NOTICE ************************************************************************* NOTICE ************************************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file pnmc5021. File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* I. DA 96-1458 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) SHELL OFFSHORE SERVICES ) Application File Nos. COMPANY ) 9602964 through 9603061 ) Applications for Authority to Operate ) Common Carrier Digital Microwave ) Stations in the 5925-6425 MHz and ) 6525-6875 MHz Frequency Bands ) ORDER AND AUTHORIZATION Adopted: August 28, 1996 Released: August 29, 1996 By the Acting Chief, International Bureau, and the Chief, Wireless Telecommunications Bureau: I. INTRODUCTION 1. In this Order and Authorization, we permit Shell Offshore Services Company (SOSC) to exceed the 25% foreign ownership benchmark contained in Section 310(b)(4) of the Communications Act of 1934, as amended, (the Act) and grant its applications to operate a 6 GHz digital point-to-point microwave network in the Gulf of Mexico on a common carrier basis. We find that the public interest factors we consider in deciding whether to permit an applicant to exceed the statutory benchmark, including consideration of whether the applicant's home market offers effective competitive opportunities to U.S. companies wishing to provide comparable services, direct us to this conclusion. SOSC's proposed network will enhance the telecommunications service offerings currently available in the Gulf of Mexico and provide important support for the Gulf's growing oil and gas exploration and production activities, which are important to the health of the U.S. economy. II. BACKGROUND 2. SOSC, a U.S. corporation organized under the laws of the State of Delaware, was formed to develop and operate a digital telecommunications infrastructure for the energy resource development industry in the Gulf of Mexico. SOSC's principal U.S. parent corporation, Shell Oil Company (SOC), is also incorporated in Delaware, and headquartered in Houston, Texas. SOC and its predecessor corporations have been operating continuously in the United States since 1907 and have been engaged in petroleum exploration and production in the Gulf of Mexico since the 1940s. SOC's stock is held by Shell Petroleum, Inc., a Delaware corporation which is directly and jointly owned by two foreign parent corporations. Specifically, Shell Petroleum, Inc. is 60% owned by the Royal Dutch Petroleum Company (Royal Dutch Petroleum), organized under the laws of the Netherlands, and 40% owned by the Shell Transport and Trading Company, p.l.c. (Shell Transport and Trading), organized under the laws of the United Kingdom. 3. On December 28, 1995, SOSC filed 98 applications with the Commission requesting authority to operate a 6 GHz, broadband digital microwave network in the Gulf of Mexico on a common carrier basis. These applications included a Licensee Qualification Report (FCC Form 430) and associated exhibits (SOSC Licensee Qualification Report). We gave public notice that these applications had been accepted for filing on February 14, 1996. 4. Rig Telephones, Inc. d/b/a DATACOM (DATACOM) filed a petition to deny SOSC's applications on March 15, 1996 (DATACOM Petition to Deny). DATACOM is an offshore telecommunications common carrier formed in 1975 and headquartered in Louisiana, which conducts operations in that state as well as Texas, Mississippi, Alabama and New Mexico. It owns and operates a microwave system consisting of over seventy analog and digital microwave hops, supplemented by a fiber optic T-1 network connecting a number of Gulf Coast cities to the DATACOM network. DATACOM provides telecommunications to the oil and gas industry offshore, on land, and in the inland waters. 5. On March 28, 1996, SOSC filed an opposition to the petition filed by DATACOM (SOSC Opposition), along with a motion to expedite requesting that the Commission promptly dispose of the DATACOM Petition to Deny and proceed to process SOSC's pending applications. On May 21, 1996, SOSC filed a revised Licensee Qualification Report and associated exhibits (Revised SOSC Licensee Qualification Report). III. ANALYSIS OF SHELL APPLICATIONS A. Private v. Common Carriage. 6. DATACOM disputes SOSC's declaration that it intends to provide common carrier service, contending that SOSC's offering is more properly characterized as private carriage. DATACOM contends that SOSC's proposed system is consistent with the criteria for private carriage as first articulated in National Association of Regulatory Utility Commissioners v. FCC (NARUC I). Specifically, DATACOM focuses on the fact that SOSC's primary customer will be its corporate parent, SOC, which presently relies on private operational fixed radio facilities licensed to SOSC's sister company (Shell Communications, Inc.). Additional customers, according to DATACOM, will be other petroleum and natural gas companies operating in the Gulf of Mexico, which also currently rely on private radio facilities licensed to themselves or their affiliates. This clientele will be relatively stable, with service likely provided pursuant to medium to long-term, individually negotiated contracts, hallmarks of a private carriage system according to DATACOM. 