Before the Federal Communications Commission Washington, D.C

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

In the Matter of ) ) AT&T Corporation, VLT Co. L.L.C., ) Violet License Co. L.L.C. and TNV ) (Bahamas) Limited Applications for ) FCC Consent for Grant of Section 214 ) IB Docket No. 98-212 Authority, Modification of Authorizations ) and Assignment of Licenses in Connection ) with Proposed Joint Venture between ) AT&T Corporation and British ) Telecommunications plc )

COMMENTS OF CABLE & WIRELESS

Vivienne Robinson Charles H. Kennedy Peter Waters Morrison & Foerster LLP Legal Consultants 2000 Pennsylvania Avenue, N.W. Legal Department Washington, D.C. 20006-1888 Cable & Wireless plc Telephone: (202) 887-1500 124 Theobalds Road London WCIX 8RX United Kingdom Attorneys for Cable & Wireless plc

Dated: January 19, 1999 TABLE OF CONTENTS SUMMARY ...... 1 DISCUSSION ...... 2

I. The Proposed Joint Venture Will Raise Competitors' Costs...... 3 A. Exploitation Of Captive Traffic Between U.S. And U.K...... 4 B. Exploitation Of Reoriginated Traffic Between The U.S. And Third Countries...... 8 II. The Joint Venture Will Reduce Competition For Transit Service Provided to Other Carriers...... 9 III. The Joint Venture Will Reduce Competition In The Market For Global Communications Services To Multi-national Corporations ...... 11 IV. The Joint Venture Is Not Comparable To The Proposed BT/MCI Merger...... 14 Before the Federal Communications Commission Washington, D.C. 20554

COMMENTS OF CABLE & WIRELESS Cable & Wireless plc, through its attorneys, hereby submits its comments on the applications described in this Commission’s Public Notice of November 27, 1998.1

SUMMARY Cable & Wireless plc and its affiliates ("C&W") offer Internet, data, voice and video service in a number of countries around the world. As providers of telecommunications services within the United Kingdom and between the United Kingdom and other countries, including the United States, C&W and its affiliates will be directly affected by this Commission's disposition of the applications that are the subject of this proceeding. The applicants portray the proposed joint venture between British Telecommunications plc ("BT") and AT&T Corporation (“AT&T”) as a pro-consumer initiative that will improve “global corporate services” offered to multi-national

1 FCC Public Notice, AT&T Corporation, VLT Co. L.L.C., Violet License Co. LLC and TNV (Bahamas) Limited Seek FCC Consent for Grant of Section 214 Authority, Modification of Authorizations and Assignment of Licenses in Connection with Proposed Joint Venture between AT&T Corporation and British Telecommunications plc, IB Docket No. 98-212, DA 98-2412 (Nov. 27, 1998). corporations (“MNCs”).2 This characterization, however, seriously understates the scope and potential impact of the joint venture, which will affect not just the market for global service to MNCs but also "upstream" markets for inputs to international telecommunications services provided to business and residential customers. In fact, the joint venture will eliminate competition between the applicants in markets in which each of those carriers is now the principal competitive constraint upon the other, and also will enable BT and AT&T to raise rivals' costs through strategic routing of the enormous captive traffic flows that the joint venture will control. For these reasons, the proposed joint venture will deny consumers the full benefit of the increasingly competitive telecommunications marketplace and must be rejected as contrary to the public interest.

DISCUSSION Under sections 214 (a) and 310 (d) of the Communications Act, as amended, the applications may not be granted unless they are shown to serve the public interest, convenience, and necessity.3 More specifically, the applications must be rejected unless the proposed joint venture will enhance -- rather than lessen -- competition in the affected markets.4 BT and AT&T have not carried their burden of demonstration under the public-interest standard. The applicants' statement in support of the joint venture simply describes the alleged efficiencies of that arrangement in the market for "global corporate services" and ignores altogether the joint venture's potential for anticompetitive abuse, not

2 Applications and Public Interest Statement in Support of the Global Venture of AT&T Corp. and British Telecommunications plc at 2 (Nov. 10, 1998) (“BT-AT&T Statement”). 3 See Application of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communications Corporation to WorldCom, Inc., 13 FCC Rcd 18025, 18026-27 (Sep.14, 1998). 4 See Merger of MCI Communications Corporation and British Telecommunications plc., 12 FCC Rcd 15351, 15353-54 ( Sep. 24, 1997)("BT-MCI II Order").

