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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** FCC 97-407 Before the FEDERAL COMMUNICATIONS COMMISSION Washington D.C. 20554 In the Matter of Telecom New Zealand Limited ) ) File No. I-T-C-96-097 Application for Authority pursuant to ) Section 214 of the Communications Act ) of 1934, as amended, to Acquire and Operate ) Facilities to Provide International Services ) Between the United States and New Zealand ) and In the Matter of Communications Telesystems International Application for Authority pursuant to ) Section 214 of the Communications Act ) of 1934, as amended, to operate as an ) File No. I-T-C-95-444 international private line carrier ) MEMORANDUM OPINION AND ORDER Adopted: December 11, 1997 Released: January 7, 1998 By the Commission: INTRODUCTION 1. In this decision, we deny petitions challenging the International Bureau's decision to authorize Telecom New Zealand Limited (TNZL) to acquire and operate facilities for the provision of switched, private line, and other authorized services between the United States and New Zealand. We also deny a petition challenging the International Bureau's companion order authorizing Communications Telesystems International to resell private lines between the United States and New Zealand for the provision of switched basic services. 2. Specifically, we deny AT&T's application for review and, pursuant to the International Bureau's referral to the Commission, MCI's petition for reconsideration of the Telecom New Zealand Order. We also deny AT&T's application for review of the New Zealand Equivalency Order. BACKGROUND 3. In our recent decision implementing the World Trade Organization (WTO) Basic Telecommunications Agreement, we adopted rules which commit the United States to open its markets for basic telecommunications services to all WTO Members, including New Zealand. Until those rules take effect, and for applications by carriers from non-WTO Members, however, we will continue to apply the rules we established in the Foreign Carrier Entry Order. In that order, we determined that foreign carriers seeking to provide U.S. international service to destination countries in which they have market power must demonstrate that such countries offer "effective competitive opportunities" ("ECO") for U.S. carriers to offer like services. We stated that we 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 service to those countries. We also determined that we would continue to consider other public interest factors that may weigh in favor of, or against, granting the application. Accordingly, because TNZL is a foreign carrier within the meaning of Section 63.18(h)(1)(ii) of our rules, we apply the ECO analysis to TNZL's application to provide international facilities-based service between the United States and New Zealand. 4. Under the ECO test for facilities-based entry, the Bureau was required to consider whether the destination country provides U.S. carriers: (1) the legal ability to provide international facilities-based services in that country; (2) reasonable and nondiscriminatory charges, terms, and conditions for interconnection to foreign carrier domestic facilities for termination and origination of international services; (3) the existence of competitive safeguards to deter the foreign carrier from engaging in anticompetitive practices; and (4) an effective regulatory framework to develop, implement, and enforce legal requirements, interconnection arrangements, and other competitive safeguards. The Bureau focused on the overall effect of these four elements on the opportunities for viable operation as a facilities-based carrier in the foreign market. 5. The rules also require that we apply an ECO analysis in all cases where an applicant seeks to provide international switched basic services over resold private lines between the United States and a particular destination country. Thus, regardless of whether the applicant is a foreign carrier, or an affiliate of a foreign carrier, the applicant must demonstrate that the country at the foreign end of the private line offers U.S.-based carriers opportunities to resell international private lines for the provision of switched services that are equivalent to those available in the United States. 