3970 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

1The United States has been advised by FT and

DT that one of those preconditions, the divestiture

of the Initial Tranche of FT’s and DT’s shares of

Infonet Services Corporation, has now been

completed.

2Paragraph 6 of the July 13, 1995 Stipulation

signed by the United States and Sprint provides

that ‘‘Joint Venture Co. is necessary as a defendant

in this action, together with Sprint, for the relief

specified in the proposed Final Judgment to be

effective.’’ It further sets out required conditions

pertaining to Joint Venture Co. including ‘‘that Joint

Venture Co. (i) has been created as a legal entity,

(ii) is subject to suit and is within the reach of the

jurisdiction of the United States courts, and (iii)

will have full authority and power to carry out all

of the obligations imposed upon it by the proposed

Final Judgment as those obligations take effect, and

Joint Venture Co. has consented to and executed

this Stipulation on the same terms as Sprint,

without reservation or qualification, * * *’’ The

stipulation further provides that until these

conditions pertaining to Joint Venture Co. are

satisfied, the United States ‘‘shall be under no

obligation to move for entry of the Final Judgment

and may withdraw its consent to entry of the Final

Judgment, and defendants shall not move for entry

of the Final Judgment.’’ The original stipulation

signed by both Sprint and the United States

essentially makes the formation of the joint venture

and its execution of the Stipulation consenting to

entry of the proposed Final Judgment preconditions

for entry of the Final Judgment.

DEPARTMENT OF JUSTICE

Antitrust Division

[Civil No. 95–1304]

Public Comments and Response on

Proposed Final Judgment, United

States v. Sprint Corporation and Joint

Venture Company

Pursuant to the Antitrust Procedures

and Penalties Act, 15 U.S.C. 16(b)–(h),

the United States of America hereby

publishes below the comments received

on the proposed Final Judgment in

United States v. Sprint Corporation, et.

al., Civil Action No. 95–1304, filed in

the United States District Court for the

District of Columbia, together with the

United States’ response to the

comments.

Copies of the comments and response

are available for inspection in Room 215

of the U.S. Department of Justice,

Antitrust Division, 325 7th Street, NW.,

Washington, DC 20530, telephone: (202)

514–2481, and at the office of the Clerk

of the United States District Court for

the District of Columbia, United States

Courthouse, Third Street and

Constitution Avenue, NW., Washington,

DC 20001. Copies of any of these

materials may be obtained upon request

and payment of a copying fee.

Constance K. Robinson,

Director of Operations, Antitrust Division.

Comments Relating to Proposed Final

Judgment and Response of the United

States to Comments

United States of America, Plaintiff, v.

Sprint Corporation and Joint Venture

Company, Defendants.

[Civil Action No. 95–1304 (TPJ)]

Pursuant to Section 2(b) of the

Antitrust Procedures and Penalties Act

(15 U.S.C. § 16(b)–(h)) (‘‘APPA’’), the

United States of American hereby files

the public comments it has received

relating to the proposed Final Judgment

in this civil antitrust proceeding, and

herein responds to the public

comments. The United States has

carefully reviewed the public comments

on the proposed Final Judgment. While

the United States remains convinced

that entry of the proposed Final

Judgment is in the public interest, in

this Response the United States clarifies

the meaning of several provisions of the

proposed Final Judgment in response to

issues raised by the public comments to

ensure that there is no uncertainty as to

how the proposed Final Judgment will

operate. The United States also explains

why other provisions of the proposed

Final Judgment that were questioned or

criticized in the public comments need

not be changed in light of the factual

circumstances, including developments

in France and Germany and actions

taken by the European Commission and

the Federal Communications

Commission.

At this time, it would be premature

for the Court to render a decision on

entry of the proposed Final Judgment.

The Joint Venture must first be made a

party to the Stipulation consenting to

entry of judgment, and the United States

must have this Response and the public

comments published in the Federal

Register, certify that all of the

requirements of the Tunney Act have

been met, and move for entry of

judgment. It is anticipated that these

steps will be completed in a period

between two weeks to a month from this

filing. The filing of this Response has

been delayed as a result of the

shutdown of government functions in

December and early January due to lack

of funding. Before the United States

moves to enter the Final Judgment, the

United States and defendants expect to

arrange with the Court for the

scheduling of a status conference, in

order to determine what further

procedures the Court may wish to

follow to complete the proceedings

under the Tunney Act.

I

Background

A. The Proceedings in This Case

This action was commenced on July

13, 1995, when the United States filed

a civil antitrust complaint under Section

15 of the Clayton Act, as amended, 15

U.S.C. § 25, alleging that the proposed

acquisition of 20% of the stock of Sprint

Corporation (‘‘Sprint’’) by France

Telecom (‘‘FT’’) and Deutsche Telekom

AG (‘‘DT’’), and the proposed formation

by Sprint, FT and DT of a joint venture

to provide international

telecommunications services, would

violate Section 7 of the Clayton Act, as

amended, 15 U.S.C. § 18. The Complaint

alleges that because of the market power

held by FT and DT in

telecommunications services in France

and Germany, the acquisition and the

joint venture may substantially lessen

competition in two markets: (1)

provision of international

telecommunications services between

the United States and France, and

between the United States and

Germany, and (2) provision of seamless

international telecommunications

services.

Also on July 13, 1995, the United

States submitted a proposed Final

Judgment and a Stipulation, and this

Court subsequently approved the

Stipulation for filing. In the Stipulation,

defendant Sprint and the United States

have consented to entry of the proposed

Final Judgment by the Court after

completion of the procedures required

by the APPA, and agreed to certain

other preconditions for consummation

of the transactions between Sprint,

France Telecom and Deutsche

Telekom.1 After the Joint Venture has

been formed, and before the Court is

requested to enter the proposed Final

Judgment, the United States and all

defendants expect to file an amended

version of the Stipulation including

consent to entry of judgment by the

Joint Venture.2

On August 14, 1995, the United States

filed a Competitive Impact Statement

explaining the basis for the Complaint

and the provisions of the proposed Final

Judgment, including their anticipated

effect on competition in relevant

markets. The terms and conditions

imposed by the Final Judgment are

intended to safeguard against

discriminatory and other

anticompetitive practices that would

favor the defendants over competing

United States providers of international

telecommunications services and harm

competition. The Competitive Impact

Statement addresses the reasons why

entry of the proposed Final Judgment

would be in the public interest.

The proposed Final Judgment would

subject Sprint and the Joint Venture to

various restrictions affecting their

relationship with FT and DT. These

restrictions operate in two distinct

phases, lessening over time as
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3971

3Case No. IV/33,337—Atlas, Notice pursuant to

Article 19(3) of Council Regulation No. 17 and

Article 3 of Protocol 21 of the European Economic

Area Agreement concerning a request for negative

clearance or an exemption pursuant to Article 85(3)

of the EC Treaty and Article 53(3) of the EEA

Agreement, 1995 O.J. No. C 337/2 (Dec. 15, 1995),

and Case No. IV/35,617—Phoenix, Notice pursuant

to Article 19(3) of Council Regulation No. 17 and

Article 3 of Protocol 21 of the European Economic

Area Agreement concerning a request for negative

clearance or an exemption pursuant to Article 85(3)

of the EC Treaty and Article 53(3) of the EEA

Agreement, 1995 O.J. No. C 337/13 (Dec. 15, 1995).

For convenience these decisions have been attached

to this Response as Exhibit H.

4There are minor differences between these

integration prohibitions. The European authorities

have opted for a fixed date on which the

prohibition terminates, whereas the termination of

Phase I is flexible and depends on the satisfaction

of certain conditions, and also can differ for France

and for Germany. Also, the definition of the Public

Data Networks in Section V.S. of the proposed Final

Judgment, with respect to Germany, is broader than

the Datex-P network and also includes some other

data services.

competition develops in France and

Germany. During Phase I, while DT and

FT still have monopoly rights in

Germany and France and competitors

have not been licensed, Sprint and the

Joint Venture may not acquire

ownership or control of certain types of

facilities from FT and DT, may not

provide services in which FT or DT

have special rights except in limited,

non-exclusive circumstances, and may

not benefit from discriminatory

treatment, disproportionate allocation of

international traffic, or crosssubsidization by FT and DT. In

addition, access to the French and

German public switched networks and

public data networks cannot be limited

in such a way as to exclude competitors

of Sprint and the Joint Venture.

During both Phase I and Phase II, after

FT and DT face licensed competitors in

all areas of services and facilities in

France and Germany, Sprint and the

Joint Venture must make certain

information on their relationships with

FT and DT available to competitors, will

be precluded from receiving

competitively sensitive information that

FT and DT obtain from the competitors

of Sprint and the Joint Venture, and may

not offer particular services between the

United States and France and Germany

unless other United States providers

also have or can readily obtain licenses

from the French and German

governments to offer the same services.

These provisions of the decree will

remain in effect for five years beyond

the end of the first phase.

B. Other Significant Developments

Affecting These Transactions

In the Competitive Impact Statement,

the United States noted that both the

competition authorities of the

Commission of the European Union,

and the Federal Communications

Commission in the United States, had

pending investigations of these

transactions. See Competitive Impact

Statement, 60 Fed. Reg. 44049, at 44065

(Aug. 24, 1995). The issues in these

separate investigations overlapped to a

certain extent with those considered by

the United States under the Clayton Act,

but also differed significantly in some

respects, both for jurisdictional and

substantive reasons. The European

Commission and the FCC now have

both resolved their separate

investigations of these transactions.

Both of these authorities have

determined that the transactions should

be allowed to proceed, subject to

various modifications, limitations and

safeguards addressing the concerns

within their areas of responsibility.

Other relevant developments have also

taken place in the European Union and

in France and Germany indicating

further progress toward removal of legal

barriers to competition and the

establishment of effective regulatory

regimes to protect competition.

1. The European Commission Decision

The competition authorities of the

European Commission considered not

only the transactions between Sprint,

France Telecom and Deutsche Telekom

leading to the formation of the

‘‘Phoenix’’ alliance referred to in the

proposed Final Judgment as Joint

Venture Co., but also the formation of

the strategic alliance between France

Telecom and Deutsche Telekom in

Europe known as ‘‘Atlas,’’ which was

outside the scope of U.S. antitrust

review. Their decision, first reached and

announced in October 1995 shortly

before the end of the public comment

period on the proposed Final Judgment,

was officially published on December

15, 1995.3 It is subject to an ongoing

public comment period before it is

finalized, which will likely occur

sometime in the first half of 1996.

The European Commission recognizes

in its decision that other competitors of

the Atlas and Phoenix ventures will be

dependent in France and Germany on

the monopoly services of FT and DT,

including the public switched telephone

network (PSTN) and other reserved

services such as leased lines. Moreover,

FT and DT already have very high

market shares in various types of

services in their home countries that the

parties had planned to provide through

Atlas and Phoenix, including

standardized low-level packet-switched

data communications services. The

European Commission gives DT’s share

of data communications services in

Germany as 79%, and FT’s share of data

communications services in France as

77%. In order for the Atlas and Phoenix

transactions to be exempted from the

prohibitions of European competition

law and enabled to proceed, FT and DT

accepted various conditions and

modifications to the transactions, while

the French and German governments

also committed to make important

changes in their national laws.

First, the French and German

governments have made a written

commitment to the European

Commission to permit competition in

the provision of telecommunications

infrastructure for services other than

public switched voice by July 1, 1996,

and to permit full competition for voice

telephone services and all types of

telecommunications infrastructure by

January 1, 1998. This early liberalization

for infrastructure used for services other

than public switched voice will

authorize competitors in France and

Germany to begin developing and

operating alternative

telecommunications networks a year

and a half before the date of full

liberalization in France and Germany,

and also considerably before the earliest

time that a shift from Phase I to Phase

II could occur under the proposed Final

Judgment. For Phase II to begin in either

France or Germany, there must have

been, among other things, complete

removal of all legal prohibitions on

competition, which would not occur

before January 1, 1998 at the earliest

based on current schedules for

liberalization in France and Germany.

Second, FT is precluded from

integrating its Transpac public switched

X.25 data network in France into Atlas,

and DT similarly is precluded from

integrating its Datex-P public switched

X.25 data network in Germany into

Atlas, until January 1, 1998, the planned

date of full liberalization. Atlas may not

acquire any form of legal ownership or

control over the Transpac network in

France or the Datex-P network in

Germany before that date, although

certain international operations of

Transpac outside of France can be

contributed to Atlas. In essence, the

European competition authorities have

extended to Atlas the prohibition on

integrating the Public Data Networks

into Phoenix during Phase I that is

contained in Section III.B of the

proposed Final Judgment.4 The

Transpac and Datex-P networks in

France and Germany are to be wholly

owned subsidiaries of FT and DT during

the period before they can be integrated

into Atlas, while Atlas will have

subsidiaries of its own in France and
3972 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

Germany to provide its other services.

FT and DT will have the ability to

cooperate with respect to Transpac and

Datex-P, using Atlas as a manager, only

in certain specified areas involving the

development of common products and

technical network elements, including

network planning and information

systems.

Third, FT has committed to divest its

Info AG data network in Germany,

instead of integrating it into Atlas. This

responds to concerns on the part of the

EU competition authorities about loss of

horizontal competition between Info AG

and DT in Germany in data services,

similar to the concern of the United

States about the loss of competition

between Sprint and Infonet Services

Corporation in the U.S., which was

addressed by FT’s and DT’s agreement

to divest their interest in Infonet.

Fourth, Atlas and Phoenix will not act

as agents for the international halfcircuits of DT and FT, a change to the

original agreements of the parties. These

international half-circuits will continue

to be sold by DT and FT directly.

Fifth, the non-compete agreements of

the parties to the Phoenix joint venture

will not apply to long distance services,

except for competition with entities

providing long distance services that are

controlled by Phoenix.

Sixth, Atlas, Phoenix, DT, FT and

Sprint and their affiliates are precluded

from making a telecommunications

operator’s ability to use the Phoenix

international carrier services (i.e., sales

of switched transit capacity to other

telecommunications carriers), or the

commercial terms on which such

services are offered, conditional upon

use or distribution by that

telecommunications operator of services

of Atlas, Phoenix, DT, FT or Sprint.

Seventh, DT and FT have committed

directly for Atlas, and DT, FT and

Sprint have committed for Phoenix, to

certain undertakings regarding forms of

behavior that could have

anticompetitive effects. These

undertakings, enforceable by the

European competition authorities, are

similar in many respects to the

obligations that would be made binding

on Sprint and the Joint Venture directly,

and indirectly affect FT’s and DT’s

conduct, under the terms of the

proposed Final Judgment. They do not

conflict with the proposed Final

Judgment in any way.

Several of these undertakings are

directed at preventing discrimination in

public switched telephone network

(PSTN) and reserved services, such as

leased lines. FT and DT will be required

to give similar terms and conditions of

service (including availability, price,

quality of service, usage conditions,

delays for installation and repair and

maintenance) to Atlas and Phoenix and

other providers of similar services, with

respect to FT’s and DT’s PSTN services

and other reserved services. Atlas and

Phoenix are not to be granted terms and

conditions or to be exempted from usage

restrictions regarding the PSTN and

other reserved services that would

enable them to offer services that

competing providers are prevented from

offering. DT and FT are prohibited from

discriminating between Atlas and

Phoenix and any competing service

provider in connection with substantial

modifications to interfaces for reserved

services or the disclosure of technical

information relating to the operation of

the PSTN. DT and FT also are

prohibited from discriminating between

Atlas and Phoenix and other

competitors regarding the disclosure of

commercial information, including

customer information derived from

operating the PSTN or providing

reserved services, that would confer a

substantial competitive advantage and is

not readily available elsewhere. While

these restrictions presumably would

cease to apply to particular services as

they lose their reserved status, they

would continue to apply to the PSTN

with no specific time limit.

Other undertakings are intended to

ensure that access to the DT and FT

national public switched data networks

remains available to competitors. These

services, though not considered to be

PSTN or reserved services, nonetheless

are ones for which DT and FT remain

the dominant providers in their home

countries. DT and FT will be required,

as of January 1, 1996, to establish and

maintain third-party access to their

public switched data networks in

Germany and France on a nondiscriminatory, open, and transparent

basis, for all other providers of X.25

packet-switched data communications

services. In order to ensure such nondiscriminatory access to their national

public switched data networks, DT and

FT will be required to establish and

maintain interfaces based on the X.75

standard (a form of protocol for

interconnection between data networks

that is commonly used as an

international standard and is suitable

for the provision of end-to-end X.25

services) or any other generally used

standard interconnection protocol that

may modify, replace or co-exist with the

X.75 standard. Access based on such

protocols is to be offered on publicly

available standard non-discriminatory

terms including price, availability of

volume or other discounts, and quality

of interconnection, and FT and DT are

required to make available to the

European competition authorities the

terms of any agreements concerning

access. Atlas, Datex-P and Transpac will

not be prohibited, however, from

developing additional proprietary

interfaces between their networks,

provided that access granted to Atlas

through such interfaces is economically

equivalent to the access that third

parties are able to obtain. Apart from a

prohibition on the sharing of customers’

confidential interconnection

information between Transpac, Datex-P

and Atlas, which would be lifted once

these networks can be combined into

Atlas, the obligations regarding access to

the public data networks do not expire

at any predetermined time.

Further undertakings are directed at

preventing cross-subsidization by FT

and DT of the Atlas and Phoenix

ventures as well as Datex-P and

Transpac. These obligations last until

the telecommunications infrastructure

and service markets in France and

Germany are fully liberalized, as is

expected to occur by January 1, 1998.

All entities formed pursuant to the Atlas

and Phoenix ventures must be distinct

and separate from DT and FT. Atlas,

Phoenix, Datex-P and Transpac must

obtain their own debt financing, with

certain exceptions similar to those in

the proposed Final Judgment. They are

also prohibited from allocating directly

or indirectly any part of their operating

expenses, costs, depreciation, or other

business expenses to any parts of FT’s

or DT’s business units, again with

provisos similar to the proposed Final

Judgment. They are required to keep

separate accounting records identifying

payments and transfers to and from FT

and DT, and are prohibited from

receiving any material subsidy or any

investment or payment from FT or DT

that is not recorded in their books as an

investment in debt or equity.

Atlas, Transpac and Datex-P will be

subject to regular auditing obligations to

ensure that any transactions between

them and FT or DT are on an arm’s

length basis. FT, DT, Phoenix and Atlas

will also be subject to recording and

reporting obligations, in order to enable

FT’s and DT’s undertakings not to

discriminate or cross-subsidize to be

effectively monitored by the European

Commission competition authorities.

These conditions will last until full

telecommunications liberalization takes

place in France and Germany.

2. The FCC Decision

On December 15, 1995, the Federal

Communications Commission

announced its decision on the proposed
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3973

5 In the matter of Sprint Corporation Petition for

Declaratory Ruling Concerning Section 310(b)(4)

and (d) and the Public Interest Requirements of the

Communications Act of 1934, as amended, File No.

ISP–95–002, FCC 95–498 (released January 11,

1996) (hereinafter ‘‘FCC Sprint Order’’). Because

this document is lengthy and is publicly available

in the U.S., it has not been attached as an exhibit

to this Response.

6 Id., ¶¶ 56–57.

7 Id., ¶¶ 109–115. 8 Id., ¶¶ 103–108.

9 Id., ¶¶ 116–127.

10 MCI Communications Corporation/British

Telecommunications plc, Joint Petition for

Declaratory Ruling Concerning Section 310(b)(4)

and (d) of the Communications Act of 1934, as

amended, 9 FCC Rcd 3960, 3973 (released July 25,

1994).

11FCC Sprint Order, ¶¶ 90–92, 131.

12 Id., ¶¶ 128–29.

acquisition by FT and DT of 20% of the

equity of Sprint, and the formation of

the ‘‘Phoenix’’ joint venture between

these three companies, under the

‘‘public interest’’ standard of the

Communications Act of 1934 and

relevant provisions of that statute,

including 47 U.S.C. §§ 214 and 310(b).5

The FCC, similarly to the United States,

has recognized in its decision that the

20% investment in Sprint and formation

of the Joint Venture will give FT and DT

incentives that they would not

otherwise have to engage in various

types of anticompetitive behavior

favoring Sprint and the Joint Venture

over other U.S. competitors, potentially

raising prices and reducing service

quality and innovation.6 Based on the

recent policy shift by the French and

German governments toward

competitive telecommunications

markets and the potential benefits of the

transactions for consumers, the FCC has

determined that allowing these

transactions to be consummated would

be in the public interest

notwithstanding the present lack of

‘‘effective competitive opportunities’’

for U.S. providers in France and

Germany. However, it has also imposed

several significant conditions on the

transactions.

First, the FCC has restricted Sprint’s

ability to operate new international

circuit capacity to France and Germany

for either its own use or that of the Joint

Venture, beyond the existing and idle

capacity it already has to those

countries on several submarine cables,

until (1) infrastructure liberalization for

facilities used to provide services other

than public switched voice has actually

occurred in France and Germany (as the

European Commission’s settlement

requires to take place by July 1, 1996),

and (2) opportunities exist in France

and Germany for basic public switched

voice resale services to be provided on

a competitive basis, including

international traffic between France and

Germany and the U.S.7

Second, Sprint will be subject to

regulation as a ‘‘dominant carrier’’ with

respect to traffic between the U.S. and

France and Germany, due to its

relationship with FT and DT, which are

considered to be dominant carriers in

their home markets, until Sprint

demonstrates that there is no longer a

substantial risk of anticompetitive

effects in the U.S. arising from its

relationship with FT and DT. This

would mean that Sprint would be

required to notify the FCC and obtain

approval whenever it seeks to add new

circuits to those countries, either for

itself or the Joint Venture, whereas

nondominant carriers only need obtain

approval when first commencing service

to a particular country and can

thereafter add capacity freely. It would

also mean that Sprint’s tariffs filed with

the FCC for basic telecommunications

services, such as switched voice, to

France and Germany would be subject

to longer waiting periods before taking

effect, and that Sprint would have to file

quarterly traffic and revenuer reports.8

Third, Sprint will be obligated not to

accept any ‘‘special concessions’’

directly or indirectly from any foreign

carrier or administration, including FT

or DT, with respect to traffic or revenue

flows between the United States and

any foreign country, including France or

Germany. Other U.S. carriers that are

considered to be affiliated with a foreign

telecommunications carrier under 47

C.F.R. § 63.14 have a similar obligation.

This requirement will remain in place

indefinitely, unless removed by the

FCC. ‘‘Special concessions’’ are defined

by the FCC to include any arrangements

that affect traffic or revenue flows to or

from the United States that are offered

to a particular U.S. carrier but not to

other similarly situated U.S. carriers

that are authorized to serve a particular

route. 47 C.F.R. § 63/01(r)(3)(1). The

FCC’s decision illustrates the effect of

this prohibition with detailed examples.

Sprint would be precluded from

accepting disproportionate amounts of

return traffic, preferential changes in

methods of allocating traffic, or

discriminatory accounting rates from FT

or DT.

Furthermore, if FT or DT were to

grant an operating agreement or

marketing arrangement to Sprint for a

particular type of basic service but to

withhold such agreements from other

similarly situated U.S. carriers, or only

offer agreements on discriminatory

terms, Sprint would be in violation of

the ‘‘no special concessions’’

requirement were it to offer service

under the special operating agreement

or marketing arrangement. Sprint will

also be precluded from accepting any

discriminatory interconnection or

distribution arrangements from FT or

DT, or arrangements for the joint

handling of basic traffic involving third

countries that are not available to other

U.S. carriers. Sprint could not receive

directly or through the Joint Venture (i)

information about FT’s or DT’s basic

network services that had not been

publicly disclosed and that would affect

U.S. carriers’ provision of service, (ii)

proprietary or confidential information

that FT or DT have obtained from other

competing U.S. carriers, or (iii) FT’s or

DT’s telephone customer information

that is not also available to U.S.

competitors. In furtherance of this

obligation not to accept special

concessions, Sprint will also have to

obtain a written commitment from FT

and DT not to offer or provide any

special concessions to Sprint or the joint

venture relating to the provision of basic

telecommunications services or

facilities. Sprint also will be obligated to

maintain records on its provisioning

and maintenance of network facilities

and services with FT and DT (including

services or facilities procured on behalf

of Joint Venture customers), to file

various types of reports with the FCC on

its numbers of circuits, revenues,

numbers of messages and minutes for

originating and terminating traffic

between the U.S. and France and

Germany, and to make available its

contracts and agreements with FT and

DT relating to routing of traffic and

settlement of accounts on the U.S.-

France and U.S.-Germany routes.9 These

conditions are similar to the obligations

the FCC imposed on MCI in connection

with its sale of 20% of its equity to

British Telecommunications plc and

formation of a joint venture in 1994.10

Fourth, Sprint will have to obtain a

written commitment from France

Telecom to lower its accounting rates

for U.S.-France traffic within two years

to the levels of the lower accounting

rates between U.S. carriers and British

carriers for U.S.-U.K. traffic, and

between U.S. carriers and DT for U.S.-

Germany traffic. The FFC has found that

the U.S.-France rates are 28% above the

level of the others and that this

difference is unjustified.11

Fifth, Sprint will have to file annual

reports, beginning in 1996, concerning

the status of telecommunications

markets and regulatory regimes in

France and Germany.12 These reports

are intended to enable the FCC to

evaluate how far France and Germany

have progressed toward meeting the
3974 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

13The ‘‘effective competitive opportunities’’

criteria are explained fully in the FCC’s decision in

Market Entry and Regulation of Foreign-affiliated

Entities, IB Docket No. 95–22, Report and Order

(released Nov. 30, 1995). In summary, they are: (1)

whether U.S. carriers can, as a matter of law, offer

in the foreign country international facilities-based

services, including the ability to obtain a

controlling interest in a facilities-based provider

and to offer basic International Message Telephone

Service traffic; (2) the availability of reasonable and

nondiscriminatory published charges, terms and

conditions for interconnection to foreign domestic

carriers’ facilities for termination and origination of

international services; (3) whether competitive

safeguards exist in the foreign country to protect

against anticompetitive conduct, including costallocation rules to prevent cross-subsidization,

timely and nondiscriminatory disclosure of

technical information needed to use or interconnect

with carriers’ facilities, and protection of carrier

and customer proprietary information; and (4)

whether there is an effective regulatory framework

in the foreign country to develop, implement and

enforce legal requirements, interconnection

arrangements and other competitive safeguards,

including separation between the regulator and the

foreign operator of international facilities-based

services, and the existence of fair and transparent

regulatory procedures. A favorable competitive

opportunities finding can be made if effective

competitive opportunities currently exist or it is

reasonably certain that they will be available in the

near future. The FCC places greatest emphasis on

the legal ability to provide international facilitiesbased service, but if any of the factors of the test

are completely absent, the FCC will deny authority

to provide facilities-based service on an

international route where the foreign carrier is

dominant at its end, unless other public interest

factors lead to a different result. Id. at ¶¶ 42–55.

14FCC Sprint Order, ¶ 132.

15Commission of the European Communities,

Proposal for a European Parliament and Council

Directive on Interconnection in

Telecommunications, COM (95) 379 final, O.J. No.

C 313/7, November 24, 1995. Although only

recently published, this directive was submitted by

the Commission on August 31, 1995, shortly after

the Competitive Impact Statement was filed in this

case.

16Commission of the European Communities,

Proposal for a European Parliament and Council

Directive on a Common Framework for General

Authorizations and Individual Licenses in the Field

of Telecommunications Services, COM (95) 545,

Nov. 14, 1995.

17Commission of the European Communities,

Proposal for a European Parliament and Council

Directive amending Council Directives 90/387/EEC

and 92/44/EEC for the purpose of adaption to a

competitive environment in telecommunications,

COM (95) 543 final, Nov. 11, 1995.

‘‘effective competitive opportunities’’

criteria that the FCC has announced it

will apply generally to foreign

telecommunications carrier acquisitions

of over 25% of the equity in U.S.

telecommunications carriers leading to

affiliation, or other investments likely to

have competitive significance.13 The

reports will continue until the FCC

finds that ‘‘effective competitive

opportunities’’ exist in France and

Germany, and the FCC has said that it

will reconsider whether the public

interest continues to be served by

Sprint’s authority to provide facilities to

France and Germany if effective

competitive opportunities are not

available by 1998.14

3. Other Significant Actions by

European Union Authorities

The Competitive Impact Statement

addresses the European Union’s overall

plans for the introduction of full

telecommunications competition by

January 1, 1998, and infrastructure

competition for services other than

public switched voice in 1996. 60 Fed.

Reg. at 44062. Over the past few

months, the Commission of the

European Union has proposed several

other major directives, all of which are

necessary steps on the road to full

competition and an effective regulatory

framework, and together indicate the

substantial progress that is now being

made toward telecommunications

competition.

On July 19, 1995, the European

Commission issued a proposed draft

directive governing interconnection in

telecommunications, which has now

been submitted to the Parliament and

the Council of Ministers who are

responsible for adopting it.15 This

directive comprehensively addresses the

manner in which Member States of the

European Union, including France and

Germany, would be required to ensure

that telecommunications operators such

as France Telecom and Deutsche

Telekom provide interconnection to

their networks for other

telecommunications network and

service providers. Under the terms of

this directive, FT and DT, as entities

with significant market power, would

have to establish transparent,

unbundled, cost-oriented

interconnection charges, and would not

be able to discriminate among providers

in interconnection. They would have to

publish tariffs for their standardized

interconnection services, and not

simply establish interconnection terms

through commercial negotiation as is

more typical today. Moreover, where

any interconnection arrangements are

negotiated, regulatory authorities would

have to ensure that agreements are

reached within specified times and

provide for review with published

decisions. This directive is scheduled

for final adoption by the end of 1996,

and member States, including France

and Germany, would have to take the

measures necessary to bring themselves

into compliance before the end of 1997,

so as to have an interconnection

regulatory regime in place prior to the

start of full competition.

On November 14, 1995, the European

Commission also adopted a proposed

draft directive, to be acted upon by the

Parliament and Council of Ministers, to

ensure a common framework in the

European Union for the grant of general

authorizations and individual licenses

to provide telecommunications services

by the Member States, including France

and Germany.16 This directive would

apply to all types of

telecommunications services as they

become open to competition. Under this

proposed directive, Member States

would not be permitted to impose limits

on the number of licenses granted to

provide particular services or facilities,

except as necessary in the case of radiobased services because of limits on the

availability of spectrum. Licensing

procedures would have to be open,

transparent and nondiscriminatory, and

any denials of licenses would have to be

justified and subject to appeal. This

directive is scheduled for final adoption

by the fall of 1996, and Member States

would have to take measures to bring

themselves into compliance by July 1,

1997, six months before the start of full

competition, so as to enable competitors

to be licensed in a timely manner.

Other existing European Union

directives governing

telecommunications services are also

being updated to account for the plans

for full introduction of competition by

1998. Under proposed changes to the

existing directive governing the

framework for open network provision,

announced on November 14, 1995 by

the European Commission, Member

States that retain a significant degree of

ownership or control of a

telecommunications provider, as France

and Germany both still do, would have

to take additional measures to ensure

the effective separation of regulatory

activities from activities of the

government related to ownership or

control of the telecommunications

provider.17 The regulatory authorities

would have to be both legally distinct

from and functionally independent of

all organizations providing

telecommunications networks or

services, effective structural separation

from any activities associated with

ownership or control of such

organizations would have to exist, and

rights of appeal from the regulator to an

independent body would have to be

provided. These changes to the

framework directive are also scheduled

for final adoption by the fall of 1996,

and Member States would have to take

the measures needed to bring

themselves into compliance by the end

of 1997.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3975

18Federal Ministry for Post and

Telecommunications, Corner Stones of a Future

Regulation Framework in the Telecommunications

Sector, March 27, 1995.

19FCC Sprint Order, ¶67, citing Letter from Dr.

Wolfgang Boetsch, Federal Minister for Posts and

Telecommunications, to Reed E. Hundt, Chairman,

Federal Communications Commission (Oct. 17,

1995).

20Regulation on the Opening of Markets for

Services as well as on the Content, Scope and

Procedure of Licensing in the Telecommunications

Sector, October 31, 1995.

21Letter from Dr. Witte, BMPT, to Carl Willner,

Department of Justice (December 13, 1995). This

letter is attached to this Response as Exhibit I.

22These networks are being established under an

exception to the general DT monopoly still in effect

on telecommunications infrastructure that permits

separate facilities to be established to provide nonmonopoly services, but only with a 25 kilometer

limit. At present they must use DT leased lines for

interconnections outside the 25 kilometer area.

4. Progress Toward Competition in

Germany and France

Notwithstanding these important

developments at the level of the

European Union, it is also necessary to

consider actions taken by the German

and French governments to move

towards a competitive

telecommunications environment.

European Union measures must be

transposed into law at the national

level, and national regulatory

authorities have the primary

responsibility for implementing and

enforcing them. Even though the

European Union telecommunications

directives do not discriminate among

European and U.S.-owned providers in

the rights that would be accorded to

firms doing business in Europe, the

Member States retain the authority to

establish the terms on which

international services to countries

outside the European Union will be

provided, as discussed in the

Competitive Impact Statement, 60 Fed.

Reg. at 44063. They may elect to

liberalize these services partly or

entirely on their own now, or to await

the results of ongoing multilateral trade

negotiations on telecommunications

services.

a. Germany. The German government

set out its proposals for liberalization in

March 1995,18 and these proposals are

generally in line with the approach

being taken by the European Union.

Draft legislation for a new

Telecommunications Act was to be

prepared by fall 1995, and the United

States understands that this process is

on schedule. Draft legislation was in fact

released by the German Post and

Telecommunications Minister in June

1995 and now is under consideration at

the highest levels of the German

government. The legislation originally

was scheduled to be adopted by both

houses of the German federal legislature

by summer 1996, and now is expected

to be passed even earlier, in the late

spring of 1996. By the spring of 1997,

even more rapidly than the European

Union would require, the German

telecommunications regulator expects to

have awarded licenses to applicants,

and it will not restrict the numbers of

licenses made available, except where

necessary due to scarcity of resources

such as frequencies, nor will it impose

restrictions on foreign investment in

licensees. The new telecommunications

law will take effect by January 1, 1998.

As part of the new legislation, the

German government also is considering

various alternatives to create a more

independent telecommunications

regulator.

Having agreed to authorize

competition for infrastructure used to

provide services other than public

switched voice, the German government

is also preparing legislation for this

partial early liberalization, which is

planned to be adopted by the German

federal legislature by the spring of 1996,

apparently as part of the larger

telecommunications reform law. The

German government informed the FCC

by letter on October 17, 1995 that it is

committed to allowing alternative

facilities providers to commence

operations as of July 1, 1996.19 Also, in

October 1995, the German

telecommunications regulator adopted a

licensing regulation, which is to be used

to consider applications to operate

competing telecommunications systems

pending the enactment of the new

law.20

The German government has

confirmed, in a letter from the

Bundesministerium fu ̈r Post und

Telekommunikation (BMPT), the

German telecommunications regulator,

to the Department of Justice,21 that

international telecommunications

infrastructure, including submarine

cable ownership interests, will be

included within the partial

liberalization of infrastructure planned

to occur by July 1, 1996. At that time,

providers other than Deutsche Telekom

will acquire the right to set up and

operate transmission lines for all

services other than public voice

telephony. The BMPT has stated that

Germany does not require special

licenses for submarine cable landing

rights, and there will be ‘‘nondiscriminatory, open and transparent

access regulation in Germany for

submarine cables,’’ without regard to

the nationality of the operator or owner

of the cable. Thus, U.S. firms should

lawfully be able to acquire interests in

the German end of submarine cables by

mid-1996 and use such facilities for

services other than public switched

voice. The BMPT also has informed the

Department that it intends to issue a

draft regulation governing

interconnection with public

telecommunications networks

immediately following the entry into

force of the proposed new

Telecommunications Act in 1996,

although the draft of this regulation is

not yet prepared and the exact date of

its submission has not yet been

scheduled.

In Germany, there are several large

firms that are already providing some

types of telecommunications services

now open to competition, and have

announced plans to become

telecommunications carriers once they

are able to obtain licenses, including

Mannesmann/CNI, Thyssen, Vebacom,

RWE and VIAG. Mannesmann is the

major competing cellular radio provider

and Thyssen also has a mobile radio

license, while the other firms all have

some amount of wireline and fiber-optic

infrastructure that is used for their own

internal or separate business purposes

today and might be offered for

telecommunications networks were they

permitted to compete in this area. The

German national railway, Deutsche

Bahn, also has internal

telecommunications capabilities and

rights of way that it plans to make

available to others for

telecommunications networks. Vebacom

and VIAG have already formed

international alliances with the

principal British telecommunications

carriers, British Telecom and Cable &

Wireless. In some major German cities,

such as Frankfurt and Cologne,

authorization has already been granted

for firms other than Deutsche Telekom,

including U.S. providers such as MFS,

to establish local telecommunications

networks serving business users.22

These developments do not mean that

Deutsche Telekom is in imminent

danger of losing its dominant position

in German telecommunications markets.

For the reasons indicated in the

Complaint and Competitive Impact

Statement in this case, it is reasonable

to expect that DT will continue to

exercise market power for some time.

But these developments do indicate that

actual and potential competitors exist

that may be willing to take advantage of

early infrastructure liberalization in

Germany and begin to develop

alternative networks in advance of full

liberalization.

b. France. Progress toward

liberalization in France has not been as
3976 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

23Ministry of Information Technology and Postal

Services, New Ground Rules for

Telecommunications in France, October 1995.

24FCC Spring Order, ¶65, citing Letter from

Bruno Lasserre, Director General, DGPT, to Reed E.

Hundt, Chairman, Federal Communications

Commission, at 2 (Oct. 20, 1995).

25The October 1995 consultative document states

that France Telecom will continue to have ‘‘strong

dominant market positions’’ after 1998 in several

important telecommunications market sectors and

indicates that there may even be de facto

monopolies in certain services or market segments.

Ministry of Information Technology and Postal

Services, New Ground Rules for

Telecommunications in France, at 24.

26Letter from M. Bruno Lasserre, Director General

of DGPT, to Carl Willner, December 8, 1995. This

letter is attached to this Response as Exhibit J.

27These comments are attached as Exhibits A–G.

rapid as in Germany. Privatization of

FT, if it occurs at all, will only be

partial, with the French government

retaining a controlling interest. Unlike

Germany, no privatization legislation

has been introduced let alone enacted.

Nor has the process of adopting

legislation governing the transition to

full competition progressed as rapidly

as in Germany.

An important step, however, has been

taken with the publication by the

French Ministry of Information

Technologies and Postal Services and

the French telecommunications

regulator, Direction Generale des Postes

et Telecommunications (DGPT), in

October 1995, of a consultative

document outlining the steps to be

taken and the timetable planned for

introduction of competition.23 This

document indicates that the French

government plans in March 1996 to

introduce telecommunications reform

legislation for the full introduction of

competition by January 1, 1998, with

passage of the legislation by Parliament

expected during the spring of 1996. By

the end of 1996, regulations reflecting

the new law are to be established, along

with the principles for interconnection

and licensing of competitors. Licenses

are to be issued to competing

telecommunications operators in the

spring of 1997. The consultative

document outlines the types of services

for which individual licenses, as

opposed to general authorizations, will

be required. According to the DGPT, the

number of licenses for services or

facilities should not be limited, unless

this is justified by scarcity of resources

such as frequencies. Some

telecommunications operators,

including France Telecom, will be

required to publish their

interconnection terms in advance, rather

than relying merely on commercial

negotiation, and the structure and

pricing of their interconnection terms

will be subject to regulatory approval

based on auditable cost accounts.

France Telecom will be expected to

issue its interconnection tariffs by July

1997, according to the consultative

document. This document also

addresses the need for changes to give

the telecommunications regulator

greater independence as part of the

opening of the French

telecommunications markets to full

competition and considers options to do

so, suggesting that this could be done as

early as January 1, 1997.

In one important respect, partial

liberalization of infrastructure for

services other than public switched

voice, France is able to move more

rapidly than Germany, since the

regulator already has some statutory

authority to permit greater competition

without the need to pass new legislation

as in Germany. The regulator has

already granted experimental licenses

for some competitive pilot projects, and

one U.S. firm, MFS, has been authorized

to establish competing local fiber-optic

infrastructure for closed groups of

business users in Paris. The French

government has informed the FCC, by

letter of October 20, 1995, that

legislation to provide for alternative

infrastructure liberalization for services

other than public switched voice will be

introduced in the French Parliament in

the spring of 1996 and will take effect

by July 1, 1996.24

To date, not as many large potential

providers of competing

telecommunications networks have

emerged in France as in Germany. The

French telecommunications regulator

anticipates that France Telcom’s

dominant position will continue for

some time.25 One major firm that plans

full-scale entry into liberalized

telecommunications services and

infrastructure, however, is Compaignie

Generale des Eaux (CGE). This firm is

already a provider of cable television

infrastructure as well as the largest

shareholder of France’s principal

competing mobile telephone services

provider, SFR, and provides various

types of business telecommunications

services that are already open to

competition in France. AT&T and the

Unisource partners (the principal

telecommunications providers in

Sweden, the Netherlands, Spain and

Switzerland) have reached an agreement

to form a strategic alliance with CGE’s

telecommunications subsidiary IRIS,

much as British Telecom has done with

VIAG and Cable & Wireless with

Vebacom in Germany. There are other

cable television companies in France

such as Lyonnaise Communications that

are considering entering the telephone

business using their networks, and the

French national railroad, SNCF, also has

an internal telecommunications network

including fiber-optic cable that it plans

to make available to

telecommunications network providers.

In France, unlike Germany, it appears

that international telecommunications

facilities to the United States may not be

liberalized automatically with the rest of

the opening to partial infrastructure

competition due to take place on July 1,

1996 under the agreement with the

European Union. Although the French

government has stated in a letter from

DGPT to the Department of Justice 26

that it ‘‘fully supports opening up all

telecommunications services in all

markets,’’ whether this liberalization

actually occurs in the case of

international half-circuits and

submarine cable landing rights for

competing providers on the France—

U.S. route will depend on the outcome

of ongoing multilateral trade

negotiations or separate bilateral

agreements. However, draft legislation

in France that will permit the granting

of various experimental

telecommunications service licenses in

1996, including public voice telephony

services in geographically limited areas,

does not contain any foreign ownership

restrictions for wireline networks.

II

Compliance with the APPA

The APPA requires a sixty-day period

for the submission of public comments

on the proposed Final Judgment, 15

U.S.C. § 16(b). In this case, the sixty-day

comment period commenced on August

24, 1995, and terminated on October 23,

1995. During this period, the United

States received comments by seven

competitors of Sprint and the proposed

joint Venture or other interested

persons, including AT&T Corporation,

MCI Communications Corporation, BT

North America Inc., Cable & Wireless

Europe, ACC Corp., Esprit Telecom

United Kingdom Limited, and Prof.

Charles M. Haar of the Harvard

University Law School.27 The United

States responds herein to these

comments. Upon publication in the

Federal Register of these comments and

the following response of the United

States to these comments, pursuant to

15 U.S.C. § 16(d) of the APPA, the

procedures required by the APPA prior

to entry of the proposed Final Judgment

will be completed. The United States

expects to move for entry of the

proposed Final Judgment after the

public comments and this response of
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3977

28Until these events have taken place, and the

United States has certified that the requirements of

the Tunney Act have been met, the Court should

not rule on entry of the proposed Final Judgment.

29Because many of BT’s observations on the

various provisions of the proposed Final Judgment

are in fact reiterations of this same argument, not

all of BT’s comments about particular provisions of

the decree are separately discussed in this

Response.

the United States have been published

in the Federal Register and the Joint

Venture has been formed and has

executed the Stipulation, binding it as a

party to the proposed Final Judgment

under the terms specified in the

Stipulation.28

III

Response to Public Comments

In consenting to the entry of the

proposed Final Judgment in this case,

the United States took into account

various considerations bearing on the

risks of competitive harm affecting U.S.

consumers and the desirability of

further litigation. These included the

size of the planned 20% investment by

Deutsche Telekom and France Telecom

in Sprint, the potential for new services

to be offered and other efficiencies

realized by the Joint Venture, the

increasing progress toward removal of

legal and practical barriers to

telecommunications competition in

France and Germany, and the

involvement of foreign

telecommunications providers subject to

distinct regulatory regimes in their

home countries. Competitive Impact

Statement, 60 Fed. Reg. at 44075.

The public comments express various

types of concerns about the

interpretation or the adequacy of the

proposed Final Judgment, and several

contend that the Final Judgment should

not be entered unless substantial

changes are made. It appears that many

of these concerns are based on

misunderstandings or uncertainties on

the part of the commenters about the

meaning of provisions of the proposed

Final Judgment or their application to

the agreements between Sprint, FT and

DT, and conduct in which they might

engage. The United States accordingly

provides further clarification of the

meaning and application of several

provisions of the proposed Final

Judgment below.

Some other concerns expressed in the

public comments are simply not

germane to the problems associated

with these transactions that are

identified in the Complaint and

Competitive Impact Statement in this

case. It is not the role of the Court, in

a proceeding under the Tunney Act to

approve an antitrust consent decree, to

each beyond the terms of the complaint

and consider whether other cases might

have been brought and other violations

alleged. United States v. Microsoft

Corp., 56 F.3d 1448, 1459–60 (D.C. Cir.

1995).

A number of the comments question

whether there is sufficient relief in the

proposed Final Judgment to remedy the

problems alleged by the United States,

contending that further modifications

should be made. These commenters

overlook, however, the context in which

these transactions take place. Two other

government agencies in addition to the

United States Department of Justice

have reviewed these transactions, and

have imposed additional relief that

complements and reinforces in

important respects the terms of the

proposed Final Judgment. Moreover, an

ongoing process of telecommunications

reform and opening to competition is

taking place in the European Union,

France and Germany. In ruling whether

this proposed Final Judgment is

sufficient to satisfy the ‘‘public interest’’

standard of the Tunney Act, the Court

should not limit its consideration to

whether all of the potential competitive

problems arising from the monopoly

rights and market power of Deutsche

Telekom and France Telecom in their

home countries are fully corrected

within the four corners of the proposed

Final Judgment alone. Rather, it should

ask whether the proposed Final

Judgment satisfies the ‘‘public interest’’

bearing in mind that it will operate

together with all of the other relief

imposed by the European Union

competition authorities and the FCC,

and with the liberalization measures

now planned in Germany and France.

When the issue is properly understood

in these terms, it is apparent that the

proposed Final Judgment does indeed

promote the ‘‘public interest.’’

Because the same types of issues are

raised by many of the commenters, this

Response is structured in terms of the

issues raised rather than separately

addressing each of the comments filed.

A. Transition from Phase I to Phase II

of the Proposed Final Judgment

Several commenters, including AT&T,

MCI, BT North America, Esprit Telecom

and Cable & Wireless, raise the issue of

whether the proposed Final Judgment

will be effective in light of the

possibility that the transition from

Phase I to Phase II could occur while DT

and FT, though deprived of their legal

monopolies, still have de facto market

power in Germany and France. They

point out that effective competition

could take substantial time to develop

after removal of the monopoly rights

and licensing of competitors. Some,

including BT, Cable & Wireless and

Esprit Telecom, are also concerned that

the decree would not ensure that

effective regulatory regimes are in effect

in France and Germany at the time the

transition to Phase II takes place to

ensure rights such as interconnection

with the networks of the dominant

carriers. AT&T and MCI favor modifying

the decree to keep the Phase I

restrictions in effect until ‘‘actual’’ or

‘‘effective’’ competitive alternatives are

found to exist in France and Germany,

while BT proposes keeping the various

Phase I restrictions in effect for the

entire duration of the decree, essentially

eliminating the distinction between

Phase I and Phase II.29 Esprit and Cable

& Wireless also take the position that

alternative infrastructure must be in

place in France and Germany before

these transactions are implemented, or

at least before the Joint Venture is

formed.

The United States has no fundamental

disagreement with the commenters on

the importance of effective competitive

alternatives, or the crucial significance

of the ability of competitors to

interconnect their networks and

facilities with those of DT and FT on

reasonable, transparent and nondiscriminatory terms. Nor does it

disagree with the desirability of having

effective regulatory regimes to

complement the protections provided

by competition, and afford a recourse to

competitors who experience

anticompetitive practices by DT and FT.

But the United States parts company

with the commenters at their evident

assumption that all of these protections

must be contained within the four

corners of the proposed Final Judgment

itself for it to be deemed in the ‘‘public

interest.’’

The proposed Final Judgment

operates in conjunction with the relief

imposed by the European Commission

and the FCC, and the various

liberalization measures in the process of

being enacted by the EU and the French

and German governments. Early

liberalization for provision of competing

infrastructure for non-monopoly

services, to take effect on July 1, 1996

in France and Germany, will give

potential competitors the opportunity to

begin establishing alternative networks

a year and a half before the earliest time

that Phase I is likely to expire, making

possible the ‘‘actual’’ or ‘‘effective’’

competition that AT&T and MCI desire.

