Sprint Corporation Petition for Declaratory Ruling Concerning Section 310(b)(4) and (d) of the Communications Act of 1934, as Amended

DA 96-1560

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of

SPRINT CORPORATION )

) File No. ISP-96-003

Petition for Declaratory Ruling )

Concerning. Section 31 0(b)(4) and (d) )

of the Communications Act of 1934, )

as amended )

DECLARATORY RULING AND ORDER

Adopted: September 17, 1996 Released: September 18, 1996

By the Chief, International Bureau:

Introduction

1. On March 5, 1996, Sprint Corporation (Sprint) filed a petition for declaratory

ruling seeking approval for an increase in the foreign ownership of Sprint's capital stock from

28 to 35 percent. Specifically, Sprint seeks a ruling that such an increase of foreign

ownership is consistent with the public interest under Section 310(b)(4) of the

Communications Act (the Act). 1 We grant Sprint's petition. As the Commission indicated

when it approved up to 28 percent foreign ownership in Sprint in December 1995, additional

foreign equity contributions will enhance Sprint's ability to expand and improve its network

services and products to the benefit of U.S. consumers.2

Background

2. Sprint is a publicly-traded U.S. corporation that owns or controls subsidiaries

that hold domestic common carrier microwave licenses, international facility authorizations,

cable landing licenses, and other Commission licenses and authorizations. Sprint conducts its

businesses through subsidiaries. Sprint's long distance subsidiary is the third largest U.S.

carrier of long distance services, providing voice, data and video services over a nationwide

digital, fiber optic network. Sprint provides a broad spectrum of domestic and international

1 47 U.S.C. �310(b)(4), (d) (1994).

2 Sprint Declaratory Ruling and Order, \ 1 FCC Red 1850 (1996) (Sprint Declaratory Ruling).

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voice and data services.3

3

tance subsidiary is the third largest U.S.

carrier of long distance services, providing voice, data and video services over a nationwide

digital, fiber optic network. Sprint provides a broad spectrum of domestic and international

1 47 U.S.C. �310(b)(4), (d) (1994).

2 Sprint Declaratory Ruling and Order, \ 1 FCC Red 1850 (1996) (Sprint Declaratory Ruling).

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voice and data services.3

3. Last year in the Sprint Declaratory Ruling, the Commission granted Sprint's

request for a declaratory ruling that 10 percent equity investments each by France Telecom

(FT) and Deutsche Telekom (DT) (20 percent total) in Sprint would not result in a transfer of

control of Sprint to FT and DT. The Commission also granted, subject to strict conditions,

Sprint's request for rulings that the proposed'alien ownership in Sprint of up to 28 percent

was consistent with Section 310(b)(4) of the Communications Act, and that the proposed

transaction was otherwise consistent with the public interest.

4. In reaching these conclusions, the Commission found that France and Germany

did not offer effective competitive opportunities to U.S. carriers, as mandated by the

Commission's rules under Sections 214 and 310(b)(4),4 because FT and DT were monopoly

providers of basic international telecommunications facilities in their respective countries.

The Commission concluded, however, that two other important public interest factors weighed

in favor of granting approval: (1) the current and planned liberalization of the French and

German telecommunications markets; and (2) the competitive benefits for U.S.

telecommunications markets of the FT and DT investment in Sprint.

5. The Commission's public interest finding, however, is subject to strict

conditions to address: (1) the potential for FT and DT to use their current de jure and de

facto monopoly market power to engage in anticompetitive conduct affecting the U.S

German telecommunications markets; and (2) the competitive benefits for U.S.

telecommunications markets of the FT and DT investment in Sprint.

5. The Commission's public interest finding, however, is subject to strict

conditions to address: (1) the potential for FT and DT to use their current de jure and de

facto monopoly market power to engage in anticompetitive conduct affecting the U.S.