7. SOSC responds that DATACOM misconstrues its applications as well as the applicable law. SOSC notes that its applications expressly indicate the intention to provide service indiscriminately to anyone desiring service, including major petroleum companies, independent drilling companies, supply and maintenance organizations, other common carriers, and individuals living and working in the Gulf of Mexico. In addition, SOSC points out that -- contrary to DATACOM's claim -- a majority of SOSC's customers are likely to take service pursuant to SOSC's standard tariff, and that even were that not so, it is well established that common carriers can provide service pursuant to individually negotiated contracts. 8. We reject DATACOM's assertions. We see nothing in SOSC's application that would be inconsistent with its proposed status as a common carrier. In this regard, it is important to bear in mind that after it handed down its decision in NARUC I, the D.C. Circuit later explained that decision by stating that "a specialized carrier whose service is of possible use to only a fraction of the population may nonetheless be a common carrier if he holds himself out to serve indifferently all potential users." Likewise, SOSC's applications, although admitting that the proposed system will be a narrow one serving a limited group of users, nonetheless expressly state that service will be provided to any member of the public on a nondiscriminatory basis. B. Public Interest Analysis. 9. Applicability of Foreign Carrier Entry Order. SOSC argues that its applications are not governed by the policies articulated in the Foreign Carrier Entry Order but instead by the criteria the Commission has developed in making its public interest determinations under Section 310(b)(4) of the Act. It cites the provision of the Foreign Carrier Entry Order stating that the rules and policies adopted in that order become effective 30 days after publication in the Federal Register, which is after the date its applications were filed with Commission. 10. We reject SOSC's argument. As stated recently in the Sprint Declaratory Ruling, the Commission's authority to apply new rules and policies to pending matters is well established. Although SOSC filed its applications before the effective date of the Foreign Carrier Entry Order, the policies articulated in that order will be applied here. 11. Public Interest Elements. In the Foreign Carrier Entry Order, the Commission noted that if a foreign entity or combination of entities ultimately owns more than 25 percent of the capital stock of the parent company of an applicant for a common carrier radio license, we must determine whether the proposed level of foreign ownership is consistent with our public interest obligations under Section 310(b)(4). The Commission explained that an important part of our determination is an examination of whether effective competitive opportunities exist in the particular radio-based service in the foreign entity's "home market" which is analogous to the service in which the foreign entity seeks to participate in the U.S. market. The "home market" of a foreign entity would be based on an analysis of its principal place of business. 12. The Commission also reaffirmed in the Foreign Carrier Entry Order that, in addition to the effective competitive opportunities analysis, we will consider other public interest factors that historically have been germane in determining whether to permit foreign investment subject to Section 310(b)(4). These factors include the general significance of the proposed entry to the promotion of competition in the U.S. communications market, any national security, law enforcement, foreign policy, or trade concerns raised by the Executive Branch, and the extent of alien participation in the applicant's parent corporation. 13. As previously discussed, SOSC is ultimately 100% owned by a combination of foreign companies. Because SOSC's foreign ownership level exceeds the 25% threshold in Section 310(b)(4), the Commission is required to determine whether grant of SOSC's applications is consistent with the public interest. Our public interest analysis here proceeds in four steps: (a) determination of the appropriate national market for comparison; (b) determination of the appropriate market segment for comparison; (c) consideration of the factors of the effective competitive opportunities analysis; and (d) analysis of additional public interest factors. 