Because the EU and the German and

French governments have all announced

that they will be adopting open
3978 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

30This would not preclude France or Germany

from having a limited number of licenses available

for radio-based services justified for objective

reasons of spectrum scarcity.

licensing policies and will not restrict

the numbers of licenses (except where

necessary due to limits on radio

frequencies, which would not affect

landline fiber-optic networks), potential

providers of alternative networks should

not be deterred from entering the market

now by the fear of being denied full use

of their network for voice services for

want of a license when full

liberalization occurs. Moreover, both the

German and French

telecommunications regulators plan to

license competitors during 1997,

enabling them to prepare to provide

services in advance of full liberalization.

BT is mistaken in believing that Phase

I could terminate if only one competitor

is allowed to provide competing

facilities-based switched voice services

in France and Germany. In fact, the

definition of Phase II of the proposed

Final Judgment is not intended to

condone any form of legal duopoly

(such as still exists in the U.K. for

international facilities-based services

but has otherwise been ended there).

Section V.Q specifies that among the

conditions necessary for Phase II to be

reached, France and Germany must

have ‘‘removed all of the legal

prohibitions’’ on competing provision of

public switched domestic and

international voice services, and

construction, ownership or control of

both domestic and international

telecommunications facilities and the

use of such facilities to provide any

services. The existence of artificial

restrictions on the numbers of domestic

or international licenses available for

either telecommunications services or

facilities in France or Germany would

mean that the conditions for moving

from Phase I to Phase II in that country

would not be satisfied.30 Moreover,

should either France or Germany

decline to remove all of the legal

prohibitions on competition in

international services and facilities to

and from the U.S., even if liberalization

within the EU has taken place as

required by the planned directives, the

transition to Phase II still would not

take place for that country. Since both

France and Germany have announced

that they will grant licenses in 1997

under their planned open policies, and

have not shown themselves to date

unwilling to license large foreign firms

to provide the types of services already

open to competition (as evidenced by

BT’s ability to provide data services in

both France and Germany today), BT’s

suggestion that the French and German

governments might in practice license

only a small number of ineffectual

competitors seems conjectural.

The concerns expressed by

commenters about the lack of an

effective system of transparent and

reasonable interconnection with FT and

DT are addressed during Phase I by the

nondiscrimination requirements of

Section III.D as well as the provisions

ensuring standardized access protocols

in Sections III.H and III.I. The EU’s

planned interconnection directive will

require Member States, including

France and Germany, to have

interconnection regimes in place that

comply with the directive before

January 1, 1998, the earliest that Phase

I is likely to expire. Both the French and

German telecommunications regulators

are planning to have new

interconnection regimes based on the

EU principles in effect in their countries

before that time.

The EU and the French and German

governments all have recognized the

need for more independent regulatory

authorities where state ownership of

telecommunications carriers continues,

as will be the case for several years in

Germany and indefinitely in France.

Both France and Germany are

contemplating changes to their

regulatory systems before 1998 to

address this problem. In the interim, the

full protections of this decree and the

EU settlement dealing with the various

risks identified by the commenters,

including discrimination and crosssubsidization, will be in effect as

independent safeguards against

anticompetitive conduct. Some of the

EU’s safeguards, in particular those

involving nondiscrimination in access

to and use of the FT and DT PSTNs and

availability of standardized interfaces

for Transpac and Datx-P, would

continue beyond the date of full

liberalization in France and Germany as

they have no predetermined time limits.

The FCC’s general prohibition on

‘‘special concessions,’’ also will be

available to reinforce nondiscriminatory

interconnection rights, and the FCC’s

ability to act under its policy is not

time-limited.

It is not practical or necessary for the

United States antitrust authorities to

maintain indefinitely the degree of

oversight of the relationship between

DT, FT and the Joint Venture

contemplated by Phase I of the proposed

Final Judgment, taking into account the

clear policies of moving toward full

liberalization and more effective

regulation within a definite time that

have been announced by the EU

authorities and the governments of

France and Germany, and the existence

of other regulatory authorities,

including the FCC, BMPT in Germany

and DGPT in France, that have ongoing

responsibility for regulatory oversight of

the telecommunications industry.

Fundamentally, what is at stake here is

the reasonableness of the United States’

judgment under the ‘‘public interest’’

standard that the transition to more

effective competition and better

regulatory safeguards is likely to

continue to move forward in a

reasonable time in France and Germany,

so that it is not necessary to stop these

transactions altogether or substantially

alter the terms of the proposed

settlement in order to safeguard against

DT and FT using their continuing

market power in anticompetitive ways

to favor Sprint and the Joint Venture.

This judgment continues to be

reasonable, given that the policies and

timetables that the EU and the French

and German governments have

announced for the transition to full

competition include not only removal of

legal barriers to competition and

licensing of competitors, but also the

other key measures such as an

interconnection regime that are needed

for real competition to develop.

Moreover, AT&T, BT and Cable &

Wireless all have been forming strategic

alliances with the large firms that have

entered telecommunications service

markets in Germany or France and are

planning networks in anticipation of

full liberalization and licensing of

competing providers. These alliances

make available to the German and

French partners resources, expertise and

international access to customers that

can help to make them more effective

rivals to DT and FT.

The judgment that these transactions

should not be stopped, given the

progress of the liberalization process, is

shared by the FCC and the European

Commission. These authorities have

also shared the concern of the United

States about the ongoing ability of FT

and DT to exercise market power to the

detriment of competition, and have

imposed their own remedies and

safeguards to help ensure both that

liberalization advances and that no

harm occurs to international

telecommunications competition during

the transition period. In light of the

circumstances of this transaction and

the actions taken by other authorities,

the United States does not believe that

extending Phase I safeguards for several

more years, imposing some form of

‘‘effective competition’’ test in the

proposed Final Judgment, or precluding

the transactions until significant
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3979

31FCC Sprint Order, ¶ 112.

32Contrary to the assertion of Cable & Wireless,

the proposed Final Judgment’s protections are not

limited only to ‘‘reserved’’ monopoly services such

as public switched voice. Most of the safeguards are

defined in terms of FT and DT Products and

Services, and Section V.L. expressly states that the

services defined as being within this category will

remain so regardless of whether the services are

considered to be reserved exclusively to FT or DT

under French or German law. Other safeguards,

including Sections III.B. and III.I, apply to Public

Data Networks, which are legally open to

competition in France and Germany and are not

even listed as FT and DT Products and Services.

alternative infrastructure competition is

ongoing are necessary steps to protect

the ‘‘public interest.’’ The United States

will retain the ability under this Final

Judgment, pursuant to Section VIII, to

seek modifications should new events,

such as any major breakdown of the

transition to competition underway in

France and Germany, indicate the need

for additional measures within the

context of the Final Judgment to prevent

substantial harm to competition and

U.S. consumers.

B. Opening to Voice Resale Competition

in France and Germany

ACC contends that entry and the

effective date of the Final Judgment in

this case should be conditioned on DT

and FT agreeing to open their public

switched voice services to resale

competition. These services currently

are provided on a monopoly basis in

France and Germany, though DT and FT

apparently could voluntarily open these

services to some resale competition. The

United States agrees with ACC that

resale competition at the German and

French ends of international routes with

the U.S. would likely benefit United

States consumers of international

services to France and Germany, and

indeed the FCC has made this one of the

conditions for the removal of the freeze

imposed on Sprint’s ability to add

circuits to France and Germany, in order

to limit Sprint’s advantage over other

U.S. providers from being the only

carrier with allies that can provide endto-end service between the U.S. and

France and Germany. But the question

for purposes of this Tunney Act

proceeding is whether, in light of the

other restrictions in the proposed Final

Judgment as well as the FCC’s action

and the announced intention of the

European Union, Germany and France

to remove all restrictions on voice

competition by 1998, it is necessary to

impose such a condition as part of this

decree to prevent some lessening of

competition that would otherwise

occur. The United States does not view

this as necessary for the decree to

accomplish its purposes. The transition

from Phase I to Phase II cannot occur for

either Germany or France under this

decree while any form of prohibition on

voice competition, resale or facilitiesbased, remains in effect in that country.

During Phase I, ACC and other

prospective U.S. international providers

of resale services will be able to avail

themselves of all the protections against

discrimination in Section III.D, if

Germany or France permits resale

competition (as the FCC’s decision

indicates is already legally permissible

to some extent, based on representations

by the German and French

governments 31) but DT or FT acts to

favor its own affiliates over competitors

in PSTN interconnection, leased lines,

or other FT or DT Products and Services

that would be used by switched voice

resellers.32 Moreover, during Phase I

and Phase II, Section II.C of the

proposed Final Judgment will ensure

that neither Sprint nor the Joint Venture

provide voice resale services, or any

other type of services, or make facilities

available to FT or DT to do so (other

than under existing bilateral

correspondent agreements that have also

been made available to other U.S.

competitors), if competitors cannot

obtain licenses in France and Germany.

C. Non-Exclusive Licensing Requirement

BT proposes a number of changes to

Section II.C, as does Esprit Telecom.

This provision ensures that neither

Sprint nor the Joint Venture receive

exclusive licensing advantages directly

from French or German authorities or

indirectly by affiliation with FT or DT,

and that neither Sprint nor the Joint

Venture provide facilities to FT or DT

enabling them to offer to the United

States any services for which they have

exclusive licenses in France or

Germany, other than existing

correspondent services that other U.S.

providers can also offer under operating

agreements with FT and DT. Some of

the changes recommended by BT are

already addressed implicitly within the

language of the existing provision, while

the United States believes that the

remaining modifications are not

necessary for this provision to

accomplish its purposes.

A principal concern for BT is the

language in Section II.C.3(i) requiring

that, before Sprint, the Joint Venture, DT

or FT are able to provide an

international telecommunications

service pursuant to an individual

license granted by the French or German

governments, ‘‘one or more’’ other U.S.

international telecommunications

service providers also have received a

license. BT would prefer that at least

three other licenses be granted before

the Joint Venture be allowed to offer a

service. However, BT’s fear that under

this provision the French or German

governments might be able to mandate

a duopoly, or arbitrarily delay granting

licenses to all competitors but one, is

not consistent with other language of

Section II.C.3 or with the licensing

policies announced by the French and

German governments. Section II.C.3 also

mandates, for any services that require

individual licenses in France or

Germany, that ‘‘established licensing

procedures are in effect as of the time

of the offering of the service by which

other United States international

telecommunications providers are also

able to secure a license.’’ This means, as

the United States and defendants have

agreed, that there must be licensing

procedures in place that are reasonable

and neutral, that do not discriminate

among providers or restrict the entry of

U.S. providers, and that do not

arbitrarily limit the number of licenses

available. Clearly a duopoly licensing

scheme for international services would

not meet the terms of this provision, for

once the one other license were

awarded to a French or German firm,

United States providers would not be

able to secure a license. In any event,

the EU authorities plan to mandate, and

both the French and German

governments have indicated that they

will adopt, open licensing schemes that

would meet the above criteria, and the

French and German

telecommunications regulators will

make their decisions on licensing before

1998. Moreover, under Section II.C.3(ii),

which ensures that where Sprint, the

Joint Venture, FT or DT applies for a

license first other competitors applying

later can receive their licenses within no

less time than was needed for the first

license to be granted, the ‘‘reasonable

time’’ provision can mean in particular

cases that the time to grant additional

licenses should be even less than for the

first licensee, whose application

presumably raised the most difficult

regulatory issues about the service, if

any.

BT expresses apprehension that the

French or German governments may

deny or fail to act on license

applications of competitors who seek a

license for a particular service before the

Joint Venture does, so as to delay their

entry until the Joint Venture is ready to

enter the market. It does not, however,

suggest a practical means of addressing

this concern, since United States

authorities are not in a position to direct

the French or German governments to

grant a license to any particular

provider, but only to ensure that the

parties to the transactions are not given
3980 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

33Letter from Kevin R. Sullivan to Carl Willner,

Nov. 21, 1995, and attached amendment to Phoenix

JVA Section 10.6(b). This letter and the modifying

language are attached to this Response as Exhibit

K.

34FCC Sprint Order, ¶ 125.

an advantage over others in the timing

of their licenses. The United States also

believes that Esprit’s proposal to require

that German and French regulators

commit to some expedited schedule for

licensing, with suspension of Joint

Venture services while any competitor

applications have been pending for over

60 days, is impractical and should not

be adopted, as it could perpetually

postpone the entry of the Joint Venture

into the market as each new applicant

comes forward. In fact, under the

proposals put forward by the EU

authorities and the French and German

governments, most types of

telecommunications services will be

subject to class licenses that will not

require any individual approval. BT also

recommends that the full range of

regulatory reforms in France and

Germany be in place before activities of

the Joint Venture are permitted to

commence under this provision. The

United States continues to believe,

however, that the service-specific

approach is preferable. For example, if

reasonable, nondiscriminatory open

licensing procedures are in effect by

which competitors can obtain licenses

to operate a data service, it does not

appear necessary or desirable to forbid

the Joint Venture from offering that

service to consumers under II.C. because

rules are not yet in place governing a

voice service.

D. Facilities Ownership Provisions

BT seeks clarification of the meaning

of several aspects of Sections III.A and

III.B, which preclude during Phase I any

ownership or control by Sprint or the

Joint Venture of (i) facilities in France

or Germany legally reserved to FT or

DT, (ii) international half-circuits

terminating in France or Germany used

for U.S.-France or U.S.-Germany

telecommunications services, or (iii) the

Public Data Networks, as defined in

Section V.S.

The United States agrees with BT that

the concept of ownership and control in

this provision includes Indefeasible

Rights of Use (IRUs), so that Sprint or

the Joint Venture could not acquire IRUs

in German or French half-circuits while

other providers legally could not do so.

The exclusion for ‘‘publicly available

leases or other publicly available uses’’

in Section III.A was simply meant to

ensure that the definition of ‘‘control’’

was not interpreted here to preclude

Sprint or the Joint Venture from such

normal forms of generally available

usage as leasing a private line under

tariff. Moreover, as a general matter, the

preclusion on Sprint or the Joint

Venture acquiring ownership or control

over any facilities legally reserved to FT

or DT would mean that Sprint and the

Joint Venture could not acquire such

interests in a type of facility (e.g.,

submarine cable) or a form of ownership

or control that remained reserved, even

if some other type of facility that might

compete with it in some respects (e.g.,

a privately owned satellite) or some

other form of ownership or control of

the same facility is not reserved. The

restriction on ownership of

international half circuits, with the

‘‘aggregate quantity’’ exception, under

Section III.A(ii) is in addition to the

prohibition on ownership or control of

reserved facilities, not an alternative to

it. The United States does not agree with

BT, however, on the interpretation of

the ‘‘aggregate quantity’’ exception as

limited to the quantity of half-circuits

held by any other single provider. The

FCC’s freeze on operation of new

capacity by Sprint on the U.S.-France

and U.S.-Germany routes will help to

counter BT’s expressed fear that Sprint

or the Joint Venture would be able to

use a quantity of circuits far greater than

those of any other single provider. Nor

does the United States agree with BT

that modification of the restriction on

international half-circuits ‘‘where

plaintiff and defendants agree that

meaningful competition exists’’ can

only be done after public comment and

hearing procedures, but there is nothing

to preclude the United States from

seeking information from other

interested persons before agreeing to a

modification.

E. Antidiscrimination Provisions

1. ‘‘Steering’’ of Customers to Phoenix

and Sprint

AT&T, MCI and Cable & Wireless all

object to a provision of the Joint Venture

Agreement between Sprint, FT and DT,

Section 10.6(b). They are concerned that

this provision would require DT and FT,

when customers approach them for

international facilities or services over

which they have monopolies in their

home countries, such as half-circuits, to

take measures to ‘‘steer’’ the customers

to Sprint or Phoenix to provide the U.S.

end of these international facilities or

services, i.e., induce them to obtain the

service from the Joint Venture and

disclose their identities to the Joint

Venture, even if they would prefer to

use another U.S. carrier. AT&T requests

that the anti-discrimination provisions

of the proposed Final Judgment in

Section III.D be clarified to preclude

such activity.

AT&T has correctly understood the

intent of Section III.D of the Proposed

Final Judgment. Sprint and the Joint

Venture are precluded by Section III.D

from receiving more favorable terms

from FT or DT than other similarly

situated United States international

telecommunications providers with

respect to any FT or DT Products and

Services, and are also precluded from

benefitting from any more favorable

term that FT or DT offer to any customer

of FT or DT Products and Services,

conditioned on Sprint or the Joint

Venture being selected as the United

States provider of a telecommunications

or enhanced telecommunications

service. FT or DT Products and Services,

under Section V.L, are defined as

correspondent services, transit services,

leased lines or international half

circuits, and interconnection to the

PSTNs provided by FT or DT in France

or Germany, or between the United

States or France and Germany,

regardless of whether the service is

exclusively reserved to FT or DT as a

matter of law. Accordingly, if FT or DT

were to ‘‘steer’’ customers of FT or DT

Products and Services to Phoenix or

Sprint in the manner originally

contemplated by Section 10.6(b), Sprint

and the Joint Venture would be placed

in violation of Section III.D of the Final

Judgment. In order to eliminate any

confusion on this point, Sprint, FT and

DT have agreed to amend Section

10.6(b) of the Joint Venture Agreement,

deleting any requirement that customers

of FT or DT Products and Services be

‘‘steered’’ to the Joint Venture.33 The

FCC also has stated that its ‘‘no special

concessions’’ requirement would

preclude such ‘‘steering’’ with respect to

basic services such as private lines.34

2. Effect of Exclusion of DT and FT as

Parties

BT objects to the exclusion of DT and

FT as parties to the proposed Final

Judgment, even though BT similarly is

excluded as a party under the separate

decree governing its joint venture with

MCI. BT’s particular concern is that if

the antidiscrimination provisions of

Section III.D are read to include some

form of ‘‘knowledge’’ or scienter

requirement, it could prove difficult or

impossible to enforce them without the

ability to get information directly from

FT and DT.

BT’s concern is based on a

misunderstanding of the

antidiscrimination provisions of the

proposed Final Judgment. There is no

requirement that Sprint or the Joint

Venture have known of any
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3981

35 Issues of knowledge would thus only come into

question to the extent that they are relevant under

established legal principles to particular forms of

culpability or sanctions, i.e., criminal contempt, but

would not affect civil enforcement. 36Comments of Cable & Wireless Europe, at 6.

discrimination, for a violation of Section

III.D.1 or III.D.2 to be found. Rather, it

is merely necessary that the

discrimination have occurred, as

defined in Section III.D, for the United

States to take action to enforce the

decree. Indeed, in the negotiations

leading to the proposed Final Judgment,

the concept of requiring some

knowledge of discrimination on the part

of Sprint or the Joint Venture was

explicitly rejected.35 Ordinarily,

whether discrimination has occurred

would be evaluated by comparing the

terms made available by DT or FT to a

complaining competitor (with which it

would be familiar) with the terms made

available to Sprint or the Joint Venture

(which could be ascertained using the

visitorial and compliance powers of

Section VI), and the disclosure

requirements of Section II.A would

facilitate detection and reporting of such

discrimination by competitors. Thus,

the United States reasonably concluded

that the antidiscrimination provisions of

the proposed Final Judgment were

adequate without making DT and FT

parties to the decree.

3. Other Issues Concerning the

Antidiscrimination Provisions

BT recommends that Section III.D.1

be clarified to ensure that the protection

against discrimination applies to all

similarly situated providers. The United

States agrees that the language

prohibiting Sprint and the Joint Venture

from obtaining FT and DT Products and

Services on terms ‘‘more favorable

* * * than are made available to other

similarly situated United States

international telecommunications

providers’’ means that no similarly

situated provider can be disfavored in

any of the ways proscribed by this

provision, even if some other similarly

situated providers are being treated in

the same way as Sprint and the Joint

Venture.

BT also proposes that Section III.D.2’s

prohibition on Sprint or the Joint

Venture receiving any ‘‘benefit’’ from

more favorable terms offered by FT or

DT to customers of FT or DT Products

and Services, conditioned on Sprint or

the Joint Venture being selected as a

service provider, be clarified to apply to

situations where FT or DT is acting as

the distributor for the Joint Venture, and

to cover both implicit and express

conditioning. The United States agrees

that Section III.D.2 reaches all such

conditioning of terms for FT or DT

Products and Services, express or

implicit, and was intended to apply to

situations where FT and DT are

distributing Joint Venture products and

services.

Esprit Telecom urges that DT and FT

should be prohibited from providing

leased lines for Joint Venture services

unless such lines are provided in a

nondiscriminatory manner, including

equal treatment on all terms such as

price and provisioning intervals, to all

competitors. This is already

accomplished by Section III.D, since

leased lines are expressly treated as FT

and DT Products and Services by

Section V.L(iii). Esprit also contends

that DT and FT should be required to

provide leased lines at wholesale, costbased rates to competing carriers on a

priority basis. The proposed Final

Judgment does not mandate that leased

lines be provided at any particular price

level, nor would it be practical to do so

for FT’s and DT’s leased lines, which

are located outside the U.S., are under

the regulatory supervision of foreign

authorities and are also subject to EU

directives on open network provision

and the terms of provisioning of leased

lines. While the United States is

cognizant of the evidence that FT’s and

DT’s leased lines are priced far above

U.S. levels and are generally provided

much more slowly than in the U.S., the

concern of the United States in this case

is to ensure that neither those nor other

potential abuses of FT’s and DT’s

monopoly positions lead to advantages

for Sprint or the Joint Venture that

could harm competition. This Clayton

Act case is not a vehicle for addressing

all difficulties that competitors may face

in doing business in France or Germany

or all harms that U.S. consumers may

experience as a result of having to use

the services of the DT and FT

monopolies. Whatever the prices at

which leased lines may be provided in

France or Germany, or the time needed

to provide them, Sprint and the Joint

Venture will not fare better than other

competing providers under the terms of

this proposed Final Judgment.

Moreover, as competition develops in

France and Germany due to alternative

infrastructure liberalization in 1996 and

full liberalization in 1998, leased line

prices can be expected to decline

substantially and provisioning times

improve, as has occurred in the United

States and the United Kingdom.

Cable & Wireless has brought to the

attention of the United States new

evidence that Colisee International, a

subsidiary of FT engaged in reselling FT

capacity, has behaved in an

anticompetitive manner and that

complaints about Colisee have been

confirmed by findings of the French

telecommunications regulator. These

complaints and the regulator’s findings

of FT’s noncompliance with French law,

according to Cable & Wireless, relate to

(i) sales by FT of leased lines and PSTN

interconnection at rates below the

official tariffs from which other

competitors must buy capacity, and (ii)

FT’s grant of more favorable access

arrangements to its International Transit

Center for Colisee than for other

competitors.36 The United States has

examined substantial information on

this allegation, including the regulator’s

findings of noncompliance and FT’s

plans to make substantial changes to the

Colisee service in response. In addition

to being subject to challenge under

French law, it appears that the types of

discrimination alleged here are of the

sort that would be covered by the

antidiscrimination provisions of the

proposed Final Judgment, if Sprint or

the Joint Venture were to receive such

favorable treatment through FT or any of

its subsidiaries. No modification to the

proposed Final Judgment is necessary to

deal with this matter, but the Colisee

International evidence indicates that the

antidiscrimination provisions of the

proposed Final Judgment are indeed

focused on substantial competitive

concerns.

F. Protections Against CrossSubsidization

BT’s principal arguments on this

provision, favoring extending it through

the life of the decree or until

comprehensive protections against

cross-subsidization are determined to be

part of the French and German

telecommunications regulatory systems,

do not differ substantially from its

general arguments for extending the

duration of all of Section III, which the

United States has already addressed and

declined to accept. Cross-subsidy risks

were perceived here, by both the United

States and the European Commission

competition authorities, to be

particularly substantial while DT and

FT still have three-quarters of their

business legally protected from

competition. During this time, DT and

FT enjoy a very large base of revenues

into which costs could be shifted, or

from which subsidies could be obtained,

without risk of increasing entry by

competitors into the services which

provide the subsidies and which would

be priced at higher levels to generate

them. The evidence of past crosssubsidies of the Datex-P data network by

DT on a large scale, and the risk of use

of cross-subsidization to put
3982 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

competitors in a ‘‘price squeeze,’’

Competitive Impact Statement, 60 Fed.

Reg. at 44064, 44072, support having

these restrictions in the decree during

Phase I. However, neither the United

States nor the European Commission’s

competition authorities extended the

structural separation of the Public Data

Networks, or the specific cross-subsidy

safeguards, into the period following

full liberalization in France and

Germany, when DT and FT will legally

be subject to competition in all their

areas of business and will face actual

licensed competitors. At that point,

while cross-subsidization potentially

could still occur, the risks of it

substantially harming competition over

a sustained period will have been

reduced owing to the possibility for

competitive entry into the markets

providing the subsidies, and policing

cross-subsidization can with greater

confidence be left to the national

regulators, who by then should have

greater independence as well.

BT also seeks to give competitors and

other interested parties access to all of

Sprint’s and the Joint Venture’s records

to determine if cross-subsidization has

occurred. The United States does not

consider a modification of this sort to be

necessary or desirable. The disclosure

provisions of Section II.A of the

proposed Final Judgment strike a careful

balance between providing information

competitors would need to detect

discrimination, and protecting Sprint’s

and the Joint Venture’s confidential

business information from disclosure to

competitors. BT’s disclosure proposal

would expose far more of Sprint’s and

the Joint Venture’s business information

to their competitors, in a way that if

abused could harm rather than help

competition. The United States notes,

however, that nothing precludes it from

using independent auditors under

contract to assist in reviewing Sprint’s

and Joint Venture’s documents for crosssubsidization, and that the EU

competition authorities have imposed

an auditing requirement on Atlas,

Transpac and Datex-P during the preliberalization period.

Cable & Wireless argues that there

should be structural separation between

the Atlas and Joint Venture entities and

their parents. In fact, the proposed Final

Judgment already mandates such

separation between FT and DT on the

one hand, and the Joint Venture and

Sprint on the other, through a

combination of the facilities ownership

provisions of Sections III.A and III.B,

the non-exclusive agency provisions of

Section III.C, the prohibitions on crosssubsidization in Section III.F, and the

prohibitions on sharing of confidential

information in Section II.B. The EU

competition authorities have further

reinforced this separation through their

treatment of Atlas, Transpac and DatexP.

Esprit Telecom urges that DT and FT

be precluded from predatory pricing of

end-user services. The crosssubsidization prohibitions of the

proposed Final Judgment will help to

achieve that objective, as will the EU’s

complementary safeguards, while

predatory pricing remains

independently actionable under the

antitrust laws as well.

G. Treatment of Operating Agreements

AT&T and BT both have raised issues

regarding the operation of Section

III.G.1. This provision precludes Sprint

from providing any correspondent

telecommunications or enhanced

telecommunications service between the

United States and France or Germany

pursuant to any operating agreement

with FT or DT, unless at least one other

U.S. international telecommunications

provider has also obtained an operating

agreement with FT and DT for the

provision of that service.

AT&T has requested that the interplay

of Section III.G and Section III.D.1(v),

which prohibits discrimination between

Sprint and other similarly situated

providers in the ‘‘terms of operating

agreements for correspondent services

and connection of international halfcircuits,’’ be clarified to preclude

discrimination in the granting of

operating agreements by FT and DT. BT

is concerned about the risk of allowing

Sprint to provide service if FT or DT has

granted an operating agreement to only

one competitor, particularly if that one

competitor is an inadequate alternative.

The United States agrees that

operating agreements already granted, or

granted in the future, could not

thereafter be modified or withdrawn on

a discriminatory basis favoring Sprint or

the Joint Venture, for to do so would

amount to a discrimination in the

‘‘terms of operating agreements’’

prohibited under Section III.D.1(v).

Existing operating agreements,

particularly those covering International

Message Telephone Service (IMTS)

switched voice traffic and private lines,

account for what will likely continue to

be the bulk of telecommunications

international traffic for the next several

years at least. Moreover, the terms of all

operating agreements granted must be

nondiscriminatory, whatever the

number of carriers that receive them.

AT&T is thus correct insofar as it says

that Section III.G.1 does not abrogate the

requirement of nondiscrimination in the

terms of operating agreements under

Section III.D.1(v), or any of the other

requirements of Section III.D.

Section III.G.1 affords an additional

measure of protection with respect to

any correspondent services where

agreements have not yet been

negotiated, or the service itself has not

yet been developed, ensuring that Sprint

will not be able to obtain the only

operating agreement or to go first while

entry of competitors is delayed, as a

result of its special relationship with FT

and DT. It was not written to require

that all other carriers receive operating

agreements for such new services, since

U.S. carriers may vary considerably in

traffic volumes and foreign carriers may

be reluctant to incur the expense of

providing a facilities-based

interconnection with a low-volume

provider. The counterpart Section

III.G.2 provides a mechanism for such

smaller carriers to have their traffic

delivered at reasonable,

nondiscriminatory rates accounting for

the value of proportionate return traffic

from France and Germany.

It is implicit in the concept of Section

III.G.1 that the other U.S. international

telecommunications provider that

receives an operating agreement not be

a sham or subterfuge to circumvent the

Final Judgment, but a real provider

capable of offering its own alternative

service. Should FT or DT grant

operating agreements for new

correspondent services to Sprint and

another alternative provider, but

withhold them from other similarly

situated U.S. international carriers,

those carriers would still be able to

complain to the FCC that Sprint was

receiving improper ‘‘special

concessions.’’ The FCC’s policy is thus

broader in one respect than that in the

proposed Final Judgment, but does not

explicitly mandate, as does Section

III.G.1, that one other carrier already

have an operating agreement before

Sprint can provide a service. These

policies operate together to ensure

effective international competition by

multiple U.S. carriers notwithstanding

the affiliation of FT and DT with Sprint.

The United States understands that

there are relatively few issues

concerning the grant of operating

agreements now outstanding between

U.S. international carriers and DT and

FT. For the major longstanding services

such as IMTS, as well as for relatively

new services such as International

Virtual Private Networks (IVPNs), FT

and DT have now granted operating

agreements to multiple U.S.

international telecommunications

carriers in addition to Sprint.

Accordingly, in light of the additional

protections afforded by Section
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3983

37 Filetech S.A.R.L. v. France Telecom, Civil

Action No. 95–1848 (CSH) (S.D.N.Y.).

38 Filetech S.A.R.L. v. France Telecom, Civil

Action No. 95–1848 (CSH), Memorandum of Law of

France Telecom and France Telecom Incorporated

in Support of their Motion to Dismiss the

Complaint at 10–15, and Declaration of Jacques

Henrot (S.D.N.Y., filed June 2, 1995).

39FCC Sprint Order, ¶ 123.

III.D.1(v) and the FCC’s ‘‘special

concessions’’ prohibition, and available

evidence on the current practice of FT

and DT, the United States does not

consider it necessary to modify Section

III.G.1.

H. Standardized Interface Requirements

BT takes issue with the provisions

ensuring the maintenance of

standardized PSTN and data network

interfaces by FT and DT, Sections III.H

and III.I, which were closely followed

by the EU competition authorities in

their own settlement. Apart from its

general arguments for extending these

provisions through the duration of the

decree, BT also objects to the

opportunity that these provisions give to

Sprint and the Joint Venture to develop

proprietary interfaces with FT and DT.

BT is concerned that this could allow

the parties to these transactions to

develop certain types of advanced

services and interconnection protocols

that would not be available to

competitors.

To the extent that competitors are

similarly situated, of course, the

antidiscrimination provisions of Section

III.D would remain available to address

any handling of interconnection to the

FT and DT PSTNs that disfavors

competitors of Sprint and the Joint

Venture. Sections III.H and III.I go

beyond the antidiscrimination

provisions in mandating availability of

standard interfaces and protocols for FT

and DT Products and Services, and for

the Public Data Networks, without any

proof of discrimination against similarly

situated competitors. Neither the United

States nor the European Union

competition authorities, however, found

it desirable to prohibit FT and DT from

also developing any proprietary or

nonstandardized protocols, in the way

BT advocates. The various strategic

alliances that have formed or are now

forming to provide seamless

international telecommunications

services, including the BT–MCI

partnership, AT&T’s alliance with the

Unisource partners in Europe, and the

FT–DT-Sprint combination, all will be

seeking to develop advanced

telecommunications services which may

require nonstandardized or proprietary

protocols not currently available. Some

competitive risks inhere in the ability of

telecommunications providers with

monopoly rights, such as DT and FT, or

market power, such as BT in the UK, to

develop nonstandardized protocols and

interfaces that are not universally

available and might be used to favor

particular providers. In the case of these

international strategic alliances,

however, there are also substantial

competitive benefits to consumers from

the development of advanced seamless

telecommunications services, and all of

the alliances will be competing with

each other to produce the most

attractive advanced services and

differentiate them from those of the

other competitors. These benefits could

be reduced if FT and DT were precluded

from developing with their Joint

Venture and Sprint any proprietary or

nonstandardized interfaces and

protocols for new services, as BT would

have the United States do. Furthermore,

the prospect of full liberalization in

France and Germany two years from

now and liberalization for alternative

infrastructure used to provide services

other than public switched voice within

six months means that BT and other

competitors should not remain

indefinitely dependent on a single

provider in France and in Germany to

supply all telecommunications lines

and network interconnections. Rather,

they will be able to have their local

allies in France and Germany adopt

whatever proprietary and

nonstandardized protocols they may

develop that are inconsistent with those

used by DT and FT.

I. Access to FT’s ‘‘Orange List’’

Customer Information

Charles M. Haar, a professor at

Harvard University Law School who is

working as an expert for a company

named Filetech, which is involved in

litigation with France Telecom in the

United States District Court for the

Southern District of New York,37 has

filed comments requesting that entry of

judgment in this case be conditioned on

France Telecom making available to

competitors certain information about

customers, known as the ‘‘Orange List,’’

that it acquires in the course of its

responsibilities for maintaining the

French telephone directory.

The United States expresses no view

on the merits of Filetech’s litigation

with France Telecom, but its allegations

did not form any specific part of the

complaint in this case. While the

complaint is based on France Telecom’s

ability to use its monopoly rights and

dominant position in France to favor

Sprint and the Joint Venture over

competitors in various ways, it does not

appear that France Telecom would be

able lawfully to use preferential access

to the Orange List to favor Sprint or the

Joint Venture, since France Telecom has

represented in its litigation with

Filetech that this information is

confidential and under French law

cannot be disclosed to others, except for

the limited purpose of publishing

telephone directories.38 Moreover, the

FCC has indicated that preferential

disclosure of telephone customer

information by DT and FT to Sprint

would be an impermissible ‘‘special

concession.’’39 Thus, the United States

does not believe that any modifications

to the proposed Final Judgment are

needed to address this issue.

IV

Standard of Review

Pursuant to 15 U.S.C. § 16(e), the

proposed Final Judgment cannot be

entered unless the Court determines that

it is in the public interest. The focus of

this determination is whether the relief

provided by the proposed Final

Judgment is adequate to remedy the

antitrust violations alleged in the

Complaint. United States v. Bechtel

Corp., 648 F.2d 660, 665–66 (9th Cir.),

cert. denied, 454 U.S. 1083 (1981),

quoted with approval in United States v.

Microsoft Corp., 56 F.3d 1448, 1457–58,

see also 56 F.3d at 1459–60 (D.C. Cir.

1995). In the recent Microsoft decision

by the United States Court of Appeals

for the District of Columbia Circuit,

which reversed the district court’s

refusal to enter an antitrust consent

decree proposed by the United States,

the court of appeals held that the

provision in Section 16(e)(1) of the

Tunney Act allowing the district court

to consider ‘‘any other considerations

bearing upon the adequacy of such

judgment,’’ does not authorize extensive

inquiry into the conduct of the case. 56

F.3d at 1458–60. The court of appeals

concluded that ‘‘Congress did not mean

for a district judge to construct his own

hypothetical case and then evaluate the

decree against that case.’’ Id. To the

contrary, ‘‘[t]he court’s authority to

review the decree depends entirely on

the government’s exercising its

prosecutorial discretion by bringing a

case in the first place,’’ and so the

district court ‘‘is only authorized to

review the decree itself,’’ not other

matters that the government might have

but did not pursue. Id.

Under the public interest standard,

the Court’s role is limited to

determining whether the proposed

decree is within the ‘‘zone of

settlements’’ consistent with the public

interest, not whether the settlement

diverges from the Court’s view of what
3984 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

1Competitive Impact Statement (‘‘CIS’’), Fed.

Register, Vol. 60, No. 164, 44049, 44063 (Aug. 24,

1995).

2 Market Entry and Regulation of ForeignAffiliated Entities, 10 FCC Rcd. 4844 (1995)

(‘‘Market Entry NPRM’’), Reply Comments of the

Department of Justice (filed May 12, 1995) at ii

(emphasis added).

would best serve the public interest.

United States v. Western Electric Co.,

993 F.2d 1572, 1576 (quoting United

States v. Western Electric Co., 900 F.2d

283, 307 (D.C. Cir. 1990)); United States

v. Microsoft Corp., 56 F.3d at 1460.

Moreover, the Court should give a

request for entry of a proposed decree

even more deference than a request by

a party to an existing decree for

approval of a modification, for in

dealing with an initial settlement the

Court is unlikely to have substantial

familiarity with the market involved.

United States v. Microsoft Corp., 56 F.3d

at 1460–61.

Absent a showing of corrupt failure of the

government to discharge its duty, the Court,

in making its public interest finding, should

* * * carefully consider the explanations of

the government in the competitive impact

statement and its responses to comments in

order to determine whether those

explanations are reasonable under the

circumstances.

United States v. Mid-America

Dairymen, Inc., 1977–1 Trade Cas. ¶

61,508, at 71,980 (W.D. Mo. 1977). The

Court may reject the agreement of the

parties as to how the public interest is

best served only if it has ‘‘exceptional

confidence that adverse antitrust

consequences will result. * * *’’ United

States v. Western Electric Co. 993 F.2d

at 1577 (D.C. Cir.), cert. denied, 114 S.

Ct. 487 (1993), quoted with approval in

United States v. Microsoft Corp., 56 F.3d

at 1460.

V

Conclusion

After careful consideration of the

comments, the United States continues

to believe that, for the reasons stated

herein and in the Competitive Impact

Statement, the proposed Final Judgment

is adequate to remedy the antitrust

violations alleged in the Complaint.

There has been no showing that the

proposed settlement constitutes an

abuse of the United States’ discretion or

that it is not within the zone of

settlements consistent with the public

interest. Therefore, entry of the

proposed Final Judgment should be

found to be in the public interest, after

the Joint Venture has been made a party

to the stipulation for entry of judgment

and the United States has completed the

procedures mandated by the Tunney

Act and moved for entry of judgment.

Dated: January 16, 1996.

Respectfully submitted,

Carl Wilner,

Joyce B. Hundley,

Attorneys, U.S. Department of Justice,

Antitrust Division.

Certificate of Service

I hereby certify that on this date I

have caused to be served by first class

mail, postage prepaid, or by hand, if so

indicated, a copy of the foregoing

Response to Public Comment upon the

following person, counsel for

defendants in the matter of United

States of America v. Sprint Corporation:

Kevin R. Sullivan, Esquire, King &

Spalding, 1730 Pennsylvania Avenue,

N.W., Washington, D.C. 20006, Counsel

for Defendants, Sprint Corporation and

Joint Venture Company.

Dated: January 16, 1996.

By Hand:

Carl Willner,

Attorney, Telecommunications Task Force,

Antitrust Division, U.S. Department of Justice.

United States of America Plaintiff, v.

Sprint Corporation and Joint Venture Co.,

Defendants

[Civil Action No. 95 CV 1304 (TPJ)]

Comments of AT&T Corp.

AT&T Corp. (‘‘AT&T), pursuant to the

Antitrust Procedures and Penalties Act,

15 U.S.C. § 16(b)–(h) (the ‘‘Tunney

Act’’), hereby submits these comments

on the proposed Final Judgment in the

above-entitled action concerning the

planned acquisition by France Telecom

(‘‘FT’’) and Deutsche Telekom A.G.

(‘‘DT’’) of 20 percent of the voting shares

of Sprint Corporation (‘‘Sprint’’), and

the proposed formation of a joint

venture among Sprint, FT and DT to

provide international

telecommunications services (the ‘‘Joint

Venture’’).

AT&T will be adversely affected by

the proposed acquisition and joint

venture. AT&T provides international

telecommunications services to

customers in the United States in

competition with Sprint. Moreover, to

provide these services, AT&T is

required by law to sue the bottleneck

monopoly services of FT and DT to

terminate its telecommunications traffic

to France and Germany respectively.

AT&T and its customers will suffer

competitive injury if the proposed

transactions are allowed to proceed

without the Department of Justice (the

‘‘Department’’) clarifying certain

provisions and procedures in the

proposed Final Judgment. Specifically,

the Department should condition its

continuing consent to the proposed

Final Judgment on the adoption of

clarifying changes making explicit that:

(1) Sprint cannot offer a new

correspondent service unless other U.S.

carriers can provide such service with

FT and/or DT on a non-discriminatory

basis; (2) Sprint and the Joint Venture

cannot provide services to customers

who have been ‘‘steered’’ to Sprint or

the Joint Venture by FT and/or DT; and

(3) the Phase I conditions will not

expire until practical alternatives, i.e.,

competitive networks, exist in France

and Germany for the termination of

international telecommunications

traffic, including basic switched voice

services.

Introduction and Summary

The Department has accurately

concluded that the proposed acquisition

and Joint venture threaten U.S.

competition and consumers. As

described in the Department’s

Competitive Impact Statement, the

acquisition and the joint Venture would

provide FT and DT ‘‘increased

incentives and the ability using their

monopolies and dominant positions in

France and Germany respectively, to

favor Sprint and Joint Venture Co. and

to disfavor that United States

competitors in international

telecommunications services. * * *’’ 1

As the Department has elsewhere stated:

The continued existence of

telecommunications monopolies in foreign

countries results in higher prices, lower

output, inefficient quality of service and

slower innovation for U.S. consumers of

international telecommunications services.

Facilities-based competition in foreign

countries is the best solution to these

problems, and neither resale nor regulation is

an equally effective substitute.2

AT&T believes that the threat to

United States competition and

consumers would justify Department

action to block the proposed

acquisition. In the exercise of

prosecutorial discretion, however, the

Department has entered into a proposed

Final Judgment with Sprint and the

Joint Venture containing

nondiscrimination and other protections

designed to mitigate the competitive

harms associated with the Sprint, FT

and DT transaction.

Under the Tunney Act, however, the

Court must find that the proposed Final

Judgment ‘‘is in the public interest’’ in

order to enter it. Thus, the Court must

determine whether the proposed decree
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3985

3CIS at 44077 (citing United States v. Waste

Management, Inc., 1985–2 Trade Cas. ¶ 66,651, at

63,046 (D.D.C., 1985).

4United States v. Microsoft Corp., 56 F.3d 1448,

1461–62 (D.C. Cir. 1995).

5United States v. Mid-America Dairymen, Inc.,

1977–1 Trade Cas. ¶61,508, at 71,980 (W.D. Mo.

1977) (Court carefully considers explanations of the

government in the Competitive Impact Statement

when determining if decree is in the public

interest).

6 Microsoft Corp., supra, at 1462.

7 Id.

8CIS at 44071.

9See pp. 16–17, infra.

10CIS at 44074.

11CIS at 44060.

12 Id.

13 Id. at 44061.

14 Id. at 44059. Similarly, Sprint must refrain from

competing with the Joint Venture anywhere in the

world and must refrain from competing with FT

and DT in France and Germany. Id.

15 Id.

16 Id.

17 Id. at 44063

‘‘would serve the public interest in free

and unfettered competition.’’ 3 This

inquiry appropriately involves an

analysis of the clarity and adequacy of

the decree’s essential nondiscrimination

provisions and compliance

mechanisms, as well as an analysis of

the injury that third parties might suffer

as a result of the decree.4

In determining whether the decree

meets the public interest standard, the

Court will consider the explanations for

the consent decree contained in the

Department’s Competitive Impact

Statement 5 and whether the decree will

protect third parties.6 In this

proceeding, the Department has

accurately described in its Complaint

and the Competitive Impact Statement

the monopolistic leveraging in which

FT and DT could engage absent the

nondiscrimination provisions set forth

in Section III of the decree. This

leveraging would severely harm the

third parties the decree is designed to

protect. The clarity and efficacy of the

Section III nondiscrimination provisions

thus are central to the Court’s public

interest determination.7

AT&T’s objections to the proposed

Final Judgment all fall within the areas

appropriate for review by a court in its

determination of whether a proposed

consent decree is in the public interest.

Accordingly, AT&T believes that the

Department should condition its

continued support of the proposed Final

Judgment on acceptance of the proposed

clarifications and change in

implementation procedures for the

essential nondiscrimination provisions

as set forth below.

First, the Department should clarify

that the provisions of Section 111.G.1 of

the decree do not abrogate the

nondiscrimination requirements of

Section III.D of the proposed Final

Judgment. Section III.D prohibits Sprint

and Joint Venture from accepting any

FT or DT Products and Services on a

discriminatory basis. Section III.G.1

seeks to protect competition further by

restricting Sprint from providing a

correspondent service with FT or DT

unless at least ‘‘one’’ other carrier has

reached an agreement with FT or DT to

provide such a service as well. The

proposed Final Judgment should be

clarified to ensure that Section III.G.1 is

not interpreted as absolving the parties

of their nondiscrimination obligations

once one other carrier offers a

correspondent service with FT or DT.

The second area requiring

clarification involves the Joint Venture

Agreement’s attempt to require that FT

and DT steer business to the Joint

Venture. Such a marketing strategy by

the parties violates the clear intent of

Section III.D because, as noted in the

Competitive Impact Statement, the

discrimination prohibited by that

provision ‘‘includ[es] activities

involving the sale [sic] marketing, and

distribution of Sprint and Joint Venture

Co. services by FT and DT.’’ 8 The

consent decree should be clarified to

prohibit expressly the steering of

customers by FT and DT to the Joint

Venture because such activity

constitutes banned favoritism.

AT&T’s final concern rests with the

mechanism chosen to trigger the

expiration of the nondiscrimination

protections in Section III of the decree

(the ‘‘Phase I Conditions’’). The Phase I

Conditions for each country expire once

France or Germany authorizes domestic

and international facilities-based

competition in basic

telecommunications services and issues

one license to a competitor to FT or DT.

The Department’s rationale for the

lifting of the Phase I Conditions upon

the authorization of competition and

licensing of a competitor in France and

Germany is that U.S. carriers will have

means other than FT’s and DT’s

bottleneck facilities to terminate their

traffic to France or Germany.9 Yet, the

Department’s own explanation for why

the Phase I Conditions are necessary,

coupled with the Department’s

acknowledgment that mere legal

authorization to compete and issuance

of one license to do so may not result

in a competitive alternative to FT or DT,

mandate that the Department ensure

continuance of the Phase I protections

until FT and DT face actual

competition.10

The Department Must Clarify the Scope

of Certain Conditions and Change

Implementation Procedures of the

Proposed Final Judgment

As the Department recognizes in its

Competitive Impact Statement, FT and

DT—the world’s largest governmentowned monopoly telecommunications

carriers—have absolute control over

telecommunications services in France

and Germany, respectively. FT is the

fourth largest provider of

telecommunications services in the

world, while DT is the second or third

largest.11 FT and DT are each the state

authorized monopoly provider of public

switched voice service, as well as all

transmission facilities for domestic and

international telecommunications in

their respective home countries.12 As a

result, ‘‘[a]ccess to FT’s and DT’s public

switched network and transmission

infrastructure is necessary for

international telecommunications and

enhanced telecommunications services

that originate or terminate in France and

Germany,’’ and ‘‘virtually all

international telecommunications traffic

between the U.S. and France and

between the U.S. and Germany

originates or terminates over FT’s or

DT’s public switched networks, their

transmission infrastructure, or both.’’ 13

Under the proposed joint venture, FT

and DT are required to refrain from

competing with Sprint in the United

States in the Joint Venture’s services

and in other services.14 FT and DT thus

‘‘generally will only be able to

participate directly in United States

telecommunications markets through

their ownership interests in Spring.’’ 15

Moreover, the United States is ‘‘by far’’

the most important location of those

customers who desire global seamless

telecommunications services, i.e.,

multinational corporations who seek

one stop shopping for their

communications needs irrespective of

national borders.16 Because FT and DT

can participate in the U.S. market only

through the Joint Venture, they will

have increased incentives and the

ability, using their monopolies and

dominant positions in France and

Germany, respectively, to favor Sprint

and the proposed Joint Venture and to

disfavor their United States

international telecommunications

services competitors and their

customers.17

The Competitive Impact Statement

sets forth in detail the myriad ways that

FT and DT could use their control over

essential facilities in France and

Germany to favor Sprint and to harm

Sprint’s U.S. competitors and their
3986 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

18 Id. at 44063–64.

19Final Judgment, § V.L.(i).

