[Federal Register Volume 61, Number 23 (Friday, February 2, 1996)]
[Notices]
[Pages 3970-4028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1742]




[[Page 3969]]

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Part II





Department of Justice





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Antitrust Division



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Public Comments and Response on Proposed Final Judgment, United States 
v. Sprint Corporation and Joint Venture Company; Notice

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


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. Sec. 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. Sec. 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. Sec. 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\

    \1\ The 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.
    \2\ Paragraph 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.
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    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 

[[Page 3971]]
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 cross-subsidization 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.

    \3\ Case 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.
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    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 

[[Page 3972]]
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.

    \4\ There 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.
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    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 half-circuits 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 non-
discriminatory, open, and transparent basis, for all other providers of 
X.25 packet-switched data communications services. In order to ensure 
such non-discriminatory 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 

[[Page 3973]]
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. Secs. 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.

    \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., Paras.  56-57.
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    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\

    \7\ Id., Paras. 109-115.
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    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\

    \8\ Id., Paras. 103-108.
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    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. 
Sec. 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. 
Sec. 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\

    \9\ Id., Paras. 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).
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    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\

    \11\ FCC Sprint Order, Paras. 90-92, 131.
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    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 

[[Page 3974]]
``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\

    \12\ Id., Paras. 128-29.
    \13\ The ``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 cost-allocation 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 facilities-
based 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 Paras. 42-55.
    \14\ FCC Sprint Order, para. 132.
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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.

    \15\ Commission 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.
---------------------------------------------------------------------------

    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 radio-based 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.

    \16\ Commission 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.
---------------------------------------------------------------------------

    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.

    \17\ Commission 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.

[[Page 3975]]

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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.

    \18\ Federal Ministry for Post and Telecommunications, Corner 
Stones of a Future Regulation Framework in the Telecommunications 
Sector, March 27, 1995.
---------------------------------------------------------------------------

    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\

    \19\ FCC Sprint Order, para. 67, citing Letter from Dr. Wolfgang 
Boetsch, Federal Minister for Posts and Telecommunications, to Reed 
E. Hundt, Chairman, Federal Communications Commission (Oct. 17, 
1995).
    \20\ Regulation 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.
---------------------------------------------------------------------------

    The German government has confirmed, in a letter from the 
Bundesministerium fur 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 ``non-discriminatory, 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.

    \21\ Letter from Dr. Witte, BMPT, to Carl Willner, Department of 
Justice (December 13, 1995). This letter is attached to this 
Response as Exhibit I.
---------------------------------------------------------------------------

    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.

    \22\ These 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 non-monopoly services, but only with a 25 kilometer limit. 
At present they must use DT leased lines for interconnections 
outside the 25 kilometer area.
---------------------------------------------------------------------------

    b. France. Progress toward liberalization in France has not been as 


[[Page 3976]]
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.

    \23\ Ministry of Information Technology and Postal Services, New 
Ground Rules for Telecommunications in France, October 1995.
---------------------------------------------------------------------------

    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\

    \24\ FCC Spring Order, para.65, citing Letter from Bruno 
Lasserre, Director General, DGPT, to Reed E. Hundt, Chairman, 
Federal Communications Commission, at 2 (Oct. 20, 1995).
---------------------------------------------------------------------------

    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.

    \25\ The 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.
---------------------------------------------------------------------------

    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.

    \26\ Letter from M. Bruno Lasserre, Director General of DGPT, to 
Carl Willner, December 8, 1995. This letter is attached to this 
Response as Exhibit J.
---------------------------------------------------------------------------

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. Sec. 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. Sec. 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 

[[Page 3977]]
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\

    \27\ These comments are attached as Exhibits A-G.
    \28\ Until 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.
---------------------------------------------------------------------------

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.

    \29\ Because 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 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 non-discriminatory 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 

[[Page 3978]]
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.

    \30\ This 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.
---------------------------------------------------------------------------

    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 cross-subsidization, 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 

[[Page 3979]]
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 end-to-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 facilities-based, 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.