2 only in that market, but also in the market for U.S.-U.K. telecommunications services, the markets for service between the U.S. and third countries and the market for transit services provided to carriers on routes where those carriers do not have their own facilities. As the following discussion shows, the adverse impact of the joint venture in all of these markets requires that the applications be rejected.

I. The Proposed Joint Venture Will Raise Competitors' Costs The applicants claim that one of the joint venture's primary purposes is to help

"reduce settlement rates and hasten the demise of historic correspondent practices."5 In fact, however, BT and AT&T have benefited from the correspondent system and have benefited especially from the Commission's requirement of proportionate return. The commanding position of each of these carriers in its home market, coupled with the regulatory guarantee of proportionate return, severely limits the volume of return traffic on the U.S.-U.K route for which U.S. carriers other than AT&T -- and U.K. carriers other than BT -- can compete. The decline of the correspondent system, on the other hand -- including the Commission's proposal to liberalize or eliminate its International Settlements Policy ("ISP") on routes between the U.S. and WTO countries -- means that neither carrier is assured of the continuing ability to terminate the bulk of the traffic of the largest carrier operating in the other carrier's home market. In fact, liberalization of the ISP will increase competition for return minutes and bring greater pressure on BT and AT&T to reduce their charges for termination of traffic. The proposed joint venture is a response to this competitive threat. On the U.S.-U.K. route, the joint venture will permit BT and AT&T to "lock up" traffic flows between them and insulate that traffic from competition for return minutes -- a strategy that already appears to have been memorialized in the Framework Agreement for the joint

5 BT-AT&T Statement at 11.

3 venture.6 On routes between the U.S. and non-WTO countries that continue to maintain high accounting rates, the manipulation of transit traffic from the U.K. through the U.S. to third countries will reduce the volume of return minutes available to AT&T's competitors. These tactics will raise the costs of the joint venture's competitors and perpetuate, rather than discourage, the anticompetitive features of the present correspondent system.7 In fact, the joint venture's substitute for proportionate return will be even more restrictive than the present system, under which AT&T and BT terminate some volume of their traffic with other carriers.

A. Exploitation Of Captive Traffic Between U.S. And U.K. The most direct effects of the joint venture’s “raising rivals’ costs” strategy will be felt in the market for telecommunications services between the U.S. and U.K. BT and AT&T account for over 50 percent of bilaterally traded telecommunications traffic between their respective home markets. As independent entities, each of those carriers has every incentive to seek the most favorable terms for termination of its traffic and to deal with more than one terminating operator wherever possible. Not surprisingly, therefore, to the extent permitted by the proportionate return requirement, AT&T's competitors terminate substantial amounts of BT's outbound U.K.-U.S. traffic, and BT's competitors -- including C&W -- terminate substantial volumes of AT&T's outbound U.S.-U.K. traffic. With the pending liberalization of the ISP on WTO routes, the incentive for an independent BT and an independent AT&T to terminate their traffic with a variety of carriers should increase.

6 See Letter from Sidley & Austin to Magalie Roman Salas, Secretary, Federal Communications Commission (Nov.16, 1998), attached Joint Venture Between AT&T Corp. and British Telecommunications plc, Framework Agreement at 48. 7 As this Commission has recognized, a firm that raises the costs of its rivals without itself incurring comparable costs has the potential to increase end-user prices and earn monopoly profits. BT-MCI II Order at 18115-18.

4 The ability to terminate AT&T traffic originating in the U.S. is an important factor in C&W's ability to offer competitive rates to its customers. In fact, fully half of the U.S.-U.K. outbound communications that C&W terminates on its network in the U.K. are originated by AT&T customers. As a result of the substantial volume of U.S.-outbound AT&T traffic that it terminates in the U.K., C&W is a net importer of bilaterally-traded transatlantic minutes of switched service. To the extent C&W's traffic flows to the U.S. are balanced by return traffic from the U.K., C&W's cost of terminating traffic in the United States is no more than the incremental cost incurred by C&W to terminate the outbound U.S.-U.K traffic that it receives in return. If the proposed joint venture is approved, however, AT&T will have a strong incentive to terminate all of its U.S.-U.K traffic with BT (much as MCI and WorldCom have increasingly exchanged their traffic internally since the creation of MCI/WorldCom).8

