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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-1038 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) APC PCS d/b/a/ ) American Personal Communications ) ) Petition for Declaratory Ruling ) File No. ISP-97-001 Concerning Section 310(b)(4) ) of the Communications Act of 1934, ) as amended ) DECLARATORY RULING AND ORDER Adopted: May 16, 1997 Released: May 16, 1997 By the Chief, International Bureau: I. Introduction 1. APC PCS LLC d/b/a American Personal Communications (APC) requests a waiver to exceed the 25 percent foreign ownership benchmark of Section 310(b)(4) of the Communications Act of 1934, as amended (the Act). Specifically, APC seeks a ruling to allow Deutsche Telekom MobilNet GmbH (T Mobil), a German wireless provider, to increase its indirect ownership share to 25 percent, thereby raising APC's overall foreign ownership level to 34 percent. We find that the proposed investment serves the public interest and therefore grant APC's request to exceed the 25 percent foreign ownership benchmark contained in Section 310(b)(4) of the Act. II. Background 2. APC holds a broadband Personal Communications Services (PCS) license in the Washington, D.C./Baltimore Major Trading Area (MTA), offering service under the name "Sprint Spectrum." APC's system covers more than 70 percent of the population in the licensed area and, as of June 30, 1996, served more than 100,000 subscribers. APC is indirectly owned by two limited partnerships, American Personal Communications II, L.P. (the Partnership) and Sprint Spectrum Holding Company, L.P. (SSHC). The Partnership holds a 51 percent interest in APC, and SSHC holds the remaining 49 percent. 3. The Partnership is composed of three entities: T Mobil, American Personal Communications, Inc. (APC Inc.), and American Personal Communications, LLC (APC LLC). T Mobil is a wholly-owned, wireless telecommunications subsidiary of Deutsche Telekom A.G. (DT), the dominant telecommunications company in Germany. APC Inc. is a closely held corporation organized under the laws of Delaware. T Mobil and APC Inc. hold limited partnership interests in the Partnership. Together, they jointly own the third member and managing general partner of the Partnership, APC LLC. 4. At present, T Mobil's investment in the Partnership (directly and through APC LLC) accounts for a 16 percent indirect ownership share in the petitioner, APC. SSHC's ownership interest in APC includes a nine percent attributable share of foreign investment, bringing APC's current level of foreign investment to 25 percent. APC petitions the Commission to allow T Mobil to increase its investment in the Partnership, and therefore its indirect ownership in APC, to 25 percent. This additional investment would increase APC's total foreign ownership to 34 percent. 5. APC contends that the transaction meets the public interest requirement for foreign investments above the 25 percent benchmark contained in Section 310(b)(4) of the Act. APC asserts that Germany satisfies the Section 310(b)(4) effective competitive opportunities (ECO) test and that T Mobil's additional investment will allow APC "to enhance and build upon its existing PCS network, add new service areas within its MTA, and expand service offerings such as new wireless data transmission services." 6. ACC Corp. (ACC), BT North America, Inc. (BTNA), and MCI Telecommunications Corp. (MCI) filed responses to APC's petition. APC filed reply comments, which included an attached statement by T Mobil. III. Discussion 7. Section 310(b)(4) of the Act establishes a 25 percent benchmark for foreign investment in a common carrier radio licensee, but grants the Commission discretion to allow higher levels of foreign ownership if it determines that such ownership would not be inconsistent with the public interest. Because T Mobil's proposed investment would increase APC's level of foreign ownership to 34 percent, Section 310(b)(4) requires that we determine whether the proposed investment is in the public interest. 8. In the Foreign Carrier Entry Order, the Commission articulated a public interest standard for Section 310(b)(4) that contains two components. First, a Section 310(b)(4) analysis considers whether effective competitive opportunities exist in the foreign investor's "home market" for the analogous radio-based service. Next, it examines other factors that relate to whether additional foreign investment in our telecommunications market is in the public interest. A. Effective Competitive Opportunities Analysis 9. The Commission's ECO analysis requires us to determine the appropriate national market and the appropriate market segment for comparison, and then apply the ECO factors. ECO factors include whether de jure, or legal, restrictions exist on U.S. carrier entry in the appropriate market, and whether any de facto, or practical, barriers exist with regard to interconnection policies, competitive safeguards, and the regulatory framework. 