In the
Matter of ESTABLISHMENT OF DOMESTIC COMMUNICATIONS-SATELLITE FACILITIES BY
NON-GOVERNMENTAL ENTITLES
Docket No. 16495
FEDERAL COMMUNICATIONS COMMISSION
35 F.C.C.2d 844
RELEASE-NUMBER: FCC 72-531
June 16, 1972 Released
Adopted June 16, 1972
JUDGES:
BY THE COMMISSION: CHAIRMAN BURCH
DISSENTING AND ISSUING A STATEMENT IN WHICH COMMISSIONERS REID AND WILEY JOIN; COMMISSIONER JOHNSON CONCURRING AND ISSUING A STATEMENT.
OPINION:
I. PROCEEDINGS BEFORE THE
COMMISSION
1. This proceeding was
instituted by the Commission on March 2, 1966 (Notice of Inquiry, 31 F.R. 3507;
Supplemental Notice of Inquiry, October 20, 1966, 31 F.R. 13763) to explore
various legal, technical and policy questions associated with the possible authorization
of domestic communications satellite facilities to nongovernmental
entities. On March 24, 1970, the Commission issued a first Report and
Order (1970 Report) inviting the submission of applications to assist our
determinations (22 FCC 2d 86, 35 F.R. 5356), and consolidated a concurrently
issued Notice of Proposed Rule Making (22 FCC 2d 810). In response to the 1970
Report, system applications were filed by the following:
The Western Union Telegraph Company
(Western Union)
Hughes Aircraft Company and various
telephone operating companies of GTE Service Corporation (Hughes/GTE)
Western Tele-Communications, Inc.
(WTCI)
RCA Global Communications Inc. and
RCA Alaska Communications, Inc. (RCA Globcom/RCA Alascom or "the RCA
applicants")
Communications Satellite Corporation
and American Telephone and Telegraph Company (Comsat/AT&T)
Comsat
MCI Lockheed Satellite Corporation
(MCI Lockheed)
Fairchild Industries, Inc.
(Fairchild)
In addition, applications for earth
stations only were filed by:
Hawaiian Telephone Company
Twin County Trans-Video, Inc.
TelePrompTer Corporation
LVO Cable, Inc., and United Video,
Inc.
Phoenix Satellite Corporation
2. Comments and reply comments
on the applications and rule making issues were received from the applicants
and other interested parties. By a Memorandum Opinion and Order issued on
March 17, 1972 (34 FCC 2d 1), the Commission afforded the parties an
opportunity to file written comments and to be heard orally on a proposed
Second Report and Order (34 FCC 2d 9) recommended by the Chief of the Common
Carrier Bureau (staff recommendation). Written comments were received and
oral argument before the Commission en banc was held on May 1-2, 1972. n1
n1 Two entities who had not
previously participated in this proceeding were granted leave to be heard
orally: the Department of Defense and the Network Project (FCC 72-314).
The motions of various parties to correct the transcript of oral argument are
hereby granted. Some applicants have submitted statements, without leave
from the Commission, purportedly in further response to questions from
individual Commissioners at the oral argument. While such statements have
been placed in the record, we do not rely on them.
3. Upon consideration of the
entire record, we are of the view that the staff recommendation adequately
describes the background of this proceeding, the general nature of the pending
applications, and the previously filed comments and reply comments of the
parties on the applications and rule making issues. Accordingly, we will
adopt the descriptive portions of the staff recommendation without reiterating
such material here. However, as stated in the Memorandum Opinion and
Order of March 17, 1972, our action in designating the staff recommendation for
written and oral comment was taken "before reaching any determinations in
this matter" and "therefore does not reflect any predisposition by
the Commission with respect to the resolution of the issues involved" (34
FCC 2d at 2). The Commission's determinations, which are set forth below,
incorporate the staff's reasoning and conclusions on the issues only as
expressly indicated herein or to the extent that they are clearly consistent
with our statements of policy and conclusions.
II. INTRODUCTORY POLICY
STATEMENT
4. As the Commission
recognized in the 1970 Report (22 FCC 2d at 88, 95-96), and as confirmed by the
applications and responses filed pursuant to that Report, the satellite
technology has the potential of making significant contributions to the
nation's domestic communications structure by providing a better means of
serving certain of the existing markets and developing new markets not now
being served. There are concrete proposals before us for the use of communications
satellites to augment the long-haul terrestrial facilities of existing carriers
for point-to-point switched transmissions services, and to connect off-shore
distant domestic points (i.e., Alaska, Hawaii, Puerto Rico) to the contiguous
states. There are also proposals for the use of satellites as a means of
providing point-to-multipoint services, such as program transmission, although
plans for such use are now most tentative and uncertain. Other proposals
reflect the view that the most important value of domestic satellites at the
present time lies in their potential for developing new markets and for
expanding existing markets for specialized communications services.
5. Notwithstanding the
specific proposals that have been submitted, the true extent and nature of the
public benefit that satellites may produce in the domestic field remains to be
demonstrated. The United States has a well-developed and rapidly
expanding complex of terrestrial facilities, and advances in terrestrial
technology and operations can be expected to continue the present trend toward
reduced transmission costs and more efficient services. Although pointing
to some increased operational flexibility in the routing of its traffic, the
predominant terrestrial carrier, AT&T, disclaims that the satellite
technology presently offers any cost savings or other marked advantages over
terrestrial facilities in the provision of the switched services that
constitute the bulk of its traffic, message toll telephone (MTT) and wide area
telephone service (WATS). At the same time, there is an uncertainty, that
can only be resolved by actual operating experience, as to whether the time
delay inherent in voice communications via synchronous satellites will provide
an acceptable quality of service to the general public when domestic telephone
traffic is routed indiscriminately and on a large scale basis via satellite and
terrestrial facilities.
6. Although the satellite
technology appears to have great promise of immediate public benefit in the
specialized communications market, here too there are uncertainties as to how
effectively and readily satellite services can develop or penetrate that
market. Thus, in the area of point-to-multipoint transmission, the
commercial broadcast networks are as yet undecided as to whether to use this
technology in whole or in part. We do have a concrete proposal for a CATV
network from Hughes, expressions of interest by public broadcasting and other
educational entities, and the possibility of interest by independent suppliers
of program material to CATV and broadcast outlets. Moreover, several
system applicants, in addition to seeking to attract program transmission
business, have premised their proposals on the sale of other specialized
services -- in part as a complement to existing or proposed terrestrial
offerings, but in the main with the expectation of expanding existing special
service markets and developing new markets. To be sure, the applications
generally do not identify specific services that are new or innovative.
