Before the

Federal Communications Commission

Washington, D.C. 20554

+----------------------------------+----+------------------------------+
| In the Matter of                 | )  | File Nos.                    |
|                                  |    | ITC-MOD-20020508-00243 and   |
| Americatel Corporation and       | )  | ITC-MOD-20020508-00244       |
| Telecom Italia of                |    |                              |
|                                  | )  |                              |
| North America, Inc.              |    |                              |
|                                  | )  |                              |
| Application to Modify Regulatory |    |                              |
| Classification                   | )  |                              |
|                                  |    |                              |
| From Dominant to Non-Dominant on | )  |                              |
| the U.S.- Brazil Route           |    |                              |
|                                  | )  |                              |
|                                  |    |                              |
|                                  | )  |                              |
|                                  |    |                              |
|                                  | )  |                              |
+----------------------------------+----+------------------------------+

**MEMORANDUM OPINION AND ORDER**

Adopted: May 27, 2004 Released: May 27, 2004

By the Chief, International Bureau:

# Introduction 

1\. In this Order, we grant the request of Americatel Corporation
("Americatel") and Telecom Italia of North America, Inc. ("TINA")
(together "Applicants") to modify their regulatory classification from
dominant to non-dominant on the U.S.-Brazil route.[^1] We find, however,
that Applicants have failed to show that Brasil Telecom ("Brasil
Telecom") has less than 50 percent market share in the local access
market, or that Brasil Telecom otherwise lacks market power in the local
access market. Accordingly, we deny the Applicants' request that Brasil
Telecom S.A. be removed from the Commission's *List of Foreign
Telecommunications Carriers that are Presumed to Possess Market Power in
Foreign Telecommunications Markets*.[^2]

# BACKGROUND

2\. In the *Foreign Participation Order*,[^3] the Commission established
a framework to encourage competitive entry into the U.S.
telecommunications market, in fulfillment of the United States'
commitments under the WTO Basic Telecom Agreement.[^4] The Commission
expressed concern, however, that a foreign carrier with market power[^5]
in an input market[^6] on the foreign end of a U.S. international route
has the ability to "leverage" that market power into the U.S. market for
international telecommunications services, i.e., use market power in its
home market to affect competition adversely in the U.S. market, thereby
harming U.S. consumers.[^7] Firms with market power in an "upstream"
input market can engage in discrimination in a "downstream" market by
favoring one downstream entity at the expense of its competitors.[^8]
Where the upstream firm possesses market power, downstream competitors
have few, if any, alternatives for the inputs that the upstream firm
provides.[^9] In order to complete a U.S. international call, a U.S.
carrier must obtain as inputs various call termination services from
foreign carriers in the destination country of the U.S. call, including
international transport services, inter-city services within the
destination country, and terminating access services within the local
exchange of the called party.[^10] A foreign carrier with market power
in these input markets could favor one U.S. international carrier at the
expense of its rivals by denying rivals access to these crucial
termination services, or by providing the services at non-competitive
prices or inferior service quality levels.[^11] The ultimate effect of
such discrimination would be to affect adversely competition in the U.S.
international services market and harm U.S. consumers.[^12]

3\. The Commission found that an ownership affiliation between a U.S.
carrier and a foreign carrier creates a heightened ability and incentive
to engage in anti-competitive behavior.[^13] Accordingly, the Commission
adopted certain safeguards to ensure that U.S. affiliates of foreign
carriers with market power on the foreign end of the route do not harm
competition in the United States. Under the Commission's rules, a U.S.
carrier that is affiliated with a foreign carrier that has market power
on the foreign end of a route is presumptively classified as dominant
for the provision of international telecommunications services on that
route (with limited exceptions).[^14] U.S. international carriers
classified as dominant on a particular route are subject to certain
requirements to safeguard competition.[^15] These requirements include
separation requirements,[^16] reporting requirements,[^17] and certain
conditions related to benchmark settlement rates.[^18] Reclassification
as non-dominant relieves a U.S. carrier of these requirements.

4\. The Commission also found that a foreign carrier with market power
can act anti-competitively with respect to the U.S. market even in the
absence of a U.S. affiliate (*e.g*., through a contractual agreement
with a U.S. carrier).[^19] Accordingly, the Commission established
several competitive safeguards with which all U.S. international
carriers must comply when providing international telecommunications
services that terminate on the network of a foreign carrier with market
power on the foreign end of a U.S. international route. These safeguards
include the "No Special Concessions" rule,[^20] contract filing
requirements,[^21] the international settlements policy ("ISP"),[^22]
and requirements regarding the provision of switched services over
private lines.[^23] Similarly, the Commission also has established
competitive safeguards that apply to U.S. cable landing licensees when
connecting with the network of a foreign carrier with market power on
the foreign end of the U.S. international route.[^24] The Commission's
*Foreign Carriers List* identifies those foreign carriers with which
exchange of traffic is subject to the requirements described above.[^25]
Removal of a foreign carrier from the *Foreign Carriers List* relieves
U.S.-authorized carriers with which it corresponds of these
requirements.

**III. THE APPLICATIONS**

5\. Americatel and TINA are authorized to provide U.S. international
telecommunications services pursuant to Section 214 of the
Communications Act of 1934, as amended.[^26] Telecom Italia, S.p.A
controls Americatel and TINA (through majority ownership of intervening
subsidiaries) and has an ownership share of Brasil Telecom. Americatel
and TINA are each classified as dominant on the U.S.-Brazil route
pursuant to Section 63.10(a) of the rules.[^27] As an incumbent local
exchange carrier in Brazil, Brasil Telecom is included in the *List of
Foreign Telecommunications Carriers that are Presumed to Possess Market
Power in Foreign Telecommunications Markets*.[^28]

6\. On May 8, 2002, the Applicants filed a request[^29] to modify their
regulatory classification from dominant to non-dominant on the
U.S.-Brazil route and to have Brasil Telecom removed from the
Commission's *Foreign Carriers List*. The Applicants explain that in
1998, the state-owned telephone monopoly, Telecomunicaçoes Brasilieras
S.A. ("Telebras") was successfully privatized. The privatization
resulted in the break-up of Telebras into twelve companies, which
consisted of: (1) three local fixed-line operators (currently, Telemar,
Brasil Telecom, and Telefónica), each providing local and intra-regional
long distance services in one of three regions into which Brazil had
been divided for purposes of fixed-line telecommunications; (2) a long
distance operator (Empresa Brasiliera de Telecomunicaçoes S.A.
("Embratel")), providing, throughout the entire territory of Brazil
(known as Region IV), domestic intra-regional and inter-regional long
distance telecommunications service and international long distance
telecommunications service; and (3) eight cellular operators, each
operating in one of the eight regions into which Brazil has been divided
for purposes of cellular telecommunications services.[^30]

