Before the
                Federal Communications Commission
                     Washington, D.C.  20554
                                                                 

In the Matter of                             )    
                                   )
Rules and Policies on Foreign Participation       )    IB Docket No. 97-142
in the U.S. Telecommunications Market             )
                                   )
Market Entry and Regulation of                    )    IB Docket No. 95-22
Foreign-Affiliated Entities                  )


          REPORT AND ORDER AND ORDER ON RECONSIDERATION
                                 
Adopted:  November 25, 1997                         Released:  November 26, 1997

By the Commission:  Chairman Kennard issuing a statement.

                        Table of Contents

Topic                                               Paragraph No.

     I.  Introduction and Executive Summary . . . . . . . . . . . .  1
               A.   Introduction . . . . . . . . . . . . . . . . . . . .  1
               B.   Executive Summary. . . . . . . . . . . . . . . . . . 13

     II.  Background. . . . . . . . . . . . . . . . . . . . . . . . 22
               A.   Foreign Carrier Entry Order. . . . . . . . . . . . . 22
               B.   WTO Basic Telecom Agreement. . . . . . . . . . . . . 25

     III.  Open Entry Policies toward WTO Member Countries. . . . . 29
               A.   General Standard for Foreign Participation . . . . . 29
                         1.   Removing ECO. . . . . . . . . . . . . . . . . . 30
                         2.   Public Interest Analysis. . . . . . . . . . . . 44
                                   a.   Presumption in Favor of Entry. . . . . . . 47
                                   b.   Other Public Interest Factors. . . . . . . 59
               B.   Section 214 Entry Standard . . . . . . . . . . . . . 67
                         1.   Facilities-Based, Resold Switched and Resold Non-interconnected Private
               Lines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
                         2.   Provision of Switched Services over Private Lines 72
               C.   Foreign Ownership under the Submarine Cable Landing License Act 87
               D.   Section 310(b)(4) Standard for Indirect Foreign Ownership of Radio Licensees 97

     IV.  Policies toward Non-WTO Members . . . . . . . . . . . .  119
               A.   Application of ECO Analysis. . . . . . . . . . . .  119
               B.   Modification of Contexts in Which ECO Analysis Applies 133

     V.  Regulatory Issues. . . . . . . . . . . . . . . . . . . .  143
               A.   Regulatory Approach. . . . . . . . . . . . . . . .  143
               B.   General Obligations on All U.S. International Carriers 150
                         1.   "No Special Concessions" Rule . . . . . . . .  150
                         2.   Foreign Market-Derived Confidential Information 171
                                   a.   Competing U.S. Carrier Information . . .  171
                                   b.   U.S. Customer Proprietary Network Information 172
               C.   Competitive Safeguards for Affiliated Carriers . .  177
                         1.   Benchmark Conditions. . . . . . . . . . . . .  179
                                   a.   Benchmark Condition for Facilities-Based Service to Affiliated
                    Markets. . . . . . . . . . . . . . . . . . . . . . . . . . .  192
                                   b.   Consideration of Benchmark Condition for Switched Resale
                    Service to Affiliated Markets. . . . . . . . . . . . . . . .  193
                         2.   Dominant Carrier Safeguards . . . . . . . . .  215
                                   a.   Regulatory Framework . . . . . . . . . .  215
                                   b.   Competitive Safeguards . . . . . . . . . .240
                                             (i)  Modified Tariffing Requirements . . .240
                                             (ii) Removal of Prior Approval of Circuit Additions and
                         Discontinuances. . . . . . . . . . . . . . . . . . . . . . . .246
                                                  (iii)     Separation Requirements. . . . .252
                                             (iv) Quarterly Traffic and Revenue Reports270
                                             (v)  Quarterly Provisioning and Maintenance Reports274
                                             (vi) Quarterly Circuit Status Reports. . .281
                                                  (vii)     Rejection of Ban on Exclusive Arrangements Involving
                              Joint Marketing, Customer Steering, or Use of Foreign
                              Market Telephone Customer Information. . . . . . . . . . . . .287
               D.   Enforcement of Safeguards. . . . . . . . . . . . . .293
               E.   Alternative Settlement Arrangements. . . . . . . . .297

     VI.  Procedures. . . . . . . . . . . . . . . . . . . . . . . .314
               A.   Streamlined Application Procedures . . . . . . . . .314
               B.   Notifications of Foreign-Carrier Affiliations. . . .330

     VII.  Compliance with U.S. Commitments under the WTO Basic Telecom Agreement335

     VIII.  Petitions for Reconsideration in IB Docket No. 95-22. .376

     IX.  Administrative Matters. . . . . . . . . . . . . . . . . .384

     X.  Ordering Clauses . . . . . . . . . . . . . . . . . . . . .387

Appendix A:    Lists of Commenters and Reply Commenters
Appendix B:    Petitions for Reconsideration in IB Docket No. 95-22
Appendix C:    Final Rules
Appendix D:    Final Regulatory Flexibility Analysis

              I.  Introduction and Executive Summary

     A.   Introduction

     1. An efficient and cost-effective global telecommunications marketplace is essential to an
emerging information economy.  The substantial resources required to build a global infrastructure are
unlikely to come from regulated monopolies or multilateral international organizations.  In the U.S.
domestic market, we have found that private sector competition dramatically lowers the cost of providing
service and stimulates creation of innovative services and investment in infrastructure deployment.  These
positive developments encouraged Congress to enact the Telecommunications Act of 1996 (the 1996 Act),
with its emphasis on competition and deregulation.  The United States, in an effort to achieve these same
benefits internationally, urged foreign governments to open their markets to competition and to adopt
procompetitive, transparent regulatory policies in order to foster the growth of a global information
infrastructure. 

     2. On February 15, 1997, 69 nations, including the United States and most of its major trading
partners, took the historic step of concluding the World Trade Organization (WTO) Basic
Telecommunications Agreement, and committing to open their markets for basic telecommunications
services.  The WTO Basic Telecom Agreement seeks to replace the traditional regulatory regime of
monopoly telephone service providers with procompetitive and deregulatory policies.  We expect the
market-opening commitments of our trading partners to bring procompetitive developments throughout the
world.  The 69 nations that concluded the Agreement account for more than 90 percent of worldwide
telecommunications services revenues.  In light of the United States' WTO market access commitments and
the market-opening commitments of our trading partners, as well as our improved regulatory framework,
we find that it serves the public interest to adopt rules in this Order to complete our goal of opening the
U.S. market to competition from foreign companies, in parallel with our major trading partners.  We adopt
an open entry standard for WTO Member country applicants that favors their participation and will enable
U.S. consumers to enjoy the benefits of increased competition.

     3.   We also adopt today a companion order that establishes a uniform framework for foreign-
licensed satellite systems that seek to serve the U.S. market.   The companion order adopts the same
general approach we apply in this Order to encourage entry by foreign-licensed satellite systems into the
United States to provide basic telecommunications services.  Both orders are guided by the common
objective of promoting competition in the U.S. market, and of achieving a more competitive global market
for all basic telecommunications services.

     4. Prior to the conclusion of the WTO Basic Telecom Agreement, the United States  and many
foreign governments had looked for ways to encourage foreign governments to open their
telecommunications markets.  By removing obstacles to entry to all telecommunications service markets,
including our own, we believed that we could deliver tangible benefits to U.S. consumers, U.S. companies,
and the world at large.  At the same time, however, we sought to prevent anticompetitive harm from the
leveraging of foreign market power into the U.S. market for telecommunications services.  The WTO Basic
Telecom Agreement helps achieve these goals by furthering the principles of open markets, private
investment and competition, as well as the adoption of procompetitive regulatory principles.  Under the
terms of the Agreement, the United States has committed to allow foreign suppliers to provide a broad
range of basic telecommunications services in the United States.  We expect that entry by foreign
telecommunications carriers and other investors will increase competition in the U.S. telecommunications
service market, providing lower prices and increased quality of service.  In return, most of the world's
major trading nations have made binding commitments to move from monopoly provision of basic
telecommunications services to open entry and procompetitive regulation of these services.  These
commitments will allow U.S. companies to enter previously closed foreign markets and develop competing
networks for local, long distance, wireless and international services.  In most cases, these markets have
been entirely closed to competition until now.  The initiative to move from a world of regulated monopolies
to one that is characterized by open entry policies parallels the procompetitive and deregulatory mandate of
the Telecommunications Act of 1996.  

     5. This Order represents the culmination of efforts taken by the Commission to promote
competition in the global market for telecommunications services.  Beginning in November 1995, when
only a handful of the world's telecommunications markets were open to competition by U.S. carriers, the
Commission issued the Foreign Carrier Entry Order to encourage foreign governments to open their
markets to competition.  That order adopted the effective competitive opportunities (ECO) test.  The ECO
test required, as a condition of foreign carrier entry into the U.S. market, that there be no legal or practical
restrictions on U.S. carriers' entry into the foreign carrier's market.  The ECO test was crafted to serve our
three goals for regulation of international telecommunications services:  to promote effective competition in
the U.S. telecommunications service market; to prevent anticompetitive conduct in the provision of
international services or facilities; and to encourage foreign governments to open their telecommunications
markets.

     6. In addition, the Commission's 1996 Flexibility Order opened the way for carriers to engage
in alternative arrangements outside of traditional settlement practices to encourage the more economically
efficient routing of traffic.  The recent Benchmarks Order requires U.S. carriers to reduce the settlement
rates they pay to foreign carriers and also imposes certain conditions on participation in the U.S. market
that are aimed at reducing the incentives and ability of a foreign carrier to act anticompetitively to the
detriment of U.S. consumers.  These orders, along with the market-opening commitments contained in the
WTO Basic Telecom Agreement, pave the way for a new approach to foreign participation in the U.S.
telecommunications market.  

     7. Even before the effective date of the WTO Basic Telecom Agreement, significant
procompetitive changes in global telecommunications markets have been evident.  In the two years since the
Foreign Carrier Entry Order became effective in January 1996, the world has seen a significant change in
the structure of international telecommunications markets.  Throughout the world, markets are opening,
more and more traffic is exchanged outside of the traditional settlements process, and new technologies are
having a profound impact on traffic patterns.  In January 1996, only 17 percent of the world's top 20
telecommunications markets were open to U.S. companies.  Pursuant to the WTO Basic Telecom
Agreement, 92 percent of major markets are covered by commitments to remove restrictions on competition
and foreign entry by January 1, 1998.  We expect that competitive forces will soon result in higher quality,
lower priced, more innovative service offerings.  Carriers are adopting non-traditional, more cost-efficient
means of routing traffic, such as routing switched traffic over private lines and switched hubbing.  Some
experts predict that by 2005, the resale market will be worth ten times what it was in 1996.  New
technologies such as callback and Internet telephony are already putting significant pressure on
international settlement rates and domestic collection rates.

     8. In June 1997, the Commission issued a Notice of Proposed Rulemaking to create a new
regulatory framework for the more open environment sparked by the WTO Basic Telecom Agreement.  In
response to our proposed rules, we received comments from 47 parties, including 14 foreign
telecommunications carriers.  We discuss below the issues raised in the Notice, as well as the responses of
commenting parties.  In addition, we address in this Order related issues raised in petitions for
reconsideration of the Foreign Carrier Entry Order.  

     9. With this Order, we remove the ECO test and replace it with an open entry standard for
applicants from WTO Member countries.  We find that the commitments made in the context of the WTO
Basic Telecom Agreement, an increasingly competitive environment and our improved regulatory tools
enable us to adopt a deregulatory approach that presumes entry is in the public interest.  In light of the
market-opening commitments in the WTO Basic Telecom Agreement, we expect to see a shift away from
monopoly provision of telecommunications services and toward competition, open markets and transparent
regulation.  Instead of undertaking an in-depth review of the competitiveness of each foreign market in
order to preclude potential anticompetitive conduct, we address such concerns with safeguards, while
allowing more open competitive entry.  We find that our own enhanced safeguards, together with those
introduced by our trading partners, pursuant to their commitments to procompetitive regulatory principles,
should be sufficient to reduce the danger of anticompetitive conduct resulting from foreign entry into the
U.S. market.

     10.  We find that the market-opening approach we adopt in this Order will have significant
benefits for consumers.  First, we find that entry by foreign suppliers of telecommunications services will
stimulate the U.S. market for international services, creating incentives for carriers to offer existing
services at lower prices and adopt innovative new services to attract residential and small business
customers.  Second, we find that further opening the U.S. market to foreign carrier entry, along with U.S.
carrier entry into foreign markets, will let carriers capitalize on newly found efficiencies by offering one-
stop shopping.  This allows customers to have a single service provider in multiple markets, thereby
reducing administrative costs to users.

     11.  We conclude that our new approach will better serve the original goals of our international
telecommunications regulations as stated in the Foreign Carrier Entry Order than the approach outlined in
that order.  First, we believe that removing barriers to entry and focusing on competitive safeguards will
promote effective competition in the U.S. telecommunications services market by removing unnecessary
regulation and barriers to entry that can stifle competition and deprive U.S. consumers of the benefits of
lower prices, improved service quality, and service innovations.  Second, we believe that our new approach
will enable us to prevent anticompetitive conduct in the provision of international services or facilities by
relying on more effective and targeted safeguards to ensure that entry by a foreign carrier with market
power does not cause anticompetitive harm in the U.S. market.  Third, we find that this approach will
encourage foreign governments to implement their commitments to open their telecommunications markets
by serving as an example that open markets and minimal regulation are beneficial to consumers and
industry.

     12.  We are confident that global implementation of the WTO Basic Telecom Agreement will
result in significant consumer and economic benefits.  At the same time, however, we recognize that much
work needs to be done to ensure that the promise of the WTO Basic Telecom Agreement is fulfilled.  With
this Order and the companion International Satellite Service Order, we have taken important steps to
carry out the letter and spirit of the market-opening commitments made by the United States .  We expect
that foreign carriers will begin to enter and compete in the U.S. market soon after January 1, 1998.  We
also expect that U.S. carriers will likewise be able to enter and compete in previously closed foreign
markets.  We also plan to look carefully at market-opening steps taken by the rest of the world.

     B.   Executive Summary

     Open Entry Policies for WTO Members

     13.  In this Order we adopt a new standard for foreign participation in the U.S.
telecommunications market.  Our rules will no longer require applicants from WTO Members to
demonstrate that their markets offer effective competitive opportunities (ECO) in order to obtain Section
214 authority, authorization to exceed the Section 310(b)(4) foreign ownership benchmark, or a cable
landing license.  Instead, we adopt an open entry standard for WTO Member applicants, which will
enable U.S. consumers to enjoy the benefits of increased competition in U.S. markets.  Our approach
includes a presumption in favor of foreign participation by these applicants.  We find the open entry
policies and competitive safeguards that many WTO Members are adopting, as well as our own improved
competitive safeguards, are better able to address any competitive concerns that may arise.  Although we
find that our safeguards will generally provide sufficient protection against anticompetitive conduct, we
recognize the possibility that circumstances might arise in which our safeguards might not adequately
constrain the potential for anticompetitive harm in the U.S. market for telecommunications services.  In
such rare cases, the Commission reserves the right to attach additional conditions to a grant of authority,
and in the exceptional case in which an application poses a very high risk to competition, to deny an
application.

     14.  We apply the above policy to applicants from WTO Members for:  (1) Section 214 authority
to provide international facilities-based service as well as resold switched services and resold
noninterconnected private line services; (2) cable landing licenses; and (3) authorizations to exceed the 25
percent foreign ownership benchmark in Section 310(b)(4) of the Act.  We also find that the market-
opening commitments of WTO Members, along with our recently adopted benchmark settlement rates
condition, remove the need to maintain our equivalency analysis for carriers seeking to provide switched
services over private lines between the United States and WTO Member countries.  Even where carriers
on those routes do not meet our benchmark settlement rate condition, we will continue to approve
applications to provide switched services over private lines where such markets meet our equivalency test. 


     Policies toward Non-WTO Members

     15.  We find that the circumstances that existed when the Commission adopted the Foreign
Carrier Entry Order have not changed sufficiently with respect to countries that are not members of the
WTO.  We find that competitive concerns continue to exist for carriers that possess the ability to exercise
market power in such countries and that we should continue to pursue our goal of encouraging such
countries to open their markets to competition.  We therefore find that it continues to serve the public
interest goals of our international telecommunications policy to apply the ECO and equivalency tests in the
context of non-WTO Member countries.

     Regulatory Issues

     16.  We conclude, in light of our new open entry approach, that we should revise the competitive
safeguards governing foreign-affiliated carrier provision of basic telecommunications service in the U.S.
market and, more broadly, U.S. carrier dealings with foreign carriers.  In particular, we strengthen our
rules preventing the exercise of foreign market power in the U.S. market.  At the same time, we modify or
eliminate other rules that could hamper competition.  We accordingly adopt a more narrowly tailored
regulatory framework that enhances our ability to monitor and detect anticompetitive behavior in the U.S.
market.

     17.  We narrow our "No Special Concessions" rule so that it only prohibits U.S. carriers from
entering into exclusive arrangements with foreign carriers that possess sufficient market power on the
foreign end of a U.S. international route to affect competition adversely in the U.S. international services
market.  To provide greater certainty to U.S. carriers as they negotiate agreements with their foreign
counterparts, we adopt a rebuttable presumption that foreign carriers with less than 50 percent market
share in each relevant foreign market lack such market power.  We also protect the confidentiality of
competing U.S. carriers and consumers by prohibiting U.S. carriers from accepting from a foreign carrier
any foreign-derived confidential carrier or U.S. customer information without appropriate U.S. carrier or
customer approval.

     18.  In the Benchmarks Order, the Commission concluded that we should condition foreign-
affiliated carrier authorizations to provide facilities-based switched or private line service to an affiliated
market on compliance with the benchmark settlement rates.  The Commission found that this authorization
condition is necessary to reduce the ability of carriers serving affiliated markets to engage in price squeeze
behavior.  We do not revisit those conclusions here, but describe the benchmark condition in this Order. 
We also decline to apply a similar condition to the provision of resold switched services to affiliated
markets because we find that the incentive to engage in a predatory price squeeze is significantly less in this
context than for facilities-based service.  We do adopt, however, a reporting requirement for switched
resellers affiliated with a foreign carrier with market power in a foreign market in order to monitor the
potential for traffic distortion on the affiliated route. 

     19.  We also revise our dominant carrier safeguards that apply to U.S. carriers with foreign
affiliates that possess sufficient market power on the foreign end of a U.S. international route to affect
competition adversely in the U.S. market.  We decline to adopt the two-tier framework proposed in the
Notice which would have applied more stringent supplemental dominant carrier safeguards to carriers with
foreign affiliates that do not face facilities-based competition in the foreign market.  We adopt the Notice's
proposal to modify our tariffing requirement to remove the 14-day advance notice requirement and accept
tariff filings on one day's advance notice with a presumption of lawfulness for such filings.  We also
remove the requirement that foreign-affiliated dominant carriers obtain prior approval for circuit additions
and discontinuances on their dominant route.  Instead, we will apply the prior approval requirement as a
remedial measure in the event of demonstrated anticompetitive conduct.  Further, we adopt a limited
structural separation requirement and also require that foreign-affiliated dominant carriers file traffic and
revenue reports, provisioning and maintenance reports and circuit status reports on a quarterly basis.  We
decline to adopt the Notice's proposal to ban exclusive arrangements involving joint marketing, customer
steering, or the use of foreign market telephone customer information.  As with the No Special Concessions
rule, we adopt a rebuttable presumption that foreign carriers with less than 50 percent market share in each
relevant market on the foreign end lack sufficient market power to affect competition adversely in the U.S.
market and, as a result, their U.S. affiliates should presumptively be treated as non-dominant.  Finally, we
emphasize that we have authority to enforce our safeguards through fines, conditional grants of authority
and the revocation of authorizations.

     20.  We also adopt the Notice's proposal to create a presumption in favor of alternative
settlement arrangements on routes serving WTO Members, in place of the ECO standard set out in the
Flexibility Order.  This presumption could be rebutted with a showing that there are not multiple
facilities-based competitors operating in the foreign market for international services.  In the event the
presumption is overcome, an applicant nonetheless may demonstrate that the proposed alternative
settlement arrangement will promote market-oriented pricing and competition, while precluding the abuse
of market power by the foreign correspondent.  We do not otherwise alter the existing approach to flexible
settlement arrangements, and we retain the safeguards and enforcement mechanism adopted in the
Flexibility Order.

     Procedures

     21.  We adopt our proposal to streamline review of most applications for international Section
214 authority for foreign carriers or their affiliates.  We will streamline the processing of an application of
any carrier that qualifies for non-dominant treatment or that certifies that it will comply with our dominant
carrier safeguards.  We will also streamline the Section 214 application of any applicant that seeks to serve
a WTO Member country only by reselling the switched services of unaffiliated U.S. international carriers. 
We will, in addition, streamline any application for assignment or transfer of control of a Section 214
authorization in circumstances where an initial application by the assignee or transferee would be eligible
for streamlined processing.  Finally, we will streamline applications to exceed the 25 percent foreign
ownership benchmark under Section 310(b)(4) of the Act that do not involve an initial application or a
transfer of control.  We anticipate that it will normally take approximately 35 days to reach a decision on a
streamlined application.  For those applications that are removed from streamlined processing, we will
normally issue a decision on the application within 90 days.  In addition, we will no longer require
authorized international common carriers to notify the Commission before accepting investments by foreign
carriers (or commonly controlled companies) unless the investment by a single foreign carrier or by
multiple foreign carriers acting jointly exceeds 25 percent or results in a transfer of control.  We will
require an authorized carrier to notify the Commission before it or its holding company acquires a direct or
indirect interest of over 25 percent or a controlling interest in a foreign carrier.

                         II.  Background

A.   Foreign Carrier Entry Order

     22.  The Commission adopted the Foreign Carrier Entry Order to promote its procompetitive
goals in regulating international telecommunications services.  In that order, the Commission adopted the
ECO test as part of an overall public interest analysis for both international Section 214 authorizations and
indirect foreign ownership of common carrier radio licensees under Section 310(b)(4).  Prior to adopting
the ECO test, the Commission evaluated foreign carrier applications to provide service in the U.S. market
on an ad hoc, case-by-case basis.  Under the Foreign Carrier Entry Order, we apply the ECO test to
applications for international facilities-based, switched resale, and non-interconnected private line resale
under Section 214 only in circumstances where an applicant seeks authority to provide the service between
the United States and a destination market in which an affiliated foreign carrier has market power in a
relevant market.  We also apply the ECO test to common carrier radio applicants or licensees that seek to
exceed the 25 percent indirect foreign ownership benchmark contained in Section 310(b)(4).

     23.  In applying our ECO test, we first examine first the legal, or de jure, ability of U.S. carriers
to enter the foreign destination market and provide the relevant service.  If there are no legal barriers to
entry, we consider the practical ability for U.S. carriers to compete in those markets.  This analysis focuses
on the actual conditions of entry, i.e., terms and conditions of interconnection, competitive safeguards, and
the regulatory framework. 

     24.  The Foreign Carrier Entry Order also delineated additional public interest factors that we
consider in determining whether to grant a foreign-affiliated carrier's application.  We consider these
factors in addition to the ECO analysis, and they may weigh in favor of or against grant of a particular
application.  These include the general significance of the proposed entry on competition in the U.S.
telecommunications services market, the presence of cost-based accounting rates (under Section 214), as
well as national security, law enforcement issues, foreign policy and trade concerns brought to our attention
by the Executive Branch.  Finally, the Commission stated that it would amend its rules if the Executive
Branch were to succeed in negotiating greater market access for U.S. carriers.

B.   WTO Basic Telecom Agreement

     25.  The WTO Basic Telecom Agreement was concluded under the framework established by the
General Agreement on Trade in Services (GATS), which is one of the agreements negotiated in conjunction
with the creation of the WTO.  For the first time, the GATS brought trade in services within the
international trading regime established for trade in goods by the General Agreement on Tariffs and Trade
after the Second World War.  The GATS consists of general obligations and specific sectoral commitments
contained in individual Member schedules. 

     26.  At the conclusion of the negotiations creating the WTO in April 1994, the United States and
other WTO Members made commitments to allow market access for a broad range of services   including
such diverse industries as construction services, professional services (such as legal and medical services),
distribution services, and value added (or enhanced) telecommunications services.  Basic
telecommunications, however, was one of a limited number of service sectors for which negotiations were
extended beyond the April 1994.  WTO Members recognized the economic importance of basic
telecommunications services and established a separate, sector-specific negotiation for these services,
which were scheduled to conclude by April 30, 1996.  Because the negotiations had made insufficient
progress by that date, the WTO agreed to extend the deadline for concluding the negotiations to February
15, 1997.

     27.  As a result of the WTO Basic Telecom Agreement, 44 WTO Members (representing 99
percent of WTO Members' total basic telecommunications services revenues) will permit foreign ownership
or control of all telecommunications services and facilities, while an additional 12 WTO Members will
permit foreign ownership of some telecommunications services.  Fifty-two WTO Members (covering 88
percent of WTO Members' international services revenues) will provide market access for the provision of
international services and another five will provide market access for limited international services.  Forty-
nine WTO Members (accounting for more than 80 percent of WTO Members' total satellite services
revenues) also guaranteed market access for the provision of satellite services.  In addition, 55 WTO
Members agreed to adopt the Reference Paper, which sets out pro-competitive regulatory principles
(Reference Paper), and another ten WTO Members agreed to adopt these regulatory principles in part or
at a future date.  These regulatory principles are consistent with the requirements of the Communications
Act and the Telecommunications Act of 1996 passed by Congress in February 1996.  The WTO Basic
Telecom Agreement is scheduled to enter into force on January 1, 1998. 

     28.  The commitments of the 69 countries that participated in the WTO Basic Telecom
Agreement can be enforced through WTO dispute settlement process.  If a WTO Member fails to give a
U.S. carrier market access consistent with that WTO Member's commitments or fails to implement the
Reference Paper regulatory principles, the United States  may enforce those commitments through the
dispute settlement process at the WTO.  The remedies available if the United States prevails include, first,
an obligation by the losing WTO Member to fulfill its market access commitments or implement the
necessary regulatory principles.  If the losing WTO Member fails to do so, it is required to compensate the
United States in trade terms or else the United States may take compensatory trade action, first in the
services sector, but if sufficient compensatory trade action is not available in the services sectors, then the
United States would be authorized to take compensatory action in the goods sector.  Thus, if a WTO
Member that has committed to allow market access to provide international service denied a license to a
U.S. carrier on the grounds of its nationality, the United States  would have the right to take a dispute
against that WTO Member in the WTO.  Similarly, if a dominant carrier provided interconnection to U.S.
carriers on less favorable terms than it provides to its own affiliates or to carriers from a third country, the
United States  could take to the WTO a dispute against the dominant carrier's government for failing to
maintain measures to ensure nondiscriminatory interconnection.  While companies from the defendant
WTO Member might not be interested in entering the U.S. telecommunications market, its industry likely
would have substantial volumes of trade with the United States in a variety of other goods and services
sectors.  Thus, if the United States  prevailed in a dispute, the losing WTO Member would most likely
agree to fulfill its market access or regulatory principles commitments rather than provide trade
compensation in other services or goods sectors.

      III.  Open Entry Policies toward WTO Member Countries

     A.   General Standard for Foreign Participation
          
     29.  We adopt in this Report and Order a new standard for foreign participation in the U.S.
telecommunications market.  We will no longer require applicants from WTO Members to demonstrate that
their markets offer effective competitive opportunities in order to obtain Section 214 authority,
authorization to exceed the Section 310(b)(4) foreign ownership benchmark, or a cable landing license.  We
find here, as discussed below, that the binding commitments made by 69 WTO Members to open their
telecommunications markets to competition, along with the increased pressure to lower settlement rates and
the emergence of new technologies and routing configurations, will bring dramatic changes to the
competitive landscape for global telecommunications services.  In anticipation of these changes, we adopt
an open entry standard for WTO Member applicants.  From the effective date of this Order forward, the
Commission will expeditiously grant the vast majority of applications filed by foreign telecommunications
carriers and investors.  We find it will no longer be necessary or appropriate to engage in the detailed, in-
depth analysis of foreign markets that the ECO test required.

             1. Removing ECO

     Background

     30.  In the Notice, the Commission tentatively concluded that it should remove the ECO test.  It
stated that the WTO commitments of 68 other governments would substantially achieve the goals we
articulated in the Foreign Carrier Entry Order and would promote effective competition in the U.S.
international services market.  This tentative conclusion was based, in part, on the Commission's finding
that the commitments of WTO Members on basic telecommunications services would, when fulfilled,
substantially open foreign markets and reduce foreign carriers' ability to engage in anticompetitive conduct
when they enter the U.S. market to provide international services.  The Commission also tentatively
concluded that eliminating the ECO test would significantly reduce the time and regulatory burden
associated with foreign carrier entry into the U.S. market.  The Commission therefore proposed to
eliminate the ECO test from its public interest analysis of pending and future applications filed by
applicants from WTO Members for Section 214 authority, cable landing licenses and requests to exceed
the 25 percent indirect foreign ownership benchmark for common carrier radio licenses.

     Positions of the Parties

     31.  Most commenters strongly support removal of the ECO test.  These parties generally agree
that, in light of the competitive changes expected to result from commitments of 68 other WTO Members
to open their telecommunications markets, it is no longer necessary to maintain the ECO test.  Such
commenters state that by eliminating the ECO test, the Commission and carriers can save valuable time and
resources by not engaging in a detailed and particularized ECO analysis.  Commenters also contend that
removing the ECO test will promote entry by foreign carriers and thus stimulate competition in the U.S.
market.  Several commenters urge the Commission to remove the ECO test in order to set an example for
other WTO Members to follow as they open their own markets.  A number of carriers argue that GATS
principles compel the removal of the ECO test and that the Commission should acknowledge that the
agreement requires that it take the proposed action. 

     32.  AT&T and Ameritech argue that we should retain an entry standard that evaluates the extent
to which the applicant's country provides unrestricted market access, allows a controlling foreign
ownership interest, and satisfies the Reference Paper.  These commenters argue that several WTO
Members have made weak commitments, which are inadequate to ensure that they will be unable to act
anticompetitively, and others have made no commitments at all.  Several carriers object to AT&T's
proposed standard on the basis that it is inconsistent with GATS principles.

     Discussion

     33.  We find that the Commission need no longer require applicants from WTO Member seeking
to enter the U.S. market to demonstrate that their markets offer effective competitive opportunities.  The
WTO commitments of our trading partners require that they open their markets to competition and promote
the introduction of procompetitive regulatory principles.  These changes, along with our improved
competitive safeguards and major changes in technology and traffic routing, remove the need for the
Commission to engage in an ECO analysis for applicants from WTO Members.  Two years ago, the goals
of our international telecommunications policy were best served by the ECO test.  These goals remain
constant, but we conclude that they will henceforth be largely fulfilled by the emerging market changes
resulting from the open markets for telecommunications services in combination with our improved
safeguards.  We therefore conclude that we can remove the ECO test from our public interest analysis and
adopt an open entry policy as discussed below.

     34.  We find that our revised dominant carrier safeguards, together with our "No Special
Concessions" requirement, discussed below, will sufficiently address competitive concerns resulting from
foreign participation in U.S. telecommunications markets.  Further, we conclude that our settlement rate
benchmarks conditions will provide an effective regulatory tool in removing incentives and reducing the
ability of foreign carriers to engage in anticompetitive behavior in the U.S. international services market. 
In addition, the Commission has various tools at its disposal to deter anticompetitive conduct.  It possesses
the power to impose fines and forfeitures and to condition authorizations where necessary to ensure
compliance with our rules and policies.  Enforcement of antitrust laws is also available to remedy
anticompetitive conduct or effects.  We find that, as a result of increased competition and the development
of effective regulatory regimes in foreign countries, foreign telecommunications carriers will possess far
less market power than they did when the ECO test was adopted in 1995.  We therefore find that we can
rely on our competitive safeguards, instead of our existing ECO framework, to address concerns of
anticompetitive behavior.  

     35.  We also find that there are significant public interest benefits from removing the ECO test. 
As we stated in the Notice, eliminating the ECO test will significantly reduce the time and regulatory
burden associated with foreign entry into the U.S. market.  Application of the ECO analysis has required
substantial commitments of time and resources by applicants and the Commission.  We also find that entry
by foreign carriers will stimulate competition in the U.S. market for international services, increasing
pressure on existing carriers to lower prices and improve quality of service.  We therefore find that
eliminating the ECO test will result in significant benefits to consumers and industry.

     36.  AT&T opposes our proposal to remove the ECO test.  It argues that the WTO Basic
Telecom Agreement does little to constrain the market power of carriers from a majority of WTO
Member.  It states that countries that have made limited commitments or no commitments will continue to
pose a significant threat of anticompetitive conduct and that the WTO Basic Telecom Agreement does not
justify removing restrictions for these countries.  It also argues that, regardless of a country's commitment,
competitive dangers continue to exist until WTO commitments are fully and adequately fulfilled.  Rather
than removing the ECO test, it urges the Commission to adopt a modified ECO test that focuses on "the
extent to which an applicant's ability to abuse its market power is limited by effective competition." 
AT&T bases its concern on its statement that only "25 countries would meet the ECO requirements by
2000, and 39 countries would do so in total by the time all WTO commitments are effective in 2013". 
Other parties generally oppose considering the extent to which a country has implemented its commitment
in determining whether to grant entry to a foreign applicant.  

     37.  We do not find it necessary or appropriate to retain the ECO test or examine the extent to
which a WTO Member has made a market opening commitment or the extent to which that commitment
has been implemented in determining whether a carrier from that country should enter the U.S. market.  For
the reasons discussed below, the likelihood of harm from carriers with market power in countries that have
not adopted a commitment to open their markets is reduced as a result of the WTO Basic Telecom
Agreement.  We also find that treating carriers differently from countries that have made limited or no
commitments could be viewed as inconsistent with our international obligations.  

     38.  We believe that increased competition in global markets will increase pressure on all WTO
Members to liberalize their telecommunications markets, including those that have made no commitments
or limited commitments.  After January 1, 1998, the largest telecommunications markets in the world will
be open to competition, and we expect that new international carriers will develop in many of those
markets.  Those carriers and their governments will likely pressure foreign governments that have not
liberalized not to tolerate anticompetitive abuses.  We also expect that, as members of the global trading
regime, WTO Members will be subject to this pressure to a greater degree than non-WTO countries.  A key
consideration is that, as countries that have not made commitments begin to liberalize, the GATS
obligations that apply to all WTO Members will require WTO Members to treat foreign carriers from
different countries in the same manner.   We also find that the threat of harm from carriers from countries
that have made limited or no commitments may not justify retaining the ECO test.  The countries that
AT&T identifies as not committing to offer effective competitive opportunities in the near future account
for less than 5 percent of the telecommunications revenue of WTO Member.

     39.  Moreover, we find that the potential for harm from carriers from countries that have not
implemented their market-opening commitments to allow competition in their telecommunications markets
does not justify imposing the strict limitations on entry that AT&T proposes.  We note that USTR plans to
monitor other Members' compliance with their WTO obligations and to pursue consultation and dispute
settlement where noncompliance is found.  Where a WTO Member fails to implement its commitment, the
United States has the ability to enforce a Member's commitment.  Second, we find that it is in the interest
of our trading partners implementing their commitments to engage in similar oversight, along with the
United States, over third countries.  

     40.  We also find that discriminating among foreign applicants based on the quality of their WTO
commitment or the extent of the implementation of their commitment could raise serious GATS concerns. 
Adopting such a policy could damage relations with our trading partners and serve as a poor example to
other countries also implementing their market opening commitments.  As discussed below, Article II of the
GATS requires WTO Members to accord "service and service suppliers of any other Member treatment no
less favorable treatment than that it accords to like services and service suppliers of any other country." 
Adopting a policy that limits access to the U.S. market by telecommunications carriers purely based on the
existence or quality of a country's commitment would be viewed by many WTO Members as a violation of
the GATS.  In contrast to our policy that considers the competitive impact of a firm's entry into the U.S.
market, a policy of discrimination among carriers based on their WTO commitment alone could be
interpreted by other WTO Members as discriminating among "like" service suppliers based solely on
foreign market conditions.  This could be perceived as a violation of Article II of the GATS.  Regardless
of whether AT&T's proposal that we retain the ECO test is consistent with U.S. GATS obligations, we find
that the example the United States sets to other WTO Members would be undermined by adoption of
AT&T's proposal.  The success of the WTO Basic Telecom Agreement depends on implementation of the
market-opening commitments of our trading partners.  The United States must lead the way in prompt,
effective implementation of our commitments.  If the United States is perceived as failing to implement its
commitment, other countries would likely limit implementation of their own commitments.  We find such a
result would deny the benefits of open global markets and increased competition to U.S. carriers and
consumers, and is not in the public interest.

     41.  We also find that our revised safeguards will prove to be powerful tools against
anticompetitive conduct.  We are confident that our benchmarks condition and regulatory safeguards will
be effective at addressing most cases of anticompetitive conduct.  As discussed below, our revised
reporting, No Special Concessions, and separate affiliate requirements will improve our ability to monitor
carriers with the ability to exercise foreign market power.  We also find that our enforcement mechanism
for detecting market distortions by a foreign-affiliated telecommunications carrier will be effective at
deterring anticompetitive conduct.  In the Benchmarks Order, the Commission adopted a trigger to
determine when a market distortion has occurred, at which time enforcement action will be taken.  In
addition, the Commission may condition grants of authority for carriers found likely to engage in
anticompetitive conduct or impose sanctions on carriers failing to comply with Commission rules. 

