S976APR29

TheWeekInCongress.com

Week Ending April 29, 2005

S. 976 striking the Specific Privatization Criteria in ORBIT for Intelsat Separated Entities (New Skies) and Inmarsat and other technical corrections

BRIEF

From an early committee report explaining the history of government involvement in the development of satellite communications:

“In 1962, Congress passed the Communications Satellite Act (the 1962 Act), creating a new organization, the Communications Satellite Corporation (COMSAT), with the specific charter of forming a consortium to operate an international commercial satellite communications system. As a result, COMSAT, and subsequently, the International Telecommunications Satellite Organization (INTELSAT) were established with the assistance of a partnership of nations in Europe, North America, and developing areas of the world. In 1973, INTELSAT was converted into an international treaty organization. At the time of the 1962 Act's passage, it was believed that individual companies were not capable, in those early days of satellite technology, of bearing the financial risk of constructing and operating a global satellite communications system.

Today, INTELSAT is a global communications satellite cooperative with 142 member countries which provides space segment for international telecommunications. It currently operates 20-26 satellites. It is the dominant provider of international `fixed' satellite services (e.g., transoceanic telephone calls, video feeds) and is seeking to expand into a wide array of advanced services.

“In 1978, Congress amended the 1962 Act to add a new title V which provided for U.S. participation in a new intergovernmental entity. In 1979, a similar organization to INTELSAT--the International Maritime Satellite Organization (Inmarsat)--came into existence when 26 member nations signed the Inmarsat Convention and Operating Agreement. Inmarsat developed out of the perceived need for a global maritime communications satellite system that would provide distress, safety and communications services to all seafaring nations in a single cooperative, cost-sharing entity. Inmarsat began providing commercial service in 1982. Today, Inmarsat has 82 member countries and operates eight satellites.

“INTELSAT and Inmarsat are controlled by `Parties' and `signatories.' The Parties, which are the national government members of the INTELSAT and Inmarsat agreements, have ultimate control. The signatories are the owners and operators of the systems. They distribute INTELSAT and Inmarsat services in their own country. The majority of signatories are government-owned or controlled telecommunications monopolies in their own country. For example, France Telecom, which is the dominant provider of telecommunications services in France is the French signatory to INTELSAT and Inmarsat. The signatories are designated by the member countries to own their shares in the IGOs, with ownership based on an individual member country's use of the system. Accordingly, the U.S., the largest user in both systems, currently controls an 18 percent ownership in INTELSAT and a 23 percent ownership in Inmarsat.”

[Footnote 1: Ownership in INTELSAT or Inmarsat may not be an entirely appropriate term as the signatories ownership share is allocated by usage rather than investment and varies over time.]

“COMSAT, the U.S. signatory to INTELSAT and Inmarsat, has the sole right of access to INTELSAT and Inmarsat in the United States. Any private company wishing to use INTELSAT's or Inmarsat's satellites to or from the U.S. must purchase satellite capacity through COMSAT. In this regime, COMSAT buys INTELSAT and Inmarsat capacity and resells it to U.S.-based customers, which include broadcast, private network and long-distance customers (e.g., MCI, AT&T, WorldCom and Sprint which use approximately 80 percent of COMSAT's private line and switched-voice services).”

The bill would move towards privatization and the usual predicted, but not always delivered, reduction in cost to the consumer due to privatization.

Sponsor: Senator Conrad Burns (R-MT)

Vote: Passed Senate by Unanimous Consent (April 28, 2005)

Cost to the taxpayers: No discernible cost.

MORE INFORMATION

ADDITIONAL AND DESSENTING VIEWS (These views are from and about HR 1872, an early version of INTELSAT legislation, but are offered here because they clarify the background of S 976)

ADDITIONAL VIEWS

“We support the pro-competitive, deregulatory goals embodied in H.R. 1872, and we were pleased to support the legislation as it moved through the Commerce Committee. We are deeply concerned, however, about several provisions that were included in the bill when the `Dingell amendment' was accepted during consideration of the bill by the Subcommittee on Telecommunications, Trade and Consumer Protection.

“The `Dingell amendment,' which addresses the terms and conditions under which direct access to intergovernmental satellite organization facilities may be granted, contains two provisions--641(1)(A)(iii) and 641(2)(A)(iii)--which are decidedly at odds with the pro-competitive, deregulatory thrust of H.R. 1872. These provisions, which would direct the Federal Communications Commission (`FCC' or `Commission') to involve itself in the pricing decisions of carriers which are considered by the FCC to be non-dominant, 1

[Footnote] are unnecessary, intrusive, and contrary to the direction that the FCC should be headed with respect to regulation of the telecommunications market. We find it ironic that these ill-advised, regulatory provisions were included in a section of the bill titled `Deregulation and Other Statutory Changes.'

[Footnote 1: The FCC found in its AT&T Non-Dominance Order that no carrier is dominant in the provision of international services. See In the matter of motion of AT&T Corp. to be Declared Non-Dominant for International Service, FCC 96-209, released May 14, 1996.]

“The parties most likely to take advantage of direct access are carriers competing in the international long-distance market. This market is highly competitive, and market forces will provide participants in this market with discipline as they establish their prices. Should these parties obtain direct access, competition will compel them to `flow-through' any cost-savings to their end customers; carriers which fail to do so will inevitably lost market share. Thus, we do not believe there is any compelling rationale for the Commission to involve itself in the area of international long-distance pricing, except to the extent that Commission involvement is necessary to ensure that U.S. carriers are not forced to pay inflated settlements rates to foreign monopolies. 2

[Footnote]

[Footnote 2: See In the Matter of International Settlement Rates, FCC IB 96-261, released August 18, 1997.]

