******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-285 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Bell Atlantic Communications, Inc. ) ) Application for Global Authority pursuant to ) Section 214 of the Communications Act ) ITC-96-451 of 1934, as Amended, to Provide ) Facilities-based Switched, Private Line, ) and Data Services between the United States ) and International Points ) ) NYNEX Long Distance Company ) ) Application for Authority Pursuant to ) Section 214 of the Communications Act ) ITC-96-520 of 1934, as Amended, to Provide ) Facilities-based International Switched, ) Private Line, and Data Services between ) the United States and International Points ) ORDER, AUTHORIZATION AND CERTIFICATE Adopted: February 6, 1997 Released: February 7, 1997 By the Chief, International Bureau: Topic Paragraph No. I. Introduction. . . . . . . . . . . . . . . . . . . . . . . .1 II. Background. . . . . . . . . . . . . . . . . . . . . . . . .3 III. Discussion A. Regulatory Treatment . . . . . . . . . . . . . . . . .6 1. Interim Safeguards. . . . . . . . . . . . . . . .9 2. Foreign Affiliation . . . . . . . . . . . . . . 12 B. MCI Petitions to Deny. . . . . . . . . . . . . . . . 23 IV. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . 29 V. Ordering Clauses. . . . . . . . . . . . . . . . . . . . . 30 I. Introduction 1. NYNEX Long Distance Company (NYNEX LD) and Bell Atlantic Communications, Inc. (BACI) each filed an application seeking authority pursuant to Section 214 of the Communications Act of 1934 to provide international facilities-based switched, private line and data services originating from "out-of-region" points in the United States and terminating at various international points. NYNEX LD and BACI request classification as non- dominant providers of international facilities-based switched, private line and data services on all routes for which they request authorization. 2. We find that a grant of NYNEX LD's and BACI's applications, subject to the conditions set forth below, will serve the public interest under Section 214 of the Act. The conditions that we apply to our grant of NYNEX LD's and BACI's Section 214 applications are the same as the interim safeguards that the International Bureau (Bureau) adopted as conditions for non-dominant treatment of NYNEX LD's and BACI's resale of international switched services originating from "out-of-region" points in the United States. II. Background 3. NYNEX LD, a Delaware corporation, is a wholly-owned subsidiary of NYNEX Corporation (NYNEX), a provider of telecommunications services in the United States and internationally. NYNEX LD requests Section 214 authorization to provide international facilities-based switched, private line and data services originating from all points in the United States except NYNEX's "in-region" states, and terminating at all international points except Gibraltar and the countries listed in the Commission's exclusion list. NYNEX LD states that it "will refrain from originating international traffic from within Bell Atlantic Corporation's [(Bell Atlantic)] in-region states pending completion of the announced merger between NYNEX and Bell Atlantic without obtaining further Commission authorization." 4. BACI, a Delaware corporation, is a wholly-owned subsidiary of Bell Atlantic. BACI requests Section 214 authorization to provide international facilities-based switched, private line and data services originating from all points in the United States except NYNEX's and Bell Atlantic's in-region states, and terminating at all international points except New Zealand and the countries listed in the Commission's exclusion list. 5. NYNEX LD and BACI assert that a grant of their applications will increase competition in international services, expand the range of new and innovative services, reduce prices for international services, and promote efficiencies in the use of international telecommunications facilities. MCI filed petitions to deny NYNEX LD's and BACI's applications, to which the applicants responded. III. Discussion A. Regulatory Treatment 6. The Commission has classified U.S. carriers as dominant in their provision of U.S. international services on particular routes in two circumstances: where the Commission has determined that a U.S. carrier can exercise market power on the U.S. end of a particular route; and where the Commission has determined that a foreign affiliate of the U.S. carrier has market power (i.e., the ability to discriminate against unaffiliated U.S. carriers) on the foreign end of a particular route. 