[Congressional Record Volume 144, Number 65 (Wednesday, May 20, 1998)]
[Extensions of Remarks]
[Pages E908-E909]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                H.R. 1872--SATELLITE REFORM LEGISLATION

                                 ______
                                 

                            HON. TOM BLILEY

                              of virginia

                    in the house of representatives

                        Wednesday, May 20, 1998

  Mr. BLILEY. Mr. Speaker, two weeks ago the House overwhelmingly 
approved legislation to procompetitively privatize the 
intergovernmental satellite organizations--INTELSAT and Inmarsat--that 
dominate international satellite communications today. This 
legislation, H.R. 1872, garnered near unanimous support of the House, 
which demonstrates the bipartisan commitment of this body to enact this 
form of satellite reform legislation this Congress.
  During the debate on the bill, there was considerable discussion on 
whether the bill could be ruled a ``taking'' of COMSAT's property. The 
House soundly rejected this notion. Absent from that debate, however, 
was an important commentary done by Mr. George L. Priest, former member 
of President Reagan's Commission on Privatization and now the Olin 
Professor of Law and Economics at Yale Law School. Mr. Priest conducted 
an analysis of the takings issue regarding H.R. 1872 which he reflected 
in a lengthy monograph. This monograph was circulated to Members prior 
to the debate on the bill and a similar version has been subsequently 
published in the May 11, 1998, issue of Space News in an article 
entitled ``Breaking Comsat's Hold.'' In summary, Mr. Priest concluded 
that COMSAT's takings argument ``will not hold legal water.''
  I think the House would benefit from Mr. Priest's viewpoint on this 
important matter and I ask that it, along with a letter from the 
Washington Legal Foundation and a letter from United States Trade 
Representative Ambassador Charlene Barshefsky relating to a World Trade 
Organization issue discussed in the debate, be included in the 
Congressional Record at this point.

                    [From Space News, May 11, 1998]

                         Breaking Comsat's Hold

                         (By George L. Priest)