14. Appropriate National Market. The Commission stated in the Foreign Carrier Entry Order that in determining an alien entity's appropriate national market we will identify: (1) the country of its incorporation, organization, or charter; (2) the nationality of all investment principals, officers, and directors; (3) the country in which its world headquarters is located; (4) the country in which the majority of its tangible property, including production, transmission, billing, information, and control facilities, is located; and (5) the country from which it derives the greatest sales and revenues from its operations. If all five factors indicate that the same country should be considered to be the entity's home market, it would be presumed to be so, subject only to rebuttal based on clear and convincing evidence. If these five factors yielded inconsistent results, however, the Commission stated that these factors, as well as any other information that is particularly relevant to the case, should be balanced to determine the appropriate home market under the totality of the circumstances. In addition, the Commission noted that in certain circumstances we might have to consider more than one home market and, where our analysis pointed in that direction, we would not hesitate to do so. 15. SOSC submits the following information to support its position that both the Netherlands and the United Kingdom are the appropriate national markets for comparison. Royal Dutch Petroleum, organized under the laws of the Netherlands, is headquartered at The Hague. Virtually all of its directors and officers are Dutch nationals. Shell Transport and Trading, organized under the laws of the United Kingdom, is headquartered in London. Virtually all of its directors and officers are British nationals. SOSC indicates neither the location of the majority of the tangible property of each of the foreign parents nor the country from which each respectively derives its greatest sales and revenues, but states that both have investments and property distributed throughout the world, and that each parent generates "substantial" revenues from domestic operations. 16. In contrast, DATACOM asserts that the relevant national market for this proceeding is the Netherlands, where the majority shareholder of SOSC's corporate parent is incorporated and headquartered (Royal Dutch Petroleum). SOSC disagrees, noting that each parent's ownership interest separately would trigger review under Section 310(b)(4), further supporting the dual home market conclusion. 17. We agree with SOSC that the relevant national markets are the United Kingdom and the Netherlands. As noted previously, in the Foreign Carrier Entry Order the Commission reserved the discretion to consider more than one national market where the circumstances so directed. We believe this proceeding presents such a set of circumstances. Here, Royal Dutch Petroleum and Shell Transport and Trading each significantly exceed the 25% indirect ownership threshold contained in Section 310(b)(4). Further, the legal and regulatory regimes in the United Kingdom and the Netherlands present different market access considerations for U.S. companies, as we discuss further below. Examination of these different regimes is in keeping with one of the goals the Commission identified in the Foreign Carrier Entry Order -- to encourage foreign governments to open their communications markets. Accordingly, we believe it is necessary to make our effective competitive opportunities determination based on separate examinations of the United Kingdom and the Netherlands. 18. Appropriate Market Segment. In the Foreign Carrier Entry Order the Commission explained that, in undertaking the effective competitive opportunities analysis under Section 310(b)(4), we would compare restrictions on U.S. participation in the home market for the particular wireless service in which the foreign investor seeks to participate in the U.S. market. We agree with SOSC and DATACOM, which both contend that the market for terrestrial microwave services is the appropriate market segment for comparison. 19. Effective Competitive Opportunities Factors. As explained in the Foreign Carrier Entry Order, once we have identified the appropriate comparable service within the appropriate home market, we can conduct our analysis of effective competitive opportunities available to U.S. companies and investors. The initial focus of our analysis is on de jure restrictions to entry. The Commission also stated that we would consider practical, or de facto, limitations on U.S. participation, including the price, terms and conditions of interconnection, competitive safeguards, and the regulatory framework of the relevant market(s). 20. If, after applying the effective competitive opportunities test, we determine that U.S. interests are allowed to hold a controlling interest in a provider of the relevant service in the relevant home market, then we are justified in placing no limit on the level of alien ownership in the U.S. licensee, absent significant de facto barriers. If we determine, however, that U.S. interests are not allowed to acquire and hold a controlling interest in a provider of the relevant service in the relevant foreign market, then the effective competitive opportunities test would allow the foreign applicant to exceed the 25 percent statutory foreign ownership benchmark only up to the level of ownership available to U.S. interests in the relevant foreign market. 21. SOSC argues that effective competitive opportunities exist for U.S. companies in both the United Kingdom and in the Netherlands for terrestrial microwave services. Regarding the United Kingdom, SOSC cites the Commission's findings in the MCI /BT Declaratory Ruling that the United Kingdom has very few regulatory barriers to entry and no foreign ownership limitations on U.K.