7. In the In-Region and Interexchange proceedings, the Commission has sought comment on whether, and under what circumstances, a BOC or independent LEC should be regulated as dominant in the provision of in-region and out-of-region interLATA services because of the BOC's or the independent LEC's current retention of bottleneck facilities in the United States. The International Bureau granted Section 214 applications filed by NYNEX LD, BACI, and Ameritech Communications, Inc. (ACI) to resell, out-of-region, international switched services of unaffiliated U.S. carriers on a non-dominant carrier basis subject to the same interim safeguards that the Commission adopted as a condition for non-dominant treatment of the BOCs' provision of out-of-region, domestic interstate, interexchange services in the BOC Domestic Interim Out-of-Region Order. 8. The separate issue of whether a BOC, an independent LEC, or any other U.S. carrier should be regulated as dominant in the provision of international services because of the market power of an affiliated foreign carrier in a foreign destination market was addressed by the Commission in the Foreign Carrier Entry Order. That decision reaffirmed the basic framework for classifying and regulating a carrier as dominant based upon its foreign carrier affiliations as set forth in International Services. No carriers are exempt from this policy to the extent they have foreign affiliations. 1. Interim Safeguards 9. As noted, the Bureau recently granted NYNEX LD and BACI authority to resell out-of-region the international switched services of unaffiliated U.S. carriers on a non-dominant basis subject to the same interim safeguards that the Commission adopted as a condition for non- dominant treatment of the BOCs' provision of out-of-region, domestic interstate, interexchange services in the BOC Domestic Interim Out-of-Region Order. The interim safeguards that the Bureau attached to its grant of NYNEX LD's and BACI's applications will remain in place pending the outcome of the Commission's Interexchange NPRM. Noting that NYNEX and Bell Atlantic had announced plans to merge their operations, the Bureau granted their applications subject to the additional condition that they not initiate service originating from each other's territory until the Bureau issued an order determining the regulatory treatment of such services. We note that NYNEX and Bell Atlantic have neither consummated their planned merger nor advised the Commission that they do not intend to do so. 10. The relevant facts underlying the instant applications are virtually identical to those underlying NYNEX LD's and BACI's applications in the NYNEX LD/BACI/Ameritech proceeding. We believe that the interim safeguards and conditions that we attached to our grant of NYNEX LD's and BACI's applications to resell international switched services, and the reasons for doing so, are equally relevant in the context of their applications to provide facilities- based international switched, private line and data services. In this regard, we note that NYNEX LD and BACI state that they already comply with the safeguards established in theNYNEX LD/BACI/Ameritech Order. We therefore grant NYNEX LD's and BACI's applications to provide out-of-region facilities-based international switched, private line and data services on a non-dominant carrier basis subject to the same interim safeguards and conditions, and for the same reasons, that the Bureau granted NYNEX LD's and BACI's applications to resell international switched services in the NYNEX LD/BACI/Ameritech Order. 11. In brief, these interim safeguards and conditions are that NYNEX LD and BACI: (1) maintain separate books of account from any affiliated LEC; (2) do not jointly own transmission or switching facilities with the affiliated LEC; and (3) take any tariffed services from the affiliated LEC pursuant to the terms and conditions of the LEC's generally applicable tariff. In addition, we will require NYNEX LD and BACI to be treated as nonregulated affiliates for the purpose of BOC accounting under the Commission's joint cost and affiliate transaction rules. We also grant NYNEX LD's request to provide out-of-region international switched, private line and data services originating from BACI's in-region states once subject to the condition that NYNEX LD refrain from providing such services until it informs the Commission in writing of its intention to provide such services and an order is issued determining the regulatory treatment of such services. The interim safeguards imposed on NYNEX LD's and BACI's authorizations will remain in place at least until completion of the Interexchange proceeding. 2. Foreign Affiliation 12. In 1992, the Commission modified its 1985 policy that treated U.S. foreign- owned common carriers as dominant in their provision of all international services to all foreign markets. Specifically, the Commission adopted a framework for regulating U.S. international carriers as dominant on routes where an affiliated foreign carrier has the ability to discriminate in favor of its U.S. affiliate through control of bottleneck services or facilities in the destination market. Under the framework, a U.S. international carrier having no affiliation with, and that itself is not, a foreign carrier in the destination market is presumptively non-dominant for that route. A U.S. carrier that is affiliated with a foreign carrier that is not a monopoly in a destination country and that seeks to be regulated as a non-dominant carrier for the provision of facilities-based switched or private line services bears the burden of submitting information sufficient to demonstrate that its foreign affiliate lacks the ability to discriminate against unaffiliated U.S. international carriers through control of bottleneck services or facilities in the destination country. 13. NYNEX LD and BACI each assert that they qualify as non-dominant providers of international facilities-based services on all routes for which they seek authorization, including the routes where they are affiliated with a foreign carrier in the destination market. NYNEX LD states that "it is affiliated with a foreign carrier in the United Kingdom." NYNEX LD explains that, through its parent, NYNEX, "it is affiliated with both NYNEX CableComms Group PLC and NYNEX CableComms Group Inc. (collectively, NYNEX CableComms) which provide cable television and telephony services through jointly-owned subsidiaries in the United Kingdom." BACI certifies that it is affiliated within the meaning of Section 63.18(h)(1) of the Commission's rules with two foreign carriers -- Grupo Iusacell, S.A. de C.V. (Iusacell) in Mexico and Iusatel Chile, S.A. de C.V. (Iusatel Chile) in Chile. No party argues that NYNEX LD or BACI should be subject to dominant carrier regulation under our rules. 14. With respect to the routes where NYNEX LD and BACI are not affiliated with a foreign carrier in the destination country, we find that they qualify as non-dominant providers of international facilities-based switched, private line and data services under the framework adopted in International Services and Section 63.10(a)(1) of the rules. 15. With respect to the routes where NYNEX LD and BACI certify that they are affiliated with a foreign carrier in the destination country (i.e., NYNEX LD in the United Kingdom and BACI in Mexico and Chile), we must consider whether these foreign carrier affiliates control bottleneck services or facilities in these countries so as to require dominant carrier regulation under Section 63.10(a)(3) of the rules. 16. NYNEX LD certifies that "NYNEX CableComms' subsidiaries provide alternative telephony services to approximately 300,000 (or slightly more than 1 percent) out of a total of 26 million lines in the United Kingdom, in competition with the former monopoly provider British Telecommunications PLC (BT) and numerous other competitors." NYNEX LD also certifies that "NYNEX CableComms' subsidiaries own no international facilities but instead rely on the international facilities of . . . [other carriers] to provide limited international services through resale." In addition, we note that none of NYNEX CableComms' subsidiaries are the sole telecommunications providers in any part of the United Kingdom. Given NYNEX CableComms' lack of international facilities, its low share of U.K. exchange lines, and the high elasticities of demand and supply in the U.K. domestic market, we agree with NYNEX LD that it warrants regulation under International Services and Section 63.10(a)(3) as a non-dominant carrier on the U.S.-U.K. route. 17. BACI certifies that its foreign carrier affiliate in Mexico, Iusacell, "owns no international facilities and holds a small share of the international switched services resale market in [that country, and that] . . . its domestic cellular facilities are offered in addition to the existing facilities and services of other providers." In light of BACI's certification, we find that there is no evidence in the record, and we have no reason to believe, that Iusacell controls bottleneck services or facilities in Mexico. 18. BACI certifies that Iusatel Chile holds a "very small" share of the international switched services market in Chile and that its domestic and international services "are offered in addition to the existing facilities and services of other providers." In light of BACI's undisputed certification, we find no evidence which suggests that Iusatel Chile controls bottleneck services or facilities in Chile. 19. On October 22, 1996, NYNEX announced that NYNEX CableComms, Mercury Communications, Inc., Bell Cablemedia plc, and Videotron Holdings plc proposed to merge their operations to create Cable & Wireless Communications (CWC), a company providing "local, national, international, data and mobile telecommunications, together with multichannel television and Internet services [in the United Kingdom]." Cable & Wireless plc, NYNEX and Bell Canada International Inc. will own 52.6 percent, 18.5 percent, and 14.2 percent, respectively, of CWC, with the remainder to be sold to the public in an initial offering in 1997. Because the proposed merger has not yet been consummated, we need not here determine whether NYNEX LD is affiliated with CWC under Section 63.18 of our rules. In the event that NYNEX LD becomes affiliated with CWC or another foreign carrier on the U.S.