     42.  We therefore find little justification for imposing a strict entry standard such as AT&T
advocates.  Further, adopting AT&T's proposal would require that we engage in an in-depth, fact-intensive
analysis of the applicant's market that would be an unnecessary burden on the applicant and a drain on the
scarce resources of the Commission.  Such a standard would also set a poor example to those countries that
the U.S. government has urged to open their markets and could damage U.S. relations with our trading
partners by creating a perceived barrier to entry.  More importantly, AT&T's entry standard would
significantly restrict access to the U.S. market, denying U.S. consumers the competitive benefits of foreign
carrier entry.

     43.  We find that the goals underlying the ECO test will largely be achieved by implementation of
the WTO Basic Telecom Agreement, and that new technologies, alternative traffic routing options, and
settlement rate reform further increase the pressure to liberalize and support competition.  We therefore
find that it is no longer necessary to include the ECO analysis as a part of our overall public interest
finding for Section 214 applications, common carrier radio license applications to exceed the 25 percent
indirect foreign ownership benchmark in Section 310(b)(4) and applications for cable landing licenses. 
Because we are removing the ECO test, there is no need to address the issue of whether it is GATS
consistent.  We find that removing the ECO test is also likely to have the effect of providing a positive
example to foreign countries that have committed to open their markets to competition.  It is our
expectation that the market-opening measures we take here to implement United States' WTO commitments
will serve as an example for other countries that are implementing their commitments as well.

             2. Public Interest Analysis
 
     44.  The Commission is under a statutory obligation to ensure that grant of Section 214 authority
is consistent with the public convenience and necessity and that grant of a Section 310(b)(4) application
to exceed the 25 percent indirect foreign ownership benchmark is consistent with the public interest.  In
both cases, the Commission has considered the overall impact of the grant of authority on the public
interest.  The Commission has made this determination with respect to all applications, from both foreign
and domestic applicants, since the Communications Act was passed in 1934.  

     45.  Prior to adoption of the Foreign Carrier Entry Order, the Commission evaluated foreign
ownership in U.S. telecommunications carriers and radio licensees on an ad hoc, case-by-case basis.  Each
application from a foreign entity was evaluated under our public interest analysis.  For carriers seeking
authority to provide facilities-based or resold telecommunications services, the Commission balanced its
policy in favor of open market entry against the potential for undue discrimination by the foreign parent
against unaffiliated U.S. carriers.  For applicants seeking authority to exceed the 25 percent indirect
foreign ownership benchmark in a common carrier radio licensee under Section 310(b)(4) of the Act, the
Commission considered national security issues, the extent of alien participation, the type of radio license
and the extent to which the investment would further the Commission's policies.  At that time, the
Commission also engaged in a similar analysis for cable landing licenses.

     46.  In the Foreign Carrier Entry Order, the Commission adopted the ECO test as an important
part of the Commission's public interest analysis governing grant of a Section 214 or 310(b)(4) application. 
The Commission also articulated additional public interest factors that it would consider relevant to either
the grant or denial of foreign carrier applications.  These factors include the general significance of the
proposed entry to the promotion of competition in the U.S. communications market, the presence of cost-
based accounting rates, and any national security, law enforcement, foreign policy or trade concerns raised
by the Executive Branch.  Although we find that we should no longer engage in the ECO analysis, for the
reasons detailed below, we are statutorily obligated to evaluate all applications to ensure that they are
consistent with the public interest.  

                       a.     Presumption in Favor of Entry

     Background

     47.  In the Foreign Carrier Entry Order, the Commission found that the ECO analysis should
serve as an important element in the Commission's public interest analysis.  In the Notice, the Commission
tentatively concluded that the commitments of 68 other governments will, when fulfilled, significantly
reduce the risk of anticompetitive effects of entry by a foreign applicant, and that post-entry safeguards will
be able to protect competition in the U.S. telecommunications market.  The Commission proposed to
remove the ECO test from our existing public interest analysis and replace it with a rebuttable presumption
in favor of entry for applicants from WTO Members.  The Commission tentatively concluded that the
dominant carrier safeguards and conditions on grant of authority would normally be sufficient to address
competitive concerns.  If an application posed a very high risk to competition, the Commission proposed
that it would reserve the right to condition a grant of authority or, in exceptional cases, deny an
application.

     Positions of the Parties

     48.  The reaction of commenters to our proposal to adopt a rebuttable presumption in favor of
entry was divided.  Sprint, BT North America, and others favor adoption of the proposed presumption. 
Sprint states, however, that the standard should be rebuttable "only in exceptional circumstances" and may
be irrebuttable in fact.  AT&T and WorldCom argue that we should not adopt a presumption in favor of
entry but should instead maintain a case-by-case public interest analysis with no presumption.  Others,
however, oppose our proposal on the grounds that there is no basis for any restrictions on foreign entry for
applicants from WTO countries.  For instance, Deutsche Telekom argues that if regulatory safeguards are
sufficient to allow the Commission to eliminate ECO, then they are sufficient to allow the Commission to
adopt an unrestricted open entry policy.  

     49.  Reaction to our proposal to reserve the right to deny an application that poses a "very high
risk to competition" was mixed.  Foreign carriers in general argue that the standard is vague and that our
proposal accords too much discretion to the Commission.  The European Commission  expresses its
concern that foreign companies seeking to enter the U.S. market "would be subject to challenges from their
competitors based on unclear conditions and criteria."  GTE argues that we should rely on countries'
commitments to adopt the Reference Paper to prevent anticompetitive conduct and is concerned that
denying entry for competitive reasons may serve as a poor example to other countries that have yet to
implement their WTO commitments.  NTIA agrees with our proposal.  A number of parties argue that
our proposals are inconsistent with U.S. GATS obligations.  AT&T and WorldCom object to our
proposal as well, but on the alternative ground that the "very high risk to competition" standard, as
articulated in the Notice, is not sufficient to protect existing U.S. competitors.  Both carriers support a
standard that would deny applications from carriers that present "substantial" competitive harm, rather than
the proposed "very high risk to competition" standard. 

     Discussion

     50.  We find that adopting the Commission's proposal to replace the ECO test with a
presumption in favor of entry will best balance the concerns articulated by the parties.  The changes
resulting from implementation of WTO Members' commitments, along with new technologies and routing
configurations, will open foreign markets and increase competition in the global telecommunications service
market.  Further, settlement rate reform and our improved safeguards will more adequately protect against
anticompetitive conduct.  We thus find that a presumption in favor of entry will best advance the public
interest.  We therefore adopt, as a factor in our public interest analysis, a rebuttable presumption that
applications for Section 214 authority from carriers from WTO Members do not pose concerns that would
justify denial of an application on competition grounds.  We also adopt a rebuttable presumption that such
competitive concerns are not raised by applications to land and operate submarine cables from WTO
Members or by indirect ownership by entities from WTO Members of common carrier and aeronautical
radio licensees under Section 310(b)(4) of the Act.  Because we expect that other public interest issues
similarly will be raised only in very rare circumstances, we find that adopting a rebuttable presumption in
favor of entry will allow the Commission to grant the vast majority of applications swiftly, while
maintaining the oversight necessary to ensure that entry by an applicant from a WTO Member is consistent
with the public interest.

     51.   Nevertheless, in exceptional circumstances, entry into the U.S. market by an applicant
affiliated with a foreign telecommunications carrier from a WTO Member may pose competitive risks by
virtue of the applicant's ability to exercise market power in a relevant foreign market.  As discussed in the
Notice, an applicant seeking to enter the U.S. market that is affiliated with a telecommunications carrier
that possesses the ability to exercise market power in the foreign market for facilities and services
necessary for the provision of U.S. international services may have the ability to discriminate in favor of its
U.S. affiliate to the detriment of unaffiliated U.S. carriers.  The foreign carrier could raise the costs of its
U.S. affiliate's rivals through discriminatory pricing or by discriminating in provisioning and maintenance
intervals or quality of service.  We find that our safeguards will be adequate to detect and deter such
conduct in virtually all circumstances.  We cannot rule out the possibility, however, that these measures
would be ineffective at preventing anticompetitive conduct in a particular context, and that as a result a
carrier would be able to raise the costs of its rivals to the degree that end-user customers would be injured. 
In such circumstances, we could find it necessary to impose certain conditions on the grant of authority. 
Such conditions could entail additional reporting requirements, prior approval for circuit additions, or other
measures designed to ensure that a carrier with the ability to exercise market power in a relevant foreign
market does not use that power to harm consumers in the U.S. market.  In addition, in the exceptional case
where an application poses a very high risk to competition in the U.S. market, where our safeguards and
conditions would be ineffective, we reserve the right to deny an application.  We therefore will presume that
an application does not pose a risk of competitive harm that would justify denial unless it is shown that
granting the application would pose such a very high risk to competition. 

     52.  In order to pose a risk to competition in the U.S. market that cannot be addressed by our
safeguards or conditions, and would therefore warrant denial of a license, an applicant must possess the
ability to harm competition in the U.S. market in addition to the ability to exercise its foreign market
power.  For instance, we find it highly unlikely that acquisition of less than a controlling interest in a U.S.
carrier by a foreign carrier would pose a competitive risk that we could not address.  Moreover, we find it
highly unlikely that a carrier from a WTO Member country that has open, competitive markets and a
procompetitive regulatory regime in place could pose a very high risk to competition.  We also do not
expect that an applicant would be denied entry "based solely on market share."  We would, however, as
stated in the Notice, find that entry poses a very high risk to competition that would justify denial of an
authorization where a carrier would have the ability upon entry, or shortly thereafter, to raise prices by
restricting output.

     53.  We are also concerned with the impact of granting an authorization to an applicant that is
unlikely to abide by the Commission's rules and policies.  The past behavior of an applicant may indicate
that it would fail to comply with the Commission's competitive safeguards and other rules and whose
behavior, as a result, could damage competition in the U.S. market and otherwise negatively impact the
public interest.  The public interest may therefore require, in a particular case, that we deny the application
of a carrier that has engaged in adjudicated violations of Commission rules, U.S. antitrust or other
competition laws, or in demonstrated fraudulent or other criminal conduct.  This approach is consistent
with our treatment of domestic applicants.  We find that such conduct demonstrates that a carrier is likely
to evade our safeguards and thus may pose a very high risk to competition. 

     54.  We note some commenters' concerns that reserving the right to deny a license where we are
otherwise unable to address a risk of anticompetitive harm might not provide applicants with the certainty
they desire, and could create the potential for petitions to deny that could delay the granting of
applications.  We recognize that certainty and predictability are vitally important for telecommunications
businesses.  In fact, as discussed below, we will place most international Section 214 applications and
Section 310(b)(4) requests on streamlined processing and will normally resolve petitions to deny within 90
days.  We therefore expect that, except in unusual circumstances, all applications filed by foreign-
affiliated entities will be expeditiously granted within a specific time frame.  We also find that adopting a
presumption in favor of entry will have significant public interest benefits.  This approach will free the
Commission and parties from engaging in a detailed, fact-intensive analysis that is time consuming and a
drain on resources.  The resulting swift processing of applications will therefore speed entry of new
competitors into the U.S. market, thus stimulating competition and benefitting U.S. consumers.  We also
find that, by expediting foreign entry, we will give applicants greater certainty regarding their ability to
enter into U.S. markets.  Nonetheless, we are unwilling to foreclose entirely the possibility, that in
exceptional circumstances, we may have to attach additional conditions to (or even deny) a particular
application.

     55.  We disagree with those parties who advocate an unrestricted entry approach.  Under the
approach urged by Deutsche Telekom, Telefnica Internacional, and others, risk to competition in the U.S.
market and potential harm to consumers should play no role in our analysis.  Deutsche Telekom's
argument that safeguards are sufficient to eliminate all oversight over foreign carrier affiliation is without
merit.  Adopting the position that an applicant's entry could never pose a risk to competition in the U.S.
market, or that we would ignore other potential impacts on the public interest, would be contrary to our
statutory mandate to ensure that provision of service by any applicant, foreign or domestic, is consistent
with the public interest, convenience and necessity.

     56.  We are not, on the other hand, persuaded by the comments of some U.S. carriers that we
should decline to adopt a presumption in favor of entry into the U.S. market.  As discussed above, AT&T
and WorldCom argue that we should instead deny applications from carriers that present a likelihood of
"substantial harm."  Ameritech contends that our proposed standard would have a "chilling effect" on
petitions to deny, as it sets such a high standard.  These parties assert that the WTO Basic Telecom
Agreement does not remove the potential for anticompetitive conduct from a large number of carriers from
WTO Members.  As discussed above, we find that the procompetitive changes in global
telecommunications markets resulting from the WTO accord substantially reduce the need to engage in a
detailed analysis of the competitive conditions of an applicant's market.  The worldwide simultaneous
opening of telecommunications markets, coupled with the privatization and reform of telecommunications
carriers that are currently government-owned, promises to alter dramatically the global market for
telecommunications services.  We also believe that our improved safeguards will help reduce the potential
for anticompetitive conduct.  Moreover, we find that adopting the proposed "substantial harm" standard
could undercut the commitments made under the GATS and WTO Basic Telecom Agreement.  We
therefore decline to adopt the proposal of AT&T and WorldCom that we deny applications of carriers that
pose a "substantial" risk to competition.  Indeed, we seek to avoid protracted, fact-specific investigations
that may accompany petitions to deny that would have the effect of limiting entry to the U.S. market by
applicants subject to such petitions. 

     57.  We also find no merit to WorldCom's argument that our presumption would treat foreign
carriers more favorably than U.S. carriers.  WorldCom apparently reads our proposal to adopt a
presumption in favor of entry to mean that we would presume that foreign applicants may enter the U.S.
market without additional scrutiny, while U.S. carriers would be subject to a case-by-case analysis under
our public interest standard.  This is not the case.  We clarify here that foreign carriers are subject to the
same public interest standard as U.S. carriers.  Our presumption in favor of entry for foreign participation
applies only to competition concerns that may arise because of a foreign carrier's market power in a foreign
market.  We presume that foreign entry will not pose competitive concerns absent a showing that, in an
exceptional case, our safeguards and potential conditions attached to the grant of authority are not
sufficient to prevent a carrier from creating competitive harms in our market.  We are concerned about the
potential for the misuse of market power in both the foreign and domestic contexts.  The measures we
apply to protect against such harm may differ, however, based on the source and potential impact of the
harm.  Nevertheless, our approach here favors neither foreign nor domestic applicants.

     58.  Finally, we find no merit to BellSouth's argument that we should not apply a different
standard to foreign applicants seeking to enter the U.S. market than we apply to Bell Operating Companies
(BOCs) seeking to enter the domestic in-region interLATA services market.  BellSouth contends that it
would be "irrational" for the Commission to adopt a presumption that foreign applicants may enter the U.S.
international services market based on the likelihood of open markets "while continuing to deny the Bell
companies a chance to enter the interexchange market when their markets are in fact open."  We find
nothing irrational about applying different entry standards to address different risks of competitive harm. 
We find that allowing an applicant from a WTO Member to the enter the U.S. international services market
poses neither the same likelihood nor potential degree of harm that entry by a BOC into the market for in-
region interLATA service poses.  For example, we found in the BT/MCI Merger Order that BT is unlikely
to become among the most significant market participants in the U.S.-U.K. outbound international services
market, while BOCs possess the capability and incentive, upon authorization, to become among the most
significant market participants in this market.  Moreover, the BOCs are subject to a detailed statutory
regime that governs their entry into in-region interLATA service under Section 271 of the Act.  In
considering entry by a foreign applicant into the U.S. international services market, on the other hand, the
Commission is required to ensure that such entry is consistent with the public convenience and necessity. 
Although entry by both types of carriers into new markets may be analogous in a general sense, we do not
find that there are sufficient similarities between BOCs and foreign carriers to warrant identical treatment.

                       b.     Other Public Interest Factors

     Background

     59.  The Commission has traditionally considered other public interest factors in evaluating
applications from parties affiliated with foreign entities.  In the Foreign Carrier Entry Order, the
Commission stated that it would consider other public interest factors relevant to foreign carrier
applications under Section 214 and Section 310(b)(4).  Those factors include the general significance of the
proposed entry to the promotion of competition in the U.S. communications market, the presence of cost-
based accounting rates, and any national security, law enforcement, foreign policy and trade policy
concerns brought to our attention by the Executive Branch.  In general, the Commission has worked
closely with Executive Branch agencies to ensure that our actions and policies affecting international
telecommunications do not impede or thwart the policies of the Executive Branch.  The Commission
proposed in the Notice that we would continue to consider any national security, law enforcement, foreign
policy, and trade concerns raised by the Executive Branch in determining whether to grant or deny an
application.

     Positions of the Parties

     60.  Commenters were sharply divided over whether the Commission should consider other public
interest factors, including national security, law enforcement, foreign policy and trade concerns, in
evaluating applications.  In general, U.S. government agencies strongly urged the Commission to maintain
its existing policy regarding Executive Branch input.  DOD and the FBI argue that no presumption should
be applied to national security issues.  They argue that every application should be reviewed on its own
facts, issues should be affirmatively resolved, and the FCC should defer to the Executive Branch's findings
on national security issues.  USTR states that we should continue to accord deference to appropriate
Executive Branch agencies on the issues of national security, law enforcement, foreign policy, and trade
policy.  Foreign carriers, however, object to the denial of a license based on foreign policy and trade
concerns, but generally accept the need for the Commission to accord deference to the Executive Branch on
national security and law enforcement issues.  Deutsche Telekom, however objects to any consideration
of national security, law enforcement, foreign policy, and trade policy grounds outside of the narrowly
defined national security exceptions contained in Article XIV of the GATS.

     Discussion

     61.   We conclude we should continue to find national security, law enforcement, foreign policy
and trade policy concerns relevant to our decision to grant or deny Section 214 and 310(b)(4) applications
from applicants from WTO Member.  As we found in the Foreign Carrier Entry Order, our public
interest analysis would benefit from input by the Executive Branch addressing these issues.

      62. We recognize that other federal agencies have specific expertise in matters that may be
relevant in particular cases.  In any given case, an application by a foreign applicant may raise questions,
for example, about this country's international treaty obligations.  In addition, we realize that foreign
participation in the U.S. telecommunications market may implicate significant national security or law
enforcement issues uniquely within the expertise of the Executive Branch.  The Commission will consider
any such legitimate concerns as we undertake our own independent analyses of whether grant of a
particular authorization is in the public interest.

     63.  We emphasize, however, that we expect national security, law enforcement, foreign policy
and trade policy concerns to be raised only in very rare circumstances.  Contrary to the fears of some
commenters, the scope of concerns that the Executive Branch will raise in the context of applications for
Section 214 authority, cable landing licenses and applications to exceed the 25 percent indirect foreign
ownership benchmark in Section 310(b)(4) of the Act is narrow and well defined.  National security and
law enforcement concerns have long been treated as important public interest factors by this
Commission.  We note that, during our two years' experience in administering the Foreign Carrier Entry 
Order, with approximately 140 authorizations granted to carriers with foreign ownership, the Executive
Branch has never asked the Commission to deny an application on national security or law enforcement
grounds.  Similarly, we note that the Executive Branch, during the last two years, has never informed us
that a foreign policy concern dictated that a Section 214 or 310(b)(4) application be denied.  We expect this
pattern to continue, such that the circumstances in which the Executive Branch would advise us that a
pending matter affects national security, law enforcement, or obligations arising from international
agreements to which the United States is a party will be quite rare.  Any such input would, however, be
important to our public interest analysis of a particular application.  We thus will continue to accord
deference to the expertise of Executive Branch agencies in identifying and interpreting issues of concern
related to national security, law enforcement, and foreign policy that are relevant to an application pending
before us.

     64.  USTR has asked, after coordination with other Executive Branch agencies, the Commission
on four occasions during the last two years not to act on certain applications because of  trade concerns. 
We note that all these requests occurred before the effective date of the WTO Basic Telecom Agreement. 
The Agreement changes the U.S. Government's trade obligations affecting basic telecommunications
services.  USTR has indicated that it expects any Executive Branch concerns communicated to the
Commission under our new rules to be fully consistent with U.S. law and international obligations,
including the WTO Basic Telecom Agreement.  USTR has also specified the scope of its authority to
communicate trade policy concerns to the Commission in its reply comments.  In light of the WTO Basic
Telecom Agreement, we expect to receive input from USTR on specific applications far less often than we
have in the past.  We will continue to evaluate any such input as part of our public interest determination,
consistent with U.S. law and U.S. international obligations, including the WTO Basic Telecom Agreement.

     65.  In general, objections to the Commission considering issues raised by the Executive Branch
regarding national security, law enforcement, foreign policy and trade concerns have focused on the
consistency of this approach with the GATS.  As discussed below, taking these concerns into account is
consistent with the GATS.  The Department of Defense and FBI express concern that the proposed entry
standard would require them to overcome a presumption in favor of granting an application.  As
discussed above, we presume that an application from a WTO Member applicant does not pose a risk of
anticompetitive harm that would justify denial.  We do not, however, presume that an application poses
no national security, law enforcement, foreign policy or trade concerns.  We will continue to consider these
concerns independent of our competition analysis.  

     66.  We emphasize that the Commission will make an independent decision on applications to be
considered and will evaluate concerns raised by the Executive Branch agencies in light of all the issues
raised (and comments in response) in the context of a particular application.  We expect that the Executive
Branch will advise us of concerns relating to national security, law enforcement, foreign policy, and trade
concerns only in very rare circumstances.  Any such advice must occur only after appropriate coordination
among Executive Branch agencies, must be  communicated in writing, and will be part of the public file in
the relevant proceeding.

     B.   Section 214 Entry Standard

             1. Facilities-Based, Resold Switched and Resold Non-interconnected Private Lines

     Background

     67.  In the Foreign Carrier Entry Order, we applied the ECO analysis to foreign carrier
applicants for Section 214 authority that seek to provide facilities-based service as well as service via
switched resale and the resale of non-interconnected private lines to destination markets in which they have
market power.  The Commission has also applied the ECO test to all planned investment in U.S. carriers by
foreign carriers above a 25 percent threshold, or at a controlling interest at any level.  The Commission
tentatively concluded in the Notice that changes in global telecommunications markets resulting from the
WTO commitments made by 68 other governments would substantially achieve our goals in adopting the
ECO analysis, and that it was no longer necessary.  Instead, the Commission tentatively concluded that it
should apply its public interest analysis and presume that an application does not pose competitive risks.

     Positions of the Parties

     68.  Most parties agree that we should no longer apply the ECO test to applications from foreign
carriers from WTO Members seeking Section 214 authority to provide facilities-based, switched resale, or
resold non-interconnected private line service.  As discussed generally above, there is significant
disagreement regarding our public interest analysis and our proposed rebuttable presumption in favor of
entry.   

     Discussion

     69.  We find that it is no longer necessary or appropriate to retain the ECO analysis for foreign
carriers from WTO Members seeking authority to provide facilities-based service, resale of switched
services, or resale of non-interconnected private lines.  As discussed above, we find that the open markets
that will result from implementation of the WTO Basic Telecom Agreement, along with changes in
technology and our improved regulatory safeguards, remove the need for the ECO test.  Instead, foreign
carriers from WTO Member countries seeking such authority will be subject to the same public interest
standard we apply to all U.S. carriers.  We also apply, as discussed above, a presumption in favor of entry,
which presumes that a carrier's foreign ownership does not pose competitive concerns.  Although we are
cognizant of the danger that foreign carriers with market power may be able to leverage their foreign
market power into the U.S. market, we find that increased competition in global markets, together with the
safeguards we adopt below, will generally prevent such anticompetitive conduct.  In addition, the
Commission possesses a variety of sanctions it will apply to carriers found engaging in anticompetitive
conduct.  Thus, absent serious concerns raised by the Executive Branch regarding national security, law
enforcement, foreign policy or trade issues or, in the exceptional case where a carrier's entry presents a very
high risk to competition as discussed above, we will grant such applications expeditiously. 
 
     70.  We also conclude that our entry policy, discussed above, should apply equally to U.S. carrier
investments in foreign carriers as well as foreign carrier investments in U.S. carriers.  The Commission
previously found in the Foreign Carrier Entry Order that it was unnecessary and contrary to the goals of
that proceeding to apply the ECO test to U.S carrier investments in foreign carriers.  The Commission
determined that it had greater ability to redress anticompetitive harm by the U.S. carrier through its licenses
and certifications in the United States.  It also found that the ECO test would frustrate U.S. policy of
encouraging foreign investment by U.S. companies.  Our experience indicates that there is a likelihood of
competitive harm from an international carrier operating in the U.S. market that possesses sufficient
foreign market power in a market for services necessary for the provision of U.S. international services to
adversely affect competition on the U.S. end of the route, regardless of whether the entity is U.S. or foreign
owned.  Indeed, we have on several occasions scrutinized U.S. carrier investments in foreign carriers to
ensure that they would not use their control of foreign facilities and services to discriminate against
unaffiliated U.S. international carriers.  We find that our new entry standard will rarely, if ever, prohibit
a U.S. carrier from making a greater than 25 percent investment in a foreign carrier, and therefore applying
the entry standard in this manner will not run counter to U.S. policy of encouraging investment in foreign
countries.  We also find that continuing to treat foreign carrier investments in U.S. carriers differently from
U.S. carrier investments in foreign carriers could be viewed as inconsistent with U.S. GATS obligations.

     71.  We also seek to respond to two specific issues raised by Sprint.  Sprint notes that, as a result
of the Commission's decision in the Sprint Order, Sprint remains subject to the conditions imposed as a
result of the investments of Deutsche Telekom and France Telecom.  We clarify that some of these
conditions are, or have been, addressed in a separate proceeding.  To the extent that conditions imposed
in the Sprint Order are not addressed in those proceedings Sprint may seek removal of the remaining
conditions by filing a request with the Commission.  Sprint also argues that, in light of this Order,
Deutsche Telekom and France Telecom should be free to acquire up to a non-controlling interest in Sprint
without prior Commission approval.  Sprint is subject to the rules we adopt here like any other applicant
and must seek prior approval for an increase in its foreign ownership.
 
             2. Provision of Switched Services over Private Lines 

     Background

     72.  The Commission has applied an "equivalency" analysis since 1991 to applications from all
carriers that seek to provide switched, basic telecommunications services using resold international private
lines (also known as international simple resale or ISR).  The equivalency test requires that, before
granting such applications, the Commission make a finding that the country at the foreign end of the private
line affords U.S. carriers resale opportunities equivalent to those available under U.S. law.  The Foreign
Carrier Entry Order extended this test, with limited exception, to carriers using their authorized facilities-
based private lines.  The Foreign Carrier Entry Order also restated this equivalency test in the same
manner as the ECO test.  We adopted the equivalency requirement in order to prevent "one-way bypass"
of the settlements regime by routing only inbound traffic over private lines.  By engaging in such a practice,
a foreign carrier is able to avoid making settlement payments to a U.S. carrier for inbound calls, but may
continue to receive such payments for outbound calls.  The Commission has found that such "one-way
bypass" could increase U.S. rates and distort competition.

     73.  In the Notice, the Commission tentatively concluded that the WTO Basic Telecom
Agreement substantially reduces the threat of one-way bypass.  It also tentatively concluded, for the
same reasons discussed above for other international services, that it is no longer necessary or desirable to
continue to apply the equivalency test to pending or future Section 214 applications to provide switched,
basic services over private lines between the United States and WTO Member countries.  We also note
that in the Benchmarks Order, the Commission required that carriers seeking to provide switched services
over resold or facilities-based international private lines demonstrate that settlement rates for at least 50
percent of the settled, U.S.-billed traffic on the route be at or below the appropriate settlement rate
benchmark.  We committed to take prompt action in the event of a market distortion.  

     Positions of the Parties

     74.  Most parties addressing this issue support the Commission's proposal.  Viatel states that
removing the ECO test for the provision of switched service over private lines is timely, appropriate and
will promote competition.  Frontier states that one-way bypass is a relatively short-term concern and the
Commission should eliminate the ECO analysis for service provided to all countries, including non-WTO
countries.  Sprint supports removing the ECO test, but stresses that the benchmark settlement rate
condition is important in removing incentives to engage in one-way bypass. 

     75.  AT&T, however, opposes removing the ECO/equivalency analysis for switched services
provided over private lines.  It argues that the benchmarks settlement rate condition and our regulatory
safeguards will be insufficient to prevent one-way bypass even after the WTO Basic Telecom Agreement
goes into effect.  It advocates requiring settlement rates at cost-based levels or that the Commission apply
the same criteria the Notice proposed to apply to flexible settlement rate arrangements (i.e., a presumption
in favor of granting a flexibility petition that could be rebutted by a showing that the foreign carrier that is
party to the alternative settlement arrangement does not face competition from multiple facilities-based
carriers).  Finally, AT&T also argues that only inbound ISR should be regulated and that U.S. carriers
should be free to bypass high foreign settlement rates through the use of outbound switched services over
private lines. We also note that in the Benchmarks proceeding, several commenters supported allowing
carriers to provide service to markets that do not meet our benchmark settlement rate condition, but that do
satisfy our equivalency analysis.  We stated there that we would address those commenters' concerns in this
proceeding. 

     Discussion

     76.  For the reasons explained below, we find that it is no longer necessary or appropriate to
apply the equivalency test for carriers seeking to provide switched services over private lines that terminate
in WTO Member countries.  As a result of the market opening commitments of WTO Members and the
resulting opening of global markets, as well as the adoption of our benchmark settlement rate condition, we
find that "one-way bypass" will be far less of a concern as countries' WTO commitments are implemented.  

     77.  In the Commission's International Resale Order, we concluded that the public interest in
cost-based international telecommunications services would be served by the adoption of policies that
encourage resale.  We find that there continue to be great benefits resulting from international private line
resale and the carriage of switched services over facilities-based private lines.  Because these services carry
traffic outside of the traditional settlement rate system, carriers are able to offer service at reduced costs. 
The result is strong pressure to lower settlement rates and reduce consumer prices. 

     78.  The Commission has long been concerned, however, about one-way bypass.  One-way
bypass exacerbates the settlements deficit and ultimately may lead to higher prices for consumers.  In the
International Resale Order, the Commission imposed the equivalency requirement to ensure that U.S.
carriers and consumers would not be injured by our pro-resale policy.  Contrary to Viatel's assertion, the
fact that we have not had to take action against carriers for one-way bypass does not mean that one-way
bypass is not a problem, but rather that our equivalency policy has been effective in preventing such
conduct.  Despite the increase in global competition that will result from implementation of the WTO
Basic Telecom Agreement, the potential for one-way bypass in the U.S. international services market still
exists in markets that are not yet fully open to competition.  We find, however, that the settlement rate
benchmark condition we adopted in our Benchmarks Order is sufficient to address our concern about one-
way bypass.  

     79.  Pursuant to the Section 214 authorization condition adopted in the Benchmarks Order, we
will authorize carriers to provide switched services over international facilities-based or resold private
lines on the condition that settlement rates for at least 50 percent of the settled U.S.-billed traffic on the
route or routes in question are at or below the relevant benchmark adopted in that Order.  If, after a carrier
has commenced providing service, we learn that one-way bypass is occurring, we will take enforcement
action.  That enforcement action may include a requirement that carriers be prohibited from using their
authorizations to provide switched services over private lines until settlement rates for at least 50 percent of
the settled U.S.-billed traffic on the route are at a level equal to or below the best practice rate we adopted
in the Benchmarks Order, $0.08, or a revocation of carriers' authorizations to provide service.  We
adopted a rebuttable presumption that one-way bypass is occurring if the percentage of outbound traffic
relative to inbound traffic increases by 10 or more percent in two successive quarterly measurement periods
and reserved the right to investigate other shifts in the inbound/outbound ratio to determine whether one-
way bypass is occurring.

     80.  In the Benchmarks Order, the Commission concluded that the benchmark condition would
best balance the Commission's desire to encourage the provision of switched services over private lines and
at the same time limit the potential for one-way bypass.  We do not alter that
finding here.  To the extent that carriers providing service outbound from the United States have low cost
alternatives to terminate traffic on the route in question, one-way bypass would not have a significant effect
on the U.S. settlements payment and on prices paid by U.S. consumers.  We expect that any carrier or
combination of carriers with 50 percent of the market for termination of U.S. outbound traffic would have
sufficient capacity to handle all the traffic from U.S. carriers.  We therefore find that, in light of the
commitments of our trading partners to allow entry by U.S. carriers and to require that carriers allow
interconnection of competing providers, our benchmarks condition and other safeguards are sufficient to
prevent one-way bypass and that an equivalency analysis is no longer necessary.  We will however, as
discussed above, take effective measures to ensure that carriers providing switched services over private
lines do not engage in one-way bypass.
     
     81.  We decline to adopt AT&T's proposal that we maintain the ECO/equivalency test.  AT&T
maintains that a significant danger of one-way bypass exists from carriers from WTO countries that have
not made commitments or that have made limited commitments, and that we should continue to evaluate
such applications under our equivalency analysis to ensure that carriers from those countries are unable to
distort competition in the U.S. market.  We do not agree with AT&T.  For the reasons discussed above
with regard to our general entry analysis, we expect that the increasingly competitive global environment
will encourage governments to liberalize and discourage anticompetitive conduct such as one-way bypass. 
We also find that maintaining the equivalency test for countries that have made no or limited market access
commitments is unnecessary because our benchmarks condition and accompanying enforcement measures,
along with our generally applicable safeguards, will remove incentives for one-way bypass and deter such
conduct by U.S. and foreign carriers.  We also find that maintaining the equivalency test only for countries
that have made no commitments or limited commitments could be viewed negatively by other WTO
Members and damage our trading relationships.

     82.  AT&T's proposed alternatives to the equivalency analysis are equally without merit.  AT&T
suggests that the Commission adopt a "cost-based settlement requirement," or apply the same standard for
switched services over private lines as we do for accounting rate flexibility.  We agree with AT&T that
settling all traffic on a particular route at cost-based rates would remove the incentive for one-way bypass. 
Requiring cost-based rates, however, would effectively preclude any carrier from continuing to provide
switched service over international private lines to countries currently considered equivalent because none
settle their traffic at cost.  Further, as discussed in the Benchmarks Order, we lack accurate data on foreign
carriers' costs; therefore, we would be unable, under AT&T's proposal, to determine whether a particular
rate complied with our condition.  We also note that adopting such a strict condition would seriously
restrict the provision of switched services over private lines to all but the most liberalized of countries,
eroding the capacity of this service to drive collection rates lower and settlement rates toward cost.  To the
extent incentives to engage in one-way bypass remain, the mechanism we adopted in the Benchmarks
Order for detecting one-way bypass will provide a timely remedy.  Finally, adopting AT&T's proposal
would severely restrain the ability of new entrants to provide service in the United States, denying
consumers the benefits of increased competition.  

     83.  We also decline to adopt AT&T's proposal that we require carriers that seek to provide
switched services over private lines to be subject to the same standard we adopt for allowing a flexible
settlement arrangement.  Our Flexibility Order governs carriers who wish to exchange switched traffic in
a traditional half-circuit correspondent arrangement, but in a manner that deviates from our international
settlements policy (ISP).  As discussed below, in this Order we remove the requirement that an applicant
for such a flexibility arrangement satisfy the ECO test, and instead adopt a presumption that flexibility is in
the public interest.  Our flexibility framework retains, however, measures to ensure that the discrimination
concerns upon which the ISP is based are adequately addressed.  We do not believe the same standards
or safeguards we use in the flexibility context would be appropriate to address the distinct one-way bypass
concern related to switched traffic carried over private lines.  As discussed above, we find that more
tailored safeguards, most notably the benchmark settlement rate condition, will best serve to prevent one-
way bypass, while offering carriers maximum freedom to provide switched service over private lines.  We
also find that subjecting carriers that provide switched traffic over private lines to the flexibility rules
would expose them to an additional layer of regulation, needlessly causing additional expense and delay for
carriers seeking to provide this service.

     84.  We also fail to see the merits of removing all restrictions on outbound traffic, while
maintaining our benchmarks condition and other safeguards for inbound traffic as AT&T proposes. 
Adopting AT&T's proposal would allow U.S. carriers to engage in one-way outbound bypass.  Such
carriers could terminate outbound traffic in a foreign country without making settlement payments while
collecting such payments from the foreign carrier for inbound traffic.  Although adopting this proposal
would not directly exacerbate the U.S. settlements deficit, it has other significant problems. Adopting
AT&T's proposal to allow one-way outbound bypass could funnel traffic off the settlements process to the
detriment of the foreign carrier.  Since we seek to prevent one-way inbound bypass from foreign markets,
allowing U.S. carriers to engage in this practice to foreign markets could set a poor example to countries
implementing their own WTO commitments and would run contrary to our interest in maintaining stable
relationships with our trading partners. In addition, since AT&T's proposal would allow the private line to
be interconnected to the public switched network on both ends, it would be difficult to determine whether a
carrier authorized to provide service on an outbound basis only is in actuality also providing one-way
inbound service.  We find that the danger of one-way bypass from carriers offering such an arrangement
could be significant.

