Section III.A.

40. We propose to define effective market access as the ability for U.S. carriers, either currently or in the near future, to provide basic, international telecommunications facilities-based services in the primary markets served by the foreign carrier seeking entry. A primary market is one where a carrier has a significant facilities-based presence.(n32) We would consider the following factors, none of which would be dispositive, to determine whether effective market access exists: (1) whether U.S. carriers can offer in the foreign country international facilities-based services substantially similar to those the foreign carrier seeks to offer in the United States; (2) whether competitive safeguards exist in the foreign country to protect against anticompetitive and discriminatory practices, including costallocation rules to prevent cross-subsidization; (3) the availability of published, nondiscriminatory charges, terms and conditions for interconnection to foreign domestic carriers' facilities for termination and origination of international services; (4) timely and nondiscriminatory disclosure of technical information needed to use or interconnect with carriers' facilities; (5) the protection of carrier and customer proprietary information; and (6) whether an independent regulatory body with fair and transparent procedures is established to enforce competitive safeguards. In considering these indicators to determine whether effective market access exists, we will not necessarily require that each factor be present in order to make a favorable finding, particularly if there is evidence that the market is fully competitive. Rather, we will look to the arguments of the applicant and commentingparties as to the appropriate weight of each factor in a particular market.

41. We do not propose to adopt AT&T's "comparable market access" standard as a method of regulating entry. AT&T would require the Commission to find that competitive opportunities essentially identical to those in the United States are available to U.S. carriers in the home markets of the prospective entrants. Given the varying market and regulatory conditions around the world, it would be impossible to find a situation where essentially identical market access exists. The AT&T test would require that the regulations and market structure of the foreign country mimic those of the United States. Such a strict test would be impossible to meet, and thus would not encourage open markets. We also believe that there are times when public interest factors other than comparable market access might be decisive on the issue of entry. For example, if comparable market access exists for international facilities-based services in a particular country, but all other telecommunications markets are closed to U.S. carriers, the balance of the public interest factors may weigh against granting entry to a carrier from that country. While market entry is an important part of the public interest analysis, we do not share AT&T's view that comparable market access must exist before foreign carrier entry is allowed.

42. We also do not believe it necessary to adopt AT&T's request for cost-based accounting rates as a condition of foreign carrier entry. AT&T proposes that as a prerequisite to entry the foreign carrier should agree that it will within thirty days reduce accounting rates for all U.S. carriers to the lesser of either cost-based levels, or the lowest rate charged by the foreign carrier to other telecommunications entities from any other country. This requirement should not be necessary because we expect accounting rates to drop as a natural consequence of the introduction of effective market access. We propose, however, that the presence of cost-based accounting rates be part of our total public interest analysis to determine whether facilities-based market entry should be allowed.

43. We request comment on the following approach for applying the effective market access element of the public interest test. If a foreign carrier desires to enter the U.S basic international facilities-based market either directly or through affiliation(n33) with an authorized U.S. carrier, we would assess whether the primary market, or markets, of the carrier offers effective opportunities to U.S. carriers to compete in the provision of basic, international services and facilities. We recognize that a foreign carrier might operate in severalgeographic markets. Therefore, for this part of the test we will only look at primary markets: those key markets where the carrier has a significant ownership interest in a facilities-based telecommunications entity that has a substantial or dominant market share of either the international or local termination telecommunications market of the country, and traffic flows between the United States and that country are significant. A carrier's secondary market would be defined as a market in which it has an ownership interest in a facilities-based carrier, but is not a substantial or dominant carrier, or where insignificant traffic flows exist between the United States and that country.

44. Under this approach, if a U.S. carrier can compete as a facilities-based provider of international basic services in the primary market(s) of the carrier seeking entry, we would find that the carrier has met the effective market access element of our public interest standard. Where a foreign carrier's primary markets are open, even if secondary markets closed, we would find that the market access element has been met.

45. Once we have reviewed the effective market access element of our public interest analysis, we would assess other public interest factors which might weigh in favor of, or against, allowing entry into the U.S. market. Such factors could include the state of liberalization in the foreign carrier's domestic market and the availability of other market access opportunities to U.S. carriers; the status of the foreign carrier as a government or non-government entity; the general significance of the proposed entry to promotion of competition in global markets; the presence of cost-based accounting rates; and any national security implications. Finally, we would solicit the views of the Executive Branch on the proposed foreign carrier's entry into the U.S. market.

46. We believe the above approach would be the most effective way to promote both global competition and competition in the provision of U.S. international services, with their associated benefits for users. This approach would, in most cases, limit facilities-based competition by new foreign carrier entrants to those cases that affirmatively promote global competition and encourage the opening of foreign markets. We believe that, in the long run, this approach should result in stronger, more equal competition both in the United States, and abroad, because carriers would not have marketing and provisioning advantages resulting from operating both in closed foreign home markets and in the United States.

47. We also believe this approach addresses our goal of removing opportunities for undue discrimination and other conduct that might have an adverse effect on competition. Linking facilities-based entry to effective market access is the surest means of preventing anticompetitive conduct by a foreign carrier. If other public interest factors weigh in favor of allowing entry, safeguards such as dominant carrier regulation can still be imposed to guard against undue discrimination and anticompetitive conduct.

48. Further, we believe this approach would be the best method of furthering our goal of encouraging foreign governments to liberalize their telecommunications markets. In this respect, two views were presented in response to AT&T's proposed "comparable market access" test. AT&T contends that foreign governments have no incentive to liberalize if the United States does so unilaterally. AT&T argues that these governments might liberalize if given an incentive, i.e., access to the U.S. market by their carriers. On the other hand, several other carriers have argued that, if the U.S. government increases restrictions on U.S. market access, other governments might retaliate with increased restrictions as well.

