Exhibit 1. Ownership Interests in the Tat-14 Cable Network

EXHIBIT 1. OWNERSHIP INTERESTS IN THE TAT-14 CABLE NETWORK

PARTY Percentage ABS 0.01844 BCTEL 0.23046 BELGACOM 0.00461 BELLSOUTH 0.23046 C&W 8.46298 C&WUSA 0.00461 CARRIER 1 0.78357 COM TECH 0.23046 CONCERT LTD 18.95958 CYTA 0.00461 DTAG 8.34682 ENERGIS 0.23046 ETISALAT 0.23046 FINNET 0.23046 FRANCE TELECOM 8.23067 GTE 1.08226 IXC 0.00461 IXNET 0.23046 JAPAN TELECOM 0.23046 KDDAMERICA 0.23046 KPNQWEST 5.67529 LEVEL 3 2.30684 MARCONI 0.00461 MCI! 12.76065 NTT-WN 0.35584 OTE 2.30684 PGE 4.62991 ROSTELECOM 0.03687 RSLCOM 0.23046 SCNA 0.00461 SINGTEL 0.09679 SONERA 0.09679 SPRINT 4.62991 STAR 0.23046 STARHUB 0.06453 STGC 0.09679 STSE 0.00461 SWISSCOM 3.23607 TBI 0.23046 TDK 2.30684 TELE2 1.09719 TELEGLOBE USA 0.23046 TELENOR 4.62991 TELESUR 0.00922 TELIA 5.67529 TLFN 0.14750 TNA 0.00461 TURK TELEKOM 0.23046 VIATEL 0.46277 VSNL 0.23046 TOTAL 100.00 •

1- EXHIBIT 2. OWNERSHIP INTERESTS IN THE JAPAN-US CABLE NETWORK

PARTY Percentage ACt 0.18149 C&W 3.99274 C&WIDC 1.08893 CAT 0.18149 CHT 0.36298 CONCERT Ltd. 20.87114 CTI 0.18149 Com Tech 0.36298 CWHKTI 0.0000 DACOM 0.0000 001 0.36298 FRONTIER 0.18149 GAL 0.18149 Global One Australia 0.18149 GNG Networks 0.0000 GTE-HTI 0.54446 GTE-INS 1.27042 ISSC 0.18149 IXNet 0.18149 JT 3.99274 KDD 3.99274 KT 0.0000 KPN 0.18149 LEVEL 3 11.61525 MFN 0.72595 New World Tel 0.18149 NEWT&T 0.18149 NTTCom 3.99274 ONSE 0.0000 PACEAST 0.18149 PGE 7.44102 PRIMUS 0.18149 PSINet 3.99274 QWEST 4.35572 RSLCOM 0.18149 SINGTEL 0.54446 SPRINT 5.80762 TELEGLOSE 0.36298 TELSTRA 0.18149 TM 0.36298 TTNet 0.36298 Time Warner Telecom 0.18149 V/ATEL 0.18149 VSNL 0.18149 WILLIAMS 3.99274 WORLDCOM 16.33388 TOTAL 100.00

-20- •

1- EXHmIT 3. OWNERSHIP INTERESTS IN THE PAN-AMERICAN CABLE SYSTEM Party Percentage AMERICATEL 0.30 ANDINATEL 2.71 ANTELECOM 2.44 AT&T 13.90 BSO 1.53 BSI 1.37 C&W 0.00 C&WPANAMA 0.82 CANTV 4.26 CODETEL 0.04 CTC MUNDO 5.15 CTS 0.00 DACOM 0.11 COMTEL 0.02 EMBRATEL 0.65 ENRON 0.20 ENTEL BOLIVIA 2.48 ENTEL CHILE 5.65 ETB 1.28 ICE 0.28 ITDC 0.17 JT 0.10 KDD 0.53 KT 0.24 MCII 9.42 MCIIV 0.88 OTECHEL 0.06 PACIFICTEL 2.81 PGE 0.26 RSLOOM 1.20 SETAR 2.59 SPRINT 5.41 STAR 0.00 STSWTRESCOM 0.09 SWISSCOM 0.12 TELCEL 0.08 TELE 2000 0.04 TELECOM 4.29 TELEGLOBE USA 0.71 TELIA NA 0.29 TELINTAR (N) 0.95 TEllNTAR (B) 0.82 TELPAN 0.00 TELSTRA 0.15 TI 8.91 TLDI 0.39 TLFN 3.37 TLFN-PERU 10.77 TLMX 0.31 TRICOM 0.05 VTR 0.07 WCOM 1.79 TOTAL 100.00