- licensed carriers. Regarding the Netherlands, SOSC notes that under longstanding Dutch law there are no legal restrictions on foreign investment in the Dutch telecommunications industry, and no distinctions are made between Dutch and non-Dutch companies. SOSC also points out that legislation approved by the Dutch Parliament on March 26, 1996 will end the preferential treatment accorded KPN, the dominant Dutch carrier, in the provision of fixed radio-based services, such as terrestrial microwave services, as of January 1, 1997, and will fully liberalize the public voice telephony service and the telex service as of July 1, 1997. Thus, concludes SOSC, a U.S.-controlled company will have full opportunity to construct a terrestrial microwave network in the Netherlands comparable in all significant respects to SOSC's proposed system in the Gulf of Mexico. 22. Because it claims that only the Netherlands is the appropriate national market, DATACOM does not comment on the United Kingdom. It disagrees that effective competitive opportunities exist in the Netherlands for U.S. companies, claiming that significant barriers remain there to foreign ownership and control of facilities-based voice telephony systems. 23. We agree with SOSC that effective competitive opportunities exist in the United Kingdom for U.S. companies wishing to provide terrestrial microwave services. The record indicates that there are no de jure restrictions on entry in the United Kingdom for these services. The record also reflects the absence of significant de facto restrictions on entry. A comprehensive statement released by the U.K. government on telecommunications policy, included in SOSC's applications, emphasizes among other things equal access and interconnection under standard terms and fair apportionment of costs, appropriate safeguards to protect consumers, and the obligation of U.K. public telecommunications operators to provide leased circuits on reasonable terms. The lack of restrictions on entry into the U.K. market is further exhibited by the operation of several U.S.-carrier affiliates in the U.K. cable service and telecommunications markets, including the market for wireless services. 24. We cannot, by contrast, say that effective competitive opportunities exist in the Netherlands in the terrestrial microwave services market at this time. KPN's de jure status as the exclusive owner and operator of the fixed infrastructure for voice telephony in the Netherlands still persists, an advantage which also extends to securing radio frequency assignments for fixed radio- based services such as terrestrial microwave systems. KPN's preferred status in fixed radio-based services is not scheduled to end until January 1, 1997; full liberalization of the public voice telephony and telex markets will not occur until mid-1997. 25. We are very encouraged, however, by the recently promulgated Dutch Telecommunications Act, which establishes a timeline for liberalization that places the Netherlands ahead of the January 1, 1998 target date for opening telecommunications markets throughout the European Union. We are also encouraged by the fact that affiliates of U.S. carriers have already entered the Dutch mobile (non-voice) services market. These recent regulatory and market developments weigh favorably in our overall consideration of SOSC's applications, as does our review of additional public interest considerations discussed below. 26. However, as SOSC admits, even after the January 1, 1997 date for full accessibility to the Dutch terrestrial microwave market, a U.S. company will not be able to offer public voice telephony services or telex services. A U.S. company will only be able to offer such services after July 1, 1997. It is only after that date that a U.S. company will have the right under Dutch law to operate a system comparable to the one SOSC proposes to establish in the Gulf of Mexico, that is, a system offering a full range of voice and data services to its customers. Further, as the Dutch law was enacted in March 1996 and has yet to be fully implemented, there is insufficient information in the record to allow us to assess any de facto limitations on U.S. participation in the Dutch terrestrial microwave market (such as the terms and conditions for interconnection, competitive safeguards, and the regulatory framework). Accordingly, we will require SOSC to report to the International Bureau by September 30, 1997 on implementation of these recently enacted reforms and on whether the Netherlands offers effective competitive opportunities for U.S. companies in the provision of terrestrial microwave services at that time. We will place SOSC's report on public notice and seek comment. Such comments may address whether the public interest continues to be served by the grant of SOSC's applications, or whether the Bureaus should take further action concerning SOSC's authorizations. 