7\. According to the Applicants, the three local fixed line operators
(together, the "Concessionaires") were sold to private consortia, most
of which are controlled by local investment banks, pension funds and
foreign telecommunications carriers.[^31] Under Brazil's General Plan of
Concessions and Licenses, Brasil Telecom was the privatized local and
intra-regional long distance carrier for Region II, and was sold to a
consortium consisting of the Brazilian investment bank Opportunity,
Telecom Italia S.p.A. and a Brazilian pension fund.[^32] Following
privatization, the Brazilian government authorized the entrance of an
additional carrier into each fixed-line region (together, the "mirror
companies") to compete directly with each Concessionaire. In Region II,
Brasil Telecom's mirror company is Global Village Telecom Ltda. ("Global
Village Telecom"), which began its operations in December 2000.[^33]
Additionally, Applicants state that now an unlimited number of operators
have the opportunity (i.e., are eligible to apply for licenses) to
compete directly against Brasil Telecom in Region II.[^34] The
Applicants, however, assert that Brasil Telecom is prohibited from
offering inter-regional and international long distance service within
Region II and from offering any type of fixed service outside Region II
until December 31, 2003, unless it complies with certain coverage
requirements[^35] prior to that date.[^36]

8\. The Applicants argue that they should be re-classified as
non-dominant on the U.S.-Brazil route because they are no longer
affiliated with Brasil Telecom within the meaning of Section 63.09 of
our rules. In support, on November 18, 2002, Applicants filed an
amendment stating that Telecom Italia S.p.A., which previously held an
indirect 37.29 percent interest in Solpart Participações S.A.
("Solpart"), the indirect parent of Brasil Telecom,[^37] reduced its
stake in the ordinary share capital of Solpart from 37.29 percent to 19
percent. The Applicants assert that Telecom Italia now holds less than
25 percent of the ordinary share capital of Solpart, and that Telecom
Italia does not control Brasil Telecom. Hence, according to the
Applicants, Telecom Italia, and thus Americatel and TINA, are no longer
"affiliated" with Brasil Telecom under Section 63.09 of the Commission's
rules. Accordingly, the Applicants request that the Commission modify
their regulatory status from dominant to non-dominant for the provision
of international services on the U.S.--Brazil route pursuant to Section
63.10(a)(1) of the Commission's rules.[^38]

9\. The Applicants also argue that Brasil Telecom lacks sufficient
market power on the foreign end of the U.S.-Brazil route to affect
competition adversely in the U.S. market and that, consequently, the
Applicants should be re-classified as non-dominant on the U.S.-Brazil
route, and Brasil Telecom should be removed from the Commission\'s
*Foreign Carriers List*.[^39] In support of their argument, the
Applicants claim that Brasil Telecom has less than 50 percent market
share of the local access and international transport markets on the
foreign end of the route and, therefore, under the Commission's rules,
presumptively lacks sufficient market power on the foreign end of the
route to affect competition adversely in the U.S. market.[^40] The
Applicants also argue that under a full economic analysis of market
power, in which market share is just one factor, Brasil Telecom does not
have market power on the foreign end of the route.[^41]

10\. The International Bureau placed the Application on public
notice.[^42] AT&T Corp. (AT&T) and WorldCom, Inc. (now MCI) filed
oppositions to the Application.[^43] AT&T and MCI argue that Brasil
Telecom's monopoly control of its franchise region remains intact and,
therefore, the Application should be denied.[^44] AT&T and MCI contend
that the Applicants have provided no evidence that Brasil Telecom has
less than 50 percent market share in the relevant international
transport and local access markets on the foreign end of the U.S.-Brazil
route.[^45] According to AT&T and MCI, the Applicants' assertion that
Brasil Telecom has less than 50 percent market share in the local access
market is based on an erroneous assumption that the relevant geographic
market for measuring Brasil Telecom's local access market share is the
entire country of Brazil rather than Brasil Telecom's local franchise
area.[^46] AT&T and MCI also assert that the Applicants have not shown
any other basis for finding that Brasil Telecom lacks market power on
the foreign end of the U.S.-Brazil route.[^47]

11\. The Applicants filed a reply to the oppositions of AT&T and
MCI,[^48] and the parties made *ex parte* presentations.[^49] In their
reply, the Applicants argue that they have correctly identified the
relevant geographic market for local access services as the entire
country of Brazil.[^50] The Applicants further argue that they have
provided information sufficient to show that Brasil Telecom controls
less than 50 percent of the relevant markets in Brazil.[^51] The
Applicants also argue that Brasil Telecom lacks sufficient market power
to be able to affect competition adversely on the U.S.-Brazil route
because of pro-competitive conditions in Brazil's telecommunications
sector.[^52]

# DISCUSSION

12\. We find that the Applicants have demonstrated that they should be
reclassified as non-dominant carriers on the U.S.-Brazil route because
Brasil Telecom is no longer affiliated with the Applicants, as the term
is defined by Section 63.09(e) of the Commission's rules.[^53] The
Commission's rules provide that "a U.S. carrier that has no affiliation
with, and that itself is not, a foreign carrier in a particular country
to which it provides service (i.e., a destination country) shall
presumptively be considered non-dominant for the provision of
international communications services on that route."[^54] The rules
also provide that "\[t\]wo entities are affiliated with each other if
one of them, or an entity that controls one of them, directly or
indirectly owns more that 25 percent of the capital stock of, or
controls, the other one."[^55]

13\. The Applicants have stated that Telecom Italia, through its
subsidiary STET Netherlands N.V., has recently reduced its stake in the
ordinary share capital of Solpart, the indirect parent of Brasil
Telecom, from 37.29 percent to 19 percent.[^56] Telecom Italia now holds
less than 25 percent of the ordinary share capital of Solpart, and there
is no information in the record that Telecom Italia controls Brasil
Telecom. Accordingly, we find that Americatel and TINA are no longer
"affiliated," within the meaning of Section 63.09(e) of the Commission's
rules, with Brasil Telecom and that Applicants should be reclassified as
non-dominant on the U.S.-Brazil route.[^57]

14\. We find, however, that the Applicants have not demonstrated that
Brasil Telecom should be removed from the *Foreign Carriers List*. As
discussed below, the Applicants fail to show that Brasil Telecom has
less than 50 percent market share in the local access market on the
foreign end of the U.S-Brazil route or that Brasil Telecom nevertheless
lacks sufficient market power in the local access market to affect
competition adversely in the U.S. market for telecommunications services
to Brazil. Such a demonstration is required by the Commission's rules
for removal of a foreign carrier from the *Foreign Carriers List* (and
reclassification of its U.S. affiliates as non-dominant on the route for
which the foreign carrier was listed)*.*[^58] Because the Applicants'
failure to make such a demonstration is by itself fatal to their
petition, we need not evaluate whether Brasil Telecom lacks market power
in any of the other markets necessary for the termination of U.S.
international services (*e.g.,* the international transport market).

