a

GAO

United States Government Accountability Office

Report to Congressional Requesters

September 2004 TELECOMMUNICATIONS

Intelsat Privatization 

and the 

Implementation of the 

ORBIT Act

GAO-04-891
www.gao.gov/cgi-bin/getrpt?GAO-04-891.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Mark Goldstein 

at (202) 512-2834 or goldsteinm@gao.gov. 

Highlights of GAO-04-891, a report to 

congressional requesters 

September 2004

TELECOMMUNICATIONS 

Intelsat Privatization and the 

Implementation of the ORBIT Act 

In 2000, the Congress passed the 

Open-market Reorganization for 

the Betterment of International 

Telecommunications Act (ORBIT 

Act) to help promote a more 

competitive global satellite services 

market. The ORBIT Act called for 

the full privatization of INTELSAT, 

a former intergovernmental 

organization that provided 

international satellite services. 

GAO agreed to provide federal 

officials’ and stakeholders’ views 

on (1) whether the privatization 

steps required by the ORBIT Act 

have been implemented and 

whether there were potential 

inconsistencies between ORBIT 

Act requirements and U.S. 

obligations made in international 

trade agreements; (2) whether 

access by global satellite 

companies to non-U.S. markets has 

improved since the enactment of 

the ORBIT Act and, if so, to what is 

this generally attributed; and (3) if 

any market access problems 

remain, what role does the Federal 

Communications Commission 

(FCC) have in addressing those 

problems under the ORBIT Act. 

Most of INTELSAT’s privatization steps have taken place and a variety of 

stakeholders told us that implementation of the ORBIT Act was not 

inconsistent with the commitments that the United States made in 

international trade agreements. In July 2001, INTELSAT transferred its 

satellite and financial assets to a private company. FCC determined that this 

and other actions satisfied the ORBIT Act requirements for INTELSAT’s 

privatization but noted that the company must hold an initial public offering 

(IPO) of securities by a required date. The current deadline for the IPO is 

June 30, 2005. Because Intelsat has not completed the IPO, some satellite 

companies assert that privatization is not fully complete. Some parties have 

pointed out that there was a possibility that implementation of the ORBIT 

Act could have given rise to action arguably inconsistent with commitments 

that the United States made in international trade agreements. However, we 

were told that actual implementation avoided such outcomes and no 

disputes arose. 

Most stakeholders and experts that GAO spoke with believe that access to 

non-U.S. satellite markets has improved, but few attribute this improvement 

to the ORBIT Act. These stakeholders and experts said that global trade 

agreements, such as the WTO’s basic telecommunications commitments, and 

the global trend towards privatization of telecommunications companies 

have improved access in non-U.S. markets. Several stakeholders and 

experts told GAO that improvements in market access were already 

underway when the Congress passed the ORBIT Act and that the act has 

complemented ongoing trends towards more open satellite markets. 

Some satellite companies report continuing market access problems, but 

there are disagreements regarding whether FCC should investigate and 

resolve these problems. Some satellite companies that GAO spoke with 

report problems with access to non-U.S. satellite markets, which they 

attribute to countries with policies that favor domestic and regional satellite 

companies, countries exercising control over content, bureaucratic 

processes in various countries, and long-term business relationships 

between INTELSAT and various telecommunications companies. Most 

companies GAO spoke with report that Intelsat does not take active steps to 

acquire preferential or exclusive market access, and Intelsat itself stated that 

it does not seek nor, if offered, would accept preferential market access. 

Finally, some companies suggest that FCC should take a more proactive role 

in investigating market access problems, rather than assuming an 

adjudicative role. FCC said that evidence provided to the agency has not 

been sufficient to warrant action and also suggested that trade disputes are 

more appropriately addressed by the United States Trade Representative. 

We provided a draft of this report to four government agencies and five 

private companies for review and comment. Their comments are 

summarized in the letter of this report. 
Page i GAO-04-891 Telecommunications

Contents

Letter 1

Results in Brief 2

Background 5

Most INTELSAT Privatization Steps Have Taken Place and 

Stakeholders Stated That Implementation of the ORBIT Act Was 

Not Inconsistent with U.S. Obligations in International Trade 

Agreements 8

Stakeholders Attribute Recent Improvements in Market Access to 

Global Trade Agreements and Privatization Trends, Rather Than 

the ORBIT Act 13

Some Companies Say That Market Access Challenges Remain and 

Suggest More FCC Action under the ORBIT Act to Address These 

Issues 13

Agency Comments 17

Industry Comments 17

Appendixes

Appendix I: Discussion of Comments from SES Americom 20

Appendix II: Comments from the Department of Commerce 21

Table Table 1: Former Signatory and Nonsignatory Ownership of Intelsat, 

Ltd., as of Privatization in July 2001 and May 2004 11
Contents

Page ii GAO-04-891 Telecommunications

Abbreviations

EC European Commission

EU European Union

FCC Federal Communications Commission

GATS General Agreement on Trade in Services

IPO Initial public offering

ITSO International Telecommunications Satellite Organization

NTIA National Telecommunications and Information Administration

ORBIT Act Open-market Reorganization for the Betterment of 

International Telecommunications Act

SEC Securities and Exchange Commission

USTR United States Trade Representative

WTO World Trade Organization

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Page 1 GAO-04-891 Telecommunications

United States Government Accountability Office

Washington, D.C. 20548

A

September 13, 2004 Letr

Congressional Requesters:

INTELSAT was created as an intergovernmental organization designed to 

bring satellite services—such as international telephone calls and relay of 

television signals internationally—to countries around the world.1

 As an 

operator of an international network of communications satellites, 

INTELSAT was capitalized and controlled primarily by the designated 

signatories2

 of the governments that entered into the agreement to form 

INTELSAT. Due to its intergovernmental nature, INTELSAT benefited from 

many privileges that privately owned companies do not enjoy. During the 

1990s, there was considerable criticism from new commercial satellite 

companies focused on the difficulty of competing against a company with 

the advantages that flowed from INTELSAT’s intergovernmental status. At 

about the same time, decision-makers within INTELSAT began to believe 

that its intergovernmental structure led to a slow decision-making process 

that did not enable INTELSAT to be sufficiently nimble in the increasingly 

dynamic global communications marketplace. 

