[House Report 105-494]
[From the U.S. Government Publishing Office]
105th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 105-494
_______________________________________________________________________
COMMUNICATIONS SATELLITE COMPETITION AND PRIVATIZATION ACT OF 1998
_______
April 27, 1998.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______________________________________________________________________
Mr. Bliley, from the Committee on Commerce, submitted the following
R E P O R T
together with
ADDITIONAL AND DISSENTING VIEWS
[To accompany H.R. 1872]
[Including cost estimate of the Congressional Budget Office]
The Committee on Commerce, to whom was referred the bill
(H.R. 1872) to amend the Communications Satellite Act of 1962
to promote competition and privatization in satellite
communications, and for other purposes, having considered the
same, report favorably thereon with an amendment and recommend
that the bill as amended do pass.
CONTENTS
Page
Amendment........................................................ 2
Purpose and Summary.............................................. 12
Background and Need for Legislation.............................. 13
Hearings......................................................... 31
Committee Consideration.......................................... 32
Rollcall Votes................................................... 32
Committee Oversight Findings..................................... 36
Committee on Government Reform and Oversight..................... 36
New Budget Authority, Entitlement Authority, and Tax Expenditures 36
Committee Cost Estimate.......................................... 36
Congressional Budget Office Estimate............................. 36
Federal Mandates Statement....................................... 40
Advisory Committee Statement..................................... 40
Constitutional Authority Statement............................... 40
Applicability to Legislative Branch.............................. 40
Section-by-Section Analysis of the Legislation................... 40
Changes in Existing Law Made by the Bill, as Reported............ 66
Additional and Dissenting Views.................................. 82
Amendment
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Communications Satellite Competition
and Privatization Act of 1998''.
SEC. 2. PURPOSE.
It is the purpose of this Act to promote a fully competitive global
market for satellite communication services for the benefit of
consumers and providers of satellite services and equipment by fully
privatizing the intergovernmental satellite organizations, INTELSAT and
Inmarsat.
SEC. 3. REVISION OF COMMUNICATIONS SATELLITE ACT OF 1962.
The Communications Satellite Act of 1962 (47 U.S.C. 101) is amended
by adding at the end the following new title:
``TITLE VI--COMMUNICATIONS COMPETITION AND PRIVATIZATION
``Subtitle A--Actions To Ensure Procompetitive Privatization
``SEC. 601. FEDERAL COMMUNICATIONS COMMISSION LICENSING.
``(a) Licensing for Separated Entities.--
``(1) Competition test.--The Commission may not issue a
license or construction permit to any separated entity, or
renew or permit the assignment or use of any such license or
permit, or authorize the use by any entity subject to United
States jurisdiction of any space segment owned, leased, or
operated by any separated entity, unless the Commission
determines that such issuance, renewal, assignment, or use will
not harm competition in the telecommunications market of the
United States. If the Commission does not make such a
determination, it shall deny or revoke authority to use space
segment owned, leased, or operated by the separated entity to
provide services to, from, or within the United States.
``(2) Criteria for competition test.--In making the
determination required by paragraph (1), the Commission shall
use the licensing criteria in sections 621 and 623, and shall
not make such a determination unless the Commission determines
that the privatization of any separated entity is consistent
with such criteria.
``(b) Licensing for INTELSAT, Inmarsat, and Successor Entities.--
``(1) Competition test.--The Commission shall substantially
limit, deny, or revoke the authority for any entity subject to
United States jurisdiction to use space segment owned, leased,
or operated by INTELSAT or Inmarsat or any successor entities
to provide non-core services to, from, or within the United
States, unless the Commission determines--
``(A) after January 1, 2002, in the case of INTELSAT
and its successor entities, that INTELSAT and any
successor entities have been privatized in a manner
that will not harm competition in the
telecommunications markets of the United States; or
``(B) after January 1, 2001, in the case of Inmarsat
and its successor entities, that Inmarsat and any
successor entities have been privatized in a manner
that will not harm competition in the
telecommunications markets of the United States.
``(2) Criteria for competition test.--In making the
determination required by paragraph (1), the Commission shall
use the licensing criteria in sections 621, 622, and 624, and
shall not make such a determination unless the Commission
determines that such privatization is consistent with such
criteria.
``(3) Clarification: competitive safeguards.--In making its
licensing decisions under this subsection, the Commission shall
consider whether users of non-core services provided by
INTELSAT or Inmarsat or successor or separated entities are
able to obtain non-core services from providers offering
services other than through INTELSAT or Inmarsat or successor
or separated entities, at competitive rates, terms, or
conditions. Such consideration shall also include whether such
licensing decisions would require users to replace equipment at
substantial costs prior to the termination of its design life.
In making its licensing decisions, the Commission shall also
consider whether competitive alternatives in individual markets
do not exist because they have been foreclosed due to
anticompetitive actions undertaken by or resulting from the
INTELSAT or Inmarsat systems. Such licensing decisions shall be
made in a manner which facilitates achieving the purposes and
goals in this title and shall be subject to notice and comment.
``(c) Additional Considerations in Determinations.--In making its
determinations and licensing decisions under subsections (a) and (b),
the Commission shall take into consideration the United States
obligations and commitments for satellite services under the Fourth
Protocol to the General Agreement on Trade in Services.
``(d) Independent Facilities Competition.--Nothing in this section
shall be construed as precluding COMSAT from investing in or owning
satellites or other facilities independent from INTELSAT and Inmarsat,
and successor or separated entities, or from providing services through
reselling capacity over the facilities of satellite systems independent
from INTELSAT and Inmarsat, and successor or separated entities. This
subsection shall not be construed as restricting the types of contracts
which can be executed or services which may be provided by COMSAT over
the independent satellites or facilities described in this subsection.
``SEC. 602. INTELSAT OR INMARSAT ORBITAL LOCATIONS.
``(a) Required Actions.--Unless, in a proceeding under section
601(b), the Commission determines that INTELSAT or Inmarsat have been
privatized in a manner that will not harm competition, then--
``(1) the President shall oppose, and the Commission shall
not assist, any registration for new orbital locations for
INTELSAT or Inmarsat--
``(A) with respect to INTELSAT, after January 1,
2002, and
``(B) with respect to Inmarsat, after January 1,
2001, and
``(2) the President and Commission shall, consistent with the
deadlines in paragraph (1), take all other necessary measures
to preclude procurement, registration, development, or use of
new satellites which would provide non-core services.
``(b) Exception.--
``(1) Replacement and previously contracted satellites.--
Subsection (a) shall not apply to--
``(A) orbital locations for replacement satellites
(as described in section 622(2)(B)), and
``(B) orbital locations for satellites that are
contracted for as of March 25, 1998, if such satellites
do not provide additional services.
``(2) Limitation on exception.--Paragraph (1) is available
only with respect to satellites designed to provide services
solely in the C and Ku, for INTELSAT, and L, for Inmarsat,
bands.
``SEC. 603. ADDITIONAL SERVICES AUTHORIZED.
``(a) Services Authorized During Continued Progress.--
``(1) Continued authorization.--The Commission may issue an
authorization, license, or permit to, or renew the license or
permit of, any provider of services using INTELSAT or Inmarsat
space segment, or authorize the use of such space segment, for
additional services (including additional applications of
existing services) or additional areas of business, subject to
the requirements of this section.
``(2) Additional services permitted under new contracts
unless progress fails.--If the Commission makes a finding under
subsection (b) that conditions required by such subsection have
not been attained, the Commission may not, pursuant to
paragraph (1), permit such additional services to be provided
directly or indirectly under new contracts for the use of
INTELSAT or Inmarsat space segment, unless and until the
Commission subsequently makes a finding under such subsection
that such conditions have been attained.
``(3) Prevention of evasion.--The Commission shall, by rule,
prescribe means reasonably designed to prevent evasions of the
limitations contained in paragraph (2) by customers who did not
use specific additional services as of the date of the
Commission's most recent finding under subsection (b) that the
conditions of such subsection have not been obtained.
``(b) Requirements for Annual Findings.--
``(1) General requirements.--The findings required under this
subsection shall be made, after notice and comment, on or
before January 1 of 1999, 2000, 2001, and 2002. The Commission
shall find that the conditions required by this subsection have
been attained only if the Commission finds that--
``(A) substantial and material progress has been made
during the preceding period at a rate and manner that
is probable to result in achieving pro-competitive
privatizations in accordance with the requirements of
this title; and
``(B) neither INTELSAT nor Inmarsat are hindering
competitors' or potential competitors' access to the
satellite services marketplace.
``(2) First finding.--In making the finding required to be
made on or before January 1, 1999, the Commission shall not
find that the conditions required by this subsection have been
attained unless the Commission finds that--
``(A) COMSAT has submitted to the INTELSAT Board of
Governors a resolution calling for the pro-competitive
privatization of INTELSAT in accordance with the
requirements of this title; and
``(B) the United States has submitted such resolution
at the first INTELSAT Assembly of Parties meeting that
takes place after such date of enactment.
``(3) Second finding.--In making the finding required to be
made on or before January 1, 2000, the Commission shall not
find that the conditions required by this subsection have been
attained unless the INTELSAT Assembly of Parties has created a
working party to consider and make recommendations for the pro-
competitive privatization of INTELSAT consistent with such
resolution.
``(4) Third finding.--In making the finding required to be
made on or before January 1, 2001, the Commission shall not
find that the conditions required by this subsection have been
attained unless the INTELSAT Assembly of Parties has approved a
recommendation for the pro-competitive privatization of
INTELSAT in accordance with the requirements of this title.
``(5) Fourth finding.--In making the finding required to be
made on or before January 1, 2002, the Commission shall not
find that the conditions required by this subsection have been
attained unless the pro-competitive privatization of INTELSAT
in accordance with the requirements of this title has been
achieved by such date.
``(6) Criteria for evaluation of hindering access.--The
Commission shall not make a determination under paragraph
(1)(B) unless the Commission determines that INTELSAT and
Inmarsat are not in any way impairing, delaying, or denying
access to national markets or orbital locations.
``(c) Exception for Services Under Existing Contracts If Progress Not
Made.--This section shall not preclude INTELSAT or Inmarsat or any
signatory thereof from continuing to provide additional services under
an agreement with any third party entered into prior to any finding
under subsection (b) that the conditions of such subsection have not
been attained.
``Subtitle B--Federal Communications Commission Licensing Criteria:
Privatization Criteria
``SEC. 621. GENERAL CRITERIA TO ENSURE A PRO-COMPETITIVE PRIVATIZATION
OF INTELSAT AND INMARSAT.
``The President and the Commission shall secure a pro-competitive
privatization of INTELSAT and Inmarsat that meets the criteria set
forth in this section and sections 622 through 624. In securing such
privatizations, the following criteria shall be applied as licensing
criteria for purposes of subtitle A:
``(1) Dates for privatization.--Privatization shall be
obtained in accordance with the criteria of this title of--
``(A) INTELSAT as soon as practicable, but no later
than January 1, 2002, and
``(B) Inmarsat as soon as practicable, but no later
than January 1, 2001.
``(2) Independence.--The successor entities and separated
entities of INTELSAT and Inmarsat resulting from the
privatization obtained pursuant to paragraph (1) shall--
``(A) be entities that are national corporations; and
``(B) have ownership and management that is
independent of--
``(i) any signatories or former signatories
that control access to national
telecommunications markets; and
``(ii) any intergovernmental organization
remaining after the privatization.
``(3) Termination of privileges and immunities.--The
preferential treatment of INTELSAT and Inmarsat shall not be
extended to any successor entity or separated entity of
INTELSAT or Inmarsat. Such preferential treatment includes--
``(A) privileged or immune treatment by national
governments;
``(B) privileges or immunities or other competitive
advantages of the type accorded INTELSAT and Inmarsat
and their signatories through the terms and operation
of the INTELSAT Agreement and the associated
Headquarters Agreement and the Inmarsat Convention; and
``(C) preferential access to orbital locations,
including any access to orbital locations that is not
subject to the legal or regulatory processes of a
national government that applies due diligence
requirements intended to prevent the warehousing of
orbital locations.
``(4) Prevention of expansion during transition.--During the
transition period prior to full privatization, INTELSAT and
Inmarsat shall be precluded from expanding into additional
services (including additional applications of existing
services) or additional areas of business.
``(5) Conversion to stock corporations.--Any successor entity
or separated entity created out of INTELSAT or Inmarsat shall
be a national corporation established through the execution of
an initial public offering as follows:
``(A) Any successor entities and separated entities
shall be incorporated as private corporations subject
to the laws of the nation in which incorporated.
``(B) An initial public offering of securities of any
successor entity or separated entity shall be conducted
no later than--
``(i) January 1, 2001, for the successor
entities of INTELSAT; and
``(ii) January 1, 2000, for the successor
entities of Inmarsat.
``(C) The shares of any successor entities and
separated entities shall be listed for trading on one
or more major stock exchanges with transparent and
effective securities regulation.
``(D) A majority of the board of directors of any
successor entity or separated entity shall not be
subject to selection or appointment by, or otherwise
serve as representatives of--
``(i) any signatory or former signatory that
controls access to national telecommunications
markets; or
``(ii) any intergovernmental organization
remaining after the privatization.
``(E) Any transactions or other relationships between
or among any successor entity, separated entity,
INTELSAT, or Inmarsat shall be conducted on an arm's
length basis.
``(6) Regulatory treatment.--Any successor entity or
separated entity shall apply through the appropriate national
licensing authorities for international frequency assignments
and associated orbital registrations for all satellites.
``(7) Competition policies in domiciliary country.--Any
successor entity or separated entity shall be incorporated and
headquartered in a nation or nations that--
``(A) have effective laws and regulations that secure
competition in telecommunications services;
``(B) are signatories of the World Trade Organization
Basic Telecommunications Services Agreement; and
``(C) have a schedule of commitments in such
Agreement that includes non-discriminatory market
access to their satellite markets.
``(8) Return of unused orbital locations.--INTELSAT,
Inmarsat, and any successor entities and separated entities
shall not be permitted to warehouse any orbital location that--
``(A) as of March 25, 1998, did not contain a
satellite that was providing commercial services, or,
subsequent to such date, ceased to contain a satellite
providing commercial services; or
``(B) as of March 25, 1998, was not designated in
INTELSAT or Inmarsat operational plans for satellites
for which construction contracts had been executed.
Any such orbital location of INTELSAT or Inmarsat and of any
successor entities and separated entities shall be returned to
the International Telecommunication Union for reallocation.
``(9) Appraisal of assets.--Before any transfer of assets by
INTELSAT or Inmarsat to any successor entity or separated
entity, such assets shall be independently audited for purposes
of appraisal, at both book and fair market value.
``(10) Limitation on investment.--Notwithstanding the
provisions of this title, COMSAT shall not be authorized by the
Commission to invest in a satellite known as K-TV, unless
Congress authorizes such investment.
``SEC. 622. SPECIFIC CRITERIA FOR INTELSAT.
``In securing the privatizations required by section 621, the
following additional criteria with respect to INTELSAT privatization
shall be applied as licensing criteria for purposes of subtitle A:
``(1) Number of competitors.--The number of competitors in
the markets served by INTELSAT, including the number of
competitors created out of INTELSAT, shall be sufficient to
create a fully competitive market.
``(2) Prevention of expansion during transition.--
``(A) In general.--Pending privatization in
accordance with the criteria in this title, INTELSAT
shall not expand by receiving additional orbital
locations, placing new satellites in existing
locations, or procuring new or additional satellites
except as permitted by subparagraph (B), and the United
States shall oppose such expansion--
``(i) in INTELSAT, including at the Assembly
of Parties,
``(ii) in the International Telecommunication
Union,
``(iii) through United States instructions to
COMSAT,
``(iv) in the Commission, through declining
to facilitate the registration of additional
orbital locations or the provision of
additional services (including additional
applications of existing services) or
additional areas of business; and
``(v) in other appropriate fora.
``(B) Exception for certain replacement satellites.--
The limitations in subparagraph (A) shall not apply to
any replacement satellites if--
``(i) such replacement satellite is used
solely to provide public-switched network voice
telephony or occasional-use television
services, or both;
``(ii) such replacement satellite is procured
pursuant to a construction contract that was
executed on or before March 25, 1998; and
``(iii) construction of such replacement
satellite commences on or before the final date
for INTELSAT privatization set forth in section
621(1)(A).
``(3) Technical coordination among signatories.--Technical
coordination shall not be used to impair competition or
competitors, and coordination under Article XIV(d) of the
INTELSAT Agreement shall be eliminated.
``SEC. 623. SPECIFIC CRITERIA FOR INTELSAT SEPARATED ENTITIES.
``In securing the privatizations required by section 621, the
following additional criteria with respect to any INTELSAT separated
entity shall be applied as licensing criteria for purposes of subtitle
A:
``(1) Date for public offering.--Within one year after any
decision to create any separated entity, a public offering of
the securities of such entity shall be conducted.
``(2) Privileges and immunities.--The privileges and
immunities of INTELSAT and its signatories shall be waived with
respect to any transactions with any separated entity, and any
limitations on private causes of action that would otherwise
generally be permitted against any separated entity shall be
eliminated.
``(3) Interlocking directorates or employees.--None of the
officers, directors, or employees of any separated entity shall
be individuals who are officers, directors, or employees of
INTELSAT.
``(4) Spectrum assignments.--After the initial transfer which
may accompany the creation of a separated entity, the portions
of the electromagnetic spectrum assigned as of the date of
enactment of this title to INTELSAT shall not be transferred
between INTELSAT and any separated entity.
``(5) Reaffiliation prohibited.--Any merger or ownership or
management ties or exclusive arrangements between a privatized
INTELSAT or any successor entity and any separated entity shall
be prohibited until 15 years after the completion of INTELSAT
privatization under this title.
``SEC. 624. SPECIFIC CRITERIA FOR INMARSAT.
``In securing the privatizations required by section 621, the
following additional criteria with respect to Inmarsat privatization
shall be applied as licensing criteria for purposes of subtitle A:
``(1) Multiple signatories and direct access.--Multiple
signatories and direct access to Inmarsat shall be permitted.
``(2) Prevention of expansion during transition.--Pending
privatization in accordance with the criteria in this title,
Inmarsat should not expand by receiving additional orbital
locations, placing new satellites in existing locations, or
procuring new or additional satellites, except for specified
replacement satellites for which construction contracts have
been executed as of March 25, 1998, and the United States shall
oppose such expansion--
``(A) in Inmarsat, including at the Council and
Assembly of Parties,
``(B) in the International Telecommunication Union,
``(C) through United States instructions to COMSAT,
``(D) in the Commission, through declining to
facilitate the registration of additional orbital
locations or the provision of additional services
(including additional applications of existing
services) or additional areas of business, and
``(E) in other appropriate fora.
This paragraph shall not be construed as limiting the
maintenance, assistance or improvement of the GMDSS.
``(3) Number of competitors.--The number of competitors in
the markets served by Inmarsat, including the number of
competitors created out of Inmarsat, shall be sufficient to
create a fully competitive market.
``(4) Reaffiliation prohibited.--Any merger or ownership or
management ties or exclusive arrangements between Inmarsat or
any successor entity or separated entity and ICO shall be
prohibited until 15 years after the completion of Inmarsat
privatization under this title.
``(5) Interlocking directorates or employees.--None of the
officers, directors, or employees of Inmarsat or any successor
entity or separated entity shall be individuals who are
officers, directors, or employees of ICO.
``(6) Spectrum assignments.--The portions of the
electromagnetic spectrum assigned as of the date of enactment
of this title to Inmarsat--
``(A) shall, after January 1, 2006, or the date on
which the life of the current generation of Inmarsat
satellites ends, whichever is later, be made available
for assignment to all systems (including the privatized
Inmarsat) on a nondiscriminatory basis and in a manner
in which continued availability of the GMDSS is
provided; and
``(B) shall not be transferred between Inmarsat and
ICO.
``(7) Preservation of the gmdss.--The United States shall
seek to preserve space segment capacity of the GMDSS.
``SEC. 625. ENCOURAGING MARKET ACCESS AND PRIVATIZATION.
``(a) NTIA Determination.--
``(1) Determination required.--Within 180 days after the date
of enactment of this section, the Secretary of Commerce shall,
through the Assistant Secretary for Communications and
Information, transmit to the Commission--
``(A) a list of Member countries of INTELSAT and
Inmarsat that are not Members of the World Trade
Organization and that impose barriers to market access
for private satellite systems; and
``(B) a list of Member countries of INTELSAT and
Inmarsat that are not Members of the World Trade
Organization and that are not supporting pro-
competitive privatization of INTELSAT and Inmarsat.
``(2) Consultation.--The Secretary's determinations under
paragraph (1) shall be made in consultation with the Federal
Communications Commission, the Secretary of State, and the
United States Trade Representative, and shall take into account
the totality of a country's actions in all relevant fora,
including the Assemblies of Parties of INTELSAT and Inmarsat.
``(b) Imposition of Cost-based Settlement Rate.--Notwithstanding--
``(1) any higher settlement rate that an overseas carrier
charges any United States carrier to originate or terminate
international message telephone services, and
``(2) any transition period that would otherwise apply,
the Commission may by rule prohibit United States carriers from paying
an amount in excess of a cost-based settlement rate to overseas
carriers in countries listed by the Commission pursuant to subsection
(a).
``(c) Settlements Policy.--The Commission shall, in exercising its
authority to establish settlements rates for United States
international common carriers, seek to advance United States policy in
favor of cost-based settlements in all relevant fora on international
telecommunications policy, including in meetings with parties and
signatories of INTELSAT and Inmarsat.
``Subtitle C--Deregulation and Other Statutory Changes
``SEC. 641. DIRECT ACCESS; TREATMENT OF COMSAT AS NONDOMINANT CARRIER.
``The Commission shall take such actions as may be necessary--
``(1) to permit providers or users of telecommunications
services to obtain direct access to INTELSAT telecommunications
services--
``(A) through purchases of space segment capacity
from INTELSAT as of January 1, 2000, if the Commission
determines that--
``(i) INTELSAT has adopted a usage charge
mechanism that ensures fair compensation to
INTELSAT signatories for support costs that
such signatories would not otherwise be able to
avoid under a direct access regime, such as
insurance, administrative, and other operations
and maintenance expenditures;
``(ii) the Commission's regulations ensure
that no foreign signatory, nor any affiliate
thereof, shall be permitted to order space
segment directly from INTELSAT in order to
provide any service subject to the Commission's
jurisdiction;
``(iii) the Commission has in place a means
to ensure that carriers will be required to
pass through to end-users savings that result
from the exercise of such authority;
``(B) through investment in INTELSAT as of January 1,
2002, if the Commission determines that such investment
will be attained under procedures that assure fair
compensation to INTELSAT signatories for the market
value of their investments;
``(2) to permit providers or users of telecommunications
services to obtain direct access to Inmarsat telecommunications
services--
``(A) through purchases of space segment capacity
from Inmarsat as of January 1, 2000, if the Commission
determines that--
``(i) Inmarsat has adopted a usage charge
mechanism that ensures fair compensation to
Inmarsat signatories for support costs that
such signatories would not otherwise be able to
avoid under a direct access regime, such as
insurance, administrative, and other operations
and maintenance expenditures;
``(ii) the Commission's regulations ensure
that no foreign signatory, nor any affiliate
thereof, shall be permitted to order space
segment directly from Inmarsat in order to
provide any service subject to the Commission's
jurisdiction;
``(iii) the Commission has in place a means
to ensure that carriers will be required to
pass through to end-users savings that result
from the exercise of such authority; and
``(B) through investment in Inmarsat as of January 1,
2001, if the Commission determines that such investment
will be attained under procedures that assure fair
compensation to Inmarsat signatories for the market
value of their investments;
``(3) to act on COMSAT's petition to be treated as a
nondominant carrier for the purposes of the Commission's
regulations according to the provisions of section 10 of the
Communications Act of 1934 (47 U.S.C. 160); and
``(4) to eliminate any regulation on the availability of
direct access to INTELSAT or Inmarsat or to any successor
entities after a pro-competitive privatization is achieved
consistent with sections 621, 622 and 624.
``SEC. 642. TERMINATION OF MONOPOLY STATUS.
``(a) Renegotiation of Monopoly Contracts Permitted.--The Commission
shall, beginning January 1, 2000, permit users or providers of
telecommunications services that previously entered into contracts or
are under a tariff commitment with COMSAT to have an opportunity, at
their discretion, for a reasonable period of time, to renegotiate those
contracts or commitments on rates, terms, and conditions or other
provisions, notwithstanding any term or volume commitments or early
termination charges in any such contracts with COMSAT.
``(b) Commission Authority To Order Renegotiation.--Nothing in this
title shall be construed to limit the authority of the Commission to
permit users or providers of telecommunications services that
previously entered into contracts or are under a tariff commitment with
COMSAT to have an opportunity, at their discretion, to renegotiate
those contracts or commitments on rates, terms, and conditions or other
provisions, notwithstanding any term or volume commitments or early
termination charges in any such contracts with COMSAT.
``(c) Provisions Contrary to Public Policy Void.--Whenever the
Commission permits users or providers of telecommunications services to
renegotiate contracts or commitments as described in this section, the
Commission may provide that any provision of any contract with COMSAT
that restricts the ability of such users or providers to modify the
existing contracts or enter into new contracts with any other space
segment provider (including but not limited to any term or volume
commitments or early termination charges) or places such users or
providers at a disadvantage in comparison to other users or providers
that entered into contracts with COMSAT or other space segment
providers shall be null, void, and unenforceable.
``SEC. 643. SIGNATORY ROLE.
``(a) Limitations on Signatories.--
``(1) National security limitations.--The Federal
Communications Commission, after a public interest
determination, in consultation with the Executive Branch, may
restrict foreign ownership of a United States signatory if the
Commission determines that not to do so would constitute a
threat to national security.
``(2) No signatories required.--The United States Government
shall not require signatories to represent the United States in
INTELSAT or Inmarsat or in any successor entities after a pro-
competitive privatization is achieved consistent with sections
621, 622 and 624.
``(b) Clarification of Privileges and Immunities of COMSAT.--
``(1) Generally not immunized.--Notwithstanding any other law
or executive agreement, COMSAT shall not be entitled to any
privileges or immunities under the laws of the United States or
any State on the basis of its status as a signatory of INTELSAT
or Inmarsat.
``(2) Limited immunity.--COMSAT and any other company
functioning as United States signatory to INTELSAT or Inmarsat
shall not be liable for action taken by it in carrying out the
specific, written instruction of the United States issued in
connection with its relationships and activities with foreign
governments, international entities, and the intergovernmental
satellite organizations.
``(3) Provisions prospective.--Paragraph (1) shall not apply
with respect to liability for any action taken by COMSAT before
the date of enactment of the Communications Satellite
Competition and Privatization Act of 1998.
``(c) Parity of Treatment.--Notwithstanding any other law or
executive agreement, the Commission shall have the authority to impose
similar regulatory fees on the United States signatory which it imposes
on other entities providing similar services.
``SEC. 644. ELIMINATION OF PROCUREMENT PREFERENCES.
