MCI Communications Corporation British Telecommunications pic

FCC 94-188

Federal Communications Commission Record

9 FCC Red No. 17

Before the

Federal Communications Commission

Washington, D.C. 20554

In re Request of

MCI

File No. I-S-P-93-013

Communications

Corporation

British

Telecommunications pic

Joint Petition for Declaratory

Ruling Concerning Section 310(b)(4)

and (d) of the Communications Act of

1934. as amended

DECLARATORY RULING AND ORDER

Adopted: July 14, 1994;

Released: July 25, 1994

By the Commission: Commissioners Ouello and Barrett

issuing separate statements.

Table of Contents

I. Introduction

II. Background

III. Comments

IV. Discussion

A. Section 310(d) Transfer of Control.

B. Section 310(b)(4) Alien Ownership

Benchmark

C. Applicability of Comparable

Market Access Standard

D. Other Competitive Concerns

a. Leveraging of Market Power

b. Territorial Allocation

c. Procompetitive Effects.

V. Conclusion

VI. Ordering Clauses

Paragraph Nos.

1

2 - 5

6 - 9

10 - 56

10 - 18

19 - 23

24 - 28

29 - 31

32 - 46

47 - 54

55 - 56

57 - 58

59 - 74

1. INTRODUCTION

1. On August 23. 1993. MCI Communications Corpora

tion (MCI) and British Telecommunications pic (BT) filed

a petition for declaratory ruling on two issues. First. MCI

and BT seek a Commission ruling that the terms and

conditions of BT's investment in MCI do not result in a

transfer of control of MCI to BT. and. accordingly, prior

Commission approval is not required pursuant to Section

310(d) of the Act.' Second, they seek a Commission ruling

that BT's proposed 20 percent ownership interest, even

when aggregated with existing non-BT foreign investment

for a total of up to 28% foreign investment, is consistent

with and permissible under Section 310(b)(4) of the Com

munications Act (the Act). We grant this petition for the

reasons stated below. We also impose certain reporting

requirements on MCI and order its compliance with-cer

tain commitments it has made to the Commission.

11. BACKGROUND

2. MCI is a publicly-traded U.S

n-BT foreign investment

for a total of up to 28% foreign investment, is consistent

with and permissible under Section 310(b)(4) of the Com

munications Act (the Act). We grant this petition for the

reasons stated below. We also impose certain reporting

requirements on MCI and order its compliance with-cer

tain commitments it has made to the Commission.

11. BACKGROUND

2. MCI is a publicly-traded U.S. corporation that owns or

controls subsidiaries that hold domestic common carrier

microwave licenses, international facility authorizations, ca

ble landing licenses, and other FCC licenses and authoriza

tions, MCI contlucts its business primarily through its

subsidiaries, .MCI is the second largest U.S. carrier of long

distance telecommunications services, pioviding a broad

spectrum of domestic and international voice and data

communications services. Its tlomestic telecommunications

services are provided primarily via fiber and terrestrial

digital microwave communications systems. Its internation

al telecommunications services are provided primarily via

submarine cable systems, satellites and leased international

facilities.

3. BT is the largest telecommunications operator in the

United Kingdom, providing local, long distance and inter

national telephone service, and telecommunications equip

ment for customers" premises.' BT also offers a range of

other telecommunications products and services, including

private line circuits, mobile communications products and

paging services. At present, BT is a public limited com

pany, with a minor shareholding by the U.K. government,'

4. On June 2, 1993, BT and MCI announced their global

alliance wbich entails (i) B'Fs acquisition of 20 percent of

MCI. (ii) MCFs acquisition of BT's telecommunications

businesses in the Americas and BT's acquisition of MCFs

telecommunications businesses outside of the Americas,

and (iii) creation of "NEWCO", a joint venture to develop

enhanced telecommunications services for multinationals

on a global basis

2, 1993, BT and MCI announced their global

alliance wbich entails (i) B'Fs acquisition of 20 percent of

MCI. (ii) MCFs acquisition of BT's telecommunications

businesses in the Americas and BT's acquisition of MCFs

telecommunications businesses outside of the Americas,

and (iii) creation of "NEWCO", a joint venture to develop

enhanced telecommunications services for multinationals

on a global basis. The petitioners seek a declaratory ruling

limited to the contents of the Investment /Xgreement,"' and

not with respect to any other agreements, such as the

NEWCO joint venture agreement. Pursuant to the latter

agreement. MCI will serve as exclusive distributor of

'

Petitioners also seek a ruling that there is no transfer of

control for purposes of Section 214 of the Act, 47 U.S.C. §214

and the Cable Landing License Act, 47 U.S.C. §§34-39.

-

BT has about 97 percent of the local terminations and the

most fully developed long distance network in the United King

dom. See Consultative Document on Interconnection and Ac-

countin>> Separation. Issued by the Director General of

Telecommunications, Office of Telecommunications, United

Kingdom, June 1993 at 2. In addition, BT is clearly the princi

pal service provider in the international facilities-based services

market in the United Kingdom, which has a duopoly for the

provision of such international services.

The U.K. government holds no more than 1,5% of BT's

issued share capital. The government also has the right to

appoint or nominate not more than two non-executive direc

tors,

'' On June 29, 1994, BT and MCI submitted an updated version

of the Investment Agreement to reflect clarifications of existing

provisions of the Investment Agreement,

3960

oly for the

provision of such international services.

The U.K. government holds no more than 1,5% of BT's

issued share capital. The government also has the right to

appoint or nominate not more than two non-executive direc

tors,

'' On June 29, 1994, BT and MCI submitted an updated version

of the Investment Agreement to reflect clarifications of existing

provisions of the Investment Agreement,

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9 FCC Red No. 17

Federal Communications Commission Record

FCC 94-188

NEWCO's products in the Americas and the Caribbean,

while BT will serve as exclusive distributor for them in the

rest of the world.^

5. On June 15. 1994, the Department of Justice (Justice)

filed a civil antitrust complaint under Section 15 of the

Clayton Act. alleging that BT's proposed 20 percent invest

ment in MCI and the joint formation of NEWCO would

violate Section 7 of the Clayton Act.*" Justice and the

defendants (MCI and NEWCO) have stipulated to the entry

of a Final Judgment which Justice believes provides an

adequate remedy to the competitive concerns. We note that

the substantive requirements of the Final Judgment and the

accompanying explanatory text of the Competitive Impact

Statement (CIS) indicate that Justice shares our traditional

policy concerns about the potential for discrimination and

leveraging of foreign market power by dominant foreign

carriers. Indeed, much of the Final Judgment's underlying

rationale, as set forth in the CIS. echoes this Commission's

existing policy goals, current competitive safeguards, and

new safeguards being imposed in this order.

III. COMMENTS

6. We placed the petition for declaratory ruling on pub

lic notice. American Telephone and Telegraph ("AT&T"),

Sprint International ("Sprint"). ACC Global Corp.

("ACC"), and Kenneth W. Robinson (Robinson) filed com

ments. to which BT and MCI jointly replied, as well as

Cable & Wireless. Inc. (CWl).

7

als, current competitive safeguards, and

new safeguards being imposed in this order.

III. COMMENTS

6. We placed the petition for declaratory ruling on pub

lic notice. American Telephone and Telegraph ("AT&T"),

Sprint International ("Sprint"). ACC Global Corp.

("ACC"), and Kenneth W. Robinson (Robinson) filed com

ments. to which BT and MCI jointly replied, as well as

Cable & Wireless. Inc. (CWl).

7. Generally, the commenters maintain that the proposed

transaction raises concerns about potential discrimination

(e.g., leveraging of foreign market power), asymmetric mar

ket access in the United Kingdom, and potential exclusive

dealing in enhanced and basic services through NEWCO.

-No party argues that the terms and conditions of the

Investment Agreement (Agreement) result in a transfer of

control of MCI to BT under §310(d) of the Communica

tions Act.

8. AT&T does not object to the petitioners" request to

permit MCI to exceed §310(b)(4)"s alien ownership bench

mark. Both ACC and Sprint, however, maintain that the

transaction is not in the public interest under §310(b)(4)

absent conditions to achieve comparable market access and

to prevent discrimination.'^ AT&T and Sprint urge the

Commission either to consider this petition in a future

proceeding triggered by AT&T's petition for rulemaking on

regulation of market entry or to broaden the scope of the

Commission's review of this petition to encompass their

concerns about leveraging foreign market power and com

parable market access.

9. Finally. Robinson asserts that the proposed transaction

is in the public interest, but that the Commission should

impose three conditions on the overall transaction. Specifi

cally, Robinson urges the Commission to condition a favor

able declaratory ruling on (i) BT's adopting a policy under

which U.S.-based carriers are charged no more for access

to BT's U.K. facilities than MCI pays for access to U.S.

telephone carriers' facilities, (ii) MCI's committing to pass

through to U.S

but that the Commission should

impose three conditions on the overall transaction. Specifi

cally, Robinson urges the Commission to condition a favor

able declaratory ruling on (i) BT's adopting a policy under

which U.S.-based carriers are charged no more for access

to BT's U.K. facilities than MCI pays for access to U.S.

telephone carriers' facilities, (ii) MCI's committing to pass

through to U.S. consumers all local exchange carrier access

charge reductions, including those made by BT under the

first condition, and (iii) BT's and MCI's committing to

accord equitable, nondiscriminatory access to their tele

communications facilities."' These proposed conditions

raise broad policy implications beyond the scope of this

proceeding. We conclude that they are more appropriately

considered in a proceeding of general applicability, and.

therefore, deny Robinson's request.

IV. DISCUSSION

A. Section 310(d) Transfer of Control

10. We first address the issue of whether the terms and

conditions of the Agreement result in a transfer of control

of MCI to BT for purposes of Section 310(d) of the Act.

On June 2, 1993, MCI and BT entered into the Agreement

pursuant to which BT will acquire 20 percent of MCI's

equity and voting power. Under this Agreement, BT will

purchase a total of 134,225.082 newly issued shares" of

MCI Class A common stock for a total value of $4.3

billion, after which BT will own approximately 20 percent

of the resulting total of 671.1 million outstanding shares of

MCI capital stock.

11. The issue of whether a particular entity holding a

minority stock interest of record in a corporation actually

controls that corporation depends primarily on whether

the minority shareholder has the power to "dominate" the

management of corporate affairs.

This standard acknowl

edges that influence and control are not identical." A

minority shareholder does not necessarily control a cor-

'

On June 15, 1694, BT and MCI announced that the NEWCO

joint venture is now called "Concert",

"

U.S. v. .MCI Communications Corp

at corporation depends primarily on whether

the minority shareholder has the power to "dominate" the

management of corporate affairs.

This standard acknowl

edges that influence and control are not identical." A

minority shareholder does not necessarily control a cor-

'

On June 15, 1694, BT and MCI announced that the NEWCO

joint venture is now called "Concert",

"

U.S. v. .MCI Communications Corp. and BT Forty-Eight

Co.iSEWCO), Case No, 1:94 CV()1317 (D,D.C, filed June 15,

1994), For further discussion of the Final Judgment, see notes 7,

74, 84, 95, and 98, infra.

We note that one of the prerequisites to BT's being able to

lease circuits from MCI or NEWTO for the provision of any-

international simple resale services, as dv ined in the Final

Judgment, is that all qualified U.S. carriers pending licenses in

the United Kingdom be granted. See Final Judgment at II.E. On

July 11, 1994, the U,K, government announced its intent to

grant AT&T's pending license.

For further discussion, see (! H 24-46, infra, k

" On September 22, 1993, AT&T filed, simultaneously with its

comments in this proceeding, a petition for rulemaking on

market entry and regulation of international common carriers

with foreign carrier affiliations, RM-8355 (see Public Notice of

October 1, 1993),

We note that pursuant to Section 202 of the Communica

tions Act MC.'I is prohibited from engaging in unjust or

unreasonable discrimination with respect to, inter alia, facilities.

We further note that Condition 17 of BT's U.K, operating

license subjects BT to certain nondiscrimination obligations,

"

This total may increase if, under certain circumstances, MCI

issues additional common stock prior to the closing,

MCI is issuing Class A shares to BT that contain certain

consent rights. The Class A shares are equivalent on a per share

basis to MCI's existing common stock except with respect to

certain voting rights

's U.K, operating

license subjects BT to certain nondiscrimination obligations,

"

This total may increase if, under certain circumstances, MCI

issues additional common stock prior to the closing,

MCI is issuing Class A shares to BT that contain certain

consent rights. The Class A shares are equivalent on a per share

basis to MCI's existing common stock except with respect to

certain voting rights. So long as Class A shares remain outstand

ing, BP will be entitled to elect a number of Class A directors

proportionate to its percentage of ownership of MCI, but in no

way to exceed the percentage permitted under Section 311). BT

is also entitled to proportionate representation on committees of

the MCI Board (other than the Nominating Committee), subject

to any requirements of law or NASDAQ .National Market Sys

tem. .S't'f Agreement at 55-56.

"

Benjamin L. Dubb, 16 F.C.C. 2f4, 289, 6 R,R, 1325, 1339

(1951),

"

McCaw Cellular Communications. Inc.. 4 FCC Red 3784

(Com, Car. Bur. 1989).

3961

FCC 94-188

Federal Communications Commission Record

9 FCC Red No. 17

poration unless it exercises influence to a degree that "de

termines" the company's policies and operations, or

"dominates" the company's corporate affairs. Thus, the

facts of a particular situation ( e.g., who has the power to

direct the company's operations, who determines the make

up of the Btrard of Directors), are relevant to determining

who controls the company." With these general guidelines

in mind, we turn now to the specific factors presented in

the petition regarding the parties' representations as to

their future conduct.