In 2000, the Congress passed the Open-market Reorganization for the 

Betterment of International Telecommunications Act3

 (ORBIT Act) to help 

promote a more competitive global satellite communication services 

market. The ORBIT Act called for the full privatization of INTELSAT and 

imposed certain criteria on the nature of INTELSAT’s privatization. You 

asked us to provide information related to the implementation of the 

ORBIT Act and the status of market access for global satellite companies in 

countries around the world. Specifically, this report provides federal 

officials’ and stakeholders’ views on (1) whether the privatization steps 

required by the ORBIT Act have been implemented and whether there were 

potential inconsistencies between ORBIT Act requirements and U.S. 

1

The impetus for the creation of Intelsat was enactment of the Communications Satellite Act 

of 1962, which chartered Comsat Corporation and, from 1964 until 1971, fostered the 

development of interim Intelsat agreements and operations. A formal Intelsat agreement, 

with annexes, and the Intelsat operating agreement, were agreed to in Washington, D.C., on 

August 20, 1971, and entered fully into force on February 12, 1973.

2

Each country designated a company—typically a government-owned telephone provider—

to be the country’s signatory to Intelsat. The signatories provided investment dollars to 

Intelsat, which operated a fleet of satellites on their behalf.

3

Pub. L. 106-180, 114 Stat. 48 (2000).
Page 2 GAO-04-891 Telecommunications

obligations made in international trade agreements; (2) whether access by 

global satellite companies to non-U.S. markets has improved since the 

enactment of the ORBIT Act and, if so, to what is this generally attributed; 

and (3) if any market access problems remain, what role does the Federal 

Communications Commission (FCC) have in addressing those problems 

under the ORBIT Act. In addition, you asked us to provide information 

related to the tax status of INTELSAT prior to privatization as well as the 

current tax treatment of multinational corporations. As we agreed, we are 

issuing a separate report to you on these tax issues.

To respond to the three objectives of this report, we conducted semistructured interviews with a variety of industry participants. We 

interviewed five satellite service providers and six scholars and attorneys 

who specialize in the regulatory and market access issues related to 

satellite communications. We selected scholars and attorneys based on 

their recently published articles or speeches on competition in the satellite 

services market. We also interviewed officials from FCC; the United States 

Trade Representative (USTR); the Department of State; the National 

Telecommunications and Information Administration (NTIA); and the 

International Telecommunications Satellite Organization, an 

intergovernmental entity formed when INTELSAT privatized that works to 

ensure that satellite service is available to countries that might not 

otherwise have access to such services. We also reviewed key documents, 

including relevant provisions of the Communications Satellite and ORBIT 

acts, and other relevant documents obtained from FCC, USTR, and NTIA 

about the ORBIT Act and related concerns about market access in non-U.S. 

markets. Using FCC’s Electronic Comment Filing System, we searched for 

filings on market access concerns and checked for any other such 

complaints filed with the agency. We also searched for any complaints on 

market access issues that might be filed with USTR and NTIA. We did not 

verify the reliability of these complaint data because these issues were not 

material to the primary focus of this report.

We conducted our review from February through June 2004 in accordance 

with generally accepted government auditing standards.

Results in Brief Two months before INTELSAT’s privatization in 2001, FCC determined that 

the privatization would be in accordance with the ORBIT Act; in addition, 

we were told that the implementation of the act was not inconsistent with 

the commitments that the United States made in international trade 

agreements. Based on its determination, FCC granted licenses that 
Page 3 GAO-04-891 Telecommunications

authorized a U.S. subsidiary of Intelsat,4 Ltd.—the newly privatized 

company—to provide services within the United States, but conditioned 

that licensing on the company holding an initial public offering (IPO) of 

securities, as required under the ORBIT Act, by a required date.5

 Although 

most of the officials of competitive satellite companies and experts that we 

interviewed agree with FCC’s finding that INTELSAT privatized according 

to the requirements of the ORBIT Act, some of them also believe that the 

privatization will not be fully complete until the IPO is held. On August 16, 

2004, Intelsat, Ltd. announced that its Board of Directors approved the sale 

of the company to a consortium of four private investors. According to an 

Intelsat official, this transaction, if approved, would eliminate former 

signatories’ ownership in Intelsat. Additionally, some parties have pointed 

out that there was a possibility that implementation of the ORBIT Act could 

have given rise to action arguably inconsistent with commitments that the 

United States made in international trade agreements. However, we were 

told that actual implementation avoided such outcomes and no disputes 

arose.

Most stakeholders and experts that we spoke with believe that access to 

non-U.S. satellite markets has improved, but few attribute this 

improvement to the ORBIT Act. These stakeholders and experts said that 

global trade agreements, such as the WTO’s basic telecommunications 

commitments, and the global trend towards privatization of 

telecommunications companies have improved access in non-U.S. markets. 

As such, most stakeholders and experts that we spoke with believe that 

improvements in market access were already underway when the Congress 

passed the ORBIT Act and that the act has complemented ongoing trends 

towards more open satellite markets.

Although access to markets has improved, some satellite companies have 

stated that market access problems still exist and parties disagree about 

the extent to which FCC should take action to address these problems. For 

4

The official name of the intergovernmental organization was INTELSAT—all capital letters. 

After privatization, the privatized company is known as Intelsat. As such, we make this 

distinction throughout this report.

