When the first manned spaceship landed on the moon on July 20, 1969, 500 million people around the world were able to watch Neil Armstrong take “one giant leap for mankind.” It was the most widely viewed event in history owing to the global commercial communications satellite system completed that year with the launch of a third satellite by the International Telecommunications Satellite Organization (INTELSAT). That satellite system and one to provide safety and rescue at sea were developed and implemented by governments that joined together to form INTELSAT and the International Mobile Satellite Organization (Inmarsat). The success of these systems helped foster rapid technological advances that enhanced private companies’ ability to successfully construct, launch, and operate commercial communications satellite systems of their own. The world-famous physicist and science fiction author Arthur C. Clarke is credited with conceptualizing, in 1945, plans that showed how three objects orbiting the earth at different locations 22,300 miles above the equator could distribute radio signals that could reach anywhere on earth. A dozen years later, in the Cold War environment of the 1950s, the Soviet Union launched Sputnik I, to the amazement and concern of much of the rest of the world. Although the United States soon successfully launched its own first satellite—Explorer I, on January 31, 1958—it was not until the 1960s that establishing worldwide satellite communications became a major U.S. goal. The process for communicating through a satellite is based on the transmission of radio signals on specified frequencies from a station on earth to a satellite orbiting the earth. These specified frequencies, or segments of the radio spectrum, are designated for different uses of the airwaves. The satellite receives the signal, amplifies it, and returns it to one or more receiving stations on earth. The sending and receiving earth stations may be fixed or mobile. Satellites rotate around the earth at different heights and in different orbiting patterns. The most widely used practice today for commercial satellite communications is a geostationary orbit. (See fig. 1.1.) At a height of 22,300 miles and at a location above the earth’s equator, a geostationary satellite orbits the earth at a rate that makes it appear stationary over the same location on the earth’s surface; this positioning allows a ground station antenna to remain pointed at one location in the sky, and the satellite can be tuned into the same earth stations all the time. Current technology enables about 120 to 180 geostationary satellites to orbit the earth using the same radio frequency without being too close to one another to cause technical interference. Satellites enjoy some important advantages in comparison to other means of communicating. Because satellites do not rely on the use of land-based wire, cable, or microwave facilities, earth stations can be placed almost anywhere. Furthermore, the cost of satellite communications is the same regardless of distance—whether the transmission covers 200 or 10,000 miles. Another important characteristic of satellite communications is that one satellite can send signals to many different locations on earth at the same time; one geostationary satellite, for example, can send signals to as much as a third of the earth’s surface all at once. This is particularly useful in television/video service. However, satellites also have some disadvantages. For example, voice transmissions from a geostationary satellite are delayed about a half-second because of the distance the radio signals must travel. These delays may also produce an echo. Furthermore, the orbital slots and the radio frequencies available for different kinds of satellite services are limited. International coordination of the use of these resources is required to prevent technical interference among different satellites operating in the same frequency band. Finally, some risk is involved in achieving a successful launch and orbit. Satellites can provide any kind of telecommunications service—from basic telephone service and mobile telephone service; to AM and FM radio and television broadcasts; to computer networking. They have played a significant role in video conferencing and private communications networks for multinational companies. As shown by the broadcast of the moon landing in 1969, satellites are a useful vehicle for transmitting special events and news stories, live and worldwide. The advent of small portable earth stations (for example, satellite “dishes”) less than 3 feet wide has enabled affordable television transmissions from satellites directly into the home. Satellites have also fostered the development of planned mobile personal communications services. As with other satellite services, recent technological developments have reduced the size and cost of the mobile handsets and thereby increased their convenience and desirability. Personal communications service, which is similar to cellular phone service but has a global service area, aims to provide an individual with a single telephone number for voice, data, and facsimile transmissions worldwide. While underwater cables have always competed against satellites in providing international telephone service, advances in the capacity and capabilities of fiber-optic cables in the 1980s have made this method of transmission increasingly more important. Fiber-optic cables, where available, have become the medium of choice for international telephone service because they provide, relative to satellites, a higher-quality voice service. Over the last decade, there has been a massive increase in the amount and capacity of transoceanic fiber-optic cables. Satellites, however, currently can provide certain kinds of services not currently available with fiber-optic cables. As telephone service developed in most countries, governments either operated the phone company or, as was the case in the United States, authorized one highly regulated firm to provide most domestic and international service. Because telecommunications was traditionally so closely aligned with governments, it was used as a vehicle for promoting a variety of social goals in many, if not most, countries. For example, in the United States and elsewhere, certain aspects of telephone service, such as long-distance service, were priced higher than the cost of producing them in order to price others, such as basic local service, below cost. Furthermore, in many countries, revenues from telephone service have been used to subsidize the postal service. When INTELSAT and Inmarsat were established, the member governments put in place a number of protections to encourage the development of their satellite systems. In essence, the intergovernmental organizations were created as international monopolies, though domestic and other systems were allowed under certain conditions. Such an arrangement is unlike a competitive market, which typically involves a significant number of firms providing a product, prices based on costs, easy entry by new firms, and a lack of collusion among firms. Even when there are few firms operating in a market, the ideal competitive outcomes can be achieved if new firms can enter—or threaten to enter—easily. The tight control of telecommunications by national governments has been easing in some cases. U.S. policymakers, for example, determined some time ago, that not all aspects of telephone service were best provided by one producer, so some markets were opened up to competitors. Recently, some other countries, too, began privatizing their telecommunications markets. However, there are still many countries, particularly in the developing world, that retain tight control over telecommunications. In the United States, recent efforts to promote domestic telecommunications services include the enactment of major legislation that, according to the Federal Communications Commission (FCC), will lessen regulation in order to reduce prices, increase the quality of services, and encourage the rapid deployment of new technologies through more competition. The Telecommunications Act of 1996 (P.L. 104-104, Feb. 8, 1996) makes sweeping changes affecting all consumers and telecommunications service providers. The law aims to ultimately open all domestic telecommunications markets to competition. Interested in fostering competition in not only domestic but also international telecommunications, the Chairman of the Senate Committee on Commerce, Science and Transportation asked us to (1) describe the institutional framework for providing international communications satellite services; (2) determine if any elements of the framework may hinder competition and, if so, how; and (3) identify some key options for resolving any competitive issues identified. To meet our objectives, we reviewed the relevant statutes, regulations, and intergovernmental agreements. We obtained additional documentation and information from representatives of the National Economic Council, the Office of Science and Technology Policy, the Council of Economic Advisors—all of which are in the Executive Office of the President; the FCC, the departments of State, Commerce, Justice, and the Treasury; COMSAT Corporation (COMSAT); INTELSAT; and Inmarsat. In addition, we reviewed the relevant literature on the history, institutional operations, legal aspects, and economic issues. We also obtained information from the industry coalition Alliance for Competitive International Satellite Services (ACISS), as well as representatives of several other satellite companies operating, licensed to operate, or applying for licensing to establish their own satellite systems. The most direct way of determining if a market is competitive is to look at the relationship between the prices that a firm charges its customers and the firm’s costs, to determine if the company is charging large markups. Because price and cost data for satellite services are not generally available or readily usable, we used other important indicators of the competitiveness of this market, such as the number of firms providing the services and the difficulty or ease with which new firms can begin providing services. As a result, while we cannot firmly conclude that any particular market in which INTELSAT provides services is or is not competitive, we can offer indications of the degree of competition. Still, that information must be augmented by other important information, such as the degree to which owners of INTELSAT are also owners of some alternative systems. In examining competition, we analyzed data, including ownership information, on domestic, regional, and other satellite systems, which we obtained from (1) Dailink Satcoms, Ltd., in Virginia, and (2) Design Publishers, Inc., in California. We also relied on discussions with a selection of U.S.-based companies that use international communications satellite services, including broadcasters and multinational corporate users.