15\. Under section 43.51 of the Commission's rules[^59] a party seeking
to remove a foreign carrier from the Commission's *Foreign Carriers
List* bears the burden of submitting information to the Commission
sufficient to demonstrate either that the foreign carrier on the
*Foreign Carriers List* lacks 50 percent market share in the
international transport and local access markets on the foreign end of
the route served by the foreign carrier or that the foreign carrier
nevertheless lacks sufficient market power on the foreign end of the
route to affect competition adversely in the U.S. market.[^60] The
Commission reviews the latter showing under an "appropriate economic
analysis of market power," discussed in detail below. [^61] The input
markets that are relevant to examining market power on the foreign end
of a U.S. international route are the markets that involve services or
facilities on the foreign end that are necessary for the provision of
U.S. international services and include: (1) international transport
facilities or services; (2) inter-city facilities or services; and (3)
local access facilities or services.[^62]

16\. In the *Foreign Participation Order*, the Commission recognized
that "for purposes of identifying the relevant geographic market for
inter-city services and local access facilities, it may be appropriate
in some instances to examine a discrete geographic region rather than
the national market of a foreign country.\"[^63] Although the *Foreign
Participation Order* does not identify the circumstances in which
examination of a discrete geographic region would be appropriate, the
International Bureau has held that if a local franchise area[^64]
generates a significant share of international traffic,[^65] then the
local franchise area is the relevant geographic market for purposes of
determining whether a carrier possesses sufficient market power to
affect competition adversely in the United States.[^66] For example, in
*Telecom Argentina*, the International Bureau determined that Telecom
Argentina's local franchise area was the relevant geographic market for
purposes of determining whether it possessed sufficient market power in
the provision of local access services and facilities in Argentina to
affect competition adversely in the United States.[^67] Having defined
the relevant geographic market as Telecom Argentina's local franchise
area, the Bureau found that Telecom Argentina had sufficient market
power on the foreign end of the U.S.-Argentina route to affect
competition adversely in the U.S. market.[^68] In *Bell Canada*, the
International Bureau determined that Bell Canada\'s local franchise
area, which included Canada\'s two largest provinces and generated more
than 60 percent of Canada\'s international traffic, was the relevant
geographic market for purposes of determining whether Bell Canada
possessed sufficient market power in Canada to affect competition
adversely in the United States.[^69] We found that Bell Canada had the
ability to discriminate against and among U.S. carriers seeking to
terminate traffic in Canada as a result of its near ubiquitous control
of access to end-users in its franchise area.[^70] In *Cable &
Wireless - China*, the Telecommunications Division of the International
Bureau examined the market power of Cable and Wireless Inc.\'s
affiliate, Shenda Telephone Company, in a single region that generated a
significant portion of China\'s international traffic, in determining
whether Cable and Wireless, Inc*.* should be subject to dominant carrier
safeguards on the U.S.-China route.[^71] The Telecommunications Division
found that Shenda's dominant position in a market that generates a
significant portion of China's international traffic was one of several
factors indicating a substantial risk to competition.[^72]

17\. The Applicants contend that the relevant local access market is the
\"entire country of Brazil, not Brasil Telecom's former service
area.\"[^73] According to the Applicants, the\
identification of the local access market as a discrete geographic
region rather than the entire foreign country is an exception applied
only under unique circumstances rather than the general rule.[^74]
Contrary to the Applicants' assertions, the decisions in these cases are
not exceptional. In all cases subsequent to the adoption of the *Foreign
Participation Order* (in which relevant markets are defined) in which
the foreign operator's local franchise area has comprised a discrete
geographic region rather than the entire foreign country, the
International Bureau and the Telecommunications Division have found that
the local franchise area is the relevant geographic market for local
access services.[^75]

18\. *Telecom Argentina*, *Bell Canada* and *Cable & Wireless -- China*
establish the proposition that a foreign carrier operating in a discrete
geographic region, i.e., a local franchise area, may possess sufficient
market power to affect competition adversely in the United States if a
significant amount of U.S. international traffic is terminated in the
region. Accordingly, in cases where a significant amount of the U.S.
international traffic is terminated in an incumbent's local franchise
area, it is appropriate to identify the local franchise area as the
relevant geographic market and to examine the foreign carrier\'s market
power within the franchise area rather than throughout the entire
country.[^76] In the case before us, Brasil Telecom is the incumbent
provider of local service in Region II of Brazil, which includes
Brasilia, the capital of Brazil, and three other metropolitan areas with
populations of over one million,[^77] covers one third of the total land
area of Brazil, and has a total population of approximately 40
million.[^78] The Applicants state that market share data for the
international long-distance market is not publicly available for Brazil
due to its commercially sensitive nature.[^79] In the absence of
specific data proving otherwise, it is reasonable to assume that a
substantial amount of international traffic on the U.S.- Brazil route is
terminated in Brasil Telecom's franchise area because the franchise area
comprises approximately one-third of Brazil and because the area
includes the country's capital and three other large cities. Therefore,
we find that it is appropriate in this instance to consider Brasil
Telecom's local franchise area as the relevant geographic market for the
purpose of determining whether it possesses sufficient market power in
the provision of local access services and facilities to affect
competition adversely in the United States.

19\. Having determined that the relevant geographic market for local
access services and facilities is Brasil Telecom's franchise area, we
next examine whether Brasil Telecom has market power in that market. The
first step in such an analysis is to determine whether Brasil Telecom
satisfies the presumption that it lacks market power based on having
less than 50 percent market share of the local access market. The
Applicants have not provided Brasil Telecom's market share in the local
access market, *i.e*., the share of subscriber lines in Brasil Telecom's
local franchise area that is served by Brasil Telecom.[^80] Instead, the
Applicants have provided estimated data suggesting that Brasil Telecom
has 23.7 percent of subscriber lines in service in the whole of
Brazil.[^81] It is not possible to extrapolate reliably from the 23.7
percent figure to find Brasil Telecom's market share in its local
franchise area.[^82] The Commission has made it clear that the burden is
upon the Applicants to provide information sufficient to make the
findings necessary to grant the requested relief.[^83] Therefore, we
find that the Applicants have not made the required showing that Brasil
Telecom has less than 50 percent market share in the local access
market.

20\. The next step is to determine whether Brasil Telecom lacks
sufficient market power on the foreign end of the U.S.-Brazil route to
affect competition adversely in the U.S. market by evaluating
information provided by the Applicants under the \"appropriate economic
analysis of market power" standard established by the Commission in the
*Foreign Participation Order*.[^84] We focus on whether Brasil Telecom
lacks market power in the local access market in its franchise area or
lacks the ability to leverage such power in the U.S. market for
telecommunications services to Brazil. The Commission\'s market power
analysis includes consideration of several factors,[^85] including: (1)
the foreign incumbent\'s market share in the relevant terminating market
on the foreign end of the particular route;[^86] (2) the supply
elasticity of the market;[^87] (3) the demand elasticity of the market's
customers;[^88] and (4) the foreign incumbent\'s cost structure, size,
and resources. In evaluating market power, the Commission has recognized
that neither market share, by itself, nor lower costs, sheer size,
superior resources, financial strength, and technical capability, by
themselves, confer market power.[^89] Indeed, the Commission has stated
that, consistent with well-accepted economic principles, market
conditions related to demand and supply elasticities are the more
crucial determinants of a firm\'s market power.[^90] These conditions
include the availability of close demand substitutes and ease of entry
and expansion.[^91]

21\. The Applicants argue that Brasil Telecom lacks sufficient market
power on the foreign end of the U.S.-Brazil route to affect competition
adversely in the U.S. market, based on the following claims: (1) Brasil
Telecom does not maintain bottleneck control of international
termination facilities (*i.e*., there are multiple options for
termination); (2) there are no significant barriers to entry and
expansion due to Brazil's liberal licensing regime; (3) Brasil Telecom
cannot yet expand its telecommunications service offerings to include
international services or direct correspondence with foreign
international service providers such as U.S. international carriers; and
(4) Brazil is in compliance with benchmarks.[^92] As we explain in
detail below, we are not persuaded by the Applicants' arguments and find
that the Applicants have failed to make the required economic showing
that Brasil Telecom lacks sufficient market power on the foreign end of
the U.S.-Brazil route to affect competition adversely in the U.S.
market.

