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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** DA 97-2307 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Telecom Finland, Ltd. ) File I-S-P-97-002 ) Petition for Determination of the Public Interest ) under 47 U.S.C.  310(b)(4) to permit ) LMDS and PCS Licensing ) ORDER Adopted: October 31, 1997 Released: October 31, 1997 By the Chief, International Bureau: I. Introduction 1. Telecom Finland, Ltd. ("TFL") requests a declaratory ruling that its indirect ownership of Local Multipoint Distribution Service ("LMDS") and Personal Communications Services ("PCS") licenses in excess of the 25 percent foreign ownership benchmark of Section 310(b)(4) of the Communications Act of 1934, as amended, (the Act) serves the public interest. We grant TFL's petition. II. Background 2. TFL is a wholly-owned subsidiary of PT Finland, Limited, which is a private holding company of the Government of Finland. TFL is the leading supplier of telecommunications services in Finland, providing mobile and fixed network voice, data and media communications services to consumers and companies. Internationally, TFL builds, operates, and markets the services of mobile and fixed networks; provides data and media communications services to corporate customers; consults on telecommunications services; and conducts telephone directory business activities. 3. TFL states that it wishes to own indirectly LMDS and PCS licenses through two U.S. subsidiaries: one which will hold the license and the other which will own the stock in the licensee. TFL states that it would use the license to provide wireless telephony, data, and multimedia services, but would not use the license to provide the content of any broadcast services. 4. TFL seeks a declaratory ruling, in advance of future LMDS and PCS auctions, to permit it to compete with other potential market entrants and eliminate the uncertainty surrounding its ability to participate in auctions and receive FCC licenses through its subsidiaries, either through the auctions or from existing licensees. TFL's application was placed on public notice on June 27, 1997, directing interested parties to file comments by July 28, 1997, and reply comments by August 11, 1997. Formus Communications, Inc. filed an opposition to TFL's petition, and TFL filed reply comments. On August 27, 1997, pursuant to Section 1.45(c) of the Commission's rules, Formus requested permission to file an additional letter to respond to a statement in TFL's reply comments. III. Discussion A. Foreign Government Indirect Ownership of Common Carrier Licenses 5. Formus asserts that the Government of Finland has de jure and de facto control over TFL because it is wholly owned by a private holding company, PT Finland, which is wholly owned by the Government of Finland. Formus argues that, therefore, Section 310(a) bars TFL from holding any PCS or LMDS licenses. Formus further argues that the Commission has no discretion under Section 310(a) to permit TFL to hold PCS or LMDS licenses. Formus avers that if the Commission, pursuant to Section 310(b)(4), permitted a subsidiary of TFL to hold a controlling stake in a company holding a U.S. radio license, such a decision would render the Section 310(a) prohibition on foreign government ownership of such licenses "redundant and meaningless." 6. TFL responds that Section 310(b) creates an exception to Section 310(a), and that Section 310(b)(4) specifically permits a corporation, such as TFL, to control a U.S. subsidiary which holds a license, even if more than one-fourth of the corporation's stock is owned by a foreign government, so long as the Commission does not find that denying such control would serve the public interest. TFL also argues that even if Starsys held that a foreign government could not hold a controlling interest in a licensee, that ruling, which was released in June 1995, was superseded by the Commission's adoption of the Foreign Carrier Entry Order in November 1995. TFL additionally cites several Commission decisions which it purports granted waivers under Section 310(b) to foreign governments and alien entities owning greater than 25 percent control of U.S. licensees. Formus claims, however, that TFL inaccurately cites several cases for the proposition that radio licenses may be granted to or held by a foreign government or its representative. We agree with Formus that none of the cases TFL cites involve the Commission's authority under Section 310(b)(4) to approve indirect foreign government control of a U.S. license. Finally, TFL suggests that Formus's interpretation of Section 310(a) is inconsistent with the Commission's recently proposed rules to "substantially relax its foreign ownership limitations." 7. We agree with TFL that Section 310(b)(4) creates an exception to Section 310(a) to permit a foreign government to hold indirectly a U.S. license, so long as the Commission does not find that denying such control would serve the public interest. Section 310(a) of the Communications Act, as amended, provides that "[t]he station license required under this Act shall not be granted to or held by any foreign government or the representative thereof." The Commission has indicated that Section 310(a) establishes a control test: "If a foreign government or the representative thereof has either de facto or de jure control of the license, it would be deemed to hold the license." The issue raised by TFL is whether Section 310(b)(4) provides an exception to the prohibition on foreign government control contained in Section 310(a). 