APC PCS d/b/a/ American Personal Communications Petition for Declaratory Ruling Concerning Section 310(b)(4) of the Commvinications Act of 1934, as amended

DA 97-1038

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

File No. ISP-97-001

In the Matter of

APC PCS dyTj/a/

American Personal Communications

Petition for Declaratory Ruling

Concerning Section 310(b)(4)

of the Commvinications 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.

n. Bacl^ound

2.

APC holds a broadband Personal Communications Services (PCS) license in the

Washington, D.C./Baltimore Major Trading Area (MTA), offering service xmder 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

47 U.S.C. § 310(b)(4).

See American Personal Communications, Request for Waiver of Section 310(b)(4) of the

Communications Act of 1934, File No. lSP-97-001, at 3, 6 (filed Feb. 12, 1997) {APC Petition).

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ervice xmder 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

47 U.S.C. § 310(b)(4).

See American Personal Communications, Request for Waiver of Section 310(b)(4) of the

Communications Act of 1934, File No. lSP-97-001, at 3, 6 (filed Feb. 12, 1997) {APC Petition).

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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 imder 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 jpvestment 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

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 jpvestment 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

APC is directly owned by American PCS Communications, LLC (holding a 99.8 percent ownership

share) and APC Holdings, Inc. (holding a 0.2 percent ownership share). American PCS. L.P. (APC

LP), a Delaware limited partnership, owns 100 percent of APC Holdings, Inc. and 99.8 percent of

American PCS Communications, LLC. APC Holdings, Inc., in turn, owns the other 0.2 percent of

American PCS Communications, LLC. APC, therefore, is an indirect, wholly-owned subsidiary of APC

LP. APC LP, in turn, is owned by the Partnership and SSHC. See id. at 3-4 and n.3.

SSHC is a partnership of Sprint Enterprises, L.P., TCI Networic Services, Inc., Comcast Telephony

Services, Inc., and Cox Telephony Partnership. See id. at 6. We note that SSHC holds a general

partnership interest in Sprint Spectrum, L.P (Sprint PCS). Sprint PCS has filed a petition for

declaratory ruling seeking a ruling that it complies with Section 310(bX4) of the Act See Public

Notice, Public Comment Invited on Petition for Declaratory Ruling Filed By Sprint Spectrum, LP. d/b/a

Sprint PCS, DA 97-645 (rel. Mar. 28, 1997).

See APC Petition at 4.

See id. at 4-5.

See id. at 9.

Under the proposed transaction, T Mobil would increase its ownership level from 15.84 percent to 24.75

percent in the Partnership, and from 16 percent to 25 percent in APC LLC. In total, T Mobil's

proposed investment would increase its combined level of ownership in the Partnership by nine percent.

See id. at 4. 7.

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645 (rel. Mar. 28, 1997).

See APC Petition at 4.

See id. at 4-5.

See id. at 9.

Under the proposed transaction, T Mobil would increase its ownership level from 15.84 percent to 24.75

percent in the Partnership, and from 16 percent to 25 percent in APC LLC. In total, T Mobil's

proposed investment would increase its combined level of ownership in the Partnership by nine percent.

See id. at 4. 7.

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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. (ETNA), and MCI

Telecommunications Corp. (MCI) filed responses to APC's petition. APC filed reply

comments, which included an attached statement by T Mobil.

in. 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 dlow

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 Analvsis

9

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 Analvsis

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."

Id. at 6-7, and 13.

Section 310(bX4) provides that "[n]o . . . common carrier. . . license shall be . . . held by . . . any

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

the capital stock is owned of record or voted by aliens ... or by any corporation organized under the

laws of a foreign country, if the Commission finds that the public interest will be served by the . . .

revocation of such license." 47 U.S.C. § 310(b)(4).

See Market Entry and Regulation ofForeign-affiliated Entities, Report and Order, 11 FCC Red 3873 (1995),

recon. pending, (Foreign Carrier Entry Order).

See id. at 3954.

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ecord or voted by aliens ... or by any corporation organized under the

laws of a foreign country, if the Commission finds that the public interest will be served by the . . .

revocation of such license." 47 U.S.C. § 310(b)(4).

See Market Entry and Regulation ofForeign-affiliated Entities, Report and Order, 11 FCC Red 3873 (1995),

recon. pending, (Foreign Carrier Entry Order).

See id. at 3954.

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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 analy^sis.

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

n was unopposed. We agree with

APC that the wireless telecommunications market, including PCS and cellular services, is the

appropriate market segment for our ECO analy^sis.

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

See id. at 3951.

See APC Petition at 11 n.9.

Foreign Carrier Entry Order, 11 FCC Red at 3953.

See APC Petition at 11.