As a result, C&W and other U.K. carriers will be deprived of return minutes from AT&T, making them net exporters of traffic to the United States.9 Those carriers then will pay per- minute settlement rates for all of their minutes terminated in the U.S. that exceed the number of return minutes received. The need to pay settlement rates for termination of traffic in the U.S. will raise the cost of termination for BT’s competitors. For example, the 6 cents per minute charged by

8 The liberalization of the Commission's International Settlements Policy ("ISP") will facilitate this strategy by permitting AT&T to accept a disproportionate amount of return traffic from BT, and by eliminating any requirement that AT&T return proportionate numbers of minutes to C&W and other competitors of BT in the U.K. See 1998 Biennial Regulatory Review – Reform of the International Settlements Policy and Associated Filing Requirements; Regulation of International Accounting Rates, Notice of Proposed Rule Making IB Docket No. 98-148, CC Docket No. 90-337, FCC No. 98-190 (Aug. 6, 1998). 9 This loss of traffic will be in addition to, and will exacerbate the effect of, the MCI/WorldCom merger. Since that merger, MCI’s volume of traffic terminated on C&W’s network has declined as MCI/WorldCom has implemented a practice of internal exchange of traffic. There is every reason to expect MCI/WorldCom to continue this trend as it more fully integrates the operations of the former WorldCom and MCI.

5 BT and AT&T for bilateral exchange of U.S.-U.K. traffic is 1.8 cents higher than the 4.2 cent rate charged by C&W for termination of outbound U.S.-U.K traffic. Taking C&W’s rate as an approximate measure of the incremental cost of termination suggests that when C&W sends a minute of traffic to the U.S. for which it does not receive a minute of return traffic, it must pay at least 1.8 cents above incremental cost to terminate that minute of traffic in the U.S. No comparable cost, however, will be borne by the proposed joint venture or its partners. Even where traffic exchanged between BT and AT&T is not balanced and one joint venture partner must pay a termination charge to the other, the party receiving payment can compensate the other party for the above-cost component of the settlement rate -- for example, by a "true-up" allocation of joint venture profits. As AT&T itself pointed out in its strong opposition to the BT-MCI merger, such intra-enterprise payments of settlement charges are no more than “left pocket-to-right-pocket’ transfers.”10 Accordingly, C&W and other competitors may be forced to pass the higher termination rates to consumers, while the joint venture and its partners will collect the differential between the settlement rate and the incremental cost of termination in the form of monopoly profit. In fact, the joint venture's strategy and its effect will be exactly as predicted by AT&T in its strenuous response to the proposed BT-MCI merger:

Because BT's accounting rate is above cost, and payments between BT and MCI will be merely internal transfers, BT/MCI will be able to price services to U.S. customers based on their LRIC costs to terminate calls on an end-to-end basis. Their U.S. rivals, however, will be required to recoup the cost imposed by BT's settlement rates for the traffic U.S. carriers must continue to terminate on BT's international network. This competitive disadvantage would be heightened by any

10 Comments of AT&T Corp.,Merger of MCI Communications Corporation and British Telecommunications plc, at 14 (Jan. 24, 1997).

6 disproportionate return of BT's traffic to unaffiliated carriers.11 Under present market conditions and as a result of AT&T's larger share of the U.S.- U.K. market, the effects of the proposed joint venture will be even more harmful than those AT&T predicted for the BT-MCI merger. Notably, C&W will not be able to overcome the effect of the withdrawal of AT&T's return traffic by increasing the volume of traffic that C&W accepts from AT&T's competitors. MCI/WorldCom already self-corresponds and other competitors' market shares are, in the aggregate, substantially smaller than AT&T's; accordingly, sufficient traffic volumes simply are not available from non-AT&T sources to compensate for the 50 percent drop in terminating traffic that AT&T's decision to send all of its outbound U.S.-U.K. traffic to BT will cause. In fact, a competitive response that sought to match the joint venture's volume of traffic would require a coordinated effort by all of the carriers that compete with BT on the U.K.-U.S. route -- a response that would create a duopoly market and long-term reduction in competition on the U.S.-U.K. route. The strong incentive to adopt this strategy disposes of the applicants’ claim that the joint venture will create downward pressure on settlement rates.12 AT&T is the largest provider of outbound U.S.-U.K. traffic and therefore has more leverage over BT’s termination charges than any other carrier. By enlisting AT&T as a beneficiary, rather than a victim, of BT’s above-cost settlement rates, the joint venture will eliminate any incentive for AT&T to seek reductions in those charges. Accordingly, U.S. consumers will continue to pay higher collection rates for calls to the U.K. The strategy of self-dealing between the joint venture partners also will cause changes in competitors’ cost structures that go beyond the simple, arithmetic effect of

11 Merger of MCI Communications Corporation and British Telecommunication plc, Reply Comments of AT&T, at 10-11 (Mar. 17, 1997). 12 BT-AT&T Statement at 16-17.