12. MCI is presently controlled by its public shareholders

through a twelve member Board of Directors. The Agree

ment requires MCI to expand its Board of Directors from

twelve to fifteen members. As a result of its equity con

tribution. BT would be able to designate up to three of the

fifteen MCI Board members. The remaining twelve direc

tors must be U.S. citizens

tions as to

their future conduct.

12. MCI is presently controlled by its public shareholders

through a twelve member Board of Directors. The Agree

ment requires MCI to expand its Board of Directors from

twelve to fifteen members. As a result of its equity con

tribution. BT would be able to designate up to three of the

fifteen MCI Board members. The remaining twelve direc

tors must be U.S. citizens. Of these, four may be executive

officers of MCI and eight must be individuals who satisfy

certain specified criteria as Independent Directors." A

Nominating Committee, chaired by MCI's Chief Executive

Officer (CEO) and composed of a minimum of four In

dependent Directors, will determine whether prospective

nominees are independent.' As MCTs public shareholders

will maintain the maioritv voting interest in MCI and will

elect 80 percent of the Board of Directors (including MCI

and Independent Directors). BT's directors will remain a

minority. Moreover. MCI will continue to conduct busi

ness by a simple majority vote on all matters considered by

the Boartl.'" Thus, we find that BT's mere acquisition of

the 20% minority interest, and the accompanying propor

tionate representation on the Board of Directors, does not

itself constitute a transfer of control.

13. We must nonetheless review the particular terms set

out in the Agreement to rletermine whether there is .some

additional factor that would give BT the power to control

MCI. S|)ecifically. we must consider the voting and consent

rights in the Agreement, which are intended to protect

B f's investment in MCI.'" In addition to its voting rights.'"

Bf's Class A stock incorporates certain consent rights.

Specifically

eless review the particular terms set

out in the Agreement to rletermine whether there is .some

additional factor that would give BT the power to control

MCI. S|)ecifically. we must consider the voting and consent

rights in the Agreement, which are intended to protect

B f's investment in MCI.'" In addition to its voting rights.'"

Bf's Class A stock incorporates certain consent rights.

Specifically. BT has the right to withhold its required

approval of the following actions by MCI: (i) certain busi

ness combinations during the first four years after con

summation of the transaction; (ii) any amendment to

MCI's charter that would adversely affect BT's rights as a

Class A stockholder;-' (iii) issuance of supervoting stock of

MCI; (iv) adoption or amendment by .MCI of any

stockholders' rights plan that would adversely affect BT in

relation to itsposition at closing;'^ (v) issuance of voting

securities of MCI exceeding 10 percent of MCI's outstand

ing voting securities in any single or related series of

transactions or 15 percent of MCI's outstanding voting

securities of MCI over a rolling three- year period;'" (vi)

entry into non-telecommunications business where the

costs exceed 5 percent of MCI's market capitalization or

into telecommunications business where the costs exceed

20 percent of MCI's market capitalization; (vii) dispositions

or encumbrances of assets with a fair market value exceed

ing 15 percent of the total fair market value of .MCI's

assets; (viii) borrowing by MCI that could cause MCI's

debt.'total capitalization ratio to exceed 65 percent; and (ix)

extraordinary cash dividends or distributions exceeding 5

percent of MCI's market capitalization, fhese consent

rights pertain to extraordinary corporate action of MCI that

could disadvantage BT as a Class A shareholder, dilute

BT's economic interest in MCI

market value of .MCI's

assets; (viii) borrowing by MCI that could cause MCI's

debt.'total capitalization ratio to exceed 65 percent; and (ix)

extraordinary cash dividends or distributions exceeding 5

percent of MCI's market capitalization, fhese consent

rights pertain to extraordinary corporate action of MCI that

could disadvantage BT as a Class A shareholder, dilute

BT's economic interest in MCI. or change the business or

capital structure of MCI."" Thus, a question arises as to

whether these restrictions simply constitute a minority

shareholder's protections or rise to the level of a transfer of

control of MCI to BT.

14. The Commission has previously held that covenants

that give a party the power to block certain major transac

tions of a company do not in and of themselves represent

the type of transfer of corporate control envisioned by

Section 310(d)."" Indeed, the Commission has specifically

found that certain restrictions which limit the otherwise

normal financial prerogatives of the Board of Directors.""

such as many of the provisions which require BT's consent

prior to MCI's undertaking various significant corporate

actions, need not repre.sent a transfer of control. Moreover,

while BT may block certain major transactions, it cannot

compel MCI to engage in any major transactions. As BT

and MCI assert." BT's power appears designed primarily to

protect its own investment in MCI. We accordingly find, in

light of BT's expressed intent not to control MCI and. in

the absence of any provisions in the Agreement to the

contrary, that BT's consent rights regarding such matters as

issuance of new equity, the sale of assets, certain business

combinations, and entry into certain telecommunications

and non-telecommunications busines.ses do not constitute a

transfer of control."''

15. The Commission has also found that a minority

shareholder's right to prevent any change in a company's

by-laws or charter does not constitute a transfer of

control.-" Likewise, we have previously found that requir-

Id

y, the sale of assets, certain business

combinations, and entry into certain telecommunications

and non-telecommunications busines.ses do not constitute a

transfer of control."''

15. The Commission has also found that a minority

shareholder's right to prevent any change in a company's

by-laws or charter does not constitute a transfer of

control.-" Likewise, we have previously found that requir-

Id. at .^78Q, (citing Mctromedia.Inc.. QH FCC 2d 2dd, 206

(14S4)).

The specific criteria for "Independent Director" are derived

from the New York Stock Exchange rules. Sec Petition at X-d.

In addition, the Agreement provides that the eight incumbent

directors, who are not executive officers of MCI. are to be

considered Independent Directors for purposes of this Agree

ment. Sec Agreement, §d.7(b)(i). Therefore, aside from the addi

tion of the BT-designated directors, the agreement does not

change the composition of the incumbent MCI board.

'

Although BT will have the right to advise the committee as

to whether it believes the nominees satisfy the independence

criteria. BT will not participate on the Nominating Committee

or have any veto power over nominations.

See Petition at 10.

Sec Petition at 7-14.

-" See supra, ^ 12.

-' .MCI has agreed not to amend its by-laws in any way adverse

to BT's rights so long as BT's percentage ttwnership of .MCI's

voting securities exceeds specified thresholds. See Agreement,

§d.lO("b).

"" See Agreement. §§9.4. Q.5. and 11.8.

As long as BT's ownership of MCI remains at least at 10

percent. MCI's ability to issue stock to non-U.S. persons will be

significantly restricted. See Agreement. §d.8(a). This provision

appears to be a mechanism for ensuring MCI's compliance with

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

"" See Petition at 13.

"" See McCaw at 3789, (citing Sews International, pic. 97 FCC

2d 349, 356 (1984)).

-" .Vcu's International, pic., at 356 (citing Data Transmission, 44

FCC 2d 935 and Flathead Valley Broadcasters. 5 RR 2d 74 (Rev.

Bd. 1965)).

"

See Petition at 13-14

e Agreement. §d.8(a). This provision

appears to be a mechanism for ensuring MCI's compliance with

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

"" See Petition at 13.

"" See McCaw at 3789, (citing Sews International, pic. 97 FCC

2d 349, 356 (1984)).

-" .Vcu's International, pic., at 356 (citing Data Transmission, 44

FCC 2d 935 and Flathead Valley Broadcasters. 5 RR 2d 74 (Rev.

Bd. 1965)).

"

See Petition at 13-14.

"" Sec .McCaw at 3789, (citing Data Transmission. I 1 FCC 2d

935. 936-37).

"" .Vcu's International, pic. at 357-58.

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9 FCC Red No. 17

Federal Communications Commission Record

FCC 94-188

ing the minority shareholder's consent before the corpora

tion can amend its by-laws or articles of incorporation is

designed generally to safeguard the minority shareholder's

investment by preventing the dilution of its

stock

holdings.'" There is no apparent reason to conclude that

the present charter or by-laws set policy for the day-to-day

operations or necessary expenditures of MCI. Nor is there

any apparent reason to conclude that BT will be able to set

MCl's policies as to finances, personnel policy and actions,

or its other regular business activities, which are important

factors in determining where control rests.

16. Under the Agreement. BT's consent is required for

any amendments to the shareholders" rights plan that could

adversely affect the rights of Class A shareholders. Pre

viously. the Commission has found that such shareholders'

rights plans are commonplace, and do not raise concerns

for Section 310 analysis, particularly where the majority of

the directors are independent."'

17. In addition, the Agreement contains certain safe

guards designed to ensure that control of .MCI remains

with the public shareholders, including provisions prohib

iting BT from soliciting proxies, becoming part of a voting

group, establishing a voting trust, or voting on Independent

Directors

concerns

for Section 310 analysis, particularly where the majority of

the directors are independent."'

17. In addition, the Agreement contains certain safe

guards designed to ensure that control of .MCI remains

with the public shareholders, including provisions prohib

iting BT from soliciting proxies, becoming part of a voting

group, establishing a voting trust, or voting on Independent

Directors. It also obliges BT to cumulate all of its votes for

election of its designees for the Board if its Class A shares

are ever converted to MCI common stock. Moreover, with

a few exceptions. BT is obligated to vote its MCI shares in

the same proportion as other shareholders with respect to

any matter."" In addition to all of the above. BT represents

to the Commission that it disavows any intent to control

MCI within the meaning of Section 310.

18. "We have fully considered all of the particular factors

relating to the issue of a transfer of control, both individ

ually and cumulatively, including the representations made

by the parties. Moreover, we believe it is not reasonable to

infer, in the absence of evidence to the contrary, that BT

will not abide by its representations that it will not exercise

control over MCI. Thus, we conclude that the Agreement

between MCI and BT does not grant BT the right to

determine the policy that MCI will pursue, or indicate that

B'f will dominate the management of MCl's corporate

affairs. Consequently, we find that this transaction before

us does not constitute a transfer of control and, therefore,

does not require Commission approval under §310(d) prior

to consummation of the transaction.""

B. Section 310(b)(4) Alien Ownership Benchmark

19. We next address the issue of the foreign ownership of

Title III radio licensees raised by the proposed transaction.

The presence of aggregated alien ownership in excess of 25

percent in MCI

ore

us does not constitute a transfer of control and, therefore,

does not require Commission approval under §310(d) prior

to consummation of the transaction.""

B. Section 310(b)(4) Alien Ownership Benchmark

19. We next address the issue of the foreign ownership of

Title III radio licensees raised by the proposed transaction.

The presence of aggregated alien ownership in excess of 25

percent in MCI. the parent corporation of Title III com

mon carrier radio licensees, triggers the applicability of

Section 310(b)(4)'s statutory benchmark, which requires

that we determine whether the "public interest will be

served by the ... revocation of such license.""" Pursuant to

the Agreement. BT will acquire 20 percent voting and

equity interest in MCI. a U.S. corporation organized under

the laws of Delaware. Based upon an MCI ownership

survey. BT and MCI maintain that BT's proposed acquisi

tion of 20 percent of MCI will result in 24.98 percent alien

ownership of MCTs capital stock (plus or minus 1.32

percent at the 97.5 percent confidence level)."" Due to

likely fluctuations in alien ownership from the publicly-

traded nature of the company. BT and MCI believe the

alien ownership may exceed the statutory benchmark at

any one time by up to 3 percent." Therefore. BT and MCI

have requested the Commission to find that up to 28

percent alien ownership in MCI is both consistent with and

in the public interest.

20. Upon consummation of the transaction. MCI could

at any time have up to 28 percent alien ownership (20

percent BT and approximately 5 percent non-BT. with a 3

percent margin for fluctuation), with 80 percent U.S. direc

tors and 100 percent U.S. officers. Both prior to and after

consummation of the transaction, however, 100 percent of

the officers and directors of MCTs wholly-owned Title III

common carrier licensee subsidiaries will be U.S. citizens

any time have up to 28 percent alien ownership (20

percent BT and approximately 5 percent non-BT. with a 3

percent margin for fluctuation), with 80 percent U.S. direc

tors and 100 percent U.S. officers. Both prior to and after

consummation of the transaction, however, 100 percent of

the officers and directors of MCTs wholly-owned Title III

common carrier licensee subsidiaries will be U.S. citizens.

"" MCI maintains that the aggregated 28 percent alien

ownership is consistent with the public interest and falls

within Commission precedent permitting alien ownership

in excess of the statutory benchmark.

21. Section 310(b)(4) provides the Commission with the

di.scretion to disallow alien ownership or participation

along a vertical ownership chain that exceeds the 25

percent statutory benchmark, fhus. upon a public interest

analysis, the Commission decides whether to authorize

"" See McCaw at 3789.

"' See -Vevvs International, pic. at 357-58.

WWOR-TV. Inc.. b FCC Red 193, 204 (1990).

"" See Agreement § 10.3(b).

"" Therefore, prior Commission approval pursuant to Section

214 of the Act. 47 U.S.C. §214, and the Cable Landing License

Act. 47 U.S.C. §§34-39, is also not required.

"" Section 310(b)(4) states, in pertinent part:

(b) No broadcast or common carrier or aeronautical en

route or aeronautical fixed radio station license shall be

granted to or held by --

voted by aliens, their representatives, or by a foreign

government or representative thereof, or by any corpora

tion organized under the laws of a foreign country, if the

Commission finds that the ptiblic interest will be served by

the refusal or revocation of such license.