    \31\ FCC Sprint Order, para. 112.
    \32\ Contrary 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.
---------------------------------------------------------------------------

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 

[[Page 3980]]
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\

    \33\ Letter 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.
    \34\ FCC Sprint Order, para. 125.
---------------------------------------------------------------------------

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 

[[Page 3981]]
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.

    \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.
---------------------------------------------------------------------------

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, cost-based 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.

    \36\ Comments of Cable & Wireless Europe, at 6.
---------------------------------------------------------------------------

F. Protections Against Cross-Subsidization

    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 cross-subsidies of the Datex-P data 
network by DT on a large scale, and the risk of use of cross-
subsidization to put 

[[Page 3982]]
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 cross-subsidization, and that the EU 
competition authorities have imposed an auditing requirement on Atlas, 
Transpac and Datex-P during the pre-liberalization 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 cross-subsidization 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 Datex-P.
    Esprit Telecom urges that DT and FT be precluded from predatory 
pricing of end-user services. The cross-subsidization 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 half-circuits,'' 
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 

[[Page 3983]]
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.

    \37\ Filetech S.A.R.L. v. France Telecom, Civil Action No. 95-
1848 (CSH) (S.D.N.Y.).
---------------------------------------------------------------------------

    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.

    \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).
    \39\ FCC Sprint Order, para. 123.
---------------------------------------------------------------------------

IV

Standard of Review

    Pursuant to 15 U.S.C. Sec. 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 

[[Page 3984]]
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. para. 
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. Sec. 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:

    \1\ Competitive Impact Statement (``CIS''), Fed. Register, Vol. 
60, No. 164, 44049, 44063 (Aug. 24, 1995).

    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\

    \2\ Market Entry and Regulation of Foreign-Affiliated Entities, 
10 FCC Rcd. 4844 (1995) (``Market Entry NPRM''), Reply Comments of 
the Department of Justice (filed May 12, 1995) at ii (emphasis 
added).

    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 

[[Page 3985]]
``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\

    \3\ CIS at 44077 (citing United States v. Waste Management, 
Inc., 1985-2 Trade Cas. para. 66,651, at 63,046 (D.D.C., 1985).
    \4\ United States v. Microsoft Corp., 56 F.3d 1448, 1461-62 
(D.C. Cir. 1995).
---------------------------------------------------------------------------

    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\

    \5\ United States v. Mid-America Dairymen, Inc., 1977-1 Trade 
Cas. para. 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.
---------------------------------------------------------------------------

    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.

    \8\ CIS at 44071.
---------------------------------------------------------------------------

    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\

    \9\ See pp. 16-17, infra.
    \10\ CIS at 44074.
---------------------------------------------------------------------------

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 government-owned 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\

    \11\ CIS at 44060.
    \12\ Id.
    \13\ Id. at 44061.
---------------------------------------------------------------------------

    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\

    \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
---------------------------------------------------------------------------

    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 

[[Page 3986]]
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.

    \18\ Id. at 44063-64.
---------------------------------------------------------------------------

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.-to-Germany 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.

    \19\ Final Judgment, Sec. V.L.(i).
    \20\ Id. Sec. III.D.1(v).
---------------------------------------------------------------------------

    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.

    \21\ Section 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.
---------------------------------------------------------------------------

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 

[[Page 3987]]
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\

    \22\ It is unclear what would constitute ``commercially 
reasonable efforts'' if one is a monopolist to whom all customers 
must come for service.
    \23\ Sprint'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.
---------------------------------------------------------------------------

    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.