8. In considering this issue we look to Commission precedent interpreting the scope of Section 310(b)(4) in the context of alien indirect ownership, which is governed by exactly the same language in Section 310(b)(4) as indirect foreign government ownership of covered licenses. In a number of rulings, the Commission has approved under Section 310(b)(4) controlling interests by aliens in a parent corporation that controlled a corporation holding or applying for covered licenses. In Cable and Wireless, the Commission explained: Under the plain language of Section 310(b)(4) and its legislative history, the Commission has broad discretion in applying Section 310(b)(4). Moreover, Section 310(b)(4) does not limit the amount of alien interests, as long as the Commission does not determine that such ownership would not be in the public interest. 9. Commission precedent, therefore, supports the proposition that indirect alien control through an intervening corporation is permissible under Section 310(b)(4) with a Commission finding that such ownership is consistent with the public interest. Because the same language in Section 310(b)(4) applies to both aliens and foreign governments, indirect foreign government control through an intervening corporation is similarly permissible with Commission approval under Section 310(b)(4). 10. We do not agree with Formus that our reading of Section 310(b)(4) renders Section 310(a) redundant or meaningless. Section 310(a) would prohibit a foreign government from owning a controlling indirect interest in a U.S. licensee, except in cases where the Commission has found that the public interest will not be served by refusal of that license. It thus requires an affirmative public interest determination before the application may be granted. 11. Accordingly, we conclude that, while the Government of Finland has de jure control of TFL, Section 310(b)(4) authorizes us to consider whether the public interest is served by permitting TFL indirectly to own or acquire a U.S. radio license. B. Public Interest Finding Under Section 310(b)(4) 12. Section 310(b)(4) of the Act establishes a 25 percent benchmark for foreign indirect 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 be consistent with the public interest. Because TFL's proposed investment would exceed 25 percent, Section 310(b)(4) requires that we determine whether the proposed investment is in the public interest. 13. In the Foreign Carrier Entry Order, the Commission articulated a public interest standard for Section 310(b)(4) that contains two components. First, under a Section 310(b)(4) analysis we consider whether effective competitive opportunities (ECO) exist in the foreign investor's "home market" for the analogous radio-based service. Next, we examine other factors that relate to whether additional foreign investment in our telecommunications market is in the public interest. 1. Effective Competitive Opportunities Analysis 14. 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. 15. The Commission stated in the Foreign Carrier Entry Order that an alien entity's appropriate national market should reflect its principal place of business. TFL is owned by a private holding company, PT Finland, Ltd., which is owned by the Government of Finland. TFL and its parent company are incorporated under the laws of Finland and its headquarters are in Helsinki. The majority of TFL's tangible property is located in Finland. Although TFL has operations in several countries around the world, it derives in excess of 90 percent of its sales and revenues from operations in Finland. No party rebuts this claim, and there is no evidence in the record that contradicts TFL's assertion. As a result, we find that Finland is the appropriate home market for TFL. 16. 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." Finland has Personal Communications Services ("PCS") similar to PCS service in the United States, but does not have an analogous service to LMDS. TFL states that it will voluntarily limit its subsidiaries' use of any LMDS licenses to wireless telephony, data and multimedia services. Therefore, it claims the appropriate market segment for comparison to LMDS is the wireless telecommunications and data services. This assertion was unopposed. We agree with TFL that the wireless telecommunications market, including PCS, is the appropriate market segment for our ECO analysis. 17. 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." TFL states that, as a result of legislation adopted in October 1992, "Finland does not currently impose any de jure restrictions on U.S. entities entering the Finnish telecommunications market." No party contradicts this assertion, and we conclude that foreign investment of up to 100 percent in telecommunications enterprises, including wireless telecommunications services, is permitted in Finland. 18. The record also indicates that foreign ownership is well established in the Finnish wireless telecommunications market. For instance, AT&T Global Information Solution, a subsidiary of AT&T, provides wireless network systems (called "Wavelan") directly to local distributors throughout Finland. Also, Sprint International (through a joint venture), Telia, and Unisource have obtained all necessary Finnish Government approvals to provide nationwide wireless services but have not yet begun to offer wireless services commercially. Oy Radiolinja Ab, in cooperation with Globalstar, a U.S. company owned by Loral and Qualcomm that has a 48 satellite worldwide telephony network scheduled to be operational in 1998, also offers nationwide wireless services in Finland. 