However, in our judgment, the uncertainties as to the nature and scope of the
special markets and innovative services that might be stimulated will only be
resolved by the experience with operational facilities.
7. Under the circumstances, we
will be guided by the following objectives in formulating the policies to
govern our licensing and regulation of the construction and use of satellite
systems for domestic communications purposes, namely:
(a) to maximize the opportunities
for the early acquisition of technical, operational, and marketing data and
experience in the use of this technology as a new communications resource for
all types of services;
(b) to afford a reasonable
opportunity for multiple entities to demonstrate how any operational and
economic characteristics peculiar to the satellite technology can be used to
provide existing and new specialized services more economically and efficiently
than can be done by terrestrial facilities;
(c) to facilities the efficient
development of this new resource by removing or neutralizing existing
institutional restraints or inhibitions; and
(d) to retain leeway and flexibility
in our policy making with respect to the use of satellite technology for
domestic communications so as to make such adjustments therein as future
experience and circumstances may dictate.
8. We are further of the view
that multiple entry is most likely to produce a fruitful demonstration of the
extent to which the satellite technology may be used to provide existing and
new specialized services more economically and efficiently than can be done by
terressmall percentage of AT&T's total traffic, it is presently the
predominant terrestrial supplier of specialized services. There is some
existing and potential competition from Western Union and any new specialized
carriers authorized pursuant to the Commission's decision in Specialized Common
Carrier Services (29 FCC 2d 870). But the capacity of their terrestrial
facilities is small compared to those of AT&T or the high capacity
facilities proposed by the satellite system applicants. n2 The presence of competitive sources
of supply of specialized services, both among satellite system licensees and
between satellite and terrestrial systems, should encourage service and technical
innovation and provide an impetus for efforts to minimize costs and charges to
the public.
n2 The Commission has also authorized terrestrial
facilities to various miscellaneous carriers providing program transmission
service to CATV systems and broadcasters.
9. Of course, the incentive
for competitive entry by financially responsible satellite system entrepreneurs
to develop specialized markets must be meaningful and not just token.
This requires that we take appropriate measures toward the end that a
reasonable opportunity for effective entry is not defeated or weakened by
AT&T, either directly or through its existing or future relationships with
Comsat. In this regard, we cannot ignore the effects upon achievement of
our objectives that might result from AT&T's existing economic strength and
dominance stemming from its multi-billion dollar terrestrial investments and
operations and its permeating presence and influence in all domestic
communications markets. Nor can we ignore the ability of AT&T -- an
ability not possessed by other applicants -- to load a high capacity satellite
system with MTT and WATS traffic and thereby control the cost of specialized
services furnished via that system. Other applicants, lacking a similar
initial traffic nucleus, would be operating -- at least initially -- with
lightly loaded, costly facilities until such time as they might succeed in
reducing their unit costs by a substantial specialized traffic fill.
10. In addition, where
AT&T combines its monopoly and competitive services on the same facilities,
it is difficult to identify AT&T's relevant costs associated with
specialized services to insure that revenues from the monopoly services are not
being used to subsidize any part of its competitive services. Thus, if
AT&T were permitted unrestricted use of satellites for both monopoly and
specialized services, this might obscure any meaningful comparison of operating
costs between satellite and terrestrial facilities for the provision of
specialized services as well as curtail any realistic opportunity for entry by
others to serve the specialized markets via satellite.
11. We recognize that the
problem of cross-subsidy now exists with respect to the establishment of rates
and identification of relevant costs for specialized services furnished by
AT&T terrestrially. However, this longstanding problem would be
exacerbated by permitting the troublesome monopoly and competitive service
combinations to be carried over into this new arena. Moreover, the cross-subsidy
aspect is only part of the deterrent to a reasonable opportunity for
competitive satellite entry in the specialized field and, even if resolved,
would not overcome AT&T's unique advantage of being able to control
satellite circuit costs by the extent to which it chooses to load the high
capacity satellite facilities with telephone traffic while the specialized
field is being developed. n2a
n2a We recognize that AT&T, in its offerings of
specialized services, may not, for rate purposes, distinguish between specialized
services provided via satellite on the one hand, and terrestrial facilities on
the other hand, and thus somewhat alleviate the competitive problem.
However, we believe that it will from a regulatory standpoint complicate a
definitive comparison between the relative cost and other advantages of
satellite and terrestrial facilities in serving the competitive market for
specialized services.
12. All of the foregoing
factors and concerns with respect to AT&T, in our judgment, might well result
in discouraging or deterring others from attempting to penetrate the markets
for specialized services. As a further consequence, AT&T's dominance
in the communications field would be extended rather than lessened in the
domestic area. This would derogate from our policy of seeking to promote
an environment in which new suppliers of communications services would have a
bona fide opportunity for competitive entry. This policy was the basis
for our decision in the Specialized Common Carrier Services proceeding (29 FCC
2d 870). While this policy explicitly accommodates an opportunity for AT&T
and other existing carriers to compete "fully and fairly" with new
entrants, it does not preclude the Commission from taking reasonable measures to
assure that competitive entry would be a meaningful reality in the high
capacity satellite field. Paragraph 104 of the Specialized Carrier
decision states: "We further stress that our policy determination as to
new specialized carrier entry terrestrially, does not afford any measure of
protection against domestic communications satellite entry or otherwise
prejudge our determination in Docket No. 16495 as to what course would best
serve the public interest in the domestic satellite field" (29 FCC 2d at
920).
13. The same considerations
lead us to conclude that the achievement of our objectives would be prejudiced
by authorizing the Comsat/AT&T proposal based on their contractual
arrangement. First, since AT&T is a principal source of the domestic
service revenue that Comsat would seek to obtain, it is not realistic to expect
Comsat to compete vigorously in the provision of specialized services on an
end-to-end or "retail" basis and thereby challenge AT&T's
terrestrial domination in this field. Secondly, if Comsat should proceed
in the dual capacities proposed in its two pending system applications, the
revenues that would be guaranteed to Comsat from the AT&T contractual
arrangement would give it an extraordinary advantage and head start over all
other potential domestic satellite entrants seeking to develop specialized
services in competition with Comsat as well as with AT&T's terrestrial
services. If Comsat were given the option of serving AT&T solely and
accepted it, such a course would unnecessarily deprive others of the benefit of
Comsat's expertise in the communications satellite field. If Comsat were
to elect to serve only entities other than AT&T, its expertise and
facilities would be available to the public and carriers other than
AT&T. But if Comsat is to be authorized to provide satellite services
to AT&T, it should operate exclusively as a carrier's carrier -- not
engaged in retailing communications services to the public -- and provide such
service under a tariff offering which would afford an opportunity for other
carriers to have non-discriminatory access to the same system.
