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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 ) ) Cherry Communications, Inc. ) ) Application for authority pursuant to Section) File No. ITC-96-183 214 of the Communications Act of 1934, as) amended, to operate as an international) common carrier reselling private lines to ) offer switched services between the United) States and Hong Kong ) MEMORANDUM OPINION AND ORDER Adopted: March 28, 1997 Released: March 31, 1997 By the Chief, Telecommunications Division: Introduction 1.In this Order, we deny the application of Cherry Communications, Inc., (CCI) for authority pursuant to Section 214 of the Communications Act of 1934, as amended, to resell international private line services to provide switched telecommunications services between the United States and Hong Kong. We find that equivalent opportunities do not now exist in Hong Kong for U.S.-based carriers seeking to engage in interconnected international private line resale between the United States and Hong Kong. Background 2.CCI is an Illinois corporation that resells telecommunications services in 37 states and provides international facilities-based and resold switched telecommunications services between the United States and various international points, including Canada and Mexico. CCI proposes to lease, from authorized U.S. carriers, international private line services interconnected to the public switched networks at both ends and at one end only in order to provide switched telecommunications services between the United States and Hong Kong. 3.We placed CCI's application on public notice on March 22, 1996. AT&T Corp. ("AT&T") filed a petition to deny the application. CCI filed an opposition to AT&T's petition, and AT&T filed a reply. Discussion 4.In its International Resale Order, the Commission concluded that promoting the resale of international private lines (IPLs) to provide switched services would foster new entry into the international telecommunications market and exert downward pressure on above-cost international accounting rates through the diversion of switched traffic to resold private lines. The Commission further concluded, however, that permitting "one-way resale," i.e., resale only from the overseas point inbound to the United States, would enable foreign carriers to divert U.S.-bound switched traffic to private lines, thereby avoiding the international settlements process and exacerbating the U.S. net settlements deficit. Permitting one-way resale would also fail to exert any downward pressure on international accounting rates. Accordingly, the Commission concluded that it would authorize the resale of international private lines interconnected to the public switched networks only to countries that allow such resale to occur in both directions. The Commission also required each applicant seeking to resell U.S. IPLs for the provision of switched services to demonstrate that the destination foreign country affords resale opportunities equivalent to those available under U.S. law. 5.In its Foreign Carrier Entry Order, the Commission amended the equivalency rules adopted in the International Resale Order by restating the criteria in the same manner as its effective competitive opportunities ("ECO") criteria, which govern entry by foreign carriers that control foreign bottleneck facilities. The Commission's rules thus require applicants seeking to provide international basic switched service over resold IPLs to demonstrate that the foreign country to which it seeks to provide service provides U.S.-based carriers (1) the legal right to resell IPLs interconnected at both ends for the provision of switched services; (2) nondiscriminatory charges, terms and conditions for interconnection to foreign domestic carrier facilities for termination and origination of international services, with adequate means of enforcement; (3) competitive safeguards to protect against anticompetitive and discriminatory practices affecting private line resale; and (4) fair and transparent regulatory procedures, including separation between the regulator and operator of international facilities-based services. 6.The Commission also decided that, although the rules for market entry for other services would require only that the effective competitive opportunities test be satisfied "in the near future," this equivalency standard for resale of noninterconnected IPLs must be satisfied at the time we make an equivalency determination. We may also consider other public interest factors (such as national security, foreign policy, law enforcement, or the presence of cost-based accounting rates) that may weigh for or against a particular application. A. Resale Entry 7.Current Hong Kong law grants Hong Kong Telecom International ("HKTI") "exclusive rights to provide international telephone, telex and telegram services, external circuits for voice, data and facsimile, external television and voice transmission services." CCI does not claim that Hong Kong at the present time offers U.S.-based carriers equivalent opportunities to resell IPLs interconnected at both ends for the provision of switched international telecommunications services. In fact, CCI concedes that HKTI "has a monopoly on international calls until 2006." Instead, CCI argues that we should authorize the proposed resale because the Office of the Telecommunications Authority ("OFTA"), Hong Kong's independent regulatory body, has narrowed the scope of HKTI's monopoly to permit competitors to offer enhanced and non-voice services over IPLs, as well as call-back, mobile, paging, and cellular services, and the government intends to continue liberalization. CCI further states that we should authorize the proposed resale because there is no discrimination against U.S.-owned telecommunications service providers and U.S. companies have substantial investments in new network operators. 8.We are not persuaded by these arguments. As noted, the Commission's equivalency policy requires that CCI show that Hong Kong meets the criteria now and not "in the near future." CCI is unable, however, to show that Hong Kong now has no legal barriers to entry by U.S.-based carriers seeking to resell IPLs interconnected to the public switched network for the provision of switched services. Since Hong Kong does not allow competitors of HKTI to resell IPLs to provide switched services, we find that Hong Kong does not offer equivalent resale opportunities. 9.Because we may consider other public interest factors for or against granting an application, we note CCI's claim that Hong Kong's accounting rate of $1.00 is one of the lowest in Asia. The Commission has stated that, where a carrier can demonstrate that a cost- based accounting rate is available to U.S. carriers along a particular route, there would appear to be no public interest reason to prohibit use of private line circuits for the provision of switched services on that route. CCI does not, however, assert that Hong Kong's accounting rate is cost-based. Indeed, Hong Kong's accounting rate is far above the Commission's estimate of a cost-based accounting rate. Therefore, there continues to be an incentive to engage in one-way resale that exacerbates the settlements deficit. We therefore conclude that there is no public interest consideration that outweighs our finding that Hong Kong does not provide equivalent resale opportunities. 10.We are encouraged by the liberalization that appears to have taken place in Hong Kong and the government's plans for future liberalization. Should these positive trends continue, we may be persuaded to grant a future application for interconnected private line resale. B. Conditional or Partial Authorization 11.CCI urges us to condition a finding of full equivalency on Hong Kong's reciprocal legalization of IPL resale to the United States. We decline to do so. As the Commission stated in the Foreign Carrier Entry Order, our equivalency standard must be satisfied at the time we make the equivalency finding to prevent an undue increase in the U.S. settlements deficit. 12.CCI also urges us to authorize IPL resale to Hong Kong "with respect to services liberalized in Hong Kong." As AT&T notes, our rules do not prohibit use of IPLs to provide enhanced services, and therefore CCI may provide enhanced services without a Section 214 certificate. To the extent CCI's request applies to non-enhanced services other than switched telecommunications services provided over IPLs, there is insufficient information in the record to address this issue and we make no finding on this request. Ordering Clauses 13.Accordingly, IT IS HEREBY ORDERED that the application File No. ITC-96- 183 of Cherry Communications, Inc., for authorization to resell international private lines for the provision of switched service between the United States and Hong Kong IS DENIED. 14.This Order is issued under Section 0.261 of the Commission's rules, 47 C.F.R.  0.261. Petitions for reconsideration under Section 1.106 or applications for review under Section 1.115 of the Commission's rules, 47 C.F.R.  1.106, 1.115, may be filed within 30 days of the date of public notice of this order (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau