**DA 05-1813**

**June 27, 2005**

**AUTHORIZATIONS GRANTED**

**APPLICATIONS FILED FOR ACQUISITION OF ASSETS OF**

**KMC OPERATING COMPANIES BY TELCOVE, INC.**

**WC Docket No. 05-90**

**ITC-ASG-20050302-00078**

**By the Chief, International Bureau and Chief, Wireline Competition
Bureau:**

On March 1, 2005, TelCove, Inc. ("TelCove"), TelCove Investment, LLC
("TelCove Investment"), TelCove of Kentucky, Inc. ("TelCove Kentucky"),
TelCove Operations, Inc. ("TelCove Operations"), TelCove of Virginia,
LLC ("TelCove Virginia") (collectively, not including TelCove, the
"TelCove Operating Companies"), KMC Telecom Holdings, Inc. ("KMC
Holdings"), KMC Telecom LLC ("KMC"), KMC Telecom II LLC ("KMC II"), KMC
Telecom III LLC ("KMC III"), and KMC Telecom of Virginia, Inc. ("KMC
Virginia") (collectively, the "KMC Operating Companies" and, together
with TelCove and the TelCove Operating Companies, the "Applicants"),
filed applications pursuant to section 214 of the Communications Act, as
amended ("the Act").[^1] The unopposed applications seek Commission
approval to complete a transaction whereby TelCove will acquire certain
assets, including certain customer accounts, from the KMC Operating
Companies.[^2] These applications pertain to domestic and international
section 214 authorizations.[^3]

On March 28, 2005, the Applicants, along with the Department of Homeland
Security ("DHS") for itself and for the Department of Justice ("DOJ")
and the Federal Bureau of Investigation ("FBI") (collectively, the
"Executive Branch Agencies") filed with the Commission a joint petition
to defer grant of these applications while the Executive Branch Agencies
and Applicants address potential national security, law enforcement, and
public safety issues.[^4] Subsequently, on June 16, 2005, the Applicants
along with the Executive Branch Agencies submitted a joint petition to
adopt conditions to authorizations and licenses ("Joint Petition").[^5]
In the Joint Petition, the Executive Branch Agencies advised the
Commission that they do not object to the grant of the instant
applications, provided that the Commission conditions such grant on
compliance with the agreement reached on June 15, 2005 between TelCove
and the Executive Branch Agencies (the "TelCove Agreement").[^6]

Consistent with Commission precedent, the Wireline Competition Bureau
and International Bureau accord the appropriate level of deference to
the Executive Branch Agencies' expertise on national security and law
enforcement issues.[^7] The Executive Branch Agencies indicate that the
commitments set forth in the TelCove Agreement address their stated
concerns regarding national security, law enforcement, and public
safety.[^8] Accordingly, we grant the Joint Petition filed by the
Executive Branch Agencies and the Applicants, and grant the subject
applications subject to compliance by TelCove with the terms of the
TelCove Agreement.

The International Bureau and the Wireline Competition Bureau find that
grant of the Applications, subject to the condition set forth in this
Public Notice, will serve the public interest, convenience, and
necessity.[^9] Specifically, in accordance with the request of the
Executive Branch Agencies, in the absence of any objection from the
Applicants, pursuant to section 214 of the Communications Act of 1934,
as amended, 47 U.S.C. § 214, and sections 0.261 and 0.291 of the
Commission's rules,[^10] the Bureaus hereby grant the applications
conditioned on compliance with the commitments set forth in the TelCove
Agreement.[^11]

Within 30 days of consummation, the Commission shall be notified by
letter of the date of consummation and the file numbers of the
applications involved in the transaction.[^12] Failure to comply with
all relevant Commission rules, policies, or any specific condition to
the grant of these Applications will result in automatic rescission of
the Commission's approval, dismissal of the underlying applications, and
could subject the applications to enforcement action, including but not
limited to the imposition of forfeitures.

Pursuant to section 1.103 of the Commission's rules, the grant is
effective upon release of this Public Notice.[^13] Petitions for
reconsideration under section 1.106 or applications for review under
section 1.115 of the Commission's rules may be filed within 30 days of
the date of this Public Notice.[^14]

For further information, please contact Denise Coca at (202) 418-0574,
or Terri Natoli at (202) 418-1574, Competition Policy Division, Wireline
Competition Bureau for the domestic section 214 authorization and Susan
O'Connell at (202) 418-1460 for the international section 214
authorization.

**-- FCC --**

[^1]: 47 U.S.C. § 214. On March 14, 2005, the Commission released a
    public notice accepting the domestic section 214 application for
    streamlined processing. *See Domestic Section 214 Application Filed
    for Acquisition of Assets of KMC Operating Companies by TelCove,
    Inc.,* WC Docket No. 05-90, Public Notice, DA 05-669 (rel. Mar. 14,
    2005). The Applicants also filed an application related to
    international section 214 authority held by the KMC Operating
    Companies. The application for the international section 214
    authorization was placed on public notice on April 1, 2005. *Non
    Streamlined International Applications Accepted for Filing*, Public
    Notice, Report No. TEL-00896NS (rel. April 1, 2005).

[^2]: TelCove is 20% owned by Bay Harbour Partners, Ltd., a Cayman
    Islands investment firm, 17% owned by Bay Harbour 90-1, Ltd., a U.S.
    investment firm, 15% owned by Goldman Sachs, a U.S. corporation, and
    10% owned by Credit Suisse First Boston, a Switzerland investment
    firm. Both Bay Harbour Partners, Ltd. and Bay Harbour 90-1, Ltd. are
    managed and controlled by Bay Harbour Management, L.C., a U.S.
    entity. Bay Harbour Management, L.C. is owned and controlled by
    Tower, Inc., a U.S. corporation (85%) and Unity, N.V., a Netherland
    Antilles investment firm (10%). Tower, Inc. is owned and controlled
    by two U.S. citizens, Douglas Teitlebaum (50%) and Stephen Van Dyke
    (50%). Unity, N.V. is owned by Sir John M. Templeton (100%), a
    British citizen. Credit Suissse First Boston is owned by Credit
    Suisse Group (100%), a Switzerland investment firm.

[^3]: TelCove will provide international service to customers acquired
    as a result of this transaction pursuant to its international
    section 214 authorization granted in File No.
    ITC-214-1997-1128-00747 (*see also* ITC-ASG-20040628-00262) and
    through its operating subsidiaries TelCove Investment, LLC, TelCove
    of Kentucky, Inc., TelCove Operations, Inc., and TelCove of
    Virginia, LLC. KMC Telecom III LLC will retain its international
    section 214 authorization, File No. ITC-214-19980211-00101 (*see
    also* ITC-ASG-20030708-00378).

[^4]: *See* *In the Matter of the Application of KMC Telecom Holdings,
    Inc., KMC Telecom LLC, KMC Telecom II, LLC, KMC Telecom III LLC, KMC
    Telecom of Virginia, Inc. and TelCove, Inc., TelCove Investment, LLC
    TelCove of Kentucky, Inc., TelCove Operations, Inc., and TelCove of
    Virginia, LLC,* WC Docket No. 05-90, Joint Petition to Defer (filed
    Mar. 28, 2005). On April 1, 2005, the Wireline Competition Bureau
    removed the domestic section 214 application from streamlined
    treatment pending notification from the Executive Branch Agencies
    that the evaluation has been completed. *See* *Notice of Removal of
    Domestic Section 214 Application from Streamlined Treatment*, WC
    Docket No. 05-90, Public Notice, DA 05-1001 (rel. Apr. 1, 2005).

[^5]: *KMC Telecom Holdings, Inc., KMC Telecom LLC, KMC Telecomm II LLC,
    KMC Telecom III LLC, KMC Telecom of Virginia, Inc. and TelCove,
    Inc., TelCove Investment, LLC, TelCove of Kentucky, Inc., TelCove
    Operations, Inc., and TelCove of Virginia*, Joint Petition to Adopt
    Conditions to Authorizations and Licenses, WC Docket No. 05-90
    (dated June 16, 2005) ("Joint Petition").

[^6]: *See* Joint Petition at 3.

[^7]: The Commission considers national security, law enforcement,
    foreign policy, and trade policy concerns when analyzing a transfer
    of control or assignment application in which foreign ownership is
    an issue. *See Rules and Policies on Foreign Participation in the
    U.S. Telecommunications Market*, Report and Order and Order on
    Reconsideration, 12 FCC Rcd 23891, 23919-921, paras. 61-66 (1997),
    Order on Reconsideration, 15 FCC Rcd 18158 (2000) ("*Foreign
    Participation Order"*). In assessing the public interest, the
    Commission considers the record and accords the appropriate level of
    deference to Executive Branch expertise on national security and law
    enforcement issues. *See Foreign Participation Order*, 12 FCC Rcd at
    23919-921, paras. 61-66; *see e.g.,* *Application of Infonet
    Broadband Services Corporation and Infonet Telecommunications
    Corporation to Transfer Control of FCC Licenses and Authorizations
    to BT Group plc*, WC Docket 04-421, Public Notice, DA 05-387 (rel.
    Feb. 11, 2005); *International Authorizations Granted*, Public
    Notice, DA 05-372 (rel. Feb 10, 2005) (ITC-T/C-2004119-00460,
    Infonet Broadband Services Corporation); *Applications of XO
    Communications, Inc. for Consent to Transfer Control of Licenses and
    Authorizations Pursuant to Sections 214 and 310(d) of the
    Communications Act, and Petition for Declaratory Ruling Pursuant to
    Section 310(b)(4) of the Communications Act*, IB Docket No. 02-50,
    Memorandum Opinion & Order, 17 FCC Rcd 19212, 19228-29, paras.
    36-40.

[^8]: *See* Joint Petition at 4.

[^9]: 47 U.S.C. § 214(a).

[^10]: 47 C.F.R. §§ 0.261, 0.291. Upon consummation of the transaction,
    the Applicants will have a market share in the U.S. interstate
    interexchange market of less than 10 percent, and will provide
    competitive telephone exchange services or exchange access services
    exclusively in geographic areas served by a dominant local exchange
    carrier in the U.S. that is not a party to the transaction. In
    addition, no party to this transaction is dominant with respect to
    any domestic service.

[^11]: The TelCove Agreement and the Joint Petition submitted in WC
    Docket No. 05-90 and File No. ITC-ASG-20050302-00078 by the
    Applicants and the Executive Branch Agencies, which petition we here
    grant, is publicly available in the record of this proceeding and
    may be viewed through the Commission's Electronic Comment Filing
    System (ECFS) by searching WC Docket No. 05-90 and through the
    Commission's International Bureau Filing System (MyIBFS) by
    searching ITC-ASG-20050302-00078.

[^12]: 47 C.F.R. § 63.24(e)(4).

[^13]: *See* 47 C.F.R. § 1.103.

[^14]: *See* 47 C.F.R. §§ 1.106, 1.115.