14. Finally, our consideration
of the conditions under which AT&T and Comsat should be permitted to enter
the domestic satellite field is necessarily affected by AT&T's ownership of
29 percent of Comsat's stock and its ability to elect three of the 15 Comsat
directors. Such ownership was contemplated and encouraged by the Congress
in enacting the Communications Satellite Act of 1962 (see Section
394(b)(2)). Thus, this is not a matter over which Comsat has any
control. However, that Act, which was formulated to meet the nation's
policies and objectives with respect to the earliest possible establishment of
a global communications satellite system, does not preclude authorized carriers
from voluntarily disposing of their shares of Comsat stock. n3 All of the major carriers who
originally owned Comsat stock, except AT&T, have since divested their
interests. While the participation of experienced carriers had a useful
function when Comsat was newly organized and gaining communications experience,
this relationship warrants reassessment in light of current conditions.
n3 Indeed, in 1969 Congress amended the 1962 Act to
provide for fewer common carrier elected directors in proportion to their
decrease in stock ownership in Comsat (47 U.S.C. 733). This schedule
contemplates that the percentage of common carrier stock ownership may fall
below eight percent, in which event there would be no directors elected by
common carriers.
15. Aside from the foregoing
basic considerations of fairness and equity we reaffirm the staff
recommendation in favor of multiple entry. In this connection it is
important also to take cognizance of the fact that the initial implementation
of domestic satellites does not confront us with a normal or routine
situation. Some departures from conventional standards may be required if
the public is to realize the potential benefits of this high capacity
technology and we are to pursue our objective of competitive entry. This
is true not only in the case of AT&T, but also for other applicants because
of different factors. For example, as the staff points out, the capacity
proposed by most system applicants substantially exceeds the traffic under
their control or from customer commitments. They are relying primarily on
speculative business which they hope will materialize after the facilities
become operation. We must, of course, make the requisite statutory
findings as to an applicant's financial qualification and ability to implement
its proposal, and we can require a reasonable showing that there will be no
adverse impact on rates or services to customers of carrier applicants now
engaged in providing essential communications services to the public. But
if we adhere too strictly to conventional standards in this unconventional
situation, such as requiring a persuasive showing by new entrants that
competition is reasonably feasible and that the anticipated market can
economically support its proposed facilities, most such new applicants may in
effect be denied any opportunity to demonstrate the merits of their proposals
at their own risk and without potential dangers to existing services -- thereby
depriving the public of the potential benefits to be derived from diverse
approaches by multiple entrants. It is our judgment that the potential
benefits to the public warrant the application of rules and policies which will
afford a reasonable opportunity for domestic satellite facilities to be
established initially on a competitive basis. It is also necessary to
retain flexibility to alter our initial determinations in the light of evolving
circumstances.
III. DETERMINATIONS ON THE
ISSUES
A. Number of systems to be
authorized initially
16. In light of the foregoing
policy objectives, we have concluded that the public interest would be best
served at this initial stage by affording a reasonable opportunity for entry by
qualified applicants, both pending and new, subject to the showings and
conditions described below which we believe to be necessary to implement our
objectives and to protect the public. We have reached this decision after
consideration of the various alternatives discussed in the staff recommendation
(paragraphs 45-78) and the views expressed by the parties.
17. Like the staff and most
parties, we think it unwise to attempt to select or prescribe one system
(either a consortium of all the applicants or selection of one applicant) or to
choose one or more systems through comparative hearings. In addition to the
reasons given by the staff (staff recommendation, paragraphs 50-61), which we
adopt, such a course would not promote our policy objectives discussed
above. However, we are not accepting the alternative recommended by the
staff (paragraphs 71-78) of requiring or encouraging consolidations of
applicants along guidelines prescribed by the Commission. While we
recognize that there may well be advantages to and need for voluntary
consolidations or sharing arrangements (such as "launch risk pools")
undertaken at the applicants' initiative as a matter of prudent business
judgment, we do not deem it advisable to structure the architecture of any
joint space segment operations. Rather, we will permit and encourage such
arrangements so long as they are consistent with the policy conditions set
forth herein. Accordingly, we will accord the system applicants a 30-day
period within which to apprise the Commission as to whether they intend to
pursue their pending applications, as modified to achieve compliance with this
Second Report and Order, or whether they desire further time to reframe their
proposals.
18. Our decision in favor of
multiple entry does not mean that we have opted for a policy of "unlimited
or unrestricted open entry." Our aim, as outlined above, is to afford
qualified applicants a reasonable opportunity to demonstrate the public
advantages in use of the satellite technology as a means of
communications. But such entry cannot be "open" in the sense
that it is without any restrictions or limitations. Pursuant to statute
we must require showings of financial, technical and other qualification and
make the requisite finding that a grant of the particular proposal will serve
the public interest, convenience and necessity. Although, as discussed in
paragraph 15 above, it is our intention to make such determinations with due
regard for the unique circumstances involved here, each applicant must make a
sufficient showing of potential public benefit to justify the assignment of
orbital locations and frequencies. Moreover, we believe it necessary to
impose certain conditions to protect the public from possible detriment and to
further the implementation of our policy objectives. In addition to the
conditions discussed below, we will require a reasonable showing by any common
carrier applicant now engaged in providing essential communications services
that revenue requirements related to the proposed domestic satellite venture
will not be burden or detriment to customers for such essential services.
B. Conditions on system
applicants on policy grounds
19. Insofar as the staff
recommends that none of the pending applicants should be disqualified on the
basis of the information now before us, we are generally in agreement with the
staff's position and much of its reasoning (staff recommendation, paragraphs
82-119). n4 However, we will address the
question of what policy conditions and/or further showings will be required in
the case of particular applicants.
n4 We will defer resolution of what domestic satellite
services Western Union may provide in Hawaii under Section 222 of the Act
pending a determination on the pending "Application for Review" of
the staff's action in rejecting Western Union's application for authority to
lease facilities to provide Mailgram service between Hawaii and the
mainland. A Commission decision on that application for review will be
forthcoming shortly.
20. As indicated above,
realization of our policy objectives herein requires that we take appropriate
measures toward the end that those objectives are not frustrated by any
applicant, particularly in the critical threshold stage when others are
attempting to become established. Because of the complexities and
uncertainties associated with this matter, the question of what kind of
measures to adopt confronts us with some difficult decisions. We have
examined a number of alternatives and permutations. While none appears
completely satisfactory in all respects to the entire Commission and there are
conflicting considerations, it is our best collective judgment that the
following course of action constitutes the most reasonable and appropriate
accommodation we can achieve in the present circumstances.
1.