“Legislation that is intended to deregulate the satellite market is an inappropriate vehicle to reregulate the long-distance market, even in the unlikely event that such reregulation was necessary. Accordingly, we strongly urge that these provisions of the `Dingell amendment' be stripped from the bill at some point in the legislative process, and barring that, we urge the Commission to employ the forbearance authority granted it under Section 10 of the Communications Act (47 U.S.C. 160) to refrain from applying the requirements of 641(1)(A)(iii) and 641(2)(A)(iii). Given the many responsibilities facing the Commission, and its limited resources, it would be an inappropriate use of resources for the FCC to spend any time implementing these unnecessary and counterproductive provisions.
Michael G. Oxley,
John Shimkus,
Tom A. Coburn,
Nathan Deal,
Rick White,
Richard Burr.

DISSENTING VIEWS

“On its face H.R. 1872 aims at a worthwhile objective. All agree that more competition is better, whether it is in the satellite industry, the long distance business, local telephone networks or cable TV. We have no argument with this worthy goal. The crux of the problem with this bill is that it will not achieve what it sets out to do. In fact, it will accomplish precisely the opposite. Less competition and higher prices are the unfortunate, but inevitable outcomes of H.R. 1872.

“Where does this well-intentioned bill jump the track? We can point to one simple, but false premise underlying this bill that is responsible for all the infirmities that naturally flow from it. H.R. 1872 starts with the assumption that COMSAT is a monopoly, and, as such, is deserving of all evils that may be bestowed upon it.

The simple truth is that COMSAT is not a monopoly. Yes, it is true that the Government granted COMSAT an exclusive franchise to provide satellite services using INSTELSAT and Inmarsat facilities. But, that is not where the story ends. Today scores of satellite systems compete head to head with INTELSAT and Inmarsat. COMSAT is not the only game in town by a long shot.

“In 1984, President Reagan issued an executive order that put an end to COMSAT's monopoly by authorizing competition in the satellite market. Today COMSAT faces more than 20 highly effective competitors that have combined investments in satellites totaling over $14 billion. In the past four years alone, Wall Street has tripled the value of these competitors' stocks, and their owners now enjoy a combined market value of more than $40 billion. Clearly, investors believe these companies are not shackled on the sidelines, unable to compete against an entrenched monopolist.

“If you choose not to believe the investors, then look at COMSAT's share of the market. These numbers positively refute any lingering doubt that the days of COMSAT's monopoly status have long since passed. Since 1988, COMSAT's market share for voice traffic has plummeted from 70% to 21%. Its share of the video market has dropped precipitously since 1993 from 80% to 42%. If COMSAT is a monopoly, it certainly isn't a very good one.

“This is not to say that the satellite industry should not compete on an even playing field in the international marketplace. if INTELSAT and Inmarsat have any competitive advantages, whether it be in obtaining orbital slots or exclusive access to foreign markets, the correct approach should be to put pressure on the international community to eliminate those advantages. Unfortunately, H.R. 1872 takes the opposite approach and places the burden on COMSAT to correct the ills of the rest of the world, and punishes COMSAT if it doesn't succeed. The fallacy with that approach is that COMSAT has no control over the actions of 141 foreign countries. Hence, the goal of the bill is doomed from the start.

“Worse, if COMSAT is punished for its inability to bring home the gold, the goal of stimulating more competition is compromised even further. By the terms of this bill, COMSAT would be restricted from providing `non-core' services, which are defined as just about everything COMSAT provides today to remain a viable competitor in the market. The curtailment of services dictated by this bill would turn the clock back 30 years to a time when COMSAT was mainly in the business of carrying international telephone calls. Most of the so-called `core' services COMSAT would be permitted to offer have since migrated from satellites to fiber optic cable.

“As a result, COMSAT would be turned into a dinosaur overnight. While it is easy to see how this would benefit COMSAT's competitors, we are at a loss to understand how it would increase competition. To the contrary, the effect would be to remove a competitor from the marketplace. Less competition inevitably leads to higher prices, precisely the opposite goal of the bill.

“If this weren't bad enough, COMSAT would have a legitimate claim for damages against the U.S. Government. The punitive service restrictions contained in this bill are tantamount to the Government imposing capital punishment on COMSAT for a crime committed by somebody else. Through no fault of its own, COMSAT's investment in satellites would be rendered virtually worthless.

Based on specific instructions from the Government, and in reliance on a reasonable expectation of an investment return, COMSAT's shareholders have staked billions of dollars on assets orbiting the sky solely for the purpose of generating revenues now and into the future. When the service restrictions contained in this bill kick in, and they surely will, those stranded assets will be looking for a home, And, of course, U.S. taxpayers will be forced to take them in. The resulting taxpayer liability could run well into the billions of dollars.

“A more extensive discussion of the Government `takings' claim is contained in the `Additional Views of Mr. Tauzin,' Chairman of the Subcommittee on Telecommunications, Trade, and Consumer Protection, included with this report. While that discussion focuses on taxpayer liability stemming from the bill's `fresh look' provisions, which permit the abrogation of private contracts, the arguments contained there are equally relevant to the imposition of service restrictions addressed in these views. An attempt to remove the punitive `fresh look' provisions was narrowly defeated by a 20-23 vote of the Committee.

“The punitive measures on COMSAT, its customers, and the U.S. taxpayers should be eliminated from H.R. 1872. The punishment should be redirected where it belongs: on foreign countries that impede progress toward privatization. The notion that this Committee would put the financial viability of a U.S. company at risk based solely on the actions of a group of foreign countries is simply beyond comprehension. But that is precisely what H.R. 1872, as reported, would accomplish.”
John D. Dingell,
Ron Klink,
Bobby L. Rush,
Albert R. Wynn,
Sherrod Brown.

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