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Text
FCC 95-498
Federal Communications Commission Record
n FCC Red No. 4
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter
SPRINT CORPORATION
Petition for Declaratory Ruling
I-S-P-95-002
Concerning Section 310(b)(4) and (d) and
the Public Interest Requirements of the
Communications Act of 1934, as amended
DECLARATORY RULING AND ORDER
Adopted: December 15, 1995;
Released: January 11, 1996
By the Commission: Commissioner Chong approving in
part and concurring in part; Commissioners Quelio, Bar
rett, Ness and Chong issuing separate statements.
Table of Contents
I. INTRODUCTION
II. BACKGROUND
III. COMMENTS
IV. DISCUSSION
A. Section 310(d) Transfer of Control
B. Public Interest Analysis
1. Applicability of the Foreign Carrier
Entry Decision
2. Effective Competitive Opportunities
Analysis Under Section 214
3. Effective Competitive Opportunities
Analysis Under Section 310(b)(4)
4. Competitive Concerns
5. Countervailing Factors
a.
Liberalization
Developments
in
France and Germany
b. Effects on Competition in U.S. Mar
kets
c. Other Public Interest Factors
6. Conditions and Safeguards
V. CONCLUSION
VI. ORDERING CLAUSES
Paragraphs
1
6
15
20
31
35
47
51
61
62
77
89
96
134
138
1. INTRODUCTION
1. In this declaratory ruling and order, we grant, subject
to certain conditions. Sprint's requests for rulings that the
proposed alien ownership in Sprint of up to 28 percent is
not on balance inconsistent with Section 310(b)(4) of the
Communications Act (Act), and that the proposed transac
tion is not otherwise inconsistent with the public interest.
We also find that 10 percent equity investments each by
France Telecom (FT) and Deutsche Telekom (DT) in
Sprint do not result in a transfer of control of Sprint to FT
and DT and thus do not require prior Commission ap
proval under Section 310(d) of the Act.
2
ection 310(b)(4) of the
Communications Act (Act), and that the proposed transac
tion is not otherwise inconsistent with the public interest.
We also find that 10 percent equity investments each by
France Telecom (FT) and Deutsche Telekom (DT) in
Sprint do not result in a transfer of control of Sprint to FT
and DT and thus do not require prior Commission ap
proval under Section 310(d) of the Act.
2. In our recently adopted Foreign Carrier Entry Order,
we stated that we would evaluate, as an important part of
our overall public interest analysis under Sections 214 and
310(b)(4), whether effective competitive opportunities exist
for U.S. entities in relevant foreign markets.' France and
Germany do not now offer effective competitive opportu
nities to U.S. carriers. FT and DT are monopoly providers
of basic international telecommunications facilities in these
countries. Nonetheless, two other important public interest
factors weigh in favor of granting the petition: (1) the
current and planned liberalization of the French and Ger
man telecommunications markets; and (2) the competitive
benefits for the U.S. telecommunications markets of the FT
and DT investment in Sprint.
3. A critical component of our decision is our conclu
sion that the French and German Governments are com
mitted to full competition in their telecommunications
markets, in which U.S. companies will be allowed to par
ticipate. Since our notice of proposed rulemaking (NPRM)
on foreign carrier entry was adopted in February 1995, and
following discussions with Commission representatives,
both the French and German Governments have an
nounced and begun to implement wide-ranging liberaliza
tion plans. Moreover, they have committed, in letters from
senior government representatives filed with the Commis
sion, to open their telecommunications services and infra
structure markets to limited competition by July 1996 and
full competition by January 1, 1998. While we do not
doubt the good faith of these commitments, to protect U.S
an
nounced and begun to implement wide-ranging liberaliza
tion plans. Moreover, they have committed, in letters from
senior government representatives filed with the Commis
sion, to open their telecommunications services and infra
structure markets to limited competition by July 1996 and
full competition by January 1, 1998. While we do not
doubt the good faith of these commitments, to protect U.S.
interests, we find that this transaction is in the public
interest only if Sprint and the parties' Joint Venture com
ply with certain strict conditions. These conditions address
(1) the potential for FT and DT to use their current de jure
and de facto monopoly market power to engage in
anticompetitive conduct because of their financial interests
in Sprint and the carriers' joint venture and (2) the pos
sibility that the telecommunications liberalization to which
France and Germany have committed may not occur on
the anticipated schedule.
4. First, Sprint is regulated as a dominant carrier on the
U.S.-France and U.S.-Germany routes and will continue to
be so regulated until we find that there is no substantial
risk of anticompetitive effects in the U.S. international
services market from Sprint's affiliation with FT and DT.
Second, we will not allow Sprint to operate newly acquired
circuits on the U.S.-France and U.S.-Germany routes until
France and Germany have liberalized two important mar
kets: alternative infrastructure for already liberalized ser
vices (which include most non-public voice services) and
See Market Entry and Regulation of Foreign-affHialed Entities
Report and Order, FCC 95-475 (Nov. 28, 1995) (Foreign Carrier
Entry Order).
1850
t to operate newly acquired
circuits on the U.S.-France and U.S.-Germany routes until
France and Germany have liberalized two important mar
kets: alternative infrastructure for already liberalized ser
vices (which include most non-public voice services) and
See Market Entry and Regulation of Foreign-affHialed Entities
Report and Order, FCC 95-475 (Nov. 28, 1995) (Foreign Carrier
Entry Order).
1850
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
basic switched voice resale. Third, Sprint must comply with
nondiscrimination and reporting requirements. Fourth,
Sprint must obtain a commitment from FT to lower its
accounting rate with U.S. carriers to the same range as the
U.S.-U.K. and U.S.-Germany accounting rates in the near
future and in no event later than two years from the
effective date of this Order. Finally, Sprint must report by
March 31, 1998 whether the anticipated liberalization has
occurred. If we find it has not, we will take further action,
including designating for hearing the issue of whether the
public interest would no longer be served by Sprint's hold
ing of Section 214 facilities authorizations on the
U.S.-France and U.S.-Germany routes.
5. We note that the Department of Justice (Justice De
partment) has conducted its own review of this transaction
under its antitrust enforcement responsibilities. The con
ditions and requirements we impose here reflect our
broader mandate to protect the public interest and welfare
of U.S. consumers. So long as the parties comply with
these conditions and requirements in conjunction with this
transaction, we find that this transaction is in the public
interest.
II. BACKGROUND
6
own review of this transaction
under its antitrust enforcement responsibilities. The con
ditions and requirements we impose here reflect our
broader mandate to protect the public interest and welfare
of U.S. consumers. So long as the parties comply with
these conditions and requirements in conjunction with this
transaction, we find that this transaction is in the public
interest.
II. BACKGROUND
6. On October 14, 1994, Sprint Corporation (Sprint)
filed a petition for declaratory ruling regarding the pro
posed equity investments by FT and DT in Sprint and the
proposed joint venture among the three carriers.^ First,
Sprint seeks a ruling that the investments by FT and DT do
not result in a transfer of control of Sprint and that prior
Commission approval thus is not required under Section
310(d) of the Act of 1934.^ Second, Sprint requests a ruling
that alien ownership in Sprint of up to 28 percent, as part
of the proposed transaction, is not inconsistent with Sec
tion 310(b)(4) of the Act. Finally, Sprint seeks a ruling that
the proposed transaction is otherwise consistent with the
public interest.
7. Sprint 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 Commission licenses and
authorizations. Sprint conducts its business through subsid
iaries. Sprint's long distance subsidiary is the third largest
U.S. carrier of long distance services, providing voice, data
and video services over a nationwide digital, fiber optic
network. Its international services are provided primarily
via submarine cable systems and satellite facilities. In addi
tion, Sprint's subsidiaries provide local telephone and cel
lular
services.
Through
an
affiliate.
Sprint
Telecommunications Venture (STY), Sprint also is a sig
nificant partner in WirelessCo, a major licensee of
broadband personal communications services (PCS).
8
iber optic
network. Its international services are provided primarily
via submarine cable systems and satellite facilities. In addi
tion, Sprint's subsidiaries provide local telephone and cel
lular
services.
Through
an
affiliate.
Sprint
Telecommunications Venture (STY), Sprint also is a sig
nificant partner in WirelessCo, a major licensee of
broadband personal communications services (PCS).
8. FT is the de jure monopoly service provider in France
of local, long distance and international public switched
services, and of terrestrial infrastructure for the provision
of telecommunications services to the public. It also offers
a range of other telecommunications products and services,
including private line circuits and cellular services. FT is
100 percent owned by the French government, and is
subject to regulation by the French Directorate General of
Posts and Telecommunications (DGPT).
9. Similarly, DT is the de jure monopoly service pro
vider in Germany of local, long distance and international
public switched services. DT also offers, among other tele
communications products and services, private line circuits
and cellular services. It is the monopoly provider of terres
trial infrastructure for the provision of telecommunications
services to the public. DT is 100 percent owned by the
German government, and is subject to regulation by the
German Federal Ministry for Posts and Telecommunica
tions (BMPT).
10. On June 14, 1995, Sprint, FT and DT announced a
global alliance, which involves FT and DT each acquiring
up to 10 percent of the voting equity in Sprint. The cost of
these investments would be based on a complex formula
designed to anticipate the possible divestment of Sprint's
U.S. cellular operations, and fluctuations in Sprint's public
stock price
y for Posts and Telecommunica
tions (BMPT).
10. On June 14, 1995, Sprint, FT and DT announced a
global alliance, which involves FT and DT each acquiring
up to 10 percent of the voting equity in Sprint. The cost of
these investments would be based on a complex formula
designed to anticipate the possible divestment of Sprint's
U.S. cellular operations, and fluctuations in Sprint's public
stock price. Under this formula, the investment price could
vary from approximately $3.5 to $4.2 billion.' The global
partnership among Sprint, FT and DT also involves the
creation of "Joint Venture Company" (Joint Venture), an
alliance to provide enhanced and certain basic telecom
munications services to multinational corporate and busi
ness customers on a global basis. These services include: (1)
international data, voice and video; (2) international card-
based services for travellers: and (3) international transport
services for other carriers.
11. On July 28, 1995, Sprint filed the final agreements of
the parties with the Commission.'' Pursuant to these agree
ments, the Joint Venture will be run by a Global Partner
ship Board. Each party will have three equal votes on the
Board, which will oversee two operating groups, each fo
cused on specific geographic territories or activities. In
addition, the parties will create a Global Backbone Net
work to carry the Joint Venture's services. The Global
^
Sprint Petition for Declaratory Ruling Concerning Sections
310(b)(4) and (d) and the Public Interest Requirements of the
Communications Act of 1034, as Amended, l-S-P-05-002 (filed
Oct. 14, 1994) (Sprint Petition).
' Sprint does not seek prior Commission approval of the
transaction under Section 214 of the Communications Act or
the Submarine Cable Act. 47 U.S.C. § 34. Sprint states that such
approval is not required because there is no change in owner
ship of Section 214 certificates and cable landing licenses held
by Sprint's subsidiaries. See Sprint Petition at 2. n.l
iled
Oct. 14, 1994) (Sprint Petition).
' Sprint does not seek prior Commission approval of the
transaction under Section 214 of the Communications Act or
the Submarine Cable Act. 47 U.S.C. § 34. Sprint states that such
approval is not required because there is no change in owner
ship of Section 214 certificates and cable landing licenses held
by Sprint's subsidiaries. See Sprint Petition at 2. n.l.
All references to Sprint, the Joint Venture, FT, and DT in
this Order include their respective officers, directors, and em
ployees, as well as any affiliated companies and their officers,
directors and employees.
'
The parties agreed that the amount of the proposed invest
ment will be reduced to reflect Sprint's loss of assets should it
divest its U.S. cellular operations.
' Sprint filed its Memorandum of Understanding (MOU) with
FT and DT with its petition for declaratory ruling. See Sprint
Petition, Exhibit 1. The MOU is superseded by the final agree
ments of the parties, which include: (i) the Investment Agree
ment: (ii) the Stockholders' Agreement: (iii) the Joint Venture
Agreement: (iv) the Standstill Agreement; (v) the Proposed
Amendments to Sprint's Bylaws: and (vi) the Certificate of
Amendment to Sprint's Articles of Incorporation. The final
agreements differ from the MOU in several ways. Most notably,
the Investment Agreement creates a series of contingencies for
the pricing and timing of the investment, which will be com
pleted in one transaction instead of two equal tranches, as
originally planned. In addition, the final agreements reflect the
possibility that Sprint will divest its cellular assets.
1851
of Incorporation. The final
agreements differ from the MOU in several ways. Most notably,
the Investment Agreement creates a series of contingencies for
the pricing and timing of the investment, which will be com
pleted in one transaction instead of two equal tranches, as
originally planned. In addition, the final agreements reflect the
possibility that Sprint will divest its cellular assets.
1851
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
Backbone Network will be owned 50 percent by Sprint and
50 percent by FT and DT through a joint venture between
FT and DT alone, known as Atlas. In the near term,
Global Backbone Network functions will be performed by
two Regional Operating Groups. The operating group serv
ing Europe (excluding France and Germany), the Rest of
Europe Group (ROE Group), will be owned one-third by
Sprint and two-thirds by FT and DT. The unit for
worldwide activities outside the United States and Europe,
the Rest of the World Group (ROW Group), will be 50
percent owned by Sprint and 50 percent owned by FT and
DT through Atlas. Each carrier will be the sole service
provider of the Joint Venture's services within its home
territory. The interests of FT and DT in the Joint Venture
are expected to be managed by Atlas.
12. The Atlas joint venture, together with FT's and DT's
global alliance with Sprint (known as "Phoenix"), are cur
rently under review by the Directorate General IV (DG
IV) of the European Commission. DG IV has jurisdiction
in the European Union to enforce E.U. competition laws.
On October 18, 1995, DG IV issued a press release stating
that the French and German Governments had made cer
tain liberalization commitments which adequately address
DG IV's competitive concerns about the transaction.' In
addition, FT and DT have agreed that their public switched
data networks, Transpac and Datex-P, respectively, will re
main separate from Atlas until 1998
E.U. competition laws.
On October 18, 1995, DG IV issued a press release stating
that the French and German Governments had made cer
tain liberalization commitments which adequately address
DG IV's competitive concerns about the transaction.' In
addition, FT and DT have agreed that their public switched
data networks, Transpac and Datex-P, respectively, will re
main separate from Atlas until 1998. The parties anticipate
that, given this agreement, the European Commission will
issue a public notice in the near future stating its intention
to approve formally the transaction in mid-1996.® Based on
these developments, the parties intend to close their trans
action in early 1996.
13. On July 13, 1995, the Justice Department filed a civil
antitrust complaint under Section 15 of the Clayton Act,
alleging that the proposed total of 20 percent investment by
FT and DT in Sprint and the formation of the Joint
Venture would violate Section 7 of the Clayton Act.'' The
Justice Department and the defendants (Sprint and the
Joint Venture), however, have stipulated to the entry of a
proposed Final Judgment which the Justice Department
believes provides an adequate remedy to the antitrust con
cerns posed by the transaction. The Justice Department has
concluded that a series of conditions and safeguards, im
posed in two phases, are sufficient. Section II, which im
poses many of the same disclosure and confidentiality
requirements set forth in the MCI/BT Final Judgment,™
would become effective upon the entry of the Final Judg
ment and remain in effect for five years after the con
ditions for the expiration of Section III have been
satisfied." Section III establishes certain operating and dis
closure requirements and would remain in effect from the
entry of the Final Judgment until all prohibitions on com
petition have been removed and one or more new competi
tors have been licensed in France and Germany.'^ The
proposed Final Judgment is subject to approval by the U.S.
District Court for the District of Columbia.
14
ave been
satisfied." Section III establishes certain operating and dis
closure requirements and would remain in effect from the
entry of the Final Judgment until all prohibitions on com
petition have been removed and one or more new competi
tors have been licensed in France and Germany.'^ The
proposed Final Judgment is subject to approval by the U.S.
District Court for the District of Columbia.
14. As in the MCIIBT proceeding,™ we note that the
Final Judgment and the accompanying explanatory text of
the Competitive Impact Statement (CIS) address many of
our concerns about the potential for discrimination and
anticompetitive abuse of foreign
market power by
monopoly foreign carriers." Indeed, much of the Final
Judgment's underlying rationale, as set forth in the CIS,
echoes this Commission's policy goals, current competitive
safeguards, and new conditions being imposed in this Or
der. As the Commission recognized nearly thirty years ago,
however, "the standards governing [the Justice Department)
and the action of the Commission are significantly dif
ferent. The Antitrust Division is charged with the enforce
ment of the antitrust laws . . . , while the Commission is
charged with effectuating the policies of the Communica
tions Act."™ Our responsibilities under the Communica
tions Act are broader than those of the antitrust enforce-
See "Atlas-Phoenix: Clearance Possible by Mid-1996," Press
Release By the European Commission (Oct. 18, 1995).
®
Letter from John R. Hoffman. Sprint, to Scott Blake Harris,
Chief, International Bureau (filed Oct. 27, 1995). This notice
has since been published by the European Commission. See
Notice pursuant to Article (19)(3) of Council Regulation No. 17
and Article 3 of Protocol 21 of the European Economic Area
Agreement concerning a request for negative clearace or an
exemption pursuant to Article 85 (3) of the EC Treaty and
Article 53(3) of the EEA Treaty, Case IV/35.6l7-Phoenix, 95/C
337/03 (Dec. 15, 1995).
'
U.S. V. Sprint Corporation and Joint Venture Company, Civil
Action No
e
Notice pursuant to Article (19)(3) of Council Regulation No. 17
and Article 3 of Protocol 21 of the European Economic Area
Agreement concerning a request for negative clearace or an
exemption pursuant to Article 85 (3) of the EC Treaty and
Article 53(3) of the EEA Treaty, Case IV/35.6l7-Phoenix, 95/C
337/03 (Dec. 15, 1995).
'
U.S. V. Sprint Corporation and Joint Venture Company, Civil
Action No. 95-1304 (D.D.C. filed July 13, 1995); U.S. v. Sprint
Corporation and Joint Venture Co.; Proposed Final Judgment
and Competitive Impact Statement, 60 Fed. Reg. 44049 (1995)
(Proposed Final Judgment and Competitive Impact Statement).
For further discussion, see infra f 101.
See U.S. V. MCI Communications Corp. and BT Forty-Eight
Co. (NEWCO), Case No. 1:94 CV01317 (D.D.C. filed June 15
1994).
"
Phase II provides, among other things, that Sprint and the
Joint Venture shall not: (1) provide service in the United States
that requires use of FT or DT services or facilities unless
certain information (e.g., prices and terms of interconnection) is
reported; (2) receive from FT or DT any non-public proprietary
information about other carriers: and (3) offer services between
the United States and France and Germany unless at least one
other U.S. carrier is authorized or licensed to provide such
services. See Proposed Final Judgment, 60 Fed. Reg. at 44051-53.
™ For example, Sprint and the Joint Venture may not: (I)
own an interest in any FT or DT monopoly facilities or public
data networks: (2) sell FT or DT monopoly services unless
other U.S. carriers can obtain them directly from FT or DT: (3)
accept FT or DT services on a discriminatory basis: (4) benefit
from discounts offered by FT or DT conditioned upon selection
of Sprint as the U.S
at 44051-53.
™ For example, Sprint and the Joint Venture may not: (I)
own an interest in any FT or DT monopoly facilities or public
data networks: (2) sell FT or DT monopoly services unless
other U.S. carriers can obtain them directly from FT or DT: (3)
accept FT or DT services on a discriminatory basis: (4) benefit
from discounts offered by FT or DT conditioned upon selection
of Sprint as the U.S. carrier: (5) accept correspondent traffic
from FT or DT except consistent with this Commission's pro
portionate return policies: (6) receive subsidies from FT or DT
monopoly services: or (7) provide FT or DT data services in the
United States unless FT and DT continue to offer a standard
ized interface to other carriers. See Proposed Final Judgment, 60
Fed. Reg. at 44053-55.
™ XfCl Communications, Inc.!British Telecommunications, Pic.,
9 FCC Red 3960 (1994) (MCI/BT).
"
In the Foreign Carrier Entry proceeding, we defined the term
"foreign market power" as the ability to act anticompetitively
against unaffiliated U.S. carriers through the control of bot
tleneck services or facilities on the foreign end. See Foreign
Carrier Entry Order at 1 116.
™ ABC Cos. Inc., 1 F.C.C.2d 245, 249 (1966): U.S. v. FCC, 652
F.2d 72, 88 (citations omitted): accord. Town of Concord v.
Boston Edison Co., 915 F.2d 17, 22 (1st Cir. 1990), cert, denied,
499 U.S. 391 (1991): U.S. v. AT&T, 498 F. Supp. 353, 364
(D.D.C. 1980): see also Northeast Utilities Service Co. v. FERC,
933 F.2d 937, 947-48 (Ist Cir. 1993).
1852
end. See Foreign
Carrier Entry Order at 1 116.
™ ABC Cos. Inc., 1 F.C.C.2d 245, 249 (1966): U.S. v. FCC, 652
F.2d 72, 88 (citations omitted): accord. Town of Concord v.
Boston Edison Co., 915 F.2d 17, 22 (1st Cir. 1990), cert, denied,
499 U.S. 391 (1991): U.S. v. AT&T, 498 F. Supp. 353, 364
(D.D.C. 1980): see also Northeast Utilities Service Co. v. FERC,
933 F.2d 937, 947-48 (Ist Cir. 1993).
1852
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
ment agencies, for we are "entrusted with the responsibility
to determine when and to what extent the public interest
would be served by competition in the industry."'^
III. COMMENTS
15. We placed Sprint's petition on public notice.'^ AT&T
Corp. (AT&T), ACC Global Corp. (ACC), and MFS Inter
national, Inc. (MFSI) filed oppositions. BT North America
Inc. (BTNA) and MCI Telecommunications (MCI) filed
comments which generally oppose the petition. AirTouch
Communications (AirTouch) filed comments in support of
Sprint's petition. ACC, AT&T, BTNA and Sprint filed
reply comments. C. Fred Bergsten, the German Association
of Private Telecommunications Operators (APTO), Interna
tional Brotherhood of Electrical Workers (IBEW), and the
Information Technology Industry Council (ITI) filed ex
pane letters.
16. We also placed the final agreements and related
documents on public notice.'® AT&T, Esprit U.K. (Esprit)
and MCI filed oppositions. BTNA, Communications Work
ers of America/IBEW (CWA/IBEW) and MFSI filed com
ments. ACC, AT&T, DT, Esprit, FT, and Sprint filed reply
comments. In addition, the French and German Govern
ments filed ex parte letters. ACC, AT&T, BTNA, the U.K.'s
Office of Telecommunications (OFTEL), U.S. Senator Bob
Dole, and WorldCom, Inc. (WorldCom) also filed ex pane
submissions.
17
rit)
and MCI filed oppositions. BTNA, Communications Work
ers of America/IBEW (CWA/IBEW) and MFSI filed com
ments. ACC, AT&T, DT, Esprit, FT, and Sprint filed reply
comments. In addition, the French and German Govern
ments filed ex parte letters. ACC, AT&T, BTNA, the U.K.'s
Office of Telecommunications (OFTEL), U.S. Senator Bob
Dole, and WorldCom, Inc. (WorldCom) also filed ex pane
submissions.
17. Only AT&T argues that the terms and conditions of
the Memorandum of Understanding (subsequently incor
porated in the final agreements of the parties, including the
Joint Venture and Investment Agreements) results In a
transfer of control of Sprintto FT and DT under Section
310(d) of the Act." Generally, the commenters maintain
that the proposed transaction raises concerns about poten
tial discrimination (e.g.,leveraging of foreign market power)
and asymmetrical market access in France and Germany,
and the potential for exclusive dealing in enhanced and
basic services through the Joint Venture.
18. AT&T, BTNA and CWA/IBEW maintain that the
transaction is not in the public interest under Section
310(b)(4) until France and Germany offer effective market
access to U.S. carriers.^" ACC states that the Commission
should not grant Sprint's petition until, among other
things, France and Germany permit the resale of interna
tional private lines for the provision of public switched
services. Esprit opposes approval of Sprint's petition before
switched voice telephony competition is introduced in
France and Germany, and independent regulatory bodies
are established that can and will effectively enforce regula
tions to protect against anticompetitive conduct.^' MFSI
states that it does not oppose ultimate approval of the
transaction if adequate safeguards are in place and competi
tion is sufficiently developed in France and Germany.
19
e
switched voice telephony competition is introduced in
France and Germany, and independent regulatory bodies
are established that can and will effectively enforce regula
tions to protect against anticompetitive conduct.^' MFSI
states that it does not oppose ultimate approval of the
transaction if adequate safeguards are in place and competi
tion is sufficiently developed in France and Germany.
19. OFTEL expresses concern about the lack of indepen
dent regulatory authorities in France and Germany to
ensure that the alliance among Sprint, FT and DT does not
result in discriminatory behavior against other market par
ticipants.^® WorldCom states that developments in France
and Germany require the imposition of certain conditions
to safeguard against discrimination and unreasonable prac
tices by FT and DT.®^ AT&T adds that, unlike the equity
investment by FT and DT in Sprint, the Joint Venture
should be approved by the Commission with appropriate
conditions. These conditions include certain operating and
disclosure requirements, in addition to those imposed in
the MCl/BT proceeding, together with the requirement that
FT and DT set cost-based accounting rates with U.S. car-
t-lor-c 25
IV. DISCUSSION
A. Section 310(d) Transfer of Control
20. Sprint seeks a declaratory ruling that the proposed
investments will not result in a transfer of control of
Sprint's licenses to FT and DT under Section 310(d) of the
Act.®® According to Commission precedent, whether an
entity holding a minority stock interest controls a corpora
tion
primarily
depends on whether the
minority
shareholder has the power to "dominate" the management
of corporate affairs.
A minority shareholder does not
control a corporation unless it exercises influence to a
degree that "determines" the company's policies and oper
ations, or "dominates" the company's corporate affairs
whether an
entity holding a minority stock interest controls a corpora
tion
primarily
depends on whether the
minority
shareholder has the power to "dominate" the management
of corporate affairs.
A minority shareholder does not
control a corporation unless it exercises influence to a
degree that "determines" the company's policies and oper
ations, 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 Board of Directors), are relevant to
determining who controls the company.®®
21. Pursuant to the final agreements. FT and DT will
each acquire up to a 10 percent equity interest in Sprint by
purchasing a new class of Sprint common stock (Class A).
The total purchase will yield approximately 86.2 million
'® U.S. V. FCC, 652 F.2d at 88.
Report No. 1-7054 (Oct. 19, 1994).
The August 4, 1995 public notice requested comment on
"developments since the original pleading cycle . . . and/or
issues which arise from differences between the parties' memo
randum of understanding and the final agreements and docu
ments." Report No. 1-8084 (Aug. 4, 1995).
"
AT&T Opposition at 18-23 (filed Nov. 18, 1994).
AT&T Supplemental Opposition at 17-30 (filed Sep. 1,
1995); BTNA Supplemental (Comments at 8-12 (filed Sep. 1,
1995); CWA/IBEW Comments at 6-8 (filed August 30, 1995).
®' Esprit Opposition at 4-7 (filed Sep. 1, 1995).
®® MFSI Comments at 6-7 (filed Sep. 1, 1995).
®® Letter from Don Cruickshank, Director General, OFTEL, to
Reed E. Hundt, Chairman, Federal Communications Commis
sion (filed Dec. 2, 1995).
Letter from Robert S. Koppel, Vice President, International
Regulatory Affairs, WorldCom, to William F. Caton, Acting
Secretary, Federal Communications Commission (filed Nov. 28,
1995).
AT&T Supplemental Opposition at 31-38.
®® Section 310(d) provides, in pertinent part, that "|n|o . . .
station license, or any rights thereunder, shall be transferred,
assigned or disposed of in any manner, . .
).
Letter from Robert S. Koppel, Vice President, International
Regulatory Affairs, WorldCom, to William F. Caton, Acting
Secretary, Federal Communications Commission (filed Nov. 28,
1995).
AT&T Supplemental Opposition at 31-38.
®® Section 310(d) provides, in pertinent part, that "|n|o . . .
station license, or any rights thereunder, shall be transferred,
assigned or disposed of in any manner, . . . or by transfer of
control of any corporation holding such permit or license, to
any person except upon application to the Commission and
upon finding by the Commission that the public interest, con
venience, and necessity will be served thereby." 47 U.S.C. §
310(d).
"
Benjamin L. Dubb, 16 F.C.C. 274, 289 (1951).
®® Metromedia, Inc., 98 F.C.C.2d 299, 306 (1984).
1853
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
shares of Sprint Class A common stock. FT and DT each
will own approximately 10 percent of the resulting total of
Sprint common stock.
22. Sprint is now controlled by its public shareholders
through a 15-member Board of Directors. Under the pro
posed transaction, FT and DT would be able to designate
up to three Board members.^' Thus, a 20 percent equity
interest would translate into 20 percent representation on
the Board.
A majority of the 15 directors must satisfy
certain specified criteria as independent directors.^' Because
Sprint's public shareholders will maintain the majority
voting interest in Sprint and will elect 80 percent of the
Board (the Sprint and Independent Directors), FT's and
DT's directors will remain a minority. Sprint will continue
to conduct business by a simple majority vote on all mat
ters considered by the Board.
23. In our MCUBT Order, we found that the acquisition
of a 20 percent minority interest, and the accompanying
proportionate representation on the Board of Directors, did
not itself constitute a transfer of control
nt and Independent Directors), FT's and
DT's directors will remain a minority. Sprint will continue
to conduct business by a simple majority vote on all mat
ters considered by the Board.
23. In our MCUBT Order, we found that the acquisition
of a 20 percent minority interest, and the accompanying
proportionate representation on the Board of Directors, did
not itself constitute a transfer of control.
We similarly
find that FT's and DT's acquisition of a 20 percent ag
gregate interest in Sprint and up to 20 percent representa
tion on the Sprint Board does not itself constitute a
transfer of control.
24. We also must determine whether the voting and
consent rights In the parties' agreements would give FT
and DT the right to control Sprint. In addition to its voting
rights, FT's and DT's Class A stock incorporates certain
consent rights, including the right to prohibit certain cor
porate actions by Sprint without their consent. These ac
tions include any transaction that would result in the
issuance of 30 percent or more shares in Sprint.
Other
transactions over which FT and DT have consent rights
include those that would: (1) adversely affect the rights
afforded DT and FT by their ownership of Class A stock;
(2) result in mergers or other business combinations in
which Sprint would not be the surviving corporation; (3)
result in the sale of Sprint's long distance assets, the fair
market value of which is in excess of certain threshold
percentages; or (4) result in the acquisition of a 10 percent
or larger holding in Sprint by a major competitor of DT or
FT.^-*
25. In the MCUBT Order, we found similar consent
rights to be typical protections against extraordinary cor
porate actions that could disadvantage a
minority
stockholder's interest in the corporation." We concluded
that such restrictions simply constituted a minority
shareholder's protection and did not rise to the level of
transfer of control
lding in Sprint by a major competitor of DT or
FT.^-*
25. In the MCUBT Order, we found similar consent
rights to be typical protections against extraordinary cor
porate actions that could disadvantage a
minority
stockholder's interest in the corporation." We concluded
that such restrictions simply constituted a minority
shareholder's protection and did not rise to the level of
transfer of control. In addition, the Investment Agreement
safeguards Sprint's control over the use of the proceeds
from the investment by giving its Board the ultimate au
thority to determine how Sprint will use the proceeds.^® In
the absence of any contrary evidence, we similarly find the
negative rights accorded FT and DT are mere protections
of FT's and DT's investments as minority shareholders.
26. AT&T also argues that Sprint will transfer oper
ational control of its domestic operations since Sprint must
conform these operations to the strategies and operations of
the Global Venture Board,^^ in which FT and DT will have
two representatives to Sprint's one.^® We disagree that such
conformance indicates a transfer of operational control.
AT&T incorrectly bases its argument on the premise that
Sprint may always be outvoted by FT and DT on the
Global Venture Board.®' To the contrary, no action may be
taken by the Global Venture Board without the affirmative
vote of all of the parties.'*" Thus, Sprint, FT and DT each
have veto power and will not be controlled by the other
parties on the Board, whether in the conduct of their
respective domestic operations or otherwise.
27. Moreover, all of the parties, including FT and DT,
have made the same commitment to conform their domes
tic operations to the Global Venture Board's policies. Giv
en that each party is obligated to provide Joint Venture
services in its home country, it is not surprising that the
parties would deem a conformance commitment from each
party necessary to ensure the delivery of these services
according to uniform standards. Again, notwithstanding
these commitments
e same commitment to conform their domes
tic operations to the Global Venture Board's policies. Giv
en that each party is obligated to provide Joint Venture
services in its home country, it is not surprising that the
parties would deem a conformance commitment from each
party necessary to ensure the delivery of these services
according to uniform standards. Again, notwithstanding
these commitments. Sprint retains negative control to de
feat any Global Venture Board proposition that is contrary
to Sprint's interest.
28. Similarly, AT&T states that Sprint is transferring
operational control to FT and DT because it must submit
its business plans (for partnership services to the Global
Venture Board.)'*' We do not believe that this requirement
constitutes a transfer of control. Sprint and FT and DT are
required to prepare and submit to the Global Venture
Board only business plans relating to Joint Venture activi
ties. The business plans for Sprint's many other activities
will not be submitted.'*® We find no reason to disagree with
Sprint's argument that this provision is commercially nec
essary to ensure that each party meets uniform service
standards and does not take action inconsistent with the
parties' agreements.®® We thus conclude that this require
ment, which extends to each party and permits monitoring
of the performance of a contractual partner, does not
amount to a transfer of control, particularly given Sprint's
negative consent rights on the Global Venture Board.
29. AT&T also asserts that Sprint has given up oper
ational control of its international facilities. AT&T argues
that, because FT and DT own 50 percent of the Global
Backbone Network, and Sprint is granting the Global
Backbone Network use of its international facilities for the
Certincate of Amendment of Sprint's
Articles of
Incorporation at 3-5.
®'' Sprint Petition at 12-13.
®'
Generally, a director is considered "independent" if
unaffiliated with either Sprint's management or with FT or DT
s. AT&T argues
that, because FT and DT own 50 percent of the Global
Backbone Network, and Sprint is granting the Global
Backbone Network use of its international facilities for the
Certincate of Amendment of Sprint's
Articles of
Incorporation at 3-5.
®'' Sprint Petition at 12-13.
®'
Generally, a director is considered "independent" if
unaffiliated with either Sprint's management or with FT or DT.
See Certificate of Amendment of Sprint's Articles of
Incorporation at 89-90.
®® MCUBT, 9 FCC Red at 3962-63.
®®
Certificate
of Amendment of Sprint
Articles of
Incorporation at 43.
®® Id. at 38-44.
®® See MCl/BT, 9 FCC Red at 3962-63.
®® See Investment Agreement at 91; MOU at Annex A.
®® The Global Venture Board will control all services specified
in the Joint Venture Agreement. Joint Venture Agreement at
33-39.
®® Sprint Petition at 19.
®' See Sprint Reply at 15 (filed Dec. 5, 1994).
®" Joint Venture Agreement at 54.
*' AT&T Opposition at 18-19.
®® See Sprint Reply at 17-18.
*® See id. at 17 (noting that each party has the sole responsibil
ity to provide partnership services in its home country).
1854
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
provision of Sprint's international Joint Venture services,
Sprint has conveyed 50 percent of the control of its facili
ties to FT and DT.'*'' We disagree. The use of facilities does
not necessarily equate to control of those facilities. Sprint
can maintain control of its international facilities while
allowing the Global Backbone Network or the Regional
Operating Groups to use those facilities. Allowing joint
control over the provision of Joint Venture services does
not grant FT and DT the power to "determine the com
pany's operations" or "dominate its corporate affairs."
Sprint only has permitted FT and DT a measure of influ
ence in providing specific services. Based on these facts.
Sprint's grant of influence to FT and DT does not rise to
the level of a transfer of control.
30
ilities. Allowing joint
control over the provision of Joint Venture services does
not grant FT and DT the power to "determine the com
pany's operations" or "dominate its corporate affairs."
Sprint only has permitted FT and DT a measure of influ
ence in providing specific services. Based on these facts.
Sprint's grant of influence to FT and DT does not rise to
the level of a transfer of control.
30. We conclude that the agreements between Sprint and
FT and DT do not grant FT and DT the right to determine
the corporate policy that Sprint will pursue, or indicate
that FT and DT will dominate the management of Sprint's
corporate affairs. Consequently, we find that the transaction
before us does not constitute a transfer of control and,
therefore, does not require Commission approval under
Section 310(d) prior to consummation of the transaction.'^'
Commission approval pursuant to the Cable Landing Li
cense Act also is not required by the specific terms of
Sprint's cable landing licenses.''^ In addition, prior au
thorization under Section 214 of the Act is not required to
the extent Sprint alone - and not the Joint Venture — will
be providing basic Joint Venture services in the United
States."*^ If the Joint Venture seeks to provide basic services
to U.S. customers, the Joint Venture must then seek prior
Section 214 authorization.
B. Public Interest Analysis
1. Applicability of the Foreign Carrier Entry Decision
a. Comments
31. In their supplemental opposition and comments,
AT&T and BTNA urge us to apply the effective market
access standard proposed in the Notice of Proposed
Rulemaking (NPRM) in the Foreign Carrier Entry proceed
ing to Sprint's petition for purposes of determining wheth
er the proposed transaction is in the public interest.''®
Sprint opposes this approach. First. Sprint states that the
NPRM is a tentative proposal that has been widely criti
cized as the improper means to achieve the Commission's
policy goals
standard proposed in the Notice of Proposed
Rulemaking (NPRM) in the Foreign Carrier Entry proceed
ing to Sprint's petition for purposes of determining wheth
er the proposed transaction is in the public interest.''®
Sprint opposes this approach. First. Sprint states that the
NPRM is a tentative proposal that has been widely criti
cized as the improper means to achieve the Commission's
policy goals. Second, Sprint asserts that it would be unfair
to apply an effective market access approach because
Sprint's petition was pending before the Commission ini
tiated the Foreign Carrier Entry proceeding."*®
b. Discussion
32. On November 28, 1995, after the parties filed their
supplemental pleadings, we adopted final rules in the For
eign Carrier Entry proceeding affecting our public interest
analyses under Sections 214 and 310(b)(4)."' We concluded
in that proceeding that the public interest in an effectively
competitive market for U.S. telecommunications services
requires us to evaluate, as an important part of our overall
public interest analysis under Section 214, whether effec
tive competitive opportunities exist for U.S. carriers in the
destination markets of foreign carriers seeking to enter the
U.S. international services market through an affiliation
with a U.S. carrier." We similarly must examine, in con
sidering whether to permit foreign investment in a U.S.
radio licensee in excess of the benchmarks contained in
Section 310(b)(4), whether relevant foreign home markets
offer effective competitive opportunities to U.S. entities.'^
Consistent with our broad authority to determine the pub
lic interest under that section, the goals of these new rules
are (1) to promote competition in the U.S. telecommunica
tions market; (2) to prevent anticompetitive conduct in the
provision of international services; and (3) to encourage
foreign governments to open their communications mar
kets to competition.
33
rtunities to U.S. entities.'^
Consistent with our broad authority to determine the pub
lic interest under that section, the goals of these new rules
are (1) to promote competition in the U.S. telecommunica
tions market; (2) to prevent anticompetitive conduct in the
provision of international services; and (3) to encourage
foreign governments to open their communications mar
kets to competition.
33. Sprint has requested a declaratory ruling from this
Commission that the investments by FT and DT and the
Joint Venture are consistent with the public interest. Be
cause Sprint is a carrier authorized to provide telecom
munications services and facilities under Sections 214 and
309 of the Act, we are required to assess the public interest
merits of the investments, and the Joint Venture under
Sections 214 and 310(b)(4). If we were to find that the
investments and the Joint Venture were inconsistent with
the public interest, and Sprint were to proceed with the
transaction, we could designate for hearing the issue wheth
er the public interest would continue to be served by
Sprint's holding of Title II authorizations and Title 111
licenses.
34. It is well established that the Commission may apply
new rules and policies to pending matters." We disagree
with Sprint that it would be unfair to apply our new
analysis to Sprint's petition. It was not until late July 1995
that Sprint filed the definitive agreements of the parties
with the Commission. At that time, our Foreign Carrier
Entry rulemaking proceeding had been underway for five
months and extensive comments and reply comments had
been filed. We see no reason why our newly adopted rules
and policies should not apply here.'"* Accordingly, we will
apply our Foreign Carrier Entry decision to the Sprint
■*'*
AT&T Opposition at 20. As noted above, Global Backbone
Network functions will be performed by the two Regional Op
erating Groups, ROE Group and ROW Group. See Joint Ven
ture Agreement at 39-53.
See MCLBT. 9 FCC Red at 3963 n.34
filed. We see no reason why our newly adopted rules
and policies should not apply here.'"* Accordingly, we will
apply our Foreign Carrier Entry decision to the Sprint
■*'*
AT&T Opposition at 20. As noted above, Global Backbone
Network functions will be performed by the two Regional Op
erating Groups, ROE Group and ROW Group. See Joint Ven
ture Agreement at 39-53.
See MCLBT. 9 FCC Red at 3963 n.34.
See An Act Relating to the Landing and Operation of
Submarine Cables in the United States, 47 U.S.C. §§ 34-39
(1994) (Cable Landing License Act); see e.g., Private Transatlan
tic Telecommunications System, Inc., 4 FCC Red 5077 (1989)
(approving transfer of control of submarine cable licensee to US
Sprint Communications Co., Inc.); see also Tel-Optik, Limited,
Mimeo 4618, at 1 6 (prohibiting the transfer of control of a
submarine cable licensee unless prior Commission approval is
obtained) (1989).
•*" 47 U.S.C. § 214 (1994).
''®
AT&T
Supplemental
Opposition
at
8-16;
BTNA
Supplemental Opposition at 8-12.
■'® Sprint Supplemental Reply at 15-20 (filed Sep. 15. 1995).
See footnote 1, supra.
" See Foreign Carrier Entry Order at 1 1 27-39.
" See id. at H 1 179-96.
" See, e.g., Storer Broadcasting v. United Slates, 351 U.S. 192
(1956); Hispanic Information and Telecommunications Network
V. FCC, 865 F.2d 1289, 1294-95 (D.C. Cir. 1989).
In its Opposition, which was filed before the Foreign Carrier
Entry NPRM was adopted, AT&T urged us to adopt a "com-
1855
5. 1995).
See footnote 1, supra.
" See Foreign Carrier Entry Order at 1 1 27-39.
" See id. at H 1 179-96.
" See, e.g., Storer Broadcasting v. United Slates, 351 U.S. 192
(1956); Hispanic Information and Telecommunications Network
V. FCC, 865 F.2d 1289, 1294-95 (D.C. Cir. 1989).
In its Opposition, which was filed before the Foreign Carrier
Entry NPRM was adopted, AT&T urged us to adopt a "com-
1855
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
petition and adopt this Order effective the day after all
rules, regulations and policies adopted in the Foreign Car
rier Entry Order become effective.
2. Effective Competitive Opportunities Analysis Under
Section 214
a. Comments
35. AT&T, BTNA, CWA/IBEW, Esprit, MCI, and MFSI
argue that France and Germany do not afford market
access to U.S. carriers because the provision of domestic
and international public switched voice telephony services
and telecommunications facilities is reserved exclusively for
FT in France and DT in Germany.'® AT&T and BTNA also
state that the French and German telecommunications reg
ulatory regimes lack other important characteristics, in
cluding competitive safeguards and independent regulatory
authorities."
b. Discussion
36. Sprint, through its subsidiaries, holds many Section
214 authorizations for the provision of U.S. international
facilities-based services between the United States and
France and the United States and Germany. In analyzing
whether the proposed transaction is in the public interest,
the Foreign Carrier Entry Order requires us to determine
whether effective competitive opportunities exist for U.S.
carriers to provide international services in France and
Germany.
37. We first must determine whether the proposed for
eign carrier investments rise to the level of an "affiliation"
with a U.S. carrier for purposes of determining whether
the effective competitive opportunities analysis under Sec
tion 214 applies in this case
s to determine
whether effective competitive opportunities exist for U.S.
carriers to provide international services in France and
Germany.
37. We first must determine whether the proposed for
eign carrier investments rise to the level of an "affiliation"
with a U.S. carrier for purposes of determining whether
the effective competitive opportunities analysis under Sec
tion 214 applies in this case. The affiliation threshold
adopted in the Foreign Carrier Entry Order is an equity
interest greater than 25 percent or a controlling interest at
any level. In addition, we will aggregate multiple foreign
carrier interests when a contractual relation, such as a joint
venture or marketing alliance, between two or more for
eign carrier investors is involved, which affects the provi
sion
or
marketing
of
basic
international
telecommunications services in the United States.'® Foreign
carrier investment that does not exceed the 25 percent
threshold may nonetheless be subject to the effective com
petitive opportunities analysis when the investment
presents a significant potential impact on competition in
the U.S. basic international telecommunications services
market."
38. The proposed interests of FT and DT (10 percent
each) in Sprint must be aggregated because the carriers also
have joined forces through the Joint Venture. The invest
ments represent an important part of a global alliance
strategy among Sprint, FT, and DT, affecting the provision
of basic telecommunications services. The proposed invest
ments by FT and DT in Sprint, even when aggregated to
equal 20 percent, do not exceed the 25 percent affiliation
threshold for application of the effective competitive op
portunities analysis.
39. Review of this transaction under our effective com
petitive opportunities analysis is warranted and necessary,
however, because of the size of the carriers involved and
the potential impact on competition in the U.S. basic
international services market
d to
equal 20 percent, do not exceed the 25 percent affiliation
threshold for application of the effective competitive op
portunities analysis.
39. Review of this transaction under our effective com
petitive opportunities analysis is warranted and necessary,
however, because of the size of the carriers involved and
the potential impact on competition in the U.S. basic
international services market. FT and DT are two of the
largest telecommunications carriers in Europe; traffic vol
ume between the United States and France and Germany
together accounts for more volume than to any single
country other than Canada and Mexico.®" International
Message Telephone Service (IMTS) minutes between the
United States and Germany are fourth highest among U.S.
correspondent countries; IMTS minutes between the Unit
ed States and France are the thirteenth highest.®' Few
countries originate and terminate more calls to and from
the United States than France and Germany, which are key
locations for multinational corporations.®^ In addition, FT
and DT propose to invest in the third largest U.S. domestic
interexchange and international services carrier, with ap
proximately 10 percent domestic and international services
market share, not a fledgling start-up.®' Given the size of
the parties involved and the strategic investment and joint
venture alliance they have planned, we find that the trans
action, although falling below the threshold for automatic
application, necessitates an effective competitive opportu
nities analysis under the newly adopted rules and policies.
40. We turn next to the question of which foreign mar
kets we must analyze. Under Section 214, we apply our
analysis only to those destination markets where the for
eign carrier can exercise market power. As we mentioned
previously, "market power" is defined in the Foreign Car-
parable market" approach in this proceeding. AT&T Opposition
at 24-46
nalysis under the newly adopted rules and policies.
40. We turn next to the question of which foreign mar
kets we must analyze. Under Section 214, we apply our
analysis only to those destination markets where the for
eign carrier can exercise market power. As we mentioned
previously, "market power" is defined in the Foreign Car-
parable market" approach in this proceeding. AT&T Opposition
at 24-46. We declined to adopt this approach in the Foreign
Carrier Entry proceeding; for the same reasons, we will not
apply this approach in this proceeding. See Foreign Carrier
Entry NPRM, 10 FCC Red 4844, 4849 (1995).
"
DT argues that the Commission's public interest calculus
"cannot include consideration of effective market access because
Sections 214 and 310 do not mention this factor. . . ." DT Reply
Comments at 5-6 (filed Sep. 15, 1995). DT raised the same
argument in the Foreign Carrier Entry proceeding. We con
cluded in our Order in that proceeding, after full consideration
of the issues raised by DT and other parties, that market access
considerations fall within our mandate under Sections 214 and
310. See Foreign Carrier Entry Order at 1 1 223-38; see also
AT&T Ex Pane Submission (filed Nov. 21, 1995), We thus do
not reexamine these issues here,
'® AT&T Supplemental Opposition, Appendix; BTNA Sup
plemental Comments at 8-29; CWA/IBEW Comments at 11-15;
Esprit Opposition at 4-6; MCI Opposition at 8-15 (filed Sep. 1,
1995); MFSI Comments at 5-7.
AT&T Supplemental Opposition, Appendix; BTNA Sup
plemental Comments at 20-24,
See Foreign Carrier Entry Order at 1 92.
"
See id. at f 89.
®" In 1994, France and Germany combined accounted for ap
proximately 14 percent of total international billed revenues of
all U.S. carriers for IMTS. See Federal Communications Com
mission, "Preliminary 1994 Section 43.61 International Tele
communications Data," (Com. Car. Bur., Oct.
1995)
(Preliminary 1994 International Telecommunications Data).
See id
er Entry Order at 1 92.
"
See id. at f 89.
®" In 1994, France and Germany combined accounted for ap
proximately 14 percent of total international billed revenues of
all U.S. carriers for IMTS. See Federal Communications Com
mission, "Preliminary 1994 Section 43.61 International Tele
communications Data," (Com. Car. Bur., Oct.
1995)
(Preliminary 1994 International Telecommunications Data).
See id.
®' The United States, Japan, the United Kingdom, Germany,
and France are the top five countries in terms of locations for
Fortune 500 companies. The United States accounts for 30
percent of the world total; Germany, 8 percent; and France, 6
percent. In addition, the United States, Germany and France
account for 41 percent of international voice traffic: the United
States, 25 percent; Germany, 10 percent; and France, 6 percent,
®' See generally infra at 11 78-83.
1856
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
rier Entry Order as the ability to act anticompetitively
against unaffiliated U.S. carriers through the control of
bottleneck services or facilities on the foreign end.^'' FT and
DT are the incumbent, monopoly telecommunications fa
cilities providers in France and Germany, respectively.
Thus, they control bottleneck facilities in those markets
and have market power. There is no record evidence in
this proceeding regarding whether FT or DT has market
power in other foreign markets. Accordingly, the relevant
destination markets for our analysis in this decision are
France and Germany. We also require Sprint, within 30
days of the effective date of this Order, to notify the
Commission of any foreign carrier that controls, is con
trolled by, or is under common control with FT or DT.
We will apply the effective competitive opportunities analy
sis to these markets unless Sprint demonstrates that these
foreign carriers do not have market power on these
routes.®'
41
ance and Germany. We also require Sprint, within 30
days of the effective date of this Order, to notify the
Commission of any foreign carrier that controls, is con
trolled by, or is under common control with FT or DT.
We will apply the effective competitive opportunities analy
sis to these markets unless Sprint demonstrates that these
foreign carriers do not have market power on these
routes.®'
41. In applying our effective competitive opportunities
analysis under Section 214, we first examine the legal, or
de jure, ability of U.S. carriers to enter the foreign destina
tion markets and provide international facilities-based ser
vices. If U.S. carriers are prohibited de jure from
competing in the provision of any international facilities-
based IMTS service, then there are not effective competi
tive opportunities on that route. If the foreign carrier's
destination market has no explicit legal restrictions on
entry, we then will examine the other factors of the effec
tive competitive opportunities analysis to determine wheth
er there are de facto effective competitive opportunities.
This analysis focuses on the actual conditions of entry, i.e.,
terms and conditions of interconnection, competitive safe
guards, and the regulatory framework.®®
42. An effective competitive opportunities finding can be
made if such opportunities are present now or if it is
reasonably certain that they will be available in the near
future. Where effective competitive opportunities do not
now exist, there will need to be clear and concrete commit
ments that effective competitive opportunities will be avail
able in the near future in order for us to reach a favorable
determination. Finally, we note that effective competitive
opportunities are only a part of a larger public interest
analysis; we must also consider whether other public inter
est factors mandate grant or denial of an application.
43. To meet the standard of de jure market entry. France
and Germany would be required to permit a U.S
avail
able in the near future in order for us to reach a favorable
determination. Finally, we note that effective competitive
opportunities are only a part of a larger public interest
analysis; we must also consider whether other public inter
est factors mandate grant or denial of an application.
43. To meet the standard of de jure market entry. France
and Germany would be required to permit a U.S. carrier
to obtain a controlling interest in a French- or German-
based facilities carrier able to originate and terminate IMTS
traffic to and from the United States. In France, the provi
sion of IMTS facilities-based service is a legal monopoly of
France Telecom. The same is true in Germany, where DT
holds the legal monopoly over the provision of interna
tional facilities-based service. U.S. carriers currently are
prohibited as a matter of law from entering this market in
both France and Germany.
44. We note that both countries have publicly committed
to implementing international facilities and services com
petition by January 1, 1998.®' The French and German
Governments both have proposed plans for enacting na
tional legislation in this regard. We are very encouraged by
these developments, as we discuss more fully below. We
view their public statements to be important indications of
these countries' intent to liberalize their markets. Nonethe
less, we believe that implementation of international facili
ties competition in 1998, over two years away, is too distant
in time to be considered competition in the near future
under our effective competitive opportunities analysis.
Moreover, the specific legal and regulatory framework for
the competitive markets is not yet fully determined, leaving
us unable to evaluate whether de facto competitive op
portunities will exist after the legal barriers are removed.
45. Given that de jure international facilities competition
for IMTS is absent in France and Germany, we find that
effective competitive opportunities for U.S
alysis.
Moreover, the specific legal and regulatory framework for
the competitive markets is not yet fully determined, leaving
us unable to evaluate whether de facto competitive op
portunities will exist after the legal barriers are removed.
45. Given that de jure international facilities competition
for IMTS is absent in France and Germany, we find that
effective competitive opportunities for U.S. carriers to op
erate as international facilities-based carriers currently do
not exist in those countries.
46. Although Sprint holds resale authorizations to serve
France and Germany which may be subject to an effective
competitive opportunities analysis, we see no need to, con
duct that analysis here given our finding that France and
Germany do not offer effective competitive opportunities
to provide international facilities-based services, and our
ultimate conclusion in Section V below that the public
interest weighs in favor of granting Sprint's petition, sub
ject to certain conditions.
3. Effective Competitive Opportunities Analysis Under
Section 310(b)(4)
47. The presence of aggregated alien ownership in excess
of 25 percent in Sprint, the parent corporation of Title III
common 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 refusal or revocation of such license."®® FT
and DT will each acquire a 10 percent ownership interest
in Sprint, a U.S. corporation thatcontrols Title III licens
ees.® Based upon a Sprint ownership survey. Sprint main-
®'* See supra footnote 14; Foreign Carrier Entry Order at 1 116;
see also Eastman Kodak Co. v. Image Technical Services, Inc.,
504 U.S. 451, 464 (1992) ("Market power is the power to force a
purchaser to do something that he would not do in a competi
tive market .... It has been defined as the ability of a single
seller to raise price and restrict output.") (quotation marks and
citations omitted)
®'* See supra footnote 14; Foreign Carrier Entry Order at 1 116;
see also Eastman Kodak Co. v. Image Technical Services, Inc.,
504 U.S. 451, 464 (1992) ("Market power is the power to force a
purchaser to do something that he would not do in a competi
tive market .... It has been defined as the ability of a single
seller to raise price and restrict output.") (quotation marks and
citations omitted).
®' We reserve the right to impose any conditions enumerated
in this decision, or other conditions, on Sprint's provision of
service on those routes.
®® See Foreign Carrier Entry Order at t 1 42-55.
®' See infra 11 -76.
®® Section 310(b)(4) states, in pertinent part, that no "common
carrier . . . license shall be granted to or held by . . . any
corporation directly or indirectly controlled by any other cor
poration 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 voted by aliens, their repre
sentatives. or by a foreign government or representative thereof,
or by any corporation organized under the laws of a foreign
country, if the Commission finds that the public interest will be
served by the refusal or revocation of such license." 47 U.S.C. §
310(b)(4) (emphasis added).
®'' This investment percentage may not increase for 15 years
from the date of FT's and DT's initial investment in Sprint.
These restrictions cease to apply, however, in the event that
another party or parties acquires more than a 20 percent inter
est in Sprint. In that case, FT and DT, subject to Section
310(b)(4), may acquire sufficient shares to maintain their inter
ests equal to the interest of the other party or parties. See
Standstill Agreement at 9-10.
1857
he date of FT's and DT's initial investment in Sprint.
These restrictions cease to apply, however, in the event that
another party or parties acquires more than a 20 percent inter
est in Sprint. In that case, FT and DT, subject to Section
310(b)(4), may acquire sufficient shares to maintain their inter
ests equal to the interest of the other party or parties. See
Standstill Agreement at 9-10.
1857
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
tains that FT's and DT's proposed acquisition of 10 percent
of the shares each in Sprint will result in 25.17 percent
alien ownership of Sprint's capital stock (plus or minus
1.74 percent at the 97.5 percent confidence level).™ Due to
likely fluctuations in alien ownership from the publicly-
traded nature of the company. Sprint believes the alien
ownership may exceed the 25 percent statutory benchmark
at any one time by up to three percent. Therefore, Sprint
requests the Commission to find that up to 28 percent
alien ownership in Sprint is not inconsistent with the
public interest.
48. Through a public interest analysis, the Commission
decides whether to authorize or revoke alien ownership or
participation in excess of the Section 310(b)(4) statutory
benchmark on a case-by-case basis." We will first consider
the impact'of our newly adopted effective competitive op
portunities analysis.™ We will then consider the extent of
alien participation in Sprint's parent corporation in assess
ing the additional public interest factors relevant to Section
310(b)(4) determinations.
49. In Section IV.B.2, we determined that effective com
petitive opportunities do not exist in France or Germany
under our Section 214 analysis. Because we reach the
ultimate conclusion (described in Section V below) that,
on balance, the public interest weighs in favor of granting
Sprint's petition subject to certain conditions, we see no
reason to conduct an effective competitive opportunities
analysis under Section 310(b)(4).™
50
that effective com
petitive opportunities do not exist in France or Germany
under our Section 214 analysis. Because we reach the
ultimate conclusion (described in Section V below) that,
on balance, the public interest weighs in favor of granting
Sprint's petition subject to certain conditions, we see no
reason to conduct an effective competitive opportunities
analysis under Section 310(b)(4).™
50. We note, however, that France and Germany have
introduced a degree of competition in their wireless mar
kets, unlike in theirp wireline facilities markets we exam
ined above. This is true with respect to the types of Title
III licenses in which FT and DT seek to invest through
Sprint. Through subsidiaries and affiliates, Sprint holds
cellular,^'' paging, satellite, and common carrier microwave
radio licenses. In addition. Sprint owns interests in PCS
licensees through its affiliate, STY. STY owns 40 percent of
WirelessCo, a major PCS licensee, and is the largest
shareholder. It would appear that the French and German
paging™ and satellite'* markets generally are open at least
to the level of ownership collectively sought by FT and DT
in Sprint: 20 percent. By contrast, there appears to be less
competition in the French and German cellular" and
PCS markets: the number of licenses is limited to one or
two in each market. Finally, we note that the provision of
common carrier microwave radio links is not open to U.S.
investment.™ We address in Section IY.B.5.C, infra, whether
the proposed alien ownership poses concerns under the
other public interest factors we consider in our Section
310(b)(4) public interest analysis.
4. Competitive Concerns
51. We concluded that effective competitive opportu
nities are not currently available to U.S. carriers under
Section 214 for the provision of international telecom
munications facilities or services in France and Germany
because of de jure monopolies in both countries
rns under the
other public interest factors we consider in our Section
310(b)(4) public interest analysis.
4. Competitive Concerns
51. We concluded that effective competitive opportu
nities are not currently available to U.S. carriers under
Section 214 for the provision of international telecom
munications facilities or services in France and Germany
because of de jure monopolies in both countries. Before
our effective competitive opportunities analysis was adopt
ed, the majority of commenters in this proceeding ex
pressed concerns about the market power conferred by
these monopolies in France and Germany. These parties
are troubled by the effect that the Sprint/FT/DT alliance
may have on competition in several telecommunications
markets as a result of the potential for discrimination or
other anticompetitive conduct. The same kinds of concerns
also were raised in the MCl/BT proceeding, and we agree
that these concerns are important public interest consider
ations under Sections 4(i), 214, 310(b)(4) and 316"° of the
Sprint Petition at 24-25.
See Foreign Carrier Entry Order at 1 1 174-216.
70"
See Prime Media Broadcasting, Inc., 3 FCC Red 4243. 4245
(1988).
The commenters in this proceeding do not specifically ad
dress whether competitive opportunities exist in the French and
German wireless markets. One commenter. AirTouch, men
tions its experiences in these markets, and these comments are
included below.
As we noted earlier. Sprint currently owns cellular assets,
but has announced its intention to divest these holdings. See
supra footnote 5.
™ There is limited competition in the French paging market.
In September 1943, Infomobile, a consortium in which
AirTouch holds an 18.5 percent interest, won one of three
nationwide paging network licenses in France. In Germany,
there are three providers of nationwide paging services. The
BMPT, however, has issued several dozen licenses for trunked
radio networks
se holdings. See
supra footnote 5.
™ There is limited competition in the French paging market.
In September 1943, Infomobile, a consortium in which
AirTouch holds an 18.5 percent interest, won one of three
nationwide paging network licenses in France. In Germany,
there are three providers of nationwide paging services. The
BMPT, however, has issued several dozen licenses for trunked
radio networks.
'* The French satellite services market generally is open to
competition, with the notable exception of the transmission of
public switched voice telephony. More than 50 satellite commu
nications networks have been authorized. U.S. entities, includ
ing Scientific Atlanta, MCl and IBM, are among the licensees.
Like France, Germany permits the provision of satellite services
except for the transmission of public switched voice services.
According to DT, nearly 50 satellite communications licenses
have been awarded, 12 to U.S. entities. See DT Reply Com
ments at 8 n.3.
"
In France, two entities are licensed to provide cellular
services: a France Telecom affiliate, France Telecom Mobiles
Radiotelephone
(FTMR),
and
Societe
Francaise
de
Radiotelephone (SFR). As a subsidiary of FT, FTMR is 100
percent government-owned. Investment by non-E.U. entities in
holders of French wireless telecommunications radio services
licenses, including cellular licenses, is limited to 20 percent.
This limit may be waived, particularly when the foreign en
tities' home market offers reciprocal treatment of French en
tities. AirTouch asserts that it has experienced discriminatory
ownership policies in France. AirTouch Comments at 6. In
Germany, cellular services are subject to limited competition.
Two cellular providers are licensed by the BMPT to provide
cellular services. These providers are a DT affiliate, DeTeMobil,
and Mannesmann Mobilfunk GmbH (Mannesmann Mobilfunk).
DeTeMobil is 100 percent government-owned; Mannesmann
Mobilfunk is 34.5 percent owned by AirTouch, a U.S. entity
olicies in France. AirTouch Comments at 6. In
Germany, cellular services are subject to limited competition.
Two cellular providers are licensed by the BMPT to provide
cellular services. These providers are a DT affiliate, DeTeMobil,
and Mannesmann Mobilfunk GmbH (Mannesmann Mobilfunk).
DeTeMobil is 100 percent government-owned; Mannesmann
Mobilfunk is 34.5 percent owned by AirTouch, a U.S. entity.
AirTouch states its belief that the German mobile services
market is open to U.S. opportunity and ownership. Id. There
are no restrictions on foreign ownership of wireless licenses in
Germany.
The French government has licensed one provider, a con
sortium led by Bouygues Telecom and including U S West, to
provide PCS-type services. Similarly, the German Government
has licensed the E-plus consortium, which is 21 percent owned
by Bellsouth, to provide similar services. E-Plus is considered a
direct competitor of the German cellular service providers.
°
In France, the provision of common carrier microwave
radio links is reserved to FT. Similarly, in Germany, the provi
sion of common carrier microwave radio links is reserved to
DT.
"° See 47 U.S.C. § 316 (1994) (Commission authority to modify
construction permits or licenses).
1858
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
Act, and other relevant statutory provisions,®' and possibly
implicate our enforcement responsibilities under the Clay
ton Act.®^ We thus address these concerns in this proceed
ing, independent of our effective competitive opportunities
analysis.
a. Comments
52. A number of parties raise specific competitive con
cerns about FT's and DT's proposed investment in Sprint
and the formation of the Joint Venture. They argue that
FT's and DT's substantial equity investment in Sprint, and
their interests in the Joint Venture, create financial incen
tives for FT and DT to use their monopoly positions in the
French and German telecommunications markets to dis
criminate in favor of Sprint over competing U.S
itive con
cerns about FT's and DT's proposed investment in Sprint
and the formation of the Joint Venture. They argue that
FT's and DT's substantial equity investment in Sprint, and
their interests in the Joint Venture, create financial incen
tives for FT and DT to use their monopoly positions in the
French and German telecommunications markets to dis
criminate in favor of Sprint over competing U.S. interna
tional carriers on the U.S.-France and U.S.-Germany
routes, and in providing transiting services to Eastern and
Central Europe.®® ACC, AT&T, BTNA, and MCI argue that
FT, DT, and Sprint will be able to use FT's and DT's
absolute bottleneck of access facilities in their home coun
tries to the unfair advantage of Sprint and the Joint Ven
ture. Furthermore, they argue, FT, DT and Sprint have the
incentive and ability to enter into exclusive arrangements
directing all international switched and private line traffic
to each other. AT&T states that Sprint will have 50 percent
control over FT's and DT's correspondent relationships
with U.S. carriers (through its ownership in Joint Venture
operations), and thus will have the opportunity to discrimi
nate against other U.S. carriers.®® OFTEL expresses concern
that France and Germany do not have independent regula
tory authorities that can ensure that effective competition
is in fact implemented.®'
53. In response to the assertions that FT, DT and Sprint
will engage in unlawful discrimination and enter into ex
clusive arrangements for the provision of international ba
sic telecommunications services. Sprint reaffirms its intent
-
and states that FT and DT have reaffirmed their intent ~
to continue their correspondent relations with other inter
national carriers.®® Moreover, Sprint, FT and DT state they
will not impermissibly exclude competitors from the mar
ket for regulated basic services or unlawfully discriminate
in favor of the other in accounting rates and settlements. In
addition
vices. Sprint reaffirms its intent
-
and states that FT and DT have reaffirmed their intent ~
to continue their correspondent relations with other inter
national carriers.®® Moreover, Sprint, FT and DT state they
will not impermissibly exclude competitors from the mar
ket for regulated basic services or unlawfully discriminate
in favor of the other in accounting rates and settlements. In
addition. Sprint emphasizes that it will not be involved in
carrying the bilateral correspondent traffic of other U.S.
carriers.®^ They also assert that FT and DT are legally
required, by national and E.U. regulation, to offer
nondiscriminatory access to their networks.®® FT and DT
state that the DGPT and the BMPT have demonstrated
their independence from FT and DT in the past and will
continue to do so.®' In addition. Sprint claims that the
potential for discrimination is less in this case than in the
MCUBT proceeding because Sprint carries approximately a
third as much international traffic as MCI, and the equity
investments by FT and DT are only 10 percent each, thus
proportionately reducing their incentives to discriminate in
favor of Sprint.
54. Finally, in response to AT&T's claims that FT and
DT have agreed to impermissibly "steer" customers to the
Joint Venture, Sprint claims that it is commercially reason
able and expected that parties to a joint venture will at
tempt to sell the joint venture's services to unsolicited
customers. Sprint also emphasizes that customers are not
steered by the Joint Venture to Sprint, but only to the
Joint Venture itself.'"
b. Discussion
55. We share the parties' fundamental concerns about
the potential for anticompetitive behavior by FT and DT
on the U.S.-France and U.S.-Germany routes. FT and DT
are monopoly providers of French and German interna
tional facilities-based services, control the local termination
points in those countries, and control the national long
distance networks to which interconnection is essential for
the distribution of international traffic.
56
cerns about
the potential for anticompetitive behavior by FT and DT
on the U.S.-France and U.S.-Germany routes. FT and DT
are monopoly providers of French and German interna
tional facilities-based services, control the local termination
points in those countries, and control the national long
distance networks to which interconnection is essential for
the distribution of international traffic.
56. Before the proposed transaction, FT and DT had no
incentive to discriminate in favor of Sprint, the Joint Ven
ture or any of their competitors over others. The proposed
transaction, however, will give FT and DT each a substan
tial financial stake in the success of Sprint and the Joint
Venture and will, therefore, give each an incentive to
engage in anticompetitive strategies to maximize the return
on their investment. This discrimination could take a num
ber of forms, such as: (1) routing calls to Sprint and the
Joint Venture in proportions greater than those justified
under our proportionate return policy; (2) otherwise
manipulating the calculations and settlements payments to
wrongfully favor Sprint and the Joint Venture; (3) routing
high-profit calls to Sprint and the Joint Venture, and leav
ing the rest to their competitors; (4) undercharging Sprint
and the Joint Venture and/or overcharging their competi
tors for use of the same essential facilities in France or
Germany; (5) leaking to Sprint and the Joint Venture the
confidential information that FT or DT receives from
Sprint's and the Joint Venture's competitors; (6) giving
®' See, e.g., FCC v. RCA Communications, Inc., 346 U.S. 86
ing the rest to their competitors; (4) undercharging Sprint
and the Joint Venture and/or overcharging their competi
tors for use of the same essential facilities in France or
Germany; (5) leaking to Sprint and the Joint Venture the
confidential information that FT or DT receives from
Sprint's and the Joint Venture's competitors; (6) giving
®' See, e.g., FCC v. RCA Communications, Inc., 346 U.S. 86
(1953) (there can be no doubt that competition is a relevant
factor in weighing the public interest); United States v. FCC, 652
F.2d at 81-82 (competitive considerations are an important ele
ment of the public interest standard).
®® Under Section 11 of the Clayton Act, we are charged with
enforcing, inter alia, Section 7 of the Clayton Act. See 15 U.S.C.
§§ 18, 21. These provisions empower this Commission to dis
approve anticompetitive acquisitions of stock "of common car
riers engaged in wire or radio communications or radio
transmissions of energy." Section 7 also proscribes the acquisi
tion of the stock of a company by another company "where in
any line of commerce in any section of the country" the effect
of such acquisition may be "substantially to lessen competition,
or to tend to create a monopoly." We have discretion whether
to enforce Section 7 of the Clayton Act. United States v. FCC,
652 F.2d at 83. Because we find our jurisdiction under the
Communications Act to be sufficient to address all the competi
tive effects of the proposed transaction, we exercise our discre
tion not to invoke our Clayton Act jurisdiction in this
proceeding.
See, e.g., AT&T Opposition at 24-42; Letter from C. Fred
Bergsten to Reed E. Hundt, Chairman, Federal Communica
tions Commission (filed Jan. 18, 1995); CWA/IBEW Comments at
2; MCI Comments at 7-13.
®® AT&T Opposition at 21.
®' OFTEL Letter at 2-3.
®® Sprint Petition at 30.
®^ Sprint Reply at 46-49.
®® Sprint Petition at 31-35; FT Reply Comments at 28-29; DT
Reply Comments at 18-23.
®' FT Reply Comments at 22-25; DT Reply Comments at 9-13.
'" Sprint Supplemental Reply at 12-13
dt, Chairman, Federal Communica
tions Commission (filed Jan. 18, 1995); CWA/IBEW Comments at
2; MCI Comments at 7-13.
®® AT&T Opposition at 21.
®' OFTEL Letter at 2-3.
®® Sprint Petition at 30.
®^ Sprint Reply at 46-49.
®® Sprint Petition at 31-35; FT Reply Comments at 28-29; DT
Reply Comments at 18-23.
®' FT Reply Comments at 22-25; DT Reply Comments at 9-13.
'" Sprint Supplemental Reply at 12-13.
1859
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
Sprint and the Joint Venture advance notice of network
changes and other information that Sprint, the Joint Ven
ture and their competitors will need to know; or (7) either
as an agent or through an affiliated third party,"" selling the
services of Sprint or the Joint Venture in ways that use
FT's and DT's home market power.
57. Absent effective conditions, such strategic behavior
could yield Sprint more customers, calls and revenues, and
ultimately higher returns, than would otherwise be the
case. Sprint would receive these returns simply because of
its affiliation with FT and DT and not because of the
superior quality, lower prices, or innovativeness of its ser
vices. At the same time, the costs of Sprint's rivals would
be raised above competitive levels, which would tend to
reduce competition in the market as a whole. Less com
petition would ultimately result in impaired market perfor
mance: higher prices, lower quality, and slower innovation
compared to what would exist in the absence of such
conduct.
58. We reject Sprint's claims that FT and DT have no
more leveraging power than BT did in our MCUBT pro
ceeding. Sprint argues that BT retains substantial market
power in the United Kingdom and the ability to use this
power to favor MCI at the expense of other carriers. Sprint
overlooks the fact that, in the United Kingdom, there is de
jure competition in nearly every market segment. BT faces
competition to some extent at all levels. The effect is that,
unlike in France and Germany, in the United Kingdom
U.S
Sprint argues that BT retains substantial market
power in the United Kingdom and the ability to use this
power to favor MCI at the expense of other carriers. Sprint
overlooks the fact that, in the United Kingdom, there is de
jure competition in nearly every market segment. BT faces
competition to some extent at all levels. The effect is that,
unlike in France and Germany, in the United Kingdom
U.S. carriers have a choice of carriers to haul their traffic.
There also is an effective regulatory authority that is in
dependent of BT, which employs fair and transparent pro
cedures. U.S. carriers may resort to this authority in the
event of anticompetitive conduct by BT. There currently
are no such independent regulatory authorities with fair
and transparent procedures in France or Germany. Not
withstanding FT's and DT's statements that the DGPT and
the BMPT do not favor FT or DT, we share OFTEL's
concerns about the current lack of legally independent
regulatory authorities in France and Germany to ensure
that fair, effective competition emerges in both countries.
59. We also are not persuaded by Sprint's claim that the
individual incentives on the part of FT and DT to discrimi
nate in favor of Sprint or the Joint Venture are less than in
the MCUBT case because FT and DT are each purchasing
only 10 percent of Sprint's equity. The Joint Venture ar
rangement provides for FT and DT to act in concert, and
creates additional incentives beyond their investments in
Sprint for FT and DT to favor unfairly Sprint and the
Joint Venture. Thus, FT and DT generally have com
plementary interests regarding their involvement with
Sprint.
60. We also do not agree with the arguments of Sprint,
FT and DT that national and E.U. regulatory prohibitions
on discriminatory conduct by FT and DT are sufficient to
protect competition. Such provisions are likely to be inad
equate when, as in this case, there is de jure 100 percent
monopoly market power and an incentive to discriminate,
and the carriers remain completely government-owned
rint.
60. We also do not agree with the arguments of Sprint,
FT and DT that national and E.U. regulatory prohibitions
on discriminatory conduct by FT and DT are sufficient to
protect competition. Such provisions are likely to be inad
equate when, as in this case, there is de jure 100 percent
monopoly market power and an incentive to discriminate,
and the carriers remain completely government-owned.
Such provisions also cannot address the unfair competitive
advantage that may accrue to Sprint, particularly in the
U.S. market for global, seamless services, by virtue of its
strategic alliance with FT and DT.'^
5. Countervailing Factors
61. While France and Germany do not currently offer
effective competitive opportunities to U.S. carriers under
Section 214, and FT and DT have both the incentive and
ability to favor Sprint over competing carriers, there are
strong countervailing reasons to grant the Sprint petition.
First, the recent liberalization efforts in France and Ger
many have resulted in commitments to open various seg
ments of their national monopolies to competition before
1998. Second, the FT and DT investment of $3.5-4.2 billion
in Sprint will have a procompetitive impact on the U.S.
telecommunications market, subject to conditions. Given
these factors, we find, as the Justice Department has, that
the competitive concerns arising from this transaction can
be addressed through conditions and safeguards, in antici
pation of the French and German markets opening to U.S.
carriers in 1998.
a. Liberalization Developments in France and Germany
i. Comments
62. AT&T and BTNA state that numerous liberalization
proposals before the E.U. Commission and French and
German Governments are still pending and the final re
sults are uncertain. They state that there are no assurances
that the proposed reforms will become law, or that im
plementing regulations and licenses will be issued
s in 1998.
a. Liberalization Developments in France and Germany
i. Comments
62. AT&T and BTNA state that numerous liberalization
proposals before the E.U. Commission and French and
German Governments are still pending and the final re
sults are uncertain. They state that there are no assurances
that the proposed reforms will become law, or that im
plementing regulations and licenses will be issued. They
also assert that there is no certainty that the current liber
alization proposals will extend to facilities or services pro
vided between E.U. member states and third countries.
Finally, BTNA states that neither the French nor German
Governments plan to relinquish majority ownership and
control over FT or DT in the near future.
ii. Discussion
63. A critical factor in our approval of the proposed
transaction is the policy shift in France and Germany
towards competitive telecommunications markets. We rec
ognize that this trend likely will be opposed. We also
realize that, as AT&T and BTNA point out, timely, effec
tive implementation of planned liberalization steps remains
to be accomplished. Current developments, however, can
not be ignored in considering the proposed transaction.
64. As we mentioned above. Sprint filed its petition in
October 1994. In February 1995, we adopted the NPRM in
our foreign carrier entry proceeding which proposed that,
when foreign carriers seek to enter the U.S. telecommuni
cations market or become affiliated with a U.S. carrier, the
Commission examine whether the relevant foreign tele
communications markets afford effective market access to
U.S. carriers. Since the NPRM was released, the French
and German Governments each have made specific com
mitments for further telecommunications liberalization.
"
This third party could be Atlas, the entity created by FT
and DT to provide Joint Venture services in Europe (except for
i
data networks owned by FT and DT, respectively.
See Foreign Carrier Entry Order at 1 1 15 & 33
market access to
U.S. carriers. Since the NPRM was released, the French
and German Governments each have made specific com
mitments for further telecommunications liberalization.
"
This third party could be Atlas, the entity created by FT
and DT to provide Joint Venture services in Europe (except for
i
data networks owned by FT and DT, respectively.
See Foreign Carrier Entry Order at 1 1 15 & 33.
n France and Germany) or Transpac and Datex-P, the public
BTNA Supplemental Comments at 25-29.
1860
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
65. We have already noted the specific liberalization
commitments made by the French and German Govern
ments.''' On October 20, 1995, in a letter to Commission
Chairman Hundt, the French Government stated that it
soon will allow entities other than FT to build and operate
facilities (known as "alternative infrastructure") to offer
already liberalized services." These services include data
communications and closed user groups," but exclude
public switched voice telephony. The French Government
states that legislation to enact this measure will be intro
duced in the French Parliament in the Spring of 1996, and
will take effect by July 1, 1996." The French Government
has made the same commitment regarding the liberaliza
tion of alternative infrastructure to the European Commis
sion in the context of DG IV's review of the Atlas and
Phoenix transactions."
66. Earlier this year, the DGPT issued an experimental
license to MFSI, a U.S.-owned company, to construct and
operate a metropolitan network designed to serve the needs
of closed user groups for data and voice communications.
According to the French Government, other experimental
alternative infrastructure licenses that will permit provision
of public voice telephony services will be issued in early
1996."
67
his year, the DGPT issued an experimental
license to MFSI, a U.S.-owned company, to construct and
operate a metropolitan network designed to serve the needs
of closed user groups for data and voice communications.
According to the French Government, other experimental
alternative infrastructure licenses that will permit provision
of public voice telephony services will be issued in early
1996."
67. Similarly, on October 17, 1995, the German Govern
ment submitted a letter to Commission Chairman Hundt
in which it stated its commitment to allowing alternative
facilities providers to commence operations as of July 1,
1996 100
French Government, the German Gov
ernment also has made this commitment to the European
Commission."" In addition, the German Government states
that further liberalization steps are possible before 1998
provided that they do not infringe on the exclusive rights
held by DT. We note that ACC indicates that it received
approval in June 1995 from the German Ministry to op
erate as a switchless reseller of DT's monopoly public
switched voice services.'"^
68. The liberalization of alternative infrastructure in the
French and German telecommunications markets is an
important first step towards the introduction of full and
effective facilities and services competition. Alternative in
frastructure providers will be permitted to compete with
FT and DT to carry most non-public switched voice ser
vices, including data communications and intracorporate
network services. Thus, potential competitors of FT, DT
and the Joint Venture will have the legal ability to choose
between underlying carriers for liberalized services, a use
ful hedge against certain types of anticompetitive conduct
by FT or DT.
69. In their letters submitted in this proceeding, the
French and German Governments also have firmly com
mitted to implementing full facilities and services competi
tion by January 1, 1998
petitors of FT, DT
and the Joint Venture will have the legal ability to choose
between underlying carriers for liberalized services, a use
ful hedge against certain types of anticompetitive conduct
by FT or DT.
69. In their letters submitted in this proceeding, the
French and German Governments also have firmly com
mitted to implementing full facilities and services competi
tion by January 1, 1998. The French Government filed
with the Commission a copy of its recently announced
proposal for wide-ranging liberalization of the French tele
communications regulatory regime. The French Ministry
of Information Technology and Postal Services issued this
document in October 1995. A "public consultation docu
ment" entitled "New Ground Rules for Telecommunica
tions in France," the document outlines the key features of
the French Government's planned regulatory regime. It
states that licenses of general applicability will be issued for
most telecommunications services. Individual licenses will
be issued for three categories: (1) operators of networks
providing service to the general public; (2) providers of
telephone services to the public; and (3) operators of radio-
based networks.'"^ In addition, the French Government
states that there will be no limitations on the number of
licenses unless justified by frequency scarcity."'''
70. Regarding interconnection, the public consultation
document states that any authorized service provider will
have the right to access networks open to the public. FT
will have more extensive obligations, including publishing
an interconnection "reference offer," which will contain
basic terms and conditions, rates, and interconnection
points, by July 1997. This offer must be approved by a
national regulatory authority. In addition, the "Select Com
mittee," a group of independent experts, will review possi
ble cost accounting methods
orks open to the public. FT
will have more extensive obligations, including publishing
an interconnection "reference offer," which will contain
basic terms and conditions, rates, and interconnection
points, by July 1997. This offer must be approved by a
national regulatory authority. In addition, the "Select Com
mittee," a group of independent experts, will review possi
ble cost accounting methods. Mandatory and independent
audited cost-accounting measures will be developed, ac
cording to the public consultation document, to ensure
cost-oriented pricing and to prevent anticompetitive cross-
subsidization."" The public consultation document further
provides that operators will be able to appeal to the na
tional regulatory authority for interconnection dispute res
olution. ""
71. The responsibility for supporting universal service
will be shared among public operators; costs will be as
sessed and independently audited through transparent pro
cedures by the Select Committee. Finally, the French
''' See supra f 44.
"
Letter from Bruno Lasserre, Director General, DGPT, to
Reed E. Hundt, Chairman, Federal Communications Commis
sion, at 2 (Oct. 20, 1995) (Lasserre Letter).
"
The precise definition of "closed user group" differs from
country to country within the European Union. The term
typically is used to mean a stable and identifiable groups of
users, and not the general public. The European Union has
defined closed user group to include members of an integrated
business community encompassing a corporation, partially-
owned subsidiaries, employees working outside company prem
ises, major suppliers and customers or dealers.
Lasserre Letter at 2.
See supra 1 12.
"
Lasserre Letter at 2.
Letter from Dr. Wolfgang Boetsch, Federal Minister for
Posts and Telecommunications, to Reed E. Hundt, Chairman,
Federal Communications Commission (Oct. 17, 1995) (Boetsch
Letter).
"" See supra 11 12.
Under this arrangement, ACC would provide service under
contract with DT
de company prem
ises, major suppliers and customers or dealers.
Lasserre Letter at 2.
See supra 1 12.
"
Lasserre Letter at 2.
Letter from Dr. Wolfgang Boetsch, Federal Minister for
Posts and Telecommunications, to Reed E. Hundt, Chairman,
Federal Communications Commission (Oct. 17, 1995) (Boetsch
Letter).
"" See supra 11 12.
Under this arrangement, ACC would provide service under
contract with DT. ACC would buy switched capacity from DT
at wholesale rates, and would provide services to ACC's German
customers under contract at retail rates. See Letter from Helen
E. Disenhaus, Counsel for ACC, to William F. Caton, Acting
Secretary, Federal Communications Commission (citing at
tached Letter from Francis D.R. Coleman, Secretary and Cor
porate Counsel, ACC, to Dr. Wolfgang Boetsch, Federal
Minister for Posts and Telecommunications (October 27, 1995))
(filed Nov. 20, 1995). See also infra f 112.
French Ministry of Information Technology and Postal
Services, "New Ground Rules for Telecommunications in
France." at 8-10 (Oct. 1995) (Public Consultation Document).
"'■* Lasserre Letter at 2.
"" Public Consultation Document at 22-23: Lasserre Letter at
2.
Public Consultation Document at 23-2h.G
1861
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11 FCC Red No. 4
Government states that a national regulatory authority will
be established to ensure effective regulation. The public
consultation document proposes two possible approaches to
this authority. Under the first approach, the authority
would handle arbitration and enforcement; regulation
would be handled within the Ministry. Under the second
approach, the national regulatory authority would handle
regulatory functions as well, and would be independent of
the Ministry.
72. The German Government also has taken steps to
achieve full facilities and services liberalization by January
1, 1998
y. Under the first approach, the authority
would handle arbitration and enforcement; regulation
would be handled within the Ministry. Under the second
approach, the national regulatory authority would handle
regulatory functions as well, and would be independent of
the Ministry.
72. The German Government also has taken steps to
achieve full facilities and services liberalization by January
1, 1998. A Ministry draft Telecommunications Act, which
the German Government expects to introduced in the Ger
man Parliament in early 1996, details the regulatory princi
ples for the new regime.
The German Government's
letter further explains these provisions. Licenses will be
required for all service providers seeking to provide facili
ties or services currently within DT's monopoly, including
public voice telephony. The number of licenses will not be
restricted, except for radio licenses when warranted because
of scarce resources. In addition, there will be no foreign
investment restrictions on licensing.'"'
73. Many of the details of the German interconnection
regime have yet to be established. The Ministry states that
dominant carriers (such as DT) will have the obligation to
interconnect other carriers to their networks, and intercon
nection will be subject to regulatory review."" In addition,
universal service will include public voice telephony and
certain types of leased lines. The Ministry states that only
in exceptional cases will universal service obligations be
imposed, and then only the dominant carrier or a service
provider chosen through bidding procedures will be subject
to such obligations. Should this provider incur deficits
because of this obligation, service providers with more than
five percent market share will be required to contribute in
proportion to their market share.'" Finally, the Ministry
states that an independent federal regulatory authority,
equipped with enforcement powers, will be established to
implement the regulatory objectives of the new federal
legislation.
74
Should this provider incur deficits
because of this obligation, service providers with more than
five percent market share will be required to contribute in
proportion to their market share.'" Finally, the Ministry
states that an independent federal regulatory authority,
equipped with enforcement powers, will be established to
implement the regulatory objectives of the new federal
legislation.
74. We also note that European Union has established
January 1, 1998. as the date by which most Member States,
including France and Germany, must fully open their
telecommunications markets by
liberalizing
existing
monopolies for public voice telephony services and trans
mission facilities. The European Council of Ministers
agreed in June 1995 that such liberalization should occur.
Carrying out this agreement, the European Commission
adopted, on July 19, 1995, a draft directive mandating full
facilities and services liberalization as of January 1, 1998."^
The same draft directive would require E.U. Member
States, including France and Germany, to permit the use of
alternative infrastructure for the provision of already liber
alized services in 1996, When this directive is made final,
which is expected to occur in early 1996, the European
Commission will have the authority to initiate enforcement
action should liberalization not occur in France and Ger
many as required,
75. We believe these commitments indicate that the
French and German Governments are serious about tele
communications liberalization. We note that when the
Sprint petition was filed last year, there were few, if any,
liberalization plans in either country. Since that time, both
Governments have announced concrete plans for increased
competition leading to full facilities and services competi
tion in 1998. Liberalization of alternative infrastructure
will require FT and DT to relinquish their monopoly over
the provision of telecommunications facilities to all cus
tomers, including their own competitors
if any,
liberalization plans in either country. Since that time, both
Governments have announced concrete plans for increased
competition leading to full facilities and services competi
tion in 1998. Liberalization of alternative infrastructure
will require FT and DT to relinquish their monopoly over
the provision of telecommunications facilities to all cus
tomers, including their own competitors. Thus, they will
no longer necessarily control significant cost components
of their competitors' service offerings.
76. Of course, timely implementation and the develop
ment of effective regulatory rules remain to be accom
plished. For example, in each country, not only must final
legislation be enacted to formally remove the legal
monopoly status, but an interconnection regime must be
established, competitive safeguards must be implemented,
and an independent regulatory body must be put in place
to ensure effective competition. Nonetheless, we realize
that the implementation of effective competition takes
time, and the French and German Governments have com
mitted themselves to this process and have established firm
timetables for introducing full competition. We believe
these commitments weigh in favor of granting Sprint's
petition.
b. Effects on Competition in U,S. Markets
i. Comments
77. Sprint states in its petition that FT's and DT's
$3.5-4.2 billion investment would be used for a number of
procompetitive purposes, both domestically and globally.
Domestically, Sprint asserts, these funds will enable it to
"expand and upgrade its existing network, to undertake
additional research and to develop new applications and
services.""^ In addition. Sprint states that the capital in
vested by FT and DT will enable it to participate fully in
its broadband PCS venture. Wireless Co.'" Finally, Sprint
asserts that the investment will enable Sprint to participate
fully in its global seamless services joint venture with FT
and DT
ade its existing network, to undertake
additional research and to develop new applications and
services.""^ In addition. Sprint states that the capital in
vested by FT and DT will enable it to participate fully in
its broadband PCS venture. Wireless Co.'" Finally, Sprint
asserts that the investment will enable Sprint to participate
fully in its global seamless services joint venture with FT
and DT. Sprint states that the investment also would enable
it to retire debt and thus improve its credit rating. Only
AT&T responds to Sprint's assertions, stating that Sprint
has not demonstrated that it could not raise the capital in
the worldwide financial markets.'" AT&T also argues that
Public Consultation Document at 26-28; l.asserre Letter at
5.
German Ministry of Posts and Telecommunications, "Draft
Telecommunications Act," (Jul. 27, 1W5) (Ministry Draft Act);
Boetsch Letter at 2.
"" Id. at 3.
"" Id.; Ministry Draft Act at 22-23.
'" Id.
See European Council Resolution of July 22, 1W3 on the
review of the situation in the telecommunications sector and
the need for further development in the market, 93/C 213/01,
OJ C213; Draft Commission Directive amending Commission
Directive 9()/388/EEC, regarding the implementation of full
competition in telecommunications markets (July 14, 1995). In
addition, both the French and German Governments have un
dertaken to fully liberalize their telecommunications facilities
and services by January 1, 1998 in order to obtain E.U. approval
of the Atlas and Phoenix transactions.
Sprint Petition at iv; Sprint Reply at 7. 35-38.
"■* Sprint Petition at iv, 20.
'" AT&T Opposition at 45-46.
1862
ompetition in telecommunications markets (July 14, 1995). In
addition, both the French and German Governments have un
dertaken to fully liberalize their telecommunications facilities
and services by January 1, 1998 in order to obtain E.U. approval
of the Atlas and Phoenix transactions.
Sprint Petition at iv; Sprint Reply at 7. 35-38.
"■* Sprint Petition at iv, 20.
'" AT&T Opposition at 45-46.
1862
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
in any event the public interest benefits of the proposed
transaction do not outweigh the potential for competitive
harm.
ii. Discussion
78. A second critical factor in our approval of the pro
posed transaction is the procompetitive effects in U.S. mar
kets of the FT and DT investment in Sprint. In addition to
the effective competitive opportunities analysis, our For
eign Carrier Entry Order cites other factors that will be
considered important in our overall public interest analysis
for foreign carrier entry, including the general significance
of the proposed entry to the promotion of competition in
the U.S. communications market."® We are persuaded by
Sprint's arguments regarding the value of the transaction to
Sprint as a competitor in the U.S. telecommunications
market and find that the procompetitive benefits of the
proposed transaction to U.S. telecommunications markets
are significant and justify approving the transaction. More
over, we do not agree with AT&T that Sprint should
demonstrate it cannot raise the capital elsewhere in order
for the investments by FT and DT to be considered a
positive public interest factor. There likely are many rea
sons behind Sprint's choice to raise capital through equity
partners rather than through the world's financial markets.
Taking on more debt, for example, could involve greater
transaction costs than would otherwise be the case. In any
event, we find no reason to question Sprint's representa
tions that it needs these investments to participate fully in
various sectors of the U.S
likely are many rea
sons behind Sprint's choice to raise capital through equity
partners rather than through the world's financial markets.
Taking on more debt, for example, could involve greater
transaction costs than would otherwise be the case. In any
event, we find no reason to question Sprint's representa
tions that it needs these investments to participate fully in
various sectors of the U.S. communications market, as
discussed below."^
79. To begin our analysis of these claims, we examine the
markets in which the proposed transaction will have com
petitive effects. These relevant markets include: domestic
interexchange services; terrestrial commercial mobile radio
services (CMRS); U.S. international services; and global
seamless services."®
(a) Domestic Interexchange Services
80. In the domestic interexchange services market, the
major competitors and market shares in 1994 were AT&T,
55 percent; MCl, 17 percent; Sprint, 10 percent; LDDS
(now WorldCom), 3 percent; and the remaining 15 percent
shared by more than 400 other carriers."® FT and DT
currently are not involved in this" wmarket. Although
capital
investment
is
not,
by
itself,
necessarily
procompetitive or efficient,'^" the competitive forces in the
domestic interexchange market will likely drive Sprint to
devote the investment to making itself a stronger competi
tor in the ways it describes.'^' Sprint's strengthening of
itself as a competitor against its larger rivals, AT&T and
MCI, should
yield
procompetitive
benefits
for
consumers."^ In addition, by permitting Sprint to expand
and upgrade its existing network, undertake additional re
search and develop new applications and services, the
capital should ultimately benefit consumers through lower
prices and more service choices. Moreover, we find there
are no apparent anticompetitive effects occurring in this
market as a result of FT's and DT's investment. Accord
ingly, we find that the proposed transaction will have a
procompetitive effect in the domestic interexchange ser
vices market
and develop new applications and services, the
capital should ultimately benefit consumers through lower
prices and more service choices. Moreover, we find there
are no apparent anticompetitive effects occurring in this
market as a result of FT's and DT's investment. Accord
ingly, we find that the proposed transaction will have a
procompetitive effect in the domestic interexchange ser
vices market.
(b) Terrestrial CMRS
81. CMRS consists of certain mobile radio telecommuni
cations services that are interconnected to the public
switched telecommunications network and are offered to
the general public (or a substantial portion of it) for
profit.'^® Terrestrial CMRS includes cellular, paging, spe
cialized mobile radio, interconnected business radio, and
broadband and narrowband PCS.'^"* There are numerous
existing competitors in this market, including AT&T, the
Regional Bell Holding Companies and GTE. Sprint owns a
40 percent partnership interest, through its affiliate STV, in
WirelessCo, which holds more broadband PCS licenses
than any other entity.'^' The other partners in WirelessCo
are three cable television multiple system operators.'^®
WirelessCo is expected to provide broadband PCS in com
petition with other CMRS providers and. perhaps, with
providers of wireline local exchange services.
82. We agree with Sprint that this capital infusion to its
wireless activities is an important procompetitive effect of
the proposed transaction. To the extent Sprint plans to use
the proposed investment to fund its PCS ventures to com
pete with current CMRS and wireline local exchange pro
viders, the proposed transaction will be procompetitive. In
the local exchange wireline market in particular, competi
tion is nascent. There do not appear to be, and no party
alleges, any anticompetitive effects in this market resulting
from FT's and DT's proposed investment. Accordingly, we
find that the proposed transaction will have important
procompetitive effects in the terrestrial CMRS market
iders, the proposed transaction will be procompetitive. In
the local exchange wireline market in particular, competi
tion is nascent. There do not appear to be, and no party
alleges, any anticompetitive effects in this market resulting
from FT's and DT's proposed investment. Accordingly, we
find that the proposed transaction will have important
procompetitive effects in the terrestrial CMRS market.
"® Foreign Carrier Entry Order at 1 1 61-72.
See Sprint Reply Comments at iii.
"® We note that Sprint affiliates control local exchange facili
ties, and thus are involved in the local exchange market. Be
cause these local exchange affiliates presently are subject to
little, if any, competition in most cases, we believe the transac
tion will have minimal competitive effects in the local exchange
market. Thus, we do not include this market.
Federal Communications Commission, Common Carrier
Bureau, Industry Analysis Division, Long Distance Market Share
First Quarter 1995, Table 5 (Total Toll Service Revenues) (July
1995). These records consist of reports filed by carriers operat
ing in the interexchange market.
See AT&T Opposition at 45-46.
See MCI/BT, 9 FCC Red at 3972.
Cf. IDB, Memorandum Opinion & Order, 10 FCC Red at
1116 ("the proposed transaction will create procompetitive bene
fits by producing . . . improved capability of serving customers
in several markets").
See Implementation of Section 6()()2(B) of the Omnibus
Budget Reconciliation Act of 1993, First Report, 10 FCC Red
8844 (1995) (First Annual CMRS Report).
This group of services has been called "terrestrial CMRS"
and has been used in competitive analysis of acquisitions and
joint ventures by the Commission's Wireless Telecommunica
tions Bureau. Motorola, Inc., 10 FCC Red 7783, 7785-86 (1995),
petition for reconsideration pending, cited with approval in Nextel
Communications, Inc., DA95-1677, 1 32 & n.lOl (released July
28 1995).
First Annual CMRS Report, 10 FCC Red at 8875-78 (Table
2)
d "terrestrial CMRS"
and has been used in competitive analysis of acquisitions and
joint ventures by the Commission's Wireless Telecommunica
tions Bureau. Motorola, Inc., 10 FCC Red 7783, 7785-86 (1995),
petition for reconsideration pending, cited with approval in Nextel
Communications, Inc., DA95-1677, 1 32 & n.lOl (released July
28 1995).
First Annual CMRS Report, 10 FCC Red at 8875-78 (Table
2). At present, Sprint is a provider of cellular service on a
significant scale, but it is divesting its cellular licenses and other
assets.
'^® Id. at 8879 (Table 2).
1863
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
(c) U.S. International Services
83. In 1993, AT&T's IMTS market share in terms of U.S.
originated and terminated minutes was approximately 63
percent; MCTs share was approximately 24 percent;
Sprint's share was approximately 10 percent; and the re
maining 3 percent were scattered.'^' As in the domestic
interexchange market, the FT/DT capital contribution
would enable Sprint to upgrade its international facilities
and provide new applications beneficial to U.S. customers.
Neither FT nor DT has a market share of its own. Thus the
proposed transaction would not increase Sprint's market
share in the sense that FT's nor DT's market shares would
be combined with Sprint's market share. More vigorous
competition by Sprint, the third largest international ser
vices carrier, would result in tangible benefits to customers,
and is procompetitive. Specifically, Sprint's investment in
its infrastructure and in the development of new applica
tions should lead to a broadened range of customer
choices, more price competition, and better quality service
offerings in this market. These procompetitive effects are
essentially the same type as we expect in the domestic
interexchange market and noted as attendant benefits in
the MCIIBT decision. In summary, we conclude that, on
balance, the proposed transaction will have procompetitive
effects in the U.S
lead to a broadened range of customer
choices, more price competition, and better quality service
offerings in this market. These procompetitive effects are
essentially the same type as we expect in the domestic
interexchange market and noted as attendant benefits in
the MCIIBT decision. In summary, we conclude that, on
balance, the proposed transaction will have procompetitive
effects in the U.S. international services market, assuming
the Sprint complies with the conditions described below.
(d) Global Seamless Services
84. In addition, we expect the transaction to have a
procompetitive effect in the global seamless services mar
ket. Global seamless services is an emerging product mar
ket of worldwide geographic scope, which we discussed
briefly in the MCIIBT decision.''" At present, the product
dimension of this market consists of a combination of
voice, data, video and other telecommunications services
that are offered by a single source over an integrated
international network of owned or leased facilities, and that
have the same quality, characteristics, features and capabil
ities wherever they are provided. This end-to-end service
offers the advantage to customers of "one-stop shopping"
and single-source billing. The principal customers are high-
end
users such as multinational corporations, but
individuals and carriers may also be customers.'*''
85. The Joint Venture plans to offer mid-size and large
multinational business customers a variety of seamless
voice, data, private line and videoconferencing options.
These include global virtual private networks, international
private lines and private networks, high-speed data
offerings, packet-switched networks, bandwidth manage
ment products, store-and forward fax, and electronic mail.
The services may employ advanced technologies such as
frame relay, asynchronous transfer mode (ATM) and syn
chronous digital hierarchy (SDH) technologies, and may be
basic or enhanced, depending on the needs of users
rks, international
private lines and private networks, high-speed data
offerings, packet-switched networks, bandwidth manage
ment products, store-and forward fax, and electronic mail.
The services may employ advanced technologies such as
frame relay, asynchronous transfer mode (ATM) and syn
chronous digital hierarchy (SDH) technologies, and may be
basic or enhanced, depending on the needs of users. Lower
volume users and travelers will be offered a number of
global card and travel products. According to Sprint, these
products will permit easy and cost-efficient access by in
dividual users to international calling services worldwide
on a pre-paid and post-paid card basis. For users outside of
their home markets. Sprint states, third-country calling will
provide an easy and efficient way to reach other interna
tional points worldwide. These customers will be tradi
tional facilities-based carriers, as well as emerging carriers,
resellers and niche service providers. In addition, the Joint
Venture will offer transit and global termination services.
Computer-based platforms for advanced carrier services
also will be marketed to other carriers."^"
86. At the time of our decision in MCIIBT, there were
no established global seamless service providers. Today,
there are several such providers in this market. As the
Justice Department noted in its Competitive Impact State
ment, global seamless service providers consist mainly of
various carrier alliances, including AT&T's partnerships
(through Worldpartners"" and Uniworld),"" and the
MCI/BT alliance (Concert).'^" The Joint Venture between
Sprint, FT and DT would add another significant competi
tor to this market. Each of these alliances is targeting
essentially the same potential global market for the world's
large business customers.
87. We believe Sprint's entry, through the Joint Venture,
into the global seamless services market will yield signifi
cant competitive benefits for U.S. customers
oncert).'^" The Joint Venture between
Sprint, FT and DT would add another significant competi
tor to this market. Each of these alliances is targeting
essentially the same potential global market for the world's
large business customers.
87. We believe Sprint's entry, through the Joint Venture,
into the global seamless services market will yield signifi
cant competitive benefits for U.S. customers. The establish
ment of a new, viable competitor in this area should result
in more competitive options for U.S. customers, particu
larly in terms of pricing and variety of services available
for large scale, high-end customers such as multinational
corporations. In addition, the Joint Venture should offer a
number of efficiencies for Sprint, such as greater econo
mies of scale, easier entry into new markets and the shar
ing of risks. Given that several strong competitors already
exist in this market, the procompetitive effects of the
Sprint/FT/DT
transaction
outweigh
any
possible
anticompetitive results in this market.
Federal Communications Commission, Common Carrier
Bureau, 1993 International Telecommunications Data (Interna
tional Message Telephone Service, U.S. and Foreign Billed Traf
fic Originating or Terminating in the United States) (Nov
1994).
'2" -WC//Sr, 9 FCC Red at 3971.
See Competitive Impact Statement. 60 Fed. Reg. at 44000-61
(describing "seamless international telecommunications ser
vices").
See Sprint Petition at 17-19.
Worldpartners is a non-exclusive, co-marketing alliance of
major telecommunication providers. See MCIIBT, 9 FCC Red at
3971 n.98. It also has been described as being made up of equity
and non-equity members. Equity members are AT&T, KDD of
Japan and the national or principal telecommunications provid
ers of Singapore, Sweden, Switzerland, Spain, and the Nether
lands. Non-equity members are the national or principal
telecommunications providers of Australia, Korea, New Zealand,
Hong Kong, and Canada
T, 9 FCC Red at
3971 n.98. It also has been described as being made up of equity
and non-equity members. Equity members are AT&T, KDD of
Japan and the national or principal telecommunications provid
ers of Singapore, Sweden, Switzerland, Spain, and the Nether
lands. Non-equity members are the national or principal
telecommunications providers of Australia, Korea, New Zealand,
Hong Kong, and Canada. Members do not hold equity in one
another, and the alliance has not been subject to prior U.S. or
E.U. regulatory approval. See Competitive Impact Statement, 60
Fed. Reg. at 44061. Several parties raise concerns in this pro
ceeding related to AT&T's Worldpartners alliance. See BTNA
Reply Comments at 5; ACC Reply Comments at 3. General
issues regarding such marketing alliances were addressed in our
Foreign Carrier Entry Order. See Foreign Carrier Entrv Order at
1 1 93-95.
In July 1995, AT&T and the European-based consortium
Unisource, comprised of dominant or monopoly carriers from
Sweden, Switzerland, Spain, and the Netherlands, finalized the
terms of their joint venture Uniworld. Unisource holds a 20
percent equity stake in Worldpartners, but the alliances remain
separate entities.
See Competitive Impact Statement, 60 Fed. Reg. at 44061.
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FCC 95-498
iii. Summary
88. We thus find that the transaction offers the additional
public interest benefits of significant procompetitive effects
in the U.S. market and, in particular, in the domestic
interexchange, terrestrial CMRS, international, and global
seamless services markets. The infusion of capital by FT
and DT will assist Sprint's further development in markets
in which it is already competing, and will facilitate Sprint's
entry into new, undeveloped markets, to the ultimate bene
fit of U.S. customers. We disagree with AT&T that the
public interest benefits of the proposed transaction dis
cussed above do not outweigh the potential competitive
harm, particularly given the conditions we impose
y FT
and DT will assist Sprint's further development in markets
in which it is already competing, and will facilitate Sprint's
entry into new, undeveloped markets, to the ultimate bene
fit of U.S. customers. We disagree with AT&T that the
public interest benefits of the proposed transaction dis
cussed above do not outweigh the potential competitive
harm, particularly given the conditions we impose. Thus,
we find that these public interest factors weigh strongly in
favor of granting Sprint's petition, subject to the conditions
discussed below.
c. Other Public Interest Factors
89. Other factors cited in our Foreign Carrier Entry Order
that may be considered as part of the overall public interest
analysis for foreign carrier entry include cost-based ac
counting rates, and any national security or law enforce
ment issues, foreign policy or trade concerns raised by the
Executive Branch. In addition, the extent of alien partici
pation in Sprint's parent corporation is a public interest
, factor under Section 310(b)(4).
90. AT&T argues that the implementation of cost-based
accounting rates by FT and DT should be a precondition of
approval of the petition.'^'' We decline to adopt the specific
approach advocated by AT&T. We decided in the Foreign
Carrier Entry Order that we would not take AT&T's ap
proach, but instead would consider cost-based accounting
rates as an additional public interest factor. The accounting
rates between the United States and Germany have signifi
cantly decreased in the last 10 years, following a general
global trend. In 1985, the accounting rate between the
United States and Germany was 1.2 Special Drawing Rights
(SDR) (approximately $1.32); in 1995. the rate was 0.26
SDR (approximately SO.39).'^' Although there remains
room for further progress, Germany has taken significant
strides towards a cost-based accounting rate.
91. The accounting rates between the United States and
France also have decreased in the last 10 years, but much
less than the U.S.-Germany rates
and Germany was 1.2 Special Drawing Rights
(SDR) (approximately $1.32); in 1995. the rate was 0.26
SDR (approximately SO.39).'^' Although there remains
room for further progress, Germany has taken significant
strides towards a cost-based accounting rate.
91. The accounting rates between the United States and
France also have decreased in the last 10 years, but much
less than the U.S.-Germany rates. They remain significantly
above cost. In 1985, the accounting rate between the Unit
ed States and France was 1.6 (SDR) (approximately 51.76);
in 1995, the rate was 0.36 SDR (approximately $0.54).'
Today, the U.S.-France accounting rate is nearly 28 percent
above the U.S.-Germany and U.S.-U.K. accounting rates.
There is no possible Justification for this difference. Given
the similar levels of infrastructure and economic develop
ment in France, Germany and the United Kingdom, the
high volume of calls originated and terminated in each
country, and the geographic proximity of the these coun
tries, the costs of originating and terminating U.S. traffic in
France should be similar to the costs for Germany and the
United Kingdom.'^® But while the U.S.-Germany and
U.S.-U.K. rates are in the same range, the U.S.-France
accounting rate is significantly higher.
92. Thus, although the accounting rates with France and
Germany are moving downward, they remain well above
cost, particularly in the case of France. Accordingly, we
find this to be a negative factor in our public interest
analysis, especially for France. We thus find that this trans
action is in the public interest only if Sprint obtains a
written commitment from FT to lower the accounting rate
between the United States and France to the same range as
the U.S.-U.K. and U.S.-Germany accounting rates, as de
scribed more fully below in paragraph 131.
93
ngly, we
find this to be a negative factor in our public interest
analysis, especially for France. We thus find that this trans
action is in the public interest only if Sprint obtains a
written commitment from FT to lower the accounting rate
between the United States and France to the same range as
the U.S.-U.K. and U.S.-Germany accounting rates, as de
scribed more fully below in paragraph 131.
93. With respect to the other public interest factors laid
out in the Foreign Carrier Entry Order, we note that the
Executive Branch has not advised us of any national secu
rity, law enforcement, foreign policy, or trade concerns
that support grant or denial of the petition.
94. We next analyze the extent of alien participation in
Sprint's parent corporation as a public interest factor iden
tified in the Foreign Carrier Entry Order as relevant to our
analysis under Section 310(b)(4).
Upon consummation of
the transaction. Sprint could at any time have up to 28
percent alien ownership (10 percent FT, 10 percent DT
and approximately 6.2 percent non-FT or -DT, 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 Sprint's wholly-owned Title III
common carrier
licensee
subsidiaries
will
be U.S.
citizens.'"" Sprint maintains that the aggregated 28 percent
alien ownership is consistent with the public interest and
the Commission's decision in MCllBT and falls within
Commission precedent permitting alien ownership in ex
cess of the statutory benchmark.
95. In the common carrier context,'"' the Commission's
decision whether to permit a level of alien ownership or
participation that exceeds the statutory benchmark tradi
tionally has taken into account the overall level of alien
involvement in the ownership and management of the
parent company.'"" Recently, the Commission approved 92
percent alien ownership in the alien parent of a U.S
y benchmark.
95. In the common carrier context,'"' the Commission's
decision whether to permit a level of alien ownership or
participation that exceeds the statutory benchmark tradi
tionally has taken into account the overall level of alien
involvement in the ownership and management of the
parent company.'"" Recently, the Commission approved 92
percent alien ownership in the alien parent of a U.S.
subsidiary which would control a licensee where more
than 50 percent of the directors and 85 percent of the
AT&T Supplemental Opposition at 33-34.
t3S
Federal Communications Commission, International Bu
reau, "Accounting Rates for International Message Telephone
Service of the United States," at 3 (Nov. 1. 1W5).
See id. at 2.
See id. at 6 (listing the U.S.-U.K. accounting rate as 0.25
SDR ($0.37)).
AT&T has estimated that a cost-based accounting rate for
the United Kingdom is 0.08 SDR. See AT&T Comments. BTNA
Application for Authority Under Section 214 of the Commu
nications Act to Provide International Resale Services as a
Nondominant Common Carrier, File No. l-T-C-d3-126 (Filed
Mar. 22, 1905).
See Foreign Carrier Entry Order at 1 216.
'"" See Sprint Petition at 25.
'"' Common carrier licensees traditionally have been treated
differently from broadcast licensees because common carriers do
not control the content of their transmissions. See Fox Televi
sion Stations, Inc., FCC 95-313, at 1 21 (released Jul. 28, 1995).
'"" See MCIIBT, 9 FCC Red at 3973 (citing GRC Cablevision,
Inc., 47 F.C.C.2d 467 (1974); LCI Commtintcations, Inc., Mimeo
No. 3491 (Mar. 31, 1986); MiUicom, 4 FCC Red 4846 (Com. Car.
Bur. 1989); IDB Communications Group, Inc., 6 FCC Red 4652
(Com. Car. Bur. 1991); and Teleport Transmission Holdings, 8
FCC Red 3063 (Com. Car. Bur. 1993)).
1865
ns, Inc., FCC 95-313, at 1 21 (released Jul. 28, 1995).
'"" See MCIIBT, 9 FCC Red at 3973 (citing GRC Cablevision,
Inc., 47 F.C.C.2d 467 (1974); LCI Commtintcations, Inc., Mimeo
No. 3491 (Mar. 31, 1986); MiUicom, 4 FCC Red 4846 (Com. Car.
Bur. 1989); IDB Communications Group, Inc., 6 FCC Red 4652
(Com. Car. Bur. 1991); and Teleport Transmission Holdings, 8
FCC Red 3063 (Com. Car. Bur. 1993)).
1865
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
officers of the subsidiary would be U.S. citizens.'''^ As in
the MCI/BT proceeding, it is only the potential for a three
percent fluctuation in alien ownership beyond the 25
percent statutory benchmark that causes the petitioners to
seek a favorable Section 310(b)(4) declaratory ruling. In
addition, this transaction involves a dominant U.S. pres
ence among Sprint's officers, directors and shareholders.
Approval of the percentage of alien ownership in Sprint
resulting from the transaction with FT and DT is consistent
with the previous cases in which we have determined it
would not be in the public interest to prohibit levels of
indirect alien ownership of common carrier licensees in
excess of that proposed by Sprint.'" Thus, our analysis of
the extent of alien participation in Sprint's parent corpora
tion under Section 310(b)(4) weighs in favor of approval.
6. Conditions and Safeguards
a. Comments
96. As noted above, a number of parties urge us to deny
Sprint's petition until France and Germany open their
telecommunications markets and offer effective market ac
cess.
In addition to FT's and DT's monopoly status,
these parties cite the lack of competitive safeguards and
independent regulators as major deficiencies of the current
French and German regulatory regimes
nd Safeguards
a. Comments
96. As noted above, a number of parties urge us to deny
Sprint's petition until France and Germany open their
telecommunications markets and offer effective market ac
cess.
In addition to FT's and DT's monopoly status,
these parties cite the lack of competitive safeguards and
independent regulators as major deficiencies of the current
French and German regulatory regimes. In addition to the
competitive concerns mentioned in Section 1V.B.4, AT&T,
BTNA, CWA/IBEW, and ITI state that approval of Sprint's
petition will remove incentives for faster liberalization in
France and Germany.'" These parties also assert that ap
proval of the transaction would undercut the U.S. Govern
ment's bargaining position in the Negotiating Group on
Basic Telecommunications (NGBT). Several parties also
propose that, in the event we approve the transaction, we
should impose certain conditions. For example, AT&T
states that the Commission should withhold approval of the
equity investment and permit the parties' Joint Venture to
proceed with conditions.'''^
97. ACC and MFSl urge the Commission to treat Sprint
as
a dominant
carrier
on
the
U.S.-France and
U.S.-Germany routes. They also believe that the conditions
imposed by the Justice Department on MCl/BT, including
transparency, confidentiality and international simple re
sale requirements, should be imposed in this proceeding.'"®
WorldCom requests that the Commission condition any
approval of Sprint's petition upon requirements that FT
and DT implement co^t-based local switched rates, and not
discriminate in their provisioning and maintenance of fa
cilities.'"' Finally, Senator Dole urges the Commission not
to artificially "freeze" Sprint's communications capacity
because an arbitrary limit on communications capacity will
not alleviate concerns about foreign market leveraging.""
b. Discussion
98
etition upon requirements that FT
and DT implement co^t-based local switched rates, and not
discriminate in their provisioning and maintenance of fa
cilities.'"' Finally, Senator Dole urges the Commission not
to artificially "freeze" Sprint's communications capacity
because an arbitrary limit on communications capacity will
not alleviate concerns about foreign market leveraging.""
b. Discussion
98. We have concluded that, in the overall public inter
est under Sections 214 and 310(b)(4), we should not with
hold a positive public interest finding regarding the
transaction until France and Germany offer effective com
petitive opportunities or the market access requirements
suggested by a number of the parties."' We are not dis
counting the importance of these factors; indeed, we expect
these factors, including a fair and transparent interconnec
tion regime, competitive safeguards, and an independent
regulator, to be implemented in France and Germany by
1998. But we believe the significant public interest benefits
of the transaction weigh in favor of a finding that this
transaction is in the public interest, subject to conditions,
notwithstanding the current lack of effective competitive
opportunities in France and Germany.
99. We also believe that delay or denial of Sprint's
petition until effective competitive opportunities exist in
France and Germany would undermine the parties' pro
posed transaction and, accordingly, possibly result in the
loss of the important public interest benefits of the transac
tion. Moreover, in view of these public interest benefits
arising from the capital investment, we decline to permit
only the parties' Joint Venture to proceed and withhold a
finding that this transaction is in the public interest until
effective competitive opportunities exist, as proposed by
AT&T. Given our public interest findings, we also decline
to require Sprint to divest its operations on the France and
Germany routes."^
See Cable & Wireless, File No. hO-SAT-MlSC-i^S (released
Oct. 17, 1995)
ine to permit
only the parties' Joint Venture to proceed and withhold a
finding that this transaction is in the public interest until
effective competitive opportunities exist, as proposed by
AT&T. Given our public interest findings, we also decline
to require Sprint to divest its operations on the France and
Germany routes."^
See Cable & Wireless, File No. hO-SAT-MlSC-i^S (released
Oct. 17, 1995).
'"" See GRC Cablevision, Inc., 47 F.C.C.2d at 467; GCl
Liquidating Trust, 7 FCC Red 7641 (1992); Teleport Transmission
Holdings, 8 FCC Red at 3063.
'"' See, e.g.. Letter from Gerd Eiekers, ADPO, to Reed Hundt,
Chairman, Federal Communications Commission (Filed Dee, 20,
1994); BTNA Supplemental Comments at 5-8; Esprit Opposition
at 7-8; and MCl Opposition at 16-20,
'"® See AT&T Supplemental Opposition at iv; BTNA Sup
plemental Comments at 6-7; CWA/IBEW Comments at 2-3; ITl
Letter at 2.
'"^ These conditions include; (1) prohibit Sprint from offering
a new correspondent service with FT or DT unless FT and DT
offer to provide the service on the same terms and conditions
with any U.S. carrier with whom it has an operating agreement;
(2) require that FT and DT implement cost-based accounting
rates with all U.S. carriers; (3) prohibit the "steering" of cus
tomers by DT and FT to Sprint or the Joint Venture; and (4)
impose the conditions required in the MCIIBT Order, including
the prohibition against accepting any "special concession." See
AT&T Supplemental Opposition at 31-37. AT&T also recom
mended specific conditions in a recently filed ex parte submis
sion. These conditions reflect concerns raised by AT&T
previously in this proceeding, and we respond to those concerns
below. See Letter from R. Gerald Salemme, AT&T, to Jane
Mago, Federal Communications Commission (filed Dec. 8
1995).
'"® See ACC Opposition at 6-16; MFSl Opposition at 7-15.
WorldCom Letter at 3-7.
Letter from Senator Bob Dole to Reed E. Hundt, Chair
man, Federal Communications Commission, (filed Dec. 12
1995)
concerns raised by AT&T
previously in this proceeding, and we respond to those concerns
below. See Letter from R. Gerald Salemme, AT&T, to Jane
Mago, Federal Communications Commission (filed Dec. 8
1995).
'"® See ACC Opposition at 6-16; MFSl Opposition at 7-15.
WorldCom Letter at 3-7.
Letter from Senator Bob Dole to Reed E. Hundt, Chair
man, Federal Communications Commission, (filed Dec. 12
1995).
See e.g., ACC Opposition at 16-17; AT&T Supplemental
Opposition at 17-30; BTNA Supplemental Opposition at 8-12;
MCl Opposition at 16-20. We also'decline to agree with Esprit
that, if we grant Sprint's request, we should permit U.S, car
riers to (1) engage in "one-way" resale and (2) route traffic over
private lines between the United States and third countries
through private lines between the United States and countries
designated as equivalent. See Esprit Reply Comments at 4-6
(filed Sep. 15, 1995), Esprit's recommended changes to our
international private line policies were raised by other parties in
the Foreign Carrier Entry proceeding and addressed extensively
in our final Order in that proceeding. See Foreign Carrier Entry
Order at H 1 165-70, We see no need to revisit these conclusions
here.
See Jd. at 11 117-18.
1866
11 FCC Red No. 4
Federal Communications Commission Record
FCC 95-498
100. We do believe, however, that Sprint must agree to
adhere to the strict conditions described below until full
facilities and services competition emerge in both countries
in order to ensure that the parties do not engage in
anticompetitive activities. We continue to believe, as we
stated in the Foreign Carrier Entry Order, that full facilities-
based competition, rather than regulatory conditions, are
the most potent safeguard against the abuse of market
power.
Nonetheless, because of the public interest bene
fits of the proposed transaction and the commitments to
foreign liberalization, we are willing to rely on strict con
ditions in this proceeding to protect competition
stated in the Foreign Carrier Entry Order, that full facilities-
based competition, rather than regulatory conditions, are
the most potent safeguard against the abuse of market
power.
Nonetheless, because of the public interest bene
fits of the proposed transaction and the commitments to
foreign liberalization, we are willing to rely on strict con
ditions in this proceeding to protect competition. Because
of the conditions we are requiring Sprint to accept as part
of our public interest finding, we disagree with the AT&T,
BTNA and CWA/IBEW that approval of Sprint's petition
will remove incentives for the French and German Gov
ernments to undertake further liberalization. These con
ditions
provide
important
incentives
for
earlier
liberalization than might otherwise be the case. We thus do
not believe that approval of this transaction will adversely
affect NGBT negotiations. In any event, we do not believe
it would be appropriate to delay our decision until after
April 1996, the deadline for an agreement in that forum,
given Sprint's legitimate business needs for a timely de
cision.
101. In its proposed Final Judgment and Competitive
Impact Statement, the Justice Department reaches many of
the same conclusions that we do about the potential for
anticompetitive conduct as a result of the proposed transac
tion.'^"' It finds that, because of the absence of privatization
and the continued existence of de jure monopolies in
France and Germany, additional relief is needed beyond
that imposed in the MCI/BT Final Judgment. The Justice
Department concludes that a series of conditions and re
quirements, imposed in two phases, is sufficient to address
its concerns over potential anticompetitive conduct, par
ticularly given the progress made in France and Germany
towards a competitive telecommunications environment
and the plans for the implementation of full facilities and
services competition in 1998
T Final Judgment. The Justice
Department concludes that a series of conditions and re
quirements, imposed in two phases, is sufficient to address
its concerns over potential anticompetitive conduct, par
ticularly given the progress made in France and Germany
towards a competitive telecommunications environment
and the plans for the implementation of full facilities and
services competition in 1998. As we note below, a number
of the conditions we require Sprint to accept address con
cerns similar to those addressed by the Justice Department.
We have taken into account the provisions of the proposed
Final Judgment in designing our conditions in this Order,
and we rely on the effectiveness of those provisions. The
conditions described below, together with the provisions of
the proposed Final Judgment, fully address our public
interest concerns.
102. Upon careful consideration of the record in this
proceeding, we impose, in general, five conditions to pre
vent potential anticompetitive conduct and minimize the
unfair competitive advantages accruing to Sprint from its
affiliation with FT and DT. First, we find that Sprint is a
dominant carrier for the provision of U.S. international
services on the U.S.-France and U.S.-Germany routes. Sec
ond, we will not allow Sprint to operate additional circuits
on the U.S.-France and U.S.-Germany routes until France
and Germany have liberalized two important markets; al
ternative infrastructure for already liberalized services
(which include most non-public voice services) and basic
switched voice resale. Third, we require Sprint to comply
with
nondiscrimination and reporting requirements.
Fourth, we find this transaction serves the public interest
only if Sprint obtains a written commitment from FT to
lower the accounting rate between the United States and
France to the same range as the U.S.-U.K. and
U.S.-Germany accounting rates
e most non-public voice services) and basic
switched voice resale. Third, we require Sprint to comply
with
nondiscrimination and reporting requirements.
Fourth, we find this transaction serves the public interest
only if Sprint obtains a written commitment from FT to
lower the accounting rate between the United States and
France to the same range as the U.S.-U.K. and
U.S.-Germany accounting rates. Fifth, if the anticipated
liberalization measures and implementation of effective
competitive opportunities do not occur as planned, we will
take further action no later than the Spring of 1998. Pro
vided that Sprint complies with the conditions of this
ruling, we conclude that we need not designate for hearing
the issue whether the public interest would continue to be
served by Sprint's holding of Title II authorizations and
Title III licenses if these investments and the Joint Venture
are consummated.
i. Regulating Sprint as a Dominant Carrier
103. The first condition includes the regulation of Sprint
as a dominant carrier for the provision of U.S. interna
tional services on the U.S.-France and U.S.-Germany
routes until Sprint can demonstrate that there is no sub
stantial risk of anticompetitive effects in the U.S. interna
tional services market from its affiliation with FT and
DT.'" We recently modified our dominant carrier safe
guards to require tariff filing on 14-days notice, prior Sec
tion 214 authorization for circuit additions or changes; the
filing of quarterly traffic and revenue reports; and the
maintaining of provisioning and maintenance records that
cover the network facilities and services a dominant, for
eign-affiliated carrier procures from its foreign carrier af
filiate. This requirement includes services that a dominant
carrier procures on behalf of joint ventures for the provi
sion of U.S. basic or enhanced services.""
104. The Foreign Carrier Entry Order adopts a change in
our policy regarding when we will consider a foreign car
rier investment in a U.S
facilities and services a dominant, for
eign-affiliated carrier procures from its foreign carrier af
filiate. This requirement includes services that a dominant
carrier procures on behalf of joint ventures for the provi
sion of U.S. basic or enhanced services.""
104. The Foreign Carrier Entry Order adopts a change in
our policy regarding when we will consider a foreign car
rier investment in a U.S. carrier to constitute an "affili
ation" for purposes of determining regulatory treatment of
the U.S. carrier. First, we have lowered the affiliation
threshold control to a greater than 25 percent interest or a
controlling interest at any level. In addition, we have in
dicated we may regulate a carrier as dominant even if an
investment is less than 25 percent if there are other
contractual arrangements between the parties which could
have a significant impact on competition.'"
105. In this case, although the combined equity interests
of FT and DT are less than 25 percent, we nonetheless find
an affiliation in this case for the same reasons we found an
affiliation under our effective competitive opportunities
analysis.'" In particular, this transaction involves two of
the largest foreign carriers in the world, which control
bottleneck facilities in two of the biggest destination mar
kets for U.S. traffic.'" These carriers propose to invest in
the third largest U.S. domestic interexchange and interna
tional telecommunications services carrier as part of their
Joint Venture. The monopoly positions of FT and DT in
their own countries, combined with their 10 percent each
equity interest in, and Joint Venture with, Sprint, provide
'" See id. at 1 1! 15-16 & 29.
See Competitive Impact Statement, 60 Fed. Reg. at
44063-65.
155
156
157
158
159
See Foreign Carrier Entry Order at H 253 & n.358.
See id. at 1 1 262-73.
See id. at 1 1 88-92.
See supra at 1 39.
See 47 C.F.R. § 63.01(r)(7).
1867
ositions of FT and DT in
their own countries, combined with their 10 percent each
equity interest in, and Joint Venture with, Sprint, provide
'" See id. at 1 1! 15-16 & 29.
See Competitive Impact Statement, 60 Fed. Reg. at
44063-65.
155
156
157
158
159
See Foreign Carrier Entry Order at H 253 & n.358.
See id. at 1 1 262-73.
See id. at 1 1 88-92.
See supra at 1 39.
See 47 C.F.R. § 63.01(r)(7).
1867
FCC 95-498
Federal Communications Commission Record
11 FCC Red No. 4
the incentive and ability for FT and/or DT to engage in
anticompetitive conduct favoring Sprint on these routes.
For example, to the extent FT and DT can take actions to
enhance Sprint's position and Sprint's stock value increases
as a result, FT and DT would themselves profit by the rise
in value of their equity investment in Sprint.
106. Moreover, the potential impact on competition in
the U.S. basic international services market warrants domi
nant carrier treatment to enable us to closely monitor
Sprint's circuits additions, traffic and tariffs for service to
these countries, as well as the treatment afforded FT and
DT in the provisioning and maintenance of their basic
network services and facilities. Accordingly, we find under
our new policy regarding affiliation that Sprint cannot be
treated as non-dominant on the France and Germany
routes because Sprint's affiliated carriers, FT and DT, con
trol bottleneck facilities in those countries."'" We also find
that, under our current definition of affiliation. Sprint
must be regulated as dominant on the France and Ger
many routes. We thus require Sprint to comply with the
specific dominant carrier regulation requirements set forth
in paragraph 140 of this Order.
107
ance and Germany
routes because Sprint's affiliated carriers, FT and DT, con
trol bottleneck facilities in those countries."'" We also find
that, under our current definition of affiliation. Sprint
must be regulated as dominant on the France and Ger
many routes. We thus require Sprint to comply with the
specific dominant carrier regulation requirements set forth
in paragraph 140 of this Order.
107. The longer tariff filing period for dominant carriers
will give us a better opportunity to detect potential preda
tory pricing before it occurs.'"' Similarly, the requirement
that Sprint file quarterly traffic reports and seek prior
approval for circuit additions or changes on the France
and Germany routes will better enable us to monitor traffic
flows between Sprint and FT in France and DT in Ger
many and to remedy promptly any abuses of foreign mar
ket power. Prior approval for circuit additions or changes
is required of all dominant carriers and, in this case, would
enable competitors of Sprint and the Joint Venture to
determine if discrimination is occurring. We thus agree
with ACC and MFSl that these requirements are necessary
to aid detection of, and help deter, anticompetitive con
duct. By doing so, dominant carrier regulation will protect
competition until France and Germany offer effective com
petitive opportunities.
108. Because FT and DT continue to hold monopolies
over key infrastructure, we believe there is a stronger po
tential for the anticompetitive use of foreign market power
than in MCHBT. Thus, regulation of Sprint as a dominant
carrier is necessary on the routes where it is receiving
traffic from FT and DT at least until full infrastructure and
services
liberalization
and procompetitive
regulation
emerges iri France and Germany.'" If effective competition
and effective regulation actually emerge in each country,
the potential anticompetitive effects would be diminished
and the types of conditions we imposed on that transaction
may then be adequate to protect competition
ing
traffic from FT and DT at least until full infrastructure and
services
liberalization
and procompetitive
regulation
emerges iri France and Germany.'" If effective competition
and effective regulation actually emerge in each country,
the potential anticompetitive effects would be diminished
and the types of conditions we imposed on that transaction
may then be adequate to protect competition. We reserve
the right to extend dominant carrier regulation to addi
tional U.S.-international routes in the event FT, DT and
Sprint enter into a similar alliance with any other "foreign
carrier." We also reserve the right to extend to additional
U.S. international routes dominant carrier regulation and
reporting requirements contained in this Order in the
event Sprint has or acquires an "affiliation" with any "for
eign carrier" as those terms are defined in our Foreign
Carrier Entry Order and Section 63.01(r)(l)(i) and (ii) of
the Commission's Rules.
ii. Circuit Restrictions
109. Under the second condition, we will not allow
Sprint to operate additional circuits on the U.S.-France and
U.S.-Germany routes until two milestones have been met.
These milestones are described in detail below. This con
dition is necessary to mitigate Sprint's unfair competitive
advantage over other U.S. carriers on the routes where FT
and DT have monopoly market power on the foreign end
for the interim period until further competition emerges in
those markets. Thus, while we will permit Sprint to acquire
additional circuit capacity, we will not allow Sprint to
operate any newly-acquired circuits until Sprint demon
strates that these competitive milestones have been met. To
implement this condition, we require Sprint to file with
the Commission, within 15 days of the effective date of this
Order, a circuit status report on the U.S.-France and
U.S.-Germany routes, specifying the number of circuits in
which Sprint has an ownership, indefeasible right of use or
leasehold interest, and the number of circuits it is operat
ing on these routes.
110
estones have been met. To
implement this condition, we require Sprint to file with
the Commission, within 15 days of the effective date of this
Order, a circuit status report on the U.S.-France and
U.S.-Germany routes, specifying the number of circuits in
which Sprint has an ownership, indefeasible right of use or
leasehold interest, and the number of circuits it is operat
ing on these routes.
110. By virtue of its Joint Venture with FT and DT, we
find that Sprint has an advantage over other U.S. carriers
that have no possibility of forming a similar alliance with
another French or German carrier. As we concluded in
the Foreign Carrier Entry Order, if there is no opportunity
for participation by other U.S. carriers, then the benefits of
providing international service on an end-to-end basis will
flow solely to the monopoly foreign carrier and its U.S.
affiliate. Our approach to future Section 214 authorization
requests by Sprint is designed to mitigate the unfair com
petitive advantage accruing to Sprint, FT and DT until
further liberalization occurs. We also believe such action
will provide further incentives for the French and German
Governments and FT and DT to continue to liberalize
their telecommunications markets before 1998.
111. The first milestone is implementation of alternative
infrastructure competition in France and Germany. To
meet this milestone, France and Germany must permit
infrastructure to be offered by entities other than FT or
DT, or their affiliates. Such alternative infrastructure must
be permitted to carry all currently liberalized services in
France and Germany, including data communications and
closed user groups traffic (but not public switched voice
services). This development opens the way for new facili
ties-based carriers for most telecommunications services.
Thus, at least with respect to already liberalized services,
U.S.-affiliated entities may begin to have competitive alter
natives to FT and DT to carry their non-public switched
voice traffic in France and Germany.
112
ions and
closed user groups traffic (but not public switched voice
services). This development opens the way for new facili
ties-based carriers for most telecommunications services.
Thus, at least with respect to already liberalized services,
U.S.-affiliated entities may begin to have competitive alter
natives to FT and DT to carry their non-public switched
voice traffic in France and Germany.
112. The second milestone is the existence of opportu
nities to provide basic switched voice resale, including for
the provision of tr
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