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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 ) ) Japan Telecom America, Inc. ) ) Application under Section 214, of the ) File No. ITC- 97-449 Communications Act of 1934, as ) Amended, for Authority to Acquire and) Operate Previously Authorized Facilities) to Japan ) ORDER AND AUTHORIZATION Adopted: January 23, 1998 Released: January 26, 1998 By the Chief, Telecommunications Division: I. INTRODUCTION 1. In this Order we grant Japan Telecom America, Inc. ("JT America") authority, pursuant to Section 214 of the Communications Act of 1934, as amended, to acquire and operate previously authorized facilities for the provision of international basic switched, private line, data, television and business services between the United States and Japan. This authorization is subject to the condition that JT America may not initiate the authorized services until Japan Telecom Co., Ltd, JT America's affiliated carrier, has in effect with U.S. international carriers a settlement rate between the United States and Japan that is at or below $0.15. II. BACKGROUND 2. JT America is a Delaware corporation and a wholly-owned subsidiary of Japan Telecom Co. Ltd. ("Japan Telecom"), a corporation which provides international and domestic long distance telecommunications services in Japan. We placed the application on public notice but no comments were received. JT America currently is authorized to: 1) resell non-interconnected private lines between the United States and Japan, and 2) operate as a facilities-based and resale carrier for the provision of international basic switched, private line services between the United States and various points, except Japan. III. DISCUSSION 3. Because a foreign carrier owns greater than 25 percent of the capital stock of JT America, the Commission's Foreign Carrier Entry Order requires us to review its application for service to Japan under the framework established in that order. The Commission in the Foreign Carrier Entry Order stated that carriers seeking to provide international services to countries in which they have an affiliate with market power must demonstrate that the affiliated market offers "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 service 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. 4. In order to determine whether an ECO analysis is necessary we must determine whether JT America's parent, Japan Telecom, has market power. The Foreign Carrier Entry Order defines "market power" as the "ability of the carrier to act anticompetitively against unaffiliated U.S. carriers through control of bottleneck facilities on the foreign end." Bottleneck services or facilities are "those that are necessary for the provision of international services, including inter-city or local access facilities on the foreign end." 5. JT America contends that Japan Telecom does not have market power in any segment of Japan's international telecommunications market. In the ITJ Resale Authorization, we concluded that ITJ (which has since merged with Japan Telecom) did not have market power in the international facilities-based private line market. We based our conclusion on ITJ's 17 percent share of the international facilities-based private line market in Japan (as measured by the number of international private lines) and its 12 percent share of revenues for that service. In its application, JT America states that ITJ had 18.4 percent of the switched international facilities-based traffic in 1995 (as measured in minutes) and 16.5 percent of the revenue for that service in 1996. Japan Telecom had 7.5 percent of the domestic long distance switched traffic in 1995 (as measured by calls) and 5 percent of revenue for that service in 1996. Japan Telecom does not own any local exchange access facilities. We also note that Japan has recently opened the facilities-based international services market to additional competition. We conclude, based on this information, that Japan Telecom does not have market power in any relevant market in Japan. We therefore do not apply the ECO test to JT America's application. 6. We find that there are no other countervailing public interest reasons to deny grant of JT America's application. The Executive Branch has not raised any national security, law enforcement, foreign policy or trade concerns with this application. We remain concerned about Japan's high accounting rates and would like to see them decrease. But we do not find that a reason to deny JT America's application to provide facilities-based service. We believe that increased competition will help put pressure on above-cost accounting rates. In addition, as noted below, provision of service is conditioned on a reduction in Japan Telecom's accounting rate with U.S. carriers. Accordingly, we find it in the public interest to authorize JT America to provide facilities- based service between the United States and Japan. Given our finding that Japan Telecom does not have market power in any relevant market, we find that JT America should be regulated as non- dominant on the U.S.-Japan route. 7. In the Benchmarks Order, the Commission established benchmarks that will govern the international settlement rates U.S. carriers pay foreign carriers. The Commission also adopted a benchmark settlement rate condition, effective January 1, 1998, for authorizations to provide facilities-based switched or private line services to destination markets where the authorized carrier is affiliated with a foreign carrier. Pursuant to the Benchmarks Order, we condition any authorization to provide facilities-based switched or private line service to an affiliated market on the affiliated foreign carrier having in effect a settlement rate with U.S. international carriers on the U.S.-affiliated market route that is at or below the relevant benchmark settlement rate adopted in that order. The Benchmarks Order requires U.S. carriers to negotiate a settlement rate of U.S. $0.15 per minute with carriers in Japan. Japan Telecom's settlement rate with U.S. carriers is currently $0.425, much higher than the benchmark. Thus, we authorize JT America to begin service only when Japan Telecom's settlement rate is at or below $0.15. IV. CONCLUSION 8. We find that grant of authorization to JT America to provide facilities-based service between the United States and Japan is in the public interest and consistent with Section 214 of the Communications Act. We classify JT America as non-dominant on the U.S.-Japan route for the provision of facilities-based services. JT America may commence service when Japan Telecom's settlement rate with its U.S. carrier correspondents is at or below $0.15. V. ORDERING CLAUSES 9. Accordingly, IT IS ORDERED that File No. ITC 97-449 IS GRANTED and JT America Inc. is authorized to provide facilities-based service between the United States and Japan at such time as Japan Telecom's settlement rate with its U.S. carrier correspondents is at or below $0.15. 10. IT IS FURTHER ORDERED that JT America, Inc. shall be regulated as a non- dominant carrier for the provision of its authorized facilities-based services between the United States and Japan. 11. IT IS FURTHER ORDERED that, as a non-dominant carrier on the U.S.-Japan route, JT America, Inc. shall comply with Sections 43.82, 63.19, 63.21 and 63.15(b) of the Commission's rules, 47 C.F.R.  43.82, 63.19, 63.21 and 63.15(b). 12. This Order is issued under Section 0.261 of the Commission's rules, 47 C.F.R.  0.261 (1996), and is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's rules, 47 C.F.R.  1.106 (1996), or applications for review under Section 1.115 of the Commission's rules, 47 C.F.R.  1.115 (1996), may be filed within 30 days of the date of public notice of this Order and Authorization (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane Cornell Chief, Telecommunications Division