    \24\ Sprint 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 self-interest'' and is not 
improper. Market Entry NPRM, Sprint Supplemental Reply (filed Sept. 
15, 1995) at iv.
---------------------------------------------------------------------------

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\

    \25\ CIS at 44066.
    \26\ Id. at 44065.
    \27\ Id. at 44074.
---------------------------------------------------------------------------

    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 Sec. 2 (b), (d), and (f)(4) of the Antitrust Procedures 
and Penalties Act (the ``Tunney Act''), 15 U.S.C. Sec. 16 (b), (d), and 
(f)(4), MCI Communications Corporation (``MCI'') submits these comments 
regarding the consent 

[[Page 3988]]
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\

    \1\ Competitive Impact Statement, 60 Fed. Reg. 44,058, 44,063 
(filed Aug. 14, 1995) (``CIS'').
    \2\ See infra at 11-12 and n. 29.
---------------------------------------------------------------------------

    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.

    \3\ Reply 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).
---------------------------------------------------------------------------

    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 government-owned 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.

    \4\ Id. at 27.
---------------------------------------------------------------------------

    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.

    \5\ CIS, 60 Fed. Reg. at 44,066.
    \6\ Reply Comments of DOJ, at 27.
---------------------------------------------------------------------------

    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\

    \7\ 15 U.S.C. Sec. 16 (b) and (d).
    \8\ Id. Sec. 16(d).
---------------------------------------------------------------------------

    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.

    \9\ See Stipulation para. 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.'').
---------------------------------------------------------------------------

    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:

    \10\ 15 U.S.C. Sec. 16(e).
---------------------------------------------------------------------------

    (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 

[[Page 3989]]
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\

    \11\ Id.

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\

    \12\ Id. Sec. 16(f)(4).
---------------------------------------------------------------------------

    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\

    \13\ United 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.
---------------------------------------------------------------------------

    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. para. 66,651, at 
63,046 (D.D.C. 1985).\18\

    \18\ CIS, 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 
para. 330, at 141-42 (1978)), cert. denied, 498 U.S. 911 (1990).

A proposed consent decree that fails to cure the antitrust violation is 
not in the public interest.\19\

    \19\ See 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).
---------------------------------------------------------------------------

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\

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

    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\

    \21\Id.
---------------------------------------------------------------------------

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 Sec. 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, government-owned 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-a-vis other United 
States international carriers'' and to engage in other anticompetitive 
conduct.\23\

    \22\ 15 U.S.C. Sec. 18.
    \23\ CIS, 60 Fed. Reg. at 44,063.
---------------------------------------------------------------------------

    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\

    \24\ Id. at 44,065; Final Judgment V.Q, 60 Fed. Reg. 44,051, 
44,056.
    \25\ CIS, 60 Fed. Reg. at 44,074; Final Judgment X.B, 60 Fed. 
Reg. at 44,058.
---------------------------------------------------------------------------

    The provisions of the decree that apply during both Phase I and 
Phase II include:
    <bullet> requirements of disclosure of the terms and conditions of 
dealings among Sprint, FT, DT, and Phoenix (II.A)
    <bullet> restrictions on the sharing of information (II.B)
    <bullet> 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\

    \26\ CIS, 60 Fed. Reg. at 44,067-44,070; Final Judgment, 60 Fed. 
Reg. at 44,051-44,053.
---------------------------------------------------------------------------

The provisions that are applicable only during Phase I include:
    <bullet> 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)
    <bullet> prohibition of the acquisition by Sprint or Phoenix of 
ownership interests in or control over FT or DT public data networks 
(III.B)
    <bullet> prohibition against Sprint or Phoenix providing FT or DT 
products and services on an exclusive basis (III.C)
    <bullet> prohibition against Sprint or Phoenix obtaining FT or DT 
products and services on a discriminatory basis (III.D)
    <bullet> prohibition of Sprint's acceptance of correspondent 
telecommunications traffic on a disproportionate basis (III.E)
    <bullet> restrictions designed to guard against cross-subsidization 
of Sprint or Phoenix by FT or DT (III.F)

[[Page 3990]]

    <bullet> prohibition of any exclusive operating agreements between 
Sprint and FT or DT (III.G)
    <bullet> 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\

    \27\ CIS, 60 Fed. Reg. at 44,070-44,073; Final Judgment, 60 Fed. 
Reg. at 44,053-44,055.
---------------------------------------------------------------------------

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.