``Nothing in this title or the Communications Act of 1934 shall be
construed to authorize or require any preference, in Federal Government
procurement of telecommunications services, for the satellite space
segment provided by INTELSAT, Inmarsat, or any successor entity or
separated entity.
``SEC. 645. USE OF ITU TECHNICAL COORDINATION.
``The Commission and United States satellite companies shall utilize
the International Telecommunication Union procedures for technical
coordination with INTELSAT and its successor entities and separated
entities, rather than INTELSAT procedures.
``SEC. 646. TERMINATION OF COMMUNICATIONS SATELLITE ACT OF 1962
PROVISIONS.
``Effective on the dates specified, the following provisions of this
Act shall cease to be effective:
``(1) Date of enactment of this title: Sections 101 and 102;
paragraphs (1), (5) and (6) of section 201(a); section 301;
section 303; section 502; and paragraphs (2) and (4) of section
504(a).
``(2) On the effective date of the Commission's order that
establishes direct access to INTELSAT space segment: Paragraphs
(1), (3) through (5), and (8) through (10) of section 201(c);
and section 304.
``(3) On the effective date of the Commission's order that
establishes direct access to Inmarsat space segment:
Subsections (a) through (d) of section 503.
``(4) On the effective date of a Commission order determining
under section 601(b)(2) that Inmarsat privatization is
consistent with criteria in sections 621 and 624: Section
504(b).
``(5) On the effective date of a Commission order determining
under section 601(b)(2) that INTELSAT privatization is
consistent with criteria in sections 621 and 622: Paragraphs
(2) and (4) of section 201(a); section 201(c)(2); subsection
(a) of section 403; and section 404 .
``SEC. 647. REPORTS TO THE CONGRESS.
``(a) Annual Reports.--The President and the Commission shall report
to the Congress within 90 calendar days of the enactment of this title,
and not less than annually thereafter, on the progress made to achieve
the objectives and carry out the purposes and provisions of this title.
Such reports shall be made available immediately to the public.
``(b) Contents of Reports.--The reports submitted pursuant to
subsection (a) shall include the following:
``(1) Progress with respect to each objective since the most
recent preceding report.
``(2) Views of the Parties with respect to privatization.
``(3) Views of industry and consumers on privatization.
``SEC. 648. CONSULTATION WITH CONGRESS.
``The President's designees and the Commission shall consult with the
Committee on Commerce of the House of Representatives and the Committee
on Commerce, Science, and Transportation of the Senate prior to each
meeting of the INTELSAT or Inmarsat Assembly of Parties, the INTELSAT
Board of Governors, the Inmarsat Council, or appropriate working group
meetings.
``SEC. 649. SATELLITE AUCTIONS.
``Notwithstanding any other provision of law, the Commission shall
not have the authority to assign by competitive bidding orbital
locations or spectrum used for the provision of international or global
satellite communications services. The President shall oppose in the
International Telecommunication Union and in other bilateral and
multilateral fora any assignment by competitive bidding of orbital
locations or spectrum used for the provision of such services.
``Subtitle D--Negotiations To Pursue Privatization
``SEC. 661. METHODS TO PURSUE PRIVATIZATION.
``The President shall secure the pro-competitive privatizations
required by this title in a manner that meets the criteria in subtitle
B.
``Subtitle E--Definitions
``SEC. 681. DEFINITIONS.
``(a) In General.--As used in this title:
``(1) INTELSAT.--The term `INTELSAT' means the International
Telecommunications Satellite Organization established pursuant
to the Agreement Relating to the International
Telecommunications Satellite Organization (INTELSAT).
``(2) Inmarsat.--The term `Inmarsat' means the International
Mobile Satellite Organization established pursuant to the
Convention on the International Maritime Organization.
``(3) Signatories.--The term `signatories'--
``(A) in the case of INTELSAT, or INTELSAT successors
or separated entities, means a Party, or the
telecommunications entity designated by a Party, that
has signed the Operating Agreement and for which such
Agreement has entered into force or to which such
Agreement has been provisionally applied;
``(B) in the case of Inmarsat, or Inmarsat successors
or separated entities, means either a Party to, or an
entity that has been designated by a Party to sign, the
Operating Agreement.
``(4) Party.--The term `Party'--
``(A) in the case of INTELSAT, means a nation for
which the INTELSAT agreement has entered into force or
been provisionally applied; and
``(B) in the case of Inmarsat, means a nation for
which the Inmarsat convention has entered into force.
``(5) Commission.--The term `Commission' means the Federal
Communications Commission.
``(6) International telecommunication union.--The term
`International Telecommunication Union' means the
intergovernmental organization that is a specialized agency of
the United Nations in which member countries cooperate for the
development of telecommunications, including adoption of
international regulations governing terrestrial and space uses
of the frequency spectrum as well as use of the geostationary
satellite orbit.
``(7) Successor entity.--The term `successor entity'--
``(A) means any privatized entity created from the
privatization of INTELSAT or Inmarsat or from the
assets of INTELSAT or Inmarsat, but
``(B) does not include any entity that is a separated
entity.
``(8) Separated entity.--The term `separated entity' means a
privatized entity to whom a portion of the assets owned by
INTELSAT or Inmarsat are transferred prior to full
privatization of INTELSAT or Inmarsat, including in particular
the entity whose structure was under discussion by INTELSAT as
of March 25, 1998, but excluding ICO.
``(9) Orbital location.--The term `orbital location' means
the location for placement of a satellite on the geostationary
orbital arc as defined in the International Telecommunication
Union Radio Regulations.
``(10) Space segment.--The term `space segment' means the
satellites, and the tracking, telemetry, command, control,
monitoring and related facilities and equipment used to support
the operation of satellites owned or leased by INTELSAT,
Inmarsat, or a separated entity or successor entity.
``(11) Non-core.--The term `non-core services' means, with
respect to INTELSAT provision, services other than public-
switched network voice telephony and occasional-use television,
and with respect to Inmarsat provision, services other than
global maritime distress and safety services or other existing
maritime or aeronautical services for which there are not
alternative providers.
``(12) Additional services.--The term `additional services'
means Internet services, high-speed data, interactive services,
non-maritime or non-aeronautical mobile services, Direct to
Home (DTH) or Direct Broadcast Satellite (DBS) video services,
or Ka-band services.
``(13) INTELSAT agreement.--The term `INTELSAT Agreement'
means the Agreement Relating to the International
Telecommunications Satellite Organization (`INTELSAT'),
including all its annexes (TIAS 7532, 23 UST 3813).
``(14) Headquarters agreement.--The term `Headquarters
Agreement' means the International Telecommunication Satellite
Organization Headquarters Agreement (November 24, 1976)
(TIAS8542, 28 UST 2248).
``(15) Operating agreement.--The term `Operating Agreement'
means--
``(A) in the case of INTELSAT, the agreement,
including its annex but excluding all titles of
articles, opened for signature at Washington on August
20, 1971, by Governments or telecommunications entities
designated by Governments in accordance with the
provisions of the Agreement, and
``(B) in the case of Inmarsat, the Operating
Agreement on the International Maritime Satellite
Organization, including its annexes.
``(16) Inmarsat convention.--The term `Inmarsat Convention'
means the Convention on the International Maritime Satellite
Organization (Inmarsat) (TIAS 9605, 31 UST 1).
``(17) National corporation.--The term `national corporation'
means a corporation the ownership of which is held through
publicly traded securities, and that is incorporated under, and
subject to, the laws of a national, state, or territorial
government.
``(18) COMSAT.--The term `COMSAT' means the corporation
established pursuant to title III of the Communications
Satellite Act of 1962 (47 U.S.C. 731 et seq.)
``(19) ICO.--The term `ICO' means the company known, as of
the date of enactment of this title, as ICO Global
Communications, Inc.
``(20) Replacement satellites.--The term `replacement
satellite' means a satellite that replaces a satellites that
fails prior to the end of the duration of contracts for
services provided over such satellite and that takes the place
of a satellite designated for the provision of public-switched
network and occasional-use television services under contracts
executed prior to March 25, 1998 (but not including K-TV or
similar satellites). A satellite is only considered a
replacement satellite to the extent such contracts are equal to
or less than the design life of the satellite.
``(21) GMDSS.--The term `global maritime distress and safety
services' or `GMDSS' means the automated ship-to-shore distress
alerting system which uses satellite and advanced terrestrial
systems for international distress communications and promoting
maritime safety in general. The GMDSS permits the worldwide
alerting of vessels, coordinated search and rescue operations,
and dissemination of maritime safety information.
``(b) Common Terminology.--Except as otherwise provided in subsection
(a), terms used in this title that are defined in section 3 of the
Communications Act of 1934 have the meanings provided in such
section.''.
Purpose and Summary
The fundamental purposes of the bill are to encourage
privatization of the intergovernmental satellite organizations
(IGOs) that dominate international satellite communications and
to promote a robustly competitive satellite communications
marketplace. The bill seeks to eliminate the provision of
commercial satellite communications by intergovernmental
organizations. The bill also seeks to ensure that the
privatized entities be independent of the IGO ``signatories.''
By privatizing INTELSAT and Inmarsat as outlined in H.R. 1872,
the unfair advantages now enjoyed by these organizations would
be eliminated, in favor of a level playing field for all
competitors. This in turn would bring consumers lower prices,
higher service quality, improved efficiency, innovative new
products, and more choice.
H.R. 1872 promotes the privatization of INTELSAT and
Inmarsat by using the incentive of access to the U.S.
marketplace if the IGOs privatize in an expeditious and pro-
competitive manner. The bill is also designed to eliminate any
unfair advantages of IGOs or their spin-offs or successors over
their competitors gained through their intergovernmental
status. Pro-competitive privatizations are sought by requiring
the Federal Communications Commission (FCC or the Commission)
to determine that the IGOs and their privatized ``successor''
or ``separated'' follow-ons have been privatized in a manner
that would not harm competition in the U.S., prior to
authorizing the provision of advanced services in the U.S.
market.
The primary incentive in the bill for INTELSAT and Inmarsat
to privatize is to limit their access to the U.S. market if
they do not privatize in a pro-competitive manner by a date
certain. In order to provide these organizations with a
reasonable transition period in which to accomplish a full
privatization, the bill provides INTELSAT until January 1,
2002, and Inmarsat until January 1, 2001. If privatization does
not occur by the dates provided, the bill requires the FCC to
limit, deny or revoke authority for the IGO's provision of
``non-core services'' to the U.S. market. Furthermore, the bill
prohibits separated entities from being authorized to provide
services in the U.S. if they are not structured in a pro-
competitive manner.
Another key part of the bill is the possibility of
restrictions on additional services during the pendency of
privatization. This lever provides that INTELSAT and Inmarsat
cannot provide additional services under new contracts unless
the FCC annually determines that: (1) Substantial and material
progress is being made towards privatization; and (2) INTELSAT
and Inmarsat are not hindering competitors' access to foreign
markets.
The bill explicitly eliminates COMSAT's monopoly for the
provision of IGO services in the U.S. by permitting other
service providers to directly access IGOs satellites as of
January 1, 2000. The bill also allows COMSAT's customers a one-
time opportunity to renegotiate their contracts with the
previous monopoly provider after January 1, 2000.
Lastly, the bill includes a number of additional
deregulatory measures designed to ensure that all U.S.
satellite service providers can compete as efficiently as
possible within the U.S. satellite marketplace. The bill also
prohibits the FCC from auctioning orbital slots or spectrum
assignments for global satellite systems and requires the
Administration to oppose such spectrum auctions in
international fora.
Background and Need for Legislation
I. Background
In 1962, Congress passed the Communications Satellite Act
(the 1962 Act), creating a new organization, the Communications
Satellite Corporation (COMSAT), with the specific charter of
forming a consortium to operate an international commercial
satellite communications system. As a result, COMSAT, and
subsequently, the International Telecommunications Satellite
Organization (INTELSAT) were established with the assistance of
a partnership of nations in Europe, North America, and
developing areas of the world. In 1973, INTELSAT was converted
into an international treaty organization. At the time of the
1962 Act's passage, it was believed that individual companies
were not capable, in those early days of satellite technology,
of bearing the financial risk of constructing and operating a
global satellite communications system.
Today, INTELSAT is a global communications satellite
cooperative with 142 member countries which provides space
segment for international telecommunications. It currently
operates 20-26 satellites. It is the dominant provider of
international ``fixed'' satellite services (e.g., transoceanic
telephone calls, video feeds) and is seeking to expand into a
wide array of advanced services.
In 1978, Congress amended the 1962 Act to add a new title V
which provided for U.S. participation in a new
intergovernmental entity. In 1979, a similar organization to
INTELSAT--the International Maritime Satellite Organization
(Inmarsat)--came into existence when 26 member nations signed
the Inmarsat Convention and Operating Agreement. Inmarsat
developed out of the perceived need for a global maritime
communications satellite system that would provide distress,
safety and communications services to all seafaring nations in
a single cooperative, cost-sharing entity. Inmarsat began
providing commercial service in 1982. Today, Inmarsat has 82
member countries and operates eight satellites.
INTELSAT and Inmarsat are controlled by ``Parties'' and
``signatories.'' The Parties, which are the national government
members of the INTELSAT and Inmarsat agreements, have ultimate
control. The signatories are the owners and operators of the
systems. They distribute INTELSAT and Inmarsat services in
their own country. The majority of signatories are government-
owned or controlled telecommunications monopolies in their own
country. For example, France Telecom, which is the dominant
provider of telecommunications services in France is the French
signatory to INTELSAT and Inmarsat. The signatories are
designated by the member countries to own \1\ their shares in
the IGOs, with ownership based on an individual member
country's use of the system. Accordingly, the U.S., the largest
user in both systems, currently controls an 18 percent
ownership in INTELSAT and a 23 percent ownership in Inmarsat.
---------------------------------------------------------------------------
\1\ Ownership in INTELSAT or Inmarsat may not be an entirely
appropriate term as the signatories ownership share is allocated by
usage rather than investment and varies over time.
---------------------------------------------------------------------------
COMSAT, the U.S. signatory to INTELSAT and Inmarsat, has
the sole right of access to INTELSAT and Inmarsat in the United
States. Any private company wishing to use INTELSAT's or
Inmarsat's satellites to or from the U.S. must purchase
satellite capacity through COMSAT. In this regime, COMSAT buys
INTELSAT and Inmarsat capacity and resells it to U.S.-based
customers, which include broadcast, private network and long-
distance customers (e.g., MCI, AT&T, WorldCom and Sprint which
use approximately 80 percent of COMSAT's private line and
switched-voice services).
II. The Private Satellite Industry
In the early to mid 1980's, a number of applicants filed
petitions with the FCC for permission to launch and operate
private satellite systems that would carry international
traffic in competition with INTELSAT. In response to this
private sector interest in competing with INTELSAT, the Reagan
Administration developed the Separate System Policy. This
policy for the first time permitted satellite systems
``separate'' from INTELSAT to compete with the organization,
but limited their activities to certain business applications
(e.g., television signal carriage for broadcasters and private-
line circuits). The provision of these limited, business-
oriented services was considered by the Reagan Administration
not to pose significant economic harm to INTELSAT, and, thus,
was not inconsistent with U.S. obligations under the
Agreements. In response to President Reagan's policy, the FCC
licensed a number of separate systems, but in order to protect
INTELSAT from significant economic harm, prevented the separate
systems from interconnecting with public switched networks
(referred to as the ``PSN restriction''). The PSN restriction
thus prevented separate systems from entering the lucrative,
high-volume telephony or public data markets.
Since the first private satellite launch in 1988, the
private satellite industry has grown slowly. The industry
contends that this slow pace of growth is due to INTELSAT's
continued market dominance and anti-competitive practices.
Today, only three separate satellite systems survive from the
original eight applicants. PanAmSat, which was recently
purchased by Hughes Communications, Inc., operates 5
predominantly international satellites. Orion Network Systems,
which was recently purchased by Loral, currently operates one
satellite and is planning the launch of a second satellite in
late 1998-1999. Columbia Communications currently leases
capacity on National Aeronautical and Space Administration
(NASA) satellites and soon will add to its capacity by
receiving an old, inclined orbit satellite from INTELSAT to
resolve their dispute over a particular orbital location.
The provision requiring that INTELSAT be protected from
significant economic harm is no longer enforced by the Parties.
Therefore, the PSN restriction has been eased by several
Administrations and the FCC over time to permit separate
systems to compete for all segments of satellite communications
services in the United States. But because market opportunities
were limited for separate systems until recently, these
systems' current customer bases comprise customers for those
permitted services. For instance, PanAmSat predominantly
provides video services.
III. The Expected Satellite Future
While the international satellite market has yet to reach
its potential, the future of international satellite services
looks promising. Experts predict that more than 1,700
satellites will be launched in the next decade, an increase of
almost 10 times the 200 or so commercial satellites now in
orbit worldwide. Furthermore, it is estimated that revenue from
satellite services will more than triple from $9 billion today
to $29 billion within the next two to three years.\2\
---------------------------------------------------------------------------
\2\ See Shine, Eric, ``The Satellite Blast Off,'' Business Week
(January 27, 1997), citing Bear, Sterns & Co. analyst; See generally,
Cook, William J., ``1997: A Space Odyssey,'' U.S. News & World Report;
Crossman, MB, ``Fixed and Mobile Satellite Services--Industry Report,''
Rauscher, Pierce Refsnes, Inc. (April 11, 1997); and Anselm, Joseph,
``Launchers See Nothing But Blue Skies Ahead,'' Aviation Week and Space
Technology (April 7, 1997).
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This potential growth can be traced to four main reasons:
(1) demand for services has increased; (2) the world's domestic
telecommunications monopolies are privatizing and being subject
to competition; (3) the innovation and development of non-
geostationary systems; and (4) the cost of satellite
construction, launch and operation and that of related
equipment has dropped dramatically. Existing and new satellite
providers are planning ahead to meet the needs of consumers
worldwide. From hand-held wireless communications to Internet
access to advanced direct-to-home video services, satellite
providers are planning to compete for customers''
communications needs. In many instances, satellite providers
are planning to serve markets that today do not exist. It is
estimated that over half of the world's population have never
placed a phone call. Many fewer have ever used the Internet.
These populations represent new markets that are often unserved
by traditional networks because of the high-cost of ubiquitous
service with traditional landline technology. Companies
preparing to enter the wireless telephone marketplace include
such players as: Iridium, Globalstar, ICO Global Communications
(the spin-off of Inmarsat), and MCHI/Ellipso. Companies
preparing to enter the satellite data marketplace include:
Teledesic, Motorola's Celestri, Loral's Cyberstar and Hughes''
Spaceway.
The cost of producing a satellite system has decreased, in
part, because of improvements in technology. Advances in
battery power and digital compression techniques coupled with
improvements in mass production capabilities and launch
facilities have made the prospects for launching new satellite
ventures less risky. Thus, as technology has made producing
satellites more cost-efficient, the ability of satellites to
compete directly with traditional land-line networks has
increased.
American firms represent a commanding presence in the
growth of satellite services. American ingenuity and the
entrepreneurial spirit are combining to meet the demand for
satellite services. In many instances, American
telecommunications providers are using their expertise and
success gained in American domestic market to develop
opportunities in overseas satellite markets. This has led to a
high demand for American manufacturers and providers of
satellite products and services. Correspondingly, the growth in
demand in satellite services is producing high-wage employment
for American workers.
IV. Barriers to Competitive Satellite Markets
While the global satellite marketplace is expected to grow,
there are significant barriers in many markets that hamper
competition. These impediments are the outgrowth of the
structure and operations of the IGOs, INTELSAT and Inmarsat,
and the relationship of these IGOs with their Member nations.
Furthermore, INTELSAT and Inmarsat have the advantage of an
unmatched fleet of international satellites in key orbital
locations, financed at preferential rates available to IGOs
that can more easily raise capital.
The Committee believes that INTELSAT and Inmarsat enjoy a
substantial market advantage that harms the development of
competition: the inherent incentive is for signatories to favor
INTELSAT, Inmarsat and any non-independent spin-off over
private satellite providers because the signatories own
INTELSAT and Inmarsat. For example, in order to compete in a
particular market, a private satellite provider may be required
to provide confidential marketing and business data to the
licensing authority, which may be the same entity as the
signatory, or own the signatory. Thus, a private competitor may
be forced to provide confidential data to a competitor. Since
the regulatory agency or ministry responsible for
telecommunications policy in IGO Member countries often owns
the signatory, the agency or ministry with licensing authority
has a disincentive to permit a private satellite provider to
enter that country's market and compete against the signatory.
The majority of signatories to the IGOs are government- owned
operators whose regulatory bodies have a financial interest in
limiting competition.
The Committee believes that INTELSAT and Inmarsat and their
signatories have used their market dominance and governmental
status to keep emerging U.S. competitors from expanding into
overseas markets for satellite services. This point was clearly
made in the September 30, 1997, hearing on H.R. 1872. For
example, in that hearing, Mr. Kenneth Gross, President of
Columbia Communications, described how the Department of
Defense, through MCI, tried to use Columbia to provide services
to an Air Force Base in the Azores, Portugal. The foreign
signatory, Marconi, declared that no other provider than
INTELSAT could be used for this service. As a signatory,
Marconi has a direct financial interest in INTELSAT maximizing
its revenues, since it receives a return from the usage of
INTELSAT's satellites. Mr. Gross concluded that, due to such
conflicts of interest between the operators and regulators,
``the result is higher prices to the end user, higher prices to
the Defense Department, and to the U.S. Government.'' \3\
---------------------------------------------------------------------------
\3\ Hearing before the Subcommittee on Telecommunications, Trade,
and Consumer Protection on H.R. 1872, the Communications Satellite
Competition and Privatization Act of 1997; September 30, 1997; page 59;
Serial No. 105-61.
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The international treaty structure of both INTELSAT and
Inmarsat provide these organizations the opportunity to file
for orbital slots and spectrum allocations through the host
governments, which pass the applications directly to the
International Telecommunication Union (ITU) without the review
process that private companies are subjected to. For example,
the FCC processes INTELSAT's applications as a formality,
forwarding them to the ITU automatically. INTELSAT is
headquartered in the U.S., thus the FCC acts as the regulatory
body through which INTELSAT applies to the ITU. Inmarsat is
headquartered in the United Kingdom, and the U.K. regulatory
body performs the same function.
In addition, there is an incentive to provide INTELSAT and
Inmarsat orbital locations and spectrum because the Parties'
representatives at the ITU often have an ownership stake,
through their government-owned signatories in INTELSAT and
Inmarsat. The Committee believes that this favorable treatment
in the ITU has resulted in many of the limited supply of well-
placed geostationary orbital locations in generally-used
frequencies being allocated to INTELSAT and Inmarsat. The
Committee notes that INTELSAT and Inmarsat currently have a
disproportionate number of orbital locations relative to
competitors. Many of these orbital slots apparently are not
planned for use in the near future, but have presumably been
obtained because INTELSAT and Inmarsat are aware of other
competitors' interest in the similar locations.
INTELSAT and Inmarsat also benefit from certain privileges
and immunities, providing them with advantages that private
satellite providers consider barriers to market entry. The
privileges and immunities include: diplomatic status, tax
exemption, antitrust immunity, government subsidies, and
freedom from the regulatory process.
V. Failed Restructuring Efforts
INTELSAT and Inmarsat have been considering privatization,
termed ``restructuring'' by the IGOs, for several years. In
fact, in 1991, Inmarsat voted to create the affiliate ICO
Global Communications. INTELSAT started to consider
privatization in 1995 with the formation of the INTELSAT 2000
Working Party. The IGOs recognize that in order to extend their
dominance in core services to advanced services, they must
reform their current multilayered structures. However, given
the predominant government control of the organizations, and
the fact that in most IGO countries the government still
provides commercial telecommunications services, privatization
discussions have been proceeding at a slower pace than the U.S.
feels is appropriate.
INTELSAT and Inmarsat have been exploring options to enter
the ``new'' satellite markets (e.g., global mobile wireless
telephone and data service, broadband data) to compete against
the newly formed satellite providers, while still maintaining
their current market dominance. To date, both INTELSAT and
Inmarsat have taken steps to spin off affiliates to enter new
growth markets. On March 31, 1998, INTELSAT agreed to spin off
certain assets, including five satellites and several
additional orbital locations, to a new corporation to be known
as ``New Skies Satellites, N.V.'' (New Skies). Inmarsat is
currently considering a plan to privatize its operations.
Inmarsat Parties and signatories have expressed an interest in
the new Inmarsat providing a mobile broadband data service.
Details of the Inmarsat privatization plan are to be finalized
later in 1998. Under H.R. 1872, the Committee expects that any
U.S. acceptance of the plan will require that direct access to
the new Inmarsat by competitors to the signatories be
permitted, that Inmarsat's privileges and immunities not be
extended to the new Inmarsat or former signatories, and that
such privatization otherwise be consistent with this title.
The Committee is especially troubled by INTELSAT's New
Skies, N.V. proposal. This spin-off will be harmful to private
satellite competitors because it will obtain satellites from
INTELSAT at below market rates and INTELSAT and its Member
nations will own 100 percent of New Skies. The Administration
objected in December 1996 when INTELSAT announced that it was
procuring a satellite to provide direct broadcast satellite
services (known as ``K-TV'') on the principle that an IGO
should not expand into a market that the private sector is
capable ofserving. Under the 1962 Act, the FCC must authorize
COMSAT's investment in IGO satellites, prior to any investment.
INTELSAT procured the satellite, despite U.S. government opposition.
Now this specific satellite is to be transferred below market value to
New Skies to compete against private satellite providers. The IGO is,
therefore, buying satellites with its advantageous ability to raise
capital from its largely monopoly signatories and transferring these
satellites to New Skies, an affiliate to be wholly-owned by INTELSAT
and its signatories. Thus, these satellites provide New Skies with an
unfair market advantage.
Also troubling under this proposal is that New Skies will
have transferred to it two Ka-band orbital locations currently
registered to INTELSAT which do not contain satellites. The
Committee intends to ensure a pro-competitive spin off of
INTELSAT. As currently structured, New Skies is not pro-
competitive and would not be permitted to provide services to
the U.S. marketplace under H.R. 1872. The possible denial of
U.S. market access may persuade New Skies' and INTELSAT's
management to amend New Skies' ownership, management, and
operations over time. Until it is structured in a pro-
competitive manner, the FCC should prevent INTELSAT from
transferring licenses or orbital locations to New Skies.
These IGO spin-offs neither decrease the market control of
the remaining organizations nor promote the competitive nature
of the international satellite marketplace. Many in private
industry view the proposals by INTELSAT and Inmarsat for
limited reform as insufficient, particularly since the same
national telecommunications providers that own the IGOs own the
spin-off/new entity.
Thus, IGO restructuring and privatization without
guidelines or leverage from the U.S. has not produced a fully
pro-competitive result and is, therefore, not in the public
interest. The Committee believes without sufficient guidance
and incentives, the IGOs will not adopt a pro-competitive
restructuring, and is moving H.R. 1872 to resolve this problem
so that privatization of the IGOs will promote competition in
the domestic and global satellite services marketplace.
vi. the committee approach
H.R. 1872 is based on simple principles: reliance on the
private sector and non-discriminatory competition; the
government should not provide commercial services that the
private sector can provide; and competitors should compete on a
level playing field.
