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fyi, more on David Merrill's work product, as well as being a regulatory
issue of interest. mcs ---------------------- Forwarded by Mark Schroeder/LON/ECT on 05/11/2000 11:17 --------------------------- David Merrill@ENRON_DEVELOPMENT 04/11/2000 12:02 To: Robbi Rossi@EES, Michelle Hicks@Enron Communications, <donald_lassere@enron.net<, Anthony Duenner@ENRON COMMUNICATIONS, <bill_white@enron.net< cc: Wayne Gardner/Enron Communications@Enron Communications, Mark Schroeder@ECT, <xi_xi@enron.net<, <roger_estrada@enron.net<, Jae-Moo Lee@ENRON, Craig Clark@Enron Communications, Stephen D Burns/Corp/Enron@ENRON, Mike Dahlke/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Korea: Regulatory Impediment to Bandwidth Trading / Action Plan Our regulatory review team in Korea this week has identified a major regulatory impediment to bandwidth trading in Korea. This describes the problem and outlines a draft strategy to deal with it, with actions shown in blue. Problem: It appears that under the Telecommunications Business Law (as interpreted by the Korea Communications Commission in a recent ruling against MCI), a Specific Services Provider Type 1 (which we want to be) cannot resell International Private Leased Circuits wholesale. Only a Facilities Based provider (Network Services Provider) can do resale of International Leased Lines under the current law. We do not want to be a Network Services Provider because an NSP can not exceed 49% foreign ownership and has immense responsibilities. Factual Background: We want to be a specific services provider Type 1 (reseller with facilities such as servers and switches). Under the law as interpreted in the recent ruling, however, SSPs: - can buy or lease international lines only from NSPs. - cannot sell International Private Leased Circuits to other SSPs, to Value-Added Service Providers (VSPs), or to ISPs. - can sell international capacity only to end users, not to other wholesalers. The recent ruling came about when MCI (not a Network Service Provider) leased international lines from an NSP in Korea and resold them to Goldman Sachs for traffic to Hong Kong. Korea Telecom brought a case against MCI to the Korea Communications Council (KCC) for decision. Kim and Chang, our Enron energy lawyers in Korea, handled the case (they did not disclose to us that MCI was the client). The KCC ruled for KT and against MCI. I'm not sure yet why Goldman Sachs was treated as a wholesaler and not an end user which should have been legal. At this point, however, the situation is that if a foreign company tried to resell IPLCs wholesale, any local NSP could bring a complaint to the KCC, and would run the regulatory risk of being forced to cease. (The sources for this conclusion are Kim and Chang, the Ministry of Info and Communications, and the Korea Information Society Institute, a telecom policy think tank for the Ministry.) Options: (1) Change the law. A revision of the law is drafted but does not fix this and changes are closed for this year. Amendments on the floor of Parliament are impossible in Korea. For a change in law, we would have to try in summer 2001 to get a change in early 2002. Change by Presidential Decree is also possible but is overkill. Not feasible. (2) Get a new interpretation from the Korea Communications Council that says what we plan to do in Korea in bandwidth is OK. We would ask Kim and Chang to present our proposed plans to the KCC before we enter the bandwidth trading (BWT) market. We would describe it in a way that is sufficiently different from the MCI case. Jae Moo made this suggestion. Pro: If we get a favorable ruling we are in business. We do not have money at risk unless the regulatory road is clear. Con: an unfavorable ruling slams the door specifically on us. Recommended Steps: (1) We should explore this option with Kim and Chang. Robbi or Michelle: if you agree, please contact Kim and Chang to discuss this and authorize start of this work if they agree with this approach. I will work with you to develop the scope of work and can operate with Kim and Chang during the work as necessary. (2) We will contact MCI to get more facts on their case including whether they were selling to a wholesaler who sold to Goldman or directly to Goldman. We can say the Ministry mentioned their case. We should probably not be thinking about joint action with MCI at this point as we want to say our case is different if we can. I will explore facts with an MCI contact in Tokyo and Craig will do same in Singapore. (3) Redefine where a sale of IPLCs takes place to have it not be in Korea. Would need legal/commercial creative analysis. Possible but uncertain option. (4) Redefine the product so as not to be a re-sale: If we buy capacity and chop it up into smaller pieces or alter it before we sell it, maybe we are not re-selling what we bought. But we may still have a problem if the new product is sold to wholesalers. Let's explore 3 and 4 above and similar ideas in a conference call. Robbi, can you set up a call on this with me, Donald, you/Michelle, Wayne Gardner, Craig Clark, Roger Estrada, Xi Xi ? (5) Partner/j-v with a local firm already having the NSP status such as KT, SK Telecom, Dacom, etc., or become an NSP. 49% foreign ownership restirction. Huge regulatory filing. Not feasible. Parallel Actions: (1 ) Take issue up with US Trade Representative (telecom) in DC (Jonathan McHale). Also work with local Amcham telecom committee and US Embassy. We should do this in parallel with whatever option we choose. I will work on this with Steve Burns in DC when we are farther along. (2) Work to promote understanding of the merits of BWT for Korea/elsewhere. BWT was never contemplated in the laws and regulations. All our contacts said BWT needed to be explained more widely in Korea to gain support. It is new even to the telecom think tanks. We need to do missionary work on this to develop public opinion. We need to find a noted PhD economist who is a great communicator who can speak to the think tanks in Korea, Singapore, Japan, etc. and give interviews on the merits of BWT for efficiency, promoting investment, etc. This will create the climate for regulators to change. I have one possibility in mind but suggestions of names welcome. I will propose this separately to Anthony later. David
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