     85.  We decline to adopt AT&T's proposal that we continue to apply the equivalency test to
applicants seeking to serve WTO Member countries.  We do find, however, that carriers seeking
authorization to provide switched services over private lines should be given the option of satisfying our
existing equivalency criteria, where they are unable to satisfy the benchmarks condition, as suggested by
several parties in the Benchmarks proceeding.  We adopted our benchmarks condition as a mechanism to
address one-way bypass.   There may be cases however, where a carrier could not satisfy the benchmark
condition but could satisfy the equivalency test, which, as discussed above, was adopted to prevent one-
way bypass.  In such cases, there would be no concern about one-way bypass and it would be in the
public interest to allow carriers to provide switched services over private lines.  In fact, allowing carriers to
provide switched services on equivalent routes should reduce the settlement rates on those routes to a level
well below the benchmark rate.  As we stated in the International Resale Order, the provision of switched
services over private lines exerts downward pressure on settlement rates and collection rates on both ends
of a route.   Thus, we should encourage the development of such services to the greatest extent possible
consistent with our goal of preventing the market distortions that result from one-way bypass.

     86.  We codify these policy decisions in Sections 63.17, 63.18, and 63.21 of our rules. 
Sections 63.18 and 63.21 specify our Section 214 filing requirements and certain conditions applicable to
U.S. international common carriers, respectively.  Section 63.17 permits U.S. carriers to engage in
"switched hubbing" of U.S.-inbound and U.S.-outbound switched traffic through equivalent countries in
accordance with the provisions of that rule.  Consistent with the policies adopted in this Section for the
provision of switched services over private lines between the United States and WTO Member countries,
we amend Section 63.17 to permit switched hubbing of U.S. traffic through WTO Member countries that
we have determined satisfy either our equivalency standard or our Benchmarks condition.  We also reiterate
here the Commission's general view that "the international resale policy is not undermined by the routing of
switched traffic via end-to-end private lines extending from the United States through one equivalent to a
third equivalent country."  We extend this policy to include the routing of switched traffic via end-to-end
private lines through and to WTO Member countries that we have determined meet our Benchmarks
condition.

     C.   Foreign Ownership under the Submarine Cable Landing License Act

     Background

     87.  Pursuant to Executive Order 10530, the Commission has been delegated the President's
authority to grant licenses for the landing and operation of submarine cables.  The Executive Order
requires us to obtain the approval of the State Department, and, as appropriate, to seek advice from other
Executive Branch agencies, before granting any such license.  The Notice proposed to end our policy of
applying an ECO-type analysis as part of our inquiry under Section 2 of the Submarine Cable Landing
License Act.  We tentatively concluded that, because of the market opening commitments made by other
countries in the WTO negotiations, our concerns with respect to opening foreign markets and eliminating
the opportunity for anticompetitive conduct have largely been satisfied with respect to WTO Member
countries.  We therefore proposed to eliminate the ECO test and to grant most applications unless the State
Department disapproves or there is some other compelling public interest reason, consistent with our
discretion under the Submarine Cable Landing License Act, to deny a particular application.

     88.  We sought comment on those proposals and specifically on whether there are circumstances
in which grant of a cable landing license would pose such a high risk to competition that we should exercise
our discretion to deny an application.  We also sought comment from the Executive Branch and from other
interested parties regarding what conditions should be placed on cable landing licenses.

     Positions of the Parties

     89.  Many parties' general comments regarding use of the ECO test are equally applicable in this
context, and we have considered them in that light.  This Section addresses those comments that focused
specifically on cable landing licenses.

     90.  Most parties commenting specifically on our proposals for cable landing licenses support
replacing the ECO test with an open entry policy.  Some commenters argue that we should not retain the
discretion to deny applications for other public interest reasons.  Sprint argues that if a particular
application raises concerns about risks to competition, the license should be granted subject to conditions to
guard against anticompetitive conduct.  Deutsche Telekom states that denying or conditioning a cable
landing license based upon Executive Branch preferences or "other compelling public interest reason[s]"
would violate the GATS principles involving market access, MFN, national treatment, and domestic
regulation.  France Telecom states that the Commission should not use the "compelling public interest
reasons" caveat as a way to reintroduce ECO-related factors back into the analysis.

     91.  WorldCom opposes our proposal to grant most cable landing licenses routinely.  WorldCom
is concerned that the WTO Basic Telecom Agreement has not substantially eliminated the risk that WTO
Member countries will not allow U.S. carriers to land and operate cables, and that these asymmetric market
opening commitments will significantly disadvantage U.S. carriers.  WorldCom urges us to retain adequate
discretion to consider any and all factors bearing on the public interest, including whether a cable would
raise the potential for anticompetitive leveraging of bottleneck facilities by foreign carriers.

     92.  DOD states that it is not necessary in every instance for the Commission to impose a
restriction on the ownership of cable landing stations.  DOD states that, should it have a concern in a
particular situation, it can address that concern under the procedures of Executive Order 10530. 
Alternatively, DOD states, the Commission could impose the conditions contained in the agreement that
DOD and the FBI reached with MCI Telecommunications Corporation and British Telecommunications plc
in the context of their proposed merger.  In that agreement, DOD determined that U.S. ownership of cable
landing stations was unnecessary because the companies agreed to other terms and conditions that assured
U.S. control of the facilities in the event of presidential exercise of war powers under 47 U.S.C.  606. 
DOD states that, should the Commission impose the conditions contained in that agreement, we will have
addressed all of DOD's concerns relating to cable landing stations, and no ownership restriction would be
necessary.

     Discussion

     93.  We adopt our proposal to apply our new open entry policies to applications to land and
operate submarine cables from WTO Member countries in the United States.  In general, the market
opening commitments of other WTO Member countries, together with our ability to condition both cable
landing licenses and Section 214 authorizations and to deny licenses in exceptional circumstances, render
the ECO test unnecessary.  We will continue to analyze each application in the manner described above
while seeking the approval of the State Department as required by Executive Order 10530.

     94.  We do not agree with WorldCom that remaining risks to competition require that we not
routinely grant cable landing licenses.  We anticipate that the WTO Basic Telecom Agreement will
significantly reduce the opportunities for carriers with bottleneck control on the foreign end of a cable to
harm competition in the U.S. market by acting anticompetitively.  Because 52 countries committed to
granting market access for international services, alternative routing options will almost always be
available.  Even if a particular application presents unusual risks to competition, most potential problems
can be addressed by imposing conditions on the license.

     95.  When there is a danger of inadequate common carrier capacity on submarine cables to a
particular destination, we have the authority to require that any new or existing cables be operated on a
common carrier basis.  We can also impose conditions on cable landing licenses short of requiring that they
be operated on a common carrier basis.  For example, the International Bureau recently imposed
recordkeeping requirements on a licensee where it was deemed necessary to address anticompetitive
concerns specific to the proposed submarine cable.  We have also traditionally required that a
non common carrier licensee not acquire any exclusive arrangement to land cables.  Furthermore, neither
the owner of a non common carrier submarine cable nor any common carrier may provide common carrier
service over the cable without obtaining Section 214 authority and becoming subject to our common carrier
regulation, including the safeguards we adopt here.  In exceptional cases where no conditions would
adequately address a very high risk to competition, we could deny an application.

     96.  Finally, we will no longer routinely impose a restriction on foreign ownership of cable
landing stations.  Should the Department of State, pursuant to Executive Order 10530, condition its
approval of a particular cable landing license on such a restriction, we will include a condition to that effect
in the particular cable landing license.

     D.   Section 310(b)(4) Standard for Indirect Foreign Ownership of Radio Licensees

     Background

     97.  Section 310(b)(4) of the Communications Act allows the Commission to deny or revoke a
common carrier, broadcast, or aeronautical radio license if more than 25 percent of an entity that controls
the applicant or licensee is owned of record or voted by aliens, foreign governments or their representatives,
or foreign corporations and the Commission finds that denial or revocation would serve the public
interest.  In the Foreign Carrier Entry Order, we adopted an ECO test as part of this public interest
analysis under Section 310(b)(4) for common carrier radio licensees.  We found that opening the U.S.
market to foreign investment to the extent foreign countries do so in their markets would best serve our
goals of promoting competition, preventing anticompetitive conduct, and opening foreign markets.

     98.  In the Notice, we proposed to eliminate the ECO test as part of the Section 310(b)(4) public
interest analysis for common carrier radio licensees or applicants with indirect foreign investment from
WTO Member countries.  We proposed to simplify our review of such foreign investment and to
presumptively allow any amount of indirect investment by investors whose home markets are in WTO
Member countries.  We stated that we would continue to consider public interest factors, including any
national security, law enforcement, foreign policy, or trade concerns brought to our attention by the
Executive Branch, and that we would deny applications that pose a very high risk to competition that could
not be addressed by conditions that we could impose on the license.

     99.  We sought comment on all of our tentative conclusions and particularly on whether any
specific criteria might be relevant under Section 310(b)(4).  We also asked whether we need to continue to
review increases in foreign ownership that do not effect a transfer of control where we have already
approved a licensee's request to exceed the 25 percent foreign ownership benchmark.  In addition, we asked
whether we should examine the extent of a WTO Member's commitment or its implementation of that
commitment in determining whether a particular application presents competition problems that must be
addressed.

     100. The Notice tentatively concluded that we would continue to determine a foreign investor's
home market by applying a "principal place of business" test.  We sought comment on that conclusion and
on whether the GATS concept of "service supplier" of a WTO Member should affect that analysis.

     101. The Notice also sought comment on our tentative conclusion that we would not change our
ad hoc approach toward indirect foreign ownership of aeronautical licenses because experience has shown
that approach to be appropriate.

     Positions of the Parties

     102. Several commenters generally support our proposal to remove the ECO test and further
liberalize our rules on foreign investment.  They point out the benefits to the U.S. wireless markets of
facilitating foreign investment.  No commenter disputes our tentative conclusion that, because common
carrier wireless markets are, for the most part, wholly domestic, foreign investment in those services does
not implicate the anticompetitive dangers that we see in the Section 214 context.  In fact, AT&T, which
supports retaining a standard similar to the ECO test for Section 214, supports eliminating the ECO test
for Section 310(b)(4) analyses because it agrees that similar anticompetitive dangers do not exist.  Sprint
states that it is unlikely that non-controlling investments would ever pose a threat to competition in the
United States.

     103. NextWave argues that there is "no conceivable risk to competition" in the U.S. market from
indirect foreign ownership in C- and F-block licensees because those licenses are held by entrepreneurs who
are new entrants into the markets.  Therefore, NextWave argues, the Commission should conclude that
indirect foreign investment above 25 percent in C- and F-block personal communications systems (PCS)
licensees by any entity whose home market is a WTO Member country serves the public interest and will
be subject only to a Commission notification requirement.  NextWave notes that its proposal would not
affect transfers of control, which would remain subject to Commission review or approval whether the
investor is domestic or foreign.  In the alternative, if we continue to require prior approval, NextWave
urges the Commission to establish an expedited process for reviewing such applications.

     104. Telephone and Data Systems suggests that we need not review indirect foreign ownership of
common carrier radio licensees held in the form of registered securities when the investor is from one of the
64 other WTO Member countries that has committed to enforce fair rules of competition for basic
telecommunications and is not a carrier.  Such investments, TDS argues, are passive investments that the
Commission has, in the past, decided are not important to the Section 310(b)(4) public interest analysis. 
We could instead rely on after-the-fact reporting requirements and retain the right to cause divestiture of
ownership interests that we find to be inconsistent with the public interest.  TDS suggests that we could
scrutinize SEC filings to monitor foreign ownership of registered securities.  Under TDS's proposal,
prior approval would continue to be required for investment in excess of 25 percent held by investors from
other WTO Member countries, by investors from non-WTO countries, and by any foreign carrier.

     105. Some commenters, including USTR, do not oppose our consideration of competitive risks in
the context of Section 310(b)(4).  USTR states that our proposal to continue to apply a public interest
test is consistent with U.S. commitments under the GATS.  Other parties argue, as they do in other
contexts, that denial on the grounds of risks to competition or other public interest factors might be
inconsistent with U.S. international obligations.  Deutsche Telekom argues further that GATS principles
prohibit the U.S. Government from imposing conditions upon approvals that it does not impose upon U.S.-
owned licensees.  Some parties contend that our consideration of Executive Branch concerns regarding
national security, law enforcement, foreign policy, and trade policy violates GATS principles.

     106. The FBI states that special national security and law enforcement concerns are presented by
foreign ownership or control of, or influence over, common carrier radio licenses   concerns that are not
presented when a license is held by a U.S. citizen or entity.  Those concerns include (1) foreign-power-
sponsored interceptions of U.S. communications for intelligence purposes; (2) compromise of U.S.
Government efforts to conduct electronic surveillance for law enforcement or national security purposes
against foreign targets associated with the home country of a foreign-owned telecommunications carrier;
(3) exposure to the home government of the foreign-owned carrier of sensitive governmental and private-
sector information maintained in common carrier records, databases, and central office facilities; (4)
exposure of intercept capabilities and vulnerabilities of U.S. law enforcement and intelligence agencies; and
(5) compromise of the National Security Emergency Preparedness functions that all U.S.
telecommunications licensees are expected to perform in the event of a national emergency.  The FBI
states that our current public interest review process under Section 310(b)(4) has worked well.  By
contrast, J. Gregory Sidak argues that DOD and the FBI appear to overestimate the scope and efficacy of
Section 310(b)(4) as a tool of national security.

     107. We sought comment on whether we should continue to review increases in foreign ownership
(that do not result in transfers of control) by licensees that have already obtained approval to exceed the 25
percent benchmark.  All parties who addressed the issue except the FBI opposed our continuing to review
those increases.  They argue that those increases serve the public interest and will never pose a threat to
competition.  The FBI argues that we must review each increase in foreign ownership in order to
determine whether it will effect a transfer of control, which might effectively happen at a level below 50
percent.  Even if the transaction does not result in a transfer of control, the FBI argues, the increased
foreign influence may present public interest concerns, including national security and law enforcement
concerns.

     108. Telecom Finland argues that, because a weak or unfulfilled commitment is no better than no
commitment, we should consider the extent of a WTO Member country's commitment or its implementation
of that commitment in determining whether to allow indirect investment by that country's entities in
common carrier radio licensees.  NextWave and Telefnica Internacional oppose such an inquiry,
because it would be time-consuming, it might violate U.S. WTO obligations, and those concerns are
properly addressed in WTO dispute resolution.

     109. Sprint and Telecom Finland support our retaining the "principal place of business" definition
of an applicant's or licensee's "home market."  They state that the test has been workable and has accurately
determined the appropriate home market of a foreign investor.  Sprint comments that it remains to be
seen whether the test will continue to be workable in the future, when different kinds of alliances, ventures,
and partnerships apply for common carrier radio licenses.

     110. On the issue of aeronautical licenses, Socit Internationale de Tlcommunications
Aronautiques (SITA), which provides aeronautical enroute services in Europe, argues that the
Commission should allow competition in the provision of aeronautical services in the United States.  SITA
contends that aeronautical service is a basic telecommunications service and is therefore covered by the
WTO Basic Telecom Agreement.  It argues that our ad hoc approach to analyzing indirect foreign
ownership of aeronautical licensees violates GATS requirements and that our "one station licensee per
location" rule is inconsistent with U.S. market access and national treatment obligations.  ARINC, the sole
aeronautical licensee for most of the locations in the United States, argues that the WTO Basic Telecom
Agreement does not apply because aeronautical services are not basic telecommunications; that, in any
event, the Commission's current policies are consistent with U.S. WTO commitments; and that the "one
station licensee per location" rule is essential to the continued safe and fair operation of the aeronautical
enroute service and to efficient spectrum management.  The European Union joins SITA in arguing that
the ad hoc approach to foreign ownership is contrary to U.S. WTO obligations.

     Discussion

     111. We adopt our proposal as refined in the following paragraphs.  We conclude, pursuant to
Section 310(b)(4), that it would not serve the public interest to deny or revoke a common carrier,
aeronautical enroute, or aeronautical fixed radio station license pursuant to Section 310(b)(4) except under
the narrow circumstances discussed in this Order.  Because additional foreign investment can promote
competition in the U.S. market, we conclude that the public interest will be served by permitting more open
investment by entities from WTO Member countries in U.S. common carrier wireless licensees.  We will
therefore replace our current ECO test as applied to foreign investment from WTO Member countries in
common carrier radio licenses with the entry policies we justify and describe above in Section III.A.  We
note that such an analysis could apply in various contexts:  petitions for declaratory rulings by existing or
prospective licensees that the public interest would be served by allowing them to exceed 25 percent
indirect foreign ownership; initial license applications; and transfers of control.

     112. We find it significant that no commenter argued that indirect foreign investment in common
carrier wireless markets can raise anticompetitive dangers such as those that might occur in the context of a
Section 214 application.  Because those markets are, for the most part, wholly domestic, there is no
possibility of leveraging foreign bottlenecks in order to create advantages for some competitors in U.S.
markets.  In light of the comments, we conclude that we cannot at this time envision a circumstance in
which indirect foreign investments by entities from WTO Member countries that do not result in a transfer
of control will pose a very high risk to competition.  In applying our open entry policy to Section
310(b)(4) requests, therefore, we conclude that we can streamline requests to exceed the 25 percent
benchmark.

     113. We have responded to concerns about our consideration of Executive Branch views
regarding national security, law enforcement, foreign policy, and trade policy in Section III.A.2.c above. 
We accept that the Executive Branch concerns regarding national security, law enforcement, foreign
policy, and trade policy are legitimately addressed under the Section 310(b)(4) public interest analysis and
therefore conclude that our review of Section 310(b)(4) requests should include consultation with the
appropriate Executive Branch agencies regarding those concerns.  Those agencies will have an opportunity
to raise their concerns before authorizations are granted during the 21-day comment period provided for
streamlined applications.  We reiterate that Executive Branch agencies are not required to overcome a
"strong presumption" in favor of granting these requests.  Nevertheless, as discussed above, we expect that
such concerns will be raised only in very rare circumstances.  Furthermore, applicants can expect in
almost all cases that the International Bureau will issue a decision on their requests within the streamlined
processing period.

     114. We accordingly retain our general requirement that licensees seek Commission approval
before they accept indirect foreign ownership that would put them over Section 310(b)(4)'s 25 percent
benchmark.  For the same reasons, we will also continue to require licensees who have already received
approval to exceed the 25 percent benchmark up to a certain level of indirect foreign ownership to seek
further Commission approval in order to increase that level of indirect foreign ownership.  We accept the
FBI's assertion that the increases in foreign ownership or influence may present concerns that Executive
Branch agencies may need an opportunity to evaluate before we allow an increased level of foreign
ownership.  In any event, we expect that in the future most applicants will seek authorization to accept
indirect foreign investment up to any non-controlling level when they initially file, so maintaining this
requirement will not impose a significant burden on applicants or the Commission.

     115. Because we find that we must retain a procedure for prior approval of indirect foreign
investment in excess of 25 percent, we decline to adopt the proposal advocated by Telephone and Data
Systems to disregard investments by non-carriers held as publicly traded securities.  We accept the
concerns of Executive Branch agencies that even small investments in publicly traded securities could, if
aggregated, nevertheless create a degree of control or influence over a licensee that would be contrary to
U.S. national security or law enforcement interests.  When applicants and licensees seek Commission
approval under Section 310(b)(4) for a particular amount of indirect foreign ownership, they should
indicate how much of that amount is attributable to each identified shareholder and how much of that
amount is an allowance for fluctuations in publicly traded shares.

     116. We will continue to use the "principal place of business" test to determine the nationality or
"home market" of foreign investors.  No commenter suggested an alternative test or argued that the test
was inappropriate.  We will also consider other means of determining an applicant's nationality if requested
to do so by an applicant or if so advised by the Executive Branch.  For the reasons discussed above, we
will not inquire into the extent or implementation of a WTO Member country's commitment in determining
whether to apply our open entry policies to an investor with its home market in that country.

     117. We agree with SITA that some aeronautical enroute and aeronautical fixed services are
basic telecommunications services that fall within the class of services covered by the WTO Basic Telecom
Agreement.  Contrary to ARINC's assertions, the WTO Basic Telecom Agreement encompasses both
private and commercial telecommunications services.  Most WTO Members, including the United States,
committed to provide market access to "mobile services," of which aeronautical enroute and fixed services
is a subset.  We accordingly conclude that we should apply the same standard to those services that we
apply to other basic telecommunications services under Section 310(b)(4) and not apply an ECO test to
indirect foreign ownership by entities from WTO Member countries.  As in other contexts, we believe that
participation by a foreign entity may create additional competition in aeronautical services.  Consideration
of whether a particular investment presents a very high risk to competition and other public interest factors,
including input from Executive Branch agencies regarding matters uniquely within their expertise, will be
sufficient to protect the public interest.  We will therefore apply the standard developed above for indirect
foreign ownership of common carrier radio licensees to indirect foreign ownership of aeronautical services.

     118. We decline, in this proceeding, to address the rule limiting the number of aeronautical
enroute licenses to one per location.  That rule is beyond the scope of this proceeding.  The Notice raised
only the issue of whether to continue our ad hoc approach to analyzing indirect foreign investment in
aeronautical enroute and aeronautical fixed licensees pursuant to Section 310(b)(4).  Because the
service-specific licensing rules were not discussed in the Notice, we are concerned that critical parties such
as the Federal Aviation Administration have not had sufficient opportunity to provide the input that we
would need before we were to reconsider our licensing rules.  However, we conclude that the issue should
be explored in a separate proceeding, in which we would solicit the input of all members of the air transport
industry and appropriate U.S. Government agencies.  We will commence such a proceeding in the near
future.  In the meantime, SITA and other entities seeking to provide aeronautical services in the United
States may apply for unencumbered enroute spectrum under the Commission's existing rules and seek rule
waivers, as necessary, to provide service in areas where another entity is already licensed.

               IV.  Policies toward Non-WTO Members

     A.   Application of ECO Analysis

     Background

     119. We tentatively concluded in the Notice that, with respect to non-WTO Member countries, we
would not change our policies of applying an ECO test for Section 214 authorizations, cable landing
licenses, Section 310(b)(4) authorizations, and petitions to approve alternative settlement arrangements. 
In each case, we tentatively concluded that the circumstances that existed when we adopted the Foreign
Carrier Entry Order in 1995 and the Flexibility Order in 1996 had not changed sufficiently with respect to
countries that are not Members of the WTO, as they had for countries that are WTO Members.  We also
sought comment on whether the ECO test should be modified.

     120. In addition, we tentatively concluded that our equivalency test would continue to be
necessary to prevent one-way bypass of the accounting rate system between the United States and non-
WTO Member countries.  Although we expect liberalization of the international services markets of WTO
Member countries to increase pressure on non-WTO Member countries to reform their telecommunications
markets and their accounting rates, we stated that we were not confident that the reform would come
quickly or broadly enough to outweigh the need to maintain the equivalency standard.

     Positions of the Parties

     121. Most parties that addressed the issue agree that we should continue to apply the ECO test to
non-WTO countries.  BTNA and WorldCom support applying the ECO test to applicants from non-
WTO Member countries in order to advance the goals of the Commission's competitive policies and in the
expectation that bilateral pressures may serve to create incentives for those countries to join the WTO,
make market opening commitments, and adopt the Reference Paper.

     122. Sprint favors elimination of the ECO test even as applied to non-WTO Member countries. 
Sprint argues that the ECO test is unworkable and impractical and that we should base our policies only on
protecting competition in the U.S. market.  Sprint argues that it would be incongruous to deny an
application from a carrier in a non-WTO Member country because it fails ECO, even though the country's
telecommunications market is more competitive than the markets of some WTO Members.  Applications
that pose similar degrees of harm to competition should be conditioned similarly, Sprint argues, whether or
not the countries involved are WTO Members.  FaciliCom similarly opposes the continued use of the
ECO test because it is too inflexible.  FaciliCom favors evaluation of a flexible set of public interest factors
and use of conditional authorizations depending on the special circumstances of each country.

     123. WorldCom argues that the equivalency test is necessary to protect against one-way bypass
into the United States from non-WTO Member countries and that the equivalency test creates an incentive
for those countries to join the WTO, make market opening commitments, and adopt the Reference Paper. 
Sprint, however, opposes retaining the equivalency test because our settlement rate benchmark condition
may effectively eliminate the potential for discrimination by a dominant foreign carrier.  Viatel urges the
Commission to consider restricting application of the equivalency test to carriers affiliated with foreign
carriers that have market power in the destination country because one-way bypass is a significant threat
only from those carriers.

     Discussion

     124. We conclude that the circumstances that existed when we adopted the Foreign Carrier Entry
Order and the Flexibility Order have not changed sufficiently with respect to countries that are not
Members of the WTO.  It continues to serve the goals of our international telecommunications policy to
apply the ECO and equivalency tests in the context of non-WTO Member countries.

     125. We do not agree with Sprint's arguments that our sole focus in this context should be on the
potential harm to competition in the U.S. markets.  It continues to serve the public interest to maintain
policies directed at encouraging non-WTO Member countries to open their telecommunications markets to
competition.  Since 1995, our application of the ECO test has provided incentives for foreign governments
to allow U.S. participation in their markets, and it played a part in the WTO negotiations that resulted in
the Basic Telecom Agreement.  We believe that continuing to apply the ECO test to non-WTO Member
countries may encourage some of those countries to take unilateral or bilateral steps toward opening their
markets to competition and may provide incentives for them to join the WTO.

     126. It is not incongruous to apply different standards to countries that are WTO Members and
countries that are not.  Members of the WTO, whether or not they made commitments on basic
telecommunications, are bound by general GATS obligations, including the MFN obligation. 
Furthermore, WTO Members are committed to the progressive liberalization of trade.  We therefore expect
that WTO Members will either unilaterally or multilaterally liberalize their markets, and when they do so,
they will be obligated not to discriminate against U.S. service providers.  Carriers from WTO Member
countries therefore present, as a group, less of a concern with anticompetitive conduct.

     127. By contrast, the markets of non-WTO Members, in almost all cases, are not liberalized, so
they are far more likely than WTO Members to present anticompetitive concerns that would dictate
continued application of the ECO test.  Moreover, even those non-WTO Members that do liberalize their
markets are not bound by international commitments to do so; thus, there is no external assurance that their
markets will continue to be open, in terms of both legal and practical barriers to entry.  In addition, for non-
WTO Members there is far greater reason to continue to apply the ECO test as a means of encouraging
them to open their markets to competition and join the WTO.  Finally, we observe that the United States
owes no international trade obligations to most non-WTO Members, so there is no obligation under the
WTO Basic Telecom Agreement to adopt the same approach for these countries as for WTO Members.

     128. In the case of Section 214 applications to provide facilities-based, resold switched, and
resold non-interconnected private line services, we will continue to apply the ECO test as part of the public
interest inquiry when presented with an application from a foreign carrier or a carrier affiliated with a
foreign carrier where the foreign carrier is from a non-WTO Member country and has market power in the
destination market.  We define market power in this context the same way that we define it in the context of
our regulations prohibiting any carrier from accepting certain "special concessions" from foreign carriers
with market power.

     129. We also conclude, for the reasons discussed above, that it remains important to maintain the
equivalency test as part of our standard for permitting the provision of switched services over private lines,
whether facilities-based or through resale, for non-WTO Member countries.  Therefore, for non-WTO
Member countries, it remains necessary to allow the provision of switched services over private lines only
when the foreign country provides equivalent resale opportunities.

     130. We also conclude, for the reasons discussed above, that we will continue to apply an ECO
test in this context as part of our analysis under Section 2 of the Submarine Cable Landing License Act. 
Thus, when considering an application to land and operate a submarine cable that will connect to a non-
WTO Member country, we will consider whether the applicant is or is affiliated with a carrier that has
market power in the destination market of the cable, and if so, we will consider whether that destination
market offers effective opportunities for U.S. companies to land and operate a submarine cable in that
country.  We will also continue to consider, in addition to the de jure and de facto ECO criteria, other
factors consistent with our discretion under the Submarine Cable Landing License Act that may weigh in
favor of or against grant of a license.

     131. We will also continue to apply the ECO test as part of our general public interest analysis
under Section 310(b)(4) regarding foreign investment by entities from non-WTO Member countries in
common carrier radio licensees.  We conclude that our goals of increasing competition and opening foreign
markets would continue to be served by opening the U.S. market to investors from non-WTO Member
countries only to the extent that the investors' home markets are open to U.S. investors.  We will deny an
application if we find that more than 25 percent of the ownership of an entity that controls a common
carrier radio licensee is attributable to parties whose principal place(s) of business are in non-WTO
Member countries that do not offer effective competitive opportunities to U.S. investors in the particular
service sector in which the applicant seeks to compete in the U.S. market, unless other public interest
considerations outweigh that finding.

     132. Finally, we adopt our proposal to retain the ECO test as the threshold standard for
permitting accounting rate flexibility with carriers from countries that are not WTO Members.  As we said
in the Notice and in the Flexibility Order, the ECO test provides the best indicator of whether the legal,
regulatory, and economic conditions in a foreign market support competition such that our International
Settlements Policy is no longer necessary to protect against abuse of market power by foreign carriers. 
Because non-WTO Member countries are not necessarily subject to the market forces and GATS
obligations to which WTO Members are subject and the United States owes them no international
obligation, we find that it would not serve the public interest to remove the ECO test as applied to those
countries.

     B.   Modification of Contexts in Which ECO Analysis Applies

     Background

     133. In the Foreign Carrier Entry Order, we decided not to apply the ECO test to U.S. carrier
interests in foreign carriers.  We also decided, in the Foreign Carrier Entry Order, to apply the ECO test
on routes where a carrier that has market power is controlled by or under common control with an
otherwise-affiliated foreign carrier.  We found that such indirect investments by affiliated foreign carriers
raise anticompetitive dangers equivalent to those raised by direct investments.  Telefnica Larga Distancia
de Puerto Rico (TLD) and BT North America (BTNA) sought reconsideration of these issues, and we
dispose of those petitions here.  In the Notice in this Foreign Participation proceeding, we noted the
pendency of the petitions for reconsideration and sought comment on whether we should, for purposes of
countries that are not WTO Members, apply the ECO test to U.S. carriers that own more than 25 percent
of, or control, a foreign carrier from a non-WTO country.

     Positions of the Parties

     134. TLD argues that we adopted an unjustifiable double standard in applying the ECO test to
foreign carriers' interests in third-country carriers but not to U.S.-based carriers' interests in any foreign
carriers.  TLD argues primarily that we should not apply the ECO test to destination markets where the
affiliation results only from an affiliated foreign carrier's control of a third country's dominant carrier. 
The policy we adopted in the Foreign Carrier Entry Order, TLD argues, could discourage third countries
from privatizing their telecommunications carriers and could discourage foreign carriers from participating
in third countries' privatizations by taking away the possibility of carrying U.S. traffic to that third country. 
No developing country, TLD argues, will be able to privatize its telecommunications without offering a
period of exclusivity.  In its reply to oppositions to its petition, TLD proposes a narrower modification of
our policy, suggesting that we should permit a foreign carrier to carry traffic on a route to a developing
foreign country (despite its affiliate's exclusivity) where (1) the developing country has privatized a
substantial portion of its telecommunications carrier; (2) U.S. competitors have had an equal opportunity to
participate in the privatization and obtain exclusivity; and (3) a date certain is set to introduce effective
competition.

     135. Alternatively, TLD argues that we must apply the ECO test to U.S. carriers' investments in
foreign carriers.  It contends that our concerns with the potential for anticompetitive conduct are equally
raised by U.S. carrier investments in foreign carriers and that treating U.S. carrier investments in foreign
carriers differently from foreign carrier investments in third countries' carriers violates the Due Process
Clause of the Fifth Amendment.  Allowing U.S. companies to acquire controlling interests in foreign
carriers without being subject to the ECO test, TLD contends, gives U.S. carriers an unfair and unjustified
advantage in bidding on privatizations.  U.S. carriers would value those third countries' carriers higher
because they would be allowed to carry U.S. traffic to that country.  The distinction, TLD argues, cannot
be rationally justified by our goals in these proceedings.

     136. BTNA argues that the Commission may have underestimated the extent to which U.S.
carrier investment in dominant foreign carriers raises anticompetitive concerns.  It argues that we should
address our concerns regarding possible discriminatory conduct relating to equity relationships between
U.S. carriers and dominant foreign carriers without regard to whether the U.S. carrier or the foreign carrier
is making the investment.  WorldCom supports the application of the ECO test to U.S. carriers that hold
a 25 percent or greater interest in a foreign carrier with market power from a non-WTO country. 
WorldCom states that the ECO test is appropriate because the potential for anticompetitive conduct is the
same.

     137. In response, AT&T argues that the Commission was correct in determining that applying the
ECO test to U.S. carriers' investments in foreign carriers would be unnecessary.  AT&T states that it is
unnecessary to apply the ECO test in those situations because U.S. carriers are subject to the Commission's
jurisdiction, and to do so would decrease U.S. opportunities to invest abroad.  AT&T argues that foreign
carriers and investors have no equal protection rights to assert and that, even if they did, there would be no
constitutional violation because the distinction between U.S. ownership and foreign ownership is fully
justified.  AT&T also opposes TLD's argument that we should not apply an ECO test to foreign carriers'
interests in third-country carriers.  AT&T argues that our main goal is liberalization, not just privatization,
and that we should not encourage foreign carriers to pay premiums to get monopolies in third countries.

     Discussion

     138. We note at the outset that these issues are moot for the great majority of the world's
telecommunications markets.  They remain relevant only to those countries to which we will continue to
apply our ECO test   i.e., to non-WTO countries, which accounted for less than five percent of the
world's telecommunications revenues in 1995.

     139. Upon reconsideration and in light of the record and developments in the global
telecommunications market since we adopted the Foreign Carrier Entry Order in 1995, we modify the
application of the ECO test as follows.  We will henceforth apply the ECO test without regard to whether
the applicant, or its affiliate, is a U.S. carrier.  We will continue, however, to apply the ECO test to a route
whenever a carrier or its foreign affiliate controls, is controlled by, or is under common control with a
carrier that has market power in a destination market, where that destination market is a non-WTO
country.  

     140. As we discuss below, our primary competitive concern in this proceeding is preventing
carriers that control bottleneck facilities in foreign countries from using those bottlenecks to discriminate
against unaffiliated U.S. carriers.  Our experience since adopting the Foreign Carrier Entry Order
indicates that there can be significant risks to competition when a U.S. carrier owns a controlling interest in
a foreign carrier with market power.  Furthermore, we anticipate that, in the more liberalized environment
that will result from the WTO Basic Telecom Agreement, it will become increasingly difficult to define a
"U.S. carrier" for the purpose of distinguishing between U.S.-carrier and foreign-carrier ownership of
carriers.  In light of those difficulties, we can no longer rely on our greater ability to redress anticompetitive
conduct by U.S. carriers as compared to foreign carriers.  Moreover, the GATS principle of National
Treatment obligates the U.S. Government to treat investments by carriers from WTO Member countries
no less favorably than it treats investments by domestic carriers.  We therefore modify our conclusion in
the Foreign Carrier Entry Order and conclude that we will apply the ECO test where a U.S. carrier, or a
company that owns more than 25 percent of a U.S. carrier, owns a controlling interest in a foreign carrier
that has market power in a non-WTO country.

     141. We disagree with TLD that it does not serve our purposes to apply the ECO test to third
countries.  When a foreign carrier that controls bottleneck facilities controls, is controlled by, or is under
common control with a carrier that is affiliated with a U.S. carrier, there is a danger that the bottleneck
facilities will be used to discriminate against unaffiliated U.S. carriers.  For example, if we were to adopt
TLD's primary proposal, the U.S. affiliate of a foreign carrier that enters various markets through wholly
owned subsidiaries would be able to serve all of those subsidiaries' routes without application of the ECO
test.  The other subsidiaries would have the ability and incentive to use their market power to discriminate
against unaffiliated U.S. carriers by routing traffic in ways that take advantage of their market power.

     142. Moreover, applying the ECO test to non-WTO countries will encourage non-WTO countries
to open their markets to competition in addition to privatizing their telecommunications carriers.  Because
privatization without liberalization neither promotes competition nor reduces the risk of anticompetitive
conduct, our goal is to encourage simultaneous privatization and liberalization.  Developments in
Guatemala, Chile, Brazil, and other countries indicate that the trend in privatizations is toward a very rapid
transition to liberalization and procompetitive regulation.  If the ECO test lowers the value of an exclusive
arrangement in a privatization, it would thereby encourage simultaneous liberalization and privatization. 
Finally, our decision to apply the ECO test to U.S. carriers' investments in foreign carriers cures the alleged
inequity cited by TLD.