49. We believe that our proposed public interest standard addresses both AT&T's concern about providing incentives to open, and the other carriers' concerns about inviting retaliation. By having effective market access as the first element of our public interest standard, we are emphasizing that we will recognize and reward carriers from those markets that are liberalizing. At the same time, we are trying to avoid sending a signal that might be misinterpreted as a closing of our markets. Indeed, this proposed approach, unlike AT&T's, purposely does not require "mirror reciprocity" for this reason. We maintain flexibility under this approach to look at all of the public interest factors surrounding entry, and balance the market conditions of the primary markets to see what opportunities are present for U.S. carriers to compete there.(n34) Even if a foreign carrier cannot demonstrate that effective market access exists for U.S. carriers in its primary markets, it may still show that other public interest factors warrant its entry into the U.S. market. Thus, we believe the advantages of this flexible approach would offset any disadvantages that might occur by not allowing immediate facilities-based entry by all foreign carriers. Furthermore, we believe this flexible approach will promote the objectives of the Administration's Global Information Infrastructure (GII)initiative(n35) by encouraging competition.

c. Other Matters

50. We do not believe that our goals would be furthered by requiring an effective market access showing when a U.S. carrier acquires an ownership interest in a foreign carrier. If, however, the foreign carrier acquired by the U.S. carrier is a monopoly, or otherwise warrants dominant carrier treatment under Section 63.10 of our rules, we would regulate the U.S. carrier in the same manner as if the foreign carrier itself had entered the U.S. market. That is, we would apply our dominant carrier and other nondiscrimination safeguards to the U.S. carrier in its provision of U.S. international services.(n36)

51. Finally, we propose to implement whatever approach we ultimately adopt in this proceeding through the Section 63.01 application process and the Section 63.11 notification process. Section 63.11 of the rules requires carriers to notify the Commission within ninety days of the acquisition of an "affiliation"(n37) with a foreign carrier. We would continue to place these notifications on public notice. We propose, however, to change the notification period specified in Section 63.11 from ninety (90) days to thirty (30) days. In addition to using the notification to determine whether a change in regulatory status may be warranted under Section 63.10, we would also use the notification to determine whether further review of the facts surrounding the acquisition is warranted, and, if so, whether the carrier's Section 214 certificates should be designated for hearing. The carrier also would have the option, prior to the acquisition, of seeking a declaratory ruling that such acquisition serves the public interest, convenience and necessity.

2.Definition of Affiliation

a.Affiliation for Purposes of Entry Authorization

52. We propose to apply any entry standard adopted in this rulemaking for international Section 214 applications only to those potential entrants that are "affiliated" with a "foreign carrier."(n38) We tentatively conclude that it is not necessary to include within the scope of this rulemaking those potential entrants with foreign owners that do not fall within the definition of a foreign carrier. This is in contrast to Section 310(b) of the Act, which applies to ownership by any foreign entity. We believe that limiting the scope of this rulemaking to foreign carriers should promote development of effective global competition by providing national and global carriers with the flexibility they need to structure their businesses and raise capital from foreign sources other than foreign carriers,(n39) while controlling the potential for abuse of market power by certain foreign carriers. We request comment on this approach, particularly about whether it adequately encourages more open markets abroad.

53. In conjunction with its request that we adopt a comparable market access standard, AT&T argues that we should change our definition of affiliation from a control standard to one that treats a U.S. carrier as an affiliate of a foreign carrier when the foreign carrier owns five percent or more of theU.S. carrier.(n40) One reason to revise our affiliation standard is that it may not address many of the ways in which foreign carriers seek to serve the U.S. international telecommunications market. For instance, there have been direct acquisitions of U.S. carriers, such as TLD and AmericaTel, joint ventures involving less-than-controlling ownership interests in U.S. carriers, such as the BT/MCI venture, and co-marketing arrangements such as AT&T's WorldPartners Company.

54. We note that, in the International Services proceeding, the Department of Justice (DOJ) commented that a less-than-controlling interest by a foreign carrier in a U.S. carrier could give the foreign carrier the financial incentive to favor its U.S. affiliate. Indeed, DOJ recently alleged in its Complaint in U.S. v. MCI Communications Corporation and BT Forty-Eight Company (NEWCO),(n41) that the acquisition of 20 percent of MCI shares by BT may substantially lessen competition in the provision of international telecommunications services between the United States and the United Kingdom.(n42) DOJ was particularly concerned with the territorial allocation provision and loss of rights provisions entered into between BT and MCI that would force BT to rely upon its 20 percent investment in MCI as a primary source of revenues from the U.S. telecommunications market.(n43)

55. In our Declaratory Ruling regarding the BT/MCI venture, we also found that a less-than-controlling interest could be a source of concern.(n44) Thus, in spite of the fact that MCI and BTwould not be "affiliated" within the meaning of our current rules, we concluded that certain factors created incentives for BT to favor MCI.

56. We believe that the competitive implications of the BT/MCI transaction, and other joint ventures developing, underscore the inappropriateness of using control as a threshold level of foreign ownership at which an entry standard would apply for foreign carriers. While we recognize that some U.S. carriers may need additional capital to compete worldwide, and may benefit from foreign carrier investment, we are concerned that if a foreign carrier acquires even a less-than-controlling ownership interest in a U.S. carrier, this also may confer on the foreign carrier the incentive to discriminate in favor of the U.S. carrier. Although in many such instances the incentive to discriminate may be minimal, our safeguards may not always be sufficient to limit the potential for undue discrimination (and other competitive advantages resulting from the exercise of market power) that could occur when a foreign carrier has an ownership interest in a U.S. international carrier.

57. We therefore tentatively conclude that a new affiliation standard is needed that will identify those instances of foreign carrier investment that may require review to see if they implicate the public interest goals of this proceeding. Accordingly, for the purposes of establishing an entry standard, we propose to adopt a definition of affiliation that includes cases where a foreign carrier acquires a direct or indirect ownership interest of a certain minimum percentage level, or a controlling interest at any level, in a U.S. carrier. We seek comment on what that level of interest should be. In reaching a decision, we will look at what level of ownership may give the foreign carrier the incentive to discriminate in favor of the U.S. carrier or to engage in other strategic conduct that might have anticompetitive effects. We also are concerned whether the investment may provide the U.S. carrier with other competitive advantages that flow from the exploitation of the foreign affiliate's market power, such as the ability to market its services exclusively in conjunction with those offered by the foreign carrier. Such exclusive arrangements would be of concern at least until we are assured of effective facilities-based competition on the foreign end. We emphasize, however, that whatever minimum level of ownership we adopt is meant only to be a trigger for our entry review, not a bar to entry. As outlined in this Notice, our review will then take into consideration all factors that might weigh in favor of, or against, allowing entry.