-21- Before the Federal Communications Commission Washington, D.C. 20554

In the Matter of ) ) Review ofCommission Consideration ) IB Docket No. 00-106 ofApplications under the Cable Landing ) License Act )

DECLARATION OF JANUSZ A. ORDOVER AND ROBERT D. WILLIG ON BEHALF OF AT&T CORP. AND ITS AFFILIATES CONCERT GLOBAL NETWORKS USA L.L.C. AND CONCERT GLOBAL NETWORK SERVICES LTD.

1. Janusz A Ordover and Robert D. Willig hereby declare as follows:

I. DECLARANTS AND THEIR QUALIFICATIONS

A. Janusz A. Ordover

2. I am Professor ofEconomics and Director ofthe MA Program at New York Uni-

versity, which I joined in 1973. At New York University, I teach undergraduate and doctoral

level courses in industrial organization economics, the field of economics concerned with

competition among business firms and upon which "antitrust economics" is founded. I have devoted most of my professional life to the study and teaching of industrial organization economics and to its application through antitrust and regulatory law and policy. 3. In July 1991, President George Bush appointed me to the position of Deputy

Assistant Attorney General for Economics in the Antitrust Division ofthe United States Depart ment of Justice ("DOr). In this post, I participated in the drafting of the 1992 Horizontal

Merger Guidelines, which have been widely used by courts and antitrust enforcement agencies.

In addition, I led many merger reviews that employed and developed methodologies to define relevant markets in merger and other cases. I returned to New York University in 1993.

4. I have been actively involved in the formulation of public policy in the telecommunications sector. In particular, I have submitted written and oral testimony for AT&T to the

Federal Communications Commission ("FCC") and to the state regulatory commissions in the

Midwest, New England, and New York on a number of issues, including the pricing of unbun dled network elements, access to bottleneck facilities, bundling of complementary services by regulated firms, and other vertical competitive issues.

5. I have written extensively on a wide range of antitrust and telecommunications topics, such as mergers and joint ventures, predatory conduct and entry barriers. My antitrust articles have appeared in the Yale Law Journal, Harvard Law Review, Columbia Law Review, and many other journals, monographs and books, here and abroad. A full list of my articles and other professional publications and activities is presented in my curriculum vitae, which is attached as Exhibit 1.

6. I have lectured extensively on antitrust topics to the American Bar Association, the International Bar Association, and the Federal Trade Commission ("FTC"). I recently deliv ered lectures to the FTC during its hearings on the Future of Antitrust Enforcement, which were

- 2 - organized by FTC Chairman Robert Pitofsky. I have also lectured on antitrust policy at colleges

and universities in the United States and abroad, and at many conferences and meetings

sponsored by various legal organizations.

7. I have acted as a consultant on antitrust and other competition matters to the DOJ, the FTC, and the post-communist governments of Poland, Russia, and Hungary. I have also consulted for the World Bank and the Organization for Economic Cooperation and Development in Paris. I have acted as a consultant in numerous antitrust lawsuits and investigations, including market definition and anti-competitive conduct matters for the FTC, DOJ and private clients in the United States, Australia, Germany, New Zealand, South Mrica and the European Union. I have extensive experience in the analysis ofcompetitive effects of business strategies, including tying and bundling.

B. Robert D. Willig

8. I am Professor of Economics and Public Affairs at the Woodrow Wilson School and the Economics Department of Princeton University, a position I have held since 1978.

Before that, I was Supervisor in the Economics Research Department of Bell Laboratories. My teaching and research have specialized in the fields of industrial organization, government business relations and welfare theory.