       In recent weeks, several commentators including Comsat and 
     supporters such as Nancie G. Marzulla in an op-ed piece 
     entitled ``Deregulation or Plain Old Theft,'' Washington 
     Times, April 27, have argued that legislation introducing 
     competition in the international telecommunications satellite 
     industry constitutes a taking under the U.S. Constitution's 
     5th Amendment, which would require the government to 
     compensate Comsat for all its losses if Congress has the 
     nerve to pass the bill.
       In principle, I applaud the defense of private property 
     rights against government intrusion. But Comsat and Ms. 
     Marzulla mistake protection of property rights with the 
     protection of monopoly and confuse the defense of investor 
     expectations with the deregulation of a telecommunications 
     monopoly to expand services and enhance consumer welfare.
       Comsat was created by the Satellite Act of 1962, which, 
     like much activist legislation of that era, derived from the 
     view that government-controlled investment buttressed by 
     heavy regulation was superior to private-market initiative in 
     developing industries. Indeed, the Satellite Act took this 
     thinking to the next level: If heavy regulation by the U.S. 
     government was needed for U.S. satellite investment, then 
     heavier, worldwide intergovernmental regulation was needed 
     for international satellite investment.
       Thus, the Satellite Act tackled the problem of ``too few 
     satellite communications facilities'' by establishing Comsat 
     as the U.S. participant in an international satellite venture 
     known as Intelsat.
       Intelsat, in turn, is owned mostly by government-owned or 
     protected telephone monopolies. In essence, Intelsat controls 
     satellite facilities that possess dominant positions over 
     much of the world to which Comsat has exclusive--which is to 
     say, monopoly--access in the United States.
       Comsat and Intelsat, in fact, are among the last vestiges 
     of exclusive governmental monopolies, at least in the United 
     States. They have retained their near-monopoly position 
     despite the general deregulation of industry that began in 
     the late 1970s and 1980s in the United States, not to mention 
     the vast privatization of government enterprise proceeding 
     worldwide.
       Intelsat operates the world's largest satellite fleet, 
     comprising 24 satellites in prime geostationary orbital 
     locations. Moreover, Intelsat and Comsat enjoy a host of 
     competitive advantages because of their intergovernmental or 
     quasi-governmental status.
       Intelsat is completely immune from U.S. antitrust laws. It 
     has preferential access to new orbital locations, and is 
     exempt from myriad U.S. Federal Communications Commission 
     regulatory requirements that apply to private satellite 
     competitors.
       In addition, Intelsat and Comsat have competitive 
     advantages by virtue of Intelsat's ownership structure. 
     Intelsat's owners have a financial stake in denying overseas 
     access to competitors. Each use of a private, international 
     satellite to access a foreign country reduces the financial 
     dividend from satellite services that would otherwise flow to 
     that country's Intelsat signatory. Private U.S. satellite 
     companies, as a consequence, continue to be shut out of many 
     foreign markets.
       Within the last decade and a half, most American consumers 
     has received direct and dramatic benefits from the breakup of 
     the AT&T monopoly, a breakup which gave rise to an 
     extraordinary flowering of new telecommunications services. 
     Unleashing competition in the international 
     telecommunications satellite industry holds similar promise.
       The neglect of satellite competition, however, appears to 
     have ended. The U.S. House of Representatives May 6 passed 
     legislation sponsored by Rep. Thomas J. Bliley (R-Va), 
     chairman of the House Commerce Committee and Rep. Edward J. 
     Markey (D-Mass.), ranking minority member of the committee, 
     that would require Comsat to compete in the satellite market 
     stripped of its government-conferred privileges and 
     immunities.
       Comsat has battled these efforts, claiming that the 
     legislation constitutes a breach of the 1962 Satellite Act 
     contract, an unfair disappointment of reasonable investor 
     expectations and, most dramatically, a compensable taking 
     under the 5th Amendment. In rhetoric, these appear to be 
     good conservative positions: All conservatives believe in 
     protecting investor expectations and compensating victims 
     of breach of contract or of governmental takings. These 
     principles, however, are horribly misapplied with respect 
     to Comsat and Intelsat.
       Every monopoly in history has complained about damage from 
     competition.
       Indeed, Comsat's complaints could be taken verbatim from 
     the 1602 Case of Monopolies in which the person to whom Queen 
     Elizabeth had granted a monopoly over the sale of playing 
     cards protested when the English Parliament introduced 
     competition.
       Standard Oil back in 1911 complained about impairment of 
     contracts and disappointment of expectations when the Justice 
     Department sought to break it up. The courts in 1602 and in 
     1911 rejected those arguments, establishing and encouraging 
     the competitive economy we enjoy today.
       It is not conservative policy to protect the property 
     rights of a monopolist. From Adam Smith to the Chicago School 
     more recently, true conservatives know the benefits of the 
     maximum competitive order, compelling the break-up of 
     monopolies or cartels to engender the most vigorous 
     competition possible.
       The Bliley-Markey legislation may not go far enough in this 
     regard.
       Although the legislation appropriately encourages the 
     break-up of Intelsat, it does not specify the number of 
     competing entities to result (three or four are a minimum to 
     establish long-term competition), and the deadline it sets 
     for the break-up--January 2002--is unnecessarily protracted.
       Once agreement is reached, Intelsat could be broken up 
     within short months, unleashing competitive energies 
     immediately. Nevertheless, the bill's reduction of Comsat's 
     governmental privileges and the opening-up of potential entry 
     are surely important first steps.
       The notion that this legislation violates the 5th Amendment 
     will not hold legal water. The 1962 Satellite Act contains a 
     provision that reserves the right of Congress to repeal, 
     alter or amend the act. Even without this provision, this 
     case is far different from the recent decision--loudly 
     invoked by Comsat--in which the Supreme Court held that 
     various savings and loan associations could sue the 
     government for breach of contract when Congress enacted 
     the Federal Institutions Reform, Recovery, Enforcement Act 
     of 1989.
       In the savings and loan cases, in order to induce a solvent 
     savings and loan to take over one that had failed, the 
     Federal Home Loan Bank Board promised a favorable accounting 
     treatment that made the acquisition profitable. Congress 
     later renounced the accounting treatment. The Supreme Court