47 U.S.C. §310(b)(4) (emphasis added).

"" Petition for Declaratory Ruling, Exhibit A at 2, Declaration

of John Worthington. Upon consummation of the transaction,

B_T would be the largest single shareholder in MCI.

"

To ensure that the alien ownership level in MCI does not

exceed 28%, MCI will be required to conduct surveys of the

public shareholders on a periodic basis.

See Petition at 16.

cense.

47 U.S.C. §310(b)(4) (emphasis added).

"" Petition for Declaratory Ruling, Exhibit A at 2, Declaration

of John Worthington. Upon consummation of the transaction,

B_T would be the largest single shareholder in MCI.

"

To ensure that the alien ownership level in MCI does not

exceed 28%, MCI will be required to conduct surveys of the

public shareholders on a periodic basis.

See Petition at 16.

(4) any corporation directly or indirectly controlled by

any other corporation of which any officer or more than

one-fourth of the directors are aliens, or of which more

than one-fourth of the capital stock is owned of record or

3963

FCC 94-188

Federal Communications Commission Record

9 FCC Red No. 17

alien ownership or participation in excess of the Section

310(b)(4) statutory benchmark on a case-by case basis.

In

those instances where the Commission has authorized alien

ownership or participation beyond the statutory bench

mark, the Commission has considered the level of alien

presence in light of the extent of U.S. presence in other

areas (ownership, officers, or directors) relevant to a public

interest determination under Section 310(b)(4).''" In GRC

Cublevision, Inc., for example, where the Commission al

lowed 60 percent alien ownership of a licensee's parent, it

specifically noted that the majority of the parent's Board of

Directors was comprised of U.S. citizens and the parent

itself was a U.S. corporation. Furthermore, the Common

Carrier Bureau (Bureau) noted in Millicom^^ where it

approved greater than 25 percent alien presence on the

Board of Directors, that 90 percent of the shareholders and

a majority of the Board were U.S. citizens. More recently,

the Bureau approved 65 percent alien ownership in a

licensee's parent where there was a 75 percent U.S. pres

ence in the corporate roles of officers and directors."*'

22

mon

Carrier Bureau (Bureau) noted in Millicom^^ where it

approved greater than 25 percent alien presence on the

Board of Directors, that 90 percent of the shareholders and

a majority of the Board were U.S. citizens. More recently,

the Bureau approved 65 percent alien ownership in a

licensee's parent where there was a 75 percent U.S. pres

ence in the corporate roles of officers and directors."*'

22. The petition before us may not raise the traditional

concerns present in a Section 310(b)(4) analysis as it is

onlv the potential 3 percent fluctuation in alien ownership

beyond the 25 percent statutory benchmark due to the

widely-held nature of the stock that causes the petitioners

to seek a favorable Section 310(b)(4) declaratory ruling. We

note, nonetheless, that this transaction involves a dominant

U.S. presence among MCl's officers, directors and share

holders. Specifically, the possible 3 percent fluctuation in

non-BT alien ownership beyond the statutory benchmark

must be viewed in light of the presence of 80 percent U.S.

directors and 100 percent U.S. officers in MCl. in addition

to the 100 percent U.S. officers and directors in MCI's

Title 111 licensee subsidiaries.

23. Approval of the percentage of proposed alien owner

ship in MCl resulting from the transaction with BT is

consistent with the previous exercises of statutory discre

tion in which we have authorized alien ownership levels in

excess of that proposed by MCl."*' As noted above, in

addition to being a U.S. corporation. MCl will have 80

percent U.S. directors and 100 percent U.S. officers. We

additionally note that, because the Title III licensees in

volved are common carriers and exercise no control over

the content of the transmissions, they do not raise the

traditional Title III concerns about alien control over the

operation of U.S

t proposed by MCl."*' As noted above, in

addition to being a U.S. corporation. MCl will have 80

percent U.S. directors and 100 percent U.S. officers. We

additionally note that, because the Title III licensees in

volved are common carriers and exercise no control over

the content of the transmissions, they do not raise the

traditional Title III concerns about alien control over the

operation of U.S. radio services.'*'^ Finally, we observe that

BT's substantial equity contribution will facilitate MCI's

ability to expand and improve network services and pro

ducts that it may offer to American consumers, stimulating

U.S.

economic

growth

and

creating

new

job

opportunities."" We find, thus, that the proposed 3% fluc

tuation in non-BT alien ownership above the 25% statu

tory benchmark is not inconsistent with the public

interest.'"' Based on the specific facts presented to us, we

find no public interest reason under Section 310(b)(4) to

deny this petition.

C. Applicability of Comparable Market Access Standard

24. Both AT&T and Sprint argue that we should either

require comparable access to the U.K. market as a prereq

uisite to granting the petitioners" request for a favorable

declaratory ruling on Section 31()(b)(4) or, in the alter

native. defer action pending completion of a rulemaking

on the regulation of market access by U.S. carriers with

foreign affiliates. Specifically. AT&T argues that BT is gain

ing access to the U.S. market through its 20 percent inter

est in MCl. In its petition for rulemaking. AT&T has

requested that we apply a five percent investment threshold

for purposes of determining when a U.S. carrier is affili

ated with a foreign carrier, and. thus, what constitutes

market entry

Under AT&T's proposal. BT's investment

in MCFwould be considered market entry and

es that BT is gain

ing access to the U.S. market through its 20 percent inter

est in MCl. In its petition for rulemaking. AT&T has

requested that we apply a five percent investment threshold

for purposes of determining when a U.S. carrier is affili

ated with a foreign carrier, and. thus, what constitutes

market entry

Under AT&T's proposal. BT's investment

in MCFwould be considered market entry and. thus, sub

ject to a comparable market access standard.""* ACC and

Sprint also argue that a favorable Section 310(b)(4) public

interest determination should address the concerns raised

regarding comparable market access and leveraging of mar

ket power. Specifically, they argue it should be made con

tingent upon competitors being offered commercially

reasonable interconnection with BT for at least a one-year

period (ACC), and international facilities-based entry in the

United Kingdom along with nondiscriminatory conditions

(Sprint).

25. Upon review of the comments, we conclude that the

imposition of safeguards through a §310(b)(4) public inter

est determination would be inadequate to address such

concerns, as any safeguards could be rendered moot by

restructuring the transaction prior to closing to fall within

the alien ownership benchmarks."*" Furthermore, we ob-

Prime.Media Broadcasting, Inc., 3 F.C.C. Red 4293. 4295

(i9HK).

See. e.g.. GRC Cablcvision. Inc.. 47 F.C.C. 2d 467, 30 R.R. 2d.

827 (1974): IDS Communications Group. Inc.. 6 FCC Red 4652

(Com. Car. Bur. 1991): and Teleport Transmission Holdings. 8

FCC Red 3063 (Com. Car. Bur. 1993).&

See Millicom. 4 FCC Red 4846 (1989).

"*■

Tdeport Transmission Holdings at 3065.

"*-* See. GRC Cablevision, Inc., 47 F.C.C. 2d 467, 30 R.R. 2d. 827

3 F.C.C. Red 4293. 4295

(i9HK).

See. e.g.. GRC Cablcvision. Inc.. 47 F.C.C. 2d 467, 30 R.R. 2d.

827 (1974): IDS Communications Group. Inc.. 6 FCC Red 4652

(Com. Car. Bur. 1991): and Teleport Transmission Holdings. 8

FCC Red 3063 (Com. Car. Bur. 1993).&

See Millicom. 4 FCC Red 4846 (1989).

"*■

Tdeport Transmission Holdings at 3065.

"*-* See. GRC Cablevision, Inc., 47 F.C.C. 2d 467, 30 R.R. 2d. 827

(1974): GCI Liquidating Trust, 7 FCC Red 7641 (1992): Teleport

Transmission. 8 FCC Red 3063.

'*"

5ee. e.g.. Millicom. 4 FCC Red at 4847: Teleport Transmis

sion, 8 FCC Red at 3064-65.

""

For example, MCl has announced a $20 billion plan to

upgrade its long-distanee network in order to provide a range of

voice, video and high-speed data communications services. More

specifically, MCl intends to upgrade its network with a new

fiber optic technology -- SONET (synchronous optical network)

-- that can transmit up to 2.5 billion bits of data per second. See

New York Times, Business Day Section, January 5, 1994. 'Ve

also note that approval of this alliance is consistent with key

principles of the Buenos Aires Declaration, such as the promo

tion of competition and private investment in the National

Information Infrastructure, aimed at furthering the goal of a

Global Information Infrastructure.

Our finding that the 28 percent alien ownership is not

inconsistent with the public interest is limited to the current

structure of the foreign investment, as described in the Joint

Petition.

'*

See supra note 9.

«

In its Reply Comments. CWI notes that there are no analo

gous foreign ownership limitations in the U.K. licensing

scheme. Indeed. U.S. West is a 50 percent equity partner with

Mercury Communications in a wireless personal communica

tions network in the United Kingdom. See CWI Reply Com

ments at 1 3.

'*"

AT&T also notes that the limitations of Section 310 can

often be overcome by the corporate structure or contractual

arrangements employed by the applicant. See AT&T Petition for

Rulemaking at 14, note 11

sing

scheme. Indeed. U.S. West is a 50 percent equity partner with

Mercury Communications in a wireless personal communica

tions network in the United Kingdom. See CWI Reply Com

ments at 1 3.

'*"

AT&T also notes that the limitations of Section 310 can

often be overcome by the corporate structure or contractual

arrangements employed by the applicant. See AT&T Petition for

Rulemaking at 14, note 11. BT and MCl note that, should the

alien ownership in MCl fall within the benchmarks prior to

closing, any safeguards imposed through a conditional public

interest determination would be rendered moot. See BT and

MCl Joint Reply Comments at 8-11.

3964

9 FCC Red No. 17

Federal Communications Commission Record

FCC 94-188

serve that it is not the 28% alien ownership itself that gives

rise to the commenters' specific competitive concerns

about leveraging of foreign market power and lack of

comparable market access, but rather BT's limited 20

percent interest in MCI.

26. We do not agree with Sprint and AT&T that we

should require comparable market access to the U.K. mar

ket as a prerequisite to granting the petitioners' request for

a declaratory ruling. The development and application of

such an approach is a broad policy change that is appro

priately done in a rulemaking proceeding, not in a declara

tory ruling. We also conclude that, while the issues Sprint

and AT&T raise may be indicative of a need to take a

comprehensive look at how we evaluate foreign carrier

entry into the U.S. telecommunications market, the public

interest is better served by not delaying our action on the

petition for declaratory ruling until we have acted on

AT&T's request for a general rulemaking proceeding

a declara

tory ruling. We also conclude that, while the issues Sprint

and AT&T raise may be indicative of a need to take a

comprehensive look at how we evaluate foreign carrier

entry into the U.S. telecommunications market, the public

interest is better served by not delaying our action on the

petition for declaratory ruling until we have acted on

AT&T's request for a general rulemaking proceeding. We

are convinced that delaying action on this petition for the

period of time necessary to complete a rulemaking pro

ceeding involving such highly complex issues would seri

ously jeopardize the successful closing of this transaction,

thus denying the public the benefits we anticipate as a

result.^" We conclude that MCI's commitments and the

reporting requirements in this order are sufficient to pro

tect against BT's abuse of its market power. We, accord

ingly, do not believe it is appropriate to defer this

transaction pending Commission action on AT&T's peti

tion for rulemaking.

27. We thus evaluate this transaction in accordance with

existing Commission precedent. In Opiel Communications,

Inc}^ the Commission determined that the acquisition of a

non-controlling 20 percent equity interest, accompanied by

proportionate Board representation, by a foreign monopoly

carrier in the U.S. cable operator that owns the U.S. end of

a private international submarine cable, did not constitute

entry into the U.S. market for purposes of raising the

reciprocity provision of the Cable Landing License Act.^'

We find the relevant facts before us to be substantially

similar concerning the general question of what might

constitute market entry. In this instance. BT is acquiring a

non-controlling 20 percent interest and proportionate

Board

representation

in

MCI, which

is

a

U.S.

corporation.'-^ Therefore, consistent with the market entry

determination in Optel, we find that BT's 20 percent inter

est does not rise to the level of ownership that constitutes

carrier entry into the U.S. telecommunications market.

28

stitute market entry. In this instance. BT is acquiring a

non-controlling 20 percent interest and proportionate

Board

representation

in

MCI, which

is

a

U.S.

corporation.'-^ Therefore, consistent with the market entry

determination in Optel, we find that BT's 20 percent inter

est does not rise to the level of ownership that constitutes

carrier entry into the U.S. telecommunications market.

28. Even if BT's interest were considered market entry,

as noted above we have not to date adopted a policy of

requiring comparable market access as a condition of entry

by foreign carriers. Nonetheless, it is noteworthy that the

U.K. telecommunications market is one of the most liberal

ized markets in the world, and certainly the most liberal

ized market in the European Union. In fact, the United

Kingdom has few regulatory barriers to entry and has no

foreign ownership limitations on U.K. carriers. Basically,

the United Kingdom permits competition in all services,

with the notable exception of international facilities-based

services. Although the U.K. government has formally with

drawn its "duopoly policy", it has not expressed a willing

ness

to

contemplate

authorization

of

additional

international facilities-based competition to BT and Mer

cury Communications, Ltd. In the last year, however, the

Department of Trade and Industry (DTI) and Office of

Telecommunications (OFTEL) have taken considerable

steps toward creating a regulatory regime under which

effective competition to BT may eventually emerge, par

ticularly if a standard, nondiscriminatory interconnection

framework is in place. Examples of the openness of the

U.K. telecommunications market include DTTs recent

grants of several domestic facilities-based and international

simple resale licenses to U.S. carriers, including Sprint,

WorldCom, MFS Inc., ACC and City of London Tele

communications (COLT), the recent announcement of the

U.K. government's intent to grant the pending license of

AT&T, and the existing cable/telco competition, where U.S

ness of the

U.K. telecommunications market include DTTs recent

grants of several domestic facilities-based and international

simple resale licenses to U.S. carriers, including Sprint,

WorldCom, MFS Inc., ACC and City of London Tele

communications (COLT), the recent announcement of the

U.K. government's intent to grant the pending license of

AT&T, and the existing cable/telco competition, where U.S.

carriers such as NYNEX and US West are quite active.

D, Other Competitive Concerns

29. We also recognize the public interest concerns raised

by the majority of the commenters in this proceeding

regarding the effect that the BT and MCI alliance may have

on competition in the telecommunications market as a

result of the potential for either discrimination or other

anticompetitive conduct. We agree that these concerns are

relevant and important in determining whether further

action is necessary pursuant to our public interest consid

eration under Sections 214 and 316 of the Communica

tions Act. and other relevant statutory provisions.'" and our

enforcement responsibilities under the Clayton Act." Ac

cordingly. in the following sections, we evaluate the com

petitive concerns that flow from the transaction, and. in

particular, balance the procompetitive benefits of the joint

venture against any potential anticompetitive effects.

30. The record identifies the following principal areas in

which the BT/MCI alliance raises concerns about a poten

tial adverse effect on competition.'" First. BT could lever

age its dominant position in both the U.K. international

and local exchange markets to favor MCI and NEWCO to

the disadvantage of competing U.S. international carriers.

This favorable treatment could manifest itself in a variety

of ways, such as preferential pricing or the provision of

technical network information in advance of such disclo

sure to other U.S. carriers.

31

.'" First. BT could lever

age its dominant position in both the U.K. international

and local exchange markets to favor MCI and NEWCO to

the disadvantage of competing U.S. international carriers.

This favorable treatment could manifest itself in a variety

of ways, such as preferential pricing or the provision of

technical network information in advance of such disclo

sure to other U.S. carriers.

31. Second, the parties have, in effect, entered into a

perpetual geographic market division agreement through

the loss of rights provision in the Agreement.'' Pursuant to

this provision. MCI is restricted to direct sales and market-

See supra. 1123.

"

8 FCC Red 2267 (1993), petition for recon. pending.

"

47 U.S.C. §35.

Although MCI may have up to 28 percent alien ownership,

BT's ownership level is no greater than 20 percent. See supra

119 and note 46.

'" See. e.g.. FCC v. RCA Communications, Inc., 546 U.S. 86

(1952)(there can be no doubt that competition is a relevant

factor in weighing the public interest); United States v. Federal

Communications Comm'n. 652 F.2d 72, 81-82 (D.C. Cir. 1980)

(en banc) (competitive considerations are an important element

of the public interest standard).

"

Under Section 702(d) of the Communications Act. 47 U.S.C.

§702(d), and Section 11 of the Clayton Act. 15 U.S.C. §21. we

are charged with enforcing, inter alia. Section 7 of the Clayton

Act, 15 U.S.C. §18.

'" We note that these are similar concerns to those that are the

subject of Justice's civil antitrust complaint. See 1 5, supra.

'' See Agreement at Article 9.12.

3965

blic interest standard).

"

Under Section 702(d) of the Communications Act. 47 U.S.C.

§702(d), and Section 11 of the Clayton Act. 15 U.S.C. §21. we

are charged with enforcing, inter alia. Section 7 of the Clayton

Act, 15 U.S.C. §18.

'" We note that these are similar concerns to those that are the

subject of Justice's civil antitrust complaint. See 1 5, supra.

'' See Agreement at Article 9.12.

3965

FCC 94-188

Federal Communications Commission Record

9 FCC Red No. 17

ing of its telecommunications services in the Americas and

the Caribbean, and BT is restricted to direct sales and

marketing in the remainder of the world.

This territorial

allocation is not limited to the exclusive distribution of

NEWCO products and offerings, but extends to the provi

sion of all BT and MCI telecommunications services. This

restriction also raises competitive concerns. We examine all

of these concerns below.

a. Leveraging of Foreign Market Power

32. The record reflects specific concerns that BT"s pro

posed investment in MCI and the formation of NEWCO

will create incentives for BT to leverage its home market

powerd in favor of MCI over competing U.S. carriers. The

parties argue that BT's substantial equity investment in

MCI. and its interest in the NEWCO Joint Venture, create

a distinct financial incentive for BT to use its dominant

position in U.K. telecommunications markets to discrimi

nate in favor of MCI over competing U.S. international

carriers." AT&T. Sprint and ACC argue that BT and MCI

will be able to leverage BT's control of 97 percent of the

local access lines to the advantage of their alliance."'^ Fur

thermore. they argue. BT and MCI have the incentive and

ability to enter into exclusive arrangements by directing all

international switched and private line traffic to each other,

unless regulatory conditions preclude such activity.

33

AT&T. Sprint and ACC argue that BT and MCI

will be able to leverage BT's control of 97 percent of the

local access lines to the advantage of their alliance."'^ Fur

thermore. they argue. BT and MCI have the incentive and

ability to enter into exclusive arrangements by directing all

international switched and private line traffic to each other,

unless regulatory conditions preclude such activity.

33. In response to the assertions that BT and MCI will

engage in unlawful discrimination and enter into exclusive

arrangements for the provision of international basic tele

communications services."' the petitioners reaffirm their

intent to continue their correspondent relations with other

international carriers. Moreover, the petitioners state that

neither will impermissibly exclude competitors from the

market for regulated basic resale services or unlawfully

discriminate in favor of the other in accounting rates and

settlements.

34. Given our determination that there is no transfer of

control of MCI to BT. our current regulatory framework

classifies MCI presumptively as nondominant on all routes,

including the U.S.-U.K. route."' Although none of the

parties argues that BT is taking a controlling interest."' the

majority of the comments nonetheless expresses serious

concern that this alliance, including the NEWCO Joint

Venture, creates a financial incentive for BT and MCI to

engage in discriminatory or preferential dealings.""' The

commenters thus urge the Commission to imposeh certain

operational and nondiscrimination safeguards on the trans

action.

35. The petitioners counter that these concerns are not

appropriately raised in the context of a petition for declara

tory ruling, but are more appropriately considered in ei

ther a rulemaking proceeding or in the processing of

individual Section 214 applications."^ The petitioners fur

ther argue that the recent Internaiional Services Order'"^ re

jected the position that a less-than-controlling interest in a

U.S

ners counter that these concerns are not

appropriately raised in the context of a petition for declara

tory ruling, but are more appropriately considered in ei

ther a rulemaking proceeding or in the processing of

individual Section 214 applications."^ The petitioners fur

ther argue that the recent Internaiional Services Order'"^ re

jected the position that a less-than-controlling interest in a

U.S. carrier raises sufficient concerns of discrimination to

lequiie dominant carrier regulation. Finally. MCI responds

to the concerns about the potential leveraging of market

power by BT in favor of MCI by undertaking to file an

application to amend all of its existing Section 214 certif

icates for the provision of international telecommunica

tions services with a "no special concessions" clause.

Specifically. MCI has committed to the Commission "not

to accept, directly or indirectly, any special concessions

from any foreign carrier or administration with respect to

traffic or settlement flows between the U.S. and any foreign

country." To give timely effect to this commitment. MCI

has undertaken to file within 5 davs of the release of this

"

MCl's perpetual loss of rights provision has been limited to

five years for the European Economic Area (EEA). which in-,

eludes the 12 Member States of the European Union and Aus

tria. Sweden, Norway. Finland, and Liechtenstein, as a result of

an agreement the parties have entered into with the European

Union. See Notice Pursuant to Article 19(3) of Council Regula

tion No. 17 and Article 3 of Protocol 21 of the EEA Agreement

Concerning a request for negative clearance or an exemption

pursuant to Article 83(3) of the EC Treaty and Article 53(3) of

the EEA Agreement - Case No IV;34.857 -- BT-MCI (94/C

93 ()3). para. 32.

See AT&T Comments at 2; see also Sprint Comments at 3.

12.

More specifically, ACC argues that "this transaction has the

ability to impede the development of competition in interna

tional telecommunications services" because "BT so dominates

the U.K

r an exemption

pursuant to Article 83(3) of the EC Treaty and Article 53(3) of

the EEA Agreement - Case No IV;34.857 -- BT-MCI (94/C

93 ()3). para. 32.

See AT&T Comments at 2; see also Sprint Comments at 3.

12.

More specifically, ACC argues that "this transaction has the

ability to impede the development of competition in interna

tional telecommunications services" because "BT so dominates

the U.K. domestic market through its bottleneck control of

domestic facilities that interconnection to BT is the sine qua

nan of competitive service" and that the "U.K. duopoly' policy

for the provision of international facilities-based services leaves

BT's market power virtually unchecked". See ACC Comments

at 4.

See AT&T Comments at 2 and Sprint Comments at 3, 4. 12.

In the International Services Order, we adopted a framework

under which carriers that have no "affiliation" with a foreign

carrier in the destination market are presumed nondominant

for that route. 5 ee Regulation of International Common Carrier

Services. 7 FCC Red 7331 (1992), errata. UA 93-2b, released

January 19, 1993. We adopted this rebuttable presumption based

on our conclusion that, absent a controlling interest in a U.S.

carrier, a foreign carrier would be unable to direct the actions

of the U.S. carrier, and the U.S. carrier would be unwilling to

risk sanctions by the Commission for discriminatory conduct

that violates Commission rules or policy, or any conditions of

its Section 214 certificate. Id. We also noted that U.S. carriers

are subject to ongoing reporting requirements that are designed

to detect discrimination by foreign carriers or administrations

in favor of specific U.S. carriers. We retained the option to

impose or reimpose dominant carrier regulation on a particular

carrier which either has or is likely to engage in discriminatory

practices. Id.

' Sprint, however, argues that BT's equity interest and par

ticipation in MCI allows significant influence on MCl's cor

porate affairs. See Sprint Comments at 3. Sprint points to

administrations

in favor of specific U.S. carriers. We retained the option to

impose or reimpose dominant carrier regulation on a particular

carrier which either has or is likely to engage in discriminatory

practices. Id.

' Sprint, however, argues that BT's equity interest and par

ticipation in MCI allows significant influence on MCl's cor

porate affairs. See Sprint Comments at 3. Sprint points to. inter

alia, the covenant that BT and MCI shall not compete in the

core businesses in each other's respective territories. We address

these concerns in t H 47-54, infra.

See AT&T Comments at 2: Sprint Comments at 3. 8-12; and

ACC Comments at 4.

See BT and MCI Reply Comments at 11-14.

"" See supra, note 62.

"

See Letter from Donald F. Evans. Director. Federal Regula

tory Affairs, MCI Communica tions Corporation to William F.

Caton. Acting Secretary. Federal Communications Commission

(dated January 13. 1994). Section 63.14 of the Commission's

Rules defines special concessions as any arrangement that affects

traffic or revenue flows to or from the United States that is

offered exclusively by a foreign carrier or administration to a

particular U.S. international carrier and not also to similarly

situated U.S. international carriers authorized to serve a par

ticular route. See 47 CFR Section 63.14.

3966

9 FCC Red No. 17

Federal Communications Commission Record

FCC 94-188

order its application to amend all of its existing Section 214

certificates. In keeping with its commitment to accept "no

special concessions" directly or indirectly from BT. MCI

shall also obtain a written commitment from BT not to

offer or provide any special concessions to NEWCO in

BT's provision of basic telecommunications services or fa

cilities. A copy of this written commitment should be filed

with the Commission fifteen (15) days prior to consumma

tion of this transaction. Furthermore. MCI has also com

mitted to the Commission to maintain records on the

provisioning and maintenance of facilities and services by

BT to MCI

er or provide any special concessions to NEWCO in

BT's provision of basic telecommunications services or fa

cilities. A copy of this written commitment should be filed

with the Commission fifteen (15) days prior to consumma

tion of this transaction. Furthermore. MCI has also com

mitted to the Commission to maintain records on the

provisioning and maintenance of facilities and services by

BT to MCI. including, but not limited to. services or

facilities procured on behalf of customers of NF.WCO

offerings, in the United Kingdom.

MCI will make these

reports available upon request by the Commission.

36. Although our rules presume that a less-than-control-

ling alien interest in a U.S. carrier would not normally

raise sufficient competitive concerns to warrant dominant

carrier regulation, we agree with commenters who suggest

that this transaction is unique in light of the parties in

volved and the related Joint Venture. On the U.K. end. BT

is currently the dominant carrier in a duopoly for the

provision of international facilities-based services, controls

97 percent of the local termination points, and has the

most fully developed long distance network to which inter

connection is essential for the distribution of international

traffic. On the U.S. end. MCI is the second largest

interexchange carrier and international service provider in

the market and. as such, maintains a significant U.S. cus

tomer base. BT's 20 percent interest in such a major U.S.

carrier, coupled with its participation on MCFs Board of

Directors, may provide BT with the incentive both to

discriminate in favor of MCI and to influence the cor

porate decision-making process of MCI. In addition. BT

and MCI have jointly created NEWCO which, at least

initially, will develop and market enhanced service pro

ducts. BT and MCI will then exclusively distribute

NEWCO's enhanced service products, which, for their suc

cessful provisioning, may require access to the basic ser

vices network controlled by BT in the United Kingdom

to influence the cor

porate decision-making process of MCI. In addition. BT

and MCI have jointly created NEWCO which, at least

initially, will develop and market enhanced service pro

ducts. BT and MCI will then exclusively distribute

NEWCO's enhanced service products, which, for their suc

cessful provisioning, may require access to the basic ser

vices network controlled by BT in the United Kingdom.

Finally, we note that the territorial allocation provision

{see 1i47. infra.) and loss of rights provisions in the Invest

ment Agreement force BT to rely upon its 20 percent

investment in MCI as a primary source of revenues from

the U.S. telecommunications market. Thus, in spite of the

fact that MCI and BT are not "affiliated" within the mean

ing of our rules, we believe that these factors create addi

tional incentives for BT to favor MCI. directly or

indirectly.

37. Despite the incentives for MCI to be offered an

unfair competitive advantage over competing U.S. carriers

by virtue of its relationship with BT. we conclude that

dominant carrier regulation is not necessary for MCI be

cause we believe that the safeguards imposed in this order

are sufficient to ensure that the parties do not engage in

anticompetitive activities."" We Fare satisfied that the safe

guards imposed in this Order, pursuant to existing Com

mission policy and Section 218 of the Communications

Act. in conjunction with MCFs undertakings to accept "no

special concessions" and to maintain provisioning and

maintenance records, effectively address the concerns about

anticompetitive conduct raised in the record. " For exam

ple. the amendment of MCFs international Section 214

certificates to include a "no special concessions" obligation

would preclude MCI from accepting from BT. or from any

other foreign carrier or administration, preferential or ex

clusive operating agreements or marketing arrangements

for the provision of basic telecommunications services, in

cluding the introduction and provision of new basic ser

vices.

Similarly

t of MCFs international Section 214

certificates to include a "no special concessions" obligation

would preclude MCI from accepting from BT. or from any

other foreign carrier or administration, preferential or ex

clusive operating agreements or marketing arrangements

for the provision of basic telecommunications services, in

cluding the introduction and provision of new basic ser

vices.

Similarly. MCFs amended certificates woukl pre

clude it from accepting from B T any distribution or inter

connection arrangements, including pricing, technical

specifications, functional capabilities, or other quality and

operational characteristics, such as provisioning and main

tenance times, at rates or on terms and conditions that are

not available on a nondiscriminatory basis to all competing

U.S. carriers. In these examples. MCFs commitment to

maintain provisioning and maintenance records enhances

the Commission's ability to monitor MCFs compliance

with its obligation to accept no special concessions from

BT. MCFs amended certificates would also prohibit MCI

from agreeing to accept any arrangement with B'f for the

joint handling of basic traffic originating or terminating in

third countries on terms and conditions not available on a

nondiscriminatory basis to all competing U.S. carriers.

Moreover. MCFs "no special concessions" clause would bar

it from entering into preferential arrangements with BT

that concern international traffic flows to and from third

countries.

38. With respect to concerns that BT and MCI could use

their relationship to manipulate traffic streams or account

ing rates, we reiterate our belief that existing Commission

policy with respect to these matters effectively limits the

parties' ability to engage in such anticompetitive conduct.

We note that the civil antitrust complaint and Final Judg

ment fded by the Department of Justice reflect concerns about

the potential discrimination by BT in favor of MCI in this area,

and that the disclosure requirement imposed in Section 11 A.5

r belief that existing Commission

policy with respect to these matters effectively limits the

parties' ability to engage in such anticompetitive conduct.

We note that the civil antitrust complaint and Final Judg

ment fded by the Department of Justice reflect concerns about

the potential discrimination by BT in favor of MCI in this area,

and that the disclosure requirement imposed in Section 11 A.5.

of the Final Judgment would provide additional monitoring

capability.

We note that nothing in the record indicates that there is

any need for several key provisions of dominant carrier regula

tion, such as filing of tariffs on 45-days notice, requirement of

cost support justification, and prior Section 214 authorization

for circuit additions. We believe these restrictions would be

needlessly burdensome in this context.

" We note that MCi's failure to comply with its commitments

not to accept any special concessions and to maintain provision

ing and maintenance records may result in the imposition of

fines or forfeitures upon MCI (see Sections 502 and 503 of the

Act, 47 U,S,C. §§502 and 503) or a revocation of its licenses (see

Section 312(a) of the Act; Pass Word. 76 FCC 2d 465 (1980),

aff'd. 673 F.2d 1363 (D.C. Cir. 1982) (common carrier license

revoked based on carrier's deliberate misrepresentation to the

Commission)),

' We note the concern that BT may offer, as part of an

incentive to purchase its basic telecommunications services in

the United Kingdom, a discount or preference based on the

U.K. customer's selection of MCI as its U.S. carrier. Under its

"no special concessions" undertaking, however, MCI may not

knowingly participate in the handling of any U.K.-U.S. basic

telecommunications service for which BT has offered a discount

conditioned upon selection of MCI as the U.S. carrier for such

service

mmunications services in

the United Kingdom, a discount or preference based on the

U.K. customer's selection of MCI as its U.S. carrier. Under its

"no special concessions" undertaking, however, MCI may not

knowingly participate in the handling of any U.K.-U.S. basic

telecommunications service for which BT has offered a discount

conditioned upon selection of MCI as the U.S. carrier for such

service. For example, MCI may not accept from BT a plan

where BT customers are offered a discounted rate on either

domestic or international private line service if the other half of

the international private line is procured from MCI.

3967

FCC 94-188

Federal Communications Commission Record

9 FCC Red No. 17

A U.S. carrier must: (i) accept only its proportionate share

of return traffie from its foreign correspondent; " (ii) settle

its accounts in accordance with the nondiscriminatory ac

counting rates it is required to file with this Commission;

(iii) file copies of all contracts, agreements and arrange

ments that relate to the routing of traffic and settlement of

accounts;^ and (iv) not agree to accept any changes in its

accounting rates that are not made equally available to all

other competing U.S. carriers on a nondiscriminatory ba

sis.^ Moreover, pursuant to its "no special concessions"

undertaking, MCI is precluded from bargaining for. or

accepting, any preferential changes in the current method

used by BT to allocate return traffic among U.S. carriers.

39. Altbough MCI has undertaken to maintain provision

ing and maintenance records, we find it necessary, given

the unique aspects of this transaction, to modify and im

pose certain reporting requirements for MCI on its U.S. -

U.K. route in order to enhance further the Commission's

ability to monitor and enforce MCI's obligation to comply

with

its

"no

special

concessions"

and

other

nondiscrimination obligations.^ First, we require that MCI

make its monthly circuit status reports for U.S.- U.K.

circuits publicly available on a quarterly basis

o modify and im

pose certain reporting requirements for MCI on its U.S. -

U.K. route in order to enhance further the Commission's

ability to monitor and enforce MCI's obligation to comply

with

its

"no

special

concessions"

and

other

nondiscrimination obligations.^ First, we require that MCI

make its monthly circuit status reports for U.S.- U.K.

circuits publicly available on a quarterly basis. '' Second, we

require MCI to file with the Common Carrier Bureau

notification of each addition of circuits on the U.S. - U.K.

route, specifying the joint owner. Third, we require MCI to

file with the Commission quarterly reports of revenue,

number of me,ssages and number of minutes of both origi

nating and terminating traffic between the United States

and the United Kingdom within 90 days from the end of

each calendar quarter. These traffic and revenue reports

shall be publicly available upon filing with the Commis

sion. While there is no evidence that either BT or MCI

intends to operate in a manner inconsistent with Commis

sion rules or policy, we believe that these reporting re

quirements are warranted and not unduly burdensome in

light of the unique nature and details of the alliance of

MCI and BT.

40. With respect to the NEWCO Joint Venture itself,

both AT&T and Sprint have raised general concerns about

potential discrimination and exclusive dealings arising in

that context. BT and MCI maintain that the NEWCO Joint

Venture Agreement is not relevant to the requested de

claratory ruling. Specifically. BT and MCI note that the

Joint Venture Agreement creates NEWCO as an entity to

develop end-to-end enhanced (or. "value-added") service

products and offerings. They further note that the Joint

Venture Agreement establishes BT and MCI as the sole

distributors to customers in their respective territories of

the products and services developed by NEWCO. ® Further.

BT and MCI insist that NEWCO will not engage in the

actual provision of any basic or enhanced telecommunica

tions services to customers

enhanced (or. "value-added") service

products and offerings. They further note that the Joint

Venture Agreement establishes BT and MCI as the sole

distributors to customers in their respective territories of

the products and services developed by NEWCO. ® Further.

BT and MCI insist that NEWCO will not engage in the

actual provision of any basic or enhanced telecommunica

tions services to customers. As BT and MCI will be the

service providers to customers, they maintain that NEWCO

is not subject to Title II regulation.

41. The Commission does not regulate the provision of

enhanced services under Title II of the Communications

Act. even when offered by companies that operate other

wise as common carriers. Any entity that provides inter

state or international basic telecommunications service on

a common carrier basis is subject to litle II regulation,

including applicable entry and tariffing requirements. As

discussed above, petitioners claim that NEWCO itself will

not be a basic or enhanced service provider, and. therefore,

will not be subject to regulation by this Commission. For

this reason, they have not submitted the NEWCO Joint

Venture Agreement and other relatetl documents to us. and

assert they are not relevant to this declaratory ruling pro

ceeding.

42. Because NEWCO is reportedly not planning to pro

vide any U.S. common carrier services, we make no

finding as to the appropriate regulatory status of NEWCO.

Nonetheless, we recognize the concerns in the record

raised by BT's participation in NEWCO and the exclusive

BT and MCI distributor relationship, when combined with

BT's 20 percent stake in MCI. This particular combination

of factors may. for example, give BT an incentive to pro

vide MCI preferential access to BT's basic services network

This merely restates the general obligation of all U.S. inter

national carriers to accept only their proportionate share of

return traffic. See Regulation of International Accounting Rates.

CC Docket No. 90-337. Phase II

with

BT's 20 percent stake in MCI. This particular combination

of factors may. for example, give BT an incentive to pro

vide MCI preferential access to BT's basic services network

This merely restates the general obligation of all U.S. inter

national carriers to accept only their proportionate share of

return traffic. See Regulation of International Accounting Rates.

CC Docket No. 90-337. Phase II. Second Report and Order &

Second Further Notice of Proposed Rulemaking, 7 FCC Red 8040

(1992) at para. 30.

■' This would include, for example, agreements for the propor

tionate return of traffic, even where the agreement is not writ

ten. See Section 43.51(b) of the Commission's Rules, 47 CFR

Section 43.51(b).

We note that the Final Judgment shares the policy concerns

behind our existing requirements. The Final Judgment provides

additional monitoring for interested parties through the disclo

sure requirements relating to accounting rates and other related

terms and conditions, as well as the allocation of return traffic,

imposed on MCI in Section II.A.3.

We reserve the right to extend to additional U.S. - interna

tional routes the reporting requirements contained in this order

in the event BT or MCI enters into a similar alliance or

acquires an "affiliation" with any other "foreign carrier." as

those terms are defined in Section b3.01(r)( l)(i) and (ii) of the

Commission's Rules. 47 C.F.R. §63.01 (r)( I )(i).(ii).

We note that the Commission has issued a Notice of Pro

posed Rulemaking (NPRM) which proposes to require U.S.

carriers to file circuit status reports on an annual instead of a

monthly basis. 5ee 8 FCC Red 4902 (July 2. 1993). This proceed

ing is still pending. As to MCI. however, based on the concerns

raised in this proceeding, we are convinced that MCI should

continue to file monthly reports on the U.S. - U.K. route

regardless of whether the (.'ommission adopts a new rule. We

find that a monthly report of circuit status is necessary to

ensure our ongoing ability to monitor .MCTs circuit growth on

the U.S

uly 2. 1993). This proceed

ing is still pending. As to MCI. however, based on the concerns

raised in this proceeding, we are convinced that MCI should

continue to file monthly reports on the U.S. - U.K. route

regardless of whether the (.'ommission adopts a new rule. We

find that a monthly report of circuit status is necessary to

ensure our ongoing ability to monitor .MCTs circuit growth on

the U.S. - U.K. route.

These end-to-end enhanced services would support the pri

vate networks of international telecommunications users. For

the definition of enhanced services, see 47 CFR §64.702.

^ See BT and MCI Reply Comments at 4. Pursuant to the loss

of rights provision in the Agreement. MCI is for its "core

businesses" limited geographically to the Americas and the Ca

ribbean, while BT is limited to the remainder of the world for

such "core businesses". For further discussion and definition

ofh)"core businesses", see 1147, infra.

**

See supra. EC Notification at note 58.

Second Computer Inquiry. 77 FCC 2d 384 (1979) (Final

Decision), aff'd on reconsideration. 84 FCC 2d 50 (1980). 88

FCC 2d 512 (1981), aff'd sub nom.. CCIA v. FCC. 693 F.2d 198

(D.C. Cir. 1982), cert, denied sub nom. Louisiana P.S.C. v.

United States. 461 U.S. 938 (1983). See also Third Computer

Inquiry 104 FCC 2d 958 (1986). The Commission, however,

retains jurisdiction over the provision of enhanced services

under Title I of the Act.

3968

9 FCC Red No. 17

Federal Communications Commission Record

FCC 94-188

that is necessary for the delivery of U.S. enhanced services

both within and into the United Kingdom.'*' This potential

discrimination could take various forms, including pref

erential pricing or treatment in the provision and main

tenance of both international half-circuits and of local

exchange services, directly or indirectly, to MCl or advance

disclosure of technical specifications

FCC 94-188

that is necessary for the delivery of U.S. enhanced services

both within and into the United Kingdom.'*' This potential

discrimination could take various forms, including pref

erential pricing or treatment in the provision and main

tenance of both international half-circuits and of local

exchange services, directly or indirectly, to MCl or advance

disclosure of technical specifications. We find, however,

that many of the concerns about the potential leveraging of

foreign market power in basic service offerings to gain an

advantage in the enhanced services market are satisfactorily

addressed

by

the

"no

special

concessions"

and

recordkeeping commitments that MCl has made to the

Commission, supra, at ^35.

43. After amendment of its existing international Section

214 certificates as proposed by MCl. those certificates

would, for example, prohibit MCl from accepting directly

from BT. prior to public disclosure, any information about

BT's basic network services, including such changes in

services, that affect either the provision of enhanced ser

vices or the interconnection of the network services of U.S.

carriers or of their U.S. customers.

In addition, the

amendment would prohibit MCl from accepting any spe

cial concessions indirectly from BT through the NEWCO

joint venture. Thus, for example. MCl would be prohibited

from accepting from NEWCO prior to public disclosure

information regarding BT's basic network services, includ

ing changes in such services, that affect either the provision

of enhanced services or the interconnection of the network

services of competing U.S. carriers or of their U.S. cus

tomers."^ As a further example. .MCl would be prohibited

from receiving either directly or indirectly, through

NEWCO or from BT. any confidential information ob

tained by BT from competing U.S. carriers in the course of

regular business activities with such U.S. carriers, such as

the provision of interconnection or other necessary ser

vices

services of competing U.S. carriers or of their U.S. cus

tomers."^ As a further example. .MCl would be prohibited

from receiving either directly or indirectly, through

NEWCO or from BT. any confidential information ob

tained by BT from competing U.S. carriers in the course of

regular business activities with such U.S. carriers, such as

the provision of interconnection or other necessary ser

vices. correspondent relationships, or negotiations of op

erating agreements, including accounting rates.

Moreover.

MCTs undertaking to maintain complete records on the

provisioning and maintenance of facilities and services by

BT to MCl specifically includes any services or facilities

procured on behalf of customers of NEWCO offerings in

the United Kingdom."' MCl also undertakes to make these

records available to the Commission upon request, which

enhances our ability to monitor MCTs compliance with its

commitment to accept "no special concessions".""

44. Finally, our consideration of the adequacy of our

safeguards takes into account both the U.K. regulatory

framework, which essentially allows open entry into most

segments of the U.K. telecommunications market, and the

emerging competition to BT in the United Kingdom. We

recognize that the U.K. telecommunications regulators are

undertaking a significant review of several important issues

that may affect any ability BT may have to use its market

power to advantage MCl unfairly. For example, the Direc

tor General of Telecommunications. Office of Telecom

munications (Oftel).

recently

released 'a

statement

proposing a three stage program on an interconnection and

accounting separation regime for BT."' In addition, we note

that

BT's PTO license

currently

contains

broad

nondiscrimination obligations. Although we do not con

sider the future effectiveness of the regulation of the U.K.

market to be the litmus test for whether BT has the ability

to exerci.se its market power in favor of a particular U.S

oposing a three stage program on an interconnection and

accounting separation regime for BT."' In addition, we note

that

BT's PTO license

currently

contains

broad

nondiscrimination obligations. Although we do not con

sider the future effectiveness of the regulation of the U.K.

market to be the litmus test for whether BT has the ability

to exerci.se its market power in favor of a particular U.S.

carrier.'*" it is nonetheless germane to our analysis that

considerable regulatory steps have been, and should con

tinue to be taken, to facilitate the development of effective

competition to BT.

45. While it is important to consider the regulatory

framework of a foreign country, it is also important to

consider the degree of liberalization of that country's tele

communications market. The pressures of a competitive

telecommunications market minimize the ability of a car

rier to engage in unfair di.scriminatory practices. As noted

in Paragraph 28. supra, several U.S. telecommunications

carriers, such as IDB WorldCom. Sprint. MFS Inc.. and

ACC. have entered the local and national facilities-based

telecommunications services markets in the United King

dom. providing some competition to BT. We also note that

the United Kingdom has announced its intent to grant the

pending AT&T PTO license, which will authorize .AT&T to

provide, inter alia, domestic facilities-based services and

international resale services. In addition, both N\ NEX and

US West are providing telephony service via some of their

cable facilities in competition with BT. In the international

services market. Mercury Communications. Ltd.. the sec

ond facilities-based carrier, and several resellers, including

U.S. carriers such as Sprint and WorldCom, are providing

international services competition to BT. Nonetheless, ab

sent further international facilities-based competition to BT

in the United Kingdom, there may remain some potential

for B'f to manipulate its market power in the U.K. -

international market to the detriment of competing U.S

d facilities-based carrier, and several resellers, including

U.S. carriers such as Sprint and WorldCom, are providing

international services competition to BT. Nonetheless, ab

sent further international facilities-based competition to BT

in the United Kingdom, there may remain some potential

for B'f to manipulate its market power in the U.K. -

international market to the detriment of competing U.S.

"

Sec Sprint Comments at 11.

"" This provision would also prohibit MCl from accepting from

BT proprietary information that any competing U.S. carrier

had supplied to BT. unless specific permission has been ob

tained in writing from the U.S. carrier involved.

All references to MCl. BT and NEWCO in this order

include their respective officers, directors, and employees, as

well as any affiliated companies and their officers, directors and

employees.

**" We again note that the Final Judgment shares our concerns,

and imposes confidentiality requirements on both MCl and

NEWCO in Section 11 B-D.

**' We delegate to the Common Carrier Bureau the task of

working with MCl to establish the manner in which it may

satisfy this record-keeping obligation.

We observe that we also have the right to require MCl to

provide us with this information pursuant to our authoniy

under Section 218 of the Act.

The first stage established a basis for interim interconnec

tion charges for interconnection with BT. The second stage,

involving amendments to BT's license, runs from March ldd4 to

January 1495. and covers implementation of a standard list of

interconnection charges, cost transparency, and accounting sep

aration of the retail, network and access elements of BT ser

vices. The third stage involves a longer term consideration of

such issues as the future of access deficit charges, alternative

costing bases, and alternative charging structures for intercon

nection services. There is no certain timing on the conclusion

of this third stage of the program

on charges, cost transparency, and accounting sep

aration of the retail, network and access elements of BT ser

vices. The third stage involves a longer term consideration of

such issues as the future of access deficit charges, alternative

costing bases, and alternative charging structures for intercon

nection services. There is no certain timing on the conclusion

of this third stage of the program. In this statement, the Direc

tor General recognizes that fair, efficient and sustainable inter

connection

is

vital

to

maintaining

a

competitive

telecommunications market. See Oftel Document. Interconnec

tion and Accounting Separation: The Next Steps.

**** This approach is consistent with the view that competition,

3969

FCC 94-188

Federal Communications Commission Record

9 FCC Red No. 17

international carriers.'*'' As the U.K. framework evolves,

however, we fully expect BT to face increasingly effective

competition in local, national and international telecom

munications services which should continue to constrain

any ability BT may now have to act in an anticompetitive

manner.

46. Therefore, in light of the U.K. regulatory framework

and the relative openness of the U.K. telecommunications

services market, we find that MCTs "no special conces

sions" and record-keeping commitments and the other safe

guards imposed in this order are both necessary and

sufficient at this time to guarantee competing U.S. carriers,

and their customers, access on a nondiscriminatory basis to

basic services from the parties to this alliance. We believe

that these safeguards are sufficient to protect against MCTs

participation in. or acceptance of. competitive advantages

due to any direct or indirect efforts by BT to abuse its

market power. With the exception of the monthly circuit

status reports, these regulatory requirements are subject to

modification as a result of any action the Commission may

take in any relevant future proceeding of general applica

bility.

b. Territorial .Allocation

47

against MCTs

participation in. or acceptance of. competitive advantages

due to any direct or indirect efforts by BT to abuse its

market power. With the exception of the monthly circuit

status reports, these regulatory requirements are subject to

modification as a result of any action the Commission may

take in any relevant future proceeding of general applica

bility.

b. Territorial .Allocation

47. Article 9.12 of the Agreement restricts BT's ability to

provide "core business" services in MCTs designated terri

tory (the Americas and the Caribbean), and restricts MCTs

ability to provide these services in BT's territory (the re

mainder of the world). A party breaching these restrictions

is subject to a loss of certain of its rights. This covenant

runs in perpetuity, with no time limit of any kind (other

than the five-year limitation for the EEA imposed by the

Commission of the European Communities).'' "Core busi

ness" is defined as:

"All telecommunications and other electronic infor

mation services and equipment for the provision of

such services, as they exist on the date of this Agree

ment or hereafter exist, including, without limitation,

all forms of telecommunications access and egress

(landline and wireless), and value-added consumer

and business services generated through or as a result

of underlying telecommunications services using all

technology (voice, data and image) and physical

transport, network intelligence, and software applica

tions, and including, without limitation, (i) informa

tion

processing, (ii)

systems

integration

and

outsourcing, (iii) transaction processing and (iv) ca

ble television." Investment Agreement, Article 1.1 at

3-4.

Given these terms, the Agreement applies not just to the

distribution of NEWCO's products, but also to virtually

any service, basic or enhanced, offered by the parties.

48

are applica

tions, and including, without limitation, (i) informa

tion

processing, (ii)

systems

integration

and

outsourcing, (iii) transaction processing and (iv) ca

ble television." Investment Agreement, Article 1.1 at

3-4.

Given these terms, the Agreement applies not just to the

distribution of NEWCO's products, but also to virtually

any service, basic or enhanced, offered by the parties.

48. Furthermore, pursuant to these restrictions embodied

in Article 9.12 of the Agreement, it appears that BT and

MCI will not be providing service in competition with

each other in particular territories, except for the possibil

ity of passive and remote sales, as discussed in Paragraph

53 infra. This could be viewed as a territorial allocation.

While such horizontal restraints may be deemed per se

violations of the Sherman Act, 15 U.S.C."' where the ter

ritorial allocation is reasonably ancillary to a joint venture

that has a legitimate business justification, the restraint can

be judged under a "rule of reason" analysis."' We conclude,

for the reasons discussed\below, that the parties' territorial

allocation will likely be of little direct competitive con

sequence."^

49. First, we question whether the territorial allocation

has anticompetitive consequences in any relevant market.

With respect to the U.S. telecommunications market, BT

has previously demonstrated an active interest in the U.S.

market and has attempted entry through both Syncordia

and BT-Tymnet. Thus, BT, absent this tran.saction, may

well have elected to enter the U.S. telecommunications

market on its own."" On balance, however, even if BT were

viewed as a potential entrant, there does not appear to be

any anticompetitive effect from the territorial allocation

provision which precludes BT's entry into the U.S. tele

communications market. Today, there are several hundred

carriers, both facilities- and resale-based, competing in the

U.S. interexchange market

U.S. telecommunications

market on its own."" On balance, however, even if BT were

viewed as a potential entrant, there does not appear to be

any anticompetitive effect from the territorial allocation

provision which precludes BT's entry into the U.S. tele

communications market. Today, there are several hundred

carriers, both facilities- and resale-based, competing in the

U.S. interexchange market. Indeed, the number of existing

interexchange carriers, and other potential entrants, sug

gests that the loss of the incremental competition that

might be provided by BT's independent entry into the U.S.

telecommunications market would appear to be of little

competitive significance.

50. A second market in which the parties' agreement

might have a competitive effect involves the provision of

international telecommunications services between the

not government regulation, is the most effective, and therefore

the preferred, solution to curtail the abuse of foreign market

power. See International Services Order at 7333-.^4.

BT has approximately a 75% market share of the U.K. -

international facilities-based traffic, while Mercury Communica

tions Ltd. has approximately a 25 percent share.

See note 58, supra.

Per se violations will be struck down under Section 1 of the

Sherman Act without further inquiry into the business or

economic justification, impact on the market, or reasonableness

of the restraint. See United States v. Topco Associates. Inc., 405

U.S. 596 (1972); United States v. Seal y. Inc., 388 U.S. 350 (1967).

The fact that the parties to a market division are potential, as

opposed to actual, competitors does not redeem an otherwise per

se violation. Palmer v. BRG of Georgia, Inc.. 498 U,S. 46

e business or

economic justification, impact on the market, or reasonableness

of the restraint. See United States v. Topco Associates. Inc., 405

U.S. 596 (1972); United States v. Seal y. Inc., 388 U.S. 350 (1967).

The fact that the parties to a market division are potential, as

opposed to actual, competitors does not redeem an otherwise per

se violation. Palmer v. BRG of Georgia, Inc.. 498 U,S. 46

(1990)(per curiam).

See Yamaha Motor Co. v. FIX . 657 F.2d 971 (8th Cir. 1981),

cert, denied. 456 U.S. 915 (1982); see also Rothery Storage and

Van Co. V. Atlas Van Lines. 792 F.2 210 (D.C. Cir. 1986), cert,

denied. 479 U.S. 1033 (1987) (horizontal refusal to deal asso

ciated with joint venture analysis under rule of reason). Such

an analysis delves into the reasonableness of the restraint in

light of its economic justification and competitive effects.

"■*

We note, however, as discussed at 1136, that the territorial

allocation provision creates additional incentives for BT to favor

MCI and NEWCO.

""

We recognize that Section 310 of the Act limits aliens'

ability to hold Title 111 radio licenses, and sets direct and

indirect alien ownership and participation benchmarks in cer

tain Title III radio licensees. Nonetheless. Section 31()(b)(4) of

the Act provides the Commission with the discretion, as illus

trated in this order, to allow alien ownership and participation

beyond these benchmarks where to do so is in the public

interest. Moreover, we emphasize that Section 310 of the Act

applies solely to wireless, not wireline, facilities. Hence, carriers

such as Cable & Wireless North America are able to provide

nationwide service via fibei uplie facilities.

3970

mission with the discretion, as illus

trated in this order, to allow alien ownership and participation

beyond these benchmarks where to do so is in the public

interest. Moreover, we emphasize that Section 310 of the Act

applies solely to wireless, not wireline, facilities. Hence, carriers

such as Cable & Wireless North America are able to provide

nationwide service via fibei uplie facilities.

3970

9 FCC Red No. 17

Federal Communications Commission Record

FCC 94-188

United States and the United Kingdom. Again, absent this

transaction. BT may have been a potential independent

entrant in the U.S. international telecommunications mar

ket. This scenario is supported by the fact that BT North

America (BTNA), a wholly-owned U.S. subsidiary of BT,

has an international Section 214 application pending for

the (1) resale of switched services; (2) resale of private lines

for non-interconnected private line services; and (3) resale

of private lines for switched services.''^ In this market, we

note that there are approximately 10 international facilities-

based carriers and hundreds of international resellers pro

viding U.S. - U.K. telecommunications services.'"' We thus

similarly conclude that the number of existing and poten

tial competitors indicates that the territorial allocation pro

vision does not significantly lessen potential competition in

the provision of U.S. - U.K. telecommunications services."

51. A third market in which this transaction may have a

competitive impact involves the provision of seamless, glo

bal service to high-end users, such as multinational com

panies ~ the market at which NEWCO's products are

aimed. However, as of yet. there appears to be no actual

global provider of the seamless services proposed by the

NEWCO joint venture, though a number of firms appear

to be positioning themselves to provide these services on a

fully global basis."" Thus

involves the provision of seamless, glo

bal service to high-end users, such as multinational com

panies ~ the market at which NEWCO's products are

aimed. However, as of yet. there appears to be no actual

global provider of the seamless services proposed by the

NEWCO joint venture, though a number of firms appear

to be positioning themselves to provide these services on a

fully global basis."" Thus. BT and MCI argue that the

impact of the NEWCO joint venture on the market for the

provision of seamless, global services will actually be

procompetitive because it will hasten its development

through the introduction of new products that might not

otherwise be provided. Moreover. BT and MCI argue that

the venture will not foreclose entry by other providers

potentially waiting in the wings. "" With respect to MCFs

foreclosure from direct participation in some foreign mar

kets. we note that MCTs recent forays into the foreign

international telecommunications markets, such as .Mexico

and Canada, have taken the form of alliances with local

partners.'"" Given the evolving structure of this nascent

market, the fact that NEWCO will arguably be its first

entrant, and the potential for entry by other providers, it

appears that the BT/MCI transaction is likely to have a

procompetitive. not an anticompetitive, effect in this global

market.

52. Moreover, the territorial allocation is not absolute

and. in fact, appears to preserve some flexibilit-- to each

party for the provision of services outside of it respective

territories. PEirst. the Agreement is constructed so that a

breach of the territorial allocation provision does not ter

minate the Agreement, but rather triggers a loss of rights of

the party in breach. On MCTs part, the loss of rights

would include an end to the restrictions on: (1) BT"s

ability to acquire additional shares of capital stock; (2) BT's

voting of shares; (3) BT's acquisition of .MCI stock; (4) BT's

ability to amend, modify or waive provisions in the Invest

ment Agreement

cation provision does not ter

minate the Agreement, but rather triggers a loss of rights of

the party in breach. On MCTs part, the loss of rights

would include an end to the restrictions on: (1) BT"s

ability to acquire additional shares of capital stock; (2) BT's

voting of shares; (3) BT's acquisition of .MCI stock; (4) BT's

ability to amend, modify or waive provisions in the Invest

ment Agreement. By-Laws or Certificate of Incorporation;

(5) BT's ability to transfer its interest in .MCI; and a loss of

MCl's right of first refusal on certain proposed transactions

or transfers of rights.'"' BT's loss of rights would include

(1) the conversion of its Class A stock to shares of common

stock. (2) loss of access to financial information. (.3) elimi

nation of the restriction on .MCTs right to solicit acquisi

tion proposals. (4) loss of right to engage in an auction if

MCI is put up for sale. (5) loss of right to force the sale of

non-core business acquisitions by MCI and (6) loss of

certain rights regarding board of directors membership.'"'

"

In addition. BTNA has asked the Commission for expedited

treatment for the first two categories of resale. We note that,

pursuant to the terms of the Investment Agreement. BT and

MCI may each obtain licenses in the other's designated territor

ies to take advantage of the passive and remote sales opportu

nities. See note 11)3. infra. BT, however, does not seek expedited

treatment for the resale of private lines for switched services,

which raises greater anticompetitive concerns than the other

resale requests and would require an equivalency determination

pursuant to the International Resale Order. See BT North

America, inc. Application for Authority under Section 214 of

the Act to

Provide International Resale Services as a

Nondominant Common Carrier. File No. l-T-C-d3-12b. We also

note that, pursuant to the Complaint and Final Judgment filed

by the Department of Justice in connection with this transac

tion

uld require an equivalency determination

pursuant to the International Resale Order. See BT North

America, inc. Application for Authority under Section 214 of

the Act to

Provide International Resale Services as a

Nondominant Common Carrier. File No. l-T-C-d3-12b. We also

note that, pursuant to the Complaint and Final Judgment filed

by the Department of Justice in connection with this transac

tion. neither MCI nor NEWCO will be able to lease interna

tional facilities or services to BT, or any of its affiliates or

subsidiaries, for its provision of international simple resale

(ISR) until certain specified conditions are satisfied. The Final

Judgment defines ISR as the transmission through private or

leased international telecommunications facilities (...) of voice

or data traffic, if that traffic is carried over the public switched

telecommunications network in both the country where the

traffic originates and the country where it terminates.

"" See 1942 Section 43.61 International Telecommunications

Data Report, prepared by Industry Analysis Division, Common

Carrier Bureau. For example. Cable & Wireless. Inc.. MFS. Litel

Communications. Inc. (LCI), and LDDS are all international

resellers authorized to provide service between the United

States and the United Kingdom.

"

We also note that, with respect to U.K. - U.S. services, the

three leading U.S. facilities-based carriers all offer country di

rect services. These services provide U.S. consumers with the

benefits of a competitively-priced U.S. telecommunications ser

vices market. MCI has represented that the territorial allocation

provision of the Agreement does not extend to the provision of

MCl's country-direct service (CALL USA), and thus, MCI is

permitted to continue to provide this service after consumma

tion of the transaction . S ee Letter from Donald F. Evans.

Director, Regulatory Affairs. MCI Communications Corporation

to William F. Caton. Acting Secretary. Federal Communications

Commission {dated May 12. 1994)

ion

provision of the Agreement does not extend to the provision of

MCl's country-direct service (CALL USA), and thus, MCI is

permitted to continue to provide this service after consumma

tion of the transaction . S ee Letter from Donald F. Evans.

Director, Regulatory Affairs. MCI Communications Corporation

to William F. Caton. Acting Secretary. Federal Communications

Commission {dated May 12. 1994). In addition, in order to

pursue its ability to provide pa.ssive or remote sales outside of

the United States. MCI presumably has the same opportunity as

BT in the United States to pursue resale licenses in foreign

countries.

"" For example. WorldPartners. a non-equity alliance among

several major telecommunications carriers around the world,

including AT&T, and most recently, Unisource, is already offer

ing WorldSource services, "global seamless services", to approxi

mately a dozen countries. We note that the Department of

Justice's Competitive Impact Statement (CIS) filed in the .VfC/

case recognizes that "|s|eamles5 global telecommunications ser

vices represent an emerging market, but an important one for

the evolution of international telecommunications". CIS at p.

15. In addition to BT and MCI. the CIS lists the following as

entrants or potential entrants in this market: AT&T's

WorldSource. Unisource (an alliance of the national or princi

pal telecommunications providers in Switzerland, Sweden and

the Netherlands), and Cable & Wireless. Id. The CIS also

references Eunetcom (the alliance of the French and German

national telecommunications providers) and Sprint, which have

just recently announced their intent to form an alliance to

provide similar global .seamless telecommunications services.

" See note 98. supra.

For example. MCI entered into a non-equity alliance with

Stentor in Canada, and has announced its intention to form a

joint

venture

with

Grupo Financiero Banamex-Accival

(Banacci) to become a licensed telecommunications operator in

Mexico.

"" Agreement at Article 9.12(a).

See H 1113 -18, supra.

3971

alliance to

provide similar global .seamless telecommunications services.

" See note 98. supra.

For example. MCI entered into a non-equity alliance with

Stentor in Canada, and has announced its intention to form a

joint

venture

with

Grupo Financiero Banamex-Accival

(Banacci) to become a licensed telecommunications operator in

Mexico.

"" Agreement at Article 9.12(a).

See H 1113 -18, supra.

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9 FCC Red No. 17

53. Finally, while the Agreement prohibits BT and MCI

from direct solicitation of customers outside of their re

spective territories, there is no prohibition on the actual

provision of services to those customers. Therefore, under

the terms of the Agreement, each party may engage in

passive and remote sales in each other's territories, allow

ing for. at least, indirect competition at the specific behest

of the customer.""

54. In sum. the territorial allocation provision embodied

in the Investment Agreement is not absolute, and appears

to allow limited indirect competition between the parties in

each other's designated territories through passive and re

mote sales. Moreover, we cannot discern any significant

direct anticompetitive effect flowing from the territorial

allocation provision in any market in which the parties

would potentially compete in the absence of the restraint.

We therefore conclude that the territorial allocation has

little competitive significance for our overall consideration

of the transaction.

c. Procompetitive Benefits

55. B'r and MCI argue that the terms and conditions of

the alliance are wholly procompetitive. ami that any re

straints on competition being only those necessary and

ancillary to accomplishing the procompetitive objectives of

the venture .As a threshold matter. MCI maintains that

BT's $4.3 billion investment in MCI will strengthen MCI's

financial resources and better enable it to compete globally

55. B'r and MCI argue that the terms and conditions of

the alliance are wholly procompetitive. ami that any re

straints on competition being only those necessary and

ancillary to accomplishing the procompetitive objectives of

the venture .As a threshold matter. MCI maintains that

BT's $4.3 billion investment in MCI will strengthen MCI's

financial resources and better enable it to compete globally.

MCI also states that it will use this new equity to expand

and improve the network services it offers to the American

public. While this argument has some logic, we question

whether access to BT's capital may be properly character

ized as an efficiency flowing from the transaction that is

relevant to a competitive analysis, in contrast to operating

efficiencies, such as proiluction or plant economies, or

distribution-related efficiencies.

56. It appears, however, that the creation of NEWCO

and BT's contribution to NFWCO of. inter alia, its intellec

tual property rights relating to enhanced services may re

sult in legitimate procompetitive effects."" In addition, the

joint venture should offer a number of efficiencies, such as

greater economies of scale, easier entry into new markets

and the sharing of risks. We believe that significant con

sumer benefits may result both from the formation of the

joint venture and from the introduction of its newly devel

oped products into the marketplace, in particular product

offerings responsive to the needs of large scale, high-end

users, such as multinational corporations. In sum. given

that procompetitive benefits will likely flow from this

transaction, that leveraging concerns are addressed by

MCI's own undertakings and the imposition of certain

reporting requirements, and that the territorial allocation

provision will likely be of little competitive significance,

we conclude that the overall transaction is in the public

interest.

V. CONCLUSION

57

al corporations. In sum. given

that procompetitive benefits will likely flow from this

transaction, that leveraging concerns are addressed by

MCI's own undertakings and the imposition of certain

reporting requirements, and that the territorial allocation

provision will likely be of little competitive significance,

we conclude that the overall transaction is in the public

interest.

V. CONCLUSION

57. On balance, we conclude that the public interest will

be served by the grant of this declaratory ruling when

accompanied by MCI's commitments and the reporting

requirements. We find that the voting and consent rights

conferred upon BT in the Agreement do not constitute a

transfer of control, but rather represent a minority

shareholder's attempt to protect its substantial investment.

Although BT may acquire a certain degree of influence in

MCI's corporate decision-making process, we'conclude that

this influence would not rise to a level that constitutes

control under Section 31()(d). Furthermore, we find that

BT's infusion of $4.3 billion into MCI will serve the public

interest by allowing MCI to expand and improve its net

work services and product offerings and to expand the

range of communications services it offers to the American

public. This will not only bring U.S. consumers increased

access to new and existing telecommunications services and

lower prices, which will help stimulate economic growth,

but will also create additional employment opportunities

for U.S. citizens. Therefore, we conclude that the public

interest would be di.s.servcd by disallowing the 3 percent

non-BT alien ownership beyond the Section 310(b)(4) stat

utory benchmark.