    \28\ CIS, 60 Fed. Reg. at 44,064-44,064.
    \29\ Section 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. * * *
---------------------------------------------------------------------------

    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\

    \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.
---------------------------------------------------------------------------

    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\

    \31\ Id. at 44,070.

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\

    \32\ Reply 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.
    \34\ See, 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 cross-subsidy as 
part of their liberalization program, there is reason to believe 
that the risks of such conduct should diminish. * * *'') (emphasis 
added).
---------------------------------------------------------------------------

    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 

[[Page 3991]]
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.

    \35\ Memorandum 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'').
---------------------------------------------------------------------------

    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\

    \36\ CIS, 60 Fed. Reg. at 44,061-44,062.

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\

    \37\ Id. at 44,060, 44,062.
    \38\ DOJ Mem. re Competition, at 3.
---------------------------------------------------------------------------

    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\

    \39\ United 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).

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 cross-subsidy 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 cross-subsidization 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.

    \40\ CIS, 60 Fed. Reg. at 44,072. Although section III.F of the 
decree prohibits FT and DT from cross-subsidizing 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'').
---------------------------------------------------------------------------

    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\

    \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.
---------------------------------------------------------------------------

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 

[[Page 3992]]
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.

    \43\ FT 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.
---------------------------------------------------------------------------

    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.

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

    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 public-comment 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\

    \45\ See 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.
---------------------------------------------------------------------------

    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.

    \47\ CIS, 60 FR at 44,074.
---------------------------------------------------------------------------

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\

    \48\ Id. at 44,066.

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\

    \49\ Reply Comments of DOJ, at 27.
---------------------------------------------------------------------------

    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\

    \50\ CIS, 60 Fed. Reg. at 44,063.

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 

[[Page 3993]]
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.

    \51\ Reply Comments of DOJ, at 27.
---------------------------------------------------------------------------

    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.

    \52\ CIS, 60 Fed. Reg. at 44,074.
    \53\ Id.
---------------------------------------------------------------------------

    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.

    \54\ Id. at 44,076.
---------------------------------------------------------------------------

    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.

    \55\ Id. at 44,065.
---------------------------------------------------------------------------

    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 facilities-based 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\

    \56\ Id. (emphasis added).
---------------------------------------------------------------------------

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\

    \57\ Id.
---------------------------------------------------------------------------

    The size of the proposed Sprint-FT-DT 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.

    \58\ Id. at 44,059.
---------------------------------------------------------------------------

    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.

    \59\ Id. at 44,065.
---------------------------------------------------------------------------

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.


[[Page 3994]]

    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 Telecom (``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.

    \1\ 60 Federal Register (FR) 44049 (August 24, 1995).
    \2\ 15 U.S.C. 16(b)-(h).
    \3\ Complaint para. 24; see also the definition of ``Joint 
Venture Co.'' as multiple ``entities'' in Section V.O. of the 
proposed Decree. The Stipulation (para. 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.
---------------------------------------------------------------------------

    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\

    \4\ BT'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) para. 70,730 (D.D.C., final 
judgment entered September 28, 1994) (``BT-MCI Final Judgement'').
    \5\ BTNA 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).
---------------------------------------------------------------------------

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?

    \6\ See ``Germany, France Agree to Liberalize Phone Markets as 
Part of Sprint Venture,'' Wall Street Journal, October 13, 1995, at 
A10.
    \7\ See Sprint Corp., FCC File No. ISP-95-002, Reply Comments of 
France Telecom (September 15, 1995) at 17-19; Reply Comments of 
Deutsche Telekom (September 15, 1995) at 2-3, 25-26.
---------------------------------------------------------------------------

    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 

[[Page 3995]]
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 US-
French/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)).

    \8\ See pages 18-19, infra.
---------------------------------------------------------------------------

    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.

    \9\ Id. at 4406.
---------------------------------------------------------------------------

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.''

    \10\ See US v. Sprint, Competitive Impact Statement (``CIS''), 
60 F.R. at 44076-78.
---------------------------------------------------------------------------

    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.

