Satellite Privatization Effort Continues

(November 16, 1998)  The satellite privatization bill, which passed the House, but not the Senate, in the 105th Congress, will be reintroduced and pushed in the next Congress, according to speakers on a panel sponsored by the Federalist Society in Washington DC on Friday, November 13.

The U.S. House of Representatives passed a bill that encourages privatization of the intergovernmental satellite organizations (INTELSAT and Inmarsat) which dominate international satellite communications.  HR 1872, which was sponsored by Rep. Tom Bliley (R-VA), the Chairman of the House Commerce Committee, did not pass in the Senate, and thus lapsed when the Congress adjourned last month.

	Rep. Tom Bliley (R-VA)

Rep. Bliley was not present.  However, his bill was at the center of the debate.  His staff assistant, Edward Hearst, moderated the panel.  His former staff assistant, Harold Furchtgott-Roth, was on the panel.  And representatives of several of the private satellite companies that would benefit if his bill were passed, sat on the panel.  One representative of INTELSAT was there to defend the status quo.

The two intergovernmental satellite organizations (IGOs) are INTELSAT (International Telecommunications Satellite Organization) and Inmarsat.  While the IGOs have focused on phone service, new ventures, such as Teledesic, plan to provide worldwide broadband Internet access.

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 would be denied access to the U.S. market.

The threat "has to be used if in fact the organization is not behaving in a fashion which the United States, as a matter of conviction, feels it should behave," said Gerald Hellman.  He spoke on behalf of MCHI/Ellipso, a low earth orbit satellite private venture.  He continued: "So there is nothing inappropriate, particularly in the rather soft way that the Bliley bill puts it.  There is nothing inappropriate for the United States to hold that back as the ultimate sanction if the good advice of the United States is not taken."

"Basically, the market changed.  The world has changed.  People found out that satellite communications is a place where you could make money.  They found that it is a place where you can attract capital," said James Cuminale of PanAmSat. "So, there have been lots of entrants into the business."

The IGOs are anticompetitive, according to the new private ventures.   "INTELSAT and Inmarsat now act to clog the channels of commerce. ...   They clog filings for spectrum," said Hellman.  "They should compete on the same level as everybody else competes."

Larry Williams, of Teledesic, compared the history of the IGOs in satellite communications to that of AT&T in U.S. telephone communications.  "I think, the logic, at the time, for creating this, was that constructing and implementing a global satellite communications system at that time was considered to be an extremely risky proposition, and one that would not likely be implemented without some sort of government involvement and some sort of monopoly granted, per se.  I think the logic was similar to the logic that was used in giving AT&T a monopoly in the early 1920s, which is, unless there is a monopoly given to these operators they would not invest the amount of money that is necessary to venture into such a risky proposition.  Just like in this case, as competitors began to emerge in MCI, and AT&T I think was well recognized was doing all they could to prevent the emergence of competition."

Williams continued that, "PanAmSat probably was in the forefront very much in the position of MCI in trying to compete.  And we are through those time now.  And there are a number of other satellite propositions, privately funded satellite propositions, like Teledesic ... It is time that the situation be revisited, which Chairman Bliley has done, taking the leadership role in the House."

Williams concluded: "I think that the legislation that was passed overwhelmingly by the House last year (sic) was a very good start in that effort, and I think that we are going to see quite a bit of action again in the coming Congress, and it appears that Chairman Bliley will be taking the leadership role again ..."  (HR 1872 passed the House on May 6, 1998, by a vote of 403 to 16.  See, Roll Call No. 129.)

Bert Rein spoke on behalf of INTELSAT.  He waxed nostalgically about how INTELSAT served American interests in the Cold War during the 1960s, and how during decolonialization INTELSAT enabled newly forming nations to free themselves from dependence on their former colonial masters for communications.

Rein also argued that INTELSAT is efficient, does not foreclose competition, and does not exact monopoly rents.  Moreover, small countries like it because they want to be assured that they will be connected and "that they will be a meaningful player in the political system."

He insisted that INTELSAT is already moving towards privatization.  He also said that "withdrawal from INTELSAT would do the United States no good.  It would simply leave the organization in place."  He summed up the Bliley bill as "a solution in search of a problem."

FCC Commissioner Harold Furchtgott-Roth

Harold Furchtgott-Roth, who is a Commissioner of the Federal Communications Commission, and a strong advocate of the efficiency of markets and agency restraint, spoke last.  He said that it was not the proper role of the FCC to advocate what legislation the Congress should pass.

He prompted laughter from the audience when he observed, "I am very pleased to see the nobody has said, 'The FCC can solve these problems.'"

He also argued that the United States has a very bad record in privatization. "We in the United States have a lot to learn about what privatization is really all about."

He concluded: "I don't know how any of this will play out.  I hope that it isn't played out at the FCC."

The panel was made up of the following:

• Edward Hearst (moderator), Majority Counsel, House Commerce Committee.
• Harold Furchtgott-Roth, Commissioner, Federal Communications Commission.
• James Cuminale, SVP and General Counsel, PanAmSat.
• Gerald Hellman, MCHI/Ellipso.
• Larry Williams, VP of International and Governmental Affairs, Teledesic.
• Bert Rein, member of the law firm of Wiley Rein & Fielding, representing INTELSAT.