22\. We do not find persuasive the Applicants' assertion that Brasil
Telecom lacks market power due to the availability of multiple options
for international termination in Brazil.[^93] Because the local access
market is an essential input for terminating international traffic, we
focus our analysis on Brasil Telecom's control of the local access
market to determine whether there are realistic competitive alternatives
to Brasil Telecom for terminating international traffic in Brasil
Telecom's local franchise area. According to the Applicants, three
competitive operators, Embratel, Intelig and Global Village Telecom,
entered the intra-regional long distance market following the 1998
privatization in Brazil.[^94] Applicants, however, only identify one
competitive carrier in the local services market in Brasil Telecom's
local access franchise area, Global Village Telecom, which has provided
service only since December 2000.[^95] The Applicants have not shown
that Global Village Telecom, or any other new entrant, is a significant
competitor to Brasil Telecom in its local franchise area. In fact, the
Applicants have not provided any market share data for Global Village.
While it may be possible to terminate traffic bound for Brasil Telecom's
franchise area with Global Village Telecom, the Applicants have not
shown how Global Village Telecom could reach a significant number of
customers in Brasil Telecom's franchise area without using Brasil
Telecom's access facilities or undertaking an extensive network
build-out program in Brasil Telecom's franchise area, which would be
likely to constrain its market power in the near-term.

23\. The Applicants also assert that under Brazil's regulatory regime,
U.S. carriers themselves can enter the Brazilian market and provide
service in Brasil Telecom's local franchise area.[^96] While it may be
lawful under Brazil's regulatory regime for U.S. carriers to enter the
Brazilian market for the purpose of providing end-to-end services on the
U.S.-Brazil route,[^97] the Applicants have not shown that such entry
constitutes a realistic competitive alternative for reaching the
majority of customers in Brasil Telecom's franchise area, *e.g*.,
residential customers and small and medium-sized businesses.

24\. The Applicants argue that mobile termination is an option for U.S.
carriers that wish to terminate U.S. international services in
Brazil.[^98] Wireless services constitute a realistic competitive
alternative to wireline services only if customers consider wireless and
wireline services to be close substitutes, as evidenced by studies of
customer choice.[^99] The Applicants have provided no evidence that
customers in Brazil consider wireless and wireline services to be close
substitutes. Moreover, wireless carriers would be in a position to
prevent Brasil Telecom from exercising market power only if they were
independently owned. The Applicants have not shown that Brasil Telecom
lacks ownership interests in wireless companies providing service in its
franchise area.

25\. The Applicants also argue that there are no significant barriers to
entry and expansion due to Brazil's liberal licensing framework. We do
not find this argument persuasive. The Applicants state that the
Brazilian regulator is independent and that local and long-distance
telecommunications markets are open to an unlimited number of licensees,
with streamlined licensing procedures, no foreign ownership
restrictions, and no build-out requirements.[^100] A country\'s
regulatory regime is, however, only one factor that may impede entry and
expansion in the local access market.[^101] There are also important
economic factors. Entry into the local access market must be likely,
timely, and sufficient in order to constrain an incumbent\'s market
power.[^102] Entry into the local access market poses substantial risks
and is very costly. It may be difficult for a new entrant to earn a
satisfactory return on investment after incurring substantial sunk
costs.[^103] The Applicants have not made a showing that a significant
amount of competitive entry into the local access market is likely
despite these factors. In particular, the Applicants have not provided
evidence that potential entry into Brasil Telecom's local franchise area
would be sufficient to constrain the exercise of market power by Brasil
Telecom in the provision of local access services within the two-year
time frame contemplated in the DOJ/FTC Merger Guidelines.[^104] Nor have
the Applicants demonstrated that a significant amount of actual entry
has taken place by showing, for example, a diminution of Brasil
Telecom's market share in the local access market.

26\. The Applicants initially argued that Brasil Telecom cannot engage
in misconduct because it cannot yet expand its service offerings to
include international services or direct correspondence with foreign
international service providers such as U.S. international carriers. We
do not find this argument persuasive. First, the service limitation has
expired. Brasil Telecom was prevented from providing international
services only until December 31, 2003.[^105] Moreover, Brasil Telecom
met its year 2003 universal service objectives, and therefore has
obtained authorization to provide inter-regional or international long
distance services throughout Brazil.[^106] Moreover, even if Brasil
Telecom does not provide international service and U.S. carriers do not
deal directly with Brasil Telecom, Brasil Telecom's market power is not
constrained. Such correspondence is not essential for Brasil Telecom to
control international termination services destined for its franchise
area. Control of the local exchange is sufficient. Applicants make no
showing that local termination arrangements with direct correspondents
in Brazil would not permit ready identification, and discriminatory
treatment, of U.S. carriers' inbound calls by Brasil Telecom.[^107]

27\. Finally, the Applicants claim that Brasil Telecom lacks market
power due to Brazil\'s compliance with the Commission\'s benchmark
settlement rates.[^108] We do not find the argument persuasive.
Compliance with benchmarks limits, but does not eliminate, Brasil
Telecom's ability to engage in price discrimination (*e.g*., a predatory
price squeeze).[^109] Moreover, compliance with benchmarks does not
affect Brasil Telecom's incentive or ability to engage in non-price
discrimination, *e.g*., discrimination in the provisioning or
maintenance of basic network facilities and services needed to terminate
traffic with Brasil Telecom.[^110]

28\. Based on the economic analysis above, we find that the Applicants
have failed to make an adequate showing that Brasil Telecom lacks market
power in the local access market in its franchise area or cannot
leverage such power into the U.S. market for telecommunications services
between the United States and Brazil. We therefore find that the
Applicants have failed to show that Brasil Telecom lacks sufficient
market power on the foreign end of the U.S.-Brazil route to affect
competition adversely in the U.S. market, as required by the
Commission's rules in lieu of a below-50 percent market share
showing.[^111]

# CONCLUSION

29\. We find that the Applicants have demonstrated that they should be
reclassified as non-dominant carriers on the U.S.-Brazil route because
Telecom Italia S.A.'s indirect ownership interest in Brasil Telecom is
currently below 25 percent, and thus Brasil Telecom and the Applicants
are no longer affiliated within the meaning of section 63.09(e) of our
rules. On the other hand, we find that the Applicants have not
demonstrated that Brasil Telecom should be removed from the *Foreign
Carriers List*. The Applicants have failed to show that Brasil Telecom
has less than 50 percent market share in both the international
transport and the local access markets on the foreign end of the
U.S.-Brazil route or that Brasil Telecom nevertheless lacks sufficient
market power on the foreign end of the U.S.-Brazil route to affect
competition adversely in the U.S. market, as required by the
Commission's rules for purposes of removing Brasil Telecom from the
*Foreign Carriers List*.[^112]

# ORDERING CLAUSES

30\. Accordingly, it is ORDERED that the request of Americatel
Corporation and Telecom Italia of North America, Inc. to modify their
regulatory classification from dominant to non-dominant on the U.S. -
Brazil route is GRANTED.

31\. IT IS FURTHER ORDERED that the request of Americatel Corporation
and Telecom Italia of North America, Inc. to remove Brasil Telecom from
the Commission's List of Foreign Telecommunications Carriers that are
Presumed to Possess Market Power in Foreign Telecommunications Markets
IS DENIED.

32\. This order is issued under Section 0.261 of the Commission's rules
and is effective upon adoption. 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 public
notice of this Order (*see* Section 1.4 (b)(2)).

