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                                                           Before the
               FEDERAL COMMUNICATIONS COMMISSION
                    Washington, D.C.  20554
In the Matter of                     )
                                     )
IDB Mobile Communications, Inc.,        )
                                     )
     Complainant,                   )
                                     )
          v.                         )  File No. E-97-48
                                     )
COMSAT Corporation,                 )
                                     )
     Defendant.                         )
                  MEMORANDUM OPINION AND ORDER
     Adopted:  May 22, 2001             Released:  May 24, 2001
By the Commission:
I.     INTRODUCTION
                              I
  1. In this Memorandum Opinion and Order ("Order"), we deny a complaint filed by
  IDB Mobile Communications, Inc. ("IDB") against COMSAT Corporation ("COMSAT")
  pursuant to section 208 of the Communications Act of 1934, as amended ("Communications
  Act" or "Act").  IDB alleges that COMSAT violated sections 201(b) and 202(a) of the
  Communications Act by refusing to reduce the price for certain satellite communications
  services provided under a four-year contract between the parties.  IDB's claims rest on the
  fact that, halfway through the contract period, COMSAT began to provide satellite
  communications services to another entity at a price that was lower than the price contained
  in the IDB/COMSAT contract.  For the reasons described below, we deny IDB's complaint,
  because IDB has failed to meet its burden under the "Sierra-Mobile" doctrine of
  demonstrating that COMSAT harmed the public interest by refusing to reduce the contract
  price at issue halfway through the contract's term.
II.     BACKGROUND
A.   The Parties
  2. This is yet another salvo in the long-running and multi-forum feud between IDB and
  COMSAT.  At all relevant times, IDB provided many international satellite communications
  services, including international maritime satellite services, international aeronautical satellite
  services, and international land mobile satellite services.  COMSAT was a corporation
  created pursuant to the Communications  Satellite Act of 1962 that provided a wide range of
  international satellite communications services.  At all relevant times, COMSAT provided
  such services by, inter alia, combining the capabilities of its land earth stations ("LESs") in the
  United States with satellite capacity purchased from the International Mobile Satellite
  Organization ("INMARSAT").  These services included INMARSAT Standard-A, Standard-
  B, and Standard-M services.
     B.   A Brief Description of the Relevant INMARSAT Services
  3. Fixed-to-mobile INMARSAT Standard-A service is an analog satellite
  communication service that is used, inter alia, to complete transmissions from a fixed land
  location to a mobile maritime terminal installed on a ship.  Fixed-to-mobile INMARSAT
  Standard-B and Standard-M services are digital satellite communications services that are
  typically used to complete transmissions from a fixed land location to a mobile maritime
  terminal.
  4. At all relevant times, a call from an end user in the United States to, for example,
  an end user on an ocean vessel would, if using fixed-to-mobile INMARSAT Standard-A,
  Standard-B, or Standard-M service, typically traverse the following path: (1) from the caller
  in the United States to (2) the caller's interexchange carrier ("IXC") to (3) a land earth station
  in the United States to (4) an INMARSAT satellite to (5) the INMARSAT mobile terminal
  on the ocean vessel.  A call from an end user located outside the United States to an ocean
  vessel could also end up travelling through a LES in the United States, if the caller's IXC
  chose to route the call to such a LES rather than to a LES in another country.  A call that
  originates outside the country in which the LES used is located is called "transit traffic."
  5. At all relevant times, COMSAT was the only entity authorized to provide facilities-
  based INMARSAT Standard-B and Standard-M digital services for the delivery of U.S.-
  originated fixed-to-mobile traffic.  Thus, if IDB wished to provide such services to its own
  end user customers in the United States, it had to purchase both ground segment (i.e., LES
  capacity) and space segment (i.e., satellite capacity) from COMSAT.  By contrast, at all
  relevant times, IDB was authorized to compete with COMSAT in the provision of facilities-
  based INMARSAT Standard-A analog service for the delivery of U.S.-originated fixed-to-
  mobile traffic.  Therefore, if IDB wished to provide this service to its domestic end user
  customers, it could do so by purchasing only space segment from COMSAT and combining
  that with its own LES operations in the United States.
C.   The Contractual Relationship Between IDB and COMSAT
  6. On May 25, 1990, the parties entered into an agreement setting forth the terms and
  conditions under which COMSAT would provide a wide range of INMARSAT satellite
  services to IDB (the "1990 Agreement").  Pursuant to the terms of the 1990 Agreement,
  COMSAT would provide space segment for Standard-A service at a rate of $2.75 for the
  initial 30 seconds and $.548 for each additional six seconds during peak usage hours, and
  $1.40 for the initial 30 seconds and $.28 for each additional six seconds during off-peak
  hours (i.e., $2.80 per minute). The 1990 Agreement also established that COMSAT would
  provide Standard-B and Standard-M services "as soon as these are available via the
  INMARSAT system," and that all new such services would be provided at "comparable
  discounts (e.g., 25%) below COMSAT's tariffed rates."  This Agreement went into effect in
  September 1991, and was to last for five years thereafter, until September 1996.
  7. Over a year prior to the expiration of the 1990 Agreement, IDB sought to
  renegotiate the Agreement's terms.  COMSAT agreed to IDB's request and engaged in
  contract negotiations.  As a result, on June 30, 1995, IDB entered into a new contract
  ("Contract") with COMSAT that superceded the 1990 Agreement.  The new Contract
  concerned many, if not all, of COMSAT's existing INMARSAT satellite services, including
  INMARSAT Standard-A, -B, and  M services, as well as any new INMARSAT service that
  COMSAT might provide in the future.   The new Contract contained lower rates than the 1990
  Agreement.  For example, one rate for INMARSAT Standard-A space segment was reduced
  from $2.80 per minute to $2.55 per minute.  Regarding INMARSAT Standard-B and  M
  services, the new Contract provided that IDB would purchase satellite and LES capacity for
  U.S.-originated fixed-to-mobile traffic at a rate of $3.30 per minute.  This Contract price of
  $3.30 was more than 25% below COMSAT's tariffed rates for these services (i.e., $5.55 for
  Standard-B, $4.95 for Standard-M).  Moreover, the Contract expressly entitled IDB to any
  lower rate that COMSAT might charge other carriers in the future for INMARSAT Standard-B
  and -M services for the delivery of U.S.-originated fixed-to-mobile traffic.  The Contract did
  not mention foreign-originated fixed-to-mobile traffic.
  8. The Contract had a term of approximately four years.  Thus, the Contract did not
  expire until September 2, 1999.  As of the date that the instant complaint was filed (i.e.,
  September 25, 1997), IDB had not purchased from COMSAT any INMARSAT Standard-B or
  Standard-M service for the delivery of U.S.-originated fixed-to-mobile traffic.
D.   IDB's Complaint Against COMSAT
  9. In August 1997, COMSAT began charging a foreign carrier, Cable & Wireless,
  $2.50 per minute for INMARSAT Standard-B and Standard-M services for the delivery of
  foreign-originated fixed-to-mobile traffic.  This was $.80 less than the $3.30 Contract rate for
  the delivery of U.S.-originated traffic.
  10.     On September 25, 1997, approximately halfway through the Contract's term, IDB
  filed the instant complaint.  The complaint alleges that COMSAT violated the Communications
  Act by refusing to lower immediately the Contract's price for INMARSAT Standard-B and  M
  services from $3.30 to $2.50 per minute.
  11.     In particular, the complaint alleges that section 202(a) prohibited COMSAT from
  continuing to charge IDB the Contract price of $3.30 per minute for the delivery of U.S.-
  originated traffic, because COMSAT was simultaneously charging Cable & Wireless $2.50 per
  minute for the delivery of foreign-originated traffic.  IDB premises this claim on the assertion
  that COMSAT's fixed-to-mobile INMARSAT Standard-B and Standard-M services are the
  same for the delivery of U.S.-originated traffic as they are for the delivery of foreign-originated
  traffic.
  12.     IDB also asserts that the Contract price for the delivery of U.S.-originated traffic via
  INMARSAT Standard-B and Standard-M services was unreasonable, in violation of section
  201(b) of the Act, because it was unrelated to COMSAT's underlying costs.  To support this
  claim, IDB points out that (i) INMARSAT's price to COMSAT for satellite capacity was no
  more than $1.50 per minute; and (ii) COMSAT's price to Cable & Wireless of $2.50 per
  minute presumably covered COMSAT's costs.  Therefore, IDB argues that the $3.30 rate at
  which the Contract offered COMSAT's INMARSAT Standard-B and Standard-M services for
  U.S.-originated traffic was "clearly related to COMSAT's monopoly status, not to COMSAT's
  costs."
  13.     For relief, IDB requests a Commission order requiring COMSAT to disregard the
  Contract's price terms and offer IDB the same price for fixed-to-mobile INMARSAT Standard-
  M and Standard-B services that it offers to Cable & Wireless.  In other words, IDB is asking
  the Commission to reform the Contract so that the price at issue for the delivery of U.S.-
  originated traffic matches the price that COMSAT subsequently agreed to charge Cable &
  Wireless for the delivery of foreign-originated traffic.
     III. IDB HAS FAILED TO SATISFY THE HIGH PUBLIC INTEREST STANDARD
     UNDER THE SIERRA-MOBILE DOCTRINE FOR THE MODIFICATION OF
     THE PRE-EXISTING CONTRACT.
     A.   Description of the Sierra-Mobile Doctrine
  14.     Under the Sierra-Mobile doctrine, the Commission may revise the terms of a
  private contract between two carriers concerning communications services.  The
  Commission may do so, however, only when the contract's terms "adversely affect the public
  interest."
  15.     The threshold for demonstrating sufficient harm to the public interest to warrant
  contract reformation under the Sierra-Mobile doctrine is much higher than the threshold for
  demonstrating unreasonable conduct under sections 201(b) and 202(a) of the Act.  Thus, a
  carrier cannot obtain the remedy of contract reformation by showing only that the contract
  requires it to pay an unduly high price for communications services.  Such private economic
  harm, standing alone, lacks the substantial and clear detriment to the public interest required
  by the Sierra-Mobile doctrine.
  16.     There is a well-established reason why the Sierra-Mobile standard for contract
  reformation is high:  preserving the integrity of contracts is vital to the proper functioning of
  the carrier-to-carrier communications market.  Indeed, the long-term health of the
  communications market depends on the certainty and stability that stems from the predictable
  performance and enforcement of carrier-to-carrier contracts.  As one court aptly stated in an
  analogous context, "[i]f the integrity of contracts is undermined, business would be
  transacted without legally enforceable assurances and . . . the market, the industry and
  ultimately the consumer would suffer."
B.   Application of the Sierra-Mobile Doctrine
  17.     All of IDB's assertions that the Commission should reform the Contract under the
  Sierra-Mobile doctrine rest almost entirely on one fact:  two years into the four-year Contract
  term, COMSAT began to charge Cable & Wireless a lower price for INMARSAT Standard-B
  and -M services for the delivery of transit traffic than COMSAT charged IDB under the
  Contract for those services for the delivery of U.S.-originated traffic.  As explained above,
  however, it is well established that, standing alone, a disparity between a long-term contract
  price and a price subsequently offered to someone else fails to justify the remedy of contract
  reformation under the Sierra-Mobile doctrine.  Though IDB doubtless would have preferred
  a lower price for COMSAT's services, such private "harm" does not equate to public interest
  harm.
  18.     Indeed, one primary purpose of long-term contracts is to allocate between the
  parties the risk of future changes in the market price. The seller accepts certain risk that the
  market price will rise, and the buyer accepts certain risk that the market price will fall.
  IDB's request here is that the Commission frustrate this purpose and impose essentially a
  "heads I win, tails you lose" regime in IDB's favor   IDB gets to take advantage of
  subsequent reductions in the market rate, while COMSAT remains locked in to the Contract
  price even if the market rate later rises.  We perceive no public interest in reaching such an
  unfair and harmful result.  Instead, the parties should generally "be required to live with their
  bargains as time passes and various projections about the future are proved correct or
  incorrect."
  19.     In support of its assertion that there is a public interest component to the alleged
  harm, IDB argues that the end-user customers of other IXCs (such as AT&T) to whom
  COMSAT actually charged the same Contract price paid their IXCs more than they should
  have for calls made via COMSAT's INMARSAT Standard-B and -M services.  This
  argument, however, is conclusory and unsupported in the record.  IDB does not "offer any
  evidence (beyond speculation) that . . . ratepayers . . . were adversely affected by the existing
  rates; it did not, for example, even attempt to show how much if any of the rate disparity was
  passed on to [IXC] ratepayers rather than borne by the [IXC] itself."  IDB also does not
  offer any evidence that any price reductions to the IXCs would have been passed through, in
  whole or in part, to the IXCs' end-user customers.  Thus, IDB's bald argument fails to
  support a finding of the requisite harm to the public interest.  As one court assessing similar
  circumstances stated, "a mere rate disparity or a benefit to the purchasing utility or its
  customers from a rate modification does not suffice, without more, to satisfy" the "stringent
  Mobile-Sierra public interest standard."
  20.     There are other reasons why the remedy of contract reformation under the Sierra-
  Mobile doctrine is inappropriate here.  First, the Commission has previously recognized a
  disparity between rates for satellite services for the delivery of U.S.-originated traffic and for
  the delivery of transit traffic, but declined to regulate transit traffic.  Moreover, COMSAT's
  rate for facilities-based INMARSAT Standard-B and Standard-M services for the delivery of
  U.S.-originated fixed-to-mobile traffic was but one of many elements of the Contract.  For
  example, the Contract addressed the provision of a wide range of other satellite services, such
  as space segment for INMARSAT Standard-A services.  Often when parties negotiate a
  contract that addresses such a wide range of products or services, there is some give-and-take
  between issues.  That is, often a party accepts less advantageous terms for the provision or
  purchase of one product or service in exchange for more favorable terms for the provision or
  purchase of another product or service.  We hesitate to reform one element of a contract
  given the possibility of this type of "horse trading."
  21.     This does not end our analysis, however.  IDB correctly points out that the public
  interest might be harmed if we were to enforce a contract term obtained through abuse of
  market power.  IDB asserts that COMSAT obtained the Contract rates at issue here through
  the abuse of market power.  IDB bases that assertion solely on the fact that, at the time the
  Contract was negotiated, COMSAT was the only provider of facilities-based INMARSAT
  Standard-B and -M services for the delivery of U.S-originated fixed-to-mobile traffic.  For
  the following reasons, we conclude that IDB has failed to meet its burden of demonstrating
  that COMSAT obtained the contested Contract rates through abuse of market power.
  22.     In order for an entity to abuse market power, it must first possess market power.
  Assessing whether an entity possesses market power is a difficult task.  The essential first
  step in that task is precisely defining the particular product or service market over which the
  entity allegedly has power.  According to one classic iteration of this step, "[t]he outer
  boundaries of a product market are determined by the reasonable interchangeability of use or
  the cross-elasticity of demand between the product itself and substitutes for it."  In other
  words, a properly defined product or service market includes not only the specific product or
  service at issue, but also any reasonable substitutes.
  23.     IDB ignores this threshold step in assessing COMSAT's alleged market power.
  Although IDB has the burden of showing an absence of available substitutes for these
  products, IDB makes no effort to demonstrate that facilities-based INMARSAT Standard-B
  and Standard-M services for the delivery of U.S.-originated fixed-to-mobile traffic, by
  themselves, constituted a distinct product market during the relevant period.  In particular,
  IDB fails to submit any evidence that there existed in 1995 no reasonable substitutes for such
  INMARSAT Standard-B and Standard-M services.
  24.     This dearth of record evidence is fatal to IDB's assertion, because the lack of
  reasonable substitutes, for market definition purposes, is far from self-evident.  In fact, the
  record contains some evidence indicating that facilities-based INMARSAT Standard-A
  service for the delivery of U.S.-originated fixed-to-mobile traffic   which IDB itself
  provided   was at least one potentially reasonable substitute for INMARSAT Standard-B
  and Standard-M services; and IDB makes no claim that the Contract price for INMARSAT
  Standard-A space segment was skewed by market power or in any other way unreasonable.
  Furthermore, in a related vein, IDB proffers no evidence to rebut COMSAT's contention that
  COMSAT's bargaining power was circumscribed by the possibility that abusively high prices
  for facilities-based INMARSAT Standard-B and  M services would have caused IDB to seek
  authorization to provide such services itself, which IDB had already done with respect to
  INMARSAT Standard-A services (and which IDB ultimately did do on the day after it filed
  this complaint).  Therefore, the record does not permit us to conclude that COMSAT had
  market power in any material market, which, in turn, precludes us from concluding that
  COMSAT abused market power such that we should reform the Contract under the Sierra-
  Mobile doctrine.
  25.     In any event, to the extent that the record speaks at all to the issue of COMSAT's
  conduct during the Contract's formation, it suggests no abuse of any market power.  For
  example, COMSAT agreed to renegotiate the parties' pre-existing 1990 Agreement even
  though over a year remained on the Agreement's term.  In addition, COMSAT agreed in the
  new Contract to lower rates than were specified in the 1990 Agreement.  Moreover,
  COMSAT agreed in the new Contract to give IDB any lower rate for U.S.-originated traffic
  that COMSAT might give in the future to some other carrier.  Furthermore, the Contract's
  rates were substantially lower than COMSAT's contemporaneous tariffed rates.  Finally,
  IDB proffered no evidence in the record that, during the Contract negotiations or shortly
  thereafter, IDB ever complained internally, to COMSAT, or to the Commission that the
  negotiation process or the Contract's rates were abusive or unfair.  Thus, the record fails to
  justify a conclusion that COMSAT obtained the Contract rates at issue through abuse of
  market power.
  26.     In sum, IDB has not submitted sufficient record evidence to demonstrate that
  COMSAT harmed the public interest by refusing, mid-way through the Contract's term, to
  reduce the Contract's rates for facilities-based INMARSAT Standard-B and  M services for
  the delivery of U.S.-originated fixed-to-mobile traffic.  Accordingly, IDB has failed to
  establish entitlement to reformation of the Contract under the Sierra-Mobile doctrine.  Thus,
  we deny IDB's complaint in its entirety.
                           IV.     ORDERING CLAUSE
  27.     ACCORDINGLY,  IT IS ORDERED, pursuant to sections 1, 4(i), 4(j), 201, 202,
  and 208 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j),
  201, 202, 208, that the above-captioned formal complaint filed by IDB Mobile
  Communications, Inc. against COMSAT Corporation IS DENIED IN ITS ENTIRETY, and
  this proceeding is TERMINATED WITH PREJUDICE.
                         FEDERAL COMMUNICATIONS COMMISSION
                         Magalie Roman Salas
                         Secretary