20 Id. § III.D.1(v).

21Section II.C of the proposed Final Judgment

confirms this reading. That section prohibits Sprint

and the Joint Venture from participating in the

provision of a service that requires a license in

France or Germany unless other carriers can obtain

the necessary authorization on the same terms and

conditions, including the same time frame as FT or

DT. It would be inconsistent to permit Sprint or the

Joint Venture to benefit from FT or DT

discrimination in providing authorization (via an

operating agreement) that is solely under their

control, when Sprint and the Joint Venture are not

permitted to benefit from discrimination by France

or Germany in granting governmental authorization.

customers.18 Although this threat to

U.S. competition and consumers would

justify the Department’s blocking of the

proposed acquisition, the Department

has exercised its prosecutorial

discretion and entered into the

proposed Final Judgment, which seeks

to prevent such anticompetitive conduct

through conditions. However, unless the

clarifications and change to

implementation procedures set forth

herein are made, FT and DT will be able

to leverage their monopoly power

contrary to the Department’s intent, and

to the public interest test in the Tunney

Act.

A. The Department Should Make Clear

That Sprint and the Joint Venture

Cannot Offer a New Correspondent

Service Unless Other U.S. Carriers Can

Provide Such Service With FT and/or

DT on a Non-Discriminatory Basis

Because FT and DT each has the

ability to leverage its monopoly power

over telecommunications in France and

Germany, respectively, in favor of

Sprint or the Joint Venture and against

other U.S. carriers, the proposed Final

Judgment prohibits any discrimination

in favor of Sprint. Section III.D thus

explicitly prohibits Sprint and the Joint

Venture from accepting any FT or DT

Products and Services on a

discriminatory basis for the provision of

any telecommunications or enhanced

telecommunications service in the

United States or between the United

States and France or the United States

and Germany.

As a result of FT’s and DT’s

monopolies over the provision of basic

telecommunications services in their

countries, U.S. carriers can provide

U.S.-to-France service and U.S.-toGermany service only through

agreement with FT and DT for the

termination of such calls. Such services

are referred to as correspondent

services. The provision of

correspondent services is included

within the nondiscrimination

protections of Section III.D. Sprint and

the Joint Venture cannot accept ‘‘FT or

DT Products and Services’’ that are

provided on a discriminatory basis, and

‘‘FT or DT Products and Services’’ are

defined to include correspondent

services.19 Further, Sprint and the Joint

Venture are specifically prohibited from

receiving discriminatory ‘‘terms and

conditions of operating agreements for

correspondent services and

international half-circuits.’’ 20 The Final

Judgment thus would prohibit Sprint or

the Joint Venture from offering

correspondent services between the U.S.

and France or the U.S. and Germany

where FT or DT has not made such

correspondent services available to

other U.S. carriers on a

nondiscriminatory basis.

In order further to protect U.S.

competition and consumers from

monopoly leveraging, Section III.G.1 of

the proposed decree provides that

Sprint may not provide a correspondent

service with FT or DT unless at least

one other carrier has reached agreement

with FT or DT, as the case may be, to

provide such a correspondent service:

Sprint may not offer, supply, distribute or

otherwise provide any correspondent

telecommunications or correspondent

enhanced telecommunications service

between the United States and France or

Germany pursuant to any operating

agreement with FT or DT, unless with respect

to such service, at least one other United

States international telecommunications

provider has also obtained an operating

agreement with FT and DT for the provision

of such service between the United States

and France and Germany. This provision will

operate separately for France and Germany.

This provision is designed to ensure

that Sprint does not have an exclusive

or preferential arrangement with FT or

DT, which would limit competition in

the provision of U.S.-to-France or U.S.-

to-Germany services in the U.S. In

addition, it balances that interest with

the public interest of permitting new

services to be offered to U.S. customers

on an expedited basis by allowing

Sprint to introduce a correspondent

service as soon as another U.S. carrier

also has reached agreement with FT and

DT to do so. Sprint need not wait to

offer the service until FT and DT have

reached nondiscriminatory operating

agreements covering such service with

all U.S. carriers.

Section III.G.1 must be interpreted,

however, consistent with the

antidiscrimination protections of

Section III.D. Otherwise, Section III.G.1

could permit FT and DT to introduce a

new correspondent service with Sprint

once that service is offered by any other

U.S. carrier selected by FT or DT—

without regard to the practical ability of

that other carrier to compete effectively

with Sprint. Moreover, such an

interpretation could be used to limit

FT’s and DT’s obligation to provide the

same correspondent service to other

U.S. Carriers that today serve the route

or that seek to do so in the future.

Limiting FT’s and DT’s

nondiscriminatory treatment merely to

one other carrier would be inconsistent

with Section III.D and clearly was not

intended.

The Department thus should clarify

that Section III.G.1 does not abrogate

any of the nondiscrimination

requirements of Section III.D.

Specifically, the Department should

make clear that the Final Judgment

requires FT and DT to offer

correspondent services to all U.S.

carriers on a nondiscriminatory basis,

and prohibits Sprint from offering a

correspondent service where FT or DT

has discriminated in offering to provide

such correspondent services with other

U.S. carriers.21 Further, this obligation

should be viewed as a continuing

obligation. Were FT or DT has a service

arrangement with other U.S. carriers

that is later offered with Sprint, FT or

DT should be required by Section III.D.1

to extend any different terms and

conditions it has offered to Sprint to the

other U.S. carriers.

B. The Department Should Make Clear

That Sprint and Joint Venture Co.

Cannot Provide Services to Customers

Who Have Been ‘‘Steered’’ to Sprint or

the Joint Venture by FT and/or DT

Section 10.6(b) of the Joint Venture

Agreement between Sprint, FT and DT

specifically requires FT and DT to steer

customers toward Joint Venture services

even where the customer has

affirmatively requested that another U.S.

carrier provide the U.S. half of the

service:

If a Party or any of its Affiliates receives

an unsolicited request from a customer of a

Party or any of its Affiliates or of the Joint

Venture to enter into a Contract to provide

to such customer in conjunction with other

persons a service that is currently offered by

the Joint Venture, such Party or its Affiliates

will use commercially reasonable efforts to

persuade such customer to purchase such

service from the Joint Venture. If despite

such Party’s efforts, the Customer prefers not

to purchase such service from the Joint

Venture, such party will refer such matter to

the Global Venture Office which, within ten

(10) Business Days, will present its

observations regarding such matter. * * *

For example, if a customer comes to

DT (which the customer must do in

Germany) and requests that DT arrange

for private line service between

Germany and the U.S. and requests that
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3987

22 It is unclear what would constitute

‘‘commercially reasonable efforts’’ if one is a

monopolist to whom all customers must come for

service.

23Sprint’s representative to the Joint Venture thus

would be informed of every unsuccessful attempt

in Europe to steer global customers to the Joint

Venture (i.e., every time a customer wanted to use

a U.S. carrier other than Sprint or the Joint

Venture). Such market leads obtained solely

because of FT’s and DT’s monopoly status would

permit Sprint to target the U.S. offices of these

customers for follow-up persuasion.

24Sprint does not dispute AT&T’s interpretation

of FT’s and DT’s obligation under the Joint Venture

Agreement, and does not deny its intent to engage

in such steering of customers. Indeed, Sprint argues

that the steering of customers by a monopolist to

its U.S. affiliate merely reflects ‘‘economic selfinterest’’ and is not improper. Market Entry NPRM,

Sprint Supplemental Reply (filed Sept. 15, 1995) at

iv.

25CIS at 44066.

26 Id. at 44065.

27 Id. at 44074.

MCI provide the U.S. half-circuit, DT

must use ‘‘commercially reasonable

efforts’’ to persuade MCI’s customer

instead to use the Joint Venture for such

service.22 Further, DT must refer the

customer’s request to the Joint Venture

(including Sprint’s representatives) if it

fails to convince the customer to

purchase Joint Venture services.23

Such discriminatory marketing

activity by a company controlling

essential facilities in favor of its affiliate

is precisely the type of monopoly

leveraging that the Final Judgment seeks

to prohibit.24 The Department should

clarify that the receipt of such favored

treatment by Sprint or the Joint Venture

would violate the prohibition against

discrimination contained in Section

III.D.1 of the proposed Final Judgment.

C. The Department Should Make Clear

That the Phase I Conditions Will Not

Expire Until Practical Alternatives Exist

in France and Germany for the

Termination of International

Telecommunications Traffic, Including

Basic Switched Voice Services

The Final Judgment would impose

two sets of conditions on Sprint and the

Joint Venture, one set that continues for

the term of the decree and one set that

expires upon the happening of certain

events. The Phase I protections against

discrimination will terminate

(separately for each country) once

France or Germany authorizes domestic

and international competition and

issues a license to one competitor of FT

or DT. The restrictions contained in

Section II will continue through the

entire term of the consent decree.

As the Department explains, stricter

prohibitions during Phase I are

necessary ‘‘because there is

considerably greater potential for

competitive abuses to occur in the

period while competitors have no legal

alternative to using FT’s and DT’s

facilities and services and before the

French and German governments finish

implementing their program of

regulatory reform.’’ 25 Further, in order

for Phase II to begin, ‘‘the licensed

competitors must have authority to

construct or own a sufficiently large

amount of international capacity that

other providers would have a realistic

alternative to the use of the

international facilities of FT or DT.

* * *’’ 26 In short, the Department’s

rationale for the lifting of the Phase I

Conditions is that, once Phase II begins,

U.S. carriers will have means other than

FT’s or DT’s bottleneck facilities to

terminate their traffic to France or

Germany. Moreover, if ‘‘the entry of

licensed competitors in France or

Germany has been significantly delayed

after the granting of licenses, or has

otherwise not proven sufficient to

provide a competitive alternative [to FT

or DT],’’ the Department would request

reinstatement of the Phase I

Conditions.27

Despite the stated rationale for the

Phase I conditions, the Final Judgment

appears to provide for their termination

upon the mere removal of legal

restrictions and the issuance of a license

to a potential competitor in France and

Germany. There is no demonstration

required by the parties that effective

competition exists in France and

Germany for the termination of

international traffic. Thus, the Phase I

Conditions, which include the

prohibitions against discrimination,

would terminate once France and

Germany each legally authorizes

competition in international and

domestic services and issues one license

to do so, regardless of whether the

recipient of that license is capable of

providing U.S. carriers any practical

alternative to FT or DT for terminating

calls to France or Germany. This result

would conflict with the Department’s

own underlying rationale for the

proposed two-phased decree. To remedy

this problem, the Department should

modify the implementation provisions

of the decree to require Sprint to

demonstrate to the Department that an

actual competitive alternative to FT and

DT exists in France and Germany,

respectively, for the termination of

telecommunications traffic, including

basic switched voice services, in order

for the Phase I Conditions to be lifted.

Conclusion

As set forth above, the application of

key provisions of the proposed Final

Judgment must be clarified in order for

the decree to be applied in the manner

intended by the Department and in

order to prevent anticompetitive abuse.

Unless the Department adopts the

clarifications and implementation

modification set forth herein, the Final

Judgment will not satisfy the Tunney

Act’s requirement that the decree be in

the public interest. The Department

therefore should clarify that (1) Sprint

cannot offer a new correspondent

service unless other U.S. carriers can

provide such service with FT and/or DT

on a non-discriminatory basis, and (2)

Sprint and the Joint Venture cannot

provide services to customers who have

been ‘‘steered’’ to Sprint or the Joint

Venture by FT and/or DT. The

Department also should modify the

implementation provisions of the decree

so that the Phase I Conditions will

remain in effect until Sprint

demonstrates to the Department that

practical alternatives exist in France and

Germany for the termination of

international telecommunications

traffic, including basic switched voice

services.

Dated: October 23, 1995.

Respectfully submitted,

Judith A. Maynes,

Mark C. Rosenblum,

Stephen C. Garavito,

Karen L. Itzkowitz,

Attorneys for AT&T Corp.

Comments of MCI Communications

Corporation on Proposed Consent

Judgment

United States of America, Plaintiff, v.

Sprint Corporation and Joint Venture Co.,

Defendants.

[No. 95–CV–1304 (TPJ)]

Dated: October 23, 1995.

Anthony C. Epstein,

J. Paul Oetken,

Jenner & Block, Attorneys for MCI

Communications Corporation.

Of Counsel:

Michael H. Salsbury,

Executive Vice President and General

Counsel, MCI Communications Corporation.

To: The Department of Justice

Comments of MCI Communications

Corporation on Proposed Consent

Judgment

United States of America, Plaintiff, v.

Sprint Corporation and Joint Venture Co.,

Defendants.

[No. 95–CV–1304 (TPJ)]

Pursuant to § 2 (b), (d), and (f)(4) of

the Antitrust Procedures and Penalties

Act (the ‘‘Tunney Act’’), 15 U.S.C. § 16

(b), (d), and (f)(4), MCI Communications

Corporation (‘‘MCI’’) submits these

comments regarding the consent
3988 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

1Competitive Impact Statement, 60 Fed. Reg.

44,058, 44,063 (filed Aug. 14, 1995) (‘‘CIS’’).

2See infra at 11–12 and n. 29.

3Reply Comments of DOJ, at 17, Market Entry

and Regulation of Foreign-affiliated Entities, IB

Docket No. 95–22, RM–8355, RM–8392 (FCC) filed

May 12, 1995).

4 Id. at 27.

5CIS, 60 Fed. Reg. at 44,066.

6Reply Comments of DOJ, at 27.

7 15 U.S.C. § 16 (b) and (d).

8 Id. § 16(d).

9See Stipulation ¶ 2, 60 Fed. Reg. 44,049

(‘‘Plaintiff may withdraw its consent to entry of the

Final Judgment at any time before it is entered, by

serving notice on the defendants and by filing that

notice with the Court.’’).

10 15 U.S.C. § 16(e).

judgment proposed by the United States

Department of Justice (‘‘DOJ’’) in this

proceeding.

I. Introduction and Summary

If the proposed transactions among

Sprint Corporation (‘‘Sprint’’), France

Telecom (‘‘FT’’), and Deutsche Telekom

A.G. (‘‘DT’’) are consummated, FT’s and

DT’s monopoly power in France and

Germany would pose a serious and

long-term threat to U.S. consumers and

competition. The heart of DOJ’s

complaint is that the transactions

threaten substantially lessened

competition because of the danger that

FT and DT will ‘‘use their market power

over the public switched networks,

transmission infrastructure and public

data networks in France and Germany to

discriminate in favor of Sprint and

[Phoenix] vis-a-vis other United States

international carriers’’ and to engage in

other anticompetitive conduct.1 In

addition to financial incentives, the

proposed transactions would create

contractual and corporate duties on the

part of FT and DT to discriminate in

favor of Sprint and Phoenix.2

However, the proposed consent

decree falls conspicuously short of

alleviating these dangers. Most

significantly, it allows the shift from a

de jure to a de facto monopoly in France

and Germany to trigger the lifting of its

crucial substantive protections against

anticompetitive behavior. The critical

question is whether FT’s and DT’s

monopoly power persists, not whether

their monopolies are de jure or de facto.

Under DOJ’s proposed consent decree,

however, the substantive protections

against abuse of FT’s and DT’s

monopoly power immediately and

automatically expire as soon as

competition is legally authorized and

just one competitor has been licensed in

France or Germany. By removing Phase

I protections before the development of

genuine, effective facilities-based

competition in France and Germany, the

decree substantially undermines its own

force.

The competitive problems posed by

these transactions stem mainly from

three facts. First, FT and DT have

market power in France and Germany,

and international telecommunications

carriers are completely dependent on

them in connection with services to

France and Germany. Second, even after

effective facilities-based competition is

legally permitted in France and

Germany, it will take, at a minimum,

several years to develop, and effective

regulation of FT and DT will be

essential during the transition period.

And third, as government-owned and

government-controlled monopolies, FT

and DT lack any independent regulator

in their home countries.

The proper benchmark for when such

anticompetitive behavior ceases to be a

threat is not the legal possibility of

competition, but rather the actual

development of facilities-based

competition. As DOJ itself recently

stated in a related proceeding,

‘‘facilities-based competition is by far

the best solution to the problems * * *

that arise today from [foreign] monopoly

provision of key network facilities and

services.’’ 3 DOJ recommends the

imposition of these restrictions because

of FT’s and DT’s monopoly power, so

they should remain in effect as long as

that monopoly power persists.

FT’s and DT’s monopoly power—and

hence the anticompetitive threat—will

persist for years after the triggering

events for termination of the Phase I

competitive safeguards (formal

authorization of competition and

licensure of one competitor). First, new

entrants will need time to construct

networks and develop a customer base.

Second, numerous regulatory

implementation issues will have to be

resolved by French and German

authorities after the formal licensing of

competitors. And third, regulation is

especially unlikely to be effective when,

as in the case of FT and DT, ‘‘foreign

authorities are regulating governmentowned monopoly carriers.’’ 4 There is no

basis for equating the elimination of

legal entry barriers and the licensing of

one competitor with the immediate

reduction, much less elimination, of

FT’s and DT’s market power.

DOJ attempts to justify the premature

expiration of Phase I’s competitive

safeguards by relying on the

‘‘assumption’’ 5 that the French and

German governments eventually will

provide equivalent protection, even

though the governments will continue

to own FT and DT. As DOJ itself has

observed, however, ‘‘[f]oreign regulation

normally should not be considered a

sufficient alternative to protect U.S.

consumers in the absence of any

meaningful facilities-based competition,

however effective that regulation may be

represented to be.’’ 6 Such foreign

regulation may not be adopted for years

in France and Germany and is unlikely

effectively to rein in FT’s and DT’s

monopoly power—particularly given

that the regulators would also be the

owners of the regulated entities. In any

event, DOJ’s independent responsibility

to enforce the U.S. antitrust laws and to

protect U.S. consumers is not shared by

French and German regulators.

By permitting anticompetitive

conduct to occur under the de facto

monopolies of FT and DT after de jure

protections have been eliminated, the

proposed consent decree fails to prevent

serious harms to competition and

consumers during a crucial period of

years. Therefore, the proposed decree is

not in the public interest unless it is

modified to provide that the restrictions

remain in effect until actual, effective

facilities-based competition is found to

exist in France and in Germany.

II. Background

A. Legal Standards Under the Tunney

Act

The Tunney Act provides that

proposed consent judgments in antitrust

cases brought by the United States are

subject to a 60-day period during which

written comments may be filed.7 The

United States is required to ‘‘receive and

consider’’ any such comments.8

In requiring consideration of public

comments, the Act contemplates a

critical reexamination of the decree by

DOJ in light of the points made in any

submitted comments. DOJ has the

authority to withdraw its consent to the

decree at any time before it is entered.9

Therefore, if the public comments

persuade DOJ that the decree should be

modified, it is free to condition its

continued consent on these

modifications.

If DOJ decides that no modifications

are appropriate in light of the public

comments, the Court must determine

whether entry of the proposed consent

judgment ‘‘is in the public interest.’’ 10

In making that determination, the Court

may consider:

(1) the competitive impact of such

judgment, including termination of alleged

violations, provisions for enforcement and

modification, duration or relief sought,

anticipated effects of alternative remedies

actually considered, any other considerations

bearing upon the adequacy of such judgment;

(2) the impact of entry of such judgment

upon the public generally and individuals

alleging specific injury from the violations
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3989

11 Id.

12 Id. § 16(f)(4).

13United States v. Microsoft Corp., 56 F.3d 1448,

1458 (D.C. Cir. 1995) (quoting H.R. Rep. No. 1463,

93d Cong., 2d Sess. 8 (1974)).

14 Id. (quoting S. Rep. No. 298, 93d Cong., 1st

Sess. 5 (1973)).

15 Id. at 1459.

16 Id. at 1462.

17 Id. at 1461.

18CIS, 60 Fed. Reg. at 44,076–44,077; see also

United States v. Western Elec. Co., 900 F.2d 283,

308 (D.C. Cir.) (‘‘To remain consistent with antitrust

policy, the court should revise the decree that is

shown to lessen competition substantially in

present circumstances.’’) (quoting 2 P. Areeda & D.

Turner, Antitrust Law ¶ 330, at 141–42 (1978)), cert.

denied, 498 U.S. 911 (1990).

19See United States v. AT&T, 552 F. Supp. 131,

150 (D.D.C.1982), aff’d mem. sub nom. Maryland v.

United States, 460 U.S. 1001 (1983).

20See CIS, 60 Fed. Reg. at 44,058–44,059.

21Id.

22 15 U.S.C. § 18.

23CIS, 60 Fed. Reg. at 44,063.

24 Id. at 44,065; Final Judgment V.Q, 60 Fed. Reg.

44,051, 44,056.

25CIS, 60 Fed. Reg. at 44,074; Final Judgment

X.B, 60 Fed. Reg. at 44,058.

26CIS, 60 Fed. Reg. at 44,067–44,070; Final

Judgment, 60 Fed. Reg. at 44,051–44,053.

set forth in the complaint including

consideration of the public benefit, if any, to

be derived from a determination of the issues

at trial.11

The Court is specifically authorized in

making its public interest determination

to review any comments of interested

parties and DOJ’s response to such

comments.12

Although an antitrust consent decree

proposed by DOJ is entitled to

deference, the Tunney Act was

‘‘intended to prevent ‘judicial rubber

stamping’ ’’ of such decrees,13 and to

require ‘‘an independent determination

as to whether or not entry of a proposed

consent decree [was] in the public

interest.’’ 14 Thus, while the D.C. Circuit

made clear in its recent Microsoft

decision that ‘‘Congress did not mean

for a district judge to construct his own

hypothetical case and then evaluate the

decree against that case,’’ 15 it also

reaffirmed the district court’s duty to

inquire into ‘‘the purpose, meaning, and

efficacy of the decree,’’ 16 and to

determine whether the remedies

proposed are ‘‘inconsonant with the

allegations.’’ 17

DOJ accurately describes the character

of the ‘‘public interest’’ determination in

the context of this case:

The courts have recognized that the term

‘‘public interest’’ ‘‘take[s] meaning from the

purposes of the regulatory legislation.’’

NAACP v. Federal Power Comm’n, 425 U.S.

662, 669 (1976); United States v. American

Cyanamid Co., 719 F.2d 558, 565 (2d Cir.

1983), cert. denied, 465 U.S. 1101 (1984).

Since the purpose of the antitrust laws is to

‘‘preserv[e] free and unfettered competition

as the rule of trade,’’ Northern Pacific

Railway Co. v. United States, 356 U.S. 1, 4

(1958), the focus of the ‘‘public interest’’

inquiry under the Tunney Act is whether the

proposed final judgment would serve the

public interest in free and unfettered

competition. United States v. Waste

Management, Inc., 1985–2 Trade Cas.

¶ 66,651, at 63,046 (D.D.C. 1985).18

A proposed consent decree that fails to

cure the antitrust violation is not in the

public interest.19

B. The Proposed Transactions

Two related transactions are the

subject of DOJ’s antitrust complaint and

consent decree. First, Sprint, FT, and

DT have entered into an agreement

providing for the formation of an

international joint venture, now known

as ‘‘Phoenix,’’ to provide a variety of

voice, video, and data services. Under

the agreement, each party would

contribute most of its existing

operations outside its home country to

the Phoenix joint venture. FT and DT

would hold and manage their interests

in Phoenix together through their own

proposed two-party joint venture,

known as ‘‘Atlas.’’ Phoenix would have

a board on which FT, DT, and Sprint

would be equally represented. Sprint

would have the exclusive right to

provide Phoenix services in the United

States, and FT and DT would not

compete with Sprint in the United

States with respect to such services.

Sprint similarly would not compete

with FT and DT in their home countries.

None of the three owners would

compete against Phoenix.20

Second, Sprint, FT, and DT have

entered into an agreement entitling FT

and DT each to acquire a 10-percent

equity interest in Sprint, and thus to

become Sprint’s largest shareholders. FT

and DT would acquire special

shareholder rights, including the right to

appoint three members of Sprint’s 15-

member Board of Directors.21

C. The Proposed Consent Decree

On July 13, 1995, DOJ filed a civil

antitrust complaint alleging that the

proposed Sprint-FT-DT transactions

would violate § 7 of the Clayton Act 22

by lessening competition in the markets

for telecommunications services

between the United States and France

and between the United States and

Germany. On the same date, Sprint and

DOJ stipulated to the entry of a

proposed consent decree, which

purports to remedy the fundamental

problem created by an alliance between

Sprint and two foreign, governmentowned monopoly carriers that are

among the largest telecommunications

providers in the world. The danger

addressed by DOJ’s complaint and

consent decree is that FT and DT will

‘‘use their market power over the public

switched networks, transmission

infrastructure and public data networks

in France and Germany to discriminate

in favor of Sprint and [Phoenix] vis-avis other United States international

carriers’’ and to engage in other

anticompetitive conduct.23

The proposed consent decree imposes

restrictions and obligations in two

separate phases. Phase I terminates, for

France and Germany independently,

when legal prohibitions on competition

against FT and DT have been removed

and one or more competitors have been

licensed to provide facilities and

services in each country.24 Phase II

continues for five years after the end of

Phase I.25

The provisions of the decree that

apply during both Phase I and Phase II

include:

• requirements of disclosure of the

terms and conditions of dealings among

Sprint, FT, DT, and Phoenix (II.A)

• restrictions on the sharing of

information (II.B)

• limitations on the ability of Sprint

and Phoenix to offer international

services involving France or Germany,

or to provide facilities to FT or DT for

such services, if other United States

international telecommunications

providers are not permitted to provide

the same services (II.C)26

The provisions that are applicable only

during Phase I include:

• restriction against the acquisition

by Sprint or Phoenix of ownership

interests in or control over facilities

legally reserved to FT or DT, and

limitations on their ability to acquire

international half-circuits terminating in

France or Germany (III.A)

• prohibition of the acquisition by

Sprint or Phoenix of ownership interests

in or control over FT or DT public data

networks (III.B)

• prohibition against Sprint or

Phoenix providing FT or DT products

and services on an exclusive basis (III.C)

• prohibition against Sprint or

Phoenix obtaining FT or DT products

and services on a discriminatory basis

(III.D)

• prohibition of Sprint’s acceptance

of correspondent telecommunications

traffic on a disproportionate basis (III.E)

• restrictions designed to guard

against cross-subsidization of Sprint or

Phoenix by FT or DT (III.F)
3990 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

27CIS, 60 Fed. Reg. at 44,070–44,073; Final

Judgment, 60 Fed. Reg. at 44,053–44,055.

28CIS, 60 Fed. Reg. at 44,064–44,064.

29Section 10.6(b) of the Joint Venture Agreement

(p. 81) provides:

If a Party or any of its Affiliates receives an

unsolicited request from a customer of a Party or

any of its Affiliates or of the Joint Venture to enter

into a Contract to provide to such customer in

conjunction with other Persons a service that is

currently offered by the Joint Venture, such Party

or its Affiliates will use commercially reasonable

efforts to persuade such customer to purchase such

service from the Joint Venture. If despite such

Party’s efforts, the customer prefers not to purchase

such service from the Joint Venture, such Party will

refer such matter to the Global Venture Office

which, within ten (10) Business Days, will present

its observations regarding such matter. * * *

30 DOJ contemplates that the end of Phase I would

be contemporaneous with the EU liberalization

reforms currently scheduled for 1998. CIS, 60 Fed.

Reg. at 44,066, 44,074.

31 Id. at 44,070.

32Reply Comments of DOJ, at 17, Market Entry

and Regulation of Foreign-affiliated Entities, IB

Docket No. 95–22, RM–8355, RM–8392 (FCC) (filed

May 12, 1995); see also id. at ii (‘‘Facilities-based

competition in foreign countries is the best solution

to these problems, and neither resale nor regulation

is an equally effective substitute.’’); id. at 27 (‘‘the

existence of facilities-based competition is the best

means of ensuring that U.S. consumers of

international services are adequately protected’’).

33 Id. at 14, 19–21.

34See, e.g., 60 Fed. Reg. at 44,071 (‘‘The

limitation on ownership or control of international

half-circuits can be lifted, if the United States and

defendants agree that meaningful competition exists

to the half-circuits provided by FT or DT.’’)

(emphasis added); id. at 44,072 (‘‘Once FT and DT

face competition in the areas of their business now

protected by monopoly rights, and the EU

authorities have improved safeguards against crosssubsidy as part of their liberalization program, there

is reason to believe that the risks of such conduct

should diminish. * * *’’) (emphasis added).

• prohibition of any exclusive

operating agreements between Sprint

and FT or DT (III.G)

• requirements that Sprint and

Phoenix not provide

telecommunications or enhanced

telecommunications services using FT

or DT products and services or public

data networks, if FT or DT has

established proprietary or

nonstandardized protocols or interfaces

and has failed to continue to provide

other competitors with access to those

services and networks on a standardized

basis (III.H–I)27

III. The Proposed Decree Should be

Modified so That its Safeguards Against

Abuse of FT’s and DT’s Monopoly

Power Continue as Long as Their

Monopoly Power Continues

The proposed transactions pose a

well-established threat to U.S.

consumers and competition. DOJ

recognizes that the transactions threaten

substantially lessened competition

because they give FT and DT ‘‘increased

incentives and the ability, using their

monopolies and dominant positions in

France and Germany respectively, to

favor Sprint and [Phoenix] and to

disfavor their United States competitors

in international telecommunications

services in various ways,’’ including

discrimination, cross-subsidization, and

sharing of confidential information.28

The proposed transactions also would

create contractual and corporate duties

on the part of FT and DT to discriminate

in favor of Phoenix and Sprint. For

example, the Joint Venture Agreement

would require FT and DT to ‘‘use

commercially reasonable efforts to

persuade’’ customers to use Phoenix

services when they have requested the

services of another U.S. carrier.29 DOJ

does not point to any procompetitive

benefits created by the transactions that

would mitigate their anticompetitive

effects.

The proposed consent decree fails in

a basic respect to prevent the injury that

DOJ alleges arising from FT’s and DT’s

monopoly power. In particular, it allows

the shift from a de jure to a de facto

monopoly in France and Germany to

trigger the lifting of its substantive

protections against anticompetitive

behavior. By providing for the removal

of Phase I restrictions before the

development of genuine, effective

facilities-based competition in France

and Germany, the decree fundamentally

fails to solve the anticompetitive

problems that would result from the

transactions.

A. The Proposed Consent Decree Would

Permit Anticompetitive Activity to

Occur Under De Facto Monopolies in

France and Germany

The Phase I restrictions are necessary

because of FT’s and DT’s monopoly

power. Under the consent decree as

currently proposed, Phase II would

begin as soon as France or Germany (1)

has legally authorized competition, and

(2) has issued one license for the

construction or ownership of facilities

and the provision of services. At that

time, Phase I’s substantive restrictions

intended to prevent misuse of FT’s and

DT’s monopoly power would

immediately and automatically end—

even if FT’s and DT’s monopoly power

was unabated as a practical matter.30

DOJ cannot justify this premature

trigger for the lifting of the crucial Phase

I restrictions before the advent of

effective competition in France and

Germany. DOJ states:

These [Phase I] restrictions * * * are

expected to become less necessary once

competition has been introduced in France

and Germany, which should occur

concurrently with the regulatory reform

program being undertaken by the EU

authorities. At that point, competitors will be

less vulnerable to abuses of market power by

FT and DT because of the alternatives

available for transmission infrastructure, and

should be better protected by European

regulatory requirements to the extent that

they continue to depend on the services and

facilities of FT and DT.31

But competition is ‘‘introduced,’’ and

there are ‘‘alternatives available for

transmission infrastructure,’’ only when

competition actually has developed in

France or Germany—not when it is

simply made legally permissible. When

France (or Germany) eliminates its de

jure monopoly and licenses one initial

competitor, FT (or DT) will still

continue to operate as a de facto

monopoly for a significant period of

time—i.e., until a competitor actually

develops its own network sufficient to

constitute a realistic alternative to the

facilities of FT (or DT). And during this

period of time—which is likely to last

a number of years—Sprint and Phoenix

will be able to benefit from the same

discriminatory and other

anticompetitive monopolistic conduct

that DOJ agrees the judgment should

prohibit. Whether FT and DT use de

jure or de facto monopoly power to

harm U.S. competition and consumers

is irrelevant. The same need for the

Phase I restrictions exists regardless of

the source of the monopoly power.

DOJ itself has emphasized the

essential need for actual (versus

potential) facilities-based competition in

foreign telecommunications markets. In

comments filed with the FCC, the

Department states that ‘‘facilities-based

competition is by far the best solution

to the problems’’ for U.S. consumers

created by foreign de jure and de facto

monopolies.32 DOJ cites the existence of

real competition in the U.K. as

permitting the particular relief provided

in the MCI–BT decree, and as resulting

in significantly lower prices.33 Even

parts of its Competitive Impact

Statement reveal DOJ’s fundamental

agreement with the proposition that

actual competition—rather than the

mere legality of competition—is the sine

qua non of preventing the harms of

monopoly and market power.34

In another proceeding in this Court,

DOJ also recognized the substantial

danger that an incumbent

telecommunications monopolist will

abuse its monopoly power in favor of an

affiliated entity unless and until actual

facilities-based competition develops.

DOJ has moved to permit one of the

Regional Bell Operating Companies

(‘‘RBOCs’’ or ‘‘Baby Bells’’) to provide

on a trial basis through a separate

affiliate domestic and international long
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3991

35Memorandum of the United States in Support

of Motion for a Modification of the Decree to Permit

a Limited Trial of Interexchange Service by

Ameritech, at 28–29, United States v. Western Elec.

Co., No. 82–0192 (D.D.C.) (filed May 1, 1995) (‘‘DOJ

Mem. re Competition’’).

36CIS, 60 Fed. Reg. at 44,061–44,062.

37 Id. at 44,060, 44,062.

38 DOJ Mem. re Competition, at 3.

39United States v. Western Elec. Co., 673 F. Supp.

525, 544 (D.D.C. 1987) (footnote omitted), aff’d in

relevant part, 900 F.2d 283 (D.C. Cir.), cert. denied,

498 U.S. 911 (1990).

40CIS, 60 Fed. Reg. at 44,072. Although section

III.F of the decree prohibits FT and DT from crosssubsidizing the international services of Sprint and

Phoenix, the proposed decree does not address

cross-subsidization of domestic services provided

by FT and DT over their domestic networks. The

latter is the kind of cross-subsidization that would

prevent competition to FT and DT from developing

in France and Germany.

41 Id. at 44,061–44,062 (because of the prohibitive

cost of constructing a complete competitive

network, ‘‘any provider of telecommunications or

enhanced telecommunications services, or seamless

international telecommunications services, whether

in the U.S., France, Germany or elsewhere, is and

will continue to be dependent to some extent for

the foreseeable future on FT for origination and

termination of telecommunications between France

and anywhere else, and on DT for origination and

termination of telecommunications between

Germany and anywhere else’’).

42 DOJ Mem. re Competition, at 3. The

development of domestic long distance competition

provides an instructive example. By the early

1970s, the FCC had determined that long distance

competition was in the public interest and

authorized MCI to compete against the Bell System,

which at that time controlled local and long

distance telephone service in the United States in

much the same way that FT and DT control local

and long distance telephone service in France and

Germany. It still took MCI years to become a

significant competitor because MCI was forced

repeatedly to seek relief from the FCC and the

courts from the determined efforts of the incumbent

monopolist to obstruct MCI’s ability to compete.

MCI Communications Corp. v. AT&T, 708 F.2d

1081 (7th Cir.), cert. denied, 464 U.S. 891 (1983);

see also United States v. AT&T, 524 F. Supp. 1336,

1353–57 (D.D.C. 1981); United States v. AT&T, 552

F. Supp. at 160–63. The implementation issues in

France and Germany will be at least as difficult as

those in the United States.

43FT is a 100-percent Government-owned and

-operated entity and is expected to remain

Government-controlled. Although DT became a

private corporation this year, the German

Government is its sole shareholder and is expected

to retain majority control at least through 1999. See

CIS, 60 Fed. Reg. at 44,060.

distance service, but only after ‘‘actual

competition (including facilities-based

competition)’’ has developed.35 FT’s

and DT’s monopoly power in France

and Germany over local (and domestic

long distance) services is as great as the

RBOCs’ monopoly power in the U.S.

over local services, and FT and DT

control the ability of international

carriers to reach French and German

customers to at least as great an extent

as the RBOCs control their ability to

reach U.S. customers. Accordingly,

decree restrictions involving FT and DT

should continue as long as decree

restrictions on the RBOCs—until actual

facilities-based competition has

developed.

For three reasons, it will take time for

actual competition to develop after

formal legal barriers to entry are

eliminated and a competitor is licensed.

First, after they obtain a license, new

entrants will need time to construct

alternative networks and develop a

customer base. DOJ acknowledges this

fact:

Although some competition to the FT and

DT public switched voice services and

network would likely emerge were all legal

restrictions on competition lifted, replication

of the entire public switched network would

be prohibitively expensive for any new

entrant.36

The slow development of competing

data services in France and Germany is

illustrative: although legal entry barriers

were removed a few years ago and

competitors have been licensed, FT and

DT continue to have considerable

market power.37 DOJ also recognized

this problem in discussing economic

barriers to competition in local

telecommunications markets in the

United States—barriers that are

comparable to the barriers in France and

Germany. In the proceeding in this

Court concerning the RBOC waiver, DOJ

stated that ‘‘even as legal and regulatory

barriers come down, a substantial

barrier remains if entrants must

replicate the entire network of the [local

exchange carrier] in order to provide

local exchange service.’’ 38

This Court well understands that the

elimination of legal barriers to

competition should not be confused

with actual competition in

telecommunications markets. As the

Court explained in rejecting DOJ’s

attempt to equate elimination of legal

entry barriers with effective competition

in U.S. telecommunications markets:

To be sure, as long as states and localities

prohibit outsiders from competing with the

local Operating Companies, the monopolies

will continue to exist. But the reverse is not

true. Even if all state and local regulation

prohibiting competitive entry into the local

exchange market were to be repealed

tomorrow, and anyone were free, as a matter

of law, to sell local telephone service, the

exchange monopolies would still exist

substantially in the same form and to the

same extent as they do now.39

This observation is as true for French

and German telecommunications

markets as it is for U.S. markets.

Second, a number of regulatory issues

critical to the development of effective

competition will have to be resolved

after French and German regulators

formally license potential competitors of

FT and DT. The threat of cross-subsidy

provides one example. DOJ

acknowledges that existing French and

German regulations ‘‘are very limited

and have not prevented instances of

massive cross-subsidy.’’ 40 Unless

effective regulations to prevent crosssubsidy are both adopted and

implemented, would-be competitors of

FT and DT will be at an insuperable

competitive disadvantage, with FT and

DT continuing to have a unique ability

to fund competitive services with

inflated revenues coerced from captive

monopoly customers. If such crosssubsidization is allowed to continue

after the removal of legal entry barriers

and the licensing of one competitor, it

will be impossible for competition to

develop. Similarly, French and German

regulators will have to resolve issues

about the price that FT and DT charge

for essential inputs. DOJ acknowledges

that even licensed competitors will

continue to be dependent on FT and DT

for certain inputs for a significant period

of time,41 and if those inputs are

overpriced, other firms will not be able

to compete effectively.

Regulatory implementation issues

following formal liberalization will be a

major obstacle to the development of

effective competition. DOJ itself

recognized the critical importance of

these implementation issues in the

pending proceeding in this Court

concerning the RBOC waiver:

[T]he transition to competition in local

exchange services will be complex. No set of

conditions for promoting such competition

could hope to address in advance the dozens

of complicated implementation issues that

will have to be resolved before meaningful

competition is a practical reality, rather than

merely a theoretical possibility.42

DOJ’s observations apply with equal

force to the introduction of competition

in foreign countries. Yet DOJ would

allow the Phase I restrictions to be lifted

while meaningful competition is only a

‘‘theoretical possibility,’’ not a

‘‘practical reality.’’

Third, resolution of these regulatory

implementation issues on terms that

permit effective competition to emerge

will be especially difficult because the

French and German governments are

both the owners and regulators of FT

and DT.43 So long as those entities are

controlled by the French and German

government, there will be strong

incentives for the governments to favor

them, as well as Sprint and Phoenix, in

adopting and implementing regulatory

reforms. The inherent conflict of interest

when the same entity owns and

regulates a carrier is certain to retard the

development of meaningful

competition. Indeed, full privatization
3992 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

44 see, e.g., Reploy Comments of DOJ, at 10.

45See DOJ Mem. re Competition, at 28. Such a

finding would require ‘‘more than a single

competitor serving niche markets.’’ ID. at 33.

Indeed, DOJ recognizes in its consent decree that

such minimal competition is insufficient to prevent

anticompetitive behavior. See Final Judgment III.B,

III.I, 60 Fed. Reg. at 44,053, 44,054–44,055; CIS, 60

Fed. Reg. at 44,071, 44,073 (applying Phase I

restrictions to public data networks despite

existence of limited competition).

46 It is reasonable to expect that such a finding

would be possible when, at a minimum, three years

have elapsed since full liberalization and

privatization in France and Germany.

47CIS, 60 FR at 44,074.

48 Id. at 44,066.

49Reply Comments of DOJ, at 27. 50CIS, 60 Fed. Reg. at 44,063.

of FT and DT—when private investors,

and not the French and German

governments, own FT and DT—is likely

to be practical prerequisite to effective

competition.

For these three reasons, and despite

DOJ’s apparent recognition that the

serious threats to U.S. consumers and

competition alleged in the complaint

will continue until effective competition

in France and Germany develops, the

proposed consent decree fails to guard

against those threats by terminating the

Phase I safeguards when competition is

theoretically possible but long before it

becomes actually effective. It is plain,

therefore, that there is a major gap in the

protections afforded by the consent

decree. This gap is particularly

significant because it will occur during

years of crucial development and

innovation in telecommunications.44 As

a result, the harms to competition—and

ultimately to consumers—will have

long-term and extensive consequences.

Accordingly, the transition from

Phase I to Phase II under the decree

should take place not with the

elimination of the legal monopolies and

licensing of a competitor in France and

Germany, but rather upon a finding that

there is actual, effective facilities-based

competition in France and Germany.

Such a finding by DOJ—as it has

proposed in other contexts 45—should

be included in the consent decree as a

prerequisite to the lifting of the Phase I

restrictions. Any DOJ decision

concerning the state of competition in

France and Germany should be

preceded by a mandatory publiccomment period during which

intervenors are given an opportunity to

present evidence to DOJ. Following

consideration of public comments, the

Court should adopt or reject DOJ’s

finding of actual, effective competition.

Only if the Phase I restrictions continue

until FT’s and DT’s monopoly power

has ended can the proposed decree be

effective.46

Extending the Phase I protections as

proposed here would neither unduly

burden Sprint and Phoenix nor

eliminate any possible benefits of the

alliance. The defendants have no

legitimate interest in being the

beneficiaries of discrimination or other

anticompetitive behavior, and the Phase

I restrictions (such as those prohibiting

cross-subsidization and nonstandard

interfaces) will not impair Sprint’s or

Phoenix’s ability to compete. If French

and Germany regulatory authorities

eventually adopt measures parallel to

the Phase I restrictions, Sprint and

Phoenix would not be prejudiced

merely because the same conduct would

be prohibited by the consent decree,

particularly because DOJ contemplates

that the victim of any violation would

pursue regulatory remedies in France

and Germany before complaining to the

Department.47 In sum, the demonstrable

harms resulting from premature

expiration of the Phase I safeguards are

into outweighed by any offsetting

benefits.

B. Conditions Protecting U.S.

Competition and Consumers Should Not

Be Ended Prematurely on the

Assumption That Foreign Regulators

Will Provide Equivalent Protection

DOJ states that its acquiescence in the

termination of the Phase I restrictions

under the terms of the proposed

judgment rests in part on the

assumption that European regulatory

authorities will protect competition

from U.S. carriers trying to compete

with FT’s and DT’s affiliates Sprint and

Phoenix:

Generally speaking, during Phase II the

proposed Final Judgment relies to a greater

extent on enforcement by national regulatory

authorities in Europe, the EU itself, and the

FCC in the United States to protect

competition, while during Phase I the

proposed Final Judgment provides for

additional types of injunctive relief to ensure

that Sprint and [Phoenix] do not benefit from

anticompetitive conduct by FT and DT.

* * * Although the proposed Final Judgment

does not specifically reference all of the

directives and measures envisioned by the

European authorities, an underlying

assumption is that these authorities will

carry out their publicly announced intention

of having all the key regulatory measures

needed for development of effective

competition in place by the time full

liberalization is to take effect in 1998.48

Reliance on such assumptions is

misplaced. As DOJ itself has stated,

‘‘Foreign regulation normally should not

be considered a sufficient alternative to

protect U.S. consumers in the absence of

any meaningful facilities-based

competition, however effective that

regulation may be represented to be.’’ 49

First, for the reasons explained above,

even assuming implausibly for purposes

of argument that the French and German

governments will act affirmatively and

aggressively to foster competition

against the incumbent monopolists that

they own, it will take time for

competition to develop, and the threat

to U.S. competition and consumers

arising out of these monopolies, and the

corresponding need for the Phase I

protections, will continue until effective

competition has taken root.

Second, as also explained above,

because they own FT and DT, the

French and German governments that

also regulate FT and DT and their

would-be competitors have an incentive

to protect and preserve FT’s and DT’s

monopolies and to maximize their value

if their shares are ever sold to private

investors. Moreover, the French and

German governments have considerable

flexibility not to implement

procompetitive reforms. DOJ explains

why:

The EU authorities have exercised a very

significant role in bringing about

telecommunications liberalization in Europe,

but there are important limits on the scope

of their authority. The decision whether to

privatize the government-owned

telecommunications carriers, and the pace at

which this occurs, [are] wholly at the

discretion of the member states. Moreover,

the EU’s powers to compel liberalization and

protect competition relate to activities

affecting commerce within or between the

member states. The decision of whether and

how to regulate the dealings of FT and DT

with foreign telecommunications carriers

outside the EU, including the terms on which

operating agreements and leased lines are

made available, has been left to the French

and German authorities. It is not yet clear

whether the EU’s liberalization measures will

confer any rights on providers from the

United States and other countries outside the

EU, or only on firms operating within the EU.

The national governments at present are free

to limit entry by such non-EU competitors,

subject to the results of ongoing multilateral

telecommunications trade negotiations.50

Even if EU measures are effective in

theory in preventing the risks associated

with the Sprint–FT–DT transactions,

France and Germany can delay adoption

of those measures well beyond an EU

implementation deadline. Potential

regulatory changes in France and

Germany are simply too uncertain to

serve as the basis for expiration of the

fundamental substantive protections of

the decree.

Third, DOJ has an independent

responsibility to enforce the U.S.

antitrust laws to protect U.S. trade and

U.S. consumers, and French and

German regulators do not share this
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3993

51Reply Comments of DOJ, at 27.

52CIS, 60 Fed. Reg. at 44,074.

53 Id.

54 Id. at 44,076.

55 Id. at 44,065.

56 Id. (emphasis added).

57 Id.

58 Id. at 44,059.

59 Id. at 44,065.

duty or this commitment. Deferring to

the French and German governments

while FT’s and DT’s monopolies persist

is inconsistent with the very premise of

the proposed judgment: if such

deference were appropriate, no decree at

all would be necessary or appropriate.

DOJ has stated: ‘‘Regulation generally is

an imperfect substitute for competition,

and that is particularly true when

foreign authorities are regulating

government-owned monopoly

carriers.’’ 51 If reliance on French and

German regulators to protect U.S. trade

and consumers is inappropriate today, it

will continue to be inappropriate until

effective facilities-based competition

has emerged in France and Germany.

Contrary to DOJ’s suggestion, its

authority to seek modification of the

judgment does not solve the problem.

DOJ notes that it could seek

modification pursuant to section VIII.A

‘‘if, after the termination of Phase I,

discrimination * * * or other types of

conduct occur that would have been

prohibited under the Phase I

restrictions, resulting in a substantial

harm to competition.’’ 52 Before seeking

modification, DOJ ‘‘would ordinarily

inquire at the outset whether injured

competitors had availed themselves of

existing regulatory remedies, if any, in

France or Germany as well as the United

States, and what relief had been

provided or action taken, if any.

* * *’’ 53 In other words, DOJ

recognizes a substantial possibility that

the French and German governments

will not take the actions necessary to

permit effective competition to develop

against FT and DT, and if its current

hopes thereby turn out to be unfounded,

DOJ in effect commits itself to seeking

modification of the judgment.

This approach does not protect the

public interest. The purpose of the

Phase I protections is to prevent

competitive harm from occurring, not

merely to provide an after-the-fact

remedy. Reimposing Phase I protections

after protracted modification

proceedings would be too little too late,

and the judgment would provide no

substantive protection for competition

by U.S. carriers from the end of Phase

I until DOJ prevailed on its modification

motion. Moreover, the kind of

modification proceeding that DOJ

contemplates would put it and the Court

in the position of evaluating the efficacy

and reasonableness of specific French

and German regulations. Such a review

would not promote the interests in

international comity espoused by DOJ.54

For these reasons, reliance on possible

future modification of the judgment to

solve the problem of future

anticompetitive conduct would

undermine the purposes of the

judgment.