> FEDERAL COMMUNICATIONS COMMISSION
>
> Donald Abelson\
> Chief, International Bureau
>
> ![](media/image1.wmf){width="6.944444444444445e-4in"
> height="6.944444444444445e-4in"}

[^1]: *Application of Americatel Corporation and Telecom Italia of North
    America, Inc. to Modify Regulatory Classification from Dominant to
    Non-Dominant on the U.S.-Brazil Route*, Application File Nos.
    ITC-MOD-20020508-00243 (Americatel Corporation) and
    ITC-MOD-20020508-00244 (Telecom Italia of North America, Inc.)
    (filed May 8, 2003) ("Application").

[^2]: *International Bureau Revises and Reissues the Commission's List
    of Foreign Telecommunications Carriers that are Presumed to Possess
    Market Power in Foreign Telecommunications Markets*, Public Notice,
    DA 03-1812 (rel. June 5, 2003) (Int'l Bur. 2003) ("*Foreign Carriers
    List*"). The *Foreign Carriers List* is available at
    <http://www.fcc.gov/ib> as "*Resources, Foreign Carriers Presumed to
    Possess Market Power*." The *Foreign Carriers List* was originally
    released as *List of Foreign Telecommunications Carriers that are
    Presumed to Possess Market Power in Foreign Telecommunications
    Markets*, Public Notice, DA 99-809 (rel. May 6, 1999; erratum rel.
    June 18, 1999) (Int'l Bur. 1999).

[^3]: *Rules and Policies on Foreign Participation in the U.S.
    Telecommunications Market*, IB Docket 97-142, 95-22, Report and
    Order and Order on Reconsideration, FCC 97-398, 12 FCC Rcd 23891
    (1997) ("*Foreign Participation Order*"); Order on Reconsideration,
    FCC 00-339, 15 FCC Rcd 18158 (2000) ("*Foreign Participation
    Reconsideration Order*").

[^4]: The results of the World Trade Organization's ("WTO") basic
    telecommunications services negotiations are incorporated into the
    General Agreement on Trade in Services ("GATS") by the Fourth
    Protocol to the GATS, April 30, 1996, 36 I.L.M. 366 (1997). These
    results, as well as the basic obligations contained in the GATS, are
    referred to herein as the "WTO Basic Telecom Agreement."

[^5]: The Commission has defined market power as a carrier's ability to
    raise prices by restricting its output of services. *See* *Foreign
    Participation Order*, 12 FCC Rcd at 23951-52, para. 144.

[^6]: In producing goods or services, firms must obtain labor, capital,
    raw materials, and intermediate goods and services as "inputs" to
    the production process. The markets in which these inputs are
    obtained are termed "input markets." *Id.* at 23952-53, para. 145.

[^7]: *Id.* at 23952-53, para. 145, and 23958, para. 157.

[^8]: *Id.* at 23952-53, para. 145. Markets in which a firm buys inputs
    to its production process are termed "upstream" relative to the
    market in which the firm sells its product, and a market in which a
    firm sells its product is termed "downstream" relative to the input
    markets.

[^9]: *Id.*

[^10]: *Id.*

[^11]: *Id.* at 23952-53, para. 145, and 23958, para. 157.

[^12]: *Id.* at 23958, para. 157.

[^13]: *Id.* at 23954, para. 147 and 23992, para. 223.

[^14]: 47 C.F.R. § 63.10(a)(3) -- (a)(4) (2003).

[^15]: 47 C.F.R. § 63.10(c), (e) (2003). *See also* *Foreign
    Participation Order*, 12 FCC Rcd at 23897-24022, paras. 215-292.

[^16]: The U.S.-authorized carrier must provide service as an entity
    that is separate from its foreign affiliate. 47 C.F.R. § 63.10(c)(1)
    (2003). The U.S. carrier must have separate books of account and not
    jointly own transmission or switching facilities with its affiliate.
    47 C.F. R. § 63.10(c)(1)(i)-(ii) (2003).

[^17]: The U.S.-authorized carrier must file quarterly traffic and
    revenue reports as well as quarterly provisioning and maintenance
    reports. 47 C.F. R. § 63.10(c)(2)-(3) (2003). The U.S.-authorized
    carrier also must file quarterly circuit status reports. 47 C.F.R. §
    63.10(c)(4) (2003).

[^18]: The U.S. carrier may not provide facilities-based switched
    services on the route on which it is classified as dominant, unless
    its foreign affiliate on that route charges U.S. international
    carriers termination rates at or below benchmark settlement rates.
    47 C.F. R. § 63.10(e) (2003). *See also* *International Settlement
    Rates*, IB Docket No. 96-261, Report and Order, FCC 97-280, 12 FCC
    19806 (1997) ("*Benchmarks Order*"); Report and Order on
    Reconsideration and Order Lifting Stay, FCC 99-124, 14 FCC Rcd 9256
    (1999) ("*Benchmarks Reconsideration Order*"), *aff'd sub nom.*
    *Cable & Wireless P.L.C. v. FCC*, 166 F.3d 1224 (D.C. Cir. 1999).

[^19]: *See* *Foreign Participation Order*, 12 FCC Rcd at 23954, para.
    147; 23958, para. 157.

[^20]: Under the Commission's "No Special Concessions" rule, a
    U.S.-authorized international carrier is prohibited from accepting
    special concessions from a foreign carrier with respect to a route
    on the foreign end of which the foreign carrier possesses market
    power. 47 C.F.R. § 63.14(a) (2003). For U.S. international carriers,
    special concessions are defined as exclusive arrangements involving
    services, facilities, or functions on the foreign end of a U.S.
    international route that are necessary for the provision of basic
    telecommunications services where the arrangements are not offered
    to similarly situated U.S.-licensed carriers. 47 C.F.R. § 63.14(b)
    (2003). Such arrangements include operating agreements for the
    provision of basic services; distribution arrangements or
    interconnection arrangements, including pricing, technical
    specifications, functional capabilities, or other quality and
    operating characteristics such as provisioning and maintenance
    times; and any information, prior to public disclosure, about a
    foreign carrier's basic network services that affects either the
    provision of basic or enhanced services or interconnection to the
    foreign country's domestic network by U.S. carriers or their U.S.
    customers. 47 C.F.R. § 63.14(b)(1)-(3) (2003). If the international
    route is exempt from the international settlements policy ("ISP")
    under 47 C.F.R. § 43.51(e)(3) (2003), the "No Special Concessions"
    rule does not apply to the rates, terms, and conditions in an
    agreement between a U.S. carrier and a foreign carrier that govern
    the settlement of international traffic, including the method for
    allocating return traffic. 47 C.F.R. § 63.14(c) (2003). We note that
    the Commission recently adopted a more limited application of the
    ISP and related rules in the *International Settlements Policy
    Reform, International Settlement Rates*, IB Docket No. 02-324, IB
    Docket No. 96-261, First Report and Order, FCC 04-53 (2004) ("*2004
    ISP Reform Order"*). The rule changes adopted in the *2004 ISP*
    *Reform Order*, most of which take effect on May 28, 2004, are not
    relevant to our consideration of the issues raised in this
    proceeding.

[^21]: A U.S.-authorized carrier that enters into a contract regarding
    the exchange of services, routing of traffic, or accounting rates
    with a foreign carrier with respect to a route on the foreign end of
    which the foreign carrier possesses market power is required to file
    a copy of the contract within 30 days. 47 C.F.R. § 43.51(a)(1),
    (b)(2), and Note 3 to § 43.51 (2003).

[^22]: Under the ISP, if a U.S.-authorized carrier files an operating
    agreement with a foreign carrier regarding the exchange of switched
    traffic with respect to a non-exempt route on the foreign end of
    which the foreign carrier possesses market power, the operating
    agreement must comport with certain requirements; otherwise, the
    U.S. carrier must file a modification request with the International
    Bureau. 47 C.F.R. § 43.51(e) (2003). The operating agreement is
    required to have terms and conditions pertaining to the exchange of
    services, routing of traffic, accounting rates, and the
    proportionate share of return traffic that are identical to that of
    other carriers providing the same or similar service. 47 C.F.R. §
    43.51(e)(1)-(2) (2003). The restriction of the ISP to operating
    agreements between U.S. carriers and foreign carriers that possess
    market power is described in 47 C.F.R. § 43.51(e)(1) (2003), with
    reference to § 43.51(a)(1), (b)(2), and Note 3 to § 43.51 (2003).
    The exempt routes are described in the Note to § 43.51(e)(3).

[^23]: The Commission's ISR policy allowed U.S.-authorized carriers to
    provide switched basic services over its authorized private lines if
    the foreign carrier with which traffic is exchanged is in a
    destination country that appears on the Commission's list of
    authorized destinations. 47 C.F.R. § 63.22 (e)(1) (2003); 47 C.F.R.
    § 63.23(d)(1) (2003); with reference to 47 C.F.R. § 63.16(a) (2003).
    *See* Resources, "ISR-Approved Routes" at [www.@fcc.gov/ib]()
    ("*International Simple Resale*" or "*ISR*"). Also, a U.S. carrier
    may provide switched basic services over its authorized private
    lines if the foreign carrier with which traffic is exchanged lacks
    market power on the foreign end of the route. 47 C.F.R. §
    63.22(e)(2)-(3) (2003); 47 C.F.R. § 63.23(d)(2)-(3) (2003). Because
    Brazil has been on the list of ISR-approved routes, U.S. carriers
    have been allowed to provide switched basic services over authorized
    private lines to any carrier in Brazil. Therefore, a finding by the
    International Bureau that Brasil Telecom lacks market power on the
    foreign-end of the U.S.-Brazil route would not confer any privileges
    upon Brasil Telecom or U.S. carriers regarding the exchange of
    switched basic services over authorized private lines on the
    U.S.-Brazil route that they do not already possess. This is not
    changed by the recent *2004 ISP Reform Order* that eliminated the
    ISR policy and removed the ISP from certain routes, including
    Brazil. *See 2004 ISP Reform Order* at paras. 26-38, and Appendix D.

[^24]: U.S. cable landing licensees are prohibited from accepting
    special concessions from any foreign carrier, including any entity
    that owns or controls a foreign cable landing station, with respect
    to a route on the foreign end of which the foreign carrier possesses
    sufficient market power to affect competition adversely in the U.S.
    market. 47 C.F.R. § 1.767(g)(5)(i) (2003) and Note to paragraph
    (g)(5). In the case of cable landing licenses, special concessions
    are defined as exclusive arrangements involving services,
    facilities, or functions on the foreign end of a U.S. international
    route that are necessary to land, connect, or operate submarine
    cables, where the arrangement is not offered to similarly situated
    U.S. submarine cable owners. 47 C.F.R. § 1.767(g)(5)(ii) (2003).

[^25]: *See* *Foreign Carriers List*. *See also* 47 C.F.R. § 1.767(g)(5)
    (2003) and Note to Paragraph (g)(5); 47 C.F.R. § 43.51(b)(2) (2003)
    and Note 3 to § 43.51; and 47 C.F.R. § 63.14(a) (2003) and Note to
    Paragraph (a); 47 C.F.R. § 63.22 (e)(2-3) (2003); and 47 C.F.R. §
    63.23(d)(2-3) (2003). In the *ISP Reform Order*, the Commission
    modified its rules to remove its requirement that agreements between
    U.S. telecommunications carriers and foreign carriers that lack
    market power in foreign telecommunications markets conform to the
    ISP and stated that it would issue a list of foreign carriers that
    do not qualify for the presumption that they lack market power on
    the foreign end of U.S. international routes. *See 1998 Biennial
    Regulatory Review Reform of the International Settlements Policy and
    Associated Filing Requirements, Regulation of International
    Accounting Rates, Market Entry and Regulation of Foreign --
    affiliated Entities*, IB Docket No. 98-148, Report and Order and
    Order on Recon., FCC 99-73, 14 FCC Rcd 7963, 7971, para. 20,
    7978-79, para. 43, 7980-81, paras. 47-49, and 7988, para. 65 (1999)
    ("*1999 ISP Reform Order*"). Subsequently, the Commission issued the
    *Foreign Carriers List*.

[^26]: 47 U.S.C. § 214. *See* Application at 1, n.1.

[^27]: 47 C.F.R. § 63.10(a) (2003). The Commission conditioned grants of
    Americatel's Transfer of Control Application and TINA's Section 214
    Application on the commitment of Americatel and TINA respectively to
    accept dominant carrier classification on the U.S.-Brazil route
    without prejudice to the right to petition for reclassification at a
    later date. *See International Authorizations Granted*, Public
    Notice, DA 01-476, rel. Feb. 22, 2001 (granting the Americatel
    Transfer of Control Application) and *International Authorizations
    Granted*, Public Notice, DA 00-1408, rel. June. 23, 2000 (granting
    the TINA Transfer of Control Application).

[^28]: *Foreign Carriers List* at 3.

[^29]: *See* Application.

[^30]: *Id.* at 3--4.

[^31]: *Id.* at 4.

[^32]: *Id.*

[^33]: *Id.*

[^34]: *Id.* at 5.

[^35]: The Application states that Brazil's public telecommunications
    regime provides that incumbent regional and international long
    distance providers (*e.g*. the Concessionaires) are subject to a
    special set of restrictions regarding the services they may offer,
    as well as to special obligations regarding network expansion,
    modernization and service quality. The Concessionaires in particular
    are generally not permitted to offer any fixed services outside of
    their respective regions, or any inter-regional or international
    long distance services within their respective regions until
    December 31, 2003. However, if a Concessionaire met its network
    expansion and universal service targets ("coverage requirements")
    within its home region on an accelerated basis, then beginning
    December 31, 2001, it became eligible to apply for a license to
    offer any type of telecommunications services, including domestic
    and international long distance services, in its home region or
    elsewhere, beginning in 2002. *Id.* at 6.

[^36]: *Id.* The Applicants have updated the record to state that Brasil
    Telecom met its year 2003 universal service objectives, and
    therefore has obtained authorization to provide inter-regional or
    international long distance services throughout Brazil. *See* Letter
    from Troy F. Tanner, Counsel for Telecom Italia of North America and
    Americatel Corp., to Marlene H. Dortch, Secretary, FCC (dated May
    17, 2004).

[^37]: *Amendment to the Application to Modify Regulatory Classification
    from Dominant to Non-Dominant on the U.S.-Brazil Route*, filed
    November 18, 2002, at 2.

[^38]: 47 C.F.R. § 63.10(a)(1).

[^39]: Application at 1-2, and 10-11.