5

The requirement for a public offering is covered in a portion of the act that deals with the 

larger matter of Intelsat’s conversion to a stock corporation. The IPO provision requires that 

Intelsat be incorporated as a national corporation or similar accepted commercial structure 

for which an initial public offering is to be conducted. This is then to result in shares being 

listed for trading on one or more major stock exchanges with transparent and effective 

securities regulation.
Page 4 GAO-04-891 Telecommunications

the most part, these problems are attributed to policies of foreign 

governments that may have the effect of making entry into their country 

costly and time-consuming for some satellite providers. Additionally, some 

companies attribute any continuing preference that governments and 

foreign telecommunications companies may have for doing business with 

Intelsat, Ltd., to the long-standing business relationships that were forged 

over a long period of time and to the continued investment that some 

international telecommunications companies have had in Intelsat, Ltd. 

While some satellite companies believe that FCC should be taking a more 

proactive approach toward addressing any remaining market access 

problems in non-U.S. markets, FCC has stated that the concerns and 

complaints about market access issues it has received have not been of 

sufficient specificity to warrant an FCC proceeding. Moreover, FCC has 

noted that concerns about market access would generally be more 

appropriately handled by USTR. USTR has received no complaints about 

access problems by satellite companies in non-U.S. markets in either their 

annual review of compliance with telecommunications trade agreements, 

or in comments solicited in the context of ongoing WTO services 

negotiations.

We provided a draft of this report to the Federal Communications 

Commission (FCC), the Department of State, the National 

Telecommunications and Information Administration (NTIA) of the 

Department of Commerce, and the United States Trade Representative 

(USTR) for their review and comment. FCC did not provide comments. 

USTR and the Department of State provided technical comments that were 

incorporated into the report. NTIA also provided technical comments that 

were incorporated into the report as appropriate and also sent formal 

comments in a letter, which appears in appendix II. In its formal comments, 

NTIA stated that they generally agree with the findings of our report and 

remain interested in developments regarding Intelsat’s further plans to 

pursue a private equity buyout. 

We also invited representatives from five companies to review and 

comment on a draft of this report. These companies included: Intelsat, Ltd.; 

Lockheed Martin Corporation; PanAmSat Corporation; SES Americom Inc.; 

and New Skies Satellite N.V. New Skies and PanAmSat did not provide 

comments on the draft report. Both Lockheed Martin and Intelsat provided 

technical comments that were incorporated as appropriate. SES Americom 

provided both technical comments—which we addressed as appropriate—

and substantive comments that expressed concerns about our 
Page 5 GAO-04-891 Telecommunications

characterization of some of the issues discussed in this report. Their 

substantive comments are discussed in appendix I.

Background The Congress passed the Communications Satellite Act of 1962 to promote 

the creation of a global satellite communications system. As a result of this 

legislation, the United States joined with 84 other nations in establishing 

the International Telecommunications Satellite Organization—more 

commonly known as INTELSAT—roughly 10 years later.6

 Each member 

nation designated a single telecommunications company to represent its 

country in the management and financing of INTELSAT. These companies 

were called signatories to INTELSAT, and were typically governmentowned telecommunications companies, such as France Telecom, that 

provided satellite communications services as well as other domestic 

communications services. Unlike any of the other nations that originally 

formed INTELSAT, the United States designated a private company, 

Comsat Corporation, to serve as its signatory to INTELSAT.

During the 1970s and early 1980s, INTELSAT was the only wholesale 

provider of certain types of global7

 satellite communications services such 

as international telephone calls and relay of television signals 

internationally.8 By the mid-1980s, however, the United States began 

encouraging the development of commercial satellite communications 

systems that would compete with INTELSAT.9

 In 1988, PanAmSat was the 

first commercial company to begin launching satellites in an effort to 

develop a global satellite system. Within a decade after PanAmSat first 

entered the market, INTELSAT faced global satellite competitors. 

Moreover, intermodal competition emerged during the 1980s and 1990s as 

6

By the time Intelsat privatized in 2001, 148 countries had become parties to the 

intergovernmental organization.

7

Some other satellite companies provided fixed satellite services between some countries, 

but INTELSAT was the only provider at that time that could provide service to all parts of 

the globe.

8

While Intelsat was the only provider at that time of what is called global fixed satellite 

services—that is, services provided between fixed points on land—another global satellite 

organization that was also formed based on amendments to the Communications Satellite 

Act, provided global maritime satellite communications. This organization is commonly 

known as Inmarsat.

9

See Presidential Determination Number 85-2 (1984).
Page 6 GAO-04-891 Telecommunications

fiber optic networks were widely deployed on the ground and underwater 

to provide international communications services. 

As competition to INTELSAT grew, there was considerable criticism from 

commercial satellite companies because they believed that INTELSAT 

enjoyed advantages stemming from its intergovernmental status that made 

it difficult for other companies to compete in the market. In particular, 

these companies noted that INTELSAT enjoyed immunity from legal 

liability and was often not taxed in the various countries that it served. By 

the mid-1990s, competitors began to argue that for the satellite 

marketplace to become fully competitive, INTELSAT would need to be 

privatized so that it would operate like any other company and no longer 

enjoy such advantages. At about the same time, INTELSAT recognized that 

privatization would be best for the company. Decision-makers within 

INTELSAT noted that the cumbersome nature of the intergovernmental 

decision-making process left the company unable to rapidly respond to 

changing market conditions. In 1999, INTELSAT announced its decision to 

privatize and thus become a private corporation.10

By the late 1990s, the United States government also decided that it would 

be in the interests of consumers and businesses in the United States for 

INTELSAT to privatize. The ORBIT Act, enacted in March 2000, was 

designed to promote a competitive global satellite communication services 

market. It did so primarily by calling for INTELSAT to be fully privatized.11

The ORBIT Act required, for example, that INTELSAT be transformed into 

a privately held, for-profit corporation with a board of directors that would 

be largely independent of former INTELSAT signatories. Moreover, the act 

required that the newly privatized Intelsat retain no privileges or other 

benefits from governments that had previously owned or controlled it. To 

ensure that this transformation occurred, the Congress imposed certain 

restrictions on the granting of licenses that allow Intelsat to provide 

10Intelsat agreed to leave in place a residual intergovernmental organization, the 

International Telecommunications Satellite Organization (ITSO), which would monitor the 

performance of Intelsat, Ltd.’s remaining public service obligations. In particular, after the 

privatization, Intelsat, Ltd. was tasked with maintaining global connectivity and honoring 

connectivity obligations that had been made by the intergovernmental INTELSAT to 

customers in countries that have low per capita income or that have a relatively low level of 

telecommunications facilities per capita and that have a high degree of dependence on 

Intelsat for their communication needs.

11The act also pertained to Inmarsat. A discussion of Inmarsat’s privatization is outside the 

scope of this report.
Page 7 GAO-04-891 Telecommunications

services within the United States. The Congress coupled the issuance of 

licenses granted by FCC to INTELSAT’s successful privatization under the 

ORBIT Act. That is, FCC was told to consider compliance with provisions 

of the ORBIT Act as it made decisions about licensing Intelsat’s domestic 

operations in the United States. Moreover, FCC was empowered to restrict 

any satellite operator’s provision of certain new services from the United 

States to any country12 that limited market access exclusively to that 

satellite operator.13

Market access for satellite firms to non-U.S. markets was also affected by 

trade agreements that were negotiated during the 1990s. Specifically, the 

establishment of the World Trade Organization (WTO) on January 1, 1995, 

with its numerous binding international trade agreements formalized global 

efforts to open markets to the trade of services. Since that time, WTO has 

become the principal international forum for discussion, negotiation, and 

resolution of trade issues. For example, the first global trade agreement 

that promotes countries’ open and nondiscriminatory market access to 

services was the General Agreement on Trade in Services (GATS), which 

provides a legal framework for addressing barriers to international trade 

and investment in services, and includes specific commitments by member 

countries to restrict their use of these barriers. Since adoption of a basic 

telecommunications services protocol by the GATS in 1998, 

telecommunications trade commitments have also been incorporated into 

the WTO rules. Such commitments resulted in member countries agreeing 

to open markets to telecommunications services, such as global satellite 

communications services. 

12This provision was limited to those countries that were not members of the WTO.

13Additionally, once INTELSAT was privatized under provisions of the ORBIT Act, Comsat 

Corporation’s role as the U.S. signatory to the Intelsat Operating Agreement was ended.
Page 8 GAO-04-891 Telecommunications

Most INTELSAT 

Privatization Steps 

Have Taken Place and 

Stakeholders Stated 

That Implementation 

of the ORBIT Act Was 

Not Inconsistent with 

U.S. Obligations in 

International Trade 

Agreements 

FCC determined that INTELSAT’s July 2001 privatization was in 

accordance with the ORBIT Act’s requirements and licensed the new 

private company to provide services within the United States. FCC’s grant 

of these licenses was conditioned on Intelsat holding an initial public 

offering (IPO) of securities by October 1, 2001. The Congress and FCC have 

extended this date three times and the current deadline for the IPO is June 

30, 2005.14 Because Intelsat has not yet completed the IPO, some competing 

satellite companies have stated that the privatization is not fully complete. 

Some parties have pointed out that there was a possibility that 

implementation of the ORBIT Act could have given rise to action arguably 

inconsistent with commitments that the United States made in 

international trade agreements. However, we were told that actual 

implementation avoided such outcomes and no disputes arose.

Most Stakeholders Believe 

INTELSAT’s Privatization Is 

Consistent with the ORBIT 

Act’s Requirements, but the 

IPO Remains a Final Step

On July 18, 2001, INTELSAT transferred virtually all of its financial assets 

and liabilities to a private company called Intelsat, Ltd., a holding company 

incorporated in Bermuda. Intelsat, Ltd. has several subsidiaries, including a 

U.S.-incorporated indirect subsidiary called Intelsat, LLC. Upon their 

execution of privatization, INTELSAT signatories received shares of 

Intelsat, Ltd. in proportion to their investment in the intergovernmental 

INTELSAT.15 Two months before the privatization, FCC determined that 

INTELSAT’s privatization plan was consistent with the requirements of the 

ORBIT Act16 for a variety of reasons, including the following.

• Intelsat, Ltd.’s Shareholders’ Agreement provided sufficient evidence 

that the company would conduct an IPO, which would in part satisfy the 

act’s requirement that Intelsat be an independent commercial entity.

14FCC is authorized to extend the deadline to December 31, 2005, based on its consideration 

of relevant factors.

15In addition, some portion of the intergovernmental Intelsat was owned by nonsignatory—

or “investing”—entities, which also received pro rata shares in the new Intelsat, Ltd.

16FCC’s determination on Intelsat’s privatization followed public notices and proceedings as 

required by the Administrative Procedures Act (5 U.S.C. section 551, et. seq.) and FCC’s 

published procedures, which are codified at 47 C.F. R. pt.1. These procedures afforded other 

interested parties an opportunity to comment and submit information in response to 

Intelsat’s FCC filings. FCC considered these materials in reaching its decision.
Page 9 GAO-04-891 Telecommunications

• Intelsat, Ltd. no longer enjoyed the legal privileges or immunities of the 

intergovernmental INTELSAT, since it was organized under Bermuda 

law and subject to that country’s tax and legal liability requirements.

• Both Intelsat, Ltd. and Intelsat, LLC are incorporated in countries that 

are signatories to the WTO and have laws that secure competition in 

telecommunications services. 

• Intelsat, Ltd. converted into a stock corporation with a fiduciary board 

of directors. In particular, FCC said that the boards of directors of both 

Intelsat, Ltd. and Intelsat, LLC were subject to the laws of Bermuda and 

the United States, respectively, and that the laws of these countries 

require boards of directors to have fiduciary obligations to the company. 