    \11\ See 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).
    \12\ See, 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).
---------------------------------------------------------------------------

    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\

    \13\ United 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.
---------------------------------------------------------------------------

    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 

[[Page 3996]]
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 well-established and 
ubiquitous public data networks retain nearly 100 percent monopoly 
market shares.\21\

    \18\ Id. para. 40.
    \19\ Id.
    \20\ Id. Paras. 25-26, 31-32, 34-35.
    \21\ Id. Paras. 33,36.
---------------------------------------------------------------------------

    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\

    \22\ Id. Paras. 31-36
    \23\ Id. Paras. 31, 34.
    \24\ Id. Paras. 31-36.
---------------------------------------------------------------------------

    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\

    \25\ Id. para. 37.
    \26\ Id.
---------------------------------------------------------------------------

    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.

    \27\ United States v. Sprint Corp., Competitive Impact Statement 
(CIS), 60 F.R. at 44049, 44058, 44069-70.
    \28\ Complaint Paras. 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 Botsch, 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.
---------------------------------------------------------------------------

    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.

    \29\ Under 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 para. 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.
---------------------------------------------------------------------------

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 US-French/German routes to suit their 
own parochial economic interests and schedule.\30\

    \30\ The 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 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.

[[Page 3997]]

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    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.

    \31\ The 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.
---------------------------------------------------------------------------

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\

    \32\ The 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.
---------------------------------------------------------------------------

    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.

    \33\ Alternative (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.
---------------------------------------------------------------------------

    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 

[[Page 3998]]
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\

    \34\ Complaint para. 37 (emphasis added).
    \35\ Section II.E. of the Final Judgment in the BT-MCI matter 
required that the UK grant UK-US 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.
    \37\ To 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).''
---------------------------------------------------------------------------

    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.

    \38\ The 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.
---------------------------------------------------------------------------

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\

    \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.
---------------------------------------------------------------------------

* * * * *
    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 

[[Page 3999]]
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 long-term 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 long-term 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.

    \40\ See Complaint Paras. 32, 35; CIS, 60 F.R. at 44071.
---------------------------------------------------------------------------

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 half-circuits. 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 half-circuits. 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 half-circuits 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.

    \41\ See Section X.B. second sentence.
---------------------------------------------------------------------------

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 anti-
discrimination 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 

[[Page 4000]]
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.

    \42\ See e.g., Section III.C., III.E., III.I.; cf. Sections 
II.A.-7.
---------------------------------------------------------------------------

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.

    \43\ CIS, 60 F.R. at 44071 (emphasis added).
    \44\ Sprint and JVCo are defined so as not to include FT, DT, 
Atlas, or each other. See Sections V.O. and V.T.
---------------------------------------------------------------------------

    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.

    \45\ This 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 cross-
subsidization] 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.
---------------------------------------------------------------------------

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 

[[Page 4001]]
``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\

    \46\ CIS, 60 F.R. at 44071.
    \47\ Id.
    \48\ Id.
---------------------------------------------------------------------------

    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\

    \49\ Id. at 44062-63.
    \50\ See 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 ______, 1996, amending Commission Directive 90/388/EEC, 
regarding the implementation of full competition in 
telecommunications markets (96/______/EC) (July 19, 1995) 
(unofficial draft) (``Draft Voice and Infrastructure Directive'').
    \51\ See 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.
    \52\ CIS, 60 F.R. at 44063.
---------------------------------------------------------------------------

    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\

    \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.
    \54\ The 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.
---------------------------------------------------------------------------

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].''

    \55\ CIS, 60 F.R. at 44071.
    \56\ The quoted language, containing the ``in conjunction with'' 
concept, appears in Sections II.A.2. and II.A.4.
---------------------------------------------------------------------------

D. The Restrictions Against Cross-Subsidy (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 

[[Page 4002]]
automatically expire at the end of Phase I. The Competitive Impact 
Statement (CIS) acknowledges that ``[e]xisting regulatory safeguards 
against cross-subsidization 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.''

