Hearing of House Subcommittee on Telecommunications and the Internet: The Orbit Act: An Examination of Progress Made in Privatizing the Satellite...
HEARING OF THE HOUSE SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET: THE ORBIT ACT: AN EXAMINATION OF PROGRESS MADE IN PRIVATIZING THE SATELLITE COMMUNICATIONS MARKETPLACE
April 14, 2005
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Mr. Markey. Thank you, Mr. Chairman, very much, and I want
to commend you for calling this hearing this morning on the
Open Market Reorganization for the Betterment of International
Telecommunications Act.
Legislation that was approved by Congress 5 years ago, this
hearing will give us an opportunity to gage the Act's success
in achieving several policy goals, and to also test the rule of
Renee Ensomo of whether or not truth and technology triumphs
over baloney and bureaucracy. And so that will be the subject
of today's hearing.
The ORBIT Act was designed to close a chapter in commercial
satellite communications, which was begun in 1962 with the
passage of the Communications Satellite Act. That legislation
spurred the development of two intergovernmental organizations,
namely INTELSAT and Inmarsat, to which dozens of nations and
national signatories joined in a collective effort to provide
international satellite communications. During the 1960's and
1970's, that model worked well because it was iridominated by
relatively little technological change in telecommunications
and largely domestic monopolies across the globe for our
telecommunications services, such as MA Bell here in the Unites
States. However, in many other countries, the equivalent of MA
Bell was actually owned by the government, and these
government-owned or controlled telephone companies were the
owner/shareholders of the international satellite
organizations, with an incentive to favor such organizations in
their domestic markets, to the detriment of private sector
alternatives.
I offered the first bill to address INTELSAT's anti-
competitive behavior and rid it of its government bestowed
privileges and immunities in 1983. Domestically at that time,
the United States was breaking up MA Bell, fostering the
deployment of a cable television infrastructure, and the
personal computer revolution was underway. Despite the changes
in technology and international markets, the two
intergovernmental organizations remained bureaucratic and
complacent at best, and anti-competitive and anti-innovative at
worst.
In 1988, PanAmSat launched a satellite that ushered in the
era of competition. Renee Ensomo, a graduate of Medford High
School, in my district, told me that if I supported his vision,
it could transform the way in which the world was organized
around satellite technology. Renee, as usual, was correct. Yes,
it took a dozen years before Congress updated the 1962 era
statute with the ORBIT Act to reflect the changed technological
and competitive circumstances, and used the leverage of the
U.S. market access to finally force INTELSAT and Inmarsat to
shed their intergovernmental status and fully privatize.
The ORBIT Act contained many provisions, including
provisions ensuring direct access to INTELSAT----
Chairman Barton. Would the gentleman yield?
Mr. Markey. I would be glad to yield.
Chairman Barton. Are you auditioning for Saturday Night
Live? The news that was or whatever?
Mr. Markey. I am still groggy from last night, Mr.
Chairman. I don't even know--we were here last night debating
energy until I don't know what time, so----
Chairman Barton. You had to do it in two committees
yesterday, actually. You were doing double duty. You were in
Resources and Energy.
Mr. Markey. I was losing in two committees yesterday,
simultaneously. It was an incredible challenge to my self
esteem, and I am using this as a little anecdote. Notice how I
am praising myself for the last 20 years of incredible insight
that I have. This is just a little known reason.
What was that guy's name on Saturday Night Live that when
he looked in the mirror? You know what I am talking about?
Chairman Barton. Sarducci?
Mr. Markey. No. Jack Handy. You know Jack Handy?
Chairman Barton. Mr. Markey is a little bit humble. He got
more in the bill and still voted no than most of us that
supported the bill.
Mr. Markey. I am proud of my humility, thank you. I think
it is my best tribute, my best quality.
Where was I here?
The ORBIT Act contained many provisions, including
provisions ensuring direct access to INTELSAT for competitives,
rather than forcing American companies to buy through the
government chartered go-between, COMSAT. It permitted--it
prohibited the FCC from auctioning licenses for satellite
frequencies. It stripped the intergovernmental entities of
their privileges and immunities in the marketplace, and it
induced, but did not require, INTELSAT and Inmarsat to conduct
initial public offerings by withholding the opportunity to
serve U.S. customers for non-core advance services.
This last provision was updated last autumn to allow these
entities to privatize through the sale to private equity firms,
rather than conduct an IPO. In addition, there were two
companies created by spinning off assets from INTELSAT and
Inmarsat, and these two companies had several additional
conditions.
Specifically, the two companies were prohibited from having
interlocking directorates and common employees, and both were
also prohibited from re-affiliating with their former parents.