• Measures taken to ensure that a majority of the members of Intelsat, 

Ltd.’s board of directors were not directors, employees, officers, 

managers, or representatives of any signatory or former signatory of the 

intergovernmental INTELSAT were consistent with the requirements of 

the ORBIT Act.

• Intelsat, Ltd. and its subsidiaries had only arms-length business 

relationships with certain other entities that obtained INTELSAT’s 

assets.17 

In light of these findings, FCC conditionally authorized Intelsat, LLC to use 

its U.S. satellite licenses to provide services within the United States.18

However, FCC conditioned this authorization on Intelsat, Ltd.’s conducting 

an IPO of securities as mandated by the ORBIT Act. In December 2003, 

FCC noted that if Intelsat, Ltd. did not conduct an IPO by the statutory 

deadline, the agency would limit or deny Intelsat, LLC’s applications or 

requests and revoke the previous authorizations granting Intelsat, LLC the 

17These entities include New Skies Satellites N.V., a spin-off company created approximately 

1 year before the privatization of Intelsat which received some of INTELSAT’s satellites, and 

the International Telecommunications Satellite Organization, the ongoing 

intergovernmental organization responsible for monitoring Intelsat, Ltd.’s continuing 

“lifeline” obligations, which received start-up funding from INTELSAT when it was 

privatized. 

18In its required annual reports to the Congress on the ORBIT Act, FCC has continued to 

report that Intelsat has complied with ORBIT Act provisions to date.
Page 10 GAO-04-891 Telecommunications

authority to provide satellite services in the United States.19 In March 2004, 

Intelsat, Ltd. filed a registration statement with the Securities and 

Exchange Commission (SEC) indicating its intention to conduct an IPO. 

Since that time, however, the Congress further extended the required date 

by which the IPO must occur. In May 2004, the Congress extended the IPO 

deadline to June 30, 2005, and authorized FCC to further extend that 

deadline to December 31, 2005, under certain conditions. In late May 2004, 

Intelsat withdrew its filing with SEC regarding its registration to conduct 

an IPO.20 On August 16, 2004, Intelsat, Ltd. announced that its Board of 

Directors approved the sale of the company to a consortium of four private 

investors; the sale requires the approval of shareholders holding 60 percent 

of Intelsat's outstanding shares and also regulatory approval. According to 

an Intelsat official, this transaction, if approved, would eliminate former 

signatories’ ownership in Intelsat.

Most companies and experts that we interviewed believe that, to date, 

Intelsat’s privatization has been in accordance with the ORBIT Act’s 

requirements, and some of these companies and experts that we 

interviewed believe that FCC is fulfilling its duties to ensure that the 

privatization is consistent with the act. These parties noted that the ORBIT 

Act set forth many requirements for Intelsat and that most of these 

requirements have been fulfilled. However, some companies and experts 

believe that the IPO is a key element to complete Intelsat’s privatization. 

According to some parties, the IPO would further dilute signatory 

ownership in Intelsat, Ltd. as envisioned by the ORBIT Act, which would 

reduce any incentive that former signatories might have to favor Intelsat 

19The ORBIT Act initially required the IPO to occur by October 2001, and gave FCC 

discretion to extend the IPO deadline to December 31, 2002. That extension was granted. In 

October 2002, the Congress extended Intelsat’s IPO deadline to December 31, 2003, and gave 

FCC authority to further extend this deadline to June 30, 2004. On December 17, 2003, FCC 

extended the deadline for Intelsat’s IPO until June 30, 2004. In both cases, FCC extended the 

IPO deadline based on its determination that market conditions were sufficiently negative to 

warrant an extension. In May 2004, the Congress extended the IPO deadline to June 30, 

2005, and authorized FCC to further extend that deadline to December 31, 2005.

20Inmarsat was also required under the ORBIT Act to hold an IPO of securities, be listed on a 

major stock exchange, and have substantial dilution of former signatory ownership. In a 

February 2004 letter filed with FCC, Inmarsat stated that a majority equity interest of its 

ownership has been sold to nonsignatory shareholders and that it has made a public offering 

of debt securities, which will be traded on the Luxembourg stock exchange. Inmarsat's 

letter maintains that these steps are sufficient to satisfy ORBIT Act requirements regarding 

the IPO, the listing of securities on a major stock exchange, and the dilution of ownership by 

former signatories to Inmarsat. This matter is pending before FCC. 
Page 11 GAO-04-891 Telecommunications

when selecting a company to provide satellite services. Table 1 compares 

Intelsat, Ltd.’s ownership on the day of privatization in 2001 with the 

ownership as of May 6, 2004. As indicated in the table, in May 2004, more 

than 50 percent of Intelsat, Ltd. was owned by the former signatories to the 

intergovernmental INTELSAT; although, as mentioned above, the recently 

announced purchase of Intelsat by four private investors, if approved, 

would eliminate former signatory ownership in Intelsat, according to an 

Intelsat official.

Table 1: Former Signatory and Nonsignatory Ownership of Intelsat, Ltd., as of 

Privatization in July 2001 and May 2004

Source: GAO analysis of Intelsat data.

a

Comsat Corporation is now a wholly-owned subsidiary of Lockheed Martin Corporation, which was 

never a signatory to INTELSAT. Because Comsat Corporation, which was a signatory to INTELSAT, 

still exists as a corporate entity, we have counted these shares as being owned by a former signatory. 