AT&T and Comsat
21. In essence, we have
concluded that AT&T should be afforded access to the satellite technology
to determine its feasibility as an efficient and economic means of providing
AT&T's basic switched telephone services, as well as to explore potential
use of the 18 and 30 GHz frequencies. Because of the concerns expressed
in our policy statement (paragraphs 9-13 above), we will limit AT&T's
initial use of domestic satellites to MTT, WATS, AUTOVON, emergency restoration
in the event of terrestrial outage (pursuant to a restoral plan proposed to and
approved by the Commission, and regardless of the services involved), and -- if
found necessary in light of the considerations discussed in paragraphs 35-41
below -- any other services in the case of Alaska, Hawaii and Puerto
Rico-Virgin Islands. However, the Commission will entertain a petition by
AT&T for authority to provide additional services within the contiguous
states at the earliest of the following occurrences: (a) when domestic
satellite licensees authorized to offer specialized common carrier services
have achieved substantial utilization of their satellite capacity; or (b) in
any event, three years after the commencement of domestic satellite operations
by AT&T. Upon such petition, we will re-examine this initial
limitation to determine whether it is still warranted or should be modified or
deleted in light of the circumstances then pertaining, including such relevant
factors as the impact on the current competitive situation and any resolution
of the cross-subsidy problem.
22. We have further concluded
that it would be contrary to the public interest and the realization of our
policy objectives to authorize the Comsat/AT&T proposals based on their
contractual arrangement, in light of the considerations set forth in our policy
statement (paragraphs 13-14 above). For those services it is authorized
to provide via domestic satellite (see paragraph 21 above), AT&T will have
the option of applying for authority to own and operate satellite facilities or
of leasing transponders under tariff from Comsat or any other carrier who
elects to proceed solely as a carrier's carrier under the same conditions
specified below as to Comsat. n5
n5 Since we decline to
authorize facilities to implement the Comsat/AT&T contractual arrangement,
we will not require AT&T to show that the costs of leasing satellite
capacity from Comsat under tariff are no greater than obtaining equivalent
facilities by other available means, such as ownership or leasing under tariff
from another satellite carrier (see staff recommendation, paragraph 79).
23. If Comsat elects to serve
AT&T, then it will be required: (a) to operate solely as a carrier's
carrier; (b) to lease transponders to AT&T under the same tariff terms
applicable to other carriers leasing transponders; (c) to permit AT&T and
other carriers to have access to their leased transponders through their own
earth stations, where desired and authorized by the Commission; and (d) to
comply with a formula, to be prescribed by further order of the Commission,
concerning the maximum percentage of system capacity that can be leased to any
one carrier (see paragraph 25 below). Such operation as a carrier's
carrier may include the provision of earth station facilities by Comsat where
desired by carriers leasing transponders and warranted by the existing or
potential volume of their traffic. If, on the other hand, Comsat elects
to serve only entities other than AT&T, then Comsat may, pursuant tariffs,
offer end-to-end service, lease transponders to carriers other than AT&T,
and offer other services as proposed in its application for a multi-purpose
system (staff recommendation, paragraph 22).
24. We see no compelling
reason of public policy for precluding AT&T from leasing satellite
transponders under tariff from a carrier's carrier for its authorized domestic
satellite services so long as the wholesale carrier retains adequate capacity
to meet the requirements of other carriers desiring to lease
transponders. Since the wholesale carrier would not be engaged in
retailing specialized communications services to the public, the lease of
transponders to AT&T would not deter competitive entry by others to serve
the specialized markets. Moreover, such an arrangement would afford an
opportunity for access to the satellite technology by retail carriers who lack
sufficient existing or potential traffic to warrant the investment required for
ownership of space segment facilities. Further, a wholesale carrier
commencing operations under the incentive of AT&T's available business
would have an opportunity to develop business from other carriers, and to that
extent would be less affected if AT&T should elect in the future to apply
for authority to own and operate space segment facilities.
25. While we believe it
necessary to limit the percentage of the space segment capacity of the
wholesale carrier that could be preempted by AT&T under tariff in order to
reserve adequate capacity for use by other carriers, we are not now in a
position to devise a formula. On the one hand, there is the consideration
that AT&T initially has the ability to occupy a large number of
transponders and thereby could pre-empt much of the capacity of any system,
whereas the capacity available for other carriers may be utilized in gradually
increasing amounts. On the other hand, in view of the relatively short
life of the satellites, the wholesale carrier should not be saddled with
substantial idle capacity which AT&T might otherwise lease, particularly
after other carriers have had a reasonable time to take advantage of the
wholesale tariff offering. Accordingly, if AT&T elects to lease
transponders under tariff from Comsat (or any other wholesale carrier) and the
latter elects to proceed solely as a carrier's carrier by serving AT&T's
requirements, we will require that such wholesale carrier submit, for
Commission review, an appropriate formula by which it will allocate its space
segment capacity for AT&T's use and the use of other carriers. Upon
consideration of such allocation, the Commission will approve or prescribe a
formula prior to the authorization of facilities. n6
n6 Of course, as AT&T
from time to time proposes to take up additional capacity pursuant to that
approved formula, AT&T will be required to obtain appropriate authorization
therefore pursuant to Section 214 of the Communications Act.
26. Comsat will be required to
form a separate corporate subsidiary to engage in any domestic satellite
venture, whether it elects to pursue its multi-purpose system proposal or to
operate solely as a wholesale supplier of satellite facilities to AT&T and
other carriers. While Comsat's comments filed on April 19, 1972 do not
object to paragraph 116 of the staff recommendation, we will not impose any
prior constraints as to how such domestic subsidiary is to be structured or financed.
This is an appropriate area for the exercise of Comsat's own judgment in the
first instance, subject to ultimate Commission approval of its proposal.
In the event that Comsat elects to proceed other than as a carrier's carrier,
it will be prohibited from owning or operating domestic satellite facilities at
any overseas point served by INTELSAT facilities (staff recommendation,
paragraph 114).
2.
GTE
27. The staff has expressed
various concerns about GTE's proposal to provide interstate MTT service via satellite
facilities for which it seeks authorization (staff recommendation, paragraphs
97-99). In encouraging multiple entry and the development of competition
in the supply of domestic communications, we have maintained a distinction
between the so-called monopoly switched telephone services now being furnished
by AT&T and all other classes of existing and potential specialized
services. We have made this distinction not for the purpose of protecting
any established position that AT&T occupies in the MTT field. Rather,
it has been our purpose and concern to protect the public in the availability
of efficient and economic switched MTT services -- an interest that might well
be adversely affected by unnecessarily fragmenting responsibility for the planning
and provision of the facilities required for this integrated service. On
the other hand, we should not reject any proposal that might prove feasible and
beneficial to the public simply because it represents some departure from the
established scheme. This is particularly true when the proposal comes
from an entity, such as GTE, which already is a significant participant in the
furnishing of MTT facilities and services, although essentially as a carrier
which originates, terminates, and switches large volumes of MTT traffic rather
than in the provision of long lines transmission facilities.