58. An interest of five percent, as suggested by AT&T, has been found by the Commission to be an appropriate standard of ownership affiliation in other important regulatory areas such as the Telephone Company-Cable Television Cross-Ownership rules.(n45) We find, however, that applying an entry standard and competitive safeguards at a five percent investment might unreasonably limit the ability of U.S. carriers to attract foreign investment, and impose unnecessary administrative burdens on potential entrants. We believe that any residual concerns about potential anticompetitive effects at this level of investment can be adequately dealt with through our standard nondiscrimination safeguards that we apply to all U.S. international carriers and through the enforcement process if necessary.

59. A greater than ten percent ownership interest in a U.S. carrier by a foreign carrier may warrant our scrutiny. Analogous precedent from orders issued under the terms of the AT&T Consent Decree and from the Securities and Exchange Commission ("SEC") supports the reasonableness of a ten percent cap. In a blanket waiver granted by the U.S. District Court in United States v. Western Electric Company (AT&T Consent Decree), the Court, with support of the DOJ, permitted the Bell Operating Companies to acquire up to ten percent of foreign telephone companies, subject to certain nondiscrimination conditions. Section 16(a) of the Securities Exchange Act of 1934, as amended ("the Exchange Act"), also is instructive. Section 16(a) provides that an owner of greater than ten percent of the publicly-traded equity securities (other than exempt securities) of a publicly-held company must file periodic ownership reports with the SEC. This level of ownership is thought to give the security holder the position of an insider and the ability to influence the affairs of the company.

60. Alternatively, we request comment on whether a greater than 25 percent ownership interest should be considered affiliation under our rules. This level would be consistent with the Section 310(b)(4) of the Communications Act benchmark for indirect foreign investment in radio facilities in the United States. A greater than twenty-five percent investment would likely be a level of ownership that would give a foreign carrier a large enough stake to have an incentive to discriminate in favor of its U.S. affiliate. However, we are concerned that a 25 percent level could be perceived by U.S. carriers as so high that it would discourage procompetitive foreign investment.

61. We propose that, in addition to a controlling interestat any level,(n46) investment by a foreign carrier in a U.S. international common carrier over a specified threshold will be subject to the entry standard discussed in Section III.B.1, supra. We request comment on whether that threshold level should be set at greater than ten percent, 25 percent, or some other level of capital stock.(n47) If a foreign carrier controls a U.S. carrier, or invests more than the specified threshold level in the U.S. carrier, the foreign carrier would be considered affiliated with the U.S. carrier. The affiliated U.S. carrier would then be subject to the entry standard proposed in Section III.B.1. We also request comment on how we should apply our effective market access test in situations where more than one foreign carrier or a foreign carrier consortium has ownership interests in a U.S. carrier.

62. We propose not to include in our definition of affiliation non-equity business relationships between carriers (e.g., where a U.S. carrier is involved in a joint venture with a foreign carrier to manufacture switching equipment). While such relationships between carriers can also provide them with the incentive to favor one another in the exchange of basic services, we tentatively conclude that such incentives are relatively attenuated compared with those that are present with ownership interests. We seek comment on this conclusion.

63. We also tentatively conclude that no foreign carrier entry regulation is required for co-marketing arrangements, such as AT&T's WorldPartners Company, provided they are, both in theory and in practice, nonexclusive(n48) (e.g., they do not give theU.S. carrier the exclusive right to provide joint basic services in correspondence with any particular foreign carrier(n49)). We conclude, however, that we need to review whether our public interest goals would be served by imposing reporting requirements on U.S. carriers that participate in co-marketing arrangements for the provision of basic global network services. It appears at a minimum that, under Section 43.51 of the Commission's Rules, these types of arrangements require the filing of their co-marketing agreements.

64. Finally, we further propose to reserve the right to review any transaction that involves foreign carrier participation in which unique factors suggest Commission review would be necessary to serve the public interest, even with foreign carrier participation at levels below the investment threshold chosen. We seek comment on all of the above proposals and tentative conclusions.

b.Affiliation for Purposes of Post-Entry Regulation

65. After we have determined that the public interest would be served by permitting a certain foreign carrier to enter the U.S. market, the next step is to determine whether the carrier should be regulated as dominant or nondominant. Part of the decisionmaking process, as established in International Services, is a determination whether the carrier is "affiliated" with a foreign carrier. In that proceeding, we defined a U.S. carrier as an affiliate of a foreign carrier when the U.S. carrier controls, is controlled by, or is under common control with a foreign carrier. We use this definition to classify a U.S. carrier as dominant or nondominant on a particular international route, based on the market power of its foreign affiliate.(n50) As the Commission noted, however, the order did not address the question of entry standards for foreign-affiliated entities.

66. In light of our goals, and proposed definition ofaffiliation for purposes of regulating entry, we request comment on whether we should revise the definition of affiliation adopted in International Services to conform to the one proposed for entry purposes. One consequence of redefining affiliation at a less-than-controlling interest for purposes of applying dominant carrier regulation is that more carriers would be subject to such regulation. For instance, a U.S. carrier that is currently regulated as nondominant could now be deemed dominant on a particular U.S. international route if the foreign carrier on the other end of the route has, or acquires, a less-than-controlling ownership interest in the U.S. carrier. Likewise, if a U.S. carrier acquires a less-than-controlling interest in a foreign carrier on a particular U.S. international route, that carrier could be deemed dominant on that route.(n51) Considering these consequences and issues of administrative simplicity, we ask for comment on whether it is desirable to conform these affiliation definitions for purposes of entry and post-entry regulation.