    \57\ CIS, 60 F.R. at 44072.
    \58\ See Section V.Q.
---------------------------------------------------------------------------

    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 cross-
subsidization 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.

    \59\ See Complaint Paras. 33, 36.
    \60\ A rate base, rate of return regulatory scheme would 
encourage the regulated entity to shift cost of its nonregulated 
businesses to its regulated business.
---------------------------------------------------------------------------

    The CIS assumes that with the arrival of Phase II ``the EU 
authorities [will] have improved safeguards against cross-subsidy.'' 
\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 cross-subsidization.

    \61\ CIS, 60 F.R. at 44072.
    \62\ Id. at 44062.
    \63\ Id. at 44063.
    \64\ See page 12, note 28, supra.
    \65\ Id..
---------------------------------------------------------------------------

    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 cross-subsidization that does occur.

    \66\ The ``one or more'' licensee portion of the definition of 
Phase II also must be revised. See pages 27-28, supra.
---------------------------------------------------------------------------

    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 cross-subsidization 
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\

    \67\ CIS, 60 F.R. at 44072.
    \68\ Complaint para. 40(c).
---------------------------------------------------------------------------

    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 

[[Page 4003]]
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.

    \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.
---------------------------------------------------------------------------

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\

    \70\ Complaint para. 40(b).
    \71\ Given the market power reflected in FT's and DT's public 
data networks (see Complaint Paras. 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.
---------------------------------------------------------------------------

    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 facilities-based 
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 cost-competitive 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.

    \72\ The 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.
---------------------------------------------------------------------------

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.

    \73\ Complaint para. para. 2, 3, 31-36, 40(a)-(e).
    \74\ Id para. 3.
---------------------------------------------------------------------------

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\

    \75\ CIS, 60 F.R. at 44073.
---------------------------------------------------------------------------

    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 ``non-proprietary 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 anti-discrimination 
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 

[[Page 4004]]
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.''

    \76\ CIS, 60 F.R. at 44073.
---------------------------------------------------------------------------

    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.

    \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).
    \78\ See Complaint para. para. 32-36; CIS, 60 F.R. at 44061-62.
---------------------------------------------------------------------------

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:

<bullet> is restrictive of competition
<bullet> poses a real risk of eliminating competition
<bullet> provides considerable potential to abuse a dominant 
position
<bullet> is not indispensable for addressing the target market

    The Phoenix JV is restrictive of competition in that it 
effectively facilitates;

<bullet> the direct fixing of prices and other trading conditions
<bullet> the limitating or control of production, markets, technical 
development and investment
<bullet> market sharing between the parents
<bullet> 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.

[[Page 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:
    <bullet> 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?
    <bullet> 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. Self-evidently, 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 non-
implementation 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 cross-subsidy from the monopoly sector into Datex-P. 
This case and the non-implementation of Article 7 of the Services 
Directive are 

[[Page 4006]]
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:
    <bullet> 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.
    <bullet> 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:

<bullet> the points where interconnection is permitted.
<bullet> 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:

<bullet> 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
<bullet> 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:

<bullet> the correct cost basis (level of the charge)
<bullet> 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:

<bullet> interconnection at any technically feasible point
<bullet> LRAIC
<bullet> 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.

[[Page 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 co-operate 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 fur ein 
Telekommunikationsgesetz of 31.5.95) is silent or vague on the 
following key issues:

<bullet> equal access
<bullet> numbering portability and numbering in general
<bullet> licensing processes, appeal procedures, arbitration etc.
<bullet> duct/trench-sharing, mandatory or otherwise
<bullet> Ministry policy on international voice telephony
<bullet> 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 Sec. 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. Sec. 22 could be used as a tax on success and certainly 
provides an incentive for competitors to stay below the 25% 
threshold. Sec. 22 is incompatible with the development of effective 
competition and should be withdrawn.
    Interestingly, if an operator cream-skims (Mehrerlosabschopfung) 
deliberately or out of negligence contrary to a decree under Sec. 32 
issued by the NRA, it could be required to pay an equivalent sum to 
the NRA (Sec. 33). Sec. 32 

