# Before the

# Federal Communications Commission

# Washington, D.C. 20554

In the Matter of BT North America ) **IB Docket No. 98-192**

Petition for Waiver of Direct Access ) **File No. 60-SAT-ISP-97**

to INTELSAT System Restriction )

)

**MEMORANDUM OPINION AND ORDER**

**Adopted: May 11, 2000 Released: May 16, 2000**

By the Commission:

# I. Introduction

1 By this Order, we grant BT North America Inc. ("BTNA") a waiver of the
restriction in the *Direct Access decision* that prohibits an INTELSAT
Signatory, other than Comsat Corporation ("Comsat"), from providing
Level 3 direct access service in the United States to or from any
foreign country in which the Signatory or any of its affiliates use 50
percent or more of all the INTELSAT capacity consumed in that particular
country.[^1] For the reasons discussed below, we find that good cause
has been demonstrated and the public interest requires that we grant
BTNA a waiver of the restriction.[^2]

###### II. Background

2 On September 16, 1999, the Commission released the *Direct Access
decision* that permitted Level 3 direct access to the INTELSAT system
from the United States for the provision of international satellite
services.[^3] Previously, users of INTELSAT space segment capacity from
the United States were required to obtain access to INTELSAT satellites
only through Comsat. In permitting Level 3 direct access, however, the
Commission restricted direct access availability in the United States by
dominant foreign INTELSAT Signatories and their affiliates, which
includes British Telecommunications plc ("BT")[^4] and BTNA.[^5]
Specifically, the Commission stated that it would not authorize any
Signatory, other than Comsat, to purchase direct access in the United
States for service to or from any specific foreign country in which the
Signatory itself uses 50 percent or more of all INTELSAT capacity
consumer in that country.[^6] The Commission applied this restriction to
affiliates that are more than 50 percent owned by the respective
Signatory.

3 The Commission adopted the dominant foreign Signatory restriction to
protect against the potential of dominant foreign INTELSAT Signatories
to support INTELSAT Utilization Charge ("IUC") rates at below cost
levels \-- levels that do not reflect INTELSAT\'s full costs of
providing direct access in the U.S. market. [^7] It noted that dominant
foreign Signatories might find that below-cost IUC prices are in their
economic interest. Because these same companies have the ability to
influence IUC rates by way of their Signatory status (and thus Level 3
direct access prices in the United States), "they may be able to then
offer their U.S. services at artificially low prices, which could have
an adverse competitive impact on Comsat and other international service
providers operating in the United States."[^8]

4 In its Petition for Waiver, BTNA first asserts that BT has no economic
incentive to support IUC rates at below cost levels and, therefore,
"would not initiate or support" such an effort.[^9] It maintains that
"since all INTELSAT users are charged the same IUC rates, BT would gain
no competitive advantage in the United States or elsewhere," because
every direct access user would obtain the same benefit from reduced
rates.[^10] Further, "since BT is an investor, it would suffer lower
investment returns due to below-cost IUC's, placing BT in a
disadvantageous position vis-à-vis users that do not invest or whose
investment shares do not exceed their utilization shares."[^11] BTNA
also states that BT could not recoup investment losses if IUC rates were
reduced to below cost levels either (a) in its home market, because of
competitive pressures there, or (b) in the U.S. market, because of
existing satellite services competition, including Level 3 direct access
competition, which would also preclude it from raising prices on any of
its satellite services. These losses, asserts BTNA, would be exacerbated
by the notable amount by which BT's investment share exceeds its
underlying utilization share.[^12] This is due to the fact that BT would
receive a lower return on its investment as a result of, not only its
own use of direct access, but any other company obtaining direct access
to INTELSAT within the United States.[^13]

5 Secondly, BTNA argues that the underlying purpose of the dominant
foreign Signatory restriction \-- to counteract the potential incentive
of foreign INTELSAT Signatories to depress IUC rates to below cost
levels, in order to ensure effective competition in the U.S. direct
access market[^14] \-- is not served, but frustrated when applied to
BTNA.[^15] BTNA states that restricting its direct access involvement in
this way actually frustrates "the Commission's purpose of encouraging
competition in the U.S. direct access market by precluding a potential
competitor from competing on equal terms for the business of retail
customers in the United States."[^16]

6 Finally, while BTNA contends that the above reasons alone justify a
grant of its waiver request,[^17] nevertheless, BT and BTNA also promise
"not \[to\] initiate or support any proposal to the INTELSAT Board of
Governors advocating the reduction of" IUC to below cost levels, unless
it is required to do so by other parties (e.g., United Kingdom ("U.K.")
Government) in its role as U.K. Signatory.[^18]

7 Comsat opposes the BTNA waiver request because, it argues, BT and BTNA
"are not uniquely situated such that a waiver of the Commission's"
restriction would be appropriate.[^19] It states that BTNA's arguments
are applicable to all Signatories and, thus, more appropriately
addressed in a petition for reconsideration.[^20] Secondly, Comsat
argues that lower IUC rates could give BT and BTNA a competitive
advantage in the United States, in light of its ability to influence IUC
prices.[^21] Thirdly, Comsat expresses skepticism regarding BTNA's
commitment that BT will not support below cost reductions in IUC rates,
since it is not clear how this promise will be enforced.[^22] Comsat
states that this commitment does not cover the situation where
INTELSAT's costs rise but IUC rates do not.[^23] Finally, Comsat asserts
that allowing access by dominant foreign Signatories would "derail
INTELSAT privatization" efforts because the incentive to support
privatization would disappear.[^24]

# III. Discussion

8 Commission rules allow for a waiver where good cause is shown.[^25]
\"The Commission may grant a waiver where special circumstances warrant
a deviation from the general rule, such deviation serves the public
interest, and the waiver is consistent with the principles underlying
the rule.[^26] In reviewing the Commission\'s waiver rule, the United
States Court of Appeals has stated that granting a waiver may be
appropriate if (1) unique circumstances support a finding that strict
adherence would not be in the public interest; and (2) where a grant
would not undermine the underlying policy objectives of the rule in
question.[^27] The Court further stated, that although "an agency may
discharge its responsibilities by promulgating rules of general
application which, in the overall perspective, establish the 'public
interest' for a broad range of situations, \[this\] does not relieve it
of an obligation to seek out the 'public interest' in particular,
individualized cases."[^28]

9 In this case, BTNA has shown good cause by demonstrating that the
public interest does not require strict adherence to the dominant
foreign Signatory restriction under the circumstances presented
here.[^29] We also conclude that the underlying policy objectives for
the restriction \-- to offset any potential incentive for dominant
foreign Signatories to depress IUC rates to below cost levels, resulting
in an anti-competitive impact to the U.S. direct access market[^30] \--
will not be undermined by granting BTNA's request. We make this finding
based on the specific showing of BTNA as to the competition faced by BT
as an INTELSAT Signatory. Other Signatories that may seek similar relief
in the future would have to make showings based on their particular
circumstances.

10 **Special Circumstances.** There are four reasons for concluding that
special circumstances support grant of a waiver here and that it would
serve the public interest. First, BT has promised not to initiate or
support any proposal to the INTELSAT Board of Governors that advocates
the reduction of IUC rates to below cost levels, unless it is required
to do so (by parties that retain control over it) in its role as
INTELSAT Signatory to the United Kingdom.[^31] This commitment directly
addresses the concerns for which the restriction was put in place..
While Comsat raises the possibility that INTELSAT's cost might rise but
a Signatory would oppose an increase in IUC rates, BT's commitment not
to support below cost IUC rates addresses this hypothetical concern.

11 Second, BT and BTNA face significant competition, including price
competition, which would create an incentive for it to oppose below cost
IUC rates. Any reduction in the IUC rate to a below cost level would
immediately be available to all of BT\'s competitors who are able to
obtain direct access in the U.K. and in the U.S. Thus, BT would not be
able to obtain any advantage over its competitors by being able to use
INTELSAT at a rate lower than its competitors, unlike a signatory that
operated in a country with few or no competitors able to take advantage
of direct access and reduced IUC rates.

12 In the U.K. market, BT and BTNA face competition from: (1) 23 Level 4
customers, 9 of which are U.S.-owned companies, including 2 Comsat
subsidiaries;[^32] (2) non-INTELSAT satellite systems that serve the
U.S.-U.K. route, including PanAmSat, Columbia, Telecom2, and Loral
Orion;[^33] (3) transatlantic undersea cables, particularly on major
Signatory country routes;[^34] and (4) Internet and broadband
competition at U.K. teleports, GlobeCast, North Europe, Kingston/TLI,
and Satellite Media Services. This level of competition, which Comsat
does not dispute, has compelled BT to reduce prices for satellite
services in its home market in order to remain competitive.[^35] In the
U.S. market, BT and BTNA would face competition in the retail market
from U.S. carriers that include: AT&T, MCI WorldCom, GE Americom,
PanAmSat, Loral Space and Communications, and other Level 3 direct
access users.[^36] We believe these competitive pressures would require
BT and other Level 3 direct access users to pass on any apparent
"windfall" from below cost IUC rates to their retail customers.[^37]
Comsat does not explain why this would not occur.

13 Thus, given the level of competitiveness present in the U.K. and U.S.
markets, we believe BT would have little incentive to act in a manner
that might harm competition in the U.S. market by supporting below cost
IUC rates. We conclude that given the particular competitive pressures
faced by BT, if IUC rates were reduced to below cost levels: (1) all
direct access users would benefit from lower IUC rates; (2) BT's return
on investment would be reduced; and (3) it would not be able to recoup
its reduced return. Any attempt by BT to raise retail prices above the
current level, in order to recoup investment losses, would result in it
suffering financially in both its home and the U.S. markets. All Level 3
direct access users in the United States are charged the same IUC rates.
Any lowering of rates to below cost levels would benefit other Level 3
direct access users more because they would not be affected by a lower
investment return.[^38] Likewise, BT's losses would be exacerbated by
the amount by which BT's investment share exceeds its underlying
utilization share. BT would, in effect, be "subsidizing all investors
whose utilization shares exceed their investment shares."[^39] Comsat's
opposition fails to consider competition from other direct access users
and also assumes that below cost IUC rates would rival the costs of
other service providers.[^40] In addition, as stated above, Comsat's
argument of windfall gains from the sale of below cost space segment
fails to show that competitive forces would not require BT and other
Level 3 direct access users to pass this alleged "windfall" on to their
retail customers.[^41]

14 Third, in the case of BTNA, the dominant foreign Signatory
restriction would frustrate the Commission's purpose of encouraging
competition in the U.S. direct access market. Specifically, the
restriction would foreclose both U.S. and U.K. consumers from benefiting
from likely lower prices for the services described in its petition due
to the increased competition.[^42] Hence, as long as IUC rates are not
below cost, and given the competitive nature of the U.S.-U.K. route
(especially given the significant competition from undersea cables),
including the significant competition BT faces in it home market and
would face in the U.S. market, allowing another U.S.-U.K. competitor
would promote competition and be in the public interest.[^43]

15 Comsat asserts that BTNA's arguments are applicable to all
Signatories and therefore are more appropriately addressed in a petition
for reconsideration.[^44] We do not agree. As noted above, BT has
pledged not to support below cost IUC rates. No other Signatory has made
a similar pledge. Moreover, BT faces significant competition in its home
market and would face the same in the U.S. market. Of course, the
possibility that some of BTNA's arguments may be relevant to other
similarly situated entities does not foreclose the grant of a waiver
request. A waiver is available to any party that demonstrates good
cause. BTNA has presented a case that demonstrates why a waiver is
justified while no other party has requested a waiver or petitioned for
reconsideration on this issue. In light of the commitment to not support
below cost IUC rates and the apparent lack of incentives to do
otherwise, we believe a waiver is warranted.

16 **Underlying Principles**. We likewise conclude, for the reasons
discussed above, that the underlying policy objectives for the dominant
foreign Signatory restriction \-- to eliminate any potential incentive
for foreign Signatories to depress IUC rates to uneconomically low
levels, which could have an adverse competitive impact on the U.S.
direct access market[^45] \-- are not undermined by the grant of a
waiver in this instance. [^46] We emphasize that concerns regarding
adherence to the Commission's underlying policy objective are primarily
alleviated by the BT and BTNA commitment, as expressed by BTNA, "not
\[to\] initiate or support any proposal to the INTELSAT Board of
Governors advocating the reduction of the INTELSAT utilization charge
("IUC") to" below cost levels, discussed above.[^47] Notwithstanding the
apparent lack of an economic incentive to support below cost IUC rates,
this commitment assures us that the underlying policy objective for
dominant foreign Signatory restriction will not be undermined.[^48] To
the extent Comsat is arguing that BT's alleged (would-be) competitive
advantage will influence it to support below cost IUC rates, we do not
agree for the reasons already stated above. Comsat does not explicitly
state how BT would gain this advantage. It implies but does not offer
support that below cost IUC rates would put BT in a better competitive
position than other non-INTELSAT-related satellite service providers,
such as PanAmSat, and Comsat. We believe, however, the BT and BTNA
commitment and the condition we place on our grant of this waiver
request makes Comsat's argument unconvincing.

# IV. Conclusion and Ordering Clauses

17 For the foregoing reasons, we conclude that good cause has been shown
and the public interest is served by granting BTNA a waiver of the
Commission's direct access dominant foreign Signatory restriction.

18 Accordingly, IT IS ORDERED, that the petition for waiver filed by BT
North America Inc., pursuant to Section 1.3 of the Commission's rules,
47 C.F.R. § 1.3, IS GRANTED.

19 IT IS FURTHER ORDERED, that this Order is effective on release.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

[^1]: *In the Matter of Direct Access to the INTELSAT System*, Report
    and Order, FCC 99-236, 14 FCC Rcd 15703 (1999) ("*Direct Access
    decision*").

[^2]: The Open Market Reorganization for the Betterment of International
    Telecommunications (the ORBIT Act), Pub. Law 106-180, 114 Stat. 48
    (2000), enacted on March 17, 2000, provides that users and providers
    of telecommunications services shall be permitted to obtain Level 3
    direct access to INTELSAT. The ORBIT Act, however, does not
    legislate all aspects of the Commission's *Direct Access decision*
    -- including the requirement that direct access customers pay Comsat
    a surcharge and the restriction on foreign signatory direct access
    in the U.S. market. *See Direct Access decision*, 14 FCC Rcd at
    15733 and 15741. Provisions similar to these conditions appeared in
    previous bills passed by either the House or the Senate. The ORBIT
    Actmandates Level 3 direct access as implemented by INTELSAT without
    imposing any conditions. To the extent that issues are raised as to
    whether the conditions imposed by the *Direct Access decision*
    should be maintained in view of the ORBIT Act, the Commission may
    consider these issues in ruling upon petitions that have been filed
    by various parties seeking reconsideration of these conditions.

[^3]: \"Direct access\" refers to the means by which users of the
    INTELSAT system may obtain space segment capacity directly from
    INTELSAT rather than going through an INTELSAT Signatory. *See
    Direct Access decision* at 15707 for a description of the four
    levels of direct access available from INTELSAT, including Level 3
    direct access.

[^4]: British Telecommunications plc is the INTELSAT Signatory for the
    United Kingdom and the parent corporation and 100 percent owner of
    BT North America.

[^5]: *Direct Access decision* at 15742-43. The use of the term
    "dominant" in this context refers to Signatories or affiliates that
    use at least 50 percent of the INTELSAT capacity consumed in a
    particular country.

[^6]: *Id.*

[^7]: *Id.* at 15742-44 "IUC rates are charges for use of space segment
    capacity determined by the INTELSAT Board of Governors and published
    in the INTELSAT Tariff Manual. IUC rates are based on factors such
    as beam coverage, spectrum capacity or data rates, and lease
    periods. All INTELSAT Signatories and direct access users pay the
    same IUC rates, as applicable.

[^8]: *Id.* at 15742.

[^9]: BT North America Inc. Petition for Waiver, IB Docket No. 98-192
    (Nov. 18, 1999) ("BTNA Petition") at 3.

[^10]: *Id.* at 4.

[^11]: *Id.* at 5-6.

[^12]: *Id.* at 4-5.

[^13]: *Id*.

[^14]: *See Direct Access decision* at 15742-43. *See also* BTNA
    Petition at 2-3.

[^15]: BTNA Petition at 2.

[^16]: *Id.* at 17.

[^17]: *Id.* at 2.

[^18]: *Id.* at 17-18.

[^19]: Opposition of Comsat Corporation to BT North America Inc.
    Petition for Waiver, IB Docket No. 98-192 (Dec. 6, 1999) ("Comsat
    Opposition") at 4.

[^20]: *Id.* at 3-4

[^21]: *Id*. at 5-6.

[^22]: *Id.* at 8.

[^23]: *Id.*

[^24]: *Id.* at 2.

[^25]: 47 C.F.R. § 1.3 ("Any provision of the rules may be waived by the
    Commission on its own motion or on petition if good cause therefore
    is shown.").

[^26]: See In the Matter of 1998 Biennial Regulatory Review \-- Review
    of Depreciation Requirements for Incumbent Local Exchange Carriers,
    CC Docket No. 98-137, Ameritech Corporation Telephone Operating
    Companies\' Continuing Property Records Audit, et. al. CC Docket No.
    99-117, GTE Telephone Operating Companies Release of Information
    Obtained during Joint Audit AAD File No. 98-26, Further Notice of
    Proposed Rulemaking, FCC 00-119, 2000 WL 339773 (F.C.C.) (rel. April
    3, 2000) at note 8 (citing Northeast Cellular Tel. Co. v. FCC, 897
    F.2d 1164 (D.C. Cir. 1990); WAIT Radio v. FCC, 418 F.2d 1153 (D.C.
    Cir. 1969), cert. denied 409 U.S. 1027 (1972)(\"*Wait Radio*\")).

[^27]: ^?^ *Wait Radio*, 418 F.2d at 1157.

[^28]: *Id.*

[^29]: We note that BT and BTNA need not necessarily be uniquely
    (exclusively) situated to satisfy the waiver standard, it is only
    necessary that unique circumstances relative to the particular
    restriction are present.

[^30]: *See Direct Access decision* at 15742-43.

[^31]: BTNA Petition at 17-18.

[^32]: BT also specifies how its share and utilization have decreased
    while the share and utilization of Level 4 investors has grown.
    *See* *id*. at 5-9.

[^33]: *Id*. at 9-10.

[^34]: *See id.* at 10-11. BTNA notes that with respect to the U.S.-U.K.
    route, it uses INTELSAT primarily to provide occasional-use video
    due to the lower prices for sending voice and data traffic by cable.

[^35]: *See* *id.* at 12. Comsat does not dispute BTNA's assertions on
    the level of competition.

[^36]: *See* BTNA Reply at 6.

[^37]: *Id* at 7.

[^38]: *See* BTNA Petition at 13. BTNA notes that "\[l\]owered IUC rates
    would benefit (in effect, subsidize) Level 3 direct access users
    that would not be affected by lower investment returns, at the
    expense of Signatories and Level 4 users that would be harmed by
    these lower investment returns." *Id.* at 4.

[^39]: *See* BTNA Reply at 4. Contrary to Comsat's contention, BT would
    be subsidizing three of the four Level 4 direct access users in the
    U.K. because their utilization shares significantly exceed their
    investment shares.

[^40]: *See* Comsat Opposition at 6-7.

[^41]: *See* BTNA Reply at 7.

[^42]: *See* *id.* at 8.

[^43]: Comsat has made no attempt to demonstrate that a waiver would not
    be in the public interest.

[^44]: Comsat Opposition at 3-4. Comsat states that "BT and BTNA are not
    uniquely situated such that a waiver of the Commission's requirement
    would be appropriate relief."

[^45]: *See Direct Access decision* at 15742-43.

[^46]: BT North America Inc. Reply to Opposition to Petition for Waiver,
    IB Docket No. 98-192 (Dec. 16, 1999) ("BTNA Reply") at 2. Comsat did
    not rebut the contention that the Commission's underlying purpose
    for the restriction is not served, but frustrated with respect to BT
    and BTNA.

[^47]: *Id.*

[^48]: *See id.* at 18.