6. In the Telecom New Zealand Order, the Bureau concluded that Telecom New Zealand has market power in the exchange access market and that New Zealand affords U.S. carriers effective competitive opportunities to provide international facilities-based service in New Zealand. First, the Bureau concluded that there are no legal barriers to entry in the New Zealand market for international telecommunications services and that New Zealand had at least ten registered international service operators, including TNZL, Clear (owned in part by MCI), Sprint Telecommunications (NZ) Ltd. (now part of Global One), Telstra (NZ) Ltd., Pacific Gateway Exchange New Zealand Ltd., BellSouth NZ, Asia Pacific Telecom (NZ) Ltd., Optus Networks Pty Ltd., WorldxChange Ltd., and New Zealand Teleport Holdings Ltd. 7. Second, the Bureau based its finding that New Zealand satisfied the interconnection factor of the ECO test on the availability of favorable toll interconnection rates and the actual entry of multiple facilities-based carriers, including one carrier, Clear, which had achieved a 23 percent share of the market. The Bureau concluded that interconnection rates in New Zealand, generally between $0.01 per minute for off-peak calls and $0.025 per minute for peak calls, were comparable to rates in the United States, and that there was no evidence in the record that these rates were precluding entry by potential competitors. The Bureau also noted that three facilities-based carriers had completed interconnection agreements with TNZL's parent company, Telecom Corporation of New Zealand Limited (TCNZ), and had initiated service from New Zealand. 8. Third, the Bureau determined that competition had developed in New Zealand despite the absence of cost allocation rules, carriers were receiving technical network information on a timely and nondiscriminatory basis, and TCNZ was safeguarding customer proprietary information. The Bureau concluded that New Zealand's laws and regulations provided sufficient protection against anticompetitive practices, including cross-subsidization and unauthorized disclosure of proprietary information. 9. Finally, the Bureau examined New Zealand's regulatory regime, consisting of the Commerce Commission, the Ministry of Commerce (hereafter "Ministry") and the judicial system. In particular, the Bureau noted that the New Zealand regulatory regime is "legally distinct from TCNZ and TNZL, and the record indicates that it operates impartially." The Bureau also noted that "sufficient regulatory transparency exists in New Zealand to allow competitors to know what mechanisms exist to redress perceived violations of law by TCNZ or TNZL." Despite concerns about the effectiveness of the regulatory regime, the Bureau concluded that, "on balance there is sufficient regulatory oversight to protect and promote competition in the New Zealand telecommunications market." 10. In the New Zealand Equivalency Order, the Bureau found that New Zealand affords U.S. carriers opportunities to resell international private lines to provide switched services which are equivalent to those offered in the United States. Specifically, the Bureau concluded that New Zealand affords U.S. carriers the legal right to provide switched services over resold private lines interconnected to the public switched network at both ends; U.S. carriers are able to obtain reasonable and nondiscriminatory interconnection charges, terms and conditions; New Zealand's laws provide sufficient protection against anticompetitive practices; and there is sufficient regulatory oversight to protect and promote competition. 11. AT&T filed an application for review, and MCI and Sprint filed petitions for reconsideration of the Telecom New Zealand Order. Sprint later withdrew its petition. Telecom New Zealand filed an opposition, and MCI filed a reply. 12. AT&T also filed an application for review of the New Zealand Equivalency Order. Communications Telesystems International filed an opposition to AT&T's application for review. DISCUSSION 13. Reasonable and Nondiscriminatory Interconnection: AT&T and MCI argue that we should reverse the Bureau's decision in the Telecom New Zealand Order because the Bureau erred in finding that TNZL's interconnection rates are not discriminatory. AT&T asserts that New Zealand's interconnection regime "blatantly permits discrimination" because TCNZ charges Clear a lower rate than it charges other carriers. AT&T also alleges that the Bureau misapplied the rules in concluding that Clear's ability to resell its interconnection arrangement with TCNZ will prevent TCNZ from delaying and discriminating against other potential entrants in the future. MCI charges that Clear has been unable to resell its interconnection arrangements with TCNZ because of TCNZ's refusal to provide certain interconnection and other capabilities necessary for resale. MCI also charges that because TNZL's interconnection agreements may not need to be publicly filed, other carriers may find it impossible to determine if their rates are discriminatory. Finally, MCI argues that the Bureau's conclusion that TNZL had satisfied the ECO test was incorrect because the Bureau required as a "specific condition" of its Order that TNZL promptly provide nondiscriminatory and reasonable interconnection. 