3.Definition of Facilities-based Carrier

67. Our regulation of international services relies upon a distinction between facilities-based services and resale. However, IDB's petition raises the fundamental question of whether our current rules clearly distinguish between resellers and facilities-based carriers. IDB asserts that recent Commission actions, including our International Resale Policy decision,(n52) have caused disputes regarding the definition of a facilities-based carrier. IDB contends we have historically treated a carrier that leases a cable or satellite circuit as a facilities-based carrier, but that our International Resale Policy treats those who operate by leasing private line circuits as resellers. Further, IDB notes that we have imposed upon resellers the Section 63.15(b) circuit-addition reporting requirement(n53) that we previously applied only to facilities-based carriers.(n54)

68. IDB urges us to adopt a consistent definition of a facilities-based carrier that turns on whether the carrier has acquired the "maximum interest" in a cable or satellite circuit permitted by law. IDB argues that, under such a rule, a carrier would be considered facilities-based in the United States if it purchases an ownership or indefeasible right of user (IRU) interest in a cable or satellite or leases satellite capacity directly from Comsat, because those are the maximum interests allowed under U.S. law. To the extent the Commission seeks to exercise jurisdiction over carriers providing the foreign half-circuit,(n55) IDB would have us treat as facilities-based a carrier that directly leases a half-circuit, if that is the maximum interest allowed in that country. IDB believes there is no rational basis for treating carriers that lease capacity from Comsat as facilities-based, while treating carriers as resellers when they lease capacity from foreign carriers with legal monopolies over their countries' telecommunications infrastructures.

69. AT&T opposes IDB's request and characterizes it as an attempt to evade our International Resale Policy. AT&T argues that IDB's proposed "maximum interest" test would vitiate the meaning of a facilities-based carrier. AT&T notes that the International Resale Policy was prompted by a concern that "one-way resale" from countries that do not afford "equivalent" resale opportunities could increase U.S. facilities-based carriers' outpayments, increase their cost of service, and thus harm U.S. customers. IDB's proposed definition would, according to AT&T, legitimize such one-way resale by redefining all resellers overseas as facilities-based and thus exempting them from the equivalency requirement.(n56)

70. MFS supports IDB's rulemaking request. MFS notes that other countries are following U.S. initiatives in liberalizing telecommunications but do not yet permit carriers competing with the established carrier to own their own international transmission circuits. MFS asserts that the Commission's current definition merely prevents U.S. entities from entering overseas markets. MFS believes that IDB's proposed maximum interest definition would allow such competition to flourish. Such entry, according to MFS, would allow U.S. carriers to reduce foreign users' cost of communications service and would pressure existing carriers to reduce their prices.

71. We tentatively conclude that we should continue our current policy of treating a carrier as facilities-based in the United States if it purchases an ownership or IRU interest in a U.S. half-circuit in an international satellite or submarine cable (whether common carrier or noncommon carrier), or if it leases a U.S. half circuit from Comsat or from a noncommon carrier international satellite or submarine cable provider.(n57) Our concern with IDB's proposal is that it could undermine our International Resale Policy by permitting carriers to interconnect foreign leased circuits with the U.S. public switched network without demonstrating that the foreign country affords equivalent resale opportunities to U.S. carriers. This would result in an undesirable increase in the settlements deficit. In addition, it could implicitly encourage foreign countries to stop short of creating full facilities-based competition by appearing to legitimize limiting competition to resale of leased circuits. Our current definition avoids this result and is consistent with the public interest goals of this proceeding. We propose to codify that definition in this proceeding. We request comment on our proposal to codify this definition of a U.S. facilities-based carrier.

4.Resale Entry by Foreign Carriers

72. We do not believe there is a need to regulate foreign carrier entry in the U.S. market for resale services as closely as we propose for facilities-based services. There is not as substantial a risk of anticompetitive harm to the global market when we allow foreign carriers into the U.S. international resale market. This risk is greatest when foreign carriers acquire U.S. international facilities. The ability to own and control facilities enables a carrier to manage competition by resellers. A reseller has minimal pricing flexibility when it must rely on a competitor that also supplies the infrastructure and underlying basic services which a reseller must use to provide its own services. In addition, the reseller cannot guarantee the qualityof its services because the underlying facilities necessary to provide service are not within its control.

73. We also do not believe that applying an effective market access analysis to resellers would do as much to further the liberalization of foreign markets as applying this standard to facilities-based carriers, which generally have significant influence in the liberalization debate within their primary markets. And finally, our experience indicates that our existing entry standards for resellers have encouraged vigorous and effective competition among international resellers, providing significant benefits to users. Under these circumstances, we propose to continue to apply relatively flexible entry requirements to foreign-affiliated resellers, as detailed below.

a. Resale of Switched Services

74. We tentatively conclude that our goals are well served by maintaining our open entry policy for international resale of switched services. We found in International Services that open entry for switched service resale increases the competitiveness of the international market, without resulting in substantial potential for competitive harm..(n58) There we established the presumption that even U.S. carriers with foreign-carrier affiliations should be regulated as nondominant in their provision of resold international message telephone service (IMTS). Although we did not adopt an entry standard in International Services, we now tentatively conclude that this presumption equally holds true for entry questions, i.e., that there should be a presumption that there is no competitive harm in permitting unlimited foreign-carrier entry for switched resale, even to affiliated countries. As in International Services, we propose that this be a rebuttable presumption. We invite comments on these tentative conclusions.

b. Resale of Private Lines

75. The resale of private line services raises different market entry concerns from the resale of switched services. We recognized in International Services that there is a greater potential for discrimination in the provisioning of resold private lines. When a U.S. carrier serves a foreign market through the resale of private line service, it must obtain from the foreign carrier the foreign half-circuits and any necessary local or intercity access facilities or services required to terminate U.S. traffic. A foreign carrier that owns or controls telecommunications facilities in both the United States and the destination market may have a competitive advantage over other U.S. carriers. This occurs if the foreign carrier has sufficientmarket power in the destination country to discriminate among U.S. carriers in the provisioning, pricing or interconnection of the foreign end of the private line.