'international services market; and (2) the possibility that the committed telecommunications

liberalization in France and Germany may not occur on the anticipated schedule.5

6. The Commission also concluded that the French and German investment in

3 Id. at 1851.

4 See Market Entry and Regulation of Foreign-affiliated Entities. Report and Order, 11 FCC Red 3873

(1995) (Foreign Carrier Entry Order).

s The following five conditions apply: (1) Sprint is regulated as a dominant carrier on the France and

Germany routes; (2) Sprint is not allowed to operate newly acquired circuits on the U.S.-France and

U.S.-Germany routes until alternative infrastructure to provide already-liberalized services and basic

switched voice resale competition is available in France and Germany; (3) Sprint is prohibited from

accepting special concessions from any foreign carrier and must file certain periodic reports; (4) Sprint

must obtain a written commitment from FT to lower the accounting rate between the United States and

France to the same range as the U.S.-U.K. and U.S.-Germany; and (5) Sprint must file a report with this

Commission no later than March 31, 1998 detailing how France and Germany have implemented

effective competitive opportunities and whether the anticipated liberalization has occurred. If it has not,

the Commission indicated it would take further action, including designating for hearing the issue of

whether the public interest continues to be served by Sprint's holding of Section 214 facilities

authorizations on the U.S.-France and U.S.-Germany routes

nd Germany have implemented

effective competitive opportunities and whether the anticipated liberalization has occurred. If it has not,

the Commission indicated it would take further action, including designating for hearing the issue of

whether the public interest continues to be served by Sprint's holding of Section 214 facilities

authorizations on the U.S.-France and U.S.-Germany routes. See Sprint Declaratory Ruling at 1850-51.

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Sprint did not result in a transfer of control of Sprint to FT or DT under Section 310(d) of

the Act. It found that FT's and DT's consent rights regarding matters such as issuance of

new equity, the sale of assets, certain business combinations, and entry into

telecommunications and non-telecommunications businesses, as well as certain voting rights,

did not rise to the level of a transfer of control. The Commission further noted that FT and

DT expressed intent not to control Sprint and no evidence was presented to the contrary.6

Sprint's Petition

7. In its petition, Sprint asserts that the increase in its foreign ownership from 28

percent to 35 percent will result from passive, widely dispersed investors whose individual

equity positions will not exceed one percent of Sprint's capital stock. Sprint argues these

investors will have neither the interest nor the ability to control Sprint. Sprint also

emphasizes that FT's and DT's ownership interests in Sprint are not expected to increase, and

Sprint will continue to be bound by the terms of the Sprint Declaratory Ruling. It also asserts

that Sprint's Board of Directors and management will continue to be comprised predominantly

of U.S. citizens. Sprint states that, because these factors have remained unchanged since the

Sprint Declaratory Ruling, no finding regarding transfer of control is necessary. Sprint also

states that, given these factors, an increase of foreign ownership in Sprint up 35 percent is

consistent with the Commission precedent

Directors and management will continue to be comprised predominantly

of U.S. citizens. Sprint states that, because these factors have remained unchanged since the

Sprint Declaratory Ruling, no finding regarding transfer of control is necessary. Sprint also

states that, given these factors, an increase of foreign ownership in Sprint up 35 percent is

consistent with the Commission precedent. It cites in particular the Bureau's decision last

year that granted MCI's request to increase its foreign ownership from 28 percent to 35

percent.7 Sprint asserts that all of the findings and conclusions made by the Bureau in the

MCI Declaratory Ruling (35 Percent) are relevant in this case and mandate grant of its

petition.8

Comments

8. Sprint's petition was placed on public notice, and Vebacom GmbH (Vebacom)

was the only party to file comments.9 Although Vebacom does not object to the proposed

increase in the level of foreign ownership of Sprint, it argues that the reporting requirements

imposed on Sprint in the Sprint Declaratory Ruling are insufficient. It asks the Commission

to require more detailed reports on the progress of liberalization in the German and French

telecommunications markets. Vebacom asserts that, absent more detailed reporting

requirements, there is no way for the Commission to ensure that the proposed level of

increased foreign investment in Sprint actually will benefit U.S. consumers and the U.S.

6 id.

7 See MCI Communications Corporation, 10 FCC Red 8697 (1995) (MCI Declaratory Ruling (35

Percent)).

Sprint petition at 3-4.

Public Notice, Report No. 1-8157 (rel. Mar. 15, 1996).

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economy. In addition, Vebacom contends that Sprint has failed to provide absolute assurance

that FT's and DT's investment will not increase. Finally, Vebacom disagrees with Sprint that

the Bureau's decision to allow MCI to achieve up to 35 percent foreign ownership is similar

to this case

35

Percent)).