7 paying for termination at settlement rates. By sharply reducing the volume of traffic on C&W’s U.K. network, the joint venture is likely to drive C&W’s operations below the level at which it can realize economies of scale, thereby raising C&W’s costs of service. If those costs are passed on to consumers, the result of the joint venture’s strategy will be to erect a price umbrella over the joint venture and permit it to charge above-cost prices to consumers over the long term. Finally, by raising C&W’s costs and reducing traffic on C&W’s network, the joint venture will impair C&W’s ability to continue to build out its local and intercity network in the U.K. As discussed further below, until a network of sufficient scale to provide a competitive alternative to BT is deployed in the U.K., BT will continue to control local termination and other inputs required for BT’s competitors to terminate outbound U.S.-U.K. traffic. Accordingly, by raising its rivals’ costs of termination in the U.S., the proposed joint venture will reinforce BT’s control over inputs required for termination in the U.K. and retard the pace of rate relief for U.S. consumers placing calls to the U.K.

B. Exploitation Of Reoriginated Traffic Between The U.S. And Third Countries As AT&T made eloquently clear in its opposition to the BT-MCI merger, an affiliation between BT and a U.S. carrier offers an irresistible opportunity for BT to exploit the gap between the U.S. benchmark accounting rates and the high accounting rates of many third countries. But, as AT&T pointed out, such a strategy also would permit BT to “benefit its U.S. affiliate to raise rivals’ costs on U.S.-third country routes.”13 In fact, AT&T’s statement of the problem in its earlier filing needs no revision, beyond substitution of “AT&T” for “MCI”, to describe the competitive threat posed by the BT-AT&T joint venture on U.S.-third country routes:

13 Comments of AT&T Corp. at 20.

8 In BT/[AT&T]’s case, BT can optimize the routing of its UK- third country traffic by choosing to reoriginate its traffic through [AT&T] in the U.S. Simply put, BT has an opportunity to “balance off” its UK stream using [AT&T’s] network. Specifically, BT could send to third countries only that volume of minutes that matches the volume each third country sends to it – leaving BT with no settlements outpayment. The additional minutes generated by BT’s customers above the balance then could be delivered through [AT&T’s] network in the U.S. -- earning [AT&T] a greater share of return minutes at the expense of its competitors on third country routes. As [AT&T] realizes lower costs of settlement on the third country routes as compared to unaffiliated U.S. carriers whose costs will rise correspondingly, [AT&T’s] U.S. rivals will be unable to compete effectively on the third country route.14 AT&T’s argument against the BT-MCI merger is even more compelling when applied to the proposed BT-AT&T joint venture. BT and AT&T control most of the national distribution network in, and international routes extending from, their respective home markets; with their international resources combined in a joint venture, they could seamlessly refile their traffic as needed to control the cost base of their competitors in both countries. The reorigination strategy also will reduce the incentive of the largest U.S. carrier to press foreign carriers to lower their settlement rates, by giving AT&T a stake in the present system rather than a reason to hasten its demise.

II. The Joint Venture Will Reduce Competition For Transit Service Provided to Other Carriers A carrier cannot claim to provide a global telecommunications service, to a multi- national corporation or any other customer, unless it can transport that customer’s communications to every country in which that customer has a need. Where a carrier has a limited volume of traffic to a particular country, however, the carrier’s cost of establishing a direct route to that country on a facilities basis may be prohibitive. Accordingly,