The simpler, more direct, and more

effective approach is to continue the

Phase I protections until effective

competition develops. Reliance on a

hope that the French and German

governments will provide equivalent

protection of U.S. trade and consumers

once they license one competitor would

embroil DOJ and the Court in difficult

enforcement and modification issues in

the likely (if not inevitable) event that

this hope turns out to be unrealistic.

C. Making Termination of Phase I

Restrictions Dependent on the

Development of Effective Competition Is

Consistent With the Decree Entered in

Connection With the MCI–BT Alliance

As DOJ acknowledges, there are

‘‘crucial differences between this

transaction and the BT–MCI

alliance.’’ 55 These differences make it

clear that modifying the proposed

decree to retain the Phase I restrictions

until effective competition develops in

fact and not merely in theory is entirely

consistent with, if not compelled by, the

decree entered in connection with the

MCI–BT transaction.

At the time of the MCI–BT

transaction, BT’s position in the United

Kingdom’s telecommunications market

was dramatically different from the

current positions of FT and DT in their

home markets:

Although BT continued to have some

market power in basic telecommunications

services and facilities and control over local

bottlenecks in the United Kingdom at the

time it formed its alliance with MCI, all of

its lines of business were already open to

competition and BT actually faced facilitiesbased competition to some extent at all

levels, from independent carriers and cable

television companies. Moreover, since 1993

BT has ceased to be government-owned, so

that it is independent from its government

regulator in the United Kingdom.56

In stark contrast, FT and DT have legal

monopolies over all basic voice

services—and over three-quarters of all

telecommunications business—in their

markets; they do not face facilities-based

competition in the small segments in

which it is legally permitted; and they

are government-owned entities with no

independent regulators.57

The size of the proposed Sprint-FTDT alliance magnifies its

anticompetitive risks. The combined

revenues of Sprint, FT, and DT were

approximately $85 billion in 1994, more

than twice the total revenues of MCI and

BT.58 France and Germany represent

two of the three largest

telecommunications markets in the

European Union; together they are more

than twice the size of the U.K. market.

The proposed alliance would have a

significant portion of the overall

European market as a protected base

from which to operate.

DOJ purports to provide for these

differences between the Sprint-FT-DT

alliance and the MCI–BT alliance by

imposing the Phase I safeguards until

competition is legally permitted in

France and Germany and then by

imposing Phase II requirements that

generally parallel the injunctive

provisions in the MCI-Concert decree.59

However, as explained above, the most

significant problem with the proposed

decree is that the Phase I restrictions are

lifted before the actual development of

facilities-based competition in France

and Germany. To be consistent with the

MCI-Concert decree, the Phase I

restrictions on Sprint and Phoenix

should continue until there is as much

competition in France or Germany as

there was in the United Kingdom at the

time the MCI-Concert decree was

entered. At that time, it would be

appropriate to implement the Phase II

restrictions comparable to the

restrictions in the MCI-Concert

judgment.

IV. Conclusion

For the foregoing reasons, the consent

decree as currently proposed fails to

remedy the antitrust violation alleged in

the complaint and therefore is not in the

public interest. The decree should be

modified to provide that the restrictions

imposed in Phase I remain in effect

until actual, effective facilities-based

competition is found to exist in France

and in Germany.

Respectfully submitted,

MCI Communications Corporation.
3994 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

1 60 Federal Register (FR) 44049 (August 24,

1995).

2 15 U.S.C. 16(b)–(h).

3Complaint ¶ 24; see also the definition of ‘‘Joint

Venture Co.’’ as multiple ‘‘entities’’ in Section V.O.

of the proposed Decree. The Stipulation (¶ 6

thereof) filed on July 13, 1995, contemplates that

JVCo will be created as ‘‘a legal entity’’ and will

execute the Stipulation. 60 FR at 44050.

4BT’s investment in MCI and their formation of

Concert were investigated by the Antitrust Division

of the Department of Justice (‘‘DOJ’’) and were

allowed to go forward subject to a consent decree.

See United States v. MCI Communications Corp. &

BT Forty-Eight Co., 1994–2 Trade Cas. (CCH)

¶ 70,730 (D.D.C., final judgment entered September

28, 1994) (‘‘BT–MCI Final Judgement’’).

5BTNA is licensed by the FCC, inter alia, to resell

switched services and non-interconnected private

lines between the US and France and Germany. See

BT North America, Inc., FCC File No. I–T–C–93–

126, DA 94–1257 (Chief, Int’l Bur., released

November 14, 1994).

6See ‘‘Germany, France Agree to Liberalize Phone

Markets as Part of Sprint Venture,’’ Wall Street

Journal, October 13, 1995, at A10.

7See Sprint Corp., FCC File No. ISP–95–002,

Reply Comments of France Te ́le ́com (September 15,

1995) at 17–19; Reply Comments of Deutsche

Telekom (September 15, 1995) at 2–3, 25–26.

Dated: October 23, 1995.

Anthony C. Epstein,

J. Paul Oetken,

Jenner & Block, Attorneys for MCI

Communications Corporation.

Of Counsel:

Michael H. Salsbury,

Executive Vice President, and General

Counsel, MCI Communications Corporation.

Comments of BT North America Inc. to

the U.S. Department of Justice

Regarding the Proposed Final Judgment

United States of America, Plaintiff, v.

Sprint Corporation and Joint Venture Co.,

Defendants.

[Civil Action No. 95–1304 (TPJ)]

Dated: October 23, 1995.

David J. Saylor,

Hogan & Hartson L.L.P., Columbia Square.

Attorneys for BT North America Inc.

Timothy R.W. Cowen,

British Telecommunications plc.

James E. Graf II,

BT North America Inc.

Exhibit C

Comments of BT North America Inc. to

the U.S. Department of Justice

Regarding the Proposed Final Judgment

[Civil Action No. 95–1304 (TPJ)]

United States of America, Plaintiff, v.

Sprint Corporation and Joint Venture Co.,

Defendants.

I. Introduction

A. Background

In response to the public notice 1

issued under the Antitrust Procedures

and Penalties Act (or Tunney Act),2 BT

North America Inc. (‘‘BTNA’’) submits

these comments on the proposed Final

Judgment or Decree. The Complaint and

Decree relate to the proposed twenty

percent investment by France Te ́le ́com

(‘‘FT’’) and Deutsche Telekom AG

(‘‘DT’’) in Sprint Corporation (‘‘Sprint’’)

and the three companies’ proposed

formation of a Global Partnership. The

Complaint defines their Joint Venture

Company (‘‘JVCo’’) as ‘‘all entities to be

formed as a joint venture between

Sprint, DT, and FT under the terms of

the Joint Venture Agreement when that

agreement is consummated, including

the governing bodies of such venture.’’3

The overall set of transactions is

sometimes referred to as the Phoenix

Alliance, to distinguish it from another

proposed alliance between FT and DT

called Atlas.

BTNA, a wholly owned subsidiary of

British Telecommunications plc (‘‘BT’’),

is authorized by the Federal

Communications Commission to operate

as a United States international resale

carrier. BT is a domestic and

international telecommunications

provider in the United Kingdom (‘‘UK’’)

and, through subsidiaries and affiliates,

elsewhere in the world. BT has a twenty

percent investment in US carrier MCI

Communications Corporation (‘‘MCI’’)

and has formed an international joint

venture with MCI known as Concert

Communications Company

(‘‘Concert’’).4 MCI and Sprint are

facilities-based competitors in the

provision of US international

telecommunications service, including

to France and Germany. As distributors

of Concert services, BT (including

BTNA as a US reseller) and MCI will be

direct competitors of Sprint, FT, and DT

as distributors of JVCo services, if the

Phoenix Alliance is consummated.

Where permitted by law, BT has been

endeavoring, directly or through joint

ventures, to compete against FT and DT

on the European Continent. BTNA

qualifies under Section V.F. of the

proposed Final Judgment as a US

international telecommunications

service provider that ‘‘directly or

through a subsidiary or affiliate’’ holds

or has applied for a US, French, or

General license, or actually provides

service that does not require a license,

involving the US-France or US-Germany

route.5

B. Overview of the Problems With the

Proposed Decree

As explained in considerable detail in

Part II of these Comments, the proposed

Final Judgment requires clarifications

and modifications in many important

respects. With respect to the needed

modifications, four inter-related themes

are paramount.

First, the Final Judgment should be

rewritten so that the transactions may

not be consummated unless and until

certain minimum French and German

laws and rules are in place. For

example, if France and Germany are

actually preparing legislation and

regulations allowing alternative

infrastructure (such as utility owned

private networks owned by railroads

and electric utilities) to be used for

public telecommunications services

other than switched voice, 6 and if (as

the parties maintain 7) those

governments are not far behind in

preparing laws and regulations allowing

facilities-based competition in public

switched voice, why not condition

consummation of the transactions on

the prior completion of those efforts?

Second, excluding FT and DT as

parties to the Final Judgment is very

problematic. In many cases, defendants

Sprint and JVCo will be able to turn a

blind eye to discrimination or other

impermissible activity by FT and DT

toward others that benefits Sprint and

JVCo. This is because it is too easy

under the Decree for Sprint and JVCo to

claim they lacked sufficient information

to actually know that something was

amiss in FT’s or DT’s conduct toward

others. After all, there is nothing in the

proposed Decree binding FT and DT to

disclose to Sprint, JVCo, or anyone else

critical information that would unmask

FT’s and DT’s wrongdoing.

Additionally, because FT and DT are

not defendants, the Decree focuses upon

forbidding Sprint and JVCo to undertake

certain activity until FT and DT conduct

themselves in a specified way vis-a`-vis

rivals. This backhanded approach, made

necessary because FT and DT are not

defendants, will tend to postpone

desirable technological progress and

innovation until Sprint and JVCo have

caught up with, and are prepared to

compete against, their more pioneering

competitors. A direct approach, binding

FT and DT as parties to the Decree,

would avoid allowing Sprint and JVCo

to control the pace of industry progress.

Third, and very important, in several

places the proposed Decree improperly

assumes that the mere issuance of ‘‘one’’

license (or the execution of ‘‘one’’

operating agreement) evidences so

profound a change in competitive

circumstances as to justify automatic

lifting of key Decree safeguards. (The

phrase ‘‘one or more’’ licenses, as used

in the proposed Decree, does not

disguise the fact that ‘‘one’’ is legally

sufficient.) Indeed, there is no Decree

requirement that the ‘‘one’’ licensee be
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3995

8See pages 18–19, infra.

9 Id. at 4406.

10See US v. Sprint, Competitive Impact

Statement (‘‘CIS’’), 60 F.R. at 44076–78.

11See id. at 44077, quoting, United States v.

AT&T, 552 F. Supp. 131, 151 (D. D.C. 1982), aff’d

sub nom. Maryland v. United States, 460 U.S. 1001

(1983).

12See, e.g., United States v. United Technologies

Corp., No. 78 CV 580 (S.D. N.Y.), DOJ Responses

to Comments, 46 F.R. 8787, 8789, 8798 n.3 (January

27, 1981) (modifying proposed antitrust consent

decree in response to public comments); United

States v. National Broadcasting Co., Civil Action

No. 74–3601–RJK (C.D. Cal.), Stipulation of May 4,

1977 (modifying proposed antitrust consent decree

after public comment), 42 F.R. 24996, 24997–98

(May 16, 1977).

13United States v. Microsoft Corp., 56 F. 3d 1448,

1462 (D.C. Cir. 1995).

14 Id. at 1461.

15 Id. at 1462.

16 Id. at 1461.

17 Id. at 1462.

18 Id. ¶ 40.

19 Id.

a major competitor and not a weak

neophyte or even a shill. Thus, under

Section II.C., the issuance of an

individual license to ‘‘one or more’’

other US provider(s) could unleash

Sprint and JVCo to offer their USFrench/German services even though all

other significant US competitors are still

knocking on the French and German

authorities’ doors for essential licenses.8

And, Section III’s crucial provisions

restricting unequal access to facilities

ownership, prohibiting discrimination

and cross-subsidization, mandating

proportionate returns, and ensuring

equal technical access to public network

interconnection, all expire when Phase

I of the Decree terminates—which is

when, among other things, ‘‘one or

more’’ entities is/are licensed to provide

facilities-based public switched voice

services (Section V.Q.(2)).

Fourth, as noted, Section III’s

protections automatically expire at the

end of Phase I when FT’s and DT’s

public infrastructure and switched voice

monopolies formally terminate and

‘‘one’’ competing license issues. Yet,

nothing in the definition of Phase II

assures that the French and German

governments will have in place from

that point forward adequate regulations,

properly enforced, to prevent

discrimination, cross-subsidization,

disproportionate returns, etc. DOJ

admits the ‘‘proposed Final Judgment’’

rests on the ‘‘underlying assumption

* * * [that] all the key regulatory

measures needed for development of

effective competition [will be] in place

by the time full liberalization is to take

effect in 1998.’’ 9 There is absolutely no

warrant for DOJ’s giant leap of faith that

market-opening measures inevitably

will be accompanied by EC and national

regulation fully adequate to prevent FT

and DT from abusing their enormous

market power. Nor, given the persisting

government equity interests in FT and

DT (and indirectly in Sprint and JVCo),

is there any basis to presume that the

national regulators will have the full

independence or proper inclination to

provide sufficiently vigorous and

impartial regulation as to adequately

replace Section III of the Decree.

C. DOJ’s Discretion to Withdraw and

Renegotiate the Decree

The proposed Decreed was developed

without benefit of the insights of any

affected industry members other than

Sprint (and presumably FT and DT).

Now that it has received this and other

Tunney Act comments, DOJ should take

a fresh look at the document. Whatever

limits the case law may place on a

court’s ability to reject a proffered

antitrust consent decree,10 those limits

do not apply to the Department of

Justice. Paragraph 2 of the July 13, 1995

Stipulation says unmistakably:

‘‘Plaintiff may withdraw its consent to

entry of the Final Judgment at any time

before it is entered, by serving notice on

the defendants and by filing notice with

the Court.’’

While a reviewing court may have

discretion to reject a proposed decree on

public interest grounds only if the

decree is not ‘‘within the reaches of

[the] public interest,’’11 DOJ has the

discretion and the duty, particularly

after receiving extensive public

comment from expert (albeit interested)

industry participants, to determine

anew whether the proposed Decree is

satisfactory or whether the antitrust

laws require additional or changed

language. There is ample precedent for

DOJ modifying a proposed decree and

seeking the defendants’ consent to

essential changes.12 If defendants are

absolutely unwilling to accept needed

changes, that alone may reveal

something about defendants’ hidden

motivations or agenda and reinforce

DOJ’s conviction that the changes are

absolutely vital to protect competition

and the public interest. In any case, no

harm will come from DOJ proposing

further discussions among the Decree

parties regarding such possible

modifications.

Moreover, the parties to the proposed

Decree must recognize that the district

court’s authority is not zero. ‘‘A decree,

even entered as a pretrial settlement, is

a judicial act, and therefore the district

judge is not obliged to accept one that,

on its face and even after government

explanation, appears to make a mockery

of judicial power.’’ 13 This Decree will

be reviewed by the court to see whether

the remedies proposed are ‘‘inconsonant

with the allegations.’’ 14 Moreover, in

determining whether to approve a

proposal, the court is supposed ‘‘to pay

close attention to the compliance

mechanisms in [the] consent decree.’’ 15

The court also ‘‘should pay special

attention to the decree’s clarity’’ or lack

thereof.16 The judge ‘‘is certainly

entitled to insist on that degree of

precision concerning the resolution of

known issues as to make his task, in

resolving subsequent disputes,

reasonably manageable.’’ 17

As Part II of these Comments brings

out, there are a number of instances in

which the remedies proposed fall so far

short of correcting or preventing the

anticompetitive problems described in

the Complaint, that the decree, unless

significantly modified, will not be

within the broad ‘‘reaches’’ of the public

interest. Further, there are major

loopholes, gaps in logic, and facial

inconsistencies and ambiguities that

must be addressed and resolved before

the court would be right to approve the

proposal.

II. The Proposed Final Judgment Must

be Withdrawn and Substantially

Modified and Clarified to Come

‘‘Within the Reaches of the Public

Interest’’

A. The Phase I and II Equal Licensing

Opportunity Provision (Section II.C.)

Requires Modification and Clarification

Section II.C. of the proposed Final

Judgment is intended to ensure,

throughout Phases I and II, that US

international telecommunications

service providers receive equal

opportunity with Sprint, JVCo, and their

affiliates, in access to essential French

and German licenses and other forms of

governmental authorization. Before

discussing several fundamental

deficiencies in Section II.C.—which

must be corrected, it should be useful to

review how central this matter of

licensing is to remedying the

competitive problems described in the

Complaint.

The Complaint asserts that the

transactions at issue will substantially

lessen competition by giving FT and DT

increased incentives and ability to use

their government-granted monopolies

and market power to discriminate

against competitors of Sprint and

JVCo.18 This discrimination, which can

take many forms, will raise competitors’

costs and diminish the quality and

quantity of their services—all to the

detriment of consumers.19 FT and DT

have government-granted monopolies

encompassing essentially all
3996 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

20 Id. ¶¶ 25–26, 31–32, 34–35.

21 Id. ¶¶ 33,36.

22 Id. ¶¶ 31–36

23 Id. ¶¶ 31, 34.

24 Id. ¶¶ 31–36.

25 Id. ¶ 37.

26 Id.

27United States v. Sprint Corp., Competitive

Impact Statement (CIS), 60 F.R. at 44049, 44058,

44069–70.

28Complaint ¶¶ 2, 25, 26; CIS, 60 F.R. at 44065;

Statement by French Minister Fillon, August 30,

1994 (‘‘a majority of [FT’s] capital will remain held

by the public sector’’), attached to Sprint Corp. ex

parte letter, Sprint Corp., FCC File No. ISP–95–002

(filed September 28, 1995); Speech and Responses

to Questions by German Minister Bo ̈tsch, National

Press Club, Washington, D.C., April 3, 1995

(German government intends to retain majority

control of DT), recorded on Dow Jones Investor

Network videotape.

29Under the current monopoly regime, the

French license might be for the right to offer ‘‘bearer

services,’’ e.g., packet switched data services over

international half-circuits and domestic private

lines leased from FT. See Complaint ¶ 33. After

FT’s legal monopoly over public voice and

infrastructure is abolished, the French license might

be to offer public switched voice services over

international and domestic circuits owned by the

licensee or leased by the licensee from FT or its

new infrastructure competitors.

30The problem is exacerbated by Section II.C.’s

reliance on the term ‘‘particular * * * service.’’ The

Section seems to presume that the only competitive

alternative to a ‘‘particular * * * service’’ is ‘‘such

a service’’ (emphasis added), i.e., an identical type

of service provided by a rival. This creates a serious

international and domestic public

telecommunications infrastructure

(excluding certain mobile telephone and

satellite radio facilities) and the

provision of public switched voice

services.20 Although their legal

monopolies over international and

domestic public data transmission have

recently expired, FT’s and DT’s wellestablished and ubiquitous public data

networks retain nearly 100 percent

monopoly market shares.21

For the immediate future, then, any

competitor wishing to provide public

telecommunications voice, data, or

other value-added services between the

US and France or Germany is dependent

upon FT and DT for their cooperation

and much more.22 In the case of

bilateral correspondent services where

each corresponding carrier is

responsible only for its end, US

providers need FT and DT to provide

the requisite French or German

connecting international half-circuits

and also domestic circuits terminating

communications in those countries or

transiting them to third country.23 For

services that do not qualify as

traditional bilateral correspondent

services, such as seamless end-to-end

services, US providers need to obtain

from FT and DT leased international

half-circuits and domestic French and

German private lines, as well as

interconnection to each country’s public

switched telephone network (PSTN) for

voice services and public switched data

networks for many data services.24

The Complaint recognizes that the

European Union (EU) may eventually

require France and Germany to allow

entry by additional providers of public

telecommunications infrastructure and

switched voice services.25 The

Complaint also notes, however, that the

same French and German governments

that own FT and DT will have to

develop licensing and interconnection

regulatory regimes and actually issue

licenses and other authorizations before

‘‘real competition’’ truly exists.26

Section II.C. purports to address the

risk that French and German licensing

requirements and processes will be used

in ways that discriminate against US

competitors of Sprint and JVCo.27 This

is a very substantial risk for two reasons.

First, the French and German

governments are the sole owners, and

are pledged to remain the controlling

owners, of FT and DT respectively.28

These ownership interests give the two

governments strong financial incentives

to favor FT and DT and the entities

those governments will indirectly own

in part, i.e., Atlas, JVCo, and Sprint.

Second, even if those governments were

to drastically revise their laws so as to

fully insulate the licensing bodies from

such conflicts of interest, FT and DT

will have strong incentives to use (or

misuse) the licensing requirements and

processes to discourage, delay, and

defeat the licensing of rivals. Section

II.C. falls so far short of the mark in

preventing anticompetitive licensing

discrimination that it must be modified

in several crucial respects and clarified

in certain other respects.

Specifically, the situation Section II.C.

must more adequately address is when

a competitor of Spring or JVCo needs to

secure a French or German individual

license in order lawfully to offer a

particular telecommunications service

between the US and France or Germany.

For example, suppose MCI seeks to offer

an end-to-end Concert-branded service

between the US and France that would

require MCI or Concert (or BT on behalf

of MCI or Concert) to obtain an

individual license covering all or part of

the French end.29 It is essential that

Section II.C. be modified so that: (1) an

individual license will be issued

promptly even if Sprint and JVCo are

not sufficiently technologically

advanced to offer a directly competing

service; (2) the individual license is not

burdened with discriminatory terms and

conditions; (3) unfair delay in issuing

the individual license cannot be

justified on the ground that French and

German authorities have already

licensed ‘‘one’’ other unaffiliated US

provider, however weak and

insignificant that provider may be; and

(4) the license-issuing process cannot be

skewed to give Sprint and JVCo an

unfair headstart.

1. Failure to Precondition

Consummation of the Transactions

Upon Actual Accomplishment of

Regulatory Reforms in France and

Germany

A key flaw in Section II.C. is its

failure affirmatively to require that, as a

prior condition of the parties’

consummating the FT/DT investments

in Sprint and the formation of JVCo,

nondiscriminatory requirements and

procedures for prompt French and

German licensing of US international

providers must be established and in

place for all services (except,

regrettably, still-monopolized public

switched voice services). Instead,

Section II.C. comes at the problem

indirectly and, unfortunately, much less

effectively.

Section II.C. bars Sprint and JVCo

from offering (or providing facilities

enabling FT or DT to offer) ‘‘any

particular * * * service’’ between the

US and France or Germany unless (1)

US competitors seeking to offer ‘‘such a

service’’ do not need a license (or other

authorization) for any French or German

aspect of the service, or (2) the requisite

French or German class license is in

effect for US providers, or (3) French or

German individual licensing procedures

are established ‘‘as of the time’’ Sprint

and JVCo begin offering ‘‘such a

service.’’ Given Section II.C.’s oblique

approach to the problem, France and

Germany (motivated perhaps by their

direct ownership interests in FT and DT

and indirect interests in Sprint and

JVCo) can delay determining whether a

license is required, can delay placing a

class license in effect, and can delay

adopting individual licensing

procedures, until FT, DT, Sprint, JVCo,

and their affiliates, are ready to offer the

‘‘particular * * * service’’ themselves.

Thus, US consumers of US-French/

German telecommunications services

can be denied the benefits of early

innovation and competition from

pioneering entities outside the Sprint

alliance while French and German

authorities postpone essential

decisionmaking needed by those

entities. In effect, Section II.C. lets FT,

DT, and Sprint control the pace of

innovation and progress on the USFrench/German routes to suit their own

parochial economic interests and

schedule.30
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3997

problem illustrated by the following example.

Assume Sprint and its allies are content to offer a

certain level of enhanced voice service on a

correspondent basis with FT and DT subject to a

certain accounting rate that keeps settlement rates

and retail prices up. If another US carrier wanted

to undercut the Sprint correspondent service by

offering an end-to-end enhanced voice service on a

non-correspondence or self-correspondence basis,

Section II.C. (absent modification or clarification)

would seem of no help. This is because the new

service probably would not be considered ‘‘such a

service’’ as the ‘‘particular * * * service’’ offered

by Sprint.

31The situation here is totally distinguishable

from that in United States v. MCI Communications

Corp. and BT Forty-Eight Company, Civil Action

No. 94–1317 (D. D.C., filed June 15, 1994). At the

time of the consent decree settling that matter, the

United Kingdom no longer owned a significant

interest, much less a controlling interest, in BT. See

U.S. v. Sprint Corp., CIS, 60 F.R. at 44065.

Consequently, the British government and its

licensing and regulatory authorities (DTI and

OFTEL) had no economic or financial interest in

BT, MCI, or their joint venture.

32The modification proposed in the text

presumes that Sprint, JVCo, FT, or DT, as the case

may be, must secure ‘‘an individual license’’ before

any Phoenix Alliance entity (including Atlas) may

offer the particular U.S.-France/Germany service.

DOJ should confirm that, if ‘‘an individual license’’

must be obtained by other U.S. providers (or their

affiliates), then the Decree also requires one of the

Phoenix entities to apply for and obtain a

comparable ‘‘individual license.’’ DOJ needs to

clarify that the Phoenix entities may not simply

operate their service over FT’s and DT’s pre-existing

telecommunications operators’ licenses thereby

evading the equal opportunity intent of Section II.C.

On the other hand, if the Decree contained a

loophole allowing the Phoenix entities to bypass

applying for any new French and German licenses

and permitting them to rely solely upon FT’s and

DT’s pre-existing operators’ licenses, then some

modification or clarification of Section II.C. would

be essential. First, DOJ would need to clarify that

Section III.C.3. applies even when the relevant

‘‘individual license[s]’’ for the Phoenix group are

FT’s and DT’s pre-existing operators’ licenses.

Second, Section III.C. would need to be revised to

impose on the Phoenix group a reasonable

moratorium preventing Sprint and JVCo from

offering the U.S.-France/Germany service (or

providing facilities enabling FT or DT to offer that

service) until the requisite ‘‘individual licens[ing]’’

procedures that other U.S. providers must go

through had been ‘‘established’’ long enough that

any providers applying promptly after those

procedures took effect would also be licensed.

33Alternative (ii) in Section II.C.3. cannot be

relied upon to close any loophole left available

under alternative (i). Separated by the disjunctive

‘‘or,’’ subsections 3(i) and 3(ii) clearly are

alternatives; both need not be satisfied, only one.

34Complaint ¶ 37 (emphasis added).

35Section II.E. of the Final Judgment in the BT–

MCI matter required that the UK grant UK–US

Continued

To be sure, US authorities probably

lack the authority to impose

requirements directly upon foreign

states’ licensing authorities. But where

foreign states own controlling interests

in commercial entities that seek to

invest in and form a joint venture with

a US international carrier (here Sprint),

US authorities have the jurisdiction and

the statutory obligation to prevent that

investment and joint venture from

occurring unless and until the foreign

sovereign authorities have taken

adequate legal actions in their own

jurisdictions to ensure fair

competition.31 The proposed decree

should be modified to accomplish that

objective.

2. Failure to Specify That Individual

Licensing Must be Nondiscriminatory

A second serious flaw is the failure of

subparagraph 3 of Section II.C. to

require explicitly that individual

licensing procedures be

nondiscriminatory, substantively and

temporally. The provision says that the

Sprint/JVCo ‘‘particular * * * service’’

offering may not proceed unless:

3. If an individual license is required in

France or in Germany to offer such a service,

established licensing procedures are in effect

as of the time of the offering of the service

by which other United States international

telecommunications providers are also able

to secure such a license * * *. [Emphasis

added.]

The provision may intend that the

‘‘Licensing procedures’’ be evenhanded

and nondiscriminatory, but it does not

unequivocally say so—which it should.

The provision needs to be modified to

read ‘‘established licensing procedures

(either the same as, or no more

demanding of the prospective licensee

than, those procedures applicable to the

particular service offering of Sprint,

Joint Venture Co., FT, or DT) * * *’’.

To ensure no temporal

discrimination, the phrase ‘‘as of the

time of the offering of the service’’

should be modified so that the Sprint

group does not receive an unfair

headstart. The phrase should read: ‘‘as

of the time that Sprint, Joint Venture

Co., FT, DT, or their affiliate applied for

the requisite license * * *.’’ Otherwise

the Sprint group could complete the

licensing process and be poised to offer

the service before rival U.S. providers

would even be able to submit their

license applications.32

Finally, to ensure that rival U.S.

providers are not subject to unfair

discriminatory conditions, the phrase

‘‘such a license’’ should be rewritten to

say: ‘‘such a license (with requirements

and conditions no more onerous than

those imposed on Sprint, Joint Venture

Co., FT, DT, or their affiliate).’’ Without

this amendment, the whole provision

could be severely undercut, for

example, by France or Germany

imposing unfairly discriminatory

license or interconnection fees,

geographic requirements or limitations,

service eligibility restrictions (such as

satellite-only when terrestrial is

needed), universal service obligations or

contributions, and the like, upon the

other U.S. providers.

3. Failure to Require That More Than

One U.S. Provider Besides Sprint and

JVCo be Licensed

One of the most troubling loopholes

in Section II.C. relates to the second part

of subsection 3 which, as now written,

can be satisfied in either of two ways:

(i) simultaneous or earlier licensing of

other U.S. providers(s), or (ii) later

licensing. The pertinent language is:

* * * and (i) one or more United States

international telecommunications providers

other than FT, DT, Sprint or Joint Venture

Co. and unaffiliated with FT, DT, Sprint or

Joint Venture Co. have secured such a license

in France and in Germany, or (ii) if Sprint or

Joint Venture Co. or FT or DT is the first

provider to seek a license to offer such a

service, other United States international

telecommunications providers are also able

to secure such a license within a reasonable

time and in no event longer than the time it

took Sprint, Joint Venture Co., FT, or DT to

obtain such a license, after having applied for

such a license, unless the additional time

required is attributable to delay caused by the

applicant. [Emphasis added.]

Alternative (i) is met if ‘‘one or more’’

US providers other than Sprint, JVCo, et

al., actually ‘‘have secured a license.’’

Clearly the word ‘‘or’’ in the phrase

‘‘one or more’’ is used here in the

disjunctive sense; consequently, the

words ‘‘or more’’ add nothing

mandatory to Section II.C.3.(i)’s

requirement. Doubtless Sprint and JVCo

will claim that Section II.C.3(i) is fully

satisfied if a license is issued to only

‘‘one’’ unaffiliated US provider, no

matter how weak or inconsequential

that provider is.33 Thus, AT&T, BTNA,

Concert, MCI, IDB, Worldcom, MFS,

ACC, and other significant competitors

could find their license applications

held up indefinitely, so long as a single

heretofore unknown, unaggressive,

resource-limited US provider has the

one other license besides the Sprint

group.

Subsection (i) absolutely must be

rewritten to increase significantly the

minimal number of required licenses.

As the Complaint itself says: ‘‘Mere

lifting of the legal prohibitions on

competition would not alone bring

about real competition, since actual

competitors [sic] must also be licensed

to operate.’’ 34 To ensure that the

minimal number of licensees includes

significant competitors, certainly the

major US carriers AT&T and MCI (or

their affiliates, such as Concert or BT for

MCI) should have to have been

proffered licenses before Sprint and

JVCo could proceed with their

offering.35 The minimal number should
3998 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

international simple resale (ISR) licenses to ‘‘all

qualified United States international

telecommunications providers’’ before MCI or

Concert could provide BT facilities or services for

a UK–US ISR offering. At the time, seven such US

providers were identified. See US v. MCI, CIS, 59

F.R. 33009, 33021 n.12.

36 If at least three US competitors or their

affiliates do not seek licenses or are ‘‘gaming’’ the

process to slow their own applications, presumably

DOJ, the other parties, and the Court can agree to

waive the requirement-of-three. See Section VIII.A.

37To be consistent with the anti-discrimination

change that should be made in the first part of

subsection 3, the revised second requirement

(currently subsection 3(i)) should say: ‘‘secured

such a license (with requirement and conditions no

more onerous than those imposed on Sprint, Joint

Venture Co., FT, DT, or their affiliate).’’

38The delay may be unexplained or may be

attributable to various anticompetitive

explanations, including the attempted imposition of

discriminatory conditions on the rivals of Sprint

and JVCo.

39 DOJ should make clear that, in some situations,

a ‘‘reasonable time’’ may actually be shorter than

the time taken for processing the application of

Sprint, JVCo, FT, or DT. Presumably action on that

application will have resolve most or all general

regulatory issues, permitting much faster processing

of subsequent applications filed by others.

be three.36 Moreover, Section II.C.3.

should be rewritten so that the revised

first part of subsection 3 becomes the

first requirement, the revised subsection

(i) becomes the second requirement, and

a revised subsection (ii) (discussed

infra) becomes the third requirement.37

If subsection 3(ii)’s timely future

licensing concept were retained as a

complete alternative to the concept of

simultaneous (or previous) licensing of

competitors, it would open a potentially

very significant loophole. Subsection

3(ii) requires licensing of Sprint’s and

JVCo’s rivals ‘‘within a reasonable

time.’’ If it turns out later (after Sprint

and JVCo begin offering service) that US

rivals remain unlicensed even though a

reasonable time has expired,38 the horse

will be long gone from the barn and

hardly susceptible to quick capture and

return. The prospect that the court

would actually order Sprint and JVCo to

stop service to customers (and indeed

terminate their contracts) seems quite

remote—although that would be the

correct result under the proposed

decree. Thus, there is a substantial

practical risk that subsection 3(ii)

violations would not be remedied soon

enough, if ever. To avoid that problem,

it is important that both subsections 3(i)

and 3(ii) be made separate mandatory

obligations that stand on their own. In

that way, there will be licensed

competitors (three under our alternative

approach, perhaps only one under the

proposed Final Judgment) even if

subsequent licensing of others is

delayed.

4. Need To Require That All Subsequent

License Applications be Processed at

Least as Promptly as Sprint’s and JVCo’s

As explained supra, both subsections

3(i) and 3(ii) should be mandatory

provisions, not optional alternatives to

compliance with each other. Subsection

3(i), after being rewritten in the

mandatory language we suggest, would

require that at least three US

international providers (or their

affiliates) be licensed before Sprint and

JVCo may offer their service. Subsection

3(ii), in turn, would require prompt

processing of any later-filed

applications by additional US providers

beyond those licensed in accordance

with subsection 3(i).

When rewritten, subsection 3(ii)

should also be clarified in one

important respect. As now written, the

provision requires the license to issue

‘‘within a reasonable time * * * unless

the additional time is attributable to

delay caused by the applicant.’’ The

provision should say ‘‘solely

attributable’’ to take care of the situation

where the French or German

government imposes unfairly

discriminatory conditions or

information requirements and the

applicant refuses to acquiesce in the

discrimination, thus resulting in

delay.39

* * * * *

To summarize the foregoing points,

here is how Section II.C.3. should read

in full:

3. If an individual license is required in

France or in Germany to offer such a service

(or one competitive with it),

(i) established licensing procedures (either

the same as, or no more demanding of the

prospective licensee than, those procedures

applicable to the particular service offering of

Sprint, Joint Venture Co., FT, or DT) are in

effect as of the time that Sprint, Joint Venture

Co., FT, DT, or their affiliate applied for the

requisite license for the offering of the

service, by which procedures other United

States international telecommunications

providers are also able to secure such a

license (with requirements and conditions no

more onerous than those imposed on Sprint,

Joint Venture Co., FT, DT, or their affiliate);

and

(ii) at least three major United States

international telecommunications providers

(including minimally AT&T and MCI or their

affiliates) other than FT, DT, Sprint or Joint

Venture Co. and unaffiliated with FT, DT,

Sprint or Joint Venture Co. have secured such

a license (with requirements and conditions

no more onerous than those imposed on

Sprint, Joint Venture Co., FT, DT, or their

affiliate) in France and in Germany; and

(iii) other United States international

telecommunications providers are also able

to secure such a license within a reasonable

time and in no event longer than it took

Sprint, Joint Venture Co., FT or DT to obtain

such a license, after having applied for such

a license, unless the additional time is solely

attributable to delay caused by the applicant.

B. Phase I’s Facilities Ownership

Prohibitions (Sections III.A.–B.) Must Be

Modified and Clarified in Key Respects

Sections III.A.–B. are intended to

ensure that, throughout Phase I of the

Final Judgment, Sprint and JVCo gain

no unfair advantage from FT’s and DT’s

continuing government-protected

infrastructure monopolies. Thus,

Section III.A.(i) prevents Sprint and

JVCo from ‘‘acquiring an ownership

interest in, or control over,’’ facilities

‘‘in’’ France or Germany that are

‘‘legally reserved to FT or DT.’’ Section

III.A.(ii) forbids Sprint and JVCo from

‘‘acquiring an ownership interest in, or

control over,’’ international half-circuits

‘‘terminating in France or Germany’’

that are used for US traffic unless: (1)

those half-circuits are ‘‘no greater than

the aggregate quantity’’ that ‘‘other

providers unaffiliated with FT, DT,

Sprint, or [JVCo] actually own and

control,’’ or (2) DOJ agrees that

‘‘meaningful competition exists to such

international half-circuits provided by

FT or DT.’’ Section III.B. prohibits

Sprint and JVCo from investing in or

controlling FT’s and DT’s Public Data

Networks.

Phase I (as well as each of the

foregoing Section III.A.–B. restrictions)

expires on a country-specific basis when

the relevant French or German

government (1) removes all of the legal

prohibitions on public infrastructure

and switched voice competition and (2)

licenses ‘‘one or more’’ entities

unaffiliated with FT, DT, Sprint, and

JVCo to (i) construct, own, and control

domestic and international

infrastructure, and (ii) provide switched

domestic long distance voice services

‘‘without any limitation on geographic

scope or types of services offered’’ and

‘‘international voice service[s]’’ between

the US and that country. See Sections

V.P.–Q. for definitions of Phases I and

II.

To avoid the very sorts of

anticompetitive problems described in

the Complaint (discussed supra), these

provisions must be modified and

clarified in certain key respects.

1. ‘‘Ownership Interest’’ and ‘‘Control’’

Need Clarification

Section III.A. uses the terms ‘‘own,’’

‘‘ownership interest,’’ and ‘‘control.’’

‘‘Control’’ is defined to exclude

‘‘publicly available leases or other

publicly available uses of such

facilities.’’ ‘‘[O]wn’’ and ‘‘ownership

interest’’ are not defined.

DOJ should clarify what constitutes

an ‘‘ownership interest’’ or ‘‘control,’’ as
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 3999

40See Complaint ¶¶ 32, 35; CIS, 60 F.R. at 44071.

41See Section X.B. second sentence.

42See e.g., Section III.C., III.E., III.I.; cf. Sections

II.A.–7.

distinguished from ‘‘publicly available

leases [and] * * * uses.’’ In the case of

undersea cables, certainly an entity that

holds title to the cable, or owns an

equity interest in the corporation,

partnership, or venture that holds title

to the cable, has an ‘‘ownership

interest’’ for purposes of Section III.A.

Cable investments in the form of

indefeasible rights of use (IRU) are longterm non-management rights generally

obtained through private negotiation

with the cable owner(s). IRUs provide

‘‘control’’ over half-circuits and should

not be excluded from Section III.A. as

‘‘publicly available leases or * * *

uses.’’ With respect to satellites used for

international telecommunications,

generally the owner is an international

organization of sovereign states. Each

member state commonly designates a

single signatory carrier to obtain longterm transponder allotments. Surely the

entity that either owns the satellite (or

transponder) or signs a commitment for

the transponder allotment ‘‘owns’’ or

‘‘controls’’ the uplink and downlink

half-circuits in its country within the

meaning of Section III.A.

Clarification along the foregoing lines

is needed so that Sprint and JVCo are

not able to find a loophole in Section

III.A. that permits them to gain an

anticompetitive cost advantage over

competitors that lack their close

affiliation with FT and DT. FT and DT

are the only undersea cable owners (or

IRU holders) ad international satellite

signatories in France and Germany as of

now.40 Competition would be severely

distorted if FT or DT could favor Sprint

or JVCo with special cable IRUs and/or

satellite circuit allotments priced at

book value or some other level far under

the long-term lease rates ‘‘publicly

available’’ to their competitors.

2. The ‘‘Aggregate Quantity’’ Exception

Requires Clarification

The first exception to Section III.A.(ii)

says: ‘‘except to the extent that, and in

no greater than the aggregate quantity

that, other providers unaffiliated with

FT, DT, Sprint or Joint Venture Co.

actually own and control such

international half-circuits.’’ The most

reasonable reading of this exception is

that Sprint and JVCo may own or

control only the ‘‘aggregate[d] quantity’’

of half-circuits that any single ‘‘other

provider[]’’ owns or controls. If,

however, the provision enables Sprint

and JVCo to own or control as many

half-circuits as all ‘‘other providers’’ in

the ‘‘aggregate’’ own or control, then the

provision must be modified for the

following reason. If half-circuit

ownership is split among many ‘‘other

providers,’’ Sprint and JVCo with far

greater capacity than any other

competitive provider will easily be able

to divide and conquer. Facilities

ownership/control gives a carrier lower

costs and greater certainty about its

costs than a carrier compelled to rely, in

whole or in part, on leasing halfcircuits. To be sufficiently attractive

from price, technical, or other

perspectives to elicit customer orders, a

particular service offering may require a

substantial number of half-circuits. If

that number exceeds the maximum

available half-circuits that any

individual competitor other than Sprint/

JVCo can readily acquire from FT and

DT, obviously Sprint/JVCo’s advantage

deriving from the affiliation with FT

and DT would unfairly distort

competition. Section III.A.(ii) should be

clarified to ensure that this cannot

happen.

The first exception in Section III.A(ii)

requires further modification or

clarification to make clear that the term

‘‘such international half-circuits’’ means

that the competitor’s half-circuits are

comparable and not inferior to Sprint/

JVCo’s half-circuits. The competitor’s

half-circuits should have the same

technical features (bandwidth

transponder power, etc.), belong to the

same distribution mode (e.g., submarine

cable compared to submarine cable),

connect to the same or a commercially

equivalent terminus (in the case of

cable), and serve the same geographic

area (in the case of satellite) as the

Sprint/JVCo owned or controlled halfcircuits. Otherwise, for example, Sprint/

JVCo might be allowed to own/control

undersea fiber optic cable half-circuits

up to the aggregate number of the

competitor’s satellite half-circuits even

though the former transmission mode is

far preferable for trans-Atlantic voice

communications. Similarly, Sprint/JVCo

might benefit unfairly be being allowed

to own/control undersea cable halfcircuits that terminate in the most

desirable locations whereas the

competitor would be relegated to less

desirable locations further removed

from higher quality gateway switches

and larger population centers.

3. The ‘‘Meaningful Competition’’

Exception Requires Clarification

Section III.A. provides a second

exception viz.: if ‘‘plaintiff and

defendants agree that meaningful

competition exists.’’ DOJ needs to

clarify that it will not ‘‘agree’’ unless

such a conclusion is fully supported by

a factual record developed after

reasonable notice and opportunity for

public comment.

4. The ‘‘One or More Licenses’’ Concept

That Would Terminate the Facilities

Ownership Prohibitions of Sections

III.A. and B. Needs Revision

Sections III.A. and B. (like Sections

III.C.–I.) automatically expire when

Phase I, as defined, ends.41 Under

Sections V.P. and V.Q. of the proposed

Final Judgment, Phase I terminates on a

country-specific basis when (1) all legal

prohibitions against entities other than

FT and DT providing domestic and

international infrastructure and public

switched voice are removed, and (2)

‘‘one or more licenses or other necessary

authorizations’’ are issued to entities

unaffiliated with FT, DT, Sprint, and

JVCo. The phrase ‘‘one or more’’ raises

the same problem here as it does in

Section II.C.3(i) supra. In the Section

III.A.B. context, the interests of

promoting competition would be

seriously disserved if Sprint and JVCo

could start owning and controlling

French and German domestic and

international infrastructure even when

only a single competitor (and quite

possibly a weak one or one antagonistic

to AT&T, MCI, and US carriers) had

been licensed. Section V.Q.(2) should be

modified to say, in pertinent part,

‘‘issued licenses or other necessary

authorizations to at least three entities

other than FT, DT, Sprint or Joint

Venture Co. and unaffiliated with FT,

DT, Sprint or Joint Venture Co. * * *.’’

The provision should go on to say that

the three should ‘‘minimally include

AT&T and MCI or their direct or

indirect affiliates,’’ (e.g., a BT joint

venture with a German company, an

AT&T/Unisource entity, etc.). This

modification will provide assurance that

the licensees providing alternatives to

FT and DT will be vigorous and

financially strong competitors and also

that Sprint and JVCo will not obtain an

anticompetitive advantage over their

principal US competitors when Phase I

expires.

C. The Principal Provision Prohibiting

Discrimination During Phase I (Section

III.D.) Requires Modification and

Clarification

Although several other provisions are

also intended to prevent FT and DT

from unfairly favoring Sprint and

JVCo,42 the principal antidiscrimination provision is Section

III.D., which has two parts. Section

III.D.1. says Sprint and JVCo ‘‘shall not

purchase, acquire or accept from FT or

DT any FT or DT Products and Services

on any discriminatory basis for use in
4000 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

43CIS, 60 F.R. at 44071 (emphasis added).

44Sprint and JVCo are defined so as not to

include FT, DT, Atlas, or each other. See Sections

V.O. and V.T.

45This situation is entirely distinguishable from

US v. MCI, supra, where there was no need to make

BT a party to the consent decree. The decree there

had no substantive anti-discrimination obligation

because BT already faced facilities-based and

reseller competition, the UK government did not

own any significant interest in BT (nor would it

have an indirect ownership interest in MCI or the

NewCo (Concert) joint venture) and thus had no

conflict between its interest as owner and its

interest as regulator; and there was an established

UK regulatory regime that prevented undue

discrimination. See US v. MCI, CIS, 59 F.R. at

33015, 33016, 33022–23.

DOJ said there: ‘‘Persons affected by an undue

preference or undue discrimination on the part of

BT in violation of Condition 17 of BT’s license, or

other violation of BT’s license, in favor of MCI or

NewCo, may complain to the United Kingdom

Office of Telecommunications for such relief as

OFTEL is authorized to provide under the United

Kingdom Telecommunications Act and BT’s

license. * * * Because * * * the

telecommunications regulatory regime in the

United Kingdom now embodies or is developing

important competitive policies and safeguards, the

United States concluded that it is possible to

protect competition in these circumstances without

placing specific antidiscrimination prohibitions in

the proposed Final Judgment * * *.’’ i.d. at 33022–

23. By contrast, ‘‘[h]ere, the competitive concern

[particularly about discrimination and crosssubsidization] is * * * that [French and German]

regulation is at present insufficiently developed to

safeguard competition adequately by itself, in the

absence of alternative telecommunications

infrastructure that can be used by all competitors

in France and Germany.’’ US v. Sprint, CIS, 60 F.R.

at 44076.

46CIS, 60 F.R. at 44071.

47 Id.

the offer, supply, distribution or other

provision by Sprint or [JVCo]’’ of any

US-France/Germany

telecommunications service.

‘‘[D]iscriminatory basis’’ means ‘‘terms

more favorable to Sprint or [JVCo] than

are made available to other similarly

situated’’ US providers, i.e., providers

‘‘that are generally comparable to Sprint

and [JVCo] with respect to volume or

type of FT or DT Products and Services

purchased, acquired or accepted from

FT and DT * * *.’’ Section III.D.2.

supplements Section III.D.1. by coming

at the anti-favoritism issue from a

different angle. Section III.D.2. says

‘‘Sprint and [JVCo] may not benefit from

any discount or more favorable term

offered by FT or DT to any customer for

FT or DT Products or Services, that is

conditioned on Sprint or [JVCo] being

selected’’ as the US provider. These

provisions require modification and

clarification to eliminate possible

loopholes in interpretation and

enforcement.

1. The Failure To Bind FT and DT

Directly as Parties to the Decree Is a

Significant Flaw That Should Be

Corrected

The stated purpose of Section III.D.1

is ‘‘to prevent FT or DT from using their

monopolies and market power in France

and Germany to favor Sprint and [JVCo]

in the provision of products and

services that other providers must also

have to compete effectively.’’ 43 A

crucial deficiency of Section III.D.1. is

that it is framed only in terms of what

Sprint and JVCo may not ‘‘purchase,

acquire or accept’’ from FT and DT but

not also in terms of what FT and DT

may not provide to them. FT and DT are

not made defendants and, therefore, are

not bound to comply with the

prohibition against discrimination.44

Although on its face Section III.D.1. is

not limited to knowing or intentional

receipt of discriminatory preferences,

there is a substantial risk (absent

clarification) that Sprint and JVCo will

view their obligations as extending only

to situations where they know they are

beneficiaries of preferential treatment by

FT and DT. Moreover, there is no

provision expressly requiring Sprint and

JVCo affirmatively to inquire of FT and

DT in advance to make certain there

will be no discrimination if they

purchase, acquire or accept a particular

FT or DT Product or Service. Instead,

Sections II.A.1.–5. only require Sprint or

JVCo, as the case may be, to determine

and disclose what it is receiving from

FT and DT in terms of interconnection,

other services, accounting and

settlement rates, and circuit and service

provisioning and restoration (and also,

under subsections A.2. and A.4., to

disclose what FT and DT are providing

to customers ‘‘in conjunction with’’ FT’s

and DT’s distribution of JVCo services).

Sprint and JVCo, therefore, will not

necessarily know whether they have

acquired FT or DT Products and

Services on a discriminatory basis

because they may not know what prices,

terms, and conditions FT and DT have

agreed to provide others.

A similar problem exists with respect

to Section III.D.2. This provision fails to

prohibit FT and DT (because they are

not defendants bound by the decree)

from offering discounts or other

favorable terms to customers

conditioned upon the customers using

Sprint or JVCo as US provider. Section

III.D.2. certainly does not say Sprint or

JVCo must know of the ‘‘discount or

more favorable term’’ and of the

‘‘condition[ing]’’ for the prohibition to

come into play. Nonetheless, there is a

substantial risk Sprint and JVCo will

consider the Section III.D.2. obligation

to apply only if they have such

knowledge. Nothing in the Section or

elsewhere imposes upon Sprint and

JVCo an express affirmative obligation

to obtain from FT and DT all the

information necessary to determine that

such conditional discounting (or other

favoritism) has not occurred and will

not occur. Section II.A.7. requires Sprint

and JVCo to make disclosures only

when they are in ‘‘receipt of any

information from FT or DT, or otherwise

learn[ ] of any discount or more

favorable term’’ offered to customers by

FT or DT on condition that Sprint or

JVCo is selected as US provider. Under

Section II.A.7., clearly there is no

obligation imposed on FT and DT to

provide the requisite information to

Sprint and JVCo and apparently there is

no obligation on Sprint or JVCo to insist

that FT and DT provide such

information to them.

To be effective, the decree should be

revised to include FT and DT as parties

and to make the anti-discrimination

language apply directly to FT’s and DT’s

actions in creating any discrimination as

well as to Sprint’s and JVCo’s actions in

accepting the benefits of

discrimination.45 In the event that

cannot be accomplished, at a minimum

the decree must be clarified to make

certain that Sprint and JVCo understand

their obligations apply strictly

regardless of what facts Sprint and JVCo

may or may not actually know or even

have reason to know after due inquiry.

2. The Anti-Discrimination

Requirements Should Stay in Effect for

the Life of the Decree

According to Section X.B. (second

sentence), Section III.D. automatically

expires when Phase I of the Decree

terminates. Under Sections V.P.–Q.,

Phase I ends when FT’s and DT’s

monopolies lose their formal legal

protection and ‘‘one or more’’

competing licenses are issued. Nothing

in the Decree requires that France and

Germany have in place at that time

adequate laws and regulations

preventing and remedying

discrimination—as Section III.D. is

supposed to do during Phase I. The

Competitive Impact Statement

recognizes that ‘‘the [nondiscrimination]

provisions of the Final Judgment are

considerably more specific and

comprehensive than any existing

regulatory obligations applicable to

Sprint, FT, or DT.’’ 46 Moreover, DOJ is

rightly concerned that ‘‘regulatory

regimes in France and Germany are not

fully developed’’ and that, in any case,

‘‘Joint Venture Co. may not be subject to

direct or complete oversight by any

United States, French or German

telecommunications regulator.’’ 47 DOJ

effectively acknowledges that the fact
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4001

48 Id.

49 Id. at 44062–63.

50See Proposal for a European Parliament and

Council Directive on Interconnection in

Telecommunications Ensuring Universal Service

and Interoperability through Application of the

Principles of Open Network Provision (ONP), COM

(95) 379 (July 19, 1995) (‘‘Draft Interconnection

Directive’’); Draft Commission Directive of lll,

1996, amending Commission Directive 90/388/EEC,

regarding the implementation of full competition in

telecommunications markets (96/lll/EC) (July

19, 1995) (unofficial draft) (‘‘Draft Voice and

Infrastructure Directive’’).

51See EC, DG, IV, Communication by the

Commission to the European Parliament and the

Council on the Status and Implementation of

Directive 90/388/EEC on Competition in the

Markets for Telecommunications Services, COM

(95) 113 final (April 4, 1995) (‘‘1990 Services

Directive Implementation Report’’) at 11, 20, 22, 34.

52CIS, 60 F.R. at 44063.

53 DOJ should clarify that if ‘‘volume and type of

FT or DT Products and Services’’ are not ‘‘relevant

distinctions in establishing service conditions,’’

then a US provider is ‘‘similarly situated’’ to Sprint

or JVCo if the provider and Sprint or JVCo are

acquiring the same or ‘‘generally comparable’’ FT or

DT Products or Services.

54The revision or clarification will also make

clear that US providers will have access, through

DOJ, to any ‘‘justification of costs’’ which Sprint or

JVCo offer ‘‘to rebut a claim of discrimination.’’ See

penultimate sentence of Section III.D.1.

55CIS, 60 F.R. at 44071.

56The quoted language, containing the ‘‘in

conjunction with’’ concept, appears in Sections

II.A.2. and II.A.4.

‘‘FT and DT continue both to be

government-owned’’ is a reason not to

rely totally on the French and German

governments to prevent discrimination

by FT and DT.48

DOJ also has no basis at present to

presume that European Union (‘‘EU’’)

directives addressed to Member States 49

will somehow ensure by the end of

Phase I that France and Germany have

adequate anti-discrimination regimes

and will deploy sufficient resources to

enforce them. First, the proposed

market-opening measures that the

European Commission (‘‘EC’’) is

considering are draft proposals 50 that

may not be adopted in a form which

ensures adequate anti-discrimination

measures. Second, Member States,

including France and Germany, have

been tardy in implementing EC

directives and have sometimes refused

to implement them in full.51 Third, as

the CIS itself cautions, ‘‘[i]t is not yet

clear whether the EU’s liberalization

measures will confer any rights on

providers from the United States.’’ 52

In short, there is no basis for trusting

to a leap of faith that, when Phase I

ends, there will be fully functioning and

adequate anti-discrimination regimes in

force in France and Germany protecting

US and other competitors of FT, DT,

Sprint, and JVCo. Section III.D. must be

revised so that it runs for the life of the

Decree. If France and Germany

ultimately put into place sufficient

substitutes for Section III.D., the parties

could propose, subject to public notice

and comment, a waiver or modification

under Section VIII.

3. Section III.D.1.’s Definitions of

‘‘Discriminatory Basis’’ and ‘‘Similarly

Situated’’ Require Clarification

Section III.D.1. says ‘‘ ‘discriminatory

basis’ shall mean terms more favorable

to Sprint or [JVCo] than are made

available to other similarly situated

United States international

telecommunications providers * * *.’’

DOJ should clarify that the word ‘‘all’’

implicitly modifies the phrase ‘‘other

similarly situated [US] * * * providers’’

so that all such providers are protected

against discrimination. In other words,

if the favorable terms received by Sprint

or JVCo are received by only one

‘‘similarly situated’’ US provider (or

fewer than all ‘‘similarly situated’’ US

providers), the receipt of such terms by

Sprint or JVCo would still be on a

‘‘discriminatory basis’’ because other

‘‘similarly situated’’ US providers were

unable to obtain comparable terms. If

that were not a correct reading, FT and

DT could circumvent the purpose of this

provision by granting one (or a few)

weak and ineffective US provider(s) the

same favorable terms as received by

Sprint and JVCo and denying such

terms to the US providers that are Sprint

and JVCo’s principal competitors .

Section III.D.1. defines ‘‘similarly

situated’’ to mean providers that are

‘‘generally comparable to Sprint and

[JVCo] with respect to the volume or

type of FT or DT Products and Services

purchased * * *, provided that volume

and type are relevant distinctions in

establishing service conditions.’’ 53 The

provision adds: ‘‘Defendants shall make

available to plaintiff all information that

was available to them, whether

possessed by them or obtained from FT

or DT, in considering the relevance of

such distinctions.’’ It is critical that

‘‘plaintiff’’ (DOJ) be able to disclose that

information to affected US providers so

that they may comment upon whether

an impermissible ‘‘discriminatory basis’’

exists. To remove any ambiguity, the

beginning of the sentence should be

revised to read: ‘‘Defendants shall

disclose to the United States all

information. * * *’’ By using the

defined term ‘‘[d]isclose’’ (see Section

V.F.), the sentence would make clear

that the information will be disclosed

through DOJ to interested US providers.

If the sentence is not rewritten in this

way, DOJ at least should clarify that the

provision as written impliedly permits

it to disclose the information to US

providers.54

4. Section III.D.2. Needs Clarification

Section III.D.2. ‘‘is designed to

prevent Sprint and [JVCo] from

receiving benefits of discrimination

indirectly, through special deals or

arrangements that FT and DT offer to

customers in order to induce them to

obtain services from Sprint or [JVCo],

rather than through more favorable

terms offered directly to Sprint [or JVCo]

addressed by [Section] III.D.1.’’ 55

Because FT and DT (or Atlas), rather

than JVCo, will interface directly with

the customer in the sale of JVCo

services, this provision is of paramount

importance in guaranteeing that FT and

DT do not misuse their dominant home

country positions to impair competition

in the provision of US-France/Germany

telecommunications services.

Consequently, it would be helpful for

DOJ to clarify that Section III.D.2.

governs, inter alia, situations ‘‘where FT

or DT is acting as the distributor for

Joint Venture Co.’’ and FT or DT

Products or Services are ‘‘provided [to

the customer] by FT in France or DT in

Germany in conjunction with’’ the

distributed ‘‘Joint Venture Co.

services.’’ 56 To guard against

enforcement loopholes, DOJ should

clarify that Section III.D.2’s phase

‘‘conditioned on’’ covers not only

express conditioning but also situations

where the circumstances reasonably

imply that the discount in FT or DT

Products or Services is available only if

the customer selects Sprint or JVCo

products or services. DOJ should also

make clear that, if the overall

circumstances reasonably indicate the

availability of the discount or more

favorable term increased the customer’s

willingness to take the Sprint or JVCo

product or service, that is enough to

establish the proscribed

‘‘condition[ing].’’ DOJ should add that

just because the FT or DT item offered

to the customer at discount (or with

some other preferential term) is formally

covered by a different invoice or

contract than the Sprint or JVCo product

or service, hardly proves there has been

no illicit ‘‘condition[ing].’’

D. The Restrictions Against CrossSubsidy (Section III.F.) Should Be

Extended to the End of Phase II and

Strengthened

The stated purpose of Section III.F. is

‘‘to ensure that the activities of Joint

Venture Co. and Sprint are not

subsidized by FT and DT.’’ Yet, these

vitally important restrictions
4002 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

57CIS, 60 F.R. at 44072.

58See Section V.Q.

59See Complaint ¶¶ 33, 36.

60A rate base, rate of return regulatory scheme

would encourage the regulated entity to shift cost

of its nonregulated businesses to its regulated

business.

61CIS, 60 F.R. at 44072.

62 Id. at 44062.

63 Id. at 44063.

64See page 12, note 28, supra.

65 Id..

66The ‘‘one or more’’ licensee portion of the

definition of Phase II also must be revised. See

pages 27–28, supra.

67CIS, 60 F.R. at 44072.

68Complaint ¶ 40(c).

automatically expire at the end of Phase

I. The Competitive Impact Statement

(CIS) acknowledges that ‘‘[e]xisting

regulatory safeguards against crosssubsidization in France and German are

very limited and have not prevented

instances of massive cross-subsidy.’’ 57

Under the decree, Phase I ends when

French and German authorities

eliminate FT’s and DT’s legal

monopolies over domestic and

international infrastructure and public

switched voice and issue licenses to

‘‘one or more’’ competitors.58 There is

no requirement that French and German

authorities also have in place

regulations and enforcement resources

adequate to prevent more ‘‘instances of

massive cross-subsidy.’’

The formal termination of the legal

monopolies and the issuance of one (or

more) competitor licenses will not

eradicate FT’s and DT’s incentive and

ability to cross-subsidize. FT and DT

have retained high market shares and

considerable market power in data

transmission even though competition

has been allowed for a few years.59

There is no reason to assume that the

market power FT and DT have in the

currently monopolized segments (such

as public switched voice) will dissipate

so fast after the arrival of Phase II that

a strategy of predatory crosssubsidization will necessarily fail and

therefore will not be attempted. The risk

of cross-subsidization is not restricted to

situations of 100% legal monopoly, but

can also materialize where a company

has substantial market power in one

segment of its operations and the ability

to absorb costs properly attributable to

a more competitive segment. The type of

rate regulatory scheme applicable to the

segment where market power is present

may actually exacerbate the company’s

incentive to cross-subsidize,60 in

addition to being ineffective in detecting

and preventing cost-shifting by the

company.

The CIS assumes that with the arrival

of Phase II ‘‘the EU authorities [will]

have improved safeguards against crosssubsidy.’’ 61 But, as the CIS also

recognizes, EU directives are merely an

‘‘overlay’’ of requirements that mean

very little unless and until Member

States transpose them into national laws

and then effectively enforce those

laws.62 Furthermore, ‘‘[i]t is not yet

clear’’ whether EU measures (and,

therefore, the requisite follow-on

national laws) would ‘‘confer any rights

on providers from the United States.’’ 63

Consequently, there is a significant risk

that US providers may lack standing or

adequate procedural rights to challenge

suspected cross-subsidization.

Moreover, FT and DT will remain at

least majority-owned by their respective

governments beyond the end of Phase

I,64 privatization being ‘‘wholly at the

discretion of the [M]ember [S]tates’’ and

not something the EU has sought to

dictate.65 As a consequence, there is a

substantial risk that the French and

German governments’ ownership

interests in FT and DT will deter those

governments (as has happened up to

now) from imposing and/or effectively

enforcing regulations intended to detect,

prevent, and remedy crosssubsidization.

To correct this major flaw, Section

III.F. should be modified so that it

remains effective for the entire life of

the decree. Alternatively, the Section

should be revised so that it expires only

after the market-opening standards for

starting Phase II are satisfied 66 and

France and Germany have put into

effect comprehensive measures for

preventing, detection, and remedying

cross-subsidization and have granted

affected US and other providers

adequate rights to complain about and

receive prompt and complete injunctive

and monetary relief for any crosssubsidization that does occur.

Section III.F.3. says that the required

separate ‘‘accounting systems and

records of Joint Venture Co. will be

made available pursuant to the visitorial

provisions of Section VI.’’ Section CI

bars disclosure to the public, including

certainly JVCo’s competitors, of any

information or documents obtained

thereunder by DOJ. By its very nature,

cross-subsidization is not something

that a competitor can readily infer

simply from knowledge of its own costs

and what targeted customers may say

they are being offered or charged by

someone else. Consequently, DOJ

cannot assume that JVCo’s books will

need to be examined only when DOJ

receives a credible complaint from a

JVCo competitor. Yet, given its limited

resources and other priorities, DOJ is

hardly in a position regularly to audit

JVCo’s financial records to discover any

cross-subsidization. The decree needs to

be revised so that interested parties,

pursuant to a confidentiality

commitment, many examine the JVCo

records and bring any evidence of crosssubsidization to DOJ’s attention. A

possible (although less effective)

alternative would be for the decree to

provide that DOJ shall hire an

independent auditor for regular audits

at JVCo’s expense.

E. The Restrictions Regarding

Proportionate Returns and

Correspondent Operating Agreements

(Sections III.E. & G.) Should Be

Extended to the End of Phase II and

Strengthened

1. Proportionate Returns

Section III.E. is designed to prevent

FT and DT from favoring their partially

owned affiliate Sprint over other U.S.

international carriers in returns of voice

correspondent traffic. Because FT and

DT are not Decree defendants, the

obligation is imposed upon Sprint for

the duration of Phase I not to ‘‘accept’’

returns from either FT or DT or ‘‘accept

or benefit from’’ any methodology

changes inconsistent with FCC

proportionate return policies or which

‘‘substantially favor[ ]’’ Sprint over other

U.S. providers. The CIS points out that

the French and German regulators ‘‘have

not imposed any form of proportionate

allocation requirement on their national

carriers.’’ 67 The Complaint correctly

states that ‘‘FT and DT, as a result of the

proposed [investment and joint venture]

agreements, will have an increased

incentive and ability to direct their

switched telecommunications traffic

from France and Germany

disproportionately to Sprint rather than

other U.S. international carriers, either

directly as part of the correspondent

system, or outside that system through

the Joint Venture Co. backbone

network.’’ 68

As the proposed decree is now

drafted, Sprint’s Section III.E. obligation

automatically expires when the French

and German public switched voice and

infrastructure markets are first opened

to competition. DOJ does not (nor could

it) presume that France and Germany

will impose proportionate returns

obligations to take effect when that

happens. In fact, as indirect partial

owners of Sprint (through their

ownership of FT and DT), the French

and German governments would have

an interest in Sprint receiving

preferential returns over AT&T, MCI, et

al. It is wrong for the Decree to assume

that the formal elimination of FT’s and
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4003

69 If the French and German governments do in

fact promulgate and effectively enforce a

proportionate returns requirement, the parties could

seek a modification or waiver under Section VIII of

the decree, subject to public notice and comment.

70Complaint ¶ 40(b).

71 Given the market power reflected in FT’s and

DT’s public data networks (see Complaint ¶¶ 33,

36), this provision should be modified so as to

afford protection for any non-voice correspondent

services that are intended to interconnect with the

FT and DT public data networks.

72The parties can always seek a Section VIII

waiver or modification if the respective French and

German governments establish and enforce a

regulatory regime that accomplishes the same

protection of fair competition intended by Section

III.G.

73Complaint ¶ ¶ 2, 3, 31–36, 40(a)–(e).

74 Id ¶ 3.

75CIS, 60 F.R. at 44073.

DT’s legal monopolies and the mere

licensing of ‘‘one’’ competitor (or even

‘‘more’’ competitors) will deter FT and

DT from favoring Sprint or diverting

correspondent traffic through their

JVCo. Newly licensed entrants in public

switched voice will need substantial

time and effort to build up their

international capacity to the point

where it becomes a realistic alternative

to FT and DT. Until that happens, FT

and DT will not avoid favoring Sprint or

JVCo because they fear retaliation by

other U.S. carriers diverting returns to

the new French and German

international licensees.

In short, there is no basis for Section

III.E. to expire at the end of Phase I. The

obligation should be modified to run for

the entire life of the decree.69

Alternatively, the Section could be

modified to run until both Phase I ends

and the French and German

governments promulgate (and

demonstrate the intention to enforce) a

proportionate returns requirement

comparable to that in Section III.E.

2. Correspondent Operating Agreements

The Complaint says that, as a result of

these proposed transactions, ‘‘FT and

DT will have an incentive to favor Joint

Venture Co. and Sprint over their

competitors, particularly new entrants

and providers of new services, by

denying operating agreements * * * or

by offering such agreements on

discriminatory terms.’’70 To address this

concern, Section III.G.1. of the proposed

Final Judgment forbids Sprint from

offering any particular US

correspondent service with FT or DT

unless ‘‘at least one other’’ US

international provider ‘‘has also

obtained an operating agreement with

FT and DT for the provision of such

service * * *.’’ Once again, the Decree’s

failure to require more than ‘‘one’’

competitor is a major problem. Section

III.G.2. attempts to remedy that problem

by requiring Sprint to carry the

correspondent traffic of any US provider

that ‘‘has requested but has not yet

received an operating agreement with

FT or DT * * *.’’ Rates and terms and

conditions for such substitute carriage

by Sprint must be ‘‘commercially

competitive’’ with those for the US

providers that have operating

agreements. The rate schedules must be

annually updated to ‘‘reflect the

estimated value of any adjustments in

proportionate return traffic that may be

received by Sprint from France or

Germany’’ as a result of carrying the

traffic originated by the US provider

having no operating agreement. Section

III.G.2. is limited to ‘‘IDDD voice service

or any other [correspondent] services

that make use of the FT/DT PSTNs.’’71

Like Section III.E. dealing with

proportionate returns, Section III.G.

automatically expires once Phase I ends.

There is no basis for the apparent

assumption that the problem to be

remedied by Section III.G. will simply

disappear on the day the first facilitiesbased domestic and international public

switched voice competitor for FT and

DT is licensed. It will take years for a

newly licensed competitor to build up

its facilities and geographic service

areas to become an adequate and costcompetitive alternative to FT and DT for

terminating US correspondent traffic.

Given their continuing ownership of FT

and DT (and derived ownership

interests in Sprint and JVCo), the French

and German governments may not

impose and enforce a regulatory

alternative to Section III.G.

Section III.G. should be modified so

that it extends for the life of the

decree.72 As a next best alternative,

Section III.G. could be modified so that

it expires only when both Phase I

terminates and the French and German

governments promulgate (and

demonstrate the intention to enforce)

requirements that FT and DT not refuse

to deal or discriminate in any way

against Sprint’s rivals in terms of

correspondent operating agreements.

F. Provisions Requiring Access to

Technical Interfaces (Section III.H.) and

Public Data Network Protocols (Section

III.I.) Should Be Extended to the End of

Phase II and Broadened

As the Complaint explains, the

investments in Sprint and JVCo will

give FT and DT the incentive to use

their market power over voice and data

services and facilities to favor Sprint

and JVCo.73 Of particular concern is the

danger of favoritism and discrimination

‘‘in providing access to [FT’s and DT’s]

local, domestic long distance and

international telecommunications

services and facilities and to their

public data networks * * *.’’ 74

Sections III.H.–I. of the proposed Final

Judgment are intended to address the

technical side of the access problem, but

they apply only during Phase I. The

public interest requires that these

provisions be strengthened and

extended for the life of the Final

Judgment.

1. Essential Modifications of Section

III.H

Section III.H. in essence prohibits

Sprint and JVCo, when providing

services in the US that use FT or DT

Products or Services, from accessing

those Products or Services through ‘‘any

proprietary or nonstandardized interface

or protocol’’ if competitors cannot

access the same Products or Services

through ‘‘a non-proprietary or

standardized interface or protocol.’’ By

forbidding ‘‘exclusive access,’’ DOJ

intends the provision to ‘‘have a

significant role in ensuring that

competitors can obtain interconnection

to the public switched [voice] networks

in France and Germany.’’ 75

There are two problems with Section

III.H.’s approach. First, it provides no

assurance that FT or DT will work

cooperatively with Sprint’s and JVCo’s

competitors when those competitors

develop innovative services that need to

interconnect with FT’s and DT’s

networks through interfaces and

protocols that are more technically

advanced than FT’s and DT’s ‘‘nonproprietary or standardized interface or

protocol.’’ By contrast, Section III.H.

allows Sprint and JVCo to interconnect

with FT’s and DT’s networks using

‘‘proprietary or nonstandardized

interface[s] or protocol[s].’’ The antidiscrimination language in Section

III.D.1.(iii)–(iv) does not expressly

address this substantial risk of FT/DT

technological favoritism toward Sprint

and JVCo.

Second, making matters worse,

Section III.H. automatically expires at

the end of Phase I. This will occur even

though the formal elimination of legal

protections for FT’s and DT’s switched

voice and infrastructure monopolies and

the grant of ‘‘one or more’’

geographically unlimited voice licenses

in each country will not instantaneously

(if ever) establish alternative public

switched networks as sufficient

substitutes for FT’s and DT’s networks.

Moreover, continuing French and

German government ownership of FT

and DT (and indirectly of Sprint and

JVCo) does not augur well for

government intervention to assure that
4004 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

76CIS, 60 F.R. at 44073.

77 Id. Section III.D.’s anti-discrimination language

applies to ‘‘FT or DT Products and Services,’’ a

category that expressly includes products or

services needed for interconnection to ‘‘FT/DT

PSTNs’’ but excludes ‘‘services involv[ing]

interconnection to the Public Data Network.’’

Section V.L. (i) & (iv).

78See Complaint ¶ ¶ 32–36; CIS, 60 F.R. at

44061–62.

competitors will have access, not to

mention the most technologically

advanced access, to FT’s and DT’s

public switched networks.

Plainly, the proper solution is to

revise the decree the ensure that FT and

DT cannot provide Sprint and JVCo

more technologically advanced

interconnection to their public networks

and access to other FT and DT Products

and Services. Further, the modified

language should be applicable through

the life of the decree, subject to Section

VIII. waiver or modification proceedings

conducted with adequate public notice

and opportunity to comment.

2. Required Modifications of Section

III.I

The public data ‘‘counterpart’’ to

Section III.H.,76 Section III.I. requires

that FT’s and DT’s ‘‘Public Data

Networks that are based on the X.25 or

any other protocol, continue to be

available to all other United States

international telecommunications

providers on nondiscriminatory terms to

complete data telecommunications

between the United States and France

and between the United States and

Germany, and within France and

Germany for traffic originating within

the United States, France or Germany,

using the X.75 standard protocol for

interconnection between data networks,

or any generally accepted standard

network interconnection protocol that

may modify or replace the X.75

standard.’’

While this provision purports to

assure ‘‘nondiscriminatory terms,’’ it

leaves wide open the possibility that FT

and DT will work cooperatively with

Sprint and JVCo to develop advanced

data services and a superior network

interconnection protocol, but refuse to

cooperate with their competitors who

wish to engage in a similar innovative

effort. The provision does not require

cooperation nor forbid favoritism

toward Sprint and JVCo in the level or

degree of cooperation provided.

Moreover, Section III.I. permits JVCo

and Sprint to use interconnection

protocols that may be more advanced

than the ‘‘X.25/X.75 protocols’’ unless

and until those advanced protocols

become the new ‘‘generally accepted

standard.’’ Of course, they may never

become ‘‘generally accepted’’ if they

remain proprietary and unavailable to

others interconnecting the FT and DT

data networks.

As ‘‘the principal safeguard in th[e]

proposed Final Judgment for

competitive access to DT’s and FT’s

public data networks,’’ 77 Section III.I.

falls woefully short. Given that those

networks have tremendous market

power (although not 100% monopoly

shares) because of FT’s and DT’s

infrastructure monopolies and the

governments’ ineffective regulation,78

and given the governments’ continuing

direct and indirect ownership interests,

there is no basis for the decree to require

anything less than across-the-board

nondiscrimination by FT and DT in

providing technical access to their data

networks and in working to improve

interconnection of data networks.

Further, because the mere formal

elimination of infrastructure

monopolies and the issuance of ‘‘one or

more’’ licenses at the end of Phase I will

not instantly result in fully operating

facilities-based alternatives to FT’s and

DT’s public data networks, this Section

III.I should be modified so that it runs

through the life of the decree. A waiver

or modification, pursuant to public

notice and comment procedures, can

always be sought under Section VIII., if

and when conditions become

appropriate.

III. Conclusion

DOJ should withdraw the proposed

Final Judgment and undertake to

negotiate a new decree along the lines

of the modifications and clarifications

set out in Part II of these Comments.

Dated: October 23, 1995.

Respectfully submitted,

David J. Saylor,

Hogan & Hartson, L.L.P.

Timothy R. W. Cowen,

British Telecommunications plc.

James E. Graf II,

BT North America Inc.

Attorneys for BT North America Inc.

Cable & Wireless Europe; Comments on

Final Judgement of Department of Justice on

Sprint Corp. Joint Venture—Phoenix.

Case 95–CV–1304

Exhibit D

Part I

Introduction

The position of Cable & Wireless Europe

(C&WE) on the joint venture between Sprint

Corporation, Deutsche Telekom AG (DT) and

France Telecom (FT) known as ‘‘Phoenix’’, as

notified is that it:

• is restrictive of competition

• poses a real risk of eliminating competition

• provides considerable potential to abuse a

dominant position

• is not indispensable for addressing the

target market

The Phoenix JV is restrictive of

competition in that it effectively facilitates;

• the direct fixing of prices and other trading

conditions

• the limitating or control of production,

markets, technical development and

investment

• market sharing between the parents

• discriminatory behaviour in the way the

parents treat the JV and all other actual or

potential competitors to the disadvantage

of the latter.

It is inevitable that the effect of the

Phoenix arrangements will be the

coordination of prices by Sprint, DT and FT

if it is to function as a one-stop-shop. Until

now the relevant subsidiaries of DT, FT and

Sprint have spearately set prices

independently and competitively.

That Phoenix will engage in market sharing

is clear from the published announcement of

the European Commission (OJ C184 of

18.7.95) where it states:

‘‘Phoenix products will be distributed by

DT and FT in France and Germany, by Sprint

in the United States and by the ‘‘rest of

Europe’’ operating group in Europe’’.

It is clear from the same published details

that no attempt has been made to

differentiate DT’s and FT’s monopoly

activities from those activities open to

competitive forces. This gives rise to a real

threat that the assets of the monopoly will be

leveraged into those areas where the

notifying parties face competition. Such

behaviour would be an abuse of a dominant

position.

Section 10.6(b) of the Joint Venture

Agreement submitted to the Department of

Justice means that if a customer approaches

FT and requests a private line service

between France and, say the US, then FT

should ‘‘use commercially reasonable efforts

to persuade’’ the customer to use the JV for

such services and must refer the request of

the customer to the JV and its members if FT

fails to convince the customer to purchase JV

services. This is a clear abuse of a dominant

position, and a pooling of information.

For example the published notification (OJ

C184 of 18.7.95) states ‘‘Phoenix products

will be distributed by DT and FT in France

and Germany * * *’’ This means that the

sales forces of the monopoly will promtoe the

products of Phoenix giving the real

possibility for illegal bundling and predatory

cross-subsidies.

The Final Judgement of the Department of

Justice on the JV recognised the substantial

threats to competition in international

telecommunications posed by the JV. The

original structure of the JV provided a set of

incentives for the relevant parties to behave

in a discriminatory and anti-competitive

manner to the advantage of themselves and

to the disadvantage of all competitors, actual

or potential. The most severe threats to

competition posed by the JV are in the two

home markets of the participating

monopolies—Germany and France.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4005

Any telecoms operator, from whatever

home base, intending to address the global

telecoms market must have an effective

presence in the European Union. Germany

and France in combination account for some

40% of the EU’s telecoms market.

A large number of potential corporate

customers have sizeable operations in the

German and French markets and these

potential corporate customers require global

communications facilities in order to carry

on their businesses. All potential or actual

providers of the necessary communications

capabilities must be able to offer cost

effective and efficient telecoms services to

these customers in these two markets if they

are to provide a viable product. However in

order to do so any competitor operator must

deal with the relevant domestic monopolist.

Consequently, the monopolists in these

markets could, if the incentives were in

place, behave in a manner that would

significantly distort competition in a vital

part of the global market to the extent that

competitors would not only be disadvantaged

inside these markets but also be

disadvantaged outside these marekts. Quite

simply, if a competitor is unable to provide

a cost effective solution in one vital segment

of the global market it may be handicapped

from gaining customers because these

customers are seeking global (total) solutions

to their communications needs.

Key Issues

In recognition of these conditions the Final

Judgement of the Department of Justice

proposed various restrictions on the JV,

pertaining in particular to the conditions

obtaining in Germany and France. Two

questions arise:

• Are the restrictions adequate to ensure

fair and undistorted competition so that all

actual and potential competitiors have an

equal opportunity of addressing the needs of

the target customers in the relevant

countries?

• Are the restrictions fully enforceable in

the relevant countries?

Given the structure of the

telecommunications services supply sector in

the United States, the issue of adequacy does

not present itself in the US. Furthermore, the

question of enforceability does not arise in

the United States because first, the parties do

not hold monopoly positions in the US

market and second, the Department of Justice

has sufficient powers to ensure compliance

with its decisions. The issues of adequacy

and enforceability arise in the EU and in

particular Germany and France. The

restrictions of the Final Judgement appear to

fall on both criteria.

Part III of these comments addresses the

issues of adequacy and Part IV addresses the

issue of enforceability.

Part II

Conditions in Germany and France

The principal markets of concern with

respect to competition and access for

competitor operators to the JV are France and

Germany. This is clear both from the Final

Judgement and from the brief details in the

published (OJ C184 of 18.7.95) by the

European Commission where it states

‘‘Phoenix products will be distributed by DT

and FT in France and Germany * * *’’. This

simple statement has ramifications for all

actual or potential competitors in the

provision of global telecoms services. Given

the significance of these markets in the EU

and the overall global telecoms market and

the fact that the vast majority of the assets of

DT and FT are located in Germany and

France respectively, it is the conditions in

these two markets that are the most relevant

to the restrictions in the Final Judgement

(a) The situation in Germany. Selfevidently, DT holds a dominant position in

all the most important product and service

markets in the German telecommunications

sector. The ‘‘corporatisation’’ of Deutsche

Telekom AG (DT) into a joint stock company

has made no material difference to its

position on the German market or its

effective relation with the

Bundesministerium through the

Bundesanstalt fur Post und

Telekommunikation.

DT retains the exclusive legal right to

supply public voice telephony as defined in

the Services Directive (Directive 90/388/

EEC), the major piece of specific legislation

covering competition in telecoms services in

the EU. All other services are legally open to

competitive supply.

DT retains the exclusive right over the

infrastructure necessary to deliver

telecommunications services and, as the

European Commission recognised in the

MSG Media Service (Case IV/M.469)

prohibition decision, owns and operates most

of Germany’s cable TV networks, which

could provide an alternative source of

infrastructure to competitors to DT.

DT is also the market leader in liberalised

telecommunications services in the German

market. According to the Services Directive,

the monopoly in services only remains over

the provision of telephony to the public, all

the rest being ‘‘liberalised’’.

This fact is relevant to the restrictions

enumerated in the Final Judgement of the

Department of Justice. The press release of

July 13, 1995 states on page 3 at bullet point

1 that the JV ‘‘Cannot own, control or provide

certain services until competitors have the

opportunity to provide similar services in

France and Germany.’’ Under EU law the

only service which remains the exclusive

right of DT is public voice telephony. This

implies that the Department’s restrictions

only apply to public voice telephony (the

market fully controlled by DT). However, this

service is not the target of the JV which seeks

to attract corporate customers.

Therefore, there is some doubt as to the

adequacy of the restrictions of the

Department of Justice in its Final Judgement

if these restrictions fall only on public voice

rather than on liberalised services.

All competitors to DT in the liberalised

sector have to lease infrastructure from DT if

they wish to offer liberalised services.

Equally, all competitors need to use DT for

any switched traffic and call termination at

interconnection (access) charge rates

determined by DT. This state of affairs will

continue in the future even when there are

alternative providers of infrastructure given

the ubiquity of DT. Therefore the costs of all

competitors to DT in Germany are, and will

continue to be, largely determined by DT.

This state of affairs has a substantial

impact on the economics of any competitor

to DT. Whereas it may be legally permitted

to compete against DT it may not be

economically feasible to do so. Again this

reflects upon the restrictions of the Final

Judgement. The ability of a competitor to

gain a licence and to take advantage of the

licence in a meaningful way are very

different concepts in practice. Unlike the US

and British telecommunications markets,

there is no history in Germany of rate setting

for leased lines and interconnection (access)

charges by market mechanisms or developed

regulatory intervention.

Also of relevance is the European

Commission’s ‘‘Communication by the

Commission to the European Parliament and

the Council on the status and

implementation of Directive 90/388/EEC on

competition in the markets for

telecommunications services’’ (COM(95)

113). This is a status report on the degree of

implementation of the Services Directive,

which contains a report on conditions in

Germany. As noted above this is the key

piece of European legislation on

liberalisation of telecoms.

In this document the Commission reported

that the German Law of 14 September 1994

(Postneuordnungsgesetz—PTNeuOG) did not

comply in full with the Services Directive.

The new law did not reflect the definition of

‘‘voice telephony’’ of the Services Directive.

Consequently, since the new law did not

reflect the definition of ‘‘voice telephony’’ of

the Services Directive, DT has benefited from

a monopoly definition that is wider than that

sanctioned by the Services Directive. This

has impeded competition in Germany by

restricting the range of services competitors

could offer to customers. Additionally,

competition has been restricted by the failure

to implement correctly Article 6 of the

Directive causing delays in the use of some

terminal equipment. These matters were only

resolved following the intervention of the

European Commission

Furthermore, the Commission’s document

found that the German Law did not

implement in an appropriate manner Articles

6 and 7 of the Directive, of which the latter

is the most important.

Article 7 of the Services Directive

(Directive 90/388/EEC) instructs Member

States to separate telecommunications

regulatory and operational functions so that

the regulatory body is independent of the

telecommunications organisation.

The issue of Article 7 of the Services

Directive does not appear to be fully resolved

with the possibility that a regulator that is

not independent may not act so as to prevent

the restriction or distortion competition. This

state of affairs concerning the nonimplementation of the Services Directive has

implications for the enforceability of the

restrictions of the Final Judgement of the

Department of Judgement in the Phoenix JV.

The absence of an effective regulator of DT

was demonstrated in the case of the crosssubsidy from the monopoly sector into DatexP. This case and the non-implementation of

Article 7 of the Services Directive are
4006 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

discussed in Part IV. DT has also been

accused by its competitors (the Association

of Private Telecommunications Operators) of

cross subsidizing its leased line business.

The draft new German Law for

telecommunications is also discussed in Part

IV as it has a bearing on the enforceability

of the restrictions in the Final Judgement.

(b) The situation in France. The conditions

in France are slightly less restrictive than

those in Germany in that there has been some

limited ‘‘experimentation’’ with alternative

infrastructure. Nevertheless FT retains the

exclusive legal right to supply public voice

telephony as defined in the Services

Directive and the exclusive right over the

infrastructure necessary to deliver

telecommunications services. FT is

overwhelmingly dominant on the French

market.

FT is the market leader in liberalised

telecommunications services in the French

market (e.g., paging), a position reinforced by

the necessity for competitors to FT in the

liberalised sector to have to lease

infrastructure from FT and its subsidiaries if

they wish to offer liberalised services.

Equally, all competitors need to use FT for

any switched traffic and call termination at

interconnection charge rates determined by

FT. The costs of all competitors to FT are

largely determined by FT, both now and in

the future. As with Germany, there is no

history of cost based rate setting for leased

lines and interconnection (access) derived

from market forces or well developed

regulatory intervention.

There is a strong doubt whether Article 7

of the Services Directive (Directive 90/388/

EEC) has been implemented. For example,

the French Regulator sits on the Board of FT

and the regulatory function sits within the

same Ministry that acts as the owner of FT.

In these circumstances it is doubtful whether

the French regulator is independent and

there is a clear potential for a conflict of

interest between promoting competition (and

the interest of competitors) and defending FT

from competition.

There are concerns that Colisee

International behaves in an anti-competitive

manner. The company is a subsidiary of FT

which is engaged in reselling of the capacity

of FT. Complaints about Colisee have been

confirmed by the French regulator. The latter

has found that:

• FT sells leased lines and the PSTN to

Colisee at tariffs below the official list price

whilst competitors to FT are forced to buy

these inputs at the official published tariff.

• FT is offering Colisee direct access to its

International Transit Centre but does not

permit competitors similar access.

This behaviour is clearly abusive but the

French regulator has not resolved the issues

to the satisfaction of competitors to FT.

Part III

Adequacy of the Restrictions of Final

Judgement of the Department of Justice

The restrictions detailed in the Final

Judgement represent a sound and justifiable

set that are appropriate to the circumstances,

particularly on the trans-Atlantic route

between the US and the two monopoly

markets of Germany ad France.

However, these restrictions apply in part to

services that competitors cannot legally

supply in Germany and France. In the EU,

the only service which remains the exclusive

right of the monopolist is public voice

telephony. Public voice telephony is

supplied by DT and FT. This service is not

the target of the Phoenix JV. All of the

services of the target corporate customers are

open to competition. Consequently, to the

extent that the restrictions of the Final

Judgement apply to services which are not

the target of the JV, the restrictions are not

adequate.

In other respects the restrictions contained

in the Final Judgement are equivalent to a

commitment on the parties to the JV to

comply with the competition rules of the US

and the EU—something to which the parties

must comply in any event.

Whilst the monopoly of infrastructure

remains in place in Germany and France, this

monopoly can effectively limit access to

networks in a way that excludes or severely

restricts the possibilities of parties other than

Sprint, DT and FT in the Germany and

France even when the competition rules are

adhered to. For example, DT and FT could

charge non-discriminatory interconnection

(access) but high charges to themselves and

all competitors. As far as DT and FT are

concerned, this would merely represent a

transfer of funds from one part of the

business to another. However, for

competitors such charges are real costs that

could limit the viability of their offerings.

This implies that the restrictions of the

Final Judgement may not be adequate to

achieve its objectives.

An adequate environment which would

promote effective competition and thereby

provide for the conditions in which the JV

would not distort competition are listed

below.

Legislative Framework

(a) Infrastructure. As has been made clear,

the JV through the monopolies of

infrastructure in Germany and France

determine the costs (leased lines and

interconnection) of all competitors on the

relevant market. Equally, the monopolies of

infrastructure allow the parties to the JV to

control the functionality of competitors

thereby determining the nature of offerings

they can make to the market.

Competitors to the monopolists are at the

same time major customers. Furthermore,

this competitor/customer relationship means

that competitors pass information on their

customer to their monopoly competitors.

Only the freedom of choice of infrastructure

for all competitors would allow for

competition to develop by allowing

competitors more control over their costs and

functionality.

Consequently, any remedy to the real risks

to competition posed by the JV must include

the acceleration of the liberalisation of

infrastructure in Germany and France.

Alternative infrastructure is available form

cable TV operators and many utilities. The

liberalisation of these facilities would

enhance the prospects for competition. In

this respect cable TV has a particular

importance because it would provide an

alternative to the local loop bottleneck.

To date both DT and FT (and the respective

Governments) have exhibited a reluctance to

support any such acceleration of the

liberalisation of infrastructure.

(b) Interconnection. Even where alternative

infrastructure is found, unavoidably

competitors will use the assets of the

monopolies for call termination and

origination given the ubiquity of the

monopolists. In these circumstances the

terms for interconnection are of central

importance if the access barrier is to

These terms of interconnection cover a

wide range of matters, most of which are

addressed in the European Commission’s

‘‘Proposal for a European Parliament and

Council Directive on interconnection in

telecommunications’’.

Two issues of particular importance to the

promotion of effective competition. There

are:

• the points where interconnection is

permitted.

• the charges for interconnection at these

ponts.

Ideally these matters should be resolved

through commercial negotiations. However

the UK experience demonstrates that it is

extremely difficult, if not impossible, to

resolve these matters satisfactorily.

Consequently, regulatory intervention is

required.

In these circumstances the optimal

solutions to these issues are the following:

• interconnection should be permitted at any

technically feasible point within the

hierarchy in the network rather than at a

very limited number of points determined

by the monopolist. This allows competitors

to make choices and trade offs between

functionality and costs

• interconnection must be charged in an

unbundled manner, for only those assets or

elements used in the network.

Whith respect to these interconnection

charges it is appropriate that the competitor

pays for the costs if causes. There are two

dimensions to cost causality:

• the correct cost basis (level of the charge)

• the appropriate cost drivers (structure of

the charge).

The correct cost basis for interconnection

charges is Long Rung Average Incremental

Costs (LRAIC), which is the methodology

accepted by the UK regulator, Oftel.

The appropriate cost driver in telecoms is

buy hour capacity. Competitors should

therefore pay for the addition to busy hour

capacity that they cause—termed Capacity

Based charged (CBC).

Consequently, in order to promote effective

competition and access the appropriate

interconnection regime must be based on the

principles of:

• interconnection at any technically feasible

point

• LRAIC

• CBC.

Freedom of choice between competing

infrastructure for service providers coupled

with interconnection based on the principles

outlined here would be necessary, though not

sufficient, to permit the JV to go ahead.

However, a second set of structural

conditions also needs to be addressed.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4007

Structural Change

Currently, no distinction has been made by

the parties between the activities of the

parent monopolies, DT and FT, and those of

the JV. This absence of a separation gives rise

to the real possibility for cross-subsidies from

monopoly to competitive activities. The

Datex-P case in Germany demonstrated the

reality of this possibility. The absence of any

separation also facilitates the pooling or

transfer of information concerning customers

and competitors.

The Phoenix notification is identical to the

Atlas notification with respect to the absence

of separation between the activities of the

parent monopolies in Europe and Sprint.

Consequently, the potential of Phoenix to

prevent, restrict or distort competition and to

behave abusively in the relevant market is

substantial. This issue arises as a result of the

absence of separation between monopoly and

competitive activities.

The only feasible remedy is to impose the

structural separation of Atlas and Phoenix

from the parents. Such a structural separation

should take the following form.

(a) Separation of monopoly and

competitive products and services. Atlas and

Phoenix should not be permitted to offer any

product or service where there is any

impediment (in terms of exclusive or special

rights, licensing, authorisation, choice of

infrastructure, conditions of interconnection)

preventing an efficient competitor from

supplying the same products and services.

Effectively this condition would separate

monopoly provided products and services

from those in the competitive sector.

(b) Financial separation. There should be a

complete financial structural separation

between Atlas, Phoenix and the parents. The

purpose is to provide for full transparency of

the financial flows between Atlas, Phoenix

and its parents and to safeguard against

cross-subsidies. All services and products

(including interconnection based on the

principles outlined above) provided by the

parents to the JVs (and vice versa) to be

supplied at published tariffs and available to

all competitors at identical terms and

conditions.

(c) Other separation. The parents should

not be permitted to transfer to the JVs any

proprietary, customer, competitor or market

sensitive information, or any other asset

including all types of telephone numbers,

which would give the JVs a competitive

advantage. Only when the parents give 30

days notice to all competitors of such a

transfer, and offer to supply competitors on

exactly the same terms and conditions,

should such transfers be permitted.

The feature of each of these types of

separation is that they facilitate transparency

and equality of treatment between the

parents, Atlas, Phoenix and all competitors.

Whilst most of these conditions fall outside

the jurisdiction of the Department of Justice,

the Department should look towards

substantial progress on these matters if the JV

is not to distort competition and impede

competitive entry to the key German and

French markets for all potential entrants.

PART IV

Enforceability of the Restrictions of Final

Judgement of the Department of Justice

Given that the Department will need to cooperate with the National Regulatory

Authorities in Germany and France in order

to effectuate an enforcement of its

restrictions, it is important that these

authorities are appropriately constituted.

It is questionable whether Article 7 of the

Services Directive (concerning the

independence of the Regulator) has been

implemented in either Germany or France

with important ramifications for the

enforceability of the restrictions contained in

the Final Judgement as they impact on the

German and French markets.

The judgements of the European Court of

Justice (ECJ) of 27 October 1993, the

Taillandier (C–46/90) and Decoster (C–69/91)

cases are pertinent to this particular matter.

These judgements mean that two different

services within the same Ministry performing

the regulatory and operational functions does

not comply with the requirements of Article

7 of the Services Directive. The judgements

of the ECJ mean that there should be a real

and not just a formal separation of functions.

The ECJ has therefore decided that the

operational and regulatory bodies should not

both be answerable to the same Minister.

Currently, in both France and Germany the

relevant Ministry effectively acts as both

owner and regulator (the ‘‘corporatisation’’ of

DBPT having no effective meaning in this

matter). This condition does not comply with

the European Services Directive and can act

as a major impediment to the development of

competition. There is the potential for a

conflict of interest between the Ministry as

regulator pursuing polices that promote

effective competition and the Ministry as

owner pursuing policies that protect the

perceived value of the monopoly. Equally,

there is a potential for a conflict of interest

where the regulatory sits on the board of the

monopolist.

Further, the Department of Justice should

take particular note of the Datex-P case in

Germany.

According to press reports 1994 (see for

example Financial Times 26-May-94), the

Bundeskartellamt (BKA) carried out an

investigation into the affairs of Datex-P

(which operates in the liberalised

telecommunications sector) in Germany.

These reports stated that the BKA found a

cross-subsidy from the monopoly activities of

DT (then called DBP–T) to Datex-P

amounting to some DM 2 billion (allegedly a

sum that exceeded the turnover of all

competitors combined).

Normally, abuse of a dominant position of

this magnitude would lead to the imposition

of several penalties on the perpetrator and

the payment of damages to injured parties.

However, this has not occurred in the case

of Datex-P. This is because the then DBP–T

did not fall under the jurisdiction of the BKA

and was therefore not fully subject to

Germany’s strict competition laws. This

situation could only be acceptable if DBP–T

was subject to similar controls to those of the

BKA being exercised by the National

telecommunications regulatory authority

(NRA). However, this was not the case.