76. Resale of Noninterconnected Private Lines. We currently have an open entry policy for foreign-carrier resale of noninterconnected private lines. Resale of international private lines does not directly implicate the settlements process to the extent such lines are used only to carry non-switched traffic. Given the benefits of competitive provision of noninterconnected private lines, the lack of impact on the settlements deficit, and the availability of safeguards to protect against discrimination in the provisioning of private lines, we propose to adopt a rebuttable presumption that there is no competitive harm in permitting unlimited foreign-carrier entry for noninterconnected private line resale.

77. Resale of Interconnected Private Lines to Provide Switched Services. We also propose to continue our current policy on foreign-carrier entry by resale of private lines interconnected to the public switched network. We believe that the equivalency requirement established in our International Resale Policy decision(n59) is sufficient to ensure that a foreign monopoly carrier would be unable to exploit its market power with respect to its provision of interconnected private line services. We seek comment, however, on whether we should modify our equivalency requirement to conform to our effective market access standard. We ask for comment on whether a consistent approach todetermining equivalency and effective market access would make this standard clearer and more administratively feasible.

78. AT&T has argued in other proceedings that we should adopt cost-based accounting rates as a condition for authorizing affiliates of foreign carriers to resell interconnected private lines to affiliated countries.(n60) AT&T argues that, without such a requirement, bilateral negotiations to reduce accounting rates will be futile. In support, AT&T states that, as a direct competitor with U.S. carriers, a foreign carrier will have every incentive to maintain above-cost accounting rates to keep the costs of U.S. facilities-based carriers' services higher. AT&T states that to avoid this squeeze by the foreign carrier, U.S. facilities-based carriers will be forced to make the uneconomic decision to use private line facilities, not because they are more efficient or less costly than embedded switched facilities, but to avoid the foreign carrier's above-cost accounting rate. We invite comment on these arguments in this proceeding.

79. As a final matter, to eliminate any confusion over the scope of the prior certification requirement adopted in the International Resale Policy order,(n61) we propose to codify the requirement that any carrier that seeks to connect a U.S. half-circuit with a leased, foreign private line half-circuit to provide a switched, basic service must obtain specific Section 214 authority to do so. This requirement applies regardless of whether the carrier owns, leases, or has an IRU interest in the U.S. half-circuit. That is, this requirement applies regardless of whether the carrier is providing service on the U.S. half-circuit as a facilities-based carrier or a reseller.(n62) It also applies regardless of whether the carrier is originating traffic in the United States or terminating traffic in the United States. Prior certification on a country-by-country basis is necessary in order to effectively enforce the equivalency policy that we adopted in the International Resale Policy order.(n63) We request comment, however, on whether we should permit a private line reseller that has received an initial Section 214 certificate to provide a switched, basic service using a leased foreign half-circuit to add countries without prior certification once we haveadopted an order finding such countries to afford equivalent resale opportunities to U.S. carriers. Commenters should address whether notification to the Commission of additional countries is sufficient or even necessary.

5.Other Forms of Market Entry

80. AT&T requests that we make this rulemaking applicable not only to carriers that hold international facilities-based Section 214 authorizations, but also to all U.S. telecommunications services providers, both domestic and international, including enhanced service providers. As detailed below, we believe that our current rules and policies governing domestic interexchange services, enhanced services, separate satellite systems and other noncommon carrier services do not warrant change. Accordingly, we propose to apply the rules we adopt in this proceeding only to common carriers providing international facilities-based services pursuant to Section 214 of the Act. We request comments on this tentative conclusion.

a. Domestic Interexchange Services

81. Historically, we have not imposed foreign-ownership restrictions on domestic interexchange services, other than the statutory requirements of Section 310 of the Act which limit foreign ownership of common carrier radio facilities. We believe that the public interest goals identified above are well served by this open entry standard for domestic interexchange service. A foreign carrier whose U.S. affiliate provides domestic interexchange service may not use its bottleneck facilities to disadvantage unaffiliated U.S. interexchange carriers where there is no direct interconnection of those facilities to the foreign carrier's U.S. interexchange facilities. We find this fact, combined with the competitive benefits of our longstanding open entry policy for domestic service, and the administrative burden of regulating entry, to outweigh any anticompetitive effects that might occur as a result of permitting foreign carriers to operate in the U.S. domestic market.

b. Enhanced Services

82. As for enhanced services,(n64) we have previously found that their deregulation under Title II of the Act has served the public interest. We have not placed any restrictions on the provision of enhanced services by foreign-owned service providers. Continuing to permit foreign carriers to provide enhanced services presents no substantial risk of competitive harm in the market for such services. Therefore, continued deregulation of these services will also serve our goal ofpromoting effective global competition.

c.Separate Satellite Systems and Other Noncommon Carriers

83. Finally, for similar reasons we do not propose to apply foreign carrier restrictions to participation in separate satellite systems and other noncommon carrier facilities. Foreign carriers seeking to enter the U.S. market to provide international common carrier facilities-based services would be subject to our proposed effective market entry standard whether they use separate satellites, private submarine cables, or traditional common carrier transmission facilities.

C.Modification of Dominant Carrier and Other Operating Safeguards

84. In light of our tentative conclusions with respect to market entry and affiliation issues, we seek comment on whether we should modify our existing rules for determining the regulatory status (i.e., dominant or nondominant) of U.S. carriers that are affiliated with foreign carriers.(n65) We asked whether we should change our definition of affiliation to be consistent with whatever approach is adopted in response to the proposals in Section III.B.2, supra.(n66) In this section, we propose to maintain the other aspects of the framework we adopted in International Services for determining the regulatory status of affiliated U.S. carriers. We believe this approach will best serve the goals of this proceeding.