14 Id. at 20-21.

9 international carriers routinely rely on other carriers to transit their traffic to countries with which those other carriers have direct routes. On many of the “thin” international routes for which carriers are most dependent on these transit services, those carriers have no choice but to deal with BT or AT&T. BT and AT&T individually have more direct routes than any other carriers; in fact, BT alone has routes to approximately 200 countries and over 210 correspondent carriers, and AT&T likely has even more direct international routes than BT. The importance of BT and AT&T as providers of transit services on “thin” international routes can be demonstrated by the experience of C&W. Although C&W has operations around the world, it still relies on transit services to reach a substantial number of countries. The proposed merger, and the resultant consolidation of BT and AT&T facilities on thin international routes, will have two anti-competitive consequences. First, competition for transit service on particular routes will be reduced or foreclosed. Second, the combination in the joint venture of BT and AT&T facilities on thin routes will permit the joint venture to raise the costs of competing providers of global communications service. Specifically, the joint venture will control more transit routes than any other carrier. On many of these routes, the combined share of BT and AT&T, as a provider of transit services to C&W, is over 60 percent. These factors will permit the joint venture effectively to raise the costs of competing providers by charging above-cost rates for transit services on routes controlled by the joint venture. Because of the high cost of establishing competing, facilities-based transit services on thin routes, the effects of this anti-competitive strategy in the global services market will not readily be overcome.15

15 Additional concentration of suppliers in the market for transit services will further delay the reduction of transit service rates, which the International Telecommunication Union already has identified as declining much more slowly than settlement rates. See (Footnote continues on following page.)

10 III. The Joint Venture Will Reduce Competition In The Market For Global Communications Services To Multi-national Corporations As Commissioner Tristanti recently pointed out, the Commission’s public-interest test is not satisfied by a showing that a merger or joint venture will produce efficiencies in a particular market. The applicant also must show that “only through the [proposed merger or joint venture] could the companies achieve [those] specific efficiencies.”16

In this case, the applicants have claimed that the proposed joint venture will improve service to MNCs by merging customer service, point of contact and other functions and by facilitating deployment of a new global network employing advanced protocols.17 The applicants have not, however, satisfied Commissioner Tristani’s test of showing that only the proposed joint venture, with its reduction or elimination of competition between two of the world’s largest telecommunications carriers, can achieve the claimed efficiencies. Instead, the applicants make the improbable claim that BT and AT&T must combine their resources in order to build interoperable, packet-switched networks in competition with rivals such as Qwest, Level 3, Carrier One and Esprit.18 And the applicants have entirely ignored the increased concentration that the joint venture will cause in the market for services to MNCs and, in particular, to the world's largest and truly global MNCs. In order to understand the significance of the elimination of competition between BT and AT&T in the market for services to truly global MNCs, it is important to understand the

(Footnote continued from previous page)

Methodological Note on Transit Rates, Contribution to the SG3 Focus Group from the ITU Secretariat (Aug. 12, 1998). 16 Remarks of Commissioner Gloria Tristani before the National Association of Regulatory Utility Commissioners (Nov. 8, 1998) http://www.fcc.gov/Speeches/Tristani /spgt813.html (emphasis added). 17 BT-AT&T Statement at 13-16. 18 Id. at 15.

11 character and needs of that market. “Truly global MNCs” have particular supply requirements that can only be met by a very small number of global telecommunications operators. These requirements include extensive global reach and very sophisticated network configurations and solutions. AT&T and BT are already, independently, the world’s leaders in this market. They each have the broadest geographic reach of all the competitors (over 200 routes each and physical presences in more key countries than their competitors) as well as the leading solutions businesses (Syntegra, Syncordia and AT&T Solutions). In addition, barriers to entry to this market are high. In particular, once an MNC customer has sunk substantial resources with one supplier that has developed its virtual private network and associated solutions, that MNC is less likely, when the contract comes up for renewal, to switch to another supplier due to the costs involved. Thus, the first global supplier to a truly global MNC is likely to retain that customer in the longer term. As this market is relatively nascent, it would be wholly inappropriate to allow the market leaders to merge their MNC businesses. In the relatively short time that Concert has been in existence, it has swept up a major share of the market, entrenching BT’s position into the future. To allow it to merge with AT&T, its principal competitor, which, through its own international alliances, has a similar market position, will result in a reduction in choice for truly global MNCs and less price and service level competition.