[^40]: Application at 2-3; 5-6 (citing 47 C.F.R. § 63.10(a)(3) (2003)
    and § 43.51(2003) and 47 C.F.R. § 43.51, Note 3 to § 43.51 (2003)).
    *See also* *Foreign Participation Order*, 12 FCC Rcd at 23959-62,
    paras. 161-163 and 23996, paras. 232-233.

[^41]: Application at 9 (citing *Foreign Participation Order*, 12 FCC
    Rcd at 23959-60, para. 161).

[^42]: *Application of Americatel Corporation and Telecom Italia of
    North America, Inc. to Modify Regulatory Classification from
    Dominant to Non-Dominant on the U.S. - Brazil Route*, Public Notice,
    DA 02--1259 (rel. May 28, 2002) (Int'l Bur. 2002).

[^43]: Opposition of AT&T Corp., to Application, File Nos.
    ITC-MOD-20020508-00243, ITC-MOD-20020502-00244 (filed June 28, 2002)
    ("AT&T Opposition"); Opposition of MCI, Inc., to Application, File
    Nos. ITC-MOD-20020508-00243, ITC-MOD-20020502-00244 (filed June 28,
    2002) ("MCI Opposition"). MCI formerly was known as WorldCom, Inc.,
    to which we hereinafter refer to as MCI

[^44]: AT&T Opposition at 1-2, 4-5, and 7; MCI Opposition at 2-4.

[^45]: AT&T Opposition at 1-5; MCI Opposition at 2-4.

[^46]: AT&T Opposition at 4; MCI Opposition at 3 (citing *Foreign
    Participation Order*, 12 FCC Rcd at 23952-53, 145).

[^47]: AT&T Opposition at 2 (citing 47 C.F.R. § 43.51 Note 3 (2003));
    MCI Opposition at 4-6.

[^48]: *See* Applicants' Reply. The Applicants filed for and were
    granted an extension of time to reply to AT&T's Opposition.
    *Americatel Corporation and Telecom Italia of North America. Inc.,
    Application to Modify Regulatory Classification from Dominant to
    Non-Dominant on the U.S.-Brazil Route*, Order, DA 02-1259,
    ITC-MOD-20020508-00243 and ITC-MOD-20020508-00244, DA 02-1259
    (IB/PD, 2002).

[^49]: Letter from James R. Talbot, Senior Attorney, AT&T, to Marlene H.
    Dortch, Secretary, FCC (dated Aug. 2, 2002); Letter from James R.
    Talbot, Senior Attorney, AT&T, to Marlene H. Dortch, Secretary, FCC
    (dated Aug. 5, 2002); Letter from Troy F. Tanner, Counsel for
    Telecom Italia of North America and Americatel Corp., to Marlene H.
    Dortch, Secretary, FCC (dated Sept. 5, 2002).

[^50]: Applicants' Reply at 1-6.

[^51]: *Id.* at 4-6.

[^52]: *Id.* at 7-9.

[^53]: 47 C.F.R. § 63.09(e) (2003).

[^54]: 47 C.F.R. § 63.10(a)(1) (2003).

[^55]: 47 C.F.R. § 63.09(e). *See also* *Foreign Participation Order*,
    12 FCC Rcd at 23992, para. 223, in which the Commission stated that
    a "greater than 25 percent" affiliation standard represents a level
    of investment that allows a carrier to provide substantial influence
    with regard to, and to reap substantial rewards from,
    anticompetitive conduct.

[^56]: *Amendment to the Application to Modify Regulatory Classification
    from Dominant to Non-Dominant on the U.S.-Brazil Route*, filed
    November 18, 2002, at 2.

[^57]: 47 C.F.R. § 63.09(e) (2003).

[^58]: *See* 47 C.F.R. § 43.51 Note 3 (2003). *See also, id.* §
    63.10(a)(3).

[^59]: 47 C.F.R. § 43.51 Note 3 (2003). *See* *Foreign Participation
    Order*, 12 FCC Rcd at 23952, para. 145, 23959-62 paras. 161-63, and
    n.317 and n.318. *See also* *Foreign Participation Order*, 12 FCC
    Rcd at 23995-96, paras. 231-233.

[^60]: *Id.*

[^61]: *See infra* paras. 20-28. *See also* *Foreign Participation
    Order*, 12 FCC Rcd at 23960-61, para. 162, n.317.

[^62]: *See* *Foreign Participation Order*, 12 FCC Rcd 23952-53, para.
    145.

[^63]: *Id*.

[^64]: For the purposes of this Order, the International Bureau defines
    \"local franchise area\" to include any geographic area in which a
    carrier is incumbent, regardless of whether it has exclusive
    operating authority in that area or whether its operating authority
    has been extended beyond the area in which it is incumbent.

[^65]: If a large percentage of a foreign country's international
    traffic originates in a discrete geographic area, it is reasonable
    to assume that a similarly large percentage of international traffic
    bound for the foreign country terminates in the same geographic
    area.

[^66]: *See Americatel Corporation and Telecom Italia of North America,
    Inc., Application to Modify Regulatory Classification from Dominant
    to Non-Dominant on the U.S.-Argentina Route,* DA 03-4115, paras.
    14-15 (2003) ("*Telecom Argentina"*). *See also* *1998 Biennial
    Regulatory Review - Reform of the International Settlements Policy
    and Associated Filing Requirements; Bell Canada Petition for
    Declaratory Ruling*, IB Docket No. 98-148, Order, DA 01-1421, 16 FCC
    Rcd 12465 (2001) ("*Bell Canada*") and *Cable and Wireless, Inc.,
    Application for Authority Pursuant to Section 214 of the
    Communications Act of 1934, as Amended, to Provide Resold and
    Facilities-Based Switched and Private Line Service between the
    United States and China*, File No. ITC-214-19980515-00326 (previous
    File No. ITC-98-380), Order, Authorization, and Certificate, DA
    98-2498, 14 FCC Rcd 1863 (1998) ("*Cable & Wireless -- China*").

[^67]: *See* *Telecom Argentina*, *supra* note 66, at paras. 14-15.

[^68]: *Id*. at 14.

[^69]: *See* *Bell Canada*, 16 FCC Rcd at 12468-69, paras. 8-9.

[^70]: *Id.* at 12469, para. 10.

[^71]: *See* *Cable & Wireless -- China*, 14 FCC Rcd at 1868-69, paras.
    14-18.

[^72]: *Id.* at 1869, para. 18.

[^73]: Applicants\' Reply at 2-5. *See also* Application at 4-5.

[^74]: Applicants\' Reply at 2-3.

[^75]: *See Telecom Argentina, supra* note 66, paras. 14-15, and *Bell
    Canada*, 16 FCC Rcd 12468-9, paras. 8-9. *See also* *Cable and
    Wireless -- China*, 14 FCC Rcd at 1868-69, para. 14-18. *See also*
    *Cable & Wireless, Inc.*, *Application for Authority Pursuant to
    Section 214 of the Communications Act of 1934, As Amended, to
    Provide Resold and Facilities-based Switched and Private Line
    Services between the United States and Russia and to be Held
    Non-Dominant for All Services on This Route*, File No. ITC-97-290,
    Order, Authorization and Certificate, 13 FCC Rcd 6671, 6672-3,
    paras. 6-8 (1998) ("*Cable & Wireless -- Russia*"). In *Cable &
    Wireless - Russia*, the International Bureau examined the market
    power of Cable & Wireless\'s affiliates in the Sakhalin Island
    region and determined that the competitive characteristics in the
    Sakhalin Island region were sufficiently distinct from the Russian
    national market to warrant treating the region as a distinct
    geographic market for purposes of our market power analysis.