85. We take this opportunity, however, to seek comment on whether we should modify the nondiscrimination safeguards that we traditionally apply to carriers regulated as dominant under our International Services decision. Our experience in recent years suggests some of our safeguards can perhaps be better tailored to meet our regulatory concerns. Accordingly, we request comment on whether we should eliminate the requirement that dominant, foreign-affiliated carriers file tariffs on 45 days notice with cost support, and allow them to comply with nondominant carrier rules (i.e., file their tariffs on 14 days notice without cost-support). We propose maintaining our requirements that a carrier obtain prior Commission approval before adding (or discontinuing) circuits on those routes for which the carrier is regulated as dominant and that it file quarterly traffic and revenue reports for those routes. We request specific comment, however, on whether the prior certification requirement is necessary if we adopt the entry approach proposed in this rulemaking.

86. We also propose a new requirement, adopted in the BT/MCI Order, that a dominant, foreign-affiliated carrier maintain complete records of the provisioning and maintenance of network facilities and services it procures from its foreign carrier affiliate, including, but not limited to, those it procures on behalf of customers of any joint venture for the provision of U.S. basic or enhanced services in which the U.S. carrier and its foreign carrier affiliate participate. These records should be available to the Commission upon request. We also propose to require that the U.S. carrier obtain a written commitment from its foreign carrier affiliate not to offer or provide, with respect to the provision of basic services, any special concessions to any joint venture for the provision of U.S. basic or enhanced services in which they both participate. We do not propose to change our current rule that prohibits any carrier that has an affiliation with a foreign carrier from agreeing to accept special concessions from any foreign carrier or administration with respect to traffic or revenue flows between the United States and any foreign country. This "no special concessions" rule applies regardless of an affiliated carrier's regulatory status.(n67) We seek comment on all these proposals and alternatives to these proposals.

87. We further propose to require that any affiliated, facilities-based carrier regulated as dominant on any U.S. international route for the provision of switched services file with the Commission a complete list of the accounting rates that its foreign carrier affiliate maintains with all other countries. We also propose to apply this transparency requirement to affiliated carriers that we regulate as dominant in their provision of switched basic services via resold private lines. The required list of accounting rates would cover and specify all traffic relations and services of the foreign affiliate. We would require that this filing be made within 60 days of release of a Commission order classifying the carrier as dominant for the provision of switched services. We would also require that the carrier file within 30 days of the end of each calendar quarter any changes in its affiliate's accounting rates agreed to during that quarter. We propose to apply this transparency requirement to all facilities-based carriers and private line resellers now or hereafter classified as dominant for the provision of U.S. international switched services.

88. It has been U.S. policy within the International Telecommunication Union (ITU) and other international fora to promote cost-based, nondiscriminatory and transparent accounting rates. Full disclosure of the foreign carrier's accounting rates will enable us to determine whether there is a noncost-based disparity between the rates maintained by that carrier with U.S. carriers and the rates it maintains with its other foreign correspondents.(n68) Here, the information that we propose to require may assist us in monitoring the impact of foreign carrier entry, and self-correspondency, on U.S. accounting rates and whether such entry fosters or impedes progress in reducing accounting rates.

89. We propose not to apply this transparency requirement to a foreign-affiliated carrier that provides switched services on a particular route solely through the resale of U.S. carriers' switched services. Such activity has little or no impact on the level of accounting rates. In addition, affiliated carriers that resell U.S. switched services are presumptively nondominant in any event.(n69) Because we have not found the provision of private line service to have a significant impact on the settlements process, we also do not propose to apply this transparency requirement to carriers regulated as dominant solely for the provision of private line services.

90. To the extent we modify our existing dominant carrier safeguards, we propose, with the exception noted for transparent accounting rates, to apply the new safeguards to a U.S. carrier'sprovision of all basic services for which we regulate it as dominant on a particular route. These dominant carrier safeguards, with the exception of the transparency requirement, would thus apply to U.S. carriers considered dominant on particular routes whether for the provision of facilities-based or resale services.

91. We also request comment on AT&T's proposal that we expressly prohibit a foreign carrier or its U.S. affiliate from refiling U.S. originating or terminating traffic, without the consent of the originating and terminating carriers. We request comment on whether an express prohibition is necessary, and how we should define the act of refiling. As for AT&T's request for a condition of proportionate return, since the 1950's, one of the guiding principles in our scrutiny of international traffic relations has been that U.S. carriers "should be permitted to share proportionately in . . . inbound traffic in order to be able to compete effectively."(n70) We have consistently applied this principle,(n71) waiving it only where required by the public interest, as for example, when a foreign administration lacked technology capable of providing proportionate return.(n72) We now propose to codify our proportionate return policy as a rule of general applicability to all carriers.(n73) That is, all carriers, whether affiliated or not, must accept only their proportionate share of return traffic from foreign correspondents. Under this rule, we will, of course, continue to grant waivers where necessitated by the public interest.

D.Section 310(b)(4) Standard for Radio Licensee Ownership By Foreign Entities

92. International Section 214 authorizations are required for the provision of international basic telecommunications services via any transmission facility on either a resale or facilities basis. In addition, authorizations under Title III of the Act are required for those entities seeking to operate specified classes of radio (wireless) station facilities. As explained in Section II.C. supra, Section 310(b)(4) establishes a 25 percent foreign ownership benchmark for the parent holding company of common carrier, broadcast, and aeronautical fixed and en route ("aeronautical") radio licenses.(n74) We ask whether the goals of this proceeding would be served by incorporating the proposed effective market access standard into the public interest determinations under Section 310(b)(4)in situations where the foreign ownership would exceed the 25 percent statutory benchmark. Thus, related to our proposal that effective market access should be a part of the public interest showing under Section 214 of the Act, we also ask whether the same factors should be part of our public interest analysis under Section 310(b)(4) of the Act regarding applications for Title III common carrier and aeronautical fixed and en route radio licenses.(n75) We further seek comment on whether the effective market access standard should be incorporated into the public interestdetermination under Section 310(b)(4) concerning applications for broadcast licenses. As discussed below, the Commission has traditionally taken a stricter approach to alien ownership determinations under this provision where broadcast licenses are involved given the control over the content of transmissions exercised by broadcasters.