9. I served as Deputy Assistant Attorney General for Economics in the Antitrust

Division ofthe DOJ from 1989 to 1991. I also served on the Defense Science Board task force on the antitrust aspects of defense industry consolidation and on the Governor ofNew Jersey's task force on the market pricing ofelectricity.

- 3 - 10. I am the author of Welfare Analysis ofPolicies Affecting Prices and Products;

Contestable Markets and the Theory ofIndustry Structure (with W. Baumol and 1. Panzar), and numerous articles, including "Merger Analysis, 10 theory, and Merger Guidelines." I am also a co-editor of The Handbook ofIndustrial Organization, and have served on the editorial boards of the American Economic Review, the Journal ofIndustrial Economics and the MIT Press Series on regulation. I am an elected Fellow ofthe Econometric Society and an associate ofThe Center for International Studies.

11. I have been active in both theoretical and applied analysis oftelecommunications

Issues. Since leaving Bell Laboratories, I have been a consultant to AT&T, Bell Atlantic, Telstra and New Zealand Telecom, and have testified before the U.S. Congress, the FCC, and the public utility commissions ofabout a dozen states. I have been on government and privately supported missions involving telecommunications throughout South America, Canada, Europe, and Asia. I have written and testified on such subjects within telecommunications as the scope of competition, end-user service pricing and costing, unbundled access arrangements and pricing, the design of regulation and methodologies for assessing what activities should be subject to regulation, directory services, bypass arrangements, and network externalities and universal service. On other issues, I have worked as a consultant with the FTC, the Organization for Eco nomic Cooperation and Development, the Inter-American Development Bank, the World Bank and various private clients. A full list of my articles and other professional publications and activities is presented in my curriculum vitae, which is attached as Exhibit 2.

-4- II. SUMMARY OF DECLARATION

12. AT&T and Concert have asked us to evaluate the Commission's June 22 Notice of Proposed Rulemaking in IB Docket No. 00-106, In the Matter of Review of Commission

Consideration of Applications under the Cable Landing License Act ("NPRM"). The stated purpose ofthe NPRM is to streamline the Commission's standards and procedures for regulating the entry of submarine cables serving markets in the United States, and thereby to "promote consumer benefits from increased cable capacity and facilities-based competition."l The centerpiece of the Commission's proposal, however, is a trio of "streamlining options" that would expedite entry approval only for applications that met stringent structural conditions, or agreed to abide by operating rules, spelled out in the NPRM. 2

13. While the Commission's attempt to reduce existing regulatory burdens on entry of new submarine cable capacity is laudable, the elaborate regulatory edifice proposed by the

NPRM as an alternative is unjustifiably intrusive and heavy handed. Although oversight ofentry may be justified in certain narrow circumstances, the detailed restrictions on entry proposed in the NPRM for qualification for streamlining are deeply flawed, and are unnecessary in today's market environment.

14. The past few decades have witnessed a general trend toward dismantling of regulatory oversight over entry and capacity expansion in regulated industries. Both regulators and the economics profession have come to recognize that entry of additional capacity is

1 NPRM~3.

2 Id~~ 19-50.

- 5 - normally pro-competitive or neutral, and that regulation of entry generally Imposes high

transaction costs and injures competition.

15. The NPRM has failed to identify any actual competitive risk from the entry of

new submarine cable capacity. A consortium cable, through which as many as several dozen

carriers become independent owners of indefeasible shares in a single cable project, is an

efficient mechanism for mitigating construction risks and capturing the potential scale economies

ofcable size.

16. The NPRM identifies no plausible horizontal competitive concerns from the

construction of new consortium cables. Cable ownership is dispersed and market concentration levels are low. Even on a single typical consortium cable, concentration ratios are low. New and proposed cables typically have as many as 20 or 30 owners, with even the largest individual owner accounting for a relatively small share of total capacity, and with HHI measures of concentration of ownership shares typically below 1,000. The relevant geographic markets served by a submarine cable are broader than the point pairs defined by the cable landing stations, and include large regions within the competitive reach of the landing stations. The relevant product market for submarine cables also includes transport via communications satellites. Data traffic, for which the delays inherent in satellite transport are a much less significant handicap, is growing rapidly, and is becoming the majority of total traffic on almost all international routes