Foreign Carrier Entry Order, 11 FCC Red at 3954.

Id.

APC Petition at 15.

Id. at 14-15.

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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 Mobilfiink 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

rcent 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.^'*

20

See id. at 17-19.

Foreign Carrier Entry Order, 11 FCC Red at 3954. Generally, these limitations may include the price,

terms and conditions of interconnection, competitive safeguards, and the regulatory fiameworic governing

the relevant market. See id.

" ACC asserts that DT's interconnection policies are not pro-competitive. See Comments of ACC Corp.

at 5 (filed Mar. 24, 1997)

y information.^'*

20

See id. at 17-19.

Foreign Carrier Entry Order, 11 FCC Red at 3954. Generally, these limitations may include the price,

terms and conditions of interconnection, competitive safeguards, and the regulatory fiameworic governing

the relevant market. See id.

" ACC asserts that DT's interconnection policies are not pro-competitive. See Comments of ACC Corp.

at 5 (filed Mar. 24, 1997). We fmd, however, that this argument lacks merit. ACC offers evidence that

relates exclusively to wireline interconnection rather than the relevant issue here, wireless termination.

The record does not contain any indication that DT has attempted to impose anticompetitive terms and

conditions of termination on wireless providers. ACC also claims that DT "will have the incentive and

ability to limit competition on the U.S.-Germany route." Id. at 6. Because APC's long distance airtime

(domestic and international combined) accounts for less than one percent of its total traffic, see Reply

Comments of APC at 6 (filed Apr. 8, 1997), we find that the U.S.-German route is not affected by the

proposed investment.

See Letter from Joel S. Winnik and David L. Siefadzki, Counsel for BTNA, to William F. Caton,

Acting Secretary, FCC at 3 (filed Mar. 24, 1997) (BTNA Letter); Opposition of MCI

Telecommunications Corp. at 2-3 (filed Mar. 24, 1997) (MCI Opposition); Comments of ACC Corp. at

4-5.

"

See BTNA Letter at 2-3; MCI Opposition at 3-4.

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t the U.S.-German route is not affected by the

proposed investment.

See Letter from Joel S. Winnik and David L. Siefadzki, Counsel for BTNA, to William F. Caton,

Acting Secretary, FCC at 3 (filed Mar. 24, 1997) (BTNA Letter); Opposition of MCI

Telecommunications Corp. at 2-3 (filed Mar. 24, 1997) (MCI Opposition); Comments of ACC Corp. at

4-5.

"

See BTNA Letter at 2-3; MCI Opposition at 3-4.

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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 nation-wide

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

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 Telecommunicafions 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 fmding 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.

See Statement of Deutsche Telekom MobilNet GmbH at 6

(attached to Reply Comments of APC).

See Foreign Carrier Entry Order, 11 FCC Red at 3894 (referenced in id. at 3954 n.283). Moreover, as

noted below, Germany signed the Reference Paper as part of the recent World Trade Organization

agreement, which requires the adoption of pro-competitive policies including an impartial regulatory

authority. Seeinfra^M.

See Statement of Deutsche Telekom MobilNet GmbH at 3.

Foreign Carrier Entry Order, 11 FCC Red at 3891 (referenced in id. at 3954 n.283).

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ced in id. at 3954 n.283). Moreover, as

noted below, Germany signed the Reference Paper as part of the recent World Trade Organization

agreement, which requires the adoption of pro-competitive policies including an impartial regulatory

authority. Seeinfra^M.

See Statement of Deutsche Telekom MobilNet GmbH at 3.

Foreign Carrier Entry Order, 11 FCC Red at 3891 (referenced in id. at 3954 n.283).

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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 fomiation in the U.S. economy and facilitates

competition among U.S. carriers both at home and abroad."^'

21.

Fijuthermore, 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-art infrastructure

that leads to economic growth and job fomiation in the U.S. economy and facilitates

competition among U.S. carriers both at home and abroad."^'

21.

Fijuthermore, 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.

See id. at 3955.

^

APC Petition at 6-7.

"

Sprint Corporation, Petition for Declaratory Ruling Concerning Section 310(b)(4) and (d) of the

Communications Act of 1934, as amended. Declaratory Ruling and Order, 11 FCC Red 11354, 11358

(1996).

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TV. 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 AFC, as

described in the petition, is not inconsistent with public interest imder Section 310(b)(4) of the

Act.

25.

This order is effective upon adoption

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 AFC, as

described in the petition, is not inconsistent with public interest imder Section 310(b)(4) of the

Act.

25.

This order is effective upon adoption. Petitions for reconsideration imder

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 rulesj.

FEDERAL COMMUNICATIONS COMMISSION

Peter F. Cowhey

Chief, International Bureau

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