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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) MELBOURNE INTERNATIONAL ) COMMUNICATIONS, LTD. ) ) File Nos. 1940 DSE-TC-96(2); Application for Authority to Transfer) I-T-C-96-492(TC) Control of Section 214 Authorizations) and Common Carrier Satellite Earth ) Station Licenses to Invertel, Inc.) ORDER, AUTHORIZATION AND CERTIFICATE Adopted: January 21, 1997 Released: January 21, 1997 By the Chief, International Bureau: I. Introduction 1. On September 4, 1996, Melbourne International Communications, Ltd. ("MICL"), filed an application for authority to transfer control of its Section 214 authorizations and earth station licenses to Invertel, Inc. ("Invertel"), a Florida corporation ultimately controlled by Chilean citizens. Finding that the requested transfer will serve the public interest under Sections 214 and 310 of the Communications Act of 1934, as amended ("the Act"), we grant MICL's application. II. Background 2. MICL, a limited partnership organized under the laws of the state of Florida, holds several Section 214 authorizations to provide common carrier services on both a resale and facilities basis between the United States and international points, and licenses for two common carrier satellite earth stations. Wajay Investments, Inc. ("Wajay"), a Florida corporation controlled entirely by U.S. citizens, is MICL's only general partner. Wajay has an 80.1 percent equity interest in MICL. NACS Communications, Inc. ("NACS"), a Florida corporation controlled by Chilean citizens, owns the remaining 19.9 percent equity interest as a limited partner in MICL. 3. On September 4, 1996, MICL filed an application for authority to transfer control of its Section 214 authorizations and its earth station licenses to Invertel. Invertel is a wholly- owned subsidiary of Telecomunicaciones de Chile S.A. ("TDC"), a corporation organized under the laws of Chile and owned exclusively by two Chilean families. These same Chilean families control T‚lex-Chile S.A. ("T‚lex-Chile"), a publicly-held Chilean corporation, holding 76 percent of its shares through three holding companies. TDC, one of these holding companies, provides the bulk of the control with 61.09 percent of T‚lex-Chile's stock. 4. T‚lex-Chile in turn owns 99.9 percent of the stock of Chilesat S.A. ("Chilesat"), one of eleven authorized domestic long distance and international carriers in Chile, and 99.9 percent of Chilepac, a provider of data transmission in Chile. MICL's application states that both of these carriers are non-dominant in Chile and control no bottleneck facilities. T‚lex-Chile also holds 50 percent of Telesat S.A. ("Telesat"), which is licensed to provide local exchange services in certain municipalities within the metropolitan area of Santiago, Chile. An additional T‚lex- Chile affiliate, Chilesat Telefonˇa Rural S.A., holds authorizations to provide rural telephone service in Southern Chile, but has not yet started operations. 5. Through Texcom S.A. ("Texcom"), TDC holds an interest in MICL's limited partner, NACS. Texcom owns 100 percent of the shares of NACS. Other companies held by Texcom are involved in the provision of value-added services on both a facilities and resale basis in Latin American countries other than Chile. MICL's application states that all of the companies held by Texcom control no bottleneck facilities and are non-dominant with market shares of less than 10 percent each. 6. Under the proposed transaction, Invertel would acquire up to a 70.1 percent equity interest in MICL from Wajay and would be a general partner. Wajay would continue to be a general partner, with no less than a 10 percent equity interest. NACS would remain as a limited partner with its current 19.9 percent equity interest in MICL. No party has contested MICL's application. III. Discussion A. Section 214 Application 7. Because Invertel is affiliated with foreign carriers within the meaning of Section 63.18(h)(1)(ii) of the Commission's Rules, we must examine MICL's application under the framework established in the Foreign Carrier Entry Order. In that Order, the Commission determined that foreign carriers seeking to provide U.S. international services to destination countries in which they have market power must demonstrate that such destination countries offer "effective competitive opportunities" ("ECO") for U.S. carriers to offer like services. The Commission stated that it would apply the ECO analysis only to Section 214 applications from foreign carriers, or certain affiliates of foreign carriers, with market power in destination countries that potentially can be leveraged to the detriment of unaffiliated U.S. carriers providing international telecommunications services to those countries. The Commission also determined that it would continue to consider other public interest factors that may weigh in favor of, or against, granting the application. 