Companies

Former 

signatory

% Investment 

share in July 2001

% Investment share 

in May 2004

Comsat Corporationa Yes 21.8 21.8

Videsh Sanchar Nigam Ltd. Yes 5.4 5.4

France Telecom Yes 4.2 4.2

Telenor Yes 4.1 4.1

British Telecom Yes 3.8 3.8

Teleglobe Yes 3.8 Less than 1 percent

Deutsche Telekom Yes 3.4 3.4

Telecom Italia Yes 2.8 No ownership in 

2004

Embratel Yes 2.3 No ownership in 

2004

Cable and Wireless No 2.0 2.0

Intelsat Global Sales and 

Marketing, Ltd.b

No No ownership in 

2001

3.8

Mirror International No No ownership in 

2001

2.8

Telstra No Not in top 10 in 

2001

1.7

Total of top 10 owners 53.6 53.0

Total all other owners 46.4 47.0

Total former signatory 

ownership

86.1 76.6

Total nonsignatory 

ownership

13.9 23.4
Page 12 GAO-04-891 Telecommunications

Some parties believe that because the current parent company to Comsat was not a signatory, these 

shares should not be counted as shares of an ex-signatory. If they were not, the total former signatory 

ownership share of Intelsat would fall from 76.6 percent to 54.8 percent.

b

The name for Intelsat Global Sales and Marketing, Ltd. is now Intelsat (Bermuda) Ltd. 

Stakeholders Note Potential 

for Inconsistencies between 

ORBIT Act and 

International Trade 

Agreements, but Stated That 

Implementation of the Act 

Was Not Inconsistent with 

Those Agreements 

We were told that there were potential inconsistencies between the ORBIT 

Act and obligations the United States made in international trade 

agreements. In particular, the ORBIT Act set requirements for INTELSAT’s 

privatization that, if not met, could have triggered FCC’s denial of licenses 

that would allow a successor private company to INTELSAT to provide 

services in the United States once that company was incorporated under 

foreign law. Some stakeholders told us that, had this occurred, FCC’s 

actions could have been viewed as inconsistent with U.S. obligations in 

international trade agreements. In fact, on August 1, 2000, following the 

enactment of the ORBIT Act, the European Commission (EC) stated that 

the ORBIT Act raised a general concern regarding its compatibility with the 

U.S. obligations in the WTO. The EC further emphasized that if the act was 

going to be used against European Union (EU) interests, the EU would 

consider exercising its rights to file a trade dispute under the WTO.21

While we were told that potential inconsistencies could have arisen, 

INTELSAT privatized according to the ORBIT Act removing any need for 

FCC to act in a manner that might be inconsistent with U.S. international 

trade obligations, and no trade disputes arose. Most stakeholders we spoke 

with generally stated that the ORBIT Act’s requirements have not conflicted 

with international trade agreements during the privatizations of INTELSAT. 

Officials from FCC, USTR, the Department of State, as well as satellite 

company representatives and experts on telecommunications issues, told 

us that INTELSAT privatized according to the act’s requirements. Several 

stakeholders emphasized that trade disputes had not arisen because 

INTELSAT privatized in accordance with the ORBIT Act. As of June 2004, 

WTO and USTR documentation showed that no trade complaints had been 

filed at the WTO about the ORBIT Act and INTELSAT’s privatization. 

Finally, several stakeholders noted that the act had the effect of 

complementing international trade agreements by seeking to further open 

and liberalize trade in international satellite communications services. 

21A WTO trade dispute arises when a member country believes another member country is 

violating WTO rules—such as by implementing discriminatory measures regarding market 

access—and commences an action within the WTO dispute settlement system.
Page 13 GAO-04-891 Telecommunications

Stakeholders Attribute 

Recent Improvements 

in Market Access to 

Global Trade 

Agreements and 

Privatization Trends, 

Rather Than the ORBIT 

Act

According to most stakeholders and experts we spoke with, access to nonU.S. satellite markets has generally improved during the past decade. In 

particular, global satellite companies appear less likely now than they were 

in the past to encounter government restraints or business practices that 

limit their ability to provide service in non-U.S. markets. All five satellite 

companies that we spoke with indicated that access to non-U.S. satellite 

markets has generally improved. Additionally, four experts that we spoke 

with also told us that market access has generally improved. 

Most stakeholders that we spoke with attributed the improved access in 

non-U.S. satellite markets to the WTO and global trade agreements and the 

trend towards privatization in the global telecommunications industry, 

rather than to the ORBIT Act. Five satellite companies and four of the 

experts that we spoke with said that agreements negotiated through the 

WTO, such as the basic telecommunications commitments, helped improve 

access in non-U.S. satellite markets. Additionally, two of the satellite 

companies and one expert told us that the trend towards privatization in 

the telecommunications industry—such as governments privatizing statecontrolled telephone companies—has helped improve market access. At 

the same time, many stakeholders noted that the ORBIT Act had little to no 

impact on improving market access. According to several stakeholders, 

market access was already improving when the ORBIT Act was passed. 

While some of those we spoke with noted that the ORBIT Act might have 

complemented the ongoing trends in improved market access, only one 

satellite company we interviewed stated that the act itself improved market 

access. This company noted that, by breaking the ownership link between 

state-owned or monopoly telecommunications companies and Intelsat, the 

ORBIT Act encouraged non-U.S. telecommunications companies to 

consider procuring services from competitive satellite companies. 

Some Companies Say 

That Market Access 

Challenges Remain and 

Suggest More FCC 

Action under the 

ORBIT Act to Address 

These Issues

Some satellite companies have stated that some market access problems 

still exist, which they attribute to foreign government policies that limit or 

slow entry. Some of the companies and experts we spoke with attribute any 

continuing preference that governments and foreign telecommunications 

companies may have for doing business with Intelsat to the long-standing 

business relationships that were forged over a period of time. While some 

satellite companies believe that FCC should be taking a more proactive 

approach toward addressing any remaining market access problems in 

non-U.S. markets, FCC has stated that concerns about these issues 

provided to them have not been specific enough to warrant an FCC 
Page 14 GAO-04-891 Telecommunications

proceeding. Additionally, FCC has stated that many concerns about market 

access issues would be most appropriately filed with USTR. USTR has 

received no complaints about access problems by satellite companies in 

non-U.S. markets in either their annual review of compliance with 

telecommunications trade agreements, or in comments solicited in the 

context of ongoing WTO services negotiations. 

Remaining Concerns about 

Market Access Focus 

Largely on Foreign 

Government Regulatory 

Structure

Despite the general view that market access has improved, some satellite 

companies and experts expressed concerns that market access issues still 

exist. These companies and experts generally attributed any remaining 

market access problems to foreign government policies that limit or slow 

satellite competitors’ access to certain markets. For example:

• Some companies and experts we spoke with said that some countries 

have policies that favor domestic satellite providers over other satellite 

systems and that this can make it difficult for nondomestic companies 

to provide services in these countries. For example, we were told that 

some countries require satellite contracts to go first to any domestic 

satellite providers that can provide the service before other providers 

are considered. 

• Some companies and one expert we spoke with said that because some 

countries carefully control and monitor the content that is provided 

within their borders, the countries’ policies may limit certain satellite 

companies’ access to their markets. 

• Several companies and an expert we interviewed said that many 

countries have time-consuming or costly approval processes for satellite 

companies. In particular, we were told that some countries have 

bureaucratic processes for licensing and other necessary business 

activities that make it time-consuming and costly for satellite companies 

to gain access to these markets.22

22Some of those we spoke with who made this point also noted that the same countries may 

have bureaucratic and costly processes for any foreign company—not just satellite or 

telecommunications companies—that wants to do business in their country.
Page 15 GAO-04-891 Telecommunications

Some Stakeholders Believe 

That Legacy Business 

Relationships also 

Contribute to Market 

Access Problems

Some stakeholders believe that Intelsat may benefit from legacy business 

relationships. For approximately 30 years, INTELSAT was the dominant 

provider of global satellite services. Moreover, until 2001, INTELSAT was 

an intergovernmental organization, funded and controlled through 

signatories—often state-controlled telecommunications companies—of the 

member governments. Several stakeholders noted that Intelsat may benefit 

from the long-term business relationships that were forged over the 

decades, since telecommunications companies in many countries will feel 

comfortable continuing to do business with Intelsat as they have for years. 

Additionally, two of the satellite companies noted that because some of 

these companies have been investors in the privatized Intelsat, there may 

be an incentive to favor Intelsat over other satellite competitors. One global 

satellite company told us that Intelsat’s market access advantages continue 

because of inertia—inertia that will only dissipate with time. Two 

stakeholders also noted that because companies—including domestic 

telecommunications providers as well as direct customers of satellite 

services—have plant and equipment as well as proprietary satellite 

technology in place to receive satellite services from Intelsat, it might cost 

a significant amount of money for companies to replace equipment in order 

to use satellite services from a different satellite provider. These legacy 

advantages can make it more difficult for satellite companies to convince 

telecommunications companies to switch from Intelsat’s service to their 

service. 

However, some other companies have a different view on whether Intelsat 

has any preferential or exclusive market access advantages. 

Representatives of Intelsat, Ltd. told us that Intelsat seeks market access 

on a transparent and nondiscriminatory basis and that Intelsat has 

participated with other satellite operators, through various trade 

organizations, to lobby governments to open their markets. 

Representatives of Intelsat, Ltd. also told us that former signatories of 

Intelsat own such small percentages of Intelsat, Ltd. that such ownership 

interests would not likely influence market access decisions in countries in 

which the government still controls the former signatory. Some companies 

and many of the experts that we interviewed told us that, in their view, 

Intelsat does not have preferential access to non-U.S. satellite markets. 

Further, all five satellite companies as well as several experts that we 

spoke with said that they have no knowledge that Intelsat in any way seeks 

or accepts exclusive market access arrangements or attempts to block 

competitors’ access to non-U.S. satellite markets. While Intelsat is the sole 

provider of satellite service into certain countries, we were generally told 

that traffic into some countries is “thin”—that is, there is not much traffic, 
Page 16 GAO-04-891 Telecommunications

and therefore there is little revenue potential. In such cases, global satellite 

companies other than Intelsat may not be interested in providing service to 

these countries. Thus, the lack of competition in some non-U.S. satellite 

markets does not necessarily indicate the presence of barriers to market 

access for competitive satellite companies.

Some Satellite Companies 

and FCC Differ on FCC’s 

Responsibilities under the 

ORBIT Act

Some of the companies we spoke with believe that FCC should take a more 

proactive role in improving access for satellite companies in non-U.S. 

markets. In particular, some satellite companies and an expert we spoke 

with indicated that FCC has not done enough to appropriately implement 

the ORBIT Act because, in their view, the ORBIT Act shifted the burden to 

FCC to investigate and prevent access issues, rather than solely to 

adjudicate concerns brought before it. One satellite company said that 

section 648 of the ORBIT Act, which prohibits any satellite operator from 

acquiring or enjoying an exclusive arrangement for service to or from the 

United States, provides a vehicle for FCC to investigate the status of access 

for satellite companies to other countries’ markets. If FCC were to find a 

violation of section 648, it would have the authority to withdraw or modify 

the relevant company’s licenses to provide services within the U.S. 

market.23 Another satellite company told us that FCC should conduct an 

ORBIT Act inquiry under the privatization sections of the act to address any 

market access issues that might arise if Intelsat has preferential market 

access related to any remaining advantages from its previous 

intergovernmental status. 

