[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



   THE ORBIT ACT: AN EXAMINATION OF PROGRESS MADE IN PRIVATIZING THE 
                  SATELLITE COMMUNICATIONS MARKETPLACE

=======================================================================

                                HEARING

                               before the

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 14, 2005

                               __________

                            Serial No. 109-8

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                               __________

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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                 Ranking Member
PAUL E. GILLMOR, Ohio                ELIOT L. ENGEL, New York
ED WHITFIELD, Kentucky               ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               MIKE DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois               CHARLES A. GONZALEZ, Texas
HEATHER WILSON, New Mexico           JAY INSLEE, Washington
CHARLES W. ``CHIP'' PICKERING,       RICK BOUCHER, Virginia
Mississippi                          EDOLPHUS TOWNS, New York
VITO FOSSELLA, New York              FRANK PALLONE, Jr., New Jersey
GEORGE RADANOVICH, California        SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire       BART GORDON, Tennessee
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE FERGUSON, New Jersey            BART STUPAK, Michigan
JOHN SULLIVAN, Oklahoma              JOHN D. DINGELL, Michigan,
MARSHA BLACKBURN, Tennessee            (Ex Officio)
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Abelson, Donald, Chief, International Bureau, Federal 
      Communications Commission..................................     8
    Auckenthaler, Alan, Vice President, Inmarsat Ventures Limited    22
    Goldberg, Daniel S., Chief Executive Officer, New Skies 
      Satellite B.V..............................................    12
    Hecker, JayEtta Z., Director, Physical Infrastructures Team, 
      Government Accountability Office...........................    25
    Spector, Phillip L., Executive Vice President and General 
      Counsel, Intelsat Global Service Corporation...............    19

                                 (iii)

  

 
   THE ORBIT ACT: AN EXAMINATION OF PROGRESS MADE IN PRIVATIZING THE 
                  SATELLITE COMMUNICATIONS MARKETPLACE

                              ----------                              


                        THURSDAY, APRIL 14, 2005

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:06 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Stearns, Shimkus, 
Pickering, Terry, Blackburn, Barton (ex officio), Markey, 
Inslee, and Dingell (ex officio).
    Staff present: Kelly Cole, majority counsel; Will Norwind, 
policy coordinator; Anh Nguyen, legislative clerk; Peter Filon, 
minority counsel; Johanna Shelton, minority counsel, and Turney 
Hall, minority staff assistant.
    Mr. Upton. Good morning. I want to again publicly thank our 
chairman, Mr. Barton, for the wonderful job he has done the 
last week and a half, from when we started the markup on the 
Energy Bill. We finished about 10:45 last night, and it was a 
great bipartisan effort. And I look forward to having that bill 
on the House floor next week in the couple days. I know the 
other committees which had much smaller portions also finished 
their work yesterday, so we look forward to that.
    We are here--for those of you that weren't here last night, 
it is a little bit of a slower morning, I guess you could say. 
There are a number of different hearings that are going on. I 
understand that a number of Democrats are on the way. So that 
we can make our 2 p.m. planes this afternoon, I thought that we 
would start pretty close to on time. And I will start with an 
opening statement, and then we will go down the row. And when 
we finish, we will go with our panel, and then with questions.
    Today's hearing is entitled ``The ORBIT Act: An Examination 
of Progress Made in Privatizing the Satellite Communications 
Marketplace.'' Throughout the 1960's and 1970's, the United 
States, along with 84 other nations, participated in the 
establishment of a global satellite communications system 
through the creation of two intergovernmental organizations, 
INTELSAT and Inmarsat.
    Virtually all member nations or signatories were 
represented primarily by their State-owned and controlled 
telecommunication companies. And during the 1970's and 1980's, 
INTELSAT was the only wholesale provider of certain types of 
global satellite communications services, such as international 
telephone calls, and the relay of television signals 
internationally. But in the early 1980's, a number of 
applicants filed petitions with the FCC to offer competitive 
international communications services. And as competition with 
INTELSAT grew, there was considerable criticism from commercial 
satellite companies because they believe that INTELSAT enjoyed 
advantages by virtue of its intergovernmental status that 
diminished marketplace competition.
    By the mid-1990's, these competitors began to argue that in 
order for the satellite marketplace to become fully 
competitive, INTELSAT would need to be privatized so that all 
industry participants could participate on a level playing 
field. And at the same time, the U.S. Government was increasing 
pressure on INTELSAT and Inmarsat to privatize. And although 
both had made public announcements that they intended to 
privatize, Congress took additional steps on a bipartisan basis 
to ensure that it, in fact, occurred.
    In March 2000, Congress passed the ORBIT Act to promote a 
competitive global satellite communications services market. 
And the ORBIT Act required both INTELSAT and Inmarsat to be 
transformed into privately held for-profit corporations with a 
board of directors that would be independent of former 
signatories.
    Today, we are examining the progress that we have made in 
privatizing the global satellite communications marketplace, 
pursuant to the ORBIT Act. From my perspective, it appears as 
if the ORBIT Act has exceeded expectations. In fact, many view 
certain segments of the global satellite communications 
marketplace to be so competitive today, that coupled with 
additional competitive pressure from submarine fiber capacity, 
the marketplace is actually unhealthy.
    So today, we are going to be examining what marketplace 
adjustments might be on the horizon, and whether the ORBIT Act 
needs updating or tweaking in light of that.
    I look forward to testimony of today's witnesses, and I 
thank them for their participation, particularly knowing that 
we got their testimony in advance, so that after we finish this 
long markup of the last week and a half, we can go home with a 
rather thick notebook to look at on the couch, celebrating a 
great win on the Energy Bill.
    And I yield for an opening statement to the distinguished 
chair and good fellow, Mr. Barton, for an opening statement.
    Chairman Barton. Thank you, Mr. Chairman, and I want to 
thank you and Mr. Shimkus for your fine work, Mr. Dingell who 
just arrived. In fact, I might yield my time since we should 
alternate between the majority and the minority. Since Mr. 
Dingell is here, if he wishes to give his statement, then I 
will give mine.
    Mr. Upton. Okay.
    Mr. Dingell. Mr. Chairman, I insist I be permitted to defer 
to the chairman of the committee.
    Mr. Upton. Okay. Okay, that is fair.
    Chairman Barton. I want to thank you, Mr. Upton, for 
holding this hearing. It has been 5 years since Congress passed 
the Open Market Reorganization for the Betterment of 
International Telecommunications Act, which we call the ORBIT 
Act. This hearing is designed to take a look at what Congress 
passed and consider the Act today in light of what has happened 
since we passed it. It was intended to promote a competitive 
global satellite communications service market by requiring the 
two intergovernmental organizations, INTELSAT and Inmarsat, to 
privatize. Both of those groups were comprised of member 
nations or signatories that were represented primarily by their 
State-owned and controlled telecommunications companies. For 
many years, those were the only satellite providers for 
international telephone calls, and the international relay of 
television signals. The ORBIT Act was designed to privatize 
those organizations, forcing them to compete in the market, and 
thereby providing consumers with better and more affordable 
services.
    I am pleased to say that the goals of the ORBIT Act have 
been largely achieved. Today we have a vibrantly competitive 
market for international satellite services, and government 
ownership in both companies has diminished significantly. 
Consumers of those services, as well as the health of the 
industry are certainly better for it.
    So 5 years after passage of ORBIT, we are here today to 
find out how it is working, whether there is any updating that 
needs to be made in light of the competitive market today, and 
how the satellite industry has developed.
    I look forward to hearing from our panel of witnesses, and 
thank them for their participation.
    Thank you again, Mr. Upton, for chairing this important 
hearing. With that, I yield back.
    Mr. Upton. Thank you. Now before I yield to Mr. Dingell for 
an opening statement, I would just announce that--make 
unanimous consent that all members opening statements will be 
made part of the record.
    With that, I yield to the distinguished gentleman from the 
great State of Michigan, Mr. Dingell, for an opening statement.
    Mr. Dingell. Mr. Chairman, thank you, and thank you for 
holding this hearing today on the ORBIT Act. I want to express 
my thanks to you and also, to the chairman of the full 
committee.
    This Act became law over 5 years ago. It was intended to 
primarily manage the privatization of the former international 
treaty-based organizations, Inmarsat and INTELSAT, so their 
competitors would have a more level playing field on which to 
compete. Promoting a fully competitive global satellite 
communications marketplace was and is a worthy goal.
    This marketplace has changed a lot over the past 5 years. 
Inmarsat, INTELSAT, and the New Skies are no longer controlled 
by signatories designated by member nations. In fact, these 
companies are almost wholly owned by private equity groups. 
Early in 2001, the Federal Communications Commission certified 
that New Skies had completed all of the Act's original 
privatization requirements. Both Inmarsat and INTELSAT recently 
petitioned the FCC to certify that they, too, are in compliance 
with the privatization provisions of the Act, as amended last 
year. The amended Act allows the companies to be certified as 
compliant with the Act, if, among other things, the FCC 
determines that the companies have achieved substantial 
delusion of the aggregate amount of signatory financial 
interest in such entities. This requirement was added to the 
Act last year as an alternative to the original initial public 
offering requirement, which, by the way, has created certain 
difficulties.
    The Government Accountability Office issued in 2004 a 
report on the privatization of INTELSAT and how the Act has 
been implemented. According to the GAO, most stakeholders and 
experts the GAO spoke with believe that access to the non-U.S. 
satellite markets has improved. It is interesting to note that 
few attributed this improvement to the ORBIT Act. These 
stakeholders credited certain international telecommunications 
agreements, and a global trend toward privatization of 
telecommunications companies as having improved access to non-
U.S. markets. In fact, several of the persons interviewed by 
the GAO said that the Act merely complimented ongoing trends 
toward more open satellite markets.
    The Act has been amended several times in recent years 
without a hearing by this subcommittee. Given these amendments 
to the Act and the privatization of Inmarsat, INTELSAT, and New 
Skies, today's hearing is appropriate and overdue. And for that 
reason, I want to express my particular commendations to you, 
Mr. Chairman, for holding this hearing. I look forward to the 
witnesses' opinions on how the Act has been working, as well as 
any modifications that may be necessary, given the changes in 
the marketplace.
    I thank you, Mr. Chairman.
    Mr. Upton. I recognize Mr. Shimkus for an opening 
statement.
    Mr. Shimkus. Thank you, Mr. Chairman. I will be brief.
    We have got--everybody has laid out why we are here. What I 
always talk about it this was really my--the ORBIT Act was 
really my first kind of contentious piece of legislation that 
pitted a whole bunch of different folks. And I talked to 
schools quite a bit, and in my discussions with them, I talk 
about--they usually ask me ``Why do you vote the way you 
vote?'' And I say, you make campaign promises, hopefully, you 
keep them. You have ideology, you have got core values, I said. 
But then there are some issues that, you know, you just have to 
learn and try to figure out and sort out. And I said, for 
example, satellite competition. I mean, it rings no bells to my 
constituency. No one even understands what it is about, but 
then I go through the history of how a former chairman was on 
one side, a subcommittee chairman was on the other side, it was 
a big blowup, a big fight. It broke allies and friends in the 
committee. A lot of you are smiling, you remember it. It was 
not an easy passage. And now--and so I talk about this a lot in 
southern Illinois.
    So it is good now for me to have a re-look. We just 
finished the Energy Bill, and during a couple of the debates, 
we would be cautioned. I hope this doesn't come back to bite 
us, this amendment or that amendment. I hope years from now, we 
don't live to regret it. I think that is the importance of this 
hearing, to see how we are doing. And so I can continue the 
story back to my district about satellite competition, I 
appreciate--it shows you how old I am, how long I have been 
here.
    Mr. Chairman, I thank you for the hearing. I yield back.
    Mr. Upton. I recognize the distinguished ranking member of 
the subcommittee from Massachusetts, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much, and I want 
to commend you for calling this hearing this morning on the 
Open Market Reorganization for the Betterment of International 
Telecommunications Act.
    Legislation that was approved by Congress 5 years ago, this 
hearing will give us an opportunity to gage the Act's success 
in achieving several policy goals, and to also test the rule of 
Renee Ensomo of whether or not truth and technology triumphs 
over baloney and bureaucracy. And so that will be the subject 
of today's hearing.
    The ORBIT Act was designed to close a chapter in commercial 
satellite communications, which was begun in 1962 with the 
passage of the Communications Satellite Act. That legislation 
spurred the development of two intergovernmental organizations, 
namely INTELSAT and Inmarsat, to which dozens of nations and 
national signatories joined in a collective effort to provide 
international satellite communications. During the 1960's and 
1970's, that model worked well because it was iridominated by 
relatively little technological change in telecommunications 
and largely domestic monopolies across the globe for our 
telecommunications services, such as MA Bell here in the Unites 
States. However, in many other countries, the equivalent of MA 
Bell was actually owned by the government, and these 
government-owned or controlled telephone companies were the 
owner/shareholders of the international satellite 
organizations, with an incentive to favor such organizations in 
their domestic markets, to the detriment of private sector 
alternatives.
    I offered the first bill to address INTELSAT's anti-
competitive behavior and rid it of its government bestowed 
privileges and immunities in 1983. Domestically at that time, 
the United States was breaking up MA Bell, fostering the 
deployment of a cable television infrastructure, and the 
personal computer revolution was underway. Despite the changes 
in technology and international markets, the two 
intergovernmental organizations remained bureaucratic and 
complacent at best, and anti-competitive and anti-innovative at 
worst.
    In 1988, PanAmSat launched a satellite that ushered in the 
era of competition. Renee Ensomo, a graduate of Medford High 
School, in my district, told me that if I supported his vision, 
it could transform the way in which the world was organized 
around satellite technology. Renee, as usual, was correct. Yes, 
it took a dozen years before Congress updated the 1962 era 
statute with the ORBIT Act to reflect the changed technological 
and competitive circumstances, and used the leverage of the 
U.S. market access to finally force INTELSAT and Inmarsat to 
shed their intergovernmental status and fully privatize.
    The ORBIT Act contained many provisions, including 
provisions ensuring direct access to INTELSAT----
    Chairman Barton. Would the gentleman yield?
    Mr. Markey. I would be glad to yield.
    Chairman Barton. Are you auditioning for Saturday Night 
Live? The news that was or whatever?
    Mr. Markey. I am still groggy from last night, Mr. 
Chairman. I don't even know--we were here last night debating 
energy until I don't know what time, so----
    Chairman Barton. You had to do it in two committees 
yesterday, actually. You were doing double duty. You were in 
Resources and Energy.
    Mr. Markey. I was losing in two committees yesterday, 
simultaneously. It was an incredible challenge to my self 
esteem, and I am using this as a little anecdote. Notice how I 
am praising myself for the last 20 years of incredible insight 
that I have. This is just a little known reason.
    What was that guy's name on Saturday Night Live that when 
he looked in the mirror? You know what I am talking about?
    Chairman Barton. Sarducci?
    Mr. Markey. No. Jack Handy. You know Jack Handy?
    Chairman Barton. Mr. Markey is a little bit humble. He got 
more in the bill and still voted no than most of us that 
supported the bill.
    Mr. Markey. I am proud of my humility, thank you. I think 
it is my best tribute, my best quality.
    Where was I here?
    The ORBIT Act contained many provisions, including 
provisions ensuring direct access to INTELSAT for competitives, 
rather than forcing American companies to buy through the 
government chartered go-between, COMSAT. It permitted--it 
prohibited the FCC from auctioning licenses for satellite 
frequencies. It stripped the intergovernmental entities of 
their privileges and immunities in the marketplace, and it 
induced, but did not require, INTELSAT and Inmarsat to conduct 
initial public offerings by withholding the opportunity to 
serve U.S. customers for non-core advance services.
    This last provision was updated last autumn to allow these 
entities to privatize through the sale to private equity firms, 
rather than conduct an IPO. In addition, there were two 
companies created by spinning off assets from INTELSAT and 
Inmarsat, and these two companies had several additional 
conditions.
    Specifically, the two companies were prohibited from having 
interlocking directorates and common employees, and both were 
also prohibited from re-affiliating with their former parents. 
In the case of ICO, for 15 years after the date upon which 
Inmarsat was fully privatized, and for New Skies, the Act 
stipulated that 11 years had to pass after INTELSAT's full 
privatization before it could re-affiliate with its former 
parent.
    Today's hearing gives us an ability to explore this wide 
range of issues, and I want to thank the witnesses, and you, 
Mr. Chairman, for conducting this very important hearing.
    Mr. Upton. I recognize the gentlelady from Tennessee, Ms. 
Blackburn.
    Ms. Blackburn. Thank you, Mr. Chairman.
    I simply want to welcome our guests. Our ranking member 
over there likes to talk about the past to get his information 
on satellite communications. I talk to my 24 and my 27-year-
old, who are totally intrigued with what you do and enjoy 
spending a bit of their working life in telecommunications. We 
welcome you and we look forward to your perspective.
    Mr. Upton. Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman.
    It is, you know, important to hold this hearing on the 
progress that has been made so far on privatizing the satellite 
communications marketplace, especially in regard to INTELSAT 
and Inmarsat.
    I was here when we did this. INTELSAT was previously an 
internationally owned organization controlled by a 147-member 
government, sort of like a U.N. It is possible that such a 
worldwide government sponsored leviathan may have been 
necessary in the 1960's and 1970's; however, changing times and 
technology, and the increasing ability of private satellite 
companies to enter and compete in the marketplace, led, of 
course, to the privatization of 2001.
    Inmarsat, another intergovernmental organization, also 
privatized in similar fashion around the same time. Now, this 
is a good thing, and I think all of us on the 
telecommunications supported it. The privatization of INTELSAT 
and Inmarsat will level the playing field in the satellite 
communication marketplace, and will help make them more 
responsive, and I believe, effective providers.
    Over the past year or so, we have seen several acquisitions 
of SATCOM, operators worth billions of dollars buy private 
equity firms. Hopefully, these acquisitions will promote 
innovations and competition, and ultimately benefit the 
consumers. I would also imagine that many of the technologies 
developed and promoted by these SATCOM's will have applications 
to our military and other defense-related areas.
    We try to do our part with the ORBIT Act, and the FCC is 
working with us to provide annual updates on the progress of 
this privatization in this area. So I look forward to Mr. 
Abelson's testimony to learn more about what the FCC is doing 
with regard to this. I also understand that the satellite 
landscape has changed remarkably since we passed the ORBIT Act. 
That is why I am interested in hearing from the witnesses who 
represent these SATCOM providers to learn how market access has 
improved, and to hear what we may need to do in this 
subcommittee to remove any remaining challenges.
    So again, Mr. Chairman, I think it is very important to 
hold this hearing. I look forward to hearing the witnesses. If 
I am not here, I shall be in my office watching on the screen.
    And I yield back.
    Mr. Upton. Better be taking notes as well.
    Mr. Terry for an opening statement.
    Mr. Terry. Waive.
    Mr. Upton. Okay. That concludes our opening statements. 
Again, good morning. Your testimony will be made part of the 
record in its entirety. We would like you to take no more than 
5 minutes. You have got a little clock there which will tell 
you how much time is left to summarize your statement. At which 
point, when you are done, we will be taking questions from the 
members on the panel.
    We are joined today by Mr. Donald Abelson, chief of the 
International Bureau from the Federal Communications 
Commission; Mr. Daniel Goldberg, CEO of New Skies Satellite, 
came all the way from the Netherlands. I chided him yesterday 
that if the hearing was going to be postponed, that he should 
thank the Lord for frequent flyer miles, because the hearing 
would not take place today. Mr. Phil Spector, Executive VP and 
General Counsel of INTELSAT Global Service Organization; Mr. 
Alan Auckenthaler, Vice President of Inmarsat Ventures Limited, 
from Virginia; and Ms. JayEtta Hecker, Director of Fiscal 
Infrastructure, Office of Congressional Relations, from the 
Government Accountability Office, the GAO.
    Welcome all of you. Mr. Abelson, we will start with you.