58. We also recognize and share the concerns raised in

the record regarding the incentives and opportunities cre

ated by the alliance of BT and MCI for either carrier, or

both, to discriminate against competing U.S. carriers

ns. Therefore, we conclude that the public

interest would be di.s.servcd by disallowing the 3 percent

non-BT alien ownership beyond the Section 310(b)(4) stat

utory benchmark.

58. We also recognize and share the concerns raised in

the record regarding the incentives and opportunities cre

ated by the alliance of BT and MCI for either carrier, or

both, to discriminate against competing U.S. carriers.

Nonetheless, we are satisfied that MCI's specific commit

ments to accept no special concessions and to maintain

certain provisioning and maintenance records combined

with the reporting requirements imposed by this Order

adequately safeguard against the potential for such discrimi

nation. particularly in light of the evolving U.K. regulatory

framework and relative openness of the U.K. telecommuni

cations market. Finally, we conclude that there are signifi

cant procompetitive benefits that flow from this alliance.

Moreover, the territorial allocation provision included in

the parties' agreement appears to be of little direct com

petitive significance to our overall consideration of this

transaction. We note that this Order is subject to possible

future modification based upon the outcome of any rel

evant proceeding or proceedings 8of general applicability.

VI. ORDERING CLAUSES

59. Accordingly. IT IS ORDERED that the petitioners'

request for a declaratory ruling IS GRANTED. Prior ap

proval pursuant to Section 310(d) of the Act is not re

quired before the BT investment in MCI can take place

"" "(Customers may choose to purchase NEWCO services from

both BT and MCI or to aggregate their worldwide purchases

from a single distributor. Where a customer chooses to deal

with both distributors, out of territory' sales of NEWCO ser

vices are generally referred to by the parties as Remote Sales.

Even where the customer's worldwide purchases have been

aggregated with one distributor or

ke place

"" "(Customers may choose to purchase NEWCO services from

both BT and MCI or to aggregate their worldwide purchases

from a single distributor. Where a customer chooses to deal

with both distributors, out of territory' sales of NEWCO ser

vices are generally referred to by the parties as Remote Sales.

Even where the customer's worldwide purchases have been

aggregated with one distributor or. with the customer's knowl

edge, NEWCO has prepared a worldwide sales plan for the

customer and assigned a lead distributor for the account, the

customer retains the ability to solicit NEWCO services from the

other distributor on a case-by-case basis. Such sales are gen

erally referred to by the parties as Passive Sales." See Letter

from Donald F. Evans, Director of Regulatory Affairs, MCI

Communications Corporation to William F. Caton. Acting Sec

retary. Federal Communications Commission (dated May 12,

1994).

"" See EC Notification at note

^iipra

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Federal Communications Commission Record

FCC 94-188

because the transaction does not involve a transfer of con

trol. Furthermore, the level of 28% foreign ownership in

MCI. as described, is not inconsistent with the public inter

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

60. IT IS FURTHER ORDERED that MCI shall obtain

prior Commission approval with regard to any proposed

change in BT"s ownership or voting interest in MCI.

61. IT IS FURTHER ORDERED that MCI shall conduct

periodic surveys of its public shareholders to ensure con

tinuing compliance with the maximum level of foreign

ownership in MCI found not to be inconsistent with the

public interest pursuant to Section 310(b)(4) of the Act.

62. IT IS FURTHER ORDERED that any and all

amendments or modifications to the Investment Agreement

shall be filed with the Commission within 30 days of

execution.

63

ll conduct

periodic surveys of its public shareholders to ensure con

tinuing compliance with the maximum level of foreign

ownership in MCI found not to be inconsistent with the

public interest pursuant to Section 310(b)(4) of the Act.

62. IT IS FURTHER ORDERED that any and all

amendments or modifications to the Investment Agreement

shall be filed with the Commission within 30 days of

execution.

63. IT IS FURTHER ORDERED that MCI shall comply

with its commitment to file with the Commission within 5

days of the release of this Order an application to amend

all of MCFs existing Section 214 certificates stating that

MCI shall not accept special concessions, directly or in

directly. from any foreign carrier or administration with

respect to traffic or settlement revenue flows between the

United States and any foreign country served.

64. IT IS FURTHER ORDERED that MCI shall comply

with its commitment to (i) maintain complete records on

the provisioning and maintenance of network facilities and

services it procures from BT. including but not limited to

those it procures on behalf of customers of NEWCO

offerings and (ii) make those records available to the Com

mission upon request.

65. IT IS FURTHER ORDERED that, pursuant to our

authority under Section 218 of the Act. MCI shall continue

to file its monthly circuit status reports for U.S.- U.K.

circuits and shall make such reports publicly available on a

quarterly basis.

66. IT IS FURTHER ORDERED that, pursuant to our

authority under Section 218 of the Act. MCI shall file with

the Common Carrier Bureau notification of each addition

of circuits on the U.S. - U.K. route, specifying the joint

owner.

67. IT IS FURTHER ORDERED that, pursuant to our

authority under Section 218 of the Act. MCI shall file

quarterly reports of revenue, number of messages and

number of minutes of both originating and terminating

traffic for the U.S.- U.K. route within 90 days from the end

of each calendar quarter.

68

reau notification of each addition

of circuits on the U.S. - U.K. route, specifying the joint

owner.

67. IT IS FURTHER ORDERED that, pursuant to our

authority under Section 218 of the Act. MCI shall file

quarterly reports of revenue, number of messages and

number of minutes of both originating and terminating

traffic for the U.S.- U.K. route within 90 days from the end

of each calendar quarter.

68. IT IS FURTHER ORDERED that, pursuant to our

authority under Section 218 of the Act. MCTI shall file with

the Common Carrier Bureau, within 30 days of adoption

of this order, a circuit status report on the U.S. - U.K.

route, specifying the number of circuits and identifying the

joint owners.

69. IT IS FURTHER ORDERED that MCI. pursuant to

its commitment to accept no special concessions directly or

indirectly from BT. shall obtain a written commitment

from BT not to offer or provide any special concessions to

NEWCO. relating to the provision of basic services. A copy

of such written agreement shall be filed with this Commis

sion fifteen days prior to consummation of this transaction.

70. IT IS FURTHER ORDERED that, pursuant to our

authority under Section 218 of the Act. MCI shall file with

the Common Carrier Bureau copies of all contracts, agree

ments, and arrangements with BT that relate to the routing

of traffic and settlement of accounts on the U.S. - U.K.

route.

71. IT IS FURTHER ORDERED that all references to

MCI. BT and NEWCO in this Order shall also refer to

their respective officers, directors and employees, as well as

to any affiliated companies, and their officers, directors and

employees.

72. IT IS FURTHER ORDERED that MCI shall file

with the Secretary. Federal Communications Commission.

Washington. D.C. 20554 within thirty days (30) of release

of this Order or prior to the consummation of this transac

tion. whichever is the sooner, a letter accepting the terms

and conditions of this Commission ruling.

73

as

to any affiliated companies, and their officers, directors and

employees.

72. IT IS FURTHER ORDERED that MCI shall file

with the Secretary. Federal Communications Commission.

Washington. D.C. 20554 within thirty days (30) of release

of this Order or prior to the consummation of this transac

tion. whichever is the sooner, a letter accepting the terms

and conditions of this Commission ruling.

73. IT IS FURTHER ORDERED that this Order is

subject to further modification based upon the outcome of

any relevant proceeding or proceedings of general applica

bility.

74. This order is effective upon release. 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

William F. Caton

Acting Secretary

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9 fcc Red No. n

Separate Statement

of

Commissioner James H. Quello

Re: MCI Communications Corporation and British Telecommunications

Joint Petition for Declaratory Ruling Concerning Sections

310(b)(4) and 310(d) of the Communications Act

The joint petition by MCI Communications Corporation (MCI) and

British Telecommunications (BT) for declaratory ruling is the

latest in a series of

proposed alliances between domestic and

foreign communications providers to come before this Commission.

Such alliances are increasing in frequency and scale as providers

jockey for position in the global marketplace.

The competitive

positions of the parties in their respective domestic markets and

the amount of financial investment at stake raised concerns

regarding the potential for anti-competitive behavior.

This warranted close scrutiny of control and foreign ownership

under the Section 310 of the Communications Act. I am satisfied

that the MCI/BT liaison, as a whole, is in the public interest

marketplace.

The competitive

positions of the parties in their respective domestic markets and

the amount of financial investment at stake raised concerns

regarding the potential for anti-competitive behavior.

This warranted close scrutiny of control and foreign ownership

under the Section 310 of the Communications Act. I am satisfied

that the MCI/BT liaison, as a whole, is in the public interest.

The reporting requirements we herein impose, existing Commission

regulation, and commitments made by MCI allay concerns about

leveraging market power in a discriminatory fashion.

Principally, I support this Declaratory Ruling and Order because of

the practical effects of the proposed alliance. The infusion of

4.3 billion dollars by British Telecom into MCI will benefit

American consumers directly. MCI will have the financial resources

necessary to expand and upgrade its network.

This will "jump

start" the information superhighway by spurring competitors to

upgrade their networks.

A critical factor in my decision to issue the declaratory ruling is

the relative openness of the communications market in the U.K. I

will continue to scrutinize carefully subsequent proposed alliances

for equivalent market situations. The marketplace in the United

States is becoming increasingly and fiercely competitive.

Open

entry is the standard toward which we should strive, both

domestically and internationally. Foreign entities should not be

allowed to compete in our market if our domestic providers are

precluded from theirs. I intend to continue to apply this basic

principle in assessing the on-going reformulation of the global

communications marketplace.

Other countries should demonstrate their commitment to fostering

competition by implementing a conducive regulatory regime. Their

providers will receive the regulatory treatment accorded ours.

3974

te in our market if our domestic providers are

precluded from theirs. I intend to continue to apply this basic

principle in assessing the on-going reformulation of the global

communications marketplace.

Other countries should demonstrate their commitment to fostering

competition by implementing a conducive regulatory regime. Their

providers will receive the regulatory treatment accorded ours.

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Federal Communications Commission Record

fcc 94-188

SEPARATE STATEMENT

OF

COMMISSIONER ANDREW C. BARRETT

In Re: Request of MCI Corporation British Telecmnmunications pic Joint Petition for

Declaratory Ruling Concerning Section 310(b)(4) and (d) of the Conununications Act of

1934, Derlaratnrv Rnliny and Order.

This Declaratory Ruling and Order permits British Telecommunications pic (BT) to

commit a total of $4.3 billion in equity to MCI. The Order also finds that (1) BT's

acquisition of certain voting and consent rights does not constitute a transfer of control of

MCI to BT; (2) no public interest reason should prohibit BT's acquisition of 20 percent of

MCI's capital stock; (3) comparable access to the U.K. market for U.S. carriers should not

be used as a prerequisite to approving BT's acquisition of a non-controlling 20 percent

interest in MCI;^ and (4) MCI has made several commitments that adequately address the

antitrust and leveraging issues concerning the potential for MCI to gain an unfair competitive

advantage over competing U.S. carriers by virtue of its relationship with BT.

I write separately to emphasize that the Commission's decision regarding this venture

raises several important issues regarding long-distance and international competition. First,

this venture will establish an important precedent for other ventures involving interexchange

and international carriers in the future.

Second, the specific terms of the BT/MCI venture prompt potential competition

concerns

write separately to emphasize that the Commission's decision regarding this venture

raises several important issues regarding long-distance and international competition. First,

this venture will establish an important precedent for other ventures involving interexchange

and international carriers in the future.

Second, the specific terms of the BT/MCI venture prompt potential competition

concerns. I am particularly interested in the analysis of the agreements that may amount to a

territorial allocation between BT and MCI. In this instance, the Commission has determined

that the allocation will not cause anticompetitive consequences in the relevant markets for (1)

U.S. domestic telecommunications services, (2) international telecommunications services

between the United States and United Kingdom, and (3) in the provision of seamless, global

service to high-end customers. With respect to the analysis of these relevant markets, it is

important to make a couple of observations. First, the Commission's conclusions regarding

the BT/MCI venture are based, in part, on the relatively large number of carriers competing

in the U.S. interexchange markets, as well as the large number of international facilities-

based carriers and international resellers providing U.S.-U.K. telecommunications services.^

'

The Commission also waives for good cause the 25% foreign ownership limit to accomodate this BT

investment in the event of minor fluctuations in valuation. The waiver also accommodates an additional 5

percent investment by other foreign entities.

^ In a related developtnent that will increase competition with the BT/MCI venture, the U.K. recently

opened its telecommunication market to greater competition by awarding licenses to AT&T and a number of

other companies for operating long-distance services anywhere in the country. See "AT&T Wins a License in

Britain: Competition Widens for Global Services", The New York Timfts July 9, 1994, at p. 37.

3975

ated developtnent that will increase competition with the BT/MCI venture, the U.K. recently

opened its telecommunication market to greater competition by awarding licenses to AT&T and a number of

other companies for operating long-distance services anywhere in the country. See "AT&T Wins a License in

Britain: Competition Widens for Global Services", The New York Timfts July 9, 1994, at p. 37.

3975

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9 fcc Red No. 17

To the extent that the BT/MCI venture involves agreements by the participants not to

con^te within their respective territories, I emphasize the n^

to monitor the efficacy of

the safeguards imposed in this decision, as well as those measures imposed by the Justice

Department.' Second, the creation of the "NEWCO" is designed to provide enhanced

services in a global market that currently lacks a significant number of competitors.

'

S« U.S. V. MCT rnmnninicatioDS Corp. and BT Fortv-Eieht Co. INEWCOV Case No. 1; 94CV01317

(D.D.C. filed June 15, 1994).

3976