14. We are not persuaded by these arguments. We find that the Bureau properly determined that TCNZ's volume-based discount for Clear was not unreasonable or discriminatory. TNZL states that "[a]t comparable traffic volume levels, Sprint is eligible for the same rate as Clear." In fact, Sprint's interconnection agreement provides that it is entitled to the same rate (2.8 cents/minute) paid by Clear (or the lowest rate paid by any other competing toll service provider) when Sprint's total annual interconnection charges paid to TCNZ reach $15 million (N.Z.), which is approximately one quarter of Clear's total interconnection charges. AT&T does not offer any new information that TCNZ has charged discriminatory rates to other carriers. TCNZ's volume-based discounts are not set at a level that excludes all but a single carrier, and therefore we disagree that these charges are per se discriminatory. Accordingly, we agree with the Bureau's determination that the volume-based interconnection rate TNZL offers Clear is not discriminatory. 15. We are also unpersuaded by AT&T's arguments concerning Clear's resale rights. The Bureau did not conclude, as AT&T avers, that "Clear's ability to resell its interconnection arrangement is an adequate alternative to TCNZ's ability to delay or discriminate among competitors." As noted above, the Bureau found that TCNZ's interconnection rate does not discriminate among competitors. In addition, the Bureau found that Clear's "back to back" resale rights, i.e., the right to resell interconnection services it has purchased from TCNZ, has the beneficial effect of limiting the rate TCNZ can charge other carriers for the same services. In effect, the rate TCNZ charges Clear is a ceiling. We note that, if the Bureau had concluded that TCNZ's interconnection rates were otherwise discriminatory, Clear's ability to resell interconnection would not make TCNZ's rates reasonable. However, it is appropriate to note that Clear's "back to back" rights will have a beneficial effect of limiting TCNZ's ability to raise its interconnection rates. 16. Next, we turn to MCI's claim that, despite having "back to back" resale rights with TCNZ, Clear has been unable to resell interconnection from TCNZ to other carriers. Specifically, MCI alleges that TCNZ refuses to: (1) allow Clear to resell Caller Line Identification, which is a signaling element that enables carriers to provide billing and other services based on identifying the calling party's number; (2) provide number portability of Clear's resale customers' access codes; or (3) permit Clear to resell TCNZ's interconnection services to a third-party carrier for some geographic locations while the carrier uses TCNZ's interconnection services in other geographic locations. MCI states that, as a result, Clear is not reselling interconnection to any other carriers and that "TCNZ remains the only carrier from whom ... interconnection may be purchased." 17. We note that TCNZ has agreed to offer the services MCI has requested. Moreover, we note that TNZL asserts, and MCI does not refute, that Clear is, in fact, reselling TCNZ's interconnection services to two other carriers. 18. Finally, MCI has misconstrued the "specific condition" the Bureau imposed on TNZL. The Order states that the Bureau "make[s] the prompt provision of reasonable and nondiscriminatory interconnection for international carriers -- including nondiscriminatory access to volume-based discounts -- a specific condition of today's grant of TNZL's application." MCI argues that the Bureau improperly relied on this condition to conclude that New Zealand had achieved compliance with our ECO test. We do not agree. This condition specifically imposes on TNZL a continuing obligation to provide promptly to other carriers (including Sprint, which had signed an interconnection agreement for a limited duration) reasonable and nondiscriminatory interconnection for international services and is intended to ensure that TCNZ's future behavior complies with the ECO standard for interconnection. This condition is no different than the condition that we routinely impose on carriers authorized to resell international private lines for the provision of switched services. We require in all such cases that the country at the foreign end of the private line continue to satisfy the ECO test for the provision of those services. 19. AT&T's application for review of the New Zealand Equivalency Order raises the same arguments with respect to New Zealand's interconnection regime as its application for review of the Telecom New Zealand Order. Accordingly, for the reasons stated above, we reject its arguments with regard to the Bureau's decision in the New Zealand Equivalency Order. 