8. Invertel's affiliation with several Chilean carriers requires us to determine whether any of those affiliated carriers has the requisite market power to require us to engage in an ECO analysis of the Chilean market. We first examine whether any Invertel-affiliated carrier has market power in the international telecommunications market. Chilesat, which has approximately a 25 percent share of Chile's international traffic, is the only carrier affiliated with Invertel participating in that market. As the Commission has previously recognized, the market for international telecommunications services in Chile is highly competitive. In its AmericaTeldecision, the Commission noted the growth in the number of long distance providers in Chile and found that ENTEL-Chile, which has the largest market share for international telecommunications service revenues in Chile, lacks market power in the Chilean International Message Telephone Service ("IMTS") market. Likewise, our Telecommunications Division subsequently found in an examination of NACS that Chilesat lacks market power in the Chilean IMTS market. Similarly, we find here that Chilesat's 25 percent market share of Chile's international traffic fails to give it market power in Chile's broader international telecommunications market. 9. Second, we assess whether any carrier affiliated with Invertel has market power in Chile's local exchange market. We examine the local exchange market because a U.S. carrier ultimately relies upon a facilities-based carrier operating in those markets to reach the Chilean end user. A carrier controlling bottleneck facilities and services in the local exchange market could discriminate in favor of an affiliate competing in the international telecommunications market by offering its affiliate superior technical quality, faster provisioning or preferential rates. Invertel has affiliations with several local exchange carriers: Telesat, Chilesat Telefonˇa Rural S.A., and companies affiliated with Invertel through Texcom. We find, however, that none of these carriers has market power in Chile's local exchange market. Noting that Compa¤ˇa de Telecomunicaciones de Chile ("CTC") still controls an overwhelming majority of the local exchange market, our Telecommunications Division found in its examination of NACS that Invertel's affiliate Telesat lacked market power in Chile's local exchange market and did not control any bottleneck services or facilities. For the same reasons, we conclude here that Chilesat Telefonˇa Rural S.A., a new company that has no market share, lacks market power in Chile's local exchange market. We also note that all of the companies affiliated with Invertel through Texcom have market shares of less of than 10 percent each and control no bottleneck facilities. Therefore, we conclude that Invertel and the carriers with which it is affiliated lack the requisite market power in both the Chilean international telecommunications market and local exchange market to require an ECO analysis for Section 214 purposes. 10. We also examine whether any countervailing public interest factors exist that would require denial of MICL's application. Our review of the public interest factors related to MICL's application supports granting its application. The Executive Branch has not raised any national security, law enforcement, foreign policy or trade concerns with this application. No party has raised any other countervailing public interest factors in this proceeding. Moreover, we find that the proposed transfer of control of MICL would serve the public interest under Section 214 of the Act by allowing the provision of additional investment and expertise to MICL, which will help a small U.S. carrier like MICL compete in the increasingly competitive U.S. international telecommunications market. B. Section 310(b)(4) 11. Section 310(b)(4) of the Act establishes a 25 percent benchmark for foreign investment in and ownership of the parent company of a U.S. common carrier, but gives the Commission discretion to allow higher levels of foreign ownership if the Commission determines that such ownership would not be inconsistent with the public interest. Whenever a foreign entity ultimately owns more than 25 percent of the capital stock of the parent company of an applicant for a common carrier radio license, the Commission must, as it stated in the Foreign Carrier Entry Order, determine whether the proposed level of foreign ownership is consistent with the public interest obligations under Section 310(b)(4). Similar to the Section 214 context discussed above, this determination largely relies on an examination of whether effective competitive opportunities ("ECO") exist in the foreign entity's home market for the radio-based service that is analogous to the service the foreign entity seeks to provide in the U.S. market. The Commission identifies the appropriate home market by analyzing where a foreign entity's principal place of business is located. 12. In addition to the ECO analysis, the Commission reaffirmed in the Foreign Carrier Entry Order that it would continue to look at other public interest factors that it has historically considered germane to determining whether to permit foreign investment under Section 310(b)(4). These factors include the general significance of the proposed entry to the promotion of competition in the U.S. communications market and any national security, law enforcement, foreign policy, or trade policy concerns raised by the Executive Branch. 