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Before the Federal Communications Commission Washington, D.C

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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 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 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
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