1.Application to Common Carrier Licenses

93. Under the plain language of the Communications Act and its legislative history, the Commission has broad discretion in applying Section 310(b)(4). Indeed, the legislative history of Section 310 itself concerning foreign investment in parent holding companies reflects Congressional concern that rigid restrictions "would probably seriously handicap" U.S. companies engaged in international communications with large interests in foreign countries in connection with their international communications.(n76) In addition, the Commission is authorized to consider reciprocal treatment under Section 308 of the Act.(n77)

94. In those instances where the Commission has authorized foreign ownership or participation beyond the statutory benchmarks, the Commission has generally considered the level of foreign presence in light of the extent of U.S. presence in other areas (ownership, officers, or directors) relevant to a public interest determination under Section 310(b)(4).(n78) In GRC Cablevision, Inc., for example, where the Commission allowed 60 percent alien ownership of a licensee's parent, it specifically noted that the majority of the parent's board of directors was comprised of U.S. citizens and the parent itself was a U.S. corporation. Furthermore, the Common Carrier Bureau noted inMillicom,(n79) where it approved greater than 25 percent alien presence on the board of directors, that 90 percent of the shareholders and a majority of the board were U.S. citizens. More recently, the Common Carrier Bureau approved 65 percent alien ownership in a licensee's parent where there was a 75 percent U.S. presence in the corporate roles of officers and directors.(n80) Additionally, the Commission has also considered in its public interest analysis whether the Title III licensees involved are common carrier licensees with no control over the content of the transmissions.(n81)

95. Section 310(b)(4) public interest determinations are often required at the same time as Section 214 authorizations when foreign carriers seek to enter the U.S. market, and many of the same policy considerations apply. We ask, therefore, whether a similar approach would be useful in both contexts. It appears that, in the case of common carrier radio licenses generally, such an approach would well serve the goals of this proceeding. Therefore, when an applicant in whom foreign ownership in the parent holding company exceeds the 25 percent benchmark seeks a common carrier radio license, or when a U.S. licensee seeks to increase the level of foreign ownership in its parent holding company beyond the 25 percent benchmark or previously authorized levels of foreign ownership, we ask whether our evaluation of the public interest should consider whether the foreign entity's primary markets pass the effective market access test.

96. Thus, for example, if a foreign entity seeks to invest in the parent holding company of an applicant for authority to provide Personal Communication Services ("PCS"), should we consider whether U.S. companies can provide PCS, or its functional equivalent, in the foreign entity's primary market? We also seek comment on whether, just as with our public interest analysis under Section 214, we should find that our effective market access finding under Section 310(b)(4) is not dispositive of our decision to license a particular entity. For instance, once we have reviewed the effective market access element of our public interest analysis, should we also assess other public interest factors which might weigh in favor of, or against, allowing entry into the U.S. market? Such factors in this context could include the state of liberalization in the foreign country's other radio-based service markets, national security, or the competitiveness of the applicant's target market in the United States. Finally, we seek comment on whether, if we doconsider effective market access, this would be a more tailored and predictable application of Section 310(b)(4) that will assist us in encouraging and recognizing foreign countries' efforts to liberalize their communications market.

2.Application to Aeronautical Licenses

97. Section 310(b)(4) of the Act also applies to aeronautical en route and aeronautical fixed radio licenses. Aeronautical en route stations provide air-ground communications for the operational control (flight management) of aircraft by their owners or operators. Communications relate to the safe and efficient operation of aircraft.(n82) The vast majority of en route stations are licensed to Aeronautical Radio, Inc. (ARINC).(n83)

98. Although there have been no foreign ownership determinations made in this area, it appears there may be benefits in applying the effective market access test to these aeronautical services. With the increasing presence of foreign airlines in U.S. markets and the potential for increased foreign ownership of U.S. airlines, this issue could arise in the near future. Accordingly, we ask whether the effective market access test also should be applied to these aeronautical licensees.

3.Application to Broadcast Licenses

99. Given the potential benefits of considering market access as a factor in our foreign ownership determinations for common carrier and aeronautical licensees, we believe it is appropriate to ask whether a similar approach should be utilized in evaluating broadcast applications that propose indirect alien ownership in excess of the 25 percent statutory benchmark. We note in this context that we have had a traditionally heightened concern for foreign influence over or control of licensees which exercise editorial discretion over the content of their transmissions.

100. The distinction between common carrier and broadcastlicensees in terms of content control has been the basis for our traditionally disparate treatment of these licensees under Section 310(b)(4). While the Commission has granted applications permitting foreign ownership of a parent holding company of a non-broadcast licensee to exceed 25 percent,(n84) the Commission has consistently declined to do so in broadcasting because of a broadcast licensee's ability to control the content of its transmission.(n85) Thus, for example, in the GRC Cablevision case, granting a Cable Television Relay Service (CARS) construction permit to an entity whose parent was more than 50 percent foreign owned, the Commission stressed that: "[o]ur action here represents no departure from our traditional policies in regulation of broadcast television. Alien ownership in that medium presents different questions which we will deal with as they rise in concrete situations."(n86) The Commission stated that its decision to grant the application notwithstanding the involvement of aliens was based in part on the fact that "the facility in question [would] be used for the relay of broadcast signals and [would] thus be largely passive in operation."(n87)

101. Although there is little discussion in the case law of the Commission's consistent concern over alien ownership interests in broadcast station holding companies in excess of 25 percent, the legislative history of 310(b) suggests that alien control of limited broadcast information outlets, particularly in time of war, was a principal consideration in adopting the restrictions. As the court stated in Noe v. FCC: "the dangers from espionage and propaganda disseminated through foreign-ownedradio stations in the United States prior to and during war brought about the passage of the Radio Act of 1927 (superseded by the Communications Act of 1934)...."(n88)

102. It may be appropriate now to revisit our restrictive approach to alien investment in broadcasting. In contrast to the situation that existed in 1927, there are currently a plethora of broadcast and other mass communications facilities available to the general public. Additionally, even if we incorporate the effective market access standard in our evaluation of broadcast applications, the nature of the case-by-case review conducted under Section 310(b)(4) is such that we retain the discretion to deny particular applications if warranted by the facts of a specific case.