[[Page 4008]]
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:

<bullet> 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?
<bullet> 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:

<bullet> the liberalization of alternative infrastructure including 
cable televisions
<bullet> interconnection at any technically feasible point
<bullet> interconnection charges based on LRIC and CBC

    Additionally the structural issue needs to be addressed. The 
minimum conditions required in this respect are:

<bullet> 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.
<bullet> there should be a complete financial structural separation 
between Atlas, Phoenix and the parents.
<bullet> 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. Sec. 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.

[[Page 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:
    <bullet> 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 deg.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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> Such protective legal mechanisms for ACC could include 
those which apply now, and those which applied with FT's service 
monopoly decreased or ceased.
    <bullet> 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).
    <bullet> 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, Chief-Telecommunications Division, FCC
    Mr. Mickey Kantor-U.S. Trade Representative
    Anne K. Bingaman, Esq., Assistant Attorney General, DOJ
    Donald J. Russell, Chief-Telecommunications 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 

[[Page 4010]]
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.

[[Page 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 Schiff-Cockborne, 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 

[[Page 4012]]
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. 
Sec. 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.

[[Page 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 non-compliant 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 end-user 
customer prices. Absent effective national regulators with broad 
authority and interest in ensuring that such cross-subsidization 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 cross-subsidization arise at both the 
``macro'' and the ``micro'' levels.
    With respect to ``macro'' cross-subsidization, 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 
cross-subsidization of its data services, and Worldcomm has been 
attacking DT cross-subsidization in Germany for some time. 
Similarly, as indicated in the attached article from La Monde 
Informatique, French regulators have found FT to be cross-
subsidizing with monopoly revenues the activities of FT's 
competitive subsidiary, Colisee 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 

[[Page 4014]]
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:
    <bullet> 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.)
    <bullet> 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.

    \1\ See 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).
---------------------------------------------------------------------------

    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.

    \2\ Esprit 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.
---------------------------------------------------------------------------

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 
value-added 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 value-added 
services liberalized by the European Union (``EU''), and it has 
experienced increasingly high leased line provisioning rates in both 
Germany and France.

    \3\ Application 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.
    \4\ Services in Belgium and the Netherlands are provided by 
Esprit Telecom Benelux B.V. Services in France are provided by 
Esprit Telecom France S.A. Services in Spain are provided by Esprit 
Telecom de Espana S.A.
---------------------------------------------------------------------------

    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 

[[Page 4015]]
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.

    \5\ The Direction Generale des Postes et Telecommunications in 
France and the Ministry for Post and Telecommunications, assisted by 
a new Regulierungsrat (Regulation Council), in Germany.
---------------------------------------------------------------------------

    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.

    \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).
    \8\ The substantial governmental investment interest in both 
European carriers also raises further concerns about the potential 
for substantial cross-subsidization and the regulatory directives to 
preclude it.
    \9\ See Article L. 34 of Law No. 90-1170 of 29 December 1990. 
(This section modifies the Code des Posts et Telecommunications 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).
---------------------------------------------------------------------------

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 cross-subsidization 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.

    \11\ Critical 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.
---------------------------------------------------------------------------

    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.

    \12\ See, supra, notes 6, 7, and 10.
---------------------------------------------------------------------------

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 

[[Page 4016]]
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 non-commercial 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

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

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. The latter, notified on 29 June 
1995, are

[[Page 4017]]

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\ Notification announced in OJ No C 184, 18. 7. 1995, p. 11.
---------------------------------------------------------------------------

    2. The Atlas venture will be structured at two levels. A holding 
company established in Brussels, Atlas SA, will be incorporated as a 
societe 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 packet-switched X.25 data 
communications, Datex-P, 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 high-speed 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: value-added 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.