17. Furthermore, the submarine cable market is dynamic and growmg rapidly.

Demand for submarine cable capacity has exploded in recent years: the capacity recently

- 6- installed or now on the planning boards exceeds total industry capacity ofonly a few years ago

by a factor of ten. This rapid growth in demand for cable capacity, and the overlap of interest

between the owners and users of a consortium cable, reduces the relevance of any otherwise

purported entry barriers. Before committing large sums of sunk costs to a consortium cable

project, the proponents of a needed project can obtain volume commitments sufficient to make cost recovery reasonably certain. Because significant entry barriers are thus absent, the threat of potential competition is an effective constraint on the ability of existing cables to extract monopoly rents from their customers, even in markets where static concentration levels might be relatively high.

18. There is also no reason to believe that consortium cables serve as mechanisms for collusion in determining prices, outputs or cable capacity. The opportunity to participate as owner in a proposed consortium cable is open to essentially all carriers on both sides of the water; and the capacity of a proposed cable is limited only by the willingness of potential owner/users to invest in it. Likewise, consortium members act independently in pricing and marketing their capacity. In any event, any attempt to use the consortium structure as an anticompetitive device for raising prices or limiting output would be self-defeating: the absence ofsignificant entry barriers would enable dissatisfied carriers to obtain capacity by building their own cable or helping to sponsor a new build by others instead.

19. The NPRM likewise fails to identify any realistically serious vertical concerns raised by the construction of new consortium cables. Market power in international telecommunications, to the extent it still exists in some markets, arises from the survival of government-owned or government-franchised monopolies in landing stations, backhaul

- 7 - transport, and other complementary inputs, not the wet link itself. Allowing foreign carriers to participate in submarine cable consortia is unlikely to permit the leveraging ofany extant foreign market power into the wet link. Conversely, excluding foreign carriers from participating in submarine cable consortia (even if permitted by the treaty obligations of the United States to other WTO members) would not eliminate the market power of foreign firms in their home markets.

20. The supply of landing stations, backhaul transport, and other complementary inputs needed by submarine cables is effectively competitive ill the United States and, increasingly, ill major foreign telecommunications markets as well. In these competitive markets, attempted vertical foreclosure of competition for the submarine cable link would be a vain effort: investors in a competing cable could simply make arrangements with other landing stations and transport providers.

21. Foreign telecommunications markets run the gamut from highly competitive markets to government-owned or government-franchised monopolies. Even when a foreign firm's home markets lack effective competition, however, excluding the firm from participation in submarine cable consortia is unlikely to improve the competitiveness of the submarine cable industry or improve consumer welfare. Foreign firms that enjoy franchised monopolies in their home markets, without regulatory constraints, may well be able to capture all the monopoly rents available to them without excluding entry by unaffiliated submarine cables.

22. Moreover, regardless of the character of the regulation to which a foreign franchised monopoly is subjected, foreclosure of access to unaffiliated submarine cables is

- 8 - unlikely to improve the profits ofthe foreign firm unless the foreign carrier owns a sole or near majority interest in the totality of the other submarine cables serving the foreign market. A foreign carrier that owns only a small minority interest in one or more of the submarine cables serving its market is likely to lose more in revenue from its landing and backhaul services as a consequence of a foreclosure strategy than it gains in revenue from sale or use of its own capacity in the wet link. Furthermore, refusal to deal with unaffiliated cable companies might violate United States antitrust laws, as well as the foreign country's WTO treaty obligations.

23. The regulatory scheme proposed by the Commission fails to reflect these competitive realities. The three "streamlined" approaches proposed in the NPRM are excessively complex, time-consuming, and intrusive. In particular, they would exclude from any much-needed streamlining the entry of new capacity on structural grounds that are completely unrelated to the likelihood ofanticompetitive conduct or performance. They would also provide an invitation for rivals to exploit the regulatory process to make competitive entry more costly, time-consuming and restricting. Consumers would be the ultimate losers.

24. Instead of the flawed "streamlined" approaches proposed in the NPRM, the

Commission should adopt standards akin to its existing standards for oversight of control of entry and acquisitions by foreign carriers under Section 214 of the Act. All proposals for the construction of new or expanded submarine cable capacity should be presumed to be in the public interest. The Commission should require that any protest against such proposed entry be filed with the Commission in 14 days or less after the sponsors ofthe project file notice ofit. As a workable alternative to its "streamlined" approaches, the Commission should consider adapting the analytical approach developed by the Federal Trade Commission and U. S. Department of

- 9- Justice in their Antitrust Guidelines for Collaborations Among Competitors (issued April 2000).

Then, a proposed submarine cable would be disallowed only if opponents of the project

demonstrate that the project would likely violate these Guidelines. This would be a conservative

standard, since these Guidelines are stringent (and perhaps excessively so, in general).

III. THE COMMISSION SHOULD NOT RESTRICT ENTRY OF NEW SUBMARINE CABLE CAPACITY WITHOUT A SHOWING THAT THE PROPOSED ENTRY WOULD SUBSTANTIALLY LESSEN COMPETITION

25. In deciding whether (and, if so, how) to regulate entry of new submarine cable

capacity, the Commission should begin with the recognition that heavy-handed regulation of

entry ofnew capacity rarely enhances competition or benefits consumers. Entry ofnew capacity

in an existing market is generally beneficial (if firms independent ofthe incumbents control the

new capacity, or if the new capacity is added by incumbent firms that will use it to expand

output). To be sure, there are special cases in theory in which capacity additions undertaken

through joint ventures by competitors can be anticompetitive. See Federal Trade Commission

and u.s. Dept. of Justice, Antitrust Guidelines for Collaborations Among Competitors (issued

April 2000). In most circumstances, however, regulatory efforts to optimize ownership structure

and path ofinvestment in new capacity are more likely to reduce competition as increase it.

26. Regulation is a costly process. The costs go way beyond the fees ofthe brigades

of lawyers, economists, accountants, lobbyists and other experts that carriers must hire to

compete effectively in the regulatory arena. The greatest costs of entry regulation are the

competitive benefits that are forgone when the regulator bars entry, when the regulatory process delays entry, or when the risks, costs and delays ofthe regulatory process deter potential entrants

- 10- from seeking regulatory approval in the first place. These problems are likely to be especially

acute in the submarine cable industry. The rapid and yet uncertain advances in technology

particularly the speed and bandwidth and uses of fiber optic cables - together with the

competitive dynamism of the supply-side of the marketplace - make the profit potential of any

particular submarine cable project risky and insecure. Even a few months ofdelay or uncertainty

in the application process can deter end-user and carrier commitments, and reduce the expected

return from a particular potential new project enough to render it unprofitable.

27. Moreover, the more intrusive the regulation ofentry, the greater the likelihood of

erroneous decisions. Perhaps the greatest deficiency of entry regulation is the imperfect

information available to the regulator. No centralized regulator - no matter how intelligent,

conscientious and well informed - can approach the responsiveness and suppleness of the

feedback loop known as the free market. Nor can any regulator approach the market's

effectiveness in matching the relevant levels ofwillingness-to-pay and the elasticities ofdemand

with the technology and resources available to producers, now and in the future. These

shortcomings ofthe regulatory process are likely to have especially severe impact on an industry

as dynamic and rapidly evolving as the submarine cable industry.

28. The anticompetitive potential of entry regulation is heightened by the incentives

and opportunities it creates for strategic misuse by competitors. Every effective scheme ofentry

regulation runs the risk of misuse as a barrier to pro-competitive entry by the firms whose profits

would be threatened by the proposed competition. In preference to competing in the market, the

threatened suppliers exploit the regulatory process to attempt to barricade their market positions from competition.

- II - 29. The recent administrative litigation over the proposed Japan-United States

consortium cable illustrates these risks. Global Crossing, the promoter of a rival cable between

the two countries, was the primary opponent of the consortium cable. Many of the competitive

harms that Global Crossing alleges would result from the consortium cable-e.g., the potential that the consortium structure would facilitate horizontal restraints on the capacity of the cable

and the price of its services-would, if true, benefit Global Crossing by making its rival private cable more attractive to its potential customers. Likewise, many ofthe smaller participants in the litigation-the putative victims of the bigger carriers' supposed dominance over the submarine cable market and adjacent markets-vigorously opposed the efforts of Global Crossing et al. to delay approval ofthe consortium cable.