27. Additional Public Interest Factors. SOSC argues that issuance of the requested licenses is consistent with the public interest. SOSC asserts that there should be no national security concerns, as the United Kingdom and the Netherlands are longstanding U.S. allies. SOSC also stresses that: (a) all Shell companies operating in the United States are Delaware corporations; (b) all of the officers and directors of SOSC are U.S. citizens; and (c) all officers and eight of the ten directors of SOC (SOSC's principal U.S. parent corporation) are U.S. citizens. Finally, SOSC argues that its system would promote competition because no sufficiently capitalized carriers are willing to invest the resources needed to maintain and operate a digital telecommunications infrastructure in the Gulf of Mexico. The need for reliable communications in the Gulf of Mexico to reach new deepwater locations to maintain production of critical domestic petroleum reserves, and the impending obsolescence of the 2 GHz Part 94 systems currently in operation there, are also cited by SOSC as principal motivating factors. 28. DATACOM disputes SOSC's assertion that no sufficiently capitalized carriers are willing to develop a digital telecommunications infrastructure in the Gulf of Mexico. DATACOM states that it is fully committed to operating a digital microwave system there capable of serving SOSC. SOSC, however, contends that only after it determined that existing carriers were incapable of meeting the petroleum industry's needs did it file its applications. Further, SOSC points out that even if DATACOM's claim were accurate, it is irrelevant because the Commission has long rejected the argument that the existence of incumbent carrier networks provides a basis for denying applications for competing systems. 29. We believe that a review of the additional public interest considerations identified in the Foreign Carrier Entry Order supports grant of SOSC's applications. The Executive Branch has not identified to us any national security, law enforcement, foreign policy, or trade concerns involving SOSC's applications. Moreover, all the Shell companies operating in the United States are incorporated here, all officers and directors of SOSC are U.S. citizens, and all officers and virtually all directors of SOSC's principal U.S. parent are U.S. citizens. Finally, we believe that SOSC's proposed network will promote competition in the U.S. telecommunications market. SOSC's network will enhance the telecommunications services currently available in the Gulf of Mexico, and in particular will provide necessary support to the growing oil and gas exploration and production activities along the Outer Continental Shelf and beyond. We believe it improper, as DATACOM suggests, to prevent companies prepared to invest the substantial sums required to meet the growing demand for telecommunications services in the Gulf of Mexico from providing such services on the basis that an existing carrier might also be able to provide the same service, particularly in an area important to the vitality of the U.S. economy. We believe that it is the better policy to allow the market to determine which service provider or combination of providers is best able to meet consumer demand. IV. CONCLUSION 30. Because SOSC is ultimately 100% owned by Dutch and British parents, we are obligated under Section 310(b)(4) of the Act to determine whether the public interest supports grant of SOSC's applications to establish a 6 GHz digital point-to-point microwave network in the Gulf of Mexico on a common carrier basis. We conclude that granting SOSC's applications is consistent with the public interest, and we reject DATACOM's petition to deny these applications. We find that the United Kingdom offers effective competitive opportunities for U.S. companies wishing to enter the market for terrestrial microwave services there. Although such opportunities do not exist in the Dutch terrestrial microwave market at the present time, reforms in the Dutch telecommunications market have recently been enacted which promise to allow U.S. companies to provide terrestrial microwave services in the Netherlands in the future. These Dutch market reforms, coupled with the finding of effective competitive opportunities in the United Kingdom and the benefits to the U.S. telecommunications market of SOSC's proposed microwave network, favor granting SOSC's applications. We will, however, require that SOSC report to the International Bureau by September 30, 1997 on Dutch implementation of its market reforms and whether the Netherlands offers effective competitive opportunities for U.S. companies in the provision of terrestrial microwave services at that time. We will place this report on public notice and seek comment, which may include whether the public interest continues to be supported by grant of SOSC's applications or whether we should take further action regarding SOSC's authorizations. V. ORDERING CLAUSES 31. Accordingly, it is ORDERED that application numbers 9602964 through 9603061 are GRANTED and SOSC is authorized to operate a 6 GHz digital microwave network in the Gulf of Mexico on a common carrier basis. 32. It is further ORDERED that SOSC report to the International Bureau by September 30, 1997 on Dutch implementation of its recently enacted telecommunications reforms. This report must also address whether the Netherlands offers effective competitive opportunities for U.S. companies in the provision of terrestrial microwave services at that time. 33. It is further ORDERED that DATACOM's petition to deny SOSC's applications is DENIED. FEDERAL COMMUNICATIONS COMMISSION Donald H. Gips Michelle C. Farquhar Acting Chief Chief International Bureau Wireless Telecommunications Bureau