13. As discussed above, MICL's application requests Commission approval for Chilean-owned Invertel to acquire up to a 70.1 percent equity interest in MICL. Because Invertel's proposed foreign ownership level exceeds the 25 percent threshold in Section 310(b)(4), we must determine whether granting MICL's application would be consistent with the public interest. The public interest analysis of this proposed transfer of control proceeds in four steps: (1) determination of the appropriate home market for comparison; (2) determination of the appropriate market segment for comparison; (3) consideration of the factors of the ECO analysis; and (4) analysis of additional public interest factors. 1. Appropriate Home Market 14. In the Foreign Carrier Entry Order, the Commission set forth five factors to consider in identifying the appropriate home market of a foreign entity: (1) the country of its incorporation, organization, or charter; (2) the nationality of its investment principals, officers, and directors; (3) the country in which its world headquarters is located; (4) the country in which the majority of its tangible property, including production, transmission, billing information and control facilities, is located; and (5) the country from which it derives the greatest sales and revenues from its operations. When all five factors indicate the same country, we will presume that country to be the entity's home market, unless clear and convincing evidence demonstrates otherwise. If these five factors yield inconsistent results, however, we will balance them, along with any other information particularly relevant to the case, to determine the appropriate home market under the totality of the circumstances. 15. MICL argues that Chile represents Invertel's home market for the following reasons. First, although Invertel is incorporated under the laws of the state of Florida, its parent company, TDC, is a corporation organized under the laws of Chile and owned exclusively by Chilean citizens. Additionally, all of TDC's officers and directors are Chilean citizens. Both TDC's and commonly-controlled T‚lex-Chile's world headquarters are located in Santiago, Chile. The overwhelming majority of TDC's tangible property is also located in Chile. MICL states that TDC's domestic holdings--T‚lex-Chile, Texcom, Chilesat, Chilepac and Chilesat Telefonˇa Rural S.A.--constitute approximately 90.5 percent of TDC's direct and indirect property interests and provide 95 percent of TDC's total revenues. Given these factors, we agree with MICL that Chile represents Invertel's home market for purposes of our ECO analysis. 2. Appropriate Market Segment 16. In undertaking the ECO analysis under Section 310(b)(4), we must compare restrictions on U.S. participation in the home market for the particular radio-based service in which the foreign entity seeks to participate to those restrictions imposed on the foreign entity's participation in the U.S. market for the same service. This service-to-service comparison requires us to identify the appropriate market segment for use in the comparison. When the services in the United States and the home market do not precisely match, we will use the most closely substitutable radio-based service in the home market, as determined from the customers' perspective. 17. MICL asserts that the Chilean international telecommunications services market represents the relevant market segment for our ECO analysis. We disagree. MICL currently holds licenses for two earth stations that it uses to provide common carrier services on both a resale and facilities basis between the United States and international points. We, therefore, believe that the relevant market segment is more narrow than Chile's entire international telecommunications market. Instead, we conclude that the licensing and operation of earth stations in Chile represents the appropriate market segment for our ECO analysis. 3. Effective Competitive Opportunities Factors 18. As explained in the Foreign Carrier Entry Order, once we have identified the appropriate market segment within the appropriate home market, we determine whether effective competitive opportunities are available to U.S. companies and investors. The initial focus of an ECO analysis is on de jure restrictions to entry. To the extent they are relevant, we also consider practical, or de facto, limitations on U.S. participation, including the price, terms and conditions of interconnection, competitive safeguards, and the regulatory framework in the relevant market. 19. If, after conducting an ECO analysis, we determine that the laws of the relevant home market allow U.S. entities to hold a controlling interest in a provider of the relevant service, then we would be justified in placing no limit on the level of ownership that a foreign entity from that home market can acquire in the U.S. licensee, absent significant de factobarriers. If we determine, however, that the relevant home market places legal limitations on the ability of U.S. entities to acquire and hold a controlling interest in a provider of the relevant service, then we would allow the foreign entity to exceed the 25 percent statutory foreign ownership benchmark only up to the level of ownership available to U.S. entities in that foreign market. 20. After applying an ECO analysis to MICL's application, we find that Chile has no de jure or de facto restrictions on licensing and operation of earth stations in Chile by U.S. companies. The Commission previously concluded in its AmericaTel decision that "there are no relevant legal restrictions on the ability of U.S. and other foreign entities to invest in the Chilean international long distance telecommunications marketplace or to obtain licenses to operate as international facilities-based long distance carriers." This is demonstrated by the fact that Chile already has substantial foreign investment in, and use of, earth stations to provide international telecommunications services. For example, BellSouth/Chile, a wholly-owned subsidiary of BellSouth, has received a concession to provide international telecommunications services using earth stations in competition with Chilean companies such as Chilesat. 21. The Commission has previously stated that "Chile's liberalized telecommunications regulatory environment . . . [has] progressed substantially in promoting competition and preventing abuse of market power." To ensure free and open competition, Chile allows private ownership of telephone companies and places no limitations on the number of carriers that may obtain operating licenses and provide international telecommunications services via earth stations in Chile. Chile also provides other competitive safeguards, including structural separation of local and long distance companies, periodic review of Chile's telecommunications markets by the Anti-Monopoly Commission, implementation of a multi- carrier dialing system, mandatory sharing of network information among carriers, prohibitions against discriminatory interconnection arrangements, and no price controls except in those sectors of Chile's telecommunications market that are not yet competitive. 22. In sum, Chile's laws and regulatory environment allow U.S. entities to hold a controlling interest in Chilean earth stations used for the provision of international telecommunications services, and also safeguard against anticompetitive conduct, including discrimination against foreign-owned carriers. Thus, we find that Chile offers effective competitive opportunities for U.S. carriers in the licensing and operation of earth stations. 4. Additional Public Interest Factors 23. Our review of public interest factors other than those covered by the ECO analysis also supports approval of MICL's application. The Executive Branch has not raised any national security, law enforcement, foreign policy or trade concerns with regard to MICL's application. Moreover, we find, as we did in our analysis under Section 214 of the Act above, that the proposed transfer of control of MICL would serve the public interest by allowing the provision of additional investment and expertise to MICL, which will help a small U.S. carrier like MICL compete in the increasingly competitive U.S. international telecommunications market. IV. Conclusion 24. Applying the rules and standards adopted in the Foreign Carrier Entry Order, we conclude that granting MICL's application will serve the public interest under both Sections 214 and 310 of the Act. Our analysis under Section 310(b)(4) demonstrates that Chile offers U.S. companies effective opportunities in the licensing and operation of earth stations. Furthermore, allowing the provision of additional investment and expertise to small U.S. carriers like MICL will increase competition in the U.S. international telecommunications market. As the Commission has previously determined, increased competition "fosters lower prices, innovative services, and increased responsiveness to consumer needs." V. Ordering Clauses 25. IT IS HEREBY CERTIFIED that the present and future public convenience and necessity require a grant of the application of Melbourne International Communications, Ltd. ("MICL"). 26. Accordingly, IT IS ORDERED, pursuant to Sections 214 and 310 of the Communications Act of 1934, as amended, 47 U.S.C.  214, 310, and Section 25.118 of the Commission's Rules, 47 C.F.R.  25.118, that MICL's application, File Nos. 1940-DSE-TC- 96(2) and I-T-C-96-492(TC), IS GRANTED. Thus, we consent to the transfer by Wajay Investments, Inc., of up to 70.1 percent of MICL's equity to Invertel, Inc. 27. This Order is issued pursuant to Section 0.261 of the Commission's Rules, 47 C.F.R.  0.261, and is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's Rules, 47 C.F.R.  1.106, or applications for review under Section 1.115 of the Commission's Rules, 47 C.F.R.  1.115, may be filed within 30 days of the public notice of this Order (see Section 1.4(b)(2) of the Commission's Rules, 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Donald H. Gips Chief, International Bureau