30. Other traditional justifications for entry regulation are simply inapplicable here.

For example, one perennial justification for entry regulation has been the supposed need to protect a price-regulated natural monopolist from cream skimming by entrants that would target only the incumbent's most profitable markets or customers. The proponents of entry regulation have offered no evidence that cream skimming ofthis kind has occurred. Nor is there any reason to believe that cream skimming is likely. The Commission does not regulate prices charged by submarine cables, nor impose any universal service obligation on submarine cables to provide any services below cost. Without such an obligation, there is no need for the internal cross subsidies that make a rate structure vulnerable to cream skimming.

31. Another justification historically offered for regulatory restrictions on entry and expansion was the need to ensure that a monopolist subject to cost-of-service rate regulation would not overbuild its rate base. This concern is inapplicable to submarine cables because their

- 12 - rates are not subject to cost ofservice regulation. In any event, the risk ofan inefficiently large or

costly rate base is not a concern in markets where effective competition, actual or potential, is

present. Competitive markets limit prices to the levels sufficient to recover the costs of an

efficiently sized plant; the costs of excessive investment cannot be recovered from ratepayers,

and must be absorbed as a loss by investors in the project

32. Recognizing the large costs and limited benefits of most entry regulation, the

Commission and other federal and state regulatory bodies have eliminated most ofthe traditional regulatory oversight of entry in the telecommunications industry and other network industries.

We understand, for example, that in recent years the Commission has eliminated the requirement of a showing that market demand was sufficient to justify the construction of additional submarine cable capacity; has eliminated its strict regulation of the prices charged for IRU interests in submarine cables; and has extended blanket entry authority under Section 214 of the

Act to all domestic carriers, even dominant domestic carriers.

IV. ENTRY BY CONSORTIUM CABLES IS UNLIKELY TO FACILITATE HORIZONTAL COORDINATION OVER PRICES, OUTPUT, AND CAPACITY

33. Some ofthe main competitive issues raised by Global Crossing in the Japan-U.S. cable case, and reflected in the Commission's NPRM here, involve the alleged possibility that the consortium structure of cable ownership could serve as a facilitating device for horizontal restrictions on price or output by the consortium participants. See NPRM ~ 14. For the reasons discussed below, we believe that these concerns are ill founded.

- 13 - 34. Consortium submarine cables serve the legitimate competitive purpose of

achieving potential economies of scale. Submarine cables have economies of scale because

many of the costs of building a cable are largely unaffected by the throughput capacity of the

cable. These include, for example, the costs of hiring the crews and vessels needed to lay the

cable, building landing stations at each end, and gaining the necessary permits and regulatory

approvals. See Declaration of Thomas K. McInerney ("McInerney Decl.") at ~ 8. These fixed costs comprise a large share of the total cost of a cable. See id. Within a relevant range of output, minimizing the unit costs of cable service thus requires maximizing the capacity and throughput ofthe cable. 3 The consortium model enables both large and small carriers to share in the economies ofscale available from high-throughput cables.

35. Widely accepted principles of market power analysis, reflected in the FTCIDOJ

Antitrust Guidelines for Collaborations Among Competitors and the 1992 Agency Merger

Guidelines, demonstrate that the ownership and management structures of consortium cables achieves this end in a way that raises little competitive concern. Under these guidelines, determining the extent of horizontal market power (if any) turns on several relevant factors, the most important ofwhich are (1) the market shares and measures ofconcentration in the relevant product and geographic market; (2) the magnitude of barriers to entry of new capacity and expansion of existing capacity, both of which affect the ability of buyers to tum to alternate suppliers should the incumbent suppliers raise prices significantly above competitive levels; and

3 Global Crossing's assertion that the existence of single-owner land-line cables disproves the existence of economic benefits from multi-owner submarine cables ignores the much higher density of traffic on domestic cables. These higher traffic densities enable carriers to achieve efficient scale without aggregating the traffic ofmultiple carriers.