The NRA in Germany is the

Bundesministerium Fur Post und

Telekommunikation. The German

telecommunications law of 1989, the

Postverfassungsgesetz, (PVG) defines the

tasks and organisation of this Ministry.

Under the PVG, the Minister appoints one

third of the members of the Supervisory

Board of DBP–T/DT. The approval of the

Minister is required for all the important

decisions of DBP–T/DT (including

presumably the Phoenix and Atlas JVs.). The

same Minister defines the long term

objectives of DBP–T/DT and earmarks the

funds necessary for the development of

telecommunications.

The Minister is responsible for the

appointment of the official acting as the

regulator of the sector, and as events have

demonstrated, for the dismissal of the

official.

In these circumstances the independent

character of the NRA is not fulfilled as

required by Article 7 of the Services Directive

and the ECJ cases cited. DT is not regulated

by an independent NRA neither is it

regulated by the competition laws of

Germany. In these circumstances it is

possible for Datex-P to avoid the normal

punishments for such anti-competitive

behaviour.

The draft German law on the future

regulation of telecommunications

(Diskussionsentwurf fu ̈r ein

Telekommunikationsgesetz of 31.5.95) is

silent or vague on the following key issues:

• equal access

• numbering portability and numbering in

general

• licensing processes, appeal procedures,

arbitration etc.

• duct/trench-sharing, mandatory or

otherwise

• Ministry policy on international voice

telephony

• principles applying to tariff policy and

proposals for rebalancing.

Decisions on each of these subjects will

have a substantial impact on the

development of effective competition and

access. For example there will be a major

difference with respect to effective market

access if the Ministry’s policy on

international voice favours a duopoly or full

competition.

A policy on the critical commercial issue

of interconnection has yet to be developed

and this represents a serious impediment for

the prospects for effective competition.

According to § 22 of the German Law

against Restraints of Competition licensees

which are dominant operators, or have a

market share of at least 25%, may be required

to provide certain universal services. Again

this prospect gives rise to serious doubts

concerning the development of effective

competition and market access. § 22 could be

used as a tax on success and certainly

provides an incentive for competitors to stay

below the 25% threshold. § 22 is

incompatible with the development of

effective competition and should be

withdrawn.

Interestingly, if an operator cream-skims

(Mehrerlo ̈ sabscho ̈pfung) deliberately or out

of negligence contrary to a decree under § 32

issued by the NRA, it could be required to

pay an equivalent sum to the NRA (§ 33). § 32
4008 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

works in a manner that distorts the

development of effective competition and

should be withdrawn.

As yet therefore, there are very serious

doubts as to whether the emerging regulatory

environment in Germany is appropriate for

effective competition and effective market

access to all potential entrants. In these

conditions it is inappropriate to allow

Phoenix to proceed.

The new regulatory environment in France

has not yet been defined and we are therefore

unable to provide any information on it. A

consultation document on the future

regulatory environment is anticipated in

November 1995. Would be inappropriate to

permit Phoenix to proceed before this

regulatory environment is known.

It would be instructive for the DoJ to

examine the regulatory history and

environment in the UK. Here we have a

government committed to competition in

telecoms, an independent regulator and a

liberal regime.

Despite these apparently favourable

conditions, over the last decade, Mercury

Communications Ltd (the major challenger to

BT) has found it extremely difficult to

compete on a fair basis with BT. Mercury has

never reached an interconnection agreement

with BT, even though to do so would benefit

Mercury. It has always been forced to seek a

determination from the Office of

Telecommunications (OFTEL).

Interconnection charges have not been based

on the correct cost basis. Mercury has had to

pay Access Deficit Charges which OFTEL

recognise as a severe distortion of the market.

This concept is now popular with the

monopolists in the rest of Europe.

Furthermore, Mercury’s functionality has

been severely restricted by the limits on the

technical point of interconnection with BT.

Consequently, the lesson from the UK is

that even under a regime which favours

competition the monopolist can substantially

impede the process of competition.

Part V

Conclusions

The Final Judgement of the Department of

Justice on the JV recognised the substantial

threats to competition in international

telecommunications posed by the JV.

In recognition of these conditions the Final

Judgement of the Department of Justice

proposed various restrictions on the JV,

pertaining in particular to the conditions

obtaining in Germany and France. Two

questions arise:

• Are the restrictions adequate to ensure fair

and undistorted competition so that all

actual and potential competitors have an

equal opportunity of addressing the needs

of the target customers in the relevant

countries?

• Are the restrictions fully enforceable in the

relevant countries?

However, it appears that the restrictions

are directed at an area of activity which the

JV will not address (public voice telephony).

In these circumstances the restrictions of the

Final Judgement fail the adequacy test.

Consequently, the restrictions will not bring

about effective competition and effective

market access.

There are also doubts with respect to the

enforceability of the restrictions because

there is a question mark over the

independence of the regulators in Germany

and France. Furthermore the absence of a

regulatory regime, for interconnection and

other vital matters, which would foster

effective competition and effective market

access in either country does not support the

need for enforceability.

In Part III of these comments a set of

conditions which would promote effective

market access were presented. The most

important of these concern infrastructure and

interconnection. The Department of Justice

should look for substantial progress on these

matters before permitting the arrangements

between Sprint, DT and FT to progress.

The Department of Justice should set the

following minimum conditions before

allowing Phoenix to proceed:

• the liberalization of alternative

infrastructure including cable televisions

• interconnection at any technically feasible

point

• interconnection charges based on LRIC and

CBC

Additionally the structural issue needs to

be addressed. The minimum conditions

required in this respect are:

• Phoenix should not be permitted to offer

any product or service where there is any

impediment (in terms of exclusive or

special rights, licensing, authorisation,

choice of infrastructure, conditions of

interconnection) preventing an efficient

competitor from supplying the same

products and services.

• there should be a complete financial

structural separation between Atlas,

Phoenix and the parents.

• the parents should not be permitted to

transfer to the JVs any proprietary,

customer, competitor or market sensitive

information, or any other asset which

would give the JVs a competitive advantage

which are denied to competitors

Any remedies less demanding than those

listed here would not be sufficient to address

the ability of the JVs to prevent, restrict or

distort competition and to behave abusively

in the relevant market.

* * * * *

October 24, 1995.

Donald J. Russell, Esq.,

Chief, Telecommunications Task Force,

Antitrust Division, Room 89104, 555

Fourth Street, NW., Washington, DC

20001

Re: United States v. Sprint Corporation and

Joint Venture Co., Civil Action No. 95–

1304 (D.D.C. filed July 13, 1995)

Dear Mr. Russell: On behalf of ACC Corp.,

we transmit an original and five (5) copies of

its comments in the above-referenced

proceeding. We regret that necessary

coordination with overseas counsel delayed

this filing until today, but we hope that you

will be able to consider the comments on

their merits. To avoid any prejudice to the

defendants, copies of these comments are

being sent by facsimile to the counsel

identified below.

Should there be any questions concerning

this matter, please do not hesitate to contact

me.

Very truly yours,

Helen E. Disenhaus,

Counsel for ACC Corp.

Of Counsel:

Francis D.R. Coleman, Esq.,

Secretary and Corporate Counsel, ACC Corp.

October 24, 1995.

Donald J. Russell, Esq.,

Chief, Telecommunications Task Force,

Antitrust Division, Room 89104, 555

Fourth Street, NW., Washington, DC

20001

Re: United States v. Sprint Corporation and

Joint Venture Co., Civil Action No. 95–

1304 (D.D.C. filed July 13, 1995)

Dear Mr. Russell: On behalf of ACC Corp.

(‘‘ACC’’), a United States international

telecommunications common carrier based in

Rochester, New York, we submit these

comments on the above-referenced proposed

Consent Decree. ACC’s comments chiefly

describe certain initiatives undertaken by its

subsidiaries in Germany and France in

furtherance of its proposed domestic and

international resale service offerings in these

countries.

Currently pending before the Federal

Communications Commission (‘‘FCC’’) are

applications of ACC’s wholly-owned

subsidiary, ACC Global Corp., for authority

pursuant to Section 214 of the

Communications Act of 1934, as amended,

47 U.S.C. § 214, to provide international

switched telecommunications services over

international private lines on the U.S.-

Germany and U.S.-France routes. See FCC

File Nos. I–T–C–95–056; I–T–C–95–059. In

an effort to keep the FCC apprised of relevant

developments in Germany and France, ACC

has regularly provided the Commission with

updated chronologies reflecting significant

contacts with the national regulators in those

countries and with Deutsche Telekom (‘‘DT’’)

and France Telecom (‘‘FT’’). The most recent

chronologies, which are also being filed this

day with the FCC by copies of this letter

submitted for inclusion in the application

dockets and the Sprint/DT/FT docket, are

attached. Also attached is a copy of a letter

sent to M. Bruno Lassere, of the DGPT in

France, that summarizes ACC’s analysis of

the permissibility under existing French law

of resale competition in France.

As a general matter, ACC has been actively

pursuing opportunities for resale competition

in both Germany and France. With respect to

Germany, ACC has confirmed with senior

officials of the Ministry of Posts and

Telecommunications that resale competition

is currently permissible in Germany under

certain terms and conditions. ACC has also

met with officials of DT to discuss

implementation of such resale service in the

near-term. While ACC has been encouraged

by the recent interest shown by Ministry

officials in its proposal, ACC is concerned

that DT has been dilatory in scheduling

follow-up meetings to address the issue and

may be attempting to avoid giving

substantive consideration to the proposal.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4009

ACC therefore urges the Department to

condition entry and the effective date of the

proposed Consent Decree on DT’s opening its

services to resale competition to the extent

permissible under current law in Germany,

with DT agreeing to cooperate in the resale

service implementation program to the extent

necessary.

With respect to France, ACC is still

exploring with DGPT officials the feasibility

of resale competition under current French

law. While ACC has had several productive

meetings with regulatory officials, ACC is

concerned about the lack of progress in

France. As shown by the enclosed summary

of the relevant legal issues, however, there

should be no legal impediments to

implementation of limited resale in the

manner proposed by ACC in the near term.

ACC also, therefore, urges the Department to

condition entry and the effective date of the

proposed Consent Decree on FT’s opening its

services to resale competition to the extent

permissible under current law in France,

with FT agreeing to cooperate in the resale

service implementation program to the extent

necessary.

ACC firmly believes that resale

competition in domestic and international

services abroad as well as in the U.S. is

critical to ensuring that competition in the

U.S. market is not adversely affected by the

formation of global alliances by the world’s

largest facilities-based carriers. The FCC has

long recognized the benefits of resale

competition in ensuring that consumers in all

market segments receive the economic

benefits of a competitive telecommunications

market. ACC is not asking for exclusivity

with respect to resale competition but merely

for a general lowering of unnecessary entry

barriers that adversely affect competitive

entrants.

ACC therefore urges the Department to

condition entry and the effective date of a

Consent Decree on the availability of market

participation by U.S. carriers in all market

segments in which such competitive entry is

lawful, even if such entry is dependent upon

DT and FT’s taking affirmative steps to

facilitate such entry before full services and

infrastructure competition is lawful in

Germany and France.

Very truly yours,

Helen E. Disenhaus,

Counsel for ACC Corp.

Of Counsel:

Francis D. R. Coleman, Esq.,

Secretary and Corporate Counsel, ACC Corp.

October 24, 1995.

Mr. Bruno Lasserre,

Director General of Posts and

Telecommunications, Ministry of

Industry, Posts and Telecommunications

and Foreign Commerce

Dear Mr. Lasserre: As agreed at our

September 22 meeting in your Paris office,

ACC is pleased to provide you with the

following summary of its legal research on

the extent to which France Telecom (‘‘FT’’)

may voluntarily delegate part of its telephone

service monopoly to ACC under current

French law:

• French law gives FT the benefit of a

monopoly over the provision of real-time

switched voice telephone services over the

French PSN. (Articles L32, L33.1, L34.1 of

Code of Post & Telecommunications, Article

3 of Law 90–568 of 2 July 1990 and Decree

n°90–1213 of 29 December 1990.) Such

services constitute, according to a legal

tradition in the field of telecommunications

in France, a public service mission entrusted

to FT.

• To perform its public service mission, FT

may form a subsidiary (Article 7 of Law 90–

568 of 2 July 1990; Article 32 of Decree 90–

1213 of 29 December 1990) which is part of

FT’s ‘‘group of companies’’ to provide

services (as opposed to infrastructure)

including switched voice telephone services.

• The concept of a ‘‘group of companies’’

is not defined in French corporate law.

Accordingly there is no legal requirement

that FT be the sole shareholder of such a

subsidiary.

• However, it is reasonable to conclude

that under French law the subsidiary would

be considered a member of FT’s ‘‘group of

companies’’ if three criteria were met; (a) if

FT owned a majority of the capital and voting

rights of the subsidiary; (b) if FT held the

power to appoint a majority of the members

of the Board of Directors of the subsidiary;

and (c) if FT had preponderant control over

the management of the subsidiary. It should

be possible for these conditions to be met

even though ACC had minority ownership,

operational involvement, and certain

acceptable protective legal mechanisms with

regard to the subsidiary.

• Such protective legal mechanisms for

ACC could include those which apply now,

and those which applied with FT’s service

monopoly decreased or ceased.

• The provision of public services (on FT’s

public infrastructure) by such a subsidiary

would require the favorable opinion of the

Public Service Commission for Posts &

Telecommunications and the approvals of

the Minister of Post & Telecommunications

and the Minister of Economy & Finance

(Article 32 of Decree 90–1213 of 29 December

1990).

• Such public support, or the absence of it,

by the French government could be highly

significant and persuasive in France, Europe,

and the United States.

ACC Corp. would welcome an active

dialogue with your office and with FT to

explore the creation of an FT/ACC subsidiary

in accordance with the above research at

your earliest convenience.

If you have any questions, please do not

hesitate to contact me.

Best personal regards.

Sincerely,

ACC Corp.

Francis D.R. Coleman,

Secretary and Corporate Counsel.

FDRC/csg

cc: Helen Disenhaus, Esq.

Scott Blake Harris, Chief-International

Bureau, FCC

Diane J. Cornell, ChiefTelecommunications Division, FCC

Mr. Mickey Kantor-U.S. Trade

Representative

Anne K. Bingaman, Esq., Assistant

Attorney General, DOJ

Donald J. Russell, ChiefTelecommunications Task Force, DOJ

French Chronology

September 11, 1995

Informal discussion with Monsieur

Lasserre at luncheon in Washington, D.C.

prior to his remarks on anticipated changes

in France’s telecommunications regulatory

framework. A meeting with ACC in Paris was

agreed to for the near future.

September 12, 1995

Letter from ACC Corp. to Monsieur

Lasserre requesting a meeting in Paris on

September 22 to continue a dialogue on

domestic and international resale for France.

September 22, 1995

Meeting at the DGPT with Monsieur

Lasserre and Madam Niclot attended for ACC

by Mr. Francis Coleman and Mr. Michael

Taylor and Mr. Lucien Rapp of the law firm

of Serra, Michaud & Associes. Monsieur

Lasserre agreed to receive ACC’s analysis of

the extent to which portions of France

Telecom’s switched voice telephony

monopoly might be delegated to independent

third parties such as ACC with regulatory

approval. At Monsieur Lasserre’s request,

ACC outlined the manner in which this issue

was moving forward in Germany and agreed

to provide copies of relevant correspondence

to Monsieur Lasserre. Monsieur Lasserre

expressed great interest in ACC’s progress

with Deutsch Telekom and the German

Ministry and indicated that information on

such progress could be relevant in France.

September 26, 1995

Letter from ACC Corp. to Monsieur

Lasserre thanking him for the September 22,

1995 meeting, confirming that German

correspondence would be sent to him

shortly, and expressing the desire to continue

discussions with him and his staff so that

suitable progress could be made.

October 4, 1995

Letter from ACC Long Distance UK Ltd. to

Monsieur Lasserre enclosing copies of ACC’s

correspondence with Deutsch Telekom and

the German Ministry.

October 18, 1995

ACC’s legal counsel in Paris receives

request from Monsieur Lasserre for status of

ACC’s legal analyses of extent to which

portions of France Telecom’s service

monopoly might be delegated to ACC.

October 24, 1995

Letter to Monsieur Lasserre (with copies to

DOJ, FCC, and USTR) summarizing ACC’s

legal analyses (i.e., extent to which portions

of France telephone service monopoly might

be delegated to ACC with France

governmental approvals) and requesting

support for further progress.

Chronology—ACC France International

Simple Resale Application

3 November 1994

Meeting between ACC Corp. and France

Telecom to discuss the provision of domestic
4010 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

simple voice resale and international simple

voice resale in France.

10 November 1994

Submission of application by ACC Corp.

on behalf of ACC France (a company in the

process of being registered under French

Law) to the French Ministry of Industry

Ports, Telecommunications and External

Affairs (Direction de la Reglementation

Generale des Postes et Telecommunications

(‘‘DGPT’’)) to provide domestic simple resale

services in France and international simple

resale services on the France-U.S. route, and

for commercially reasonable interconnection

to the public switched telephone network.

14 November 1994

ACC Corp. letter to France Telecom

requesting support for ACC France’s

domestic simple resale services and

international simple resale services

application submitted to the DGPT, as well

as for ACC France’s request for commercially

reasonable interconnection to the public

switched telephone network.

16 November 1994

Submission of application by ACC Global

Corp. to the Federal Communications

Commission for authority to resell private

lines for the provision of switched services

interconnected to the PSN at both ends and

at one end only between the United States

and France.

18 November 1994

Response from Monsieur Bruno Lasserre,

Director General of DGPT, to ACC-France’s

application for domestic and international

simple resale dated 10 November 1994.

Response raises public voice telephony

regulatory issues and equivalency issues

between France and the United States, and

invites ACC-France to meet with Ms. Niclot,

Head of Network and Fixed Services, DGPT.

2 December 1994

Letter from ACC-France to Monsieur Bruno

Lasserre acknowledging letter of the 18th of

November and confirming meeting with Ms.

Niclot to discuss ACC-France’s application of

10 November.

14 December 1994

Meeting with Ms. Claire Niclot, Head of

Network and Fixed Services, DGPT, to

discuss the parameters of services that ACC

Corp. may provide to the general public and

interconnection with France Telecom.

23 December 1994

Letter from ACC Corp. to Mr. Guillaume,

Directeur Juridique, France Telecom advising

him of ACC Corp.’s desire to discuss

commercially reasonable interconnection

with France Telecom.

23 December 1994

Letter from ACC Corp. to Ms. Claire Niclot

seeking interpretation of services that ACC

Corp. may provide in France under current

French law. ACC Corp. also requests Ms.

Niclot’s view on when France Telecom’s

monopoly on voice services to the general

public will likely be relaxed.

4 January 1995

Letter from Ms. Claire Niclot in response

to ACC’s letter of December 23, 1994,

discussing regulatory issues and extending

an invitation for further discussions.

13 January 1995

Letter from Congressmen Thomas Bliley,

Chairman of the House Committee on

Commerce; Jack Fields, Chairman of the

House Subcommittee on

Telecommunications and Finance; and Bill

Paxon, House Subcommittee on

Telecommunications and Finance member,

to FCC Chairman Reed E. Hundt urging

Chairman Hundt ‘‘to press forward as

strongly as possible to open [the French

market] to the United States

telecommunications providers.’’

30 January 1995

Letter from ACC in response to Ms. Claire

Niclot’s letter of January 4, 1995. ACC

expresses its pleasure for the opportunity to

meet with Ms. Niclot to investigate further

the regulatory issues raised in ACC’s letter of

December 23, 1994, and in Ms. Niclot’s letter

of January 4, 1995.

2 February 1995

Letter from Monsieur Bruno Lasserre,

Director General, DGPT, to ACC inviting ACC

to meet with him to discuss ACC’s

application and the services that ACC would

be permitted to offer in France under

appropriate interpretations of current French

law and regulations. The purpose of the

meeting would also enable Monsieur Lasserre

to discuss with ACC the steps currently being

considered to introduce regulations in

contemplation of the liberalization of

telecommunications in accordance with EU

proposals.

5 February 1995

Monsieur Bruno Lasserre, Director General

of DGPT, requests ACC’s French counsel to

continue discussions with the DGPT and, to

this end, to schedule a meeting with Ms.

Claire Niclot.

8 February 1995

Letter from ACC’s French counsel to

Monsieur Bruno Lasserre requesting him to

meet with Mr. Francis Coleman, General

Counsel of ACC, and Mr. Michael Taylor,

Secretary of ACC Long Distance (U.K.)

Limited, in Paris during the week of March

13, 1995.

2 March 1995

Letter from ACC Corp. to Monsieur

Lasserre confirming a meeting with Monsieur

Lasserre on March 15, 1995 and stating

ACC’s interest in obtaining approval to

provide domestic and international simple

resale in France. ACC’s letter also raises the

question of the extent to which France

Telecom can voluntarily delegate to ACC any

portion of its reserved switched voice

telephony service monopoly.

2 March 1995

Letter from ACC Corp. to Monsieur

Emmanuel Guillaume, Directeur Juridique,

France Telecom, seeking a meeting to explore

the extent to which France Telecom can

voluntarily delegate any portion of its

monopoly to third parties.

15 March 1995

Meeting at the DGPT with Monsieur

Lasserre and Madam Niclot attended by Mr.

Francis Coleman and Mr. Michael Taylor of

ACC. Mr. Coleman reviewed the role of resale

as an important and additional way to ensure

competition and avoid the pitfalls of duopoly

network pricing. Monsieur Lasserre reviewed

the scope of France Telecom’s switched voice

telephony monopoly and the extent, if any,

to which France Telecom may delegate

portions of that monopoly and stated that

France Telecom would not be permitted to

delegate any portion of this monopoly.

Invitation extended to Monsieur Lasserre and

Madam Niclot to visit ACC’s operations in

the U.K. and the U.S.A.

15 March 1995

Meeting at France Telecom with Monsieur

F. Guilbeau and Monsieur Jean-Francis

Thomas attended for ACC by Mr. Francis

Coleman and Mr. Michael Taylor. Purpose of

meeting to discuss the timetable of

liberalization of services and infrastructure in

France and the benefits to France Telecom

and the public of resale as a competitive

service. Invitation extended to France

Telecom to send a delegation to visit ACC’s

operations in the U.K. and the U.S.A. in

April. The invitation was accepted. Purpose

of trip will be to learn more of ACC’s

activities and ACC’s competitive position in

relation to other carriers. Future and

continuing meetings are anticipated.

September 11, 1995

Informal discussion with Monsieur

Lasserre at luncheon in Washington, D.C.

prior to his remarks on anticipated changes

in France’s telecommunications regulatory

framework. A meeting with ACC in Paris was

agreed to for the near future.

September 12, 1995

Letter from ACC Corp. to Monsieur

Lasserre requesting a meeting in Paris on

September 22 to continue a dialogue on

domestic and international resale for France.

September 22, 1995

Meeting at the DGPT with Monsieur

Lasserre and Madam Niclot attended for ACC

by Mr. Francis Coleman and Mr. Michael

Taylor and Mr. Lucien Rapp of the law firm

of Serra, Michaud & Associes. Monsieur

Lasserre agreed to receive ACC’s analysis of

the extent to which portions of France

Telecom’s switched voice telephony

monopoly might be delegated to independent

third parties such as ACC with regulatory

approval. At Monsieur Lasserre’s request,

ACC outlined the manner in which this issue

was moving forward in Germany and agreed

to provide copies of relevant correspondence

to Monsieur Lasserre. Monsieur Lasserre

expressed great interest in ACC’s progress

with Deutsch Telekom and the German

Ministry and indicated that information on

such progress could be relevant in France.

September 26, 1995

Letter from ACC Corp. To Monsieur

Lasserre thanking him for the September 22,

1995 meeting, confirming that German

correspondence would be sent to him

shortly, and expressing the desire to continue

discussions with him and his staff so that

suitable progress could be made.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4011

October 4, 1995

Letter from ACC Long Distance UK Ltd. to

Monsieur Lasserre enclosing copies of ACC’s

correspondence with Deutsch Telekom and

the German Ministry.

October 18, 1995

ACC’s legal counsel in Paris receives

request from Monsieur Lasserre for status of

ACC’s legal analyses of extent to which

portions of France Telecom’s service

monopoly might be delegated to ACC.

October 24, 1995

Letter to Monsieur Lasserre (with copies to

DOJ, FCC, and USTR) summarizing ACC’s

legal analyses (i.e., extent to which portions

of France telephone service monopoly might

be delegated to ACC with France

governmental approvals) and requesting

support for further progress.

Chronology—ACC Germany International

Simple Resale Application

2 November 1994

Meeting between ACC Corp. and Deutsche

Bundespost (‘‘DBP’’) Telekom to discuss the

provision of domestic simple voice resale

and international simple voice resale in

Germany.

2 November 1994

Meeting between ACC Corp. and the

Federal Ministry of Posts and

Telecommunications (‘‘BMPT’’) to discuss

the provision of domestic simple voice resale

and international simple voice resale in

Germany.

14 November 1994

Submission of application by ACC Corp.

on behalf of ACC Deutschland gmbh (in the

process of formation) requesting authority

from the BMPT to provide domestic simple

resale services and international simple

resale services on the Germany-U.S. route.

14 November 1994

ACC Corp. letter to DBP Telekom

requesting support for ACC Deutschland’s

application for authority to provide domestic

simple resale services and international

simple resale services, submitted to the

BMPT, and stating ACC Deutschland’s

request for commercially reasonable

interconnection to the public switched

telephone network.

16 November 1994

Submission of application by ACC Global

Corp. to the Federal Communications

Commission for authority to resell private

lines for the provision of switched services

interconnected to the PSN at both ends and

at one end only between the United States

and Germany.

22 December 1994

ACC Corp. letter to DBP Telekom regarding

arrangement meeting to commence

negotiations for an interconnection

agreement.

5 January 1995

Phone conference between ACC Corp. and

the BMPT. BMPT noted that ACC Corp.’s

German application requesting authority

from the BMPT to provide domestic simple

resale services and international simple

resale services on the Germany-U.S. route is

under review.

13 January 1995

Letter from Congressman Thomas Bliley,

Chairman of the House Committee on

Commerce; Jack Fields, Chairman of the

House Subcommittee on

Telecommunications and Finance; and Bill

Paxon, House Subcommittee on

Telecommunications and Finance member,

to FCC Chairman Reed E. Hundt urging

Chairman Hundt ‘‘to press forward as

strongly as possible to open [the German

market] to the United States

telecommunications providers.’’

5 June 1995

Letter from Francis Coleman to Herr

Hefekauser enclosing a paper setting out the

key areas that would comprise an

arrangement with DBP Telekom providing for

commercially reasonable interconnection to

the PSN and confirming a meeting with Herr

Hefekauser on June 16, 1995.

7 June 1995

Letter from Francis Coleman to Herr

Hefekauser setting out a proposed rebiller

scenario for discussion at the June 16, 1995

meeting.

7 June 1995

Letter from Francis Coleman to Herr Feier

of the BMPT setting out a proposed rebiller

scenario for discussion at a meeting

scheduled from June 16, 1995.

8 June 1995

Letter from Francis Coleman to Dr.

Manfred Witte of the BMPT confirming June

16, 1995 meeting.

16 June 1995

Meeting at the BMPT. Representing the

BMPT was Herr Knobloch. Representing ACC

were Francis Coleman and Michael Taylor.

The proposed rebiller scenario with DBP

Telekom was discussed. Herr Knobloch

confirmed that the BMPT did not find the

scenario as presented to be contrary to the

existing German regulatory framework. Herr

Knobloch suggested that ACC, as a next step

present the proposed rebiller scenario to DBP

Telekom and request a proposed tariff for

BMPT review and approval.

16 June 1995

Meeting with Herr Hefekauser, Christophe

Dreier and Gerhard Horter of DBP Telekom

attended by Francis Coleman and Michael

Taylor. ACC and DBP Telekom discussed the

proposed rebiller scenario and ACC informed

DBP Telekom that the BMPT had found no

regulatory prohibitions to prevent DBP

Telekom from entering into a rebiller

arrangement with ACC subject to BMPT

review and approval of terms and tariffs. DBP

Telekom and ACC agreed that ACC would

provide further details and information

requirements to proceed with discussions.

28 June 1995

Meeting with DG IV at the European

Commission. Representing DG IV were Dr.

Stefan Rating, Madam Suzette SchiffCockborne, Mr. Rein Wesseling and Mr.

Kevin Coates. Representing ACC were

Francis Coleman and Michael Taylor. Francis

Coleman spoke about the benefits of resale as

a means of introducing switched voice

telephony competition prior to January 1,

1998.

Francis Coleman also updated those

present on the German Ministry’s

confirmation of ACC’s ability to enter into a

rebiller arrangement with DBP Telekom in

Germany.

8 August 1995

Letter from Michael Taylor to Herr

Hefekauser setting out the benefits to DBP

Telekom of appointing ACC as a rebiller and

requesting tariff details including payment

terms and billing information required for

ACC to bill its customers.

9 August 1995

Letter from Michael Taylor to Herr

Knobloch confirming ACC’s ability to enter

into a rebiller arrangement with DBP

Telekom in Germany.

22 August 1995

ACC meeting with Bruce Rogers

(Telecommunications officer at U.S. Embassy

in London reporting directly to the U.S.

Ambassador). Michael Taylor of ACC

provided an update on ACC’s initiatives in

Germany.

6 September 1995

Oftel Director General Donald Cruikshank

gives speech to Euro-Forum in Dusseldorf

entitled ‘‘Liberalisation and the Promotion of

Competition in Infrastructure and Services:

Lessons from the UK Experience.’’ Mr.

Cruikshank describes ‘‘* * * how the UK

opened up [its] regime to U.S. resale

companies, starting with ACC back in 1992

* * *’’ (Page 9) and states that ‘‘* * * ACC,

our first licensed International Simple Resale

company back in 1992, have now applied to

engage in resale in Germany. I wish them

every success over here and hope that the

authorities here will be far-sighted and quick

footed enough to recognize the benefits that

such foreign investment, experience, and

entrepreneurship can bring to the German

economy (page 12).

13 October 1995

Francis Coleman of ACC Corp. invited by

FCC to October 17 meeting at FCC offices in

Washington with Prof. Dr. Stephan Schrader,

Telecommunications Advisor to Minister

Botsch, following a meeting between the FCC

and Minister Botsch in Bonn the week of

September 25.

17 October 1995

Francis Coleman of ACC Corp. meets with

Prof. Dr. Stephan Schrader to discuss resale

in general and ACC’s strategy and efforts to

become a rebiller under contract to Deutsch

Telekom now, as approved in principle by

the German Ministry last June. Mr. Coleman

requested Dr. Schrader to encourage Minister

Botsch’s office to strongly support ACC’s

efforts now.

23 October 1995

As suggested by Dr. Schrader, Mr. Coleman

sends letter to Prof. Dr. Eberhard Witte at

Ludwig Maximilians Universitat in

Munchen, Germany, requesting discussions

in furtherance of ACC’s efforts to become a
4012 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

German rebiller. Dr. Witte chairs a seven

person Committee reporting to Minister

Botsch on German telecommunications

deregulation.

October 24, 1995.

Donald J. Russell, Esq.,

Chief, Telecommunications Task Force,

Antitrust Division, Room 89104, 555

Fourth Street, N.W., Washington, D.C.

20001

Re: United States v. Sprint Corporation and

Joint Venture Co., Civil Action No. 95–

1304 (D.D.C. filed July 13, 1995)

Dear Mr. Russell: On behalf of Esprit

Telecom United Kingdom Limited, we

transmit an original and five (5) copies of its

comments in the above-referenced

proceeding. We regret that the unexpected

absence from his office of the company’s

European counsel delayed this filing until

today, but we hope that you will be able to

consider the comments on their merits. To

avoid any prejudice to the defendants, copies

of these comments are being sent by facsimile

to the counsel identified below.

Should there be any questions concerning

this matter, please do not hesitate to contact

me.

Very truly yours,

Helen E. Disenhaus,

Counsel for Esprit Telecom United Kingdom

Limited.

Of Counsel:

David E. Reibel,

Corporate Counsel, Esprit Telecom Benelux

B.V., World Trade Center.

October 24, 1995.

Donald J. Russell, Esq.,

Chief, Telecommunications Task Force,

Antitrust Division, Room 89104, 555

Fourth Street, N.W., Washington, D.C.

20001

Re: United States v. Sprint Corporation and

Joint Venture Co., Civil Action No. 95–

1304 (D.D.C. filed July 13, 1995)

Dear Mr. Russell: On behalf of Esprit

Telecom United Kingdom Limited (‘‘Esprit’’),

which recently received from the Federal

Communications Commission (‘‘FCC’’)

authority pursuant to Section 214 of the

Communications Act of 1934, as amended,

47 U.S.C. § 214, to operate as a United States

international facilities-based carrier (see FCC

File No. I–T–C–95–435), we submit the

following comments on the proposed

Consent Decree filed in the above-referenced

action.

Esprit and its affiliates have provided

value-added and liberalized services in

Europe since 1992. As documented in

comments filed with the FCC by Esprit and

by third parties, Esprit’s attempts to enter

and compete in the German and French

markets have met with serious obstacles

imposed by the dominant carriers, Deutsche

Telekom (‘‘DT’’) and France Telecom (‘‘FT’’),

and their respective national regulatory

authorities. Esprit is therefore concerned that

the restrictive provisions and reporting

conditions of the proposed Consent Decree

will be insufficient to prevent DT and FT

from continuing to use their monopoly power

in the still-reserved leased line and voice

services market segments, as well as their

dominant positions in all services in their

home markets, to impair the ability of new

entrants to compete in those markets.

Moreover, as a new entrant in the U.S.

international services market, Esprit is

particularly concerned that the proposed

alliance with Sprint Corporation (‘‘Sprint’’),

by allowing DT and FT to leverage their

market power in their home markets, will

limit competition in the U.S. international

services market. DT and FT will be uniquely

advantaged because their joint venture will

be able to provide end-to-end international

services (including but not limited to those

on the U.S.–Germany and U.S.–France

routes) that are foreclosed to their

competitors. This advantage is increased by

the fact that DT and FT have already stymied

many of the efforts of potential competitors

to establish themselves in the German and

French markets as providers of enhanced and

liberalized services. At the very least,

German and French regulators should make

a commitment to license competitors on an

expedited basis, with the implementation of

joint venture services suspended while

applications from new entrants filed within

60 days of the entry of any Consent Decree

in this action remain pending.

Moreover, as a condition of entry of a

Consent Decree, DT and FT should be

precluded from predatory pricing of end-user

services and should be required to provide

leased lines at wholesale, cost-based rates on

an expedited and priority basis to competing

carriers. DT and FT should not be allowed to

provide leased lines for end-to-end joint

venture services unless they provide leased

lines in a non-discriminatory manner,

including ensuring that joint venture services

are not provisioned while competitors’

service orders remain unfilled. Competitors

must receive equal treatment with respect to

all terms and conditions affecting service,

including price and provisioning intervals.

While the Phase I conditions proposed by

the Department go farther than the conditions

imposed on the British Telecommunications

alliance with MCI, they may not go far

enough to avoid the alliance’s having an

adverse impact on competition. The

Department acknowledges the current

limitations on the effectiveness of the

German and French regulators. Because the

Department but not competitors will have

access to the only information providing any

degree of transparency into DT, FT, Sprint,

and joint venture costs and prices, the

Department must be prepared to thoroughly

review on an expedited basis all data filed

with it and to utilize such data in promptly

considering competitor complaints. When

colorable complaints are presented to the

Department, it must be prepared to provide

complainants the necessary data to support

their claims unless the Department

immediately implements remedial action.

Because of the dependence of competitors on

interconnection with the carriers’ networks

and access to the carriers’ facilities, without

vigorous oversight and enforcement by the

Department, mere reporting conditions and

abstract prohibitions against preferential

treatment of alliance affiliates are insufficient

protection against discrimination. Unless the

Department undertakes an aggressive role in

entertaining and investigating complaints of

anticompetitive conduct, the Consent Decree

will be little more than a piece of paper.

Some of Esprit’s specific concerns about

the anticompetitive conditions in the German

and French telecommunications markets are

briefly described in Attachment A, which

also includes a copy of comments filed by

Esprit before the FCC, as well as some recent

trade press addressing these issues. Esprit

would be pleased to meet with officials of the

Department to discuss these concerns and

possible additional competitive safeguards

that would promote continuation of the

vigorous competition now exhibited by the

U.S. telecommunications market and

promote expanded competition aboard.

Very truly yours,

Helen E. Disenhaus,

Counsel for Esprit Telecom United Kingdom

Limited.

Of Counsel:

David E. Reibel,

Esprit Telecom, World Trade Center.

Concerns of Esprit Telecom About the

‘‘Phoenix’’ Alliance Among Sprint

Corporation, Deutsche Telekom, and France

Telecom

The experiences of the Esprit Telecom

(‘‘Esprit’’) companies in attempting to

compete in the French and German

telecommunications markets as providers of

enhanced and liberalized

telecommunications services demonstrate

that without regulators committed to a

competitive telecommunications market and

effective regulatory oversight, Deutsche

Telekom (‘‘DT’’) and France Telecom (‘‘FT’’)

will continue to be able to exercise their

market power to forestall effective

competition. Moreover, upon consummation

of the Phoenix joint venture, their market

power will be enhanced by the addition of

Sprint Corporation (‘‘Sprint’’) to their

alliance. Unless the Department undertakes

an aggressive continuing oversight program,

the Phase I restrictions and reporting

requirements included in the proposed

Consent Decree will be inadequate to prevent

anticompetitive conduct that will affect not

only the domestic markets in Germany and

France, but also the U.S. and worldwide

international telecommunications markets.

As the Department recognizes, unlike the

situation in the United Kingdom at the time

the British Telecom/MCI venture was

approved, neither France nor Germany has a

well-established, effective regulator

committed to a competitive marketplace, and

restrictive entry barriers have limited

competitors to a few narrow niche services

rather than to competition in all service

categories. The Department should therefore

give serious consideration to expanding the

prophylactic measures included in the

proposed Consent Decree to ensure that the

Phoenix Alliance results in a net increase in

telecommunications competition rather than

promoting the development of a marketplace

composed exclusively of a few international

behemoths that function as an oligopoly.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4013

In particular, Esprit’s concerns focus on the

following issues:

Regulatory Transparency—It is critical that

France and Germany implement regulatory

systems that provide transparency by

affirmatively disseminating information

about licensing procedures, cost accounting/

orientation, tariffs, interconnection regimes,

and infrastructure use and development.

Current ad hoc procedures disadvantage new

entrants by making it difficult for them to

find out about, much less take advantage of,

market entry opportunities, as well as by

limiting their ability to challenge

discriminatory conduct by the dominant

providers.

Effective Enforcement—The Department

has recognized the serious adverse

implications of the fact that, while France is

planning to establish an independent

regulatory body, one is not yet in place.

Similarly, as the Department recognizes, the

independence of the German regulator is

uncertain, especially in light of questions

raised about the continuing involvement of

key officials with DT.

It is also of major concern that neither DT

nor FT has been privatized, raising a

substantial conflict of interest for regulators

in both countries, who are employed by

governments with a vested interest in the

profits of DT and FT. Given this motivation

for continued preferential regulatory

treatment of the state-owned national

carriers, the Department must ensure that

there are in place effective measures for

ensuring a fair hearing of challenges to

regulatory actions even when such

challenges raise the issue that the regulator

has impermissibly favored the dominant

carrier.

Esprit’s concerns in this area are

particularly great because there is

considerable doubt as to whether the national

carriers and the national regulators in

Germany and France have in the past fully

complied with European Union and national

laws affecting telecommunications regulation

and competition. As detailed in the attached

letter submitted last November to the EU’s

Director-General of DG–IV, the Competition

Directorate of the European Commission,

Esprit strongly opposes rewarding noncompliant national carriers and governments

by allowing them to exploit new

opportunities while they benefit from

violations of existing law. These concerns are

particularly relevant here, because the

European Commission has itself cited several

deficiencies in the implementation by

Germany and France of the current Services

Directive. Additionally, it appears that

neither DT nor FT has complied fully with

the Leased Line Directive (94/44/EEC),

which, under Article 10(2), required the

regulators of Member States to ensure that

their telecommunications operators

implemented and effective cost accounting

system by December 31, 1993. Nor do the

regulators appear to have complied even with

the requirements of Article 10(1) of that

Directive, which required compliance with

basic principles of cost orientation and

transparency. As a direct result of these

deficiencies in regulatory oversight,

consumers and competitors have been—and

continue to be—overcharged for leased lines,

and there is insufficient information to

permit effective review of possible

occurrences of cross-subsidization.

The Department should therefore ensure, at

the very least, that both countries have

established independent regulators prior to

U.S. approval of Phoenix by the FCC and the

District Court. Approval should also be

conditioned on the establishment by the

countries’ competition agencies of

procedures for expedited consideration of

complaints of anticompetitive conduct, as

well as the availability of remedies before the

European Union and its regulatory agencies.

Additionally, the Department should exercise

continuing oversight of the competitive

practices of Phoenix and its members. The

Department should entertain complaints of,

and be prepared to take appropriate remedial

actions with respect to, anticompetitive

activities by Phoenix members, regardless of

whether the challenged activities actually

occur within the U.S.

Cross-Subsidization—As a competitor and

potential competitor of DT and FT, Esprit is

also particularly concerned about the

carriers’ opportunities for cross-subsidization

that can facilitate both unreasonably high

wholesale rates and predatory pricing of enduser customer prices. Absent effective

national regulators with broad authority and

interest in ensuring that such crosssubsidization is both prohibited and

prevented, competition will not flourish.

DT and FT must be required to

demonstrate that they have priced their

services and those of the joint venture on the

basis of well-documented costs, without

lowering prices to end-users in a predatory

manner or discriminatorily raising prices

charged competitors. Issues of crosssubsidization arise at both the ‘‘macro’’ and

the ‘‘micro’’ levels.

With respect to ‘‘macro’’ crosssubsidization, the marketplace and the

regulators must have full information about

any start-up investments, transfers of assets,

bank guarantees, loans, and other occasions

of cross-subsidization. They must receive

guarantees and time commitments for

implementation of specific measures

designed to prevent such cross-subsidization

and its anticompetitive consequences,

including the provision of sufficient

information to allow competitors to challenge

pricing effectively. One major concern of

many potential new entrants is that Atlas/

Phoenix will attempt to increase its market

share quickly by ‘‘dumping’’

telecommunications services at prices below

their actual costs (i.e., engage in ‘‘predatory

pricing’’). Evidence of such pricing practices

has already been apparent to firms that have

initiated competition in the limited market

segments now open to them.

Similarly, new entrants are at a substantial

disadvantage in that in many cases they must

lease lines from the dominant operators. Not

only does this provide opportunities for

carriers with market power to delay

provisioning or provide inferior quality

circuits, but also it provides an opportunity

for the dominant carriers to substantially

increase the operating costs of their

competitors. For a carrier such as Esprit,

leased line costs may account for 40%–50%

of the company’s operating costs. but such

costs may be dramatically changed at the

whim (or the will) of the dominant carrier,

which has a substantial opportunity for

cross-subsidization.

At the ‘‘micro’’ level, both DT and FT have

been found to have cross-subsidized their

telecommunications services when

competition enters a market segment. The

record before the Department includes

evidence concerning the substantial fine

recently imposes on DT for crosssubsidization of its data services, and

Worldcomm has been attacking DT crosssubsidization in Germany for some time.

Similarly, as indicated in the attached article

from La Monde Informatique, French

regulators have found FT to be crosssubsidizing with monopoly revenues the

activities of FT’s competitive subsidiary,

Colise ́e International. In addition to

implementation of prophylactic measures to

ensure that such activities do not continue,

appropriate compensation should be made to

adversely affected consumers and

competitors as a pre-condition to approval of

the Phoenix alliance.

Availability of ‘‘Alternative’’

Infrastructure—While we understand that

both Germany and France are accelerating

the availability of alternative infrastructure,

these market segments should be fully

liberalized before Phoenix is implemented.

Not only should alternative infrastructure be

available from public utilities and cable

television operators, as is currently planned

in the relatively near-term, but also

competitors such as Esprit should be allowed

to provide their own infrastructure (and the

availability of this option should be made

public information, without the necessity of

ad hoc initiatives and narrow rulings limited

to a single operator).

The availability of such alternative sources

of circuit capacity will do much to prevent

anticompetitive leased line provisioning by

dominant carriers, and therefore it is critical

that there be written commitments to

authorize complete infrastructure

competition in the near-term. Moreover, in

the meantime, prior to its availability, DT

and FT should be required to provide high

quality leased lines in timely fashion and at

cost-based prices to competitive carriers.

Interconnection Arrangements—Perhaps

the greatest obstacle to implementation of a

competitive marketplace is the absence of an

effective regulatory regime that will ensure

that the dominant carriers provide in timely

fashion interconnection arrangements that

are cost-based, feature-rich, and transparent

across networks. Before Phoenix is approved,

the Department should insist that, pending

publication of the European Commission’s

forthcoming interconnection directive, both

DT and FT publish proposed interconnection

plans that include standard terms and

conditions, cost-based tariffs, quality

standards, and provisioning intervals, and

that these proposals are made subject to

public comment and scheduled for regulatory

consideration on an expedited basis.

Conclusion

The Department is correct in insisting on

detailed reporting of information to ensure
4014 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

1See Sprint Corporation Petition for Declaratory

Ruling, File No. ISP–95–002 (filed Oct. 14, 1994);

FCC Public Notice, Report No. I–8084 (released

August 4, 1994).

2Esprit is currently the recently-filed

‘‘Competitive Impact Statement’’ of the Department

of Justice and may supplement these comments in

a reply pleading following its review of those

documents.

3Application of Esprit Telecom of the United

Kingdom Ltd. for Authority Pursuant to Section 214

to Operate as an International Resale Carrier

Between the United States and Various Points, File

No. I–I–C–95–435.

4Services in Belgium and the Netherlands are

provided by Esprit Telecom Benelux B.V. Services

in France are provided by Esprit Te ́le ́com France

S.A. Services in Spain are provided by Esprit

Telecom de Espan ̃ a S.A.

that the members of the Phoenix alliance act

in a non-discriminatory manner vis-a-vis

their competitors. At this time, neither

Germany nor France has in place the types

of detailed accounting rules established by

the Federal Communications Commission to

ensure transparency into carrier cost

accounting and tariffing. Nor is there any

transparency as to the carriers’ terms and

conditions of service provisioning. Mere

reporting, however, is insufficient to address

Espirit’s substantial concerns about

regulatory transparency, effective

enforcement, cross-subsidization, availability

of alternative infrastructure, and availability

of proper interconnection arrangements.

The Department should seriously consider

adding to the proposed Consent Decree the

described above recommendations of Esprit.

Additionally, it should make a clear-cut

commitment to vigorous oversight and

enforcement of the activities of the Phoenix

joint venture and its members. To the extent

that the reporting requirements of the Decree

deny competitors access to critical

information necessary to document the basis

of their complaints of discrimination, the

Department must assume an active role in

reviewing all the data presented to it and

must address complaints in timely fashion.

Only if the Department undertakes this level

of continuing oversight can approval of the

alliance increase rather than substantially

lessen competition in the international

telecommunications services market.

21 November 1994.

Mr. Claus-Dieter Ehlermann,

Director General, DG–IV, Commission of the

European Union, Rue de la Loi 200, B–

1049 Brussels, Belgium

Re: Telecommunications Alliances

Dear Mr. Ehlermann: I am writing to

request that you consider the following

principles that Esprit Telecom proposes

ought to be used for evaluating

telecommunications alliances in Europe prior

to Commission approval:

• The Commission should not permit the

formation of alliances if a monopoly member

is not fully compliant with all aspects of

Commission directives. In particular,

monopoly members should comply with the

Open Network Provision (ONP) and the

implementation of related liberalisation

legislation. (Even the most basic provisions,

such as those requiring cost accounting have

not been achieved by many monopoly

providers.)

• The Commission should not permit the

formation of alliances if a National

Regulatory Authority under which a

monopoly member operates has not fully

complied with Commission directives.

Moreover, the Commission should not permit

operators to join alliances while continuing

to violate their own national regulations and

laws.

The failure of Member States to fully

implement Commission directives has

permitted some monopoly operators to

benefit from a protected home market—often

with the aid of their national regulatory

authorities—while aggressively pursuing

opportunities in liberalised markets abroad.

Esprit Telecom believes that if the objective

criteria outlined above are utilised by the

Commission, a more rapid and

comprehensive liberalisation of the European

market can be achieved. Esprit Telecom

believes that liberalisation is a precondition

for providing consumers with more choices

and lower costs.

Sincerely,

Michael Potter,

President.

Federal Communications Commission

Opposition of Esprit Telecom, U.K., to Sprint

Corporation Petition for Declaratory Ruling

In the Matter of: Sprint Corporation

Petition for Declaratory Ruling Concerning

Sections 310(b)(4) and (d) and the Public

Interest Requirements of the

Communications Act of 1934, as amended.