                      V.  Regulatory Issues

     A.   Regulatory Approach

     143. As noted above, we anticipate that the WTO Basic Telecom Agreement will spur
competition across the globe and open foreign markets to U.S. carriers.  Here in the United States, the open
entry standard we adopt above will attract foreign entry into the U.S. market, to the benefit of U.S.
consumers.  Given our new open entry approach, the public interest mandates that we revisit the
competitive safeguards governing foreign-affiliated carrier provision of basic telecommunications services
in the U.S. market and, more broadly, U.S. carrier dealings with foreign carriers.  In particular, we
examine our rules preventing the exercise of foreign market power in the U.S. market.  The regulatory
framework we establish here modifies or eliminates rules that could hamper competition.  We adopt a
targeted approach designed to monitor and detect anticompetitive behavior in the U.S. market without
imposing regulations that are more burdensome than necessary.  In determining which competitive
safeguards are necessary, we first identify what concerns arise when U.S. carriers enter into arrangements
with foreign carriers.  Next, we address the appropriateness of our existing safeguards and those we
proposed in the Notice.  

     144. Concerns about potential anticompetitive conduct generally are triggered where one party
has sufficient market power to cause harm to competition and consumers in the U.S. market.  Consistent
with Commission precedent, we define market power as a carrier's ability to raise price by restricting its
output of services.  A carrier can raise prices profitably and sustain them above competitive levels, and
thereby exercise market power, in two ways.  First, a carrier may be able to raise service prices by
restricting its own output of that service; second, a carrier may be able to raise prices by increasing its
rivals' costs or restricting its rivals' output through the control of an input that is necessary for the provision
of service.  Our general regulatory framework has long addressed the ability of carriers to engage in both
types of behavior in the U.S. international services market.  We have found, however, that dealings with
foreign carriers generally present concerns for the U.S. international services market that fall into the
second category.  In the Notice, we noted that our concern regarding market power on the foreign end
involves "the ability to act anticompetitively against unaffiliated U.S. carriers through the control of
bottleneck services or facilities on the route in question."  We clarify that the regulatory framework we
adopt here focuses in large part on dealings with foreign carriers that possess sufficient market power on
the foreign end of a U.S. international route to affect competition adversely in the U.S. international
services market.  As we stated in the Foreign Carrier Entry Order, our regulatory concern involves the
U.S. market for international telecommunications services, "i.e., telecommunications services that originate
or terminate in, or transit the United States . . . includ[ing] the U.S. market for global, seamless network
services that increasingly are being used by U.S. businesses."  Our primary concern in this proceeding,
however, involves the ability of U.S. carriers to terminate traffic on the foreign end of an international
route.

     145. Absent effective regulation in our market, we are concerned that a foreign carrier with
market power in an input market on the foreign end of a U.S. international route has the ability to exercise,
or leverage, that market power into the U.S. market to the detriment of competition and consumers.  Firms
with market power in an "upstream" input market can engage in discrimination in a "downstream" end-user
market by favoring one downstream entity at the expense of its competitors.  Where the upstream firm
possesses market power, the downstream competitors have few, if any, alternative sources for the upstream
input.  We find that the relevant input markets on the foreign end of a U.S. international route are the
markets that involve services or facilities necessary for the provision of U.S. international services.  These
relevant markets generally include:  international transport facilities or services, including cable landing
station access and backhaul facilities; inter-city facilities or services; and local access facilities or services
on the foreign end.  We are not persuaded by KDD's claim that, in examining foreign market power, we
should consider only the control of local exchange facilities.  Nor are we convinced by GTE that our
market power determinations should not consider the control of local exchange facilities in WTO Member
countries.  Our concern extends to a carrier's control of any services or facilities market on the foreign
end that could result in harm to competition in the U.S. market.  We recognize that, for purposes of
identifying the relevant geographic market for inter-city 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.   

     146. We observed in the BT/MCI Merger Order that the exercise of foreign market power in the
U.S. market could harm U.S. consumers through increases in prices, decreases in quality, or a reduction in
alternatives in end-user markets.  More specifically, we discussed three anticompetitive strategies that
could cause harm to competition in the downstream market:  price discrimination, non-price discrimination,
and price squeeze behavior.  A foreign carrier with market power could engage in price discrimination by
raising the price of the input to its downstream competitors, whether or not it raises the price to its own
downstream partner (which, from the perspective of a fully integrated firm, pays economic cost regardless
of the nominal transfer price of the input).  A foreign carrier could engage in non-price discrimination by
delaying its delivery of the input product to U.S. rivals while continuing to provide the input to its own U.S.
partner on a timely basis.  A foreign carrier also could degrade the quality of the input provided to U.S.
rivals to such an extent that, in conjunction with its U.S. partner, it could price higher quality services at
monopoly rates.  In addition, a foreign carrier and its U.S. affiliate could engage in a predatory strategy  
known as a price squeeze   to drive its U.S. rivals from the market.  Given these concerns, we are not
persuaded by those commenters that argue we should rely on general antitrust law to protect competition
and consumers in the U.S. market from anticompetitive behavior.  Rather, we agree with our tentative
conclusion in the Notice that effective, narrowly tailored safeguards are necessary to prevent such harms to
competition and consumers in U.S. markets.    

     147. As we stated in the International Services Order, "foreign market power . . . can be abused
with or without a U.S. affiliate."  In the increasingly global telecommunications market, unaffiliated
entities may enter alliances that offer each other favorable treatment.  As we discuss below, however, we
find that a vertically integrated carrier or an ownership affiliation between a U.S. and a foreign carrier
creates a heightened ability and incentive to engage in anticompetitive behavior.  The regulatory framework
we adopt, therefore, contains general safeguards that apply to all U.S. carriers' dealings with foreign
carriers, as well as additional safeguards that apply to dealings between affiliated or merged carriers, where
a heightened risk of anticompetitive conduct exists because of carriers' increased ability and incentive to
engage in such behavior.

     148. We believe that greater liberalization in foreign markets is the long-term solution to the risk
that foreign market power may be leveraged into the U.S. market to the detriment of competition and U.S.
consumers.  As countries fulfill their commitments to the WTO Basic Telecom Agreement, new entrants
will make inroads into formerly monopolized markets and consumers will benefit from innovative services
and price competition.  We fully expect that, as competitive conditions improve in foreign markets, the need
for some of our safeguards will diminish.  We note that when market conditions preclude foreign carriers
from leveraging market power to affect competition adversely in the U.S. market, we may further modify
our safeguards.  We already have in place a policy that permits alternative settlement arrangements where
market conditions so permit.   

     149. Commenters do not dispute our fundamental premise that market power on the foreign end of
a U.S. international route   if unrestrained   could be leveraged into the U.S. market to the detriment of
competition and U.S. consumers.  To the extent that they disagree with the regulatory framework we adopt
or the specific safeguards we apply, we address their concerns below.  We conclude, however, that the
competitive safeguards we adopt here are necessary to restrain the leveraging of foreign market power into
the U.S. market and that they will do so without imposing overly burdensome regulation.

     B.   General Obligations on All U.S. International Carriers

             1. "No Special Concessions" Rule

          Background

     150. In the Foreign Carrier Entry Order, we stated that the No Special Concessions rule
prohibits all U.S. international carriers from agreeing to accept special concessions from any foreign carrier
or administration.  We noted that we would entertain requests to waive the provision where the U.S.
carrier could demonstrate that the foreign carrier granting the concession "lacks the ability to leverage
control over bottleneck services or facilities into the U.S. international services market."  We also stated
that we would revisit our approach to regulating exclusive arrangements as foreign markets eliminated
restrictions to entry and adopted competitive safeguards.  In the Notice, we observed that the WTO Basic
Telecom Agreement is expected to open markets to competition throughout the world.  As a result, we
proposed to apply the No Special Concessions rule in more targeted circumstances.

     151. We tentatively concluded in the Notice that the No Special Concessions rule should be
narrowed to prohibit exclusive arrangements only between a U.S. carrier and a foreign carrier that has
market power on the foreign end of a U.S. international route.  We sought comment on whether a
"bright-line" test exists that could identify a class of foreign carriers that do not raise market power
concerns.  Alternatively, we sought comment on whether to permit exclusive deals where the foreign carrier
has market power in a country that has eliminated barriers to international facilities-based entry and
licensed multiple international facilities-based carriers.  

     152. We also proposed to give greater specificity to the No Special Concessions rule by
identifying the types of conduct that are prohibited.  We requested comment on our proposal, as well as
how to implement it in circumstances where the Commission has not made a specific market power
determination for a particular foreign carrier. 

          Positions of the Parties

     153. The commenters are divided over our proposal to limit the rule to special concessions
granted by a foreign carrier with market power.  AT&T and New T&T Hong Kong support the
proposal.  Several other commenters, however, contend that applying the rule to dealings with any
foreign carrier that has market power in the destination country would be too broad.  NTT contends that
the rule should be imposed only as a remedy to address proven anticompetitive conduct.  Sprint argues
that the rule should not be modified because the WTO Basic Telecom Agreement does not implicate it. 

     154. In addition, some commenters assert that a market power threshold for application of the rule
would be administratively burdensome.  GTE asserts that any market power determinations should not
include a review of market share.  Deutsche Telekom argues that the Commission should specify the
factors it will examine in making foreign market power determinations.  New T&T Hong Kong asserts
that market power determinations should be based on U.S. antitrust law.  AT&T, which supports using a
market power threshold, states that it cannot identify a bright-line test to distinguish carriers that possess
market power from those that do not.  MCI and BTNA suggest that the bright-line test should be whether
facilities-based competition exists on the foreign end.

     155. No commenters oppose our proposal to delineate the types of conduct prohibited by the rule. 
New T&T Hong Kong supports the proposal.  AT&T recommends that the rule be expanded to prohibit
acceptance of exclusive arrangements involving "any service . . . affecting traffic or revenue flow to or
from the United States" including, but not limited to, those arrangements identified in the Notice.  In
contrast, MCI and Telmex assert that elements of the proposal may be overly restrictive.

     Discussion

     156. The No Special Concessions rule currently prohibits all U.S. carriers from entering into
exclusive arrangements with any foreign carrier affecting traffic or revenue flows to or from the United
States.  The Commission has recognized, however, that special concessions granted by a foreign carrier
can serve the public interest in appropriate circumstances.  Such arrangements, for example, may involve
innovative services or operational efficiencies that reduce the rates for U.S. international services or
increase the quality of such services.  We adopt a policy here that narrows our No Special Concessions rule
in a way that will encourage such arrangements, provided they do not result in an unacceptable risk of
harm to competition and consumers in the U.S. international services market.  To strike an appropriate
balance, we modify the rule so that it only prohibits U.S. carriers from agreeing to accept special
concessions granted by foreign carriers that possess market power in a relevant market on the foreign end
of a U.S. international route. 

     157. Our competitive safeguards framework is intended to prevent the leveraging of foreign
market power into the U.S. international services market.  In particular, we are concerned that an
exclusive vertical arrangement between a foreign carrier with market power on the foreign end and a U.S.
carrier (whether through ownership affiliation or contractual arrangement) could result in harm to
competition and consumers in the U.S. market.  If a foreign carrier with market power were to enter into
an exclusive arrangement, competing carriers on the foreign end, if any exist, might not have sufficient
capacity to accommodate rival U.S. carriers' needs.  Such an arrangement, therefore, could limit rival U.S.
carriers' ability to provide international services, raise these carriers' costs of termination, or degrade the
quality of their service offerings, to the ultimate harm of U.S. consumers.  

     158. By contrast, it is unlikely that an exclusive deal involving a foreign carrier that lacks market
power would result in harm to competition and consumers in the U.S. market.  Because the foreign carrier
cannot restrict the supply of those services or facilities necessary for the provision of U.S. international
services to such a degree as to raise prices, it cannot effectively leverage its market power into the U.S.
market.  A special concession granted by such a carrier would not unreasonably limit rival U.S. carriers'
ability to provide international services.  A special concession, moreover, generally would not raise U.S.
rivals' costs or degrade their services.  Such arrangements, therefore, would not raise competitive concerns. 
We thus adopt our proposal to limit the No Special Concessions rule to dealings between U.S. carriers and
foreign carriers that possess market power in a relevant market on the foreign end of an international
route.  

     159. We agree with several commenters, however, that contend that determinations of market
power on the foreign end of an international route can involve extensive analysis.  We therefore sought
comment in the Notice on whether a "bright-line" test exists to identify a class of foreign carriers that do
not raise market power concerns.  The record in this proceeding contains little input with regard to a bright-
line test.  MCI and BTNA suggest that we impose the rule on dealings with foreign carriers that do not face
facilities-based competition.  We find, however, that foreign carriers with market power may retain the
ability to engage in discriminatory behavior long after the entry of new competitors.  

     160. We nonetheless find that identifying a class of foreign carriers that are not subject to the No
Special Concessions rule will reduce the need for parties to file petitions for declaratory ruling to determine
whether it is permissible to enter into an exclusive arrangement with a particular foreign carrier.  We agree
with the comments of U S WEST that the rules we adopt should "enable carriers to establish quickly and
accurately what international transactions, services, and practices are permissible."  We therefore
conclude that identifying a class of foreign carriers that presumptively lack market power on the foreign
end will provide U.S. carriers with greater certainty and expediency as they negotiate with their foreign
counterparts.  Any presumption should only identify a category of foreign carriers that, as a general matter,
lack the ability to leverage foreign market power into the U.S. market.  Any classification, moreover,
should serve only as a rebuttable presumption.  

     161. Based on these objectives, we adopt a rebuttable presumption that foreign carriers with less
than 50 percent market share in each relevant market on the foreign end lack sufficient market power to
affect competition adversely in the U.S. market.  We recognize that market share is but one factor in a
traditional market power analysis.  A firm's control of available capacity on a particular route, for
example, is an important component of any market power determination.  On balance, however, we find
that market share data is more readily available and will serve as a sufficient approximation of foreign
market power for purposes of satisfying our rebuttable presumption.  As the authors of the 1997 edition of
the American Bar Association Antitrust Law Developments publication recently concluded, "[c]ourts
virtually never find monopoly power when market share is less than about 50 percent."  We conclude,
therefore, that for purposes of applying our competitive safeguards, we will create a rebuttable
presumption that a foreign carrier with less than 50 percent market share in each of the relevant markets on
the foreign end of a U.S. international route lacks sufficient market power to affect competition adversely
in the U.S. market.  In doing so, we decline to adopt GTE's generalized assertion that market share should
not be considered in any market power determination.  We adopt a presumption to allow U.S. carriers to
accept special concessions granted by foreign carriers that possess less than 50 percent market share in
each relevant market on the foreign end without first obtaining specific approval from the Commission.  

     162. We emphasize that the presumption we adopt here is rebuttable.  While we require no prior
approval, we note here that under Section 43.51 of our rules, U.S. carriers are required to file with the
Commission contracts, operating agreements, and other arrangements with foreign carriers that involve,
among other things, the exchange of services and the interchange or routing of traffic.  These agreements
must be filed with the Commission within 30 days of execution and are routinely available for public
review.  The Commission and carriers, therefore, have the ability to examine these agreements.  We will
entertain petitions for declaratory ruling that demonstrate that a foreign carrier with less than 50 percent
market share has the ability -- either unilaterally or in concert with other carriers -- to affect competition
adversely in the U.S. market.  If we find that a U.S. carrier has entered into an agreement that violates the
No Special Concessions rule, the U.S. carrier will be required to terminate the arrangement or modify it to
conform with our policies.  We also will entertain petitions for declaratory ruling that demonstrate that a
foreign carrier with a market share of 50 percent or more in any relevant market should be allowed to grant
a special concession because it lacks the ability to affect competition adversely in the U.S. market.  We will
review these petitions under an appropriate economic analysis of market power.  

     163. If a U.S. carrier seeks to use the under-50 percent market share presumption as the basis to
accept a special concession from a foreign carrier, it must file data with the Commission to substantiate
that claim for the relevant input markets on the foreign end of the international route.  This material
should be included in the U.S. carrier's Section 43.51 filing of the contract or agreement in question.  The
U.S. carrier should rely on data compiled by regulatory authorities in the destination market or by
international bodies.  If such data is unavailable, the carrier may rely on information from industry sources,
including the foreign carrier itself, supported by an affidavit from a representative of the U.S. carrier that
the information relied upon is true and correct to the best of the representative's knowledge and belief.  We
reiterate that our market share screen serves only as a presumption that may be rebutted by a full-fledged
analysis of the foreign carrier's market power in the relevant market on the foreign end.  

     164. We also tentatively concluded in the Notice that it would be beneficial to delineate the types
of exclusive arrangements that the No Special Concessions rule prohibits.  We proposed that the rule
should prohibit any special concessions not offered to similarly situated U.S. carriers involving:  (1)
operating agreements for the provision of basic services; (2) distribution or interconnection arrangements,
including pricing, technical specifications, functional capabilities, or other quality and operational
characteristics, such as provisioning and maintenance times; (3) 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; (4) any proprietary or confidential information obtained by the foreign carrier from competing
U.S. carriers in the course of regular business activities with such U.S. carriers, unless specific permission
has been obtained in writing from the U.S. carrier involved; and (5) arrangements for the joint handling of
basic U.S. traffic originating or terminating in third countries.

     165. As an initial matter, we decline to adopt AT&T's proposal that the rule cover all types of
services affecting traffic or revenue flows to or from the United States, including, but not limited to, those
arrangements identified in the Notice.  AT&T's proposal would include non-basic telecommunications
services, and is far broader than necessary.  We conclude that our No Special Concessions rule should be
limited to exclusive dealings involving services, facilities, or functions on the foreign end of a U.S.
international route that are necessary for the provision of basic telecommunications service. 
Anticompetitive conduct involving these input markets, we conclude, can lead to harm to competition and
consumers in the U.S. international services market.  We find, moreover, that the record supports a
narrower scope for the No Special Concessions rule than was proposed in the Notice.  We conclude that the
No Special Concessions rule should be limited in scope to prohibit any U.S. carrier from agreeing to accept
from a foreign carrier with market power any special concession not offered to similarly situated U.S.-
licensed carriers involving:  (1) operating agreements for the provision of basic services; (2) distribution
arrangements or interconnection arrangements, including pricing, technical specifications, functional
capabilities, or other quality and operational characteristics, such as provisioning and maintenance times;
and (3) 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.

     166. We have decided not to adopt the proposal to specify a prohibition on special concessions
involving the joint handling of basic U.S. traffic originating or terminating in third countries.  We conclude
that in this case specifying "joint handling" could well result in less, rather than more, clarity with respect
to our No Special Concession rule.  MCI, for example, is concerned that the No Special Concessions ban
could be construed to prohibit switched hubbing.  This was not our intent in proposing the joint handling
prohibition.  We thus decline to specify a ban on exclusive arrangements involving the joint handling of
basic U.S. traffic originating or terminating in third countries.  We also decline to include in the No Special
Concessions rule a specific prohibition on the receipt of proprietary or confidential information of a
competing U.S. carrier obtained by a foreign carrier with market power.  Instead, we address the
confidentiality of competing carrier information more broadly below.

     167. In response to Telmex's claim that the No Special Concessions rule would prohibit "one-stop
shopping," we clarify that the rule does not prevent a U.S. carrier and a foreign carrier from offering end-
to-end services.  It does, however, prohibit U.S. carriers from entering into exclusive arrangements with
certain carriers for certain services.  For example, a U.S. carrier cannot agree to enter an exclusive "one-
stop shopping" arrangement in which the U.S. carrier acts as an agent on behalf of its U.S. customers in
obtaining private line service from a foreign carrier with market power, where the foreign carrier refuses to
recognize other U.S. carriers as agents.  This type of exclusive arrangement would preclude competing
U.S. carriers from serving an important segment of the U.S. international services market.

     168. For the reasons discussed below, we are not persuaded by commenters' claims that applying
the No Special Concessions rule to dealings with foreign carriers that possess market power would continue
to impose restrictions on too many arrangements between U.S. carriers and foreign carriers.  In particular,
these commenters argue that use of market power as a threshold standard is too broad.  Deutsche Telekom
argues that the proposal would "stifle the development of innovative service and pricing arrangements to
the detriment of U.S. consumers."  MCI claims that it could standardize all arrangements and inhibit the
development of new services.  We disagree.  As an initial matter, we find that the rule will encourage
innovative services by providing U.S. carriers with a presumption that they may engage in exclusive
arrangements with a well-defined class of foreign carriers.  As we observed in the Notice, the WTO Basic
Telecom Agreement is expected to result in the introduction of competition on the foreign end of major U.S.
international routes.  New entrants in these markets, who will lack market power as a general matter, will
offer U.S. international carriers more opportunities to enter into such arrangements.  In contrast to Sprint's
assertions, we therefore find that the WTO Basic Telecom Agreement warrants a review of the No Special
Concessions rule.  Moreover, the No Special Concessions rule allows U.S. carriers to enter into "non-
standardized arrangements" with all foreign carriers -- including those that possess market power, provided
that the same terms and conditions are available to other similarly situated U.S. carriers.  In addition, our
Flexibility Order allows U.S. carriers to enter into alternative settlement arrangements with any foreign
carrier, subject to certain competitive safeguards and our determination that the arrangement is consistent
with our policy objectives.  

     169. We find, moreover, that several commenters' specific proposals to limit the rule would not be
sufficient to prevent exclusive arrangements that create an unacceptable risk of harm to competition and
consumers in the U.S. international services market.  NTT, for example, contends that, given the reporting
requirements proposed in the Notice, the Commission should only impose the No Special Concessions rule
as a remedial measure to address proven anticompetitive conduct.  We agree with NTT's underlying
premise that the reporting requirements we adopt below will serve to deter, monitor, and detect
anticompetitive behavior in the U.S. international services market.  We also generally support a
commitment to remedial measures rather than proscriptive safeguards, where feasible, as a means to reduce
regulatory intervention in the market.  For these reasons, we narrow the No Special Concessions rule to
allow U.S. carriers to enter into exclusive arrangements where they are in the public interest.  Where a
significant risk of anticompetitive behavior exists, however, we find that targeted proscriptive restrictions
such as the No Special Concessions rule are necessary.

     170. We are not persuaded by other commenters' proposals to narrow application of the rule to
arrangements with a class of foreign carriers more limited than those with market power.  BTNA argues
that we should adopt the rule as a supplemental safeguard, applicable only to dealings between U.S.-
licensed carriers and their foreign affiliates that do not face international facilities-based competition. 
Similarly, MCI argues that the rule should apply only to dealings between U.S.-licensed carriers and any
foreign carriers that do not face international facilities-based competition.  Deutsche Telekom and Telstra
assert that the No Special Concessions rule should apply only to dealings with carriers from non-WTO
Member countries.  France Telecom claims that we should allow U.S. carriers to accept special
concessions from foreign carriers, regardless of their market power on the foreign end, as long as the
foreign country allows competition and has committed to the Reference Paper.  With regard to BTNA's
claim, we note that unaffiliated carriers, as well as affiliated carriers, have incentives to enter into exclusive
arrangements involving services and facilities on the foreign end that are necessary for the provision of U.S.
international services.  A threshold standard tied to affiliation, therefore, would not address many exclusive
deals that raise substantial competitiveness concerns.  More broadly, we do not adopt these proposals
because, as AT&T notes, they "ignore[] the continued ability of incumbents with market power to engage
in discriminatory behavior long after the entry of new competitors."  Regardless of the number of
competitors in a foreign market or a country's commitment to liberalization, exclusive arrangements with
foreign carriers that have market power may result in harm to competition and consumers in the U.S.
market.  We note, however, that we will entertain petitions for alternative settlement arrangements
consistent with our flexibility policy.  We will also consider other petitions asserting that an otherwise
prohibited exclusive arrangement is in the public interest and should be allowed.

             2. Foreign Market-Derived Confidential Information

                       a.     Competing U.S. Carrier Information

     171. We proposed in the Notice to adopt a No Special Concessions ban on a U.S. carrier's
exclusive receipt of proprietary or confidential information obtained by a foreign carrier with market power
in the course of its dealings with another U.S. carrier, unless specific permission had been obtained in
writing from that U.S. carrier.  If this ban were adopted as part of the No Special Concessions rule,
however, U.S. carriers could accept the confidential information of a competing U.S. carrier, provided the
foreign carrier either lacked market power or made the information available to all similarly situated
carriers on the U.S. end.  As a result, we find that preserving the confidentiality of competing U.S.
carriers' information requires that we prohibit U.S. carriers from receiving such information from any
foreign carrier absent permission, without regard to that foreign carrier's ability to exercise market power
and without a provision allowing for non-discriminatory dissemination.  We find that this general approach
is consistent with our general policy governing the confidentiality of competing carrier information.  We
thus prohibit U.S. carriers from receiving proprietary or confidential information obtained by any foreign
carrier in the course of its regular business dealings with a competing U.S. carrier, unless the competing
U.S. carrier provides its specific permission in writing.  We clarify that, where a U.S. carrier is affiliated
with a foreign carrier, the proprietary or confidential information of other U.S. carriers obtained by that
foreign affiliate may not be used for any purpose other than for conducting the correspondent relationships
with those U.S. carriers from which it obtained the information.  We adopt this rule as a general
requirement on all existing, pending, and future authorizations to provide U.S. international services.

                       b.     U.S. Customer Proprietary Network Information

     172. We requested comment in the Notice on whether a U.S. carrier's use of foreign market
telephone customer information is subject to Section 222 of the Act and any rules that the Commission
adopts to implement that provision.  In enacting Section 222, entitled "Privacy of Customer
Information," Congress expressly directed a balancing of "both competitive and consumer privacy
interests" with respect to customer proprietary network information (CPNI).  We examine foreign market
telephone customer information in light of Section 222.

     173.   Several commenters oppose applying Section 222 to the use of foreign-derived CPNI. 
Sprint and SBC assert that foreign-derived customer information is not CPNI under Section 222.  Sprint
argues that the Commission is not responsible for the privacy of such information, which pertains to
foreign citizens and is within the jurisdiction of a foreign administration.  To the extent the United States
has any interest, Sprint claims, it relates solely to the possibility that unequal distribution of such
information will harm competition in the United States.  AT&T asserts that a U.S. carrier's exclusive use
of customer information derived from its foreign affiliate is within the Commission's authority.  SBC
contends that applying Section 222 "would raise numerous foreign relations problems."  

     174. USTA contends that rules governing foreign-derived CPNI are not necessary but argues that,
if the Commission decides to move forward, "[i]t is absolutely vital that these rules be consistent with the
domestic CPNI rules now under consideration."  USTA also asserts that the Commission should avoid
imposing "onerous" customer approval procedures that would make it harder to provide one-stop shopping
options or to notify customers of new products.  Sprint argues in favor of a case-by-case approach that
would allow the Commission to ban the use of foreign market information where such information could
have an anticompetitive effect on a particular route.  AT&T concludes that it is unclear whether Section
222 applies to a foreign carrier's foreign market telephone customer information, but asserts that the
Commission has the authority to require a U.S. affiliate to make available on a nondiscriminatory basis any
foreign market telephone customer information it obtains from its foreign affiliate.  

     175. We have issued a notice of proposed rulemaking to establish rules governing carrier use of
CPNI pursuant to Section 222.  Our proposed rules, however, do not address the use of U.S. customer
information derived from a foreign telecommunications market.  We recognize here that foreign customer
information derived from a foreign network is within the jurisdiction of foreign administrations, but we note
that foreign carriers also may collect information about U.S. customers who either make international calls
to, or receive calls from, the foreign country.  We consider this U.S. customer information to be foreign-
derived CPNI.  Absent effective safeguards, a U.S. carrier could acquire from a foreign carrier, and
make use of, this information without obtaining the U.S. customer's consent.  Use of this information raises
concerns about U.S. customer privacy.  We also find that the use of foreign-derived CPNI in the U.S.
market could raise competitive concerns, as Sprint contends.  In particular, competition in the U.S.
market might be harmed if a U.S. carrier were to gain exclusive access to CPNI generated by a foreign
carrier through its monopoly control or near-monopoly control in a relevant market on the foreign end of a
particular route.  Rival U.S. carriers would have no alternative means to obtain similar information on that
route.  We conclude here that safeguards are necessary given the privacy concerns and anticompetitive
effects that may result from the use of foreign-derived U.S. customer CPNI.

     176. Section 222(a), by its terms, applies a duty on every telecommunications carrier to protect
the confidentiality of customer information.  We find that this general obligation requires all U.S. carriers
to protect individual U.S. customers' information, whether the information is U.S.- or foreign-derived.  We
are not persuaded that a case-by-case approach to banning the use of foreign-derived CPNI, as Sprint
suggests, would address our concerns related to U.S. customer privacy.  In response to the comments of
USTA, we adopt rules governing foreign-derived U.S. customer CPNI that are consistent with Section 222
of the Act.  We therefore conclude that if a U.S. carrier desires to gain access to, or make use of, foreign-
derived CPNI pertaining to a specific U.S. customer, it must first obtain approval from that customer.  In
doing so, the U.S. carrier also must notify the customer that the customer may require the U.S. carrier to
disclose the CPNI to unaffiliated third parties upon written request by the customer.  This requirement
serves to alert the customer of its right to decide whether, in addition to the requesting carrier, it would like
other carriers to gain access to the information.  Taken together, these procedures balance Section 222's
privacy and competitive issues.  We find, moreover, that these conditions are not unnecessarily burdensome
and will not prevent U.S. carriers from offering one-stop shopping options.

C.   Competitive Safeguards for Affiliated Carriers

     177. As we noted above, a U.S. carrier and a foreign carrier with market power on the 
foreign end of a particular route may have the ability, absent effective safeguards, to engage in
anticompetitive behavior that results in competitive harms in the U.S. market.  Consistent with our
previous decisions, we find that an ownership affiliation between a U.S. carrier and its foreign
counterpart significantly increases the ability and often the incentive to engage in such behavior. 
Anticompetitive strategies are easier to enact when carriers share common ownership; the incentive to do
so, moreover, is frequently much greater when the profits from such behavior accrue to an affiliated or
integrated entity.  As we stated in the Foreign Carrier Entry Order, a foreign carrier can benefit directly
by engaging in anticompetitive behavior that increases the profits of its U.S. affiliate when the profits are
passed through to the foreign carrier.  Similarly, a significant investment in a U.S. carrier can provide a
foreign carrier with sufficient influence to entice the U.S. affiliate to engage in anticompetitive conduct in
the U.S. market.  

     178. Because we find that affiliated carriers have a "heightened" ability and incentive to engage in
anticompetitive behavior, we therefore apply additional safeguards to U.S. carriers on routes where they
are affiliated with foreign carriers.  We clarify that our decision here retains the "greater than 25 percent"
ownership affiliation standard that we adopted in the Foreign Carrier Entry Order.

     1. Benchmark Conditions

     Background

     179. In the Notice, we observed that we had proposed in our Benchmarks proceeding to condition
the facilities-based switched and private line authorizations of U.S. carriers to serve affiliated foreign
markets on the affiliated foreign carrier offering U.S. carriers a settlement rate that is at or below the
relevant settlement rate benchmark.  Following the release of our Notice we adopted the Benchmarks
Order, which prohibits a U.S. carrier from offering facilities-based switched or private line service to an
affiliated market unless its foreign affiliate charges a settlement rate to all U.S. carriers that does not
exceed the relevant benchmark.  We concluded that this benchmark condition would reduce the ability of
a U.S. facilities-based carrier to execute a "predatory price squeeze."

     180. In an Ex Parte filed in the Benchmarks proceeding, AT&T argued that we should apply the
facilities-based benchmark condition we proposed in the Benchmarks Notice to authorizations to provide
switched resale service from the United States to an affiliated market.  AT&T attached to its Ex Parte its
comments in this proceeding.  We concluded in the Benchmarks Order that AT&T's argument was better
addressed in this proceeding, where we would have a more complete record on the issue of applying the
benchmark condition to switched resale service.

          Positions of the Parties

     181. Commenters for the most part raise the same arguments in this proceeding as they raised in
our Benchmarks proceeding.  As in the Benchmarks proceeding, some commenters support our settlement
rate benchmark condition for authorizations to provide international facilities-based service from the United
States to an affiliated foreign market, some oppose it on the ground that it is not necessary, and others seek
to modify the condition because, they argue, it is not stringent enough.  Some commenters also raise
concerns, as they did in the Benchmarks proceeding, that the condition violates the United States' GATS
obligations.

     182. Certain commenters state that the benchmark condition is not necessary because foreign-
affiliated carriers do not have the ability and/or incentive to execute a price squeeze.   Others contend
that a benchmark condition is not necessary because market forces will force significant reductions in
settlement rates without further regulatory intervention.  Some commenters argue that there are means to
address potential anticompetitive behavior other than the benchmark condition.

     183. Several commenters also express a concern that the benchmark condition violates the United
States' GATS obligations.  Some contend that the condition constitutes a prohibited pre-entry restriction
and will create a barrier to entry into the U.S. market.  Others argue that the condition is inconsistent
with the national treatment and/or Most Favored Nation ("MFN") principles of the GATS because, they
argue, it is directed at foreign carriers.

     184. AT&T supports using the settlement rate benchmarks as an authorization condition to
address price squeeze behavior by carriers serving affiliated markets.  However, AT&T contends that we
should condition a carrier's authorization to serve an affiliated market on that carrier's foreign affiliate
offering U.S. carriers a cost-based settlement rate, rather than a settlement rate at or below the relevant
benchmark.  AT&T further argues that we should apply the same condition we proposed in the
Benchmarks Notice for authorizations to provide facilities-based switched service from the United States to
an affiliated market to authorizations to provide switched resale service from the United States to an
affiliated market.  AT&T submits an affidavit of William Lehr which argues that the same ability and
incentives to engage in a price squeeze that exist with respect to facilities-based service to affiliated markets
apply with equal force to the provision of switched resale to affiliated markets.  According to AT&T,
because resale entry has major advantages over facilities-based entry, application of the benchmark
condition to the provision of switched resale services to affiliated markets is especially imperative.

     185. AT&T further argues that the benchmarks condition is necessary to address the incentive of
foreign-affiliated facilities-based carriers and switched resellers to distort traffic flows from the U.S.
market.  Specifically, AT&T argues that a foreign-affiliated carrier providing service in the U.S. market
could distort traffic flows in two primary ways: (i) by participating in a call turnaround scheme to turn the
U.S.-inbound calls of its foreign affiliate into U.S.-outbound calls; and (ii) by re-originating from the
United States calls from a third country.  AT&T states that these traffic distortion schemes would harm
consumers by increasing U.S. net settlement payments.  This increase would, according to AT&T, increase
U.S. carriers' marginal costs, which in turn would put upward pressure on calling prices.

     186. AT&T proposes that if the Commission does not apply the benchmarks condition for service
to affiliated markets adopted in the Benchmarks Order to switched resellers, the Commission should
"require the foreign affiliate to charge usual (i.e., benchmark glidepath) settlement rates for its existing
traffic, and the "best practice" settlement rate for incremental minutes (i.e., minutes above levels consistent
with the existing industry outbound-inbound traffic ratio)."  AT&T states that this condition would
reduce but not eliminate a foreign-affiliated carriers' incentives to engage in settlement manipulation
activities.  WorldCom and MCI make similar proposals.  WorldCom argues that the Commission should
condition authorizations to provide switched resale service to an affiliated market on the switched reseller's
foreign affiliate "(1) committing to abide by the transition schedules and proportional glide-path
requirements set forth in the FCC's Benchmarks Order; and (2) within 90 days of the grant of authority,
entering into unconditional commercial agreements complying with the Benchmarks Order."  MCI
similarly proposes that the Commission condition switched resale authorizations on the foreign carrier
entering into a binding contractual commitment with U.S. carriers that it will reduce its settlement rate to
the applicable benchmarks by the date established in the Benchmarks Order and make a binding
commitment to undertake proportionate annual reductions in its settlement rates.  WorldCom states that
its proposal recognizes the distinction between the potential for market distortion by facilities-based and
switched resale entry.  WorldCom and MCI also state that allowing foreign carriers to enter the U.S.
market without making a commitment to comply with the settlement rate benchmarks would undermine the
Benchmarks Order by creating a disincentive for foreign carriers to negotiate lower accounting rates.

     187. Cable and Wireless opposes AT&T's request that we extend the benchmarks condition to the
provision of switched resale services.  Cable and Wireless states that the condition is not necessary, as
evidenced by the fact that it and other carriers have been providing switched resale services for years
without evidence of price squeeze behavior.  AT&T dismisses this argument, countering that Cable and
Wireless' regulation as a dominant carrier and its position as one of a few U.S.-licensed carriers with a
foreign affiliate made it unlikely to attempt to engage in anticompetitive behavior.

     188. Cable and Wireless further states that extending the condition would undermine competition
in the U.S. market by preventing future competitors from providing service and forcing existing
competitors to cease providing service.  Such a result, Cable and Wireless argues, would undermine
competition in the U.S. IMTS market and be disruptive to customers of existing carriers.  It cites its own
operations as an example of the potential impact of extending the condition to switched resale services.  It
states that if the condition is applied to switched resale services, Cable and Wireless would effectively be
forced to discontinue service to several countries, which would have a severe financial impact on the
company.  AT&T disputes this claim.  It contends that Cable and Wireless is essentially arguing that,
unless Cable and Wireless' foreign affiliates can continue to receive above-cost settlement payments from
U.S. carriers, Cable and Wireless cannot continue to provide service to affiliated markets.  AT&T
concludes that this cannot be true, given that Cable and Wireless is "a highly profitable corporation."

     189. Cable and Wireless further argues that there are several differences between the facilities-
based and switched resale markets that make application of the condition to switched resale services
unnecessary or undesirable.  First, it contends that the competitive impact of applying the condition
would be much greater for switched resale services.  Second, it claims that it would be easier to detect a
price squeeze strategy in the switched resale context because the Commission and underlying facilities-
based carriers know, or can easily ascertain, the wholesale rates that the switched resale carrier pays to the
underlying facilities-based carrier.  AT&T and MCI disagree, arguing that there are certain factors that
make monitoring of wholesale prices difficult.  Third, Cable and Wireless states that a switched reseller
has less incentive to engage in a below-cost pricing scheme because it is less likely such a scheme would be
profitable.  The reasons for this, according to Cable and Wireless, are that a resale carrier normally will
have higher costs and lower margins than a facilities-based carrier serving the same route and, unlike a
facilities-based carrier, a resale carrier does not qualify for return traffic from its foreign affiliate. 
Finally, it states that a below-cost pricing strategy would cause the underlying facilities-based carrier to
raise the wholesale rates it charges to the resale carrier because increased traffic from the resale carrier
would increase the net settlement payments of the underlying facilities-based carrier.  This would in turn
raise the costs of the switched reseller as it gains market share from its below-cost pricing.  AT&T, on
the other hand, contends that, because of the intensity of wholesale competition among facilities-based
carriers, the reseller's facilities-based carrier is unlikely to raise wholesale prices.  AT&T further argues
that even if a reseller's wholesale prices did increase, the increase might be offset by return traffic to the
switched reseller's foreign affiliate.

     190. Cable and Wireless also disputes the Lehr Affidavit submitted by AT&T, arguing that the
price squeeze theory articulated in that affidavit rests on several assumptions, including the margins in the
U.S. market, whether competing carriers will match price reductions, and the degree of demand elasticity in
the U.S. market, that have not been substantiated.  It further argues that the Lehr Affidavit is not credible
because it does not take into account the differences between the switched resale and facilities-based
markets.  Cable and Wireless also argues that applying the settlement rate condition to switched resale
services would violate the United States' GATS commitments, contravene the equal protection provisions of
the Fifth Amendment, constitute an unlawful taking under the Fifth Amendment, and be inconsistent with
the Commission's domestic policies.

     Discussion

     191. In the Benchmarks Order, we concluded that we should condition authorizations to provide
facilities-based switched or private line service to an affiliated market on compliance with the benchmark
settlement rates.  We concluded that this authorization condition is necessary to reduce the ability of
carriers serving affiliated markets to execute a predatory price squeeze.  We do not revisit those
conclusions here.  Nor do we address the comments filed in this proceeding on the authorization condition
for facilities-based service to affiliated markets.  Because we explicitly stated in the Notice that we would
decide whether to adopt the conditions in the Benchmarks proceeding, comments on the condition filed in
this proceeding are outside the scope of the issues raised in the Notice.  However, because the
authorization condition is an important element of the new regulatory scheme we adopt in this Order, we
describe the condition here.  We also address AT&T's request that we extend the facilities-based
condition to cover the provision of resold switched services to affiliated markets.  In our Benchmarks
Order, we deferred consideration of AT&T's request to this proceeding.

                       a.     Benchmark Condition for Facilities-Based Service to Affiliated Markets

     192. The settlement rate benchmark condition we adopted in the Benchmarks Order is intended to
reduce the ability of U.S.-licensed carriers to engage in a predatory price squeeze, i.e., to price below the
level of its imputed costs, when providing service to an affiliated foreign market. Pursuant to the
Benchmarks Order, we will condition an authorization to serve an affiliated market on the foreign carrier
offering U.S.-licensed international carriers a settlement rate for the affiliated route at or below the relevant
benchmark adopted in the Benchmarks Order.  Requiring that a carrier's settlement rates be at or below
the relevant benchmark before its U.S. affiliate may provide facilities-based service to an affiliated market
substantially reduces the above-cost settlement rates that could be used to execute a price squeeze.  It does
not, however, completely eliminate the ability of a carrier to execute a price squeeze because the settlement
rate benchmarks we adopted in the Benchmarks Order are still above-cost.  We therefore decided in the
Benchmarks Order that we will take enforcement action if, after the U.S.-licensed carrier has commenced
service to the affiliated market, we discover that the carrier has attempted to execute a predatory price
squeeze or engaged in other anticompetitive behavior that distorts market performance.  That action may
include a requirement that the foreign affiliate reduce its settlement rate for the route to a level equal to or
below the best practices rate we adopted in the Benchmarks Order, $0.08, or a revocation of the
authorization of the carrier to serve the affiliated market.  We adopted a rebuttable presumption in the
Benchmarks Order that a carrier has distorted market performance if any of the carrier's tariffed collection
rates on the affiliated route are less than the carrier's average variable costs on that route.

                       b.     Consideration of Benchmark Condition for Switched Resale Service to
               Affiliated Markets

     193. We now turn to the issue of whether to apply our benchmark condition to authorizations to
provide switched resale service from the United States to an affiliated market, which we did not resolve in
the Benchmarks Order.  A switched reseller normally takes service from an underlying facilities-based
carrier at a generally-available tariffed rate reflecting a volume discount, and then resells that service to
end-user customers.  The underlying facilities-based carrier is responsible for all settlement payments and
receives all proportionate return traffic.

     194. We decline to apply the settlement rate benchmark condition to switched resale providers. 
Our goal in this proceeding is to adopt a regulatory framework that is narrowly tailored to address
identifiable harms to competition and consumers in the U.S. market.  We, therefore, approach critically any
request for conditions that would impose additional burdens on the manner in which companies could
provide service to the U.S. market and thereby provide consumers with additional choices.  We concluded
in our Benchmarks Order that there exists a danger of anticompetitive effects resulting from the ability of a
facilities-based U.S. affiliate of a foreign carrier to "price squeeze" its competitors because of its
relationship with the foreign affiliate.  We do not find that the same danger of anticompetitive effects
results from a switched reseller's provision of service to an affiliated market.  We decline, therefore, to
adopt AT&T's proposal that we apply the benchmarks condition to the provision of resold switched
services.  

     195. We find that such a condition is unnecessary for two reasons.  First, a switched reseller has
substantially less incentive to engage in a predatory price squeeze strategy than a facilities-based carrier. 
Second, it is easier to detect a predatory price squeeze in the switched resale context than in the facilities-
based context.  Easier detection should deter switched resellers from attempting a predatory price squeeze
and will allow the Commission or other authorities to take action in the event a carrier does attempt a
predatory price squeeze.  We explain each of these reasons in more detail below.  We also believe the
benefits to consumers of additional new entrants and existing switched resale providers in the U.S. market
outweigh the minimal risk to competition from a possible predatory price squeeze or other anticompetitive
behavior by a switched resale provider providing service to an affiliated market.    

     196. We also decline to apply the settlement rate benchmark conditions proposed by WorldCom
and MCI.  The conditions proposed by WorldCom and MCI would require that a switched reseller's foreign
affiliate commit to abide by the transition schedules and proportional glide-path requirements set forth in
the FCC's Benchmarks Order.  We decline to adopt WorldCom and MCI's proposed conditions for the
same reason we do not apply the condition adopted in the Benchmarks Order:  they are not necessary or
appropriate to address a concern about anticompetitive behavior in the U.S. market.  As discussed in more
detail below, we conclude that the provision of switched resale services to affiliated markets does not raise
the same competitive concerns as the provision of facilities-based service to affiliated markets.  WorldCom
and MCI state that allowing foreign carriers to enter the U.S. market without making a commitment to
comply with the settlement rate benchmarks would undermine the Benchmarks Order by creating a
disincentive for foreign carriers to negotiate lower accounting rates.  The safeguards we adopt in this Order
and the settlement rate benchmark conditions we adopted in the Benchmarks Order are designed to address
competitive concerns in the U.S. market.  Where conditions are not necessary to address such concerns, we
do not believe they are appropriate.  As we stated in the Benchmarks Order, we will take appropriate
enforcement measures as may be necessary to ensure that U.S. carriers satisfy our benchmark
requirements.  Our action in this proceeding does not undermine our commitment to achieving compliance
by U.S. carriers with our benchmarks.

     197. We also find, contrary to AT&T's argument, that there is no evidence that affiliation status
significantly exacerbates the potential for traffic distortions.  At most, an affiliate relationship could
facilitate arrangements that may result in traffic distortions.  We thus conclude that the settlement rate
benchmark condition would not be an appropriate safeguard against such potential traffic distortions. 
Nevertheless, to monitor whether switched resale entry into the U.S. market exacerbates the potential risk
of traffic distortions, we will apply a quarterly traffic and revenue reporting requirement to switched resale
carriers where they are affiliated with a foreign carrier that possesses sufficient market power in the foreign
market to adversely affect competition in the U.S. market. 

                         i.   Incentive to Engage in a Price Squeeze Strategy

     198. We address first our conclusion that a switched reseller lacks significant incentives to engage
in a predatory price squeeze strategy.  AT&T argues that a U.S.-licensed carrier providing switched resale
services to an affiliated market has the same ability and incentive to execute a price squeeze against
competitors in the U.S. market as a facilities-based carrier providing service to an affiliated market.  We
agree with AT&T that a U.S.-licensed carrier providing switched resale services to an affiliated market has
the ability to price its retail services below the level of its imputed costs.  We disagree, however, with
AT&T's contention that the threat of a predatory price squeeze is the same in the switched resale context as
it is in the facilities-based context.  For the reasons described below, we believe that a switched resale
carrier has less of an incentive than a facilities-based carrier to attempt a price squeeze that aims to
foreclose competition in the IMTS market on an affiliated route.

     199. An integrated carrier may attempt a predatory price squeeze if it expects that it can
subsequently raise price while foreclosing subsequent entry by new competitors.  However, a switched
reseller generally can neither force competitors to exit nor prevent subsequent entry.  This is because a
switched resale provider does not control the underlying international facilities over which it provides
service.  The lack of control over facilities means that it would be impossible for a switched reseller to
force all facilities-based carriers to cease serving a route permanently.  Because existing facilities are sunk
investments, it is implausible that they would be abandoned.  If a facilities-based carrier were forced to exit
as a result of the predatory strategy of a competing facilities-based carrier, the predating facilities-based
carrier could take control of the exiting carrier's facilities.  However, a switched reseller by definition
cannot acquire facilities without itself becoming a facilities-based carrier subject to the benchmark
condition.  Moreover, because a reseller must purchase wholesale service from a facilities-based carrier,
there will always be at least one facilities-based carrier in the market from whom the reseller has to buy
wholesale service.  In such a circumstance, the underlying facilities-based carrier, not the reseller, is best
positioned to benefit from the exclusion of competition.  The underlying facilities-based carrier could either
profitably raise the price of the wholesale service it sells to the preying switched reseller, or, if it had the
capability to offer retail service, profitably enter or re-enter the retail market for that route.

     200. The lack of control over facilities also means that it would be difficult for a switched reseller
to impede resale entry.  Resellers provide price discipline in the market because they can enter on short
notice and with minimal financial risk.  Unlike a facilities-based provider, a switched reseller is fully
dependent upon an underlying facilities-based carrier that is under a legal obligation as a common carrier to
provide  wholesale service to any and all resellers on a nondiscriminatory basis.  Thus, a reseller that
attempts to execute a predatory price squeeze would be unable to prevent new switched resale entrants
from easily entering the market and defeating the predatory strategy.  Further, the lack of control over
facilities would make it substantially more difficult for a switched reseller to deter future entry by both
facilities-based carriers and resellers.  A predating switched reseller is unlikely to be able to command
sufficient network capacity to credibly convince potential new entrants that they will be driven from the
market by predatory pricing.  Given that a switched reseller generally can neither force competitors to exit
nor prevent subsequent entry, we conclude that a switched reseller has less of an incentive than a facilities-
based carrier to attempt a price squeeze that aims to foreclose competition in the IMTS market on an
affiliated route.

     201. AT&T argues that a switched reseller, as well as a facilities-based carrier, would have the
incentive and ability to engage in a price squeeze without subsequently raising calling prices.  It argues that
a U.S.-licensed carrier would benefit from permanently pricing below its imputed costs because such a
pricing strategy would generate additional settlements profits to its foreign affiliate by stimulating demand
from the U.S. market to the affiliated market.  These additional settlements profits, according to AT&T,
would more than offset a carrier's losses from engaging in below-cost pricing.  We are not convinced by
AT&T's argument.  As an initial matter, it is not clear that the pricing behavior AT&T describes would
harm consumers because, under the scenario AT&T describes, calling prices would remain low
permanently.  Moreover, even if the price squeeze strategy AT&T describes would harm consumers, we are
not convinced that the strategy would be successful for the predating carrier.

     202. AT&T's argument is based on the assumption, contained in the Lehr Affidavit, that U.S.
competitors would match the U.S.-licensed carrier's price reductions, i.e., price below the level of their
costs, and accept losses indefinitely on the affiliated route in order to remain viable as full service
providers.  The premise that carriers will offer service at below-cost prices in the long-term is a highly
unusual economic theory and we are not convinced by AT&T's justification.  Moreover, competing carriers
could defeat the predating carrier's strategy by refusing to follow the price reductions.  If competing
carriers did not follow the price reductions, the predating carrier would take a greater loss because the
predating carrier would be selling more minutes at a below-cost level due to the demand that migrates from
competing carriers to the predating carrier.  Given these considerations, the likely effect of a price squeeze
strategy would be to enable the predating carrier to gain market share in the United States, but only at the
expense of reduced total profits for the integrated carrier as long as the reduced prices remain in effect.

     203. In summary, we conclude that the threat of a switched reseller attempting a predatory price
squeeze is substantially less than the threat of a facilities-based carrier attempting a predatory price
squeeze.  Our conclusion is based on our finding that a switched reseller has less incentive to engage in a
predatory price squeeze that aims to foreclose competition in the IMTS market on an affiliated route. 
Moreover, we are not convinced by AT&T's argument that a carrier would have the incentive and ability to
engage in a price squeeze without foreclosing competition and subsequently raising prices.  To the contrary,
we find that the price squeeze strategy described by AT&T is unlikely to be profitable for either a facilities-
based carrier or a switched reseller.

                         ii.  Detection of Price Squeeze Strategy

     204. We further find that we need not apply the benchmark condition for service to affiliated
markets to the provision of switched services because detection of an attempted predatory price squeeze
scheme by a switched reseller is easier than by a facilities-based carrier.  As Cable and Wireless notes, a
significant portion of a switched resale provider's costs, the wholesale rate at which it takes service from
the underlying facilities-based carrier, is known or readily identifiable by the Commission and the
underlying facilities-based carrier.  As a result, the Commission, antitrust authorities, and, potentially, the
underlying facilities-based carrier, will be able to detect if a switched reseller attempts to price below the
level of the wholesale rate at which it takes service.  This is not the case for facilities-based carriers,
because the Commission and carriers do not have precise information on the underlying transmission costs
of a facilities-based carrier.  While a switched reseller has some additional variable costs, primarily
marketing costs, by far the bulk of its variable costs is the wholesale rate at which it takes service.  Thus,
any price for switched resale service that is below the level of the wholesale tariff at which the switched
reseller takes service would be suspect.  

     205. We note that MCI argues that the Commission should require switched resellers with foreign
affiliates that have market power to file with the Commission "copies of all contracts, agreements and
arrangements, whether written or oral, with any other carrier relating to services and traffic on all
routes."   MCI argues that such a condition is necessary to provide an opportunity to monitor the
reseller's costs to ensure that it is not acting in an anticompetitive manner.  We decline to adopt this
commitment as a general requirement applied to all switched resellers that are affiliated with a foreign
carrier with market power.  While obtaining a switched reseller's costs for underlying services may be
cumbersome in some cases, the Commission can nonetheless require carriers to provide the information
necessary to calculate the price at which they take service.  Moreover, as MCI notes, there is an active spot
market in wholesale minutes.  The existence of a spot market means that market participants have up-to-
date information on pricing trends.  It does not, contrary to MCI's argument, make it more difficult to
detect a price squeeze strategy by a switched reseller.  These factors make detection of an attempted
price squeeze scheme by a switched reseller easier than for a facilities-based carrier.  Easier detection for
switched resellers should act as a deterrent to carriers contemplating a predatory price squeeze.  It would
also enable the Commission to monitor the market and take action, including imposing additional
authorization conditions, to prevent anticompetitive behavior if necessary.

     206. We also decline to adopt the proposal of Telefnica Internacional, offered as an alternative
to the benchmark condition, to apply a requirement that foreign-affiliated switched resellers agree to refrain
from offering service at an average price that is below the average price at which they obtain those services
from underlying facilities-based carriers.  Telefnica Internacional notes that in the TSC Order, the
International Bureau accepted a similar voluntary commitment by the resale carrier Telmex/Sprint
Communications, L.L.C. (TSC).  As we discussed above, we find that switched resellers have
significantly less incentive to engage in a price squeeze.  We therefore decline to adopt this commitment as
a general requirement applied to all foreign-affiliated switched resellers.  We note, however, that we have
the authority to require individual resellers to comply with such a requirement if we deem it is warranted in
a particular circumstance.

          iii. Traffic Distortions

     207. AT&T argues that entry into the U.S. market by dominant foreign carriers can exacerbate
gaming of the settlements process on affiliated routes and that this concern justifies application of the
benchmarks condition to both facilities-based and switched resale providers.  Specifically, AT&T argues
that a foreign-affiliated carrier providing service in the U.S. market could game the settlement system by
distorting traffic flows in two primary ways: (i) by participating in a call turnaround scheme to turn the
U.S.-inbound calls of its foreign affiliate into U.S.-outbound calls; and (ii) by re-originating from the
United States calls from a third country.  AT&T states that the first of these traffic distortion schemes,
call turnaround, would benefit the foreign carrier by generating additional settlement revenues and benefit
the underlying U.S. facilities-based carrier involved in the scheme by increasing its share of return traffic at
the expense of other competing carriers in the U.S. market.  According to AT&T, the second of these
traffic distortion schemes, re-origination, would benefit a U.S. facilities-based carrier by increasing its
share of return traffic at the expense of other competing carriers in the U.S. market.  AT&T states that
these traffic distortion schemes would harm consumers in the same way that one-way bypass of the
settlements system would -- by increasing U.S. net settlement payments.  This increase would, according to
AT&T, increase U.S. carriers' marginal costs, which in turn would put upward pressure on calling
prices.

     208. We agree that foreign carriers have incentives to distort traffic flows in ways that would
increase settlement payments from U.S. facilities-based carriers and that, in turn, U.S. facilities-based
carriers have an incentive to increase their share of proportionate return traffic.  In addition, switched
resellers have an incentive to engage in call turnaround because it would generate additional revenues from
the sale of U.S.-outbound minutes to the foreign carrier.  However, it is not clear that these practices are
likely to harm competition and consumers in the U.S. market.  U.S. carriers currently engage in call turn-
around and re-origination practices.  As AT&T notes, these practices can have pro-competitive benefits,
such as arbitraging differences in retail prices between foreign countries and the U.S. or differences in
settlement rates that a foreign country charges for terminating traffic from various countries.

     209. Even if the traffic distortions described by AT&T would harm competition and consumers in
the U.S., we are not convinced that the potential for such traffic distortions would be exacerbated by
foreign entry into the United States, as AT&T argues.  To the contrary, the incentives and, to a large
extent, the ability to engage in the traffic distortions described by AT&T exist regardless of whether there
is an affiliate relationship between a foreign and U.S. carrier.  With respect to AT&T's argument about call
turn-around practices, it may be somewhat easier for a foreign carrier to engage in call turn-around if it has
a U.S. affiliate because the foreign carrier would not have to find a separate carrier in the U.S. market
through which to route traffic.  Given that any U.S. carrier would increase revenues by participating with a
foreign carrier in call turnaround, however, it should not be difficult for a foreign carrier to find an
unaffiliated carrier in the United States through which to route traffic.  Indeed, AT&T states that because
"there are competing U.S. carriers vying to provide wholesale transport capacity, a foreign carrier will find
no shortage of willing partners."  With respect to AT&T's arguments about re-origination of third
country traffic, U.S. facilities-based carriers do not need a foreign affiliate to engage in this practice.  As
AT&T notes, U.S. facilities-based carriers currently re-originate traffic from third countries to arbitrage
differences in accounting rates.  They do this despite the fact that foreign carriers generally do not
approve of re-origination.  We thus believe that affiliation is unlikely to increase substantially a foreign
carrier's incentive or ability to engage in traffic manipulation.

     210. AT&T states generally that "affiliation can help to align interests" of the parties engaged in
the traffic distortion scheme but does not provide any evidence that affiliation status increases the incentive
to engage in traffic distortions or makes it significantly easier to engage in such distortions.  The only
concrete benefit of alliance cited by AT&T is that "any offsetting financial transfers that may be necessary
to compensate one party or another could be undertaken in a less detectable manner   and perhaps in a
more lawful manner as well   through an affiliate than otherwise."  It is not clear, however, that
"offsetting financial transfers" would be necessary in most cases, as U.S. carriers would gain revenues
from participating in the schemes described by AT&T.  As an example of an "offsetting transfer," AT&T
states that additional compensation would be necessary if the wholesale price paid by a foreign carrier to a
U.S. facilities-based carrier is not sufficient to compensate the facilities-based carrier for the cost of
providing U.S.-outbound service for call turn-around practices.  AT&T states that this could occur if the
additional outbound traffic that resulted from the call turn-around practices raised the facilities-based
carriers' marginal cost of providing service.  While there may be cases where additional outbound-traffic
raises a facilities-based carrier's marginal cost, the facilities-based carrier could be made whole simply by
raising its wholesale prices to a compensatory level.  Nonetheless, even if "offsetting financial transfers"
were necessary in some instances, we believe that the traffic reporting requirements we adopt below will
enable us to detect whether affiliated carriers are engaging in traffic distortion schemes on affiliated routes.

     211. We find that concerns about potential traffic distortions are not directly related to affiliation
status.  Moreover, there is not sufficient evidence in the record to demonstrate that the potential traffic
distortions AT&T describes are so likely to harm competition and consumers in the United States that
applying the benchmarks condition is necessary.  We accordingly conclude that adopting the condition
proposed by AT&T or applying the benchmarks condition we adopted in the Benchmarks Order to the
provision of switched resale services to an affiliated market would not be an appropriate safeguard against
potential traffic distortions.  Nonetheless, we adopt a reporting scheme to monitor traffic flows carefully to
determine whether foreign carrier entry into the U.S. market could exacerbate the potential for
anticompetitive traffic distortions.  In Section V.C.2.b.(iv), infra, we adopt a quarterly traffic and revenue
reporting requirement that will enable us to detect whether facilities-based carriers are engaging in traffic
distortion schemes on routes where they are affiliated with foreign carriers that possess market power. 
We adopt here a requirement that all switched resale providers file quarterly traffic and revenue reports
pursuant to Section 43.61 on international routes where they are affiliated with a foreign carrier that
possesses market power in a relevant market on the foreign end of the route and that collects settlement
payments from U.S. carriers.  This reporting requirement should enable us to detect whether switched
resellers are engaging in traffic distortion schemes on affiliated routes.

     212. We emphasize that we reserve the right to review and, if necessary, impose additional
conditions as necessary on individual authorizations if we perceive that a carrier is attempting to engage in
anticompetitive behavior.  If we find that a U.S.-licensed carrier, regardless of whether it is providing
service to an affiliated market, is engaging in traffic distortion practices that harm competition and
consumers in the U.S. market, we will take appropriate measures.  For example, in such a case, we could
apply the benchmark condition to an individual switched reseller providing service to an affiliated market.

          iv.  Other Considerations

     213. We are also concerned that applying the settlement rate benchmark condition to the provision
of switched resale services to affiliated markets will substantially limit additional entry into the U.S. IMTS
market.  As AT&T and Cable and Wireless point out, resale entry may have advantages over facilities-
based entry for some entrants.  It is less expensive initially and less capital intensive, and can thus occur
more rapidly than facilities-based entry.  Applying the settlement rate benchmark condition to switched
resale services could effectively deter some carriers from entering the U.S. market on a resale basis and is
not necessary, given our findings here.  We are also concerned, as Cable and Wireless points out, that
extending the condition to switched resale services could effectively force existing competitors to exit the
market, thereby further reducing competition and resulting in disruption to consumers.  We thus conclude
that the benefits to consumers of additional new entrants and existing switched resale providers in the U.S.
market outweigh the minimal risk to competition from the potential anticompetitive conduct discussed
above.

     214. We emphasize here that we will monitor the switched resale market carefully and if we find
substantial evidence that carriers providing switched resale services to affiliated markets are engaging in
anticompetitive behavior that causes harm to competition and consumers in the U.S. market, we may
reconsider our decision not to apply the benchmark condition to the provision of switched resale services. 
We also reserve the right to impose additional conditions as necessary on individual authorizations if we
perceive that a carrier is attempting to engage in anticompetitive behavior.

     2. Dominant Carrier Safeguards

                       a.     Regulatory Framework

     Background

     215. Our regulations governing the U.S. international services market traditionally have
distinguished between "dominant" and "non-dominant" carriers.  We have classified carriers operating in
the U.S. market, whether U.S.- or foreign-owned, as dominant in their provision of U.S. international
services on particular routes in two circumstances:  (1) where we have determined that a U.S. carrier can
exercise market power on the U.S. end of a particular route; and (2) where we have determined that a
foreign carrier has market power on the foreign end of a particular route that can adversely affect
competition in the U.S. international services market.  Carriers regulated as dominant on a particular
route due to an affiliation with a carrier possessing market power on the foreign end of that route are
subject to specific safeguards set forth in our rules.  These safeguards differ significantly from the
safeguards the Commission traditionally has imposed on U.S. carriers regulated as dominant due to market
power on the U.S. end of a route because our domestic rules are "generally designed to prevent a carrier
from raising its prices by restricting its output rather than to prevent a carrier from raising its prices by
raising its rivals' costs."  Our focus here is to adopt an effective regulatory scheme to address the risk of
anticompetitive behavior by U.S. carriers affiliated with carriers that have market power on the foreign end
of a U.S. international route.

     216. We tentatively concluded in the Notice that the general obligations imposed on all U.S.
international carriers permit us to scale back our current dominant carrier safeguards "without
compromising in any meaningful way our ability to monitor and prevent anticompetitive conduct."  We
therefore proposed a set of basic dominant carrier safeguards that would apply to foreign-affiliated carriers
if the foreign affiliate faces international facilities-based competition.  These safeguards would replace the
fourteen-day advance notice requirement for international service tariffs with a one-day notice period and a
presumption of lawfulness.  We also proposed to substitute a quarterly notification of circuit additions and
discontinuances in place of the requirement that dominant foreign-affiliated carriers obtain prior approval
before adding or discontinuing circuits on the dominant route.  We proposed to retain the requirements that
dominant carriers file quarterly traffic and revenue reports and maintain provisioning and maintenance
records for services on their affiliated route.

     217. We also proposed to adopt a second dominant carrier category for those U.S. carriers
affiliated with a foreign carrier that has market power in a relevant market and does not face competition
from multiple international facilities-based competitors.  In addition to the basic safeguards identified
above, we proposed to retain the existing prior approval requirement for circuit additions and
discontinuances, require the filing of quarterly summaries of provisioning and maintenance records and
quarterly circuit status reports, and ban exclusive arrangements involving joint marketing, customer
steering, or the use of foreign market telephone customer information.  Finally, we requested comment on
whether a U.S. carrier and its foreign affiliate should be subject to some level of structural separation.

     Positions of the Parties

     218. Commenters are divided over our dominant carrier regulatory framework.  Some
commenters claim that it is unnecessary to apply any dominant carrier safeguards to U.S. carriers affiliated
with foreign carriers that possess market power in a relevant market.  A number of commenters contend
that, rather than adopting the dominant carrier safeguards, the Commission should impose sanctions where
it finds evidence of anticompetitive behavior.  

     219. Several commenters perceive the need to classify U.S.-licensed carriers as dominant on
routes where they are affiliated with a carrier that possesses market power on the foreign end.  Several of
these commenters strongly support the proposal to remove unnecessary regulations on U.S. carriers that are
affiliated with foreign carriers that possess market power.  Some commenters support dominant carrier
safeguards but oppose the two-tier proposal.  Other commenters support our proposal to adopt a
dominant carrier regulatory framework consisting of basic and supplemental safeguards.  WorldCom
supports the safeguards but argues that the Commission should apply varying levels of safeguards on a
case-by-case basis.  Finally, New T&T Hong Kong argues that the basic safeguards are not sufficient to
prevent harm to competition and urges the Commission to impose the supplemental safeguards on all U.S.
affiliates of foreign carriers that possess market power on the foreign end of a U.S. international route.

     220. In addition, some commenters assert that the affiliation standard that serves as a threshold
for applying dominant carrier safeguards must be clarified.  Several commenters also express support for
our proposal to continue the existing policy of applying dominant carrier regulation to a U.S. carrier where
a co-marketing or other non-equity arrangement with a foreign carrier that has market power raises a
substantial risk to competition.  France Telecom argues that our affiliation standard should extend to all
non-equity alliances.  In petitions for reconsideration of the Foreign Carrier Entry Order, MCI and
BTNA propose that we adopt a requirement that non-equity business arrangements with foreign carriers be
filed with the Commission within 30 days of their execution and impose competitive safeguards where
necessary and appropriate.

     Discussion

     221. The dominant carrier regulatory framework we adopt here is aimed at detecting and deterring
anticompetitive behavior in the U.S. market by foreign carriers and their affiliated U.S. carriers.  As
discussed below, we conclude that we should retain a single-tier dominant carrier regulatory approach and
classify any U.S.-licensed carrier as dominant on a particular route if it is affiliated with a foreign carrier
that possesses market power in a relevant market on the foreign end of that route.  We remove existing
requirements that are unnecessarily burdensome and adopt a narrowly tailored dominant carrier framework
designed to address specific concerns of anticompetitive behavior.  We decline to adopt the restrictions on
changes in capacity or service options that were proposed as supplemental safeguards, although we may
impose them in the future as remedial measures in the event that we find evidence of anticompetitive
conduct.  The regulatory framework we adopt here allows the Commission to monitor and detect
anticompetitive behavior while limiting the regulatory burden imposed generally on foreign-affiliated U.S.
carriers.

     222. We modify the safeguards we apply to U.S. carriers classified as dominant due to an
affiliation with a foreign carrier that has market power in a relevant market as follows:  we replace the
fourteen-day advance notice tariff filing requirement with a one-day advance notice requirement and accord
these tariff filings a presumption of lawfulness; we remove the prior approval requirement for circuit
additions or discontinuances on the dominant route; we require a limited form of structural separation
between a U.S. carrier and its foreign affiliate; we retain our quarterly traffic and revenue reporting
requirement; we replace our provisioning and maintenance recordkeeping requirement with a quarterly
reporting requirement that summarizes the provisioning and maintenance services provided by the foreign
affiliate; and we adopt a quarterly circuit status report.  We decline to adopt our proposal to ban exclusive
arrangements involving joint marketing, customer steering, and the use of foreign market telephone
customer information.

     223. As we noted above, we retain the greater than 25 percent ownership affiliation standard that
we adopted in the Foreign Carrier Entry Order.  Although Sprint questions our affiliation standard, we
generally agree that "[a]s investment increases, not only does the incentive to discriminate increase, but also
the means to accomplish such discrimination."   We reiterate our finding that the 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.  The safeguards we adopt
here are designed to address this heightened incentive and ability of a foreign carrier with market power and
its affiliated U.S. carrier to engage in anticompetitive behavior.  

     224. We also adopt the tentative conclusion in the Notice that we should continue our current
regulatory treatment of co-marketing and other non-equity business arrangements between U.S. carriers
and their foreign counterparts that affect the provision of U.S. basic international services.  We agree
with the comments of AT&T, Sprint, and PanAmSat that we should apply dominant carrier regulation to a
U.S. carrier's provision of service on a particular route where a co-marketing agreement or other non-equity
arrangement with a foreign carrier with market power presents a substantial risk of anticompetitive harm in
the U.S. international market.  We decline to adopt the proposal by France Telecom to subject all non-
equity alliances to "at least the same scrutiny and safeguards and any other conditions as are applied to
equity alliances."  We find that applying dominant classification to all non-equity arrangements, absent a
finding of substantial risk of competitive harm, would impose an unnecessary burden.  We also decline to
adopt a filing requirement for non-equity business relationships as proposed by MCI and BTNA in their
petitions for reconsideration in the Foreign Carrier Entry Order proceeding.  We agree with AT&T that
any such filing requirement would be extremely broad and would have little potential impact on
competition.  We expect the number of those arrangements to increase and the potential harm to
competition to decrease as countries begin to liberalize their telecommunications markets.  Some of the
non-equity business relationships that concern MCI and BTNA, moreover, must be reported pursuant to
Section 43.51 of our rules.  We anticipate that, if a particular arrangement not covered by Section 43.51
presents a serious risk to competition, other carriers will bring the arrangement to our attention, and,
pursuant to Section 218 of the Act, we could require the filing of any information necessary to review the
participating U.S. carrier's regulatory status.

     225. Given the heightened risks of anticompetitive behavior associated with affiliated carrier
dealings, we conclude that, in addition to the No Special Concessions rule and the benchmark condition,
further safeguards are warranted where a U.S. carrier is affiliated with a foreign carrier that possesses
market power in a relevant market on the foreign end of a particular route.  These further safeguards, we
find, should allow the Commission to monitor and detect anticompetitive behavior without imposing
unnecessarily burdensome regulation on a U.S. carrier's provision of service due to its affiliation with a
foreign carrier.  We thus adopt an approach that in large part relies on reporting requirements, rather than
restrictions on capacity changes or service options, to prevent affiliated carriers from causing competitive
harms in the U.S. market.  

     226. Some of the reporting requirements we adopt are similar in nature to requirements the
Commission has applied in the domestic context to carriers with market power.  As part of the Computer
III proceeding, for example, the Commission required AT&T and the Bell Operating Companies (BOCs) to
file quarterly nondiscrimination reports with regard to the underlying basic services they provide to their
own enhanced service offerings in comparison with the basic services they make available to their
competitors in the enhanced services market.  In the U.S. international services context, we are similarly
concerned that a foreign carrier with market power in a relevant market on the foreign end of a particular
route will favor its U.S. affiliate to the detriment of unaffiliated U.S. carriers and U.S. consumers.  We
assert our jurisdiction over the U.S. affiliates of these foreign carriers and require these U.S. carriers to file
reports that allow the Commission and others to determine whether they receive favorable treatment at the
expense of unaffiliated U.S. carriers.  Consistent with this approach, we also require these U.S. affiliates to
file other reports that indicate whether they are engaging in anticompetitive behavior that affects traffic or
revenues to or from the United States.
 
     227. We decline to adopt a supplemental tier of dominant carrier safeguards that would apply to
U.S. carriers affiliated with foreign carriers that do not face facilities-based competition on the foreign end
of a particular route, as proposed in the Notice.  We are not convinced, as we initially proposed and as
several U.S.-based carriers contend, that it is necessary to differentiate between a U.S. carrier that is
affiliated with a foreign carrier that is a monopolist and one that possesses market power but faces some
level of international facilities-based competition.  Both a monopolist and a foreign carrier with market
power that faces some level of competition have the ability to engage in price and non-price discrimination
against unaffiliated U.S. carriers.  Although a monopolist may be able to cause a greater degree of
competitive harm because it possesses greater market power, it cannot engage in a different kind of
anticompetitive conduct.  We find that the dominant carrier safeguards we adopt here, which include some
of the reporting requirements proposed as supplemental safeguards, are necessary and sufficient to enable
the Commission to detect and deter a foreign carrier from using its market power on the foreign end to
benefit its affiliated U.S. carrier, regardless of whether the foreign carrier faces some level of competition
in its home market or is a monopolist.  

     228. We do not adopt as part of our dominant carrier framework those safeguards that would
restrict the service options or circuit capacity changes of U.S. carriers affiliated with foreign monopoly
carriers.  We concur with statements of the European Commission and Deutsche Telekom that such
proscriptive measures may be overly burdensome, absent any finding of proven anticompetitive conduct. 
We agree with several commenters, however, that the Commission should retain authority to impose
sanctions, including those restrictions proposed as supplemental safeguards, in the event we find evidence
of anticompetitive conduct.

     229. We also are not persuaded by AT&T that we should apply a supplemental tier of safeguards
to U.S. carriers that are affiliated with foreign carriers with market power unless the destination country
not only has authorized multiple facilities-based competitors but also has fully implemented the Reference
Paper and allows foreign entities to hold controlling interests in telecommunications carriers.  Nor are we
convinced by Sprint that we should apply a supplemental tier unless there is some international competition
taking place in the foreign market.  We find that the No Special Concessions rule and the dominant
carrier safeguards we adopt here are tailored to enable the Commission to prevent the exercise of foreign
market power in the U.S. market, regardless of the nature of the foreign regulatory regime or the level of
foreign investment permitted.  We note, however, that if a foreign country does not fulfill its commitments
to the WTO Basic Telecom Agreement, the United States may file a complaint in the WTO dispute
settlement process.

     230. We adopt our tentative conclusion that we generally should not consider the effectiveness of
foreign regulation as a separate matter when making a determination of a foreign-affiliated carrier's
regulatory classification.  We are not persuaded by AT&T that the benefits derived from such
evaluations outweigh the costs incurred.  We agree with Sprint that such attempts at evaluating the
effectiveness of regulation in a foreign market impose significant burdens on the Commission and on
applicants.  Our experience has shown that obtaining sufficiently reliable and timely information about a
foreign regulatory regime is a difficult, resource-intensive, and time-consuming process.  We find that the
delay inherent in such a process would slow entry into our markets and the attendant benefits to our
consumers.  As a result, we conclude that we will apply dominant carrier regulation to all foreign-affiliated
carriers on routes where their affiliates have market power, without conducting a separate analysis of the
effectiveness of a foreign country's regulatory regime.  In making a foreign market power determination,
however, we will consider the presence and degree of barriers to entry or expansion, which may relate to
the foreign regulatory regime.

     231. We adopt the proposal in the Notice to continue to classify any U.S. international carrier  
whether U.S.- or foreign-owned   as dominant on a route where it is affiliated with a foreign carrier that
has sufficient market power in a relevant market on the foreign end to affect competition adversely in the
U.S. market.  We decline to adopt MCI's proposal to apply dominant carrier safeguards as a strong
presumption that could be rebutted "by a clear demonstration that competitive distortion in the U.S. market
would not occur."  Rather, if a carrier demonstrates that its foreign affiliate lacks market power on the
foreign end, we will classify the U.S. carrier as non-dominant on that route.

     232. As we discussed in the No Special Concessions section above, we believe that it is
appropriate to adopt a rebuttable presumption to identify a category of foreign carriers that do not possess
market power in any relevant market on the foreign end of an international route and, as a result, lack the
ability to affect competition adversely in the U.S. market.  As we determined above, we find that carriers
with less than 50 percent market share in each of the relevant markets on the foreign end generally do not
present a substantial risk of harm in the U.S. market.  We therefore adopt a rebuttable presumption that
a U.S. affiliate of a foreign carrier with less than 50 percent market share in each of the relevant markets on
the foreign end of a particular route should not be subject to dominant carrier safeguards on the affiliated
route.  

     233. This presumption of non-dominance is rebuttable.  The Commission will entertain petitions
to demonstrate that a foreign carrier with less than 50 percent market share has the ability   either
unilaterally or in concert with other carriers   to distort the U.S. international services market, and its
U.S. affiliate should be classified as dominant.  Likewise, parties may make a showing that a foreign
carrier with a market share of 50 percent or more in a relevant market does not have sufficient market
power to harm competition and consumers in the U.S. market and its U.S. affiliate therefore should be
classified as non-dominant.  We will review such petitions under an appropriate economic analysis of
market power.

     234. We find unpersuasive the claims by some commenters that dominant carrier safeguards are
unnecessary.  Deutsche Telekom and Cable & Wireless, for example, assert that safeguards are not needed
because the Notice does not cite one case in which the Commission determined that a foreign-affiliated
carrier engaged in anticompetitive conduct.  This argument fails to acknowledge that our existing
dominant carrier safeguards, in conjunction with the Foreign Carrier Entry Order's effective competitive
opportunities (ECO) entry standard, have prevented the leveraging of foreign market power into the U.S.
market.  Furthermore, it disregards the fact that we have imposed additional conditions on particular U.S.
carriers whose equity relationships with foreign carriers presented a heightened risk of anticompetitive
behavior.  Instead, we agree with the comments of the European Commission, which state that "the
European Community and its Member States consider legitimate the classification of a carrier as dominant
in order to impose further obligations" to prevent competitive harms in the U.S. market.  The European
Commission further notes that the Reference Paper expressly allows WTO Member countries to impose
obligations "on carriers who are a major supplier."  We are not persuaded by Telia NA that the growing
number of competitors, the increasingly global nature of the market, or the relative size of foreign-affiliated
carriers should diminish our finding that dominant carrier safeguards are warranted where the foreign
affiliate has sufficient market power to affect competition adversely in the U.S. market.

     235. We conclude that our dominant carrier safeguards are necessary to complement and support
other Commission rules designed to address anticompetitive behavior.  Deutsche Telekom and GTE assert
that the International Settlements Policy and the Flexibility Order adequately address our concerns
regarding competitive harms in the U.S. international market.  Cable & Wireless argues against retaining
dominant carrier safeguards, asserting that even if a foreign carrier were to route excessive return traffic to
its U.S. affiliate, its actions "would be totally obvious to everyone on the route . . . [and] would be brought
to the attention of the Commission."  Such improper routing of traffic, however, would be transparent to
all parties and more readily detected because we currently require dominant foreign-affiliated carriers to file
quarterly traffic and revenue reports.  Our procompetitive policies such as the Flexibility Order rely on
reporting requirements to establish a record of evidence available to the Commission as it monitors against
competitive harms.  With less timely reports, our ability to detect and deter such conduct would be
significantly curtailed.

     236. We also are not persuaded by Deutsche Telekom's claim that the Commission should
eliminate all dominant carrier safeguards for U.S. affiliates of foreign carriers from WTO Member
countries where the settlement rate is within the benchmark range.  Rather, we agree with Sprint and
AT&T that achievement of settlement rates does not address all forms of anticompetitive conduct, such as
non-price discrimination, that our dominant carrier safeguards are intended to address.  

     237. We also decline to adopt the proposition by several commenters that dominant carrier
safeguards are unnecessary given the WTO Basic Telecom Agreement and foreign countries' commitments
to the procompetitive principles of the Reference Paper.  Telia NA, for example, states that the WTO
Agreement will enable U.S. carriers to bypass incumbent foreign carriers, "either by corresponding with
new entrants . . . or entering these markets themselves and providing end-to-end service through self-
correspondence."  These options, Telia NA argues, will eliminate the ability of foreign carriers to
discriminate against U.S. carriers in the provision of gateway international transport circuits and gateway
switching services and facilities.  We fully expect that operating agreements with new entrants and self-
correspondence will soon become a global market reality.  We would not have committed to open our basic
telecommunications markets otherwise.  We conclude, however, that removal of foreign entry barriers alone
will be insufficient to prevent foreign carriers with market power from seeking to leverage their market
power into the U.S. market, especially in the short term.  The Reference Paper, moreover, expressly
provides that governments have the right to adopt rules to prevent anticompetitive behavior by carriers that,
alone or together, control "essential facilities or otherwise have the ability to affect the market adversely." 
We adopt our open entry policy for carriers from WTO Member countries with an understanding that the
public interest mandates that we ensure against the leveraging of foreign market power into the U.S.
market.  

     238. We fully expect that, as competitive conditions develop in foreign markets, the need for our
dominant carrier safeguards may diminish.  We therefore anticipate that in the future we will be able to
modify some of our dominant carrier safeguards to reflect a more competitive environment. 

     239. We discuss below each of the competitive safeguards proposed in the Notice and decide
which to adopt as part of our dominant carrier regulatory framework.

                       b.     Competitive Safeguards

                    (i)  Modified Tariffing Requirements

     240. We proposed in the Notice to replace the fourteen-day advance notice period imposed on
dominant foreign-affiliated U.S. carriers' international tariff filings with a one-day notice period and to
accord such tariff filings a presumption of lawfulness.  

     241. Telia NA asserts that the proposal to modify the tariffing requirement will benefit consumers
by allowing carriers to respond promptly to competitive pressures by lowering prices.  PanAmSat
opposes the proposal, asserting that it runs contrary to the fundamental purposes of the tariff filing
requirement and that it will not provide benefits to competition.  In particular, PanAmSat asserts that one
day's notice does not provide the public with an opportunity to comment nor does it provide the
Commission a realistic opportunity to enforce the requirement that the carrier's rates be just, reasonable,
and nondiscriminatory.  It also claims that a presumption of lawfulness makes the burden of rebutting
virtually impossible to sustain.

     242. As part of the Foreign Carrier Entry Order, we modified the tariff filing requirements
imposed on dominant foreign-affiliated carriers by adopting a fourteen-day advance notice period,
consistent with the notice period governing non-dominant international carriers at that time.  We
subsequently adopted a rule to allow non-dominant international carriers to file tariffs on one day's
notice.  We found that a one-day filing period would help accelerate the introduction of new international
services.  

     243. We recognize that retaining the existing tariff filing requirements possibly could constrain
the ability of a dominant foreign-affiliated carrier to engage in anticompetitive conduct.  Nevertheless, the
fact that these requirements might help to deter anticompetitive behavior is not, by itself, sufficient to retain
these measures.  We should also consider whether and to what extent these regulations would dampen
competition and whether other regulatory provisions accomplish the same objectives.  

     244. We conclude here that retaining the fourteen-day notice period significantly inhibits a
dominant foreign-affiliated carrier's incentive to reduce prices, because competitors can respond to pro-
consumer price and service changes before the tariff would become effective.  We agree with those
commenters that contend that a one-day notice period, coupled with a presumption of lawfulness, will
provide carriers with additional flexibility to respond to customer demands.  To the extent that a foreign-
affiliated carrier has the ability to engage in a predatory price squeeze, we find that the existence of a tariff
filing requirement, regardless of the length of the advance notice, will serve to deter such behavior.  These
benefits, we find, outweigh the claims raised by PanAmSat.  

     245. We find, moreover, that in the unlikely event that a foreign-affiliated dominant carrier files
an unlawful tariff, remedial action can be taken after the tariff becomes effective.  Aggrieved parties can
avail themselves of the Commission's complaint process to seek a determination of the lawfulness of any
tariff filing.  The Commission, on its own initiative, also may investigate any tariff to determine whether
it is unlawful.  PanAmSat, furthermore, does not demonstrate why a presumption of lawfulness would
make a challenge "virtually impossible to sustain."  We therefore find that the existing tariffing safeguards
are not necessary, and we adopt our proposal to allow dominant foreign-affiliated carriers to file tariffs on
one-day's notice with a presumption of lawfulness.

                         (ii) Removal of Prior Approval of Circuit Additions and Discontinuances

     246. We proposed in the Notice to eliminate the prior approval requirement for circuit additions
and discontinuances from the basic dominant carrier safeguards framework and instead to require quarterly
notification of circuit additions on the dominant route, specifying the joint owner of the circuit.  We
requested comment on whether the quarterly notification requirement should identify the particular facilities
on which each circuit is added.  We proposed to retain the prior approval requirement, however, as a
supplemental safeguard on a route where a U.S. carrier is affiliated with a foreign carrier that does not face
international facilities-based competition.  

     247. GTE, Cable & Wireless, and Telia NA observe that eliminating the prior approval
requirement will benefit consumers by allowing carriers to respond promptly to competitive pressures
through the addition of new or expanding services.  AT&T supports the proposal to eliminate the prior
approval requirement as a basic dominant carrier safeguard, provided the Commission requires notification
of each circuit addition or discontinuation on the dominant route, rather than a quarterly notification, as
well as identification of the facility on which the circuit is added or discontinued.  Cable & Wireless and
Telefnica Internacional oppose the proposal to retain the prior approval requirement as a supplemental
safeguard, arguing that it would limit a foreign-affiliated carrier's ability to respond to customer demands
and would place foreign-affiliated carriers at a significant disadvantage in the U.S. market.  Telefnica
Internacional also claims that a prior approval requirement is a significant barrier to entry that is
unnecessary given the Commission's other rules and policies.

     248. PanAmSat argues that elimination of the prior approval process would be premature,
asserting that it "serves as an important tool permitting the Commission to monitor and detect, on a timely
basis, deviations in traffic flows."  Reliance on reporting requirements, PanAmSat argues, would permit
only after-the-fact remedies.  WorldCom contends that the prior approval process is a meaningful
safeguard that allows the Commission to monitor traffic and circuit growth and respond promptly to any
anticompetitive behavior. 

     249. We agree with PanAmSat and WorldCom that the prior approval requirement allows the
Commission to monitor traffic and circuit growth and to respond to potential anticompetitive behavior
before it occurs.  On balance, however, we are persuaded by the comments of GTE that "quarterly
reporting requirements," which we adopt below, will be "sufficient to allow the Commission to detect
anticompetitive practices."  Replacing the prior approval rule with reporting requirements will allow us
to monitor conduct while permitting carriers to respond promptly to developments in the global
telecommunications market.  We acknowledge that this approach limits our ability to address potential
concerns in advance, but because our quarterly reports will provide a timely and running account of traffic
and revenue, provisioning and maintenance, and circuit status, we conclude that they will provide
specific evidence of whether harms to competition and competitors have occurred in the U.S. market.  We
believe that the existence of a monitoring scheme, coupled with effective enforcement, will deter
anticompetitive behavior.  We find that a prior approval requirement, therefore, is not necessary absent
evidence of anticompetitive behavior.  Should we find evidence of anticompetitive conduct, however, we
will consider imposing a prior approval requirement for circuit additions and discontinuances on the
dominant route.  We decline to adopt a quarterly notification of circuit additions or discontinuances
requirement or AT&T's proposed circuit-by-circuit notification requirement, given the quarterly circuit
status report and other safeguards we adopt below.

     250. Although we eliminate our prior approval requirement here, we are concerned about the
potential for concentration of capacity on U.S. international routes.  This concern, however, extends to
potential conduct by all U.S. international carriers, not just dominant foreign-affiliated carriers.  We find
that the prior approval requirement, which applies only to dominant foreign-affiliated carriers, is not the
appropriate means to address this concern.  We direct the International Bureau to study this issue further
and recommend any rule changes it deems necessary.

     251. Finally, we requested comment in the Notice on whether we should continue to apply the
prior approval requirement to dominant foreign-affiliated carriers that obtained their Section 214
authorization to serve a non-WTO Member country prior to adoption of the ECO test in the Foreign
Carrier Entry Order.  As Cable & Wireless noted in its petition for reconsideration of that order, the
ECO test applies to applications from dominant carriers when they seek to add circuits on their authorized
dominant routes.  In its comments filed in this proceeding, Cable & Wireless asserts that any prior
approval requirement "would hinder, not enhance, achievement of the Commission's goals in this
proceeding."  Given the general policy we adopt here regarding existing carriers, we conclude that it
would be unnecessarily onerous to require particular carriers to continue to seek prior approval.  We thus
find that it is in the public interest to allow these carriers to add or discontinue circuits without first
obtaining prior approval.  Of course, if we find that these affiliated carriers are engaged in anticompetitive
behavior, we may apply the prior approval requirement on that route.

                              (iii)     Separation Requirements

     252. In the Notice, we sought comment on whether to adopt, as an additional dominant carrier
safeguard, some level of structural separation between a U.S. carrier and its affiliated foreign carrier. We
sought comment on whether the approach the Commission has taken either toward Bell operating company
(BOC) or independent local exchange carrier (LEC) provision of in-region interexchange service is an
appropriate model, or whether some other level of separation is appropriate.

     253. In the past, structural separation has been imposed on vertically integrated U.S. carriers that
have control over an upstream input necessary for the provision of service in a downstream market.  The
1996 Act imposes a detailed separation requirement on BOC provision of in-region interLATA service in
Section 272 of the Act.  The Commission also imposed strict structural separation on AT&T and BOC
provision of enhanced services under the Computer II regulatory regime.  The Commission imposed a
lesser degree of structural separation on incumbent independent LEC provision of in-region interstate,
domestic interexchange service in the Competitive Carrier Fifth Report and Order in order for such LECs
to qualify for non-dominant treatment.  The Commission recently amended its rules to require all
incumbent independent LECs to provide domestic interstate interexchange and international service
originating in the LEC's local exchange service areas to comply with the Fifth Report and Order separation
requirements, with minor modifications.  Finally, the Commission recently affirmed the importance of a
similar level of separation in the LEC/CMRS Safeguards Order, governing LEC in-region provision of
commercial mobile radio service (CMRS).

     254. Our adoption of separation requirements in each of those proceedings addressed the risk that
a U.S. carrier would be able to use its market power in an upstream market in the United States (i.e., local
exchange and exchange access services) to harm competition in the downstream market (e.g., enhanced
services, domestic and international interexchange services, or commercial mobile radio service).  These
safeguards aid in the prevention and detection of anticompetitive conduct in the downstream market.  We
are concerned in this proceeding that a foreign carrier that possesses market power in a relevant market on
the foreign end of an international route could leverage its market power into the downstream U.S.
international services market.

     255. The Commission has generally applied structural separation to address discriminatory
provision of service, cost misallocation, and the possibility of a predatory price squeeze.  For incumbent
independent LEC provision of domestic interstate interexchange and international service, the Commission
imposes a minimal level of separation in order to guard against harms to consumers, competition and
production efficiency.  In the LEC Regulatory Treatment Order, the Commission required such carriers
to provide these services through separate corporate  affiliates that maintain separate books of account, do
not jointly own switching and transmission facilities with their affiliated LECs, and acquire any services
from the affiliated LECs at tariffed rates, terms, and conditions, or pursuant to an interconnection
agreement negotiated pursuant to Section 251 of the Act.  The Commission also imposed a similar level
of separation on incumbent LEC provision of in-region CMRS.  

     256. Several parties responded to our request for comment with varying degrees of specificity. 
AT&T, the Telecommunications Resellers Association and PanAmSat support imposing structural
separation.  AT&T supports a high level of separation for "supplemental dominant" carriers, urging the
Commission to require separate officers, directors and employees in order to assist in "identifying cost
misallocation and cross subsidization."  Sprint also supports a more limited structural separation, one
that is based on existing international borders.  A number of commenters support imposing structural
separation only as a remedial measure and in limited circumstances.  Others oppose requiring any form
of structural separation on the basis that it would "impede innovations that would lower prices and create
new ways of organizing the supply and distribution of international communications services."

     257. We find it necessary to require as a dominant carrier safeguard a minimal level of structural
separation between the U.S. international carrier and its foreign carrier affiliate that possesses market
power in a foreign market for international services.  We find that more stringent requirements are
unnecessary and could pose a significant burden on foreign-affiliated carriers that operate in the U.S.
market.  We find that the same concerns that led the Commission to impose a separation requirement on
incumbent independent LEC provision of in-region interstate interexchange and international service and
incumbent LEC provision of in-region CMRS also apply to the provision of U.S. international service by a
foreign-affiliated carrier to a destination market in which its affiliate has market power.  We find that
discrimination, cost misallocation, and the possibility of a predatory price squeeze by such a foreign-
affiliated carrier has the potential to cause substantial harm to consumers, competition, and production
efficiency in the U.S. international services market.  We therefore adopt a separation requirement generally
consistent with that which we apply to incumbent independent LEC provision of in-region interstate
interexchange and international service and incumbent LEC provision of in-region CMRS.  We require
a foreign-affiliated U.S. international carrier, regulated as dominant, to provide service in the U.S. market
through a corporation that is separate from the foreign carrier affiliate, maintain separate books of account,
and not jointly own switching and transmission facilities with its foreign carrier affiliate.  We find that
these requirements will not pose a significant burden on such carriers because most foreign-affiliated
carriers operating in the United States do so in a manner that is consistent with the requirements we adopt
here.

     258. We find that price and non-price discrimination by a foreign carrier in favor of its U.S.
affiliate has the potential to disadvantage an unaffiliated U.S. international carrier, and could hurt U.S.
consumers.  Our safeguards that apply to incumbent independent LEC provision of in-region interstate
interexchange and international service and incumbent LEC provision of in-region CMRS are aimed at
preventing discriminatory conduct by requiring that service be provided to an affiliate at tariffed rates,
terms and conditions, pursuant to an approved interconnection agreement, or, in the case of incumbent LEC
provision of in-region CMRS, on a compensatory arms-length basis, consistent with the Commission's
affiliate transaction rules.  Discrimination in pricing and provisioning is also a potential concern in the
market for international services in that the carrier with market power in the upstream input market can
raise the costs of its downstream rivals by discriminating in pricing or by providing a lower quality of
service to its rivals.  

     259. In general, we find that our provisioning and maintenance reports and our No Special
Concessions rule will guard against instances of non-price discrimination, and our No Special Concessions
rule and the International Settlements Policy (ISP) will guard against price discrimination.  Also, our
proportionate return policy ensures that U.S. carriers receive back return traffic in the same proportion that
they send to a foreign carrier.  In addition, our contract filing requirement in Section 43.51 of the
Commission's rules enables us to detect instances where carriers enter into arrangements that are
inconsistent with our rules and policies.  

     260. We are concerned, however, that, absent a structural separation requirement, a vertically
integrated carrier operating in U.S. and foreign markets could potentially circumvent our rules.  A single
corporate entity providing services in the U.S. market that owns facilities on each end of the international
route would be not be subject to our Section 43.51 contract filing requirement or our No Special
Concessions rule.  We also find that our requirement that a U.S. international carrier and its foreign
affiliate not jointly own switching and transmission facilities, together with our separate affiliate
requirement, will help ensure that there is sufficient transparency to determine whether the foreign carrier
has discriminated in favor of its affiliate in violation of our rules and policies.

     261. We also find that cost misallocation by a foreign-affiliated carrier has the potential to harm
competition in the U.S. market for international services.  The Commission, in the LEC Regulatory
Treatment Order, has expressed two concerns about cost misallocation by incumbent independent LECs
providing in-region interstate interexchange and international service.  It noted first that, a carrier with
market power in the upstream exchange and exchange access markets has the ability and incentive to use
ratepayer revenues to subsidize its competitive operations in the downstream interstate interexchange and
international services markets.  This practice may allow the independent LEC to recover costs of its
competitive operations from captive ratepayers in the upstream market, who, as a result, may face rate
increases.  Second, the Commission observed that cost misallocation may also distort competition in the
competitive downstream market by allowing the vertically integrated carrier to charge a lower price than its
rivals, which is made possible by a subsidy from captive ratepayers, rather than by greater production
efficiencies.  The Commission's requirement of separate books of account and the prohibition on joint
ownership of switching and transmission facilities is intended to detect and deter such conduct.  Although
it is not within the Commission's statutory mandate to protect foreign ratepayers from use of ratepayer
revenues to subsidize a foreign carrier's U.S. operations, we find that cost misallocation by a foreign-
affiliated international carrier can distort price signals in the U.S. international services market and, under
certain circumstances, give the affiliate an unfair advantage over its competitors.  

     262. We find that the requirement we adopt here that a foreign carrier provide service in the U.S.
market through an affiliate with separate books of account and separate switching and transmission
facilities is necessary to assist the Commission in identifying instances of cost misallocation more easily. 
The requirement that the U.S. and foreign affiliate maintain separate books allows the Commission to
identify when improper allocation of costs might harm competition in the U.S. market.  This might occur,
for example, if the inter-affiliate price for goods or services paid by the U.S. affiliate to the foreign affiliate
appears to be far below the prevailing market price.  The requirement of separate switching and
transmission facilities also prevents undetected cost misallocation by subjecting any arrangement for the
use of foreign facilities or services by the U.S. affiliate to the Commission's contract filing requirement. 
We also find that our No Special Concessions rule will also prohibit special arrangements that would
constitute an improper allocation of costs.

     263. We clarify that, consistent with the traditional practice of dividing an international circuit
into U.S. and foreign halves, we consider U.S. and foreign half-circuits to be separate facilities for the
purposes of our requirement that a dominant foreign-affiliated carrier operating in the U.S. market not
jointly own switching and transmission facilities with its foreign affiliate.  A U.S. carrier and its foreign
affiliate are not, however, precluded from entering into a correspondent relationship or otherwise jointly
provisioning international transmission facilities.  A U.S. dominant, foreign-affiliated carrier is also not
precluded from entering into an agreement to provide service over the foreign affiliate's facilities, as long as
the arrangement entered into by the U.S. and foreign affiliates is filed pursuant to the Commission's rules
and made available to other U.S. international carriers, pursuant to our No Special Concessions Rule. 

     264. Although we recognize that there may continue to be a danger of a predatory price squeeze
from a foreign-affiliated carrier, we do not find that a requirement that foreign-affiliated U.S. carriers
take service at tariffed rates, terms and conditions is necessary or practical in the international services
context.  We currently require that all U.S. carriers file with the Commission contracts entered into with
foreign carriers.  These contracts are made publicly available in the International Bureau's reference
room.  In addition, our No Special Concessions rule prohibits a U.S. international carrier from accepting
any special concessions granted by a foreign carrier with market power.  We find that these requirements
are sufficient to ensure that transactions affecting the provision of basic telecommunications service
between the U.S. and foreign affiliate are conducted in a transparent and nondiscriminatory manner.  We
also find, as a practical matter, that many foreign carriers do not tariff international services in the same
manner as we require of U.S. carriers.  Since U.S. carriers are already prohibited from accepting a special
concession from a foreign affiliate with market power and are required to file their contracts with the
Commission, we do not find that it is necessary at this time to require a dominant U.S. international carrier
to take service from its affiliate at tariffed rates, terms and conditions as we require for an independent
LEC in its dealings with an interexchange affiliate.

     265. We adopt these separation requirements as a dominant carrier safeguard only, and do not
apply them to all foreign-affiliated carriers because we do not have the same concerns with foreign carriers
that lack foreign market power.  Such carriers are unlikely to have the ability to harm competition in the
U.S. market even if they do engage in cost misallocation or discrimination, and would be unable to engage
in a predatory price squeeze because they lack sufficient foreign market power.  In addition, as discussed in
our No Special Concessions section, allowing non-dominant international carriers to engage in certain
exclusive arrangements with foreign carriers may have procompetitive benefits. 

     266. Telia NA, SBC, and others argue that we should decline to adopt a structural separation
requirement because it would impede innovation and that the Commission instead should seek to promote,
rather than preclude, "innovative commercial arrangements that will lower the cost of international
telecommunications services."  SBC argues that instead of applying structural separation, we should rely
on our complaint process or on rules adopted in a later proceeding.  As discussed above, we find that some
structural separation is warranted to prevent anticompetitive conduct and also to ensure that our reporting
requirements and No Special Concessions safeguards are effective.  Moreover, we find that the minimal
separation requirement we adopt here will neither impede innovation nor preclude innovative commercial
arrangements because foreign-affiliated carriers, for the most part, already provide service in a manner that
is consistent with the rules we adopt here.  Currently, almost all foreign-affiliated carriers that are regulated
as dominant and operating in the U.S. market maintain separate corporate affiliates in the United States and
the foreign country.  Because such entities generally maintain separate corporate entities, switching and
transmission facilities are generally separate as well.  Further, as an entity operating in the U.S. market, it
is in a foreign carrier's interest because of tax implications to maintain books of account to reflect the
income of its U.S. operation separately from its foreign operation.  Finally, to the extent that a foreign-
affiliated carrier finds these requirements do indeed hamper its operations, and believes such integrated
operations do not pose a potential threat to competition in the U.S. international services market, we are
open to requests to waive these rules.

     267. Telia NA also argues that we should not apply structural separation to dominant foreign-
affiliated carriers operating in the U.S. market because it would be inconsistent with the Commission's
treatment of out-of-region interexchange operations of BOCs and incumbent independent LECs, which are
regulated as non-dominant and are not subject to structural separation for such services.  It argues that
since carriers originate traffic for both services outside the region where they control bottleneck facilities,
the Commission should regulate both classes of carriers similarly.  Although both kinds of carriers do lack
market power in the originating market, we find that there are significant differences between the two types
of carriers that preclude identical regulatory treatment.  Our decision to remove the separation requirements
that applied to BOCs and independent LECs prior to adoption of the LEC Regulatory Treatment Order
rested in large part on our conclusion that there are minimal concerns of discrimination and cost
misallocation due to regulatory oversight of the LEC along with geographic separation when the LEC
provides interstate interexchange service on an out-of-region basis.  As discussed above, we find that a
foreign carrier's ability to control foreign terminating facilities and services, over which we lack direct
regulatory oversight, poses a risk of discrimination in the provision of U.S. international services that could
harm competition in the U.S. market.  As discussed in section V.B.1., our No Special Concessions rule is
an important safeguard in preventing discrimination by a foreign carrier with market power in the foreign
market.  Our reporting requirements are also an important means of ensuring transparency in relations
between U.S. and foreign carriers.  Without a separation requirement, these rules would be less effective at
detecting and deterring anticompetitive conduct.  Moreover, our limited regulatory oversight over the
foreign carrier's books of account reduces our ability to detect cost misallocation.  As discussed above, we
find that our minimal separation requirements will aid in addressing those concerns.  We therefore do not
find that foreign-affiliated carriers that offer U.S. international service to an affiliated market are
sufficiently similar to the BOCs and incumbent independent LECs providing out-of-region interexchange
service to accord them identical treatment.

     268. We note that AT&T and PanAmSat urge us to adopt a detailed structural separation
requirement as a part of our supplemental dominant safeguard proposal in order to guard against improper
cost allocation.  Although we decline to adopt a second tier of supplemental dominant carrier
safeguards, we address AT&T's comments here as they are relevant to structural separation.  AT&T
argues that the foreign affiliate should be required to operate as a distinct entity with separate officers,
directors, and employees, to maintain separate accounting systems and records identifying all payments and
transfers from the foreign carrier and to receive no subsidy from the foreign carrier or any investment or
payment not recorded as investment in debt or equity.  AT&T also urges the Commission to require
carriers subject to "supplemental dominant carrier regulation" to submit to detailed affiliate transaction
rules.  

     269. We find that these types of detailed separation requirements are unnecessary at this time to
guard against discrimination and cost misallocation and could create unnecessary inefficiencies on foreign-
affiliated carriers operating in the U.S. market.  We find that the dominant carrier safeguards we adopt here
will help to guard against such conduct without being overly burdensome.  Adopting AT&T's proposed
separation requirements could significantly impede a foreign-affiliated carrier from engaging in "innovative
commercial arrangements" that could stimulate competition in the U.S. international services market. 
Requiring separate officers, employees, and directors would preclude a foreign-affiliated carrier from
taking advantage of economies of scale and scope that could allow it to provide better service at lower cost
to consumers.  AT&T urges the Commission to adopt detailed monthly reporting requirements, some of
which we adopt here on a quarterly basis.  Adopting AT&T's proposal could pose a regulatory burden
that we believe is unnecessary given the reporting requirements we adopt below.  In short, we do not find
that the benefits of AT&T's proposals outweigh the burdens they would impose on U.S. international
carriers.  We do find, however, that the measures AT&T advocates are the types of measures the
Commission could impose on a foreign-affiliated carrier engaging in anticompetitive conduct in the U.S.
market in order to ensure that further misconduct does not occur.

                         (iv) Quarterly Traffic and Revenue Reports

     270. We proposed in the Notice to adopt as a basic safeguard the existing requirement that
dominant foreign-affiliated carriers file quarterly traffic and revenue reports.  AT&T and the
Telecommunications Resellers Association support the reporting requirement but contend that the
Commission should require more detailed information.  In particular, AT&T suggests that the Commission
should clarify that dominant carriers must separately report originating and terminating traffic and must
report the number of minutes in each service category for which different settlement rates apply, as well as
the number of minutes, separately identified, that are included and excluded from proportionate return. 
Other commenters respond that AT&T's proposal is excessive and unnecessarily burdensome.

     271. We retain the requirement that foreign-affiliated dominant carriers file quarterly traffic and
revenue reports for their dominant routes.  We find that these quarterly reports aid in the detection of, and
help deter, anticompetitive conduct.  In particular, these reports provide us, on a timely basis, with the
ability to determine the source of any deviations in traffic flows, such as the flow of return traffic a U.S.
carrier receives from its affiliated carrier.  They will complement the quarterly traffic and revenue reports
required by the Benchmarks Order, which are filed by carriers with a notable amount of international
traffic.  The Benchmarks Order's quarterly reporting requirement is intended to identify on a route-
specific basis whether inbound switched traffic is being diverted from the accounting rate system to
facilities-based or resold private lines.  Under that reporting requirement, carriers must file data only for
their provision of switched facilities-based telephone services and their provision of switched telephone
services over facilities-based or resold private lines.  These reports indicate whether distortions are
occurring but do not necessarily identify the source of such distortions.  The quarterly reports we adopt
here, however, will help determine the source of such harms if any exist on a particular route.  For
example, these reports may assist in determining whether an apparent loss of U.S.-inbound traffic on a
particular route is the result of an affiliated U.S. carrier receiving a disproportionate amount of return
traffic from its foreign affiliate. 

     272. We recognize AT&T's assertion that more detailed information is necessary to detect and
deter competitive harms in the U.S. international services market.  On their dominant routes, U.S. carriers
affiliated with foreign carriers that have market power on the foreign end currently are required to file
quarterly reports on the number of messages and the number of minutes of both originating and terminating
traffic.  As an initial matter, we amend this rule to require all dominant foreign-affiliated carriers to file
for their dominant route a quarterly version of the annual traffic and revenue report that all U.S.
international carriers file pursuant to Section 43.61 of our rules.  Given the development of alternative
routing and settlement arrangements in today's global international services market, however, we find that a
comprehensive review of the Section 43.61 annual reporting requirements would be more appropriate than
the adoption of a separate reporting manual exclusively for dominant foreign-affiliated carriers.  We
therefore direct the Common Carrier Bureau, in consultation with the International Bureau, to review
AT&T's request for more detailed information than currently is required in the Section 43.61 reporting
manual and, if warranted, revise the manual to ensure that we obtain relevant information to assist in the
detection of competitive harms in the U.S. market.  We direct the Common Carrier Bureau to propose
modifications to the Section 43.61 reporting manual.  

     273. We adopt here AT&T's proposal to require dominant foreign-affiliated carriers to file all
dominant carrier reporting information with the Commission's vendor and to mark these filings as
responsive to the relevant filing requirement.  We agree with AT&T that this action would facilitate
public access to these reports.  We note here that we direct the International Bureau to examine whether to
require the electronic filing of summaries of agreements subject to Section 43.51 of our rules, a proposal in
the Notice that we decline to act on given the lack of comment or support in the record.  

                         (v)  Quarterly Provisioning and Maintenance Reports  

     274. We proposed in the Notice to adopt as a basic safeguard the existing requirement that each
dominant foreign-affiliated carrier maintain complete records of the provisioning and maintenance of basic
network facilities and services that it procures from its foreign affiliate, including, but not limited to,
correspondent or other basic facilities procured on behalf of customers of joint venture offerings.  We
sought comment on whether a recordkeeping requirement was sufficient and necessary to prevent
discrimination.  We also proposed that those carriers subject to supplemental dominant carrier regulation
file quarterly reports summarizing their records of the provisioning and maintenance of facilities and
services provided by their foreign affiliate.  In addition, we requested that commenters address the form
and content of a provisioning and maintenance requirement.  

     275. AT&T supports retaining the existing requirement as a basic safeguard and recommends that
it apply to all basic network services and facilities that may be jointly provided with a foreign affiliate. 
AT&T contends, however, that the quarterly filing requirement for carriers subject to supplemental
safeguards is not sufficient to protect against discriminatory behavior.  AT&T asserts that these carriers
should be required to file monthly, publicly available reports showing details of the provisioning and
maintenance of all services and facilities provided, including the types of circuits and services provided, the
average time intervals between order and delivery, the number of outages and intervals between fault report
and service restoration, and, for circuits used to provide international switched service, the average number
of circuit equivalents available to the U.S. affiliate and the percentage of "busy hour" calls that failed to
complete.  AT&T also proposes that U.S. affiliates subject to the basic dominant carrier safeguard
proposal be required to maintain the same information.  Telia NA and KDD argue that AT&T's proposal is
more burdensome than necessary.  

     276. AT&T argues that public disclosure is necessary to ensure that affiliated U.S. carriers do not
benefit from discrimination in violation of the No Special Concessions rule.  Cable & Wireless argues that
public reports would adversely affect competition by allowing competitors to use the information "for their
own competitive purposes."  BTNA asserts that information pertaining to provisioning and maintenance
of network facilities and services provided by a foreign affiliate is commercially sensitive.  BTNA
observes that the Department of Justice addressed the commercially sensitive nature of provisioning and
maintenance reports in the BT/MCI Modification of Final Judgment by limiting the purpose of disclosure
"to ensure that information is not used for competitive sales or marketing purposes."

     277. We adopt a requirement that each dominant foreign-affiliated carrier file quarterly reports
summarizing the provisioning and maintenance of all basic network facilities and services it procures from
its foreign affiliate, including, but not limited to, correspondent or other basic facilities procured on behalf
of customers of joint venture offerings.  The provisioning and maintenance of services and facilities
necessary for the provision of U.S. international traffic can be a primary source of non-price discrimination
by which a foreign carrier with market power can degrade unaffiliated U.S. carriers' quality of service.  We
find that a reporting requirement will allow unaffiliated carriers to monitor and detect whether U.S. carriers
are receiving favorable treatment from their foreign carrier affiliates and to notify the Commission if undue
discrimination exists.  Such a reporting requirement will serve as a strong deterrent from engaging in
unduly discriminatory behavior.  We find that AT&T's proposal that these reports be filed on a monthly
basis is unnecessarily onerous and instead adopt a quarterly filing requirement.  

     278. In response to our request for comment with regard to the content of a provisioning and
maintenance requirement, AT&T submitted a detailed list of filing requirements.  We find that, for the most
part, these filing requirements provide a reasonable basis for determining whether facilities and services on
the foreign end are provided to an affiliated U.S. carrier on a non-discriminatory basis.  The provisioning
and maintenance reports should contain, at a minimum, the following:  the types of circuits and services
provided, the average time intervals between order and delivery, the number of outages and intervals
between fault report and service restoration, and, for circuits used to provide international switched service,
the percentage of "peak hour" calls that failed to complete.  We do not include the average number of
circuit equivalents available to the affiliated U.S. carrier because we collect information on circuit status in
the quarterly circuit status report we adopt below.  We do not dictate the format of the report at this time,
although we delegate authority to the International Bureau to adopt a standardized reporting manual if it
determines that a uniform format would be helpful.  We also delegate authority to the International Bureau
to modify the contents of the filing requirements as necessary.  

     279. With regard to the public disclosure of the provisioning and maintenance reports, we agree
with BTNA's comments that requiring a limited class of carriers to file public reports creates information
inequities that parties could exploit for commercial advantage.  We also find, however, that public
disclosure allows the Commission and competing carriers to monitor whether U.S. affiliates benefit from
undue discrimination in violation of the No Special Concessions rule.  To strike a balance, we will allow
carriers subject to the provisioning and maintenance reporting requirement to seek a protective order, which
essentially requires parties to whom confidential information is made available to limit the persons who will
have access to the information and the purposes for which the information will be used.  Here, we will
allow interested parties to review the reports for purposes of determining whether the affiliated U.S. carrier
is receiving provisioning and maintenance on a discriminatory basis and, where appropriate, to file a
complaint with the Commission.

     280. In recent years, the Commission "has relied on special remedies such as . . . protective orders
to balance the interests in disclosure and the interests in preserving the confidentiality of competitively
sensitive materials."  For example, the Commission recently adopted a standard protective order for use
in review of local exchange carrier tariff filings submitted pursuant to Section 204(a)(3) of the Act.  As
in that decision, we will apply a standard protective order where the submitting party includes with its filing
a showing by a preponderance of the evidence to support its case that the information should be accorded
confidential treatment consistent with the provisions of the Freedom of Information Act (FOIA) or makes a
sufficient showing that the information should be subject to a protective order.  This is the standard found
in Section 0.459 of our rules that is applicable to requests that materials or information submitted to us
be withheld from public disclosure.  In GC Docket No. 96-55, we have proposed a model protective
order that is intended to create a standard for use in Commission proceedings generally.  In the LEC
Tariff Filing Order, we refined the model order slightly, and we direct the International Bureau to use a
standard protective order here that reflects these modifications.  This standard protective order will
reflect the fact that these provisioning and maintenance reports are filed on a regular basis and are not a
part of a proceeding.  It also will reflect the fact that the appropriate use of the material involves the
determination of whether a foreign carrier with market power on the foreign end of a U.S. international
route is engaged in undue discrimination in the provisioning and maintenance of basic facilities and services
in favor of its affiliated U.S. carrier.

                    (vi) Quarterly Circuit Status Reports    

     281. We proposed in the Notice to require dominant foreign-affiliated carriers subject to
supplemental dominant carrier regulation to file quarterly circuit status reports for their facilities-based
circuits and resold private line circuits on their dominant route and to make these reports publicly
available.  We requested comment on whether it is necessary to require carriers to specify the particular
facility on which each of their circuits on the dominant route is either activated or idle.  As noted above, we
decline to adopt the proposal in the Notice to require a quarterly notification of circuit additions or
discontinuances as a basic safeguard.

     282. In their comments, WorldCom and AT&T support the supplemental safeguard proposal to
require carriers to file quarterly circuit status reports that specify the facility on which each circuit is
activated or idle.  This proposal, WorldCom asserts, would "allow the Commission and competitors to
determine if foreign carriers with market power are warehousing capacity to the detriment of competing
carriers, or unreasonably denying access to U.S. carriers by claiming a lack of corresponding facilities." 
AT&T also supports facility identification as part of its proposal to require notification of each circuit on
the dominant route.  BTNA comments that a requirement that a limited class of carriers submit for
public disclosure information pertaining to operational practices could result in competitive harms.

     283. We adopt a quarterly circuit status filing requirement for all dominant foreign-affiliated
facilities-based carriers.  We adopt this report for these carriers' dominant foreign-affiliated routes in lieu of
our basic safeguards proposal to require quarterly notifications of circuit changes.  We find that a quarterly
circuit status report imposes a comparable burden but provides information that can be more readily
compared to the information provided by all U.S. international carriers on an annual basis pursuant to
Section 43.82 of our rules.  We decline to adopt the proposal to require dominant foreign-affiliated
private line resale carriers to file quarterly circuit status reports, given that they rely on underlying U.S.
facilities-based carriers to make arrangements with their affiliated carriers.
 
     284. We agree with WorldCom that the identification of dominant foreign-affiliated facilities-
based carriers' circuit status information on a facility-by-facility basis is an important safeguard to
determine if foreign carriers are unreasonably denying unaffiliated U.S. carriers access to corresponding
foreign half-circuits on particular facilities.  The fact that a U.S. affiliate is able to obtain and activate
circuits on a particular facility to an affiliated market while unaffiliated carriers cannot may be evidence of
anticompetitive conduct.  As a result, we require these dominant foreign-affiliated U.S. carriers to file
quarterly reports for their dominant foreign-affiliated routes in the format set out by the International
Bureau's Section 43.82 annual circuit status manual, with two exceptions:  activated or idle circuits must
be reported on a facility-specific basis; and the derived circuits need not be specified in the three quarterly
reports due on June 30, September 30 and December 31 each year.  We direct the International Bureau
to modify the Section 43.82 reporting manual as necessary to accommodate our decision in this proceeding. 
 

     285. We also find that WorldCom's claim about the warehousing of cable capacity may be an
issue of concern.  More broadly, we are concerned with the potential for concentration of supply on U.S.
international routes.  In 1995, the Commission replaced the monthly circuit status reporting requirement
imposed on all U.S. international facilities-based carriers with an annual report and eliminated the
requirement that circuit status information be filed on a facility-by-facility basis in an effort to be "the least
intrusive and burdensome . . . as possible."  We conclude here, however, that to the extent warehousing is
a concern, it may be relevant to all U.S. international carriers, not just those with foreign affiliates that
have market power.  We therefore delegate authority to the International Bureau, pursuant to its authority
under Section 43.82, to seek input on the risk of warehousing and, if necessary, modify the Section 43.82
reporting manual to require all U.S. international carriers to identify in their annual circuit status reports
the facility on which each circuit is activated or idle.  

     286. Consistent with our finding regarding the commercial sensitivity of the information contained
in the provisioning and maintenance reports we adopt above, we recognize that public disclosure of the
quarterly circuit status reports we adopt here could result in the information being used for commercial
advantage.  These quarterly reporting requirements are designed to assist the Commission and competing
carriers in determining whether a U.S. carrier is receiving favorable treatment from a foreign affiliate with
market power.  We therefore will allow dominant foreign-affiliated carriers to request the standard
protective order adopted above for the three quarterly circuit status reports that dominant foreign-affiliated
carriers must file.  To the extent there are information inequities between dominant foreign-affiliated
carriers' final (i.e., March 31) quarterly report and all U.S. international carriers' annual Section 43.82
report, we conclude that these foreign-affiliated carriers may apply for a standard protective order for those
portions of the final report that warrant such an order.

                              (vii)     Rejection of Ban on Exclusive Arrangements Involving Joint Marketing,
                    Customer Steering, or Use of Foreign Market Telephone Customer
                    Information

     287. We proposed in the Notice to prohibit U.S. carriers subject to supplemental dominant carrier
regulation from entering into exclusive arrangements with their foreign affiliates for the joint marketing of
basic telecommunications services, the steering of customers by the foreign affiliate to the U.S. carrier, or
the use of foreign market telephone customer information.  

     288. Cable & Wireless argues that the Commission should reject the proposal, arguing that "as
long as a dominant foreign carrier makes fundamental network components and services available to all on
a fair, reasonable and nondiscriminatory basis . . . the existence of exclusive arrangements with respect to
other facilities and services should not be a concern."  Sprint concurs, noting that it "is prepared to
market head to head against a joint marketing effort conducted by a foreign carrier and its U.S. affiliate,"
provided that the foreign carrier cannot discriminate in favor of its affiliate.  GTE argues that a ban on
exclusive joint marketing is unnecessary because the Flexibility Order ensures that carriers controlling
more than 25 percent of the traffic on an international route cannot enter into alternative settlement
arrangements, including joint marketing agreements, that discriminate against competing carriers.  Cable
& Wireless adds that the proposal fails to recognize that multinational companies demand one-stop
shopping for international services and that no single carrier has the resources, marketing capability, or
technical expertise to go it alone.

     289. BTNA and NTT also oppose the ban on exclusive joint marketing arrangements but propose
instead that the Commission maintain the right to bar such arrangements as a remedial measure to address
proven anticompetitive conduct.  This approach, BTNA maintains, would ensure that the premature
imposition of a regulatory restriction does not slow the development of competitive international markets.  

     290. In contrast, AT&T and PanAmSat support adoption of the prohibition as proposed. 
AT&T argues that "exclusivity is not a necessary feature of [end-to-end services], and exclusive
arrangements . . . provide an unearned and unfair competitive advantage when the foreign carrier enjoys a
protected status in its home market."  Sprint supports a prohibition against the exclusive steering of
customers, although it believes that a strong commitment to enforce nondiscrimination rules would be an
effective policy.  

     291. We agree with Cable & Wireless that it is not necessary to prohibit U.S. carriers from
entering into exclusive arrangements with their foreign affiliates for the provision of joint marketing or the
steering of customers, provided the foreign carrier cannot discriminate in favor of its U.S. affiliate in the
provision of fundamental network components or basic services.  The underlying premise guiding our
dominant carrier safeguards is to ensure the nondiscriminatory access to basic telecommunications services
for the provision of U.S. international services.  The No Special Concessions rule prohibits any U.S. carrier
from agreeing to accept exclusive arrangements involving fundamental network components and basic
telecommunications services from a foreign carrier with market power.  The dominant carrier safeguards
we adopt monitor and detect anticompetitive behavior.  We find that they will be effective in ensuring that
U.S. carriers can obtain nondiscriminatory access to fundamental network components and basic services. 
Further proscriptive safeguards, we conclude, would be unduly burdensome and could impede
unnecessarily the provision of one-stop shopping by injecting uncertainty with respect to the permissible
scope of joint activities.  We conclude, however, that if we find anticompetitive conduct, we have the
authority to impose such a ban on exclusive arrangements, as BTNA and NTT contend. 

     292. We also decline to adopt a ban on exclusive arrangements between dominant foreign-
affiliated carriers and their foreign affiliates involving the use of foreign market telephone customer
information.  MCI supports a ban on exclusive arrangements involving foreign market telephone customer
information obtained by U.S. carriers from foreign affiliates that do not face competition.  As discussed
above, however, we require all U.S. carriers to obtain U.S. customer approval if they intend to make use of
foreign-derived U.S. customer information.

     D.   Enforcement of Safeguards

     293. We sought comment in the Notice on whether additional remedies are necessary to address
anticompetitive conduct.  Several commenters contend that the Commission should adopt an expedited
complaint procedure.  AT&T argues that the Commission should establish a procedure for complaints
involving abuse of foreign market power by foreign carriers that do not face facilities-based competition. 
MCI asserts that the Commission should adopt a complaint procedure to address and resolve complaints
regarding distortion of competition by foreign-affiliated carriers.  BTNA claims that any remedy in
response to a proven violation should be fashioned to address the particular circumstances of the case.

     294. As we observed in the Notice, we have ample authority to investigate allegations that a
violation of our rules has occurred.  Section 218 of the Act authorizes the Commission to inquire into the
management of the business of all carriers subject to the Act and to "obtain from such carriers and from
persons directly or indirectly controlling or controlled by, or under direct or indirect common control with,
such carriers full and complete information necessary to enable the Commission to perform the duties and
carry out the objects for which it was created."  For example, if a carrier's quarterly traffic and revenue
report indicated that there may have been manipulation of the settlements process on a particular route, we
may find it necessary to audit the revenue and traffic records of the U.S. carrier, or foreign carrier, or both. 


     295. In the event that we find anticompetitive conduct, moreover, we have several different
remedies available to us.  In addition to the specific Title II forfeitures that might apply to a carrier, Section
503 of the Act allows us to impose a forfeiture of up to $100,000 for each violation or each day of a
continuing violation by a carrier.  We also may impose additional conditions on a Section 214
authorization or revoke the authorization in cases of adjudicated misconduct.  We could impose strict
structural separation, for example, in the event that an affiliated U.S. carrier knowingly receives technical
network information from its foreign affiliate in advance of unaffiliated U.S. carriers.  We also could
require a U.S. carrier to terminate an arrangement with a foreign carrier if we found that the arrangement
resulted in anticompetitive effects in the U.S. market.  Other potential remedies include, but are not
limited to, freezing circuits, prohibiting the use of foreign-derived CPNI, and banning the joint marketing of
basic services by a U.S. carrier and its foreign affiliate.  We also adopt here a general rule that would
enable us to review a carrier's authorization and, if warranted, impose additional requirements in
circumstances where it appears that harm to competition is occurring on one or more U.S. international
routes.

     296. At this time, we do not find that it is necessary to adopt an expedited procedure to prevent
competitive harm in the U.S. market.  We recognize that a policy of timely enforcement of our safeguards
will put all carriers on notice that we will be vigorous in our efforts to promote competition and prevent
anticompetitive behavior in the U.S. market.  We also note that we have modified our rules to facilitate the
prompt resolution of all formal complaints against telecommunications carriers involving claims of
unreasonably discriminatory or otherwise unlawful conduct in violation of the Act or our rules.

     E.   Alternative Settlement Arrangements

     Background

     297. In the Notice, we sought comment on whether we should modify the framework adopted in
our Flexibility Order for approving alternative settlement arrangements.  In the Flexibility Order, we
authorized U.S. carriers to negotiate alternative settlement arrangements that deviate from the requirements
of our International Settlements Policy (ISP) with any foreign correspondent in a country that satisfies
the ECO test.  We also stated in the Flexibility Order that we would consider such alternative settlement
arrangements between a U.S. carrier and a foreign correspondent in a country that does not satisfy the ECO
test if the U.S. carrier can demonstrate that deviation from the ISP will promote market-oriented pricing
and competition, while precluding the abuse of market power by the foreign correspondent.

     298. We tentatively concluded in the Notice that, if we no longer apply the ECO test to
international Section 214 applications filed by carriers from WTO Member countries, we should not
conduct an ECO analysis for purposes of determining whether to permit a U.S. carrier to enter an
alternative settlement arrangement with carriers from WTO Member countries.  We further tentatively
concluded that we should adopt a rebuttable presumption that flexibility is permitted for carriers from
WTO Member countries which could be rebutted by a showing that market conditions in the country in
question are not sufficiently competitive to prevent a carrier with market power in that country from
discriminating against U.S. carriers.  Specifically, we proposed that the presumption could be rebutted by a
showing that the country has not opened its market to competition, either because the country has not
complied with its market access commitment, its commitment has not taken effect, or it made no
commitment.  We also proposed that the presumption could be rebutted by a showing that the country does
not, or will not in the near future, have in place fair rules of competition, such as those contained in the
Reference Paper, to ensure viable opportunities for actual entry.  For alternative settlement arrangements
with carriers from countries that are not WTO Members, we tentatively concluded that we should continue
to apply the ECO test as the threshold standard for permitting flexibility.

     Positions of the Parties

     299. Several commenters agree with our tentative conclusion that we should no longer conduct an
ECO analysis for purposes of determining whether to permit a U.S. carrier to enter an alternative
settlement arrangement with carriers from WTO Member countries.  FCI, for example, states that,
assuming WTO Member countries "honor their commitments and competitive forces fuel liberalization
efforts," a rebuttable presumption in favor of flexibility for WTO Member countries will provide ample
opportunity to address potential discriminatory behavior.  Telia NA states that the Commission should
encourage carriers from WTO Member countries to enter into alternative settlement arrangements,
including arrangements where one carrier provides end-to-end service without the use of accounting
rates.

     300. France Telecom and Sprint agree that the ECO test should no longer be the threshold
standard for permitting flexibility.  However, they advocate different threshold standards to replace the
ECO test.  France Telecom argues that there should be a presumption that flexibility is permitted for WTO
Member countries and that, to rebut the presumption, a party should have to show that:  (i) there is no de
jure openness in the foreign market and (ii) no competing carriers have been licensed.  France Telecom
further argues that for purposes of determining whether there is de jure openness in the foreign market, the
Commission should consider solely whether the country has committed to the Reference Paper or equivalent
provisions.  Sprint opposes the proposal in the Notice that the presumption in favor of flexibility may be
rebutted by a showing that "market conditions in the country in question are not sufficient to prevent a
carrier with market power from discriminating against U.S. carriers."  Sprint argues that this standard is
too vague and, like the ECO test, would involve the Commission in a detailed examination of regulatory
conditions in another country.  As an alternative to the proposed standard, Sprint suggests that flexibility
be permitted where a U.S. carrier can demonstrate that a former monopoly carrier in a foreign country has
no more than approximately 65 percent of the traffic between the U.S. and that country.  Sprint states that
there is "no magic" to the 65 percent standard, but it would be objective and provide carriers with
regulatory certainty.

     301. AT&T opposes our proposal to adopt a presumption that flexibility is permitted for carriers
from WTO Member countries.  AT&T contends that "even allowing 'easy rebuttal' of the presumption"
would not provide sufficient protection against competitive harm because of the difficulty of obtaining
accurate information on regulatory conditions in other countries.  AT&T argues that we should adopt
what it calls a "neutral presumption" with the burden of production on the proponent of the alternative
settlement arrangement.  The requirements for permitting flexibility, according to AT&T, should meet the
same standards as the ECO test.  AT&T proposes that the requirements be whether the relevant country
has implemented WTO commitments to provide unrestricted market access, to allow controlling foreign
ownership, and to satisfy the Reference Paper.  NYNEX LD opposes AT&T's proposal, arguing that it is
"inappropriate in a global market being reshaped by the [WTO Basic Telecom] Agreement."

          Discussion

     302. As discussed above, we will no longer apply the ECO test to international Section 214
applications filed by carriers from WTO Member countries.  In light of this fact, and because we expect
substantial changes in the global telecommunications market due to the WTO Basic Telecom Agreement,
we conclude that we should no longer apply the ECO test as the threshold standard for determining when to
permit accounting rate flexibility with carriers from WTO Member countries.  Instead, we conclude that we
should adopt our proposal in the Notice to apply a rebuttable presumption that flexibility is permitted for
carriers from WTO Member countries.

     303. In the Flexibility Order, we adopted the ECO test as the standard for permitting alternative
settlement arrangements because we believed it would be an appropriate indicator of whether the legal,
regulatory and economic conditions in a foreign market support competition such that the ISP is no longer
necessary to protect against abuse of market power by foreign carriers.  We anticipated that, in many
instances, a U.S. carrier would seek approval to enter an alternative arrangement with a foreign carrier in a
country that had already been found to satisfy the ECO test in the context of a prior Section 214 facilities
application to serve that country.  Thus, we considered that the use of the already-established ECO test as
the threshold standard for permitting flexibility would be administratively efficient and would provide
consistent results and business certainty for U.S. carriers.

     304. As we stated in the Notice, we believe that it would be administratively inefficient for the
Commission, and burdensome to carriers, to continue to conduct an ECO analysis to determine whether to
permit flexibility when we no longer apply the test to applications for international Section 214
authorization from carriers in WTO Member countries.  As discussed above, the ECO test requires a fact-
specific, detailed review of competitive conditions on a given route.  We conclude that such a thorough
review is not appropriate or necessary solely for purposes of determining whether to permit flexibility.

     305. We adopted our flexibility policy in recognition of the fact that some telecommunications
markets are shifting from the traditional monopoly model to a more competitive market structure.  Where
competitive conditions exist, our flexibility policy is designed to encourage carriers to enter market-oriented
agreements rather than maintain strict adherence to the ISP, which limits market conduct to prevent
monopolists from causing harm to competition and U.S. consumers.  We expect that countries'
commitments to competition and fair regulatory principles as part of the WTO Basic Telecom Agreement
will lead to more competitive conditions in many markets.  As a result, we find that, with regard to carriers
from WTO Member countries, flexibility should be more the rule than the exception.  We agree with Telia
NA that carriers from WTO Member countries should be encouraged to enter alternative settlement
arrangements, including arrangements where one carrier provides end-to-end service without the use of
accounting rates.  As Telia NA notes, such alternative arrangements will promote competition and thus
ensure that U.S. consumers have access to high-quality, affordable international telecommunications
services.

     306. In the Notice, we acknowledged that WTO membership alone will not guarantee that
conditions in a foreign market are sufficiently competitive to prevent foreign carriers with market power
from discriminating among U.S. carriers.  For that reason, we tentatively concluded that the presumption in
favor of flexibility may be rebutted by a showing that market conditions in the country in question are not
sufficiently competitive to prevent a carrier with market power in that country from discriminating among
U.S. carriers.  Nonetheless, we are concerned that, as Sprint and France Telecom point out, this standard
could be considered vague and could unnecessarily delay implementation of alternative settlement
arrangements.  We therefore revise the showing proposed in the Notice to rebut the presumption in favor of
flexibility.

     307. We agree with Sprint and France Telecom that we should adopt a straightforward, objective
standard to rebut the flexibility presumption.  We conclude that, in order to rebut the presumption in favor
of permitting flexibility, a party must demonstrate that the foreign carrier is not subject to competition in its
home market from multiple (more than one) facilities-based carriers that possess the ability to terminate
international traffic and serve existing customers in the foreign market.  Such a standard would be objective
and easy to apply.  Moreover, the existence of actual competition from multiple facilities-based carriers
serves as a good indicator of whether market conditions are conducive to allowing U.S. carriers to enter
market-oriented arrangements.  

     308. Sprint expresses concern that a foreign carrier with market power may have the ability to
discriminate among U.S. carriers in settlement rate negotiations, even if the foreign carrier is subject to
competition in its home market.  Sprint therefore suggests that we should consider the market share of the
foreign carrier in determining whether to permit flexibility.  We addressed this concern in the Flexibility
Order and concluded that the safeguards we adopted there ensure that our flexibility policy does not have
anticompetitive effects in the international market.  We retain these safeguards and find that they will
effectively limit the ability of a carrier with market power to discriminate among U.S. carriers in
circumstances where a grant of the alternative settlement arrangement is consistent with our flexibility
policy.  These safeguards require that:  (i) alternative settlement arrangements between affiliated carriers
and those involved in non-equity joint ventures affecting the provision of basic services must be filed with
the Commission and be publicly available and (ii) alternative arrangements affecting more than 25 percent
of either the inbound or outbound traffic on a particular route must be filed with the Commission and be
publicly available and must not contain unreasonably discriminatory terms and conditions.  We also note
that, in the Flexibility Order, we reserved the right to review, and if need be, reject the terms and conditions
of all alternative arrangements, regardless of whether they trigger our safeguards, to ensure that they meet
our policy objectives and will not have a significant adverse impact on U.S. net settlement payments and
resulting traffic volumes.  We retain this right here.

     309. We stated in the Flexibility Order that, even where the ECO test is not satisfied, we would
consider alternative settlement arrangements between a U.S. carrier and a foreign correspondent if the U.S.
carrier can demonstrate that deviation from the ISP will promote market-oriented pricing and competition,
while precluding the abuse of market power by the foreign correspondent.  We noted, for example, that a
departure from the ISP would likely be warranted where a non-dominant U.S. carrier seeks to negotiate an
alternative arrangement with a foreign entity that does not have market power on the foreign end.  We
will also allow the proponent of an alternative settlement arrangement with a carrier from a WTO Member
country to make this alternative showing where the presumption in favor of flexibility can be rebutted.

     310. We are not persuaded by those commenters that seek a different threshold for allowing
alternative settlement arrangements.  France Telecom, for example, asserts that a party opposing an
alternative settlement arrangement should have to demonstrate that no competing carriers have been
licensed.  We are concerned that the existence of a carrier in the foreign market that is merely licensed, but
that lacks the ability to terminate international traffic and does not serve actual customers, would not have
a sufficient presence in the market to afford U.S. carriers a reasonable opportunity to negotiate market-
oriented arrangements.

     311. We also disagree with AT&T's position that the proponent of an alternative settlement
arrangement should have to satisfy the same standards as the ECO test.  We find that the presumption we
adopt here in favor of flexibility for carriers from WTO Member countries is appropriate because the
commitments to competition and fair regulatory treatment made by WTO Member countries represent a
transition to competitive telecommunications markets, a trend that we seek to encourage.  We believe,
moreover, that the standard we adopt for rebutting the flexibility presumption will serve as an effective
surrogate for the detailed analysis of market conditions advocated by AT&T.  In addition, the standard we
adopt alleviates concern expressed by AT&T that obtaining detailed information about competitive
conditions in a foreign country would be very difficult for parties opposing an alternative settlement
arrangement.

     312. Under the procedures adopted in our Flexibility Order, U.S. carriers may obtain approval to
enter an alternative payment arrangement by filing a detailed petition for declaratory ruling that the
alternative payment arrangement is permitted under the criteria for deviating from the ISP adopted in that
proceeding.  We adopt minor changes to these procedures to conform to our new standard for permitting
flexibility.  Where a U.S. carrier seeks approval to enter an alternative arrangement with a carrier from a
WTO Member country, the requesting carrier will be required to demonstrate only that the carrier is
operating in a WTO Member country rather than a full-fledged ECO showing.  The burden would be on
opposing parties to show that the foreign carrier that is a party to the alternative arrangement does not face
competition from multiple facilities-based carriers that possess the ability to terminate international traffic
and serve actual customers in its home market.  The new policies and procedures we adopt here for
alternative settlement arrangements with foreign carriers in WTO Member countries will be applied to all
flexibility petitions pending before the Commission in any procedural status at the time our new rules
become effective.

     313. Finally, we note that Telstra urges us to conform the procedural rules that apply to a request
for modification of the ISP under Section 64.1001(f) with the procedures that apply to the filing of a
petition for declaratory ruling to implement an alternative settlement arrangement.  Specifically, it argues
that requests for modification of the ISP should be placed on public notice as petitions for declaratory
ruling currently are.  We reject Telstra's proposal in this proceeding.  Modifications under Section 64.1001
are simply reductions in settlement rates that generally do not raise the broad concerns that are raised by
petitions for declaratory ruling to approve alternative settlement arrangements.  Further, the parties that
might have concerns with the reductions, i.e., those with operating agreements with the same carrier, are
given notice of the filing directly by the applicant.  Therefore, a public notice would only prove to delay a
procedure for approving modifications that is designed to allow expeditious grants in most cases while
giving those parties potentially affected a chance to respond.  Although we reject Telstra's arguments here,
we reserve the right to revisit in the future the whole issue of procedures to implement accounting rate
changes.

                         VI.  Procedures

     A.   Streamlined Application Procedures

     Background

     314. It has been, and continues to be, our goal to make streamlined procedures available to as
many applicants as possible, consistent with ensuring that we can identify and address those applications
that present particular risks.  The new competitive conditions created by the WTO Basic Telecom
Agreement and the rules we adopt here will reduce substantially the ability of any one carrier to distort
competition in the U.S. market as a result of an affiliation with a foreign carrier that has market power on
the foreign end of a U.S. international route.  This situation presents us with an opportunity to reduce our
scrutiny of many applications and afford those applications streamlined processing.

     315. Our current rules generally permit streamlined processing of Section 214 applications filed
by foreign carriers or their U.S. affiliates in circumstances where the foreign carrier is not a facilities-based
carrier in the destination market.  We proposed in the Notice to expand the class of foreign-affiliated
applicants eligible for streamlined processing to include some that are affiliated with facilities-based
carriers.  We invited commenters to submit specific proposals to expand the class of affiliated carriers
eligible for streamlined processing, and we specifically proposed to include in that class carriers whose
affiliate is from a WTO Member country and that seek to serve that country solely by reselling the
switched services of unaffiliated U.S. international carriers.

     316. We also proposed to streamline the Section 214 application of any applicant whose affiliate
is a foreign carrier in a WTO Member country that certifies that it would comply with all of the dominant
carrier regulations that we proposed in the Notice.  The carrier would then have the option of later
demonstrating to the Commission that it qualifies to be regulated as non-dominant.  We also proposed
that Commission staff exercise discretion to afford streamlined processing in circumstances where such an
applicant certifies that it would comply with our "basic" dominant carrier safeguards and demonstrates
clearly and convincingly that it should not be subject to the "supplemental" safeguards that we proposed in
the Notice.

     317. Finally, we proposed to extend streamlined processing to applications for assignments and
transfers of control of Section 214 authorizations by defining the class of eligible applicants in the same
manner as for initial grants.

     Positions of the Parties

     318. Deutsche Telekom states that we should clarify that we will not delay the processing of any
Section 214 applications submitted by foreign carriers or their affiliates for "trade or other political
reasons" at the request of other U.S. Government bodies or at our own initiative.  Delay for those reasons,
Deutsche Telekom argues, violates the principles of MFN and National Treatment as well as the GATS
requirement that applications be acted upon within a "reasonable period of time."

     319. Deutsche Telekom argues that the streamlined processing standards proposed in the Notice
discriminate between U.S.-owned and foreign-affiliated carriers in violation of the principle of National
Treatment.  Deutsche Telekom also argues that the proposals violate the MFN principle in that foreign
carriers willing to certify that they will comply with the "supplemental" safeguards will receive immediate
streamlined processing while foreign carriers who seek to demonstrate that supplemental safeguards do not
apply will encounter delays before it is determined whether they are entitled to streamlined processing.

     320. NTT, the Government of Japan, and the European Union state that we should establish either
a time limit or a "period of time normally required to reach a decision" for consideration of applications. 
The commenters cite the Reference Paper and Article VI of the GATS as suggesting the need to do so.

     321. BellSouth and SBC do not oppose the streamlining proposals contained in the Notice but
argue that Bell Operating Companies should not have to meet much more detailed procedures and more
stringent tests to enter the same U.S. market on an "in-region" basis pursuant to Section 271 of the Act.  

     Discussion

     322. No commenter submitted specific proposals to expand the class of foreign-affiliated carriers
that should be deemed eligible for streamlined processing.  In light of the approach we take in this Order,
we conclude that it is appropriate to streamline the Section 214 applications of carriers that qualify for the
presumption of non-dominance under the market share screen discussed in Section V.  Thus, we will
streamline those applications that demonstrate clearly that the foreign carrier affiliate has less than a 50
percent market share in the international transport and local access markets in the destination foreign
country.  Also, for the reasons expressed in the Notice, we adopt our proposal to afford streamlined
processing to the Section 214 application of any applicant whose foreign affiliate is from a WTO Member
country if the applicant requests authority only to serve that country solely by reselling the switched
services of unaffiliated U.S. international carriers.  Finally, we will streamline the Section 214 application
of any applicant not otherwise eligible for streamlined processing so long as the applicant's affiliate is a
foreign carrier in a WTO Member country and the applicant certifies that it will comply with the dominant
carrier regulations we adopt in Section V.C.2.  This represents a finding that, in the great majority of cases,
our No Special Concessions rule, benchmark condition, and dominant carrier regulations   rather than
denying applications   will be sufficient to prevent anticompetitive effects in the U.S. market.  We also
adopt our proposal to streamline applications for assignments and transfers of control of Section 214
authorizations in circumstances where an initial Section 214 application filed by the assignee or transferee
would be eligible for streamlined processing.

     323. Because we cannot envision a circumstance in which an indirect foreign investment by an
investor from a WTO Member country in a common carrier radio licensee that does not result in a transfer
of control will pose a very high risk to competition, we conclude that we can streamline Section
310(b)(4) requests as well.  When we receive applications that implicate only Section 310(b)(4), we will
include those applications in the International Bureau's streamlined process.  This will include (1) any
petition for declaratory ruling that it would not serve the public interest to deny a Title III common carrier
license to a particular entity; (2) permission for an existing common carrier radio licensee to exceed 25
percent indirect foreign ownership; and (3) permission to increase a licensee's level of non-controlling
indirect foreign ownership when permission to exceed 25 percent has already been granted.  It will not
include applications that also involve an assignment of license or a transfer of control, which are evaluated
under Section 310(d).  It will also not include any initial licensing applications, which involve service-
specific rules and other portions of Title III of the Act.

     324. Pursuant to Section 63.20 of our rules, petitions to deny must contain specific allegations of
fact sufficient to show that a grant of the application would not serve the public interest, convenience, and
necessity.  In all circumstances, Commission staff will have the discretion to deem an application
ineligible for streamlined processing either because it raises market power concerns or because an
Executive Branch agency raises concerns with respect to issues within its expertise.

     325. We disagree with Deutsche Telekom's assertion that the streamlined processing standards
violate the principles of MFN and national treatment.  We will treat all U.S. and foreign carriers with
affiliations that raise similar market power concerns alike.  Indeed, we note that the International Bureau
did not afford streamlined processing to initial international Section 214 applications filed by affiliates of
several Bell Operating Companies (BOCs) seeking to provide service originating in out-of-region states. 
These applications raised the issue of whether the BOC affiliates could leverage the market power of their
local exchange carrier affiliates in their in-region states to gain market power in the provision of
international service originating from out-of-region states.  Thus, non-streamlined processing has been, and
continues to be, necessary in circumstances where we must evaluate applications in order to protect the
U.S. market from anticompetitive effects.  In any event, we note that nearly every applicant whose affiliate
is from a WTO Member country will be able to obtain streamlined approval of its Section 214
authorizations by choosing, where necessary, to certify that it will comply with dominant carrier regulation
for its traffic along an affiliated route.  As we stated in the Notice, these carriers can later petition the
Commission to remove dominant carrier regulation.

     326. BellSouth's and SBC's comments take issue with the Commission's approach to
implementing Section 271(d)(3) of the Act, which sets forth basic statutory provisions that govern the
Commission's approval or denial of BOC applications to provide in-region interLATA services.  The issues
they raise are beyond the scope of this proceeding.  We discuss above BellSouth's argument that it is
irrational to apply different standards to foreign or foreign-affiliated carriers than we apply to BOCs.

     327. We agree with commenters who suggest that we establish a period of time normally required
to reach a decision on an application.  Our streamlined process, by which we expect to grant the great
majority of applications, will continue to follow the procedure described in Section 63.12 of our rules: 
After an initial review, an application deemed acceptable for filing and eligible for streamlined processing
is listed on a public notice as streamlined.  Applicants whose applications are listed on such a public notice
may commence operations on the 36th day following the public notice unless notified by the Commission
within 28 days after the date of the public notice that the application is not eligible for streamlined
processing.  It will therefore normally take 35 days to reach a decision on an application from the date the
International Bureau places the application on public notice.

     328. We now amend Section 63.12 to provide for situations where an application is deemed
ineligible for streamlined processing.  In those cases, we will issue a public notice that the application has
been removed from the streamlined process.  Within 90 days of the public notice, we will issue an order
acting upon the application or provide public notice that, because the application raises questions of
extraordinary complexity, an additional 90-day period for review is needed.  Each successive 90-day period
may be so extended, subject to this high standard.  This procedure should reassure applicants and potential
applicants that their applications will be handled expeditiously and should give them guidance on the
amount of time within which they may expect a decision on an application even if an application is deemed
ineligible for streamlined processing.

     329. Parties should be aware that we intend to apply the rules and policies adopted in this Order
to all applications pending before the Commission in any procedural posture at the time they become
effective.  

     B.   Notifications of Foreign-Carrier Affiliations

          Background

     330. Paragraph (b) of Section 63.11 of the Commission's rules requires that any U.S.
international carrier that knows of a planned investment by a foreign carrier of a 10 percent or greater
interest, whether direct or indirect, in the capital stock of the authorized carrier shall notify the Commission
60 days prior to the acquisition of the interest.  Paragraph (e) provides that, where the Commission finds
that the planned investment by the foreign carrier raises a substantial and material question of fact as to
whether the investment serves the public interest, convenience and necessity, the U.S. carrier shall not
consummate the investment until it has submitted an application under Section 63.18.

     331. In the Notice, we proposed to maintain the Section 63.11(b) prior notification requirement
for U.S. carriers with planned investments by foreign carriers (and their affiliated companies) regardless of
whether or not the foreign carrier is from a WTO Member country.  We stated that we could not rule out
the possibility that a particular investment might present a very high threat of anticompetitive harm.

     Discussion

     332. In light of the approach we take in this Order, we conclude that we can revise our rules to
require fewer investments in authorized carriers to be reported to the Commission.  The European Union is
concerned that the existing requirement could result in a disguised market access barrier.  We find that a
foreign carrier's investment in an authorized carrier will very rarely raise any public interest issues unless it
creates an affiliation pursuant to Section 63.18(h)(1)(i) of the Commission's rules.  We therefore conclude
that we need not require authorized carriers to notify the Commission before accepting total foreign carrier
investments of 25 percent or less.  That is, we amend Section 63.11(b) to raise the level of foreign carrier
investment (whether by a single carrier or by multiple carriers that are parties to a contractual relationship)
that requires prior notification from 10 percent to greater than 25 percent.

     333. Notifications pursuant to Section 63.11(b) will give the Commission the opportunity to
evaluate new affiliations under the entry standards that we adopt in this Order in order to determine
whether it continues to serve the public interest to allow the authorized carrier to serve the markets where it
has an affiliation with a foreign carrier.  The notifications will give us the opportunity to impose any
conditions that we might deem necessary in a particular case.  We might, for example, find in a particular
case that an affiliation raises anticompetitive concerns that must be addressed by imposing our benchmarks
condition or the dominant safeguards we adopt here.

