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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 ) ) Swisscom North America, Inc. ) File No. ITC-97-322 ) Application for authority pursuant to Section 214 ) of the Communications Act of 1934, as amended, ) to acquire and operate facilities to provide ) international service and to resell switched and ) non-interconnected private line services between ) the United States and Switzerland ) MEMORANDUM OPINION, ORDER AND CERTIFICATE Adopted: February 19, 1998 Released: February 20, 1998 By the Chief, Telecommunications Division: I. Introduction 1. In this Order, we grant Swisscom North America, Inc. ("Swisscom") authority pursuant to Section 214 of the Communications Act of 1934, as amended, to: (1) acquire and operate facilities for the provision of international switched and private line services between the United States and Switzerland; and (2) resell international switched and non- interconnected private line services between the United States and Switzerland. We also find that Swisscom should be regulated as dominant on the U.S.-Switzerland route. II. Background and Pleadings 2. Swisscom, a Delaware corporation, is a wholly-owned subsidiary of Swiss Telecom PTT ("Swiss Telecom"), which is wholly-owned by the Government of Switzerland. Swiss Telecom is the primary provider of telecommunications services in Switzerland. 3. Swisscom has authority to operate as a facilities-based and resale carrier to all points except Switzerland, Hungary, Germany, India, and Malaysia. In addition, Swisscom holds an equity interest of up to 33.33 percent in Unisource N.V., whose wholly-owned subsidiary, Unisource USA, Inc., has Section 214 authority to operate as a facilities-based and resale carrier to various countries. 4. On June 9, 1997, Swisscom filed an application to obtain Section 214 authority to provide international facilities-based and resale services between the United States and Switzerland. This authority would allow Swisscom to provide "full" circuits on the U.S.- Switzerland route, enabling it to provide "end-to-end" service to end users in both countries. This authority would also allow Swisscom to resell both switched and non-interconnected private line services provided by unaffiliated U.S. carriers. Swisscom certifies that it is affiliated within the meaning of Section 63.18(h)(1)(i) of the Commission's Rules with Swiss Telecom in Switzerland, CNS in Germany, Mutiara Telecom in Malaysia, Aircel Digilink in India, and J szTel in Hungary. 5. We placed Swisscom's application on public notice. AT&T Corp. ("AT&T") and MCI Telecommunications Corporation ("MCI") filed petitions to deny. Sprint Communications Company, L.P. ("Sprint") filed a petition to deny or hold in abeyance and WorldCom, Inc. ("WorldCom") filed a petition to defer in part. Swisscom filed an opposition to petitions to deny or defer to which AT&T, MCI, and Sprint replied. In addition, Global One and the Federal Office for Communications ("OFCOM"), the Swiss regulator, filed letters. III. Discussion 6. On February 15, 1997, 69 nations, including the United States and most of its major trading partners, committed to open their markets for basic telecommunications services by concluding the World Trade Organization ("WTO") Basic Telecommunications Agreement. On June 4, 1997, five days before Swisscom filed its application, the Commission issued a Notice of Proposed Rulemaking in the Foreign Participation proceeding to create a new regulatory framework in light of the United States' WTO market access commitments and the market-opening commitments of U.S. trading partners. On November 26, 1997, after the end of the pleading cycle in the instant proceeding, the Commission adopted final rules in the Foreign Participation proceeding. These rules modify our public interest analysis of applications for international Section 214 authorization. 7. It is well established that the Commission may apply new rules and policies to pending matters. The Commission also stated specifically in the Foreign Participation Order that it would apply the new rules to all applications pending before the Commission in any procedural posture at the time they become effective. We see no reason why our newly adopted rules and policies should not apply to this application. Accordingly, we will evaluate Swisscom's application under the standard adopted in the Foreign Participation Order. 8. In the Foreign Participation Order, the Commission concluded that applicants seeking to serve WTO Member countries no longer need to demonstrate that the destination markets offer effective competitive opportunities ("ECO") in order to obtain Section 214 authority. Rather, the Commission adopted a rebuttable presumption that applications for Section 214 authority to serve WTO Member countries do not pose concerns that would justify denial of an application on competition grounds. In adopting the presumption, the Commission found that it could rely on its competitive safeguards instead of an ECO analysis to address concerns of anticompetitive behavior by a foreign carrier with market power. Thus, absent serious concerns raised by the Executive Branch regarding national security, law enforcement, foreign policy, or trade issues or, in the exceptional case where a carrier's entry presents a very high risk to competition in the U.S. market, we will expeditiously grant Section 214 applications of carriers serving WTO Member countries. 9. The Executive Branch did not raise any concerns with this application. Also, we find that none of the arguments raised by parties in this proceeding demonstrate that Swisscom's entry into the U.S. market presents a very high risk to competition in the U.S. market. The petitioning parties argue that the Swiss market is legally closed and therefore fails the Commission's ECO test. We note that a new law went into effect on January 1, 1998 that provides for full competition in all telecommunications services. Parties also argue that there are practical or de facto barriers to entry. For example, parties argue there are a number of problems and uncertainties with: (1) Switzerland's interconnection and licensing regimes; and (2) the new Swiss regulator. 