An analysis of C&W’s own bid history with the 500-odd truly global MNCs has shown that, in each instance, the truly global MNCs only short-list between three and five potential suppliers. BT and AT&T are always among those three to five and one or the other will usually win the bid. This alone indicates that BT and AT&T are being disingenuous when they suggest that they have a combined market share of less than 10%. A further factor, which already gives a great market advantage to BT and AT&T, is their existing customer relationship with the majority of truly global MNCs. Most such companies are headquartered in the US or UK with the result that AT&T and BT have

12 already been the primary telecommunications supplier to these MNCs for many years. This customer connection should not be underestimated. These MNCs demand the highest levels of network integrity and performance guarantees backed up with substantial financial penalties imposed on the supplier should their high performance requirements not be met. This is one of the reasons that there are so few suppliers in this market. Through long- standing customer connections in their former monopoly markets, AT&T and BT have proven track records with their MNC customers and, as stated, will already be the supplier of most of those customers’ telecommunication needs (particularly in the case of BT which has continuously supplied both local, national and international services). Further, a substantial number of the largest international corporations are headquartered in the U.S. and also have substantial operations in the U.K., or are headquartered in the U.K. and have substantial operations in the U.S. For such corporations, a carrier that controls extensive facilities in at least one of these two countries may seem a logical choice as a provider of global services. Finally, large MNCs seeking global services typically request bids from vendors that can bundle local, long-distance and international services in a single package and take responsibility for all elements of the bundled service. Because BT and AT&T each controls domestic telecommunications facilities in a major trading nation and offers direct, facilities- based routes to more countries than other carriers can match, BT and AT&T are, logically, the principal competitors for the global telecommunications business of the largest MNCs. Against this background, approval of the proposed joint venture will have a number of anti-competitive effects. Notably, the elimination of competition between two of the most credible competitors in this market will reduce the choices available to consumers. Also, the ability of the joint venture to raise rivals’ costs in the telecommunications service markets identified earlier – in other words, the ability of the joint venture to raise the cost of essential components of global service to MNCs -- will increase the cost of the global service packages offered by the joint ventures’ competitors.

13 IV. The Joint Venture Is Not Comparable To The Proposed BT/MCI Merger The applicants claim that the proposed joint venture is so similar to the BT/MCI merger (which, ironically enough, AT&T strenuously opposed) that the Commission should approve the joint venture without additional analysis. In fact, however, the present applications present a far stronger threat of harm to competition and cannot be sustained on the basis of the Commission’s analysis in the BT-MCI I Order or BT-MCI II Order. The obvious difference between the proposed joint venture and the BT/MCI merger is the scale of the participants. At the time of the BT-MCI II Order, AT&T carried 50 percent of U.S. transatlantic traffic while MCI carried 23 percent of that traffic. Under these circumstances, the BT/MCI merger might appropriately have been viewed as a competitive counterweight to the dominant power of AT&T. Similarly, MCI was not comparable to BT as a provider of transit services to other carriers seeking access to “thin” international routes, so the merger was unlikely to have an adverse impact on that market. The present applications, however, present very different facts. The proposed joint venture will control a substantially larger volume of international traffic than MCI/WorldCom. In fact, when BT and AT&T establish the joint venture they will withdraw fully half of the U.S.-U.K. traffic that might otherwise have been terminated on the networks of competitors of the joint venture partners. By contrast, the BT-MCI merger would have left well over half of the available U.S.-U.K. minutes of traffic "on the table," with AT&T still in the market as a free agent for termination and exchange of traffic. Similarly, as noted earlier, BT and AT&T are very likely the two largest providers of transit service to other carriers and control, separately, a large share of the market for service to global MNCs. Accordingly, the BT-MCI II Order is not a meaningful precedent for approval of this venture.19

19 The Commission also found that the BT/MCI joint venture would improve MCI’s ability to compete in the U.S. local exchange service market. BT-MCI II Order at (Footnote continues on following page.)

14 Even more fundamentally, the Commission approved the BT/MCI joint venture in spite of serious concern that BT had market power in the markets for inputs needed by competing providers of international telecommunications and global seamless services.20

The Commission's approval of the joint venture was based, in fact, on an assumption that growing competition for local termination in the U.K. would erode the acknowledged control of BT over vital inputs to competitors’ services. Those assumptions included predictions, in comments submitted to the FCC, that cable service providers would reach 70 percent of the U.K. population by 2000.21 The Commission also relied expressly on the advent of competition from Ionica, “the most prominent fixed wireless provider of local service,” [which was then] required by the terms of its license to offer service to 75 percent of England and Wales over the next three years."22 Events have not, of course, borne out the predictions on which the Commission’s approval of the BT/MCI merger was based. Contrary to the applicants' optimistic claims, cable penetration in the U.K. is not on schedule.23 Despite strenuous effort and enormous investment by the U.K. cable companies, cable network buildout in the U.K. has slowed to less than half the monthly figure of a year ago. The combined networks of U.K. cable