[[Page E909]]

     held that, in the earlier contract, the government had 
     expressly assumed the risk of the regulatory change that 
     Congress subsequently enacted.
       There is no parallel with respect to international 
     satellites. One cannot construe the 1962 Satellite Act as a 
     governmental assumption of all risks of subsequent regulatory 
     changes with regard to international satellites. This is 
     particularly obvious when Congress incorporates into a law as 
     it did in the Satellite Act a provision reserving the right 
     to repeal, alter or amend the law.
       It is an interesting but unanswerable historical question 
     whether the international telecommunications satellite 
     industry would be more advanced and developed today if 
     Congress had kept out of the business in 1962 and allowed the 
     private market to develop on its own. I believe it would, 
     though that is largely beside the point now.
       The conservative (as well as liberal) agenda here, as in 
     all other areas of economic life, is for the U.S. government 
     and governments around the world to reduce their regulatory 
     role, especially where that role is to protect an entrenched 
     monopoly.
       Congress must withdraw the deadening hand of the 1962 
     Satellite Act and introduces maximum competition in the 
     international telecommunications satellite industry to the 
     benefit of all consumers.


     
                                  ____
                                  Washington Legal Foundation,

                                      Washington, DC, May 5, 1998.
     Hon. Tom Bliley,
      Chairman, Committee on Commerce, House of Representatives, 
         Rayburn House Office Building, Washington, DC.
       Dear Chairman Bliley: This is in response to your letter 
     requesting a clarification of WLF's views regarding the 
     ``Communications Satellite Competition and Privatization 
     Act'' in light of concerns that WLF's views have been 
     mischaracterized.
       I want to make it very clear that the Washington Legal 
     Foundation does not in any way oppose your bill or in any 
     manner support amendments to your bill.
       WLF does not engage or participate in any lobbying activity 
     whatsoever. In fact, some members of WLF's own Advisory 
     Boards disagree with WLF's legal analysis of the Takings 
     Clause in connection with this legislation.
       Unfortunately, when we sent our analysis to the Members who 
     requested it, we did not anticipate that it would be used as 
     the basis for any legislative tactics or strategy which would 
     oppose your satellite reform bill. We take no legislative 
     position whatsoever.
       We are grateful for your leadership on free enterprise 
     issues and appreciate the opportunity to clarify this matter 
     with you.
           Sincerely,
                                                  Daniel J. Popeo,
                                                  General Counsel.


     
                                  ____
         Executive Office of the President, Office of the United 
           States Trade Representative,
                                Washington, DC, February 12, 1997.
     Mr. Frederick A. Landman,
     President and Chief Executive Officer, PanAmSat Corporation, 
         Greenwich CT.
       Dear Mr. Landman: I am writing in reply to a letter of 
     January 31, 1997, from your legal counsel, regarding the 
     negotiations on basic telecommunications services at the 
     World Trade Organization. The U.S. goal in these negotiations 
     is to strengthen the ability of the U.S. satellite services 
     industry to compete globally, and on a level playing field, 
     with the inter-governmental satellite services organizations 
     and with satellite service providers of other countries.
       The United States has taken a number of steps to make 
     certain that our key trade partners provide market access for 
     satellite-based delivery of basic telecom services. Based on 
     a note issued by the chairman of the negotiations in 
     November, 1996, which has become part of the formal record of 
     the proceedings, we have clarified the scheduling approach 
     with regard to satellites. As a result, close to forty 
     countries have made offers that would provide full market 
     access for satellite-based delivery of all scheduled 
     services, on an immediate or phased-in basis.
       WTO members that make specific commitments on satellites 
     will be subject to allocating and assigning frequencies in 
     accordance with the principles of most-favored-nation and 
     national treatment, as well as in accordance with the 
     requirement for domestic regulations in the General Agreement 
     on Trade in Services. Almost all of the countries making full 
     satellite commitments have also adopted the reference paper 
     on pro-competitive regulatory commitments. As a result, they 
     will be obligated to provide additional regulatory safeguards 
     with respect to allocation and use of radio frequencies.
       A successful agreement on basic telecom services would also 
     obligate those countries which have not made satellite 
     commitments to provide treatment no less favorable to 
     satellite service providers of the United States than the 
     treatment provided to service suppliers of other countries. 
     This would apply, for example, to how WTO members reach 
     decisions regarding new market access arrangements involving 
     service suppliers of other countries.
       I share your deep concern regarding the possible distortive 
     impact on competition in the U.S. satellite services market 
     of certain proposals for restructuring INTELSAT. The United 
     States has proposed a restructuring of INTELSAT that would 
     lead to the creation of an independent commercial affiliate, 
     INTELSAT New Corporation (INC). If made independent, the 
     United States believes that the creation of INC will enhance 
     competition and help ensure the continuation States believes 
     that the creation of INC will enhance competition and help 
     ensure the continuation of INTELSAT's mission of global 
     connectivity for core services. As you are aware, however, 
     many INTELSAT members are resisting the idea of 
     independence for INC and we believe that a failure to 
     achieve independence could adversely affect competition in 
     the U.S. satellite services market. In the WTO 
     negotiations we have taken pains to preserve our ability 
     to protect competition in the U.S. market.
       Our legal conclusion, for which there is a consensus among 
     participants in the WTO negotiations, is that the ISOs do not 
     derive any benefits from a GBT agreement because of their 
     status as treaty-based organizations. The status of ISOs was 
     discussed in detail in the GBT multilateral sessions. No 
     delegation in the GBT negotiations has contested this 
     conclusion.
       We have also concluded that the United States cannot be 
     forced to grant a license to a privatized ISO (should the ISO 
     change its treaty status and incorporate in a country) or to 
     a future privatized affiliate, subsidiary or other form of 
     spin-off from the ISO. Existing U.S. communications and 
     antitrust law, regulation, policy and practice will continue 
     to apply to license applicants if a GBT deal goes into 
     effect. Both Department of Justice and FCC precedent evidence 
     long-standing concerns about competition in the U.S. market 
     and actions to protect that competition. We have made it 
     clear to all our negotiating partners in the WTO that the 
     United States will not grant market access to a future 
     privatized affiliate, subsidiary or other form of spin-off 
     from the ISOs, that would likely lead to anti-competitive 
     results.
       It has always been U.S. practice to defend vigorously any 
     challenge in the WTO to allegations that U.S. measures are 
     inconsistent with our WTO obligations. There is no question 
     that we would do the same for any FCC decision to deny or 
     condition a license to access an ISO or a future privatized 
     affiliate, subsidiary or other form of spin-off from the ISO. 
     For your information, Section 102(c) of the Uruguay Round 
     Agreements Act, specifically denies a private right of action 
     in U.S. courts on the basis of a WTO agreement. Therefore, a 
     FCC decision is not subject to judicial review in U.S. courts 
     based upon a WTO agreement, such as the General Agreement on 
     Trade in Services.
       The United States is confident that it would win if a U.S. 
     decision went to WTO dispute settlement. If the United States 
     did not prevail, however, we would not allow trade 
     retaliation measures to deter us from protecting the 
     integrity of U.S. competition policy.
       I appreciate the support your firms' representatives have 
     expressed for our objectives in the WTO negotiations.
           Sincerely,

                                          Charlene Barshefsky,

                                               United States Trade
                                        Representative--Designate.

     

                          ____________________