10. The arguments made by the petitioners address the issue of whether a foreign market offers U.S. carriers effective competitive opportunities. Petitioners have not demonstrated, however, that Swisscom's entry into the U.S. market raises a very high risk to competition in the U.S. market. In particular, petitioners have not made the required showing that the Commission's safeguards would be ineffective at preventing anticompetitive conduct by Swiss Telecom in this particular context and that as a result Swiss Telecom would be able to raise the costs of unaffiliated U.S. carriers to the degree that end-user customers would be injured. Sprint also argues that Swisscom has offered no reasons why the U.S. public interest would be served by a grant of its application. The Commission specifically found in the Foreign Participation Order, however, that entry by foreign suppliers of telecommunications services would have significant benefits for U.S. consumers. 11. We do find that Swisscom, because of its affiliation with Swiss Telecom, has sufficient market power to affect competition adversely in the U.S. market under our rules. Accordingly, we will regulate Swisscom as dominant on the U.S.-Switzerland route. As a dominant carrier on the U.S.-Switzerland route, Swisscom must comply with the dominant carrier safeguards set forth in Section 63.10(c)(3) of the Commission's rules as well as the Commission's generally applicable safeguards for U.S. international carriers. Swisscom is also subject to the Section 43.61(c) requirements to file quarterly reports of its switched resale services. We also emphasize that no U.S. carrier may agree to accept special concessions from Swiss Telecom on the U.S.-Switzerland route. 12. We note that petitioners also make a number of arguments with regard to Swiss Telecom's accounting rate. Sprint argues that allowing Swisscom the ability to self- correspond would allow Swisscom to convert Swiss Telecom's accounting rate, which is a real cost to Swisscom's U.S. competitors, into an internal transfer payment. Sprint argues that this competitive problem is exacerbated because of Swiss Telecom's high accounting rate. AT&T argues that Swiss Telecom should be required to provide U.S. competitors with "cost-based" interconnection to its bottleneck facilities (i.e., a cost-based accounting rate). Among other things, AT&T argues that Swisscom could use the above-cost settlement rate to facilitate a "price squeeze" that could harm consumers in the United States. 13. In the Benchmarks Order, the Commission 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 carrier having in effect a settlement rate with its U.S. correspondents that is at or below the relevant benchmark settlement rate adopted in that order. The benchmark settlement rate is $0.15; the current settlement rate for Switzerland is $0.17. Thus, before Swisscom may provide facilities-based service between the United States and Switzerland, Swiss Telecom's settlement rate with U.S. international carriers must be at or below U.S. $0.15. The benchmark condition does not apply to authorizations to resell switched or non-interconnected private line services on affiliated routes. Thus, in providing these resale services to Switzerland, Swisscom will not be subject to a benchmark condition. IV. Ordering Clauses 14. Accordingly, IT IS HEREBY CERTIFIED that the present and future public convenience and necessity require a grant of the present application, and IT IS HEREBY ORDERED that application File No. 97-322 is GRANTED and Swisscom is authorized to: (1) provide facilities-based services between the United States and Switzerland at such time as Swiss Telecom's settlement rate with its U.S. carrier correspondents is at or below U.S. $0.15; (2) resell international private lines not interconnected to the public switched network for the provision of private line services between the United States and Switzerland; and (3) provide international switched resale between the United States and Switzerland. 15. IT IS FURTHER ORDERED that Swisscom shall be regulated as a dominant carrier on the U.S.-Switzerland route, pursuant to Section 214 of the Act, 47 U.S.C.  214 and Section 63.10 of the Commission's Rules and shall comply with the requirements of paragraph (c) of that section and with the requirements of Section 43.61(c). 16. IT IS FURTHER ORDERED that Swisscom may not agree to accept special concessions from Swiss Telecom on the U.S.-Switzerland route. "Special concessions" is defined in Section 63.14(b) of the Commission's rules as amended by the Commission's Foreign Participation Order, FCC 97-398. 17. IT IS FURTHER ORDERED that Swisscom shall comply with Sections 43.82, 63.19, 63.21 and 63.15(b) and with all other relevant Commission rules and policies. 18. IT IS FURTHER ORDERED that Swisscom may not -- and Swisscom's tariffs must state that its customers may not -- connect their private lines to the public switched network at either the U.S. or foreign end, or both, for the provision of international switched basic services, unless the Commission has authorized the provision of such service. See 47 C.F.R.  63.18(e)(2)(ii)(c), (e)(3)-(4); 63.21(a). 19. IT IS FURTHER ORDERED THAT AT&T's, MCI's, Sprint's, and WorldCom's Petitions to Deny, Hold in Abeyance or Defer in Part ARE DENIED. 20. 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, 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 Memorandum Opinion, Order and Certificate (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau