```

[Senate Hearing 106-1099]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 106-1099
 
S. 376, OPEN-MARKET REORGANIZATION FOR THE BETTERMENT OF INTERNATIONAL 
                         TELECOMMUNICATIONS ACT
=======================================================================

                                HEARING

                               before the

                     SUBCOMMITTEE ON COMMUNICATIONS

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION
                               __________

                             MARCH 25, 1999
                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

                    U.S. GOVERNMENT PRINTING OFFICE
65-038                       WASHINGTON : 2002
____________________________________________________________________________
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA J. SNOWE, Maine              JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia
                       Mark Buse, Staff Director
                  Martha P. Allbright, General Counsel
     Ivan A. Schlager, Democratic Chief Counsel and Staff Director
               Keven D. Kayes, Democratic General Counsel
                                 ------                                

                     Subcommittee on Communications

                    CONRAD BURNS, Montana, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
SLADE GORTON, Washington             DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi              JOHN F. KERRY, Massachusetts
JOHN ASHCROFT, Missouri              JOHN B. BREAUX, Louisiana
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
SPENCER ABRAHAM, Michigan                Virginia
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SAM BROWNBACK, Kansas                RON WYDEN, Oregon
                                     MAX CLELAND, Georgia

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held March 25, 1999......................................     1
Statement of Senator Breaux......................................    48
Statement of Senator Burns.......................................     1
    Prepared statement...........................................     1
Statement of Senator Cleland.....................................    22
Statement of Senator Gorton......................................    70
    Prepared statement of Senator Hollings.......................    77
    Prepared statement of Senator Lott...........................    76
Statement of Senator McCain......................................     2
    Prepared statement...........................................     3
Statement of Senator Rockefeller.................................     9
    Prepared statement...........................................    10
    Prepared statement of Senator Stevens........................    76

                               Witnesses

Alewine, Betty C., President and Chief Executive Officer, COMSAT 
  Corporation....................................................    28
    Prepared statement...........................................    30
Cuminale, James W., Senior Vice President and General Counsel, 
  PanAmSat Corporation...........................................    24
    Prepared statement...........................................    26
Kullman, Conny, Director General and Chief Executive Officer, 
  INTELSAT.......................................................    54
    Prepared statement...........................................    56
McCann, Vonya B., Ambassador, United States Coordinator, 
  International Communications and Information Policy, U.S. 
  Department of State............................................     5
    Prepared statement...........................................     6
Porter, Roderick Kelvin, Acting Chief, International Bureau, 
  Federal Communications Commission..............................    11
    Prepared statement...........................................    12
    Letter dated April 20, 1999 to Hon. John D. Rockefeller IV...    20
Sponyoe, John, Chief Executive Officer, Lockheed Martin Global 
  Telecommunications.............................................    49
    Prepared statement...........................................    51

                                Appendix

Porter, Roderick Kelvin, Acting Chief, Federal Communications 
  Commission, letter dated April 22, 1999 to Hon. Conrad Burns...    79
Tuttle, F. Thomas, Vice President and General Counsel, Iridium 
  LLC, prepared statement........................................    84
Vos, Richard, Head of International Satellite Consortia for 
  British Telecommunications plc, written testimony..............    81

S. 376, OPEN-MARKET REORGANIZATION FOR THE BETTERMENT OF INTERNATIONAL 
                         TELECOMMUNICATIONS ACT

                              ----------                              

                        THURSDAY, MARCH 25, 1999

                               U.S. Senate,
                    Subcommittee on Communications,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room SR-253, Russell Senate Office Building, Hon. Conrad Burns, 
chairman of the subcommittee, presiding.
    Staff members assigned to this hearing: Maureen McLaughlin, 
Republican counsel; Paula Ford, Democratic senior counsel; and 
Al Mottur, Democratic counsel.

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. We will call the Subcommittee together and 
we will get started. It is a pretty heavy afternoon. There are 
several Senators who want to participate in a briefing later on 
this afternoon, so there is quite a lot of activity.
    I am going to withhold my statement because it is great to 
have the chairman of the full committee here, Senator McCain. 
He, too, is on one of those break-neck kind of schedules. I 
appreciate him coming and I appreciate all of the witnesses 
coming today. This is a very important hearing. This may be the 
hearing that we really need before we go to markup on this 
piece of legislation.
    So, I will withhold my comments. Senator McCain, thank you 
for coming today, and we look forward to your statement.
    [The prepared statement of Senator Burns follows:]
   Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
    I want to welcome everyone to this hearing on international 
satellite communications reform.
    Our efforts on satellite reform this year have been marked by a 
spirit of bipartisanship that has resulted in the ORBIT bill gaining 
widespread support. In fact, I am pleased to announce that the ORBIT 
bill is now cosponsored by a majority of the Commerce Committee. I want 
to thank Chairman McCain and Senators Brownback, Dorgan, Bryan, Wyden, 
Ashcroft, Rockefeller, Hutchison, Abraham, Frist and Cleland for 
cosponsoring my legislation to ensure the rapid privatization of 
INTELSAT.
    When I decided to take on the important challenge of encouraging 
competition through deregulatory measures in the rapidly evolving 
international satellite communications industry, I declared five basic 
principles that would serve as the foundation for this effort:

    (1) The legislation must enhance competion in the global satellite 
communications market
    (2) The legislation must be consistent with the United States' 
existing treaty obligations
    (3) The legislation must enhance global satellite connectivity to 
all areas, including remote and rural
    (4) The legislation must ultimately increase consumers' choices, 
enable technological innovation and lower costs
    (5) The legislation cannot impose any unnecessary new regulatory 
schemes on this vibrant global industry.
    These principles are incorporated into the ORBIT bill which I 
introduced on February 4. One of my highest priorities for 1999 is to 
see international satellite reform legislation enacted this year. S. 
376 reflects my commitment to working with my friend, the distinguished 
House Commerce Committee Chairman Mr. Bliley, to achieve that goal as 
quickly as possible this year.

The ORBIT bill does the following:

  establishes defining criteria for INTELSAT privatization, 
including a new date certain of 2002
  eliminates INTELSAT's and COMSAT's privileges and immunities
  creates a level competitive playing field for satellite 
systems
  creatively uses market access as an incentive fopr a prompt, 
pro-competitive privatization of INTELSAT
  eliminates the antiquated ownership restrictions on the U.S. 
Signatory to INTELSAT
  ends the role of the U.S. government in the commercial 
satellite operations

    It is my main objective that INTELSAT privatization will lead to 
enhanced competion in telecommunications services, resulting in real 
consumer benefits of more choices, lower prices and new services. I am 
very interested in the views of all of the witnesses on my bill. I look 
forward to hearing your thoughts on how to best encourage competition 
in the global satellite market.
    I especially want to thank the witnesses today for taking time out 
of their very busy schedules to testify before this Subcommittee. I 
look forward to your insights on the issues before us.

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Thank you, Mr. Chairman. It is obvious that 
there is great interest in this hearing, Mr. Chairman.
    I think our witnesses and others should know that, with the 
Kosovo situation, there is a briefing this afternoon, which may 
cause some of our members to not be here who otherwise would be 
here. This is a very important issue to this committee and to 
the entire Congress and to the American people. I would like to 
thank all of the witnesses who are appearing today. I would 
especially like to thank Chairman Burns for convening this 
subcommittee hearing on the important issue of international 
satellite reform.
    Over 35 years ago, the Communications Satellite Act of 1962 
helped create a framework for providing a commercial satellite 
system to serve the nations of the world. Through this Act, the 
United States joined with other countries to form INTELSAT, an 
Intergovernmental Organization that provided basic 
telecommunications services.
    The success of INTELSAT has helped foster advances in 
satellite technology. However, in the 37 years since the 
enactment of the Act, the landscape, as would be expected due 
to the inevitable march of advancing technology, changed. 
Commercial satellite systems now offer telecommunications 
services to many countries. Soon, in the not-too-distant 
future, these commercial satellite systems will be providing 
broadband and other advanced telecommunications services around 
the globe.
    INTELSAT management itself has recognized that these 
changes warrant privatization in order for INTELSAT to compete 
in this growing global market. Mr. Chairman, it is time to 
adapt our regulatory framework to conform to this new world. In 
recognition of that, I am pleased and proud to cosponsor 
Senator Burns's ORBIT bill. I strongly believe that Congress 
must pass fair and effective satellite reform legislation this 
session. I commit to my colleagues that I will make it a 
priority to do so.
    Once again, I want to commend Senator Burns on his 
leadership in this very complex and difficult area. The Burns's 
bill provides a principled basis for examining this complex and 
important issue. I recognize that there are different 
perspectives and viewpoints on international satellite reform. 
We will need to work out these differences. I personally have 
some concerns, but I am confident we will work all these issues 
out.
    Again, I thank Senator Burns, and I look forward to hearing 
our witnesses' views. Thank you, Mr. Chairman.
    [The prepared statement of Senator McCain follows:]
   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
    Good Afternoon. I would like to thank all of our witnesses for 
appearing today, and I commend Chairman Burns for convening this 
subcommitee hearing on the important issue of international satellite 
reform.
    Over thirty-five years ago, the Communications Satellite Act of 
1962 helped create a framework for providing a commercial satellite 
system to serve the nations of the world. Through this Act, the United 
States joined with other countries to form INTELSAT, an 
intergovernmental organization that provided basic telecommunications 
services. The success of INTELSAT has helped foster advances in 
satellite technology.
    However, in the 37 years since we enacted the Satellite Act, the 
landscape has, as would be expected, due to the inevitable march of 
advancing technology--changed. Commercial satellite systems now offer 
telecommunications services to many countries. Soon, in the not too 
distant future, these commercial satellite systems will be providing 
broadband and other advanced telecommunications services around the 
globe. INTELSAT management itself has recognized that these changes 
warrant privatization in order for INTELSAT to compete in this growing 
global market.
    It is time to adapt our regulatory framework to conform to this new 
world. In recognition of that fact, I am pleased to cosponsor Senator 
Burns's ORBIT Bill. I strongly believe that Congress must pass fair and 
effective satellite reform legislation this session. And I commit to my 
colleagues that I will make it a priority to do so.
    Once again, I commend Senator Burns on his leadership in this 
complex area. The Burns's bill provides a principled basis for 
examining this complex and important issue. I recognize that there are 
different perspectives and viewpoints on international satellite 
reform, and we will need to work out those differences. I personally 
have some concerns, but I am confident we will work all these issues 
out. Again, I thank Senator Burns and I look forward to hearing our 
witnesses' views.

    Senator Burns. Thank you, Mr. Chairman. We appreciate that. 
We have way too many chairmen here; I can see that right now. 
[Laughter.]
    The Chairman. We have another chairman just show up.
    Senator Burns. Another one just did. He is probably the 
most important one.
    The Chairman. True.
    Senator Burns. Do you have a statement?
    Senator Stevens. I have no statement. I am here to 
congratulate you for holding the hearing and to listen.
    Senator Burns. Well, that is different in this town. 
[Laughter.]
    I want to welcome everyone to this hearing this afternoon 
on the international satellite communications reform. Our 
efforts on satellite reform this year has been marked by a 
spirit of bipartisanship that has resulted in the ORBIT bill 
gaining widespread support. In fact, I am pleased to announce 
that the ORBIT bill is now cosponsored by the majority of the 
Commerce Committee. I want to thank Chairman McCain and 
Senators Brownback, Dorgan, Bryan, Wyden, Ashcroft, 
Rockefeller, Hutchison, Abraham, Frist, and Cleland for 
cosponsoring the legislation to ensure rapid privatization of 
INTELSAT.
    When I decided to take on this important challenge of 
encouraging competition through deregulatory measures in a 
rapidly evolving international satellite communications 
industry, I declared five principles that would serve as the 
foundation for this effort:
    The legislation must enhance competition in the global 
satellite communications market. The legislation must be 
consistent with the United States' existing treaty obligations. 
The legislation must enhance global satellite connectivity to 
all areas, including remote and rural areas. The legislation 
must ultimately increase consumer choices, enable technological 
innovation, and lower cost. The legislation cannot impose any 
unnecessary new regulatory schemes on this vibrant, global 
industry.
    These principles are incorporated in the ORBIT bill, which 
I introduced on February the 4th. One of my highest priorities 
for 1999 is to see the international satellite reform 
legislation enacted this year. S. 376 reflects my commitment to 
working with my friend and the distinguished House Commerce 
Committee Chairman, 
Mr. Bliley, to achieve that goal as quickly as possible this 
year.
    The ORBIT bill does the following: It establishes defining 
criteria for INTELSAT privatization, including a new date 
certain of 2002. It eliminates INTELSAT's and COMSAT's 
privileges and immunities. It creates a level, competitive 
playing field for satellite systems, creativity or use market 
access and incentive for prompt, pro-competitive privatization 
of INTELSAT. It eliminates the antiquated ownership 
restrictions on U.S. signatory to INTELSAT. It ends the role of 
the U.S. Government in commercial satellite operations. It is 
my main objective that INTELSAT privatization will lead to 
enhanced competition in telecommunications services, resulting 
in real consumer benefits of more choices, lower prices and new 
services.
    I am very interested in the views of all the witnesses on 
this bill today. I look forward to hearing your thoughts on how 
best to encourage competition in the global satellite market. I 
especially want to thank the witnesses today for taking time 
out of their busy schedules to testify before this 
subcommittee. I look forward to your insights on the issues 
before us.
    Today we have on the first panel the Hon. Vonya McCann, 
U.S. Coordinator for International Communications and 
Information Policy, from the Department of State, here in 
Washington, D.C.; and Mr. Roderick Porter, Acting Bureau Chief, 
International Bureau, Federal Communications Commission. I 
would ask Ms. McCann to offer your testimony at this time. I 
would tell you that if you want to summate your testimony, your 
entire testimony will be made part of the record. Thank you for 
coming today.

       STATEMENT OF HON. VONYA B. McCANN, UNITED STATES 
         COORDINATOR, INTERNATIONAL COMMUNICATIONS AND 
         INFORMATION POLICY, U. S. DEPARTMENT OF STATE

    Ambassador McCann. Thank you, Mr. Chairman.
    We appreciate the opportunity to present the 
Administration's views on the privatization of INTELSAT and 
your proposed legislation, S. 376. The Administration, in 
partnership with Congress, has worked tirelessly for more than 
5 years to bring about the restructuring and privatization of 
the intergovernmental satellite organizations--the ISOs--
INTELSAT and Inmarsat. These efforts have borne fruit. Next 
month, Inmarsat will complete the privatization of its 
remaining business operations. INTELSAT's new Director-General, 
who was elected on a privatization platform, has stated 
unequivocally his commitment to achieve full privatization by 
2001.
    The Administration does not believe that any legislation is 
necessary to ensure a successful outcome to our international 
negotiations or to protect the U.S. market from harm if 
INTELSAT's or Inmarsat's privatization goes astray. By 
negotiating constructively with the 143 INTELSAT member 
governments and the 86 Inmarsat member governments, we have 
made steady, if sometimes slow, progress toward our goals of a 
more competitive satellite market and a level playing field.
    The Administration will continue to be aggressive in 
ensuring that the plans to restructure and privatize the ISOs 
are pro-competitive. Following ISO privatization, the FCC and 
the Antitrust Division of the Justice Department will have 
ample authority under existing law to protect U.S. interests. 
Nevertheless, if Congress does choose to address ISO 
privatization in legislation, we believe the legislation should 
reflect three key principles:
    First, Congress should be careful not to limit access by 
INTELSAT to the U.S. market in a way that harms American 
consumers, particularly in the fast-growing areas of high-speed 
data transmission, Internet access and video. Second, 
privatization must create a level playing field between 
INTELSAT and its commercial competitors, both U.S. and foreign. 
Third, any legislation must be consistent with our 
international obligations.
    With respect to S. 376, the Administration strongly 
supports the objective of the bill to promote competition by 
encouraging the privatization of INTELSAT. Moreover, we are 
quite pleased that the bill includes provisions to allow the 
United States to maintain its membership in the residual 
intergovernmental organization following privatization of 
Inmarsat's business operations next month.
    Although we believe S. 376 is a very positive contribution 
to the debate over ISO privatization, we would like to see 
several provisions modified or eliminated, in keeping with the 
three principles I noted above. Section 603(b) prohibits 
INTELSAT from providing certain services in the U.S. market 
prior to privatization. Although this provision probably will 
not have any practical effect, in principle, we oppose 
inflexible statutory service restrictions because they would 
limit competition and resulting choices for U.S. consumers.
    Section 613 requires the President, following a decision by 
INTELSAT's members to privatize, to certify that the 
privatization is pro-competitive. This provision is 
unnecessary. The Administration will follow a rigorous review 
process to ensure that INTELSAT's privatization is pro-
competitive before the United States agrees to support it 
within INTELSAT.
    Section 614 requires that the FCC be bound by the 
President's certification under Section 613. This section 
should be modified to make clear that it would not reduce 
existing FCC authority.
    Finally, let me address the topic of direct access to 
INTELSAT, which your bill would effectively prohibit. Direct 
access to INTELSAT, broadly speaking, is a pro-competitive 
policy that has benefited consumers in countries that have 
implemented it. However, direct access in this country at this 
time probably will produce only modest benefits for U.S. 
consumers of satellite services.
    First, the savings from bypassing COMSAT are less than 
those from bypassing other INTELSAT signatories that are, or 
were, vertically integrated telecommunications monopolies. 
Second, INTELSAT privatization is in sight, and once INTELSAT 
becomes a private provider, anyone should be able to access it 
directly. The issue of direct access will become moot.
    Moreover, we would urge that any direct access scheme be 
implemented in a way so as to avoid a policy of ``fresh look.'' 
The Federal Government should not overturn privately negotiated 
contracts. In addition, COMSAT should be reimbursed for its 
true costs of providing INTELSAT services, which are not 
entirely captured by the INTELSAT utilization charge.
    In closing, let me express my gratitude for the committee's 
interest in these issues, and the close cooperation we have 
enjoyed with the staffs from both sides of the aisle. I request 
that my full written statement be part of the record. Thank 
you.
    [The prepared statement of Ambassador McCann follows:]
       Prepared Statement of Hon. Vonya B. McCann, United States 
   Coordinator, International Communications and Information Policy, 
                        U.S. Department of State
    Thank you for the opportunity to present the Administration's view 
on the privatization of INTELSAT and on your proposed legislation, S. 
376, the ``Open-market Reorganization for the Betterment of 
International Telecommunications Act.'' The international satellite 
services industry is increasingly important. Privatization and 
demonopolization of national telecom operators around the world, 
combined with the Administration's successful conclusion in 1997 of the 
WTO agreement on basic telecommunications services, mean that new 
markets are opening up at an unprecedented rate. And because of recent 
strides in technology, satellites now offer cost-effective global links 
for direct-to-home digital TV, advanced data services, Internet access 
and hand-held wireless phones usable anywhere in the world, in addition 
to traditional telephone calls and television feeds. Privatization of 
INTELSAT, properly carried out, will contribute significantly to the 
dynamism of this exciting industry, benefiting satellite services 
users, providers and investors in the United States and throughout the 
world.
    The Administration, in partnership with the Congress, has worked 
tirelessly for more than five years to bring about the restructuring 
and privatization of the intergovernmental satellite organizations 
(ISOs), INTELSAT and Inmarsat. These efforts have borne fruit. Four 
years ago, Inmarsat's members spun off a significant portion of its 
growth business into a commercial stock corporation, ICO Global 
Communications Ltd., in which Hughes and TRW (as well as Comsat) have 
substantial investments. In March 1998, INTELSAT's member governments 
agree to spin off growth business segments of that organization into a 
new company, New Skies Satellites, N.V., with plans for public trading 
of shares by the end of 1999. Like ICO, New Skies has no 
intergovernmental status nor any privileges and immunities, and it is 
subject to the laws of the jurisdictions in which it will do business, 
including the United States. The Administration negotiated competition-
safeguard provisions as part of these multilateral actions. These two 
spinoffs were important first steps in the ongoing transition of 
Inmarsat and INTELSAT to commercial status. Significantly, they have 
demonstrated to the member countries, especially those reluctant to 
undertake these steps, that private entities in an open market will 
compete to meet their telecommunications needs.
    As a result, full privatization of the ISOs is now in sight. Next 
month, Inmarsat will complete the privatization of its remaining 
business operations. INTELSAT's Director General has stated 
unequivocally his commitment to achieve privatization by 2001, and 
discussions within the INTELSAT Board of Governors on privatization are 
progressing favorably. The United States will continue to play a 
leadership role within the international community, to get a pro-
competitive transition plan and an aggressive timetable for full 
privatization of INTELSAT.
    At this time, the Administration does not believe any legislation 
is necessary to ensure that the privatization of INTELSAT and Inmarsat 
does not harm competition in the U.S. market (although legislation is 
necessary for other purposes, as discussed below). The Federal 
Communications Commission (FCC) and the Antitrust Division of the 
Department of Justice have ample authority to protect U.S. interests, 
and the Administration has been aggressive in ensuring that plans to 
restructure and privatize the ISOs are pro-competitive.
    To elaborate, prior to supporting the ISO decisions to create New 
Skies and to privatize Inmarsat, the Administration conducted a 
rigorous process to ensure that competition would be helped, not 
harmed, by these changes. This process included: extensive outreach to 
U.S. industry to identify issues of concern; substantive review of 
restructuring/privatization plans and documents by authorities from the 
FCC and the Antitrust Division, among other agencies; and lengthy 
negotiations with the ISO member governments and competition 
authorities from the European Union and Canada to establish the 
appropriate competition safeguards. Our competition authorities were 
satisfied that the final restructuring/privatization plans represented 
an improvement over the status quo in terms of competition. Had they 
not been, the United States would have ``disassociated'' from the ISO 
decisions and taken the necessary steps to block access to our market. 
Moreover, the FCC retains the authority to block such access if these 
plans are implemented in a way that it believes would harm U.S. 
competition.
    In sum, the Administration has made clear its commitment to ensure 
that INTELSAT and Inmarsat privatizations do not harm U.S. competition, 
and our competition authorities have ample opportunity under existing 
law to do that. Nevertheless, we recognize that Congress was 
instrumental in establishing INTELSAT and Inmarsat and that it may want 
to address ISO privatization in legislation. If so, the Administration 
believes that such legislation should reflect three key principles:
    First, Congress should be careful not to limit access by INTELSAT 
to the U.S. market in a way the harms American consumers--particularly 
in the fast-growing areas of high-speed data transmission, Internet 
access and video. Thus, legislation should avoid requiring INTELSAT to 
meet a fixed deadline or conditions for privatization that are 
infeasible or unrealistic. Two key attributes of the international 
satellite services industry make INTELSAT access to our market a major 
concern. First, the industry is dominated by a small number of 
relatively large providers--one of them INTELSAT--and the industry is 
likely to remain concentrated, because fixed costs are very high and 
there are significant economies of scale. Thus, restrictions on 
INTELSAT's access to the U.S. market could significantly reduce 
competition. Second, U.S. consumers account for nearly half of all 
consumption of global satellite services, and consumption is forecast 
to nearly triple in the next few years. Thus, U.S. consumers would be 
hurt disproportionately by restrictions on INTELSAT or any other major 
services provider.
    Principle two is that privatization must create a level playing 
field between INTELSAT and its commercial competitors, both U.S. and 
foreign. This means that the privatized INTELSAT should:

         be located in a jurisdiction with effective 
        competition laws and regulatory oversight and that has made 
        open-market satellite commitments under the WTO agreement on 
        basic telecommunications;
         not retain any privilege, immunity or other regulatory 
        advantage resulting from its former intergovernmental status or 
        that is not readily or meaningfully available to other 
        satellite competitors;
         compete free of relationships of ownership or control 
        with former signatories that confer a competitive advantage in 
        providing new services or that provide an incentive for any 
        purchaser of the privatized INTELSAT's services to discriminate 
        anti-competitively in its favor;
         move rapidly toward public trading of shares on 
        internationally traded stock exchanges; and
         obtain no unfair advantage from ``warehoused'' orbital 
        slots obtained during its operation as an intergovernmental 
        organization.

    The third principle is that any legislation must be consistent with 
the United States' international obligations, including the Fourth 
Protocol to the World Trade organization General Agreement on Trade in 
Services (the WTO basic telecommunications services agreement). In 
addition to raising possible WTO questions, legislation that is seen as 
a means of favoring U.S. satellite services firms may provoke 
retaliation from U.S. trading partners and undermine U.S. efforts to 
accelerate the privatization of INTELSAT. At present, the FCC, in 
consultation with the Executive Branch, has the flexibility to issue or 
condition a license in a manner that is consistent with U.S. 
international obligations; that flexibility should be retained.
                                 S. 376
    The Administration strongly supports the objective of S. 376 to 
promote competition in domestic and international satellite 
communications services by encouraging the full privatization of 
INTELSAT and reforming the framework for regulating Comsat. Moreover, 
we are pleased that the bill includes provisions to allow the United 
States to maintain membership in the residual Inmarsat 
intergovernmental organization following privatization of Inmarsat's 
business operations next month. The Administration requested these 
provisions to protect the interests of U.S. maritime users, 
particularly the Coast Guard, in residual intergovernmental 
organization, which will oversee the global maritime distress and 
safety system. Finally, without expressing any view on the proposed 
acquisition of Comsat by Lockheed Martin, which the Justice Department 
is still reviewing, we believe the provision to lift the cap on 
individual ownership of Comsat is desirable. The cap was put in place 
to ensure Comsat's independence, particularly from the U.S. long-
distance and international telecom monopolies, at a time when the 
nascent satellite services industry was itself considered a natural 
monopoly. However, the U.S. no longer has long-distance and 
international telecom monopolies, and the satellite services industry 
now has competition as well.
    Although we believe S. 376 is a very positive contribution to the 
debate over ISO privatization, we would like to see several provisions 
in S. 376 modified or eliminated, in keeping with the three principles 
described above:

         Sec. 603(b) prohibits the FCC from authorizing 
        INTELSAT to provide certain services (DTH, DBS, DAR and Ka-
        Band) in the U.S. market prior to privatization. This section 
        should be eliminated. INTELSAT is unlikely to offer any of 
        these services in the U.S. prior to privatization; hence this 
        section would have little practical effect. Nevertheless, in 
        principle, we oppose inflexible statutory service restrictions, 
        because they would limit competition and resulting choices for 
        U.S. consumers, as discussed above.
         Sec. 613 requires the President, following the 
        decision by INTELSAT's members to privatize, to certify that 
        the privatization is pro-competitive and will not distort 
        competition in the U.S. market. This provision is unnecessary. 
        As noted above, the Administration will follow a rigorous 
        review process to ensure that INTELSAT's privatization plan is 
        pro-competitive before the United States agrees to support it 
        within INTELSAT, and the FCC and Justice's Antitrust Division 
        have ample opportunity to review the implementation of this 
        plan. At a minimum, the provision should be modified so as to 
        require that the certification process take place prior to 
        INTELSAT's transition to a private structure.
         Sec. 614 requires that the FCC be bound by the 
        President's certification under Sec. 613. This section should 
        be modified to clarify that it would in no way reduce existing 
        FCC authority.
         Since INTELSAT's beginning, Comsat has served in the 
        congressionally chartered role of U.S. Signatory, subject to 
        the ``instructional authority'' of the U.S. Government. The 
        bill should explicitly continue this authority for as long as 
        INTELSAT remains an intergovernmental organization and Comsat 
        remains the U.S. Signatory.

    Direct Access. Sec 603(a) effectively would prohibit direct access 
to INTELSAT by its U.S. customers. Although direct access is a highly 
controversial issue in the debate over INTELSAT privatization, the 
rhetoric on both sides may well be inflated. Direct access to INTELSAT, 
broadly speaking, is a pro-competitive policy that has been implemented 
in 90+ countries to the benefit of consumers. However, direct access in 
this country, at this time, probably will produce only modest benefits 
for U.S. consumers of satellite services. But if the benefits will not 
be significant, neither will the harm to Comsat, at least if direct 
access is properly implemented. Two possible effects of direct access--
on competition and resulting economic efficiency an on the 
privatization process--merit discussion.
    Direct access to INTELSAT, properly implemented, probably would 
yield only modest benefits to U.S. users through greater competition 
and efficiency. First, unlike most INTELSAT signatories at the time 
that direct access was adopted in their home markets, Comsat is not a 
vertically integrated telecom monopoly. To elaborate, many foreign 
countries adopted direct access as part of structural reforms to reduce 
the power of monopoly telecom providers that were also signatories to 
INTELSAT. But because Comsat's sole function is to sell INTELSAT space 
segment, the ability to bypass Comsat through direct access is far less 
significant. Second, benefits to U.S. users from direct access will be 
limited because INTELSAT privatization is in sight. Once INTELSAT 
becomes a private provider, any user should be able to access it 
directly, and the issue will be moot.
    ``Proper implementation'' of direct access refers to two things. 
First, it should not include a policy of ``fresh look,'' which would 
allow Comsat customers to renegotiate their contracts. The contracts 
were negotiated by private parties in an environment that offered some 
competitive alternatives. Moreover, Comsat has made long-term 
commitments to INTELSAT based on the contracts. It would be 
inappropriate for the federal government to overturn such contracts.
    Second, Comsat should be reimbursed for its true costs of providing 
INTELSAT services. Although the INTELSAT utilization charge (IUC) is 
often thought to be the wholesale cost of providing INTELSAT services, 
it is actually an internal accounting convention that excludes some of 
Comsat's legitimate costs. If Comsat customers and direct access users 
(some of whom compete with Comsat) paid only the IUC under a direct 
access regime, the implicit subsidy from Comsat to these customers/
direct access users would distort competition.
    In addition to competition/efficiency effects, a second broad 
consideration is the effect of direct access on INTELSAT privatization. 
Parts of the executive branch have in the past expressed concern that 
allowing direct access would remove a significant incentive for certain 
signatories to support privatization, because they could bypass Comsat 
and deal directly with U.S. customers without first privatizing. And, 
in fact, several signatories have expressed the view that if they got 
direct access to the U.S. market, privatization might be less urgent. 
However, the momentum for privatization is growing and the potential 
savings to users from bypassing Comsat are modest, as noted above. Thus 
we believe the overall risk to privatization is small.

    Senator Burns. Thank you very much, Ms. McCann.
    We have been joined now by one of the cosponsors on the 
bill, Senator Rockefeller. If you have a statement, before we 
hear from Mr. Porter, we would certainly welcome it at this 
time.

           STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Rockefeller. It is so brief, and you will be so 
pleased. I will submit my full statement.
    Senator Burns. How do we define ``brief''? [Laughter.]
    Senator Rockefeller. My statement that I will submit my 
full statement, with your permission.
    Senator Burns. Wonderful. Without objection.
    Senator Rockefeller. Thank you.
    Obviously, I thank Senator Burns very much for this. He has 
been a driving force on it. I am a cosponsor of the bill. There 
are, I think, 11 of us on the committee who are. I believe that 
it is in the consumer interest to have a private INTELSAT. I 
come from a State where 4 percent of the land, Senator Burns, 
if you can imagine this, is flat, and 96 percent is not. It is 
up and down. I really think that the whole concept of satellite 
services is the way that West Virginia, essentially, and States 
like that, of which there are many--or parts of States--that is 
where their future is, because of mountainous terrain and the 
high cost of providing traditional telecommunications services.
    INTELSAT has a history of serving all parts of the world. 
They appear to have done so at reasonable prices. We have an 
interest in making sure that all parts of the world are part of 
the global information structure. That is one of the advantages 
of something that is floating around in the sky. Whether it is 
high or low, it serves a lot more area. This bill will allow a 
privatized INTELSAT to continue to serve these areas and still 
survive in the face of competition with other countries.
    I am going to continue to work on this bill with, 
obviously, our chairman and Senator Hollings and Senator 
Breaux. It is a good bill, and I am proud to be a part of it.
    Now, was that satisfactory?
    [The prepared statement of Senator Rockefeller follows:]

          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia
    First I want to thank Mr. Burns for holding this important hearing. 
International satellite reform is critical to consumers across the 
United States.
    Yesterday I agreed to become a cosponsor of this bill--along with 
Mr. Burns, McCain, Bryan, Brownback, Cleland, Frist and Dorgan. I 
support Mr. Burns' bill because I believe that it is in the consumer 
interest to have a private INTELSAT. Such a competitive entity will 
lead to lower prices, better service, and more efficiency across the 
globe.
    Additionally, removing ownership restrictions on COMSAT will help 
to bring new services to American consumers. I believe that broadband 
satellite services will a very important role in West Virginia's 
future, and this bill will lead to further deployment of these services 
by lifting the ownership restriction on COMCAST. I am excited by the 
possibility of a new competitor in domestic satellite services, and the 
resulting advances in these satellite services. Our mountainous terrain 
and the high cost of providing traditional telecommunications services 
make satellite services particularly important to West Virginia.
    Furthermore, INTELSAT has a history of serving all parts of the 
world at reasonable prices. We have an interest in making sure that 
developing nations are part of the global information infrastructure. I 
will work to make sure that this bill will allow a privatized INTELSAT 
to continue to serve these areas at reasonable prices.
    I must state, however, that while I support this bill, we are still 
in the middle of the legislative process. I am eager to continue 
working with Mr. Hollings, Breaux, and other Senators who are working 
important ideas with great promise. I want to stress that while I agree 
that this bill is the right platform for international satellite 
reform, I intend to keep working hard on this issue.

    Senator Burns. Wonderful. Thank you, Senator Rockefeller. I 
appreciate your cosponsorship. We have had a good working 
relationship for a long time. We have served on different 
committees, and it is always a pleasure to work with you and 
your staff. So, we appreciate that very much.
    Mr. Porter, I am looking forward to your statement. Thank 
you for coming today.

      STATEMENT OF RODERICK KELVIN PORTER, ACTING CHIEF, 
    INTERNATIONAL BUREAU, FEDERAL COMMUNICATIONS COMMISSION

    Mr. Porter. Thank you, Mr. Chairman, Senator Rockefeller. I 
am pleased to have the opportunity to appear before you today.
    We support new legislation to articulate a national 
satellite policy based on pro-competitive principles. We agree 
with principles upon which legislation should be based, as 
jointly stated by yourself and Chairman Bliley. The ultimate 
goal of satellite reform legislation will be to benefit 
consumers through the encouragement of a truly competitive 
market. Privatization of INTELSAT and INMARSAT would help 
promote competition in the commercial satellite communications 
market, and thereby benefit the consumer.
    Thirty-seven years ago, Congress adopted the Communications 
Satellite Act of 1962. It was well-conceived, and tailored to 
the times. It established a policy that led to the creation of 
INTELSAT and INMARSAT. INTELSAT was created with the goal of 
developing a satellite system that would provide global 
connectivity. INMARSAT was formed for the purpose of improving 
maritime commercial and safety communications.
    The landscape of the communications satellite industry has 
changed markedly over the past 37 years. The international 
satellite organizations are faced with competition from private 
companies through satellite, submarine fiber optic cables and 
other technologies. U.S. policy since the mid-1980's focused on 
promoting this competition as a means of expanding customer 
choice and achieving lower rates.
    The 1962 Satellite Act, however, has undergone little 
change during these developments. INTELSAT and INMARSAT have 
been concerned that their current intergovernmental structure, 
entailing unlimited liability for investors and a slow 
decisionmaking process, inhibits their ability to respond to 
competition. Competitors are concerned about the potential for 
competitive harm from INTELSAT's and INMARSAT's global access 
to markets, special privileges and immunities, and control over 
substantial satellite capacity and choice orbital spectrum.
    Competitors also are concerned that some investors in the 
intergovernmental organizations may be able to restrict 
overseas market access for new entrants. Both INTELSAT and 
INMARSAT have been taking steps to restructure themselves in 
response to competitive pressures. INMARSAT created a private 
affiliate to provide hand-held mobile satellite services in 
1995. It will itself privatize on or about April 15 of this 
year.
    INTELSAT created a private affiliate last year to provide 
video and multimedia services. INTELSAT now is considering 
additional restructuring options, including privatization.
    The United States has been a strong proponent of 
privatization of the intergovernmental organizations, both to 
improve their competitiveness and to eliminate the potential 
for market distortion that flows from their intergovernmental 
status. The issue is not the goal of privatization, but, 
rather, how to achieve it.
    We recognize that even though privatization of INTELSAT 
will be the result of international negotiation, Congress has 
an active and independent role in the process. In fact, it was 
congressional leadership in the 1960's, and U.S. policy 
established by the 1962 Act, that led to the creation of 
INTELSAT.
    Congress is in the position to have the same degree of 
influence in the 1990's for INTELSAT's transformation into a 
true market player. Satellite reform legislation would be an 
appropriate means to establish policy guidelines for U.S. 
efforts to privatize INTELSAT. Legislation also could provide 
an opportunity to immediately eliminate provisions of the 1962 
Act no longer necessary or relevant to achieving a pro-
competitive privatization of INTELSAT.
    The Commission has taken important actions in the last 3 
years to deregulate COMSAT in view of changing market 
conditions resulting from competition. Upon privatization, the 
overlay of government oversight of COMSAT that exists as a 
result of COMSAT's special role in INTELSAT and INMARSAT should 
be eliminated.
    My prepared statement contains specific comments on 
provisions of S. 376. Mr. Chairman, we commend you and members 
of the subcommittee in moving forward with satellite reform 
legislation, and look forward to working with you on this 
important initiative. Thank you.
    [The prepared statement of Mr. Porter follows:]
      Prepared Statement of Roderick Kelvin Porter, Acting Chief, 
        International Bureau, Federal Communications Commission
                           executive summary
    Thirty-seven years ago, Congress adopted the Communications 
Satellite Act of 1962. It was well conceived and it was tailored to the 
times. It established a policy that led to the creation of INTELSAT and 
Inmarsat. INTELSAT was created with the goal of developing a satellite 
system that would provide global connectivity, and Inmarsat was formed 
for the purpose of improving maritime communications and communications 
for the safety of life at sea.
    The landscape of the communications satellite industry has changed 
markedly over the past 37 years. The international satellite 
organizations are faced with competition from private companies through 
both satellite and submarine fiber optic cables. U.S. policy since the 
mid-1980's has focused on promoting this competition as a means of 
expanding customer choice and achieving lower rates. The 1962 Satellite 
Act, however, has undergone little change during this period of change 
in the industry.
    INTELSAT and Inmarsat have been concerned that their current 
intergovernmental structure entailing unlimited liability for investors 
and a slow decision-making process inhibit their ability to respond to 
competition. Competitors are concerned about potential anticompetitive 
conduct by INTELSAT and Inmarsat, and have focussed particularly on 
INTELSAT's and Inmarsat's global access to markets, special privileges 
and immunities, control over significant satellite capacity and orbital 
locations, and the potential for some investors in these 
intergovernmental organizations to restrict overseas market access for 
new entrants.
    Both INTELSAT and Inmarsat have been taking steps to restructure 
themselves in response to competitive pressures. In 1995, Inmarsat 
created a private affiliate to provide hand-held services and plans to 
privatize itself on or about April 15 of this year. Last year, INTELSAT 
created a private affiliate, New Skies, to provide video and multi-
media services. INTELSAT now is considering additional restructuring 
options, including privatization.
    We agree that the ultimate goal of legislation and regulation in 
satellite communications is to benefit consumers through the 
encouragement of a truly competitive market. We support Congress's 
determination that the time is ripe for reform of the statutes that 
govern the rapidly changing satellite communications market. 
Privatization of INTELSAT and Inmarsat would help promote competition 
in the commercial satellite communications market, and thereby benefit 
consumers.
    The United States has been a strong proponent of privatization of 
the intergovernmental organizations--both to improve their 
competitiveness and to eliminate the potential for market distortion 
that flows from their intergovernmental status. INTELSAT must be 
privatized in a way that allows it to remain viable in the world market 
while preserving our commitment to global satellite connectivity. At 
the same time, however, we need to ensure that its legacy as an 
intergovernmental organization does not impede the ability of private 
competitors to enter the market.
    We recognize that, even though privatization of INTELSAT will be 
the result of international negotiation, Congress has an independent 
and active role in the process. In fact, it was Congressional 
leadership in the 1960s and U.S. policy established by the 1962 Act 
that lead to the creation of INTELSAT. Congress is in the position to 
have the same degree of influence in the 1990s for INTELSAT's 
transformation into a true market player.
    We support legislation to articulate a national satellite policy 
based on pro-competitive principles. We agree with the principles 
jointly stated by Chairman Burns and Chairman Bliley in their letter to 
Chairman Kennard. In keeping with these principles, we believe that 
legislative criteria for privatization of INTELSAT might usefully 
entail: (1) conversion to a publicly held corporation listed and traded 
on public exchange; (2) opportunity for participation in the private 
company by entities other than current signatories; (3) elimination of 
all privileges and immunities; (4) location in a jurisdiction with 
effective competition laws and regulatory oversight; (5) availability 
of non-exclusive access and distribution arrangements that serve 
customer needs; and (6) continued provision of services to developing 
countries by INTELSAT.
    We also support satellite reform legislation that would eliminate 
those provisions of the 1962 Act that are no longer necessary or 
relevant to achieving a pro-competitive privatization of those 
organizations. Comsat ultimately should evolve into a company with no 
special Congressional charter or privileges or obligations. The 
Commission has taken several important actions in the last three years 
to deregulate Comsat in an effort to help it achieve a market position 
that is no more hindered or protected by regulation than that of its 
competitors. The overlay of government oversight of Comsat that exists 
as a result of Comsat's special role in INTELSAT and Inmarsat should be 
eliminated upon privatization.
    S. 376 is designed to achieve these goals. Moving forward with 
legislation of this nature would both be timely and helpful to U.S. 
efforts to promote a robust and competitive satellite communications 
market globally. We look forward to working with you on these critical 
issues.
    Mr. Chairman and members of the Subcommittee, thank you for giving 
me an opportunity to appear before you today to discuss the Open-market 
Reorganization for the Betterment of International Telecommunications 
Act (S. 376). We agree that the ultimate goal of legislation and 
regulation in satellite communications is to benefit consumers through 
the encouragement of a truly competitive market. We will take all steps 
necessary in support of Congress's determination that the time is ripe 
for reform of the statutes that govern the rapidly changing satellite 
communications market. Privatization of INTELSAT and Inmarsat would 
help promote competition in the commercial satellite communications 
market, and thereby benefit consumers. Achieving privatization is and 
will continue to be both challenging and promising. It is challenging 
because other countries that are members of these international 
organizations must be convinced that a solution that promotes 
competition is in their interests. It is promising because successful 
privatization of these organizations may bring new market opportunities 
for satellite service providers throughout the world and increased 
choice for consumers here at home.
    Legislation that both establishes U.S. policy on privatization of 
INTELSAT and Inmarsat and promotes further competition in the 
commercial satellite market is both timely and appropriate. We 
appreciate the opportunity to work with you to reform the U.S. 
legislative framework governing satellite services and to implement 
pro-competitive and deregulatory measures.
                the communications satellite act of 1962
    The Communications Satellite Act of 1962 was written when the 
primary goal of U.S. satellite policy was the successful deployment of 
a global satellite system that would provide world-wide telephone 
connectivity and video coverage. To a large degree, the 1962 Satellite 
Act assumed the existence of economies of scale calling for 
establishment of a single global satellite system. The Act created 
Comsat as a publicly-traded private corporation to achieve this goal by 
developing and investing in the INTELSAT system. At the same time, 
Congress established extensive government oversight of Comsat. In 1979, 
Congress expanded Comsat's role, making it the U.S. investor in 
Inmarsat. Today, Comsat is traded on three U.S. exchanges, with 1998 
revenues of more than a half billion dollars. The company has 
restructured itself to focus its business on international satellite 
and digital networking services. The challenge for COMSAT will be to 
adapt to the fundamental changes that are taking place in INTELSAT and 
Inmarsat as a result of competitive challenges to those organizations.
                         deregulation of comsat
    The goal of a competitive market that benefits consumers is 
furthered by the existence of a level playing field. Thus, the 
Commission has taken several important actions in the last three years 
to deregulate Comsat in an effort to help it achieve a market position 
that is no more hindered or protected by regulation than that of its 
competitors. In 1996, the Commission waived its dominant carrier 
tariffing rules and permitted Comsat to file tariffs for switched voice 
and private line service with 14 days notice and without cost support. 
In 1997, the Commission waived its dominant carrier tariffing rules and 
permitted Comsat, as do its competitors, to file tariffs for full time 
video and occasional use video on a streamlined basis.
    The Commission granted Comsat significant additional regulatory 
relief in 1998. Specifically, the Commission found Comsat non-dominant 
in the provision of switched voice, private line, and occasional use 
video in competitive markets, and in the provision of full time video 
and earth station services in all geographic markets. Together, these 
markets account for over 92% of Comsat's INTELSAT revenues. The 
Commission also found, however, that Comsat is still dominant in the 
provision of switched voice, private line, and occasional use video 
service in non-competitive geographic markets. Most recently, in 
February of this year, the Commission established an incentive based 
form of regulation in lieu of burdensome rate of return regulation for 
service in which Comsat remains dominant. In addition to these actions, 
the Commission has eliminated requirements for Comsat to (1) obtain FCC 
approval to invest in INTELSAT satellites; and (2) file certain yearly 
reports to the FCC normally required of rate regulated carriers.
                         intelsat and inmarsat
    The U.S. effort in creating the global satellite system envisioned 
by the 1962 Satellite Act was a complete success. Today, INTELSAT has 
143 members and operates a fleet of 19 satellites accessed by thousands 
of earth stations. INTELSAT provides services to hundreds of customers 
in over 200 countries. INTELSAT has revenues of approximately $1 
billion and it has assets worth over $3 billion. The connectivity 
provided by the INTELSAT system makes possible the delivery of voice, 
data, and video communications anywhere on the globe.
    Based on the INTELSAT Intergovernmental Organization (IGO) model, 
Inmarsat was established as an IGO in 1979 to improve maritime 
communications, particularly communications for distress and safety of 
life at sea. Inmarsat has 84 members and operates eight satellites 
providing global maritime, aeronautical, and land mobile 
communications. More than 140,000 terminals of various types are in 
use. Inmarsat revenues for 1999 are projected to be about $450 million.
    INTELSAT and Inmarsat own and operate satellites and the associated 
facilities while signatories and other entities own and operate ground 
facilities accessing the satellites. Each IGO is made up of parties and 
signatories. Parties represent governments' interest in the 
organization through the Assembly of Parties that meets bi-annually. 
Signatories are the investors in the satellite system. Some signatories 
are private entities, but many are wholly or partially owned by foreign 
governments. Investment is tied to the amount of traffic a signatory 
carries over the system. The largest signatories are represented on the 
INTELSAT Board of Governors and the Inmarsat Council. These bodies make 
the major commercial decisions for each organization. It is important 
to note that each signatory represents its own interests and does not 
have a fiduciary obligation to the entire organization. Comsat is the 
U.S. signatory to both INTELSAT and Inmarsat.
    In 1962, when INTELSAT was formed, the world's telecommunications 
infrastructure was quite different than it is today. In the early days, 
most private entities considered the use of satellites for 
telecommunications services to be very risky and expensive. Advances in 
technology as well as increased satellite capacity have made it 
feasible for new entities to enter the global telecommunications 
market. INTELSAT now faces competition from private systems. Since 
1962, application of satellite technology to communications has 
resulted in new and varied options to consumers and has become the 
province of private companies competing to satisfy consumer needs. 
United States policy evolved in the 1980's to introduce competition to 
INTELSAT. The authorization of competing U.S. systems required a 
presidential determination that such competition was, under the 1962 
Satellite Act, in the national interest. Following that determination, 
the FCC began the licensing process for competing U.S. systems. Today, 
private industry provides satellite services for telephony, direct-to-
home television, other video and data services as well as maritime, 
aeronautical and land-mobile services. In the near future private 
companies will introduce services such as broadband internet, expanded 
video services and hand-held global mobile communications. In the 
broadband video market and mobile satellite services markets private 
companies plan to invest billions just to start operations.
    Growth in global telecommunications has not been limited to 
satellite-delivered services. Over the last decade the capacity of 
transoceanic fiber optic cables has dramatically increased. 
Consequently, INTELSAT's share of the market for international 
telephone service has fallen. Although public switched telephony is 
still its largest revenue source, the percentage of INTELSAT's revenue 
stream from public switched service has fallen and the revenues from 
certain new services are growing. Today, close to half of INTELSAT's 
total revenues are derived from public switched telephone service, down 
from 76 percent in 1988. In addition, INTELSAT's share of the public 
switched service market is expected to continue to decline largely due 
to competition from fiber optic undersea cables. In response to the 
changing market, INTELSAT has expanded into new areas, including the 
market for broadcast video where it faces competition from new 
satellite-based companies.
    INTELSAT has taken steps to react to the changing marketplace and 
the advent of competition. Last year, it created New Skies Satellite, 
N.V., a private commercial affiliate Netherlands company, to provide 
video and multimedia services on a global basis. New Skies is now 
operating as a wholly-owned affiliate of INTELSAT and INTELSAT's 
signatories. Five satellites have been transferred from INTELSAT to New 
Skies and a sixth satellite is scheduled to be launched this year. Over 
90 earth stations in the United States currently are operating with New 
Skies on a special temporary authority basis pending Commission 
consideration of their applications for permanent authority to operate 
with New Skies.
    INTELSAT itself recognizes the need to become a more efficient 
organization and is considering restructuring options, including 
privatization. Privatization will lead to operational flexibility, 
speedier decision-making by a management responsive to a fiduciary 
board of directors, limited liability by investors, and better access 
to capital through public and strategic investors
    Unlike INTELSAT, Inmarsat's revenue stream has maintained itself 
steadily over the years without significant change. Competition for 
Inmarsat, however, is starting to develop. Inmarsat now competes with 
private consortia largely composed of U.S. firms such as Motorola, 
Loral and American Mobile Satellite Corporation. In anticipation of the 
development of competition, Inmarsat has undertaken efforts to 
restructure its operations. In January 1995, Inmarsat created an 
affiliated private company, ICO Global Communications Ltd., to provide 
global mobile hand-held communications services. Inmarsat will 
privatize on or about April 15 of this year. Inmarsat's decision to 
privatize was based on the recognition that the organization could not 
effectively compete with private systems under an intergovernmental 
structure that conferred unlimited liability on its investors and 
involved an inefficient decision-making mechanism slow to react to 
competitive challenges.
    Under the privatization, Inmarsat will transfer its assets 
(satellites, associated facilities, headquarters building, etc.) to a 
newly created private company incorporated in the United Kingdom. 
Existing Inmarsat signatories will be allowed shares in the corporation 
in proportion to their investment shares in Inmarsat. The newly created 
company will own and operate the satellites previously owned and 
operated by Inmarsat and will provide existing commercial and safety 
services. It will not have the privileges and immunities bestowed on 
the current intergovernmental organization. Current Inmarsat contracts 
will be novated to the corporation. Existing land earth station 
operators will distribute the services of the corporation pursuant to a 
Land Earth Station (LES) Operator Agreement with the company. The newly 
created company will retain the name ``Inmarsat''. An Initial Public 
Offering (IPO) is anticipated within two years. A residual 
intergovernmental organization consisting of a small directorate will 
be created to ensure that the new company continues to provide GMDSS 
(Global Maritime Distress and Safety Services) under a Public Services 
Agreement with the IGO. The IGO will not have any control over the 
operations or facilities of the new Inmarsat. Instead the IGO will have 
an agreement with the new Inmarsat whereby the IGO will have the 
ability to ensure that Inmarsat meets its obligations to provide GMDSS.
             considerations for a new legislative framework
    The Communications Satellite Act of 1962 was enacted to achieve a 
goal long since accomplished. The focus of U.S. policy has been, since 
the mid-1980's, the development of competition. The Communications 
Satellite Act, however, has undergone little change. We believe that 
new legislation could seize on a present opportunity to articulate 
current U.S. national policy based on pro-competitive principles.
    We believe that privatization will help promote greater competition 
in the satellite communications market and will make INTELSAT a more 
effective competitor. INTELSAT's current and potential competitors are 
concerned about their ability to compete with INTELSAT due to 
INTELSAT's global access to markets, control over significant satellite 
capacity, and special privileges and immunities as well as the 
potential ability of some signatories to keep competitors out of their 
home markets. In the countries that have not yet privatized their 
communications systems, the government and the telecom provider acting 
as signatory are the same entity. As a result, some INTELSAT 
signatories may be in a position to affect their government's market 
access decisions, and could impede entry by competitors of INTELSAT.
    Significant steps were taken in 1997 to address the market access 
question. The World Trade Organization (WTO) Agreement on Basic 
Telecommunication Services provides for commitments by 72 countries to 
open their markets for basic telecommunications services, and 49 of 
these countries have made commitments for satellite services. In 
addition, 55 of the parties to the WTO agreement also signed the 
Reference Paper on Pro-Competitive Regulatory Principles. The Reference 
Paper contains a binding set of competition rules and calls for 
separation of a country's telecommunications regulator from its 
national telecommunications service provider. Many INTELSAT members, 
however, have not made WTO commitments. Privatization eliminating 
INTELSAT's intergovernmental imprimatur and permitting diverse 
ownership in the privatized organization would be an effective means of 
further promoting greater market access.
    We recognize that even though privatization of INTELSAT will be the 
result of international negotiation, Congress has an independent and 
active role in the process. In fact, it was Congressional leadership in 
the 1960s and U.S. policy established by the 1962 Act that lead to the 
creation of INTELSAT. Congress is in the position to have the same 
degree of influence in the 1990s for INTELSAT's transformation into a 
true market player.
    We agree that Satellite reform legislation is an appropriate tool 
by which to establish policy guidelines for U.S. efforts to privatize 
INTELSAT. Legislation also provides the opportunity to eliminate 
provisions of the 1962 Satellite Act no longer necessary or relevant to 
achieving a pro-competitive privatization. Upon INTELSAT's 
privatization, all remaining provisions of the 1962 legislation could 
then be eliminated. Comsat would then evolve into a company with no 
special Congressional charter or privileges or obligations. The overlay 
of government oversight and regulation of Comsat that exists as a 
result of Comsat's special role in INTELSAT and Inmarsat would be 
eliminated upon privatization.
    In a letter to Chairman Kennard, Chairman Burns and Chairman Bliley 
stated the following principles upon which to base legislation: (1) 
privatizing INTELSAT by a date certain; (2) enabling the United States 
to participate in a restructured Inmarsat through legislation; (3) a 
pro-competitive privatization of INTELSAT and Inmarsat, eliminating IGO 
and Comsat's derivative privileges and immunities and their potential 
ability to possibly warehouse orbital locations; (4) non-discriminatory 
competition; (5) use of market access as an incentive for a pro-
competitive privatization; and (6) elimination of ownership 
restrictions on Comsat and other deregulation ending the role of the 
U.S. government in commercial satellite operations. These principles 
support our stated policy objectives and we agree that satellite reform 
legislation based on these principles would establish a clear policy 
framework for pursuit of pro-competitive privatization of INTELSAT that 
will result in benefits for U.S. consumers.
    In keeping with these principles, we believe that legislative 
criteria for privatization of INTELSAT might usefully entail: (1) 
conversion to a publicly held corporation listed and traded on public 
exchanges; (2) opportunity for ownership and participation in the 
private company by entities other than current signatories; (3) 
elimination of all privileges and immunities; (4) location in a 
jurisdiction with effective competition laws and regulatory oversight; 
(5) availability of non-exclusive access and distribution arrangements 
that serve customer needs; and (6) continued provision of services to 
developing countries by INTELSAT. S. 376 is designed to achieve these 
goals. Moving forward with legislation of this nature would both be 
timely and helpful to U.S. efforts to privatize INTELSAT. In that 
spirit we suggest several comments for the Subcommittee's consideration 
on certain provisions of the bill.
    Legislation has the potential to provide effective incentives for 
INTELSAT to privatize in a pro-competitive manner. The availability of 
the U.S. market certainly would create such an incentive. We note, 
however, that S. 376 would determine the availability of the U.S. 
market to INTELSAT through a Presidential certification process that 
apparently would be undertaken prior to completion of negotiation of 
the details of the privatization. The bill provides for a Presidential 
certification that entry by a privatized INTELSAT into the U.S. market 
will not harm competition to be made upon an INTELSAT Assembly of 
Parties decision creating the ``legal structure and characteristics'' 
of a privatized INTELSAT. The FCC would be bound by this determination 
in its licensing process. It has been our experience in recent 
negotiations involving the Inmarsat privatization and the creation of 
New Skies by INTELSAT that Assembly decisions on legal structure and 
characteristics are made with negotiations on important details and 
documents on implementation yet to be completed. Typically, these 
details and documents have been finalized by later meetings of the 
INTELSAT Board of Governors or Inmarsat Council.\1\ Thus, under S. 376, 
a Presidential certification binding the FCC would be made absent the 
availability of the final details of the privatization.
---------------------------------------------------------------------------
    \1\ See Report of the Twelfth Session of the Inmarsat Assembly of 
Parties, Assembly/12/Report (May 1998). See also Assembly/13 Report 
(October 8 (1998). The Inmarsat Assembly of Parties determined to 
decide upon the legal structure and characteristics of Inmarsat's 
privatization, but left final decision on the details and documents 
associated with the privatization to subsequent meetings of the 
Inmarsat Council held over a five month period. Most implementation 
documents were in draft stages when the Assembly made its decision to 
privatize. Similarly, a number of documents implementing the creation 
of New Skies were finalized by the INTELSAT Board of Governors after 
the INTELSAT Assembly decided to create New Skies. Certain key 
documents underwent extensive changes and are subject to Commission 
review in connection with applications before it to operate New Skies 
in the United States.
---------------------------------------------------------------------------
    We recommend that the Subcommittee consider preserving the 
independent regulatory review of the effects on competition by a 
privatized INTELSAT's entry into the U.S. market in any legislation. 
Presidential certification as to the outcome of Assembly of Parties 
decisions would then be based on a national interest standard and other 
traditional Executive branch standards.\2\ Subsequent Commission action 
through the licensing process would involve consideration of the full 
results of the privatization based on a public record with 
accountability to the courts. It would provide a means of maintaining 
U.S. leverage in the final stages of the negotiating process and 
assuring that the principles that the United States agreed to at the 
Assembly have been achieved through implementation.\3\
---------------------------------------------------------------------------
    \2\ There is precedent for action on a satellite policy issue 
whereby there is first a Presidential determination based on national 
interest considerations and then, following that, FCC licensing actions 
based on the Commission's public interest standard that implemented the 
policy determination. In 1983, the Commission received several 
applications to operate separate satellite systems in competition with 
INTELSAT. The Commission withheld action on the applications at request 
of the Executive branch pending a decision under Section 102(d) of the 
1962 Satellite Act that competing systems were in the national 
interest. The President made this determination in 1984. Presidential 
Determination No. 85-2 of November 28, 1984 49 Fed. Reg. 46937 
(November 30, 1984). The Commission conducted a rulemaking and issued 
conditional licenses in 1985. See Permissible Services of U.S. Systems 
Separate from the International Telecommunications Satellite 
Organization (INTELSAT). 101 FCC 2d 1046 (1985); On recon, 61 RR 649 
(1986); further recon, 1 FCC Rcd 439 (1986). In establishing a 
regulatory framework for considering applications for competing 
systems, the Commission considered competition and related issues in 
connection with the applications.
    \3\ The Executive branch has previously asked the Commission to 
utilize its licensing process to assure that results of negotiations in 
connection with Inmarsat's creation of ICO Communications were in fact 
properly implemented. See Comsat Authority to Participate in 
Procurement of the Facilities of the ICO Global Communications System; 
FCC 99-21 (released February 25, 1999). In testimony before this 
subcommittee last September, the Administration stated that any 
legislation should ``recognize and incorporate the existing flexible 
authority of the FCC and the Department of Justice to protect 
competition and promote the public interest in the rapidly changing 
telecommunications market''.
---------------------------------------------------------------------------
    This approach also would continue the distinction the Commission 
has drawn between WTO-covered and non-covered satellite services in 
establishing a licensing policy to implement the WTO Agreement.\4\
---------------------------------------------------------------------------
    \4\ The United States excluded from its scheduled WTO coverage one-
way satellite transmission of DTH, DBS, and DARS, and submitted an MFN 
exception for those services. Communication from the United States, 
List of Article II (MFN) Exemptions. The FCC decided to apply an 
``effective competitive opportunities'' test to applications to provide 
these services through all foreign satellite systems, whether or not 
they are systems of WTO Members. Non-U.S. Licensed Satellites providing 
Domestic and International Service in the United States, 12 FCC Rcd 
24094, 24146 (1997) (DISCO II Order). S.376 would have the effect of 
exempting a privatized INTELSAT from this test.
---------------------------------------------------------------------------
    S. 376 identifies two means by which the availability of the U.S. 
market would be used as incentives for a pro-competitive privatization 
of INTELSAT: (1) withholding the availability of direct access in the 
United States; and (2) prohibiting INTELSAT's provision of Ka-band, 
DTH, DBS and DARS. INTELSAT does not currently provide Ka-band, DTH, 
DBS and DARS services, but has been considering doing so with the U.S. 
market potentially playing a role in business plans. INTELSAT already 
provides through Comsat a variety of C-band and Ku-band services in the 
United States. These services are available in over 90 countries on a 
direct access basis--that is, directly from INTELSAT rather than only 
through the signatories. Upon the urging of major U.S. users of 
INTELSAT services, the FCC initiated a proceeding to consider the 
merits of requiring direct access in the United States. The FCC made no 
tentative conclusions on whether to permit direct access and the 
proceeding is pending.
    S. 376 repeals various provisions of the 1962 Satellite Act upon 
the date of enactment. We believe that all provisions of the original 
1962 Act will be unnecessary upon privatization of INTELSAT and, 
therefore, their repeal could safely take effect at that time. Pending 
privatization, however, we believe that, in view of the substantial 
responsibility placed on Comsat as the U.S. signatory in carrying out 
U.S. policy, it would be beneficial to retain certain provisions 
providing for Executive branch and FCC oversight of Comsat.\5\ We agree 
that other provisions in the 1962 Act might then be repealed 
immediately upon enactment of new legislation. These would include 
those provisions of the 1962 Act that place limitations on the 
ownership of Comsat. They also would include current requirements that 
Comsat obtain FCC approval to raise debt or issue stock. These 
restrictions do not appear to have a valid purpose for 1999 and serve 
to restrict unnecessarily Comsat's ability to remain competitive in an 
industry requiring extensive and sustained capital investment.
---------------------------------------------------------------------------
    \5\ We recommend that pending privatization of INTELSAT, Section 
201(a) and (c)(1)(2)(11) and Section 403 be retained in the 1962 Act.
---------------------------------------------------------------------------
    Finally, we suggest that the Subcommittee consider the significance 
of retaining a privatized INTELSAT in the United States. Retention of 
the INTELSAT organization in the United States may prove beneficial to 
the United States in light of the historical role of the United States 
in creating the INTELSAT system and the ongoing role of the United 
States as a leader in global satellite communications.
                               conclusion
    Legislation, such as S. 376, based on pro-competition principles 
and on the current and projected state of satellite telecommunications 
in the world is important. The 1962 Satellite Act was created to 
achieve global communications connectivity via a then-developing 
technology and to satisfy U.S. national interest goals. Today's 
concerns are different from those that guided policymakers in 1962. The 
WTO Agreement and the accompanying Reference Paper signal that the days 
of state-sponsored service providers are numbered. We look forward to 
working together to ensure that any future privatization efforts 
promote the parallel goals of universal access and competition in 
satellite services for users everywhere. Both of these goals are 
achievable and we are eager to implement such legislation once your 
efforts have been completed.
    Privatization of INTELSAT and Inmarsat is critical to bringing 
about real competition in international satellite communications, 
particularly in the developing world. As Chairman Burns aptly stated, 
``We need to ensure that satellite technology will continue to provide 
quality service, and we need to spur innovation. The best way to 
accomplish both of these goals is privatization. The private sector has 
always spearheaded technological leaps and I think our first steps into 
the next century should be quantum leaps deeper into the Information 
Age.''
    Your efforts, as well as the changes underway in the INTELSAT and 
Inmarsat, not only will greatly impact the future of the treaty-based 
organizations, but will set the stage for further liberalization in 
countries around the world. Congressional action will help promote an 
open, competitive marketplace.
    We look forward to continuing working with you on these important 
satellite policy issues.

    Senator Burns. Thank you very much, Mr. Porter.
    I will begin by asking a few questions. We have already 
heard from your testimony, Ms. McCann, your position on the 
ORBIT bill. You have also been very, very clear in the proper 
role of the executive branch in reviewing this privatization of 
INTELSAT. You have also given us some idea of ``fresh look.'' 
If you could iterate the view of ``fresh look'' as we have not 
provided that in our legislation, and we would be interested in 
what you thought of that.
    Ambassador McCann. The Administration does not support a 
policy of ``fresh look.'' We believe that the contracts 
negotiated betweeny Comsat and its customers were negotiated by 
private parties in an environment where some competitive 
alternatives existed. In addition, Comsat has made long-term 
commitments to INTELSAT based upon those contracts. We believe 
it would be inappropriate for the Federal Government to 
overturn such contracts.
    Senator Burns. Given the existence of New Skies and the 
prospect of a privatized INTELSAT, does the administration 
believe that INTELSAT must be broken up, maybe even into 
smaller units or pieces?
    Ambassador McCann. The Administration does not support 
breaking up or divesting INTELSAT into multiple pieces, 
primarily because it is not a sellable position within the 
intergovernmental organization. We have raised this issue and 
discussed it with other member governments and signatories, and 
there is absolutely no support for it.
    Senator Burns. In the view of the Administration, how soon 
would INTELSAT reach complete privatization if Congress did 
nothing or failed to pass this bill this year?
    Ambassador McCann. We believe the privatization 
negotiations are proceeding favorably, and we would anticipate 
closure on the privatization within a couple of years.
    Senator Burns. In other words, you think that this is a 
stepping stone. Will this accelerate it?
    Ambassador McCann. I am not sure that it will accelerate 
it, because, as I said, the negotiations, the discussions, are 
well underway.
    There is some concern, based on comments some of the member 
governments have made to me and others of the U.S. Government, 
that legislative attempts to negotiate the outcome of the 
privatization might be negatively viewed by those governments.
    Senator Burns. Mr. Porter, could we have your assessment of 
the success of the spinoff of New Skies?
    Mr. Porter. Senator, I am not prepared to answer that 
question. I do not want to give you an incorrect answer. I 
would be happy to provide the answer to that in a written 
statement.
    Senator Burns. You can be just like us Senator Stevens. I 
would say ``I do not know.'' [Laughter.]
    Senator Burns. You know what? That is acceptable, too. 
Because the longer I am around here, there is more things I do 
not know than I do.
    In the opinion of the FCC, is INTELSAT's own plan for 
privatization moving too fast? Is it moving too slow? Or do you 
like the pace?
    Mr. Porter. Well, the position of the FCC, Mr. Chairman, is 
that we believe that legislation in this area would serve the 
purpose of encouraging INTELSAT to move at an even faster pace 
toward privatization. We support your efforts in that regard. 
We are not prepared to say that we believe the progress of the 
privatization of INTELSAT at this point is sufficient that, 
absent legislation, such privatization will take place at a 
rapid pace.
    Senator Burns. Senator Rockefeller.
    Senator Rockefeller. Thank you, Senator Burns.
    How is privatization, Mr. Porter, going to help consumers, 
and, most specifically, rural consumers?
    Mr. Porter. Well, privatization, we believe, will allow for 
competitors to have access to satellite services on a more 
equal footing. We believe that that will have a direct benefit 
to consumers in terms of both offering of services and offering 
of services at a price which is more affordable to consumers.
    Senator Rockefeller. That does not answer my rural 
question.
    Mr. Porter. As to rural communities, generally, to the 
extent that markets are open to greater competition, we believe 
that there would be----
    Senator Rockefeller. We do not have competition in rural 
communities, Mr. Porter.
    Mr. Porter. To the extent that there is privatization, and 
the objectives of the bill are to increase consumer choice, we 
would hope that there would be incentives on the part of some 
operators to provide service to those markets that do not 
currently receive service.
    Senator Rockefeller. Yes. I think I need probably a written 
response from you, too. Because what you need to understand is 
that rural areas do not get competition. The history of rural 
areas, as our chairman knows very well, is deregulation leads 
to no service. That can be railroads, that can be 
telecommunications, that can be airplanes. I mean deregulation 
basically means New York, Los Angeles, here we come; 
Charleston, West Virginia, Beckley, bye-bye.
    So, I am for the bill, and you are, too. We agree on that. 
But the FCC needs to give me a better answer on why it is 
convinced that this is going to help rural West Virginia and 
rural America, whether there are mountains or whether there are 
not mountains. We need to know that.
    [The information referred to follows:]

                         Federal Communications Commission,
                                    Washington, DC, April 20, 1999.
Hon. John D. Rockefeller IV,
United States Senate,
Washington, DC.
Dear Senator Rockefeller:
    As you requested, I am writing to follow up on the questions you 
asked during the March 25th hearing before the Senate Subcommittee on 
Communications on the ``Open-market Reorganization for the Betterment 
of International Telecommunications Act'' (S. 376). I appreciate the 
opportunity to provide these responses.
    You asked for supplemental responses on two questions. First, you 
asked what effect the prospective privatization of INTELSAT might have 
on global international connectivity. Second, you asked what impact S. 
376 would have on provision of telecommunications services to rural 
areas, particularly rural areas of West Virginia.
    INTELSAT is in the process of considering restructuring options, 
including privatization. As to your first question, the FCC shares your 
concern that lifeline services and universal connectivity must continue 
to be provided by a privatized entity. In my written testimony I 
suggest that one of the legislative criteria for privatization that any 
legislation should address would be continued provision of services to 
developing countries.
    In its current deliberations on privatization, INTELSAT has 
identified global connectivity and lifeline services as a core 
principle for any future restructuring. INTELSAT is considering two 
approaches to assure that a privatized entity would continue to provide 
global connectivity and lifeline services to countries that must rely 
upon the INTELSAT system. One approach is to create a small 
intergovernmental organization to monitor and ensure that the 
privatized entity continues to provide these services. The other 
approach is to include in the corporate documents of the private entity 
the obligations and commitments to continue these services. It is too 
early in the process to determine which approach may be taken by 
INTELSAT.
    As to your second question, our response is two part. To the extent 
that S. 376 focuses on the privatization of INTELSAT, there is not a 
direct and explicit relationship to the provision of services in rural 
areas of the United States. INTELSAT, through Comsat, provides space 
segment capacity for use by U.S. service providers such as U.S. 
international carriers for the provision of international 
telecommunications. INTELSAT does provide domestic services to other 
countries--including providing leased transponder service and assisting 
in developing VSAT (very small aperture terminals) based services in 
rural areas. Should INTELSAT privatize, and should it enter the 
domestic U.S. satellite services market, it would, of course, have the 
capability to provide services that could be used for telecommunication 
services in rural areas in the United States--just as domestic 
satellite service providers do today. Whether relevant services at 
appropriate prices become available to rural customers, however, will 
be a matter for the companies that provide the ground segment and the 
rural telecommunications service providers who might purchase satellite 
capacity either from INTELSAT or a distributor of INTELSAT services.
    Additionally, potential benefits to rural consumers of a Comsat/
Lockheed Martin merger would have to be a result of service offerings 
by the new company to local telecommunication providers. The 
applications filed by Lockheed Martin and Comsat with the Commission to 
approve the first phase of the merger do not specify a commitment to 
providing services to U.S. rural areas. I cannot at this time comment 
further in view of the pendency of those applications.
    You can be assured that we agree with you on the importance of 
supporting service to unserved, rural, and economically isolated areas. 
As we recently stated in our proceeding for establishing services rules 
for mobile satellite services in the 2GHz frequency band, the 
Commission is committed to encouraging delivery of telecommunications 
services, including satellites services, to unserved and high-cost 
communities and seeking to develop cost-effective incentives for such 
services.
    Again, I appreciate this opportunity to expand upon my responses.
            Sincerely,
                                    Roderick Kelvin Porter,
                                                      Acting Chief.

    Senator Rockefeller. The second question would be in terms 
of privatization and the whole question of global satellite 
connectivity, which becomes very important and which Ms. McCann 
brought up. There are potentially some dangers for global 
satellite connectivity as you privatize. Can you speculate on 
what those might be?
    Mr. Porter. The dangers that I would anticipate, Senator, 
would be dangers that flow from a lack of competition. Beyond 
that, I am not sure I can comment.
    Senator Rockefeller. OK, thank you.
    Thank you, Mr. Chairman.
    Senator Burns. We have been joined by Senator Cleland, from 
Georgia. Nice to see you this afternoon, Senator. If you have 
an opening statement, we would sure take that statement at this 
time. If you would like to question our witnesses, you may do 
that also.

    STATEMENT OF HON. MAX CLELAND, U.S. SENATOR FROM GEORGIA

    Senator Cleland. Well, thank you very much, Mr. Chairman. 
Let me just say, to get on the right side of you, ``I do not 
know.'' [Laughter.]
    Senator Cleland. Let me just say I appreciate you, Mr. 
Chairman, for your leadership on INTELSAT privatization 
legislation. As the newest member of this committee, I do look 
forward to working with you and my colleagues on the committee 
on satellite reform.
    As an original cosponsor of ORBIT, I believe that the time 
has come for us to concentrate on passing a satellite reform 
bill that can be enacted into law this year. The current 
INTELSAT arrangement was established by the Communications 
Satellite Act of 1962. The world of 1962 was one of a raging 
cold war and the need for a Western response to the Soviet-
built Sputnik. INTELSAT was that response, with COMSAT being 
the United States signatory to the INTELSAT Treaty.
    However, today is a radically market than that of the 
1960's. The cold war is no more, and governments are not the 
only entities with access to the means to launch a satellite. 
Many private companies compete with each other for access to 
the skies. I believe that it is time to extend this same 
competitive ability to COMSAT and INTELSAT.
    From the outset, it is important to recognize that much has 
changed since last year, when both the House and Senate 
considered radically different plans to encourage the 
privatization of INTELSAT. However, I understand that this year 
there already is an ongoing dialog, Mr. Chairman, between 
members of the House and the members of the Senate Commerce 
Committee here to reach a consensus on this legislation.
    I look forward to participating actively in such 
discussions as the legislative process moves forward. I think 
it is important to note that this year we have a new player in 
the debate over INTELSAT's privatization. Of course I am 
talking about Lockheed Martin. I would like to thank Mr. John 
Sponyoe, of Lockheed Martin, for joining us today as a witness. 
I believe that Lockheed Martin can provide us with a really 
fresh and new perspective on what is really happening in the 
satellite communications market today, particularly on the 
issue of competition.
    It is no secret that ORBIT would change the statutory 
ownership restrictions on COMSAT, thereby paving the way for 
Lockheed Martin's proposed acquisition of COMSAT. I will be 
interested in hearing from our witnesses on how this proposed 
merger will affect competition in the satellite communications 
industry. Along with the rapid privatization of INTELSAT, I 
believe that Lockheed Martin's interest to the satellite 
communications industry will enhance the already vigorous 
competition.
    Mr. Chairman, just let me conclude my opening remarks by 
saying I look forward to hearing the testimony of all of our 
witnesses, and it is my sincere hope that we can work together 
to move our laws governing the operation of INTELSAT and COMSAT 
out of the 1960's and into the 21st century.
    Thank you, Mr. Chairman.
    Senator Burns. Thank you, Senator. Do you have any 
questions for the present panel? You may continue on.
    Senator Cleland. Yes, sir. Thank you very much.
    Let me just mention one or two things. One provision of 
this legislation provides the President with the authority to 
certify whether INTELSAT has privatized in a pro-competitive 
manner before INTELSAT may have direct access to American 
markets. Either one of you can comment on this. Do you believe 
that this authority is best managed by the Office of the 
President? Is that an opinion that you share one way or the 
other?
    Mr. Porter, your judgment?
    Mr. Porter. We believe that there has to be some provision 
for the independent regulatory agency to make some assessment 
in unusual situations. Just to give you an example, in the case 
today, of WTO countries that automatically get market entry, we 
still have the ability to examine the extent to which there is 
a high risk to competition. To the extent that we have a new 
scenario, where there is no ability on the part of the 
independent agency to make an assessment in unusual situations 
about significant risk to competition, we believe that there 
may be a problem.
    So, we would say that there needs to be a provision to 
ensure that the agency continues to have that ability.
    Senator Cleland. I thank you very much.
    Ms. McCann, you are shaking your head yes?
    Ambassador McCann. I would just like to add that the 
President, as you know, has the authority to negotiate 
international agreements. We would not agree to a privatization 
of INTELSAT--that is, the Administration would not agree to a 
privatization of INTELSAT--that we believed was not pro-
competitive. So we do not actually believe that the 
certification requirement is necessary, because we would not 
agree to privatization unless it was pro-competitive.
    Senator Cleland. Thank you.
    Either one of you can respond to this, if you like. Mr. 
Porter, you mentioned competition and privatization. Several 
large, multifaceted corporations have entered the satellite 
communications market, bringing forth new ideas and innovation 
for the benefit of consumers. Some of these commercial entities 
include GM/Hughes, Motorola and Boeing. Do you believe that new 
market entrants like Lockheed Martin will be one way to ensure 
more vigorous competition in the satellite communications 
industry?
    Mr. Porter.
    Mr. Porter. Yes, we do, Senator. We believe that one of the 
benefits of legislation that would open the market to other 
entrants is to permit for greater consumer and greater customer 
choices. We believe that that is a positive objective.
    Senator Cleland. Thank you. Ms. McCann, you are shaking 
your head yes?
    Ambassador McCann. I agree.
    Senator Cleland. All right. Well, thank you very much for 
being here today.
    Thank you very much, Mr. Chairman.
    Senator Burns. Do you have any other questions, Senator 
Rockefeller? Any questions?
    Senator Rockefeller. No, Mr. Chairman.
    Senator Burns. I know there have been a couple of Senators 
that have indicated that they want to submit some questions. We 
will get those to you. Just like I say, it is a busy afternoon 
this afternoon. We will get those to you. If you could respond 
to the Senators and the committee, I would certainly appreciate 
that.
    Senator Burns. I thank you for coming this afternoon. You 
are excused. We will move to panel two.
    Ambassador McCann. Thank you, Mr. Chairman.
    Mr. Porter. Thank you.
    Senator Burns. On the second panel this afternoon will be 
Mr. Jim Cuminale, General Counsel of PanAmSat Corporation; Ms. 
Betty Alewine, President and CEO of COMSAT; Mr. John Sponyoe, 
CEO, Lockheed Martin; and Mr. Conny Kullman, Director and CEO 
of INTELSAT.
    We welcome you here this afternoon to a discussion which 
would enlighten all of us. Again, I am sure there will be other 
questions from other Senators that are not here today.
    Mr. Cuminale, of PanAmSat, we welcome your testimony at 
this time.

   STATEMENT OF JAMES W. CUMINALE, SENIOR VICE PRESIDENT AND 
             GENERAL COUNSEL, PANAMSAT CORPORATION

    Mr. Cuminale. Thank you, Mr. Chairman, and good afternoon.
    Senator Burns. Nice to see you again, by the way.
    Mr. Cuminale. The same here. It is becoming a habit.
    Senator Burns. You are going to be in that chair long 
enough that you will be able to vote one of these days.
    Mr. Cuminale. Thank you for extending the opportunity to me 
today to speak to you on this very important issue. Before I 
get into my comments, I want to thank you, Mr. Chairman and 
Senators, for taking up what PanAmSat has long believed was an 
issue that needed to be addressed. It is of critical importance 
to us, but, more importantly, we think to a very important 
marketplace and to a very important service industry.
    The other witnesses today, unless I am absolutely 
surprised, are going to tell you that there is no monopoly. I 
am here today to tell you there is, in over half the world by 
population and geography. That is what the FCC found in the 
COMSAT Nom Dom proceeding, which had to be one of the most 
hotly contested proceedings in which I have ever been involved, 
in which pleadings and economic studies were filed by the 
pound, not the page. That is what the GAO found, in multiple 
reports it has rendered to the Congress. That is what virtually 
every other satellite operator and major customer for satellite 
services will tell you over and over again.
    The problem of satellite monopoly manifests itself both in 
the U.S. domestic market, with respect to international 
services, and of course abroad. Now, the one thing I want to 
try to convince you of today is that if you let that monopoly, 
which is today an Intergovernmental Organization with 
affiliates called signatories, simply go private, then you have 
failed, as have we. Because what you have got is that monopoly 
privatized and unregulated, which is probably the worst of all 
possible worlds.
    Now, on the U.S. side of the formula, the monopoly is in 
the form of COMSAT's control over the bottleneck facility 
INTELSAT. Since there is no other way for the customer to get 
to the destination, the U.S., by law, has effectively given 
COMSAT a tollbooth on the information highway. The FCC has 
found that this toll amounts to an average of 68 percent over 
COMSAT's INTELSAT costs, paid by the U.S. consumer, and the 
customers will tell you that toll is charged for no added 
value, for the most part, in services or facilities. If you 
eliminate that tollbooth, you create the opportunity for 
competition here, which means reduced rates for the U.S. 
consumer immediately.
    Lockheed and COMSAT are suggesting, and S. 376 would allow, 
this toll booth be sold for their benefit, to the detriment of 
U.S. consumers. The question we ask you is, how can the U.S. 
encourage, let alone demand, that other countries eliminate 
bottleneck access to their markets when we maintain that 
monopoly here?
    On the international side, other witnesses will tell you 
that we cannot dictate competitive policies to other countries. 
We are telling you that governance of the U.S. market is 
entirely within your control, and that is the way to obtain a 
pro-competitive privatization. There is absolutely nothing 
wrong with requiring that this international enterprise, that 
was formed for the public good, serve that good by fostering 
competition and rejecting exclusivity and monopoly as a 
condition to providing broad, commercial communication services 
in the U.S.
    We have suggested that the solution is the division of 
today's INTELSAT into two roughly equal competing companies. 
This is a pro-competitive privatization. It would leave each 
market with two competitors who have been in that market ready 
to compete with one another. It would not assure us of the 
ability to get into the market, but we believe, once 
competition is introduced, that is a natural outflow.
    We are open to any other solution that will assure that 
unlimited access to the U.S. market will not be available to 
any privatized INTELSAT that has retained the monopoly market 
access that is a throwback to the days of an intergovernmental 
entity. That notion, by the way, is entirely consistent with 
FCC policy that applies to all U.S. licensed operators. None of 
us is permitted to accept exclusive market access anywhere in 
the world.
    Pro-competitive privatization will not happen overnight. 
So, INTELSAT's conduct between now and then is critically 
important. That is why we need to ensure that INTELSAT cannot 
expand its privileged position prior to privatization. Those 
are the so-called stand-still provisions that we promote.
    Our principal concern with S. 376 is that it suggests and 
encourages, but does not demand or require. Experience and 
logic show that market dominance must be wrested away, not 
requested away. Congress is in a position to do that.
    Now, in the limited time available to me, I cannot take you 
through our comments to the bill, but we have submitted a 
markup of S. 376. We also have a short list of comments that 
are in plain English. Additionally, I would just like to inform 
you that a number of companies, which include GE/Americom, 
Iridium, Teledesic, Alypso, MCI-WorldComm, AT&T, Motorola, 
Final Analysis, Hughes, and of course ourselves, have worked 
together to draft a bill that all of us can support. We would 
be more than happy to provide that bill to you so you can see 
in detail what our interests would indicate.
    Thank you again, Mr. Chairman, for the opportunity to speak 
to you today.
    [The prepared statement of Mr. Cuminale follows:]
  Prepared Statement of James W. Cuminale, Senior Vice President and 
                 General Counsel, PanAmSat Corporation
    My name is James W. Cuminale. I am the Senior Vice-President and 
General Counsel of PanAmSat Corporation. I have testified before this 
committee twice, the last time in September 1998 regarding S. 2365. I 
said then that S. 2365 admirably stated the policy objectives of 
creating a competitive marketplace for international satellite 
communications, but was very short on practical implementation of these 
objectives. Ironically, the current bill, S. 376, is better in stating 
the pro-competitive objectives, but even less practical in implementing 
them. Because S. 376 takes a step backward, I would like to use my time 
today to be very clear as to what is at stake here.
    Let's start by drawing a line between what are U.S. domestic 
problems, which the Congress can solve without bringing along 140 other 
countries, and what are international problems, as to which Congress 
can motivate other countries to help solve. One pressing domestic 
problem is that, unlike most other advanced nations, including the 93 
who permit direct access, the U.S. is content to leave in place a 
private monopoly on access to Intelsat: A private monopoly that 
provides no products or services, but merely exacts a toll on all U.S. 
access to the Intelsat satellite system.
    Our other domestic problem is that we continue to countenance the 
provision of commercial satellite services by an inter-governmental, 
treaty-immune satellite cartel; we even have given the Intelsat cartel 
a tax-haven home in the District of Columbia to compete with private 
satellite companies. This is not only unfair to the competitors, it is 
unfair to D.C. taxpayers. Let's begin with the tollbooth and--
         eliminate the private monopoly tax on satellite access
    In the Communications Satellite Act of 1962, Congress created a 
private monopoly in Comsat--a monopoly that allows it to collect a 
tollbooth tax on all transmissions to or from Intelsat satellites 
providing service to and from the United States. By law Comsat collects 
this private tax even though it does not own or operate the wires and 
dishes used to reach those satellites, it does not provide any service 
to carriers in connection with use of those satellites, or allocate any 
U.S. bound traffic among carriers using those satellites. Today, 
customers must write Comsat a check, including a surcharge of up to 68 
percent over Intelsat rates, each time they use an Intelsat satellite. 
This private tax comes right out of the pockets of U.S. consumers.
    This law makes no sense here in the U.S. and it is an embarrassment 
around the world because it makes it more difficult for us to argue for 
the end of access monopolies overseas. The law granting Comsat a 
private monopoly to tax U.S. consumers should be repealed immediately, 
as part of the legislation that allows Lockheed is permitted to acquire 
Comsat.
    When Lockheed Martin urges you to amend the `62 Act to let it buy 
100 percent of Comsat, they are really saying is ``let us buy Comsat's 
private monopoly tollbooth.'' It is an absurdity that the tollbooth 
exists at all. It would be unconscionable if it is permitted to be 
sold.
    Repeal of the private monopoly will not put Comsat out of business 
or take anything away from Lockheed. Comsat, and after the sale, 
Lockheed, would still be the largest shareholder in Intelsat's 20 plus 
global satellites. In fact, Comsat itself is currently the largest 
shareholder in New Skies, last year's private spin-off from Intelsat, 
which operates six former Intelsat satellites for which Comsat now has 
no right to charge a private tax on access. Obviously, Comsat felt that 
the revenue generated from use of the satellites alone was sufficient 
for it to support investment in New Skies. The same result applies to 
Intelsat--it is a sound investment for Comsat, and Lockheed, even 
without the monopoly tollbooth tax. Another thing we can do, taking 
both domestic and international actions, is--
 terminate the u.s.--sanctioned cartel providing commercial satellite 
                                service
    The Intelsat satellite cartel was established decades ago when 
global commercial satellite service was simply too risky for any one 
company to undertake. In addition, at that time there generally was 
only one large telecommunications provider, usually a government 
ministry or corporation, operating in each country. As a result, at the 
urging of the United States, an international cartel composed of one 
monopoly telecommunications provider from each country was formed to 
provide global satellite service. The United States agreed to host the 
headquarters of this new cartel tax free in the District of Columbia, 
leasing them valuable land on Connecticut Avenue for the sum of one 
dollar per year.
    Today private companies have established global and regional 
satellite networks that provide commercial service. In many countries, 
national laws have changed and there are numerous telecommunications 
providers competing in the marketplace. Yet the cartel still exists and 
it has priority access to satellite slots and below commercial market 
financing. Monopoly national telecommunications providers still meet 
today in the rent free headquarters on Connecticut Avenue, courtesy of 
the United States, to set prices and work against open market access by 
other satellite providers.
    Competitive satellite providers seek an end to this injustice. 
Domestically, the United States should repeal the headquarters 
agreement that provides diplomatic immunity, tax protection, and free 
rent to this international satellite cartel. Internationally, we 
actively should seek to terminate Intelsat by spinning off its 
remaining satellite assets to two new private companies, in addition to 
last year's New Skies spin-off. This is what a pro-competitive 
privatization is all about. Termination of Intelsat through 
privatization will not result in the loss of the satellite assets or 
financial investment by those who built the Intelsat system. As New 
Skies will demonstrate, the Intelsat satellite assets can be used to 
provide competitive services without diplomatic immunity. When there is 
a pro-competitive privatization and there is no more intergovernmental 
entity, the private successors to Intelsat will be treated the same as 
all other private regional and global satellite systems.
    The end of Intelsat as an intergovernmental entity also does not 
mean the end of Comsat. As I've said, Comsat is the largest single 
shareholder in Intelsat and the New Skies spin-off. All of the revenue 
stream from Comsat's investment in New Skies six, and Intelsat's 20 
plus satellites will remain. Moreover, Comsat has been working hand in 
glove with the world's key telecom companies for over 30 years; surely 
they can use these contacts and Intelsat's former satellites to develop 
a successful business.
    Finally, ending Intelsat will not result in the loss of satellite 
services to any nation currently receiving such service. Nor will it 
prevent service to any country that seeks satellite services. Private 
companies will provide these services, because, unlike undersea cables, 
satellite coverage is cost-effective throughout broad areas of the 
earth's surface. And if there's any doubt about the capacity of private 
companies to serve poor countries, the United States unilaterally can 
assure global satellite service. All the FCC has to do is require that, 
as a condition for access to the U.S. market, every private satellite 
operator must provide service upon request to any country that is 
within the coverage area of its satellites and has the necessary 
facilities and infrastructure to send and receive satellite service.
    Another international problem posed by the Intelsat system is that 
it makes it more difficult for private competitors to get market access 
to countries that are Intelsat members. Therefore--
       the united states should act to ensure fair market access
    One of the greatest problems posed by the continued existence of 
Intelsat as a government-sanctioned cartel providing commercial 
services is that the members of the cartel, the national 
telecommunications providers, have a direct financial interest in 
requiring use of the Intelsat system. As a result, these national 
providers work through Intelsat to block access to their countries by 
services using competing private satellite services.
    To ensure that the privatized entities created through the 
termination of Intelsat do not impede market access, the United States 
should use access to the U.S. market as leverage to assure that U.S. 
companies have access to foreign markets. This leverage should be 
applied to the privatized spin-offs from Intelsat. The FCC should allow 
access to the United States market by a privatized spin-off only if it:

          (1) is incorporated as a private company in a country which 
        has signed the World Trade Organization Basic Agreement on 
        Telecommunications Services;
          (2) does not have any employees, directors, officers, or 
        assets in common with other privatized Intelsat spin-offs or 
        ownership by monopoly telecom companies that control access to 
        their home markets; and
          (3) has not obtained satellite slots, or contracted for 
        satellites after 
        January 1, 1999, other than by using the same satellite 
        registration process and financial terms available to all other 
        private commercial satellite service providers.
                        some comments on s. 376
    Measured against these goals, S. 376 simply does not go far enough. 
It not only keeps the private monopoly tollbooth, it permits Lockheed 
Martin to buy Comsat's right to tax U.S. consumers. It does nothing to 
end Intelsat's tax-free status in the District of Columbia or its other 
legal immunities in the U.S. The bill doesn't end Intelsat, it merely 
threatens the end of U.S. participation in Intelsat, while still 
creating many back-end exceptions for continuing U.S. participation. 
The bill ousts the FCC from any meaningful determination as to what is 
a pro-competitive privatization, improperly substituting the President 
for the independent licensing agency. And the bill does not use the 
leverage of U.S. market access to open up markets overseas--access that 
is blocked by Intelsat members with the active support of Intelsat.
    For over a decade, PanAmSat has been calling for the Congress to 
step in and correct the legislative framework for the international 
satellite industry. The time is now.

    Senator Burns. Thank you.
    Next we will hear from Ms. Betty Alewine, President and CEO 
of COMSAT.

 STATEMENT OF BETTY C. ALEWINE, PRESIDENT AND CHIEF EXECUTIVE 
                  OFFICER, COMSAT CORPORATION

    Ms. Alewine. Thank you, Mr. Chairman and members of the 
subcommittee. On behalf of COMSAT Corporation, it is a 
privilege to appear again and present our views this time on S. 
376.
    Let me begin by saying that we believe that this bill is a 
balanced and constructive proposal that should serve as the 
basis for revision of the 1962 Satellite Act.
    Now, having said that, Mr. Chairman, when I was growing up 
in Mississippi, I heard a lot of stories about fish that were 
this big. These days, I hear a lot of stories about COMSAT and 
how we are this big. Unfortunately, those stories are just 
about as truthful as the fish stories that I used to hear. Of 
course, it is easy to exaggerate when you are talking about the 
fish that got away. But in COMSAT's case, you can measure us 
and you can weigh us. Whenever policymakers do that based on 
fact, they usually realize that the whoppers people are telling 
are just about as phony as those fish stories.
    Now, what these whoppers have in common is the claim that 
COMSAT is a monopoly. In fact, our market share is less than 20 
percent for voice and data, and less than 35 percent for video. 
Where I come from, you are not a monopolist if 80 percent of 
the market is served by your competitors. But you do not have 
to take my word for it, because last April, almost a year ago, 
after looking at the issue for a full year, the FCC ruled that 
COMSAT had no monopoly power in any major market.
    Now, our opponents try to spin that FCC finding by claiming 
that COMSAT still charges monopoly rates for traffic to 
countries where there are no competitive choices to INTELSAT, 
the so-called thin routes. They go on and on about how many 
thin route countries there are. But what they do not tell you 
is that these countries account for only 7 percent of our 
traffic, and less than 2 percent of all of the circuits used by 
U.S. carriers for their international traffic.
    Last year, COMSAT's total revenue from thin route traffic 
was less than $19 million. This is in an industry where total 
U.S. revenues are about $19 billion. For occasional use 
television, where we supposedly have a monopoly in 142 
countries, our thin route revenue was $500,000. Our prices on 
thin routes are the same as in the most competitive markets. We 
serve thin routes. We go to the rural areas of the world to 
meet our Universal Service obligations, not to earn monopoly 
profits.
    Yet our competitors claim that this tiny, tiny portion of 
our business poses such an anti-competitive threat that the 
Congress of the United States should impose service 
restrictions that will kick us out of the entire market.
    Another whopper you often hear is that COMSAT collects a 
68-percent markup over the rates that it pays to INTELSAT. In 
fact, both the FCC and the National Economic Council have 
stated that the 68-percent figure is misleading, because it 
does not include all the costs that COMSAT incurs in providing 
service. Our actual margin is about the same as our 
competitors. There is nothing monopolistic about that.
    Still another whopper is that COMSAT has monopoly access to 
INTELSAT. It is true that COMSAT is the exclusive service 
provider on the INTELSAT capacity that we own. But providing 
service over the facilities that we paid for does not give us a 
monopoly. The truth is that consumers right now have more 
choices than ever. We face intense competition from fiber cable 
operators, from other satellite systems, and even from other 
INTELSAT signatories.
    Another story that you have heard is that COMSAT's 
customers should be able to nullify our contracts because they 
are anti-competitive. The nice name given to this idea is 
``fresh look.'' In fact, it is standard industry practice for 
customers to agree to long-term contracts in order to obtain 
lower rates. No different than many of us do every day with 
everything from health club memberships to magazine 
subscriptions.
    Both the FCC and a U.S. district court looked at COMSAT's 
long-term contracts and found that they do not impede 
competition. The FCC noted that these contracts do not lock up 
the market, because they cover less than 20 percent of the 
traffic. We applaud 
S. 376 for expressly rejecting this egregious idea.
    The last whopper that I want to address is that COMSAT 
wants to sell its monopoly to Lockheed Martin. All I can say is 
that when a company with no market share buys a company with 
less than 20 percent market share, that is no threat to 
competition. COMSAT's merger with Lockheed Martin will increase 
competition, and that is exactly why our competitors want to 
stop it. They hope to dominate the market themselves, and 
afraid that this merger will upset their plans.
    The reason for all of these fish stories is simple: If 
there is no monopoly, there is no basis for the punitive 
legislation that our competitors favor, no basis for service 
restrictions for direct access, for nullifying our contracts, 
or for blocking our merger with Lockheed Martin. That is why we 
are pleased that S. 376 is based on reality in the market today 
versus rhetoric.
    S. 376 creates a very powerful incentive to expedite the 
INTELSAT privatization. It modernizes the Satellite Act and it 
looks forward based on the actual market conditions that exist 
today, rather than looking backward at conditions that no 
longer exist.
    Mr. Chairman, a much more detailed discussion of COMSAT's 
views on S. 376 is contained in my written testimony, which has 
been submitted for the record. I would like to thank you and 
each of the members of the committee today for holding this 
hearing, and I would be pleased to answer your questions. Thank 
you.
    [The prepared statement of Ms. Alewine follows:]
   Prepared Statement of Betty C. Alewine, President and CEO COMSAT 
                              Corporation
    Mr. Chairman, and members of the Subcommittee: On behalf of COMSAT 
Corporation (``COMSAT''), it is a privilege to appear today and present 
COMSAT's views on S. 376, the ``Open-market Reorganization for the 
Betterment of International Telecommunications Act'' (``ORBIT''), which 
amends the Communications Satellite Act of 1962 (the ``Satellite 
Act''). I last testified before this Subcommittee seven months ago and 
urged that Congress revise the Satellite Act promptly. Since then, the 
need for legislation has become even greater for three principal 
reasons.
    First, the full privatization of the business operations of 
Inmarsat is set for next month. However, a change in the law is 
required for the U.S. government to continue its participation in 
overseeing the provision of vital Global Maritime Distress and Safety 
Services (``GMDSS'') by Inmarsat.
    Second, the INTELSAT Assembly of Parties is scheduled to meet in 
October 1999, to consider various privatization proposals. Enactment of 
legislation before then will provide U.S. negotiators with clear 
guidelines and objectives for a pro-competitive outcome; and entering 
into that international meeting with a unified position will enhance 
U.S. prospects considerably.
    Third, the approval process at both the Justice Department and the 
FCC for Lockheed Martin Corporation's (``Lockheed Martin'') proposed 
acquisition of COMSAT is underway and could be finished in a few 
months. However, the obsolete provisions in the Satellite Act that 
limit ownership of COMSAT stock must be removed to complete the 
transaction.
    Senator Burns, with the early introduction of S. 376, you and the 
co-sponsors of the bill are to be commended for taking the steps 
necessary to address all these matters. S. 376 will ensure that, after 
Inmarsat is privatized, the U.S. government has the authority to 
continue its role in the provision of GMDSS services. It also will 
allow the United States to be a positive and constructive participant 
in the privatization of INTELSAT. In addition, it will promote 
competition among U.S. satellite companies with long overdue 
deregulation. All of these measures in combination will bring enormous 
benefits to American consumers. Satellite legislation is now poised to 
move quickly this year. Let me explain why.
    We do not begin today's hearing with a blank slate. Much was 
learned about the industry and the forces driving international 
satellite reform during the 105th Congress. The one thing that did 
emerge clearly from the last session is that the Congress and the 
Administration share identical objectives--to privatize INTELSAT in a 
pro-competitive manner and to update the laws regulating the U.S. 
satellite industry to reflect the market conditions of today, rather 
than the state of affairs that existed decades ago after the launch of 
Sputnik. The ``October Sky'' of 1999 bears little resemblance to that 
of 1962 when Congress passed the Satellite Act. Today, the debate 
centers on the specific measures necessary to complete the 
privatization of INTELSAT (a process already well underway), and on 
whether COMSAT's rivals need to have Congress legislate a particular 
market outcome once the Satellite Act's restrictions on COMSAT are 
removed.
    COMSAT submits that S. 376 strikes the right overall balance. It 
creates powerful economic incentives to expedite INTELSAT 
privatization, while minimizing unilateral dictation of specific terms 
and conditions to other nations. At the same time, the bill ensures 
that the interests of U.S. consumers are served by the restructuring 
plan ultimately adopted by INTELSAT. U.S. market access is predicated 
on a Presidential certification that the final privatized structure of 
INTELSAT will not distort competition, as defined by factors clearly 
set forth in the statute. In the event of undue delay, the bill 
provides for U.S. withdrawal from INTELSAT if a final decision by its 
member nations is not attained by January 1, 2002.
    On the domestic side, S. 376 removes all the antiquated provisions 
of the Satellite Act and makes large strides toward regulatory parity 
for all competitors. The bill removes the ownership restrictions of the 
1962 Satellite Act that have prevented COMSAT from merging with, or 
being acquired by, others. This will permit the Lockheed Martin merger 
to go forward, subject to Justice Department and FCC approvals. While 
COMSAT does have concerns with certain provisions of the bill, which I 
will elaborate upon, it is a sound bill. It is a pro-competitive, 
market-oriented and deregulatory privatization measure. It promotes 
user choice and consumer interests, protects the needs of the national 
security community and advances U.S. trade interests.
    For these reasons, S. 376 represents a major milestone in this 
debate. Based on the Subcommittee record and recent administrative and 
judicial decisions, the bill accurately reflects the current state of 
competition in the international satellite industry, appropriately 
relies on market forces and imposes government regulation only where 
absolutely necessary. The bill recognizes, as the FCC did last year, 
that COMSAT's position in the international telecommunications 
marketplace is no longer dominant, and that COMSAT has no monopoly 
power in any major service or geographic market it addresses. The FCC 
has recently held, after extensive analysis, that these major markets, 
comprising 93 percent of COMSAT's business over INTELSAT, are subject 
to ``substantial competition.''
    Only on the so-called ``thin routes''--that is, countries where 
COMSAT carries out its universal service obligations--is the company 
regulated as a dominant carrier. These thin routes in the aggregate 
account for only 7 percent of COMSAT's traffic, and about $19 million 
in revenue of the nearly $19 billion market for U.S. international 
telecommunications services (.001 percent!). It also is important to 
note that COMSAT's rates for these thin routes are the same as, or 
lower than, the rates for the markets where we face the most vigorous 
competition. So it can be said without equivocation that COMSAT 
delivers the benefits of competition everywhere. See Attachment 1.
    Some competitors attempt to mask this reality by pointing to a 
large number of thin route countries for some marginal COMSAT services. 
For example, one competitor frequently cites as evidence of COMSAT's 
enormous monopoly that we are the exclusive provider of occasional use-
TV satellite capacity to 142 thin route countries. We have actually 
never even received service requests from our customers to more than 
one-third of these countries for many years. Moreover, the Subcommittee 
should be aware that this enormous COMSAT ``monopoly'' generated all of 
$500,000 in revenue in 1998.
    COMSAT secures capacity on these thin routes in furtherance of its 
universal service commitments, not because of the negligible revenue 
generated. For competitors to urge the Congress to bar COMSAT from 
competitive growth markets because we alone serve thin routes makes 
little sense--except to competitors who search for any conceivable way 
to keep COMSAT hamstrung. The sponsors of S. 376 should be commended 
for rejecting this market-distorting rhetoric and crafting legislation 
based on actual competitive conditions.
    COMSAT's monopoly over satellite communications to and from the 
United States ended in 1984, when separate satellite systems were 
authorized to compete with COMSAT and INTELSAT. The international 
telecommunications landscape has changed dramatically since then, and 
COMSAT is now just one firm among many in a marketplace characterized 
by vibrant, facilities-based competition. We face strong challenges 
daily from other satellite companies such as Hughes/PanAmSat, Loral, GE 
Americom, Columbia and Teleglobe Canada. In addition, customers 
requiring international transmission capacity are by no means tied to 
satellite technology. Over the last decade, high-capacity, undersea 
fiber optic cables have actually become the dominant medium for the 
provision of international voice and data services. These cables 
directly connect the U.S. to over 125 countries, including every market 
of significance, with more fiber cables being added on a routine basis. 
For these services, COMSAT competes daily against multi-billion dollar 
carriers such as AT&T, MCI WorldCom and Sprint. See Attachment 2.
    Last year, AT&T generated over $8 billion in international service 
revenue, and is now about to partner with British Telecom in a $10 
billion global telecommunications venture. MCI Worldcom had 
international service revenue of over $4 billion, and Sprint has a 
multi-billion dollar international enterprise as well. To put all this 
in perspective, COMSAT's entire INTELSAT service revenue in 1998 was 
only $266 million. Pleas of these competitors to have Congress 
legislatively nullify our non-exclusive, carrier contracts because 
COMSAT wields ``monopoly power'' over them are ludicrous. These 
companies have enormous bargaining power, and do not need the help of 
Congress to renegotiate their contracts with COMSAT, a pattern they 
have followed for years.
    As described below, COMSAT's market shares have declined 
dramatically in the last decade to levels as low as an average of 12 
percent for voice and data services to countries with the heaviest 
traffic volumes (``thick routes''), and an average of no more than 35 
percent in multi-carrier international video markets. During the same 
time, many of COMSAT's satellite competitors have enjoyed enormous 
success. Later this year, the PanAmSat satellite fleet will surpass 
INTELSAT in size by a significant margin, with 24 satellites in-orbit 
compared to 19 for INTELSAT.
    PanAmSat also touts to Wall Street a ``non-cancelable'' backlog of 
service contracts of $6.3 billion, compared to only a $700 million 
contract backlog for COMSAT. Loral, with its acquisitions of the 
satellite fleets of AT&T Skynet, Orion and Satmex, is another 
formidable competitor. In short, there can be no dispute that the 
competitive marketplace is working. Nor can claims be taken seriously 
that COMSAT has special privileges and advantages that have allowed it 
to maintain a monopoly position. If we did, our competitors would not 
be multiplying and flourishing at the rate that they are.
    The truth of the matter is that, absent rapid privatization of 
INTELSAT and modernization of the Satellite Act, competition will 
diminish. INTELSAT's structure must be privatized if it is to respond 
to customer demands with the simplicity and speed of its competitors. 
COMSAT's investment in INTELSAT is at risk without these fundamental 
changes. COMSAT itself is without the wherewithal in the long run to 
stand alone against the vertically-integrated GM/Hughes/PanAmSat, 
Loral/Orion/Satmex, and foreign global and regional satellite systems, 
not to mention the giant cable consortia led by AT&T and MCI Worldcom.
    That is the reality of today's international telecom markets. 
COMSAT's announced plans to merge with Lockheed Martin are, in large 
part, an effort to meet these competitive challenges. This union will 
combine COMSAT's established satellite and networking business with 
Lockheed Martin's space industry expertise, technology, resources and 
capital to create a more effective competitor in the global 
telecommunications services market. In the end, all the hue and cry 
over the need to restrict COMSAT services, abrogate COMSAT's contracts, 
and minimize its retail business through direct access, is nothing more 
than an effort to avoid that prospect. In contrast, S. 376 will enable 
American consumers to be the true beneficiaries of robust and fair 
competition.
    Before turning to the specific provisions of S. 376, I would like 
to provide the Subcommittee with some additional relevant background on 
COMSAT, and more detailed information on the industry participants 
actively involved in this legislative debate. This material is 
essential to address some misinformation about COMSAT and various 
criticisms being raised about certain provisions in S. 376, criticisms 
which simply do not withstand analysis.
COMSAT and the Communications Satellite Act of 1962
    In 1962, pursuant to the Satellite Act, COMSAT was created as a 
private American corporation with NO government ownership, subsidies, 
or guarantees. COMSAT is owned by approximately 33,000 shareholders who 
hold 53 million shares of stock traded on the New York Stock Exchange. 
While its name is well known as the pioneer of commercial satellite 
communications, it is actually a small company, with just over $600 
million in total revenue in 1998.
    COMSAT was established to carry out the national policy of creating 
and operating a global satellite communications system in partnership 
with other nations. That satellite system is known as INTELSAT. The 
Congress decided that the United States would participate in this 
global system via COMSAT through private capital invested by ordinary 
Americans. In fact, the Satellite Act directed that the stock initially 
offered by COMSAT ``be sold at a price not in excess of $100 for each 
share and in a manner to encourage the widest distribution to the 
American public.''
    Working to fulfill the mandate of the Satellite Act, COMSAT has 
been successful on a historic scale. COMSAT and INTELSAT today provide 
universal coverage connectivity on a non-discriminatory basis to 
developed and developing countries throughout the world. COMSAT and 
INTELSAT are important components of America's telecommunications 
infrastructure and one of the main reasons why the United States exerts 
technological leadership--dispersed among many companies--in the field 
of satellite communications.
    The satellite facilities COMSAT invested in are vital to both the 
civilian and military functions of the U.S. Government. They enable 
American businesses to serve global markets and manage global 
enterprises. COMSAT is also dedicated to the universal service mission 
of the Satellite Act, and the company carries traffic to foreign points 
that do not generate sufficient volume for international carriers to 
construct their own cable facilities, and/or which other satellite 
firms opt not to serve at all. Moreover, and unlike any other U.S. 
satellite company, COMSAT offers non-discriminatory access at 
competitive rates to its facilities to all comers, including its 
competitors.
    The work being done at COMSAT Laboratories further contributes to 
keeping the U.S. at the forefront of space communications technology, 
including applications to meet national defense requirements. COMSAT 
holds hundreds of patents which are the result of the company's 
investments in research and development. Those innovations have made 
satellites an integral part of today's global information 
infrastructure. To cite the latest example, COMSAT Labs just developed 
a remarkable new technology, known as Linkway 2000TM, which 
allows U.S. carriers and Internet Service Providers to transmit digital 
data streams with the same speed, quality, and reliability as fiber 
optic cables, using a variety of network platforms incorporated in one 
device. The full potential of the Internet can now be made available to 
many developing nations and remote locations lacking adequate 
terrestrial infrastructure--all via COMSAT satellite technology.
State of Competition
    When COMSAT launched its first satellite in 1965, it was the sole 
provider of international satellite communications services. As a 
monopoly, the company was subject to FCC reviews of its investments and 
had a regulated rate base on which its earnings were strictly limited. 
However, the days of monopoly are long gone!
    In November 1984, President Reagan signed a Presidential 
Determination that opened the market for international satellite 
communications to alternative satellite systems. Since then, a healthy 
U.S. satellite industry has developed, with strong facilities-based 
rivals like Hughes/PanAmSat, Loral, Columbia, GE Americom and foreign 
systems--all competing with COMSAT in the U.S. for the provision of 
international satellite capacity. Space Business News reported this 
February that ``more satellites have already been launched in the 
1990's than in the preceding three decades combined.''
    The transition of the U.S. international satellite industry from 
its single system origins to today's highly competitive environment is 
a remarkable success story. An article in the August 1998 edition of 
Via Satellite captures the current state of competition quite well:

          The United States is home to many of the world's leading 
        private global satellite operators. The Hughes/PanAmSat merger 
        has created by far the largest of such companies. GE Americom 
        and Loral Skynet are expanding beyond their traditional U.S. 
        market into Europe, Latin America and the Asia Pacific. These 
        companies are building fleets that rival INTELSAT's in size, at 
        the same time that INTELSAT is losing market share and spinning 
        off five of its spacecraft in a new private venture.

    The facts underlying this assessment are even more revealing. For 
instance, from a single satellite launched in 1988, the Hughes/PanAmSat 
system is currently in the midst of a $2 billion expansion program to 
increase its fleet to 24 satellites by the end of 1999, with the 
company scheduled to launch a satellite every two months between now 
and then. PanAmSat has a backlog of $6.3 billion in firm contract 
orders and had $737 million in revenue in 1998. Today, PanAmSat alone 
has a market capitalization several times larger than that of COMSAT.
    In contrast, INTELSAT divested part of its fleet in 1998, thus 
reducing its size from 24 to 19 satellites. Because COMSAT, in turn, 
must share capacity on INTELSAT satellites with many other Signatory 
owners, and because much of the INTELSAT system is devoted to non-U.S. 
service (e.g., Asia--Europe), the total capacity now available to 
COMSAT to serve the U.S.-international market in competition with 
PanAmSat, Loral and others amounts to the equivalent of just 3--4 
satellites. Moreover, COMSAT's backlog of firm contract orders is nine 
times less than that of PanAmSat, and COMSAT's 1998 revenue from the 
INTELSAT business was only $266 million.
    As noted, Loral is another major U.S. company competing to offer 
international satellite services. As a result of its $1.5 billion 
acquisition of AT&T's Skynet satellites, the Orion system, and a 
majority share of the Mexican Satmex satellites, Loral has 10 
geostationary satellites in orbit, and is planning to expand its fleet 
to 15--17 satellites by 2001. GE Americom, Teleglobe, and Columbia 
Communications are also vying to carry voice, video, and data traffic 
via satellite between the U.S. and overseas destinations. In fact, 
Teleglobe recently announced a new partnership with EUTELSAT (a 
European satellite firm with 14 satellites in-orbit) to provide 
additional transatlantic satellite services to and from the United 
States.
    Given the state of the marketplace and the billions of dollars 
being invested in competing systems (and considering COMSAT's declining 
market shares), no credence can be given to the claims being made that 
COMSAT has unfair advantages which are harmful to competition, or that 
separate satellite systems suffer from foreign market access problems. 
According to the FCC, ``PanAmSat provided full-time video service to 
139 countries''--only four countries shy of the entire INTELSAT 
membership. The harsh reality is that, as a member of an 
intergovernmental treaty organization structured for a much earlier 
era, COMSAT has limited ability to participate in the growth of this 
industry. Indeed, in April 1998, when the FCC granted COMSAT non-
dominant status in 93 percent of its markets, the agency observed that 
``over the last three years, PanAmSat's and Hughes' satellites have 
captured 70 percent of the growth in international video traffic to and 
from the U.S.''
    Competition to INTELSAT and COMSAT is about to intensify even more 
with a new generation of satellites that will utilize the super-high 
frequency Ka-band. The FCC has authorized thirteen Ka-band systems, 
comprising some 73 satellites, which will offer a variety of data and 
multimedia applications. These systems are not speculative. On March 
17, 1999, The Wall Street Journal reported that the Board of Directors 
of General Motors Corporation--the parent of Hughes/PanAmSat--approved 
the infusion of $1.4 billion to begin building the Hughes Ka-band 
Spaceway Satellite System, also noting that this ``funding decision 
essentially commits the satellite maker and service provider to spend a 
total of $4 billion on the largest first phase of the project.'' Other 
firms planning to provide similar broadband satellite services include 
Loral, GE Americom, Lockheed Martin and Teledesic (backed by Motorola 
and Boeing). According to the FCC, these new satellites should help 
increase worldwide revenues from commercial fixed and mobile satellites 
from the 1996 level of $9.4 billion to $37.7 billion in the year 2002. 
Again, COMSAT's revenue from its INTELSAT operations in 1998 was just 
$266 million.
    Satellite capacity, however, is only part of the market for 
international telecommunications services available to consumers today. 
Since 1988, undersea fiber optic cables have far and away replaced 
satellites as the dominant medium for international telephone and data 
transmission. This dramatic increase in competition from undersea 
cables resulted from the elimination in 1989 of regulatory protections 
designed to promote international satellite communications, and from 
extraordinary developments in fiber optic technology. The capacity and 
quality of fiber optics is exponentially greater than the old copper 
analog cables. The first trans-Atlantic cable, TAT-1, was laid in 1956 
and had the capacity to provide only 44 voice-grade circuits. TAT-12/
13, which entered service in 1996, has the all-digital capacity to 
transmit 120,000 voice conversations (or an equivalent amount of data). 
That is 2\1/2\ times the capacity of the largest INTELSAT satellite, 
and is already considered old technology.
    Due to rapid deployment of undersea fiber cables, there is more 
than enough unused international transmission capacity now available to 
absorb all of COMSAT's current traffic. Today, the United States has 
direct fiber connections to over 125 countries, and these cable systems 
continue to proliferate and with even greater capacity. For example, 
CTR Holdings L.P., is in the midst of a fiber-cable project (known as 
Project Oxygen) that will have 265 landing points in 175 countries and 
cost $14 billion. On March 15, 1998, the FCC licensed this private 
cable company to build the first phase ``linking together a total of 78 
countries and locations on all continents except Antarctica.'' Cable 
installation is scheduled to begin later this year.
    Another cable firm, Global Crossing, Ltd., has raised $3 billion 
and is currently laying fiber links from North America to Japan, 
Central America and the Caribbean. The initial installed capacity on 
Global Crossing's first transatlantic cable Atlantic Crossing (AC-1) 
can handle more than 480,000 simultaneous two-way conversations. 
Service commenced in May 1998. By the end of 1998, Global Crossing had 
already reported contract sales for capacity exceeding $1 billion. And 
just last week, Global Crossing entered into an agreement to purchase 
Frontier Corporation--one of the nation's largest providers of domestic 
long distance service--for $11.2 billion. The combined companies will 
have a market capitalization of about $30 billion and $4 billion in 
revenue for 1999.
    There is no question that competition from separate satellite 
systems and fiber optic cables has changed the global 
telecommunications marketplace beyond what could have been imagined by 
the creators of the 1962 Satellite Act. In every significant market 
segment that COMSAT serves via INTELSAT, the FCC has found that 
COMSAT's market share has dropped well below monopoly levels. COMSAT's 
share of the international switched voice and private line market has 
fallen from approximately 70 percent in 1987 to less than 20 percent 
today, and to less than an average of 12 percent in the most heavily 
trafficked geographic and service markets. COMSAT's share of the 
international video transmission market has declined from nearly 80 
percent in 1993 to approximately 35 percent today. Cables and separate 
satellite systems carry the majority of traffic in every major 
geographic market. See Attachment 3.
    Even in the low volume geographic markets (the ``thin routes'' 
comprising approximately 2 percent of the circuits utilized by U.S. 
international carriers), U. S. consumers are not confined to COMSAT to 
reach those countries using the INTELSAT system. Users can also turn to 
the Canadian participant in INTELSAT, Teleglobe, which the FCC has 
authorized to operate in the U.S. As a practical matter, this means 
that COMSAT's $19 million thin route business is also subject to real 
competition.
    Teleglobe is now the world's second largest owner of fiber optic 
cable capacity as well, and it recently merged with the 5th largest 
U.S. long distance carrier, Excel Communications. That uncontested 
merger was valued at $7 billion (compared to $2.7 billion for Lockheed 
Martin-COMSAT) and will create a global, integrated service provider 
with access to 240 countries. Teleglobe has opened offices in Chicago, 
Miami and San Francisco, and announced in January that it ``has grown 
to service more than 100 domestic carriers in the U.S., including 
several Regional Bell Operating Companies,'' and that it also provides 
service to U.S. television broadcasters ``including ABC, CBS, CNN and 
Fox News.''
    In February 1999, Teleglobe expanded its U.S. satellite operations 
by entering into a capacity agreement with EUTELSAT. As reported in 
Satellite International, ``EUTELSAT has secured a link to the coveted 
U.S. market without having to deal with the thorny issue of obtaining a 
U.S. license. Under the terms of the deal . . . EUTELSAT will be able 
to offer other customers access to Teleglobe's teleports in New York, 
Washington, D.C. and Montreal.'' This alliance creates yet another 
satellite alternative to COMSAT for U.S. consumers to reach overseas 
markets.
Deregulation
    In April 1998, the FCC ruled that COMSAT is not a monopoly, but 
rather a single competitor in an industry characterized by substantial, 
facilities-based competition. Specifically, the Commission reclassified 
COMSAT as a ``non-dominant'' carrier and found that:

          Because of the unprecedented growth in the industry . . . 
        COMSAT is no longer the sole commercial provider of 
        international switched voice and video transmission services 
        via satellites. Today, other satellite companies effectively 
        compete against COMSAT and the INTELSAT satellite system . . . 
        . In the future, new voice, data and video services authorized 
        by the Commission will be available to consumers via low Earth 
        orbiting, non-geosynchronous satellite systems. . . . These new 
        services will compete against existing satellite services, 
        thereby providing consumers with more choice for their 
        international telecommunications needs. Moreover, the 
        transoceanic capacity and geographical coverage of fiber-optic 
        cables has burgeoned since 1985, and they now provide a highly 
        competitive transmission alternative for providers of 
        international switched voice and private line services. The 
        emergence of competitors to COMSAT has likewise increased the 
        supply of satellite transmission capacity for the provision of 
        these services.

Based on a detailed economic analysis, the FCC then determined that 
COMSAT no longer has monopoly power in the product and service markets 
accounting for over 90 percent of COMSAT's business on the INTELSAT 
system--switched voice and private line service to thick route markets, 
full-time video service in all geographic markets, and occasional-use 
video service in the multiple carrier market.
    Hopefully this will put to rest, once and for all, the seemingly 
never-ending claims that COMSAT's exclusive access to INTELSAT creates 
a monopoly. COMSAT's exclusive right to use the space segment capacity 
it paid for is no different than the exclusive right enjoyed by other 
satellite providers to sell services on the facilities they paid for. 
That alone does not make a monopoly. The primary determining factors 
are whether other suppliers offer consumers substitutable choices and 
whether consumers are able to exercise those choices. There can be no 
doubt that when over 80 percent of international voice traffic to and 
from the U.S. is being placed on non-COMSAT facilities, and over 65 
percent of international video traffic is placed on non-COMSAT 
facilities, COMSAT's exclusive access to INTELSAT is not a monopoly. 
See Attachment 4.
    With all this facilities-based competition, in February 1999, the 
FCC further extended its deregulation of COMSAT. The agency eliminated 
rate of return regulation on COMSAT's thin route business, replacing it 
with a far less onerous form of incentive regulation. In connection 
with that decision, COMSAT pledged to charge consumers of its thin 
route services the same rates we charge on the most highly competitive 
routes (``thick routes''), and not to raise its prices in the future. 
COMSAT also committed to annual 4 percent reductions for voice service 
on those thin routes through 2002. I am aware of no other carrier 
making similar commitments to its customers, and this is certainly not 
the behavior of an alleged monopolist. As the FCC recognized, COMSAT's 
proposal on thin route pricing was driven by the ever increasing levels 
of competition in the global telecommunications markets in which it 
operates.
Progress on INTELSAT Privatization
    Despite the claims of its competitors, INTELSAT is not immune from 
the dynamic nature of market competition. Because COMSAT is the largest 
investor in INTELSAT, and a private U.S. corporation accountable to its 
shareholders, we could not stand by and allow COMSAT's investment to 
diminish in value as competition significantly intensified. As 
mentioned, the governance and financial structure of an 
intergovernmental treaty organization are simply not suitable for 
today's fast-paced environment. Therefore, nothing short of full 
privatization, in COMSAT's view, will suffice.
    It has taken significant ramp-up time to convince 142 other nations 
to proceed down this path, especially due to concerns about maintenance 
of universal connectivities to less developed countries by a private, 
for-profit firm. Nevertheless, major progress toward achieving this 
goal has already been made. INTELSAT itself divested a quarter of its 
fleet (five in-orbit satellites and one under construction) in November 
1998 and created a new, independent, fully private global satellite 
company, New Skies Satellites, N.V. INTELSAT's member nations also 
unanimously agreed at that time that the New Skies partial 
privatization would only be the ``first step'' in reforming INTELSAT. 
Building on the momentum of New Skies, INTELSAT next elected a new 
Director General and CEO who ran on a platform of full privatization, 
and subsequently has set a goal to reach such an agreement by INTELSAT 
member nations by the end of 2001.
    Demands by some competitors that a pro-competitive privatization 
requires yet another ``break-up'' of INTELSAT into three or four more 
``successor entities'' lack any rational basis. U.S. legislation 
calling for the break-up of INTELSAT will not advance the privatization 
process, but is more likely to generate backlash and delay. But most 
important, such a drastic measure is not necessary to promote 
competition.
    It bears re-emphasis that, in the aggregate, the INTELSAT capacity 
devoted to serving the U.S. market amounts to the equivalent of less 
than four satellites. The dismemberment of INTELSAT, as Hughes/PanAmSat 
advocates, really should be seen as an effort to fragment INTELSAT into 
a number of weaker systems that will not be able to compete with 
Hughes/PanAmSat effectively. As noted above, the Hughes/PanAmSat global 
satellite fleet will surpass all of INTELSAT in size by the end of this 
year. Given this success, the vigorous efforts of Hughes/PanAmSat to 
have the Congress legislate the dismantling of its major competitor 
into a number of marginal systems is completely self-serving. Other 
satellite competitors, like Loral and GE Americom, are quickly 
approaching INTELSAT in size as well. Moreover, foreign entities, like 
British Telecom, Teleglobe and EUTELSAT, are also serving the U.S. 
market, not to mention the fiber cable consortia controlled by AT&T, 
MCI Worldcom, and others.
    There are, however, sound means for the Congress to ensure a pro-
competitive privatization, and S. 376 establishes just the right 
framework. INTELSAT will not be given direct access to the U.S. retail 
market unless the President of the United States determines that it has 
been privatized in a pro-competitive manner. That should be a more than 
adequate safeguard to protect competition in U.S. markets. Furthermore, 
the service restrictions embodied in S. 376 will provide a powerful 
impetus for rapid privatization, without impairing U.S. users, the 
national security or U.S. trade commitments. Accordingly, the 
Subcommittee is respectfully urged to reject any thinly disguised 
efforts to require a restructuring that is market-distorting and anti-
competitive in effect, as Hughes/PanAmSat advocates.
    While INTELSAT has partially privatized and is in the midst of 
completing the process, another international satellite organization, 
Inmarsat (which provides satellite services to maritime, aeronautical 
and land mobile users) has moved rapidly to full privatization. COMSAT 
is the largest owner of Inmarsat, and for the same reasons as with 
INTELSAT, we vigorously pursued a full privatization agenda with the 
other 83 member countries of that treaty organization.
    COMSAT is pleased to report that on April 15, 1999, Inmarsat and 
its fleet of nine mobile service satellites will convert its business 
operations into a fully private, commercial company. A small 
intergovernmental organization with a staff of about three people will 
remain in existence to ensure that the new private firm continues to 
perform its public service obligations of providing Global Maritime 
Distress and Safety Services (``GMDSS''), consistent with the 
international Convention on the Safety of Life at Sea (``SOLAS''), to 
which the United States is a party. However, due to a recent 
interpretation by the Justice Department pertaining to future U.S. 
participation in Inmarsat, legislation is required to conform the 1978 
Inmarsat Act (Section 5 of the Satellite Act) to this privatization, 
and S. 376 contains such conforming language in Section 6.
COMSAT/Lockheed Martin Merger
    To meet the challenges and opportunities created by the open, 
diverse and highly competitive environment that exists today for 
international telecommunications services, COMSAT wants to merge with 
Lockheed Martin Corporation. The proposed merger will bring together 
the two companies' complementary strengths and capabilities. Combining 
Lockheed Martin's resources and space expertise with COMSAT's 
established reputation and operating experience as a satellite services 
provider will create a new, more vigorous competitor and enable 
consumers to reap the benefits of the operating efficiencies created by 
the merger.
    Lockheed Martin's purchase of COMSAT will not result in an increase 
in concentration or a reduction in the number of competitors, because 
Lockheed Martin currently does not offer satellite communications 
services to and from the United States in competition with COMSAT. With 
the explosive growth in the number and capacity of service providers in 
the international telecommunications market, including both satellite 
and undersea fiber cable operators, the effect of the merger on 
competition will be very positive. In particular, the merger will 
create an international telecommunications company that has the 
critical mass necessary to compete effectively against other industry 
giants, like AT&T/BT, MCI Worldcom, Loral, Hughes/PanAmSat, GE Americom 
and Teleglobe. This will undoubtedly promote U.S. technological 
leadership, and provide valuable employment opportunities in a high-
growth sector of the economy.
    The merger also will foster advanced satellite and ground segment 
technologies and turnkey telecommunications solutions that promise vast 
benefits to users in the United States and around the world, in both 
well-served and thin route markets. With privatization, it will 
complete the transformation of COMSAT into a normalized corporate 
entity with no special legislative status. It will help expedite the 
full privatization of INTELSAT by bringing Lockheed Martin's resources 
to bear in support of the objectives of S. 376.
    At present, the Satellite Act prevents any company from acquiring a 
majority of COMSAT's stock. Thus, Congress must amend to the Act before 
the two companies can complete the proposed merger. However, both 
companies wanted Lockheed Martin to be able to obtain, as quickly as 
possible, the maximum stake in COMSAT consistent with existing law. 
This necessitated a two-step transaction. In step one, which is 
currently before the FCC, a Lockheed Martin subsidiary is seeking 
authority to acquire up to 49 percent of COMSAT as an ``authorized 
carrier'' under the Satellite Act. Approval of step one is within the 
FCC's jurisdiction under existing law. The full public benefits of the 
transaction can only be achieved, however, upon completion of step two, 
which is the merger itself. We therefore request that Congress act 
swiftly on S. 376 to allow the merger to be completed.
Section-by-Section Discussion of S. 376
    Chairman Burns, as stated earlier, you should be commended for 
introducing legislation with firm measures to promote INTELSAT 
privatization, and for undertaking the long overdue modernization of 
the 1962 Satellite Act. Although efforts were attempted with H.R. 1872 
(the bill passed by the House of Representatives last year), we believe 
S. 376 improves upon that initial groundwork in major respects.
    As this Subcommittee may recall, the Administration announced its 
strong opposition to H.R. 1872 at your hearing last September, but well 
after the House vote. The Administration objected to the approach taken 
in H.R. 1872 for many reasons, chief among them that: (1) it would 
retard, not promote privatization, by imposing ``unrealistic'' 
conditions; (2) it was ``likely to reduce, not increase, competition'' 
and raise prices to consumers; (3) it would ``have significant adverse 
national security and maritime safety implications'', and (4) it could 
``provoke retaliation from U.S. trading partners'' and be inconsistent 
with the United States' WTO obligations.
    In opposing H.R. 1872, the Administration also observed, and COMSAT 
fully concurs, ``that Congress was instrumental in establishing 
INTELSAT and Inmarsat and that it may want to address their 
privatization in legislation.'' Moreover, legislation is essential in 
order to update the 1962 Satellite Act. With that in mind, COMSAT now 
offers its views on specific provisions of S. 376.
            INTELSAT Access to the U.S. Market
    Section 603, ``Restrictions Pending Privatization,'' will operate 
to prohibit INTELSAT from entering the U.S. market directly to provide 
any retail satellite communications services or space segment capacity 
to carriers or end users until a pro-competitive privatization is 
achieved. This provision is a major improvement to Section 641 of last 
year's House legislation, which would have required direct access to 
INTELSAT before privatization occurs. S. 376 appropriately uses U.S. 
market access as a lever to speed INTELSAT privatization, without 
harming U.S. consumers or competition in the process. COMSAT agrees 
with this approach for the following reasons.
    INTELSAT currently does not sell satellite services directly in the 
U.S. retail market. Rather, it is a cost sharing international 
cooperative whose owners, the Signatories, jointly invest in the 
satellites and cover the expenses of operating the system. The 
Signatories in each country then sell the capacity they own on the 
system in their national retail markets. In the U.S., that investment 
responsibility and sales function are performed by COMSAT, the owner of 
the U.S. portion of the system.
    As a U.S. corporation, COMSAT pays U.S. corporate income taxes on 
the revenue it generates from its INTELSAT business. As a U.S. common 
carrier, COMSAT is licensed and regulated by the FCC, and is fully 
subject to the U.S. antitrust laws in its common carrier activities. 
Additionally, as a U.S. publicly-traded corporation listed on the New 
York Stock Exchange, COMSAT is subject to the disclosure and filing 
requirements of U.S. securities laws.
    None of this would apply to INTELSAT if it were permitted to 
directly access the U.S. market at the retail level before converting 
to a private corporation. As an intergovernmental international 
satellite organization, INTELSAT would be entirely exempt from U.S. 
taxation. Quite correctly, S. 376 recognizes that this would give 
INTELSAT an unfair competitive advantage over every other satellite 
operator doing business in the U.S. and paying U.S. taxes. It would 
also deprive the U.S. Treasury of millions of dollars of tax revenue 
now paid by COMSAT--creating, in effect, a U.S. taxpayer subsidy of 
INTELSAT.
    As the recipient of this subsidy, INTELSAT would have no incentive 
to privatize more quickly if direct access were allowed now. It is this 
avoidance of U.S. tax expense that makes immediate direct access so 
attractive to the U.S. carriers. With no U.S. income, property or 
payroll taxes (on non-U.S. employees) to pay, INTELSAT could offer 
satellite capacity more cheaply than COMSAT, because its costs of 
production (building, customer support, operations, marketing, billing, 
etc.) would be lower. Is it any wonder why U.S. carriers and users find 
direct access so attractive? Yes, below-cost prices are appealing to 
U.S. consumers, but such ``gains'' are not attributable to any true 
efficiencies derived from direct access, but are an unfair advantage 
derived from INTELSAT's tax exempt status. For the Subcommittee's 
benefit, attached to my testimony is a study just completed in December 
1998, by Professors Jerry R. Green and Hendrik S. Houthakker of Harvard 
University, and Johannes P. Pfeifenberger of The Brattle Group, which 
explain these points in greater detail. See Attachment 5,* ``An 
Economic Assessment of the Risks and Benefits of Direct Access to 
INTELSAT in the United States'' (``Direct Access Study'').
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    *  [Study maintained in the Subcommittee's files.]
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    But below-cost access is not the only problem with direct U.S. 
retail market entry by INTELSAT prior to full privatization. INTELSAT 
is also totally immune from FCC regulation and U.S. antitrust laws. The 
FCC recently held in its DISCO II Order (implementing the WTO 
Agreement) that privileges and immunities much narrower in scope than 
those INTELSAT enjoys would distort competition and constitute grounds 
for denying entry to the U.S. domestic market. The same reasoning would 
apply with even greater force to direct U.S. market entry by INTELSAT.
    Section 603 properly recognizes that to reward INTELSAT and foreign 
signatories with direct U.S. market access now takes away much of their 
economic incentive to privatize. Why? Because if these foreign PTTs are 
given the right to sell INTELSAT services in the U.S. immediately and 
on preferential terms (as compared to COMSAT), no reason exists for 
many of those same Signatories to work hard to change the 
intergovernmental nature of the organization. Direct access does 
nothing to bring about change to INTELSAT's structure; instead, it 
reinforces it. INTELSAT would gain expanded U.S. distribution channels, 
foreign Signatories would have immediate access to the U.S. market, and 
privatization would come to a grinding halt. The debate for 
commercializing INTELSAT would shift to greater direct access versus 
full privatization. No matter what benefits the proponents of direct 
access claim, this is far too high a risk to take--especially since 
COMSAT's exclusive U.S. Signatory access will end forever immediately 
upon privatization anyway. As Section 603 recognizes, the quicker 
INTELSAT privatizes, the sooner American consumers will realize the 
true economic benefits of fair competition. Significantly, S. 376 
requires INTELSAT privatization by the end of 2001.
    Even before the prospects for privatization were on the near 
horizon, the FCC consistently rejected direct access to INTELSAT, 
finding that it would neither increase competition nor lower prices to 
end users. To quote the U.S. Court of Appeals in affirming that 
Commission decision:

          [The FCC] concluded that direct access was not in the public 
        interest; it would not save users money either by increasing 
        efficiency [or] enhancing competition. . . . In assessing the 
        likelihood that direct access could lower costs, the agency 
        examined each category of costs on which COMSAT based its space 
        segment tariff. The FCC concluded that each category was 
        properly allocable to the tariff. . . . In the Commission's 
        view, direct access probably would not reduce any of these 
        costs; it would, rather, simply redistribute the costs among 
        COMSAT and the carriers. Western Union Int'l v. FCC, 804 F.2d 
        1280, 1285 (D.C. Cir. 1986).

Moreover, the FCC decided against direct access at a time when COMSAT 
was the only international satellite company serving the U.S. Today, by 
contrast, there is significant facilities-based competition--both 
intermodal (undersea cable) and intramodal (separate satellite 
systems). As the FCC has stated again and again, in view of this robust 
competition, COMSAT's role as the U.S. provider of INTELSAT capacity 
accords us neither a monopoly nor market power. Thus, the need for 
direct access is even less than when it was first rejected by the FCC.
    This brings us now to the issue of the infamous COMSAT ``mark-ups'' 
and the remedy of direct access. It is probably the most misunderstood 
issue of all. COMSAT's critics attempt to demonstrate that COMSAT 
engages in monopoly pricing by comparing the difference between what 
COMSAT charges its customers at FCC-tariffed rates and the payments we 
make to INTELSAT for capacity. Equating that to a mark-up in the 
ordinary meaning of the term is simply false.
    As the Administration informed the House Commerce Committee, it is 
``misleading'' to use the term mark-up in this context, because the 
amounts COMSAT pays to INTELSAT do not cover all of the costs of 
providing the U.S. portion of the INTELSAT space segment. For example, 
COMSAT is required by law to perform numerous duties on behalf of all 
users as the U.S. Signatory to INTELSAT, which generate expenses 
entirely separate from what INTELSAT charges COMSAT for only the 
satellite capacity. In addition, COMSAT necessarily bears other costs 
in providing INTELSAT satellite capacity (e.g., engineering, 
operational support, transaction costs, customer billing, satellite 
insurance). Those costs must obviously be taken into account before 
actual margins can be calculated.
    However, based on a calculation which erroneously excludes the 
foregoing costs, proponents of direct access often cite a three-year-
old average mark-up figure of 68 percent. The truth is that, after 
COMSAT's unavoidable and recoverable costs are properly considered, 
COMSAT's actual operating margins are about 38 percent, virtually 
identical to our satellite competitors.
    Finally, it is often said that if 93 other countries have adopted 
direct access, why should the United States lag behind? There is a very 
simple answer. Direct access in other countries is used as a means to 
address a problem that does not exist in the U.S.--that is, complete 
control of all telecommunications by a single PTT or former PTT. Unlike 
COMSAT, these PTTs provide local exchange telephone service, domestic 
long distance service, and international service. Unlike COMSAT, they 
own capacity in fiber optic cables and other satellite systems. Unlike 
COMSAT, they control earth stations that access INTELSAT. The only way 
to break that bottleneck and promote alternatives for international 
services in those countries is to allow new entrants to access INTELSAT 
satellite capacity directly, thus bypassing the PTT. In the United 
States, we did it right initially. COMSAT was specifically created to 
prevent the dominant U.S. carrier, AT&T, from controlling both 
satellites and cables. Today, U.S. users do not lack for choices for 
sending traffic overseas. Other countries are just trying to catch up!
    A few proponents of direct access attempt to make much of the fact 
that COMSAT subsidiaries operating in Argentina and the U.K. take 
advantage of direct access while COMSAT opposes its implementation in 
the U.S. Unlike other countries in which the Signatory is a 
telecommunications service provider, the Signatory in Argentina is its 
regulatory authority, an agency similar to the FCC. Thus, because the 
Signatory is not a service provider, there is no other way in Argentina 
to obtain space segment capacity except through direct access.
    The U.K. is another aberration. In stark contrast to COMSAT, and 
even though BT is the second largest owner of INTELSAT, its investment 
share is only 5.7 percent compared to 18 percent for COMSAT. Unlike 
COMSAT, which is an independent supplier of space segment to U.S. 
carriers, BT simply uses the capacity itself as part of the retail 
services it offers to end users. Moreover, BT is a $26 billion company 
with a local exchange, long distance, and international business (which 
is about to join with AT&T). BT also owns capacity in undersea fiber 
optic cables and other satellite systems.
    Given these enormous differences, for BT to assert that it should 
be the model for the U.S. to follow on direct access is nonsensical and 
absurd. Offering capacity that COMSAT owns on the INTELSAT system is 
our company's primary business (and not a negligible investment as with 
BT), and therefore, the practical consequences of direct access here in 
the U.S. are not comparable to the U.K. situation at all.
            Service Restrictions
    Section 603(b) of S. 376 would prohibit INTELSAT and COMSAT from 
providing direct-to-home satellite services, direct broadcast satellite 
services, satellite digital audio radio services, and broadband 
satellite communications services in the Ka-band. These are some of the 
most promising new markets for the satellite industry, and many of our 
competitors are already prospering in these markets.
    As a general rule, efforts to exclude one firm from participating 
in growth markets where that firm lacks market power are anti-consumer 
and anti-competitive. In this instance, however, we believe that 
Section 603 (b) is a significant improvement over the broad punitive 
service restrictions contained in the House-passed bill of last year, 
H.R. 1872. That bill provided that, during the transition to 
privatization, COMSAT would be prohibited from providing many of its 
existing services to U.S. consumers. H.R. 1872 defined those prohibited 
services to include high-speed data transmission and Internet access. 
COMSAT has already contracted with INTELSAT for capacity to provide 
these services and is, in fact, actively providing them today. This 
restriction, for example, would completely deprive consumers of 
COMSAT's new Linkway 2000TM technology for Internet 
applications, as described above.
    The Administration squarely opposed the House bill's imposition of 
service restrictions, finding that they are ``likely to reduce, not 
increase, competition in the U.S. market for satellite 
telecommunications services.'' In fact, in commenting on the service 
restrictions that would be imposed by H.R. 1872, the Administration 
noted that:

          [T]he bill may effectively eliminate two important service 
        providers from the most rapidly growing markets for satellite 
        services--markets which may be served by only a small number of 
        firms, given the inherent structure of this industry (high 
        fixed costs and large economies of scale). The result: fewer 
        options and higher prices to U.S. consumers, including the 
        federal government. Although the bill includes some protections 
        if few alternative providers exist, they are unlikely to be 
        sufficient to ensure that American consumers are not harmed.
            Executive Branch Leadership
    S. 376 is superior to the House-passed bill because it properly 
vests the leadership role for achieving a pro-competitive privatization 
in the President of the United States. The President has the 
Constitutional responsibility for treaty-making and for representing 
the United States in international fora, and INTELSAT is a treaty-based 
entity whose restructuring requires extensive ``give-and-take'' with 
foreign governments.
    The Executive Branch has consistently taken the lead role in 
advocating and implementing U.S. policies concerning INTELSAT--from its 
creation in the 1960s, to the treaty amendments in the 1970s, to the 
instructional process, which the Executive Branch coordinates before 
every INTELSAT Board meeting. The Executive Branch, through the 
Antitrust Division of the Justice Department, also has taken an active 
part in ensuring that the privatization of INTELSAT does not harm 
competition. Thus, a strategy employing Presidential leadership for 
handling the privatization negotiations and associated competition 
issues is sensible and constitutionally sound. In fact, it has been 
through the strong efforts of the Executive Branch that the successful 
full privatization of Inmarsat was achieved, and the divestiture of New 
Skies into a new private firm was realized.
    Both S. 376 and the House-passed bill provide the FCC with 
authority to condition or deny applications by a privatized INTELSAT to 
provide satellite communications to and from the U.S. But again, only 
S. 376 does so effectively because it clearly states that, in making 
such a public interest determination, the FCC is bound by the 
President's certification that entry by the privatized entity would not 
distort competition in the U.S. market. This provision makes it clear 
that the FCC should not be able to undermine the international 
negotiating authority of the President, or to factor its views of the 
negotiated results into post-privatization licensing decisions. The 
Administration has also criticized the House-passed bill on the basis 
of these issues. Specifically, it stated:

          Provisions of [the House-passed bill] purport to require the 
        President to adopt specific positions on INTELSAT and Inmarsat 
        privatization that would make international negotiations 
        unwieldy and cumbersome, thus frustrating the President's 
        ability to conduct foreign policy effectively. The bill also 
        gives the FCC exclusive authority to determine if the outcome 
        of multilateral negotiations is suitable--a determination that 
        should be made by the FCC in consultation with the Executive 
        Branch.

Let us be absolutely clear on this point. COMSAT has no objections to 
the maintenance of the FCC's traditional public interest role in the 
regulation and licensing of satellite carriers doing business in the 
U.S. COMSAT's concerns are over efforts to expand that role into an 
area that normally is the preserve of the President of the United 
States--the reformation of an international treaty organization.
            Privileges and Immunities
    Section 621, titled ``Elimination of Privileges and Immunities,'' 
provides that COMSAT shall not have any immunity in its role as the 
U.S. Signatory to INTELSAT, except: (1) for those actions taken at the 
direction of the U.S. Government; (2) for actions taken in fulfilling 
obligations under the INTELSAT Operating Agreement; (3) for INTELSAT 
Signatory activities which COMSAT does not support; and (4) in 
accordance with any other exceptions made by the President of the 
United States. Additionally, it provides that any liability of COMSAT 
shall be limited to the portion of any judgment that corresponds to 
COMSAT's percentage of responsibility. Finally, the elimination of 
privileges and immunities by this section is prospective from the date 
of enactment of the bill. With privatization, COMSAT's Signatory role 
will end and all residual privileges and immunities will terminate.
    COMSAT supports this removal of privileges and immunities. This 
measure is fully responsive to those who maintain that COMSAT's 
existing limited immunity as the U.S. Signatory somehow gives the 
company an unfair advantage in the marketplace. As the courts have 
consistently ruled, when COMSAT competes in the market with other 
service providers, it has NO antitrust immunities. Moreover, when 
COMSAT acts in its Signatory role within INTELSAT, three agencies of 
the U.S. Government (State, Commerce and FCC) are sitting right there 
with us, and possess the authority to instruct COMSAT as to how to 
vote, or what position to take, on any issue. That is not a situation 
conducive to anticompetitive conduct. Indeed, the enormous success of 
our competitors belies the notion that COMSAT's limited immunity as the 
U.S. Signatory translates into any market advantages whatsoever.
    Nevertheless, COMSAT is prepared to relinquish this Signatory 
immunity, subject to the reasonable safeguards enumerated in S. 376. 
Obviously, COMSAT should not be held liable for following the 
instructions of the U.S. Government at INTELSAT meetings. Nor would it 
be fair to expose COMSAT to liability if INTELSAT takes some action 
over the objections and opposing vote of COMSAT. We should only be held 
responsible for our own volitional actions, and S. 376 eliminates any 
possible doubts about that.
    The draconian approach of the House-passed bill, H.R. 1872, which 
does not contain comparable safeguards, is both unfair and unworkable. 
For the reasons stated above, COMSAT supports the provisions of S. 376 
clarifying that it is not immune from suit or legal process with 
respect to its volitional, affirmative acts as the U.S. Signatory to 
INTELSAT, pending privatization. This provision is rational and fully 
consistent with the overall pro-competitive approach taken by S. 376.
            Abrogation of Contracts
    Section 622 of S. 376 expressly prohibits the nullification of 
COMSAT's contracts that are in effect on the date of enactment of this 
bill. COMSAT believes this provision is necessary and proper given the 
history surrounding these contracts, as explained below.
    Section 622 in S. 376 stands in stark contrast to the so-called 
``fresh look'' provision of the House-passed bill, which would have the 
U.S. Congress decide that COMSAT's customers should be free to walk 
away from the business commitments they freely entered into with 
COMSAT, all in exchange for significant COMSAT rate reductions. Based 
on those contracts, COMSAT in turn made long term, non-cancelable 
capacity commitments to INTELSAT to secure the lowest possible rates 
for our customers (and which are reflected in the steadily declining 
prices COMSAT charges under those contracts). If ``fresh look'' were 
adopted, COMSAT would therefore be left bearing the cost of the 
INTELSAT investment necessary to service those contracts. Under the 
Fifth Amendment to the Constitution, Congress is prohibited from taking 
private property without just compensation. To do so in the manner 
proposed by the House bill would clearly constitute a ``taking'', and 
expose the U.S. Treasury to significant damages claims.
    The proponents of ``fresh look'' point to a handful of cases where 
companies adjudicated to hold unlawful monopolies were required to let 
other parties opt out of contracts that were being used to perpetuate 
those monopolies. In this case, however, a federal court has expressly 
found that COMSAT's long-term carrier contracts are not derived from an 
unlawful monopoly or exercise of monopoly market power, as had been 
alleged by PanAmSat. Specifically, in 1996, the U.S. District Court for 
the Southern District of New York held:

          [A]lthough the record does reflect that Comsat entered long-
        term contracts with many common carriers, nothing in the record 
        suggests that Comsat secured any of the contracts by means of 
        any anticompetitive acts against PAS. On the contrary, the 
        record suggests that for their own reasons, the common carriers 
        elected to secure long-term deals with Comsat only after 
        considering and rejecting offers from PAS. (emphasis added)

    The FCC reached the identical conclusion. When COMSAT petitioned 
the FCC for non-dominant status in 1997, Hughes/PanAmSat again raised 
the issue of COMSAT's long-term contracts, claiming they ``locked up'' 
the market and restricted competition. Hughes/PanAmSat and others urged 
the Commission not to grant COMSAT non-dominant status without a 
condition imposing ``fresh look''. The FCC disagreed, and it is worth 
reading closely the reasoning behind this decision.

          We agree with COMSAT for the reasons stated below. COMSAT's 
        long-term contracts do not impede COMSAT's customers from 
        switching service providers. It is true that AT&T and MCI have 
        entered into contracts with COMSAT that expire in 2003. The 
        record lacks evidence of any other long-term contracts between 
        COMSAT and its customers for switched voice service. COMSAT 
        estimates that the three contracts represent approximately 25 
        percent of the U.S. switched voice service market. Given the 
        growth rate in the switched voice service market, AT&T's and 
        MCI's long-term contracts are likely to represent an even 
        smaller share of this market today. Additionally, the contracts 
        only obligate AT&T and MCI to transmit part of their 
        international switched voice traffic using COMSAT. Based on our 
        review of these contracts, we conclude that the contracts 
        permit AT&T and MCI to use COMSAT's competitors for services. 
        Therefore, notwithstanding these long-term contracts, we 
        confirm the finding in our August 1996 Order that COMSAT's 
        switched voice customers are sophisticated customers possessing 
        significant bargaining power giving them the flexibility to 
        route a significant portion of their switched voice traffic to 
        their own transmission facilities or those of alternative 
        carriers as they choose (emphasis added).

    In light of these findings, it would be unprecedented for Congress 
to enact a statute mandating the abrogation of these very same 
contracts. It would be tantamount to a Congressional determination that 
COMSAT's long-term contracts are anticompetitive. However, unlike the 
Courts or the FCC, Congress does not adjudicate disputes among private 
parties as a matter of constitutional separation of powers. Thus, we 
submit respectfully that any Congressional determination to simply 
nullify these contracts by legislative act would amount to an 
unconstitutional bill of attainder.
    Application of ``fresh look'' in this case is unsupportable from a 
policy perspective as well. COMSAT negotiated the subject long-term 
contracts with the three largest long distance companies (i.e. AT&T, 
MCI and Sprint) to carry international traffic using INTELSAT's 
facilities. These contracts were designed to guarantee a steady stream 
of traffic in the face of increased competition from other satellite 
systems and fiber optic cables. In return for long-term traffic 
commitments, COMSAT dropped its prices considerably. This is no 
different than what happens every day in many commercial settings, 
whether its lower rates for multi-year magazine subscriptions or season 
tickets to sporting events. To be sure, these carriers themselves offer 
their customers reduced tariff rates in exchange for longer service 
commitments.
    COMSAT's long-term carrier contracts, which are non-exclusive, were 
renegotiated in 1993 and 1994, subsequently modified, and all at a time 
when competing satellite systems were permitted to--and did--bid for 
this traffic. Based on the long-term guarantee of traffic resulting 
from COMSAT's carrier-contracts, COMSAT contracted with INTELSAT for 
the capacity to handle that traffic and designed satellites to assure 
the carrier traffic could be accommodated. COMSAT's obligations with 
INTELSAT would remain in force, even if the U.S. carrier contracts that 
formed the basis for the commitments we made to INTELSAT were struck 
down by Congress. COMSAT's liability to INTELSAT currently exceeds $500 
million over the life of those contracts, and the investments in 
satellites built with capacity to accommodate the carriers would be 
stranded. Under these circumstances, ``fresh look'' is completely 
unjustified, and as noted above, would result in the U.S. government 
being liable for substantial damages to COMSAT for taking our property 
without just compensation.
            Other Issues
    While S. 376 is a fairly well-balanced bill, COMSAT does have 
concerns with some of its provisions. First, we are concerned with the 
requirement that if INTELSAT fails to privatize fully by January 1, 
2002, the U.S. must withdraw as a party to the INTELSAT organization. 
We believe that this is too extreme a sanction for INTELSAT's failure 
to privatize fully by the stated deadline. It is key that the United 
States maintain a leadership role in the pro-competitive privatization 
of INTELSAT. To do so effectively, it must maintain its commitment and 
active involvement throughout the entire process--even if that process 
should be delayed along the way.
    The withdrawal provision could actually have the perverse effect of 
creating incentives for INTELSAT's satellite competitors to attempt to 
find ways to delay privatization by raising frivolous--but time 
consuming--issues along the way. Think about it. If the deadline is not 
met, and COMSAT must withdraw from INTELSAT, what happens to all the 
traffic now carried by COMSAT? It necessarily will have to be 
reallocated to COMSAT's competitors, and/or flow North or South to 
foreign Signatories in Canada and Mexico, respectively. U.S. 
legislation to privatize INTELSAT should not include incentives to 
penalize an American company for dilatory actions of foreign 
Signatories.
    Mandatory withdrawal at a time certain is also counterproductive. 
If the Congress wants INTELSAT to privatize by a date certain, it is 
necessary for U.S. negotiators to stay actively engaged in the process. 
If the process slips and is not fully completed by January 1, 2002, and 
the U.S. disengages, we only hurt ourselves and the U.S. consumers that 
rely on the system, including national security users. COMSAT 
respectfully submits that the prospect of denying U.S. retail market 
access, and the restrictions on service expansion pending privatization 
set forth in S. 376, are sufficient incentives to privatize without a 
mandatory withdrawal provision.
    COMSAT was also disappointed to observe that S. 376 does not 
contain the regulatory parity provision contained in S. 2365 in the 
105th Congress. It is imperative that, in a competitive marketplace, 
all satellite system operators and satellite service providers compete 
against each other based on a common set of rules. Contrary to claims 
being made by some competitors, this would not necessarily mean more 
regulation for them--just the same, equal framework applied to all. We 
strongly urge that this issue be revisited during the debate on this 
bill.
    Finally, we have some concerns over the language used in Section 
631, which is a new law intended to prevent the warehousing of orbital 
slots and spectrum. COMSAT fully supports this concept. No satellite 
provider should be able to reserve orbital slots with ``paper'' 
satellite filings or reserve spectrum not required for operation of 
their systems. For example, Loral Orion has tied up an orbital slot for 
14 years without any use, a problem recently brought to the FCC's 
attention by another U.S. satellite competitor, Columbia 
Communications. In contrast, INTELSAT has acted responsibly and de-
registered seven of its unused orbital slots in December, 1998.
    Unfortunately, Section 631 is too vague to achieve its stated goal 
of preventing warehousing. It states that operators must ``make 
efficient and timely use'' of orbital slots and spectrum, and if such 
``assurances cannot be provided'', satellite operators ``shall'' 
relinquish their rights to these resources. As a practical matter, 
whether one makes ``efficient use'' of a slot or spectrum is far too 
subjective given the penalty for non-compliance. Does efficient use 
require comparisons to other providers? Does it favor operators with 
earth stations employing digital compression technologies or that 
employ collocation within orbital slots? Does it mean that companies 
with older satellites in-orbit must relinquish a slot if another 
company with newer satellites, or satellites having greater capacity, 
seek the slot? Should inclined orbit satellites be required to be de-
orbited before their useful life has expired?
    We respectfully submit that the vagueness of the language as 
drafted in Section 631 will ultimately defeat its purpose. It needs to 
be reworked to incorporate a more objective test. One approach might be 
for the system operator to bear the burden of demonstrating that an 
orbital slot or spectrum requirement is necessary and appropriate for 
actual system operations and planning. The International 
Telecommunication Union (``ITU'') is also in the midst of resolving 
this issue with ``due diligence'' procedures that will prevent 
warehousing. Measures being considered include a time limit on filings 
and evidence of a launch service contract.
Conclusion
    Mr. Chairman, I would like to thank the Subcommittee again for 
holding this hearing today and for allowing COMSAT to present its views 
on S. 376. We are confident that passage of this legislation will spur 
the timely and pro-competitive privatization of INTELSAT, while 
allowing the benefits of COMSAT's merger with Lockheed Martin to be 
realized as quickly as possible. Above all, the public interest in a 
deregulated and even more competitive international satellite industry 
is most certainly achievable in the near term with this legislation.
    [Attachments 1 to 4 are as follows:]

                                                       Attachment 1
                                    DATE: February 26, 1999
For immediate Release
               COMSAT LOWERS RATES ON THIN ROUTE SERVICES
             --Telecommunications Carriers and Broadcasters
          Receive 4% Rate Reduction and Guaranteed Rate Caps--

BETHESDA, Md.--COMSAT Corporation today announced it will reduce rates 
on a majority of its thin route services provided over the INTELSAT 
satellite system. These reductions, which take effect Wednesday, March 
3, will benefit telecommunications carriers and broadcasters using 
public switched telephony services on certain routes and occasional use 
broadcast services.
    COMSAT is reducing rates by 4 percent for public switched 
telecommunications services on thin routes--countries served by COMSAT 
with low volumes of telecommunications traffic to and from the United 
States. The company will also cap prices for thin routes at or below 
rates charged on heavily trafficked routes. In addition, COMSAT is 
reducing rates by 4 percent for occasional use video services on all 
routes.
    ``COMSAT is the only U.S. satellite service provider committed to 
providing the same level of high quality service to both developed and 
developing countries throughout the world,'' said John Mattingly, 
president, COMSAT Satellite Services. ``These rate reductions guarantee 
that our customers in developing countries will continue receiving the 
same service and price benefits enjoyed by COMSAT's customers in 
locations with higher service volumes.''
    COMSAT Corporation (NYSE:CQ), headquartered in Bethesda, Md., is a 
global provider of satellite services and digital networking services 
and technology.
          * * * * *
                                                       Attachment 2

                                                       Attachment 3

                                                       Attachment 4

    Senator Burns. Thank you very much, Ms. Alewine.
    We have been joined by Senator Breaux. Do you have an 
opening statement? We have two more witnesses to hear from.

               STATEMENT OF HON. JOHN B. BREAUX 
                  U.S. SENATOR FROM LOUISIANA

    Senator Breaux. No, thank you, Mr. Chairman.
    Senator Burns. We have now Mr. John Sponyoe, who is CEO of 
Lockheed Martin. Good afternoon, and thank you for coming 
today.
    Mr. Sponyoe. Good afternoon.
    Senator Burns. By the way, I will tell you that your entire 
statement will be made part of the record, all of you.

 STATEMENT OF JOHN SPONYOE, CHIEF EXECUTIVE OFFICER, LOCKHEED 
                MARTIN GLOBAL TELECOMMUNICATIONS

    Mr. Sponyoe. Mr. Chairman, I thank you and the other 
members of the committee for the opportunity to present 
Lockheed Martin's views on the ORBIT legislation.
    Let me say at the outset that Lockheed Martin applauds and 
supports this legislation. It is a well-reasoned, balanced and 
effective blueprint for achieving critical national objectives. 
This, in a market segment in which the U.S. always has 
demonstrated leadership and which our country now has the 
opportunity to strengthen its competitive stature.
    ORBIT also will lead to another critical benefit--choices 
for customers. We acknowledge that ORBIT represents the 
enabling legislation for us to complete our combination with 
COMSAT. But let me give you a much broader perspective on why 
this combination is in the best interest of all parties. ORBIT 
will allow Lockheed Martin to transition COMSAT into a viable, 
dynamic presence in the world marketplace, a marketplace that 
is expanding at a rate nothing short of amazing.
    By marrying our technological, financial, entrepreneurial 
assets with COMSAT's experience as a commercial service 
provider and its ownership interest in a global satellite 
fleet, we can provide new technologies and new services. 
Equally important, we can deliver highly competitive services 
and better value for the U.S. Government and commercial 
customers. Together, we are fully confident this combination 
will increase U.S. competitiveness and ultimately retain and 
grow U.S. jobs.
    Let me assure the committee, Lockheed Martin is not making 
a significant investment in order to preserve the status quo. 
Far from it. We are prepared to invest nearly $3 billion in 
COMSAT, and become the U.S. INTELSAT signatory because we 
believe our objectives and those of this committee and the 
administration are identical. We share a belief in pro-
competitive legislation and the privatization of INTELSAT and 
the global telecommunications marketplace. The INTELSAT in 
which Lockheed Martin would acquire an equity position is on a 
privatization path to become a viable commercial system, 
operating in a manner indistinguishable from any other 
commercial enterprise.
    This is why we see our combination with COMSAT as a means 
for achieving not only our own business objectives, but also 
major U.S. policy objectives. We view your ORBIT legislation as 
the right way to achieve these objectives, and we are keenly 
interested in passage of this legislation early in this session 
of Congress.
    The INTELSAT privatization process will benefit directly 
and immediately from this legislation, which will serve as a 
guide and means for encouraging true, pro-competitive 
privatization, using a clearly defined timetable. In our view, 
this process should be completed no later than the year 2002, 
and must, at a minimum, entail termination of INTELSAT's 
intergovernmental status and its privileges and immunities, 
such as tax exemption and antitrust immunity, and operate fully 
subject to laws and regulations that apply to all other 
commercial systems operators. We also support ORBIT's 
requirement that the privatization process be reviewed by the 
executive branch on the basis of relevant, competitive criteria 
set forth in statute, with the assistance of the FCC.
    Mr. Chairman, you and your committee are confronted with 
two simple but vital choices: encourage the transition of 
COMSAT toward becoming an integral element in the dynamic 
future of commercial telecommunications, or allow COMSAT to 
wither as a result of the tactics of its competitors.
    A quick scan of a newspaper will tell you that the 
telecommunications industry is undergoing a dramatic 
consolidation. Every week, new mergers and global alliances 
within our industry are redefining the marketplace. This 
consolidation has, and will continue, to adversely affect 
COMSAT's competitive position. COMSAT needs critical mass to 
equitably compete in the global telecommunications marketplace. 
COMSAT needs continued capital investment to expand its 
international digital networking business. COMSAT needs freedom 
from the constraints that forestall its ability to fully 
commercialize its technological assets.
    COMSAT's principal assets, combined with Lockheed Martin's 
financial and other resources, will create a formidable new 
American competitor in the global telecommunications 
marketplace. Many of our competitors have greater financial 
resources and global presence and are without similar statutory 
ownership, governance restrictions or comparable and burdensome 
regulatory oversight.
    Our competitors, many with billions and billions of dollars 
in annual revenues, versus COMSAT's $600 million, already have 
extensive dedicated satellite systems in operation. That is why 
I find it particularly ironic that our competitors voice 
opposition to this merger by characterizing COMSAT as a 
monopoly. Instead, this merger will be good news for conditions 
in the U.S. and elsewhere. It will provide a level playing 
field. It will provide customers with more choices among 
suppliers. It will provide greater access to competitively 
priced services.
    Mr. Chairman, as you may know, I am relatively new to the 
telecommunications business. Recently, I had the opportunity to 
give a presentation of our business plan to a group of security 
analysts in Phoenix. At the conclusion of my remarks, I was 
followed on the panel by Mr. Fred Lanman, CEO of Hughes/
PanAmSat. In his opening statement, he half jokingly commented 
on my presentation, saying that PanAmSat is already where 
Lockheed Martin Global Telecommunications wants to be in 5 
years.
    Mr. Chairman, I would like to say all we are asking for 
today is the opportunity to give Hughes/PanAmSat and our other 
competitors a run for their money. We believe the ORBIT 
legislation provides that opportunity.
    Thank you for inviting me here today, and I look forward to 
addressing any questions you may have. Thank you.
    [The prepared statement of Mr. Sponyoe follows:]
     Prepared Statement of John Sponyoe, Chief Executive Officer, 
               Lockheed Martin Global Telecommunications
    Mr. Chairman, I would like to thank you and the other members of 
the Committee for the opportunity to present Lockheed Martin's views on 
the ORBIT legislation that you have introduced, and that your 
colleagues, Chairman McCain and Senators Bryan, Brownback, Cleland, and 
Dorgan have co-sponsored. Lockheed Martin commends the Subcommittee for 
its willingness to undertake a timely and much-needed modernization of 
the 1962 Satellite Act, with a view toward promoting the benefits of 
privatization and increased competition in the global satellite 
services marketplace. Lockheed Martin applauds and supports this 
legislation--it is a well-reasoned, balanced and effective approach to 
achieving critical US objectives in a marketplace in which the US 
always has demonstrated leadership, and in which the US now has the 
opportunity to do so again.
    Mr. Chairman, Lockheed Martin has been a prominent player in the 
satellite industry for as long as there has been an industry--we have 
developed, built, and launched more satellites than any other company 
in the world. But both the downturn in post-Cold War defense spending 
and the explosive growth in global telecommunications and information 
markets, have combined to create a strong impetus for LM to evolve even 
more quickly into a new competitive provider of commercial satellite 
and telecommunication services. This commercial objective is very 
important for us and advances the Department of Defense's policy on 
diversification of its contractor base. At the same time, our 
government customers are themselves becoming increasingly reliant upon 
commercial communications systems and services to meet national 
security needs. Thus, the question for us is clearly not whether to 
enter the commercial telecommunications services market, but how best 
to do it?
    Lockheed Martin began its commercial satellite services initiative 
3\1/2\ years ago when we filed an FCC application for authorization to 
build and operate Astrolink--a satellite system that will make cost-
efficient, advanced, broadband communications readily accessible to 
consumers regardless of location--urban or rural, populated or under-
served remote areas. We also have moved quickly to pursue other 
business opportunities with partners in the US and abroad (LMI, GE 
Satco, AceS). Several months ago, our Corporation formed a separate 
Global Telecommunications subsidiary for the specific purpose of 
focusing our business efforts in the commercial telecom services area. 
Soon thereafter we announced our intention to acquire Comsat 
Corporation, a publicly-traded US company. The rationale for this 
acquisition is very straightforward--to marry our own technological and 
entrepreneurial assets with Comsat's 37 years of experience as a 
provider of satellite services.
    Mr. Chairman, you may be tempted to ask, given the challenges that 
confront us, why Lockheed Martin has chosen to pursue a business plan 
that requires an enabling act of Congress in addition to the normal 
regulatory approvals. The answer is simple: the Lockheed Martin/COMSAT 
combination is good for our two companies--and very good for market 
competition more broadly. Within the next five years, we intend to be a 
leading provider of worldwide telecommunications services via both 
satellite and terrestrial infrastructures. As a consequence, our 
support for satellite reform legislation is driven by two major 
considerations: First, we are poised to make a $2.7 billion investment 
in COMSAT. Let me assure the Committee that we are not pursuing this 
investment for the purpose of preserving the status quo at COMSAT--far 
from it. We want to buy COMSAT, transform it into a normal US 
commercial business operation, and integrate it into LMGT to form a 
strong new competitive entrant in the global telecommunications 
services marketplace.
    Second, the Comsat combination will also give us a significant 
interest in INTELSAT. Mr. Chairman, I can assure you that, as a 
businessman, we have no intention of buying COMSAT to acquire an 18% 
share either in a ``mini-United Nations'' or of a diminishing asset. 
With all due respect to my colleagues seated with me today, whatever 
perceived advantages INTELSAT may or may not have in its current 
incarnation, these advantages are certainly not reflected in its 
steadily decreasing market share. By the end of this year, the GM/
Hughes/PAS satellite fleet will be far larger than INTELSAT, and far 
better positioned to compete in commercial telecom growth markets. 
Indeed, INTELSAT's current position in the US-international market vis-
a-vis other satellite and terrestrial competitors is so far from 
anything that could be accurately termed ``dominant'' that I have to 
wonder whether its current structure might not pose a greater threat to 
itself than to its competitors. The INTELSAT Lockheed Martin wants to 
be part of is one that can soon be a viable commercial system that 
operates in a manner indistinguishable from any other commercial 
system. That's what this committee and the Administration want as well 
and are pursuing. This is why we see our combination with COMSAT as a 
means for achieving not only our own business objectives, but major US 
policy objectives as well.
    We view your ORBIT bill as an ideal way to achieve our mutual 
objectives and as a result, Lockheed Martin is keenly interested in the 
passage of this legislation early in this session of Congress. We need 
congressional action in order to acquire and reshape COMSAT, enabling 
the emergence of a vibrant competitor. ORBIT legislation appropriately 
removes outdated ownership caps and governance provisions upon 
enactment, and similarly prohibits government intrusion into COMSAT's 
competitively won contracts with its corporate customers.
    Congress is faced with some fairly simple, but important, choices: 
you can enhance competition by allowing COMSAT to be acquired and 
repositioned so that it can move away from its static past and play a 
key role in the dynamic future of the commercial satellite industry; or 
you can diminish competition by allowing COMSAT to languish as a result 
of the delaying tactics of its competitors--companies, such as Hughes, 
a subsidiary of General Motors and itself a parent corporation to 
several satellite systems including PanAmSat, DirecTV, and--if they 
continue to consolidate-USSB and PrimeStar/Tempo. These companies dwarf 
COMSAT in size [Note: Both GM and GE are larger companies than LMC], 
have greater financial resources, considerable global presence, no 
statutory ownership or governance restrictions, and no comparable and 
burdensome regulatory oversight. Moreover, they and others already have 
extensive, dedicated satellite systems in operation--COMSAT does not 
and neither does Lockheed Martin. Thus, the Lockheed Martin/ COMSAT 
combination--if allowed to proceed--can only enhance healthy 
competition in the global marketplace: That may not be good news for 
the established players, but--Mr. Chairman--it is good news for 
consumers in this country and elsewhere. They will have more choices 
among suppliers, and greater access to competitively-priced services, 
which I know lies at the heart of your satellite reform legislative 
efforts.
    We also firmly believe that the INTELSAT privatization process can 
benefit directly from legislation that defines the US view of what 
constitutes a pro-competitive INTELSAT privatization. Congress also has 
the opportunity to act quickly and send a firm but reasonable signal to 
our the US's partners in INTELSAT about US determination to see the 
organization thoroughly and quickly privatized. The privatization 
process is already taking shape and Congress has a unique opportunity 
to have a positive impact on it. For years, some critics have 
maintained that INTELSAT's intergovernmental character gives it an 
unfair advantage in the global marketplace. ORBIT recognizes this by 
appropriately withholding further expansion of INTELSAT in the US 
marketplace until it sheds its intergovernmental status through a pro-
competitive privatization--ORBIT uses expanded access to the US market 
as the proverbial carrot to INTELSAT. At the same time, INTELSAT 
management and some many Signatories understand that these very same 
intergovernmental attributes are now a handicap (particularly in 
getting Signatories to make the necessary capital investment 
commitments) in a dynamic and increasingly competitive global market. 
As a result, there is pressure from within and without INTELSAT to 
evolve quickly from an inter-governmental treaty-based organization 
into a true commercial company, one that is indistinguishable from 
other competitors in the global satellite services market. I firmly 
believe that the marketplace imperatives that compel this 
transformation are well understood by INTELSAT management and its 
leading Signatories. The vision of privatization set forth in the Orbit 
legislation also is in the US interest in that it ensures continued 
competition among global satellite systems--rather than market 
dominance by any single system--not INTELSAT, GM/Hughes / PAS, GE, 
Loral or anyone else. One of the most effective ways to promote long-
term facilities-based competition in the international satellite 
telecommunications market is to put an end to the conditions that both 
insulate and handicap INTELSAT by spurring the pro-competitive 
privatization of INTELSAT.
    Legislation, such as ORBIT, would serve as an effective, but 
appropriate, means for encouraging a bona fide privatization. 
Specifically, we support the bill's clearly defined timetable for 
privatization: the process should be completed by no later than, but 
preferably prior to, 2002. Speed is not the only goal, however. 
Privatization must transform the this politicized and bureaucratic 
organization in a pro-competitive manner. In Lockheed Martin's view, 
pro-competitive privatization must entail both termination of 
INTELSAT's intergovernmental status and its privileges and immunities, 
such as tax exemption and anti-trust immunity, and operation in the 
marketplace fully subject to the laws and regulations applicable to 
other commercial satellite system operators. Why do we believe this? 
Because only upon its fully fledged privatization will INTELSAT--and 
its owners--be genuinely subjected to the positive discipline of the 
marketplace. And this, we believe, will make the organization more 
efficient and ultimately more profitable. INTELSAT would also be 
required, as a condition of access to the US, to not enter into any 
arrangement to secure exclusive access to any national telecom market. 
The privatized post-INTELSAT entity would then be permitted, subject to 
the same FCC regulatory approval as its competitors, to expand its 
access to the US market in terms of customers and service offerings.
    Lockheed Martin is committed to using its prospective role as an 
INTELSAT stakeholder to vigorously support and advance the US 
objectives for rapid and complete privatization of the organization. 
Quite frankly, our business plans only entail a future relationship 
with a fully privatized INTELSAT, and we will, by virtue of our $2.7 
billion investment in COMSAT, probably be the most highly motivated 
entity--in either the public or private sectors--to bring about such a 
result as quickly and as thoroughly as possible.
    However, all of us in this debate--private and public sector 
participants--must carefully address the best way for the US Government 
to exercise a constructive role in a multinational, intergovernmental 
setting like INTELSAT. The US, as you fully know, played a key role in 
the formation of INTELSAT, and it was in furtherance of important US 
foreign policy goals that our Government worked to have so many 
countries join in this US-led satellite communications initiative. As a 
consequence of the US's historic role, the US needs to remain mindful 
of the multilateral nature of INTELSAT privatization, and The US 
Government must be especially attentive to the concerns of developing 
countries that do not view their small telecom service requirements nor 
those of their consumers as being of any great commercial interest to 
INTELSAT's commercial competitors. INTELSAT's treaty commitment to 
serving all countries, rich and poor alike, providing universal access 
under a regime of non-discriminatory pricing--for both lucrative and 
uneconomical routes--has led many of INTELSAT's less developed member 
countries to rely on INTELSAT as not only a carrier of last resort but 
as their only link to the world.
    On the other hand, we also understand that there are long-standing 
concerns about market access to foreign markets by US providers of 
commercial satellite services. We share these concerns. With respect to 
satellite market access issues linked to the investment of government-
owned telecom entities in INTELSAT, it is clear that, as a result of 
market incentives and the persistent market opening efforts of the US 
Government over many years, there is an irreversible trend toward 
market liberalization and privatization around the world. In fact, 
approximately 75% of INTELSAT is owned today by telecommunication 
entities that are privatized to some degree or committed to 
privatization. To the extent that satellite market access issues have 
been linked to the role of INTELSAT itself, I would point out that as 
of February 1997, of the 52 countries that made WTO market access 
commitments for fixed satellite services, 50 of them are INTELSAT 
member countries--demonstrating that there is nothing inherent about 
INTELSAT's investment structure that impedes a country from opening its 
market to competition. And, while the privatization process should 
result unqualifiedly in an INTELSAT that does not have the ability to 
compete unfairly with other commercial satellite operators, the 
INTELSAT privatization process is not the appropriate mechanism for 
addressing broader satellite service market access and trade concerns. 
These concerns should be addressed through either the WTO or, perhaps 
more effectively--through a focused US program of bilateral trade 
negotiations with ``problem'' governments.
    We also support the bill's requirement that the privatization 
process be reviewed by the Executive Branch on the basis of relevant 
criteria set forth in statute, and that a determination be made 
concerning whether the privatization process either is or is not pro-
competitive. On the basis of this review, the FCC would then be able to 
accept and process applications for or by the privatized INTELSAT in 
the same way it deals with other satellite-related applications--
applying the FCC's current DISCO II standard and its traditional public 
interest test. We believe that this is the appropriate ``division of 
labor'' within the government--one that ensures that all issues raised 
by the privatization process of an intergovernmental organization are 
reviewed by the competent agencies, and that licensing related to the 
privatized INTELSAT can move forward quickly. Mr. Chairman--your bill 
is, appropriately, ``de-regulatory''--consistent with what the US quite 
literally ``preaches'' to the rest of the world. Perhaps as a 
relatively new player we take US rhetoric about the importance of 
minimal regulation too seriously. But I have to admit that we have been 
taken aback by other proposals in this area that would involve 
elaborate rulemaking proceedings that would go on for years, and page 
after page of detailed licensing requirements. An overly complicated 
regulatory process--and the protracted delay that would result from the 
procedural gamesmanship such a process would encourage--do not serve 
the goals of either privatization or enhanced competition. It would 
only serve to advantage INTELSAT's competitors. A fully privatized 
INTELSAT is an important prerequisite to establishing a level 
competitive playing field. Congress should not allow itself or this 
legislation to be used by one set of competitors to mis-use the 
regulatory process for the purpose of delaying or precluding the 
privatized INTELSAT from being a full participant in the marketplace. 
Nor should a properly privatized INTELSAT be subject to an ongoing, 
special regulatory regime unique to it alone--or be made to bear 
regulatory burdens to which no other industry player is subject.
    Mr. Chairman--the ORBIT bill recognizes that enhanced competition 
is not something that can be micro-managed into existence by 
legislators or regulators, but must instead arise freely out of the 
pursuit by commercial adversaries of customers under laws and 
regulations that apply equally to each. ORBIT will promote just such a 
competitive environment,--a level playing field--and the Lockheed 
Martin-COMSAT transaction is exactly the type of market-driven 
combination that is the logical and beneficial outcome of such an 
environment. Should Congress enact legislation embodying these 
principles this year, the winners will be the consumers of 
international telecommunications services. Enactment of ORBIT 
legislation will make those consumers--from populated urban centers to 
remote and rural areas--the beneficiaries of enhanced competition, 
technological innovation and the availability of advanced 
communications services at competitive prices. ORBIT also will 
strengthen the U.S. position in the global marketplace and preserve and 
grow jobs in an important economic sector. Accordingly, Lockheed Martin 
urges the Senate to help make this reform of the competitive 
marketplace a reality by enacting ORBIT as expeditiously as possible.
    Thank you for inviting me this morning and for listening to my 
brief presentation. I look forward to addressing any questions that you 
may have about Lockheed Martin's support for the ORBIT bill or matters 
related to our proposed acquisition of COMSAT.

    Senator Burns. Thank you very much.
    We will hear from Mr. Conny Kullman, Director and CEO of 
INTELSAT. Thank you for coming today.

    STATEMENT OF CONNY KULLMAN, DIRECTOR GENERAL AND CHIEF 
                  EXECUTIVE OFFICER, INTELSAT

    Mr. Kullman. Good afternoon, Mr. Chairman and members of 
the subcommittee. It is a pleasure for me to be here again. I 
had the opportunity to be here in September on the same 
subject, and it is a pleasure to be here again today.
    This afternoon I would like to address three points. I will 
begin by updating you on the significant progress that INTELSAT 
has made toward further privatization and commercialization 
since I appeared before you in September. Next I will identify 
several factors which influenced how our members proceed with 
this effort--the INTELSAT members. Finally, I will provide 
INTELSAT's views on your bill, S. 376.
    First, a word on our progress, Mr. Chairman. I am pleased 
to report that on the 30th of November, last year, we 
transferred one-quarter of our satellite assets to the new 
company, New Skies Satellites. It is a private company, based 
in the Netherlands. New Skies is now in business, competing 
against INTELSAT and all the other satellite operators in the 
business.
    New Skies may seem modest in size, but its significance to 
the privatization process is considerable. New Skies was the 
first real test of whether INTELSAT signatories and parties 
would be willing to start down the path toward privatization. 
The answer was yes, by unanimous consent.
    I can assure you, therefore, that creating New Skies was 
just the first step. I was selected the INTELSAT Chief 
Executive Officer on a platform that emphasized 
commercialization and privatization for clear business reasons. 
I take that mandate very seriously. However, we must bear in 
mind that, as an organization with 143 member nations, INTELSAT 
can achieve privatization only by consensus reached through 
multilateral negotiations.
    Indeed, I recently travelled four continents in an effort 
to forge a consensus on privatization among our members. During 
my trip, I met with around 50 party and signatory 
representatives. I do not recommend that you travel that many 
time zones in that short timeframe as I did, but I made this 
trip because I believe strongly that privatization is necessary 
for INTELSAT survival.
    In today's global marketplace, INTELSAT faces intense 
competition from other geostationary satellite systems, and 
also from the emerging low-earth-orbit satellites, the LEO's, 
and also from the massive build-out of the transoceanic cables. 
Mr. Chairman, it is the global market forces that are driving 
the privatization of INTELSAT, not the will of any one member 
country, including the United States.
    Let me now bring you completely up to date by reporting on 
the Board of Governors meeting that was held last week here in 
Washington. Restructuring and privatization not only led, but 
dominated, the agenda. The Board instructed INTELSAT management 
to immediately develop business plans for implementing the most 
aggressive privatization options.
    Mr. Chairman, this brings me to my second point. While the 
U.S. advocates privatization, the U.S. regulatory and 
legislative environment is making it difficult for us to 
achieve a consensus. On the regulatory front, I am not here to 
speak for New Skies, but it is clear that the INTELSAT members 
view the regulatory treatment of New Skies as a barometer for 
how a privatized INTELSAT will fare. What they see in the 
United States is frankly quite disturbing. Let me elaborate.
    Your FCC has permitted those U.S. earth stations, formerly 
serviced by INTELSAT capacity, to connect with New Skies only 
on a temporary basis, in the FCC's own words, ``at their own 
risk.'' Further, the FCC has thus far refused to act on 
applications filed by potential new customers of New Skies. 
Such impediments, which could jeopardize the New Skies IPO, and 
further diversity in ownership, send the wrong message to the 
international community. Will the United States allow a 
privatized INTELSAT to compete on a level playing field, or 
will it erect roadblocks similar to the ones faced by New 
Skies? Our members need to know as they decide the future of 
the organization.
    On the legislation front, it is essential that the FCC's 
negative message not be echoed by the U.S. Congress. It would 
be ironic and unfortunate if U.S. legislation intended to 
foster INTELSAT privatization in fact did just the opposite. I 
am confident, Mr. Chairman, that this is not the message you 
intend to send.
    Last, I would like to address the proposed legislation. I 
want to emphasize that INTELSAT agrees with the U.S. 
administration's positions set forth last September by 
Ambassador McCann, and also today, that no legislation is 
necessary to ensure that INTELSAT privatizes pro-competitively. 
If Congress does choose to legislate, however, we endorse your 
overall approach of recognizing that the United States should 
work constructively with its international partners and with 
INTELSAT.
    Nevertheless, we do have concerns about several aspects of 
S. 376 which differ significantly from the bill you introduced 
last year, Mr. Chairman. For example, last year's bill 
specified goals and objectives for the U.S. to advance within 
the framework of INTELSAT agreements. In contrast, the present 
bill prescribes precise criteria for privatization, and imposes 
penalties if these criteria are not met.
    Further, last year's bill did not limit INTELSAT's access 
to the U.S. market. In contrast, the present bill would violate 
U.S. international obligations by imposing an immediate freeze 
on INTELSAT services.
    Entirely separate from your proposed bill, Mr. Chairman, I 
would like to identify three elements that our members would 
find objectionable in any legislation passed by any country. 
One, no national legislation should require INTELSAT to produce 
more piecemeal spinoffs. Rather, further privatization must 
encompass the entire organization. Breaking up INTELSAT might 
be good for our competitors, but definitely not good for 
competition and the consumers.
    Two, no national legislation should bar INTELSAT's current 
owners from holding an interest in any privatized entity.
    Three, the international community is squarely opposed to 
any legislation that would require one INTELSAT party to 
retaliate against another party simply because they do not 
share the same privatization agenda. I do recognize that your 
bill would not do so, Mr. Chairman, but I mention these points 
because the prior House bill had taken such an approach and 
included these three elements.
    In closing, I look forward to working with you as INTELSAT 
takes further steps toward privatization. Thank you.
    [The prepared statement of Mr. Kullman follows:]
    Prepared Statement of Conny Kullman, Director General and Chief 
                      Executive Officer, INTELSAT
    Good afternoon Mr. Chairman, and Members of the Subcommittee. I am 
Conny Kullman, Director General and CEO of the International 
Telecommunications Satellite Organization--``INTELSAT.'' I appeared 
before this Subcommittee last September to discuss the international 
telecommunications market and the role of INTELSAT in that competitive 
market. Today, four months into my tenure as Director General and CEO, 
I appreciate this additional opportunity to update you on developments 
in the international telecommunications market and INTELSAT's 
privatization effort. I would also like to offer some observations on 
the satellite reform legislation you are considering and highlight some 
very real concerns our Members have about the U.S. treatment of a 
future privatized INTELSAT. These concerns have been heightened by the 
regulatory experience of New Skies Satellites.
    Since I appeared before you last September, INTELSAT has taken 
significant steps toward privatization. Specifically, the transfer to 
the INTELSAT spin-off, New Skies Satellites N.V., of five operating 
satellites and one under construction was completed last December. New 
Skies is a totally separate Netherlands-based company. It is a new 
competitor in the global satellite market, capable of competing with 
INTELSAT and everyone else. While New Skies may seem modest in size, 
its significance to the privatization process is considerable. New 
Skies was the first real test of whether the Signatories and Parties 
that comprise INTELSAT would be willing to start down the path towards 
privatization. The answer was yes, by unanimous consent.
    I can assure you, therefore, that creating New Skies was just the 
first step. I was elected to the office of Director General on a 
platform that emphasized commercialization and privatization, and I 
take that mandate seriously. Privatization lead the agenda at the 
INTELSAT Board of Governors meeting held last week in Washington. 
Indeed, at that meeting, the Board agreed to examine a number of 
specific options for operating INTELSAT as a private business 
enterprise. But, in doing so, we must protect the interests of all our 
current users, including those lifeline users in developing nations 
that rely on INTELSAT as their sole connection to the rest of the 
world. And we must bear in mind that, as a 143-member nation 
organization, INTELSAT can achieve privatization only by consensus 
forged from multilateral negotiation. I am committed to using our 
multilateral consensus-building process to achieve the privatization of 
INTELSAT as quickly as possible.
    Mr. Chairman, with all due respect, it is global market forces that 
compel the commercialization and privatization of INTELSAT, not the 
will of any one Member, including the United States. In short, 
privatization should go forward because it is necessary for INTELSAT's 
survival in the increasingly competitive market that we face. But 
change, however necessary, cannot be achieved by the fiat of a single 
country, regardless of how well-intentioned that effort might be. As a 
result, legislation by any one country that seeks to mandate change to 
the INTELSAT organization will not facilitate change or accelerate the 
process. To the contrary, it would likely be counterproductive. It 
could cause the privatization efforts to be delayed or, worse, 
derailed.
INTELSAT's Position in the Dynamic and Competitive Satellite Market
    During my last appearance, I tried to dispel the myth promulgated 
by our competitors that INTELSAT is a monolithic power that dominates 
the international satellite market. Far from thwarting competition, we 
welcome it. We want to fight our battles in the marketplace and not in 
the regulatory arena or the halls of the U.S. Congress. Mr. Chairman, 
recent events further underscore INTELSAT's non-dominant position:
    INTELSAT is not a cartel: INTELSAT neither restricts the volume nor 
controls the prices of services that Signatories sell to others, nor do 
we prevent Signatories from investing in or using competing 
international facilities. In fact, the recent actions of our New 
Zealand Signatory, Telecom Corporation of New Zealand Ltd., bear this 
out. Telecom New Zealand is the leading investor in the $1.2 billion 
Southern Cross Cable, which will soon connect New Zealand with 
Australia, Fiji, Hawaii, and the mainland United States. It will be the 
first direct fiber optic link between the Pacific Rim and the United 
States. No cartel would permit one of its members to spearhead a 
venture which would pose such significant competition to the 
organization.
    INTELSAT is not a monopoly: The events of the past few months have 
further discredited any notion that INTELSAT exerts monopoly power in 
any market. For example, Hughes/PanAmSat (our leading competitor) told 
you last September that INTELSAT should be disbanded by legislative 
fiat because it possessed the largest single fleet of Western-built 
commercial geostationary communications satellites. In reality, both 
Hughes/PanAmSat and INTELSAT currently operate fleets consisting of 19 
satellites. Later this year, however, when Hughes/PanAmSat launches the 
Galaxy XI, it will own the world's largest commercial fleet. Indeed, 
Hughes/PanAmSat is likely to hold its leading position for some time. 
INTELSAT has no new launches scheduled before mid-2000, by which time 
Hughes/PanAmSat plans to deploy even more new satellites. Already, 
Hughes/PanAmSat boasts on its Web site to customers and investors that 
its global system provides ``unparalleled coverage of the Americas, 
Europe, Africa, the Middle East and Asia.''
    INTELSAT Exercises No Market Power Even on Thin Routes: In 
September, I emphasized that the FCC had recently found that INTELSAT 
enjoys no market power on any major international communications route 
to or from the United States. At that time, the FCC had not yet 
examined the so-called ``thin routes,'' where no other satellite 
carrier is willing to provide service. On these routes, INTELSAT's 
prime objective of ensuring global interconnectivity obligates it to 
provide communications services on a non-discriminatory basis. Our 
leading competitor, Hughes/PanAmSat, had suggested that these thin 
routes, which account for only 8% of INTELSAT's U.S. revenues, provide 
INTELSAT with a lucrative monopoly. Just last month, however, the FCC 
issued an order determining that our U.S. Signatory's uniform pricing 
commitment--and the U.S. Signatory's commitment to lower its tariffs by 
four percent annually until at least 2002--together prevent it from 
exercising market power or distorting prices even on the thin routes. 
Thus, the FCC has in effect concluded that INTELSAT enjoys no market 
power on any route to or from the United States--major or minor.
    INTELSAT Faces Increasing Competition From Fiber Optic Cables: 
Since the last hearing, the TAT-14 transoceanic submarine cable 
connecting the United States and Europe has nearly been completed. At a 
cost of $1.5 billion, the TAT-14 will soon be able to carry more than 
7.7 million simultaneous telephone calls when it enters onto service 
next year. And it will be owned and used by a consortium of more than 
50 telecommunications operators, many of them INTELSAT Signatories.
    But TAT-14 was only the beginning of the global buildout in modern 
fiber optic transoceanic submarine cables that will compete against 
INTELSAT and other satellite carriers. Several submarine cable projects 
even larger than TAT-14 have recently been launched. The billion dollar 
FLAG Atlantic-1 Cable, will link the USA, the UK and France and will be 
capable of carrying nearly fifteen million simultaneous telephone calls 
on each of two transatlantic cables. When it is completed next year, 
the FLAG Atlantic-1 will have the largest capacity of any submarine 
cable system in the world. But it will not have the longest cable. That 
honor will belong to the 29,000-kilometer Southern Cross Cable Network 
currently under construction. With enough capacity to carry 1.5 million 
simultaneous telephone calls, this $1.2 billion dollar cable will be 
the first direct fiber optic link between the Pacific Rim and the 
United States. And, as I have already noted, the lead investor in the 
Southern Cross Cable is the INTELSAT Signatory for New Zealand.
    The reign of the Flag Atlantic-1 and the Southern Cross as the 
world's biggest and longest submarine cables may be short-lived. Even 
as we speak, a ship called the Long Line is slowly crossing the Pacific 
Ocean, en route from California to China, unspooling the $1.2-billion 
China-U.S. Cable. This cable will be able to carry nearly 5 million 
calls at once--or all the programming of all the U.S. cable television 
networks. And the most ambitious undersea cable plan to date is 
``Project Oxygen,'' an initiative to connect 78 countries and locations 
with over 150,000 kilometers of undersea cable, at a projected cost of 
$15 billion dollars. Earlier this month, the FCC authorized Project 
Oxygen to land in the United States. By the time Project Oxygen is 
completed in 2003, it promises to compete vigorously against INTELSAT 
and other satellite and cable providers.
    Historically, INTELSAT's international public switched network 
operations have been an essential component of its business. The 
proliferation of cable competition has steadily eroded INTELSAT's share 
of this carriage. Indeed, INTELSAT has had to substantially reduce its 
IPSN business projections. The disproportionate build-out of 
transoceanic cables to and from the U.S. has significantly reduced 
American usage of INTELSAT space segment. In contrast, other countries 
with fewer cable options have become heavier users of INTELSAT space 
segment and are understandably concerned about its future.
    In sum, INTELSAT faces a world of competition that it never faced 
before. This is in addition to the competition that INTELSAT has long 
faced from other geostationary satellite systems, and from low earth 
orbit satellites, or ``LEOs,'' that can provide many similar services. 
The speed of technological innovation ensures that INTELSAT will 
continue to face competition from a myriad of sources. I have attached 
some charts that illustrate these trends.
Proposed Legislation
    With this background, let me now comment on the Chairman's proposed 
legislation.
    First, we commend your bill for recognizing that the United States 
must ``work constructively with its international partners, and with 
INTELSAT itself.'' As a treaty-based organization, each of our member 
nations has a voice in our operations, present and future.
    We also understand that, given the dramatic technological changes 
that have reshaped global satellite communications during the past 
several decades, the United States and other countries may wish to 
update their own national laws and regulations. Of course, this is the 
sole prerogative of individual INTELSAT parties, and INTELSAT takes no 
position on domestic aspects of the proposed legislation. Mr. Chairman, 
the issue of direct access has been raised in your proposed 
legislation. With all due respect to you and other Members of this 
panel, I want to make it clear that this is an issue for the United 
States and not for INTELSAT.
    Turning to the international aspects of the legislation, INTELSAT 
Members are well aware of the United States' strong policy favoring 
privatization. This position has been vigorously advocated by both the 
U.S. Party and its Signatory throughout the privatization process. And 
INTELSAT understands that the Congress may wish to establish through 
legislation the goals and objectives to be pursued by the U.S. Party 
and Signatory. In this regard, Mr. Chairman, INTELSAT supported the 
overall approach of the bill you introduced last year, which would have 
established such goals and objectives. But it is neither necessary nor 
helpful for the United States to unilaterally legislate mandates and 
benchmarks for INTELSAT's privatization.
    Indeed, in the highly competitive and dynamic marketplace that I 
have described for you, there is no pressing need for legislation and 
certainly no justification for employing punitive and anticompetitive 
sanctions and restrictions ostensibly to hasten INTELSAT's 
privatization. Such sanctions, though good for INTELSAT's competitors, 
would not be good for competition or consumers.
    For example, the bill requires that the United States withdraw from 
INTELSAT if certain timetables are not met. If this ultimate sanction 
were applied, INTELSAT would be forced to stop serving the U.S. market. 
With one less provider and significantly less satellite capacity 
available, both competition and space segment supply would be 
diminished, and prices likely would increase. Though our competitors 
would benefit, U.S. consumers and service providers would not.
    Further, INTELSAT has serious reservations about the ``carrot and 
stick'' approach employed throughout S. 376. In some instances, these 
provisions would improperly restrict INTELSAT's treaty-based rights to 
serve U.S. international markets. For example, Section 603(b) would in 
effect freeze existing services provided via the INTELSAT system 
pending privatization. This restriction would conflict with U.S. 
obligations under the INTELSAT Agreement, which prohibit any Party from 
restricting global connectivity via the INTELSAT system. Indeed, after 
frank discussions between INTELSAT and the Argentine government, 
Argentina recently lifted similar constraints on INTELSAT's ability to 
operate to and from its territory.
    The bill also prescribes various criteria that must be met by the 
privatized INTELSAT in order to avoid sanctions under the bill. We do 
not believe that the U.S. or any other INTELSAT member can or should 
attempt to mandate the precise outcome of the privatization process by 
restricting the ability of INTELSAT or its successors to compete. 
Successful reform is achieved through vigorous negotiation, respect for 
the framework already established by international agreement, and 
broad-based consensus-building among Member nations--not through 
restrictive mandates and unilateral sanctions. Indeed, the process of 
privatization would be brought to a crashing halt were multiple Members 
to lock themselves into rigid positions on outcome. For the past two 
weeks, I have engaged in discussions with our member governments and 
Signatories around the world on the future structure of INTELSAT. In 
all parts of the globe--Africa, Asia or Europe--the Parties and 
Signatories have all expressed their concerns that the U.S. could enact 
punitive legislation that would seek to preempt the continuing process 
of INTELSAT's privatization.
    Finally, the bill specifies factors for the FCC to apply in 
granting access to the U.S. market by New Skies that essentially codify 
the FCC rule in DISCO II for IGO spin-offs. INTELSAT and other 
interested parties (including the U.S. government) took great pains to 
structure New Skies in a manner that is consistent with the 
requirements of DISCO II. However, we believe it is inappropriate to 
codify the DISCO II criteria only for IGO spin-offs. Indeed, locking 
criteria into law forecloses necessary flexibility in the regulatory 
process. For example, this provision would prevent the FCC from ever 
leveling the playing field for IGO spin-offs with regard to market 
entry.
    We would also like to bring to your attention that the pro-
privatization message coming from the U.S. Congress and Administration 
is being undercut by U.S. regulatory treatment of New Skies. Indeed, 
our Parties' and Signatories' experience in the New Skies matter has 
given them cause for concern with regard to further privatization. Let 
me be more specific.
    To date, twenty U.S. companies holding licenses to operate over 90 
earth stations have applied to transfer their existing operating 
authority from INTELSAT satellites to New Skies satellites. Rather than 
granting the applications, however, your FCC has permitted these earth 
stations to operate only on a temporary basis. These U.S. earth 
stations are, in the words of the FCC, operating ``at their own risk.''
    The agency's refusal to grant existing or new earth stations 
permanent authority to communicate with New Skies' satellites has 
created uncertainty. Because of the FCC's delay, New Skies cannot offer 
any new services or obtain any new customers. At the same time, the FCC 
has recently streamlined its application processes for the 
international submarine cables that compete against satellite carriers. 
Under the new procedures, companies seeking to land submarine cables in 
the United States face essentially no regulatory delay.
    These regulatory hurdles have created uncertainties for New Skies 
and, if not resolved promptly, could jeopardize New Skies' Initial 
Public Offering and its ability to further diversify its ownership. Yet 
early diminution of the percentage of Signatory ownership of New Skies 
was a major U.S. objective.
    Such impediments hinder INTELSAT's privatization by sending the 
wrong message to the international community. Mr. Chairman, as I have 
found in my recent travels, such actions not only send conflicting 
messages about the U.S. direction on privatization, but could also 
influence the ultimate location and regulation of a privatized 
INTELSAT.
Conclusion
    In closing, INTELSAT urges this Committee to ensure that U.S. laws 
and policies adhere to the following basic principles: (1) The United 
States should respect its international commitments embodied in the 
INTELSAT Agreements; (2) The United States should continue to encourage 
privatization of INTELSAT through good faith negotiation and respect 
for the interests of all Members and not by the unilateral actions of 
one Member; and (3) the U.S. regulatory authority should treat 
privatized entities in a fair and equitable manner that allows them to 
compete on a level-playing field. We look forward to working with you 
to achieve these ends.

    Senator Burns. Thank you, Mr. Kullman. Senator Breaux, if 
you want to offer an opening statement.
    Senator Breaux. I will just make some comments when I ask 
questions.
    Senator Burns. Mr. Cuminale, we have heard quite a lot 
about size and fishing today. How does the size of your 
satellite fleet compare to those of your competitors, and will 
the size of your fleet increase by the year 2000?
    Mr. Cuminale. Sure. As a matter of fact, I am glad you 
asked that question, because our fish is not so big. What we 
have for you, Mr. Chairman, and I will leave it with you 
today----
    Senator Burns. It is not big enough for bragging rights?
    Mr. Cuminale. Well, we brag plenty, but I think it has been 
suggested that what PanAmSat is looking to do is actually 
diminish INTELSAT so that we would end up bigger than any other 
international satellite company in the world, and we have two 
responses to that.
    One is, I have got two charts here that I will give you 
that demonstrate that both at the end of 1998 and at the end of 
1999, when you take all of our satellites and compare them to 
INTELSAT, and you compare all of our satellite capacity to all 
of the capacity that INTELSAT has in 36 MHz equivalent 
transponders, which is the way things get measured, we are 
substantially less than and will be substantially less than 
half the size of INTELSAT when you compare the satellites that 
we use to compete with them in the international market.
    The second chart I have for you, because we basically serve 
two markets, U.S. domestic, which is a noninternational market, 
which essentially involves services entirely within the United 
States, and then international, on the U.S. domestic side, we 
have basically compared for you the capacity that PanAmSat has 
versus all of our other competitors, and essentially--actually, 
not all our competitors. Telstar and GE, who are the two major 
competitors in the U.S. domestic market.
    Now, the fact is that you can say we are going to have 24 
satellites, INTELSAT is going to have 24 satellites, but that 
is not going to give you a sense of competition between the two 
of us, because the satellites that we have devoted entirely to 
domestic service do not compete with the INTELSAT satellites, 
entirely different service, entirely different market, so I 
will leave that with you.
    But the answer is, are we a robust company with a great 
business? Absolutely. Does Fred Lanman brag about it, yes, and 
he should, but the reality is that the fleet that we have and 
the fleet that we are going to have to compete with the 
INTELSAT business does not come up to the size of INTELSAT and 
will not and would not even if INTELSAT were cut into two 
pieces, and so I will leave that for you today, Mr. Chairman. 
We will make sure copies get circulated to the members.
    Senator Burns. I guess we could also talk fleet size, but 
how about capacity size?
    Mr. Cuminale. When you look at capacity on 36 MHz 
transponders at the end of 1999 we will have, in terms of 
transponders in orbit internationally, 469 transponders in 36 
MHz equivalents compared to 1,328 for INTELSAT, and that 
excludes the new skies capacity of 296 transponders, so that 
clearly they are looking at not quite a 3 to 1 advantage on the 
U.S. side at the end of 2000 we are showing Telstar with 240, 
GE with 410, and PanAmSat with 427, which makes PanAmSat the 
leader, having a 39.6 share of the capacity in orbit, followed 
right by GE with 38.1 percent and Telstar with 22.3 percent, so 
that is how the markets break up for the two of us. As I say, 
we have these charts here for you.
    Senator Burns. Well, we thank you for that. Do you agree 
that direct access not only provides carriers with access to 
INTELSAT without having to go through COMSAT but also provides 
INTELSAT with direct access to the largest and most lucrative 
market in the world, and that is the U.S. market? Why would 
INTELSAT agree to privatize if it already is given one of its 
principal business objectives?
    Mr. Cuminale. Another very good question, Mr. Chairman.
    We agree that if it is unencumbered access, direct access 
by INTELSAT or by customers to INTELSAT does equate to direct 
access by INTELSAT to the U.S. market, which is the very thing 
we are saying you should use in your bill.
    The position we have developed, however, on direct access, 
is simply this, that for the core services for which INTELSAT 
was formed, INTELSAT should be allowed to deal directly with 
the carriers. We have been persuaded that that will save the 
consumers money and we have been persuaded that a couple of 
other things may follow from it.
    First, one of the conditions that we would place on that 
direct access is that INTELSAT would waive its privileges and 
immunities with respect to new contracts for those services, so 
things beyond what is currently being provided today would 
require some waiver, which as you know is a real hot button for 
us and for all the competitors. We would like to see those go 
away and, frankly, we would like to induce them to be waived.
    Second, and probably more importantly, is the fact that if 
the market access is limited in terms of the scope of services 
for which direct access can be provided, you still have the big 
hunk of the carrot to give away, and we think that that is the 
part of the carrot that ought to be used to induce INTELSAT to 
want to move forward into complete direct access into the U.S. 
market, so what we see this limited direct access as providing 
is a taste of the carrot for INTELSAT, a possibility for seeing 
some waivers of privileges and immunities, and an immediate 
reduction of costs for the consumer in the U.S.
    Senator Burns. Senator Rockefeller.
    Senator Rockefeller. Thank you, Mr. Chairman. This question 
would be to both John Sponyoe and also Betty Alewine. You argue 
that lifting the ownership cap on COMSAT will lead to more 
competition in satellite services.
    Now, occasionally I am capable of being parochial. When it 
comes to satellite services and particularly broadband 
satellite services, how does what you see in this benefit a 
State, a rural State like West Virginia?
    Mr. Sponyoe. As we had, I think this discussion in your 
office sometime ago, we really feel that broadband is the wave 
of the future. In fact, it is one of the things that is being 
discussed as being withheld on the carrot and stick approach 
with INTELSAT.
    We believe that satellites do an excellent job of providing 
the coverage you talked about earlier, and we look not only in 
West Virginia but around the world in areas that are 
underserved or unserved today. We believe without that 
infrastructure that will not be there for years, if ever. We 
can provide that service.
    I think that as we put up--we are bidding on a thing called 
Astrolink in the not too distant future. That will provide a 
beam that goes all the way from Washington, D.C. and covers the 
entire West Virginia State. We believe that would give you the 
capability for small businesses and homeowners to provide that 
coverage for high speed Internet connection E-commerce, et 
cetera, within your State and other rural States within the 
United States.
    We cannot close, as you know, without this bill being 
amended, and close in terms of purchase of COMSAT. We really 
believe, if we take a look at where we are today and the need 
to have their experience over the last 30-some years in this 
business, that will give a very, very powerful, capable 
competitor, and one which will get those capabilities out to 
your State and many others.
    Thank you.
    Ms. Alewine. I would agree with all of that. I would just 
like to add a couple of things. As I had mentioned in my oral 
remarks at the beginning, when we are accused of having a 
monopoly on the thin routes, that is--part of our mission, 
Senator, is on a nondiscriminatory basis, to offer 
nondiscriminatory pricing to the big and the little as well as 
the developed and the developing.
    We are used to providing universal service. One of the 
things that the merger with Lockheed Martin and COMSAT does, we 
are a very, very, very small company. We have $600 million a 
year in revenue, and of that $600 million only $250 million of 
it comes from the INTELSAT business.
    In order for us to grow and serve our customers better, who 
serve right now the State of West Virginia, we need critical 
mass to thrive, to grow, to develop new service offerings, and 
to serve our customers, so the merger in that regard is in the 
public interest.
    You know, I listened to Mr. Cuminale read that very 
impressive list of big companies that are against this merger 
and I ask myself, with our size, it is usually the small guy 
that is coming and complaining about the large guy. In this 
one, it is just the reverse. It is the large guys complaining 
about the small guys. It is a little bit like Goliath trying to 
kill David, and you know, right now we are precluded from 
providing service ourselves domestically in the U.S.
    If the Satellite Act is changed, if the 10-percent cap is 
lifted, if Lockheed Martin and COMSAT are able to merge, it 
will be a very vibrant and very strong competitor. The size of 
the list that was read to you--that will add a competitor to 
the playing field, will add another choice for the consumer, 
and that has got to benefit your rural users, too, because then 
we can do things together in terms of pricing that COMSAT 
cannot do alone.
    Thank you.
    Senator Rockefeller. Mr. Chairman, later on this afternoon, 
as I told Senator Breaux, I am going to be visited by the 
chairman of Mobil Oil Corporation, which is fairly large, and 
used to belong to something called Standard Oil, and what they 
are proposing is to merge with Exxon, which as I recall, if I 
think about it carefully, used to be a part of Standard Oil, 
also.
    Senator Burns. Are you thinking about writing a book? 
[Laughter.]
    Senator Rockefeller. No. I was just thinking about thanking 
him for putting the old business back together again. 
[Laughter.]
    Senator Rockefeller. But it is very interesting, what 
mergers are doing, and we will now go to basically three oil 
companies, and that is an entirely nother subject.
    But Mr. Cuminale, I will not ask it of you, but you have 
talked about an interest in serving the so-called thin route 
countries, and you may or may not face some barriers in doing 
that. I would like you to discuss that, but I would also like 
you to discuss whether or not, in offering that service, you 
will do that at a price that these countries are able to 
afford, and that global interconnectivity has to be a bottom 
line to all of this.
    To be able to do it is one thing. To be able to do it at a 
price that they can afford is another. How do you answer?
    Mr. Cuminale. First, in terms of our willingness to provide 
service in the thin route countries, I think we have said on 
the record more than once, and I think it goes back all the way 
to Fred Lanman, that we will provide service in any country in 
any part of the world where we physically can, and I think we 
have demonstrated a commitment to doing that in terms of trying 
to obtain licensing in virtually any country that will let us 
do it to provide services.
    I will tell you that we went to an extreme effort to be 
allowed to provide domestic service in the country of Pakistan 
when they opened up their market for domestic services, even 
though they indicated that if they ever launched their own 
satellite they would want to be able to kick us out.
    In terms of pricing, the thing that I think is most 
important to understand about satellites and is critical about 
competition is that there is no additional cost for us to 
provide a circuit to Zimbabwe over the cost of providing a 
circuit into New York City. It is exactly the same cost because 
of the nature of the satellite and the nature of its geographic 
coverage.
    We have built satellites that have whole beams over parts 
of the world that we still cannot get access to for vast 
numbers of services, but we have done it on the hope of being 
able to provide those services and to recover our cost with, 
obviously a profit.
    Examples of that are most recently Australia. We had an 
Australian beam on our PASS-4 satellite that we knew we could 
not use when we launched it back in 1995. We were not allowed 
to use it until 1998, and we still think it was a smart move 
for us to build it. In terms of whether we can provide those 
services at competitive rates, all I can tell you is that when 
we are allowed market access, and when we offer our product and 
services, those products and services get taken up, and they 
get taken up because they are competitive and they do provide a 
quality service.
    We believe in the power of competition, always have, and we 
believe that if we are afforded the opportunity to provide 
service we can do it and will do it at effective rates.
    Senator Rockefeller. So you are saying that the satellite 
service provides no price differentiation in terms of the area 
that it covers, but then you indicate that if you were allowed 
to provide access, and that was the first part of my question.
    Mr. Cuminale. That is the nub of the issue, Senator, of 
this bill, which is that there are large parts of the world 
where INTELSAT really is the only company that can provide 
services.
    I had one of our sales organizations just last week come to 
me and tell me they wanted to do a VSAT system in 15 countries. 
It happened to be covering a market that we are pretty good at. 
It is Latin America. The amount of time, and it was a 5 MHz 
circuit, which in the world of satellites represents--well, of 
a 36 MHz transponder, you can do the math, it represents less 
than a quarter, less than a sixth.
    We loaded up all of our regulatory people and went out and 
got the licensing necessary to do the first six countries and 
we are committed to doing I think another 11 countries, but 
that is the kind of effort we have to do to be able to provide 
that service.
    I will tell you that INTELSAT could provide that service 
tomorrow without a blink, and they make a real point of that in 
the marketplace, so that for us to provide a relatively simple 
circuit to a customer that had a need in 17 countries, we are 
going to have to jump through all sorts of regulatory hoops to 
get there, and that is really the issue here.
    Senator Rockefeller. Maybe I am showing my ignorance here, 
but you are saying that, I mean, a satellite, when you beam 
something up, and then it comes down over a broad area, that is 
a completed transaction insofar as the beaming down begins.
    You are either suggesting one of two things. One is that 
your satellite beamed down is blocked, is denied access to 
whatever Latin American countries, or you are suggesting that 
the FCC says that you have the satellite up there and that then 
the beam is able to be beamed down but they are not letting you 
do it, and I do not understand the technological answer to 
either of those questions.
    Mr. Cuminale. A very good question, Senator. Let me 
explain. PanAmSat's business, if you look at it, is almost 80 
percent video, which if you think about it, we beam up a video 
signal and it rains down in the footprint of the satellite. For 
the most part, all around the world receive only television, 
TVRO, TV receive only is allowed. That service can be provided 
in virtually any country in the world, and it is one of the 
reasons why it is 80 percent of our business.
    The communications services that are so integral to 
developing our business and to really competing are services 
that require not only the uplink and the downlink and the in-
country, but also the ability to uplink the signal from that 
country to our satellite and downlink it back to the U.S. or 
wherever.
    The uplinking activity is the activity----
    Senator Rockefeller. That is where you get stopped.
    Mr. Cuminale. Yes, and that is the problem, so when you 
hear us say that we cannot do VSAT services, and VSAT stands 
for very small aperture terminal, but what it is, it is a 
network service. If you look at your mobile station, since you 
are going to be seeing mobile later on top of the station, you 
see that satellite dish. What is happening with that dish is, 
they are receiving information from corporate headquarters, and 
they are transmitting information back on sales.
    That uplinking and downlinking, that kind of network has a 
higher regulatory hurdle, and it is that kind of business from 
which we have been precluded in vast areas of the world.
    Senator Rockefeller. Mr. Kullman, how would you respond to 
that, sir?
    Mr. Kullman. There is a couple of statements Mr. Cuminale 
has done that I would like to address, starting at the end with 
the market access. We have a principle that is called matching, 
so if a certain use or a certain customer wants to set up in 15 
markets we have to go out and work with those 15 countries to 
get their matching to that service.
    If they do not agree to that service, they will not match, 
and we cannot provide the service, so in many cases we face 
similar obstacles to set up a service of this nature, and 
taking South America as an example we fought for 1\1/2\ years 
to get international access to Argentina in Ku band services. 
They stopped us from doing those services in that country, and 
so these types of difficulties are really not only our 
competition's, they are also our problems in a number of 
situations.
    The second issue I wanted to address, and here I will 
probably shock you, but I will agree with Mr. Cuminale that in 
terms of rural services we provide a lot of services today to 
developing countries, to remote areas of countries, domestic 
services for those countries, and we do not differentiate that 
cost.
    That is one of the principles we have, equal pricing for 
equal services, and we do not subsidize these services, we run 
them the same profits coming out of serving a remote area as an 
urban areas, and that is the beauty of the satellite systems. 
You get these coverages really for free.
    The cable operators, the terrestrial operators, they would 
have to pull cables to each of these points, and there fore 
they would incur extra cost, but for us it is really a good 
market to be in. It is a type of telecommunications business 
where satellites function really, really well.
    The last issue I wanted to address is the size of PanAmSat 
versus the size of us. Mr. Cuminale omitted to tell you that he 
has also a very attractive satellite fleet serving the U.S. 
market, a market that we today cannot address for domestic 
services, and he said he has 469 transponders, or 36 MHz units 
versus our 1,328, if I remember the numbers right. That also 
gives me another reflection.
    Today, PanAmSat, more than 50 percent of their satellites 
are for the international market, and so just scaling these 
numbers would mean that he would be on the order of 9, perhaps 
1,000 units in total for his services. He will surpass us in 
revenue for this year. We have 1,328. He has roughly 1,036 MHz 
units. Our revenues are about the same, so that would give you 
an indication of who has the lower prices and who sells at the 
best prices to the consumers.
    So I think that numbers have to be correct, and it is 
extremely inappropriate to exclude the U.S. domestic market 
segment from the numbers that PanAmSat is quoting. If you 
started to do that, we should also strip out everything we do 
that has to do with domestic services. Many of the smaller 
countries around the world, and also quite some substantial 
countries, use the INTELSAT capacity also to serve the domestic 
markets.
    So I think the most fair comparison is to look at the 
overall number of satellites, look at the overall capacity, and 
the overall revenues for these companies, and when you do that 
you will find that they have the same number of satellites as 
we have today. Their revenues, according to their own 
announcement, will surpass us this year.
    If we look to the year 2001, and using the Wall Street data 
from DLJ, PanAmSat will have revenue of around $1.8 billion, 
and 24 satellites. INTELSAT, with the projections we have in 
place right now, will be around $1.04 billion with 22 
satellites, and so these companies are really starting to be in 
the same size today, and you can also draw your own conclusion 
from those numbers when it comes to the pricing of the 
services.
    I also want to take the opportunity to correct something I 
said. I forgot a little important word in my presentation, the 
word not. My staff in the back reminded me that I might have 
jumped that one, and so I wanted to again restate what I 
intended to say about breaking up INTELSAT, and that is that 
breaking up INTELSAT may be good for our competitors, but 
definitely not good for competition.
    Mr. Cuminale. I liked it better before. [Laughter.]
    Ms. Alewine. Mr. Chairman, may I just add something, 
please?
    Senator Rockefeller. Actually, I had a question that I was 
going to give Mr. Cuminale a chance.
    Mr. Cuminale. If I may, I will be very, very brief. I think 
in terms of revenues--Conny, I am sorry to hear you had such a 
bad year, but as I recall, last year, 1997, INTELSAT did $900 
million in revenue, and I know this year--I have not seen your 
numbers for this year, but I know our numbers are more like 780 
for 1998, which means you had a real bad year in 1998, because 
you do surpass us.
    The other thing I would like to point out to you is, 
remember that PanAmSat sells to the end user. INTELSAT sells to 
the signatory who sells to the end user and there is indeed a 
markup there of some sort, and we can argue about how much of 
it goes to the cost of the service provider and how much does 
not, but if you want to consider INTELSAT's revenue, I am using 
1997's revenue, because that is the only number I have, but it 
was around $1 billion.
    If you figure that the customer that receives the service 
of INTELSAT, the end customer pays roughly the same markup for 
all the capacity that COMSAT charges overall, and I am not 
saying it is all profit, I am just trying to get you to a gross 
number, that gets you to about $1.6 billion in terms of total 
revenue from end consumers for satellite capacity. Ours is 750, 
so keep that in mind.
    The other thing I just want to point out is, I did mention 
our domestic fleet, but when you talk about competition you 
have to talk about assets that you put in competition with one 
another. The fact is that I also mentioned to you we provide 
domestic services in Pakistan. Our international capacity is 
used for both international services and domestic services 
abroad. We use it for anything we can, and we think all of our 
international capacity is at competition with INTELSAT, but to 
suggest that our domestic capacity competes with them, well, it 
clearly does talk about our financial strength, and I will not 
argue that issue.
    I agree with Mr. Kullman, we are a very strong company, and 
we have about $3/4 billion in revenues, but I will argue that 
we do not compete with him using those assets, and there are 
other companies abroad that are like that also. Astra, for 
example, is purely domestic in Europe. We do not consider them 
a competitor of ours. We do not do that business, and we are 
not competitors with them, and I think it is very important 
that when you do look at numbers you parse them in a way that 
makes some sense, and I argue our way does.
    Senator Burns. Did you want to comment? I am going to move 
to Senator Breaux.
    Ms. Alewine. I sure would like to, and I will be as brief 
as I can, but this is in response to a couple of Senator 
Rockefeller's questions. The first one was about--and I think 
Mr. Cuminale has left the committee with perhaps a wrong 
impression that in the countries where they cannot offer 
service right now, that it is INTELSAT that would either be 
able to approve that or is standing in their way.
    I would agree with Mr. Cuminale on one thing. We 
wholeheartedly support open and free competition, but in those 
countries that is a Government issue, and we would encourage 
our Government, our party to work on a bilateral basis to help 
open those markets for any and all comers. That is not an 
INTELSAT responsibility. It is not INTELSAT that is standing in 
the way in those markets.
    I thank you, Mr. Chairman. I just wanted to clear that up.
    The only other thing I wanted to say, when Mr. Cuminale was 
talking transponders, you can throw numbers around fairly 
freely, but what I would rather do is simply quote PanAmSat's 
new CEO, Mr. Kahn, who was not able to be here. I was looking 
forward to meeting him, but he was in New York on Monday of 
this week, and he did address the Morgan Stanley 
Telecommunications Conference, and these are direct quotes from 
the new CEO of PanAmSat.
    ``We are the market leader in both video and 
telecommunications. 70 percent of U.S. VSAT's communicate over 
PanAmSat. We reach 98 percent of the world's population with 19 
satellites.''
    Now, this goes to the transponder issue. ``By mid-2000 we 
expect to have 16 percent of the market based on transponders, 
with INTELSAT at 13 percent.''
    When Mr. Kahn was asked why he joined PanAmSat and came 
into this position, he said because ``Hughes PanAmSat is the 
industry leader, with phenomenal space segment access.''
    Thank you.
    Mr. Kullman. Mr. Chairman, I also want to----
    Senator Burns. Let's hold the phone here. I do not know, 
you can take a nap if you like. [Laughter.]
    Mr. Sponyoe. Just very briefly, I do not want to be left 
out on this. I do not know who originally coined the term 
voodoo economics, but I have heard it for the first time here, 
first-hand. PanAmSat is a private corporation making a 
determination where they want to make their investment. The 
fact that they are choosing to invest in satellites over the 
U.S. is their choice. I agree 100 percent with INTELSAT in 
terms of their valuation.
    Second, as we speak today, I have people in the 
Philippines, I have people in Thailand, I have people in India, 
all struggling to get licenses that have nothing to do 
whatsoever with INTELSAT. I would suggest to you that is what 
the market is out there, and we all have to live with it.
    Thank you.
    Mr. Kullman. Fifteen seconds, please, just to comment on 
the numbers. 1997 is not a good comparison. We should compare 
numbers in 1999, after we have spun off the satellites to New 
Skies, and this year our run rate in terms of revenue will be 
equal.
    Thank you, Mr. Chairman.
    Senator Burns. Senator Breaux.
    Senator Breaux. Well, than how, Mr. Chairman. Let me 
congratulate you for your efforts in trying to look at 
telecommunications beyond just the old arguments that this 
committee has always dealt in about long distance versus local 
service, and the things that have been in the past.
    I mean, this is really looking at the future of 
telecommunications and what we need to be talking about, and 
the issues like the use of the international spectrum and 
allocation interference issues, and proper privatizing of 
INTELSAT is also part of that.
    I mean, this is where the next generation and of 
congressional efforts I think is going to be headed, and I 
congratulate you for it and the effort that you have put into 
putting together a bill that regulates this.
    After listening to all of this, you almost make Medicare 
sound simple. [Laughter.]
    Senator Breaux. That is saying an awful lot, I want you to 
know, because this is certainly something that after it 
eventually gets out of this committee, I mean, it is just a 
huge amount of education that is going to be necessary for most 
Members of Congress who have almost--who are limited to no idea 
of all of the conflicts, and the things we are trying to do 
here.
    We are basically trying to establish a framework that makes 
sense for private competition in this business, and it has been 
very, very difficult, but I think the chairman is moving in the 
right direction, and I hope to be able to join him in the 
package when it comes out of this committee.
    Let me ask Jim Cuminale, one of the concerns that I have is 
that the bill does not seem to recognize the fact that when you 
had a private company that is competing against other private 
companies in this business and is going to be sort of sitting 
at the table making some of the decisions about how 
privatization is to occur, that it seems like the bill in this 
area is fairly vague about protections for everybody.
    When COMSAT, or Lockheed acquires COMSAT, and then we are 
going to be talking about privatization of INTELSAT, I mean, is 
that handled properly as far as the bill is concerned, and then 
I will get Mr. Sponyoe to comment too.
    Mr. Cuminale. Thank you, Senator. I think we have gone on 
the record as saying that it is not--insofar as the ability of 
that company, privatized, to enter the U.S. market is not as 
restricted as it could be, and the criteria for determining 
whether it has met the standard, as it were, is also not as 
sharp as it could be.
    I heard earlier criticism about the way New Skies has been 
treated in the U.S. market and, frankly, we filed with respect 
to New Skies entry, but we proposed that New Skies be allowed 
to enter until it can prove that it has met the criteria, 
because it is a brand new company. It did inherit this 
business, and we did not want to see service get shut off, but 
the fact of the matter is, even the limited criteria that the 
FCC adopted in DISCO-2 are not met by New Skies at this time, 
and they have been afforded opportunity to do business in the 
U.S.
    Senator Breaux. My point is, on the chairman's bill. Is it 
adequate, the way it is set up, or can it be improved?
    Mr. Cuminale. We think it can be improved.
    Senator Breaux. How?
    Mr. Cuminale. We have submitted a markup, Senator, we would 
be happy to share with you, but fundamentally what we think is 
that the criteria for determining whether the private company 
is pro-competitive is somewhat soft, and that they are 
suggestive as opposed to required.
    Senator Breaux. Mr. Sponyoe, do you agree with that?
    Mr. Sponyoe. No. As a matter of fact, I think it is a very 
balanced bill, and I submit my rationale with the fact that 
Conny calls me about every 3 days complaining about the bill. I 
do not think we ought to give INTELSAT a free ride in the 
United States. They have immunities today, as I mentioned 
earlier, to antitrust, to taxation, and so I think there ought 
to be a carrot and stick. I think you have a corporation called 
COMSAT today paying taxes.
    As we have talked about before, I do not think we have been 
able to develop a good balance, as opposed to Mr. Cuminale's 
suggestion that we put some kind of a noose around INTELSAT's 
neck, and so I support it very strongly.
    Senator Breaux. What about the objection that it is fairly 
vague?
    Mr. Sponyoe. Well, if it is fairly vague, I would like to 
understand where it is fairly vague. I think there has been a 
lot of time spent on it. We spent a lot of time on it. We 
believe it is very specific in the areas of importance where it 
spells out the requirements in terms of the metrics that are 
going to be utilized in order to make a determination of 
whether or not they truly have met those objectives of 
privatization.
    Senator Breaux. Well, I clearly do not understand, and Mr. 
Cuminale, what is your response to that?
    Mr. Cuminale. Well, obviously we have a disagreement about 
how specific the criteria should be.
    I think the other thing we feel very strongly about is that 
the FCC ought to have a real voice in the execution of the bill 
and particularly in the granting of market access, which is 
clearly not the case under the current bill, and I want to 
point out that while we make that recommendation the FCC has 
not always ruled in our favor on these issues. We do, however, 
believe that the process they go through, and the rules that 
they apply, assure fairness, and we think that they should have 
a very prominent role in the bill.
    Senator Breaux. It is always very, very difficult. We have 
got multimillion-dollar industries. We try and establish a 
level playing field. I mean, I am a big believer in the 
marketplace, but in this area we have to have some guidelines 
and parameters. The bill attempts to do that, and my main goal 
is just doing it right.
    We should not be in the business of picking winners and 
losers. That is something the marketplace should do. But our 
job is to try and establish a level playing field, and I want 
to work with the chairman to help do that, and hope everybody 
succeeds.
    Thank you.
    Senator Burns. Thank you very much, Senator Breaux.
    Senator Gorton.

                STATEMENT OF HON. SLADE GORTON, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Gorton. Mr. Chairman, I think Senator Breaux has 
hit the nail right on the head. We are here in an attempt to 
come up with an appropriate public policy with a goal toward 
seeing to it that there is vigorous competition in this field, 
and that the users interests be met to the maximum possible 
extent. It leads me to suggest that Mr. Chairman, that either 
we ought to have another hearing, or some less formal way in 
listening to users, the customers, and seeing what they think 
is likely to promote competition and a valid pricing system to 
the maximum possible extent.
    It seems that we have three different points of view 
presented here today, two of which at least enthusiastically 
say that their position best advances competition, and the 
other, the present INTELSAT gives lip service to it, but I am 
not certain whether it really believes in it or not.
    Senator Breaux said something else that was very important, 
and that I am afraid may have been a shortcoming in some of the 
things this committee has done.
    We here on this committee should try to work this out in a 
way that has broad agreement among members of this committee, 
because these issues are so technical, and if we do something 
on a divided basis here, we almost guarantee that we are not 
going to be successful overall on the floor, and so it is 
important for us to try to work this out.
    We have to ask ourselves this question, Mr. Chairman. Who 
benefits if we do nothing, who benefits if we do not get this 
job done at all, and then we should look, I think, somewhat 
askance at the views of whatever interest that is.
    I would be a lot more comfortable, I tell you, if the two 
real competitors here have been more or less at each other's--
PanAmSat and COMSAT were able to reach a greater degree of 
accommodation than they have so far, because I rather suspect 
that the two of them are not going to be benefited by doing 
nothing in any particular fashion.
    But if they cannot, we should, and we should do it in a way 
that binds together most of the members of this committee with 
a degree of confidence that will allow us to pass a bill and 
move on to the next generation in a field in which our 
predecessors 35 years ago did a magnificent job, given what 
they had in front of them at that time, but the technology is 
so different now that we need to do the job over again.
    I am told that PanAmSat says that it has worked with a 
number of other people, including one of my constituents, with 
some, either a different bill or alternatives to this bill. We 
have not seen it. If they want it considered, we had better see 
it pretty soon, it seems to me, but even more important than 
that, I will say very bluntly, is that the two of you sitting 
in the middle of the table and your allies, see whether or not 
you cannot settle some of your differences and give the 
Congress a real opportunity to move forward.
    Senator Burns. Senator Gorton, I think you bring a good 
point up on users, and to hear something from users, and we are 
prepared to have another hearing with regard to that. I think 
you make a good suggestion, and we had talked about this, and I 
think that is a good suggestion to hear from the users, and we 
will do that rather quickly before we go to a markup.
    I want to ask one more question. Did you want to respond?
    Mr. Sponyoe. Mr. Chairman, if I might, to the Senator's 
question regarding who is harmed if we do not pass the bill. We 
and Lockheed Martin, of course, cannot close the transaction 
without the bill being adopted, and I think that would be a 
terrible tragedy not to be able to do this today, because I 
think COMSAT, as I said in my earlier remarks, is not going to 
be able to compete on a level playing field in the environment 
that exists to day in the global telecommunications 
marketplace.
    Senator Gorton. Well, that gives you a heck of an incentive 
to see whether or not you cannot reach a consensus.
    Mr. Sponyoe. It certainly does, sir.
    Senator Burns. I want to ask one other question, because 
where we still--the ongoing dialog, Ms. Alewine, is in the area 
of Fresh Look, and I would just like for the record your 
opinion on Fresh Look, and would have other comments from other 
members of the panel with regard to that particular issue.
    Ms. Alewine. Thank you, Mr. Chairman, and I would welcome 
the opportunity to give the committee my comment on Fresh Look.
    There is no requirement for Fresh Look. The FCC and the 
U.S. courts have looked at that very issue and have each 
individually ruled on that. Those contracts were won 
competitively. They have been updated, amended. The people who 
signed them have considered PanAmSat, and when they signed on 
with us and the amendments to the contract and there is 
absolutely no reason for fresh look.
    The state of play of competition in this country is so 
significant, which means that the playing field is so very 
competitive now, that if we do not offer competitive prices and 
services, our customers have so many options.
    If I might take just 10 seconds of the committee's time, 30 
seconds maybe, I do not think I can do it in 10, one of the 
things in preparing for today's hearing was, we hear so many 
times, and that is why I addressed it in my oral remarks, that 
we are a monopoly.
    If I could, because a picture communicates--you know, it is 
worth 1,000 words, and I know I do not have 1,000 words left in 
terms of time, but if I could be allowed to show the committee 
what I mean by the state of play now in international 
competition, 
Mr. Chairman, with your permission, and I apologize to the 
people sitting behind me. We only have one copy of this. This 
was the state of play in 1984.
    What you see below the map of the United States are 12 
INTELSAT satellites, and 15 years ago, ladies and gentlemen, 
that is the picture of a monopoly. Almost all of the 
communications that were going in and out of the United States 
internationally were going over one of those 12 INTELSAT 
satellites or copper cables.
    Let us fast forward to year end, 1998. That is the picture 
of a full field of competition. What you have in blue are the 
INTELSAT satellites, 12 of them. What you have in pink are the 
Hughes PanAmSat satellites. What you have in yellow are the 
other 41 satellites providing international communications in 
and out of the United States. Below the line in red are the 
ones that are planned to be launched and operational by the 
year 2000, and that is only half of the story.
    At the top on the map are all of the fiber optic cables 
that now offer service, voice, video, and data in and out of 
the United States.
    That is a fully competitive playing field. What has been 
the impact on COMSAT? Why do we need critical mass, and why do 
we need to partner with another company where we can thrive and 
survive and offer services to the future, and to our customers 
today?
    In 1984, no doubt about it, that is the picture of a 
monopoly. We had 99 percent of the video business. We had 70 
percent of the voice business, the market share for 
international coming in and out of this country.
    In 1998, 15 years later, we have 35 percent of the video 
business, and that is including New Skies, the New Skies number 
would have to separated out of that, and we have 20 percent of 
the voice and data business.
    Who would be hurt if INTELSAT is not privatized, if this 
merger is not allowed to go forward? The U.S. consumer and the 
state of play for competition, because it would take another 
competitor off the field.
    Thank you.
    Mr. Sponyoe. I will start off by saying I never met a 
customer who does not want a better price, so I guess with that 
premise it comes down to a question of fairness.
    Is Betty right in suggesting that these contracts were 
awarded in a competitive environment and we should be required 
to prove that?
    The one thing I find slightly hypocritical on the part of 
the customers, though, is during the dialog on Fresh Look it 
was suggested that the bill also include making certain that 
those savings go back to the end customer. The suggestion was 
that that is better left to the regulators as opposed to the 
legislators.
    Thank you.
    Mr. Kullman. Mr. Chairman, I would like for you to let me 
ask a question of Senator Gorton regarding the issue of 
INTELSAT paying lip service to these issues. If he could help 
me clarify that, what he means by that, it would help me.
    Senator Gorton. It simply seems to me that your interest in 
changing the present system is not overwhelming.
    Mr. Kullman. The only thing I can say to that is that I was 
elected to this job on a platform of privatizing INTELSAT, and 
my management team and I are totally 110 percent dedicated to 
making sure that happens. There is no future for INTELSAT 
unless it privatizes. It is going to go down the tubes.
    So we see a growth rate today of 4 percent per year. Our 
aggregate compounded aggregate growth rate of the competitors 
is on the order of 17 to 19 percent. We have to work 
differently, and the only way for us to do that is to work in a 
different structure, a privatized structure, so I can only 
assure you that it is our 100 percent intent to make sure that 
privatization happens.
    Now, we have 143 member nations, and we need to convince 
them to move forward, and you know how difficult it is in this 
room and down in the Senate to get agreement. We have to get 
those types of agreements from 143 different nations, and we 
have to move that process forward in a multilateral, 
multinational discussion and negotiation environment, and that 
takes a lot of effort on our part, and also on the part of 
everyone who is a member of this organization.
    Thank you, Mr. Chairman.
    Ms. Alewine. Mr. Chairman, if I might add one quick thing, 
when you asked the question of the Government representative, 
Ambassador McCann today, and she responded about Fresh Look, 
that they did not support it, I would like to tell the 
committee that one of the reasons that I believe they do not 
support it is because a year ago at this time, when the FCC 
granted us non-dominant status based on the fact that we had no 
market power in any of our markets, what they said in that 
order, and I would like to read these two sentences, is that 
``COMSAT's long-term contracts do not impede COMSAT's customers 
from switching service providers.''
    ``COMSAT's switched voice customers are sophisticated 
customers, possessing significant bargaining power giving them 
the flexibility to route a significant portion of their 
switched voice traffic to their own transmission facilities or 
those of alternative carriers at any time, as they choose.''
    This also has been looked at by the Federal courts and in 
their written decision they said, ``nothing in the record 
suggests that COMSAT secured any of the contracts by means of 
any anticompetitive act against''--and in this particular 
instance we had been sued by PanAmSat--``against PanAmSat.''
    ``On the contrary, the record suggests that for their own 
reasons the common carriers elected to secure long-term deals 
with COMSAT only after considering and rejecting offers from 
PanAmSat.'' Those contracts should not be overturned. That is a 
taking of a private, publicly traded U.S. company's property.
    Thank you.
    Senator Burns. Thank you. A little bit on Senator Gorton's 
question. With 143 countries that makes up your INTELSAT, can 
you privatize by January 1, 2002?
    Mr. Kullman. We are on a schedule where we will approach 
the Governments in October of this year and we will work very 
hard to get the decision in principle in that meeting that we 
are heading down the right path. It is our internal work 
schedule then to convince the Governments and the signatories 
for the final solution within a year's period after that date, 
which would take us to the year 2000.
    Senator Burns. What will happen to INTELSAT should the U.S. 
pass legislation calling for COMSAT withdrawal should INTELSAT 
not privatize by date certain and COMSAT does, in fact, 
withdraw?
    Mr. Kullman. That is a hypothetical question.
    Senator Burns. I know it is hypothetical. That is what we 
were dealing in a while ago.
    Mr. Kullman. It would be very unfortunate, obviously. If 
that happened I would think INTELSAT would still continue to 
exist and serve the rest of the world.
    Senator Burns. Mr. Cuminale.
    Mr. Cuminale. Mr. Chairman, could I take us back to direct 
access and Fresh Look, because while it is not our issue, and I 
would encourage you when you have your hearing or discussions 
with users to raise it with them, because they are passionate 
about it, so much so that they have convinced us that direct 
access along the lines I testified as to earlier makes good 
sense for the U.S. consumer and we should not argue against it, 
which historically PanAmSat did.
    Their argument essentially is that when they made the 
contracts they made with COMSAT they did not have competitive 
choices, and that those contracts therefore are contracts that 
were obtained at a time of monopoly, and I suppose there will 
be some debate as to where on that spectrum we saw on those 
charts they were when those contracts were entered into.
    Their feeling is, with direct access they should have Fresh 
Look, because without Fresh Look direct access makes no sense, 
and more importantly, without Fresh Look--of course, Fresh Look 
makes no sense without direct access.
    They go so far as to say, because one of the things COMSAT 
has said is, fine, have direct access, fine, let them have 
Fresh Look. They cannot get satellite capacity, because we are 
the ones who are holding it, so one of the things they want to 
talk to you about is portability of the capacity if they do 
Fresh Look and if they do compete those contracts 
competitively.
    It is an interesting notion, because if they are so 
interested in the portability of the capacity, I think one of 
the things they figure is, where they are probably going to end 
up is on a direct access deal with INTELSAT, not with PanAmSat, 
and not on the cable systems, otherwise they would not be 
interested in that portability.
    But I would suggest to you that you inquire of them, 
because it truly is their issue and not ours.
    Ms. Alewine. Mr. Chairman, if I might respond to direct 
access, and I know this is beginning to sound like he-said, 
she-said, and I apologize for that.
    Senator Burns. Well, at least it is in public. [Laughter.]
    Ms. Alewine. I do not know where Mr. Cuminale gets his 
quotes from that we said this or we said that. I know where I 
get mine. I get mine from public meetings. To the best of my 
knowledge, no one in my corporation has ever said, fine, let 
them have direct access, fine, let them have Fresh Look, we 
have tied up all the capacity. I have never heard that before.
    But let us talk about that capacity, and let us talk about 
direct access, because a lot of people say that we want direct 
access to your assets. Well, we happen to own the U.S. portion 
of the INTELSAT system. Everybody talks about facilities-based 
competition. Those are, ladies and gentlemen, our facilities. 
Yes, we were created by an act of Congress, but we have never 
had one penny of Government funding, one penny of a taxpayer 
dollar in the creation or our investments in INTELSAT.
    This corporation, COMSAT Corporation, was created by an 
initial public offering of $200 million. It has had shareholder 
money in it from the get-go, and those are our facilities that 
we have invested in.
    Now, as I said earlier, there is this big brouhaha about 
all of the big guys attacking, trying to take the little guy's 
revenue.
    Remember the number that I quoted to you? We get $250 
million a year of revenue from our INTELSAT business. It is in 
public documents, so I know this number is correct, and that is 
just a little more than one of the companies that is on Mr. 
Cuminale's large company impressive list spent on their ad 
budget in 1998. Iridium spent $200 million for advertising.
    I am having a real hard time, Mr. Chairman, understanding 
why all of these very big companies now have focused on taking 
our facilities, taking our assets. Yes, we control access to 
them, but that does not make us a monopoly. It is just as 
PanAmSat controls access to their Hughes satellites.
    I am having a really hard time, unless you connect the 
dots, and you say they do not want INTELSAT privatized, they 
want all of this delayed and tied up in legislation, and COMSAT 
and Lockheed Martin tied up in knots. They do not want this 
merger to go through, because in fact they do not want another 
strong competitor. They would like to keep us at $250 million a 
year in an intergovernmental organization that cannot take 
decisions quickly.
    That is not procompetitive, and that is not in the U.S. 
public consumers' best interest.
    Thank you.
    Mr. Sponyoe. Which I believe is the short or long form, 
depending upon your perspective, of Senator Gorton's question.
    Mr. Kullman. Let me just make one comment on direct access, 
Mr. Chairman. It is not really an issue for INTELSAT. Direct 
access is a national--it is a domestic issue, regulatory issue 
for each individual country to decide on, but I also want to 
make clear that we do not see direct access as our carrot. We 
really see the issue of direct access and privatization as two 
separate issues. What is important for us is to privatize for 
business reasons and get on with it as fast as we can.
    Senator Burns. Just about all the questions that I have had 
today have been covered in the give-and-take and the rhetoric 
today, and I appreciate that.
    I will insert Senator Stevens' statement for the record.
    [The prepared statement of Senator Stevens follows:]
    Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
    I want to congratulate Senator Burns for holding this hearing and 
for championing this issue in the Senate.
    Reforming and bringing true privatization to the international 
satellite world is a true challenge.
    I would argue it is even more ambitious than reforming our domestic 
telecommunications industry. At least by 1996, Judge Greene had showed 
us the way by breaking up AT&T.
    I've met with Senator Burns on this issue and am convinced that his 
goal is to privatize INTELSAT and to ultimately level the playing field 
in the satellite industry.
    Based on that conviction, I am committed to helping him get a bill 
to take to conference with Chairman Bliley.
    I hope that sometime this summer, I can stand on the floor of the 
Senate and rename S. 376 the Burns-Bliley bill.
    Is this bill perfect? No. But I believe Senator Burns is definitely 
on the right track.
    We need true privatization, we need free market access to all 
carriers, and we need to discourage monopolistic behavior.
    I'm convinced Sen. Burns wants these things too, and I look forward 
to helping him achieve these goals.

    Senator Burns. We also have a statement by the Majority 
Leader, Senator Lott, who is supporting our efforts.
    [The prepared statement of Senator Lott follows:]
  Prepared Statement of Hon. Trent Lott, U.S. Senator from Mississippi
    Let me first thank my friend Senator Burns, the distinguished 
Chairman of the Communications Subcommittee, for holding this hearing 
to build upon past discussions to privatize international satellite 
operations.
    I am grateful for his leadership in moving ahead on this much-
needed reform of a 35-year old policy.
    The issues are both complex and important in this global 
marketplace America finds itself in.
    Senator Burns has taken the bull by the horns, and I appreciate his 
willingness and tenacity to tackle this issue.
    I am here today to add my personal support to the Chairman's 
efforts to ensure that customers benefit from whatever approach is 
finally taken in the international satellite field . . . a field that 
just a few decades ago was dominated by intergovernmental 
organizations.
    Today's international marketplace is different from the one found 
in 1962 when all this began. And Senator Burns is right--today's policy 
solutions must reflect the realities of 1999 and be flexible enough to 
reach into the next century.
    Congress was right in 1962, even visionary, to establish an 
international cartel--INTELSAT--to blaze the trail of a global 
communications network. The private sector did not have the capability 
to do a commercial satellite system.
    COMSAT, as INTELSAT's U.S. signatory, has done an excellent job for 
over 3 decades in carrying out its Congressional charter to fulfill our 
national policy of global communications. COMSAT has laid a solid 
foundation.
    However, commercial satellite service has come of age. Today, it is 
a viable opportunity and a real option.
    In fact, numerous private companies have established global and 
regional satellite networks that provide workable commercial services. 
And these services are growing in demand.
    Yes, strides have been made by these intergovernmental entities to 
privatize. This is good, but this is not enough.
    Congress needs to take this opportunity to both encourage and 
ensure that the new public policy for the next century will provide 
competition in the new satellite community.
    Congress should enact a pro-competitive bill because American 
customers deserve the benefits.
    Congress also needs to look past the surface debate of which 
organization will provide the services and focus on the ultimate 
consumer.
    Congress also needs to factor in our domestic market as it relates 
to markets around the globe.
    Conrad, you've got a great catchy title for your bill--the Open-
Market Reorganization for the Betterment of International 
Telecommunications Act--or ``ORBIT.''
    You have changed it from your original approach in the last 
Congress. This is good.
    This new bill already enjoys broad bipartisan support from several 
members of this Committee. This is good.
    I am encouraged because the stage is now set for an open debate.
    I know that Senator Breaux has some concerns about market access, 
and other remaining issues may need to be ironed out before a unified 
Senate position can be achieved . . . but I believe we can.
    I have on several occasions spoken with Chairman Bliley about this 
matter. As most of you know, Chairman Bliley has for years been the 
champion for satellite privatization in the House.
    Chairman Bliley indicated his continued interest and willingness to 
work together on a bill that can pass both chambers this year. This is 
good.
    Mr. Chairman, it is my understanding that today's hearing is the 
1st of a 2 part series, and the next hearing will be for the customers. 
This is crucial because their needs are the reason why Congress is 
advancing the competition and choice aspects. Hearing their 
perspectives will be useful.
    I want to thank today's witnesses for their time and insights as we 
move forward on the debate.
    I see some familiar faces.
    At this time I do not want to ask questions, but I would like to 
reserve the right to submit questions at a later date for the record.
    I look forward to bringing a consensus bill onto the floor soon for 
the full Senate's consideration.
    Again, Mr. Chairman, thank you for holding this hearing.

    Senator Burns. Any questions that might be directed to you 
by anybody else on the committee, I would appreciate a response 
to them and to the committee. All of your testimony will be 
made a part of the record, and I am sure that we will keep the 
record open for comments as we continue the dialog on this.
    Senator Hollings also has his statement that he wants to 
enter into the record today, and without objection we will do 
all of that.
    [The prepared statement of Senator Hollings follows:]
            Prepared Statement of Hon. Ernest F. Hollings, 
                    U.S. Senator from South Carolina
    INTELSAT and COMSAT were initially established when there was no 
global satellite service. Both organizations have successfully 
fulfilled their mission in linking the United States and countries 
around the world by satellite communications. Since their inception, 
however, the marketplace has changed. Today, there are a number of 
satellite systems providing a wide variety of services and many more 
preparing to implement service. Recognizing these changes, INTELSAT is 
working to become a private company.
    While it is critical for INTELSAT to privatize, it is also 
important that it does so in a pro-competitive manner. The fact is that 
privitization of INTELSAT in a non-competitive manner, will enable it 
to distort competition in the U.S. market thereby potentially adversely 
impacting the ability of U.S. systems to enter foreign markets.
    Once INTELSAT is privatized, the role of COMSAT will change. In 
addition, there has been on-going speculation about the purchase of 
COMSAT by Lockheed Martin. Before that can occur, however, the 
statutory ownership restrictions on COMSAT must be lifted. In light of 
Lockheed's proposal and the privatization of INTELSAT, COMSAT will 
ultimately has to transition from a signatory to a non-signatory role.
    Senator Burns introduced last year as he has again this year, 
legislation concerning the privatization of INTELSAT. This hearing 
presents a good opportunity to examine the provisions of Senator Burns' 
bill--in particular, the provision that addresses the Administration's 
certification of INTELSAT's privatization. This provision places the 
Administration in the role of the FCC in reviewing the entry of 
INTELSAT into the U.S. market.
    Thus, I welcome the witnesses and look forward to hearing their 
testimony. I thank Senator Burns for having this hearing.

    Senator Burns. I appreciate your time today. It has been a 
long afternoon, very busy, but as we make our way down the 
trail on this I am satisfied we can come up with a piece of 
legislation that will do what we want to do and also what you 
want to do.
    Thank you for coming today. These hearings are closed.
    [Whereupon, at 4 p.m., the subcommittee adjourned.]
                            A P P E N D I X

                         Federal Communications Commission,
                                    Washington, DC, April 22, 1999.
Hon. Conrad Burns
United States Senate
Washington, DC
    Dear Mr. Chairman,

    With this letter, I am providing a written follow up to a question 
you asked in the March 25th hearings on the Open-market Reorganization 
for the Betterment of International Telecommunications Act before the 
Senate Subcommittee on Communications (S. 376). I appreciate the 
opportunity to provide these responses.
    You asked for my assessment of the recently created spinoff of 
INTELSAT, New Skies Satellites, N.V. (New Skies). New Skies was created 
as a result of a 
March 31, 1998 Assembly of Parties decision to form a private satellite 
company incorporated in the Netherlands to provide various video and 
broadband services.\1\ The United States associated provisionally with 
the Assembly decision in creating New Skies because it believed there 
was continuing uncertainty as to whether true separation and 
independence of New Skies from INTELSAT could be effected.\2\
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    \1\ INTELSAT Assembly of Parties, Record of Decisions of the 
Twenty-Second (Extraordinary) Meeting. (AP-22-3E) Salvador, Brazil, 
March 31, 1998.
    \2\ See Statement of the United States appended to the Assembly of 
parties, Record of Decisions of the Twenty-Second (Extraordinary) 
Meeting (AP-22-3E) Salvador, Brazil, March 31, 1998.
---------------------------------------------------------------------------
    On November 30, 1998, INTELSAT transferred to New Skies five 
operating satellites and one satellite under construction. New Skies 
then began operations. At that time, in order to assure continuity of 
services to U.S. customers already using the satellites transferred 
from INTELSAT to New Skies, the International Bureau authorized 
temporary operation of 90 earth stations to operate with New Skies 
satellites pending Commission action on applications filed by the earth 
station operators for permanent authority.\3\ The authorizations permit 
licensees to add new customers pending Commission action on the 
applications of the earth station operators.
---------------------------------------------------------------------------
    \3\ Requests for Special Temporary Authority to Operate INTELSAT 
Satellites Transferring to New Skies Satellites, N.V., Report and 
Order, DA 98-2431, November 30, 1998, (STA Order).
---------------------------------------------------------------------------
    In reviewing applications to operate with New Skies, the Commission 
will apply the standard implementing the WTO Agreement on Basic 
Telecommunications Services (DISCO II Order) \4\ for affiliates or 
spinoffs of INTELSAT or Inmarsat to provide service in the United 
States. In the DISCO II Order, the Commission adopted a presumption in 
favor of entry for space stations licensed by WTO members. However, the 
Commission reserved the right to attach conditions to the grant of 
authority, or in the exceptional case in which an application would 
pose a very high risk to competition in the U.S. satellite market, to 
deny the application. The DISCO II presumption in favor of entry will 
apply to New Skies because New Skies' satellites will be authorized by 
the Netherlands, a WTO member.
---------------------------------------------------------------------------
    \4\ Non-U.S. Licensed Satellites Providing Domestic and 
International Service in the United States, Report and Order, 12 FCC 
Red 24094 (Nov. 26, 1997)(DISCO II Order).
---------------------------------------------------------------------------
    In the DISCO II Order the FCC also set forth criteria that apply to 
New Skies. These criteria are reflected in S. 376 which would in 
effecting codify the FCC's approach to considering INTELSAT and 
Inmarsat spinoff entry into the U.S. market. In determining whether an 
application to serve the U.S. market by an INTELSAT spinoff raises the 
potential for competitive harm, the FCC will consider any potential 
anti-competitive or market distorting consequences of continued 
relationships or connections between INTELSAT and New Skies, 
particularly the risk or likelihood of collusive behavior or cross-
subsidization. Specifically, the Commission will evaluate the ownership 
structure of New Skies, including its affiliation with INTELSAT and the 
effect of INTELSAT and signatory ownership; whether New Skies can 
directly or indirectly benefit from INTELSAT's privileges and 
immunities; the extent to which there is arms length conditions 
governing the relationship between INTELSAT and New Skies. The FCC will 
consider the extent to which there are separate directors, officers, 
employees, accounting systems as well as fair market valuing for 
permissible business transactions that is verifiable by an independent 
audit and consistent with normal commercial practice; whether there is 
common marketing or recourse to INTELSAT assets for credit or capital; 
and whether INTELSAT will register or coordinate spectrum or orbital 
locations on behalf of New Skies.
    In applying the DISCO II standards the Commission will assess 
progress being made toward independence of New Skies from INTELSAT and 
whether New Skies is unfairly benefitting from its unique INTELSAT 
heritage to the detriment of its competitors. The Commission will apply 
DISCO II standards to the facts contained in the record. For example, 
New Skies currently is 100 percent owned by INTELSAT and its 
signatories. (INTELSAT has a ten percent ownership in a nonvoting trust 
and the signatories have the remaining 90% share). New Skies has 
entered into various time-limited services agreements with INTELSAT 
that involve INTELSAT in operation of important aspects of New Skies 
satellites. In addition, customers inherited by New Skies from INTELSAT 
continue to look to INTELSAT as a guarantor of service either because 
contracts have been assigned rather than novated, or the customers are 
served under ``lease back'' arrangements.
    The FCC staff is reviewing petitions and comments filed in response 
to the applications, as well as documents submitted by New Skies in 
February 1999 that reflect INTELSAT and New Skies implementation of 
March, 1998 Assembly of Parties decision. The staff also has been in 
discussions with New Skies representative regarding these documents. 
The staff has requested and is awaiting information from New Skies as 
to whether New Skies will begin public trading of shares by the end of 
1999.\5\ We are hopeful of submitting recommendations to the Commission 
for consideration in the near future.
---------------------------------------------------------------------------
    \5\ See Testimony of Ambassador Vonya B. McCann before the 
Subcommittee on Communications, Senate Committee on Commerce, Science, 
and Transportation, September 10, 1998.
---------------------------------------------------------------------------
    Thank you again for the opportunity to testify at the March 25 
hearing and to expand upon my responses in this letter. If you or your 
staff have further questions, please feel free to contact me.
            Sincerely,
                                    Roderick Kelvin Porter,
                                               Acting Bureau Chief.
                                 ______
                                 
                                 
                                 
      
                                 ______
                                 
  Prepared Statement of F. Thomas Tuttle, Vice President and General 
                          Counsel, Iridium LLC
                              introduction
    Iridium LLC, a Washington, DC-based, global mobile satellite 
telephone company, appreciates the opportunity to submit testimony for 
today's hearing. Iridium is pleased that the Subcommittee is 
considering legislation that addresses the privatization of the 
intergovernmental satellite organizations (IGOs), a goal Iridium fully 
supports.
    Congress authorized U.S. participation in the IGOs, INTELSAT and 
Inmarsat, and guided the initial development of the commercial 
satellite services market by passing the Communications Satellite Act 
in 1962 and the International Maritime Satellite Telecommunications Act 
in 1978. It is appropriate that Congress is now turning its attention 
to the impressive growth of the commercial satellite services market, 
the major and increasing role of private industry in that market, the 
resulting need for privatization of the IGOs, and the potential impact 
such privatization will have on competition in the market for 
international satellite services.
    Satellite legislation dealing with competition in the global 
marketplace comes around once in a generation. The legislation that 
will be enacted is likely to be the most significant (if not the only) 
legislation addressing competition in the international satellite 
services for many years to come. Iridium is concerned, therefore, that 
there is nothing in S. 376 that addresses the consequences of 
Inmarsat's privatization or the effect such privatization will have on 
market access and competition in the mobile satellite services. Without 
addressing the privatization of Inmarsat, S. 376 is incomplete. It may 
address the impact of the privatization of an IGO on the market for 
fixed satellite services, but it does nothing to promote a fully 
competitive domestic and international market for mobile satellite 
services.
    Inmarsat was created in 1979 and began providing service in 1982. 
As Inmarsat's current Internet web site explains,

          ``When Inmarsat began service in 1982, its remit was to 
        provide communications for commercial, distress and safety 
        applications for ships at sea.
          Inmarsat's name is an acronym of its original full title, the 
        International Maritime Satellite Organization, and, while it 
        has branched out into other, non-maritime markets and changed 
        its name to the International Mobile Satellite Organization, 
        the acronym has remained.
          Inmarsat grew out of an initiative of the then International 
        Maritime Consultative Organization. At the time, mobile 
        satellite communication was an unexplored technology and the 
        industry an embryonic, untested one.
          So it was decided that Inmarsat should be a joint co-
        operative venture of governments, with their signatories--
        nominee organizations, in most cases the country's post and 
        telecommunications provider (PTT)--contributing the capital and 
        bearing the high risk involved.''
    Inmarsat's web site also explains that,

          ``[Inmarsat] has since expanded into land, mobile and 
        aeronautical communications, so that users now include 
        thousands of people who work in remote areas without reliable 
        terrestrial networks, or travellers anywhere.
          In addition to maritime customers, today's typical users 
        include journalists and broadcasters, health teams and disaster 
        relief workers, land transport fleet operators, airlines, 
        airline passengers and air traffic controllers, government 
        workers, national emergency and civil defence agencies, and 
        heads of state.''

    At the time the IGOs were created, there were no privately owned 
international satellite systems. Satellite technology was still being 
developed, making satellite-based services both risky and very 
expensive. As a result of technological advances over the last four 
decades, it is now economically possible for private companies to 
provide increased satellite based services with competitive benefits 
such as lower costs to consumers and expanded services to meet new 
demand. The convergence of technologies in which the US is preeminent--
telecommunications network design, computer-based communications 
applications, micro-miniaturization of electronic components, and 
Earth-orbiting satellites--has provided unparalleled access to the 
advantages to modern telephone and data infrastructures around the 
globe.
    On November 1, 1998, the Iridium system commenced commercial 
operations, providing mobile satellite services (MSS)--the types of 
services provided by Inmarsat, but from a constellation of low Earth 
orbiting (LEO) satellites. The 66-orbiting satellites in the Iridium 
system function as cellular towers in the sky, providing for the first 
time a completely global telephone and messaging network that can be 
used on land, on sea, or in the air.
    The Iridium system is not the only MSS system that will provide 
mobile satellite telecommunications services within the next few years. 
US-based (LEO) systems such as Globalstar, Ellipso, and Constellation, 
are at various stages of design, development, and deployment, with 
Globalstar expected to follow Iridium as the second to market in 1999. 
There are also regional geostationary mobile satellite systems under 
development all over the world, including the already operational AMSC 
system in the U.S. All of these systems will be competing with each 
other and with Inmarsat and its ``privatized'' affiliate, ICO Global 
Communications (ICO). The European-based ICO was established by 
Inmarsat in 1995. ICO and Inmarsat have substantial common ownership 
and control. The ICO system is expected to begin services in the year 
2000.
    In September 1998, Inmarsat's Assembly of member governments 
reached an agreement to privatize Inmarsat in April 1999.
                 privatization, competition and s. 376
    Iridium fully supports Inmarsat privatization. Iridium is 
concerned, however, that S. 376 does not recognize and address the 
consequences of Inmarsat's privatization.
    When the privatized Inmarsat begins operations as a ``private'' 
entity, it will still (at least for another two years) have the same 
owners (many of which are government-controlled entities) that give it 
extraordinary access to global spectrum and foreign markets. It will 
retain the same assets, including the satellites and the huge amount of 
spectrum it received and controlled as an IGO. No mobile satellite 
operator that is truly private controls anywhere near that amount of 
spectrum today or is likely to in the future. No U.S. company can match 
this incredible competitive advantage.
    Inmarsat should not be permitted, through privatization, to 
transform spectrum from public to private use to the disadvantage of 
consumers and competition. There is no regulatory relief or remedy 
available to the mobile satellite services industry to rectify the 
mobile satellite spectrum inequity.
    With S. 376's focus on INTELSAT and fixed satellite services, the 
mobile satellite services sector is left without any opportunity for 
competition issues to be addressed in this legislation. S. 376 states 
that the purpose of the Act is to promote a fully competitive domestic 
and international market for satellite communications services for the 
benefit of consumers and providers of satellite services by fully 
encouraging the privatization of the intergovernmental satellite 
organizations, INTELSAT and Inmarsat, and reforming the regulatory 
framework of COMSAT Corporation.
    Yet S. 376 fails to meet this purpose in at least two respects. 
First, it fails to provide competitive benefits to the consumers of 
mobile satellite services by failing to give the US the ability to use 
incentives, restrictions, penalties and regulatory benefits necessary 
to ensure a level-playing field for all competitors in the market for 
mobile satellite services. Second, it facilitates access to the US 
market for a privatized Inmarsat that has an unreasonable amount of 
spectrum globally without addressing the issue of how this impacts 
competition in the mobile satellite communications market.
    The exclusion of Inmarsat from any review of competitive harm 
ignores the impact of Inmarsat's privatization on consumers and the 
mobile satellite industry and is inconsistent with the treatment of 
INTELSAT in the bill. While it is true that privatization of Inmarsat 
is apparently ahead of the privatization of INTELSAT, since Inmarsat is 
scheduled to establish the private company next month, it must be 
recognized that privatization is not complete on the day that the IGO 
establishes the new, private company. Privatization is a process that 
includes a transition phase that begins the day the IGO transfers its 
assets to a private company and ends after completion of the initial 
public offering (IPO). Inmarsat is not currently scheduled to issue its 
IPO until at least another two years after the ``private'' company is 
created and the IGO assets transferred to it.
    As a matter of US policy, the privatization of Inmarsat should be 
conducted in a way that meets the same competitive requirements as the 
privatization of INTELSAT. The provisions of S. 376 on access to the US 
market, certification, review of license applications, and efficient 
use of spectrum resources should apply to Inmarsat until it has 
completed an IPO.
    There are other issues that need to be addressed in this 
legislation to ensure a fully competitive global market for satellite 
communications. Most importantly, 
S. 376 should prohibit any merger or exclusive arrangements between the 
privatized Inmarsat and ICO, the first ``privatized'' spin-off of 
Inmarsat.
                  market access and spectrum dominance
    The greatest challenge that Iridium and other privately owned MSS 
companies face as they prepare to introduce competitive services in the 
global marketplace is obtaining access to spectrum and markets world-
wide. That challenge is made more difficult when their government-owned 
competitors have the ability to exert influence and/or control over 
access to markets and spectrum. Iridium has experienced first hand this 
particular difficulty, which is why it is so concerned about the 
absence of provisions that address market access for the privatized 
Inmarsat in S. 376.
    The General Accounting Office (GAO), in its July 1996 report, 
Competitive Impact of Restructuring the International Satellite 
Organizations (GAO Report), raised concern about the competitive edge a 
newly created affiliate would have over competitors when a large 
percentage of the affiliate is owned by Inmarsat's signatories. GAO 
noted that signatories have the incentive to grant access to their 
markets and preclude or inhibit access to other competitors, even 
though the competitors might offer services at lower prices.
    GAO wrote that ``when Inmarsat created ICO, it provided an example 
of how a treaty organization could restructure by forming a single 
affiliate whose ownership was primarily restricted to the parent 
organization and its signatories. ``Inmarsat and its signatories have 
both the incentives and the ability to provide ICO with market 
advantages over its potential competitors.'' GAO Report at 10.
    GAO addressed industry concern about an ICO and restructured 
Inmarsat relationship, especially since Inmarsat is on record as having 
an interest in the possibility of a future merger of ICO with a 
restructured Inmarsat. The GAO noted that ``ownership ties between ICO 
and a largely privatized Inmarsat could create a company with 
significant advantages in the market that would be free of any of the 
decision-making or operational burdens imposed by an intergovernmental 
structure. Such ownership ties might reinforce the incentives of 
Inmarsat's signatories to open their domestic markets to ICO and the 
reorganized Inmarsat but not necessarily to potential competitors.'' 
GAO Report at 14.
    Inmarsat and ICO together currently control access to 75% of the 
spectrum that can be used for global MSS systems through the year 2005. 
If Inmarsat and ICO are permitted to reunite, the mobile satellite 
industry will be dealt a devastating blow and the hope of a competitive 
mobile services market will be unlikely due to the impossibility of 
other MSS providers obtaining the necessary spectrum to provide global 
services.
                                summary
    S. 376 can offer the incentive that will encourage other countries 
to open access to spectrum and markets. Access to the US market is the 
only way the US can create a level playing field. Congress can send a 
very important message to Inmarsat and its owners that access to the US 
market will be dependent on equitable allocation of MSS spectrum 
globally. The Commission and the United States government will 
incorporate the intent of Congress in their decisions on access to the 
US market.
    The privately financed US mobile satellite industry has struggled 
against crushing financial odds, technical challenges, and barriers to 
access to spectrum to provide services unheard of fifteen years ago. 
For this industry to grow and develop and effectively compete, Congress 
must sweep away the last vestiges of state-supported monopolies and 
allow the free-market to work. Iridium and other US satellite companies 
seek a fully competitive market--an equal opportunity to compete for 
spectrum and customers--not protection from competition.
    Pioneering companies like Iridium should not be competitively 
disadvantaged while Inmarsat begins its transition to a privatized 
commercial entity with tremendous assets gained at public expense. We 
urge the Senate to adopt aggressive and forward-looking legislation 
that ensures that true privatization will occur without harm to US 
mobile satellite service providers.
    We urge the Senate to expand the scope of S. 376 in order to 
fulfill genuinely the goal of the legislation to promote a fully 
competitive domestic and international market for satellite 
communications services for the benefit of consumers and providers of 
fixed and mobile satellite services.

                                
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