20. Effective Regulatory Framework: MCI asserts that the Bureau "failed to address the overriding problem that limits effective competitive opportunities in New Zealand: the lack of an effective, independent regulator." MCI argues, in particular, that our rules require a regulatory body to establish and enforce nondiscriminatory interconnection rules, and that neither the Commerce Commission nor the Ministry of Commerce has done so. MCI further contends that the Ministry is not effective because its sole regulatory authority derives from its threats to reimpose price controls to deter anticompetitive behavior, and that such threats are hollow and unconvincing. MCI also avers that the Commerce Commission does not have the responsibilities traditionally associated with a telecommunications regulator, and "has demonstrated a remarkable reluctance to act even in investigative or enforcement proceedings." AT&T similarly argues that the Bureau's finding that New Zealand has an effective regulatory regime "is belied by the lengthy, unsatisfactory process of redress for new entrants denied nondiscriminatory interconnection by TCNZ." 21. The Commerce Commission notes that it conducted three full investigations after receiving 120 complaints about the telecommunications industry in the past three years, and that "[t]he fact that only a few complaints proceeded to full investigation reflects the Commission's assessment that prima facie breaches of the [Commerce] Act were not disclosed or, for example, that the matter was best dealt with by private parties or policy agencies such as the Ministry of Commerce." In reply, MCI reasserts its claim that the Commerce Commission conducted only one investigation after receiving 84 complaints against TCNZ. MCI argues further that, even if the Commerce Commission had conducted two investigations specific to TCNZ, as TCNZ claims, that this "does little to bolster confidence in the effectiveness of the system." MCI further contends that the Commerce Commission has not initiated a single enforcement action against TCNZ or utilized its statutory power to require TCNZ to produce documents or provide sworn testimony. 22. The test for an effective regulatory framework is whether "there is separation between the foreign regulator and the operator of international facilities-based services, and whether there are fair and transparent regulatory procedures in the destination market." The Bureau concluded that, on balance, these factors were present in New Zealand. The Bureau noted that the New Zealand regulatory regime is legally distinct from TCNZ and TNZL and that sufficient regulatory transparency exists to allow competitors to know what mechanisms are available to redress perceived violations of the law by TCNZ or TNZL. To the extent that MCI argues that these regulatory procedures are insufficient in practice, we believe it is relevant to review market conditions. We find of critical relevance that competition for international services exists in New Zealand. TNZL's competitors include Clear, Telstra and Sprint, all of which offer facilities-based international telecommunications services, as well as numerous resellers. While AT&T and MCI contest the adequacy of New Zealand's regulatory institutions and procedures, we are not persuaded that regulatory oversight in New Zealand is so lacking that competition is unable to take root there. Market conditions in New Zealand, therefore, support the conclusion that there is sufficient regulatory oversight in New Zealand to protect and promote competition there. Thus, we do not agree with MCI or AT&T that the Bureau erred in concluding that New Zealand satisfies the ECO test's requirement for an effective regulatory framework. 23. AT&T's application for review challenging the New Zealand Equivalency Order raises the same arguments with respect to New Zealand's regulatory regime as those in its application for review of the Telecom New Zealand Order. Accordingly, for the reasons stated above, we also reject the arguments that AT&T makes in its application for review of the New Zealand Equivalency Order. CONCLUSION 24. For the reasons stated above, we deny AT&T's application for review and MCI's petition for reconsideration of the International Bureau's decision to authorize Telecom New Zealand to acquire and operate facilities for the provision of switched, private line, and other authorized services between the United States and New Zealand. We also deny AT&T's application for review of the companion order authorizing Communications Telesystems International to resell private lines for the provision of switched services between the United States and New Zealand. ORDERING CLAUSES 25. Accordingly, IT IS ORDERED, pursuant to Sections 1.104(b) and 1.115(g) of our rules, 47 C.F.R.  1.104(b) and 1.115(g), that the petitions for reconsideration and applications for review in the above-captioned proceedings are DENIED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary