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