Sprint petition at 3-4.

Public Notice, Report No. 1-8157 (rel. Mar. 15, 1996).

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economy. In addition, Vebacom contends that Sprint has failed to provide absolute assurance

that FT's and DT's investment will not increase. Finally, Vebacom disagrees with Sprint that

the Bureau's decision to allow MCI to achieve up to 35 percent foreign ownership is similar

to this case. Vebacom states that Sprint's case raises more concerns than in the case of MCI

because of Sprint's alliance with FT and DT, both monopoly carriers in their home markets.

Vebacom seeks assurances that unaffiliated U.S. carriers will not be permanently

disadvantaged by Sprint's affiliation with DT and FT. 10

9. In response, Sprint opposes Vebacom's request for additional reporting

requirements. Sprint states that since ownership by FT and DT will not increase above the 10

percent ownership levels currently authorized by Commission, further reporting requirements

(beyond those imposed in the Sprint Declaratory Ruling) on Sprint's U.S.-France and U.S.

Germany routes are unwarranted. Sprint argues that Vebacom's request is simply a

duplication of an earlier request it made in response to the Sprint Declaratory Ruling. Sprint

emphasizes that an additional seven percentage points above the current level of 28 percent is

needed to accommodate daily fluctuations in the level of foreign ownership of Sprint's

publicly traded capital stock."

Discussion

10. Foreign ownership greater than 25 percent in Sprint, the parent corporation of

Title III common carrier radio licensees, triggers the applicability of Section 310(b)(4) of the

Act. Under Section 310(b)(4), "[n]o . . . common carrier . . . license shall be.. . . held by . . .

any corporation directly or indirectly controlled by any corporation of which more than one-

fourth of the capital stock is owned of record or voted by aliens ... if the Commission finds

that the public interest will be served by the ..

triggers the applicability of Section 310(b)(4) of the

Act. Under Section 310(b)(4), "[n]o . . . common carrier . . . license shall be.. . . held by . . .

any corporation directly or indirectly controlled by any corporation of which more than one-

fourth of the capital stock is owned of record or voted by aliens ... if the Commission finds

that the public interest will be served by the ... revocation of such license." 12 As stated

above, the Commission has the discretion under Section 310(b)(4) to disallow foreign

ownership along a vertical ownership chain that exceeds the 25 percent benchmark.

11. We conclude that permitting Sprint to increase its foreign ownership by seven

percent from 28 to 35 percent is not inconsistent with the public interest under Section

310(b)(4). The increased foreign ownership will come from passive investors, who will each

own less than one percent of Sprint's capital stocks. 13 These passive investors are widely

dispersed and will have neither the interest nor the ability to control Sprint. As Sprint

affirmed in its reply, FT's and DT's ownership in Sprint will not change as a result of the

proposed increase in Sprint's foreign ownership. Allowing an additional seven percent

10 Vebacom comments at 1, 3-5.

" Sprint petition at 2.

12 47U.S.C. �310(b)(4).

13 Sprint petition at 4.

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foreign ownership in Sprint under these circumstances is consistent with prior Commission

and Bureau actions, including the MCI Declaratory Ruling (35 Percent). Because of the

dispersed nature of this additional foreign ownership, we do not apply an effective

competitive opportunities analysis in our public interest determination under Section 310(b)(4)

to the seven percent foreign ownership at issue in this petition. 15 We also conclude that,

given that no foreign carrier will own more than one percent of the increased foreign

ownership in Sprint, there is no basis to apply our effective competitive opportunities analysis

under Section 214. 16

12

etitive opportunities analysis in our public interest determination under Section 310(b)(4)

to the seven percent foreign ownership at issue in this petition. 15 We also conclude that,

given that no foreign carrier will own more than one percent of the increased foreign

ownership in Sprint, there is no basis to apply our effective competitive opportunities analysis

under Section 214. 16

12. We agree with Sprint that increased, widely dispersed foreign ownership in

Sprint will serve the public interest by benefiting U.S. consumers and the U.S. economy."17

As Sprint notes, the Commission has previously found that such 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. 18 Thus, we conclude that these additional foreign equity contributions are

not inconsistent with the public interest under Section 310(b)(4). We note, however, that