-U.K. route as a result of the proposed merger, the Commission will have the opportunity to determine whether NYNEX LD continues to qualify for non-dominant carrier treatment on that route under the framework adopted in International Services and Section 63.10 of the Commission's rules. 20. We find that NYNEX LD's foreign carrier affiliate in the United Kingdom and BACI's foreign carrier affiliates in Mexico and Chile do not control bottleneck services or facilities in these countries and therefore lack the ability to discriminate against unaffiliated U.S. international carriers terminating traffic in these destinations. We therefore find NYNEX LD non-dominant on the U.S.-U.K. route and BACI non-dominant on the U.S.-Mexico and U.S.- Chile routes in the provision of international facilities-based services under Section 63.10(a)(3) of the rules. We therefore find no basis at this time to regulate NYNEX LD or BACI as dominant on any U.S. international route for which they request authority to provide international services, including routes where they are affiliated with a foreign carrier in the destination market. However, we reserve the right to revisit NYNEX LD's regulatory status on the U.S.-U.K. route at a later date in the event NYNEX LD in the future obtains market power which could enable it to discriminate against unaffiliated U.S. carriers. 21. As non-dominant facilities-based providers of international switched, private line, and data services, BACI and NYNEX LD will be allowed to file tariffs on no less than one days' notice, without economic or cost support, and the tariffs will be presumed lawful. They also will be subject to the Section 214 requirements of non-dominant U.S. international carriers. 22. As non-dominant carriers, BACI and NYNEX LD will be subject to regulation under Title II of the Act. Specifically, Title II requires carriers to offer international services under rates, terms and conditions that are just, reasonable and not unduly discriminatory (Sections 201 and 202), and Title II carriers are subject to the Commission's complaint process (Sections 206-209). Title II carriers also are required to file tariffs pursuant to our streamlined tariffing procedures (Sections 203 and 205). B. MCI Petitions to Deny 23. MCI asserts that NYNEX LD's and BACI's provision of "outbound facilities- based services . . . will generate return traffic, some of which will terminate in the combined Bell Atlantic and NYNEX LD regions." MCI asserts that, in generating such return traffic, "BACI [and NYNEX LD] would have the ability to exercise the type of control over the choice of terminating carrier for such return traffic -- i.e, Bell Atlantic and NYNEX -- that a called party could exercise domestically with respect to 800 service and similar traffic." According to MCI, "it would be BACI [and NYNEX LD], through the operation of the Commission's international settlement policy (ISP), who would ultimately control the choice of interLATA carrier." MCI therefore contends that the termination of return traffic constitutes the provision of interLATA (i.e., local access and transport area) in-region services under Section 271(j) of the Act. MCI therefore asserts that the Commission "should preclude BACI and [NYNEX LD] from terminating any return traffic in the combined Bell Atlantic/NYNEX region until these entities are authorized to provide interLATA service on an in-region basis." 24. MCI alleges that "competitive and consumer interest considerations reflected in Section 271(j) apply even more strongly to such international return traffic than they do, for example, to 800 traffic, since it is [BACI] and NYNEX LD, rather than the called party, that is generating such return traffic[.]" MCI claims that "profound policy concerns are raised" because NYNEX LD and BACI are "uniquely situated" to negotiate arrangements with foreign administrations to route all their proportionate return traffic to their respective regions. As a result, MCI asserts, these carriers would receive an unusually "rich mix" of return traffic with a disproportionate volume of calls "for which [they] . . . could keep the entire accounting rate and not have to pay out terminating access charges to another LEC." 25. BACI and NYNEX LD reply that MCI's argument is inconsistent with the plain language of Section 271 of the Act. BACI asserts that "international return traffic is controlled by the carrier of the originating customer, which assigns it to various U.S. facilities-based international carriers based on their proportional traffic to that carrier." BACI therefore contends that the called party to an international call originating overseas does not determine the U.S. interLATA carrier within the meaning of Section 271(j) of the Act. NYNEX LD claims that "[a] BOC does not 'control' originating traffic in-region [insofar as those] . . . . calls are handled by the calling party's (or the called party's, with respect to 800 and private line service) carrier of choice." NYNEX LD states that as a "fully separate subsidiary, required to maintain its own books of account, [it] will . . . pay terminating access charges to its local exchange carrier affiliates, just as any non-BOC competitor does." NYNEX LD therefore contends that there would be no cost advantage to "NYNEX LD in terminating an international return call in-region." 26. The 1996 Act permits the BOCs to provide interLATA services originating outside of their in-region states. Section 271(j) of the Act provides that certain calls that originate out-of-region will be deemed in-region traffic. Specifically, this section provides that "800 service, private line service, or their equivalents that: (1) terminate in an in-region State of that Bell operating company, and (2) allow the called party to determine the interLATA carrier, shall be considered an in-region service subject to the requirements of subsection (b)(1)." 27. The Commission has determined that the key factor in determining whether a service falls within the scope of Section 271(j) as "equivalent" to 800 or private line service is whether "the called party determines the interLATA carrier that is used." International return traffic that originates out-of-region and terminates in-region does not fall within the scope of Section 271(j) because the called party does not determine the U.S. interLATA carrier. As BACI correctly points out, international return traffic is controlled by the carrier of the originating customer, which assigns it to U.S. facilities-based international carriers pursuant to the Commission's proportionate return policy for allocating return traffic among U.S. carriers. The Commission's proportionate return traffic policy, which it recently codified, requires that U.S. carriers receive the same share of international message telephone service (IMTS) inbound traffic to the United States from a foreign country as they send outbound to that country. We find MCI's assertion that international return traffic should be considered a service "equivalent" to 800 or private line service is inconsistent with the plain language of Section 271(j) of the Act and the Commission's decision in the BOC Domestic Interim Out-of-Region Order. Section 271(j) is clear and unambiguous in its requirement that, to be considered an "equivalent" service, the service must not only terminate "in-region," but also the called party must determine the interLATA carrier. We therefore reject MCI's argument that the Commission should look "beyond the literal meaning of" Section 271(j) and find that international return traffic constitutes in-region service. 28. Moreover, we find that the Commission has existing rules in place that effectively address MCI's concern that BACI or NYNEX LD may manipulate the flow of international return traffic by negotiating arrangements with foreign carriers to route all of their proportionate return traffic to their respective Bell Operating Company regions. Specifically, the routing arrangement described by MCI would constitute a special concession prohibited by the terms of Section 63.14 of the Commission's rules to the extent that the foreign carriers did not offer to similarly situated U.S. carriers the same routing arrangements offered to BACI or NYNEX LD. BACI and NYNEX LD also would be required to submit any routing arrangements to the Commission for public comment and review in circumstances where the arrangements deviate from existing arrangements with other U.S. carriers for the routing and/or settlement of traffic on those routes. For these reasons, we deny MCI's petitions. To the extent the Act permits BACI and NYNEX LD to terminate in-region switched traffic that is routed over their international private line facilities, we specifically impose our Section 43.51(d) filing requirements on any agreements negotiated by BACI and NYNEX LD with foreign carriers to route U.S. in-bound switched traffic to their respective regions via their authorized international private lines. IV. Conclusion 29. In light of the above, we find that a grant of BACI's and NYNEX LD's applications, subject to the conditions set forth above, will serve the public interest under Section 214 of the Act by increasing competition in international services, expanding the range of new and innovative services, and allowing for the more efficient use of existing international telecommunications facilities. We also find that BACI and NYNEX LD qualify for non- dominant carrier regulation on the routes for which they request authority to provide international service. We therefore grant BACI's and NYNEX LD's applications for authority to provide international facilities-based switched, private line and data services between the United States and requested international points. The conditions we attach to our grant of these Section 214 applications will remain in place pending the outcome of the Commission's Interexchange NPRM. We reserve the right to modify the conditions of the