Agreement Reached on Satellite Privatization Bill

(March 6, 2000) House and Senate conferees reached a agreement on the satellite privatization bill on March 1. The Senate approved the conference report by unanimous consent on March 2. The House may take up the matter on March 8.

The bill is designed to privatize the international telecommunications industry, which is currently dominated by INTELSAT (International Telecommunications Satellite Organization) and Inmarsat.

As intergovernmental treaty organizations, the Congress cannot pass a law mandating privatization. Hence, the bill offers advice to privatize, and backs it up with the threat that if privatization in a pro-competitive manner does not take place, the two IGOs could be denied access to the U.S. market.

The bill establishes criteria and dates certain for the privatization of INTELSAT and Inmarsat. It calls for an IPO of the privatized INTELSAT no later than December 31, 2002. It eliminates INTELSAT's and COMSAT's privileges and immunities, while protecting COMSAT for action taken in response to instructions of the U.S. Government in carrying out its responsibilities as the U.S. signatory.

The agreement culminates a long effort to pass a satellite privatization bill. The House and Senate passed similar, but not identical bills in the 105th Congress. In the 106th Congress, the Senate passed its version of S 376 on July 1, 1999. However, when the House took up S 376 on November 10, its substituted the language of the House bill, HR 3261, and then passed that version.

The House and Senate appointed conferees in November of 1999: Reps. Bliley, Tauzin, Oxley, Dingell, and Markey, and Sens. McCain, Stevens, Burns, Hollings, and Inouye. Their conference report was completed on March 1. The Senate promptly approved the conference report by unanimous consent on March 2.

Rep. Chris Cox (R-CA) stated in the House on March 2 that the "conferees report they are making progress on the conference report accompanying S 376 ... I am hopeful that it will be ready for consideration in the House at some point next week." The House Rules Committee is scheduled to take up the matter at its 2:30 meeting on March 8.

Sen. Conrad Burns (R-MT)

"This bill could be the key to offering broadband services in Montana and other rural areas," Sen. Conrad Burns (R-MT) said in a press release. "By privatizing the system that currently holds a virtual monopoly on international satellite communications, we've added another competitor in the broadband race. Without this bill, INTELSAT would be blocked from offering direct-to-home services, and it controls a satellite system capable of dramatically increasing those services in rural America. This is easily the biggest piece of communications legislation since the 1996 Telecommunications Act."

Sen. Burns is the sponsor of S 376, and Chairman of the Senate Communications Subcommittee.

"I encourage both the House and the Senate to quickly approve this conference report," Rep. Tom Bliley (R-VA) said in a press release on March 2. "This bill will end the cartel-like structure of INTELSAT which unfairly raise consumers international phone bills. It will also break down barriers to competition in the marketplace that are preventing American companies from competing on a level playing field."

Rep. Bliley is the sponsor of HR 3261, and Chairman of the House Commerce Committee.

Excerpt from Statement in the House by Rep. Billy Tauzin (R-LA).
Re: satellite privatization legislation.
Date: November 10, 1999.
Source: Congressional Record.

The international satellite communications market is dominated now by the intergovernmental organization known as INTELSAT as well as by Inmarsat, which has done a limited form of privatization. These organizations use their market power to expand into services that the private sector is frankly chomping at the bit to provide. INTELSAT is run by a combination of the world's governments and is owned by a consortium of national telecommunications monopolies and dominant players, by government monopolies, for government monopolies, of government monopolies. Its supporters call it a `cooperative.' The gentleman from Virginia would call it indeed a `cartel.'

Thus, it is critical not only that INTELSAT and Inmarsat be privatized but also that real competition be unleashed in this sector. A privatized cartel, Mr. Speaker, is still a cartel, the gentleman from Virginia will tell you. Today, the owners of these organizations are often the same folks that control licensing decisions and foreign market access. Thus, they have the ability and the incentive to make it hard for U.S. satellite companies to enter and to compete in their national telecom markets.

The only effective way to foster pro-competitive privatization in an intergovernmental organization is to indeed use access to the U.S. market as part of the leverage. INTELSAT is treaty-based. You cannot sue them, tax them or regulate them as you would a private company. So this legislation eliminates the diplomatic privileges and unfair immunities that would give INTELSAT and COMSAT a leg up on their private sector competitors in a private sector marketplace of competition. No one in that market should be above the law.

Finally, the legislation ends the monopoly over access to INTELSAT from the U.S. held by COMSAT. The bill permits free competition, known as direct access. According to the FCC, COMSAT'S average margin in reselling INTELSAT services is still an amazing 68 percent. It is not bad if you can get it, but consumers could do, I suspect, a lot better.

Consumers and taxpayers will benefit from the lower prices that this legislation will bring. Businesses and their employees will benefit as new markets will open. And the American people will benefit by bringing satellite policy into the 21st century. 

Statement in the Senate by Sen. Conrad Burns (R-MT).
Re: passage of the conference report on S 367, a satellite privatization bill.
Date: March 2, 2000.
Source: Congressional Record, Page S1155.

Mr. President, I extend my sincere appreciation to Senate Commerce Committee Chairman McCain, Senator Hollings, House Commerce Committee Chairman Bliley, Representative Markey, and all of the other Members of the Senate-House conference for working together in a bi-partisan manner on satellite reform legislation. Through the dedication of the conference, and in particular Chairman Bliley, the 106th Congress can now present President Clinton with the opportunity to sign into law a meaningful bill that will enhance market competition and benefit consumers everywhere.

When I undertook the challenge of guiding legislation through the Senate that would encourage genuine competition in the rapidly evolving international satellite communications industry through deregulation, I declared five basic principles that would serve as the foundation for my effort.

(1) The legislation must enhance competition in the global satellite communications market;

(2) The legislation must be consistent with the United States' existing treaty obligations;

(3) The legislation must enhance global satellite connectivity to all areas, including remote and rural;

(4) The legislation must ultimately increase consumers' choices, enable technological innovation and lower costs; and

(5) The legislation cannot impose any unnecessary new regulatory schemes on this vibrant global industry.

These principles were incorporated into The Open Market Reorganization for the Betterment of International Telecommunications Act, known as ORBIT, S. 376 which the Senate swiftly and unanimously passed. I am very pleased to note that the conference agreement now before the Senate retains the core principles reflected in ORBIT while accommodating the concerns articulated by Chairman Bliley and his House colleagues.

This compromise legislation represents the desire of Congress to inject more competition and more privatization into the international satellite communications market. Specifically, the conference agreement achieves these important objectives by:

Establishing definite and reasonable criteria and dates certain for the privatization of INTELSAT and Inmarsat.

Calling for an IPO of the privatized INTELSAT of October 1, 2001, but prudently recognizing that market conditions must be taken into account and therefore, allowing the IPO date to be extended to no later than December 31, 2002.

Eliminating INTELSAT's and COMSAT's privileges and immunities while protecting COMSAT for action taken in response to instructions of the U.S. Government in carrying out its responsibilities as the U.S. signatory.

Eliminating upon enactment the antiquated ownership and board restrictions on the U.S. signatory to INTELSAT, thereby allowing Lockheed Martin to complete its acquisition of COMSAT upon enactment of this bill without conditions.

Creating a competitive, level playing field in the satellite industry.

Removing the intrusive role of government in the commercial satellite industry.

Using access to the U.S. market as a strong incentive to keep INTELSAT's privatization effort moving forward without delay.

I am especially pleased that the conference agreement rejects any notion that the government should be interfering in the contractual arrangements between COMSAT and either its customers or INTELSAT. The government should not be permitting, let alone encouraging, abrogation or modification of any such arrangement. Among my serious concerns, I concluded long ago that this would be contrary to the Fifth Amendment's Takings Clause. The bill before us is very clear on this point. This legislation in no way directs the FCC to take any action that would impair private contracts or agreements.

On a related point, the conference agreement also flatly rejects `Level IV direct access' in any form. Permitting or requiring Level IV direct access would have unfairly forced a divestiture of COMSAT's INTELSAT assets. I am pleased that the conference agreement flatly rejects Level IV direct access.

Let me also commend Senator Stevens and our good friend, Mr. Dingell, in the other body for improving this bill in conference with the addition of language to preserve our national security interests. The conference has produced an agreement that will encourage expeditious privatization of INTELSAT and Inmarsat and allow Lockheed Martin to reinvigorate COMSAT as a competitor in the international satellite marketplace.

At the end of the day, the conference agreement will lead to enhanced competition in telecommunications services, resulting in real consumer benefits of more choices, lower prices and new services. For this, we should all be very proud. I strongly urge my colleagues to adopt this conference report.