    \3\ See Commission decision in Case No IV/34.857 (BT-MCI) of 27 
July 1994 (OJ No L 223, 27. 8. 1994).
---------------------------------------------------------------------------

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.

    \4\ Commission's Guidelines on the application of EC competition 
rules in the telecommunications sector (OJ No C 233, 6. 9. 1991, p. 
2, paragraph 27).
    \5\ As 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').
---------------------------------------------------------------------------

    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. Packet-switched 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 packet-switched 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 
packet-switched 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

[[Page 4018]]

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.

    \6\ See footnote 3 above.
---------------------------------------------------------------------------

    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. one-stop-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 
cross-border 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 cross-border 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\.

    \7\ Notification of a joint venture (Case No IV/35.337--Atlas) 
(OJ No C 377, 31. 12. 1994, p. 9).
---------------------------------------------------------------------------

    14. At a global and Europe-wide level, low-level 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 low-level 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-to-end 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 

[[Page 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 second-largest 
competitor in the German national market for standardized low-level 
packet-switched 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 co-chairmen 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 intra-
group 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 

[[Page 4020]]
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 sub-license); 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 non-appointment 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:

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

    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 packet-switched 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.

    \9\ Reserved 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.
---------------------------------------------------------------------------

    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:

    \10\ Notice 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).
---------------------------------------------------------------------------

    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.

[[Page 4021]]


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 third-party 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 packet-switched 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 non-discriminatory 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 cross-subsidization 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.

    \11\ Guidelines on the application of EEC Competition Rules in 
the Telecommunications Sector (OJ No. C 233, 6. 9. 1991, paragraph 
102 et seq.).
---------------------------------------------------------------------------

    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 non-recourse 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 Generale 
des Postes et Telecommunications (DGPT), is competent for licensing 
providers of telecommunications networks and services in France 
based on objective and transparent 

[[Page 4022]]
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 deg. of the 
French Law of 29 December 1990 grants all users equal access to the 
public network on objective, transparent and non-discriminatory 
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.

    \12\ Council 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).
---------------------------------------------------------------------------

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 Post- und 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 service-neutral 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

    \1\ OJ No 13, 21.2. 1962, p. 204/62.
---------------------------------------------------------------------------

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 worth US$ 4,2 billion. Both FT and DT 
will 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 fourth-largest 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

[[Page 4023]]

telecommunications services to corporate users and standardized low-
level packet-switched 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 
third-party 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-to-end 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.

    \2\ Commission decision of 27 July 1994 (OJ No L 223, 27. 8. 
1994, p. 36).
---------------------------------------------------------------------------

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 packet-switched 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 

[[Page 4024]]
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.

    \3\ Business secret (less than 30%).
    \4\ Business secret (less than 30%).
    \5\ Business secret (less than 5%).
    \6\ Business secret (less than 25%).
---------------------------------------------------------------------------

    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.

    \7\ Business secret (less than 10%).
    \8\ Business secret (less than 10%).
    \9\ Business secret (less than 45%).
    \10\ Business secret (less than 40%).
---------------------------------------------------------------------------

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\.

    \11\ Business secret.
    \12\ Business secret (less than 25%).
    \13\ Business secret (less than 40%).
    \14\ Business secret (less than 5%).
    \15\ Business secret (less than 5%).
    \16\ Business secret.
    \17\ Business secret.
    \18\ Business secret (less than 5% respectively).
---------------------------------------------------------------------------

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).

    \19\ Business secret (market share less than 10%).
    \20\ Business secret (market share less than 15%).
    \21\ Business secret (market share less than 5%).
---------------------------------------------------------------------------

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, non-transferable 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.

[[Page 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 
packet-switched 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 33\1/3\ and 66\2/3\%, 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, non-transferable 
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 sub-licence 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, non-
transferable 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 

[[Page 4026]]
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 half-circuits, 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\

    \22\ See 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).
---------------------------------------------------------------------------

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 cross-subsidization 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.

    \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.).
---------------------------------------------------------------------------

    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 non-recourse 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.

[[Page 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 

[[Page 4028]]
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