103. Accordingly, we seek comment on whether we should consider effective market access as a factor in Section 310(b)(4) determinations involving broadcast licensees and, if so, what restrictions, if any, we should place on the level or type of interests which aliens would be permitted to hold. We invite commenters to submit any other proposals they believe would be appropriate in defining our Section 310(b)(4) analysis for broadcast licensees, including those which might permit alien control of a licensee's parent company. We emphasize, however, that any such proposals should carefully evaluate the risks and benefits to the public interest, paying particular attention to the fact that control of mass media facilities confers control over the content of widely available broadcast material.

105. We also ask whether we should adopt the effective market access test as an important element of the Section 310(b)(4) public interest analysis applicable to foreign entities seeking to acquire an indirect ownership interest in U.S. radio facilities. Thus, when a foreign entity seeks to acquire an indirect ownership interest of more than 25 percent in a common carrier, aeronautical radio or broadcast facility, we seek comment on whether we should find that an important element of the public interest requirement of Section 310(b)(4) has been met if the primary markets of the foreign entity offer effective market access to U.S. carriers to provide the same type of radio-based services as requested in the United States. We ask whether we should also consider other factors under our public interest analysis. We seek comment on all aspects of the proposals described above, and invite additional suggestions on how the Commission may best reach its stated goals.

106. As required by Section 603 of the Regulatory Flexibility Act, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the expected impact on small entities of the proposals suggested in this document. The IRFA is set forth in Appendix A, Section II. Written public comments are requested on the IRFA. These comments must be filed in accordance with the same filing deadlines as comments on the rest of the Notice (see Appendix A, Section III), but they must have a separate and distinct heading designating them as responses to the Initial Regulatory Flexibility Analysis. The Secretary shall send a copy of this Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility Act. Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. Section 601 et seq. (1980).

108. IT IS FURTHER ORDERED that AT&T's petition for rulemaking is GRANTED IN PART to the extent that we are initiating a rulemaking to address foreign carrier entry into the U.S. market, and denied in all other respects.

109. IT IS FURTHER ORDERED that IDB's petition for rulemaking is GRANTED IN PART to the extent that we clarify our definition of what is a facilities-based carrier and seek comment on our definition, and denied in all other respects.

110. This action is taken pursuant to Sections 4 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154, 303(r).

111. For further information on this Notice contact Troy F. Tanner or Susan O'Connell, Attorney-Advisors, Policy and Facilities Branch, Telecommunications Division, International Bureau, (202) 418-1470.

FEDERAL COMMUNICATIONS COMMISSION

William F. Caton
Acting Secretary

This is a non-restricted notice and comment rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided they are disclosed as provided in Commission rules. See generally 47 C.F.R. Sections 1.1202, 1.1203, and 1.1206(a).

II. Initial Regulatory Flexibility Act

A. Reason for Action

This rulemaking proceeding is initiated to obtain comment regarding proposed changes to the Commission's entry standard for foreign carriers desiring to enter the U.S. international telecommunications market, as well as changes to the Commission's public interest standard for foreign entities that seek to acquire an indirect interest in a U.S. common carrier, aeronautical, or broadcast radio license. Comment is also requested on proposed modifications to the Commission's dominant carrier safeguards as well as to other non-discrimination safeguards. Comment is also sought on the Commission's definition of an international facilities-based carrier.

B. Objectives

The Commission seeks to establish standard rules and procedures to regulate foreign entry into the U.S. marketplace in order to promote effective competition and prevent anti-competitive conduct in the market for international communications services, as well as to open foreign communications markets.

C. Legal Basis

The proposed action is authorized under Sections 4 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154, 303(r).

D. Reporting, Recordkeeping and Other Compliance Requirements

The actions contained in this Notice of Proposed Rulemaking may affect large and small carriers. We propose to require that dominant, foreign-affiliated carriers maintain or provide certain records regarding their foreign affiliates. These carriers may be required to comply with proposed requirements to file certainreports, but this is not estimated to be a significant economic burden for these entities.

E. Federal Rules That Overlap, Duplicate or Conflict With These Rules

None.

F. Description, Potential Impact, and Number of Small Entities Involved

To the extent that the proposals discussed in this Notice of Proposed Rulemaking propose to make equity investment by foreign telecommunications carriers in U.S. carriers more difficult, carriers seeking foreign investment greater than the proposed threshold will be adversely affected. These proposals are intended to ensure that U.S. carriers can compete effectively in international markets and to open closed foreign markets. Copies of this Notice will be sent to the Chief Counsel for Advocacy of the Small Business Administration.

G. Any Significant Alternatives Minimizing the Impact on Small Entities Consistent with the Stated Objectives

The Notice solicits comment on a variety of alternatives to achieve Commission objectives.

III. Comment Dates

Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's Rules, 47 C.F.R. Sections 1.415 and 1.419, interested parties may file comments on or before March 28, 1995 and reply comments on or before April 28, 1995. To file formally in this proceeding, you must file an original and four copies of all comments, reply comments, and supporting comments. If you want each Commissioner to receive a personal copy of your comments, you must file an original plus nine copies. You should send comments and reply comments to: Office of the Secretary, Federal Communications Commission, Washington, D.C. 20554. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center (Room 239) of the Federal Communications Commission, 1919 M St., N.W., Washington, D.C. 20554.

I.  INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II.  BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
III.  DISCUSSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
   A. Mobile Satellite Service Issues . . . . . . . . . . . . . . . . . . . . 8
      1.  Constraints on MSS Below 1 GHz. . . . . . . . . . . . . . . . . .  12
      2.  Constraints on MSS Between 1 and 3 GHz. . . . . . . . . . . . . .  20
      3.  Review of Regulatory/Procedural Constraints . . . . . . . . . . .  36
      4 - 8 GHz (C band) -168 dB(W/m2/4 kHz)
      10 - 16 GHz (Ku band) - 168 dB(W/m2/4kHz)
      5.  MSS Spectrum Requirements/Allocations . . . . . . . . . . . . . .  56
      6.  Date of Entry Into Force of MSS Spectrum Allocations
        Around 2 GHz.