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FCC Takes Up a Number of Satellite Issues Aimed at Making Market More Competitive.

In devoting an entire day to international satellite issues, the FCC was able to take care of a number of items concerning the US role in the international satellite network. The commission asked for comments on the ownership and operation of earth stations linked to Intelsat; looked at financing of earth stations operating with Intelsat; gave the go ahead on a digital Intelsat business service; authorized the operation of earth stations providing international service via Intelsat; ruled on direct access to Intelsat; authorized the operation of eath stations; modified satellite procurement rules; and made changes in Comsat's cost allocation practices.

During the day-long session the FCC took up the issue of individual carriers owning and operating US earth stations linked to Intelsat's global communications satellite system, asking for comments on the proposal (Docket 83-540).

Current policy only allows international earth stations to be owned by a consortium of carriers, including Comsat and certain US international services carriers. These carriers include AT&T, RCA Global Communications, ITT World Communications, Western Union International (WUI) and the Hawaiian Telephone Company.

Through its World Systems Division, Comsat owns 50 percent and the international service carriers share the remaining 50 percent, each according to its usage. Comsat operates and manages the stations subject to overall control and guidance on basic policy and investment matters by a committee of co-owners.

Existing FCC ownership policy was established in 1966 when Intelsat was not yet operational, satellite policy was in its infancy and the driving policy consideration was establishment of a global satellite system. In this environment it was reasonable to give Comsat a dominant role in any earth station scheme. The evolution of Intelsat since then has given the commission an opportunity to advance from a conservative policy to one that stresses benefits to users, while recognizing its commitment to Intelsat.

In 1967 the US international service carriers established the Earth Station Ownership Committee (ESOC) through an agreement that set up separate ownership consortiums for the contiguous US, Hawaii and Guam, and fixed the percentage ownership shares for Comsat, AT&T, Hawaiian Telephone, ITT, RCA and WUI.

The commission tentatively concluded that individual ownership and operation of earth station operating with the Intelsat system would permit barriers to build their own stations as marketplace forces dictate, providing users with additional choices, while reducing earth station rates. In implementing such a policy, the commission said it would consider applications from any carrier and permit the existing jointly owned international earth stations to continue operating under the ESOC agreement or any other arrangement the joint owners may agree upon, consistent with the public interest.

Turning to Comsat's applications for new stations or for additions to existing stations, the commission tentatively concluded that these should be made through a Comsat subsidiary. Comsat was told it would be required to transfer any ownership interests in existing Intelsat stations from its World Systems Division, which provides monopoly space services, to a separate subsidiary that will provide competitive earth segment services. FCC Denies Review of Staff Action

The FCC decided to deny RCA and WUI review of a staff action resolving a dispute between the companies and Comsat related to the financing of US earth stations operating with Intelsat.

Late last year the Common Carrier Bureau directed RCA and WUI to make whole their financial obligations under the ESOC agreement. It also dismissed the company's requests to reallocate shares in ESOC.

The bureau concluded that an ESOC member cannot, in accord with FCC policy, unilaterally suspend capital contributions and compel the remaining owners to absorb any resulting shortfall, since this would force an ownership realignment contrary to FCC orders requiring an ESOC member to petition the commission for an adjustment of ownership shares.

Despite arguments by RCA and WUI, the commission agreed with the bureau's action.

Comsat was given the go ahead by the FCC to participate in a program to provide satellite capacity for digital Intelsat International Business Service (IBS) to be offered as part of the Intelsat system.

At the same time the commission rejected requests by ITT and RCA to defer action on Comsat's applications until it transfer all its competitive activities to separate subsidiaries.

IBS is a flexible, totally digital, integrated service designed to accommodate a full range of user applications including telex, voice, fascimile, data and teleconferencing. Intelsat designed the IBS space segment capacity to enable a single transponder to accommodate multiple earth station accesses, including access by a range of small and medium sized antennas and user networks through various connectivity arrangements. IBS Uses Small Earth Stations

Initially, IBS service would be provided by existing standard earth stations linked with spacecraft operating at 6/4 GHz and 14/11 GHz. One of the key features would be the ability to provide service to small earth stations located at or near user premises to reduce the cost of expensive terrestrial facilities suitable for high-speed digital transmission.

The commission said authorization of Comsat's application would give customers a wider array of services tailored more specifically to their business needs and would allow them to establish their own digital networks.

Comsat was also given authorization by the FCC to construct and operate an international earth station at the Teleport complex at Staten Island, New York, and to establish channels to communicate between that facility and Intelsat satellites to provide IBS.

The earth station will be connected with the Manhattan World Trade Center in New York and the Journal Square Transportation Center in Jersey City, New Jersey by a fiber-optic cable network operated by Teleport Telecommunications, a partnership between Merrill Lynch Telecommunications and Western Union.

International Relay Incorporated (IRI) was given FCC authorization to construct and operate earth stations in the Chicago and New York City areas in order to provide businesses with Intelsat's IBS.

IRI's proposed facilities are intended to satisfy customized service requirements, not bulk traffic through standard service parameters. FCC Stands Behind Comsat

IRI proposed that Comsat be replaced in the future as operational representative to Intelsat because of possible conflict of interest developing since Comsat will compete with other IBS carriers. The commission noted that it had concluded that Comsat is in the best position to represent the US at Intelsat meetings and requested comments on establishing a mechanism to allow greater carrier participation that would not be disruptive to a cohesive US role in Intelsat.

In denying US international service carriers direct access to Intelsat, the FCC said the public interest would not be served by modifying the arrangement requiring the carriers to acquire Intelsat satellite circuits from Comsat.

Currently, Comsat is the US Signatory to Intelsat, the Sole US investor in the global satellite system, and the monopoly supplier of Intelsat space segment services to the carriers. As end-to-end service providers, the carriers use Comsat-provided Intelsat space segment, in conjunction with the earth stations owned jointly by Comsat and the international carriers, to offer international satellite telecommunications services to the public.

Noting that the FCC was proposing to amend its Authorized User Policy to allow Comsat to serve the public directly, various parties argued that the policy on carrier access to Intelsat should also be modified to maintain competitive balance. They contended that direct access could prevent Comsat from including excessive costs in its bundled tariff, from loading research and development and administrative costs properly allocable to the earth station segment component of its bundled tariff to the less competitive space segment component, and from engaging in cross-subsidization. They also contended direct access would enable the international carriers to retain their leased-channel revenues and maintain their financial viability.

After weighing the perceived benefits against the drawbacks, the commission concluded that the direct access concept was too vague, its proclaimed benefits too uncertain, and its potential drawbacks too great to warrant further consideration, at least for the time being. Benefits of Direct Access Not Clear

The commission said it had not been shown that direct access would produce significant economic or competitive benefits. Since Comsat cannot be removed from the process and must be compensated for the services that it provides, and direct access would have no bearing on that compensation, none of the forms of that compensation, none of the forms of direct access under review could result in substantial savings to carriers or users. More than likely, direct access would enable a select group of carriers to receive preferential rates, an outcome that would not be in the public interest, the FCC maintained.

The FCC took up a rulemaking on the applicability of the satellite procurement rules and the need to retain them. The action was based on the commission's concurrent tentative conclusions that the public interest would be seved by modifying its earth station ownership policy to permit individual carrier ownership policy to permit individual carrier ownership and operation of such stations, and rely on competition to the maximum extent permissible by statute.

Adopted in 1964, the satellite procurement rules apply to Comsat and other carriers of equipment and services required for US earth stations operating with Intelsat.

Competing earth station owners and operators will have the incentive to seek the least costly, most efficient equipment and services in order to remain competitive, the FCC said. It maintained that effective competition in the procurement of earth station equipment and services can be accomplished through reliance on marketplace forces rather than FCC regulation.

While permitting Comsat's existing structural organization to continue, the commission will require modification of Comsat's cost allocation practices to more fully protect the users of its monopoly services. The commission said it will permit Comsat to retain its headquarters and World Systems Division, including the Comsat Labs, with the parent company. However, the commission will continue to monitor this structural arrangement in order to determine whether the economies of scale created by this structure outweigh the potential risks of ratepayer subsidization of competitive ventures and anticompetitive practices that it identified in its 1980 Comsat study.
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Publication:Communications News
Date:Jun 1, 1984
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