In the case of ICO, for 15 years after the date upon which
Inmarsat was fully privatized, and for New Skies, the Act
stipulated that 11 years had to pass after INTELSAT's full
privatization before it could re-affiliate with its former
parent.
Today's hearing gives us an ability to explore this wide
range of issues, and I want to thank the witnesses, and you,
Mr. Chairman, for conducting this very important hearing.
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Mr. Markey. Thank you, Mr. Chairman.
Mr. Goldberg, what percentage of international
telecommunications traffic is underseas and how much is
satellite? Do you know?
Mr. Goldberg. I cited in our written testimony a report
that the FCC issued. I think it is their 2004 International
Circuits report. And I believe at this point in time, again,
according to the FCC's report, and I believe that what this
looks at is international traffic between the United States and
a foreign point. I understand that today--if you give me just 1
second. Satellites, at least in 2003, the FCC hasn't issued the
numbers for 2004. Satellites are carrying just 1 percent of
international traffic. That is in contrast back to the time
when--back in 1997 when there was a lot of activity here when
ORBIT was first passed, at least by the House. At that time, 10
percent of international traffic was carried by satellites. And
this is another thing that we try to emphasize. Not only has
the satellite industry become much, much more competitive
because we have all launched collectively so much more
capacity, but there is now 40 times more undersea fiber
capacity than there was some years ago, and we have lost an
enormous market share to the undersea fiber providers.
Mr. Markey. Thank you.
Mr. Spector, the previous owners of INTELSAT, which
included several signatories, made a decision after the ORBIT
Act to domicile the company for legal purposes in Bermuda,
while keeping its headquarters here in DC. Are the new owners
management reconsidering that decision to have the domicile in
Bermuda?
Mr. Spector. Mr. Markey, the short answer to that is no,
but I want to point out in that context that INTELSAT was never
a U.S. company. This is not an example, as with some companies,
of a U.S. company moving offshore. INTELSAT was an
intergovernmental organization headquartered in Washington, DC,
and then when it became a private company, it began life as a
Bermuda company.
That is because INTELSAT's business, frankly, is all over
the world. It is not just in the United States. And while we
very much value the United States and do a lot of business
here, as well as have a significant presence here in
Washington, DC, we are an international company.
Mr. Markey. Okay. Mr. Abelson, which country, in your
estimation, is the worst about discrimination about satellite
competition?
Mr. Abelson. That is a very interesting question. I would
have to actually defer to the trade representative that
collects these kinds of complaints from U.S. industry. They
filed--I believe they put out a report just 2 days ago on
telecom trade----
Mr. Markey. Did you read the report?
Mr. Abelson. I did read the report. I don't think they
cited any satellite issues in that report.
Mr. Markey. Do you have any offhand idea as to which
countries are the worst, a grouping of countries?
Mr. Abelson. I really don't. We have looked at competition
globally in the satellite industry, but with regard to the
countries that are the worst, I don't have a way of knowing. I
really rely on the companies to report to me what they were
experiencing.
Mr. Markey. But again, they might not want to anger the
country.
You are saying you really don't know, Mr. Abelson, which
countries in the world discriminate against satellite
competition? You really have no idea?
Mr. Abelson. I have knowledge about the regulatory
practices of foreign countries----
Mr. Markey. Yeah, so which ones are bad?
Mr. Abelson. Which countries have bad----
Mr. Markey. Yeah, which companies have bad policies in the
competition? That is your job, right?
Mr. Abelson. My job is actually to look at competition here
in the United States in the satellite industry.
Mr. Markey. Okay.
Mr. Abelson. And we have been doing a lot of work, as I
have noted, to promote competition in this field.
Mr. Markey. Yes. But you don't know what goes on in the
world?
Mr. Abelson. I rely upon the trade representative in the
Commerce Department that are responsible for getting access
overseas on these issues.
Mr. Markey. Okay. Just this Monday, Mr. Abelson, the DC
circuit heard the case of Northpoint Communications versus the
FCC on an issue stemming from the ORBIT Act's prohibition on
auctioning licenses for satellite frequencies. Is the FCC
seeking any clarification or change to this provision?
Mr. Abelson. At this point, the Commission has not
considered the matter of whether to seek change to this
provision. Our position with regard to the ORBIT Act and the
court case that you referred to is that the exemption applies
only to global or international satellite systems.
Mr. Markey. I actually--and I will be honest with you. I
wish we had an 11-year or a 15-year prohibition on MA Bell re-
affiliating after the Telecom Act. That would have been a good
addition to have built into the law. And I do understand that
the satellite market has become widely competitive, and
therefore, worth revisiting these prohibitions. And I am open-
minded about it, Mr. Chairman, about making adjustments, and
perhaps on some other issues as well.
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