28. At least potentially,
GTE's proposal offers several advantages. It would introduce more
directly, although on a limited scale, the perspective and experience of another
responsible entity into the planning and operation of the interstate MTT
network, which heretofore has been the sole responsibility of AT&T.
It could provide a basis for regulatory comparison of the relative efficiencies
and cost advantages of somewhat different technologies represented by
AT&T's proposal and GTE's proposal. It could also tend to lessen
AT&T's dominance and economic influence in the domestic communications
field.
29. Notwithstanding these potential
public benefits, there are a number of uncertainties, not dispelled by the
information contained in the record before us, that must be resolved before we
can make the required statutory finding that GTE's proposal will serve the
public interest. Accordingly, before determining whether this portion of
the Hughes/GTE applications should be authorized, we will require a showing of
the nature described by the staff (paragraphs 98-99) concerning: what potential
benefits might be achieved by affording GTE access to the satellite technology
for this purpose; whether its proposal is economically justified from the
standpoint of the public in terms of costs and prospective fill; the effect on
GTE's present contracts for settlement with AT&T; GTE's plans for handling
traffic in case of temporary outages or catastrophic failure of its satellite
system facilities; how the costs of such facilities would be treated for
rate-making and accounting purposes; and the kinds of data it will gather and
report to the Commission to assist our evaluation of the efficiency and economy
of any authorized operations compared to continued exclusive reliance on the
interstate switched telephone facilities of AT&T.
30. In the event that we
determine after consideration of such showings that the proposal, on balance,
would serve the public interest, any authorization to GTE would be limited
initially, as in the case of AT&T, to the provision of MTT service (plus
other services, if found necessary, in the case of Hawaii only in the event
that GTE is authorized to serve that State (see paragraph 39-40 below)).
GTE would also be required to form a separate corporate subsidiary to engage in
such operations.
3.
Other system applicants
31. We will further require
that any other terrestrial common carrier, who is authorized a domestic
satellite system, shall offer its services in accordance with tariff schedules
filed pursuant to Section 203 of the Communications Act and the Commission's
applicable rules and regulations. Where the terrestrial carrier seeks to
provide services and facilities to other carriers (i.e., as a carrier's
carrier), the offering of such wholesale services -- whether for transponder
access alone or for satellite system service including earth station access -- shall
be pursuant to a tariff setting forth all terms and conditions relating to each
class of offering. n7
If, in addition, the carrier intends to provide end-to-end services, the retail
offering shall be covered by appropriate tariffs. In order to assure the
minimum intermingling of costs and revenues between the wholesale and retail
operations, we will require the carrier to maintain its accounts in such a
fashion as to identify clearly the costs and revenues related to each.
The prescription of specific accounting rules by the Commission will be given
consideration when we have a clearer picture of the structure of this industry
and its operation. We consider these measures to be essential, as a
minimum, to insure that other carriers leasing transponder or satellite system
facilities are not burdened with any portion of the revenue requirements
applicable to the supplying carrier's retail offerings.
n7 As in the case of any
domestic satellite carrier operating exclusively as a wholesale carrier, we will
require any domestic satellite system licensee operating in part as a wholesale
carrier to permit carrier customers to have access to transponders through
their own earth stations, where desired and authorized by the Commission.
32. Finally, we adopt the
staff's proposal that any authorization to a satellite equipment supplier shall
be conditioned upon a requirement for the existence or creation of a separate
corporate entity to engage in the satellite communications operation (staff
recommendation, paragraph 86). Any authorization to Hughes will be upon
the further condition that it afford its CATV customers the option of owning
receive only earth stations to obtain the Hughes program offering and that of
any other CATV program distributor offered by means of the Hughes system
facilities. Hughes will also be required to submit, for Commission
approval prior to the issuance of any authorization to it, a plan whereby other
CATV program distributors will be afforded reasonable access to receive-only
earth stations associated with its system on the equitable and
non-discriminatory basis, including -- if necessary therefor -- by means of
access to the Hughes transmit-receive earth stations and space segment
facilities. *tC. Earth station ownership, access, and
interconnection
33. Our broad policy objective
is to aim toward a flexible ground environment which would permit a variety of
earth station ownership patterns and afford diversified access to space
segments except where this is impractical. Thus, in general, we are in
favor of according special purpose users (such as commercial and non-commercial
local broadcasters, other educational users, cable systems, or local carriers)
the option of owning receive-only earth stations. Moreover, we do not
foreclose the possibility that transmit-receive earth stations could be owned
by users or independent carriers in appropriate circumstances. However,
we think it premature to attempt to specify definitive standards here as to the
particular circumstances and terms and conditions under which such user or
independent carrier ownership of earth stations might be authorized, except to
the extent indicated in Section B above. We cannot now foresee all
possible situations that might arise or all relevant public interest
factors. We will be in a better position to make such determinations
after we know what domestic satellite systems will actually be established and
in the context of considering concrete applications for particular earth
stations. Thus, while we agree with the over-all thrust of the staff
discussion on earth station ownership (staff recommendation, paragraphs
120-132), we do not bind ourselves to the specific conditions proposed by the
staff (particularly paragraphs 125 and 131). n8
n8 As in the case of space
segments, we decline to structure any arrangements for sharing ownership of
earth stations, but will encourage and consider voluntary proposals of the
applicants' own devising.
34. To the extent consistent with our policy
determinations and conclusions herein, we are also in accord with the goals set
forth in the staff discussion of access to earth stations and interconnection
(staff recommendation, paragraphs 133-142). Here again, however, we think
it advisable to retain greater flexibility. While we will require
existing terrestrial carriers seeking domestic satellite authorizations to
submit for Commission approval, prior to action on their applications, a
description of the kinds of interconnection arrangements they will make
available to other satellite systems and/or earth station licensees, we do not
expect such descriptions to anticipate all conceivable situations.
Moreover, we will not restrict AT&T to proposing the specific bases for
interconnection charges set forth in paragraph 141 of the staff
recommendation. If the standard there suggested poses difficulties,
AT&T may propose some other standard with similar specificity, which would
accomplish our objective of assuring that all carriers providing retail
interstate satellite services (whether or not affiliated with Bell System
companies) have access at non-discriminatory terms and conditions to local loop
and interchange facilities as necessary for the purpose of originating and
terminating such interstate services to their customers. The governing
standards will be established, so far as practicable, prior to the
authorization of domestic satellite facilities rather than left primarily to
subsequent negotiations between the entities involved.
D. Alaska, Hawaii and Puerto Rico
35. We endorse fully the staff
recommendation that the advent of service via domestic satellite facilities
should be accompanied by an integration of services, and more particularly the
charges for such services, between Alaska, Hawaii and Puerto Rico and the
contiguous 48 states into the domestic rate pattern. Heretofore
considerations of distance, cost and traffic volumes have all combined to
indicate that foreign rather than domestic rate and service patterns should be
applicable. The relatively high level of charges resulting from these
physical factors and cost considerations has inhibited the free flow of
communications between the contiguous states and these points to the
disadvantage of all of our citizens. It is out considered view that the public
interest requires that the distinctions, particularly with respect to level of
charges and rate patterns, should be eliminated. As set forth below, the
advent of domestic satellite communications with their distance insensitive
features provides a sound economic basis for such conclusion.
36. One of the principal
virtues of the satellite technology applied to domestic communications is its
characteristic of deemphasizing distance as a cost factor in rate-making.
With the availability of domestic satellites for communications between the
mainland and Alaska, Hawaii and Puerto Rico, distance should dramatically
diminish as an excuse or justification for the historic high-rate treatment
that has been accorded to these services. We are now able to look forward
to minimizing any distinctions in communications to such points compared to
communications among the contiguous states. Thus, with the inauguration
of satellite systems to serve the domestic communications requirements of all
of the United States, there will be justification for integrating Alaska,
Hawaii, and Puerto Rico into the established rate scheme for communications
services applicable to the mainland.
37. Accordingly, it will be
our policy to condition any domestic satellite authorization to carriers
serving these points upon a requirement that, no later than six months from the
issuance of the authorization, such carriers shall submit a specific proposal
for revised rates for review and approval of the Commission prior to
authorization for the commencement of service. In case of message
telephone service (MTT), any such proposal shall give maximum effect to the
elimination of overall distance as a major cost factor and should be designed,
in specified time phases if necessary, to integrate these three United States
points into the uniform mileage rate pattern that now obtains for the
contiguous states, with all that such approach implies in terms of nationwide
cost averaging and equalizations for interstate rate-making purposes. n9 We recognize that there may be
extraordinary technical or economic factors, e.g., earth station costs and
traffic loadings, that may warrant some deviation from this approach or justify
a phased implementation of the integrated pattern. However, the carriers
involved will be expected to demonstrate and document fully the need for such
deviation or phasing in terms of conditions that are singularly relevant to the
points involved compared to the contiguous states, and to present the full
program with the timing of final implementation.
n9 For example, among other things, such carriers
might explore the possibility of expanding the last mileage step (presently
1911-3000 miles) to include these points, or of adding an additional mileage
step with an appropriate increment in rates.
38. We recognize that in the
case of record services, the problems are more complex in that different
carriers provide "overseas" and "domestic services." We do
not intend, at this point, to disturb this service pattern. However, we
do require that the carriers now providing services submit within the timetable
set forth above proposals for the integration of their charges for TELEX,
private line and other specialized services into the domestic pattern within
the same framework as set forth above, i.e., detailed explanations in economic
and technical bases for any proposed deviation or phasing. Should the
record carriers fail to do so, we will be required to reconsider our current
policy regarding record services between the contiguous states and these three
points so as to assure that the policies enunciated here will be
implemented. To make implementation possible, we will expect space
segment and earth station licensees authorized to serve these overseas points
to afford appropriate access to such facilities to the relevant international
record carriers for the provision of domestic services.
39. In light of the foregoing
policy determinations, we are further of the view that AT&T should provide
MTT services via domestic satellite to these three points, in conjunction with
the appropriate local carrier (e.g., Hawaiian Telephone Company, RCA
Alascom). If GTE's domestic satellite proposal is authorized and it is
shown that the cost of using its facilities would be less than or approximately
equivalent to the cost of utilizing AT&T facilities to provide such service
between Hawaii and the contiguous states, then we do not foreclose the
possibility that GTE might be the designated entity in the case of
Hawaii. However, the nationwide cost averaging structure and uniform
mileage rate pattern should not be burdened with costs that are greater than
necessary in order to integrate these three points, or required to absorb the
costs of domestic satellite system facilities proposed by an applicant which
lacks the ability to achieve a substantial initial loading.
40. Moreover, since our most
important objective in this area is to minimize the distinctions that have
heretofore existed in rates and services to these points as compared to
communications among the contiguous states, we think that Alaska, Hawaii and
Puerto Rico should have an opportunity to obtain other services via the same
earth station antennas and satellites that are used for the provision of MTT
services to these points. Thus, whether AT&T proceeds via its own
domestic satellite facilities or through a wholesale carrier, we will require
that the relevant licensees reserve adequate transponder and earth station
capacity for lease to other carriers authorized to provide specialized services
to these points in such manner as will not necessitate another earth station
antenna in addition to those used for MTT service. The same requirement
will pertain to GTE in the event that it is authorized to provide MTT service
to Hawaii by means of domestic satellite facilities. If found necessary
to achieve our objective of integrating these three points into domestic rate
patterns for all services, we will permit AT&T and/or GTE to provide
services other than MTT to one or more of these points. We do not
preclude the offering of specialized services to such points by means of
independent domestic satellite facilities authorized to other licensees, so
long as the public in Alaska, Hawaii and Puerto Rico has the opportunity to
take advantage of the potential cost savings in obtaining specialized services
on the same satellite system facilities used for MTT.
41. Finally, we recognize that
implementation of the foregoing policies, while of benefit to Alaska, would not
satisfy that State's pressing need for improved intrastate
communications. Though accommodation of that need is important and the
satellite technology appears to offer special promise toward that end, it may
prove impracticable for the Commission or the pending carrier applicants to do
much to alleviate this problem, at least in the initial generation of
satellites. We will require RCA Alascom and any other applicant proposing
earth stations in Alaska to submit a detailed plan for intrastate
service. We will also require AT3T, or any wholesale carrier serving
AT&T, to afford access to its transponder capacity for the purpose of
intra-Alaska service, if desired. We will further direct our staff to
consult with representatives of the State of Alaska concerning any additional
measures we may consider, and reasonably require of the applicants or any
domestic satellite licensee, to assist in meeting its intrastate requirements.
42. With respect to the State
of Alaska's request for a 6 degree separation at 4/6 GHz in that limited and
valuable portion of the orbital arc where satellites capable of serving the 50
states can be located, in order to facilitate the use of small, inexpensive
earth stations, we note that advances in earth station technology may shortly
make it possible to meet the performance specifications needed for 3 degree
separations with earth station antennas of smaller diameter than 30 feet.
Moreover, we note the availability of 2 GHz frequencies specifically allocated
by the 1971 WARC for educational and instructional television and for demand
assigned telephone services in remote areas of the State. Finally,
orbital locations for wider spaced 4/6 GHz satellites are available farther
west of those than can view the 50 states, where there is less demand for such
satellite locations. Thus, it is unnecessary to decide this matter
definitively at this time. We stress, however, that we do not rule out
the possibility of permitting a 6 degree separation, if later found necessary
for the use of small, inexpensive earth stations in Alaska and in the public
interest, all circumstances considered. Paragraph 152a of the staff
recommendation concerning orbital arc location assignments is otherwise
adopted.
E.
Terms of access by public broadcasting and other educational interests
43. On this issue, we adopt
the staff analysis and conclusions (staff recommendation, paragraphs
153-162). In other words, we recognize that there is a well-established
national policy, incorporated in legislation, which encourages and makes it
lawful for common carriers to provide free or reduced rate interconnection
services to public broadcasting and other educational interests. These
statutes make it possible for the Commission to prescribe preferential rates
for educational entities covered by such legislation, as well as for carriers
to file tariffs offering free or reduced rates to such entities on their own
initiative. While we will entertain specific proposals by carriers or
users for the prescription of preferential rate classifications, we presently lack
sufficient information to initiate any requirement as to common carriers or to
enunciate any general statement of policy. However, we will expect
non-carrier applicants, who have offered free access to public broadcasting, to
implement the proposals made in their applications.
F. Procurement
44. Finally, we adopt the
staff position on the question of procurement (staff recommendation, paragraphs
163-167). Thus, assuming our authority to prescribe procurement rules
requiring competitive bidding for domestic satellite facilities, we
nevertheless conclude that it is not necessary or desirable to exercise such
authority in the present circumstances under our multiple entry policy. n10
n10 We further decline, at present, to make an
exception in the case of AT&T in view of our decision not to authorize the
Comsat/AT&T applications based on their contractual arrangement.
IV. ORDER
44a. Authority for the
policies and conditions adopted herein is contained in Sections 1, 2, 3, 4 (i) and
(j), 201, 202, 203, 212, 213, 214, 218, 219, 220, 301, 303, 307-309, 310(b),
319, 396, 403 and 605 of the Communications Act of 1934 and Sections 102 and
201(c)(8) of the Communications Satellite Act of 1962.
45. Accordingly, IT IS
ORDERED, That:
a. The policies and conditions
set forth herein, and such portions of the staff recommendation (34 FCC 2d 9)
as are expressly approved or clearly consistent with the policies and
conditions herein, ARE ADOPTED, effective July 25, 1972.
b. Each of the applicants for
domestic communications satellite systems named in paragraph 1 above SHALL
APPRISE THE COMMISSION on or before July 25, 1972, as to whether it intends to
pursue its pending system applications, in whole or in part, with such
modifications as are required to achieve compliance with the policies and
conditions specified in this Second Report and Order; or whether it desires
additional time for the purpose of reframing its proposal consistently with
such policies and conditions. n11
n11 Upon consideration of
such responses, the Commission will issue a public notice concerning the
procedures we will follow in processing applications.
c. The Commission retains full
jurisdiction over all aspects of this proceeding.
FEDERAL
COMMUNICATIONS COMMISSION, BEN F. WAPLE, Secretary.
CONCUR:
CONCURRING OPINION OF COMMISSIONER
NICHOLAS JOHNSON
The Commission now arrives at the
denouncement of this seven year old proceeding. An examination of the plot
of this story, and its several acts, gives a revealing insight to the
policymaking process at the FCC.
Domestic satellites became a policy
question at the FCC, not because of Commission action, but with the filing of a
proposal for domestic satellite television network interconnection by ABC in
September 1965. To examine the important policy questions before taking
definitive action, the Commission returned the ABC application and instituted
an inquiry. 31 F.R. 3507 (March 2, 1966).
In response to the inquiry, the Ford
Foundation filed a proposal in August 1966 linking the financing of public
broadcasting to the institution of domestic satellite service. Under the
Ford plan, the savings in interconnection costs would be used to finance public
broadcasting as a "people's dividend" from the $40 billion of public
expenditures to develop the space technology that made the satellite system
possible. This was a proposed alternative use of the savings -- rather
than flowing them through to networks' profits, or lower costs to users and
their customers. J. Dirland and A. Kahn, "The Merits of Reserving the
Cost-Savings from Domestic Communications Satellites for Support of Educational
Television," 77 Yale L.J. 494 (1968).
The FCC responded with a further
notice of inquiry. 31 F.R. 13763 (October 20, 1966). In February
1967 President Lyndon Johnson proposed the legislation that later became the
Public Broadcasting Act of 1967. And in April 1967 Comsat proposed a
pilot domestic satellite system to demonstrate the potentialities and benefits
of satellites, including their use for public broadcasting.
On August 14, 1967, President
Johnson announced the formation of a Task Force to review a variety of
telecommunications policy questions, including domestic satellites. This
began what was to become a three year review by the Executive Branch of
important policy questions before the FCC in this area. By late 1968 the
Johnson Task Force had completed its work with a recommendation that a
Comsat-directed pilot program be authorized. In early 1969 the FCC was
prepared to authorize such a pilot program. A report and order had been
drafted, and tentative expressions of the position of each Commissioner had
been made.
Before issuing it, however,
then-Chairman Hyde took the document to the White House to inform the White
House staff of the action the Commission was to take. In the interim
there had been a change in Administration, and the information-providing trip
resulted in a request that the Commission hold any action while the White House
once again examined the policy questions.
The White House recommendations, for
an "open-entry" policy, came in a January 1970 memorandum from Peter
Flanigan to Chairman Dean Burch. In March 1970 an FCC Report and Order,
22 F.C.C. 2d 86, concluded that no decision could be made on the appropriate
policy for domestic satellite entry and specific proposals from potential
entrants were requested. The next Commission order, and the staff's
recommended decision came in March 1972.
Today's action seems to signal the
end. Open entry is adopted with certain modifications. The benefits
to be realized by public broadcasting are, at this point, speculative.
There are several interesting
conclusions to be drawn about the Commission's role in policymaking at least
for domestic satellites.
(1) The Commission has relied
heavily on the parties appearing before it for the analyses and proposals it
has considered. Although there is no readily available way to make an
exact calculation, I suspect that most of the important parties appearing
before the Commission have invested significantly more resources, each, on
these policy questions than has the Commission in total. This seems
particularly true for the Executive Branch. The Commission has been a
"captive," responding to and arbitrating between the variety of
forces which have attempted to move it.