10. The Commission stated in the Foreign Carrier Entry Order that an alien entity's appropriate national market should reflect its principal place of business. APC contends that the Federal Republic of Germany is the appropriate home market for T Mobil. T Mobil's parent corporation, DT, is organized under the laws of Germany and its headquarters are in Bonn. The majority of DT's investment principals are German citizens. DT derives its greatest sales and revenues from Germany, and the majority of its tangible property is located there. No party rebuts this claim, and there is no evidence in the record that contradicts APC's assertion. As a result, we find that Germany is the appropriate home market for T Mobil. 11. The appropriate market segment for review is determined "by comparing 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." APC maintains that the appropriate market segment for comparison is the operation of wireless telecommunications systems, including PCS and cellular services. This assertion was unopposed. We agree with APC that the wireless telecommunications market, including PCS and cellular services, is the appropriate market segment for our ECO analysis. 12. Under the Commission's Section 310(b)(4) ECO analysis, we examine whether de jure restrictions exist that limit U.S. investment in, or operation of, a provider of the relevant service in the relevant home market. If U.S. entities are allowed to hold a controlling interest in such a provider, an ECO analysis supports "placing no limit on the level of alien ownership in the U.S. service provider, absent significant de facto barriers." 13. APC states that "Germany imposes no de jure restrictions on the ability of U.S. or other foreign nationals to participate in the German wireless telecommunications market." APC asserts that German laws and regulations governing the licensing and provision of mobile services "contain no provision that would allow for differential treatment on the basis of national origin." The commenting parties do not contest this assertion, and the record demonstrates that foreign ownership is well established in the German wireless telecommunications market. AirTouch, a U.S. company, owns a 32 percent share of Mannesman Mobilfunk GmbH, which operates D2, a GSM-900 cellular network. BellSouth holds a 21 percent stake in the E-Plus consortium, which holds a 1800 MHz PCS license. In total, the E-Plus consortium is 38 percent foreign-owned. On February 4, 1997, the government issued a second nationwide 1800 MHz PCS license to Viag Interkom KG, a consortium that contains foreign ownership interests totaling 47.5 percent. 14. A Section 310(b)(4) ECO analysis also considers de facto limitations on U.S. participation in the relevant market "[t]o the extent they are relevant." The commenting parties raise two principal claims of de facto barriers: Germany's lack of an independent regulator and the absence of competitive safeguards. With regard to the regulatory framework, BTNA, MCI, and ACC note that the present regulator, the Federal Ministry of Posts and Telecommunications (BMPT), is responsible for both telecommunications regulation and supervision of the board that manages the German government's 74 percent ownership interest in DT. These functions, they maintain, pose an inherent conflict which precludes any claim that Germany has an independent regulator. These parties also assert that the new German telecommunications authority, which will assume BMPT's regulatory functions on January 1, 1998, will not be sufficiently independent. In addition, BTNA and MCI claim that Germany lacks competitive safeguards to assure effective competition, including rules governing cost allocation, a price cap on services that DT provides mobile operators, nondiscriminatory tariffing requirements, timely and nondiscriminatory disclosure of technical network information, and the protection of carrier and customer proprietary information. 15. As an initial matter, we agree that the current regulatory structure in Germany does not establish meaningful separation between the regulatory body and the telecommunications operator. We also have significant concerns that the new regulatory authority, established by the German Telecommunications Act of 1996, may lack the independence necessary to be impartial to all market participants. As noted above, the German government maintains a 74 percent ownership interest in DT. The new regulatory body is set to be located in the Ministry of Economics, which will maintain some authority over the regulatory body's practices. The Foreign Carrier Entry Order requires that the regulatory authority in the relevant market be independent, empowered, and not have a conflict of interest in regulating the operator. 