The bill provides a firm time-line and road-map for the
privatization of INTELSAT and Inmarsat. If these organizations
fail to move towards a pro-competitive privatization, then they
would be prevented from offering additional services in the
U.S. marketplace. In addition, if they do not privatize in a
pro-competitive manner by dates certain, these organizations
would be prevented from offering non-core services in the U.S.
marketplace--a broader category than ``additional services.''
The bill would also prevent any new spin-offs of these
organizations from serving the U.S. market unless they are
organized in a pro-competitive manner. Thus, whether access to
the U.S. market is ever limited is completely within the IGOs'
and their signatories' control.
The Committee believes that the only significant leverage
the U.S. government has over INTELSAT or Inmarsat is the
ability to limit access to the world's richest and most
developed satellite market--the United States--if they do not
move forward toward a pro-competitive restructuring.
The Committee believes that the possibility of lost revenue
is necessary to convince the INTELSAT and Inmarsat leadership
to adopt pro-competitive privatization. Faced with a choice
between losing access to the U.S. market or reorganizing as a
private company with no unfair advantages, the Committee
believes that these organizations will privatize consistent
with The Committee policy principles. If that is not the case,
the Committee fully supports limiting these organizations'
ability to serve the U.S. market. For too long the U.S.
consumer has been exploited by INTELSAT and Inmarsat through
paying prices higher than necessary.4 The Committee
expects that any excess demand created if INTELSAT and Inmarsat
are limited in serving the U.S. market can be met by
competitive satellite providers already in existence and those
due to become operational shortly. In addition, the bill
provides adequate safeguards to prevent U.S. consumers from
being harmed, should the IGOs' market access be limited.
---------------------------------------------------------------------------
\4\ The hearing record contains data showing that INTELSAT,
Inmarsat and COMSAT implore huge mark-ups on satellite services. See
Hearing before the Subcommittee on Telecommunications, Trade, and
Consumer Protection on H.R. 1872, the Communications Satellite
Competition and Privatization Act of 1997; September 30, 1997; Serial
No. 105-61.
---------------------------------------------------------------------------
During the Committee's deliberation, the Committee
considered efforts to remove the market access restrictions and
replace them with a modified international settlement policy.
The Committee soundly rejected this argument. In particular, an
amendment offered at Full Committee to replace the threat of
market access limitations with the imposition of a lower
settlement rate on all foreign carriers whose governments
opposed privatization or denied market access to private
satellite service providers was rejected by an 37-8 vote. The
Committee found that settlement rates were an inadequate
substitute to the market access incentives that would render
the bill ineffective. Nor would the imposition of lower
settlement rates address the underlying principle of ending the
provision of commercial services by an IGO. The Committee
firmly believes that no effective alternative to the market
access restrictions has been identified that would produce a
pro-competitive privatization.
The legislation also prevents the IGOs from expanding with
new orbital locations and new satellites for non-core services
or additional services. The Committee is concerned that the
IGOs already have a number of anti-competitive advantages in
the satellite communications marketplace to the detriment of
consumers and competitors, as described in this report. Orbital
locations are scarce resources, particularly in the
geostationary orbit. To permit the IGOs to grow in terms of
orbital locations, numbers of operational satellites and in
provision of additional, non-core services would seriously
frustrate competition, to the detriment of the commercial
industry and consumers. The restrictions in this section are
essential to preventfurther entrenchment of the IGOs in the
commercial marketplace as well as to provide incentives to expedite
privatization.
It is not necessary for intergovernmental treaty
organizations to provide commercial international satellite
services in competition with private companies. Furthermore,
the existence of such organizations distorts the marketplace
and frustrates the development of a fully competitive private
market. There is substantial evidence that the IGOs have used
their dominant position in the marketplace and their
governmental privileges and immunities to stifle competition.
The current structure not only harms the commercial satellite
industry, but also results in increased costs to users of these
services, including the U.S. government. Increased competition
as a result of privatization, moreover, promises substantial
consumer benefits estimated at $6.9 billion. U.S. consumers
alone are estimated to reap a savings of $1.4 billion. This is
in addition to the $1.5 billion consumers in the U.S. are
estimated to receive from direct access. These figures reflect
a 31 percent savings for consumers over what they would pay
under the present regime operated by IGOs.5
---------------------------------------------------------------------------
\5\ See ``Analysis of the Privatization of the Intergovernmental
Satellite Organizations Proposed by H.R. 1872,'' by the Satellite
Users' Coalition, dated March 1998, page 22.
---------------------------------------------------------------------------
The Committee's intent is to promote competition and remove
government from commercial service provision, rather than to
punish the IGOs or their signatory, COMSAT. H.R. 1872 is
designed to encourage a competitive restructuring of INTELSAT
and Inmarsat and to strengthen all U.S. satellite service
providers, including COMSAT, by the introduction of non-
discriminatory competition. The Committee notes that it
included a deregulatory subtitle to eliminate regulations, once
competition is permitted, that have posed significant costs for
COMSAT, out of a desire to see COMSAT compete vigorously with
other competitors, on a level playing field.
The Committee has found that although privatization or
competition may seem threatening or even punitive to
incumbents, the end results are instead beneficial to both the
incumbent provider and society at large. As past experience
demonstrates, competition in the telecommunications market
leads to an expansion in the market's size. Likewise,
eliminating out-dated regulatory burdens enables all entities
to compete more effectively. An example is the impact on AT&T's
long-distance services of the 1984 divestiture. Since 1984,
AT&T has continually lost market-share to competitors. Its
overall market share for long-distance services has decreased
from over 90 percent to about 50 percent. However, even as its
market share has decreased, AT&T's long-distance minutes and
revenues have grown, as the competitive provision of long-
distance services resulted in an overall increase in long-
distance calling. In other words, competition grew the entire
market, so that while AT&T had a smaller slice, the overall pie
was much larger. AT&T has enjoyed record growth in earning and
net revenues. Thus, while the Committee moves forward H.R. 1872
to promote competition, it expects the bill will also
positively impact COMSAT's revenues in the long-term. The
Committee also takes note of these facts in evaluating COMSAT's
claims of declining shares of some telecommunications markets
while actual minutes of use have increased.
The Committee has also examined the U.S. domestic market
with respect to satellite services. Over 85 nations permit
competition for access to INTELSAT services, known as direct
access. This includes direct access for space segment capacity.
At least 14 nations permit investment direct access. The United
States is behind other nations in this aspect of permitting
competition in its domestic telecommunications market.
Consumers pay the price for this. The Commissions' answers to
questions for the record in the Committee's hearing on this
legislation, for example, indicate that COMSAT marks up
INTELSAT's rates by an average of 68 percent. COMSAT marks up
Inmarsat rates for military uses by as much as 86
percent.6 These figures, as well as a private study,
indicate that substantial savings may result from direct
access. Moreover, competition generally leads to lower prices.
Investment direct access has the added advantage of
diversifying ownership of the IGOs. Thus, the Committee finds
that direct access is in the public interest. Further, the
Committee finds that both direct access for space segment
capacity and investment direct access are in the public
interest and that such interest will be served by adopting all
forms of direct access as soon as possible. The Committee finds
that the Commission currently has the authority to permit
direct access under current statutes. The Committee also finds
that the Commission has the authority to create a form of
virtual direct access in the case of Inmarsat until Inmarsat
permits direct access. The Committee expects the President to
successfully negotiate to achieve adoption of direct access by
Inmarsat.
---------------------------------------------------------------------------
\6\ Hearing before the Subcommittee on Telecommunications, Trade,
and Consumer Protection on H.R. 1872, the Communications Satellite
Competition and Privatization Act of 1997; September 30, 1997; page
156; Serial No. 105-61.
---------------------------------------------------------------------------
vii. the need for fresh look
``Fresh look'' is a policy used by the FCC in the past to
permit customers to renegotiate their contracts with a carrier
with market power once new competition enters the marketplace.
Under H.R. 1872, COMSAT's customers would be permitted, on a
one-time basis, to take a fresh look at their existing
contracts. The fresh look period authorized in the bill would
begin after January 1, 2000, when the Committee intends new
competitors will be permitted to compete with COMSAT for
INTELSAT and Inmarsat access. The Committee expects the
Commission to provide a single negotiation period of reasonable
duration for customers to review and possibly renegotiate or be
released from their COMSAT contracts.
The Committee believes that the United States should not
maintain a monopoly for access to INTELSAT and Inmarsat
services. H.R. 1872, therefore, includes provisions to end
COMSAT's monopoly for INTELSAT and Inmarsat services by
implementing direct access. The Committee believes that fresh
look is a necessary complement to direct access. The
Committee's goal of introducing competition to the U.S. market
for IGO services would not be fully achieved if consumers could
not take advantage of competitive alternatives, due to
beinglocked into long-term contracts with COMSAT. Thus, direct access
and fresh look are complementary policy tools to promote competition.
The Committee is aware that the Commission has implemented
fresh look in at least four instances in the past: (1)
allocation of Radio Band, 6 FCC Rcd 4582 (1991) (fresh look
required in the context of air-to-ground radio telephone
service as a condition of grant of title III license); (2)
competition in the Interstate Interexchange Marketplace, 7 FCC
Rcd 2677 (1992) (fresh look required for AT&T customers of
tariff 12 packages that included 800 service bundled with
interexchange service to terminate inbound 800 service without
liability within 90 days of the time 800 numbers became
portable); (3) expanded interconnection with local telephone
company facilities, 7 FCC Rcd 7369 (1992) (fresh look approved
for new competitive opportunities under special access expanded
interconnection, permitting special access customers to
terminate certain long-term local exchange carriers' special
access arrangements if those customers wished to obtain the
benefits of new, more competitive alternatives); and (4)
implementation of local competition provisions of the
Telecommunications Act of 1996, 11 FCC Rcd 15499 (1996)
(permitting renegotiation of contracts to implement reciprocal
compensation requirement between wireless carriers).
The Committee takes note of how the application of fresh
look in the past has improved competition in the related
services. For example, during the 800 number portability fresh
look period, consumers were provided the opportunity to
renegotiate long-term contracts with AT&T. The companies that
used fresh look to their advantage include, but are not limited
to: Avis, Inc., Boise Cascade Corp., James River Corp.,
Courtaulds Coatings, Inc., Unisys Corp., Unum Life Insurance
Co., Cargill, Inc., Ceridian Corp., Kimberly Quality Care,
Federal Reserve Bank of Chicago, Bear, Sterns & Company, Inc.,
Blue Cross and Blue Shield, Diebold Group, Inc., The Guardian
Life Insurance Company of America, Random House, Inc.,
Outrigger Hotels, America West Airlines, Equifax, First
Financial Management, ITT Community Development of Palm Coast,
National Data, National Westminster Bank, Morris Air, Ceridan
Corp., Kemper Financial Services and CSX.7 In many
instances, AT&T retained its existing customers by improving
service, reliability and price commitments. In other instances,
customers switched to new providers. While it is true that the
former monopoly or dominant carrier, once fresh look is
implemented, will have to compete to retain customers, it is
unlikely that fresh look will result in a sizable migration of
customers to new providers. This is true due to both the long-
standing relationship between COMSAT and its customers, and the
ubiquity of INTELSAT and Inmarsat satellite coverage, which
will continue to give those organizations a considerable
advantage for many years to come.
---------------------------------------------------------------------------
\7\ See: Gareiss, Robin, ``The Fight is On For `800' Users,''
Communications Week, April 19, 1993; Wallace, Bob, ``Winds of Change
Sweeping Over Cooped-up 800 World; Carriers Wage War of Numbers on
Defections,'' Network World, May 3, 1993; Gareiss, Robin, ``Carriers
Count Spoils of `800' Portability, Communications Week, May 3, 1993;
Burch, Bill, ``MCI Claims to be the Big Winner Under Fresh Look,''
Network World, August 2, 1993; Wallace, Bob, ``Users Ready for a Fresh
Look,'' Network World, July 12, 1993; Communications Daily, ``AT&T
Claims $140 Million; MCI Says it Has $170 Million in New 800 Business
Under Fresh Look,'' April 29, 1993.
---------------------------------------------------------------------------
COMSAT has used its monopoly for INTELSAT and Inmarsat
services to enter into long-term contracts with its consumers.
It is evident that INTELSAT and Inmarsat have market power with
respect to certain satellite services, whether it is for
primary communications or back-up communications. As the
monopoly distributor of their services in the U.S., COMSAT
enjoys the benefits of this market power. It is not in the
public interest for consumers to be tied in contracts entered
into in a monopoly environment when new providers enter the
market, for example through the direct access provisions of the
bill. COMSAT should not assume that because of its current
monopoly, Congress would never impose economic regulation to
eliminate that monopoly or otherwise promote competition
through such policy tools as fresh look. Congress reserved the
right to alter the existing relationship between COMSAT and
INTELSAT and Inmarsat in the 1962 Satellite Act. In this
instance, the Committee is exercising this right to promote
competition to the benefit of American satellite service
customers.
The Committee believes that the fresh look provision
contained in H.R. 1872, as reported by the Committee, is an
important policy tool for effectuating competition. The
Committee includes fresh look in H.R. 1872 because it believes
that fresh look should be included in any type of international
satellite reform legislation.
viii. safeguards for certain inmarsat services
H.R. 1872, as reported by the Committee, contains a number
of modifications to clarify the Committee's intent that the
provisions designed to encourage the privatization of Inmarsat
will not adversely impact the provision of maritime safety
services. Nor is H.R. 1872 intended to force users who rely on
Inmarsat maritime and aeronautical service to immediately stop
using Inmarsat for the provision of safety-related maritime or
aeronautical services. Accordingly, the FCC is to consider in
licensing decisions under new section 601 whether users of non-
core services provided by Inmarsat are able to obtain such
services from providers other than Inmarsat at competitive
rates, terms, and conditions, or whether costs to replace
equipment incompatible with the new competitors' systems are
exorbitant.
While the Committee believes that private satellite systems
will soon be offering competitive alternatives to all of the
COMSAT-provided Inmarsat services, the bill ensures that
Inmarsat's maritime and aeronautical services, and in
particular the Global Maritime Distress Satellite System
(GMDSS), will continue to be available to current and future
users. In particular, the bill as reported includes specific
provisions: (1) regarding Inmarsat replacement satellites (new
section 602(b)); (2) providing that the Commission may
authorize COMSAT to provide additional services, using Inmarsat
facilities as long as continued progress is made toward
privatization of Inmarsat (new section 603(a)); (3) providing
even if progress is not being made, COMSAT will be able to
continue to provide additional services under contracts in
existence on the date a finding of no progress is made (new
section 603(c)); and (4) providing that the United States must
take steps necessary to preserve the GMDSS (new sections
624(2)and 624(7)). These provisions provide the necessary assurances
that the bill will not harm Inmarsat users.
Inmarsat appears to be moving forward on its own a plan for
privatization. Given the current provisions in the Satellite
Act, including title VI, the Committee finds that
implementation in the United States of the plan being
considered currently by Inmarsat, or agreement by the U.S. to
such plan, as well as the creation of a new intergovernmental
organization, would require legislation amending the Satellite
Act. The Committee also finds that provisional application or
agreement regarding an Inmarsat privatization plan similar to
that currently being discussed would also require such
legislation. INTELSAT recently decided to transfer a portion of
its assets to a new affiliate, but has made no progress toward
pro-competitive privatization. This spin-off apparently may
also require legislative authorization.
IX. Safeguards for Certain INTELSAT Services
H.R. 1872 contains provisions to help ensure that INTELSAT
users will not be harmed by the transition to a privatized and
competitive market. These provisions are described in the
section-by-section analysis of new section 601 in general and
new section 601(b)(3) in particular, but are parallel to the
safeguards provided for Inmarsat users.
X. Constitutionality of H.R. 1872
During consideration of H.R. 1872 by the Committee, several
Members asked whether certain provisions of the bill raised
constitutional questions. Specifically, several Members asked
whether the bill's provisions relating to permitting COMSAT's
customers to renegotiate their contracts (section 642) and
possible restrictions on COMSAT's distribution of IGO services
(through sections 601 and 603) would constitute impermissible
takings; whether the bill would encroach on the Executive's
foreign affairs authority; and whether the bill was tantamount
to a bill of attainder. The Committee analyzed these and other
constitutional issues, and concludes that the bill does not
contain any unconstitutional provisions.
In conducting this analysis, the Committee examined the
following constitutional concerns: (1) takings; (2) bill of
attainder; (3) the President's foreign affairs authority; (4)
free speech clause of the First Amendment; and (5) due process/
impairment of contracts. The Committee was assisted in this
analysis by the American Law Division of the Congressional
Research Service (CRS).
A. Takings
Under the Fifth Amendment to the Constitution, private
property cannot be taken by the government for public use,
without just compensation. Under judicial precedent
interpreting the Fifth Amendment, there are basically two
separate takings doctrines--``per se takings'' and ``economic
regulation takings''. H.R. 1872 would not raise per se takings
issues, due to the lack of any tangible or real property
involved. The Supreme Court rarely finds a takings due to
economic regulation. In fact, to find a takings due to
statutory economic regulation, the Supreme Court has required
first that there be a substantive due process violation in the
statute. Since the Court has not found a substantive due
process violation in an economic regulation statute for over
half a century, takings in that realm are equally unlikely.
New section 601(a) would prospectively require the
Commission to prevent separated entities from entering and
providing service in the U.S. market if they were not
structured in a pro-competitive manner. COMSAT may continue to
own a portion of the INTELSAT affiliate New Skies, a
``separated entity'' under the bill. The Court has often stated
that ``those who do business in a heavily regulated field
cannot complain when the legislative scheme is altered from
time to time.'' See, e.g., Concrete Pipe & Products, Inc. v.
Construction Laborers Pension Trust, 508 U.S. 602, 643 (1993).
There is no property right in the possibility of future
business expansion. Nothing in takings law guarantees an owner
the continued use of its property in the most profitable
manner. Thus even if one were to contend that space segment
were property, Section 601(a)(1) does not appropriate such
space segment.
New section 601(b) would require the Commission to restrict
access for INTELSAT and Inmarsat to serve the U.S. for non-core
services if they did not privatize pro-competitively in
accordance with the legislation. A takings claim here is
unfounded. When establishing telecommunications policy, the
Committee and the Commission have routinely stated that
licenses are not private property. The Commission is currently
authorized to limit, deny, or revoke licenses in many
circumstances for legitimate purposes. The fact that this may
cause an financial impact on COMSAT is irrelevant under a
constitutional analysis.
If such an argument were persuasive, the Commission would
be without the right to revoke licenses in the public interest
because doing so would most certainly raise a takings complaint
from the aggrieved party. CRS has analyzed this issue and has
found no case where a taking claim was upheld solely on the
basis of a government-induced reduction in the value of an
investment other than in land. And, as discussed earlier, the
Court has been extremely reluctant to find takings based on
economic regulation, particularly when that regulation merely
adjusts the regulatory scheme in a heavily regulated area and
does not significantly benefit the government.
New section 603 would prevent INTELSAT and Inmarsat from
offering additional services under new contracts if the FCC
finds in its annual privatization review that these
organizations have not made substantial and material progress
towards privatization or are hindering new competitors from
entering foreign markets. There is no property right in the
possibility of future business expansion, even if the
government entity in question encouraged the belief at one time
that such expansion would be allowed.
New section 641 would allow U.S. providers of
telecommunications services to directly access INTELSAT and
Inmarsat rather than being forced to go through COMSAT.
TheCommittee notes that Congress reserved the right to repeal, alter,
or amend the provisions of the Act of 1962. See, section 301 of the
1962 Act, 47 U.S.C. 732 (1962). Of course, Congress could do so with or
without a specific reservation, but the fact that it included this
express reservation provides COMSAT notice that reliance on the status
quo or an expectation that Congress would never reform the satellite
regulatory regime through economic regulation would be unwarranted.
New section 642 would require the Commission to permit
users of telecommunications services a one-time opportunity to
take a ``fresh look'' and, at their choice, renegotiate their
contracts with COMSAT. The Supreme Court has repeatedly
rejected takings claims based on Federal frustration of
contracts between private parties. 8
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\8\ Concrete Pipe; Connolly; Omnia Commercial Co. v. United
States, 261 U.S. 502 (1923). In the lower courts, see Chang v. United
States, 859 F.2d 893 (Fed. Cir. 1988).
---------------------------------------------------------------------------
A concern was raised during the Subcommittee markup that
portions of the bill may violate the Tucker Act or subject the
U.S. Government to liabilities under the Tucker Act, 28 U.S.C.
Sec. 1491. The Tucker Act is a jurisdictional statute,
providing the Court of Federal Claims with jurisdiction over
private causes of actions. It does not provide affirmative,
substantive protections against certain government actions. The
function of the Tucker Act is to waive the sovereign immunity
of the United States to certain types of money claims, and vest
jurisdiction over such claims in the U.S. Court of Federal
Claims. In other words, the Tucker Act merely permits a suit
for restitution if there is a valid claim against the U.S. The
Tucker Act by itself creates no substantive right of action. In
this instance, the Committee has found no liability under or
violations of the takings clause and, thus, the Tucker Act is
not applicable, nor violated by H.R. 1872.
B. Bill of attainder
Article I, section 9, clause 3 of the Constitution
prohibits bills of attainder. The bill authorizes, or in some
cases directs, that the FCC take action COMSAT may consider
harmful to its interests, such as in new sections 601, 603 and
section 642. However, a bill of attainder is not merely
legislation that a company believes is harmful to its
interests, but is a legislative determination of guilt and
punishment. Because the Committee's goal is economic regulation
that promotes competition and privatization in the satellite
market, not to punish any particular entity, it believes that
H.R. 1872 is not a bill of attainder.
In any bill of attainder case there must be present two
elements--the requisite specificity and the intent to punish--
but the existence of the former element without the latter is
insufficient to establish an existence of a bill of attainder.
In Nixon v. Administrator of General Services, 433 U.S. 425,
468-84 (1977), the Supreme Court, in upholding legislation to
assert Federal Government control over President Nixon's
Presidential papers, ``denied that the clause limited the power
of Congress to burden some persons or groups while not so
treating all other plausible individuals or groups. Even the
law's specificity in referring to the former President by name
and applying only to him did not condemn the act, because he
`constituted a legitimate class of one' on whom Congress could
`fairly and rationally' focus.'' Because COMSAT currently has a
monopoly to distribute IGO services in the U.S., COMSAT is ``a
legitimate class of one'' for purposes of economic regulation
and the required element of specificity for a bill of attainder
is not met.
Notwithstanding that the first prong of the bill of
attainder test is inapplicable in this case, the Committee
analyzed whether the second prong is applicable. The Committee
concluded that the second prong of the test--the intent to
punish--is equally inapplicable. The Court used a three-pronged
analysis to reject the Nixon case: (1) the law imposed no
punishment traditionally judged to be prohibited by the clause;
(2) the law, viewed functionally in terms of the type and
severity of burdens imposed, could rationally be said to
further non-punitive legislative purposes; and (3) the law had
no legislative record evincing a congressional intent to
punish.
As the Supreme Court has ruled, ``only the clearest proof
will suffice to establish the unconstitutionality of a
statute'' on the basis that it ``was so punitive either in
purpose or effect as to constitute a penal statute rather than
a regulatory one.'' Hudson v. United States, 118 S.Ct. 488,493
(1997).
As has been stated in Part VI: The Committee Approach,
supra, the Committee has no intent to punish COMSAT. The
Committee seeks to stop the expansion of government provision
of commercial services and have all service providers compete
on a non-discriminatory basis. The Committee removes regulatory
burdens from COMSAT that would hinder its operations in a
competitive market. The Committee has the regulatory, not
punitive, motive to promote competition in the domestic and
global satellite services market.
In sum, the purpose of the proposed legislation, as
expressed throughout the course of the Committee's deliberation
of H.R. 1872, to promote competition in telecommunications
markets and a pro-competitive privatization of the IGOs, is
clearly non-punitive. The Committee believes and concludes that
H.R. 1872 does not constitute a bill of attainder.
C. First amendment
The First Amendment provides that Congress shall make no
law abridging the freedom of speech. Opponents of the bill
could suggest that new sections 601 and 603 of the Satellite
Act, as proposed to added by H.R. 1872, could be ruled
unconstitutional as an infringement on COMSAT's First Amendment
rights. Specifically, they might raise questions whether new
sections 601(b) and 603, requiring the Commission to prevent
INTELSAT and Inmarsat (and consequently COMSAT) from providing
non-core services or additional services, respectively, if
certain conditions are not met, would prevent COMSAT from
offering certain communications and information services,
including Internet content. Under this analysis, they might
argue that new section 601(a)'s requirements that the
Commission prevent separated entities from providingservices in
the U.S. unless certain conditions are met could constitute
impermissible restraints on speech.
However, in potentially precluding providers from providing
additional media, H.R. 1872 is comparable to antitrust laws
that prevent combinations by media owners in restraint of
trade. In addition to general antitrust laws, such as the
Sherman Act, 15 U.S.C. Sec. 1, the FCC has various rules
embodying such restrictions, including the daily newspaper
cross-ownership rule, 47 C.F.R. Sec. 73.3555(d). The Supreme
Court has upheld, against First Amendment challenges, both the
application of the Sherman Act to the news media, and prior
versions of the cross-ownership rule.
Two caveats apply to the general rule that government may
apply business restrictions on the provision of media services:
government cannot create a special tax on media products and
even content-neutral restrictions may be subject to an
intermediate level of scrutiny by the courts. The government is
given significant leeway in enacting such restrictions. In
Turner Broadcasting System, Inc. v. Federal Communications
Commission, 512 U.S. 664 (1994), the Supreme Court found that a
content-neutral regulation will be sustained if it promotes a
substantial governmental interest that would be achieved less
effectively absent the regulation. In other words, the
regulation need not be the least restrictive one the government
could have chosen, but it may not burden substantially more
speech than is necessary to further the government's legitimate
interests. The Committee concludes that this legislation does
indeed promote such a substantial government interest.
Further, it appears that any speech restriction that would
result from prohibiting some providers of services from
providing, or COMSAT from investing in, additional services,
such as the Internet, would constitute, at most, a content-
neutral incidental speech restriction. As such, it would be
constitutional if it promotes a substantial governmental
interest that would be less effective absent the regulation.
The purpose of the bill is to promote a fully competitive
global market for satellite communication services for the
benefit of consumers and providers of satellite services and
equipment. The Committee finds this to be a substantial
governmental interest.
The Committee believes and concludes that H.R. 1872 does
not interfere with COMSAT's First Amendment rights. CRS'
analysis of these issues is consistent with this finding. The
Committee further believes that the provisions of new sections
601 and 603 are necessary to promote a competitive satellite
marketplace, both globally and domestically. The impact of the
bill would be substantially less effective absent such
provisions. Thus, the Committee finds that any concerns raised
on possibly interfering with COMSAT's First Amendment rights
are without merit.