[^76]: *See* *Foreign Participation Order*, 12 FCC Rcd at 23952-53,
    para. 145.

[^77]: The cities with over 1 million inhabitants in the region covered
    by Brasil Telecom are: Brasilia, Curitiba (State of Parana), Goias
    (State of Goiania) and Porto Alegre (State of Rio Grande do Sul).

[^78]: Corrected *Ex parte* of AT&T Corp., filed Aug. 5, 2002.

[^79]: Applicants' Reply at 5.

[^80]: *See* *Foreign Participation Order*, 12 FCC Rcd at 23961-62,
    para. 163 and n.318.

[^81]: Applicants\' Reply at 6 and Exhibit B, "Brazil and Region II
    General Universalization Plan" (executed May 2002) ("Exhibit B").
    This figure represents a correction of the original Application,
    where the Applicants estimated that Brasil Telecom served
    approximately 23.5 percent of the total lines in service in Brazil.
    Application at 8.

[^82]: If we assume that Brasil Telecom's local franchise area includes
    one-third of the subscriber lines in Brazil, then the estimate of
    23.7 percent for Brasil Telecom's share of total subscriber lines
    for the nation as a whole translates into a market share of 71.1
    percent for its local franchise area. A market share of 71.1 percent
    exceeds the 50 percent limit below which a carrier is presumed to
    lack market power.

[^83]: 47 C.F.R. § 43.51 Note 3 (2003). A U.S. carrier that seeks to use
    the under-50 percent market share presumption must file data with
    the Commission to substantiate that claim for the relevant input
    markets on the foreign end of the international route. *See*
    *Foreign Participation Order*, 12 FCC Rcd at 23961, para. 163,
    n.318.

[^84]: *Id.* at 23960-61, para. 162 and n.317, and 23996, para. 233.

[^85]: *See* *Foreign Participation Order*, 12 FCC Rcd 23891, 23960-61,
    para. 162, n.317. *See also* *IDC America Inc., Application Pursuant
    to Section 214 of the Communications Act of 1934, as Amended, to
    Provide Non-interconnected International Private Line Service
    between the United States and Japan*, Order, Authorization and
    Certificate, File No. ITC-96-685, Order, Authorization and
    Certificate, DA 97-571, 13 FCC Rcd 4085-86, para. 4 (1997). The
    preceding document cites the *Motion of AT&T Corp. to be Declared
    Non-dominant for International Service*, Order, FCC 96-311, 11 FCC
    Rcd 17963, 17977-93, paras. 37-79 (1996) ("*AT&T International
    Reclassification Order*") and the *Motion of AT&T Corp. to be
    Reclassified as a Non-dominant Carrier*, Order, FCC 95-427, 11 FCC
    Rcd 3271, 3293-94 (1995). *See also* *1992 Department of
    Justice/Federal Trade Commission Merger Guidelines*, 4 Trade Reg.
    Rep. (CCH) 20,569, 20,570 ("*1992 DOJ/FTC Merger Guidelines*"). *See
    also* *AT&T International Reclassification Order*, 11 FCC Rcd at
    17977, para. 36; *Bell Canada*, 16 FCC Rcd at 12467-68, para. 7.

[^86]: Brasil Telecom's market share is discussed *supra*, para. 15.

[^87]: Supply elasticity is a measure of the propensity of an industry
    to expand output for a given change in price. Two factors determine
    supply elasticity. The first is the supply capacity of existing
    competitors, and the second is low barriers to entry. *See* *AT&T
    International Reclassification Order,* 11 FCC Rcd at 17980-81, para.
    48. *See also* *Petition of GTE Hawaiian Telephone Company, Inc. for
    Reclassification as a Non-dominant IMTS Carrier*, Order, DA 98-1748,
    11 FCC Rcd 20354, 20363, para. 19 (1996) ("*GTE Hawaiian Telephone
    Company*"). In a market characterized by many competitors and low
    barriers to entry, an attempt by a market incumbent to exercise
    market power by restricting output or raising prices would fail due
    to expanded supply by existing competitors or new entrants. In order
    to demonstrate an absence of market power in the local access market
    of Brasil Telecom's local franchise area, the Applicants could show
    that there are multiple competitors that are in a position to supply
    a substantial portion of the local access market or that there are
    low barriers to entry in the local access market.

[^88]: As used by the Commission in analyzing market power, demand
    elasticity is a measure of the propensity of an incumbent\'s
    customers to switch carriers or otherwise change the amount of
    service that they purchase from the incumbent in response to
    relative given changes in price and quality. *See* *AT&T
    International Reclassification Order,* 11 FCC Rcd at 17979, para.
    42*. See also GTE Hawaiian Telephone Company*, 11 FCC Rcd at 20365,
    para. 22. To demonstrate an absence of market power in the local
    access market, the Applicants are required to show that Brasil
    Telecom's customers are willing to switch to other suppliers of
    local access services or to substitute services, *e.g*., mobile
    telephony.

[^89]: *See* *Foreign Participation Order*, 12 FCC Rcd 23960-61, para.
    162 and n.317.

[^90]: *Id.*

[^91]: *Id.*

[^92]: Application at 3-5, 6-10; Applicants\' Reply at 7-9, and Exhibits
    C and D.

[^93]: *See* Application at 5.

[^94]: *Id.* at 5.

[^95]: *Id.* at 9.

[^96]: *Id.* at 12-13.

[^97]: *See* Application at 10 (citing AT&T as an example of a U.S.
    carrier that has applied to provide local services in Brazil).

[^98]: *Id.* at 8.

[^99]: *See, e.g.*, *Application of BellSouth Corporation, BellSouth
    Telecommunications, Inc., and BellSouth Long Distance, Inc. for
    Provision of In-Region, InterLATA Services in Louisiana,* CC Docket
    No. 98-121, Memorandum Opinion and Order, 13 FCC Rcd 20599, para.
    31-33 (1998).

[^100]: Application at 9-10.

[^101]: *See* *Foreign Participation Order,* 12 FCC Rcd at 23995, para.
    230.

[^102]: *See* 1992 DOJ/FTC Merger Guidelines at Section 3.

[^103]: *Id.* at Section 3.3. Sunk costs are costs that cannot be
    recovered when a firm leaves an industry. *See* MIT Dictionary of
    Modern Economics, 4th ed., David W. Pearce, ed., MIT Press,
    Cambridge, Massachusetts, 1997. In the case of entry into the local
    access market, sunk costs include one-time start-up expenses, and
    large capital outlays for network infrastructure that are unlikely
    to be recoverable in the event that the firm exits the marketplace.

[^104]: *See* *1992 DOJ/FTC Merger Guidelines* at Section 3.2.

[^105]: *See supra* para. 7, note 36.

[^106]: *Id.*

[^107]: AT&T Opposition at 5; August 2, 2002 *Ex parte* of AT&T at 5.

[^108]: Application at 8-9; Applicants' Reply at 8-9.

[^109]: *See* *Foreign Participation Order*, 12 FCC Rcd at 23976-77,
    para. 192.

[^110]: *Id.* at 23993, para. 225 and 24007, para. 259.

[^111]: 47 C.F.R. § 43.51, Note 3 to § 43.51(c)(3) (2003).

[^112]: *Id.*