Certain other companies, experts, and FCC told us that nothing to date has 

occurred that would require additional FCC actions regarding the 

implementation of the ORBIT Act. FCC officials told us that they do not 

believe that FCC should undertake investigations of market access 

concerns without specific evidence of violations of section 648 of the 

ORBIT Act. While some comments filed with FCC in proceedings on 

Intelsat’s licensing and for FCC’s annual report on the ORBIT Act raise 

concerns about market access, FCC has stated that these filings amount 

only to general allegations and fall short of alleging any specific statutory 

violation that would form a basis sufficient to trigger an FCC enforcement 

action. Some companies and experts that we spoke with agreed that no 

23Section 648 of the ORBIT Act provides that FCC may take actions in the case of new 

exclusive agreements for services if FCC finds that the public interest, convenience, and 

necessity so requires.
Page 17 GAO-04-891 Telecommunications

evidence of a market access problem has been put forth that would warrant 

an FCC investigation under the ORBIT Act. Even the satellite companies 

that complained to FCC in the context of Intelsat’s licensing proceedings 

told us that they had not made any formal complaints of ORBIT Act 

violations or asked FCC to initiate a proceeding on the matter. Additionally, 

FCC told us that broad market access concerns are most appropriately 

handled by USTR through the WTO. USTR has received no complaints 

about access problems by satellite companies in non-U.S. markets in either 

their annual review of compliance with telecommunications trade 

agreements, or in comments solicited in the context of ongoing WTO 

services negotiations.

Agency Comments We provided a draft of this report to the Federal Communications 

Commission (FCC), the Department of State, the National 

Telecommunications and Information Administration (NTIA) of the 

Department of Commerce, and the United States Trade Representative 

(USTR) for their review and comment. FCC did not provide comments. 

USTR and the Department of State provided technical comments that were 

incorporated into the report. NTIA also provided technical comments that 

were incorporated into the report as appropriate and also sent formal 

comments in a letter, which appears in appendix II. In its formal comments, 

NTIA stated that they generally agree with the findings of our report and 

remain interested in developments regarding Intelsat’s further plans to 

pursue a private equity buyout.

Industry Comments We also invited representatives from five companies to review and 

comment on a draft of this report. These companies included: Intelsat, Ltd.; 

Lockheed Martin Corporation; PanAmSat Corporation; SES Americom Inc.; 

and New Skies Satellites N.V. New Skies and PanAmSat did not provide 

comments on the draft report. Both Lockheed Martin and Intelsat provided 

technical comments that we incorporated as appropriate. SES Americom 

provided both technical comments—which we addressed as appropriate—

and substantive comments that expressed concerns about our 

characterization of some of the issues discussed in this report. The 

comments from SES Americom and our response are contained in 

appendix I. 
Page 18 GAO-04-891 Telecommunications

As agreed with your offices, unless you publicly release its contents earlier, 

we plan no further distribution of this report until 15 days after the date of 

this letter. At that time, we will provide copies to interested congressional 

committees; the Chairman, FCC; and other interested parties. We will also 

make copies available to others upon request. In addition, this report will 

be available at no charge on the GAO Web site at http://www.gao.gov. If you 

have any questions about this report, please contact me at (202) 512-2834 

or goldsteinm@gao.gov or Amy Abramowitz at (202) 512-2834. 

Major contributors to this report include Amy Abramowitz, Michael 

Clements, Emil Friberg, Bert Japikse, Logan Kleier, Richard Seldin, and 

Juan Tapia-Videla. 

Mark L. Goldstein

Director, Physical Infrastructure Issues
Page 19 GAO-04-891 Telecommunications

List of Congressional Requesters

The Honorable Ernest “Fritz” Hollings 

Ranking Minority Member

Committee on Commerce, Science and Transportation

United States Senate

The Honorable Conrad Burns, Chairman

Subcommittee on Communications

Committee on Commerce, Science and Transportation

United States Senate

The Honorable Joe Barton, Chairman

Committee on Energy and Commerce

House of Representatives

The Honorable Edward J. Markey

Ranking Minority Member

Subcommittee on Telecommunications and the Internet

Committee on Energy and Commerce

House of Representatives

The Honorable W.J. “Billy” Tauzin

House of Representatives
Page 20 GAO-04-891 Telecommunications

Appendix I

Discussion of Comments from SES AmericomApApenednxidexiIs

SES Americom Inc. provided several comments on the draft report. While 

several were minor technical comments, which we incorporated as 

appropriate, some of the comments were of a more substantive nature. 

This appendix provides a summary of the substantive comments and GAO’s 

response to those comments.

• SES Americom stated that while GAO notes that several companies 

have stated that Intelsat’s privatization is not complete until the IPO 

occurs, GAO fails to note that FCC’s International Bureau has also 

stated this to be the case. 

GAO response: Our discussion of FCC’s authorization of licenses for 

Intelsat to operate in the U.S. makes clear that FCC provided these 

licenses on a conditional basis because the required IPO had yet to 

occur. 

• SES Americom states that GAO’s discussion of possible preferences 

countries and businesses may have for doing business with Intelsat does 

not fully explain why this may occur. While SES notes that GAO 

correctly attributes possible preferences to long term business 

relationships companies/countries may have with Intelsat, SES 

Americom believes that GAO should mention that possible preferences 

also arise because Intelsat’s customers have equipment suitable solely 

for use with Intelsat satellites. 

GAO response: Regarding customer equipment, we mention that 

companies have plant and equipment in place to receive service from 

Intelsat that might cost a significant amount of money to replace, which 

we believe adequately addresses this point. 

• SES Americom states that GAO should preface our discussion of the 

required IPO with the word “equity”. 

GAO response: The ORBIT Act’s requirement for an IPO does not 

specifically state “equity IPO,” but states that Intelsat must hold an “IPO 

of securities.” Nevertheless, in the context of Inmarsat’s required IPO, 

which is also required under the ORBIT Act, FCC is currently reviewing 

this very issue—that is, whether the IPO must be an offering of equity

securities. Thus, FCC’s decision will determine how this will be 

interpreted.
Page 21 GAO-04-891 Telecommunications

Appendix II

Comments from the Department of 

Commerce ApendxiI

(545027)
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