D. Foreign Authority
The Committee analyzed whether H.R. 1872 would encroach on
the President's foreign affairs prerogatives by establishing
instructions for positions in international negotiations. For
example, new section 661 requires the President to secure a
pro-competitive privatization of INTELSAT and Inmarsat based
upon the criteria outlined in subtitle B of the bill. Further,
new section 621 requires the President to secure a pro-
competitive privatization of INTELSAT and Inmarsat consistent
with the criteria outlined in new sections 622 to 624. New
sections 602, 648, and 649 might also raise similar questions.
The Committee has reviewed these concerns and found that they
do not encroach on Executive authority. This position is echoed
by CRS's legal analysis.9
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\9\ Memorandum to House Committee on Commerce from American Law
Division, Congressional Research Service, entitled ``Presidential and
Congressional Interaction Issue;'' dated April 15, 1998.
---------------------------------------------------------------------------
While it can be debated whether the Congress or the
President has the authority to take the lead in foreign
affairs, it is clear that the Congress and the Executive Branch
share authority over establishment of foreign policy. As a
general proposition, Congress and the President share power to
act interrelatedly in this international/national arena. The
President has the responsibility, under the Constitution, to
determine the form and manner in which the United States will
maintain relations with foreign nations. Only if there is some
exclusivity conferred on the President by the Constitution or
if there is some denial to Congress by the Constitution of the
authority to legislate requirements in this area would there be
a problem of validity.
The Committee notes that the current statute already
provides direction to, and obligations on, the President. For
instance, section 201(a)(1) of the 1962 Act requires the
President to aid the development and continuation of a
commercial communications satellite system. Clearly the past
does not support any proposition of presidential exclusivity in
respect to INTELSAT or Inmarsat. Indeed the former organization
emerged within the confines of the 1962 Act, and the latter was
established pursuant to the International Maritime Satellite
Act. The Committee strongly believes guiding the President on
IGO policy is consistent with Congressional authority provided
under the Constitution and with the precedence established in
the 1962 Act.
Congress has a number of delegated powers, including most
formidably, the authority to regulate commerce among the States
and with foreign nations. To Congress falls the legislative
responsibility to enact laws establishing national policy, and,
unless Congress invades some constitutional prerogative of the
President, he is obligated to carry out that policy, not only
in domestic affairs but in the context of international affairs
as well. If Congress establishes a policy inconsistent with our
obligations to other nations or to international bodies, it is
the responsibility of the President to so notify those
entities. It is not a constitutional issue if the statute,
instead of leaving unexpressed the obligation, specifies that
he is to carry out his international responsibilities to
effectuate the policy thus statutorily set. Thus, even if the
Administration were to object to the role provided the
President in H.R. 1872, this would not, in the Committee's view
raise Constitutional questions.
E. Due Process/Impairment of Contracts
The Committee analyzed whether H.R. 1872 would interfere
with private contracts of COMSAT or others, and thus violate
the Constitution's due process requirements. The Fifth
Amendment to the Constitution states that no person shall be
deprived of life, liberty, or property, without due process of
law. The issues raised regarding the bill's impact on contracts
and the due process clause seem to be two-fold: (1) the bill
could prevent COMSAT from executing its obligations and
contracts made with INTELSAT and Inmarsat; and (2) COMSAT's
current contracts would be explicitly subject to a one-time
renegotiation under the bill's ``fresh look'' provisions. The
Committee reviewed these concerns and believes that they do not
raise constitutional problems. The Committee also consulted
with and reviewed the work of CRS on this specific
issue.10 CRS's analysis supports the Committee's
conclusion that there is no impermissible interference with
contracts or due process problems with the legislation.
---------------------------------------------------------------------------
\10\ Memorandum to the House Committee on Commerce from American
Law Division, Congressional Research Service, entitled ``Congressional
Interference with Existing Contacts''; dated April 14, 1998.
---------------------------------------------------------------------------
CRS notes that ``as a general rule, congressional
legislation that interferes with private contracts is
scrutinized under the lenient rational-basis review accorded
economic regulations, whether the legislation operates
retroactively or not.'' In passing the 1962 Act, Congress
intended that the Act could be modified and expressly retained
the authority to ``repeal, alter or amend'' it. Thus, it is
clear that COMSAT and other companies cannot with any validity
claim a property right in any current arrangement under the
Act. Bowen v. Agencies Opposed to Social Security Entrapment,
477 U.S. 41, 52 (1986) supports this very conclusion.
The Supreme Court ruled in Fleming v. Rhodes, 331 U.S. 100,
107 (1947) ``So long as the Constitution authorizes the
subsequently enacted legislation, the fact that its provisions
limit or interfere with previously acquired rights does not
condemn it. Immunity from federal regulation is not gained
through forehanded contracts. Were it otherwise, the paramount
powers of Congress could be nullified by prophetic
discernment.'' In addition, in FHA v. The Darlington, Inc., 358
U.S. 84, 91 (1958) the Court declared, ``those that do business
in the regulated field cannot object if the legislative scheme
is buttressed by subsequent amendments to achieve the
legislative end.'' COMSAT today is regulated as a dominant
common carrier under title II of the Communications Act of 1934
in certain respects.
The Supreme Court has noted that economic regulation, that
is, ``a law adjusting the burdens and benefits of economic
life,'' enjoys before the courts a presumption of
constitutionality, unless the legislature acts in an arbitrary
and irrational way. Usery v. Turner Elkhorn Mining Co., 428
U.S. 1, 15 (1976). Laws upsetting expectations under contracts
may have a retroactive effect, but this fact does not alter the
analysis. See PBGC v. R. A. Gray & Co., 467 U.S. at 729.
[T]he strong deference accorded legislation in the
field of national economic policy is no less applicable
when that legislation is applied retroactively.
Provided that the retroactive application of a statute
is supported by a legitimate legislative purpose
furthered by rational means, judgments about the wisdom
of such legislation remain within the exclusive
province of the legislative and executive branches. Id.
In addition, the Supreme Court stated in Usery that ``[O]ur
cases are clear that legislation readjusting rights and burdens
is not unlawful solely because it upsets otherwise settled
expectations.'' Usery v. Turner Elkhorn Mining Co., 428 U.S.,
15-16. See also Concrete Pipe & Products of California, Inc. v.
Construction Laborers Pension Trust, 508 U.S. 602, 637 (1993).
A portion of COMSAT's current contracts are with agencies
of the Federal government, such as the Department of Defense,
that could be impacted by the implementation of this
legislation, including new sections 601, 603, and 642. If the
requirements of the legislation for a pro-competitive
privatization are not met, it is possible that COMSAT would be
unable to perform all of its obligations under contracts with
such Federal agencies. But this fact would not give rise to any
liability on the part of COMSAT or the United States. COMSAT
would presumably have a defense of impossibility of
performance. Moreover, no liability could be passed through to
the Government because of the sovereign acts doctrine. That is,
the Government as sovereign and the Government as contractor
constitute two separate roles. If the Government acts as
sovereign, in its legislative or executive capacity, to make
impossible the performance of its obligations, it cannot be
held responsible in its capacity as a contractor. See Horowitz
v. United States, 267 U.S. 458 (1925).
Thus, the government acting in its capacity as sovereign
with the intention of creating a competitive satellite
marketplace, both domestically and globally, would not incur
liability or cause constitutional problems due to the bill's
potential impact on COMSAT's contracts with Federal agencies.
It, thus, would appear that no constitutional issue would be
raised by any provision that would limit the exercise of pre-
existing contract rights of COMSAT or other entities, either in
terms of agreements with telecommunications companies, INTELSAT
or Inmarsat, or with governmental agencies. The Committee,
therefore, finds that there is no valid legal concern with
respect to contractual interference or due process.
Hearings
The Subcommittee on Telecommunications, Trade, and Consumer
Protection held a hearing on H.R. 1872, the Communications
Satellite Competition and Privatization Act of 1997, on
September 30, 1997. The Subcommittee received testimony from:
Ms. Regina M. Keeney, International Bureau Chief, Federal
Communications Commission; Mr. Jack A. Gleason, Associate
Administrator for International Affairs, National
Telecommunications and Information Administration, Department
of Commerce; Mr. Warren Y. Zeger, General Counsel,
COMSATCorporation; Mr. Frederick A. Landman, President and CEO,
PanAmSat Corporation; Mr. Kenneth Gross, President and COO, Columbia
Communications Corporation; and Mr. Gerald B. Helman, Vice President,
Mobile Communications Holdings, Inc./ELLIPSO.
Committee Consideration
The Subcommittee on Telecommunications, Trade, and Consumer
Protection met in open markup sessions on March 4, 1998, and
March 18, 1998 to consider H.R. 1872, the Communications
Satellite Competition and Privatization Act of 1998. On March
18, 1998, the Subcommittee approved H.R. 1872 for Full
Committee consideration, amended, by a voice vote.
Rollcall Votes
Clause 2(l)(2)(B) of Rule XI of the Rules of the House
requires the Committee to list the recorded votes on the motion
to report legislation and amendments thereto. A motion by Mr.
Bliley to order H.R. 1872 reported to the House, amended, was
agreed to by a voice vote, a quorum being present. The
following are the recorded votes on amendments to H.R. 1872,
including the names of those Members voting for and against,
and the voice votes taken on amendments offered to H.R. 1872.
Committee Oversight Findings
Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of
the House of Representatives, the Committee held a legislative
hearing and made findings that are reflected in this report.
Committee on Government Reform and Oversight
Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of
the House of Representatives, no oversight findings have been
submitted to the Committee by the Committee on Government
Reform and Oversight.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 2(l)(3)(B) of rule XI of the
Rules of the House of Representatives, the Committee finds that
H.R. 1872, the Communications Satellite Competition and
Privatization Act of 1998, would result in no new or increased
budget authority, entitlement authority, or tax expenditures or
revenues.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of
the House of Representatives, the following is the cost
estimate provided by the Congressional Budget Office pursuant
to section 402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 23, 1998.
Hon. Tom Bliley,
Chairman, House of Representatives,
Committee on Commerce, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1872, the
Communications Satellite Competition and Privatization Act of
1998.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Kathleen
Gramp (for federal costs) and Patrice Gordon and Jean Wooster
(for the private-sector impact).
Sincerely,
June E. O'Neill, Director.
Enclosure.
H.R. 1872--Communications Satellite Competition and Privatization Act
of 1998
Summary: H.R. 1872 would amend existing law regarding the
federal regulation of international satellite communications
systems and their relationship to the U.S. market. Two treaty-
based entities--the International Telecommunications Satellite
Organization (INTELSAT) and the International Mobile Satellite
Organization (Inmarsat)--currently provide most satellite-based
communications services worldwide. A private company, COMSAT,
serves as the U.S. signatory to both organizations and, under
current law, has the exclusive right to market their services.
This bill would allow customers to purchase services directly
from INTELSAT and Inmarsat and to renegotiate contracts with
COMSAT under certain terms and conditions. If the privatization
of INTELSAT and Inmarsat occurs in a manner inconsistent with
the criteria and deadlines in the bill, the Federal
Communications Commission (FCC) would be required to limit the
types of services and facilities that these entities can
provide in the U.S. market. The bill also would modify COMSAT's
rights and status as signatory, and would make the company
subject to the FCC's regulatory fees. The FCC and the
Department of Commerce (DOC) would have to issue various
reports, findings, and determinations to implement these
provisions, but the bill would eliminate certain administrative
tasks after certain reforms take effect.
CBO estimates that implementing this bill would have no
significant budgetary effects over the 1999-2003 period, but
could result in lower costs to federal agencies for
international telecommunications services in future years. The
legislation would not affect direct spending or receipts;
therefore, pay-as-you-go-procedures would not apply. H.R. 1872
contains no intergovernmental mandates as defined in the
Unfunded Mandates Reform Act of 1995 (UMRA) and would impose no
costs on state, local, or tribal governments. H.R. 1872 would
impose new private-sector mandates as defined by UMRA. CBO
estimates that the cost of those mandates would not exceed the
statutory threshold established in UMRA ($100 million in one
year, adjusted annually for inflation).
Estimated cost to the Federal Government: H.R. 1872 would
affect discretionary spending on regulatory activities and
purchases of international telecommunications services. CBO
estimates that the administrative costs associated with
implementing this bill would have no significant effect on net
spending by the FCC and DOC. We estimate that the FCC would
spend a few million dollars over the five-year period to
prepare the determinations and reports required by the bill,
assuming appropriation of the necessary amounts. Because the
commission is authorized under current law to collect fees from
the telecommunications industry sufficient to offset the cost
of its regulatory and applications activities, CBO assumes that
these additional costs would be offset by an increase in
collections credited to annual appropriations for the FCC.
Likewise, we assume that any reduction in spending resulting
from the repeal of existing statutory tasks would be offset by
a reduction in receipts. Hence, we estimate that the net effect
of this additional workload on the FCC's discretionary spending
would be negligible. In addition, we estimate that DOC would
spend less than $100,000 in 1999 to prepare reports on access
to markets in INTELSAT and Inmarsat-member nations.
The bill also would require COMSAT to pay regulatory fees.
By itself, that requirement would not change the amount of
receipts collected by the FCC because the agency's receipts are
based on the amounts appropriated. However, having COMSAT pay
regulatory fees would increase the number of companies liable
for the fee, which would reduce the amount that must be paid by
other companies. According to the FCC, COMSAT's payments would
total about $650,000 per year.
H.R. 1872 could result in lower prices in the future for
international telecommunications services purchased by the
federal government, but CBO estimates that such savings are
unlikely to be significant during the 1999-2003 period.
According to COMSAT, the company's direct sales to the federal
government totaled about $50 million in 1997, most of which
involved sales to the Department of Defense and the Federal
Aviation Administration. Provisions in this bill allowing
agencies to purchase services directly from INTELSAT or
Inmarsat after January 1, 2000, may result in savings relative
to current law. Given the time that would be needed to resolve
various technical and contractual issues related to direct
access, CBO expects that such savings, if they occur, would not
be significant during the next five years. Provisions allowing
agencies to renegotiate existing contracts with COMSAT are
unlikely to yield significant savings because most government
contracts do not involve long-term volumetric commitments. The
cost of services purchased from other providers, such as AT&T,
MCI, and Sprint, could decline if those companies reduce their
costs as a result of this legislation, but CBO cannot estimate
the magnitude or timing of such savings.
CBO also expects that federal agencies would be unlikely to
incur significant costs if the privatization of INTELSAT and
Inmarsat were to trigger the restrictions in the bill on the
types of services those entities can provide in the U.S.
market. Finally, it is possible that enacting H.R. 1872 would
result in litigation regarding the rights and status of COMSAT.
CBO has no basis for predicting the likelihood or potential
costs of such litigation.
Pay-as-you-go considerations: None.
Estimated impact on State, local, and tribal governments:
H.R. 1872 contains no intergovernmental mandates as defined in
UMRA and would impose no costs on state, local, or tribal
governments.
Estimated impact on the private sector
H.R. 1872 would impose new private-sector mandates, as
defined by UMRA, on COMSAT (a private firm, created by federal
statute) and on owners of earth stations who buy services from
INTELSAT and Inmarsat. (An earth station consists of an antenna
and associated electrical equipment that transmit and receive
radio signals). CBO estimates that the direct costs of
complying with private-sector mandates in the bill in each of
the years 2000 through 2004 would be below the statutory
threshold established in UMRA ($100 million in 1996, adjusted
annually for inflation). In addition to the costs of mandates,
the bill would affect the future business potential of COMSAT
in a variety of other ways. Those effects depend on whether
INTELSAT and Inmarsat meet the criteria for privatization
included in the bill. CBO has not attempted to estimate the
magnitude of those effects.
Mandates in the bill
H.R. 1872 would impose three specific mandates on the
private sector. The most costly is contained in section 642.
That section would direct the FCC, beginning January 1, 2000,
to require COMSAT to allow its customers to renegotiate their
service contracts or terminate them without liability.
Estimating the cost of section 642
Section 642 would allow firms that have contracted with
COMSAT for telecommunications services to take a ``fresh look''
at those contracts. COMSAT's status as the sole U.S. supplier
of access to INTELSAT and Inmarsat services would be eliminated
by section 641. Thus, the fresh look provision would allow
COMSAT's current customers to take advantage of a new, more
competitive market by negotiating more favorable terms with
COMSAT or by terminating their contracts without liability if
they can obtain better terms directly from INTELSAT and
Inmarsat (or their successors) or from other satellite service
providers. CBO estimates that the direct cost to COMSAT of the
fresh look provision would be less than $100 million annually
between 2000 through 2004 (the first five years that the
mandate would be effective.)
That estimate is based on information provided separately
by COMSAT, its major customers, and the FCC. The estimated
costs represent the difference between COMSAT's current
expected net income from long-term contracts or tariff
commitments, and its estimated net income after contracts have
been renegotiated. CBO expects, consistent with assumptions
made by COMSAT and its customers, that in general contracts
would be renegotiated at lower prices rather than being
entirely broken. Further, CBO assumes that the costs
attributable to H.R. 1872 would be solely those related to
long-term contracts that otherwise could not be renegotiated
until they expire. After existing contracts expire any reduced
revenues to COMSAT from negotiations for follow-on contracts
would be attributable to new market conditions rather than the
fresh look mandate in the bill.
Other mandates
The other private-sector mandates pose minimal costs. If
the privatization criteria for INTELSAT and Inmarsat are not
met, section 601(b)(1) would direct the FCC to limit, deny, or
revoke the license of any entity (primary earth stations) to
use a space segment owned, leased or operated by INTELSAT or
Inmarsat to provide so-called noncore services. The bill
defines such services, with respect to INTELSAT, as ``services
other than public-switched network voice telephone and
occasional-use television'' and, with respect to Inmarsat, as
``services other than global maritime distress and safety
services or other existing maritime or aeronautical services
for which there are not alternative providers.''
On the one hand, if INTELSAT and Inmarsat are privatized in
a manner specified by the bill, no private-sector mandate would
be created. On the other hand, if privatization does not occur,
the FCC would have to take into account the prospect of harm to
the buyers of satellite services before making its licensing
decision. CBO assumes that, if competitive alternatives did not
exist, the FCC would not deny earth stations access to INTELSAT
or Inmarsat satellites. Either way, the cost of this provision
would be negligible. The third mandate would be created by
section 643(c), which would impose regulatory fees on COMSAT.
Those fees are estimated to be about $650,000 annually.
Estimate prepared by: Federal costs: Kathleen Gramp; Impact
on the private sector: Patrice Gordon and Jean Wooster.
Estimate approved by: Robert A Sunshine, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 2(l)(4) of rule XI of the Rules of the
House of Representatives, the Committee finds that the
Constitutional authority for this legislation is provided in
Article I, section 8, clause 3, which grants Congress the power
to regulate commerce with foreign nations, among the several
States, and with the Indian tribes.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short Title
Section 1 designates the short title of the bill as the
``Communications Satellite Competition and Privatization Act of
1998.''
Section 2. Purpose
Section 2 designates that the purpose of the Act is to
promote a fully competitive global market for satellite
communication services for the benefit of consumers and
providers of satellite services and equipment by fully
privatizing the intergovernmental satellite organizations
(IGOs)--INTELSAT and Inmarsat.
The Committee finds that private businesses in a
competitive market, rather than intergovernmental organizations
providing satellite communications services, best serves the
interests of consumers, workers, and businesses. The Committee
finds that it is in the public interest for private companies
rather than intergovernmental organizations to provide
satellite services. The Committee also finds that the current
IGOs (i.e., INTELSAT and Inmarsat) as well as their
signatories, impair competition, raise barriers to market
access for competitors and potential competitors, impede
innovation, and raise costs for consumers. The Committee finds
that the signatories to the INTELSAT and Inmarsat agreements,
many of which are government-owned or controlled, impede
competition and grant unfair advantage to the IGOs. The primary
purpose of new title VI is to end the role of intergovernmental
organizations in providing commercial satellite communications
services and to ensure that when such organizations are
privatized, the privatized entities are independent of their
current signatories or owners which control access to national
markets and are otherwise organized in a manner that maximizes
competition.
Section 3. Revision of Communications Satellite Act of 1962
Section 3 creates a new Title VI with ``Subtitle A,''
``Subtitle B'', ``Subtitle C,'' ``Subtitle D,'' and ``Subtitle
E'' to the Communications Satellite Act of 1962 (the 1962 Act
or Satellite Act).
TITLE VI--COMMUNICATIONS COMPETITION AND PRIVATIZATION
Subtitle A--Actions to Ensure Procompetitive Privatization
Section 601--Federal Communications Commission licensing
New section 601(a) establishes a competition test which
prohibits the Federal Communications Commission (FCC or the
Commission), with respect to any separated entity, from: (1)
issuing a license or construction permit; (2) renewing a
license or permit; (3) permitting the assignment of a license
or permit; or (4) authorizing the use by any entity subject to
U.S. jurisdiction of any space segment owned or operated by a
separated entity unless the Commission determines that such
issuance, renewal, assignment, or use will not harm competition
in the U.S. The Commission is required to deny or revoke
authority to use space segment (i.e., satellite capacity) owned
or operated by the separated entity to, from, or within the
U.S. if it cannot make such a determination.
This subsection is specifically intended to apply to, but
is not limited in its application to, the planned INTELSAT
spin-off currently known as ``INC'' or ``New Skies Satellites,
N.V.''
New section 601(a)(2) requires the Commission to use the
licensing criteria created in new sections 621 and 623, as
added by this title, when making a determination pursuant to
paragraph 601(a)(1). The Commission is precluded from making
such a determination unless the privatization of any separated
entity occurs in a manner that is consistent with all of the
criteria in new sections 621 and 623. The Committee's intent is
to ensure that an anti- competitive restructuring does not
occur and if it does, such separated entity will be denied
access to the U.S. market until such time as it is structured
in a pro-competitive manner, as defined by the criteria in new
sections 621 and 623. Spin-offs of IGOs like INTELSAT and
Inmarsat may have one or more special advantages or otherwise
be harmful to competition.Such advantages include, but are not
limited to, favorable market access due to their former
intergovernmental status, possible broad signatory ownership, favorably
obtained orbital locations, possible preexisting contracts obtained by
the IGOs, possible transfer of assets at book value rather than market
value, and discriminatory relationships with any remaining IGO. The
Committee finds that an IGO spin-off is a unique entity, including by
virtue of its parent's intergovernmental status or relationship with
remaining IGOs, and that any of these types of advantages create a high
risk to competition. The Committee concludes that privatization in a
manner consistent with pro-competitive criteria in this title is in the
public interest.
New section 601(b)(1) establishes a competition test which
requires the Commission to substantially limit, deny, or revoke
the authorization of any entity subject to U.S. jurisdiction to
use any space segment owned, leased, or operated by INTELSAT or
Inmarsat or any successor entities thereof to provide non-core
services unless the Commission determines that INTELSAT and its
successor entities (after January 1, 2002) or Inmarsat and its
successor entities (after January 1, 2001), have been
privatized in a manner that will not harm competition in the
U.S. Using access to the U.S. market as an incentive is the
single best means to promote pro-competitive privatizations of
the IGOs or otherwise influence IGO or former IGO behavior.
New section 601(b)(1) requires the Commission to take
action necessary to enforce these provisions. The Commission is
to use its authority to prevent the IGOs from offering non-core
services in the U.S. market if the IGOs do not privatize in a
pro-competitive manner by the dates provided. This section does
not in any way limit the authority of the Commission to
otherwise limit, deny, or revoke access to the U.S. market for
INTELSAT, Inmarsat or their successor entities either before or
after the dates for privatization with respect to core or non-
core services.
New section 601(b)(2) requires the Commission to use the
licensing criteria created in new sections 621, 622, and 624,
as added by this bill, when making a determination pursuant to
new section 601(b)(1). The Committee finds that privatization
in a manner consistent with pro-competitive criteria in this
legislation is in the public interest. The Commission is
prohibited from making such a determination unless the
privatization of INTELSAT, Inmarsat, or any successor entity is
consistent with all of such criteria. The Committee's intent is
to ensure that any privatization or restructuring promotes
competition and if a privatization consistent with this title
does not occur, then INTELSAT, Inmarsat or a successor entity's
access to the U.S. market for non-core services be
substantially limited, denied, or revoked until such time as
the entity is restructured in a pro-competitive manner as
defined by the criteria in new sections 621, 622 and 623.
The Committee finds that any special advantages retained by
privatized IGOs will pose a high risk to competition. Such
advantages include, but are not limited to, favorable market
access due to their former intergovernmental status, possible
broad signatory ownership, favorably obtained orbital
locations, possible preexisting contracts obtained by an IGO,
possible transfer of assets at book value rather than market
value, and possible discriminatory relationships with the
remaining IGOs. Other special advantages which would pose a
high risk to competition include continued discriminatory
relationships between a successor entity and a remaining IGO,
collusive behavior or cross subsidization between a successor
entity and a remaining IGO, any direct or indirect benefit from
privileges and immunities, ownership that is not independent of
signatories which control access to national markets or the
current IGOs, the lack of arm's length relationship between the
successor entity and remaining IGO, (including separate
officers, directors, employees, resources, marketing efforts
and accounting systems), no recourse to IGO assets including
for credit or capital, and fair market valuing for permissible
business transactions between the IGO and its successor entity
that is verifiable by an independent audit and consistent with
normal commercial practice. An IGO registering or coordinating
spectrum or orbital locations for successors would also
constitute an anti-competitive advantage.
New section 601(b)(3) clarifies some of the factors the
Commission is to consider in making the licensing
determinations pursuant to new section 601(b). The Commission
shall consider whether users of non-core services are able to
obtain similar services from an alternative to INTELSAT,
Inmarsat, or successor entities: (1) whether such an
alternative offers services at competitive rates, terms, or
conditions; (2) whether the users, such as airlines or maritime
users, will have to replace equipment at substantial costs
prior to the termination of its design life; and (3) whether
competitive alternatives do not exist because they have been
foreclosed or hindered due to anti-competitive actions
undertaken by or resulting from the INTELSAT or Inmarsat
systems. This section also notes that such licensing decisions
shall be made in a manner which facilitates achieving the
purposes and goals in this title. New paragraph (b)(3) is
designed to clarify rather than modify the language in new
paragraph (b)(1).
New section 601(b)(3) is intended in part to address the
questions raised by some parties regarding the potential impact
of new section 601(b) on certain users. Some expressed a
concern about the possibility that certain users might be
required to switch from IGO services when there are not yet
competitive alternatives available. The Committee addressed
this concern by providing that the Commission is to consider in
making its licensing decision under new section 601(b) whether
users of non-core services are able to obtain such services
other than through the IGOs at competitive rates, terms, and
conditions. At the same time, the Committee does not wish to
provide any incentive to the IGOs or their signatories to
preclude market entry by U.S. satellite service providers in
overseas markets, thus preventing competitive alternatives from
developing. Some expressed a concern that some signatories,
aware that the Commission might consider whether alternatives
were available to users, might make it more difficult for such
alternatives to develop. Thus the Committee provides that in
making its licensing decisions the Commission shall consider
whether competitive alternatives in individual markets do not
exist because of actions taken by or resulting from the
INTELSAT or Inmarsat systems. Under this subsection, the
Commission may publish notice of a potential limitation or
revocation of licenses prior to the privatization dates in new
section 601, in order to provide an opportunity to users to
avoid high costs of replacing equipment or transitioning from
one system to another. This subsection makes clear, however,
that the decisions shall be made in a manner which facilitates
the pro-competitive privatization of INTELSAT and Inmarsat as
outlined in this title. Thus the Commission must implement new
subsection (b)(3) in a manner which is best suited to resultin
the pro-competitive privatization of the IGOs as soon as practicable
but no later than January 1, 2001, for Inmarsat and January 1, 2002,
for INTELSAT and in a manner consistent with the criteria in subtitle
B.
The Committee notes that nothing in H.R. 1872 is intended
to jeopardize the ability of the U.S. government to contract
for satellite services as necessary to protect our national
security. The Committee expects that the Commission will
implement section 601(b)(3), and all other provisions of the
bill, in a manner which takes into account U.S. national
security interests. The Committee expects particular deference
be given to the national security related needs of our
intelligence agencies and the Department of Defense, and other
similar agencies.
The Committee's intent is that while the Commission is to
apply sufficient pressure on the IGOs and their successors to
privatize in a pro-competitive manner as defined in the
legislation, in doing so, it should consider the impact on
users as prescribed in the bill. The objective is to reduce the
burden on users if IGOs are denied access to the U.S. market.
The Committee recognizes that certain signatories or the IGOs
may erect or maintain formal or informal barriers to
competitors, with the effect of making it difficult for
providers other than the IGOs to offer competitive services to
those markets. Thus the Commission is required to consider
whether competitive alternatives do not exist because they have
been foreclosed or hindered due to anti-competitive actions
undertaken by or resulting from the INTELSAT or Inmarsat
systems.
This legislation is consistent with the World Trade
Organization (WTO) obligations of the United States. However,
to clarify that this is the case, new section 601(c)(3)
explicitly states that the Commission shall take into
consideration the United States obligations and commitments for
satellite services under the Fourth Protocol to the WTO's
Services Agreement, which covers basic telecommunications, as
it implements new subsections (a) and (b). New subsection (c)
is not designed in any way to reduce the pro-competitive
requirements or criteria in this title. It is intended to
clarify that the Commission shall take notice of the WTO
obligations of the U.S. as it implements this title. The
Committee anticipates that the Commission will, in doing so,
receive input from relevant Executive branch agencies.
New section 601(d) expressly states that this legislation
does not preclude COMSAT from investing in or owning satellite
or other facilities independent from INTELSAT, Inmarsat or
successor or separated entities, or from reselling the services
or facilities of such independent systems. This provision
clarifies the Committee's intent that this legislation not
preclude COMSAT from providing services through facilities
independent from the IGOs. Thus, the legislation permits COMSAT
to provide services in advanced, high-growth areas, including
additional and non-core services, regardless of the outcome of
the annual privatization determinations under new subsection
601(b)(1) or new section 603, provided that COMSAT does so
through independent facilities.
The Committee's goal is to motivate and provide incentives
for the IGOs to privatize in a pro-competitive manner as soon
as possible. Essentially, the Committee has used the
possibility of continued access to the lucrative U.S.
telecommunications market to encourage the IGOs to privatize.
New section 601 therefore provides deadlines and specific
competition criteria. If these requirements are not met, the
IGOs access to the U.S. market will be restricted for non-core
services.
Section 602--INTELSAT or Inmarsat orbital locations
New section 602 requires the President, unless the FCC
determines that the IGOs have been privatized in a manner that
will not harm competition pursuant to new section 601(c), to
oppose, and prohibits the FCC from in any way assisting, any
registration for new orbital locations for INTELSAT after
January 1, 2002, and for Inmarsat, after January 1, 2001. The
President and the FCC also must take all measures necessary to
preclude procurement, registration, development, or use of new
satellites which would provide non-core services. COMSAT is
required under the 1962 Act to obtain authorization by the FCC
for investment in new INTELSAT or Inmarsat satellites.
A limited exception is provided in that this restriction
does not apply to orbital locations for replacement satellites
pursuant to new section 622(2)(B) and orbital locations for
satellites that are contracted for as of March 25, 1998, if
such satellites do not provide additional services. Additional
services are defined as Internet services, high-speed data,
interactive services, non-maritime or non-aeronautical mobile
services, DTH or DBS video services, or Ka-band services. Such
services should be provided by the private sector rather than
IGOs. This exception in new subsection (b) is not intended to
provide an avenue for expansion for the IGOs, through
acquisition of new orbital locations or expanding the use of
existing locations. New subsection (b)(2) provides that this
exception only applies to satellites which provide services in
the C, Ku, and L bands.
Section 603--Additional services authorized
New section 603(a)(1) provides that the Commission may,
subject to conditions in new section 603, authorize the use of
INTELSAT or Inmarsat space segment for certain advanced
services defined as additional services. New section 603(a)(2)
provides that if the Commission does not find that the
requirements of its annual review process as required in new
section 603(b) have been fully met, including that substantial
and material progress has been made toward a pro-competitive
privatization and that the IGOs are not hindering competitors
market access, then the Commission may not permit COMSAT or
other providers of IGO services to offer additional services
under new contracts. Under new subsection 603(a)(2), the
prohibition on additional services under new contracts would
last until the Commission makes a finding that progress towards
a pro-competitive privatization is being made.
Under new section 603(a)(2), if progress is not found, the
Commission is required to preclude the authorization, license,
permit or renewal thereof for the use of IGO space segmentfor
additional services provided directly or indirectly under new
contracts. By including both the direct and indirect provision of
additional services, the Committee intends to preclude evasion of this
section, including through resale to new users by existing users. New
subsection 603(a)(3) requires the Commission to establish rules to
prevent evasion of the limitations in this section by users who did not
use specific additional services as of the date of the Commission's
most recent finding under new subsection (b) that the conditions of
such subsection have not been met. Thus users who are utilizing one
type of additional service cannot evade this section by purchasing
another type of additional service following a negative finding. The
intent of this subsection is to avoid a potential termination of the
services a user is currently utilizing, if a negative finding is made,
but to preclude COMSAT or other providers of IGO services from offering
additional services under new contracts, if the requirements of new
section 603 are not met. New section 603 in no way limits the authority
of the Commission to limit additional services or other services of
IGOs or separated or successor entities if it decides to do so in the
public interest, to promote a pro-competitive privatization or
otherwise.
New section 603(b) requires the FCC to annually review
whether progress is being made by the IGOs towards a pro-
competitive privatization and provides the dates by which these
annual findings must occur. New section 603(b)(1) contains the
primary criteria to be used in such findings. New section
603(b)(1)(A) sets out the first of these: that substantial and
material progress has been made during the preceding period at
a rate and manner that is probable to result in achieving a
pro-competitive privatization in accordance with this title.
Thus, the Commission would be required to find that the
requirements of the section were not met if at the time of a
finding: (1) the rate of privatization was not moving at a pace
that would result in privatization of INTELSAT by January 1,
2002 and Inmarsat by January 1, 2001, or (2) that even if it
were, it is not probable that such privatizations would occur
in a manner consistent with all the requirements of this title.
Moreover, progress must be substantial and material, that is,
not merely statements of intent to privatize, in order for the
Commission to make a positive finding.
New section 603(b)(1)(B) sets out the second primary
criterion for a positive annual finding: that neither INTELSAT
or Inmarsat are hindering competitors' or potential
competitors' access to the satellite services market place.
Thus, if the Commission finds that the IGOs, either on their
own or working with their signatory owners, are hindering
access to the satellite services market, then it must find that
the conditions in this section have not been met.
New sections 603(b)(2)-(5) contain several specific
conditions which, at a minimum, must be met in order for the
Commission to make a positive annual finding. However, these
minimum requirements alone are not sufficient for the
Commission to make a positive finding. Both new sections
603(b)(1)(A) and (B) must also be met prior to a positive
finding. The principle criteria that must guide the
Commission's analysis are those in new section 603(b)(1). The
references to a pro-competitive privatization in new sections
603(b)(2)-(5) refer to that described in the requirements of
this title. For example, if the resolution described in new
section 603(b)(2) is not consistent with and does not include
the pro-competitive criteria in subtitle B, then the
requirements of this section have not been met. The same
applies with respect to the new sections 603(b)(3)-(5).
New section 603(b)(6) defines the criterion of not
hindering access and requires that the Commission not make a
finding under new paragraph (1)(B) unless the Commission
determines that the INTELSAT or Inmarsat are not in any way
impairing, delaying or denying access to national markets or
orbital locations for other satellite service providers. The
Committee finds that the IGOs and their signatories have
impaired market access and that the IGOs have warehoused
orbital slots, impaired competition throughout the satellite
coordination process, and otherwise created barriers to
competition. This section therefore requires the Commission to
make a negative finding under paragraph (1)(B) if it determines
that the INTELSAT or Inmarsat systems are in any way impairing
or delaying access to national markets or orbital locations.
New section 603(c) grandfathers users under existing
contracts, so that COMSAT or any other IGO Signatory may
continue to provide additional services to any third party
under a contract that predates a negative finding. This section
is designed to avoid requiring the breach of existing contracts
for IGO services by parties that have relied on such contracts
in business planning. It is not intended to permit evasion of
new subsection (b) through resale or other devices.
Subtitle B--Federal Communications Commission Licensing Criteria:
Privatization Criteria
Section 621--General criteria to ensure a pro-competitive privatization
of INTELSAT and Inmarsat
New section 621 provides the Commission with the general
criteria it must use in its determination of whether the
licensing of the use of, or provision of service by, any of the
privatized entities will harm competition in the U.S. market.
In addition to the ten general criteria in new section 621,
other provisions in subtitle B provide criteria specific to the
privatization of INTELSAT, INTELSAT's separated entity, and
Inmarsat. New section 621 directs the President and the
Commission to secure pro-competitive privatizations of INTELSAT
and Inmarsat in accordance with the criteria set out in
subtitle B.
New section 621(1) provides deadlines for the two
organizations to obtain such a privatization. For INTELSAT, the
deadline is as soon as practicable, but no later than January
1, 2002, for Inmarsat it is as soon as practicable, but no
later than January 1, 2001. The Committee believes that these
dates are fully achievable for each organization, since they
have been studying the issues associated with privatization for
over four years.
New section 621(2) sets out the key objective for
privatizations of the IGOs, which is that their successor
entities and separated entities be independent corporations.
Currently, the IGOs are not corporations, incorporated in any
one country and subject to that country's laws, but instead are
treaty-based intergovernmental organizations, immune from many
nationalgovernments' laws and regulations. In effect, the IGOs,
providers of commercial services, have much of the legal status of a
government entity. The intent of new section 621(2) is to ensure that
the privatized entities do not operate with such privileged and immune
treatment, but are subject to the same laws and regulations as other
competitors. Accordingly, new section 621(2) requires that privatized
entities be national corporations and have ownership and management
that is independent of the IGOs and the signatories.
Specifically, new section 621(2)(B)(I) provides that the
privatized entities must have ownership and management that is
independent of any signatories or former signatories that
control access to national telecommunications markets, and
ownership and management independent of any IGO remaining after
the privatization. This is intended in part to remove the
conflict of interest inherent when, as is often the case with
the IGOs owners, the operators, or signatories, are owned by
the same agency empowered to make interconnection arrangements
or licensing decisions on additional market entry. In some
cases, the IGO signatories are themselves the government
licensing agency. If the privatized entities are owned by
operators who can ensure new competitors are kept out of their
national markets or raise barriers or otherwise impair market
access, then such a privatization will harm competition.
By ``independent,'' the Committee intends that the IGO
privatizations result in entities that operate free from
control of the IGOs and the IGO signatories, and that they
instead function as normal private corporations, with fiduciary
duties to private shareholders, and not to national
governments. The Committee does not intend to bar investment in
the privatized entities by any particular entity, but the
signatories, acting in any collaborative function as they do
now through IGO structure, should not control or influence the
operations of any privatized entity. The Committee does not
intend to provide ``veto'' power to any one country by the
insistence of that country's signatory investing in a
privatized entity. Rather, by ``independent,'' the Committee
intends to provide some degree of flexibility and discretion to
the Administration and the Commission in determining the
totality of the privatized entity's independence, and therefore
specifically avoids using investment limitations on a
percentage basis. However, the Committee intends a minimum of a
superabundant external investment, independent from the IGOs,
signatories and former signatories, would be necessary to find
that a privatized entity is indeed ``independent.'' Likewise,
if signatory ownership creates an incentive or potential
incentive for signatory favoritism of an IGO successor or
separate entity, such structure should not be deemed
independent.
Likewise, the Commission should consider when making its
determinations under new section 601, the totality of the
privatized entities ownership and management structure. The
Committee also expects the Commission would look to its
precedents and relevant precedents in other bodies of law for
determining independence in terms of corporate governance. If
the IGOs or market-access controlling signatories have control
of the board or in other ways control the operations and
decisions of any privatized entities, then such entities would
not be ``independent'' under the meaning of this section. The
Committee recognizes that there are many ways to ``control''
access to markets. Legal control is one means. Control through
facilities ownership or influence with authorities are others.
Without the requirements of this section, the successor and
separated entities of the IGOs could retain the same unfair
market advantage over private competitors that the IGOs
themselves have enjoyed. The legislation is concerned only with
those signatories and former signatories who control market
access. The Committee is determined to open markets to
competitive suppliers of telecommunications services, so as to
most reliably lower the costs of international communications
for the benefit of consumers in the United States and
worldwide.
New section 621(3) requires as a pro-competitive criteria
that the privatized entities may not operate with IGO
privileges and immunities. This section seeks to prevent the
IGO successor and separated entities from benefiting from
another unfair competitive advantage that the IGOs have
enjoyed. The IGOs have a full range of diplomatic and other
treaty-based privileges and immunities, such as tax exemptions,
immunity from lawsuits, antitrust immunity, and preferential
access to orbital locations. These privileges and immunities
have permitted the IGOs to warehouse scarce orbital slots,
prevented competitors from obtaining orbital locations from
which to compete, and have made it difficult, if not
impossible, for private competitors to obtain legal redress for
anti-competitive abuses that the IGOs may have engaged in.
New section 621(3) provides that preferential treatment of
the IGOs not be extended to any privatized entity. This section
therefore prohibits extending any preferential treatment the
IGOs have enjoyed. In addition, the section specifically
includes privileged or immune treatment provided by national
governments; privileges or immunities or other competitive
advantages IGOs and their signatories enjoy through their
intergovernmental agreements by which the IGOs operate; and
preferential access to orbital locations including through the
non-application of anti-warehousing requirements. By this
language, the Committee intends that the privatized entities
would be subject to the same requirements as any other
competitor in a market, and would not be provided preferential
access over its competitors to orbital locations, nor
preferential status under a country's domestic law nor any
other preferences, direct or indirect, of any kind. Therefore,
to be pro-competitively structured, a privatized entity must be
treated like any other competitor in each national market. For
purposes of a Commission determination under new section 601,
the Commission must consider that preferential treatment in
other markets may harm competition in the U.S. market.
New section 621(4) requires as one of the ten general
criteria for a pro-competitive restructuring that during the
transition period prior to full privatization, the IGOs shall
not be permitted to expand into additional services, as defined
by the bill. This limit on IGO expansion applies to additional
applications of existing services or additional areas of
business. Thus if an IGO attempts to offer an additional
service by applying an existing service in a new or advanced
manner, that service provision would also be precluded.
New section 621(4) is intended to prevent the IGOs from
leveraging their dominant positions in their core services into
new and additional services. This is, in part, designed to
address the phenomenon that, when dominant telecommunications
companies are put on notice that competition is going to be
permitted, they commonly seek to expand into new markets, using
leverage from their dominant services to foreclose the market
opportunities of new entrants.Such leveraging into advanced
service sectors would be particularly troubling in this instance since
the IGOs were given their monopolies only to facilitate their provision
of core services, such as international telephony for INTELSAT and
safety of life at sea for Inmarsat.
New section 621(5) provides that any privatized entity
shall be a national, public stock corporation whose shares are
publicly traded and whose operations are subject to the laws of
the nation of incorporation. Therefore, new section 621(5)(B)
provides deadlines for initial public offerings of securities
of any privatized entity. Those deadlines are no later than
January 1, 2001, for the successor entities of INTELSAT and no
later than January 1, 2000, for the successor entities of
Inmarsat. The Committee notes that the general criteria only
address the initial public offering (IPO) of stock in the
successor entities. The Committee does not provide any deadline
for any subsequent public offerings of stock, but notes that
the deadline for a complete privatization, as provided in new
section 621(1), is a year following each IPO, respectively for
INTELSAT and Inmarsat.
New section 621(5)(C) provides that the shares of the
privatized entities be listed on major stock exchanges with
transparent and effective securities regulation. This is to
ensure that the stock of privatized entities is not protected
by interested governments or subject to manipulation, but that
its trading is instead subject to regulation that protects
against such fraudulent, deceptive or otherwise abusive stock
trading practices. The Committee also intends by this new
section 621(5)(C) that such privatized entities be subject to
the disclosure requirements of major stock exchanges and be
subject to the fiduciary duties imposed on boards by nations
with such exchanges. This subsection, like all of new section
621, is necessary in part because the Committee finds that IGO
successor or separated entities, given the intergovernmental
status of their parent entities, are unique organizations,
unlike other satellite service providers.
New section 621(5)(D) requires that the board of directors
of any privatized entity be independent of the signatories and
the remaining IGOs. The section requires that a majority of the
board of any successor or separated entity not be selected or
appointed by, or otherwise represent any signatory or former
signatory that controls access to national markets or any IGO
remaining after privatization. By limiting the board selection
by signatories that control market access in their countries,
the Committee intends to prevent control of the board by
signatories that can influence entry decisions in their
respective markets. In many countries, the signatories are
government-owned or controlled monopolies that control access
to their telecommunications markets. In some markets, the
signatory is the actual licensing body for that country. The
intent of new section 621(5)(D) is thus analogous to that of
new section 621(2)(B). As with that section, the Committee does
not intend to bar COMSAT's participation in the selection
process of future privatized entities' directors, since COMSAT
does not control access to the U.S. telecommunications market.
New section 621(5)(E) requires that all transactions
between such entities and their former IGOs must be conducted
at arm's length, in order to assure independence of the newly
privatized entities, to assure fairness to competitors, and to
promote transparency and market-based decision making.
New sections 621 (6) and (7) reflect the Committee's intent
that IGO successor and separated entities be fully subject to
competition regulation and enforcement in the countries in
which they are incorporated, headquartered, or doing business,
and that such countries have progressive telecommunications
regimes. New section 621(6) would therefore require that any
privatized entity that is licensed by the FCC must have applied
through the appropriate national licensing authorities for use
of desired frequencies and orbital location registration. New
section 621(7) would consequently prevent FCC licensing of an
entity that forum shopped by incorporating in a country that
does not have developed regulatory and competition regimes and
which have not made WTO market opening commitments with respect
to their satellite markets. This paragraph therefore requires
that the domiciliary country have effective laws and
regulations that secure competition in telecommunications
services, and be a signatory of the WTO Services Agreement with
a schedule of commitments covering non-discriminatory market
access to its satellite services market. This subsection, like
all of new section 621, is necessary in part because the
Committee finds that IGO successor or separated entities are
unique organizations, due to the intergovernmental status of
their parent organizations, and therefore unlike other
satellite service provides.
New section 621(8) is intended to prevent the IGOs and
their successor and separated entities from warehousing orbital
locations. Over the years the IGOs have had privileged access
to scarce orbital slots, since no national or international
authority has overseen their access to slots to assure that
they actually need or use the locations for which they apply.
Other satellite operators are not so privileged. For instance,
although the Commission and much of the rest of the world has
established a policy of spacing satellites two degrees in the
orbital arc apart from each other, to avoid interference to
adjacent satellites, INTELSAT has generally insisted on three
degree spacing between its satellites and those of other
systems.
Orbital slots are critical to operating a satellite system.
Without orbital slots, competitors may not operate satellites
nor offer services over their facilities in competition to the
IGOs. The Committee, therefore, has provided in new section
621(8) an anti-warehousing cut-off date of March 25, 1998.
Under this paragraph, if the IGOs are not using their slots to
provide commercial services by that date, or if they do not
have firm operational plans and contractual commitments to do
so, or to place a satellite in their reserved slots by that
date, they must turn the slots back in to the International
Telecommunication Union (ITU) for reallocation to satellite
operators who will make use of them. INTELSAT's and Inmarsat's
operational plans are adopted in official signatory meetings of
the two organizations, by the Board of Governors and Council,
respectively. The language requiring the provision of
commercial services is intended to prevent the IGOs from
warehousing orbital slots in which a satellite is located, but
one that is not currently being used to provide services, due
perhaps to its inclined orbit. The provision of commercial
services would generally require a satellite to be in a non-
inclined orbit, for example so that a user's earth station
could receive a steady signal.
New section 621(9) requires an appraisal of the satellites
and other assets transferred by an IGO to a successor or
separated entity prior to such transfer. Under the paragraph,
the appraisal must be at both book and fair market value and
conducted by an independent third-party. All of the existing
assets of the IGOs have been acquired by privileged treaty
organizations and are to be transferred to private
corporations. It is, therefore, important for government
officials and the public to know the market value of the assets
that will be conferred by the privatization of the IGOs. A
determination can then be made by each national administration
as to the most appropriate disposition of the profits from such
transfers.
Finally, new section 621(10) provides that COMSAT shall not
be authorized by the Commission to invest in K-TV satellites,
unless Congress specifically authorizes such investment. U.S.
policy is that the INTELSAT should not procure the K-TV
satellites. The Committee intends by this paragraph to ensure
that U.S. policy is not thwarted by COMSAT's investment in such
satellites unless Congress specifically provides authorization.
In December 1996, the U.S. Administration opposed the
procurement by INTELSAT of the K-TV satellite, which is
designed to provide direct broadcast services, on the theory
that IGOs should not expand into commercial services that the
private sector can provide. Despite U.S. opposition, INTELSAT
voted to procure the K-TV satellite. Under the 1962 Act, COMSAT
must obtain Commission authorization prior to investing in IGO
satellites. After INTELSAT's decision to procure K-TV, COMSAT
petitioned the Commission for investment authorization. The
Commission has not granted COMSAT's request. In April 1998,
INTELSAT announced that the separated entity New Skies/INC will
operate K-TV. INTELSAT wishes to transfer K-TV to New Skies at
book value, debt free. Accordingly, new section 621(10) is
intended to ensure that, if such transfer is attempted, COMSAT
shall not be authorized to invest in K-TV satellites, until
such time as the K-TV transfer and operation are consistent
with other privatization criteria in the section. The Committee
specifically finds at this time that approval of investment in
K-TV is not in the public interest and that allocation or
transfer of orbital slots for K-TV satellites is not in the
public interest.
Section 622--Specific criteria for INTELSAT privatization
In addition to the general privatization criteria that are
intended to apply to the privatization of any successor or
separated entity of an IGO, new section 622 provides criteria
specific to the privatization of INTELSAT. In this section, the
Committee highlights two important criteria for that
privatization, both of which are intended to foster a
competitive international satellite market undistorted by
INTELSAT's leveraging of its status as an IGO, ownership
structure, and dominant position in core telephone and video
services into new service markets.
First, new section 622(1) would require the Commission to
determine for purposes of licensing whether the number of
competitors created out of INTELSAT's present assets, when
added to the number of competitors in markets served by
INTELSAT, is sufficient to create a fully competitive market.
While the Committee did not feel it necessary to specify a
particular number of successor or separated entities to be
created out of INTELSAT, it believes that multiple successor
entities are more likely to lead to a fully competitive global
satellite market, given the current market position and
dominance of the IGOs. The Committee finds that the greater the
number of competitors created out of INTELSAT, the more likely
consumers and new entrants will benefit through the enhancement
of competition. The Committee intends that the U.S. seek a
privatization involving multiple entities created out of
INTELSAT as a key part of its privatization policy, but does
not specify the number of such entities which must be created.
The Commission will be required under new section 601(b) to
determine whether the licensing of a successor entity due to
the privatization of INTELSAT will harm competition in the
telecommunications market of the United States. Under new
section 622(1), an aspect of this competition determination
must include an analysis of whether the number of competitors
created out of INTELSAT is sufficient to create a fully
competitive market. If the Commission cannot make a
determination that the requisite number of competitors are
present, the lack of such competitors must be deemed a high
risk to competition as would failure to meet any of the other
criteria in this title.
The Committee notes that new section 622(1) refers to the
market served by INTELSAT. That market is a global market. New
section 601(b) requires the Commission to undertake a
determination regarding the effect on competition in the U.S.
market. The Committee notes that given the inherently global
nature of satellite services, the competitiveness of the global
market will inevitably impact the competitiveness of the U.S.
market for satellite services.
New section 622(2) is intended to limit INTELSAT's
expansion pending privatization. While new section 621(4)
limits INTELSAT's expansion into new services, this paragraph
limits INTELSAT's expansion by preventing its acquisition of
additional orbital slots, placing new satellites in existing
slots, and procuring additional satellites. Ever since
privatization was first discussed, INTELSAT has engaged in a
rapid expansion of its satellites and orbital slots. Since this
rapid expansion has occurred at a time when the market share
for INTELSAT's core telephony services in some markets is
decreasing (although the total volume of telephone minutes has
not decreased) due to the transfer of such traffic to fiber
optic cables, INTELSAT may use its rapid build-up to use its
privileged position and access to orbital slots to create a
surplus of satellites or satellite capacity for new commercial
services, thus impairing access to these new markets for
competitors.
Thus, in new section 622(2), the Committee directs the
United States to oppose such INTELSAT expansion in INTELSAT, at
the ITU, and in the Commission.
The Committee, however, makes provision in new section
622(2)(B) for INTELSAT's need to replace satellites used for
the provision of core telephone and occasional video services,
as long as such satellite is procured pursuant to a
construction contract executed by March 25, 1998, and its
construction commences by January 1, 2002.
New section 622(3), like the previous paragraph, is
intended to end INTELSAT's anti-competitive tactics. The
paragraph requires as an additional pro-competitive criteria
for INTELSAT's privatization that technical coordination
between INTELSAT and others shall not be used to impair
competition, and that coordination under Article XIV(d) of the
INTELSAT Agreement shall be eliminated pursuant to the
privatization process. Article XIV(d) currently requires all of
INTELSAT's competitors to engage in coordination of their
satellites with INTELSAT satellites, in order to avoid
technical and economic harm to INTELSAT. By new section 622(3),
the Committee intends that the review for economic harm to
INTELSAT through the operation of a competitor's satellites be
eliminated, thereby confirming a decision already made by
INTELSAT, and that continuing technical coordination shall not
be used for anti-competitive purposes.