Sprint continues to be bound by the conditions and requirements imposed by the Commission

in the Sprint Declaratory Ruling, which requires prior Commission approval of any increase

in Sprint's voting or ownership interests.19

13. We also agree with Sprint that we need not address whether the proposed

increase in foreign ownership in Sprint will result in a transfer of control. As we noted

above, the increased foreign ownership will come from passive investors, no single new

foreign investor will own more than one percent of Sprint's stock, and these investors will not

acquire a right to determine Sprint policy or to dominate Sprint management. Moreover,

Sprint's Board of Directors and its manner of conducting business, factors considered

previously in the Sprint Declaratory Ruling, will remain unchanged. As a result, we need not

consider again, in this proceeding, whether the proposed increased foreign ownership will

result in a transfer of control.

14

acquire a right to determine Sprint policy or to dominate Sprint management. Moreover,

Sprint's Board of Directors and its manner of conducting business, factors considered

previously in the Sprint Declaratory Ruling, will remain unchanged. As a result, we need not

consider again, in this proceeding, whether the proposed increased foreign ownership will

result in a transfer of control.

14. Finally, we decline to impose further reporting requirements on Sprint, as urged

14 See, e.g., GRC Cablevision, Inc., 47 F.C.C.2d 467, 30 R.R.2d 827 (1974); Teleport Transmission

Holdings, 8 FCC Red 3063 (Com. Car. Bur. 1993); IDE Communications Group, Inc., 6 FCC Red 4652

(Com. Car. Bur. 1991); MCI Declaratory Ruling (35 Percent), 10 FCC Red at 8701.

15 See Foreign Carrier Entry Order at 3879-83.

16 See id. at 3881.

17 See Sprint petition at 4.

11 Id at 4; see also MCI Declaratory Ruling (35 Percent) at 8698.

" See Sprint Declaratory Ruling at 1872-74.

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by Vebacom. In the Sprint Declaratory Ruling, the Commission imposed strict conditions

and safeguards designed to protect against anticompetitive behavior and other potential

anticompetitive effects from the investment by FT and DT in Sprint. These safeguards

include reporting requirements to monitor the progress of telecommunications liberalization in

France and Germany. Given that FT's and DT's ownership interests in Sprint will not

increase beyond the 20 percent considered by the Commission in the Sprint Declaratory

Ruling, we do not believe it is necessary or appropriate to impose additional reporting

requirements in this proceeding. We will, however, require Sprint to notify the Commission

if a foreign investor acquires more than a one percent equity interest in Sprint.

Conclusion

15. We conclude that the public interest will be served by granting this

declaratory ruling

in the Sprint Declaratory

Ruling, we do not believe it is necessary or appropriate to impose additional reporting

requirements in this proceeding. We will, however, require Sprint to notify the Commission

if a foreign investor acquires more than a one percent equity interest in Sprint.

Conclusion

15. We conclude that the public interest will be served by granting this

declaratory ruling. Based on Sprint's representations that the increased foreign investment

will be passive and no foreign investor (other than FT and DT) will own more than one

percent, we find that the proposed increase in foreign ownership of Sprint from 28 percent to

35 percent is not inconsistent with the public interest under Section 310(b)(4) of the Act.

Given that the ownership interest of Sprint's foreign carrier affiliates, FT and DT, will not

increase, we decline to impose any additional reporting requirements upon Sprint.

Ordering Clauses

16. Accordingly, IT IS ORDERED that the petitioner's request for a declaratory

ruling IS GRANTED. The level of 35 percent foreign ownership in Sprint, as described in

the petition, is not inconsistent with the public interest Section 310(b)(4) of the Act.

17. IT IS FURTHER ORDERED that Sprint shall continue to conduct periodic

surveys of its public shareholders to ensure compliance with the 35 percent maximum level of

foreign ownership in Sprint found to be not inconsistent with the public interest pursuant to

Section 310(b)(4) of the Act.

18. IT IS FURTHER ORDERED that Sprint shall notify the Commission if the

ownership interest of any foreign investor exceeds one percent.

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19. This order is effective upon adoption. Petitions for reconsideration under

Section 1.106 may be filed within 30 days of the date of the public notice of this order. (See

Section 1.4(b)(2)).

FEDERAL COMMUNICATIONS COMMISSION

Donald H. Gips

Bureau Chief

International Bureau

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