  STATEMENTS OF DONALD ABELSON, CHIEF, INTERNATIONAL BUREAU, 
 FEDERAL COMMUNICATIONS COMMISSION; DANIEL S. GOLDBERG, CHIEF 
    EXECUTIVE OFFICER, NEW SKIES SATELLITE B.V.; PHILLIP L. 
SPECTOR, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, INTELSAT 
GLOBAL SERVICE CORPORATION; ALAN AUCKENTHALER, VICE PRESIDENT, 
  INMARSAT VENTURES LIMITED; AND JAYETTA Z. HECKER, DIRECTOR, 
PHYSICAL INFRASTRUCTURES TEAM, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Abelson. Good morning, Mr. Chairman, Mr. Markey, and 
distinguished members of the committee. As the chairman has 
said, I am Don Abelson. I am Chief of the International Bureau 
at the Federal Communications Commission, and it is my pleasure 
to come before you today to discuss the ORBIT Act.
    The FCC is actively engaged in implementing the 
requirements of the ORBIT Act as set forth by Congress. As 
required by the statute, the Commission has reported to 
Congress annually on the FCC's implementation. The Commission 
intends to submit our next report by the due date of June 15.
    Since January 2000, the Commission has undertaken a number 
of actions to ensure that INTELSAT, Inmarsat, and New Skies, 
the separated entity of INTELSAT, have been privatized in a 
manner--in a pro-competitive manner consistent with the 
criteria of the statute. Let me provide you with highlights of 
these actions.
    For INTELSAT, in 2001, the Commission determined that 
INTELSAT had privatized in a manner consistent with the 
criteria of the Act, except for the requirement that INTELSAT 
conduct an initial public offering, or IPO. The Commission 
granted licenses for INTELSAT satellites, conditioned on 
INTELSAT's completion of an IPO within the timeframe stipulated 
by the Act. The original deadline for INTELSAT to complete an 
IPO was October 1, 2001. The deadline has been extended several 
times by Congress and the Commission. The most recent extension 
authorized by Congress provides that INTELSAT must conduct its 
IPO by June 30, 2005, unless the Commission extends the 
deadline to no later than December 31.
    In October 2004, the Commission passed--the Congress passed 
an amendment to the ORBIT Act that established a certification 
process as an alternative to conducting and IPO. The 
certification process has three requirements. First, that 
INTELSAT achieves substantial dilution of the aggregate amount 
of former signatory financial interest. Second, that no former 
signatory possess effective control; and third, that no 
intergovernmental organization hold any ownership interest.
    In 2004, the Commission approved the transfer of INTELSAT 
to Zeus Holdings, which is wholly owned by 20 investment funds 
that are ultimately controlled by four private equity fund 
groups. Immediately thereafter, INTELSAT filed their 
certification, and requested that the Commission determine that 
it had met the Act's modified privatization requirements. This 
week, the Commission adopted an order regarding this matter, 
and expects to release it shortly.
    With respect to Inmarsat, the Commission has taken the 
following actions.
    In 2001, the Commission concluded that Inmarsat had 
privatized in a manner consistent with the non-IPO requirements 
of the ORBIT Act, and authorized the provision of Inmarsat 
mobile services in the United States. The authorization is 
subject to Inmarsat complying with its requirements to conduct 
an IPO under the terms of the ORBIT Act. As in the case of 
INTELSAT, the IPO deadline for Inmarsat was established by 
statute and extended several times by the Congress and the 
Commission. The current deadline for Inmarsat to conduct an IPO 
is June 30, 2005.
    The October 2004 amendment to the ORBIT Act also applies to 
Inmarsat, and permits Inmarsat to provide a certification to 
the FCC as an alternative to conducting and IPO. The 
requirements under the certification procedures for Inmarsat 
are the same as those I listed for INTELSAT, except that 
minimal intergovernmental organization ownership is permitted.
    In 2004, Inmarsat filed a certification with the FCC that 
it had fulfilled the modified requirements of the ORBIT Act. 
The Commission placed Inmarsat's filing on public notice in 
December 2004, and this matter is currently pending before the 
Commission.
    And last, for New Skies, in 1999, prior to the enactment of 
the Act, the Commission granted Earth station operators 
authorizations to operate with the New Skies system. The grant 
was also conditioned on New Skies taking certain actions to 
become independent of INTELSAT, including conducting and IPO.
    In 2001, the Commission found that New Skies had met the 
criteria of the ORBIT Act, including substantially diluting the 
ownership of former INTELSAT signatories through an IPO. New 
Skies announced a share buy back program in 2002, under which 
it would repurchase up to 10 percent of the then outstanding 
shares. And in 2003, the Commission found that New Skies share 
repurchase program had the effect of further diluting the 
interest of former INTELSAT signatories.
    And last, in 2004, the Commission approved the transfer of 
New Skies to five private equity funds affiliated with 
Blackstone, a global investment firm.
    In conclusion, 5 years after enactment, significant 
progress has been made and is being made to achieve the 
privatization goals that the Congress set forth in the Act. New 
Skies and INTELSAT are now privately held companies, and 
Inmarsat is more than 50 percent privately held. And 
furthermore, the Commission continues to implement the 
provisions of the Act to ensure that the broad goal of a 
competitive global satellite communication market is ultimately 
achieved.
    Thank you again for the opportunity to appear today, and I 
would be happy to respond to your questions.
    [The prepared statement of Donald Abelson follows:]

  Prepared Statement of Donald Abelson, Chief, International Bureau, 
                   Federal Communications Commission

    Good morning, Chairman Upton, Mr. Markey, and distinguished members 
of the Subcommittee. I am Donald Abelson, Chief of the International 
Bureau of the Federal Communications Commission (FCC) and it is my 
pleasure to come before you today to discuss the Open-Market 
Reorganization for the Betterment of International Telecommunications 
(ORBIT) Act.
    The FCC is actively engaged in implementing the requirements of the 
ORBIT Act as set forth by Congress. The purpose of the Act is ``to 
promote a fully competitive global market for satellite communications 
services for the benefit of consumers and providers of satellite 
services and equipment by fully privatizing the intergovernmental 
satellite organizations, INTELSAT and Inmarsat.''
    As required by the statute, the Commission has reported to Congress 
on annual basis regarding its actions to implement the ORBIT Act. We 
intend to submit our next report to Congress on or before the due date 
of June 15, 2005.
    Since January 2000, the Commission has undertaken a number of 
actions to ensure that the former intergovernmental satellite 
organizations, INTELSAT and Inmarsat, and the separated entity of 
INTELSAT, New Skies, have been privatized in a pro-competitive manner, 
consistent with the criteria of the statute. The Commission took the 
following actions since enactment of the ORBIT Act in 2000:

INTELSAT
     In August 2000, the Commission granted conditional licenses to 
Intelsat--a separate, privately held U.S. corporation created by 
INTELSAT 1--to hold U.S. satellite authorizations and 
associated space segment assets in anticipation of INTELSAT's full 
privatization. The FCC authorizations applied to INTELSAT's existing 
satellites, planned satellites, and planned system modifications 
associated with INTELSAT's frequency assignments in the fixed satellite 
services (``FSS'') C- and Ku- bands existing as of privatization. They 
were conditioned upon Intelsat privatizing in a manner consistent with 
the ORBIT Act.
---------------------------------------------------------------------------
    \1\ For the purposes of this testimony, the term ``INTELSAT'' 
refers to the original intergovernmental organization prior to 
privatization. The term ``Intelsat'' refers to the Intelsat Ltd. and 
its subsidiaries created upon privatization in 2001.
---------------------------------------------------------------------------
     Intelsat privatized in 2001. The Commission determined that 
Intelsat had privatized in a manner consistent with the privatization 
criteria of the ORBIT Act, except for the requirement that Intelsat 
conduct an Initial Public Offering (IPO). The Commission conditioned 
its findings on Intelsat conducting an IPO within the timeframe 
stipulated by the ORBIT Act.
     The ORBIT Act requirement for an IPO was intended to achieve the 
independence of the newly privatized company by substantially diluting 
ownership by former INTELSAT Signatories. 2 The ORBIT Act 
initially required an IPO by October 1, 2001, but gave the Commission 
discretion to extend this deadline to no later than December 31, 2002. 
Since that time, Congress has amended the ORBIT Act a number of times 
to extend these deadlines. The Commission, under the authority of 
Congress, has also extended this deadline. Currently, the deadline is 
June 30, 2005.
---------------------------------------------------------------------------
    \2\ Pub.L. 106-180, 114 Stat. 48  621(2).
---------------------------------------------------------------------------
     In 2004, Congress also enacted legislation amending the ORBIT Act 
by adding Section 621(5)(F) allowing for a certification process as an 
alternative to conducting an IPO and public securities listing. 
3 This process permits Intelsat (and Inmarsat) to certify, 
and the Commission to determine, that certain financial and control 
interests held by Signatories and former Signatories of pre-privatized 
INTELSAT, and certain ownership interests held by intergovernmental 
organizations, no longer exist in Intelsat.
---------------------------------------------------------------------------
    \3\ Pub.L. 108-371.
---------------------------------------------------------------------------
     In December 2004, an Order was issued granting applications filed 
by Intelsat, and Zeus Holdings Limited, a private equity fund, to 
transfer control of certain Commission authorizations from Intelsat to 
Zeus. The Commission concluded, pursuant to sections 214(a) and 310(d) 
of the Communications Act, that approval of the applications will serve 
the public interest, convenience, and necessity.
     In December 2004, Intelsat filed a Petition for Declaratory 
Ruling and Certification (updated February 9, 2005) requesting that the 
Commission find Intelsat to be in compliance with the certification 
requirements as provided under Section 621(5)(F) of the ORBIT Act. The 
Commission has adopted an order regarding this matter and expects to 
release it shortly.

Inmarsat
     Since 1978, Inmarsat has provided maritime services to and from 
the United States. Inmarsat privatized in 1999, prior to enactment of 
the ORBIT Act. In 2001, the Commission concluded that Inmarsat had 
privatized in a manner consistent with the non-IPO requirements of the 
ORBIT Act and authorized the provision of mobile services in the United 
States, subject to Inmarsat complying with its requirement to conduct 
an IPO under the terms of the ORBIT Act. The Commission granted several 
operators in the United States authority to use Inmarsat for 
communications services to, from, or within the United States.
     In February 2004, Inmarsat filed a letter informing the 
Commission of a series of transactions, which it described as 
constituting an IPO pursuant to Inmarsat's remaining ORBIT Act 
requirements. In response to this letter, the Commission released a 
Public Notice and also extended the deadline for Inmarsat to conduct an 
IPO to December 31, 2004.
     Congress has amended the ORBIT Act several times to extend the 
deadline for Inmarsat to conduct an IPO. Most recently, in October 
2004, Congress amended Clause (ii) of Section 621(5)(A) of the ORBIT 
Act to extend Inmarsat's IPO deadline to June 30, 2005. 4
---------------------------------------------------------------------------
    \4\ Pub.L. 108-371.
---------------------------------------------------------------------------
     On November 15, 2004, Inmarsat filed a certification with the 
Commission that it has fulfilled the amended privatization requirements 
of the ORBIT Act. Inmarsat also petitioned the Commission to determine 
that its certification complied with the remaining privatization 
criteria of the statute. The Commission placed Inmarsat's Request for 
Declaratory Ruling on Public Notice on December 21, 2004. This matter 
is currently pending before the Commission.

New Skies
     New Skies is the Netherlands-based private company INTELSAT 
created in 1998 as INTELSAT's first step toward privatization. In 1999, 
prior to the enactment of the ORBIT Act, the Commission granted U.S. 
earth station operators limited three-year authorizations to operate 
with New Skies in the U.S. market. This grant was conditioned on New 
Skies' taking certain actions to become independent of INTELSAT, 
including conducting an IPO as anticipated by the INTELSAT Assembly of 
Parties decision approving New Skies' creation. New Skies conducted its 
IPO in October 2000. In 2001, the Commission granted New Skies' request 
to provide satellite services to, from and within the United States. 
The Commission found that New Skies had met the criteria of the ORBIT 
Act, including substantially diluting the ownership of former INTELSAT 
Signatories through the IPO.
     In 2001, New Skies petitioned for, and the Commission granted 
under delegated authority, the addition of four satellites operated by 
New Skies to the ``Permitted Space Station List'' with conditions to 
remove secondary status requirements for certain New Skies' satellites.
     In 2002, New Skies announced a share buy-back program under which 
it would repurchase up to 10 percent of its then outstanding shares. In 
2002, PanAmSat filed an ``Emergency Request for Inquiry into the 
Continuing Qualifications of New Skies to Access the U.S. Market.'' In 
2003, an Order was issued denying PanAmSat's request, based on a 
finding that the New Skies share repurchase program had the effect of 
further diluting the combined interest of the former INTELSAT 
Signatories in New Skies. Through the buy-back program, New Skies 
purchased a higher percentage of shares held by former Signatories than 
of shares held by the general public.

Other Actions
     The ORBIT Act requires that users and service providers be 
permitted to obtain a form of direct access to INTELSAT capacity and 
directed the Commission to conduct a rulemaking to determine if users 
or providers of telecommunications services have sufficient access to 
INTELSAT space segment directly from INTELSAT to meet their service 
capacity requirements. Prior to the adoption of the ORBIT Act, the 
Commission had decided in a rulemaking proceeding that direct access is 
in the public interest allowing customers in the United States to 
acquire satellite capacity directly from INTELSAT rather that from the 
U.S. signatory, Comsat Corporation (Comsat).
     In 2000, the Commission initiated a rulemaking and released a 
Report and Order requiring Comsat and direct access customers to 
negotiate commercial solutions if possible to ensure that sufficient 
opportunity is available for parties to negotiate commercial solutions. 
In 2001, Comsat filed a report, as required by the Commission, 
detailing the results of negotiations and maintaining direct access 
opportunities were increasing at that time. In November 2001, following 
INTELSAT's privatization and Intelsat's purchase of Comsat, the 
Commission concluded that the underlying basis for the direct access 
provisions of its rulemaking no longer existed, and terminated the 
proceeding.
     Finally, the Commission has authorized several other acquisitions 
involving entities subject to the ORBIT Act, including: (1) the 
acquisition of Comsat by Lockheed Martin in 2000; 5 (2) the 
acquisition of Comsat's former mobile services business from Lockheed 
Martin by Telenor in 2001; (3) the acquisition of Comsat's former world 
systems business from Lockheed Martin by Intelsat in 2002; (4) the 
acquisition of Comsat General from Lockheed Martin by Intelsat in 2004; 
and (5) the acquisition of New Skies by Blackstone Funds in 2004.
---------------------------------------------------------------------------
    \5\ The ORBIT Act terminated the Communications Satellite Act of 
1962's ownership restrictions on COMSAT Corporation (``Comsat''). As a 
result, Lockheed Martin and Comsat jointly filed an application with 
the Commission for transfer of control of Comsat's various licenses and 
authorizations.
---------------------------------------------------------------------------
    In conclusion, the Commission will continue to implement and 
enforce the requirements of the ORBIT Act as directed to by Congress. 
Furthermore, the Commission will continue to inform Congress of the 
actions it takes to implement the requirements of the statute in its 
next annual report.
    Thank you again for the opportunity to appear before you today. I 
will be happy to respond to your questions.

    Mr. Upton. Thank you. Mr. Goldberg, welcome.

                 STATEMENT OF DANIEL S. GOLDBERG

    Mr. Goldberg. Thank you very much, Mr. Chairman, Mr. 
Markey, and members of the subcommittee. Thank you for inviting 
me today, and in particular, for holding this hearing, 
particularly having worked through the night. We are very 
appreciative to be able to participate in this.
    My name is Dan Goldberg, and I am the CEO of New Skies 
Satellites, a global satellite communications company. New 
Skies was created in 1998 when we were spun out of INTELSAT, 
and we have been subject to ORBIT since its enactment.
    It is our belief that ORBIT has achieved precisely what 
Congress intended, a more competitive satellite services market 
through the privatization of the IGO's. For this, Congress 
should be justifiably proud, having succeeded in fully 
privatizing the IGO's. And in light of the dramatic changes 
experienced in our market, we believe it is now appropriate for 
Congress to make certain minor changes to ORBIT. These changes 
are necessary to bring ORBIT in line with current market 
realities, and to ensure that our strategic industry is 
competitive, robust, and healthy.
    Put simply, the international satellite services market is 
unrecognizable today from the one Congress confronted when it 
began considering these issues. From the creation of our 
industry to the late 1980's, INTELSAT, which was then an IGO, 
dominated the market. Although private entities in the late 
1980's increasingly competed with INTELSAT, Congress recognized 
by enacting ORBIT that privatizing the IGO's would facilitate 
opening overseas markets, thereby stimulating additional 
competition. In order to satisfy ORBIT's requirements, New 
Skies conducted an IPO in October 2000, diluting our original 
owners by roughly 30 percent. The FCC, as Don has just said, 
concluded that this satisfied ORBIT's substantial dilution 
requirement and granted us long-term access to the U.S. market.
    Since that time, New Skies, INTELSAT, and Inmarsat have 
each been acquired by private equity investors. In short, the 
three companies that were the subject of ORBIT are now purely 
commercial entities, subject to the exacting demands of private 
equity investors. Indeed, New Skies and INTELSAT have no 
government ownership whatsoever, going far beyond the 
substantial dilution that ORBIT required. But the fundamental 
change in the ownership structures of New Skies, INTELSAT, and 
Inmarsat, not to mention every other major satellite operator, 
isn't the only dramatic change in the industry since ORBIT's 
passage. Today, as a result of substantial overinvestment in 
satellites and undersea fiber capacity, as well as improvements 
in transmission technology, the industry today is struggling 
with excess capacity, falling prices, and satellite utilization 
rates of historic lows. Notwithstanding a 60 percent increase 
in supply since the House first passed legislation to privatize 
the IGO's, industry revenues have actually declined. Most 
operators have responded to this situation by reducing 
spending, cutting jobs, and virtually freezing investment in 
expansion satellites.
    The difficult state of the market represents a real risk to 
national security interests, and the public interests more 
broadly. Congress has formerly identified commercial satellites 
as critical infrastructure. They are of strategic importance to 
the Department of Defense, and other U.S. Government agencies. 
It is vitally important that the industry's players, including 
U.S. satellite manufacturers who rely on the commercial 
satellite sector, are financially sound. That said, the present 
unhealthy condition of the market isn't necessarily cause for 
great alarm. The global operators remain financially stable, 
and our fleets operationally robust, albeit underutilized. 
Indeed, the market today is near the bottom of the natural boom 
and bust cycle that is common throughout many industrial 
sectors. And just as in other sectors, natural market forces, 
over time, should put our sector on a sunder footing.
    But unlike the recent activity in the terrestrial wireless 
sector, a subject well-known to this committee, a full and 
necessary rationalization of our sector has yet to occur. 
Although some consolidation has taken place, most industry 
observers expect more.
    As the smallest of the global operators, one of our 
objectives is to pursue a strategic combination or joint 
venture with another operator. INTELSAT is one of a number of 
entities with whom it would be logical for us to consider such 
a transaction. However, in light of ORBIT's restrictions, we 
would be uniquely constrained from entering into that kind of 
arrangement, thereby limiting our strategic alternatives and 
placing us at an unfair competitive disadvantage.
    In conclusion, having achieved everything ORBIT was 
designed to achieve, and in light of the dramatic changes in 
our sector, there is no longer any policy justification for 
keeping New Skies bound by detailed rules that apply to no 
other competitive company. Any future satellite industry 
consolidation should be market-driven, constrained, of course, 
by the need for FCC and antitrust approvals. Indeed, Congress 
has provided many alternate safeguards to ensure a competitive 
market, including the FCC's public interest test, the antitrust 
laws, and other mechanisms ensuring the highest level of 
scrutiny for any transaction that implicates national security. 
We believe it is now appropriate for you to make certain minor 
changes to ORBIT to address the current realities in our 
industry.
    Thank you for consideration, and I will be pleased to 
answer any questions you may have.
    [The prepared statement of Daniel S. Goldberg follows:]

Prepared Statement of Daniel S. Goldberg, Chief Executive Officer, New 
                         Skies Satellites B.V.

    Mr. Chairman and Members of the Subcommittee: My name is Dan 
Goldberg, and I am the Chief Executive Officer of New Skies Satellites 
B.V. New Skies is a global satellite communications company that 
provides satellite-based transponder capacity for the transmission of 
data, video, voice, and Internet-related services. We own and operate a 
network of five in-orbit satellites positioned in fixed orbital 
locations above the earth, including two that we have designed, 
constructed, launched, and placed in operation since our creation in 
1998. We have one additional satellite currently under construction by 
Boeing Satellite Systems.
    I appreciate the opportunity to appear before the Subcommittee 
today to review the impact that the ORBIT Act has had on our company 
and on the international satellite services sector more broadly since 
its enactment in March 2000. The central message I have for you is that 
the international satellite services market is unrecognizable today 
from the one Congress confronted when it began considering satellite 
competition issues in the late 1990s. The ORBIT Act was designed to 
promote competition in this market by eliminating government ownership 
and control of operators providing international satellite services. 
Today, Intelsat, Inmarsat, and New Skies--the three companies that were 
the focus of the law--are 100 percent controlled by private commercial 
interests. Indeed, the market today is not only competitive, it is 
hypercompetitive to the point where the sector, on balance, is 
unhealthy. That situation has adverse implications for U.S. national 
security interests as well as for the public more broadly.
    Although ORBIT was a tremendous success in achieving its twin goals 
of promoting privatization and competition, it is now important that 
Congress reexamine the law in light of the enormous changes in the 
industry and competitive environment that have occurred since it was 
enacted. For this reason, we urge the introduction and passage of 
legislation to update ORBIT to address the current realities.

New Skies' Creation and Roots
    Let me begin by briefly tracing the history of New Skies' efforts 
to establish itself in the satellite marketplace, and to compete with 
satellite operators many times our size. New Skies was created on April 
23, 1998 as a privatized commercial spin-off from INTELSAT, which at 
that time was still an intergovernmental organization. INTELSAT formed 
the new company under the laws of The Netherlands, and transferred to 
it certain assets and liabilities, including several satellites and 
related contracts. The members of INTELSAT--primarily governments, 
their telecommunications ministries, or their national satellite or 
telecommunications providers--were given ownership stakes in New Skies 
approximately equal to their respective ownership stakes in INTELSAT.
    What INTELSAT did not transfer, however, were any employees or 
terrestrial infrastructure required to control and manage the payloads 
of the satellites. In that sense, New Skies was literally created from 
scratch. A new management team was brought in, composed almost entirely 
of Americans with experience in the satellite or telecommunications 
fields. I myself started as New Skies' first general counsel. All of us 
were required to move our families to The Netherlands, where INTELSAT 
had formed the company.
    We opened a headquarters office in The Hague, and have since 
established a sales and marketing office in Washington, D.C. and a 
teleport facility near Manassas, Virginia, as well as offices and other 
ground-based facilities in nine other locations around the globe. 
Although we are Dutch as a matter of corporate law, all of our senior 
officers are Americans, all of our satellites have been built by 
American manufacturers, our largest customers are American and, as I'll 
say more about later, we are at this time 100 percent owned by 
affiliates of the U.S. private equity firm The Blackstone Group.

The ORBIT Act and Privatization
    From the creation of the fixed satellite services (or FSS) industry 
in the 1960s until the late 1980s, INTELSAT--which was then an 
intergovernmental treaty-based organization--held a near monopoly over 
international satellite communications. Since the late 1980s, however, 
the FSS industry has evolved into a highly competitive, global 
industry. Due in large part to pressure from the Congress and other 
governments, as well as from newer commercial entrants seeking to 
promote competition in the international satellite services market, 
INTELSAT began a privatization process in the late 1990s.
    The 1998 creation of New Skies described above was only the first 
step in that process. Although from our inception New Skies has 
operated as a fully privatized, independent commercial entity, Congress 
believed more needed to be done to ensure not only nominal 
privatization of the industry but also a competitive marketplace for 
international satellite services. Accordingly, in March 2000, Congress 
enacted the Open-Market Reorganization for the Betterment of 
International Telecommunications Act, or the ORBIT Act. The Act 
leveraged access to the most important telecommunications market in the 
world--the United States--as an incentive for INTELSAT and Inmarsat, 
another intergovernmental treaty-based organization, to achieve full 
and pro-competitive privatizations.
    Although New Skies at that point had already operated for two years 
as an independent private entity, ORBIT also imposed a series of 
requirements and restrictions on us. These were intended to ensure, on 
one hand, that INTELSAT, the intergovernmental organization that 
created us and had not yet privatized, would not have undue influence 
over our operations; and on the other hand, that New Skies would not be 
accorded preferential treatment or benefits from its INTELSAT heritage. 
(A summary of these statutory provisions is appended to my testimony.)
    Among the most significant of ORBIT's provisions was a requirement 
that INTELSAT, Inmarsat, and New Skies each conduct an initial public 
offering of shares by various dates specified in the statute in order 
to substantially dilute the aggregate ownership of our stock by 
signatories or former signatories of INTELSAT. New Skies' deadline for 
conducting its IPO under the original statute was July 31, 2001, and we 
beat that deadline by more than nine months. From October 2000 until 
November 2004, we were a publicly held company whose shares traded on 
the New York Stock Exchange (via American Depositary Shares) and on the 
Euronext Amsterdam exchange.
    To this very day, in fact, New Skies remains the only company 
covered by ORBIT that actually did all that Congress originally 
required of it, and within the time frame initially established by the 
law. We sought a single statutorily permitted extension from the 
Federal Communications Commission when, in the spring of 2000, the 
Internet bubble burst and sent market conditions spiraling downward the 
day before we were to launch our IPO. Even though our balance sheet and 
cash flow were strong and, therefore, we did not need to conduct an IPO 
to raise capital, we never came back to Congress seeking any further 
statutory extensions. Indeed, we proceeded with the required IPO in the 
fall of 2000, even in the midst of a bear market. That is how 
importantly we viewed the need to demonstrate compliance with the 
wishes of Congress. Having completed our IPO, we then sought from the 
FCC full and unrestricted access to the U.S. market, which we were 
granted in 2001.
    Last year, in order to enhance shareholder value and help grow and 
develop our company through the financial backing and strong commercial 
focus of a private equity firm, New Skies agreed to be acquired by 
affiliates of The Blackstone Group, a transaction that was 
overwhelmingly approved by our shareholders in July 2004 and concluded 
in November 2004. As discussed below, private equity firms now also own 
most of our competitors. We are now in the process of planning for a 
new IPO, which, if successful, will result in a substantial percentage 
of our shares being traded on the New York Stock Exchange.
    In the meantime, both INTELSAT and Inmarsat have also fully 
privatized through sales of their respective companies to private 
equity investors. Those transactions were facilitated by an amendment 
to ORBIT approved last fall, which in turn followed several amendments 
during the last four years in which Congress repeatedly extended the 
statutory deadlines for conducting IPOs. Through last year's amendment, 
Congress essentially acknowledged that IPOs were not the only way in 
which private ownership and substantial dilution of signatory influence 
could be accomplished.

The Satellite Sector, Then and Now
    There can be no doubt that ORBIT successfully accomplished the 
goals that Congress set more than five years ago. It is no 
exaggeration, Mr. Chairman, to say that the international satellite 
services market today is virtually unrecognizable when compared to what 
Congress confronted in the mid- to late 1990s when it last debated the 
future of the industry.
    The three international satellite operators that were the focus of 
ORBIT--INTELSAT, Inmarsat and New Skies--are now purely commercial 
concerns controlled by private equity investors. As such INTELSAT and 
Inmarsat are now fully privatized and no longer enjoy any of the 
privileges and immunities once accorded to them by virtue of their 
former status as intergovernmental organizations. Nor are the companies 
covered by ORBIT the only satellite operators to be acquired by private 
equity investors. In addition to New Skies, Intelsat and Inmarsat, both 
PanAmSat and Eutelsat are now controlled by private equity consortia.
    Independent firms that once complained the deck was stacked against 
them by U.S. law and treaty obligations now compete aggressively in a 
market untainted by IGOs that once enjoyed special legal and diplomatic 
protections. New Skies is one of four global FSS satellite operators--
the others are the privatized Intelsat, SES Global, and PanAmSat--and 
we compete with them as well as with numerous other regional and 
national satellite operators like Eutelsat and SatMex, and with 
suppliers of certain ground-based communications services. Inmarsat, 
although a global satellite operator, participates in the mobile 
satellite services sector, which is a different market than the FSS 
sector.
    Unlike the global satellite operators, a number of regional 
operators today are owned in whole or in part by governmental entities. 
Some of these operators benefit from preferential treatment in their 
home markets, treatment that distorts competition in those markets. 
ORBIT, however, does not apply to these regional operators and, 
therefore, the markets in which they operate must be opened through 
bilateral or multilateral trade efforts.
    Privatization and private equity participation in the international 
satellite services market are not the only ways in which our industry 
has changed radically. In five short years, the FSS industry has 
evolved into what is widely regarded an intensely competitive--I would 
argue, in fact, hypercompetitive--industry. The numbers tell the story 
dramatically.
    From 1998, when the House of Representatives first passed its 
version of what eventually became the ORBIT Act, to the end of 2004, 
the amount of satellite supply has swelled by nearly 60 percent, 
growing from 5,285 transponders in orbit to 8,299. And this number is 
expected to increase still further by the end of 2006. In fact this 
dramatic increase substantially understates the actual expansion of 
supply, as digital compression and other improvements in transmission 
technology have resulted in at least a doubling of effective 
transponder capacity, and this is likely a conservative estimate.
    In addition to this enormous expansion in satellite supply, the FCC 
estimates in its 2004 International Circuit Status Report that there 
was more than 40 times as much submarine fiber capacity available in 
2003 than in 1998. This fiber capacity is competitive with 
international satellite capacity for a variety of applications. Indeed 
the FCC estimates in this same report that whereas satellites carried 
10 percent of international traffic in 1997, that amount was cut to 
just 1 percent in 2003.
    This significant expansion of satellite capacity and competitive 
undersea fiber has left the industry struggling with substantial excess 
supply, falling prices, and satellite utilization rates at historic 
lows. Our experience is a good proxy for what's taking place in the 
international satellite services market more broadly. Our average 
annual rate for a transponder sold in 2000, the year ORBIT was enacted, 
was $1.9 million; in 2004, the rate was $1.2 million, a nearly 40 
percent decrease. Notwithstanding the fact that the industry has 
substantially increased capacity since the time ORBIT was passed--
investing billions of dollars to do so--industry revenues have actually 
declined in this period, from $6.8 billion in 2000 to an estimated 
$6.75 billion in 2004. And where the industry-wide satellite 
utilization rate was 82 percent at the time of ORBIT's passage, it is 
now closer to 65 percent, leaving close to 3,000 transponders in orbit 
empty. This is slightly more than half of the total satellite capacity 
that existed when this Committee first considered legislating in this 
area. Many operators have responded to these serious problems by 
reducing spending, including cutting jobs, and virtually freezing all 
expansion satellite plans.
    Although lower prices and vigorous competition are important public 
policy objectives, the excessive investment in satellite and undersea 
fiber capacity has resulted in an international satellite services 
market that today is unhealthy. This unhealthy condition represents a 
meaningful risk to U.S. national security interests and the public 
interest more broadly. Commercial satellites have been identified as 
critical infrastructure by Congress in section 201 of the Homeland 
Security Act of 2002, as well as by the Government Accountability 
Office and the President's National Security Telecommunications 
Advisory Committee. They are of enormous strategic importance to the 
U.S. Government and particularly to the Defense Department, which 
increasingly relies on commercial space operators for vital services. 
Indeed the U.S. Government is the largest single user of New Skies' 
satellite fleet and we are proud of the role our company plays in 
supporting the U.S. Government's activities around the world. In light 
of the critical role the commercial satellite services industry plays, 
it is of vital importance that the industry players are commercially 
and operationally sound.
    In addition to the critical infrastructure commercial satellite 
operators provide to government users, these operators are important 
customers of the U.S. companies that produce satellites and launch 
vehicles, including Lockheed Martin, Boeing, and Space Systems/Loral. 
The decision by international satellite services providers to curtail 
their investment and expansion plans in the face of the downturn in the 
market has severely impacted U.S. satellite manufacturers and launch 
service providers. When this happens, the full burden of ensuring that 
these important industries have sufficient business activities falls on 
the government sector--and the U.S. taxpayer--alone.
    The present unhealthy condition of the international satellite 
services market is not necessarily a cause for great alarm. Most of the 
participants in this market remain financially stable and their 
satellite fleets are operationally robust, albeit underutilized. While 
the international satellite services market today is near the bottom of 
a natural boom and bust cycle that is common in many industrial 
sectors, including the broader telecommunications sector, natural 
market forces, over time, should put the sector on a sounder footing 
just as it does in other sectors.
    Yet in contrast to almost every other sector of the 
telecommunications industry, a full and necessary rationalization of 
the international satellite services market has yet to occur. In spite 
of all the overcapacity, we still have roughly the same number of 
active satellite operators today--39--as the 42 we had in 1999. 
Approximately a dozen additional companies are in various stages of 
plans to launch still more FSS satellites. In other words, today we 
have about the same number of operators or more battling for the same 
pool of revenues we had five years ago, but with substantially more 
satellite capacity and abundant undersea fiber that can be used for 
certain of the same services. Although some consolidation has taken 
place over the years, most industry executives and observers anticipate 
more will occur to order to redress the present threats to the industry 
and position the operators to offer a broader array of secure and 
reliable services to commercial and governmental users.
    In sum, while the privatization policy of ORBIT has helped to open 
markets and, in this regard, enhanced competition in the international 
satellite services marketplace, excessive investment in satellite and 
undersea fiber capacity now threaten this strategic industry's health.

New Skies Under the ORBIT Act
    In addition to the challenges posed during the last five years by 
the general business environment, meeting the ORBIT Act's requirements 
also came with considerable economic and regulatory burdens for New 
Skies, our employees, and the new shareholders that Congress in effect 
created by mandating that we conduct an IPO. Our underwriters in the 
2000 IPO, for example, were able to market our shares only at the 
lowest end of the estimated offering price range. With market 
conditions in the telecommunications sector remaining weak through the 
early part of this decade, our share price for some periods fell to 
below half of what it sold for in our 2000 IPO.
    Later, when we announced a plan to buy back 10 percent of our 
shares in an effort to increase value for our shareholders, a 
competitor pointed to ORBIT as the basis for seeking an emergency FCC 
inquiry into whether we were undoing the shareholder dilution that our 
IPO had achieved. Although the FCC ultimately rejected that claim--in 
fact, the buyback achieved even greater dilution--we were forced to 
spend valuable time and resources over a period of several months 
defending our business strategy, which in any other publicly traded 
company is a commonly used and well-accepted practice.
    ORBIT over time has created operational uncertainties for us as 
well. Arm's length transactions with Intelsat that are otherwise 
reasonable and customary in the industry, such as the joint use of 
certain satellites in exchange for an equitable revenue share, must be 
put through an additional level of rigorous legal review that no other 
company must undertake. That is because ORBIT limits certain business 
dealings between the two companies, but is unclear as to how far those 
limits extend. In addition, ORBIT's prohibition on New Skies and 
Intelsat combining, while perhaps justifiable at the time of ORBIT's 
passage, now represents an unnecessary obstacle to the needed 
rationalization of the sector.

ORBIT Must Be Updated to Keep Pace with the New Satellite Marketplace
    Having achieved everything that ORBIT was designed to achieve, 
Congress should now reexamine the satellite landscape and consider 
whether the statute requires updating in light of the tremendous 
changes that have taken place since ORBIT's passage. In the fully 
competitive satellite world we have today, which in large part is a 
result of ORBIT's policies, there is no longer any economic or other 
policy justification for keeping New Skies bound by rules and 
regulations of a kind that apply to no other competitive company of 
which we are aware.
    All of the other global satellite operators, as well as Eutelsat, 
are substantially larger than we are in terms of both the number of 
satellites they have in orbit as well as in terms of their revenues. 
Due to their larger sizes, these operators are able to take advantage 
of greater economies of scale, enabling them to provide heightened 
levels of network redundancy and to devote more resources--both human 
and financial--to sales, operations, product development, and strategic 
alliances and acquisitions.
    In order to enhance our own competitive position and the quality 
and breadth of services we offer our customers, one of our objectives 
is to pursue an acquisition, joint venture, strategic combination, or 
other strategic transaction with another satellite operator as and when 
suitable opportunities arise. Under appropriate circumstances, we also 
would consider acquiring rights to use additional orbital locations or 
frequencies, additional in-orbit satellites, or other facilities and 
components necessary for the provision of bundled services. Intelsat is 
one of a number of entities with whom it would be logical for New Skies 
to consider such arrangements. However, in light of the restrictions in 
ORBIT, including those that explicitly apply to any dealings we may 
have with Intelsat, New Skies faces uncertainty with respect to its 
ability to enter into such arrangements, thereby limiting our 
opportunities, placing us at an unfair competitive disadvantage, and 
imperiling what may be an otherwise sensible way to achieve the 
rationalization the sector sorely needs at this time.
    We believe that Congress can justifiably claim credit for the 
remarkable changes in the satellite industry over the last half-dozen 
years, which were in part the result of ORBIT's privatization and 
competition policies. We also believe, respectfully, that it is now 
time for Congress to allow every competitor in the satellite industry 
to operate on a level playing field. Failing to update the statute to 
make it more consistent with present-day realities in the satellite 
marketplace will impede the operation of the natural market forces 
necessary to strengthen the industry for the benefit of customers 
(including government users), suppliers (including U.S. manufacturers 
of satellites and rockets), employees and shareholders.
    It is probable that the industry will consolidate; we have seen 
some signs of that already. If there is in fact further consolidation, 
the process should be market-driven, without the need for the kind of 
special restrictions that are found in ORBIT. And now that the market 
has become fully privatized and fully competitive, there is no risk 
that any contemplated transaction might escape the same thorough 
regulatory review to which every other company is subject. Through the 
FCC's public interest test, the application of the antitrust laws, and 
mechanisms that ensure the highest level of scrutiny for any 
transaction that implicates national security, to name a few, Congress 
has enacted many alternate safeguards to ensure that ORBIT's overriding 
objective--a competitive international satellite services market--is 
preserved. We urge you to pass legislation updating ORBIT Act to 
address these current realities.
    Thank you for your consideration, and I will be pleased to answer 
any questions you may have.

SUMMARY OF ORBIT ACT PROVISIONS APPLICABLE TO NEW SKIES SATELLITES N.V.

Provisions Specifically Applicable to New Skies Under Section 623:
 Public offering conducted no later than July 31, 2001
 No interlocking officers, directors, or employees with INTELSAT
 No spectrum assigned to INTELSAT as of date of enactment to be 
        transferred to New Skies
 Any merger, ownership or management ties, or exclusive arrangements 
        between INTELSAT and New Skies prohibited until 11 years after 
        completion of INTELSAT's privatization
Criteria Applicable to New Skies as well as INTELSAT, Inmarsat, and 
        Future Successor Entities Under Section 621:
 Each shall operate as an independent commercial entity with a pro-
        competitive ownership structure
 IPO shall substantially dilute aggregate ownership of each entity by 
        signatories or former signatories
 No IGO to have ownership interest in INTELSAT, its successor 
        entities, or New Skies
 No IGO to have more than minimal ownership in Inmarsat or its 
        successor entities
 No IGO privileges and immunities or preferential access to orbital 
        locations
 Each entity to be a national corporation or similar accepted 
        commercial structure, subject to the laws of the nation in 
        which incorporated
 Shares of successor entities and New Skies to be listed for trading 
        on one or more major exchanges with transparent and effective 
        securities regulation
 Majority of directors of successor entities and New Skies not to be 
        directors, employees, officers, or managers, or otherwise serve 
        as representatives of any signatory or former signatory
 No director of successor entities and New Skies to be a director, 
        employee, officer or manager of any IGO remaining after 
        privatization
 Board of directors of successor entities and New Skies to have a 
        fiduciary obligation
 No officers or managers of successor entities and New Skies to be 
        officers or managers of any signatories or former signatories, 
        or to have any direct financial interest in or financial 
        relationship to any signatories or former signatories
 No directors, officers, or managers of successor entities and New 
        Skies who hold such positions in any IGO
 Any transactions or other relationships between or among any of these 
        entities to be conducted on an arm's length basis.
 Successor entities and New Skies subject to the jurisdiction of a 
        nation or nations that have effective telecom competition laws 
        and regulations, are signatories to the WTO Basic Telecom 
        Agreement, and have a schedule of commitments in such Agreement 
        that includes non-discriminatory market access to their 
        satellite markets.

    Mr. Upton. Thank you very much. Mr. Spector.

                 STATEMENT OF PHILLIP L. SPECTOR

    Mr. Spector. Mr. Chairman, Mr. Markey, members of the 
subcommittee, on behalf of INTELSAT, I want to thank you for 
the opportunity to appear today before the subcommittee. We 
appreciate the opportunity to comment on the progress that has 
been made in privatizing the satellite communications 
marketplace.
    INTELSAT needs no introduction to this subcommittee. We are 
a leading provider of satellite communications services and 
solutions, with over 40 years of experience in operating 
communications satellites. Our customers include major U.S. 
corporations, television broadcasters, and other providers of 
video services, and many governments, including particularly 
the U.S. Government.
    If you will indulge me, Mr. Chairman, I will recite a bit 
of my personal history, because it provides a useful metaphor 
for the larger topic we are here to discuss.
    I joined INTELSAT only recently, some 2 months ago, after 
over 20 years in the private practice of law here in 
Washington. During my years in private practice, I represented 
not only INTELSAT, but also PanAmSat and SES Global.
    I represented PanAmSat in the late 1980's and the early 
1990's, at a time when INTELSAT appears to be acting to 
foreclose competition from PanAmSat and others in the global 
satellite communications marketplace. Like Mr. Markey, I worked 
closely with that tireless advocate for satellite competition, 
Renee Ensomo. With the encouragement of this Congress and other 
parts of the U.S. Government, INTELSAT began changing to 
recognize competitive realities. And by the late 1990's, it was 
clearly moving away from its legacy as an intergovernmental 
organization. By the time that the ORBIT Act was passed in 
2000, INTELSAT was well along the road toward privatization, 
and we became an entirely private company nearly 4 years ago in 
July 2001.
    I am pleased to report to you today that in January 2005, 
INTELSAT has its signatory interest diluted to zero. That is 
why I joined INTELSAT as its general counsel, because the 
company today is owned 100 percent by private commercially 
oriented nongovernmental investors. Their only agenda is the 
same agenda that all investors in private companies have: to 
offer more and better services at lower prices, and thereby to 
meet customer needs and to build shareholder value.
    The ORBIT Act played a key role in moving INTELSAT to the 
place it is today, a private company serving customer needs in 
a competitive marketplace. Thanks to the members of this 
committee and of this Congress, the goals of the ORBIT Act have 
been achieved.
    There is one area, however, in which the ORBIT Act needs 
fine-tuning. As written, the Act prohibits the re-affiliation, 
by merger or otherwise, of a privatized INTELSAT and any 
separated entity. The separated entity referred to in the Act 
is New Skies, a company that was spun off from the old INTELSAT 
prior to privatization. New Skies is today, like INTELSAT, 100 
percent owned by private investors having no relationship to 
the old signatories. The prohibition on re-affiliation may have 
made sense in 2000 when it was envisioned that both INTELSAT 
and New Skies, while they might privatize, would continue to 
have substantial signatory ownership for many years to come. 
Five years later, with both INTELSAT and New Skies owned 
entirely by private investors, the prohibition makes no sense. 
Indeed, I can not think of any other statute of the United 
States that flatly prohibits the merger of two entirely private 
companies.
    It is important to emphasize that other U.S. statutes 
provide substantial protection to ensure that public policy 
goals are served. Any merger of INTELSAT and New Skies would be 
subject to review and approval by the Department of Justice 
under the antitrust laws, and by the Federal Communications 
Commission under its public interest standard. All interested 
parties who conceivable might be affected by the merger, 
competitors, customers, and public interest groups, would have 
an opportunity to voice any objections they might have.
    In summary, Mr. Chairman, we at INTELSAT see no valid 
public policy purpose served by the current prohibition on a 
re-affiliation with New Skies, and we urge this subcommittee in 
the House to work with us on amending the statute to strike out 
the prohibition.
    In closing, let me repeat that the ORBIT Act was successful 
in transforming the satellite communications marketplace, and 
that the Congress is to be given credit for this impressive 
accomplishment.
    I thank you for your attention this morning, and stand 
ready to answer any questions.
    [The prepared statement of Phillip L. Spector follows:]

Prepared Statement of Phillip L. Spector, Executive Vice President and 
                General Counsel, Intelsat Holdings, LTD.

    Mr. Chairman, on behalf of Intelsat, I thank you for the 
opportunity to appear today before the Subcommittee. We particularly 
appreciate the opportunity to comment on the ORBIT Act, and on the 
progress that has been made in privatizing the satellite communications 
marketplace.
    Intelsat needs no introduction to this Subcommittee. We are a 
leading provider of satellite communications services and solutions, 
with over 40 years of experience in operating communications 
satellites. Our customers include major U.S. corporations, television 
broadcasters and other providers of video services, and many 
governments, including particularly the United States Government. We 
compete vigorously with both other satellite operators and those who 
operate terrestrial and undersea facilities.
    If you will indulge me for a moment, Mr. Chairman, I will recite a 
bit of my personal history, because it provides a useful metaphor for 
the larger topic we are here to discuss. I joined Intelsat only 
recently, some two months ago, after over 20 years in the private 
practice of law in Washington, D.C. During my years in private 
practice, I represented not only Intelsat, but also two other large 
satellite service providers, PanAmSat and SES Global.
    In particular, I represented PanAmSat in the late 1980s and early 
1990s, at a time when Intelsat appeared very much to be acting to 
foreclose competition from PanAmSat and others in the global satellite 
communications marketplace. With the encouragement of this Congress and 
other parts of the U.S. Government, Intelsat began changing to 
recognize competitive realities, and by the late 1990s it was clearly 
moving away from its legacy as an intergovernmental organization. By 
the time that the ORBIT Act was passed in 2000, Intelsat was well along 
the road toward privatization, and we became an entirely private 
company nearly four years ago, in July 2001.
    It would have been unthinkable for me, as one of Intelsat's active 
adversaries over several years, to have joined the pre-privatization 
Intelsat, but I also do not think I would have joined the Intelsat 
organization as it existed from mid-2001 until January of this year. 
Although Intelsat had privatized, it was still owned by many of the 
same Signatories whose ownership was of concern to the Congress when 
the ORBIT Act was passed in 2000. Thus the ORBIT Act appropriately 
required that the influence of the Intelsat Signatories be 
substantially diluted.
    I am pleased to report to you today, Mr. Chairman, that in January 
2005 Intelsat had its Signatory interest diluted to zero. The Intelsat 
that I joined as General Counsel is owned 100% by private, commercially 
oriented, non-governmental investors. Their only agenda is the same 
agenda that all investors in private companies have: to offer more and 
better services at lower prices, and thereby to meet customer needs and 
to build shareholder value.
    The ORBIT Act played a key role in moving Intelsat to the place it 
is today, a private company serving customer needs in a competitive 
marketplace. In this respect, the ORBIT Act has been a resounding 
success, and those Members of Congress who were ``present at the 
creation'' can take considerable pride in this success. More than is 
the case with most statutes, there is a clearcut opportunity to say 
here: The goals of the ORBIT Act have been achieved.
    There is one area, however, in which the ORBIT Act needs fine-
tuning. As written, the Act prohibits the ``reaffiliation'' by merger 
or otherwise of a privatized Intelsat and ``any separated entity.'' The 
``separated entity'' referred to in the Act is New Skies Satellites, a 
company that was spun off from the old Intelsat prior to privatization. 
New Skies is today, like Intelsat, 100% owned by private investors 
having no relationship to the old Signatories.
    The prohibition on reaffiliation was included in the ORBIT Act to 
ensure that the spin-off of New Skies would constitute an irreversible 
first step on Intelsat's road to privatization. The prohibition may 
have made sense in 2000, when the Act was passed, at a time when 
Intelsat was still an intergovernmental organization debating 
privatization and New Skies was owned by Intelsat's Signatories. But 
five years later, with both Intelsat and New Skies owned entirely by 
private investors, the prohibition makes no sense. Indeed, I cannot 
think of any other statute of the United States that flatly prohibits 
the merger of two entirely private companies.
    If New Skies were to be up for sale, and if Intelsat were to be 
interested in buying New Skies, we would likely be just one of several 
interested buyers. But I see no reason why this Congress would want to 
limit artificially the universe of buyers, as the ORBIT Act does today. 
Such a limitation is simply anti-competitive, when I know that this 
Subcommittee and this Congress are focused on enhancing competition.
    It is also important to emphasize that, if Intelsat and New Skies 
were to agree on a merger, other U.S. statutes provide substantial 
protection to assure that public policy goals are served. Any such 
merger would be subject to review and approval by the Department of 
Justice under the antitrust laws, and to review and approval by the 
Federal Communications Commission under the public interest standard of 
the Communications Act. In the context of both of these processes, 
moreover, as is always the case in merger review, all interested 
parties who conceivably might be affected by the merger--competitors, 
customers, and public interest groups--would have an opportunity to 
voice any objections they might have.
    In summary, Mr. Chairman, we at Intelsat see no valid public policy 
purpose served by the current prohibition on our reaffiliation with New 
Skies, and we urge this Subcommittee and the House to work with us on 
amending the statute to strike out this prohibition. In closing, let me 
repeat that the ORBIT Act was successful in transforming the satellite 
communications marketplace, and that the Congress is to be given credit 
for this impressive accomplishment.
    I thank you for your attention this morning, and stand ready to 
answer any questions that Members of the Subcommittee may have.

    Mr. Upton. Thank you. Mr. Auckenthaler.

                 STATEMENT OF ALAN AUCKENTHALER

    Mr. Auckenthaler. Mr. Chairman, Mr. Markey, members of the 
subcommittee, good morning. My name is Alan Auckenthaler. I am 
a Vice President of Inmarsat Ventures, Limited, which in ORBIT 
terms is the successor entity to the International Mobile 
Satellite Organization. But I was also the general counsel of 
Inmarsat and the predecessor intergovernmental organization 
from 1994 until last year, throughout virtually the entire 
privatization and ORBIT compliance process.
    On behalf of my company, I thank the subcommittee for 
holding this hearing and for your interest in the status of our 
privatization. I also thank the members of this subcommittee 
for supporting three amendments to the ORBIT Act to give us 
more time and new ways to comply with the law in light of 
changed conditions in the financial markets.
    Let me begin by describing some exciting recent business 
developments at Inmarsat, because they demonstrate how 
privatization is resulting in real benefits to our customers in 
the U.S. Federal Government and American businesses.
    Our privatization process started long before ORBIT in 
1993, but it is nevertheless a remarkable policy success for 
the United States, because the U.S. delegation played a leading 
role at the intergovernmental organization in forging a 
political consensus in support of privatization, and in driving 
the process to completion. A month ago, on March 11, the 
largest and most powerful commercial communications satellite 
ever built was successfully launched on Lockheed Martin's Atlas 
V rocket from Cape Canaveral. This was the first of our 
Inmarsat IV satellites. These new satellites will enable our 
distributors to provide mobile and portable broadband services 
at around half a megabit per second to customers using 
terminals no larger than a notebook computer. This is an 
example made by Hughes Network Systems here in the United 
States. We call these services broadband global area network, 
or BGAN. The Inmarsat system is already relied upon by the U.S. 
Department of Defense, our largest customer, to which we devote 
at least 25 percent of our total network capacity, and by the 
Coast Guard and the FAA for safety communications, and by 
various Federal law enforcement agencies. We expect to be the 
communications link of choice when long-range vessel tracking 
and container monitoring systems are developed to comply with 
the requirements of the Maritime Transportation Security Act.
    American business also depends on Inmarsat. Examples 
include the Deere Company's Precision Farming Service, the 
vessel monitoring system that is used to manage the 
sustainability of our fisheries, use of portable Inmarsat 
terminals by companies engaged in energy and mining 
exploration, and construction projects in remote regions of the 
world, and by journalists for digital news gathering.
    These BGAN services that our distributors will provide via 
our new Inmarsat IV satellites will enable these customers and 
others to do all of these things and more at broadband speed 
and at less cost. We have vetted our company on the promise of 
broadband. We invested $1.5 billion in the construction and 
launch of our satellites and the associated ground 
infrastructure. And this is the point that I want to make: this 
kind of risk-taking would not have been possible in an 
intergovernmental organization. The organization anticipated 
that more than 10 years ago. As I said, the process of 
privatizing Inmarsat began in 1993. Led by the U.S. delegation, 
Inmarsat pioneered the privatization model that was 
subsequently followed by INTELSAT and UTELSAT. The Inmarsat 
business was transferred in April 1999 from the 
intergovernmental organization to a newly created private 
company that had no privileges and immunities. Thus when 
Congress passed the ORBIT Act in March 2000, we were already 
well on our way to satisfying the privatization criteria laid 
down there.
    In December 2003, two private equity funds managed by Apax 
Partners and Premira, acquired the majority of Inmarsat. Last 
October, the Congress amended the ORBIT Act to accept this new 
way of substantially diluting former signatories as an 
alternative to an IPO. On November 15, we filed a compliance 
certification with the Commission, and we are awaiting their 
decision.
    I do think there is a need to update the ORBIT Act in light 
of the ownership changes, and the changes in the competitive 
marketplace that have occurred since the Act was passed 5 years 
ago. Inmarsat would be pleased to work with the committee on 
such legislation.
    Thank you for this opportunity to testify.
    [The prepared statement of Alan Auckenthaler follows:]

   Prepared Statement of Alan Auckenthaler, Vice President, Inmarsat 
                            Ventures Limited

    My name is Alan Auckenthaler. I am a Vice President of Inmarsat 
Ventures Limited, which in ORBIT terms is the privatized ``successor 
entity'' to the International Mobile Satellite Organization. I was 
General Counsel of Inmarsat and the predecessor intergovernmental 
organization from 1994 until last year, throughout virtually all of the 
privatization and ORBIT compliance process.
    On behalf of my company, I thank the Subcommittee for holding this 
hearing, and for its interest in the status of our privatization. I 
also thank the Members of the Subcommittee for supporting amendments to 
the ORBIT Act three times during the past few years to give us more 
time and new ways to comply in light of financial market conditions not 
foreseen when the Act was passed.
    Let me begin by describing some exciting recent business 
developments at Inmarsat, because they demonstrate how privatization is 
resulting in real benefits to our customers in the federal government 
and American business, and to others around the world. Our 
privatization process started in 1993, long before ORBIT, but it is 
nevertheless a remarkable policy success for the United States, because 
the U.S. delegation played a leading role at the intergovernmental 
organization in forging a political consensus in support of 
privatization and in driving the process to completion.
    A month ago, on March 11th, the largest and most powerful 
commercial communications satellite ever built was successfully 
launched on Lockheed Martin's Atlas V rocket from Cape Canaveral. This 
was the first of our Inmarsat-4 satellites. With 60 times the power, 
228 spot beams, and advanced modulation and coding techniques, the 
Inmarsat-4 satellites will use spectrum up to 17 times more efficiently 
than our previous satellites. The Inmarsat-4 satellites will enable our 
distributors to provide mobile and portable broadband services at 
around half a megabit per second to customers using terminals no larger 
than a notebook computer. We call these services Broadband Global Area 
Network or BGAN.
    The Inmarsat system is already relied on for the Global Maritime 
Distress and Safety System and by the United States Coast Guard for 
Search and Rescue operations. It is also relied on by the Federal 
Aviation Administration to support Air Traffic Control communications. 
The United States Department of Defense is our largest customer. We 
devote at least 25% of our total network capacity to serve DoD. There 
has been heavy usage of Inmarsat services in Afghanistan and Iraq. In 
addition, Inmarsat supplies mission-critical communications services on 
United States Air Force VIP planes, including Air Force One, the 89th 
Air Wing at Andrews Air Force Base that transports members of Congress, 
and the planes of regional Combatant Commanders. U.S. law enforcement 
agencies such as the Coast Guard, FBI, Immigration and Customs 
Enforcement, and Drug Enforcement Administration, use our services. We 
expect to be the communications link of choice when long-range vessel 
tracking and container monitoring systems are developed to comply with 
the Maritime Transportation Security Act.
    American business depends on Inmarsat too. The Deere Company uses 
Inmarsat's satellite communications for its precision farming service. 
U.S. flag vessels have integrated Inmarsat communications into ship 
operations and to provide crew calling. The Vessel Monitoring System 
that industry and government rely on to manage the sustainability of 
fisheries by tracking commercial fishing vessels and enforcing fishing 
regulations uses our satellite network. Portable Inmarsat terminals are 
used in remote regions around the world by American companies engaged 
in energy and mining exploration and construction projects, and by 
journalists for digital news gathering. You may remember watching live 
broadcasts by journalists using Inmarsat video phones on vehicles in 
troop caravans driving north in the opening days of the war in Iraq.
    Agencies of the United Nations and non-governmental organizations 
like the Red Cross rely on Inmarsat communications to respond to 
natural disasters, like the tsunami last year, or to help refugees 
displaced by wars. Inmarsat is a partner of NetHope, a consortium of 
U.S.-based aid agencies that provide communications infrastructure to 
support assistance activities in developing countries.
    The BGAN services that our distributors will provide via our new 
Inmarsat-4 satellites will enable these customers and others to do all 
of these things and more at broadband speed and at less cost. We have 
bet our company on the promise of broadband, investing $1.5 billion 
dollars in the construction and launch of our Inmarsat-4 satellites and 
the associated ground infrastructure.
    This kind of risk-taking would not have been possible in an 
intergovernmental organization. The organization anticipated that more 
than 10 years ago. The process of privatizing Inmarsat began in 1993. 
Led by the U.S. delegation, Inmarsat pioneered the privatization model 
subsequently followed by Intelsat and Eutelsat. The Inmarsat business 
was transferred in April 1999 from the intergovernmental organization 
to a newly-created private company.
    Thus, when Congress passed the ORBIT Act in March 2000, we were 
already well on our way to satisfying the privatization criteria laid 
down there. The Federal Communications Commission determined in October 
2001 that we had satisfied all ORBIT criteria except the requirement to 
conduct an IPO to substantially dilute the aggregate ownership of 
former Signatories.
    An IPO was part of the privatization model agreed upon by the 
Inmarsat stakeholders. They set a target for the company to conduct an 
IPO within approximately two years. Like Congress, they could not 
foresee the collapse of the IPO markets.
    The company prepared five times for an IPO, spending over $10 
million dollars on external fees, as well as demanding an enormous 
amount of internal management effort. We had to ask Congress for two 
deadline extensions, which were granted in November 2001 and June 2003. 
Again, I express our appreciation for these extensions.
    Notwithstanding the problems of the IPO markets, private equity 
funds did see the value in satellite companies. In December 2003, two 
funds, managed by Apax Partners and Permira, acquired the majority of 
Inmarsat. As a result, the aggregate ownership by shareholders that had 
formerly been Signatories in the intergovernmental organization was 
reduced to 42.54%. Of 85 former Signatories, only 15 retain an on-going 
ownership interest. Telenor Satellite Services of Norway, COMSAT 
Investments (now owned by Lockheed Martin), and KDDI Corporation of 
Japan own 14.95%, 13.96%, and 7.55% respectively. This result far 
exceeds the dilution that could have been achieved through an IPO of 
equity shares. And our new owners did conduct an IPO of debt securities 
that had the effect of subjecting Inmarsat to substantially the same 
kind of securities regulation that would have applied if we had listed 
equity securities.
    We spent most of 2004 seeking a determination from the Commission 
that we had satisfied the IPO requirement in ORBIT by means of the 
private equity takeover and IPO of debt securities, but the Commission 
had concerns about whether Congress intended them to have discretion to 
make such a finding. Congress solved this problem by further amending 
the ORBIT Act last October. That amendment allows us to satisfy ORBIT 
without an IPO of equity securities if former Signatories neither own a 
majority of the financial interests in the company nor retain effective 
control through other means. We filed a certification to that effect 
with the Commission on November 15th, and are waiting for their 
decision.
    If this Committee is now going to consider additional amendments to 
the ORBIT Act, I submit the following examples of restrictions that no 
longer make sense and should be eliminated:

 Section 621(5)(D)(ii)(II) prohibits our officers or managers from 
        owning shares in telecommunications companies that were 
        formerly Signatories, even if those companies did not remain 
        Inmarsat shareholders after the takeover. Although the 
        Commission did adopt a de minimis threshold, the prohibition 
        nevertheless constrains the personal investment opportunities 
        of our officers and managers, and also places an administrative 
        burden on Inmarsat to annually survey these staff to confirm 
        that they have not exceeded the allowed threshold.
 Section 624 prohibits reaffiliation with ICO Global Communications 
        for 15 years, and also prohibits interlocking directorates. In 
        case you don't remember, ICO was spun off by Inmarsat in 1995. 
        It has since gone through Chapter 11 and does not yet have an 
        operating system. I can imagine no public policy reason for 
        retaining this prohibition.
    The purpose of the ORBIT Act was to ensure that Intelsat, New 
Skies, and Inmarsat completed their privatizations in a pro-competitive 
way. That objective has been realized. Inmarsat, and the many 
independent American companies across the United States engaged in 
distributing our services, manufacturing equipment for our network, and 
developing innovative service applications to meet the needs of 
government and commercial customers here and abroad, are ready to use 
our new Inmarsat-4 satellites to deliver BGAN and other services in the 
competitive marketplace.
    Thank you for this opportunity to testify. I look forward to 
working with the Subcommittee on further legislation to update the 
ORBIT Act in light of the ownership changes and changes in the 
competitive marketplace that have occurred since the Act was passed 
five years ago.

    Mr. Upton. Thank you very much. Ms. Hecker.

                 STATEMENT OF JAYETTA Z. HECKER

    Ms. Hecker. Good morning, Mr. Chairman, and other members 
of this committee. My name is JayEtta Hecker, and I am a 
director at GAO, and I generally have been overseeing 
transportation deregulation, and have recently taken over some 
responsibility for telecommunications issues. I am very pleased 
to be here to discuss the privatization of INTELSAT and the 
implementation of the ORBIT Act. It is based on a report that 
we completed recently for this committee and the Senate.
    The three areas that I will speak about will be the initial 
impetus for the privatization of INTELSAT. Second, the extent 
to which implementation has occurred consistent with the ORBIT 
Act provisions. And finally, the improvement in market access 
that has resulted after the ORBIT Act.
    On the first issue of the impetus, I think many of you 
correctly set this back to 1962 with the U.S. national policy 
trying to promote the creation of a global satellite 
communication system. The key in that period was the premise or 
the assumption that the risk and the costs of deploying a 
global satellite system made this investment or this 
development a natural monopoly. And that, of course, is why 
INTELSAT and Inmarsat were set up the way they were. But very, 
very soon thereafter, really, demand in the telecom industry 
grew, and the telecommunications technology was evolving and 
competitors were growing. It was not a natural monopoly. So as 
the marketplace grew, the restrictions left on INTELSAT, the 
requirements that countries only provide primary access to 
INTELSAT, really impeded the development of these other 
emerging firms. And the real impetus was that these firms felt 
that there was not a level playing field, and it was time to 
open up the market.
    At the time, INTELSAT itself was realizing that the complex 
bureaucratic structure of an IGO was not workable, and they 
could not compete. They knew they were, in fact, confronted by 
competing firms, and they were not adapting, they were not 
investing, they were not really able to advance and continue to 
mature. So they, too, called for and were interested in taking 
initial steps to privatization.
    But the real action, I think, was locked into place with 
the ORBIT Act of 2000, with the Congress calling for the full 
privatization of INTELSAT, and very specific requirements laid 
out to ensure that that occurred.
    Now, the issue of whether privatization has been consistent 
with the Act, really, I think Mr. Abelson covered, because you 
put FCC in charge of making the determination of whether the 
actions were taken consistent with the Act. And in our report 
and as Mr. Abelson has said, that was really determined 2 
months before the actual privatization of INTELSAT in 2001 in 
an advance review of the plan, and a determination that it was 
consistent with the requirements in many respects. But the 
grant of operating rights within the U.S. was made conditional 
on the IPO, which was the remnant requirement.
    The recent actions with INTELSAT stock being sold to a 
consortium really changed the environment, but the Congress 
anticipated that with changes last October that recognize that 
the IPO was really a proxy for the full dilution and 
privatization of the firm, but that other means were 
acceptable. And so now we are looking at one final action, I 
guess, by the FCC that has to rule on this determination, and 
this complete dilution from former signatories.
    The final issue is the one of market access, which of 
course, is essential for a market to occur, a global market, 
and our work in the mid-1990's and a lot of the complaints that 
led up to the ORBIT Act made a very public concern about the 
limitations of access globally. Mr. Dingell was right that our 
report gave primary credit, as did the stakeholders we met 
with, the primary change was the WTO international agreement to 
open up telecom markets. That really was the commitment by 
countries to actually remove existing barriers. Now, the ORBIT 
Act played a very important and complimentary role in 
accelerating and facilitating the privatization of the industry 
domestically, and also internationally, the removal of the 
national entities in the telecom center.
    In sum then, the Congress intent in the ORBIT Act, 
promoting a competitive and fully privatized global satellite 
communication market, has been completely achieved. INTELSAT 
has been successfully transformed into a fully private held 
for-profit corporation. There are other global satellite 
companies, as well as other regional companies, that users can 
go to. Moreover, as you know, technology has continued to 
evolve and users can turn to other options, even if the 
satellite industry is concentrated. There are other ways to 
move voice and data, and other telecom services, as these 
people all know from their declining business and pressure on 
their prices.
    So in conclusion, the Act was a success. Our work did not 
address the issue of the New Skies issues, but I would be happy 
to take any questions that might be helpful.
    [The prepared statement of JayEtta Z. Hecker follows:]

      Prepared Statement of JayEtta Z. Hecker, Director, Physical 
  Infrastructure, Office of Congressional Relations, U.S. Government 
                         Accountability Office

    Mr. Chairman and Members of the Subcommittee: I am pleased to be 
here today to discuss the privatization of INTELSAT and the 
implementation of the ORBIT Act. In 2000, the Congress passed the 
Openmarket Reorganization for the Betterment of International 
Telecommunications Act 1 (ORBIT Act) to help promote a more 
competitive global satellite communication services market. Today we 
will discuss (1) the impetus for the privatization of INTELSAT 
2 as competition developed during the 1990s, (2) the extent 
to which the privatization steps required by the ORBIT Act have been 
implemented, and (3) whether access by global satellite companies to 
non-U.S. markets has improved since the enactment of the ORBIT Act.
---------------------------------------------------------------------------
    \1\ Pub. L. 106180, 114 Stat. 48 (2000).
    \2\ The official name of the intergovernmental organization was 
INTELSAT--all capital letters. After privatization, the privatized 
company is known as Intelsat. We make this distinction throughout this 
report.
---------------------------------------------------------------------------
    To address these issues, we have drawn upon our previous work on 
the international satellite market and the ORBIT act. We issued two 
reports on the international satellite market in 1996.3 In 
addition, we issued two reports in September 2004, one of which focused 
on the implementation of the ORBIT Act;4 see appendix I for 
a list of related GAO products. For the latter report, we conducted 
semistructured interviews with satellite service providers and experts. 
Additionally, we interviewed officials from the Federal Communications 
Commission (FCC), the United States Trade Representative; the 
Department of State; and the National Telecommunications and 
Information Administration of the Department of Commerce. We conducted 
our work for the September 2004 report from February through June 2004 
in accordance with generally accepted government auditing standards.
---------------------------------------------------------------------------
    \3\ See GAO, Telecommunications: Competitive Impact of 
Restructuring of the International Satellite Organizations, GAO/
RCED96204 (Washington, D.C.: July 8, 1996); and GAO, 
Telecommunications: Competition Issues in International Satellite 
Communications, GAO/RCED971 (Washington, D.C.: Oct. 11, 1996).
    \4\ See GAO, Telecommunications: Intelsat Privatization and the 
Implementation of the Orbit Act, GAO04891 (Washington, D.C.: Sept. 13, 
2004); and GAO, Tax Policy: Historical Tax Treatment of INTELSAT and 
Current Tax Rules for Satellite Corporations, GAO04994 (Washington, 
D.C.: Sept. 13, 2004).
---------------------------------------------------------------------------
    Following is a summary of our findings:

 When commercial satellite technology was first deployed, a worldwide 
        system was seen as the most efficient means to facilitate the 
        advancement of a fully global provider. INTELSAT was thus 
        established as an intergovernmental entity that was protected 
        from competition in its provision of global satellite 
        communications services. By the 1980s, however, technology 
        developments enabled private companies to efficiently compete 
        for global communications services, and in 1984, President 
        Reagan determined that it would be in the national interest of 
        the United States for there to be greater competition in this 
        market. New commercial satellite systems emerged, but within a 
        few years, these providers became concerned that INTELSAT 
        enjoyed certain advantages stemming from its intergovernmental 
        status that impeded others from effectively competing. The new 
        satellite companies began to argue that the marketplace would 
        not become fully competitive unless INTELSAT became a private 
        company that no longer enjoyed such advantages. At about the 
        same time, decision makers within INTELSAT decided to privatize 
        the organization because of the difficulties of making business 
        decisions within an intergovernmental entity.
 Just prior to INTELSAT's privatization in July 2001, FCC determined 
        that INTELSAT's privatization plan was consistent with 
        requirements of the ORBIT Act. FCC thus authorized Intelsat, 
        LLC--the U.S. subsidiary of the privatized entity Intelsat 
        Ltd.--to use its U.S. satellite licenses to provide services 
        within the United States pending an initial public offering 
        (IPO) of securities that was mandated by the ORBIT Act to occur 
        at a later time. In 2004, however, new legislation allowed 
        Intelsat to forgo an IPO if it achieved substantial dilution of 
        its ``signatory'' ownership--or dilution of ownership by those 
        entities that had been the signatories to INTELSAT when it was 
        an intergovernmental entity. Since Intelsat has recently been 
        sold to a consortium of four private investors, it no longer 
        has, according to an Intelsat official, any former signatory 
        ownership. FCC is still reviewing this transaction to determine 
        whether Intelsat has met the requirements of the ORBIT Act as 
        amended and thus no longer is required to hold an IPO.
 Most of the stakeholders we spoke with said that access to non-U.S. 
        satellite markets has generally improved during the past 
        decade. This improvement in market access is generally 
        attributed to global trade agreements and privatization trends. 
        Despite this general view, some satellite companies expressed 
        concerns that some market access issues still exist. These 
        remaining market access problems were attributed to foreign 
        government policies that may limit or slow satellite 
        competitors' access to certain markets. For example, some 
        companies noted that some countries may favor domestic 
        satellite providers or may choose to continue obtaining service 
        from Intelsat because of long-term business relationships that 
        were forged over time. Nevertheless, Intelsat officials noted 
        that it seeks market access on a transparent and 
        nondiscriminatory basis and that Intelsat has participated with 
        other satellite operators, through various trade organizations, 
        to lobby governments to open their markets.

                               BACKGROUND

    The Congress passed the Communications Satellite Act of 1962 to 
promote the creation of a global satellite communications system. As a 
result of this legislation, the United States joined with 84 other 
nations in establishing the International Telecommunications Satellite 
Organization--more commonly known as INTELSAT--roughly 10 years 
later.5 Each member nation designated a single 
telecommunications company to represent its country in the management 
and financing of INTELSAT. These companies were called ``signatories'' 
to INTELSAT and were typically government-owned telecommunications 
companies, such as France Telecom, that provided satellite 
communications services as well as other domestic communications 
services. Unlike any of the other nations that originally formed 
INTELSAT, the United States designated a private company, Comsat 
Corporation, to serve as its signatory to INTELSAT.
---------------------------------------------------------------------------
    \5\ By the time Intelsat privatized in 2001, 148 countries had 
become parties to the intergovernmental organization.
---------------------------------------------------------------------------
    The ORBIT Act, enacted by the Congress in March 2000, was designed 
to promote a competitive global satellite communication services 
market. The act did so primarily by calling for the privatization of 
INTELSAT after about three decades of operation as an intergovernmental 
entity.6 The ORBIT Act required, for example, that INTELSAT 
be transformed into a privately held, for-profit corporation with a 
board of directors that would be largely independent of former INTELSAT 
signatories. Moreover, the act required that the newly privatized 
Intelsat retain no privileges or other benefits from governments that 
had previously owned or controlled it. To ensure that this 
transformation occurred, the Congress imposed certain restrictions on 
the granting of licenses that allow Intelsat to provide services within 
the United States. The Congress coupled the issuance of licenses 
granted by FCC to INTELSAT's successful privatization under the ORBIT 
Act. That is, FCC was told to consider compliance with provisions of 
the ORBIT Act as it made decisions about licensing Intelsat's domestic 
operations in the United States. Moreover, FCC was empowered to 
restrict any satellite operator's provision of certain new services 
from the United States to any country 7 that limited market 
access exclusively to that satellite operator.8
---------------------------------------------------------------------------
    \6\ The act also pertained to Inmarsat. A discussion of Inmarsat's 
privatization is outside the scope of this testimony.
    \7\ This provision was limited to those countries that were not 
members of the World Trade Organization.
    \8\ Additionally, once INTELSAT was privatized under provisions of 
the ORBIT Act, Comsat Corporation's role as the U.S. signatory to the 
INTELSAT operating agreement was ended.
---------------------------------------------------------------------------
CONCERNS THAT INTELSAT ENJOYED COMPETITIVE ADVANTAGES PROVIDED IMPETUS 
                         FOR ITS PRIVATIZATION

    When satellite technology first emerged as a vehicle for commercial 
international communications, deploying a global satellite system was 
both risky and expensive. Worldwide organizations were considered the 
best means for providing satellite-based services throughout the world. 
When INTELSAT was established, the member governments put in place a 
number of protections to encourage its development. In essence, 
INTELSAT was created as an international monopoly--with little 
competition to its international services allowed by other satellite 
systems, although domestic and other satellite systems were allowed 
under certain conditions. As such, during the 1970s and early 1980s, 
INTELSAT was the only wholesale provider of certain types of global 
9 satellite communications services such as international 
telephone calls and relay of television signals 
internationally.10
---------------------------------------------------------------------------
    \9\ Some other satellite companies provided fixed satellite 
services between some countries, but INTELSAT was the only provider at 
that time that could provide service to all parts of the globe.
    \10\ While INTELSAT was the only provider at that time of what is 
called global fixed satellite services--that is, services provided 
between fixed points on land--another global satellite organization 
that was also formed based on amendments to the Communications 
Satellite Act provided global maritime satellite communications. This 
organization is commonly known as Inmarsat.
---------------------------------------------------------------------------
    As satellite technology advanced, it became economically more 
feasible for private companies to develop global satellite systems. 
This occurred in part because of growing demand for communications 
services as well as falling costs for satellite system equipment. In 
particular, some domestic systems that were already in operation 
expressed interest in expanding into global markets. By the mid-1980s, 
the United States began encouraging the development of commercial 
satellite communications systems that would compete with INTELSAT. To 
do so under the INTELSAT treaty agreements, President Reagan determined 
that competing international satellite systems were required in the 
national interest of the United States.11 After that 
determination, domestic purchasers of international satellite 
communications services were allowed to use systems other than 
INTELSAT. In 1988, PanAmSat was the first commercial company to begin 
launching satellites in an effort to develop a global satellite system. 
Within a decade after PanAmSat first entered the market, INTELSAT faced 
other global satellite competitors. Moreover, intermodal competition 
emerged during the 1980s and 1990s as fiber optic networks were widely 
deployed on the ground and underwater to provide international 
communications services.
---------------------------------------------------------------------------
    \11\ See Presidential Determination Number 85-2.
---------------------------------------------------------------------------
    As competition to INTELSAT grew throughout the 1990s, commercial 
satellite companies became concerned that INTELSAT enjoyed certain 
advantages stemming from its intergovernmental status. In particular, 
the new satellite companies noted that INTELSAT enjoyed immunity from 
legal liability and was often not taxed in the various countries it 
served. Additionally, new competitors noted that the signatories to 
INTELSAT in many countries were typically government-owned 
telecommunications companies, and many were the regulatory authorities 
that made decisions on satellite access to their respective domestic 
markets. As such, new satellite companies were concerned that those 
entities, because of their ownership stake in INTELSAT as signatories, 
might favor INTELSAT and thus render entry for other satellite 
companies more difficult. Because of these concerns, competitors began 
to argue that the satellite marketplace would not become fully 
competitive unless INTELSAT became a private company that operated like 
any other company and no longer enjoyed any advantages.
    During the same time frame, some of the signatories to INTELSAT 
came to believe that certain of INTELSAT's obligations as an 
intergovernmental entity impeded its own market competitiveness. For 
example, decision-makers within INTELSAT became concerned that the 
cumbersome nature of the intergovernmental decision-making process left 
the company unable to rapidly respond to changing market conditions--a 
disadvantage in comparison with competing private satellite providers. 
In 1999, INTELSAT announced its decision to become a private 
corporation, but to leave in place a residual intergovernmental 
organization that would monitor the privatized Intelsat's remaining 
public service obligations.12
---------------------------------------------------------------------------
    \12\ The residual intergovernmental organization is known as the 
International Telecommunications Satellite Organization (ITSO).
---------------------------------------------------------------------------
  FCC BELIEVES INTELSAT'S PRIVATIZATION WAS CONSISTENT WITH THE ORBIT 
                           ACT'S REQUIREMENTS

    On July 18, 2001, INTELSAT transferred virtually all of its 
financial assets and liabilities to a private company called Intelsat, 
Ltd., a holding company incorporated in Bermuda. Intelsat, Ltd. has 
several subsidiaries, including a U.S.-incorporated indirect subsidiary 
called Intelsat LLC. Upon their execution of privatization, INTELSAT 
signatories received shares of Intelsat, Ltd. in proportion to their 
investment in the intergovernmental INTELSAT.13 Two months 
before the privatization, FCC determined that INTELSAT's privatization 
plan was consistent with the requirements of the ORBIT Act for a 
variety of reasons, including the following:
---------------------------------------------------------------------------
    \13\ In addition, some portion of the intergovernmental Intelsat 
was owned by nonsignatory--or ``investing''--entities, which also 
received pro rata shares in the new Intelsat, Ltd.

 Intelsat, Ltd.'s Shareholders' Agreement provided sufficient evidence 
        that the company would conduct an initial public offering 
        (IPO).
 Intelsat, Ltd. no longer enjoyed the legal privileges or immunities 
        of the intergovernmental INTELSAT.
 Both Intelsat, Ltd. and Intelsat LLC are incorporated in countries 
        that are signatories to the World Trade Organization (WTO) and 
        have laws that secure competition in telecommunications 
        services.
 Intelsat, Ltd. converted into a stock corporation with a fiduciary 
        board of directors.
 Measures were taken to ensure that a majority of the members of 
        Intelsat, Ltd.'s Board of Directors were not directors, 
        employees, officers, managers, or representatives of any 
        signatory or former signatory of the intergovernmental 
        INTELSAT.
 Intelsat, Ltd. and its subsidiaries had only arms-length business 
        relationships with certain other entities that obtained 
        INTELSAT's assets.14
---------------------------------------------------------------------------
    \14\ These entities include New Skies Satellites N.V., a spin-off 
company created approximately 1 year before the privatization of 
Intelsat that received some of INTELSAT's satellites, and the 
International Telecommunications Satellite Organization, the ongoing 
intergovernmental organization responsible for monitoring Intelsat, 
Ltd.'s continuing ``lifeline'' obligations, which received start-up 
funding from INTELSAT when it was privatized.
---------------------------------------------------------------------------
    In light of these findings, FCC conditionally authorized Intelsat 
LLC to use its U.S. satellite licenses to provide services within the 
United States.15 However, FCC conditioned this authorization 
on Intelsat, Ltd. conducting an IPO of securities as mandated by the 
ORBIT Act. In the past year, however, several changes have occurred 
that alter the circumstances and requirements associated with 
Intelsat's IPO. On August 16, 2004, Intelsat, Ltd. announced that its 
Board of Directors approved the sale of the company to a consortium of 
four private investors. According to an Intelsat official, this 
transaction, which was completed on January 28, 2005, eliminates former 
signatories' ownership in Intelsat. Additionally, on October 25, 2004, 
the President signed legislation modifying the requirements for 
privatization in the ORBIT Act. Specifically, Intelsat, Ltd. may forgo 
an IPO under certain conditions, including, among other things, 
certifying to FCC that it has achieved substantial dilution of the 
aggregate amount of signatory or former signatory financial interest in 
the company.16 FCC is still reviewing this transaction to 
determine whether Intelsat has met the requirements of the ORBIT Act as 
amended and thus is no longer required to hold an IPO.
---------------------------------------------------------------------------
    \15\ In its required annual reports to the Congress on the ORBIT 
Act, FCC has continued to report that Intelsat has complied with ORBIT 
Act provisions.
    \16\ In the law, significant dilution means that a majority of the 
financial interests in Intelsat is no longer held or controlled, 
directly or indirectly, by signatories or former signatories.
---------------------------------------------------------------------------
   WHILE MARKET ACCESS HAS IMPROVED, SOME COMPANIES SAY THAT CERTAIN 
                    MARKET ACCESS CHALLENGES REMAIN

    According to most stakeholders and experts we spoke with, access to 
non-U.S. satellite markets has generally improved during the past 
decade, which they generally attribute to global trade agreements and 
privatization trends. In particular, global satellite companies appear 
less likely now than they were in the past to encounter government 
restraints or business practices that limit their ability to provide 
service in non-U.S. markets. Satellite companies and experts we spoke 
with generally indicated that access to non-U.S. satellite markets has 
improved. Additionally, most stakeholders attributed this improved 
access to global trade agreements that helped to open 
telecommunications markets around the world, as well as to the trend 
toward privatization in the global telecommunications industry. At the 
same time, many stakeholders noted that the ORBIT Act had little to no 
impact on improving market access. According to several stakeholders, 
market access was already improving when the ORBIT Act was passed.
    Despite the general view that market access has improved, some 
satellite companies and experts expressed concerns that market access 
issues still exist. These remaining market access problems were 
attributed to foreign government policies that limit or slow satellite 
competitors' access to certain markets. For example:

 Some companies and experts we spoke with said that some countries 
        have policies that favor domestic satellite providers over 
        other satellite systems and that this can make it difficult for 
        nondomestic companies to provide services in these countries.
 Some companies and one expert we spoke with said that because some 
        countries carefully control and monitor the content that is 
        provided within their borders, the country's policies may limit 
        certain satellite companies' access to their market.
 Several companies and an expert we interviewed said that many 
        countries have time-consuming or costly approval processes for 
        satellite companies.17
---------------------------------------------------------------------------
    \17\ Some stakeholders we spoke with who made this point also noted 
that the same countries may have bureaucratic and costly processes for 
any foreign company--not just satellite or telecommunications 
companies--that wants to do business in their country.
---------------------------------------------------------------------------
    In addition to these government policies, some stakeholders believe 
that Intelsat may benefit from legacy business relationships. Since 
INTELSAT was the dominant provider of global satellite services for 
approximately 30 years, several stakeholders noted that Intelsat may 
benefit from the long-term business relationships that were forged over 
time, as telecommunications companies in many countries may feel 
comfortable continuing to do business with Intelsat as they have for 
years. Additionally, two stakeholders noted that because companies have 
plant and equipment as well as proprietary satellite technology in 
place to receive satellite services from Intelsat, it might cost a 
significant amount of money for companies to replace equipment in order 
to use satellite services from a different provider. Alternatively, 
representatives of Intelsat, Ltd. told us that Intelsat seeks market 
access on a transparent and nondiscriminatory basis and that Intelsat 
has participated with other satellite operators, through various trade 
organizations, to lobby governments to open their markets. Further, 
some companies and many of the experts we interviewed told us that, in 
their view, Intelsat does not have preferential access to non-U.S. 
satellite markets and that they have no knowledge that Intelsat in any 
way seeks or accepts exclusive market access arrangements or attempts 
to block competitors' access to non-U.S. satellite markets.
    Finally, some of the companies we spoke with believe that FCC 
should take a more proactive role in improving access for satellite 
companies in non-U.S. markets. For example, one satellite company said 
that section 648 of the ORBIT Act, which prohibits any satellite 
operator from acquiring or enjoying an exclusive arrangement for 
service to or from the United States, provides a vehicle for FCC to 
investigate the status of access for satellite companies to other 
countries' markets. Conversely, FCC officials told us they do not 
believe that FCC should undertake investigations of market access 
concerns without specific evidence of violations of section 648 of the 
ORBIT Act. While some comments filed with FCC in proceedings on 
Intelsat's licensing and for FCC's annual report on the ORBIT Act raise 
concerns about market access, FCC has stated that these filings amount 
only to general allegations and fall short of alleging any specific 
statutory violation that would form a basis sufficient to trigger an 
FCC enforcement action.
    Mr. Chairman, this concludes my prepared statement. I would be 
happy to respond to any questions you or other Members of the 
Subcommittee may have at this time.

    Mr. Upton. Well, thank you very much, all of you. And at 
this point, we will proceed with questions from the members, 
and not take more than 5 minutes each.
    As I look at what Congress has done over the last number of 
years, I agree with you, Ms. Hecker, I think it has been a 
success. And some might say we have achieved exactly the 
success, perhaps a little faster than some might have 
predicted, and historically as this panel has continually 
looked at the ORBIT Act and the way things have transformed 
itself for the last number of years, I guess the question today 
would be focusing on the re-affiliation prohibition, what Mr. 
Goldberg cited, and the ban, the 11-year ban that prohibits Mr. 
Goldberg's firm from re-affiliating at all, and that time clock 
really doesn't start, as I understand it, until the FCC says 
go. Is that right? Which is going to be relatively soon, I 
think. Is that right, Mr. Abelson? The first pitch is about 
ready to be thrown, it is not going to go extra innings?
    Mr. Abelson. Yes, that is correct.
    Mr. Upton. But the game is 11 years long. And the question 
that I think that Congress will ultimately look at as to 
whether or not that 11-year time clock is going to change. Is 
it going to become, as they say at Wrigley Field, a game called 
because of darkness, though they have lights now?
    And what we are going to take a look at, and I guess that 
is where my focus is, and I just want to know, maybe hear from 
each of you. Maybe we will start with Ms. Hecker since she was 
the last one to testify with her statement, and indicated that 
she didn't comment specifically about this provision, but would 
be willing to do so. What are the--do you think the marketplace 
is ready for this? That is the first question. And second, what 
are the--who would be against it? I am not aware of any, but 
maybe you have heard of some.
    Ms. Hecker.
    Ms. Hecker. Well, I----
    Mr. Upton. You have got to hit that mic button.
    Ms. Hecker. I would just use logic, because our work has 
not explicitly done that. But the way I looked at the Act, you 
had an intent when that provision was in there to prevent the 
subversion of the planned privatization of INTELSAT, and the 
emergence of competition. New Skies was a spin-off to try to 
spur that competition. But the reality is there are multiple 
firms, and that competition is there and they are all fully 
privatized. One is not anymore aligned with the former 
signatories than any of the others. And I think really the role 
of the antitrust laws and the FCC review, and perhaps even DOD 
review, because of some of the security issues, are really the 
mechanisms that perhaps appropriately apply at this stage to 
examine for the consolidation in this industry.
    Mr. Upton. Mr. Auckenthaler.
    Mr. Auckenthaler. Thank you, Mr. Chairman. I will not 
comment on the ban on re-affiliation between INTELSAT and New 
Skies, but I would like to ask that when you consider changing 
the law in that respect, you also look at the ban on re-
affiliation between Inmarsat and ICO. As you probably know, ICO 
went through Chapter 11 protection, came out in the year 2000. 
Now owned by a group of investors led by Craig McCaw. There is 
not commonality of ownership at all between ICO and Inmarsat. 
And I can think of no public policy reason why there should be 
a 15-year ban on any possible relationship between the two 
companies. Thank you.
    Mr. Upton. Mr. Spector.
    Mr. Spector. Mr. Chairman, if I may use your same metaphor 
about a baseball game, I think the nature of the game has very 
much changed from where we were back in 2000. And today, the 
marketplace is a very different one than the one that Congress 
envisioned back then. If you have two entirely private firms, 
each owned entirely by private investors, why should the 
Congress get in the middle and why should U.S. statutes get in 
the middle of that private decision about what those firms do. 
Obviously, there are laws on the books. The Sherman Act and 
other antitrust laws, the Communications Act and other laws 
administered by the FCC that would relate directly to any 
merger in the communications industry and that would be part of 
looking at any merger. But certainly from a marketplace 
standpoint, we believe that to be the case.
    I would also say on your question of who is against this 
that we don't know of anyone who is against getting rid of this 
re-affiliation prohibition, and we don't see how anyone really 
could be against it, because in the end, it is about 
competition and as we know in this Congress particularly has 
been a big supporter of competition. We don't know of anyone 
who is making the anti-competitive argument that somehow this 
law should remain on the books.
    Mr. Upton. Mr. Goldberg, would you agree with that 
conclusion?
    Mr. Goldberg. Yes, I share the perspective of the other 
panelists, which is the market is radically different. Again, I 
said unrecognizable from the time that ORBIT was passed. There 
are, I believe, adequate safeguards in terms of the antitrust 
laws, the FCC's public interest standards, and other oversight 
that is applied whenever there are combinations that implicate 
national security concerns. And again, our perspective is this: 
set aside just the privatization issues and how we think 
remarkable and extraordinary it is that there be a provision 
that absolutely prohibits two entirely commercial companies 
from combining, but the market is very, very aggressive today. 
It is very, very competitive. I think most industry observers 
anticipate that there will be some consolidation in our sector. 
And from our perspective, whether New Skies ultimately 
participates in that, I think it would be artificial to exclude 
INTELSAT from that equation. That is why we think the time has 
come for Congress to revisit that provision.
    Mr. Upton. Mr. Abelson, would you wish to comment?
    Mr. Abelson. Sure. The first thing I would say, of course, 
is that the Commission has not yet considered the matter that 
you are addressing. But then let me talk about what would 
happen if you were to change it, and what would the Commission 
do. In fact, we got a merger application from, for example, New 
Skies and INTELSAT, we would review the proposed merger 
pursuant to the relevant sections of the Communications Act, 
most particularly Section 310. And we normally in such a review 
undertake a public interest analysis and review the identity--
to try to identify both potential public interest harms and 
benefits. A Commission grant of the merger would, in fact, have 
to show that it served the public interest, convenience, and 
necessity. We would look at a number of things, including the 
likely competitive effects of the proposed transaction, whether 
such a transaction raises significant competition issues, and 
also the likely public interest benefits of it.
    Mr. Upton. My time is expired.
    Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman.
    Mr. Goldberg, what percentage of international 
telecommunications traffic is underseas and how much is 
satellite? Do you know?
    Mr. Goldberg. I cited in our written testimony a report 
that the FCC issued. I think it is their 2004 International 
Circuits report. And I believe at this point in time, again, 
according to the FCC's report, and I believe that what this 
looks at is international traffic between the United States and 
a foreign point. I understand that today--if you give me just 1 
second. Satellites, at least in 2003, the FCC hasn't issued the 
numbers for 2004. Satellites are carrying just 1 percent of 
international traffic. That is in contrast back to the time 
when--back in 1997 when there was a lot of activity here when 
ORBIT was first passed, at least by the House. At that time, 10 
percent of international traffic was carried by satellites. And 
this is another thing that we try to emphasize. Not only has 
the satellite industry become much, much more competitive 
because we have all launched collectively so much more 
capacity, but there is now 40 times more undersea fiber 
capacity than there was some years ago, and we have lost an 
enormous market share to the undersea fiber providers.
    Mr. Markey. Thank you.
    Mr. Spector, the previous owners of INTELSAT, which 
included several signatories, made a decision after the ORBIT 
Act to domicile the company for legal purposes in Bermuda, 
while keeping its headquarters here in DC. Are the new owners 
management reconsidering that decision to have the domicile in 
Bermuda?
    Mr. Spector. Mr. Markey, the short answer to that is no, 
but I want to point out in that context that INTELSAT was never 
a U.S. company. This is not an example, as with some companies, 
of a U.S. company moving offshore. INTELSAT was an 
intergovernmental organization headquartered in Washington, DC, 
and then when it became a private company, it began life as a 
Bermuda company.
    That is because INTELSAT's business, frankly, is all over 
the world. It is not just in the United States. And while we 
very much value the United States and do a lot of business 
here, as well as have a significant presence here in 
Washington, DC, we are an international company.
    Mr. Markey. Okay. Mr. Abelson, which country, in your 
estimation, is the worst about discrimination about satellite 
competition?
    Mr. Abelson. That is a very interesting question. I would 
have to actually defer to the trade representative that 
collects these kinds of complaints from U.S. industry. They 
filed--I believe they put out a report just 2 days ago on 
telecom trade----
    Mr. Markey. Did you read the report?
    Mr. Abelson. I did read the report. I don't think they 
cited any satellite issues in that report.
    Mr. Markey. Do you have any offhand idea as to which 
countries are the worst, a grouping of countries?
    Mr. Abelson. I really don't. We have looked at competition 
globally in the satellite industry, but with regard to the 
countries that are the worst, I don't have a way of knowing. I 
really rely on the companies to report to me what they were 
experiencing.
    Mr. Markey. But again, they might not want to anger the 
country.
    You are saying you really don't know, Mr. Abelson, which 
countries in the world discriminate against satellite 
competition? You really have no idea?
    Mr. Abelson. I have knowledge about the regulatory 
practices of foreign countries----
    Mr. Markey. Yeah, so which ones are bad?
    Mr. Abelson. Which countries have bad----
    Mr. Markey. Yeah, which companies have bad policies in the 
competition? That is your job, right?
    Mr. Abelson. My job is actually to look at competition here 
in the United States in the satellite industry.
    Mr. Markey. Okay.
    Mr. Abelson. And we have been doing a lot of work, as I 
have noted, to promote competition in this field.
    Mr. Markey. Yes. But you don't know what goes on in the 
world?
    Mr. Abelson. I rely upon the trade representative in the 
Commerce Department that are responsible for getting access 
overseas on these issues.
    Mr. Markey. Okay. Just this Monday, Mr. Abelson, the DC 
circuit heard the case of Northpoint Communications versus the 
FCC on an issue stemming from the ORBIT Act's prohibition on 
auctioning licenses for satellite frequencies. Is the FCC 
seeking any clarification or change to this provision?
    Mr. Abelson. At this point, the Commission has not 
considered the matter of whether to seek change to this 
provision. Our position with regard to the ORBIT Act and the 
court case that you referred to is that the exemption applies 
only to global or international satellite systems.
    Mr. Markey. I actually--and I will be honest with you. I 
wish we had an 11-year or a 15-year prohibition on MA Bell re-
affiliating after the Telecom Act. That would have been a good 
addition to have built into the law. And I do understand that 
the satellite market has become widely competitive, and 
therefore, worth revisiting these prohibitions. And I am open-
minded about it, Mr. Chairman, about making adjustments, and 
perhaps on some other issues as well.
    Mr. Upton. Thank you.
    Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Again, it is great to listen and to follow up on the 
testimony. I am trying to figure out how I can extend my 
comments to the kids, you know, as I have used this example in 
the past. And I think the conclusion is we were successful, but 
as in most pieces of legislation, we have to re-look and we 
have to retune and we have to manage that. And that is what 
this hearing is about. And I think we have already identified 
some things that just don't quite make sense anymore. And 
hopefully, we will be able to resolve that.
    I know I have been involved on the peripheral with some of 
the extensions, because as was mentioned before by Mr. 
Auckenthaler, of a John Deere and their technology. And I was 
talking to Mr. Terry, who was by me before, and just the 
amazing things that are capable about the self-directing 
tractors and the evaluation of soil composition. And for my 
environmental friends, the ability to specifically identify the 
needed land piece and the fertilizer or the component in that 
soil so you don't overspread. And this is all being self-
directed without, really, an operator in a tractor. It is just 
phenomenal. At night, with no lights on. So that is the new 
era, that is the new world, and competition brings that to 
bear.
    I have also, with the military background, understand, 
really, the benefits to our men and women in the Armed Services 
of the access to a competitive satellite system. And I don't 
think, a lot of times, what we understand, because the 
Department of Defense is huge and unruly, and really gets beat 
up a lot of times for inefficiencies and cost over-rise that--I 
think there are claims being made and I believe in that, 
because they are using a for-profit satellite system and 
carrier that there are cost benefits versus the Defense 
Department's management of that satellite system to begin with.
    So I appreciate this, and this is more of an opening 
statement, but the question I do have, and as a reservist, I do 
work with the Army War College, and we bring these general 
wannabe's before and we grill them. I get some of my colleagues 
to help. And we always try to bring in questions that are not 
particularly what they are prepared for, just to shake them up 
and to realize that once you are at a Congressional hearing, 
anything can be asked.
    So I throw this question out, just because of--it is one 
that I have and you may not be able to answer it, but I have 
always been concerned on our reliance on technology, both for 
the world and for the military, because of, you know, threats 
to disruption. Talk to me about electromagnetic pulses and what 
would that do to the world economy, or really, a digitized 
battlefield today which really, the Army is going to. Is there 
a fear that--I mean, that just kind of send us into the dark 
ages again? Can anyone speak on that?
    Mr. Goldberg. I can tell you that the commercial satellite 
operators right now are engaged in well over a year long effort 
with the Department of Defense. In fact, there was a follow up 
meeting just 2 weeks ago over at the Pentagon where we are 
working with the Department of Defense to increasingly 
integrate our commercial operations with their military 
operations on lots of different levels. They are, today, 
looking at procurement form, how they go about procuring 
commercial satellite capacity for their requirements. They are 
looking at sort of safety and protection issues, including both 
our actual terrestrial facilities, so making sure that our 
Earth station facilities have proper security, as well as of 
the satellites themselves. How can the satellites be operated 
in a more secure way?
    We are looking at encrypted TT&C, the telemetry and control 
of the satellites, so this is actually an area--the Department 
of Defense is increasingly relying on the commercial satellite 
industry, which we think is a good thing, and it is very much 
consistent with the Congressional mandate that they received to 
stop doing everything themselves. As part of that, they are 
insisting that we work more closely with them to address some 
of these security concerns.
    I can't speak directly to what would be the impact of an 
electromagnetic sort of pulse or surge, but I can tell you that 
there is an ongoing conversation right now between the 
commercial providers and our military customers to make sure 
that the satellites that they rely on are as robust as 
possible.
    Mr. Shimkus. And just for, you know, just to be clear. You 
know, that is primarily from a nuclear air burst in the 
atmosphere that would do that, and I think that is a major 
concern. It has been a concern for the military for a long 
time, and we are so reliant now on the interconnectivity and 
the use of satellites for everything: for banking, for--I just 
throw it out there. And if there is times when your folks can 
come back and talk to me about that, I would receive it happily 
and readily.
    Thank you, Mr. Chairman. I yield back.
    Mr. Upton. Thank you.
    Mr. Inslee.
    Mr. Inslee. Thank you, Mr. Goldberg. I am new on this 
committee, so some of this discussion may be repetitive.
    But I just want to ask you, in your comments that I was 
reading just about the potential merger that you have 
discussed, is there anything that critics would argue especial 
about this space, so to speak, literally and figuratively, that 
would make this different from other mergers of other privately 
held or publicly held companies at this point? What arguments 
would be made, and how would you respond to them?
    Mr. Goldberg. You know, it is always hard to speculate as 
to, you know, what someone would come along and say. I do 
believe that our industry is going to consolidate. I do believe 
that will be a healthy development for our industry. I do 
believe that any proposed combinations will get significant 
scrutiny over at the FCC and at the Justice Department or at 
the FTC.
    New Skies, I have been at New Skies since its inception. In 
looking back over the years, it was always difficult for me to 
project that we would be where we are today. Equally projecting 
forward, it is still hard for me to say where we will be next. 
New Skies is the smallest global operator, but we are larger 
than a number of regional operators. As a result, if there is 
consolidation and we participate in it, we ourselves could try 
to achieve scale to put us in a better competitive position 
relative to our bigger competitors. Equally, I think New Skies 
would, from the perspective of some of the larger operators, be 
a compelling company to combine with.
    I don't believe that any arguments that would be presented 
in connection with a proposed INTELSAT/New Skies combination 
would really be meaningfully different from the same arguments 
that would arise if New Skies were proposing to combine with 
any of the other larger operators.
    And so, I don't believe that there is anything unique about 
our competitive position and INTELSAT's competitive position 
that would bring extraordinary arguments to bear. Candidly, I 
think if it were proposed that we combine with one of the other 
two global operators, I think we would be looking at 
essentially the same set of arguments. To the extent that 
anybody does come forward and offer any opposition, and I am 
not persuaded in light of what the industry looks like today, 
that anybody would come forward and offer those objections.
    Mr. Inslee. So is it fair to say that you--and I welcome 
any other comments from the panel--basically look at this 
industry, you would suggest to us that at this point, we really 
should have no different regimen of protocols in how we handle 
merger than we do the dog food market or trucking industry or 
anything else. Is that kind of a fair statement, or is there 
some gradiations there we should think about?
    Mr. Goldberg. I think that, you know, if the dog food 
market consolidates, I am not sure what sort of national 
security implications that has, but the satellite industry will 
attract heightened scrutiny because of the national security 
implications that arise because of the services that we 
provide.
    But do I believe that there should be a fundamentally 
different approach to how proposed combinations in the 
satellite sector are reviewed relative to the terrestrial 
wireless sector, the fixed line telecom network? From my 
perspective, no, I don't believe that there should be any sort 
of extraordinary review or anything fundamentally different, 
particularly in light of the fact that satellites are 
increasingly competing with these other technologies.
    Mr. Spector. Mr. Inslee, if I may, I would also add that a 
difference from the dog food industry or many other industries 
is that we do have, as was discussed earlier, FCC reviews. So 
in addition to the typical Justice Department or FTC review of 
a merger, you are always going to get a second look at a merger 
by the Federal Communications Commission under a very broad 
ranging public interest standard.
    Mr. Inslee. Well, thank you very much, and any time you 
want some help buying some more Boeing products, let me know 
and I will give you a hand. Thanks a lot.
    Mr. Spector. We are buying a satellite from them.
    Mr. Upton. Thank you.
    Mr. Shimkus, do you have additional questions?
    Mr. Shimkus. No, Mr. Chairman.
    Mr. Upton. Mr. Markey?
    Mr. Markey. You know what, if I may?
    Each of you just give us a 1-minute summation of why a 
merger is a good idea or not a good idea. One minute. Mr. 
Abelson.
    Mr. Abelson. I can be very quick. I can't give you an idea 
about whether it would be a good or a bad thing, but if it were 
presented to us at the FCC, we would very seriously consider 
it.
    Mr. Markey. Mr. Goldberg.
    Mr. Goldberg. I believe the industry today is unhealthy. I 
believe that the negative consequences of that are that the 
industry is losing jobs. We are not attracting the best quality 
of people to come into this sector. I believe that some 
satellite operators have gone bankrupt over the past few years. 
I think the industry is unhealthy. I do believe that 
consolidation will help the industry, and not just our 
industry, but the downstream providers, the Boeings who build 
satellites for us, the Lockheed's. I think that the world is 
fundamentally different than it was when ORBIT was passed, and 
I think that it is time to revisit ORBIT.
    Mr. Markey. Mr. Spector.
    Mr. Spector. INTELSAT has certainly not decided whether a 
merger with New Skies would be a good thing or a bad thing for 
us. What we do know is that the current flat statutory 
prohibition on such a merger is a bad thing, and that it 
artificially inhibits what would otherwise be a natural 
competitive process of looking at all of the options for both 
of these companies.
    Mr. Markey. Mr. Auckenthaler.
    Mr. Auckenthaler. Thank you, Mr. Markey. I would echo what 
Mr. Spector said. My company is not actively considering 
whether to discuss a merger with ICO. I only would say that 
there is no--in my view, no public policy need for any special 
constraints on that kind of commercial activity, and that 
normal reviews that would occur at the FCC and the Justice 
Department and in the siphious process would be sufficient.
    Thank you.
    Mr. Markey. Thank you.
    Ms. Hecker.
    Ms. Hecker. The original purpose for the re-affiliation 
prohibition seems to have been taken over by time. It seems to 
be no longer relevant. Both firms have been fully divested of 
any signatory or former signatory ownership, and there is a 
good case that can be made that any restrictions on constraints 
on the consolidation of these firms really prevents the market 
from coming up with the most efficient and market-based result.
    Mr. Markey. Thank you, Ms. Hecker, very much. We thank all 
of you.
    Mr. Chairman, in my 22 years experience on this subject, 
because of the excitement attached to it--this is actually the 
largest crowd we have ever had attend a hearing on this 
subject. And with Mr. Inslee and Mr. Shimkus here, the largest 
number of members to ever show up and stay at a hearing on this 
subject. So we thank each of you for your riveting testimony. 
We appreciate it.
    Mr. Upton. Yes. We have been notified, not by satellite, 
but by Blackberry, that we are expecting votes on the House 
floor momentarily, a series of votes.
    I want to join Mr. Markey and others for thanking you for 
your testimony and the great lengths that you took to get here 
today and yesterday. Again, we appreciate your testimony. We 
look forward to continuing to oversee exactly what happened and 
examine the marketplace, and look forward to hearing from you 
in the months ahead. I thank you all.
    We now adjourn the hearing.
    [Whereupon, at 11:23 a.m., the subcommittee was adjourned.]

                                 
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