Section 623--Specific criteria for INTELSAT separated entities
New section 623 establishes criteria, in addition to the
general criteria of new section 621, specific to the
privatization of a separated entity of INTELSAT. Under new
section 681(a)(8) of subtitle E on definitions, a separated
entity of INTELSAT is defined in part as an entity whose
structure was under discussion as of March 25, 1998. In early
April 1998, INTELSAT adopted a plan to incorporate an
affiliate, New Skies Satellites, N.V. The additional criteria
in new section 623 will therefore be used by the FCC when it
makes its determination, pursuant to new section 601(a),
whether New Skies has been privatized in a manner that will not
harm competition in the telecommunications markets of the U.S.
Specifically, new section 623 adds the following criteria
to a new section 601(a) determination: (1) the INTELSAT
separated entity must conduct an IPO within one year after
decision to create it--or by April 1, 1999; (2) the INTELSAT
separated entity must waive any privileges and immunities for
any transaction between INTELSAT and itself; (3) there must be
no interlocking directorates between the INTELSAT separated
entity and INTELSAT; (4) spectrum is not to be transferred from
INTELSAT and the INTELSAT separated entity after its initial
creation; and (5) there must be no reaffiliation through
ownership, management or exclusive arrangements between the
INTELSAT separated entity and INTELSAT until 15 years after the
complete privatization of INTELSAT.
The Committee intends by new section 623 in part to specify
the elements that would define the independence of the
separated entity from INTELSAT. Accordingly, new section 623(1)
gives the separated entity one year to hold a public offering
of its stock. Only when private, non-signatory owners hold a
preponderance of the separated entities shares can there be any
assurance of independence and autonomy from INTELSAT.
New section 623(2) similarly carries forward the policy of
new section 621 that a separated entity should in no way
partake in the privileges and immunities enjoyed by INTELSAT.
New section 621, for example, requires that transactions
between INTELSAT and a separated entity be at arm's length. The
only effective way to enforce that requirement is to ensure
that INTELSAT will not assert its privileges and immunities if
such a transaction is challenged in any court of law or before
any competent regulatory body. In this provision, the Committee
has sought to prevent a separated entity, which must have no
privileges and immunities, from hiding behind those of
INTELSAT.
The Committee's goal is to ensure the creation of stand-
alone, truly independent separated entities. The prohibition in
new section 623(3) on interlocking directorates is essential to
that goal. Similarly, proscription in new section 623(4) on
INTELSAT's continuing transfers of radio spectrum to a
separated entity, after the initial transfers at the inception
of such an entity, and the 15-year prohibition in new section
623(5) on reaffiliation of a privatized INTELSAT and any
successor or separated entity are intended to eliminate any
remaining ties between INTELSAT and such entities.
Section 624--Specific criteria for Inmarsat
New section 624 establishes criteria, in addition to the
general criteria of new section 621, specific to the
privatization of Inmarsat. Thus, the additional criteria in new
section 624 would be used when the FCC makes its determination,
pursuant to new section 601(b), whether Inmarsat and any
successor entities have been privatized in a manner that will
not harm competition in the telecommunications markets of the
U.S.
Specifically, new section 624 adds the following criteria:
(1) multiple signatories and direct access to Inmarsat must be
permitted; (2) Inmarsat must be prevented from expanding during
the transition to full privatization; (3) there must exist a
sufficient number of competitors in the markets served by
Inmarsat, including the number of competitors created out of
Inmarsat, to create a fully competitive market; (4) there are
no ownership, management or exclusive arrangements between
Inmarsat or any of its successor or separated entities and ICO
for 15 years after Inmarsat's privatization; (5) there are no
interlocking directorates or employees between Inmarsat or any
of its successor or separated entities and ICO; and (6)
Inmarsat spectrum, after January 1, 2006, or end of life of
current Inmarsat satellites, whichever is later, must be
available for assignment to all satellite systems on a non-
discriminatory basis. Thus the spectrum provided to Inmarsat is
to be used for the key purpose for which Inmarsat was created--
particularly maritime safety--but is not to be used for a new
type of service.
While new sections 603 and 621(4) limit expansion of
Inmarsat into new services, new section 624(2) limits
Inmarsat's expansion pending privatization through the
acquisition of additional orbital slots and new satellites. As
is the case with INTELSAT, Inmarsat has engaged in the
expansion of its satellites and orbital slots since
privatization was first discussed. Since this expansion is
occurring at a time when private competitors actively are
seeking to enter the market for new services, Inmarsat is using
its privileged position and access to orbital slots to create a
surplus of satellites for new commercial services, thus
impairing access to these new markets for competitors.
New section 624(2) therefore directs the United States to
oppose this Inmarsat tactic in the Inmarsat Assembly of Parties
and Council, at the ITU and in the Commission. For purposesof
the Commission and the Administration carrying out this directive,
however, the Committee notes that new section 624(2) specifically
provides that it shall not be construed to limit the maintenance,
assistance, or improvement of the Global Maritime Distress and Safety
Service (``GMDSS''). The Committee intends through both new sections
624(2) and 624(7) that the United States will take all appropriate
action to ensure the continued viability of GMDSS, which is currently
provided by Inmarsat. To that end, the Committee also expects that the
U.S. will actively support measures to enable private competitors to
offer GMDSS in the future.
New section 624(3) requires the Commission to consider the
number of competitors created out of Inmarsat's present assets,
added to the number of competitors in markets served by
Inmarsat, when determining whether the use of a successor
entity's services will harm competition in the U.S. New section
624(3) is intended to facilitate the creation of a fully
competitive market for mobile satellite services. While the
Committee did not feel it necessary to specify a particular
number of successor or separated entities to be created out of
Inmarsat, it is its view that multiple entities are more likely
to lead to a fully competitive market and that the U.S. should
pursue the multiple subsidiary option.
New section 624(4) specifically prohibits any recombination
of Inmarsat or its successor entities with ICO until at least
15 years after Inmarsat is privatized in accordance with the
criteria in the bill. The 15 year remerger preclusion helps to
prevent ICO from gaining unfair advantages over competitors or
potential competitors by utilizing Inmarsat spectrum that was
obtained by Inmarsat as an IGO. This provision prevents
Inmarsat from evading the intent of the bill through merger or
other joining with ICO, which is specifically excluded from the
definition of ``separated entity.'' A similar purpose is
underlies new section 624(5), which prohibits Inmarsat or its
successor entities from sharing directors, officers, or
employees with ICO.
The Committee included new section 624(4) and (5) because
it is concerned about the emerging U.S. mobile satellite
service (MSS) industry's current access to global MSS spectrum.
Any re-merger or affiliation of a privatized Inmarsat and ICO
would also eliminate any near-term U.S. MSS access to that
spectrum. Inmarsat has been assigned access to, and controls 56
percent of available global MSS spectrum. ICO, with 82 percent
of its investment held by Inmarsat signatories or organizations
affiliated with an Inmarsat signatory, has been assigned, and
controls 19 percent of available global MSS spectrum. The
entire U.S. MSS industry currently has access to only 25
percent of such global spectrum.
The Committee therefore has concluded that there should be,
in order to protect against competitive harm to the U.S.
market, an absolute prohibition against the merger,
reaffiliation, additional investment ownership, management ties
or any exclusive arrangements between Inmarsat and ICO and/or
any Inmarsat successor or separated entity for a period of 15
years. The Committee has concluded that the Commission, with
respect to one of the licensing criteria provided in new
sections 621 and 624 for Inmarsat or Inmarsat successor or
separated entities, shall specifically prohibit entry into the
U.S. MSS market or revoke any such authority previously granted
should these events occur.
Section 625--Encouraging market access and privatization
New section 625 is intended to provide additional
incentives for other nations that participate in the IGOs to
support a pro-competitive privatization of the IGOs, but
through a means that is consistent with U.S. obligations under
the WTO Service Agreement. The Committee has therefore adopted
a mechanism to use settlement rates for international message
telephony as a means of encouraging both market access for
private satellite systems and a pro-competitive privatization
of INTELSAT.
The Committee has provided new section 625 as an additional
remedy that is targeted at the countries that deny market
access to competitive satellite companies and that are opposing
a timely and competitive privatization of INTELSAT and
Inmarsat. Pursuant to new section 625, all relevant
international telecommunications policies of the United States,
including settlements policy, will be directed to the
legislative objectives of lowering the costs of international
telecommunications services for consumers.
New section 625(a) accordingly requires the Secretary of
Commerce, through the Assistant Secretary for Communications
and Information, to transmit to the Commission a list of non-
WTO countries that impose barriers to competitive entry in
their satellite market and a list of non-WTO countries that are
opposing IGO privatization. The Commission may then impose a
cost-based settlement rate on U.S. international common
carriers settling their traffic with carriers from those
countries, pursuant to new section 625(b). The Committee
expects that other U.S. government agencies will take notice of
this listing. Nothing in this title precludes the Commission
from using settlement rates to encourage WTO member nations to
support a pro-competitive privatization, using settlement rates
as a lever, if otherwise consistent with U.S. obligations to
the WTO. The Committee finds that lowering settlement rates to
cost in any event would be in the public interest.
The Committee notes that no specific time-frame for the
imposition of cost-based rates on impeding countries is
provided in new section 625, other than the 180 days from
enactment provided to the Commerce Department and the agencies
with which it must consult to provide a list to the Commission.
The Committee thereby intends to provide the Commission with
flexibility in the timing and decision to impose cost-based
rates on impeding countries.
New section 625(c) requires the Commission, in exercising
its authority to establish settlement rates for U.S.
international common carriers, to advocate in favor of cost-
based settlement rates in all relevant international
telecommunications policy fora, including IGO meetings. By this
paragraph, the Committee intends to clearly state that it is
U.S. policy and in the public interest to establish cost-based
settlement rates. The Committee believes that the Commission
should exercise the authority it has to set settlement rates
for U.S. carriers to advocate in favor of cost-based settlement
rates, as opposed to cost-oriented rates or some other less
competitive benchmark. The Committee believes that until
international settlement rates are reduced to reflect the
actual costs of terminating international calls on specific
routes, theinternational market will continue to operate with
significant distortive, above-cost subsidies, to the harm of
competition and U.S. consumers.
Subtitle C--Deregulation and Other Statutory Changes
Section 641--Direct access; treatment of COMSAT as nondominant carrier
New sections 641(1) and (2) require the Commission to
permit competitors to offer services through direct access to
the INTELSAT and Inmarsat systems. The Commission is further
required to ensure that direct access through the purchases of
space segment from INTELSAT or Inmarsat is available by January
1, 2000. The Commission is further required to ensure that
direct access through investment directly in INTELSAT or
Inmarsat by entities other than the U.S. signatory is
permitted, by January 1, 2002, and Inmarsat, by January 1,
2001. This section requires the Commission to take such actions
as may be necessary to authorize such direct access.
Currently, INTELSAT offers four types of direct access:
Level 1, permitting a customer access to operational, technical
and tariff information and permitting a customer to attend
INTELSAT meetings; Level 2, permitting a consumer to access
INTELSAT tariff and service terms and conditions; Level 3,
permitting a consumer direct ordering and financial liability
for services; and Level 4, permitting a consumer to directly
invest.
Inmarsat does not currently offer direct access to entities
other than its signatories. However, the proposed privatization
reportedly would terminate Inmarsat's Operating Agreement,
including the provisions governing exclusive signatory
distribution of Inmarsat service. If the Inmarsat Operating
Agreement is terminated, former signatories, including COMSAT
for provision of services in the United States, should not be
the exclusive distributors of Inmarsat services. The Committee
further finds that the U.S. Administration and the Commission
should, in the public interest, ensure that any Inmarsat
privatization plan includes direct access until full
privatization is fully implemented. This statement should not
be interpreted in any way as an endorsement of, or support for,
the current Inmarsat privatization plans.
Although over 85 nations worldwide now permit Level 3
direct access to INTELSAT--resulting in dramatic savings to
consumers--the United States, currently, does not. Currently,
over 14 nations permit Level 4 direct access. This provision
will help further deregulate the U.S. telecommunications
marketplace, while bringing more opportunities and lower prices
to consumers. The Committee believes that implementing direct
access is of vital interest to the promotion of competition for
INTELSAT and Inmarsat services in the United States, as well as
in promoting competition for satellite services generally.
New sections 641(1)(A)(i) through (iii) describe the
circumstances which the Commission should determine are present
when the Commission implements direct access through purchases
of space segment capacity from INTELSAT. Likewise, new section
641(2)(A)(i) through (iii) places similar requirements on the
Commission before permitting telecommunications carriers to
purchase space segment directly from Inmarsat. Specifically,
the Commission would be required to determine the following
conditions have been met prior to its implementation of direct
access through purchases of space segment capacity: (1)
INTELSAT and Inmarsat have a mechanism to ensure that
signatories are compensated for unavoided support costs; (2) no
foreign signatory is permitted to provide INTELSAT or Inmarsat
service from the U.S.; and (3) carriers must pass through
savings to end-users.
The Committee intends that the Commission, in implementing
new subsections 641(1)(A)(i) and 641(2)(A)(i), determine that
the U.S. signatory be fairly compensated only for its
unavoidable costs which it is required to incur as a signatory
and which are in excess of payments from INTELSAT and Inmarsat
to the U.S. signatory. Thus, the only costs covered by this
section are those unavoidable signatory expenses in excess of
all payments to signatories from the IGOs. Such payments
include, but are not limited to, the INTELSAT Utilization
Charge, or IUC. If such costs are in excess of or not otherwise
covered by the IUC or by other payments to INTELSAT or
Inmarsat, then this section shall be satisfied if INTELSAT or
Inmarsat has in place or creates a mechanism or other
methodology or legal regime which permits (or does not
preclude) parties, particularly the U.S. party, to adopt means
to ensure that such unavoidable, excess signatory costs are
covered by payments from other direct access providers or
otherwise covered or fairly compensated. In other words, either
INTELSAT or Inmarsat providing payments which covers such
excess, unavoidable costs themselves, or having a mechanism,
methodology or legal regime which permits (or does not
preclude) the Commission to establish a mechanism, other
methodology, or legal regime to cover such costs, shall
constitute the mechanism described in this section. The items
cited in this section, namely insurance, administrative, and
other operations and maintenance expenditures, are possible
examples of what such costs might be. The Committee, however,
intends that the Commission, as the expert agency with the
ability to determine exactly what such unavoidable costs of
serving as the U.S. signatory are, and whether such costs are
in excess of payments the U.S. signatory receives from INTELSAT
or Inmarsat, make the determinations as to which costs are
unavoidable signatory expenses. The intent of this section is
that a mechanism be in place to fairly compensate the U.S.
signatory, currently COMSAT, for its unavoidable excess costs
as signatory. The Committee does not intend the Commission to
deny or delay or otherwise impair direct access to U.S.
consumers due to circumstances effecting foreign signatories.
The Committee expects that the Commission will establish, if
necessary to have direct access for space segment capacity in
place as of January 1, 2000, and investment direct access by
January 1, 2002, (for INTELSAT) and January 1, 2001, (for
Inmarsat), whatever rules are necessary to comply with this
section, including but not limited those necessary for fair
compensation of the unavoidable, excess signatory costs
described herein. The Committee intends that this section be
implemented in a manner so as to ensure that direct access
through purchases of space segment capacity from the IGOs is
available as of January 1, 2000, and investment direct access
by January 1, 2002, for INTELSAT and January 1, 2001, for
Inmarsat. Nothing in this section precludes the Commission from
establishing direct access earlier with or without the
structure described in this section. This section does,
however, mandate direct accessfor space segment capacity as of
January 1, 2000, and investment direct access as of January 1, 2002,
for INTELSAT as of January 1, 2001, for Inmarsat, pursuant to this
section.
The Committee intends that the Commission, in implementing
new subsections 641(1)(A)(ii) and 641(2)(A)(ii), does so in a
manner consistent with U.S. obligations to the WTO and consults
with Executive branch agencies in this regard.
The Committee intends that the Commission, in implementing
subsections 641(1)(A)(iii) and 641(2)(A)(iii), should not
establish a ``means'' that imposes any administrative or
regulatory burdens on the affected carriers or other burdens
which might impair a carrier's ability to respond to the
demands of a competitive marketplace. The Committee expects
that the Commission can meet this condition, for example,
simply by requiring the carriers to annually provide a letter
to the Commission verifying that end-users are receiving
savings from the implementation of direct access through
purchases of space segment capacity from the IGOs. The
Committee does not intend for the Commission to implement any
form of carrier regulation or reporting requirement that would
reinstate or be tantamount to dominant carrier regulation on
carriers found to be non-dominant before the Committee's
consideration of H.R. 1872 and subsequently relieved of such
regulation, or to impose such regulation on carriers that have
never been subject to it. The forgoing sentence does not apply
to COMSAT in part because COMSAT is a unique entity created by
Congress under the Satellite Act and serves a unique role as
the U.S. signatory to the IGOs.
The Committee believes that consumers will benefit from
direct access and thus any type of extensive ``means'' beyond
the most minimalist mechanism could reduce the competitive
benefits of direct access. The Committee believes that the
Commission should not impose any ``means'' that would impair or
hinder, in any manner, carriers from taking advantage of direct
access. The Committee notes that new subsections 641(1)(A)(iii)
and (2)(A)(iii) state that the means be in place, not that the
Commission take any specific action. The Committee also notes
that the language does not refer to any specific amount or
percentage of savings. Moreover, the Committee finds that
competition is the best, most efficient and least burdensome
means to ensure that savings are passed on to end users. Thus
the Committee intends that this requirement would be met if the
Commission finds that competition resulting from direct access
will result in savings to consumers over what they might pay in
the absence of direct access.11
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\11\ Letter to the Honorable Tom Bliley, Chairman, House Committee
on Commerce from the Honorable William E. Kennard, Chairman, Federal
Communications Commission, dated March 24, 1998.
---------------------------------------------------------------------------
New sections 641(1)(B) and 641(2)(B) require the Commission
to ensure that prior to permitting Level 4 direct access to
INTELSAT or investment in Inmarsat that such investment will be
attained under procedures ensuring that INTELSAT and Inmarsat
signatories will receive fair compensation for the market value
of their investment.
The Committee intends that none of these conditions should
be interpreted in a manner which impairs or prohibits the
implementation of direct access. However, the Committee has
received information from the Commission which highlight that
these conditions could be interpreted to prevent direct access
from the IGOs from being implemented by the dates in the
bill.12 The Commission outlined scenarios in which
the conditions could not be met and thus direct access would
not occur. The Commission also raised serious concerns
regarding whether these conditions could be reached prior to
the dates outlined in the bill. The Committee intends that this
section should be implemented in a manner so that no form of
direct access will be impaired or delayed. However, the
Committee intends to review these provisions in light of the
concerns raised by the Commission and others regarding possible
interpretations, in order to make them consistent with the
intent of the Committee to end the monopoly provision of IGO
services in this country through establishing direct access.
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\12\ Letter to the Honorable Tom Bliley, Chairman, House Committee
on Commerce from the Honorable William E. Kennard, Chairman, Federal
Communications Commission, dated March 24, 1998.
---------------------------------------------------------------------------
The Committee believes the FCC has the current authority to
institute direct access. By including provisions in this bill
on direct access the Committee does not intend to imply that
there is a need to amend any provision of the 1962 Act to
provide for direct access. Furthermore, the Committee does not
intend to prevent the Commission from exercising its existing
discretion to provide for direct access to INTELSAT or Inmarsat
prior to the deadlines outlined in the bill.
New section 641(3) requires the Commission to take action,
as appropriate, on COMSAT's petition to be treated as a non-
dominant common carrier for purposes of Commission regulatory
treatment according to the provisions of section 10 of the
Communications Act of 1934. The Committee does not here take a
position on whether the petition should be granted.
New section 641(4) requires the Commission to sunset any
regulation providing for direct access to INTELSAT or Inmarsat
when these organizations fully privatize in a pro-competitive
manner pursuant to the provisions of the bill. The Committee
believes that it is unnecessary to require direct access once
INTELSAT and Inmarsat are fully privatized in accordance with
this title.
Section 642--Termination of monopoly status
New section 642 implements a policy doctrine known as
``fresh look.'' Fresh look permits customers, at their own
choice, to renegotiate their contracts once a barrier to
competition has been eliminated. This gives customers an
opportunity to take advantage of the arrival of new competitive
providers in a market.
New section 642(a) requires the Commission, beginning on
January 1, 2000, to permit users or providers of
telecommunications services under previous contracts or
commitments with COMSAT, at their discretion, to have a one-
time opportunity to renegotiate their contracts or commitments
on rates, terms and conditions. Under this section, the
Committee expects that users or providers will be given one
opportunity for a reasonable time period after January 1, 2000
to renegotiate their contracts or commitments with COMSAT.
Users would have the option of renegotiating their contracts
during the period delineated as reasonable by the Commission.
Some users and providers may opt to wait, for example, until
Level 3 direct access providers are fully operational, before
electing to exercise their right for fresh look as provided
under this section. Users will presumably require some time to
examine the options available and engage in contract
negotiations. This is why the Committee required the Commission
to determine a reasonable negotiation period, rather than just
permitting fresh look on a specific date.
New section 642(b) makes clear that existing Commission
authority to implement fresh look is not altered or prohibited
by new section 642(a). The Committee notes that given COMSAT's
unique status as the U.S. signatory to IGOs, fresh look may be
in the public interest in other circumstances. In addition to
January 1, 2000, the Committee believes that the Commission
should permit consumers to renegotiate their contracts or
commitments on rates, terms, and conditions with COMSAT without
threat of penalty whenever the situation warrants.
The Committee intends to ensure that COMSAT does not use
its market power to impose on customers contracts which have
the effect of vitiating or impairing the effectiveness of this
section. New subsection 642(c) therefore provides that whenever
users or providers of telecommunications services are permitted
to renegotiate contracts or commitments with COMSAT, the
Commission is authorized to declared null, void and
unenforceable any provision of a contract that restricts the
ability of the customer to modify existing contracts, or enter
into contracts with new providers. Such restrictions, should
include withdrawal penalties or termination charges.
Section 643--Signatory role
New section 643(a) permits the Commission to restrict
foreign ownership of a U.S. signatory if the Commission
determines that not doing so would constitute a threat to
national security. Any such restriction may be adopted only
after a public interest determination by the Commission, which
is required to consult with the President prior to making a
determination. This provision must be implemented in a manner
consistent with the U.S. obligations under the WTO agreements.
During markup of H.R. 1872, the Committee removed explicit
instructions to require the Commission to permit multiple U.S.
signatories to INTELSAT and Inmarsat. The removal of this
provision should not be viewed as a lack of interest by the
Committee to see multiple U.S. signatories to INTELSAT and
Inmarsat. The Committee believes INTELSAT and Inmarsat
permitting multiple signatories may be beneficial, but that a
statutory change is unnecessary to permit it.
New section 643(a)(2) provides that the U.S. is not
required to have signatories represent it at INTELSAT or
Inmarsat meetings, once the IGOs privatize in a pro-competitive
manner pursuant to the provisions of the bill. The Committee
believes that it is unnecessary for the U.S. to require a
signatory to INTELSAT or Inmarsat once these organizations are
fully privatized.
New section 643(b) provides that COMSAT has no privileges
and immunities under U.S. law on the basis of its signatory
status to INTELSAT or Inmarsat. An exception is provided if
COMSAT or any other U.S. signatory takes action pursuant to the
specific, written instructions of the U.S. government.
New section 643(c), ``Parity of Treatment,'' provides the
Commission, starting on the date of enactment of the bill, with
authority to enact regulatory fees on any U.S. signatory to
INTELSAT or Inmarsat at the rate similar to the fees imposed on
other entities providing similar services. The Committee
believes that the Commission currently has the statutory
authority to impose such fees but wishes to make explicit here
that the Commission does indeed have such authority. This
subsection should not be interpreted to imply that the
Commission does not currently have the authority to enact such
regulatory fees.
Section 644--Elimination of procurement preferences
New section 644 prevents, starting on the date of enactment
of the bill, any interpretation that the 1962 Act or
Communications Act of 1934 implies or authorizes any preference
for the U.S. Government procuring telecommunications services
from INTELSAT, Inmarsat or COMSAT over any private provider of
services. The Committee finds that in this unique circumstance
involving an IGO the public interest would be served by using
this provision as a basis for using U.S. government procurement
as leverage to promote a pro-competitive privatization of the
IGOs in accordance with this title.
Section 645--Use of ITU technical coordination
New section 645 requires the Commission and U.S. satellite
companies, starting on the date of enactment of the bill, to
use the ITU procedures for technical coordination with regards
to INTELSAT, or its successor or separated entities. This is
intended to prevent the use of INTELSAT procedures, which have
in the past been used to harm competitors by raising barriers
to entry, and may continue to inherently benefit INTELSAT or
its successor or separated entities over private U.S. satellite
providers, when coordinating technical interference between
systems.
Section 646--Termination of Communications Satellite Act of 1962
provisions
New section 646 repeals certain portions of the 1962 Act
that are no longer necessary as provisions of the bill become
fully implemented. The bill ties the elimination of certain
statutory provisions to the effective dates of certain
provisions of the bill. The Committee finds that these
provisions would no longer be necessary upon the date to which
their repeal is tied to.
New section 646 repeals section 304 of the 1962 Act on the
date of direct access. At the Full Committee markup, the
Committee amended H.R. 1872 to move the repeal of section 304,
including the ten-percent ownership cap on COMSAT in section
304(b)(3), to the effective date of the Commission's order
establishing direct access to INTELSAT. Prior to the
Subcommittee markup, section 304 was to be repealed on the date
of enactment. In Subcommittee, the date of ``direct access''
(which was defined in the bill as introduced as including both
Level 3 and Level 4 direct access) was moved from ``as soon as
practicable'' to a later point and the definition was deleted
and the current language regarding direct access was added.
Thus, in Full Committee, the repeal of section 304 was made co-
synchronous to the date direct access is implemented, which for
the purposes of repealing section 304 refers to the date direct
access at all levels or forms is fully implemented. This repeal
date is important, in part, because absent direct access, a
single international services carrier or Regional Bell
Operating Company, for example, could purchase COMSAT while
COMSAT retains an aspect of its monopoly over access to an IGO
and could potentially use COMSAT's market power and bottleneck
position as the exclusive U.S. reseller of IGO services in an
anti-competitive manner.
Section 647--Reports to Congress
New section 647 requires the Commission to provide a
detailed report to Congress within 90 days of enactment of the
bill, and not less than annually thereafter, on the status of
achieving privatization as required by the bill. The Committee
intends that the Commission seek public comment in preparing
these reports. The Committee intends that each provision of
this title regarding privatization be addressed in the report.
The report is required to be made public.
Section 648--Consultation with Congress
New section 648 requires the Administration and the
Commission to consult with the House Committee on Commerce and
the Senate Committee on Commerce, Science and Transportation
prior to each various meeting of INTELSAT and Inmarsat.
Section 649--Satellite auctions
New section 649 prevents the Commission from using
competitive bidding procedures (i.e., auctions) to award
licenses for spectrum or orbital locations used for providing
international satellite services. In addition, it requires the
Administration to oppose the adoption of auctions to award
licenses for orbital locations or satellite services in the ITU
and other fora.
The Committee believes that auctions of spectrum or orbital
locations could threaten the viability and availability of
global and international satellite services, particularly
because concurrent or successive spectrum auctions in the
numerous countries in which U.S.-owned global satellite service
providers seek downlink or service provision licenses could
place significant financial burdens on providers of such
services. This problem would be compounded by the fact that the
multi-year period required for design, construction and launch
of global and international satellite systems usually requires
service providers to invest substantial resources well before
they obtain all needed worldwide licenses and spectrum
assignments. The uncertainty created by spectrum auctions could
disrupt the availability of capital for such projects, and
significantly reduce the available benefits offered by global
and international satellite systems.
Subtitle D--Negotiations to Pursue Privatization
Section 661--Methods to pursue privatizations
New section 661 directs the President to secure the
privatization of INTELSAT and Inmarsat, and any separated or
successor entities, in a manner that meets the criteria set
forth in subtitle B (new sections 621-625). The Committee
intends that the President will use all means available,
including any authority available to the President in addition
to that specifically provided in new title VI, to achieve the
purposes of this legislation.
Subtitle E--Definitions
Section 681--Definitions
New section 681 adds to the 1962 Act the following new
definitions: (1) INTELSAT; (2) Inmarsat; (3) signatories; (4)
party; (5) commission; (6) International Telecommunication
Union; (7) successor entity; (8) separated entity; (9) orbital
location; (10) space segment; (11) non-core; (12) additional
services; (13) INTELSAT Agreement; (14) Headquarters Agreement;
(15) Operating Agreement; (16) Inmarsat Convention; (17)
national corporation; (18) COMSAT; (19) ICO; (20) Replacement
Satellites; and (21) Global Mobile Distress and Safety
Services.
With respect to new section 681(8), which defines
``separated entity,'' the Committee notes the following:
notwithstanding the definitions in this bill, ICO remains
subject to FCC entry regulation under the Commission's recent
``DISCO II'' decision. The Committee recognizes that the
Commission's Report and Order \13\ defined ICO as an IGO
affiliate. The Commission defines an IGO affiliate as an entity
created by an IGO, in which IGO and IGO affiliates maintain
ownership interests. The ``DISCO II'' Report and Order
establishes a framework for the evaluation of entry into the
U.S. market for both IGOs and their affiliates.
---------------------------------------------------------------------------
\13\ In the Matter of Amendment of the Commission's Regulatory
Policies to Allow Non-U.S.-Licensed Space Stations to Provide Domestic
and International Satellite Service in the United States--IB Docket 96-
111.
---------------------------------------------------------------------------
This bill does not specifically apply the ``DISCO II'' term
``affiliate'' to ICO. The Committee also specifically excludes
ICO as a separated entity for purposes of the privatization of
Inmarsat. The Committee stresses however, that its exclusion of
ICO as a ``separated entity'' should not be considered as
modifying, redefining or changing the Commission's ``DISCO II''
decision in any way. For purposes of the ``DISCO II'' Order,
the Committee does not intend to effect the Commission's
treatment of ICO as an IGO affiliate when considering ICO's
applications to provide satellite services in the U.S.
The Committee notes that the definitions of ``non-core
services'' and ``additional services'' overlap. ``Additional
services'' are specifically identified because they are
services that the Committee believes INTELSAT or Inmarsat
already are actively seeking to provide or seeking to establish
the capability to provide. The Committee expects the Commission
to consider substantially similar services to those
specifically listed as additional services. ``Additional
services'' are generally a subset of ``non-core services.''
During Full Committee consideration of the bill, the Committee
rejected an amendment which would have defined non-core
services as those provided over frequencies that COMSAT is not
now currently using because such a definition would in the
Committee's view have made the bill ineffective. This position
was supported by the analysis of the FCC.\14\
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\14\ Letter to the Honorable Tom Bliley, Chairman, House Committee
on Commerce from the Honorable William E. Kennard, Chairman, Federal
Communications Commission, dated March 24, 1998.
---------------------------------------------------------------------------
New section 681(b) states that, except where defined
otherwise in new section 681(a), terms used in the bill have
the same meaning as those terms have under section 3 of the
Communications Act of 1934 (47 U.S.C. 153).
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of the
House of Representatives, changes in existing law made by the
bill, as reported, are shown as follows (new matter is printed
in italic):
THE COMMUNICATIONS SATELLITE ACT OF 1962
* * * * * * *
TITLE VI--COMMUNICATIONS COMPETITION AND PRIVATIZATION
Subtitle A--Actions To Ensure Procompetitive Privatization
SEC. 601. FEDERAL COMMUNICATIONS COMMISSION LICENSING.
(a) Licensing for Separated Entities.--
(1) Competition test.--The Commission may not issue a
license or construction permit to any separated entity,
or renew or permit the assignment or use of any such
license or permit, or authorize the use by any entity
subject to United States jurisdiction of any space
segment owned, leased, or operated by any separated
entity, unless the Commission determines that such
issuance, renewal, assignment, or use will not harm
competition in the telecommunications market of the
United States. If the Commission does not make such a
determination, it shall deny or revoke authority to use
space segment owned, leased, or operated by the
separated entity to provide services to, from, or
within the United States.
(2) Criteria for competition test.--In making the
determination required by paragraph (1), the Commission
shall use the licensing criteria in sections 621 and
623, and shall not make such a determination unless the
Commission determines that the privatization of any
separated entity is consistent with such criteria.
(b) Licensing for INTELSAT, Inmarsat, and Successor
Entities.--
(1) Competition test.--The Commission shall
substantially limit, deny, or revoke the authority for
any entity subject to United States jurisdiction to use
space segment owned, leased, or operated by INTELSAT or
Inmarsat or any successor entities to provide non-core
services to, from, or within the United States, unless
the Commission determines--
(A) after January 1, 2002, in the case of
INTELSAT and its successor entities, that
INTELSAT and any successor entities have been
privatized in a manner that will not harm
competition in the telecommunications markets
of the United States; or
(B) after January 1, 2001, in the case of
Inmarsat and its successor entities, that
Inmarsat and any successor entities have been
privatized in a manner that will not harm
competition in the telecommunications markets
of the United States.
(2) Criteria for competition test.--In making the
determination required by paragraph (1), the Commission
shall use the licensing criteria in sections 621, 622,
and 624, and shall not make such a determination unless
the Commission determines that such privatization is
consistent with such criteria.
(3) Clarification: competitive safeguards.--In making
its licensing decisions under this subsection, the
Commission shall consider whether users of non-core
services provided by INTELSAT or Inmarsat or successor
or separated entities are able to obtain non-core
services from providers offering services other than
through INTELSAT or Inmarsat or successor or separated
entities, at competitive rates, terms, or conditions.
Such consideration shall also include whether such
licensing decisions would require users to replace
equipment at substantial costs prior to the termination
of its design life. In making its licensing decisions,
the Commission shall also consider whether competitive
alternatives in individual markets do not exist because
they have been foreclosed due to anticompetitive
actions undertaken by or resulting from the INTELSAT or
Inmarsat systems. Such licensing decisions shall be
made in a manner which facilitates achieving the
purposes and goals in this title and shall be subject
to notice and comment.
(c) Additional Considerations in Determinations.--In making
its determinations and licensing decisions under subsections
(a) and (b), the Commission shall take into consideration the
United States obligations and commitments for satellite
services under the Fourth Protocol to the General Agreement on
Trade in Services.
(d) Independent Facilities Competition.--Nothing in this
section shall be construed as precluding COMSAT from investing
in or owning satellites or other facilities independent from
INTELSAT and Inmarsat, and successor or separated entities, or
from providing services through reselling capacity over the
facilities of satellite systems independent from INTELSAT and
Inmarsat, and successor or separated entities. This subsection
shall not be construed as restricting the types of contracts
which can be executed or services which may be provided by
COMSAT over the independent satellites or facilities described
in this subsection.
SEC. 602. INTELSAT OR INMARSAT ORBITAL LOCATIONS.
(a) Required Actions.--Unless, in a proceeding under section
601(b), the Commission determines that INTELSAT or Inmarsat
have been privatized in a manner that will not harm
competition, then--
(1) the President shall oppose, and the Commission
shall not assist, any registration for new orbital
locations for INTELSAT or Inmarsat--
(A) with respect to INTELSAT, after January
1, 2002, and
(B) with respect to Inmarsat, after January
1, 2001, and
(2) the President and Commission shall, consistent
with the deadlines in paragraph (1), take all other
necessary measures to preclude procurement,
registration, development, or use of new satellites
which would provide non-core services.
(b) Exception.--
(1) Replacement and previously contracted
satellites.--Subsection (a) shall not apply to--
(A) orbital locations for replacement
satellites (as described in section 622(2)(B)),
and
(B) orbital locations for satellites that are
contracted for as of March 25, 1998, if such
satellites do not provide additional services.
(2) Limitation on exception.--Paragraph (1) is
available only with respect to satellites designed to
provide services solely in the C and Ku, for INTELSAT,
and L, for Inmarsat, bands.
SEC. 603. ADDITIONAL SERVICES AUTHORIZED.
(a) Services Authorized During Continued Progress.--
(1) Continued authorization.--The Commission may
issue an authorization, license, or permit to, or renew
the license or permit of, any provider of services
using INTELSAT or Inmarsat space segment, or authorize
the use of such space segment, for additional services
(including additional applications of existing
services) or additional areas of business, subject to
the requirements of this section.
(2) Additional services permitted under new contracts
unless progress fails.--If the Commission makes a
finding under subsection (b) that conditions required
by such subsection have not been attained, the
Commission may not, pursuant to paragraph (1), permit
such additional services to be provided directly or
indirectly under new contracts for the use of INTELSAT
or Inmarsat space segment, unless and until the
Commission subsequently makes a finding under such
subsection that such conditions have been attained.
(3) Prevention of evasion.--The Commission shall, by
rule, prescribe means reasonably designed to prevent
evasions of the limitations contained in paragraph (2)
by customers who did not use specific additional
services as of the date of the Commission's most recent
finding under subsection (b) that the conditions of
such subsection have not been obtained.
(b) Requirements for Annual Findings.--
(1) General requirements.--The findings required
under this subsection shall be made, after notice and
comment, on or before January 1 of 1999, 2000, 2001,
and 2002. The Commission shall find that the conditions
required by this subsection have been attained only if
the Commission finds that--
(A) substantial and material progress has
been made during the preceding period at a rate
and manner that is probable to result in
achieving pro-competitive privatizations in
accordance with the requirements of this title;
and
(B) neither INTELSAT nor Inmarsat are
hindering competitors' or potential
competitors' access to the satellite services
marketplace.
(2) First finding.--In making the finding required to
be made on or before January 1, 1999, the Commission
shall not find that the conditions required by this
subsection have been attained unless the Commission
finds that--
(A) COMSAT has submitted to the INTELSAT
Board of Governors a resolution calling for the
pro-competitive privatization of INTELSAT in
accordance with the requirements of this title;
and
(B) the United States has submitted such
resolution at the first INTELSAT Assembly of
Parties meeting that takes place after such
date of enactment.
(3) Second finding.--In making the finding required
to be made on or before January 1, 2000, the Commission
shall not find that the conditions required by this
subsection have been attained unless the INTELSAT
Assembly of Parties has created a working party to
consider and make recommendations for the pro-
competitive privatization of INTELSAT consistent with
such resolution.
(4) Third finding.--In making the finding required to
be made on or before January 1, 2001, the Commission
shall not find that the conditions required by this
subsection have been attained unless the INTELSAT
Assembly of Parties has approved a recommendation for
the pro-competitive privatization of INTELSAT in
accordance with the requirements of this title.
(5) Fourth finding.--In making the finding required
to be made on or before January 1, 2002, the Commission
shall not find that the conditions required by this
subsection have been attained unless the pro-
competitive privatization of INTELSAT in accordance
with the requirements of this title has been achieved
by such date.
(6) Criteria for evaluation of hindering access.--The
Commission shall not make a determination under
paragraph (1)(B) unless the Commission determines that
INTELSAT and Inmarsat are not in any way impairing,
delaying, or denying access to national markets or
orbital locations.
(c) Exception for Services Under Existing Contracts If
Progress Not Made.--This section shall not preclude INTELSAT or
Inmarsat or any signatory thereof from continuing to provide
additional services under an agreement with any third party
entered into prior to any finding under subsection (b) that the
conditions of such subsection have not been attained.
Subtitle B--Federal Communications Commission Licensing Criteria:
Privatization Criteria
SEC. 621. GENERAL CRITERIA TO ENSURE A PRO-COMPETITIVE PRIVATIZATION OF
INTELSAT AND INMARSAT.
The President and the Commission shall secure a pro-
competitive privatization of INTELSAT and Inmarsat that meets
the criteria set forth in this section and sections 622 through
624. In securing such privatizations, the following criteria
shall be applied as licensing criteria for purposes of subtitle
A:
(1) Dates for privatization.--Privatization shall be
obtained in accordance with the criteria of this title
of--
(A) INTELSAT as soon as practicable, but no
later than January 1, 2002, and
(B) Inmarsat as soon as practicable, but no
later than January 1, 2001.
(2) Independence.--The successor entities and
separated entities of INTELSAT and Inmarsat resulting
from the privatization obtained pursuant to paragraph
(1) shall--
(A) be entities that are national
corporations; and
(B) have ownership and management that is
independent of--
(i) any signatories or former
signatories that control access to
national telecommunications markets;
and
(ii) any intergovernmental
organization remaining after the
privatization.
(3) Termination of privileges and immunities.--The
preferential treatment of INTELSAT and Inmarsat shall
not be extended to any successor entity or separated
entity of INTELSAT or Inmarsat. Such preferential
treatment includes--
(A) privileged or immune treatment by
national governments;
(B) privileges or immunities or other
competitive advantages of the type accorded
INTELSAT and Inmarsat and their signatories
through the terms and operation of the INTELSAT
Agreement and the associated Headquarters
Agreement and the Inmarsat Convention; and
(C) preferential access to orbital locations,
including any access to orbital locations that
is not subject to the legal or regulatory
processes of a national government that applies
due diligence requirements intended to prevent
the warehousing of orbital locations.
(4) Prevention of expansion during transition.--
During the transition period prior to full
privatization, INTELSAT and Inmarsat shall be precluded
from expanding into additional services (including
additional applications of existing services) or
additional areas of business.
(5) Conversion to stock corporations.--Any successor
entity or separated entity created out of INTELSAT or
Inmarsat shall be a national corporation established
through the execution of an initial public offering as
follows:
(A) Any successor entities and separated
entities shall be incorporated as private
corporations subject to the laws of the nation
in which incorporated.
(B) An initial public offering of securities
of any successor entity or separated entity
shall be conducted no later than--
(i) January 1, 2001, for the
successor entities of INTELSAT; and
(ii) January 1, 2000, for the
successor entities of Inmarsat.
(C) The shares of any successor entities and
separated entities shall be listed for trading
on one or more major stock exchanges with
transparent and effective securities
regulation.
(D) A majority of the board of directors of
any successor entity or separated entity shall
not be subject to selection or appointment by,
or otherwise serve as representatives of--
(i) any signatory or former signatory
that controls access to national
telecommunications markets; or
(ii) any intergovernmental
organization remaining after the
privatization.
(E) Any transactions or other relationships
between or among any successor entity,
separated entity, INTELSAT, or Inmarsat shall
be conducted on an arm's length basis.
(6) Regulatory treatment.--Any successor entity or
separated entity shall apply through the appropriate
national licensing authorities for international
frequency assignments and associated orbital
registrations for all satellites.
(7) Competition policies in domiciliary country.--Any
successor entity or separated entity shall be
incorporated and headquartered in a nation or nations
that--
(A) have effective laws and regulations that
secure competition in telecommunications
services;
(B) are signatories of the World Trade
Organization Basic Telecommunications Services
Agreement; and
(C) have a schedule of commitments in such
Agreement that includes non-discriminatory
market access to their satellite markets.
(8) Return of unused orbital locations.--INTELSAT,
Inmarsat, and any successor entities and separated
entities shall not be permitted to warehouse any
orbital location that--
(A) as of March 25, 1998, did not contain a
satellite that was providing commercial
services, or, subsequent to such date, ceased
to contain a satellite providing commercial
services; or
(B) as of March 25, 1998, was not designated
in INTELSAT or Inmarsat operational plans for
satellites for which construction contracts had
been executed.
Any such orbital location of INTELSAT or Inmarsat and
of any successor entities and separated entities shall
be returned to the International Telecommunication
Union for reallocation.
(9) Appraisal of assets.--Before any transfer of
assets by INTELSAT or Inmarsat to any successor entity
or separated entity, such assets shall be independently
audited for purposes of appraisal, at both book and
fair market value.
(10) Limitation on investment.--Notwithstanding the
provisions of this title, COMSAT shall not be
authorized by the Commission to invest in a satellite
known as K-TV, unless Congress authorizes such
investment.
SEC. 622. SPECIFIC CRITERIA FOR INTELSAT.
In securing the privatizations required by section 621, the
following additional criteria with respect to INTELSAT
privatization shall be applied as licensing criteria for
purposes of subtitle A:
(1) Number of competitors.--The number of competitors
in the markets served by INTELSAT, including the number
of competitors created out of INTELSAT, shall be
sufficient to create a fully competitive market.
(2) Prevention of expansion during transition.--
(A) In general.--Pending privatization in
accordance with the criteria in this title,
INTELSAT shall not expand by receiving
additional orbital locations, placing new
satellites in existing locations, or procuring
new or additional satellites except as
permitted by subparagraph (B), and the United
States shall oppose such expansion--
(i) in INTELSAT, including at the
Assembly of Parties,
(ii) in the International
Telecommunication Union,
(iii) through United States
instructions to COMSAT,
(iv) in the Commission, through
declining to facilitate the
registration of additional orbital
locations or the provision of
additional services (including
additional applications of existing
services) or additional areas of
business; and
(v) in other appropriate fora.
(B) Exception for certain replacement
satellites.--The limitations in subparagraph
(A) shall not apply to any replacement
satellites if--
(i) such replacement satellite is
used solely to provide public-switched
network voice telephony or occasional-
use television services, or both;
(ii) such replacement satellite is
procured pursuant to a construction
contract that was executed on or before
March 25, 1998; and
(iii) construction of such
replacement satellite commences on or
before the final date for INTELSAT
privatization set forth in section
621(1)(A).
(3) Technical coordination among signatories.--
Technical coordination shall not be used to impair
competition or competitors, and coordination under
Article XIV(d) of the INTELSAT Agreement shall be
eliminated.
SEC. 623. SPECIFIC CRITERIA FOR INTELSAT SEPARATED ENTITIES.
In securing the privatizations required by section 621, the
following additional criteria with respect to any INTELSAT
separated entity shall be applied as licensing criteria for
purposes of subtitle A:
(1) Date for public offering.--Within one year after
any decision to create any separated entity, a public
offering of the securities of such entity shall be
conducted.
(2) Privileges and immunities.--The privileges and
immunities of INTELSAT and its signatories shall be
waived with respect to any transactions with any
separated entity, and any limitations on private causes
of action that would otherwisegenerally be permitted
against any separated entity shall be eliminated.
(3) Interlocking directorates or employees.--None of
the officers, directors, or employees of any separated
entity shall be individuals who are officers,
directors, or employees of INTELSAT.
(4) Spectrum assignments.--After the initial transfer
which may accompany the creation of a separated entity,
the portions of the electromagnetic spectrum assigned
as of the date of enactment of this title to INTELSAT
shall not be transferred between INTELSAT and any
separated entity.
(5) Reaffiliation prohibited.--Any merger or
ownership or management ties or exclusive arrangements
between a privatized INTELSAT or any successor entity
and any separated entity shall be prohibited until 15
years after the completion of INTELSAT privatization
under this title.
SEC. 624. SPECIFIC CRITERIA FOR INMARSAT.
In securing the privatizations required by section 621, the
following additional criteria with respect to Inmarsat
privatization shall be applied as licensing criteria for
purposes of subtitle A:
(1) Multiple signatories and direct access.--Multiple
signatories and direct access to Inmarsat shall be
permitted.
(2) Prevention of expansion during transition.--
Pending privatization in accordance with the criteria
in this title, Inmarsat should not expand by receiving
additional orbital locations, placing new satellites in
existing locations, or procuring new or additional
satellites, except for specified replacement satellites
for which construction contracts have been executed as
of March 25, 1998, and the United States shall oppose
such expansion--
(A) in Inmarsat, including at the Council and
Assembly of Parties,
(B) in the International Telecommunication
Union,
(C) through United States instructions to
COMSAT,
(D) in the Commission, through declining to
facilitate the registration of additional
orbital locations or the provision of
additional services (including additional
applications of existing services) or
additional areas of business, and
(E) in other appropriate fora.
This paragraph shall not be construed as limiting the
maintenance, assistance or improvement of the GMDSS.
(3) Number of competitors.--The number of competitors
in the markets served by Inmarsat, including the number
of competitors created out of Inmarsat, shall be
sufficient to create a fully competitive market.
(4) Reaffiliation prohibited.--Any merger or
ownership or management ties or exclusive arrangements
between Inmarsat or any successor entity or separated
entity and ICO shall be prohibited until 15 years after
the completion of Inmarsat privatization under this
title.
(5) Interlocking directorates or employees.--None of
the officers, directors, or employees of Inmarsat or
any successor entity or separated entity shall be
individuals who are officers, directors, or employees
of ICO.
(6) Spectrum assignments.--The portions of the
electromagnetic spectrum assigned as of the date of
enactment of this title to Inmarsat--
(A) shall, after January 1, 2006, or the date
on which the life of the current generation of
Inmarsat satellites ends, whichever is later,
be made available for assignment to all systems
(including the privatized Inmarsat) on a
nondiscriminatory basis and in a manner in
which continued availability of the GMDSS is
provided; and
(B) shall not be transferred between Inmarsat
and ICO.
(7) Preservation of the gmdss.--The United States
shall seek to preserve space segment capacity of the
GMDSS.
SEC. 625. ENCOURAGING MARKET ACCESS AND PRIVATIZATION.
(a) NTIA Determination.--
(1) Determination required.--Within 180 days after
the date of enactment of this section, the Secretary of
Commerce shall, through the Assistant Secretary for
Communications and Information, transmit to the
Commission--
(A) a list of Member countries of INTELSAT
and Inmarsat that are not Members of the World
Trade Organization and that impose barriers to
market access for private satellite systems;
and
(B) a list of Member countries of INTELSAT
and Inmarsat that are not Members of the World
Trade Organization and that are not supporting
pro-competitive privatization of INTELSAT and
Inmarsat.
(2) Consultation.--The Secretary's determinations
under paragraph (1) shall be made in consultation with
the Federal Communications Commission, the Secretary of
State, and the United States Trade Representative, and
shall take into account the totality of a country's
actions in all relevant fora, including the Assemblies
of Parties of INTELSAT and Inmarsat.
(b) Imposition of Cost-based Settlement Rate.--
Notwithstanding--
(1) any higher settlement rate that an overseas
carrier charges any United States carrier to originate
or terminate international message telephone services,
and
(2) any transition period that would otherwise apply,
the Commission may by rule prohibit United States carriers from
paying an amount in excess of a cost-based settlement rate to
overseas carriers in countries listed by the Commission
pursuant to subsection (a).
(c) Settlements Policy.--The Commission shall, in exercising
its authority to establish settlements rates for United States
international common carriers, seek to advance United States
policy in favor of cost-based settlements in all relevant fora
on international telecommunications policy, including in
meetings with parties and signatories of INTELSAT and Inmarsat.
Subtitle C--Deregulation and Other Statutory Changes
SEC. 641. DIRECT ACCESS; TREATMENT OF COMSAT AS NONDOMINANT CARRIER.
The Commission shall take such actions as may be necessary--
(1) to permit providers or users of
telecommunications services to obtain direct access to
INTELSAT telecommunications services--
(A) through purchases of space segment
capacity from INTELSAT as of January 1, 2000,
if the Commission determines that--
(i) INTELSAT has adopted a usage
charge mechanism that ensures fair
compensation to INTELSAT signatories
for support costs that such signatories
would not otherwise be able to avoid
under a direct access regime, such as
insurance, administrative, and other
operations and maintenance
expenditures;
(ii) the Commission's regulations
ensure that no foreign signatory, nor
any affiliate thereof, shall be
permitted to order space segment
directly from INTELSAT in order to
provide any service subject to the
Commission's jurisdiction;
(iii) the Commission has in place a
means to ensure that carriers will be
required to pass through to end-users
savings that result from the exercise
of such authority;
(B) through investment in INTELSAT as of
January 1, 2002, if the Commission determines
that such investment will be attained under
procedures that assure fair compensation to
INTELSAT signatories for the market value of
their investments;
(2) to permit providers or users of
telecommunications services to obtain direct access to
Inmarsat telecommunications services--
(A) through purchases of space segment
capacity from Inmarsat as of January 1, 2000,
if the Commission determines that--
(i) Inmarsat has adopted a usage
charge mechanism that ensures fair
compensation to Inmarsat signatories
for support costs that such signatories
would not otherwise be able to avoid
under a direct access regime, such as
insurance, administrative, and other
operations and maintenance
expenditures;
(ii) the Commission's regulations
ensure that no foreign signatory, nor
any affiliate thereof, shall be
permitted to order space segment
directly from Inmarsat in order to
provide any service subject to the
Commission's jurisdiction;
(iii) the Commission has in place a
means to ensure that carriers will be
required to pass through to end-users
savings that result from the exercise
of such authority; and
(B) through investment in Inmarsat as of
January 1, 2001, if the Commission determines
that such investment will be attained under
procedures that assure fair compensation to
Inmarsat signatories for the market value of
their investments;
(3) to act on COMSAT's petition to be treated as a
nondominant carrier for the purposes of the
Commission's regulations according to the provisions of
section 10 of the Communications Act of 1934 (47 U.S.C.
160); and
(4) to eliminate any regulation on the availability
of direct access to INTELSAT or Inmarsat or to any
successor entities after a pro-competitive
privatization is achieved consistent with sections 621,
622 and 624.
SEC. 642. TERMINATION OF MONOPOLY STATUS.
(a) Renegotiation of Monopoly Contracts Permitted.--The
Commission shall, beginning January 1, 2000, permit users or
providers of telecommunications services that previously
entered into contracts or are under a tariff commitment with
COMSAT to have an opportunity, at their discretion, for a
reasonable period of time, to renegotiate those contracts or
commitments on rates, terms, and conditions or other
provisions, notwithstanding any term or volume commitments or
early termination charges in any such contracts with COMSAT.
(b) Commission Authority To Order Renegotiation.--Nothing in
this title shall be construed to limit the authority of the
Commission to permit users or providers of telecommunications
services that previously entered into contracts or are under a
tariff commitment with COMSAT to have an opportunity, at their
discretion, to renegotiate those contracts or commitments on
rates, terms, and conditions or other provisions,
notwithstanding any term or volume commitments or early
termination charges in any such contracts with COMSAT.
(c) Provisions Contrary to Public Policy Void.--Whenever the
Commission permits users or providers of telecommunications
services to renegotiate contracts or commitments as described
in this section, the Commission may provide that any provision
of any contract with COMSAT that restricts the ability of such
users or providers to modify the existing contracts or enter
into new contracts with any other space segment provider
(including but not limited to any term or volume commitments or
early termination charges) or places such users or providers at
a disadvantage in comparison to other users or providers that
entered into contracts with COMSAT or other space segment
providers shall be null, void, and unenforceable.
SEC. 643. SIGNATORY ROLE.
(a) Limitations on Signatories.--
(1) National security limitations.--The Federal
Communications Commission, after a public interest
determination, in consultation with the Executive
Branch, may restrict foreign ownership of a United
States signatory if the Commission determines that not
to do so would constitute a threat to national
security.
(2) No signatories required.--The United States
Government shall not require signatories to represent
the United States in INTELSAT or Inmarsat or in any
successor entities after a pro-competitive
privatization is achieved consistent with sections 621,
622 and 624.
(b) Clarification of Privileges and Immunities of COMSAT.--
(1) Generally not immunized.--Notwithstanding any
other law or executive agreement, COMSAT shall not be
entitled to any privileges or immunities under the laws
of the United States or any State on the basis of its
status as a signatory of INTELSAT or Inmarsat.
(2) Limited immunity.--COMSAT and any other company
functioning as United States signatory to INTELSAT or
Inmarsat shall not be liable for action taken by it in
carrying out the specific, written instruction of the
United States issued in connection with its
relationships and activities with foreign governments,
international entities, and the intergovernmental
satellite organizations.
(3) Provisions prospective.--Paragraph (1) shall not
apply with respect to liability for any action taken by
COMSAT before the date of enactment of the
Communications Satellite Competition and Privatization
Act of 1998.
(c) Parity of Treatment.--Notwithstanding any other law or
executive agreement, the Commission shall have the authority to
impose similar regulatory fees on the United States signatory
which it imposes on other entities providing similar services.
SEC. 644. ELIMINATION OF PROCUREMENT PREFERENCES.
Nothing in this title or the Communications Act of 1934 shall
be construed to authorize or require any preference, in Federal
Government procurement of telecommunications services, for the
satellite space segment provided by INTELSAT, Inmarsat, or any
successor entity or separated entity.
SEC. 645. USE OF ITU TECHNICAL COORDINATION.
The Commission and United States satellite companies shall
utilize the International Telecommunication Union procedures
for technical coordination with INTELSAT and its successor
entities and separated entities, rather than INTELSAT
procedures.
SEC. 646. TERMINATION OF COMMUNICATIONS SATELLITE ACT OF 1962
PROVISIONS.
Effective on the dates specified, the following provisions of
this Act shall cease to be effective:
(1) Date of enactment of this title: Sections 101 and
102; paragraphs (1), (5) and (6) of section 201(a);
section 301; section 303; section 502; and paragraphs
(2) and (4) of section 504(a).
(2) On the effective date of the Commission's order
that establishes direct access to INTELSAT space
segment: Paragraphs (1), (3) through (5), and (8)
through (10) of section 201(c); and section 304.
(3) On the effective date of the Commission's order
that establishes direct access to Inmarsat space
segment: Subsections (a) through (d) of section 503.
(4) On the effective date of a Commission order
determining under section 601(b)(2) that Inmarsat
privatization is consistent with criteria in sections
621 and 624: Section 504(b).
(5) On the effective date of a Commission order
determining under section 601(b)(2) that INTELSAT
privatization is consistent with criteria in sections
621 and 622: Paragraphs (2) and (4) of section 201(a);
section 201(c)(2); subsection (a) of section 403; and
section 404 .
SEC. 647. REPORTS TO THE CONGRESS.
(a) Annual Reports.--The President and the Commission shall
report to the Congress within 90 calendar days of the enactment
of this title, and not less than annually thereafter, on the
progress made to achieve the objectives and carry out the
purposes and provisions of this title. Such reports shall be
made available immediately to the public.
(b) Contents of Reports.--The reports submitted pursuant to
subsection (a) shall include the following:
(1) Progress with respect to each objective since the
most recent preceding report.
(2) Views of the Parties with respect to
privatization.
(3) Views of industry and consumers on privatization.
SEC. 648. CONSULTATION WITH CONGRESS.
The President's designees and the Commission shall consult
with the Committee on Commerce of the House of Representatives
and the Committee on Commerce, Science, and Transportation of
the Senate prior to each meeting of the INTELSAT or Inmarsat
Assembly of Parties, the INTELSAT Board of Governors, the
Inmarsat Council, or appropriate working group meetings.
SEC. 649. SATELLITE AUCTIONS.
Notwithstanding any other provision of law, the Commission
shall not have the authority to assign by competitive bidding
orbital locations or spectrum used for the provision of
international or global satellite communications services. The
President shall oppose in the International Telecommunication
Union and in other bilateral and multilateral fora any
assignment by competitive bidding of orbital locations or
spectrum used for the provision of such services.
Subtitle D--Negotiations To Pursue Privatization
SEC. 661. METHODS TO PURSUE PRIVATIZATION.
The President shall secure the pro-competitive privatizations
required by this title in a manner that meets the criteria in
subtitle B.
Subtitle E--Definitions
SEC. 681. DEFINITIONS.
(a) In General.--As used in this title:
(1) INTELSAT.--The term ``INTELSAT'' means the
International Telecommunications Satellite Organization
establishedpursuant to the Agreement Relating to the
International Telecommunications Satellite Organization (INTELSAT).
(2) Inmarsat.--The term ``Inmarsat'' means the
International Mobile Satellite Organization established
pursuant to the Convention on the International
Maritime Organization.
(3) Signatories.--The term ``signatories''--
(A) in the case of INTELSAT, or INTELSAT
successors or separated entities, means a
Party, or the telecommunications entity
designated by a Party, that has signed the
Operating Agreement and for which such
Agreement has entered into force or to which
such Agreement has been provisionally applied;
and
(B) in the case of Inmarsat, or Inmarsat
successors or separated entities, means either
a Party to, or an entity that has been
designated by a Party to sign, the Operating
Agreement.
(4) Party.--The term ``Party''--
(A) in the case of INTELSAT, means a nation
for which the INTELSAT agreement has entered
into force or been provisionally applied; and
(B) in the case of Inmarsat, means a nation
for which the Inmarsat convention has entered
into force.
(5) Commission.--The term ``Commission'' means the
Federal Communications Commission.
(6) International telecommunication union.--The term
``International Telecommunication Union'' means the
intergovernmental organization that is a specialized
agency of the United Nations in which member countries
cooperate for the development of telecommunications,
including adoption of international regulations
governing terrestrial and space uses of the frequency
spectrum as well as use of the geostationary satellite
orbit.
(7) Successor entity.--The term ``successor
entity''--
(A) means any privatized entity created from
the privatization of INTELSAT or Inmarsat or
from the assets of INTELSAT or Inmarsat, but
(B) does not include any entity that is a
separated entity.
(8) Separated entity.--The term ``separated entity''
means a privatized entity to whom a portion of the
assets owned by INTELSAT or Inmarsat are transferred
prior to full privatization of INTELSAT or Inmarsat,
including in particular the entity whose structure was
under discussion by INTELSAT as of March 25, 1998, but
excluding ICO.
(9) Orbital location.--The term ``orbital location''
means the location for placement of a satellite on the
geostationary orbital arc as defined in the
International Telecommunication Union Radio
Regulations.
(10) Space segment.--The term ``space segment'' means
the satellites, and the tracking, telemetry, command,
control, monitoring and related facilities and
equipment used to support the operation of satellites
owned or leased by INTELSAT, Inmarsat, or a separated
entity or successor entity.
(11) Non-core.--The term ``non-core services'' means,
with respect to INTELSAT provision, services other than
public-switched network voice telephony and occasional-
use television, and with respect to Inmarsat provision,
services other than global maritime distress and safety
services or other existing maritime or aeronautical
services for which there are not alternative providers.
(12) Additional services.--The term ``additional
services'' means Internet services, high-speed data,
interactive services, non-maritime or non-aeronautical
mobile services, Direct to Home (DTH) or Direct
Broadcast Satellite (DBS) video services, or Ka-band
services.
(13) INTELSAT agreement.--The term ``INTELSAT
Agreement'' means the Agreement Relating to the
International Telecommunications Satellite Organization
(``INTELSAT''), including all its annexes (TIAS 7532,
23 UST 3813).
(14) Headquarters agreement.--The term ``Headquarters
Agreement'' means the International Telecommunication
Satellite Organization Headquarters Agreement (November
24, 1976) (TIAS 8542, 28 UST 2248).
(15) Operating agreement.--The term ``Operating
Agreement'' means--
(A) in the case of INTELSAT, the agreement,
including its annex but excluding all titles of
articles, opened for signature at Washington on
August 20, 1971, by Governments or
telecommunications entities designated by
Governments in accordance with the provisions
of the Agreement, and
(B) in the case of Inmarsat, the Operating
Agreement on the International Maritime
Satellite Organization, including its annexes.
(16) Inmarsat convention.--The term ``Inmarsat
Convention'' means the Convention on the International
Maritime Satellite Organization (Inmarsat) (TIAS 9605,
31 UST 1).
(17) National corporation.--The term ``national
corporation'' means a corporation the ownership of
which is held through publicly traded securities, and
that is incorporated under, and subject to, the laws of
a national, state, or territorial government.
(18) COMSAT.--The term ``COMSAT'' means the
corporation established pursuant to title III of the
Communications Satellite Act of 1962 (47 U.S.C. 731 et
seq.).
(19) ICO.--The term ``ICO'' means the company known,
as of the date of enactment of this title, as ICO
Global Communications, Inc.
(20) Replacement satellites.--The term ``replacement
satellite'' means a satellite that replaces a satellite
that fails prior to the end of the duration of
contracts for services provided over such satellite and
that takes the place of a satellite designated for the
provision of public-switched network and occasional-use
television services under contracts executed prior to
March 25, 1998 (but not including K-TV or similar
satellites). A satellite is only considered a
replacement satellite to the extent such contracts are
equal to or less than the design life of the satellite.
(21) GMDSS.--The term ``global maritime distress and
safety services'' or ``GMDSS'' means the automated
ship-to-shore distress alerting system which uses
satellite and advanced terrestrial systems for
international distress communications and promoting
maritime safety in general. The GMDSS permits the
worldwide alerting of vessels, coordinated search and
rescue operations, and dissemination of maritime safety
information.
(b) Common Terminology.--Except as otherwise provided in
subsection (a), terms used in this title that are defined in
section 3 of the Communications Act of 1934 have the meanings
provided in such section.
ADDITIONAL VIEWS OF MR. TAUZIN
While I, along with many of my colleagues support the pro-
competitive goals of H.R. 1872, I continue to have strong
reservations about the so-called ``Fresh Look'' provisions of
the bill. Because these provisions abrogate private contracts
that were negotiated between Comsat and its carrier-customers,
I offered an amendment to strike these provisions in the
Commerce Committee. Although the committee narrowly rejected my
amendment, I continue to oppose them, and hope that the full
House of Representatives will vote to strike the ``Fresh Look''
provisions when it considers H.R. 1872.
In my view, the ``Fresh Look'' provisions are
unconstitutional takings of Comsat's property, and will
ultimately subject the U.S. Government--and the taxpayers to
substantial claims for damages. As if that's not enough, the
``Fresh Look'' provisions are unfair, and cannot be justified
on the basis of the factual record that has been developed at
the Federal Communications Commission and in a Federal court.
background
Several years ago, as a result of both a series of
regulatory changes that were designed to increase competition
in international telecommunications and the widespread
deployment of fiber optic cables, Comsat negotiated long-term
contracts with the largest long distance companies to carry
international traffic using INTELSAT's facilities. Comsat is
the owner of the U.S. share of the INTELSAT's system. These
contracts were designed to guarantee a steady stream of traffic
in the face of increased competition from other satellite
systems and fiber optic cables. In return for long term traffic
commitments, Comsat dropped its prices considerably. These
contracts (with AT&T, MCI, Worldcom and Sprint) were
renegotiated in 1993 and 1994, at a time when competing
satellite systems were permitted to, and did bid for this
traffic.
the ``fresh look'' provisions of h.r. 1872
As reported by the Commerce Committee, H.R. 1872 proposes a
new section 642 of the Communications Satellite Act of 1962.
Subsection (a) of the proposed new section reads as follows:
The Commission shall, beginning January 1, 2000,
permit users or providers of telecommunications
services that previously entered into contracts or are
under a tariff commitment with COMSAT to have an
opportunity, at their discretion, for a reasonable
period of time, to renegotiate those contracts or
commitments on rates, terms, and conditions or other
provisions, notwithstanding any term or volume
commitments or early termination charges in any such
contracts with COMSAT.
The effect of the new section will be to permit Comsat's
carrier-customers to walk away from commitments they made in
voluntary negotiations. They will have had the benefits of
lower prices for that portion of the contract they chose to
honor, but Congress will have given them the ability to
unilaterally terminate the remaining portion of the contract
without penalty. In my view, this policy is wrong, and needs to
be stricken from the bill.
1. The ``Fresh Look'' provisions of H.R. 1872 are unconstitutional
takings of Comsat's property, and will create a massive
liability for America's taxpayers
The ``Fresh Look'' provisions take away from Comsat, by
name, contract rights for which it bargained. Comsat is a
private, investor-owned entity, and contract rights are
property. See Lynch v. United States, 292 U.S. 571, 579 (1934)
(``Valid contracts are property, whether the obligor be a
private individual, a municipality, a state, or the United
States.''). The Government cannot simply take that property, as
the ``fresh look'' provisions would do, without paying for it.
See id.; see also Allied Structural Steel v. Spannaus, 438 U.S.
234, 247 (1978) (government could not ``nullify express terms
of [a] company's contractual obligations'').
The proponents of ``Fresh Look'' point to cases where
companies holding adjudicated unlawful monopolies were required
to allow other parties out of contracts that had been used to
maintain the monopolies. Indeed, the bill puts the word
``monopoly'' in the title of the section. But no court has
found that Comsat has any monopoly, let alone an unlawful one,
and it plainly does not; it has less than a quarter of the
satellite telecommunications market. Any attempted
congressional adjudication that Comsat has an unlawful
monopoly, and deserves to be punished by having its contracts
taken away, would usurp the judiciary's function and be an
unconstitutional Bill of Attainder. See United States v. Brown,
381 U.S. 437 (1965); SBC Communications, Inc. v. FCC, 981 F.
Supp. 996 (N.D. Tex. 1997).
Proponents of ``Fresh Look'' also invoke the doctrine that
``federal frustration of contracts between private parties'' is
permissible, but that doctrine has no application here. The
``frustration'' doctrine says that if a new general policy
(e.g., a safety regulation) incidentally alters private
contractual relationships (e.g. a construction contract) the
private parties have no claim. See e.g., Norman v. Baltimore &
O.R.R., 294 U.S. 240, 307-08 (1935). But no case has ever come
close to holding or suggesting that the government can simply
declare that all signed contracts of a specific, named
contractor are open for ``renegotiation'' without any court
determination that the contractor has broken the law. Any such
statute would be plainly unconstitutional. See e.g., Connolly
v. Pension Benefit Guaranty Corp., 475 U.S. 211, 224 (1986)
(fact that Congress might incidentally interfere private
contracts by regulating their subject matter does not mean
``that contractual rights are never property rights or that the
Governmentmay always take them for its own benefit without
compensation'').
2. The ``Fresh Look'' provisions of H.R. 1872 are unfair
Based on the long-term guarantees of traffic resulting from
Comsat's carrier-contracts, Comsat itself contracted with
Intelsat's for the capacity to handle that traffic. Comsat's
contracts with INTELSAT's will remain in force, even if the
carrier-contracts that formed the basis for the INTELSAT's
contracts are abrogated by Congress. Comsat will continue to be
liable for its contractual obligations to INTELSAT's, and will
be required to pay $845 million over the life of the contracts.
Yet because of the ``Fresh Look'' provisions of H.R. 1872, the
guarantee of traffic will have been eradicated by Congress.
This is unfair to Comsat, and as noted above, will result in
the U.S. government paying off substantial claims for damages
to which Comsat will be entitled.
In addition, these contracts represent 93% of Comsat's
INTELSAT's-derived revenues. Placing a significant portion of
the company's revenues at risk, while at the same time
requiring Comsat to fulfill its obligations pursuant to the
Intelsat's contracts, would be ruinous to Comsat.
3. The ``Fresh Look'' provisions of H.R. 1872 are unjustified on the
basis of the record compiled by the FCC and a Federal court
Comsat's carrier-contracts cover international switched-
voice traffic. Comsat's share of this market is only 20%. If
80% of this traffic can be--and is--routed over facilities that
compete with Comsat's, claims that Comsat has ``locked up''
traffic are utterly without merit.
Moreover, the record demonstrates that these contracts were
entered into voluntarily. Comsat and AT&T jointly petitioned
the Federal Communications Commission to find that these
contracts were in the public interest. In their joint filing,
Comsat and AT&T stated that
PanAmSat's arguments are likewise without merit.
First, PanAmSat asserts that the Agreement
inappropriately ``locks in'' both AT&T and COMSAT.
However, to the extent COMSAT and AT&T have assumed
mutual commitments, that is not inappropriate; rather
it is the nature of long-term arrangements. In any
event, the Agreement is non-exclusive, and leaves both
parties with substantial flexibility. AT&T is free to
place traffic not covered therein on ``whatever
facilities it should select, consistent only with U.S.
law and international obligations,'' and COMSAT is free
to compete for additional AT&T traffic, as well as the
traffic of other service carriers.
See, Joint Reply Comments of Comsat and AT&T, In the Matter of
Policy for the Distribution of United States International
Carrier Circuits Among Available Facilities During the Post-
1988 Period, CC Docket No. 87-67, at 6 (footnotes omitted).
Moreover, in an antitrust suit involving these contracts,
the court stated that
* * * nothing in the record suggests that Comsat
secured any of the contracts by means of any
anticompetitive act against [PanAmSat]. On the
contrary, the record suggests that for their own
reasons, the common carriers elected to secure long-
term deals with Comsat only after considering and
rejecting offers from PAS.
Alpha Lyracom Space Communs. v. COMSAT Corp., 968 F. Supp. 876,
894 (S.D.N.Y. 1996) (citations omitted), aff'd, Alpha Lyracom
Space Communs. v. COMSAT Corp., 113 F.3d 372 (2d Cir. N.Y.
1997).
CONCLUSION
Despite the absence of any facts that would justify
Congress imposing a remedy as draconian as ``Fresh Look,'' the
Committee narrowly rejected my amendment to strike the
provision; therefore, when the House considers H.R. 1872, I
intend to support a similar amendment. Congress should not be
in the business of voiding contracts voluntarily entered into
by private parties.
As I have discussed in these views, the ``Fresh Look''
provisions constitute a compensable taking which would hold the
taxpayers liable for substantial claims for damages. These
provisions would leave Comsat liable for paying for the traffic
that the contracts guaranteed, even after Congress repealed the
guarantee. Finally, there is no factual basis for imposing
``Fresh Look.'' The carrier-contracts are neither exclusive nor
anticompetitive. They are voluntary agreements between private
parties. Congress should not impair the ability of either party
to rely upon the commitments made by the other to fulfill their
obligations under these contracts.
ADDITIONAL VIEWS
We support the pro-competitive, deregulatory goals embodied
in H.R. 1872, and we were pleased to support the legislation as
it moved through the Commerce Committee. We are deeply
concerned, however, about several provisions that were included
in the bill when the ``Dingell amendment'' was accepted during
consideration of the bill by the Subcommittee on
Telecommunications, Trade and Consumer Protection.
The ``Dingell amendment,'' which addresses the terms and
conditions under which direct access to intergovernmental
satellite organization facilities may be granted, contains two
provisions--641(1)(A)(iii) and 641(2)(A)(iii)--which are
decidedly at odds with the pro-competitive, deregulatory thrust
of H.R. 1872. These provisions, which would direct the Federal
Communications Commission (``FCC'' or ``Commission'') to
involve itself in the pricing decisions of carriers which are
considered by the FCC to be non-dominant,\1\ are unnecessary,
intrusive, and contrary to the direction that the FCC should be
headed with respect to regulation of the telecommunications
market. We find it ironic that these ill-advised, regulatory
provisions were included in a section of the bill titled
``Deregulation and Other Statutory Changes.''
---------------------------------------------------------------------------
\1\ The FCC found in its AT&T Non-Dominance Order that no carrier
is dominant in the provision of international services. See In the
matter of motion of AT&T Corp. to be Declared Non-Dominant for
International Service, FCC 96-209, released May 14, 1996.
---------------------------------------------------------------------------
The parties most likely to take advantage of direct access
are carriers competing in the international long-distance
market. This market is highly competitive, and market forces
will provide participants in this market with discipline as
they establish their prices. Should these parties obtain direct
access, competition will compel them to ``flow-through'' any
cost-savings to their end customers; carriers which fail to do
so will inevitably lost market share. Thus, we do not believe
there is any compelling rationale for the Commission to involve
itself in the area of international long-distance pricing,
except to the extent that Commission involvement is necessary
to ensure that U.S. carriers are not forced to pay inflated
settlements rates to foreign monopolies.\2\
---------------------------------------------------------------------------
\2\ See In the Matter of International Settlement Rates, FCC IB 96-
261, released August 18, 1997.
---------------------------------------------------------------------------
Legislation that is intended to deregulate the satellite
market is an inappropriate vehicle to reregulate the long-
distance market, even in the unlikely event that such
reregulation was necessary. Accordingly, we strongly urge that
these provisions of the ``Dingell amendment'' be stripped from
the bill at some point in the legislative process, and barring
that, we urge the Commission to employ the forbearance
authority granted it under Section 10 of the Communications Act
(47 U.S.C. 160) to refrain from applying the requirements of
641(1)(A)(iii) and 641(2)(A)(iii). Given the many
responsibilities facing the Commission, and its limited
resources, it would be an inappropriate use of resources for
the FCC to spend any time implementing these unnecessary and
counterproductive provisions.
Michael G. Oxley,
John Shimkus,
Tom A. Coburn,
Nathan Deal,
Rick White,
Richard Burr.
DISSENTING VIEWS
On its face H.R. 1872 aims at a worthwhile objective. All
agree that more competition is better, whether it is in the
satellite industry, the long distance business, local telephone
networks or cable TV. We have no argument with this worthy
goal. The crux of the problem with this bill is that it will
not achieve what it sets out to do. In fact, it will accomplish
precisely the opposite. Less competition and higher prices are
the unfortunate, but inevitable outcomes of H.R. 1872.
Where does this well-intentioned bill jump the track? We
can point to one simple, but false premise underlying this bill
that is responsible for all the infirmities that naturally flow
from it. H.R. 1872 starts with the assumption that COMSAT is a
monopoly, and, as such, is deserving of all evils that may be
bestowed upon it.
The simple truth is that COMSAT is not a monopoly. Yes, it
is true that the Government granted COMSAT an exclusive
franchise to provide satellite services using INSTELSAT and
Inmarsat facilities. But, that is not where the story ends.
Today scores of satellite systems compete head to head with
INTELSAT and Inmarsat. COMSAT is not the only game in town by a
long shot.
In 1984, President Reagan issued an executive order that
put an end to COMSAT's monopoly by authorizing competition in
the satellite market. Today COMSAT faces more than 20 highly
effective competitors that have combined investments in
satellites totaling over $14 billion. In the past four years
alone, Wall Street has tripled the value of these competitors'
stocks, and their owners now enjoy a combined market value of
more than $40 billion. Clearly, investors believe these
companies are not shackled on the sidelines, unable to compete
against an entrenched monopolist.
If you choose not to believe the investors, then look at
COMSAT's share of the market. These numbers positively refute
any lingering doubt that the days of COMSAT's monopoly status
have long since passed. Since 1988, COMSAT's market share for
voice traffic has plummeted from 70% to 21%. Its share of the
video market has dropped precipitously since 1993 from 80% to
42%. If COMSAT is a monopoly, it certainly isn't a very good
one.
This is not to say that the satellite industry should not
compete on an even playing field in the international
marketplace. if INTELSAT and Inmarsat have any competitive
advantages, whether it be in obtaining orbital slots or
exclusive access to foreign markets, the correct approach
should be to put pressure on the international community to
eliminate those advantages. Unfortunately, H.R. 1872 takes the
opposite approach and places the burden on COMSAT to correct
the ills of the rest of the world, and punishes COMSAT if it
doesn't succeed. The fallacy with that approach is that COMSAT
has no control over the actions of 141 foreign countries.
Hence, the goal of the bill is doomed from the start.
Worse, if COMSAT is punished for its inability to bring
home the gold, the goal of stimulating more competition is
compromised even further. By the terms of this bill, COMSAT
would be restricted from providing ``non-core'' services, which
are defined as just about everything COMSAT provides today to
remain a viable competitor in the market. The curtailment of
services dictated by this bill would turn the clock back 30
years to a time when COMSAT was mainly in the business of
carrying international telephone calls. Most of the so-called
``core'' services COMSAT would be permitted to offer have since
migrated from satellites to fiber optic cable.
As a result, COMSAT would be turned into a dinosaur
overnight. While it is easy to see how this would benefit
COMSAT's competitors, we are at a loss to understand how it
would increase competition. To the contrary, the effect would
be to remove a competitor from the marketplace. Less
competition inevitably leads to higher prices, precisely the
opposite goal of the bill.
If this weren't bad enough, COMSAT would have a legitimate
claim for damages against the U.S. Government. The punitive
service restrictions contained in this bill are tantamount to
the Government imposing capital punishment on COMSAT for a
crime committed by somebody else. Through no fault of its own,
COMSAT's investment in satellites would be rendered virtually
worthless.
Based on specific instructions from the Government, and in
reliance on a reasonable expectation of an investment return,
COMSAT's shareholders have staked billions of dollars on assets
orbiting the sky solely for the purpose of generating revenues
now and into the future. When the service restrictions
contained in this bill kick in, and they surely will, those
stranded assets will be looking for a home, And, of course,
U.S. taxpayers will be forced to take them in. The resulting
taxpayer liability could run well into the billions of dollars.
A more extensive discussion of the Government ``takings''
claim is contained in the ``Additional Views of Mr. Tauzin,''
Chairman of the Subcommittee on Telecommunications, Trade, and
Consumer Protection, included with this report. While that
discussion focuses on taxpayer liability stemming from the
bill's ``fresh look'' provisions, which permit the abrogation
of private contracts, the arguments contained there are equally
relevant to the imposition of service restrictions addressed in
these views. An attempt to remove the punitive ``fresh look''
provisions was narrowly defeated by a 20-23 vote of the
Committee.
The punitive measures on COMSAT, its customers, and the
U.S. taxpayers should be eliminated from H.R. 1872. The
punishment should be redirected where it belongs: on foreign
countries that impede progress toward privatization. The notion
that this Committee would put the financial viability of a U.S.
company at risk based solely on the actions of a group of
foreign countries is simply beyond comprehension. But that is
precisely what H.R. 1872, as reported, would accomplish.
John D. Dingell,
Ron Klink,
Bobby L. Rush,
Albert R. Wynn,
Sherrod Brown.