authorizations granted in this order, as necessary, upon the Commission's adoption of final rules for BOC out-of-region, domestic interstate, interexchange services. We defer a decision regarding the regulatory treatment of and the conditions that should apply to NYNEX LD's provision of international facilities-based switched, private line and data services originating from Bell Atlantic's in-region states to such time as NYNEX LD informs the Commission in writing of its intention to provide such services. We also deny MCI's petitions to deny BACI's and NYNEX LD's applications. V. Ordering Clauses 30. Upon consideration of the applications and in view of the foregoing, IT IS HEREBY CERTIFIED that the present and future public interest, convenience, and necessity require the provision of international facilities-based services by the applicants subject to the conditions set forth below. 31. Accordingly, IT IS HEREBY ORDERED that application File No. ITC-96-451 IS GRANTED and Bell Atlantic Communications, Inc. (BACI) is authorized to provide on a non- dominant carrier basis international facilities-based switched, private line, and data services originating from all points in the United States except the in-region states served by the NYNEX Corp. (NYNEX) and Bell Atlantic Corporation (Bell Atlantic) telephone operating companies and terminating at all international points except New Zealand and the countries listed in the Commission's exclusion list. 32. IT IS FURTHER ORDERED that application File No. ITC-96-520 IS GRANTED, and NYNEX Long Distance Company (NYNEX LD) is authorized to provide on a non-dominant carrier basis international facilities-based switched, private line, and data services originating from all points in the United States except the in-region states served by the NYNEX telephone operating companies and terminating at all international points except Gibraltar and the countries listed in the Commission's exclusion list. 33. IT IS FURTHER ORDERED that BACI and NYNEX LD shall: (1) maintain separate books of account from any affiliated local exchange carrier (LEC); (2) not jointly own transmission or switching facilities with any affiliated LEC; and (3) take any tariffed services from the affiliated LEC pursuant to the terms and conditions of the LEC's generally applicable tariff. 34. IT IS FURTHER ORDERED that this authorization is subject to the condition that BACI and NYNEX LD be treated as nonregulated affiliates for purposes of Bell Operating Company (BOC) accounting under the Commission's joint cost and affiliate transactions rules as set forth in Parts 32 and 64 of the Commission's rules. 35. IT IS FURTHER ORDERED that the conditions that attach to the grant of BACI's and NYNEX LD's applications as set forth in paragraphs 33 and 34 will remain in place at least until the Commission has adopted final rules in the Policy and Rules Concerning the Interstate, Interexchange Marketplace and Implementation of Section 254(g) of the Communications Act of 1934, Notice of Proposed Rulemaking, 11 FCC Rcd 7141 (1996). The Bureau reserves the right to modify the conditions of the authorizations granted in this order, as necessary, upon the Commission's adoption of final rules for the BOCs' provision of out-of-region, domestic interstate, interexchange services. 36. IT IS FURTHER ORDERED that NYNEX LD may not initiate international facilities-based services originating in Bell Atlantic's in-region territory until NYNEX LD informs the Commission in writing of its intention to provide such services and an order is issued determining the regulatory treatment of such services. 37. IT IS FURTHER ORDERED that, if Bell Atlantic and NYNEX decide not to consummate their announced merger and NYNEX LD seeks to provide out-of-region international facilities-based services originating from Bell Atlantic's in-region territory, NYNEX LD may do so upon the filing of a letter with the Commission stating Bell Atlantic and NYNEX's decision not to consummate the announced merger and provided NYNEX LD complies with the conditions set forth in paragraphs 33 and 34 of this order in the provision of such services. 38. IT IS FURTHER ORDERED that any agreements that BACI and NYNEX LD negotiate with foreign carriers to route U.S. in-bound switched traffic to their respective in- region service areas via their authorized international private lines are subject to our Section 43.51(d) filing requirements. See 47 C.F.R.  43.51(d) (to be renumbered 47 C.F.R.  43.51(e) as provided in Regulation of International Accounting Rates, CC Docket No. 90-337, Third Report and Order and Order on Reconsideration, 11 FCC Rcd 12498 (1996)). 39. IT IS FURTHER ORDERED that BACI and NYNEX LD shall comply with the requirements specified in Section 63.21 of the Commission's rules, 47 C.F.R.  63.21. 40. 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) of the Commission's rules, 47 C.F.R.  1.4(b)(2). FEDERAL COMMUNICATIONS COMMISSION Donald H. Gips Chief, International Bureau