File No. I–S–P–95–002.

I. Introduction

Esprit Telecom, U.K. (‘‘Esprit’’), by its

undersigned counsel, submits its Opposition

to the Petition for Declaratory Ruling

(‘‘Petition’’) of Sprint Corporation

(‘‘Sprint’’) 1 seeking confirmation that its

‘‘Global Partnership’’ arrangement with

France Telecom (‘‘FT’’) and Deutsche

Telekom (‘‘DT’’) does not violate the

Communications Act or the Commission’s

Rules. Specifically, Sprint seeks confirmation

that (1) its formation of a ‘‘Global

Partnership’’ with DT and FT and the related

investment in Sprint by DT and FT does not

involve a transfer of control within the

meaning of Section 310(d) of the

Communications Act; (2) a level of 28%

foreign ownership in Sprint is not

inconsistent with the public interest under

Section 310(b)(4) of the Communications Act;

and (3) the transaction is otherwise

consistent with the public interest.

As explained below 2 Esprit strongly

opposes approval of Sprint’s Petition prior to

the introduction of switched voice

competition in France and Germany and the

establishment of independent regulatory

bodies in France and Germany that can and

will effectively enforce regulations, including

those relating to transparency of cost

information and imputation of costs, that are

designed to prevent anticompetitive

behavior.

II. Statement of Interest

Esprit, owned and controlled by United

States citizens, is a wholly-owned subsidiary

of Esprit Telecom (Jersey) Limited, which is

organized under the law of Jersey, Channel

Islands, in the United Kingdom. While it has

recently applied for authority to enter the

U.S. telecommunications market as a

common carrier,3 Esprit operates primarily as

a value-added services provider to large and

medium-sized business users in the

European telecommunications market.

Specifically, in the U.K. Esprit provides to

large and medium-sized businesses a wide

range of value-added, switched and

dedicated, voice and data services liberalized

by the U.K. government. In continental

Europe, Esprit’s affiliates 4 provide valueadded private network and facsimile services

in Spain, Belgium, the Netherlands, and

France, again serving primarily large and

medium-sized business users. To date,

however, Esprit has made no progress in its

efforts to provide in Germany the valueadded services liberalized by the European

Union (‘‘EU’’), and it has experienced

increasingly high leased line provisioning

rates in both Germany and France.

Esprit is concerned that the proposed

alliance among DT, FT, and Sprint will have

a substantial adverse impact on Esprit’s plans

to construct a pan-European network absent

commitments by regulators in France and

Germany to implement immediately and

fully all service and infrastructure

liberalization directives promulgated by the

EU and, further, to open the infrastructure

and services monopolies of DT and FT to

competition prior to consummation and

implementation of the alliance. As a new

entrant into the U.S. international services

market, Esprit has a substantial concern that

FT and DT will be able to leverage their

monopoly positions in their home markets to

enhance their position in the U.S. market and

reduce the current level of competition here.

Accordingly, Esprit has a direct interest in

any Commission action that would have the

effect of relieving the pressure on FT and DT

and the French and German regulators to

open the French and German

telecommunications markets to competition

in order for FT and DT to receive the U.S.

regulatory approvals necessary to

consummate their proposed investment in

Sprint.

III. Approval of Sprint’s Proposed Joint

Venture Will Retard Rather Than Enhance

Competition in the Global

Telecommunications Market

Instead of promoting the Commission’s

articulated goal of fostering a competitive

global telecommunications market,

approving Sprint’s proposed Global

Partnership now, prior even to the

authorization of resale competition in all

service categories, much less full

liberalization of the French and German

telecommunications markets, would

eliminate the chief incentive for the French

and German governments to open their

telecommunications markets to effective

competition. The Commission must consider

the potential adverse impact on the

continuation of robust competition in the

U.S. market, as well as the adverse impact on
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4015

5The Direction Ge ́ne ́rale des Postes et

Te ́le ́communications in France and the Ministry for

Post and Telecommunications, assisted by a new

Regulierungsrat (Regulation Council), in Germany.

6 90/388/EEC: Commission Directive on 28 June

1990 on Competition in the Market for

Telecommunications Services, 1990 O.J. (L 192/10).

7 92/44/EEC: Council Directive of 5 June 1992 on

the Application of Open Network Provision to

Leased Lines, 1992 O.J. (L 165).

8The substantial governmental investment

interest in both European carriers also raises further

concerns about the potential for substantial crosssubsidization and the regulatory directives to

preclude it.

9See Article L. 34 of Law No. 90–1170 of 29

December 1990. (This section modifies the Code des

Posts et Te ́le ́communications to provide that the

France Telecom monopoly extends only to

‘‘services provided to the public, which, in the case

of reserved voice telephony is ‘‘the commercial

provision of a system of direct, real-time voice

transmissions between users connected to

termination points of a telecommunications

network,’’ and establishes a notification procedure

for competitive entry into most unreserved service

segments.)

10 90/387/EEC: Council Directive of 28 June 1990

on the Establishment of the International Market for

Telecommunications Services Through the

Implementation of Open Network Provision, O.J. (L

192/1).

11Critical to Esprit’s business plan of providing

reliable competitive telecommunications services

across Europe is the ability to lease lines at

commercially reasonable rates or construct its own

network. 12See, supra, notes 6, 7, and 10.

the ability of U.S.-owned carriers to penetrate

foreign markets, that would result from

permitting the largest U.S. carriers to enter

into alliances with the largest foreign

monopoly carriers. In addition, while

enhancing the competitive positions of the

large U.S. carriers through financial

investment, such alliances simultaneously

deprive the U.S. market of some of its most

vigorous new entrants. They also introduce

new and unreasonable market distortions to

the extent that alliance members are allowed

to offer end-to-end services their competitors

are foreclosed from providing. Therefore, it is

imperative that the Commission permit such

alliances to go forward only after it is

convinced that any potential adverse impact

on the level of competition in the U.S. market

is offset by increased global competition that

affords new opportunities for U.S.-owned

carriers.

Here, the proposed Global Partnership

involves three, rather than two, of the world’s

largest carriers, two of which retain

substantial monopolies in their home

markets, and competition in the French and

German markets is far less extensive than

that prevailing in the U.K. at the time the

British Telecom /MCI joint venture was

approved. Sprint’s proposed alliance with FT

and DT raises even more serious competitive

concerns than did the BT/MCI ‘‘Concert’’

alliance. Moreover, instead of being in the

vanguard of liberalization in Europe as is the

U.K.’s regulatory regime, both France and

Germany are only beginning to develop

independent regulatory agencies 5 and

regulations designed to ensure that the

opportunity for fair competition develops.

Illustrating the magnitude of the problem,

despite the EU’s mandate, Germany simply

has not adopted any laws to implement the

EU’s Services Directive 6 and authorize the

offering of the liberalized services (virtually

all services other than switched voice

services) in its market. Moreover, neither the

French nor the German government has fully

implemented the Leased Lines Directive 7

requiring national regulators to obtain and

review accounting separations data to ensure

that the dominant carriers do not abuse their

facilities monopolies or virtual monopolies

by cross-subsidization 8 or by imputing lower

costs to their competitive operations than

they charge their competitors. While France,

commendably, has allowed value-added

service providers to enter the market without

formal application procedures or processing

delays,9 in Germany the regulator’s failure to

implement European law with respect to

liberalized services, leased lines, and open

network provisioning 10 has chilled market

entry by potential service providers who

cannot rely on obtaining the necessary

authorizations and leased lines in any

predictable time frame. The few competitive

authorizations that have been issued to date

have, moreover, been issued on an ad hoc

basis that gives little guidance as to the

factors that will be considered in awarding

such authorizations. In both countries, the

efficient working of the competitive

marketplace is already hampered by the

regulators’ failure to carry out their mandate

to implement the EU Directives, and the

problem could be worsened if the proposed

Sprint/DT/FT alliance is allowed to proceed

at this time.

IV. Continued Regulatory Pressure is Critical

In light of the virtually complete monopoly

status of FT and DT in their respective

markets and the current absence of

competition in switched voice services in

those markets, approving this alliance would

eliminate all incentive for FT and DT to

relinquish their respective strangleholds on

the French and German telecommunications

markets and could sound the death knell for

emerging competitive carriers like Esprit.

Even if France and Germany were to open

their markets to competition, however, the

potential and opportunity for anticompetitive

behavior and discrimination in favor of

Sprint and the joint venture company to be

formed with Atlas is great and would likely

have a preclusive effect on the entry of any

new carriers. Therefore, until the regulator in

each country establishes clear and

transparent regulations with respect to

application procedures, accounting

separation procedures and crosssubsidization safeguards, as well as requiring

cost-based leased line rates 11 and

commercially reasonable interconnection

charges, the Commission should not approve

the proposed Sprint/DT/FT alliance.

Although in recent months the French and

German regulatory authorities have appeared

to be more favorably disposed to increased

telecommunications services competition,

neither France nor Germany has yet taken

any effective action to open its basic

telecommunications services market to

competition.

Accordingly, Esprit urges the Commission

to deny Sprint’s Petition until, at a minimum,

concrete steps, such as implementing the

European Community’s Services, Open

Network Provisioning, and Leased Line

Directives, are taken in both Germany and

France to liberalize their respective

telecommunications markets. Given that FT

and DT are the two largest

telecommunications carriers in Europe,

access to the French and German

telecommunications markets is critical to

successful market penetration by competitive

entrants. The Commission should therefore

decline to approve the proposed alliance

until the French and German regulators

adopt (1) transparent application procedures

for licensing carriers to provide all services,

(2) transparent rules to authorize competitive

carriers to construct their own fiber and

microwave networks, (3) rules to implement

the European Community Leased Lines,

Open Network Provisioning, and Services

directives,12 and (4) cost accounting rules to

permit cross-subsidization.

V. Conclusion

For the foregoing reasons, Esprit

respectfully urges the Commission to deny

Sprint’s Petition at this time as contrary to

the public interest in promoting a

competitive global telecommunications

market.

Dated: September 1, 1995.

Respectfully Submitted,

Esprit Telecom, U.K.

Margaret M. Charles,

William B. Wilhelm, Jr.,

Swidler & Berlin, Chartered.

Certificate of Service

I hereby certify that, on this 1st day of

September 1995, a copy of the Opposition of

Esprit Telecom, U.K., to Sprint Corporation

Petition for Declaratory Ruling was served by

hand delivery to the following:

International Transcription Service, Inc.,

2100 M Street, NW., Suite 140,

Washington, DC 20037

International Reference Room, International

Bureau, 2000 M Street, Room 102,

Washington, DC 20554

Katherine A. Swall.

Harvard University Law School

October 19, 1995.

Mr. Donald Russell,

Chief, Telecommunications Task Force,

Antitrust Division, Room 89104, 555

Fourth Street, NW., Washington, DC

20001

Re: Proposed Final Judgment and

Competitive Impact Statement; United

States v. Sprint Corporation and Joint

Venture Co.

Dear Mr. Russell: The purpose of this letter

is to comment on the Proposed Final

Judgment and Competitive Impact Statement

in United States v. Sprint Corporation and

Joint Venture Co., Civ. Action No. 95–1304

(D.D.C. July 13, 1995), published at 60 Fed.

Reg. 44049 (August 24, 1995). In particular,

I want to recommend that the Justice

Department require, as a condition for
4016 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

1OJ No 13, 21. 2 1962, p. 204/62.

2Notification announced in OJ No C 184, 18. 7.

1995, p. 11.

settling the case, that France Telecom remove

all obstacles that hinder or render impossible

the use by its competitors whether in the

telecommunication sector (fixed telephone or

mobile) or in the data processing sector, of

public information contained in the French

telephone directory it maintains in its

capacity as a public utility.

Since 1989, France Telecom has been

adamantly refusing to share with its

competitors—specifically in the data

processing sector—the contents of what has

become known as the ‘‘Orange List’’. French

regulations promulgated in 1989 have

prohibited anyone from soliciting individuals

who have informed France Telecom of their

request not to be disturbed by commercial

solicitations emanating from the telephone

directory. France Telecom has created a list

of such individuals which it calls the Orange

List.

As a result of France Telecom’s conduct,

the French telephone directory is mixed with

Orange List individuals whom no one other

than France Telecom can identify. Yet, under

French law, it is a crime to solicit such

people. France Telecom refuses to share this

information with its competitors, subjecting

them to the risk of criminal prosecution if

they compile their data from the telephone

directory, and actually filing criminal

complaints with the public prosecutor

against its own competitors.

Using regulations intended strictly to

protect a small group of individuals who

wish not to be disturbed by commercial

solicitations, France Telecom has basically

made it impossible for any other entity to

participate in the data base end of the direct

marketing business, a business so crucial to

the flow of goods and services from the U.S.

to the French consumer market.

Indeed, the Orange List has potential

implications beyond the data processing

sector. If and when deregulation occurs in

France, AT&T and MCI may seek to enter the

telecommunication market in France. When

they do so, they will, in all likelihood, need

to solicit potential customers through direct

mail or telemarketing. The only conceivable

source of information they can use in such

a campaign would be the French telephone

directory; no other source would allow them

to reach the totality of French households

and entities. Unfortunately, because of

France Telecom’s refusal to share the Orange

List with competitors, the U.S. competitors of

Sprint would be unable to use the

information contained in the directory.

Should they do so, France Telecom would

surely complain to the authorities which

would lead to their criminal prosecution.

On the other hand, France Telecom and

Sprint could easily reach the totality of the

French population, because unlike its

competitors, France Telecom can identify

those individuals listed in the telephone

directory who have put themselves on the

Orange List.

A recent initiative undertaken by France

Telecom in the mobile telephone sector will

illustrate another aspect of the problem. The

mobile telephone sector in France is open to

competition and France Telecom has two

competitors operating mobile telephone

networks. France Telecom has recently

informed its mobile telephone subscribers

that they may request to be included in the

telephone directory, and if they do so they

will be automatically put on the Orange List.

The French regulation is clear about the

fact that the request to be put on the Orange

List must come from the individual and not

at the initiative of France Telecom. But in

moving to expand the reach of the Orange

List, France Telecom has chosen to make it

impossible for any of its competitors to

solicit its clients, since it is unlawful to

solicit individuals who are on the Orange

List. Yet if another mobile operator published

a directory of its subscribers, nothing could

stop France Telecom from soliciting its

competitor’s clients.

The problem I am focusing on is not at all

about protecting privacy, but about how

much one is willing to pay France Telecom

for the directory information purged of the

Orange List. To obtain the entire directory

purged of the Orange List would cost

between $1.5 million and $3 million,

depending on which of France Telecom’s

departments one buys it from. Paying this

price will not get a data processing company

or a marketing director of a competing

telecommunications company very far

because—on the very following day—the

directory purchased will not contain the new

additions to the Orange List. Since France

Telecom does not supply the Orange List, the

customer will have to procure the entire

directory again and again. Quite frankly, it is

just absurd—except for procuring a

monopoly position by France Telecom,

millions of dollars will have to be spent on

nothing more than a telephone directory

available on every street corner in Paris and

which will be rendered obsolete the next day.

Meanwhile, France Telecom’s U.S.

operations in the transmission and

processing of data are continuing to grow. Its

on-line ‘‘Minitel’’ network of services is now

available all over the United States to anyone

with a modem-equipped personal computer.

The France Telecom telephone and business

directories are available to U.S. residents by

simply dialing a local telephone number.

France Telecom can use this access it has to

American consumers, not only for direct

profit (use of each on-line service generates

income for France Telecom) but also to

attract clients to its global

telecommunications services. No one else

can offer data processing services emanating

from an all-encompassing and exhaustive

data base of French residents.

France Telecom is seeking to profit as a

market participation in the United States

telecommunications economy, through its

involvement in the Joint Venture Co., and

must therefore live with the regulatory

consequences of making this choice,

including complying with applicable United

States antitrust laws and policies. Since the

preparation and distribution of telephone

directories and related information is an

integral aspect of the telecommunications

business—the ‘‘telecommunication service’’

and the ‘‘public data network’’ that are the

subject of the Proposed Final Judgment—that

will be pursued by the Joint Venture Co, and

since France Telecom’s monopoly position

has allowed it to limit competition

concerning such directories and information

to the detriment of United States businesses,

the Antitrust Division’s authority to require

France Telecom to share the Orange List with

its competitors for the sole and noncommercial purpose of allowing them to

purge their data bases of those individuals

who do now wish to be solicited, is not open

to serious dispute. France Telecom should

also be compelled to make available to its

competitors updated versions of the

telephone directory at a commercially

reasonable price which takes into account the

fact that its own data processing divisions

obtain it, I presume, at no or little cost. These

conditions should be specifically included in

the final judgment in United States v. Sprint

Corporation and Joint Venture Co.

My initial interest in this matter stems

from consulting work I did for the New York

law firm of Fisher and Soffer representing a

French data marketing firm and its United

States subsidiary in litigation with France

Telecom over access to such telephone

subscriber lists. My primary motivation for

writing to you now, however, is to bring to

your attention an important public policy

issue within the scope of your mission, and

not merely to advocate a position on behalf

of a client.

The United States antitrust laws have

played an important role in maintaining a

level playing field for business competitors,

both domestic and foreign, who seek to profit

by participating in the United States

economy. This role has become more

demanding, and crucial, with the growth of

our globalized economy. I urge the Antitrust

Division to uphold this important role of the

antitrust laws, and to require France Telecom

to make its telephone directory truly

available to competitors.

Respectfully submitted,

Charles M. Haar

Exhibit H

Notice Pursuant to Article 19 (3) of Council

Regulation No 17 1 and Article 3 of Protocol

21 of the European Economic Area

Agreement Concerning a Request for

Negative Clearance or an Exemption

Pursuant to Article 85 (3) of the EC Treaty

and Article 53 (3) of the EEA Agreement

Case No IV/35.337—Atlas

(95/C 337/02)

(Text With EEA Relevance)

Introduction

1. Atlas was notified to the Commission on

16 December 1994. This transaction brings

about a joint venture owned 50% by France

Telecom (FT) and 50% by Deutsche Telekom

(DT). Atlas is also the instrument of DT and

FT’s participation in a second transaction,

named Phoenix, with Sprint Corporation 2. In

the course of the procedure before the

Commission, FT and DT agreed to modify

both the Atlas and the Phoenix agreements.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4017

3See Commission decision in Case No IV/34.857

(BT–MCI) of 27 July 1994 (OJ No L 223, 27. 8. 1994).

4Commission’s Guidelines on the application of

EC competition rules in the telecommunications

sector (OJ No C 233, 6. 9. 1991, p. 2, paragraph 27).

5As defined in Article 1 (1), 9th indent of

Commission Directive 90/388/EEC of 28 June 1990

on competition in the markets for

telecommunications services (OJ No L 192, 24. 7.

1990, p. 10), (the ‘Services Directive’).

described in a separate notice pursuant to

Article 19 (3) of Regulation No 17, published

in this edition of the Official Journal of the

European Communities.

2. The Atlas venture will be structured at

two levels. A holding company established in

Brussels, Atlas SA, will be incorporated as a

socie ́te ́ anonyme under the laws of Belgium.

Atlas SA will have three operating

subsidiaries, namely one in France (Atlas

France), one in Germany (Atlas Germany),

and one for the rest of Europe. Atlas France

and Atlas Germany will initially provide

technical and sales support to FT and DT, i.e.

the French and German distributors of Atlas

and Phoenix products. After full

liberalization of the telecommunications

infrastructure and services markets in France

and Germany, scheduled to occur by 1

January 1998, DT’s subsidiary for the

provision of standardized low-level packetswitched X.25 data communications, DatexP, will be merged with Atlas Germany while

FT’s subsidiary for the provision of

standardized low-level packet-switched X.25

data communications, Transpac France, will

be merged with Atlas France.

A. The Parties

3. Deutsche Telekom AG (DT) and France

Telecom (FT) are the public TO in Germany

and France. Both supply telephone exchange

lines to homes and businesses; local, trunk

and international communications to and

from their respective home country.

Worldwide turnover in 1994 was ECU 31,8

billion, a 4,3% increase over 1993, for DT

and ECU 21,7 billion, a 1,8% increase over

1993, for the FT group.

B. The Relevant Market

1. Product Markets

4. Atlas will address the markets for the

provision of value-added

telecommunications services to corporate

users both Europe-wide and nationally. Atlas

will target two separate product markets for

value-added services, namely:

5. The market for advanced

telecommunications services to corporate

users

This market comprises mostly customized

combinations of a range of existing

telecommunications services, mainly data

communications and liberalized voice

services including voice communication

between members of a closed group of users

(virtual private network (VPN) services),

high-speed data services and outsourced

telecommunications solutions specially

designed for individual customer

requirements. The market for advanced

telecommunications services to corporate

users, enhanced by features such as tailored

capacity allocation, billing, 24h/24h

technical service, etc., is currently changing

and evolving rapidly. Whether each of these

services constitutes a separate product

market can be left open for the purpose of

this case, as Atlas and its competitors usually

offer customized packages of such services in

combination with individual enhanced

features.

These services are provided over highspeed large-capacity leased lines linking

sophisticated equipment on customer

premises to the service provider’s nodes.

Alternatively, other means of transmission,

e.g. satellite or mobile radio capacity, can be

used to ensure the geographic coverage

demanded from time to time. Such services

employ advanced state-of-the-art standards,

data compression techniques, equipment and

software. In this market, Atlas is expected to

offer a portfolio of services including the

following:

—date services: high speed packet-switched

and Frame Relay services; pre-provisioned,

managed and circuit-switched bandwidth,

—value-added application services: valueadded messaging and video-conferencing

services,

—voice VPN services,

—intelligent network services,

—integrated very small aperture satellite

(VSAT) network services, and

—outsourcing: customers are offered to

transfer responsibility and ownership of

their networks to Atlas. In this connection,

Atlas may integrate into its own offerings

third-party products already owned by

customers who wish to keep such

offerings, as the case may be.

6. Due to the high cost of building and

operating the networks needed to provide

advanced corporate services, such services

can be commercially viable only if provided

to large businesses and other large

telecommunications users who generate

continued high traffic volumes 3. Customers

for advanced services targeted by Atlas are

multinational corporations, extended

enterprises, and other intensive users of

telecommunications and notably the largest

among these customers. Many of these

potential customers have huge

telecommunication needs and have often

acquired expertise in managing own internal

networks; they are not likely to switch to

service providers such as Atlas unless doing

this proves to be cost-effective. Finally, given

their knowledge of the market these

customers are in a position to request offers

from different competitors.

7. The market for standardized low-level

packet-switched data communications

services

Atlas will also be active on a separate

market for packet-switched data

communications services. The Commission

considers data communications services a

distinct telecommunications product market,

without prejudice to the existence of

narrower markets 4. One narrower market is

that for packet- and circuit-switched

services 5. Packet switching is a means to

improve network capacity utilization and

consists of splitting data sequences into

‘packets’, feeding these and other ‘packets’

into the network optimizing utilization of

available capacity, switching the ‘packets’ to

the desired destination and rearranging the

‘packets’ to obtain the data sequences sent.

The most common standard used for the

provision of packet-switched data services is

the ‘X.25’ standard.

Packet-switched data communications

services constitute a distinct product market

because they are provided over basic

terrestrial network infrastructure and based

on more mature technology. These services

are provided to different customer segments

within the same products market, namely:

1. On the one hand, customers who

generate mostly erratic and geographically

widespread traffic. These features are due

either to the specific type of use (e.g. banks

operating cash machines nationwide,

networks of points-of-sale in shops) or to the

size of such customers, i.e. small and

medium-sized enterprises (SMEs). Such

services are billed according to published

tariffs that are proportional to the actual time

of use of the network.

All incumbent Member State TOs

including DT and FT operate dense public

data networks with nationwide coverage

providing packet-switched data

communications services to this customer

segment. In each Member State there is only

one public data network built by the

respective incumbent TO under a public

service obligation before market

liberalization.

2. On the other hand, larger corporate

customers and other extended users generate

more substantial and regular traffic. The

requirements of these users justify that either

third-party service providers or the potential

customer itself assume the high cost of

creating customized leased lines circuits to

meet individual service demand. Packetswitched data communications services to

such users are billed according to negotiated

rates that take account of the individual

demand features of a particular customer.

8. Virtually all companies active in each

individual Member State of the European

Union are potential if not actual customers

for national standardized low-level packetswitched data communications services.

These services are also required by SMEs,

albeit in smaller volumes and possibly less

regularly than by larger users. Seldom will

such volumes justify that service providers

invest in leased lines with the specific

purpose of reaching these SMEs, which are

therefore in a weak negotiating position and

hardly capable to date of switching from the

current provider, typically the incumbent

TO, to a competitor.

9. Standardized low-level packet-switched

data communications may also be offered as

one service combined with advanced

corporate service offerings. However, even as

part of such combined offerings packetswitched data communications services are

provided over standard terrestrial

infrastructure. At the national level, choice

from a wider range of offerings than merely

standardized low-level packet-switched data

communications services may also be

available to larger customers that are not

using the TO’s public data networks but are

served over customized leased-line circuits.

However, most existing customers for

standardized low-level packet-switched data

communications currently generate annual
4018 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

6See footnote 3 above.

7Notification of a joint venture (Case No IV/

35.337—Atlas) (OJ No C 377, 31. 12. 1994, p. 9).

turnover of far below ECU 10 000 each and

are not therefore potential users of advanced

corporate network services. Therefore,

packet-switched data communications

offered by Atlas constitute a product market

separate from the advanced network services

market equally targeted by Atlas.

2. Geographic Markets

The markets for advanced

telecommunications services to corporate

users

10. Given that price differences are quite

substantial, demand for these services exists

in at least three distinct geographic markets,

namely at a global, a cross-border regional

and a national level. Atlas will provide

advanced telecommunications services to

corporate users Europe-wide and nationally.

Through Phoenix, advanced

telecommunications services offered by Atlas

will also have global ‘connectivity’, i.e. the

technical option to extend a given service

offering beyond Europe by linking a

customer’s premises worldwide over the

Phoenix ‘Global Backbone Network’.

11. Given the considerable costs involved,

advanced services are today mainly

demanded by large multi-national

corporations, extended enterprises, as well as

major national and other intensive users of

telecommunications. The requirements of

such users, that extend to all products or

corporate services provided by Atlas, were

discussed in detail in the BT–MCI decision 6.

Essentially, customers demand a customized

package of sophisticated telecommunications

and information services offered by one

single provider. This provider is expected to

take full responsibility for all services

contained in the package from ‘end to end’.

Accordingly, DT and FT intend to offer such

customers through Atlas what existing

technology allows to offer from time to time

within the applicable regulatory framework.

In this regard, the parties have indicated that

Atlas will eventually extend to international

voice traffic and other basic services,

regulation permitting.

12. Due to the cost structure of advanced

corporate services, notably the cost of leasing

the required infrastructure, prices of such

services are related to geographic coverage, as

is the cost of additional features (e.g. onestop-billing, help-desk and technical

assistance around the clock, customized

billing). There is indication that increasing

availability of trans-European networks will

ultimately blur the distinction between

national and cross-border or ultimately

Europe-wide advanced corporate services.

However, certain national sophisticated

value-added services (e.g. national voice VPN

services as well as data communications

services based on Asynchronous Transfer

Mode (ATM) or equivalent switching

technology) currently available from DT and

FT in Germany and France respectively will

not be integrated into the Atlas offerings.

This circumstance illustrates that a

distinction between national and crossborder advanced network services remains

valid to date.

The markets for standardized low-level

packet-switched data communications

services

13. Price differences may be less acute than

for advanced corporate services. However, a

national, cross-border regional and global

geographic level can be distinguished for

standardized low-level packet-switched data

communications services. In terms of traffic

volumes, supply and demand of standardized

low-level packet-switched data

communications services are mostly national.

For instance, in Germany DT’s existing

Datex-P packet-switched data

communications services division hardly

ever provides such services across the border

while FT’s German subsidiary Info AG, in

spite of appertaining to FT’s seamless crossborder Transpac network, only provides one

fifth of its packet-switched data

communications services across the border.

This assessment was confirmed by interested

third parties who submitted observations

further to the Commission’s notice on the

Atlas notification 7.

14. At a global and Europe-wide level, lowlevel data services and advanced network

services may be partly converging to the

extent that large customers of the latter do

not require separate provision of

standardized low-level packet-switched data

communications services once such services

are available as part of service combinations

offered over advanced networks.

Accordingly, large European

telecommunications users demand services

with global ‘connectivity’, i.e. that may be

extended beyond Europe if so required. DT

and FT have moved to meet this demand in

entering the Phoenix agreements with Sprint.

Along with increased availability of

advanced cross-border network

infrastructure, the market is generally

expected to overcome distinctions along

national borders in the medium term.

However, separate national geographic

markets subsist to date for standardized lowlevel packet-switched data communications

services and advanced network services

respectively.

C. Market Shares of Atlas

The markets for advanced corporate

telecommunications service

15. The parties estimate the European

corporate telecommunications services

markets (exclusive of data communications

services) to be worth approximately ECU 505

million (1993 figures). Of this total, end-toend services accounted for approximately

ECU 15,1 million, VPN services for

approximately ECU 220,6 million, VSAT

services for approximately ECU 173,2 million

and outsourcing services for approximately

ECU 96,4 million. According to the

notification DT and FT’s aggregate market

shares (1993 figures) in the European Union

were 25% in the end-to-end services market,

27% in the VPN services market and 2,3%

in the outsourcing services market. Market

shares for VSAT services are difficult to

calculate given that TOs mostly use VSAT

terminals either as back-up facilities for other

services or to extend the geographic scope of

services despite terrestrial infrastructure

shortcomings; however DT and FT taken

together operated 10 907 VSAT terminals by

June 1994, equivalent to 29% of the total

installed base of interactive, data one-way or

business television VSAT terminals in the

European Economic Area.

As to different segments of the advanced

corporate services market at the national

level, DT and FT’s aggregate market shares in

France and Germany respectively are 93% in

the French VPN market (where DT has no

presence) against 0% in the German VPN

market, and 60% in the French market for

end-to-end services against 35% in the

equivalent German market. DT and FT’s

outsourcing joint venture, Eunetcom BV,

achieved 36% of total outsourcing turnover

generated in France and 29% of total

outsourcing turnover generated in Germany.

As for VSAT services, DT has installed

approximately 25% of all VSAT terminals in

Germany; this Member State accounts for

18% of the total installed base of such

terminals in the EEA.

The market for standardized low-level

packet-switched data communications

services

16. DT and FT estimate the European

market for data communications services to

be worth approximately ECU 2,8 billion

(1993 figures). According to the notification

DT and FT’s aggregate shares (1993 figures)

of this market were 35%. Among national

markets, Atlas will have a particularly strong

position in France and Germany. DT and

FT’s aggregate market share for all data

communications services is 79% in Germany

and 77% in France, of which approximately

half accounts for services provided by DT’s

Datex-P division and FT’s Transpac France

subsidiary, both of which remain outside the

scope of Atlas until the French and German

telecommunications infrastructure and

services markets are fully liberalized as

scheduled for 1 January 1998.

D. Main Competitors of Atlas

The markets for advanced corporate

telecommunications services

17. Since the Commission’s BT–MCI

decision many players, acting alone or jointly

with partners, have entered or are entering

the market for international value-added

services. Among the most important of these

players, albeit with disparate geographic

scope and target customers, are: AT&T

WorldPartners, Concert, IBM-Stet,

International Private Satellite Partners,

Unisource or Uniworld. Some of the above

are mere projects of strategic alliances

between TOs, others are awaiting regulatory

approval. However, all of the above share the

aim to position the respective partners in

view of the full liberalization to come.

The market for standardized low-level

packet-switched data communications

services

18. The market for standardized low-level

packet-switched X.25 data communications

services features a substantially larger

number of players than that for customized

offerings comprising advanced corporate

services. Among the global players in this
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4019

market are the alliances mentioned at

paragraph 17 above competing with

providers such as EDS, FNA, Infonet, SITA

or SWIFT and operating subsidiaries of large

global companies such as AT&T Istel, Cable

& Wireless Business Networks, DEC’s

Easynet, or GEIS.

In addition, a large number of smaller

players compete at a cross-border regional or

national level in the EEA. For instance, FT’s

indirect German subsidiary Info AG, that

provides most of its data communications

services within Germany, is DT’s secondlargest competitor in the German national

market for standardized low-level packetswitched data communications services.

None of these smaller players can compare

with large alliances in terms of reach, access

to transmission capacity and financial

backing.

E. The Transaction

19. The Atlas transaction notified to the

Commission comprises a set of agreements

whose main features are described below.

1. Agreements as Originally Notified

(a) The Atlas Joint Venture Agreement (JV

Agreement) is the main agreement providing

for the establishment of the Atlas joint

venture.

(b) The Intellectual and Industrial Property

Transfer and License Agreements will be

concluded by each of FT and DT with Atlas

SA. Under these agreements FT and DT make

available to Atlas SA the intellectual

property rights (IPRs) needed to operate the

Atlas business.

(c) The Services Agreements will be

framework agreements setting forth the basic

terms and conditions with respect to the

supply by DT and FT of certain services to

Atlas SA and the supply by Atlas SA of

certain services to FT and DT.

(d) The Distribution Agreements: two

substantially similar distribution agreements

with FT and DT respectively will lay out, for

the home countries (France and Germany

respectively), the marketing and sale of Atlas

products.

(e) The Agency Agreements under which

each parent appoints Atlas SA non-exclusive

worldwide agent for the sale of DT and FT’s

international leased lines (half-circuits) with

the territorial exception of Germany as

regards DT’s half-circuits.

2. Contractual Provisions

20. In particular, the above agreements

provide for the following:

1. Structure of the Atlas Venture

Atlas SA will be created as a joint venture

between FT and DT, each owning half the

share capital. The management structure of

Atlas SA will be as follows:

(a) Shareholders’ meeting: Prior approval

of the shareholders’ meeting is necessary for

matters such as the amendment of the articles

of association, modification of capital,

issuance of shares, mergers, sale of all or a

substantial part of the assets, and liquidation.

(b) Strategic Board: It is envisaged that the

Strategic Board of Atlas SA will have two cochairmen and eight members, one half

appointed by each parent, who may be freely

removed and shall meet at least twice a year.

The Strategic Board has a quorum of a

majority of its members, including at least

two members appointed by each party; the

co-chairmen do not have a tie-breaking vote.

Prior approval by the Strategic Board is

required for matters such as the entry into a

joint venture or other strategic alliance with

a third party, any significant modification of

the scope of Atlas’s business and such

matters as may from time to time be

submitted to it by a vote of one half of the

members of the Board of Directors. The

Strategic Board shall also review all strategic

plans of Atlas SA.

(c) The Board of Directors: It is envisaged

that Atlas SA’s Board of Directors will have

nine members, four elected by each of DT

and FT and one by Sprint. Prior approval by

the Board of Directors is required for a

number of important decisions such as the

approval of business plans and annual

budgets and changes in the scope of Atlas,

the conclusion of important contracts, etc.

Decisions on changes in the Atlas business,

management appointments, and the approval

of the business plan, the annual operating

plan, and the budget require that at least two

directors nominated by each party vote with

the majority. Matters on which the Board of

Directors fails to reach agreement shall be

brought before the Strategic Board.

(d) Chief Executive Officers (CEOs): It is

envisaged that Atlas SA will have two CEOs,

one nominated by FT among is

representatives in the Board of Directors, the

other by DT among its representatives in the

Board of Directors. The CEOs shall be jointly

responsible for day-to-day operations and the

management of the business and affairs of

Atlas. Approval of both co-CEOs is required

for all important decisions including the

hiring or dismissal of key employees.

The parties will contribute to Atlas their

existing European assets outside France and

Germany (as well as some assets in France

and Germany) used for the provision of

services coming within the scope of Atlas.

2. Purpose and Activities of Atlas

The Atlas venture is to provide seamless

national and international end-to-end

services to corporate customers (i.e. to

multinational companies (MNCs) and SMEs

alike). The portfolio of Atlas services

comprises data network services,

international end-to-end services, (managed

links), voice VPN services, customer-defined

networks, outsourcing and VSAT services.

These services are fully liberalized in the

European Union and are widely liberalized

worldwide. Atlas will have the responsibility

for the services portfolio mentioned above

outside of France and Germany.

In France and Germany, Atlas will be

providing sales support to FT and DT’s sales

forces as regards all services mentioned in

the Atlas portfolio, with the exception of

public X.25 packet-switched network

services within France and Germany, which

will be provided by FT’s Transpac France

subsidiary and DT’s Datex-P subsidiary

respectively until the telecommunications

infrastructure and services markets are fully

liberalized in France and Germany, as

scheduled for 1 January 1998.

Each acting as an exclusive distributor, DT

will sell Atlas services in Germany, while FT

will sell Atlas services in France. Atlas

products will be sold in France and Germany

under the common globally used Atlas/

Phoenix brands. Passive sales of Atlas

services by DT in France, by FT in Germany

and by any Atlas operating entity in both

Member States will be allowed. Outside

France and Germany, Atlas products will be

sold by the Atlas operating entity for the rest

of Europe.

It is planned that there will be a balancing

payment by DT at each closing to equalize

the respective contribution values of the two

parties. It is further envisaged that certain

adjustment payments will be made on the

respective net worth of the entities concerned

at the time of contribution to Atlas. A

separate adjustment payment may be made

between FT and DT if the actual performance

of the FT contributed businesses in France or

the DT contributed businesses in Germany

falls significantly short of projections in 1995

(and possibly 1996).

3. Provisions Concerning Dealings With/by

Atlas

Mutual service provision between Atlas

and FT/DT will be the object of two Services

Agreements pursuant to which dealings

between FT/DT and Atlas shall be

transparent, non-discriminatory and at arm’s

length.

As for services generally offered by DT or

FT, the prices and other terms which DT or

FT generally apply from time to time to their

customers shall equally apply for Atlas. As

for services not generally offered by FT or

DT, market prices and terms shall apply and

be negotiated between the Parties in good

faith at arm’s length. Consequently, Atlas

will purchase such services from DT or FT

at the same prices and conditions that any

third party generally offering such services

would apply under the same circumstances.

If information on relevant market prices is

not available, the prices applicable for Atlas

shall be determined on the basis of a

calculation model that is used, within FT, to

make offers to customers with special

requests and, within DT, to calculate intragroup transfer prices. Prices resulting from

such calculation shall cover, for the relevant

period, all costs as well as a reasonable profit

margin.

4. Non-Compete Provisions

Pursuant to Article XIII of the Atlas JV

Agreement, FT and DT will not engage

anywhere in the production of services that

are substantially the same or compete

directly with the Atlas services, and will not

engage outside of France and Germany in the

marketing, sale or distribution of services

that are substantially the same or compete

directly with the Atlas services. Furthermore,

FT will not market or distribute Atlas

services in Germany and DT will not market

and distribute Atlas services in France;

passive sales are however permitted by FT

outside of France, by DT outside of Germany

and by Atlas in both France and Germany.

5. Provisions Relating to Intellectual and

Industrial Property

FT and DT will each conclude an

Intellectual and Industrial Property Transfer

and License Agreement with Atlas SA under
4020 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

8OJ No. L 395, 30. 12. 1989, p. 1.

9Reserved services are services which are

provided pursuant to special or exclusive rights

granted by the EU Member States to their respective

TOs in compliance with EC law.

10Notice pursuant to Article 19(3) of Council

Regulation No. 17 concerning Case No. IV/33.361—

Infonet, (OJ No. C 7, 11. 1. 1992, p. 3, at paragraph

9).

which the parties make available to Atlas SA

the intellectual property rights (‘‘IPRs’’)

which are needed to operate the Atlas

business in accordance with the following

principles:

(a) IPRs owned by, or licensed to, the

parties that are used exclusively for the Atlas

business shall be transferred to Atlas SA;

(b) IPRs owned by, or licensed to, the

parties that are used predominantly for the

Atlas business shall also be transferred to

Atlas SA, and a sub-license shall be granted

to the parties (Grant Back License sublicense); and

(c) IPRs owned by, or licensed to, the

parties that are used predominantly for the

parties’ business are (sub-)licensed to Atlas

SA.

F. Changes Made and Undertakings Given

Further to the Commission’s Intervention

21. Certain features of the Atlas transaction

as notified appeared to be incompatible with

Community competition rules. Consequently,

the Commission by letter of 23 May 1995

informed the parties of its concerns. In the

course of the notification procedure the

parties have amended the original

agreements and given undertakings to the

Commission.

1. Contractual Changes

22. Non-appointment of Atlas SA as an

agent for international half-circuits. Further

to the Commission’s letter of 23 May 1995,

DT and FT abolished the Agency Agreements

and amended the original Service

Agreements to take account of the nonappointment of Atlas SA as a non-exclusive

agent for DT and FT’s half-circuits.

23. Non-integration of French and German

public data networks before full

liberalization of the telecommunications

infrastructure and services markets. Atlas SA

shall not acquire legal ownership or control

within the meaning of Article 3 of Council

Regulation 4064/89 8 of the French and

German public X.25 packet-switched data

networks, Transpac France and Datex-P

respectively, before the telecommunications

infrastructure and services markets are fully

liberalized in France and Germany, as is

scheduled to occur by 1 January 1998. Until

then, it is envisaged that:

1. Transpac SA will be split into Transpac

France and Transpac Europe;

2. Transpac Europe will be contributed to

Atlas;

3. Transpac France will be a wholly owned

subsidiary of FT;

4. DT’s Datex-P services division will be

incorporated as a separate company under

German law and become a wholly owned

subsidiary of DT;

5. DT and FT’s outsourcing joint venture,

Eunetcom BV, will be fully contributed to

Atlas SA; and

6. Atlas SA will create a subsidiary in

France and Germany (Atlas France and Atlas

Germany respectively) to provide the

following services:

(i) sales support regarding Atlas products

to distributors in France and Germany; and

(ii) services within the scope of Atlas other

than X.25 packet-switched data network

services including:

—VSAT services,

—international end-to-end services,

—voice VPN services,

—customer-defined solutions (excluding

national X.25 data communications

services in France and Germany), and

—outsourcing services.

Provided the telecommunications

infrastructure and services markets are fully

liberalized in France and Germany on 1

January 1998, Transpac France and Datex-P

will be contributed to Atlas on that date in

such a way that Atlas France and Atlas

Germany will be merged with Transpac

France and Datex-P respectively.

24. Technical cooperation. Ahead of full

liberalization of the telecommunications

infrastructure and services markets in France

and Germany, scheduled to occur by 1

January 1998, DT and FT will cooperate in

the development of common technical

network elements. This cooperation will

comprise only the following areas:

1. FT and DT will cooperate in the

development of common products and

common technical network elements (i.e.

such products and elements that share the

same features, yet separately built and

owned); such cooperation will extend to the

French and German public X.25 packetswitched data communications networks.

Only the following functions will be

managed by Atlas SA for Transpac France

and Datex-P respectively:

(a) product management and development,

provided that product branding and pricing

as well as product implementation in the

network will be managed by Transpac France

and Datex-P respectively;

(b) certain network planning functions; and

(c) information systems, provided that

central information system functions (e.g.

billing information and statistics) will be

operated by Transpac France and Datex-P

respectively.

The above areas of cooperation shall in no

case be tantamount to a de facto integration

of the French and German public switched

data networks, which will be controlled by

two separate network management centres;

and

2. Atlas may subcontract certain

operational functions to Transpac France and

Datex-P respectively.

25. Non-integration of assets of FT’s

indirect German subsidiary. The assets of

FT’s German corporate telecommunications

services provider Info AG shall not be

integrated into Atlas save as indicated at

paragraph 27 below. Moreover, FT shall

divest Info AG.

2. Non-Discrimination

26. In order to provide the services

described under paragraph 5 above, Atlas or

any other service provider is dependent on

the public switched telecommunications

network (PSTN) and reserved services.9 In

France and Germany, only FT and DT

provide both access to the PSTN and

reserved services. Given that FT and DT are

indirect shareholders of Atlas it is essential

for the safeguarding of fair competition

between Atlas and other existing or future

telecommunications services providers to

eliminate the risk that the former are granted

more favourable treatment regarding access

and use of the French and German PSTN and

reserved services.

The Commission set out in its notice on the

Infonet joint venture 10 how prohibition to

discriminate must be understood in detail.

Accordingly, to ensure the absence of

discrimination, the Commission intends to

decide that DT, FT and Atlas shall comply

with the following:

1. Terms and conditions: The terms and

conditions applied by DT and FT to Atlas for

access to the PSTN and for the provision of

reserved services (e.g. provision of leased

lines) in connection with the services

described under paragraph 5 above shall be

similar to the terms and conditions applied

to other providers of similar services. This

requirement covers availability price, quality

of service, usage conditions, delays for

installation of requested facilities, and repair

and maintenance services among other

services.

2. Scope of services available. Atlas shall

not be granted terms and conditions, or be

exempt from any usage restrictions regarding

the PSTN and reserved services, which

would enable it to offer services which

competing providers are prevented from

offering.

3. Technical information: DT and FT shall

not discriminate between Atlas and any other

service provider competing with Atlas in

connection with either a decision to

substantially modify technical interfaces for

the access to reserved services or the

disclosure of any other technical information

relating to the operation of the PSTN.

4. Commercial information: DT and FT

shall not discriminate between Atlas and

other providers of services as described

under paragraph 5 above as regards the

disclosure of certain commercial information.

This means that DT and FT shall not provide

Atlas with systemized and organized

customer information derived exclusively

from the operation of the PSTN or the

provision of reserved services if such

information would confer a substantial

competitive advantage and is not readily and

equally available elsewhere by service

providers competing with Atlas.

3. Undertakings Given by the Parties

27. Divestiture of Info AG. FT shall divest

of its interest in Info AG. To the extent

separable from the product divisions of Info

AG that shall be divested, advanced network

services for multinational clients whose

headquarters are outside Germany may be

transferred to Atlas.

28. DT and FT have also given the

additional undertakings described below.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4021

11 Guidelines on the application of EEC

Competition Rules in the Telecommunications

Sector (OJ No. C 233, 6. 9. 1991, paragraph 102 et

seq.).

1. Use of DT and FT’s Public Data Networks

Each of FT and DT will as of 1 January

1996 establish and thereafter maintain thirdparty access to their public switched data

networks in France and Germany

respectively. Non-discriminatory, open and

transparent access will be granted to all data

services providers that offer X.25 packetswitched data communications services. To

ensure non-discriminatory access to their

national public X.25 packet-switched data

networks, FT and DT shall:

(a) establish and maintain standardized

X.75 interfaces to access their national public

X.25 packet-switched data networks; this

interconnection is suitable for the provision

of end-to-end services based on X.25

specifications for end-user access speeds up

to 64 kbps; and

(b) offer such access on non-discriminatory

terms, including price, availability of volume

or other discounts and the quality of

interconnection provided.

FT and DT shall further ensure nondiscriminatory access by making publicly

available the standard terms and conditions

for such X.75 interface standards, including,

if any, volume and other discounts, as of 1

January 1996. FT and DT will make available

for inspection by the Commission any

agreements relating to such X.75 interfaces,

including all specifically agreed terms. Until

such time as Transpac France and Datex–P

are integrated into Atlas, neither Transpac

France nor Datex-P shall disclose to Atlas

any such specifically agreed terms that are

identified and maintained as confidential by

the party obtaining interconnection through

such X.75 interfaces. Finally the above

obligations shall likewise apply to any

generally used CCITT-standardized

interconnection protocol that may modify,

replace or co-exist as a standard related to the

X.75 standard and is used by FT and DT.

Proprietary interfaces may be retained or

established among Transpac France, Datex-P

and Atlas; such interfaces are defined by the

particular type of technology, hardware and

software that a network operator uses to

provide advanced or customized services.

Atlas will be allowed to access the Transpac

France and Datex-P public packet-switched

data networks through these proprietary

interfaces, also for the provision of X.25 data

communications services, provided access

granted to Atlas through such interfaces is

economically equivalent to third-party access

to the Transpac France and Datex-P

networks.

2. Cross-Subsidization

DT and FT shall not engage in crosssubsidization within the meaning of the

Commission’s competition guidelines for the

telecommunications sector 11 in connection

with the Atlas venture. To avoid that Atlas

benefits from cross-subsidies stemming from

the operation of public telecommunications

infrastructure and of reserved services by

either DT or FT, all entities formed pursuant

to the Atlas venture will be established as

distinct entities separate from DT and FT.

Atlas SA, Datex-P and Transpac France

shall obtain their own debt financing on their

own credit, provided that FT and DT:

(a) may make capital contributions or

commercially reasonable loans to such

entities as required to enable Atlas SA,

Datex-P and Transpac France to conduct

their respective business;

(b) may pledge their venture interests in

such entities, in connection with nonrecourse financing for such entities; and

(c) may guarantee any indebtedness of such

entities, provided that FT and DT may only

make payments pursuant to any such

guarantee following a default by such entities

in respect of such indebtedness.

Atlas SA, Datex-P and Transpac France

shall not allocate directly or indirectly any

part of their operating expenses, costs,

depreciation, or other expenses of their

business to any parts of FT or DT’s business

units (including without limitation the

proportionate costs based on work actually

performed that are attributable to shared

employees or sales or marketing of Atlas

products and services by DT or FT

employees), provided however that nothing

shall prevent Atlas SA, Datex-P and Transpac

France from billing DT or FT for products

and services provided to DT or FT by such

entities on the basis of the same price

charged third parties (in the case of products

or services sold to third parties in

commercial quantities) or full cost

reimbursement or other arm’s length pricing

method (in the case of products and services

not sold to third parties in commercial

quantities).

Atlas SA, Datex-P and Transpac France

shall keep separate accounting records that

identify payments or transfers to or from DT

and FT. Moreover, Atlas SA, Datex-P and

Transpac France shall not receive any

material subsidy (including forgiveness of

debt) directly or indirectly from DT or FT, or

any investment or payment from DT or FT

that is not recorded in the books of such

entities as an investment in debt or equity.

DT, FT and Atlas shall comply with the

above until the telecommunications

infrastructure and services markets in France

and Germany are fully liberalized, as is

scheduled to occur by 1 January 1998.

3. Auditing

Atlas SA (which includes its consolidated

subsidiaries), Transpac France and Datex-P

shall be audited on a regular and customary

basis, and such audit shall confirm from an

accounting viewpoint that the transactions

between these entities, on the one hand, and

FT and DT, on the other hand, have been

conducted at arm’s length. This obligation

shall remain in force until the

telecommunications infrastructure and

services markets in France and Germany are

fully liberalized, as is scheduled to occur by

1 January 1998.

4. Recording and Reporting

To allow the Commission to monitor

compliance with the undertakings the parties

have agreed the following:

(a) Recording obligations. DT, FT and Atlas

each undertake to keep records and

documents suitable to prove compliance with

the terms of the above undertakings ready for

inspection by the Commission.

(b) Inspection of records. For the purpose

of ascertaining and ensuring compliance by

DT, FT or Atlas with the above undertakings,

DT, FT or Atlas shall, on reasonable notice,

during office hours, and without a need for

the Commission to invoke the powers of

inspection pursuant to Regulation No. 17,

give the Commission’s Directorate-General

for Competition access to DT, FT or Atlas’

business premises to inspect records and

documents covered by the above recording

obligations and to receive oral explanations

relating to such documents.

(c) Reporting obligations. DT, FT and Atlas

also undertake to provide the Commission’s

Directorate-General for Competition, for the

purpose of ascertaining whether DT, FT and

Atlas comply with the requirements of the

above undertakings, with:

—any records and documents in the

possession or control of DT, FT or Atlas

necessary for that determination, and

—oral or written complementary

explanations.

These recording and reporting obligations

will remain in force until the

telecommunications infrastructure and

services markets in France and Germany are

fully liberalized, as is scheduled to occur by

1 January 1998.

29. In so far as related to existing

obligations under national or Community

law, the above is intended to ensure the

parties’ firm commitment to comply with the

applicable legal framework.

G. The Regulatory Situation

30. In letters sent to the Commission, the

French and German Governments have

undertaken to take the necessary steps to

liberalize alternative infrastructure for the

provision of liberalized telecommunications

services by 1 July 1996 and to liberalize the

voice telephony service and all

telecommunications infrastructure fully by 1

January 1998. The availability of alternative

telecommunications infrastructure in

Germany and France render competitors of

Atlas independent of DT and FT’s

infrastructure for the purposes of creating

trunk network infrastructure to provide

liberalized services.

Early alternative infrastructure

liberalization in France and Germany adds to

a regulatory framework in the home countries

of the Atlas partners that is designed to

ensure a level playing field in the

telecommunications markets.

1. France

1. Separation of Regulatory and Operative

Functions

Pursuant to French law, the minister for

telecommunications shall ensure that

regulation of the telecommunications

markets is undertaken separately of service

provision in these markets. A specific

national regulatory authority (NRA), the

Direction Ge ́ne ́rale des Postes et

Te ́le ́communications (DGPT), is competent

for licensing providers of

telecommunications networks and services in

France based on objective and transparent
4022 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

12Council Directive of 28 June 1990 on the

establishment of the internal market for

telecommunications services through the

implementation of open network provision (OJ No.

L 192, 24.7. 1990, p. 1). 1OJ No 13, 21.2. 1962, p. 204/62.

criteria. The DGPT shall survey FT’s market

behaviour and approve FT’s tariffs for (i)

reserved services and leased lines and (ii)

such liberalized services that are not in fact

provided by a third party active in the French

market.

2. Non-Discriminatory Access

Further to the adoption of the

Commission’s Services Directive and the

ONP Framework Directive 12 Article L. 32–1–

4° of the French Law of 29 December 1990

grants all users equal access to the public

network on objective, transparent and nondiscriminatory conditions. FT is under an

obligation to effectively grant such access

and must publish information on the network

(e.g. technical features, tariffs and usage

conditions) and on leased line offerings. The

DGPT may verify FT’s compliance with these

obligations and investigate complaints filed

against FT for non-compliance with these

obligations. The DGPT shall further ensure

compliance with FT’s obligation to share

available transmission capacity for

liberalized services with competitors and

shall publish annual statistical reports on

FT’s compliance with these obligations.

3. Prevention of Cross-Subsidies

To allow the DGPT to supervise FT’s

market behaviour, FT is under the legal

obligation to keep an analytical accounting

system that relates costs to each individual

FT service. Where an offering comprises the

provision of both reserved and liberalized

services, FT must separate each kind of

service in the contract and in the invoice. In

this connection, FT’s data communications

services are already provided by a separate

legal entity.

2. Germany

1. Separation of Regulatory and Operative

Functions

Pursuant to the German 1989

Poststrukturgesetz, the 1994

Postneuordnungsgesetz and the 1994 Postund Telekommunikation Regulierungsgesetz,

regulatory competencies are assigned to a

Federal agency created under the Federal

Ministry of Post and Telecommunications

(BMPT) while telecommunications

operations are undertaken by DT, a fully

State-owned joint stock corporation.

Regulatory obligations of DT are policed by

independent bodies, so-called regulatory

chambers.

2. Non-Discriminatory Access

Under the current and future German

regulatory framework, DT shall provide third

parties with both access to monopoly

infrastructure and reserved or mandatory

services on a non-discriminatory and

transparent basis according to objective

criteria. Upon application, DT shall supply

state-of-the-art leased lines over serviceneutral access points without delay. With the

only restriction of voice telephony service

provision, leased lines may be freely

interconnected and used for any service.

Leased lines must meet market demand and

DT must publish data concerning availability

and quality of such lines.

3. Prevention of Cross-Subsidies

The BMPT (i) shall approve both tariffs and

other price-sensitive contractual terms for

DT’s reserved services and (ii) may object to

DT’s tariffs for mandatory services. The

BMPT may also seize DT’s profits stemming

from tariffs in excess of the approved amount

and take any measure necessary to

reestablish a fair competitive environment

jeopardized by unlawful cross-subsidization.

Moreover, DT’s subsidiaries an affiliates shall

use reserved services for the provision of

competitive services under the same terms as

DT’s customers and must use such terms to

account internal services transfer.

The Commission’s Intentions

31. On the basis of the foregoing, the

Commission intends to take a favourable

position on the notified transactions under

the competition rules of the EC Treaty and

under Article 53 of the EEA Agreement and

to grant Atlas an individual exemption

pursuant to Article 85 (3) of the EC Treaty

and Article 53 (3) of the EEA Agreement.

Before doing so, the Commission invites

interested third parties to send their

observations within six weeks from the

publication of this notice to the following

address, quoting the reference ‘IV/35.335—

Atlas’:

European Commission, Directorate-General

for Competition (DG IV), Directorate for

Information, Communication and

Multimedia, Rue de la Loi/Wetstraat 200, B–

1049 Brussels. Fax: (32–2) 296 98 19.

Notice Pursuant to Article 19 (3) of Council

Regulation No. 17 1 and Article 3 of Protocol

21 of the European Economic Area

Agreement Concerning a Request for

Negative Clearance or an Exemption

Pursuant to Article 85 (3) of the EC Treaty

and Article 53 (3) of the EEA Agreement

Case No IV/35.617—Phoenix

(95/C 337/03)

(Text With EEA Relevance)

Introduction

1. The Phoenix transaction was notified to

the Commission on 29 June 1995. The

Phoenix transaction is linked to a separate

transaction bringing about a joint venture,

Atlas, owned 50% by France Telecom (FT)

and 50% by Deutsche Telekom (DT), given

that Atlas is a parent to the joint venture

entities created pursuant to the Phoenix

agreements. The Atlas Agreements, notified

on 16 December 1994, are described in a

separate notice published in this Official

Journal of the European Communities.

2. The Phoenix agreements comprise two

main transactions involving two European

Union telecommunications organizations

(TO) and one US telecommunications

operator:

(i) each of FT and DT is to acquire an

equity stake of approximately 10% in Sprint

obtain proportionate board representation

and investor protection as minority

shareholders in Sprint; as detailed below,

provisions have been included in the

Investment Agreement to prevent DT and/or

FT, either separately or jointly, from

controlling or influencing Sprint; and

(ii) Atlas and Sprint are to create a joint

venture, Phoenix, for the provision of

enhanced and value-added global

telecommunications services and other

telecommunications services to corporate

users, carriers and consumers. The Phoenix

joint venture will be structured into several

operational entities under the strategic

supervision of a Global Venture Board

(collectively referred to as the ‘Phoenix

entities’). One such entity will provide

Phoenix services worldwide except in

Europe and the United States (the ‘Rest of

World (ROW) entity’), a second entity will

provide Phoenix services in Europe except in

France and Germany (the ‘Rest of Europe

(ROE) entity’) and a third entity will operate

the global backbone network of Phoenix (the

‘Global Backbone Network (GBN) entity’).

The Global Venture Board shall take

decisions on matters of policy only and will

not engage in the management of individual

operational entities created pursuant to the

Phoenix agreements.

A. The Parties

3. Deutsche Telekom AG (DT) and France

Telecom (FT) are the German and French

public TO respectively. DT is the world’s

second-largest and FT the world’s fourthlargest telecommunications carrier in terms

of revenue. Details of both undertakings are

provided in the notice on the Atlas venture

published in this issue of the Official Journal.

4. Sprint Corporation (Sprint) is a holding

company in the United States. The Sprint

group of companies is a diversified

telecommunications group providing global

voice, data and video-conferencing services

and related products. Sprint’s main

subsidiaries provide local (US) exchange,

cellular wireless as well as domestic (US)

and international long-distance

telecommunications services. Other Sprint

subsidiaries engage in wholesale distribution

of telecommunications products and the

publishing and marketing of white and

yellow page telephone directories.

Worldwide turnover for Sprint in 1994 was

ECU 10,9 billion; Sprint is the world’s 11th

largest telecommunications carrier in terms

of revenues.

B. The Relevant Market

1. Creation of the Phoenix Entities

5. The Phoenix entities will address several

product and geographic markets, namely (i)

the markets for value-added

telecommunications network services to

corporate users both globally and regionally,

(ii) the market for traveller services and (iii)

the market for so-called carrier’s carrier

services.

1. Product Markets

The markets for value-added

telecommunications network services

6. The Phoenix entities will be active on

the same markets for both advanced
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4023

2Commission decision of 27 July 1994 (OJ No L

223, 27. 8. 1994, p. 36).

telecommunications services to corporate

users and standardized low-level packetswitched data communications services

described in the separate notice on the Atlas

venture published in this issue of the Official

Journal.

The market for traveller services

7. The market for traveller

telecommunications services comprises

offerings that meet the demand of individuals

who are away from their normal location,

either at home or at work. Among the most

relevant of these offerings are those offered

by the Phoenix entities, namely calling cards

(i.e. prepaid cards with or without a code and

postpaid cards), including those in

combination with credit cards and other

branded service cards (‘affinity cards’).

8. Customers for traveller services include

both business travellers and other travellers.

In the card business targeted by Phoenix, the

former are by far the largest group of buyers.

Business travellers are generally intensive

card users, the main incentive for card usage

being the possibility to avoid paying hotel

telephone surcharges.

The market for carrier’s carrier services

9. The market for carrier’s carrier services

comprises the lease of transmission capacity

and the provision of related services to thirdparty telecommunications traffic carriers.

Along with liberalization and globalization of

telecommunications markets, demand for

efficient, high-quality traffic transportation

capacity has risen among old and new

carriers. In this connection, the traditional

model of separate arrangements with other

individual carriers is increasingly challenged

by players with global network infrastructure

that offer carriers an array of services. The

most relevant of such services are:

(a) switched transit, i.e. transport of traffic

over bilateral facilities between the

originating carrier, the transit carrier and the

terminating carrier; neither the originating

carrier nor the terminating carrier need

bilateral facilities between themselves, but

only with the transit carrier;

(b) dedicated transit, i.e. transport of traffic

over permanent, dedicated facilities through

the domestic network of the transit carrier;

facilities used for this purpose may include

discrete voice circuits or a highbandwidth

digital circuit that can be used for both voice

and data services; and

(c) traffic hubbing offerings, where the

provider takes care of all or part of

international connections; these offerings are

typically designed for emerging carriers, who

are interconnected with the provider over

bilateral facilities and whose international

traffic is merged with other traffic on the

provider’s global network.

As international telecommunications

markets are deregulated, demand for carrier’s

carrier services is increasingly driven by

alternative carriers concerned with entrusting

the incumbent TO with their international

traffic, for reasons such as technical

dependency and commercial sensitivity of

customer information.

10. Purchasers of carrier’s carrier services

include established and emerging carriers.

Both groups of clients have substantial

bargaining power and are highly

competition-sensitive. Among the latter

group, one may distinguish facilities-based

carriers that provide telecommunications

services over alternative infrastructure or

cable television networks seeking greater

efficiency in the transport of international

client traffic, while non facilities-based

carriers seek to preserve a competitive

advantage by avoiding dependence on a local

TO for international client traffic.

2. Geographic Markets

11. Along the lines of the Commission’s

findings in its BT–MCI decision,2 the

geographic scope of certain markets targeted

by the Phoenix entities as well as the market

that must be considered in respect of the

investment of DT and FT in Sprint is

international and even global. Although

national borders subsist for many services,

strategic alliances like Phoenix are built not

only in anticipation of a market unaffected by

national boundaries but even with the

express purpose to offer large global

telecommunications users seamless end-toend services anywhere by overcoming the

difficulties inherent in the current market

structure split along national borders.

However, the service offerings of the Phoenix

entities will be relevant to different existing

geographic markets.

The markets for value-added

telecommunications network services

12. As described in the separate Atlas

notice, demand by corporate users for

advanced services exists in at least three

distinct geographic markets, namely at a

global, a cross-border regional and a national

level. Phoenix services will have global reach

given that each of DT, FT, Sprint and the

ROE and ROW entities will be

interconnected over the Phoenix global

backbone network. In the global market for

advanced telecommunications services to

corporate users, the Phoenix venture will

therefore create competition for instance for

BT and MCI’s existing Concert venture. In the

European Union, the ROE entity will

cooperate with DT, FT and ATLAS to

provide advanced telecommunications

services to corporate users at the cross-border

regional level; these services will have ‘global

connectivity’, i.e. allow for an extension

beyond the European Union if a customer so

requires.

13. Standardized low-level packetswitched data communications services in

each geographic market mentioned in the

previous paragraph are a part of the Phoenix

offerings portfolio. However, such services

will be provided at the national level only if

so decided by the regional Phoenix operating

entity. Therefore, the ROE entity will provide

Europe-wide packet-switched data

communications services, that will initially

be based on the existing Transpac and Sprint

networks. The extent to which the ROE entity

will provide such services in national

markets within the EEA will depend on the

coordination between Atlas and the ROE

entity as the competent Phoenix entity in that

region.

The market for traveller services

14. Along with the globalization of the

economy the market for traveller services

appears to be increasingly global; worldwide

travellers demand offerings which include a

single bill and integrated functions such as

voice messaging, voice response and

information systems. Geographic limitations

of current traveller service offerings are

generally due to technical shortcomings set

to be overcome in the near future, such as the

incompatibility of mobile communications

systems or differences in prepaid cards

without an individual user code. As

illustrated at paragraph 7 above, none of the

services targeted by the Phoenix entities is

affected by these shortcomings; however, the

geographic scope of the traveller services

offered by Phoenix can be left open for the

purposes of this case, as the finding of

narrow geographic markets would not affect

the assessment of the parties’ competitive

position.

The market for carrier’s carrier services

15. Both supply of and demand for carrier’s

carrier services are by nature international.

Geographic proximity between purchaser and

supplier of switched transit capacity is

hardly relevant for switched transit which

carriers use either as a substitute for

operating own international lines or to deal

with peak traffic on such lines. Likewise,

dedicated transit services offer cable- or

satellite-based routing capacity across third

countries. Finally, using hubbing services is

an alternative to entering into an

undetermined number of bilateral agreements

with individual carriers.

2. DT and FT’s Investment in Sprint

16. The acquisition by DT and FT of new

equity equivalent to an approximate 20%

stake in Sprint aims at consolidating a

strategic alliance to enter the global

telecommunications markets, which serves

the parties best interest to improve and

extend service in new market segments.

Telecommunications markets are developing

quickly and there is uncertainty about what

they will look like in a few years’ time: the

prospect of full liberalization is pushing TO’s

to take positions, in order to be in the best

possible situation when full liberalization

comes. As shown by the BT–MCI alliance,

investment in a US carrier offers one efficient

way to address multinational companies, i.e.

the largest target customer group for global

value-added telecommunications network

services, notably in the United States.

C. Market Shares of Phoenix

The markets for advanced

telecommunications services to corporate

users

17. Global market. The parents estimate the

global value-added telecommunications

network services market addressed by

Phoenix (exclusive of data communications

services) to be worth approximately ECU 4,8

billion (1993). Of this total, end-to-end

services accounted for approximately ECU

37,6 million, VPN services for approximately

ECU 2,8 billion, VSAT services for

approximately ECU 1,4 billion and

outsourcing services for approximately ECU

527 million. In 1993, the aggregate turnover

of DT, FT and Sprint in the different market
4024 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

3Business secret (less than 30%).

4Business secret (less than 30%).

5Business secret (less than 5%).

6Business secret (less than 25%).

7Business secret (less than 10%).

8Business secret (less than 10%).

9Business secret (less than 45%).

10Business secret (less than 40%).

11Business secret.

12Business secret (less than 25%).

13Business secret (less than 40%).

14Business secret (less than 5%).

15Business secret (less than 5%).

16Business secret.

17Business secret.

18Business secret (less than 5% respectively).

19Business secret (market share less than 10%).

20Business secret (market share less than 15%).

21Business secret (market share less than 5%).

segments amounted to approximately ECU

3,8 million for end-to-end services,

approximately ECU 576 million for VPN

services and approximately ECU 6 million for

outsourcing services, giving Phoenix a

theoretical market share of 11,8% in the

global market for advanced

telecommunications services to corporate

users.

18. Cross-border regional market. Services

in the European Union (exclusive of data

communications services) accounted for

approximately ECU 505 million in 1993,

According to the notification the Phoenix

parents’ aggregate market shares in the

European Union in 1993 were [. . .] %3 in

the end-to-end services market, [. . .] %4 in

the VPN services market [. . .] %5 in the

outsourcing services market and [. . .] %6 in

the VSAT market. However, market shares

for VSAT services are difficult to calculate

given that TOs mostly use VSAT terminals as

back-up facilities for other services or to

extend the geographic scope of services

despite terrestrial infrastructure

shortcomings.

19. National markets. National markets for

advanced telecommunications services to

corporate users within the EEA are discussed

in the notice on the Atlas venture, published

in this issue of the Official Journal. In this

regard, Sprint has a significant share of total

outsourcing turnover generated in Member

States such as the Netherlands [. . .] %7 and

the United Kingdom [. . .] %8, where DT

and FT’s outsourcing joint venture,

Eunetcom BV, has a lesser presence (5% of

total turnover in both Member States). As for

France and Germany, adding Sprint to DT

and FT brings Phoenix’s fictional aggregate

share of total turnover generated by

outsourcing services to [. . .] %9 in France

and to [. . .] %10 in Germany, compared

with 31% in France and 33% in Germany for

the second-largest provider, Concert’s

Syncordia, in both these national markets.

The market for standardized low-level

packet-switched data communications

services

20. The global market for standardized

low-level packet-switched data services was

worth approximately ECU 5,3 billion in 1993,

while DT, FT and Sprint’s aggregate sales

were [. . .] %11 or [. . .] %12 worldwide.

The European market for data

communications services is discussed in the

separate notice on the Atlas transaction,

published in this issue of the Official Journal.

Sprint’s turnover for standardized low-level

packet-switched data services was [. . .] in

1993, bringing DT, FT and Sprint’s aggregate

shares of that market to [. . .] %13. As for

national markets, Sprint achieved its highest

turnover in France, Germany, Italy and the

United Kingdom. Neither DT nor FT have a

significant market presence in the latter two

Member States, where Sprint has [. . .] %14

and [. . .] %15 market share respectively. In

turn, Sprint’s turnover in France (ECU

[. . .] %16) and Germany (ECU [. . .] %17 )

equals market shares in these Member States

of only [. . .]% and [. . .]% respectively 18.

The market for traveller services

21. Total calling card revenue in the

European Union was approximately ECU

120,5 million in 1994, most of which

generated by national dialling. In 1993, DT

had issued 200,000 cards (all of which in

German), equivalent to 2,1% of the total card

subscriber base in the European Union; FT

had issued 1,5 million cards (all of which in

France), equivalent to 15,7% of the card

subscriber base in the European Union; and

Sprint had issued 12 million cards

worldwide, of which 500,000 (equivalent to

a 5,2% market share) in the European Union.

The aggregate market shares of the parents

would therefore make Phoenix the largest

calling-card services provider in the

European Union (23% market share) in terms

of subscriber numbers, ahead of AT&T and

BT with 21 and 17,8% market share

respectively. In terms of calling card traffic

within the European Union, the aggregate

market shares of FT (21%) and DT (3%) are

equal to BT’s market share of 24%.

The market for carrier’s carrier services

22. The market for global switched transit

services is estimated to be worth

approximately ECU 301,1 million, equivalent

to 1 500 million minutes of international

traffic or approximately 3% of the world’s

international telephony traffic. Of this total,

approximately ECU 165,6 million are

services provided by European carriers, of

which approximately ECU 30,1 million to

other European carriers. Within the global

switched transit market (1994), with 5–6%

annual growth, DT had a turnover of ECU

[. . .] 19, FT of ECU [. . .] 20 and Sprint of

ECU [. . .] 21. The aggregate market shares of

DT, FT and Sprint make Phoenix the thrid

largest global switched transit provider

behind AT&T and BT (20,2% each).

D. Main Competitors of the Phoenix Entities

The market for value-added

telecommunications network services

23. The situation in these markets is

discussed in the separate notice on the Atlas

venture published in this issue of the Official

Journal.

The market for traveller services

24. More than one third of calling cards in

Europe are issued by US operators. AT&T is

estimated to have 2 million postpaid card

customers in Europe, equivalent to 21% of all

cards issued there. These customers generate

59% of calling card traffic initiated in Europe

on the US route. MCI is estimated to have 1

million postpaid card customers in Europe

(10,5%), which generate 27% of calling card

traffic initiated in Europe on the US route.

Executive Telecard International (ETI)

markets calling cards in Europe through

agreements with local operators or credit

card companies; ETI’s market position is

similar to that of MCI.

The market for carrier’s carrier services

25. Major players in the market for carrier’s

carrier services and notably global switched

transit services competing in the EEA include

AT&T, BT (each holding approximately one

fifth of the market), Cable & Wireless, MCI

and Teleglobe Canada. Along with the

increasing proliferation of new carriers that

seek to be independent of the incumbent TO

for their international traffic, new suppliers

of such services, some with substantial

infrastructure resources, are emerging in the

market, e.g. Hermes Europe Railtel.

E. The Transaction

26. The transaction notified to the

Commission comprises a set of agreements

whose main features are described below.

1. Agreements as Originally Notified

1. Agreements Regarding the Phoenix Joint

Venture

The parties have to date submitted one

final agreement: the Phoenix Joint Venture

Agreement (the ‘JV Agreement’), that sets out

the parties’ essential commitments and

business objectives. Attached as annexes to

the JV Agreement are detailed term sheets for

all agreements described below, which will

be submitted upon closing of the Phoenix

Transaction. These term sheets detail the

agreed content of the following agreements:

(a) the Transfer Agreements will provide

for the transfer by Sprint, FT, DT, and Atlas

(collectively referred to an the ‘parents’) of

certain basic and related businesses to the

relevant ROE, ROW, and GBN entities.

(b) The Intellectual Property and

Trademark Licence Agreements will concern

the grant by the parents and certain affiliates

to the Phoenix entities of non-exclusive, nontransferable licences to use certain of the

parents’ technical information and

trademarks.

(c) The Services Agreements will specify

the terms and conditions of trading

relationships among Sprint, Atlas, and the

ROE and ROW entities, including the supply

and support services needed to provide

Phoenix services worldwide.

2. Agreements Regarding FT and DT’s

Investment in Sprint

(a) The Investment Agreement will provide

for the purchase by each of FT and DT of

approximately 10% of the common stock of

Sprint.

(b) The Standstill Agreement will bind FT

and DT for a period of 15 years not to acquire

additional shares in Sprint which would

increase their combined aggregate voting

rights to more than 20%.

(c) The Registration Rights Agreement is

required in order for each party to

consummate the transactions contemplated

by the Investment Agreement.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4025

2. Main Contractual Provisions

1. Concerning the Phoenix Entities

(a) Structure of the Phoenix Venture

The JV Agreement provides for the creation

of the following operating entities: Phoenix

Rest of Europe (ROE), Phoenix Rest of the

World (ROW) and Global Backbone Network

(GBN). The ROE entity will conduct the

Phoenix business within the ‘‘rest of Europe’’

region (i.e. outside of France and Germany),

while the ROW entity will conduct the

Phoenix business within the ‘‘rest of the

world’’ region (i.e. outside Europe and the

United States). The GBN entity will own and

operate as global transmission network over

which Phoenix services and other traffic will

be routed.

FT and DT will each be the exclusive

distributor of Phoenix services in France and

Germany respectively; however, FT and DT

will meet unsolicited customer requests for

services regardless of the customer’s location.

Moreover, the French and German

subsidiaries of Atlas will provide FT and DT

with (i) sales support services regarding

Phoenix products to distributors in France

and Germany; and (ii) services within the

scope of Phoenix other than X.25 packetswitched data network services.

A new, wholly-owned subsidiary of Sprint

(the ‘‘Sprint Subsidiary’’) and Atlas will each

initially own 50% of the outstanding voting

equity of each of the parent entities of the

ROW entity and the GBN entity. The Sprint

Subsidiary and Atlas will initially own 331⁄3

and 662⁄3%, respectively, of the voting equity

of the parent entity of the ROE entity.

A Global Venture Board will be established

to set global policies and monitor compliance

of the operating groups with their business

plans. Any initiative of the Global Venture

Board will generally require a unanimous

vote.

Day-to-day operations will be the

responsibility of the chief executive officers

of the operating entities, who are under the

supervision of the governing board of the

relevant parent entity of either ROE, ROW, or

GBN entity. Most decisions of each governing

board will be adapted by simple majority

vote of the members present. Unanimous

consent is however required for a number of

important decisions including final approval

of business plans, certain changes in

structure and capitalization, and certain

decisions on technology and investments.

(b) Purposes and Activities of Phoenix

Entities

The business of the joint venture will

initially consist of the provision of (i) global

international data, voice, and video business

services for multinational companies and

business customers; (ii) international services

for consumers, initially based on card

services for travellers, and (iii) carrier

services providing certain transport services

for the parents and other carriers. The

Phoenix entities may also offer

telecommunications equipment and invest in

national operations.

To market these services the Phoenix joint

venture will be responsible for the planning

and management functions of operations, as

well as marketing and customer support,

including the following:

(i) Central coordination of product

development and management to ensure

seamless global services; the Phoenix entities

shall notably define functionality, technical

standards, and service level requirements for

Phoenix services;

(ii) Implementation of a common global

network and information systems platform

rationalizing and integrating the currently

separate international data, voice, and

overlay networks of the parents; the GBN will

link overlay and backbone networks in each

operating area (i.e. ROE and ROW) while

proprietary interfaces will allow provision of

seamless services; within its first few years

of operating, Phoenix will begin to deploy

the next generation of Asynchronous

Transfer Mode (ATM) technology,

comprising any and all of transmission,

switching, signalling, network intelligence,

and service management elements;

(iii) Integration and development of

information systems for coordinated billing,

customer support, and other backoffice

functions, supporting national distributors;

and

(iv) Development of a sales presence in the

ROE and ROW territories either directly or

through distribution arrangements using a

common ‘‘masterbrand’’; in particular,

national service operations will be

established or consolidated in each major

country, and will be responsible for

distributing Phoenix services within that

country; in addition, regional sales offices

will be established to provide technical and

sales support, including identification of

potential customers and assisting in

preparation of customer proposals.

(c) Provisions Concerning Dealings With/by

Phoenix Entities

Pursuant to the JV Agreement, transactions

among the Phoenix entities, on the one hand,

and FT, DT, and Atlas, on the other, will

generally be conducted on the most

favourable terms and conditions that are

offered to third parties. If products, services,

or facilities relevant to these transactions are

not commercially available, such transactions

shall be conducted in accordance with an

arm’s length pricing method, using full-cost

reimbursement or such other arm’s length

pricing method as may be agreed on by the

parties. The parents shall have the first right

to offer to supply certain products, services,

and facilities to the Phoenix entities.

Notwithstanding, each Phoenix entity may

purchase from a third party which, on

otherwise comparable terms and conditions,

offers lower prices, either once the parties

have been given the opportunity to match

such terms and conditions or if a customer

so requires.

Each of the Phoenix entities and their

parents have the first right to offer to perform

in their respective territory any facilities or

services required by another party to the

Phoenix agreements. Such services may be

obtained from a third party at a lower price

under comparable terms and conditions, or

where a customer so requires. In accordance

with this principle, the ROE and ROW

entities will be required to purchase

telecommunications network transmission

capacity from the GBN entity to the extent

available.

(d) Non-Compete Provisions; Distribution

Pursuant to the JV Agreement as originally

notified, albeit subject to various exceptions,

no party or affiliate of a party may distribute

any international telecommunications

services which are either provided by the

Phoenix entities or substitutable for such

services. Likewise, no party or affiliate of a

party may invest in any entity that offers

such services. Moreover, no party or any of

its affiliates may offer national long-distance

services in competition with either a national

operation of Phoenix or a pubic telephone

operator affiliated with Phoenix (e.g. a

national distributor of Phoenix). Nor may any

party or any of its affiliates make investments

in any entity offering such competing

national long distance services or in any

national operation allied with a major

competitor of Phoenix.

Outside the parents’ home countries

exclusivity will be granted to distributors on

a case-by-case basis. Passive sales by one

distributor to customers in the respective

sales territory of any other distributor will be

allowed in the EEA.

(e) Licenses to be Granted to Phoenix Entities

Under the Intellectual Property

Agreements; each parent will grant each of

the Phoenix entities non-exclusive, nontransferable licences to use certain technical

information of that parent in the respective

territories of such entities to conduct the

Phoenix business. Each Phoenix entity shall

have the right to sub-license the rights

granted to any other Phoenix entity or any

affiliated national operation or local partner,

to the extent such sub-licence is necessary to

conduct the Phoenix business. Likewise,

each Phoenix entity shall on request also sublicence such rights to any parent or affiliate

of such parent, to the extent such sub-licence

is necessary to conduct the Phoenix business.

Royalties shall be payable as customary in

the market and negotiated by the parties on

an arm’s-length basis. License rights granted

to a party under the Intellectual Property

Agreements will continue in the event of

either termination of the Phoenix venture or

transfer of such party’s interest in the

Phoenix venture.

Similarly, pursuant to the Trademark

Licence Agreement each parent grants each

of the Phoenix entities non-exclusive, nontransferable rights to use certain trademarks

owned by or licensed to such parent in

connection with the marketing or sale of

certain authorized products and services in

the respective territories of such entity.

2. Concerning FT and DT’s Investment in

Sprint

(a) Restrictions on Transfer of Shares by FT

or DT and Limits on Increases of Their

Shareholding in Sprint

Pursuant to the Investment Agreement,

neither FT or DT may dispose of its shares

in Sprint for five years after the closing date.

Thereafter restrictions apply to large

transfers, which would in most

circumstances give Sprint the rights of first

refusal.

Pursuant to the Standstill Agreement, FT

and DT shall each have the right to acquire

additional Sprint shares to reach and
4026 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

22See notice pursuant to Article 19 (3) of Council

Regulation No 17 concerning Case No IV/33.361—

Infonet (OJ No C7, 11. 1. 1992, p. 3, at paragraph

9).

23 Guidelines on the application of EEC

Competition Rules in the Telecommunications

Sector (OJ No C 233, 6. 9. 1991, p. 2, paragraph 102

et seq.).

maintain a 10% shareholding, but shall not

for 15 years after the closing date acquire

additional shares that would increase their

aggregate voting rights to more than 20%.

Once this initial ‘standstill’ period has

expired, FT and DT may acquire additional

shares, but may not increase their aggregate

voting rights about 30% nor conduct certain

activities intended at taking control of Sprint.

(b) Consent Rights and Board Representation

of FT and DT

FT and DT have the right to elect directors

to the Sprint board in proportion to their

shareholding, provided that each has the

right to elect at least one director. Neither FT

or DT may have access to confidential,

competitive information on Sprint’s activities

in the EEA through their representation on

Sprint’s board. Nor may these representatives

provide Sprint with confidential information

that FT or DT may have obtained from US

competitors through correspondent

relationships.

As the sole holders of Sprint’s class A

common stock, FT and DT have been granted

substantial consensual rights with respect to

certain corporate actions of Sprint, which

nevertheless fall considerably short of

control. These actions include major equity

issuances, disapproval of investments in

Sprint by major competitors, participation

rights in transactions involving change of

control, and other bilateral corporate

transactions. FT and DT have a right of first

offer with respect to long-distance assets of

Sprint for a fixed period of time.

F. Changes Made and Undertakings Given

Further to the Commission’s Intervention

27. Some features of the agreements as

notified appeared to be incompatible with

the Community competition rules. In the

course of the notification procedure the

parties have amended certain clauses in their

agreements and given undertakings to the

Commission.

1. Contractual Changes

28. Non-appointment of Phoenix as an

agent for international half-circuits.

Following an announcement made in the

Phoenix notification, which did not yet

reflect the parties commitments regarding

Atlas further to the Commission’s

intervention, DT, FT, Atlas and Sprint have

deleted FT and DT’s ‘international private

lines’, i.e. FT and DT’s international halfcircuits, from the list of products that

Phoenix would distribute as agent.

29. Non-compete provisions. The parties

have not yet sought an exemption pursuant

to Articles 85 (3) of the EC Treaty and 53 (3)

of the EEA Agreement for any specific

agreements regarding national long-distance

services. The non-compete clause in the

original JV Agreement has therefore been

amended: the parties are now obliged to

refrain only from either (i) competing with or

(ii) investing in a competitor of entities

providing long-distance services provided

such entities are controlled by Phoenix.

2. Non-Discrimination

30. Just as DT and FT shall be prohibited

from discriminating in favour of the joint

venture, as described in the separate notice

on the Atlas transaction, the Commission

intends likewise to prohibit DT and FT from

discriminating in favour of the Phoenix

entities. The same is true for the specific

elements covered by this requirement.22

3. Undertakings Given by the Parties

31. Carrier’s carrier services. Neither Atlas,

Phoenix, DT, FT, Sprint or any affiliate of

these entities shall make a particular

telecommunications operator’s ability to use

Phoenix international carrier services

conditional upon use or distribution by that

telecommunications operator of services

provided by Atlas, Phoenix, FT, DT or Sprint.

Neither shall Atlas, Phoenix, DT, FT, Sprint

or any affiliate of these entities make its

commercial dealings (i.e. terms, conditions,

price, discounts) with any

telecommunications operator conditional

upon use or distribution by that

telecommunication’s operator of services

provided by Atlas, Phoenix, FT, DT or Sprint.

32. DT, FT and Sprint have also given

further undertakings that mirror the

undertakings given in connection with the

Atlas notification; reference is therefore made

to the separate notice on the Atlas transaction

published in this issue of the Official Journal.

1. Cross-Subsidization

As in the context of the Atlas transaction,

DT and FT shall not engage in crosssubsidization within the meaning of the

Commission’s competition guidelines for the

telecommunications sector 23 in connection

with the Phoenix venture. To avoid that the

Phoenix entities or their distributors benefit

from cross-subsidies stemming from the

operation of both public telecommunications

infrastructure and reserved services by either

DT or FT, all entities formed pursuant to the

Phoenix venture will be established as

distinct entities separate from DT and FT.

The ROE and ROW entities will obtain

their own debt financing on their own credit,

provided that Sprint, FT and DT:

(a) may make capital contributions or

commercially reasonable loans to such

entities as required to enable the ROE and

ROW entities to conduct the Phoenix

business;

(b) may pledge their venture interests in

such entities in connection with nonrecourse financing for such entities; and

(c) may guarantee any indebtedness of such

entities, provided that Sprint, FT and DT

may only make payments pursuant to any

such guarantee following a default by such

entities in respect of such indebtedness.

The ROE and ROW entities shall not

allocate directly or indirectly any part of

their operating expenses, costs, depreciation,

or other expenses of their businesses to any

parts of DT or FT’s business units (including

without limitation the proportionate costs

based on work actually performed that are

attributable to shared employees or sales or

marketing of Phoenix products and services

by DT or FT employees). However, nothing

shall prevent such Phoenix entities from

billing DT or FT for products and services

provided to DT or FT by such entities on the

basis of the same prices charged to third

parties (in the case of products or services

sold to third parties in commercial

quantities) or full cost reimbursement or

other arm’s length pricing method (in the

case of products and services not sold to

third parties in commercial quantities).

The ROE and ROW entities shall keep

separate accounting records that identify

payments or transfers to or from DT and FT.

The ROE and ROW entities shall not receive

any material subsidy (including forgiveness

of debt) directly or indirectly from DT or FT,

or any investment or payment from DT or FT

that is not recorded in the books of such

entities as an investment in debt or equity.

2. Recording and Reporting

The same undertakings apply as described

in the notice on the Atlas transaction

published in this issue of the Official Journal.

33. In so far as related to existing

obligations under national or Community

law, the above is intended to ensure the

parties’ firm commitment to comply with the

applicable legal framework.

G. The Regulatory Situation

34. The regulatory situation in France and

Germany is described in the notice on the

Atlas transaction. As for the United States,

pursuant to the 1934 Communications Act,

Sprint shall publish tariff schedules and

contracts describing its network

arrangements and services. Furthermore, the

1934 Communications Act, enforced by the

Federal Communications Commission (FCC),

prohibits Sprint from providing services that

unjustly or unreasonably discriminate against

Sprint’s competitors or foreign

correspondents, which may lodge a formal

complaint before the FCC if Sprint does not

comply with these obligations.

35. While the European Commission was

assessing the Phoenix notification under

Community law, the US Department of

Justice has concluded a procedure under US

anti-trust law by entering a consent decree.

This consent decree spells out undertakings

by the parties that largely resemble those

described in this notice.

The Commission’s Intentions

36. On the basis of the foregoing, the

Commission intends to take a favourable

position on the notified transaction under the

competition rules of the EC Treaty and under

Article 53 of the EEA Agreement and to grant

Phoenix an individual exemption pursuant to

Article 85 (3) of the EC Treaty and Article 53

(3) of the EEA Agreement. Before doing so,

the Commission invites interested third

parties to send their observations within six

weeks from the publication of this notice to

the following address, quoting the reference

‘IV/35.617—Phoenix’:

European Commission,

Directorate-General for Competition (DG IV),

Directorate for Information, Communication

and Multimedia,

Rue de la Loi/Wetstraat 200,

B–1049 Brussels.
Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices 4027

Fax: (32 2) 296 98 19.

Exhibit I

Federal Republic of Germany Ministry for

Post and Telecommunication

United States Department of Justice,

Antitrust Division,

Mr. Carl Willner,

Telecommunications Task Force,

Judiciary Center Building,

555 4th Street, NW,

Washington, DC 20001

Your reference, Your letter of

Your telefax of 29 November 1995

My reference, my letter of 112b B 1311

Bonn 14–11 28

U.S. Antitrust Review of ‘‘PHOENIX’’ Joint

Venture including Deutsche Telekom AG

Dear Mr. Willner: Thank you very much

indeed for your telefax of 29 November 1995

requesting additional information on the

planned legal framework governing

telecommunications. I am of course pleased

to provide you with such information on

specific regulatory issues at short notice. In

doing so. I also take account of your intention

to use these clarifications in the above

antitrust review.

1. Your first question concerns the

regulation of ownership and landing rights

for submarine cables.

Under the draft Telecommunications Act

any company will be allowed to set up and

operate transmission lines and offer voice

telephony, However, both activities—if

offered to the public—will be subject to

license and may hence also be subject to

certain requirements. The setting up and

operation of transmission lines will be

permitted as from 1 July 1996 provided that

such lines are not used to offer voice

telephony for the public (alternative

infrastructures); provision of voice telephony

to the public will be permitted as from 1

January 1998.

Regulatory intervention through the

licensing of operators of transmission lines

and voice telephony providers is exclusively

limited to German territory which include

German coastal waters covering three, in

some cases 12, nautical miles.

Unlike US law (Submarine Cable Landing

License Act), German law does not provide

for the granting of landing licenses for access

to the national territory. As a consequence,

a particular landing license is neither

envisaged for the future nor does it exist

under current German law. This regulation is

based on the idea that unnecessary state

intervention in market developments should

be avoided. In addition, the nationality of the

operator or owner of the submarine cable is

of no legal relevance. This means that we

will have a non-discriminatory, open and

transparent access regulation in Germany for

submarine cables.

In order to preclude possible

misunderstandings I wish to point out that

the above regulations refer to the

telecommunications market. There are also

further legal provisions from other areas such

as the environmental and nature protection

or marine traffic legislation which must be

complied with in respect of submarine

cables. Such legislation does not, however,

refer to market entry in telecommunications.

2. The second question refers to the

regulation of interconnection with public

telecommunications networks. A draft

ordinance of this Ministry on this issue has

not been drawn up as yet. Nor has an exact

date for its submission been scheduled at

present. It is however intended to issue the

relevant ordinance immediately following

the entry into force of the

Telecommunications Act. This ordinance

will also be in line with the targets laid down

by the European Union. Might I also request

you to consider in this respect that recently,

ie on 31 August 1995, the European organs

submitted a Proposal for a European

Parliament and Council Directive on

interconnection in telecommunications with

regard to ensuring universal service and

interoperability through application of the

principles of Open Network provision (ONP).

As regards the legal procedure at European

level it is fair to say that to date the EU has

not fully determined all details to which

further action in Germany will strictly be

geared in the future. Some preparatory work

has yet to be done in this field.

I hope that this information will be of

assistance to you in the above antitrust

review. Please do not hesitate to contact me

if you require clarification on further aspects

of our planned market regulation.

Sincerely yours,

By direction of the Minister

Dr. Witte

Exhibit J

French Republic

Paris, December 8, 1995.

Ministry Delegate of Post, of

Telecommunications and of Space

Directorate General of Posts and

Telecommunications

The Director General

Dear Mr. Willner, I understand that, in

connection with the review by the

Department of Justice of the Phoenix

transaction, you have asked counsel for

France Telecom whether U.S. companies will

be able to participate fully in the liberalized

French telecommunications market after July

1, 1996. Currently, French law does not limit

foreign equity participation in the

construction and operation of facilities, or in

the provision of liberalized services. Indeed,

today, several U.S. companies hold VSAT

licenses and MFS has just been granted a

license to build a metropolitan fiber network

in Paris to provide services that have been

liberalized.

The only exception in French law to the

general rule is that companies not established

in the European Union can own up to 20%

of entities providing public wireless services.

By law, however, this cap may be lifted if

other countries have opened their public

wireless markets to French enterprises.

Furthermore, as demonstrated by the very

liberal offer of the European Union in the

context of the World Trade Organization

discussions, France fully supports opening

up all telecommunications services in all

markets. We hope that agreement can be

reached among like-minded countries on the

rules for further market liberalization and

that, as a consequence of these negotiations

or, should the latter fail, on a bilateral basis,

any then-existing restrictions in French law

on foreign ownership of infrastructure or

service providers would be removed for U.S.

companies.

As an evidence of this policy, I would like

to stress that the Government-sponsored

recent draft legislation which will permit the

granting in 1996 of experimental licenses for

innovative multimedia services, including

the provision of public voice telephony

services on geographically limited areas does

not contain any foreign-ownership limit for

wire-line based services.

Very truly yours,

Bruno Lasserre,

Carl Willner, Esq.,

Antitrust Division, Telecommunications Task

Force, U.S. Department of Justice.

Exhibit K

November 21, 1995.

Carl Willner, Esq.,

Antitrust Division, United States Department

of Justice, 555 4th Street, N.W.,

Washington, D.C. 20001

Re: U.S. v. Sprint Corp.

Dear Carl: Enclosed is the text of a revision

to Section 10.6(b) of the Joint Venture

Agreement among Sprint, FT and DT. The

revision to Section 10.6(b) will be part of the

closing documentation for the transaction.

The attached language has been presented to

the European Commission for purposes of

their review. It should resolve any confusion

by third parties regarding the scope of the

Agreement among Sprint, FT and DT.

Specifically, I want to assure you that it was

never the intent of the parties to cause FT or

DT to steer customers of FT and DT reserved

services to Phoenix. In order to resolve any

doubt on this issues, however, the parties

have agreed to the revised language enclosed

with this letter.

Sincerely,

Kevin R. Sullivan

KRS:ss

Enclosure

cc: J. Cunard, M. Ryan, J. Hoffman

King & Spalding

November 21, 1995.

Carl Willner, Esq.,

Antitrust Division, United States Department

of Justice, 555 4th Street, N.W.,

Washington, D.C. 20001

Re: U.S. v. Sprint Corp.

Dear Carl: Enclosed is the text of a revision

to Section 10.6(b) of the Joint Venture

Agreement among Sprint, FT and DT. The

revision to Section 10.6(b) will be part of the

closing documentation for the transaction.

The attached language has been presented to

the European Commission for purposes of

their review. It should resolve any confusion

by third parties regarding the scope of the

Agreement among Sprint, FT and DT.

Specifically, I want to assure you that it was

never the intent of the parties to cause FT or

DT to steer customers of FT and DT reserved

services to Phoenix. In order to resolve any

doubt on this issues, however, the parties
4028 Federal Register / Vol. 61, No. 23 / Friday, February 2, 1996 / Notices

have agreed to the revised language enclosed

with this letter.

Sincerely,

Kevin R. Sullivan

KRS.ss

Enclosure

cc: J. Cunard, M. Ryan, J. Hoffman

November 21, 1995.

Phoenix JVA Section 10.6(b) [p. 81];

Unsolicited Customer Requests

‘‘(b) If a Party or any of its Affiliates

receives an unsolicited request from a

customer of a Party or any of its Affiliates or

of the Joint Venture to enter into a Contract

to provide to such customer in conjunction

with other Persons a service that is then

currently Offered by the Joint Venture, such

Party or its Affiliates will use commercially

reasonable efforts to persuade such customer

to purchase such service from the Joint

Venture. If despite such Party’s efforts, the

customer prefers not to purchase such service

from the Joint Venture, such Party will refer

such matter to the Global Venture Office

which, within ten (10) Business Days, will

present its observations regarding such

matter to one of the representatives of such

Party on the Global Venture Committee for

final resolution by such representative. Not

withstanding the foregoing, the Parties agree

that the customer’s preference will be

honored in all cases. The Parties further

agree that, notwithstanding the foregoing,

this Section 10.6(b) shall not apply to ‘‘FT or

DT Products and Services’’ as defined in

Section V.L. of the Final Judgment in U.S. v.

Sprint Corporation, Civ. No. 95–1304 (D.D.C.

July 17, 1995), provided that, for purposes

hereof, such FT or DT Products or Services

are agreed to include not only ‘‘leased lines

or international half circuits between the

United States and France or between the

United States and Germany’’ as defined in

Subpart V.L. (iii) of such Final Judgment, but

also international leased lines or

international half circuits between France or

Germany and any other country or territory.’’

[FR Doc. 96–1742 Filed 2–1–96; 8:45 am]

BILLING CODE 4410–01–M