16. We note, however, that competition presently exists in the German wireless telecommunications market. As noted above, in addition to T Mobil, two other nationwide wireless providers offer service in Germany and a third entity has just been licensed. As a result, T Mobil asserts, its share of the German wireless telecommunications market is less than 50 percent. This also suggests that any de facto barriers in the market for wireless telecommunications services are not a significant impediment to competition. 17. Germany, moreover, has made binding commitments to establish an independent regulator and fair rules of competition, beginning January 1, 1998. As part of the World Trade Organization (WTO) agreement signed by 69 countries on February 15, 1997, Germany agreed to open its basic telecommunications markets and abide by the pro-competitive regulatory policies that are modelled on our Telecommunications Act of 1996. These regulatory commitments are binding and enforceable and require, among other things, an impartial, independent regulator and the adoption of competitive safeguards to prevent cross-subsidization, preclude use of carrier information for anticompetitive purposes, and provide the timely disclosure of technical network information. 18. In the Foreign Carrier Entry Order, the Commission decided that a favorable ECO finding can be made if "it is reasonably certain that [such opportunities] will be available in the near future." We expect that Germany will address our concerns by January 1, 1998. If any regulatory problems do arise, however, the United States can use the WTO dispute settlement process to ensure that Germany fulfills its obligations. On balance, therefore, we find that the German wireless telecommunications market satisfies our ECO analysis under Section 310(b)(4). B. Additional Public Interest Factors 19. Section 310(b)(4) allows the Commission flexibility to permit higher levels of foreign ownership if it is not inconsistent with the public interest. As noted, Germany satisfies the ECO test for wireless telecommunications services, which is one aspect of our public interest determination. The Commission, however, examines other public interest factors as part of its Section 310(b)(4) review. These factors include the general significance of the proposed entry to the promotion of competition in the U.S. market, and any national security, law enforcement, foreign policy, and trade concerns raised by the Executive Branch. 20. APC contends that T Mobil's additional investment will allow it "to enhance and build upon its existing PCS network, add new service areas within its MTA, and expand service offerings such as new wireless data transmission services." We agree that T Mobil's additional investment has significant public interest benefits. As we have previously found, "foreign investment provides capital that can fuel investment in state-of-the-art infrastructure that leads to economic growth and job formation in the U.S. economy and facilitates competition among U.S. carriers both at home and abroad." 21. Furthermore, the WTO agreement represents a significant change in the global telecommunications market, as 69 countries have made commitments to open their basic telecommunications markets to competition and foreign investment. The agreement thus constitutes an important public interest factor in granting APC's request. As part of the agreement, the United States has agreed to allow up to 100 percent indirect foreign ownership of common carrier radio licenses, consistent with the public interest. The U.S. commitments are scheduled to become effective on January 1, 1998. The Commission will commence a rulemaking soon to consider whether and how to modify its rules and policies in light of those commitments. 22. Accordingly, we conclude that there are significant public interest reasons to allow T Mobil to increase its investment interest in APC from 16 to 25 percent, and that there are no countervailing public interest reasons to deny T Mobil's infusion of capital. IV. Conclusion 23. We grant APC's Petition for Declaratory Ruling concerning Section 310(b)(4) of the Act. We find that the denial of T Mobil's proposed investment would not serve the public interest. V. Ordering Clauses 24. Accordingly, it is HEREBY ORDERED that the petitioner's request for declaratory ruling IS GRANTED. The level of 34 percent foreign ownership in APC, as described in the petition, is not inconsistent with public interest under Section 310(b)(4) of the Act. 25. This order is effective upon adoption. Petitions for reconsideration under Section 1.106 of the Commission's rules may be filed within 30 days of the public notice of this order (see Section 1.4(b)(2) of the Commission's rules). FEDERAL COMMUNICATIONS COMMISSION Peter F. Cowhey Chief, International Bureau