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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 PACIFIC GATEWAY EXCHANGE, INC. ) ) File No. ITC-98-308 Application for Authority Pursuant to Section 214 ) to Provide International Simple Resale Services (ISR) ) or Use International Private Lines for the Provision ) of Switched Services Interconnected at One or Both ) Ends between the United States and Japan ) CABLE & WIRELESS, INC. ) ) File No. ITC-98-353 Application for Authority Pursuant to Section 214 ) of the Communications Act of 1934, as amended, ) to Provide International Switched Basic Services ) Over Resold Private Lines between the United ) States and Japan ) ORDER AND AUTHORIZATION Adopted: June 30, 1998 Released: June 30, 1998 By the Chief, Telecommunications Division: I. INTRODUCTION 1. With this Order and Authorization (Order), we add Japan to the list of countries for which U.S. carriers may provide switched, basic telecommunications services on a resale basis over their authorized international private lines (ISR). Given our approval of the accounting rate reductions negotiated by AT&T and MCI with Kokusai Denshin Denwa Co., Ltd. (KDD) in Japan, we find that more than 50 percent of U.S. carriers' settlement rates on the U.S.-Japan route are below the Commission's benchmark settlement rate. We therefore conclude that the public interest in cost-based telecommunications services would be served by permitting the above-referenced applicants, and other authorized carriers, to interconnect their private lines between the United States and Japan, a World Trade Organization (WTO) Member country, for the provision of ISR. Our action today, in conjunction with the Commission's new Foreign Participation rules adopted last November and Japan's decision in December to open its market to ISR, will permit U.S. and Japanese carriers to route traffic between the two countries outside the traditional settlements system. We expect that such activity will exert increased pressure to lower settlement rates and reduce consumer prices for international telecommunications services. II. BACKGROUND 2. Pacific Gateway Exchange, Inc. (PGE) and Cable & Wireless, Inc. (CWI) filed applications requesting Section 214 authority to provide ISR between the United States and Japan. Specifically, they asked the Commission to find that Japan offered resale opportunities equivalent to those in the United States. We placed their applications on public notice, and no party opposed them or submitted comments. 3. After PGE and CWI filed their applications, AT&T and MCI filed accounting rate reductions they had negotiated with KDD, their Japanese counterpart. The accounting rates take effect upon the Commission's approval of ISR between the United States and Japan. The accounting rate agreements set an accounting rate that is below the relevant benchmark settlement rate level for the U.S.-Japan route and cover more than 50 percent of the traffic on that route. III. DISCUSSION 4. PGE and CWI are authorized facilities-based private line carriers on the U.S.- Japan route. Japan is a member of the WTO. In these circumstances, Section 63.18(e)(4) of the Commission's Rules permits PGE and CWI to use their authorized private lines for the provision of international simple resale services between the United States and Japan subject to the condition that (1) settlement rates for at least 50 percent of the settled U.S.-billed traffic between the United States and Japan are at or below the benchmark settlement rate adopted in the Benchmarks Order, or (2) Japan affords resale opportunities equivalent to those available under U.S. law. PGE and CWI submitted information in their applications to attempt to show that Japan satisfies the equivalency criterion for ISR. 5. The Commission's benchmark settlement rate for U.S. carriers to reach with Japanese carriers is 15 cents. At the time PGE and CWI filed their ISR applications, U.S. carriers' settlement rates for Japan were higher than the benchmark. However, given our approval of the accounting rate reductions negotiated by AT&T and MCI with KDD in Japan, more than 50 percent of the traffic on the U.S.-Japan route will be settled at or below the benchmark. We therefore find that the benchmark condition for ISR has been satisfied on the U.S.-Japan route. Thus, the Commission need not conduct an analysis into whether Japan provides equivalent resale opportunities to U.S. carriers at this time. Accordingly, we grant the applications of PGE and CWI and authorize them to provide international simple resale services using their international private lines between the United States and Japan. We will add Japan to the list of countries for which U.S. carriers may provide ISR over their authorized facilities-based or resold private lines. 6. In its application, CWI requests non-dominant regulatory treatment for the provision of ISR to Japan. Under the Commission's rules, a U.S. carrier that is affiliated with a foreign carrier that is not a monopoly in a destination country must demonstrate that it lacks sufficient market power to affect competition adversely in the U.S. market. We have previously determined that CWI is non-dominant on the U.S.-Japan route, and CWI's ownership interests in Japanese carriers have not changed since that decision. Moreover, CWI's affiliate in Japan, C&W Communications Service Limited (Japan CSL), still does not own or control any Japanese telecommunications facilities. We therefore find that CWI lacks sufficient market power to affect competition in the U.S. market adversely and will continue to treat it as non-dominant on the U.S.-Japan route. IV. ORDERING CLAUSES 7. Accordingly, IT IS ORDERED, pursuant to Sections 1, 2, 4(i), 214 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154(i), 214 and 303(r), and Section 63.18 of the Commission s Rules, 47 C.F.R.  63.18, that the applications of Pacific Gateway Exchange, Inc. and Cable & Wireless, Inc. (File Nos. ITC-98-308 and ITC-98-353, respectively) ARE GRANTED, and PGE and CWI are authorized to provide resale services using their authorized international private lines interconnected to the public switched network at one or both ends between the United States and Japan. 8. IT IS FURTHER ORDERED that the authority granted herein to provide switched, basic telecommunications services using international private lines between the United States and Japan for the provision of switched services is limited to the provision of such services between the United States and Japan. This restriction is subject to the following exceptions: (a) the applicants may engage in "switched hubbing" through Japan consistent with Section 63.17 of the Commission's Rules, 47 C.F.R.  63.17; and (b) the applicants may provide U.S. inbound or outbound switched, basic services over their authorized private lines extending between the United States and Japan, as well as other nations to which the Commission has authorized the provision of simple resale services over international private lines, provided the applicants are authorized to offer switched services over private lines between the United States and those countries. 9. IT IS FURTHER ORDERED that applicants shall comply with Section 63.21 of the Commission's Rules, 47 C.F.R. 63.21. 10. IT IS FURTHER ORDERED that CWI qualifies for non-dominant regulatory treatment for the provision of resale services using their authorized international private lines interconnected to the public switched network at one or both ends between the United States and Japan. 11. This Order is issued under Section 0.261 of the Commission's Rules and is effective upon adoption. Petitions for reconsideration under Section 1.106 or applications for review under Section 1.115 of the Commission's Rules may be filed within 30 days of the date of public notice of this Order (see Section 1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Diane J. Cornell Chief, Telecommunications Division International Bureau