(Footnote continued from previous page)

15358-59, 15399-400. AT&T, of course, with its acquisitions of TCI and Teleport, has no need of additional help to compete in the local market against other U.S. interexchange carriers. The Commission also found that MCI was not a potential competitor of BT because MCI and BT already were involved in the Concert joint venture. Id. at 15358-59, 15401-02. This rationale, too, has no application to BT and AT&T, which remain actual competitors in some relevant markets and potential competitors in others.

20 See, e.g., BT-MCI II Order. 21 Id. at 15397 at 15358-59, 15401-02. 22 Id.

22 BT-AT&T Statement at 25.

23 Id.

15 companies now pass fewer than 50 percent of U.K. homes and there is no prospect that those networks will reach 70 percent of the U.K. population by the year 2000. Accordingly, U.S. carriers seeking to terminate traffic in the U.K. still cannot effectively bypass the BT network. Similarly, Ionica – so far from offering service to 75 percent of England and Wales – is in receivership. Nor is other, new competition likely to deprive BT of its local bottleneck in the near future. The U.K. Government has not mandated (although it now is considering) unbundling of BT’s network, with the result that only new entrants that overcome the considerable barriers to facilities-based entry will have any prospect of challenging the dominance of BT.24 Also, BT -- unlike the Bell operating companies ("BOCs") in the United States -- remains a vertically-integrated local and long-distance carrier not subject to the "competitive checklist" and separate affiliate requirements with which BOCs must comply before commencing similar, vertical operations in the U.S.25 Under these circumstances, BT will continue to control the cost of inputs to competing services – including termination of outbound U.S.-U.K. calls placed by U.S. consumers – for some time to come. U.S. carriers still are unable to bypass BT's ubiquitous network for termination in the U.K., and in fact the prospects for bypass in the future have diminished rather than increased. Accordingly, the proposed joint venture should not be approved.

24 The fact that the U.K. Government now is exploring the possibility of requiring BT to unbundle its network underscores the fact that more must be done to facilitate competition in the U.K. and reduce BT's monopoly power. 25 It is clear that BT would not qualify to provide interexchange service in the United States under the standards applied to the Bell operating companies in the Telecommunications Act of 1996. See 47 U.S.C. §§ 271-72.

16 Conclusion The filing in support of the present applications does not address – and in fact ignores – the threat that the proposed joint venture poses to competition in several markets. Accordingly, the applicants have not satisfied this Commission’s public-interest standard and the applications must be denied.

Dated: January 19, 1999 Respectfully submitted,

By: /S/ Charles H. Kennedy Vivienne Robinson Charles H. Kennedy Peter Waters Morrison & Foerster LLP Legal Consultants 2000 Pennsylvania Avenue, N.W. Legal Department Washington, D.C. 20006-1888 Cable & Wireless plc Telephone: (202) 887-1500 124 Theobalds Road London WCIX 8RX United Kingdom Attorneys for Cable & Wireless plc

17 CERTIFICATE OF SERVICE I, James S. Bucholz, do hereby certify that the foregoing Comments of Cable & Wireless plc was delivered, via U.S. Mail, on this 19th day of January, 1999, to the following:

Rick D. Bailey Mark C. Rosenblum TNV [Bahamas] Limited Lawrence J. Lafaro VLT Co. L.L.C. James J.R. Talbot Violet License Co., L.L.C. AT&T Corp. c/o AT&T Corp. 295 Maple Avenue 1120 20th Street, N.W. Basking Ridge, NJ 07920 Washington, D.C. 20036 Sherille Ismail Joel S. Winnik Federal Communications Commission David L. Sieradzki International Bureau Hogan & Hartson L.L.P. 2000 M Street, N.W., Room 832 555 Thirteenth Street, N.W. Washington, D.C. 20554 Washington, D.C. 20005 David W. Carpenter Colin R. Green Mark D. Schneider Tim Cowen David L. Lawson British Telecommunications plc James P. Young BT Centre A979 Sidley & Austin 81 Newgate Street 1722 Eye Street, N.W. London EC1A7J, England Washington, D.C. 20006

_/S/_James S. Bucholz______James S. Bucholz