- 14- (3) the factors affecting the likelihood coordinated determination ofprice or output levels by the

consortium members. See Agency Horizontal Merger Guidelines §§ 1.5, 2.1-2.2, 3.1-3.4. We

discuss each factor in turn.

A. Markets For International Telecommunications Transport Have Low Concentration

36. Concentration is low in the relevant markets for international telecommunications transport. The FCC has recognized that the relevant geographic markets are generally regional markets, not merely the origin-destination points served by the landing stations ofany individual submarine cable. 4 Indeed, the Commission generally considers three particular regions in analyzing the market for international communications: (1) the trans-Atlantic region; (2) the trans-Pacific region and (3) the trans-Americas region. 5 And this analysis is consistent with the behavior ofinternational telecommunications carriers.

37. As explained by Mr. McInerney, United States carriers provide services to many countries via carriers in third countries through the use of switched hubbing, refile, reorigination

4 See MCI-WorldCom Merger Order ~ 84 ("it is appropriate ... to adopt a regional approach to analyzing the international transport market ... although [international submarine cables] terminate in a select number of countries, they tend to serve entire regions. For example, the TAT-12/13 cable system terminates in the United Kingdom and France, but carriers use this cable system to carry traffic destined for points throughout Europe."). The relevant product market also includes telecommunications satellites. Satellites increasingly are viable substitutes for cable in transmitting data, for which delays and double-hops are much less significant a concern. And we understand that the volume of voice traffic is doubling every 12 months and now generally overwhelms the volume ofvoice traffic. See McInerny Decl. ~1O.

5 Id See also Cathy Hsu, Telecommunications Division, International Bureau Report, 1998 Section 43.82 Circuit Status Data, Table 7 (December 1999) ("FCC Circuit Status Reporf').

- 15 - and transit services. 6 One trade publication reported that new international carriers "now refile

30 to 50 percent of their total international traffic" and that the world's largest international

carriers will be refiling 20 to 25 percent of their traffic by 2000. 7 Indeed, these alternative

arrangements have become so prevalent that a "spot market" for re-routing traffic has emerged

and many geographic regions advertise that they are "hubbing" points that can efficiently direct

traffic from particular locations to other areas in the region. 8 And the Commission recently

found that these "least-cost mechanisms" have put considerable "pressure on above-cost

accounting rates.,,9

38. The concentration ofcapacity ownership in these regions is low. In particular, the

Ill-II market concentration indices in these regions are generally near or below 1000 - under the

threshold of concern recognized in the FTCfDOJ Competitor Collaboration Guidelines and the

DOJIFTC Horizontal Merger Guidelines. 10

6 McInerney Decl. ~ 25. In addition, it is significant that refile, reorigination, and hubbing occur without the knowledge and approval ofthe destination country.

7 M. Scheele & C. Woodall, The Market/or Refile and Transit Services, Telegraphy 1997/1998.

8 McInerney Decl. ~ 26.

9 AT&T-BT JV Order ~ 72. See also AT&T International Non-Dominance Order ~ 51 (noting "increasing availability of ... alternative means for U. S. facilities-based carriers to route their traffic"); MCI-WorldCom Merger Order ~ 117 n.339. ("In addition, carriers have been successful in providing international service through alternative arrangements such as switched hubbing through a third country").

10 Agency 1992 Horizontal Merger Guidelines § 1.51. As noted below, cable governance rules allow each owner ofcable capacity to market and price the use ofits interest separately. For this reason, Ill-II's should be computed by attributing each ownership share to its individual owners, rather than falsely assuming that all capacity on a line is collectively priced and marketed.

- 16- 39. Transatlantic Region. We do not have access to the capacity ownership statistics

for each cable system in this region. However, even assuming that the only existing cable

serving the entire transatlantic region were TAT-14, there would be 50 competing suppliers of

capacity. The HHI market concentration measure calculated from just the capacity shares of

TAT-14 is only 891. 11 An HHI at this level indicates an unconcentrated market.

40. Moreover, recent FCC findings support the conclusion that market concentration in the Trans-Atlantic region is low. The FCC recently approved a joint venture between British

Telecom and AT&T finding that the HHI concentration of ownership among the largest IRU leaseholders of U S.-UK. cable capacity would increase by only 60 points, from 1290 to 1350 and that according to the 1992 Horizontal Merger Guidelines, "a transaction that increases HHI concentration by 60 points on the US.-UK. route would not raise significant competitive concerns.,,12 The FCC further noted that competitive concerns are especially small because of the low barriers to entry into the market in US.-UK. routes. 13

41. Transpacific Region. Again, we do not have access to the capacity ownership statistics for each cable system in this region. However, even assuming that the only existing cable serving the entire transpacific region were the Japan-US consortium cable, there would be

46 competing suppliers of capacity, and the HHI market concentration measure would be only

11 HHI levels are calculated by summing the squares ofeach supplier's market share percentage. This HHI calculation relies on the capacity share data supplied in Mr. McInterney's testimony, Exhibit 1-3.

12 AT&T-BTJVOrder~ 48.

13 See id ~~ 47-48.

- 17 - 1046. 14 An HID at this level is almost in the range (1000 and below) that, ifapplied to the whole

geographic market would indicate an unconcentrated market. 15

42. Transamericas Region. Even assuming that the only existing cable serving the

entire Transamericas region were the Pan-America Cable System, there would be over 50

competing suppliers ofcapacity and an associated HID ofonly 662. 16 Ifthe corresponding HID

market concentration measure, calculated for just this one cable, also applies to the whole

Transamericas region, then that market would be deep into the uncontested range.

43. Put simply, even ifeach ofthese regions were served by a single consortium cable system, there still would be a large number of competing participants in the relevant geographic markets. These data suggest that the levels of market concentration are well below the level of antitrust concern under the 1992 Agency Horizontal Merger Guidelines and the Competitor

Collaboration Guidelines. In reality, each ofthese regions is served by a dozen or more separate cable systems, each with several owners. Thus, the structure of the relevant regional markets appears to have low concentration, with large numbers ofparticipants.

14 This HHI calculation relies on the capacity share data supplied in Mr. Mclnterney's testimony, Exhibit 2.

15 Past FCC orders confirm this finding. In approving a joint venture between British Telecom and AT&T, the FCC found that even when acting together, AT&T and British Telecom do "not have sufficient capacity on any route to exercise market power over rival international carriers" in either the transpacific or transamerica routes. AT&T-BTJVOrder ~ 49.

16 This HHI calculation relies on the capacity share data supplied in Mr. Mclnterney's testimony, Exhibit 3.

- 18 - B. Barriers To New Entry And Capacity Expansion Are Low

44. Static concentration measures, as low as they are, understate the competitiveness ofthe submarine cable industry. Because barriers to entry of new capacity are low, attempts by incumbent owners of submarine cables to extract excessively high prices and monopoly rents from users of cable capacity would lead quickly to the entry of additional capacity on new or existing lines. Entry barriers are low for two reasons.

45. First, demand for submarine cable capacity is exploding. The capacity recently installed or now on the planning boards exceeds total industry capacity ofonly a few years ago by a factor of ten. Mcinerney Decl. ~ 10-14. Even so, the industry is still said to face a large backlog ofunmet demand. Id. 17 This reservoir of demand enables the promoters of new cable projects to assemble coalitions of users, above and beyond the demand already served by existing systems. Id. at ~ 13.

46. Second, before sinking large sums in a consortium cable project, its proponents can obtain the volume commitments needed to make cost recovery reasonably certain. Most participants in a consortium cable project acquire the capacity for their own use, not for resale at the wholesale level. Further, when capacity is acquired for sale or lease to third party carriers, the owner of the capacity can lock in the volume and price terms by multi-year contract with those carriers. Id.

17 See, e.g., File No. SCL-LIC-19981 I 17-00025, In the Matter of AT&T Corp. et al Joint Applicationfor a License to Land and Operate a Submarine Cable Network Between the United States and Japan, Reply of Global Crossing Ltd. (Jan. 26, 1999) at 4-5 (asserting that the capacity provided by consortium cables ("has historically been unable to satisfy the overall market demand for undersea cable capacity"); id. at 10 (asserting that consortium structure of cable ownership "has resulted in acute capacity shortages").

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