     334. In order to implement the standards that we adopt in this Order, including our decision to
apply our entry policies (whether the open entry policies for WTO Members or the ECO test for non-WTO
Members) to U.S. carriers' investments in foreign carriers, we find that it is necessary to require an
authorized carrier to notify the Commission 60 days before it, or a company that owns more than 25
percent of it, acquires a direct or indirect controlling interest in a foreign carrier.  We now amend Section
63.11(b) to add this requirement.

VII.  Compliance with U.S. Commitments under the WTO Basic Telecom Agreement

     Background

     335. In the Notice, we described the results of the WTO Basic Telecom Agreement and the
obligations imposed on WTO Members by the GATS.  We proposed a new standard for foreign carrier
entry in light of these results and obligations.  Many commenters addressed the consistency of our proposed
rules with the GATS.  In order to put these comments   and our responses   in context, we provide a
brief description of GATS obligations.

     336. The GATS is composed of three major components.  The first component consists of general
obligations and disciplines which apply to all WTO Members.  The second component is comprised of
specific commitments relating to market access, national treatment, and other commitments, which are
embodied in individual WTO Member Schedules of Specific Commitments.  The final component sets
out exemptions from the general obligations embodied in Lists of Article II (Most-Favored-Nation (MFN))
Exemptions.  

     337. The most important of the general obligations and disciplines that apply to all WTO
Members is the requirement in Article II of the GATS to accord MFN treatment to like services and service
suppliers of all other WTO Members, no matter what specific commitments a WTO Member has made. 
MFN is essentially a nondiscrimination rule that requires each WTO Member to treat like services and
service suppliers from all other WTO Members similarly.  In addition to the MFN obligation, all WTO
Members undertake transparency obligations in accordance with Article III (Transparency) of the GATS,
which requires prompt publication of all laws and regulations applicable to the provision of services.

     338. Many WTO Members, including the United States, undertook specific commitments with
respect to market access and national treatment as a result of the WTO negotiations on basic
telecommunications.  GATS Article XVI (Market Access) requires each WTO Member to accord services
and service suppliers of any other WTO Member treatment no less favorable than that provided for under
the terms, limitations and conditions agreed and specified in its Schedule and to refrain from imposing
certain types of quantitative restrictions, economic needs tests or local incorporation requirements, in those
sectors where the WTO Member has undertaken specific market access commitments.  This means that a
Member may not maintain limits such as the number of service suppliers or the corporate form in which a
service can be provided, unless the Member has specifically listed such limitations in its Schedule. 
Article XVII (National Treatment) is a nondiscrimination rule that requires a WTO Member to treat like
services and service suppliers from other WTO Members no less favorably than it treats its own services
and service suppliers.  Under GATS Articles II (MFN) and XVII (National Treatment), treatment of
domestic and foreign service suppliers need not be identical to accord MFN or national treatment.  The
critical aspect of an MFN or national treatment analysis is whether the treatment accorded modifies the
conditions of competition in favor of certain foreign or domestic suppliers.  Thus, dissimilar treatment
can be consistent with MFN or national treatment obligations if it does not put the foreign supplier at a
competitive disadvantage to another foreign supplier or a domestic supplier.

     339. Those WTO Members that undertook market access commitments in basic
telecommunications services also became subject to the requirements relating to domestic regulation of
those services contained in Article VI (Domestic Regulation).  Pursuant to Article VI(1), in sectors where
specific commitments are undertaken, domestic regulation must be administered in a reasonable, objective
and impartial manner.  Article VI(4) provides that a WTO Member could be in contravention of its
commitments if it applies measures that are not based on objective and transparent criteria, are more
burdensome than necessary or that restrict the supply of the service.  A WTO Member arguing, however,
that a measure does contravene Article VI(4) also must show that application of the measure could not
have been reasonably expected at the time specific commitments were made.

     340. The United States and 54 other countries also undertook additional specific commitments as
a result of the negotiations in accordance with Article XVIII of the GATS.  These additional
commitments are the procompetitive regulatory principles contained in a document known as the
"Reference Paper."  The Reference Paper contains principles relating to competition safeguards,
interconnection, universal service, transparency of licensing criteria, independence of the regulator and
allocation of scarce resources.  The relevant provisions for purposes of this Order refer to competition
safeguards and licensing.  Section 1 of the Reference Paper obligates a WTO Member to "maintain
appropriate measures for the purposes of preventing suppliers who, alone or together, are a major supplier
from engaging in or continuing anti-competitive practices."  With regard to licensing, the Reference
Paper requires that all licensing criteria and the terms and conditions of individual licenses be made
publicly available.

     341. The GATS also allows for exceptions to a WTO Member's obligations.  Where these
exceptions apply, a WTO Member may act inconsistently with its MFN, national treatment or market
access commitments or any other GATS obligation.  Article XIV (General Exceptions) establishes a limited
set of exceptions, including for measures necessary to protect public morals and order, protect human and
animal health or secure compliance with nondiscriminatory laws and regulations.  Article XIV bis
(Security Exceptions) permits a WTO Member to deviate from its GATS obligations in order to protect its
national security interests or to carry out any obligations under the U.N. Charter to maintain international
peace and security.

     342. The United States committed to provide market access to all basic telecommunications
services and national treatment to service suppliers of WTO Members.  In addition, as noted above, the
United States incorporated the Reference Paper into its Schedule of Specific Commitments.
     
     Positions of the Parties 

     343. The Office of the U.S. Trade Representative (USTR) asserts that the proposals contained in
our Notice are consistent with U.S. commitments under the WTO Basic Telecom Agreement.  USTR
agrees that the Commission can apply the public interest test, as proposed, and that no WTO Members
participating in the WTO basic telecom negotiations can claim surprise at its continued use.  USTR and
other Executive Branch agencies also support consideration of competition issues and other public interest
factors, as well as imposition of competition safeguards.  Many other commenters, however, contend that
these U.S. commitments prohibit the Commission not only from applying the ECO test, but also from
applying a public interest analysis generally or safeguards to applicants from or affiliated with carriers
from WTO Members.  As described below, they argue that the proposed rules violate U.S. obligations
regarding market access, domestic regulation, transparency, MFN, and national treatment, and that
application of the public interest test and safeguards are not otherwise permitted by the Reference Paper or
the general exceptions to the GATS.  Further, the European Commission and Deutsche Telekom complain
that the Notice fails to present evidence that the rules are consistent with the GATS. 

     Discussion

     344. We consider carefully but find unpersuasive arguments that the measures we adopt today
violate U.S. obligations under the GATS or any other international agreement to which the United States is
a party.  Although we do not believe we are required to explain the GATS-consistency of our proposals, as
argued by the European Commission and Deutsche Telekom, we take this opportunity to do so.  We
conclude that a public interest analysis is a valid exercise of U.S. domestic regulatory authority, required
by the Communications Act and consistent with U.S. international obligations.  Our implementation of the
public interest test with respect to Section 214 and Section 310 authorizations and cable landing licenses is
similarly permitted by the GATS.  We find that the Commission not only is entitled to apply competitive
safeguards consistent with U.S. obligations but is obligated to do so under the Reference Paper.  In
reaching these conclusions, we find persuasive the comments of the Executive Branch, particularly the
views of USTR, which has primary responsibility for issuing and coordinating guidance on interpretation
of U.S. international trade obligations.  
     
     345. The Public Interest Analysis.  KDD claims that application of a public interest analysis is
precisely the type of entry restriction prohibited by the GATS.  Moreover, KDD asserts that the analysis
specifically violates the national treatment obligation because the Commission applies a different test, or
none at all, to U.S. carriers.  Deutsche Telekom, KDD, Sprint and ETNO argue that the public interest
analysis violates MFN because it discriminates against foreigners, and violates the requirements of GATS
Articles III (Transparency) and VI (Domestic Regulation) because it is vague, unclear and inherently
subjective.  ETNO and Deutsche Telekom contend that the ability to analyze the public interest or deny a
license violates the U.S. market access commitments because the United States has not specifically reserved
the right to apply such an analysis in its Schedule of Specific Commitments, as required by Article XVI
(Market Access) of the GATS.  Furthermore, according to Deutsche Telekom, the public interest
analysis is not justified by the Reference Paper and cannot qualify as an exception to GATS obligations
under Article XIV (General Exceptions) of the GATS.

     346. We conclude that the WTO Basic Telecom Agreement does not affect the Commission's
statutory obligation to apply a public interest analysis.  The Commission has applied a public interest
analysis as part of its regulatory structure since the Communications Act was passed in 1934.  In fact,
consideration of the public interest is fundamental in carrying out the general powers of the Commission. 
We apply the public interest test in a number of different contexts to domestic and foreign applicants. 
We thus find unconvincing the arguments that consideration of the public interest violates the U.S. national
treatment or the MFN obligation.

     347. The argument that a public interest analysis is invalid under GATS Articles III
(Transparency) and VI (Domestic Regulation) is equally unconvincing.  We agree with AT&T that Article
VI does not prohibit all regulatory standards that involve any element of judgment or discretion, but
requires that the standard be neutral as regards all parties and applied in an objective manner.  We also
agree with the FBI's conclusion that the public interest analysis comports fully with Article VI because it
does not "nullify or impair" the specific commitments of the United States.  Article VI, as noted above,
requires that domestic regulations be objective, transparent, impartial, and reasonable.  The Commission is
not adopting an ad hoc approach with respect to foreign carrier entry similar to that it applied before
1995.  Rather, this Order establishes the parameters of the Commission's review of applications to
provide international services.  This Order spells out in great detail how the public interest test is applied to
Section 214 and Section 310 authorizations and cable landing licenses.  It provides an explicit description
of all the factors the Commission will consider in reviewing license applications and investment
authorizations.  Moreover, the Commission is subject to the Administrative Procedures Act (APA), which
subjects all Commission regulations to judicial review and requires the Commission to follow standard
procedures.

     348. We also find without merit commenters' complaints about the GATS consistency of the
public interest analysis under Article VI(4).  The requirements of Article VI(4) regarding domestic
licensing are applicable only if the measure   in this case, the public interest analysis   could not have
been reasonably expected at the time specific commitments were made.  We agree with USTR and the FBI
that other WTO Members not only should have expected, but knew that the Commission would continue to
consider the public interest.  The Commission's intention was made clear to all our negotiating partners
in bilateral and multilateral sessions during the negotiations.  Thus, even if a WTO Member considers
the public interest analysis to be subjective or to lack impartiality, there is no GATS violation since it was
abundantly clear that the Commission intended to continue to use it. 

     349.  Article III (Transparency) does not impose any specific obligations with regard to the
content of national laws or regulations.  It merely requires the publication of national laws and regulations. 
In fact, the Commission's actions are much more "transparent" than Article III requires.  The Commission
is required by law to conduct its rulemakings in a very open manner.  Consequently, we publish all of our
regulations   both as proposals for public comment and as final rules   and request public comment on
all applications for licenses, as well as proposals for rulemakings.

     350. Deutsche Telekom's argument that the public interest analysis is invalid because it does not
fit within one of the exceptions listed in Article XIV (General Exceptions) lacks merit.  As shown above,
the public interest analysis does not violate any GATS obligations and therefore reference to provisions of
the GATS excepting a measure from its application is unnecessary.   In addition, since the public interest
analysis is consistent with GATS obligations, there is no need to refer to the Reference Paper as
justification for application of the analysis.

     351. We also disagree that the public interest analysis cannot be maintained because it violates the
U.S. market access commitments or is not listed as a limitation in the U.S. Schedule of Specific
Commitments.  We note USTR's comment that the negotiating history of the GATS shows that, rather than
prohibiting all domestic regulation of basic telecommunications services, Article XVI (Market Access) only
prohibits WTO Members from maintaining or adopting the types of quantitative or economic-needs based
limitations and measures listed in Article XVI (unless such limitations are included in a WTO Member's
Schedule of Specific Commitments).  We find that because the public interest analysis is not the kind of
quantitative or economic-needs based limitation set out in Article XVI, it is not the type of impermissible
limitation envisioned by the GATS.  Therefore, there is no need for the United States to have included the
test as a limitation on its market access commitments in its Schedule of Specific Commitments. 

     352. Review of Applications under Section 214, Section 310 and the Submarine Cable Landing
License Act.  AT&T argues that denial of market access to carriers posing risks to competition that could
not be addressed by safeguards is fully consistent with the GATS.  Denial in these circumstances would
meet the Article VI requirements and would not be contrary to MFN or national treatment obligations. 
According to AT&T, a licensing decision that is dependent upon a carrier's market power, rather than its
national origin, and that is based solely upon the potential adverse impact of that carrier's entry upon
competition in the United States, is consistent with MFN.  USTR states that nothing in the GATS
prohibits the Commission from consideration of competition issues.

     353. Sprint, Deutsche Telekom, KDD and ETNO argue that the entry standard relating to Section
214, cable landing licenses and Section 310 potentially does not provide national treatment because the
Notice is silent as to whether the same standard applies to U.S. carriers.  France Telecom makes this
same argument with respect to Section 310(b)(4) authorizations below 50 percent.  The European
Commission objects to the Commission retaining its ability to deny Section 214 and Section 310
authorizations and cable landing licenses in order to protect competition in the U.S. market.  It argues that
general antitrust law is sufficient to safeguard against anticompetitive practices and that an authorization
should not be denied to a carrier that might, at a later date, pose a competitive risk.  The European
Commission also expresses concern that the standard of a "very high risk to competition" imposes
additional burdens on foreign companies, which would be subject to challenge based on unclear conditions
and criteria.  Deutsche Telekom and the European Commission question the compatibility with MFN of
a denial of market access on the basis of foreign affiliation.  The European Commission also questions
the compatibility with GATS of requiring foreign companies to notify the Commission of investments
above ten percent.  Deutsche Telekom argues that the Reference Paper does not justify the Commission's
proposals because it applies only to domestic carriers.  NTT and GTE argue that the Commission should
rely on the Reference Paper and on enforcement of WTO Member's commitments through WTO dispute
settlement to preserve competition. 

     354. We agree with USTR that nothing in the WTO Basic Telecom Agreement prohibits the
Commission from reviewing and possibly denying applications that pose a risk of anticompetitive harm in
the U.S. market.  The GATS does not specify a single mechanism for addressing potential
anticompetitive practices in the telecommunications services sector.  The United States has traditionally
relied on regulatory enforcement and antitrust actions, and remains free to do so.  We therefore disagree
with the European Commission that we must depend on general antitrust law to safeguard against
anticompetitive activity.  In fact, the Commission's statutory obligation to serve the public interest both
encompasses and extends beyond the traditional parameters of review under the U.S. antitrust laws. 
When the United States entered into the WTO Basic Telecom Agreement, it did so with the understanding
that its obligations would be carried out consistent with U.S. law.

     355. The standard of review we adopt is fully consistent with the Commission's historical exercise
of its mandate to consider the public interest.  The Act charges the Commission with "regulating interstate
and foreign commerce in communication by wire and radio so as to make available, so far as possible . . . a
rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities
at reasonable charges . . . ."  In carrying out that charge over more than 60 years, the Commission has
long considered competition issues in applying the public interest standard.  The WTO Basic Telecom
Agreement does not alter this responsibility.  We remain concerned with the ability of carriers with market
power to leverage that power and engage in anticompetitive conduct in the U.S. market.  We expect that the
safeguards we propose to apply will be sufficient to prevent anticompetitive behavior.  As a result, we
are not denying the market access that the United States promised in the WTO Basic Telecom Agreement. 
We are not willing, however, to foreclose entirely the possibility that if an exceptional case arises in which
entry is likely to harm consumers in a concrete way (such as through increased rates or decreased service
options) we may protect the U.S. market by denying entry.  While the European Commission may be
willing to wait until after the harm occurs in its market, nothing in the WTO or the GATS requires that all
WTO Members regulate in exactly the same way. 
  
     356. We also disagree that the standard we adopt today for Section 214 authorizations erects
additional barriers for foreigners or discriminates against foreigners, inconsistent with national treatment
obligations.  In response to the many concerns that the proposed rules discriminate against foreign
applicants, we have clarified in this Order that the Section 214 analysis   including the possibility of
denial of a license   applies to all applicants, regardless of nationality.  Thus it is consistent with U.S.
national treatment obligations.  To the extent that we differentiate among domestic and foreign carriers with
regard to cable landing licenses and foreign investment, such differentiation is based on statutory
distinctions founded on national security and law enforcement concerns.  

     357. Likewise, our procedures to review applications under Section 214 and Section 310 of the
Act and the Submarine Cable Landing License Act do not discriminate impermissibly among foreigners in
a manner inconsistent with our MFN obligations.  In deciding whether a measure accords less favorable
treatment within the meaning of GATS Article II (MFN), the analysis focuses not on whether the treatment
of like foreign or like domestic suppliers is identical, but rather whether the treatment modifies the
conditions of competition in favor of foreign service suppliers of a particular origin or domestic service
suppliers.  In this case, the Commission is not discriminating among like service suppliers.  The
Commission is treating similarly all carriers that have the ability to harm competition, whether they are
foreign or domestic, and treating carriers that do not have that ability similarly.  Examining the ability of a
carrier to affect competition in the U.S. market is not an impermissible examination of foreign market
conditions, as Deutsche Telekom claims, but an essential factor in our licensing decisions.  Rather than
modifying the conditions of competition in favor of domestic or certain foreign suppliers, we are making the
conditions of competition level by ensuring that dominant carriers cannot adversely distort competition in
the U.S. market, whether their ability to do so derives from market power in the United States or foreign
markets.

     358. By this Order, we are carrying out Section 1 of the Reference Paper, which requires us to
maintain measures that would prohibit anticompetitive activity of suppliers, which alone or together,
constitute a "major supplier."  We disagree with Deutsche Telekom that a major supplier can only be a
domestic carrier.  The definition of major supplier does not limit the term to domestic suppliers or to a
supplier with control over domestic facilities.  Nor does Section 1 limit the requirement to take steps to
prevent anticompetitive activities to activities of only domestic suppliers.  Rather, the definition of major
supplier is neutral and Section 1 focuses on any carrier's ability to act in an anticompetitive manner.  Thus,
we find unconvincing Deutsche Telekom's arguments.  

     359. We do not accept the notion that we should depend on other countries' implementation of
their commitments in lieu of applying competition factors in our regulatory process.  There is nothing in the
GATS that requires us to refrain from regulating because other WTO Members have an obligation to
regulate.  Access to WTO dispute settlement does not eliminate the need for and the appropriateness of our
regulation of telecommunications services in order to safeguard competitive opportunities.  WTO dispute
settlement is an effective remedy, but one that takes some time to obtain.  In addition, it is not a remedy that
the Commission can seek directly, but depends on Executive Branch action.  We have a separate statutory
obligation to regulate and enforce our rules that cannot be stayed while the Executive Branch seeks relief in
an international tribunal.

     360. Finally, we do not accept Deutsche Telekom's argument that we should rely on enforcement
of WTO Members' obligations under Articles VIII (Monopolies and Exclusive Service Suppliers) and IX
(Business Practices) to prevent anticompetitive actions by foreign dominant carriers.  We disagree with
Deutsche Telekom's interpretation of these articles of the GATS.  In fact, we conclude that Articles VIII
and IX provide no adequate remedy for Commission concerns.  Article VIII applies only to actions of
monopolies.  It does not apply in cases where a WTO Member made market access commitments, which
the United States along with 68 other WTO Members did.  Article IX provides for consultations on unfair
business practices but imposes no obligation enforceable in WTO dispute settlement.  We agree with
USTR's comment that Articles VIII and IX were never intended to place limits on a government's ability to
ensure competition in domestic or international markets.
 
     361. We also disagree with the European Commission and Deutsche Telekom's argument that
Commission consideration of "actionable misconduct" as a factor in determining the effect on competition
of a carrier's entry into the U.S. market is inconsistent with MFN or national treatment obligations. 
There is nothing in the GATS that prevents the Commission from looking at the qualifications of an
applicant, including its financial, legal, and technical capabilities, as well as its ability to abide by the law. 
We intend to look at those factors in connection with all applications, whether foreign or domestic, as we
do now in granting licenses to domestic operators.

     362. Other Public Interest Factors.  The Department of Defense (DOD) and FBI both conclude
that the Commission can consider, consistent with the GATS, issues of national security and law
enforcement raised by the Executive Branch in determining whether to grant Section 214 and Section 310
authorizations and cable landing licenses.  DOD disagrees that national security concerns are subjective,
vague and undefined.  Sprint, NTT, and France Telecom acknowledge the validity of national security
and law enforcement concerns, while GTE notes that these concerns should be implemented in a manner
consistent with the GATS.  Deutsche Telekom, without offering an explanation, states that the GATS
national security exception is narrower than the Commission's proposal.  

     363.   USTR also supports Commission consideration of other public interest factors raised by the
Executive Branch, including national security, law enforcement, foreign policy and trade policy concerns. 
Deutsche Telekom says consideration of these other public interest factors is invalid because the United
States did not reserve any such authority in its Schedule of Specific Commitments.  Other commenters
argue that market access cannot be denied on the basis of foreign policy or trade concerns consistent with
GATS obligations.  
     
     364. We agree with comments of the Executive Branch and AT&T supporting consideration of
other public interest factors, such as national security, law enforcement, foreign policy and trade policy
concerns.  We conclude that nothing in the GATS precludes us from considering such concerns.  There is
no bar in Article VI (Domestic Regulation) as long as our consideration is objective, transparent, impartial,
and reasonable.  Nor does the MFN obligation automatically bar consideration of any particular factor.  It
provides merely that like service suppliers have to receive like treatment.  Similarly, the national treatment
obligation does not exclude consideration of these other public interest factors.  Finally, contrary to
Deutsche Telekom's argument that GATS Article XIV bis is not broad enough to allow us to consider
national security, we note that Article XIV bis contains no such limiting language. 

     365. In a particular case, where we do consider these other public interest factors, we will be
mindful of U.S. WTO obligations to the extent that the exemptions in the GATS specifically do not
apply.  On its face, GATS Article XIV bis allows measures to protect essential security interests. 
Accordingly, we find it difficult to understand Deutsche Telekom's argument that Article XIV bis is not
broad enough to enable the Commission to review any national security concerns raised by the Executive
Branch.  We do not expect to receive recommendations from the Executive Branch in connection with these
other public interest factors that are inconsistent with U.S. international obligations.  

     366. Safeguards.  AT&T defends the MFN-consistency of the Commission's proposed
competition safeguards, citing USTR comments that the Commission is free to take measures to protect
competition in the United States.  AT&T also argues that the WTO Basic Telecom Agreement plainly
recognizes the right of the Commission to prevent anticompetitive practices.  AT&T states that Article VI
of the GATS recognizes a basic right to regulate, including the adoption and implementation of licensing
qualifications designed to achieve legitimate objectives, such as the prevention of anticompetitive conduct. 
It goes on to say that Section 1.1 of the Reference Paper requires the Commission to maintain measures to
prevent carriers with market power from engaging in or continuing anticompetitive practices. Sprint
agrees that the proposed safeguards are consistent with MFN because dominant carrier classification does
not depend on national identity but on market power.

     367. Many commenters argue that the safeguards are inconsistent with the GATS. A number of
commenters contend that safeguard measures are unnecessary because the Commission can rely on WTO
Member commitments to implement the regulatory principles contained in the Reference Paper.  If WTO
Members fail to implement their commitments, the United States can use the established WTO dispute
settlement process to ensure compliance.  GTE suggests that the Commission eliminate or modify those
proposed safeguards that are redundant of protections offered by other countries' full implementation and
enforcement of the Reference Paper.  Telstra argues that the Commission should rely on general
competitive safeguards and antitrust law.  It goes on to say that the Commission's proposal to apply a No
Special Concessions rule violates MFN because it differentiates among carriers based on their market
power. Telstra and Deutsche Telekom assert that the No Special Concessions rule also violates the
national treatment obligation.  
     
     368. Cable & Wireless and Deutsche Telekom argue that the proposed dominant carrier
safeguards are unnecessary barriers to trade and, therefore, violate Article VI (Domestic Regulation),
while ETNO and GTE argue that the safeguards raise national treatment questions.  Deutsche Telekom
and Telia note that the Notice singles out foreign carriers for safeguards, but is silent as to the treatment of
U.S.-owned carriers.  To comply with the GATS national treatment obligation, Deutsche Telekom says
the Commission must impose safeguards on U.S. carriers with an ownership interest in a foreign carrier
with market power and dominant U.S. carriers that have an ownership interest in a foreign carrier without
market power.  GTE argues that the Reference Paper cannot be used as a basis for deviating from MFN
and national treatment requirements.  Deutsche Telekom states that the Reference Paper does not provide
authority to regulate a carrier based on its market power in another market.  KDD argues that several
aspects of the Commission's proposals do not constitute "appropriate" measures pursuant to the Reference
Paper but offers no explanation as to why.   Finally, ETNO also argues that the Commission cannot
adopt safeguards because the United States has not specifically reserved that right in its Schedule of
Specific Commitments.  

     369. We find that the safeguards we adopt in this Order are consistent with all of our GATS
obligations.  The GATS permits a WTO Member to pursue legitimate policy objectives, such as the
protection against anticompetitive conduct in the U.S. market.  The safeguards we adopt do not render
our market access commitments meaningless.  In the past two years, we have granted approximately 140
Section 214 authorizations to carriers with foreign ownership.  We expect to grant an increasing number of
authorizations in the coming years as carriers take advantage of the new market opening rules adopted in
this Order.  

     370. Further, we disagree with the arguments that our competition safeguards violate GATS
Article VI (Domestic Regulation).  Article VI, as noted above, requires that domestic regulations be
objective, transparent, impartial, and reasonable.  As with the public interest analysis, this Order spells out
the safeguards and the reasons for them in great detail.  It provides an explicit description of when the
safeguards will apply that is objective and based on articulated concerns.  Moreover, the Commission is
subject to the Administrative Procedures Act, which subjects all Commission regulations to judicial review. 
By law, the Commission cannot act in an arbitrary and capricious manner but must seek public comment
and take that comment into account when reaching its decisions.  

     371. Again, we disagree with the arguments that our safeguards must be scheduled as market
access limitations in order to be maintained and are not justified by the Reference Paper.  These safeguards,
as with the public interest analysis, are not the types of quantitative or economic needs-based limitations
envisioned by Article XVI (Market Access) and therefore there is no need for the United States to have
included them as limitations on its market access commitment in its Schedule of Specific Commitments.

     372. The argument that competition safeguards are not justified by the Reference Paper is equally
unconvincing.  In fact, the Reference Paper explicitly imposes an obligation on WTO Members which
adopted it to take actions to prohibit anticompetitive behavior.  The competition safeguards we adopt here
are designed to do exactly that   deter anticompetitive behavior by carriers that, alone or together, control
"essential facilities or otherwise have the ability to affect the market adversely."   We agree with GTE
that the Reference Paper does not justify regulation inconsistent with other provisions of the GATS.  Since
the Reference Paper does not limit measures against anticompetitive conduct to domestic carriers and, as
described in this section, the safeguards we adopt are consistent with the GATS, we conclude that we have
acted consistently with the Reference Paper.

     373. We also conclude that our decision to adopt a No Special Concessions rule is consistent
with all U.S. international obligations.  Contrary to what Telstra argues, the No Special Concessions rule
does not discriminate among services and service suppliers of different countries nor, contrary to other
arguments, does it discriminate between U.S. and foreign-owned carriers.  The fact that a universally
applied condition will have different effects on different carriers does not automatically render it illegitimate
under the GATS.   Rather, the question is whether the proposed safeguards alter the competitive
conditions for some suppliers in contrast to others.  Because the No Special Concessions rule applies to all
similarly situated U.S. carriers in their dealings with foreign carriers with market power in the destination
market, the rule does not alter the competitive conditions for those similarly situated carriers.  In light of the
requirement not to discriminate among like service suppliers, we cannot accept SOSCo's suggestion that we
relax the safeguards for carriers from WTO Members that have adopted the Reference Paper. 

     374. Since we do not adopt our proposal to differentiate among carriers based on the extent of
competition in their home market, we need not respond to comments that such differentiation is inconsistent
with the GATS.  We have clarified that the dominant safeguards apply to all carriers, whether foreign or
domestic, that are affiliated with a foreign carrier that possesses market power on the foreign end of a U.S.
international route.   Contrary to the contentions of the European Commission and Deutsche Telekom, we
can distinguish among foreign carriers, among domestic carriers and between foreign and domestic carriers
based on their market power consistent with our MFN and national treatment obligations.  The distinction
is not based on nationality but on objective economic analysis.  We emphasize that this analysis focuses on
whether a carrier's market power in an input market -- whether U.S. or foreign -- enables it to adversely
impact competition in a relevant downstream U.S. market.  The same logic applies in the international
services market as in the domestic market.   

     375. We find that the conditions we adopt in this Order are necessary to deter anticompetitive
conduct in the U.S. market for international services.  As we discuss in Section V, distortion of competition
in the U.S. market is not merely hypothetical.  We have eliminated those safeguards not necessary to deter
anticompetitive conduct, thus applying the minimum regulatory measures necessary to achieve our
procompetitive market-opening objectives.  As a result, we conclude that the safeguards conditions
contained in this Order are consistent with U.S. international obligations, including those contained in the
GATS.  

   VIII.  Petitions for Reconsideration in IB Docket No. 95-22

     376. We have pending several petitions for reconsideration of the Foreign Carrier Entry Order
and one issue raised in the Flexibility proceeding.  We address the majority of those issues in this Order
because of their close relationship with the substance of IB Docket No. 97-142.

     377. Cable and Wireless seeks reconsideration of our decision in the Foreign Carrier Entry
Order to apply an ECO analysis to foreign-affiliated carriers seeking prior approval to add circuits on
routes that they are already authorized to serve on a dominant carrier basis.  In Section V.C.2.b.(ii) above,
we conclude that we will no longer require as a general rule that foreign-affiliated carriers regulated as
dominant on particular routes seek prior approval of circuit additions and discontinuances.  We also
decline, in that Section, to apply a prior approval requirement specifically to dominant foreign-affiliated
carriers that obtained their Section 214 authorizations to serve a non-WTO Member country prior to
adoption of the ECO test.

     378. MCI and BTNA ask that we impose a requirement that carriers entering into non-equity
business relationships with foreign carriers either file those agreements or otherwise notify the Commission
of their execution.  In Section V.C.2.a above, we decide to continue our regulatory treatment of non-equity
relationships and decide not to impose a requirement such as that requested by MCI and BTNA.

     379. TLD seeks reconsideration of our decision to apply the ECO test to destination markets
where an affiliation results only from an affiliated foreign carrier's (or its holding company's) control of a
third country's dominant carrier while not applying the ECO test where an affiliation results only from a
U.S. carrier's ownership of a foreign carrier.  BTNA, too, seeks reconsideration of our decision not to
apply the ECO test where a U.S. carrier has an interest in a foreign carrier.  This issue is moot in WTO
Member countries because of our decision in Section III.B above no longer to apply the ECO test as part of
our Section 214 public interest analysis when the applicant's foreign affiliate is from a WTO Member
country.  In Section IV.B above, we declare that we will henceforth apply the ECO test to U.S. carriers'
interests in foreign countries' dominant carriers but that we will continue to apply the ECO test to third-
country carriers.

     380. NYNEX urges the Commission to eliminate our equivalency requirement as a condition of
the resale of private lines for the provision of switched basic services by any carrier that is not affiliated
with a foreign carrier having market power at the foreign end.  NYNEX argues that eliminating that
requirement would enable such a carrier to compete for U.S.-bound traffic by offering lower rates to
customers in the foreign country.  The resulting competitive pressure, NYNEX argues, could force the
dominant carrier to lower its own rates for service to the United States and negotiate a lower accounting
rate on the U.S. route.

     381. We decline to adopt NYNEX's suggestion.  NYNEX concedes that its proposal would
increase the net settlements deficit, and we observe that it also would not put downward pressure on
settlement rates.  Although the scenario NYNEX presents might increase retail competition in the foreign
market, it would be at the expense of U.S. IMTS ratepayers because, without allowing U.S.-outbound
traffic to be carried over private lines, there would be no offsetting benefit to U.S. consumers.  We
recognize that such arrangements may be beneficial in some circumstances, and our Flexibility policies will
allow some such arrangements subject to case-by-case Commission scrutiny.  We decline, however, to
adopt a general rule favoring arrangements that would increase the settlements deficit without putting
downward pressure on settlement rates.  We will therefore continue to require the showings we describe in
this Order before allowing any carrier, including a carrier not affiliated with a carrier with market power in
the destination market, to provide switched services over interconnected private lines.

     382. MCI, in its petition, states that the Commission erred in not permitting U.S. facilities-based
carriers to provide switched services over private lines, interconnected to the public switched network at
one end only, in circumstances where the foreign half-circuit is provided by a foreign carrier with which the
U.S. carrier has a correspondent relationship.  As we stated in our Flexibility Order, MCI has
misunderstood our rule.  Our current rule is properly read to permit U.S. facilities-based carriers to offer
switched services over international private lines that are interconnected to the public switched network at
one end only, provided that the U.S. carrier corresponds with a foreign carrier that resells rather than owns
the foreign half-circuit.  That is, the U.S. facilities-based carrier may carry switched traffic over its private
lines interconnected at one end where the foreign correspondent with which the U.S. carrier is interchanging
switched traffic is not the owner of the underlying foreign private line half-circuit.  This rule is a limited
exception to our general rule on the provision of switched services over international private lines.

     383. BTNA and WorldCom filed petitions for reconsideration related to this limited exception to
our rule on the provision of switched services over international private lines.  We defer these requests to
the pending Flexibility Order reconsideration proceeding, CC Docket No. 90-337, because of their integral
relationship to the issues in that proceeding.  In the meantime, carriers wishing to enter into arrangements
of the sort described by those parties may file requests to approve alternative settlement arrangements
under our Flexibility policies.

                   IX.  Administrative Matters

     384. The Commission has reviewed its rules governing the provision of international
telecommunications services by authorized carriers and has amended the rules to reflect both the policy
decisions made in this Order and necessary technical corrections.  Technical corrections not discussed in
the text of this Order are minor corrections to conform our rules to current practice and were justified in
earlier rulemaking proceedings.  We also eliminate provisions of Section 63.13 of the Commission's rules
that are no longer necessary.  We therefore find good cause to conclude that notice and comment
procedures are unnecessary.  The amendments appear in Appendix C to this Order.  Carriers should
review these rule changes.

     385. The analysis pursuant to the Regulatory Flexibility of 1980, 5 U.S.C.  608, is contained in
Appendix D.

     386. Paperwork Reduction Act of 1995 Analysis.  This Report and Order contains new and
modified information collections.  As part of the Commission's continuing effort to reduce paperwork
burdens, we invite the general public and the Office of Management and Budget (OMB) to comment on the
information collections contained in this Order, as required by the Paperwork Reduction Act of 1995, Pub.
L. No. 104-13.  Public and agency comments are due 60 days from date of publication of this Order in the
Federal Register.  Comments may address the following: (a) whether the proposed collection of information
is necessary for the proper performance of the functions of the Commission, including whether the
information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to
enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of
the collection of information on the respondents, including the use of automated collection techniques or
other forms of information technology.  Written comments on the proposed and/or modified information
collections must be submitted on or before 60 days after date of publication in the Federal Register.  In
addition to filing comments with the Secretary, a copy of any comments on the information collections
contained herein should be submitted to Judy Boley, Federal Communications Commission, Room 234,
1919 M Street, N.W., Washington, DC 20554, or via the Internet to jboley@fcc.gov.  For additional
information concerning the information collections contained in the Report and Order contact Judy Boley at
202-418-0214.  

                       X.  Ordering Clauses

     387. Accordingly, IT IS ORDERED that, pursuant to Sections 1, 2, 4(i), 201, 203, 205, 214,
303(r), 309, and 310 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154(i),
201, 205, 214, 303(r), 309, 310, and the Submarine Cable Landing License Act, 47 U.S.C.  34-39, the
policies, rules, and requirements discussed herein ARE ADOPTED and Parts 43 and 63 of the
Commission's rules, 47 C.F.R. pts. 43, 63, ARE AMENDED as set forth in Appendix C.

     388. IT IS FURTHER ORDERED that authority is delegated to the Chief, International Bureau
and the Chief, Common Carrier Bureau, as specified herein, to effect the decisions as set forth above.

     389. IT IS FURTHER ORDERED that the petitions for reconsideration in IB Docket No. 95-22
ARE GRANTED in part, DENIED in part, and DEFERRED in part as set forth herein.

     390. IT IS FURTHER ORDERED that the Commission's Office of Managing Director shall send
a copy of this Report and Order and Order on Reconsideration, including the Final Regulatory Flexibility
Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

     391. IT IS FURTHER ORDERED that the policies, rules, and requirements established in this
decision shall take effect thirty days after publication in the Federal Register or in accordance with the
requirements of 5 U.S.C.  801(a)(3) and 44 U.S.C.  3507.  The Commission will publish a document at
a later date announcing the effective date.  The Commission reserves the right to reconsider the effective
date of this decision if the WTO Basic Telecom Agreement does not take effect on January 1, 1998.


                         Federal Communications Commission


                         Magalie Roman Salas
                         Secretary