19. 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." TFL states that, pursuant to Finland's Telecommunications Market Act (TMA), adopted in April 1997, telecommunications operators with market power are required to provide interconnection to their competitors on the same terms as the operator provides the service to itself. The TMA also permits the operator seeking interconnection to define the point of interconnection. TFL states that "[t]hese terms are very comparable to those included in . . . the Telecommunications Act of 1996." TFL states that Finland also satisfies the "competitive safeguards" requirement because it prevents cross-subsidization of services by requiring network operators to perform separate accounting for the network provision and services provision portions of their businesses. Finland also requires telecommunications operators to publish technical information needed for interconnection purposes. Thus, we conclude that, with respect to interconnection and competitive safeguards, Finland fully satisfies our de facto requirements. 20. TFL also asserts that Finland has an effective regulatory regime because the legislative reforms adopted in Finland in 1997 separated the regulatory functions of the Telecommunications Administration Center and the Ministry of Transport and Communications (MTC) from service providers, such as TFL and others. TFL further asserts that, while it is wholly owned by MTC, it is not accorded any special status and must compete with more than 40 local telephone companies and numerous foreign carriers to provide service in Finland. We reiterate that, to satisfy the Commission's ECO test, the regulatory authority should be independent, empowered, and not have a conflict of interest in regulating the operator. We have concerns that the new Finnish regulator may lack the independence necessary to be impartial to all market participants as a result of the Finnish Government's ownership, through a private holding company, of TFL. As we noted above, however, competition presently exists in the Finnish wireless telecommunications market. The presence of wireless competition also suggests that adequate regulatory authority exists to ensure that any de facto barriers in the market for wireless telecommunications services are not a significant impediment to competition. 21. Finland, 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, Finland agreed to open its basic telecommunications markets and abide by pro-competitive regulatory policies. These WTO 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. 22. 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 Finland 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 Finland fulfills its binding obligations. On balance, therefore, we find that the Finnish wireless telecommunications market satisfies our ECO analysis under Section 310(b)(4). 2. Additional Public Interest Factors 23. Section 310(b)(4) allows the Commission flexibility to refuse levels of foreign ownership above the 25 percent threshold if such ownership is inconsistent with the public interest. As noted, Finland satisfies ECO 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. 24. Even if we had concerns that Finland may not fully satisfy the requirements of the ECO test for wireless telecommunications services, we would nevertheless be inclined to grant TFL's request. The WTO agreement and the market-opening commitments by most WTO member countries represent a major change in the global telecommunications market and therefore are an important public interest consideration in our Section 310(b)(4) analysis. Approving TFL's request under our public interest standard is consistent with this new market environment. We also note that no parties have raised concerns with respect to anticompetitive conduct in the context of this application such as may arise in the case of a carrier which can leverage a foreign bottleneck to gain a competitive advantage over its competitors in the United States. 25. TFL, moreover, contends that its additional investment will allow it "to promote competition in the U.S. telecommunications marketplace by introducing new services, infrastructure and technology to the wireless telephony and data markets." TFL also asserts that its participation in the auctions "would maximize competition in the LMDS and PCS auctions and increase wireless telephony and data service options for American consumers." We agree that TFL'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." 26. Finally, we have not been informed of any national security or other foreign policy considerations that might warrant refusal of the application. Accordingly, we conclude that there are significant public interest reasons to allow TFL to invest in LMDS and PCS licenses in excess of the statutory 25 percent benchmark, and that there are no countervailing public interest reasons to deny TFL's application. V. Conclusion 27. We grant TFL's Petition for Declaratory Ruling concerning Section 310(b)(4) of the Act. We find that the denial of TFL's application would not serve the public interest. V. Ordering Clauses 28. Accordingly, it is HEREBY ORDERED that the petitioner's request for declaratory ruling IS GRANTED. 29. IT IS FURTHER ORDERED THAT grant of this petition is subject to petitioner's commitment that it would not use the license to provide the content of any broadcast services. 30. 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 Regina M. Keeney Chief, International Bureau