(2) The relative congruence between
Commission action and White House recommendation, occurring over periods of
significant shifts in policy, is striking. The ability of the Commission
to move in variance with White House positions on important policy questions
(regardless of who is President) is very questionable.
(3) The effects, benefits and costs,
of both regulation and delay would be worthy of a detailed analysis.
Suppose any entrant, including ABC, had been able to launch a satellite system
in 1965 by merely "purchasing" the needed resources, including
spectrum. Suppose the Commission had gone ahead with a pilot program authorization
in early 1969. What would have been the results of these -- or other
alternatives -- on services, technology development, and so forth? Are we
better off, or worse off today? Should the domestic satellite question
have been handled differently, and if so, what can we learn about handling
other policy questions before this and other governmental agencies that engage
in an economic planning function?
(4) Over and over again the
Commission meets the question of melding competitive and monopoly portions of
the telecommunications common carrier industry. The issues were joined in
the Telpak and other bulk offering and private line proceedings, and are still
unresolved. They are met again in the relationships between monopoly
landline telephone companies and miscellaneous carriers who offer a variety of
land mobile services in competition. They are met in the Carterfone-type
issues of competition and monopoly in communications equipment and
interconnection. They are met in the pricing questions surrounding the entry
of specialized competitive carriers. And they are met here in the
treatment, particularly of ATT and Comsat, of certain entrants for domestic
satellite services. The issues remain unresolved.
Given these limitations, I believe
the staff work and ultimate Commission position put forward today is much
better than anyone had a right to expect. Accordingly, as a realist, I
concur.
Because of the significance of the
policy, however, perhaps a few more words regarding my own preferred approach
to decision would be appropriate.
We are entering into a new area of
communications. The next few years will be years of experimentation and
gathering of experience. It's not that we don't know how to launch and
operate a satellite. Comsat, NASA, the military, and numerous American
companies have a great deal of expertise in this field.
But we have no experience with the
non-technical aspects of this operation. Will the public tolerate the
short delay, or echo effect, in voice communications by satellite? What new
institutional (and possibly personal) uses of communications will evolve to use
the peculiar qualities of satellite distribution systems (cheaper long-haul
costs, possibility of multiple distribution points, and so forth)? What
problems will arise in joint operations of satellites, or of earth
stations? What new ratemaking or regulatory concepts and procedures will
be needed?
(1) Accordingly, I still believe
there is some merit to the idea of a pilot project at this stage. Rather
than have it operated by a chosen company (Comsat, ATT, some other present
company, or a new entity), however, I would have it operated by NASA or some
other entity of government. This is not such a radical idea. It is
the way every other nation in the world has dealt with the problem. And
most have resolved the issue long before us. It is the way, in fact, that
we run our space program. It is the way we evolve new technology in many
areas of the economy. And, even as to space communications satellites,
the military and NASA have already operated such systems.
All I would propose is that for the
first generation of experience (3 to 7 years) a public entity undertake the
operation of America's first domestic communications satellite system for the
benefit of all potential users and operators. Every effort would be made
to test, at cost, any reasonable proposal from any American company,
institution, or individual. The results of all tests would be made fully
open to any interested party. Training opportunities would be made
available to as many interested persons as possible. This would save a
tremendous amount of money for American business, as well as the public, and
open up the possibility of a great deal more use (and competition -- if that's
what we're really interested in) when the system or systems are finally
established on a commercial basis.
I have made this proposal throughout
my six year term at the Commission. It has never received the support of
the White House or a majority of the Commissioners. There is little doubt
in my mind that we would be much further down the road today if it had been
adopted in 1966.
(2) I there is not to be an
experimental system, there is much to be said for a chosen instrument. A
single system operator can insure economies of scale, fair and open access to
all comers, the lowest possible rates, and the most geographically disbursed
system (including, for example, the best service to Alaska, Hawaii and so
forth).
My preference would be to create a
new entity -- a Domsat -- for domestic satellite services only, that would have
every incentive to compete fully with ATT. No carrier would be permitted to
hold stock in the company or sit on the board (although, of course, individual
shareholders could hold stock in ATT and Domsat).
Another alternative would be to give
ATT a monopoly over domestic satellite service. ATT is now having some
growing pains even keeping up with expanding service on earth. But ATT
exclusive operation in space would have the advantage that all users -- including
the homeowner -- would get some benefit from the new technology, which will now
flow almost exclusively to large corporate users of satellites. If this
were done, ATT should probably be required to provide such service through a
separate corporate entity for purposes of bookkeeping (as its current corporate
practices would indicate it would probably want to do anyway).
Comsat could also be the chosen
instrument. It does have the expertise. But it would not have the
advantage just described that ATT would have -- virtually monopoly control of
all U.S. communications on the ground for purposes of rate averaging.
Moreover, Comsat has additional problems as an international operative.
At one time I urged that Intelsat be encouraged to become a truly international
communications carrier, supplying domestic communications services for the
world as well as internationally. It seemed to me an appropriate, and
symbolic, peaceful venture for nations in need of one. But that idea
never caught on either. So now, it seems, we are doomed to a world in
which every nation must have not only its own airline, merchant marine, and
steel mill, but its own domestic satellite system as well. Given such a
world, however, it seems to me inappropriate for Comsat -- already carrying the
burdens of Big Brotherism into its international meetings -- to have to
confront its world partners with the potential conflicts of interest (and
division of managerial energies) involved in operating the world's most
lucrative domestic satellite system.
(3) If we are not to have an
experimental system or a chosen instrument, because of a deistic reverence for
competition, then we ought to really have competition. I'm reminded of
the children's riddle: "Where does an 800-pound gorilla sleep?" And
the answer: "Any place he chooses." True competition is one of the
most highly regulated states of economic operation possible. That's what
the antitrust laws are all about -- when they're enforced. You either
keep the 800-pound gorilla (in this case the $18 billion Bell) out of the
canary cage entirely, or you tell him where to sleep.
If we're really serious about
experimenting with the radical notion of free private enterprise, I'm all for
it. But then there have to be some very meaningful restraints on ATT and
Comsat -- at the very least in the initial stages. Otherwise, we're just
kidding ourselves -- though very likely nobody else.
If we want a competitive arena I
would keep out ATT and Comsat entirely. (ATT has never been consistently
enthusiastic about using space anyway.) Let anyone else in who wants in.
Let them experiment with equipment and the search for services and
markets. Try to maintain some conditions of fair competition. If
after a few years the Commission wants to reassess this decision, and let ATT
into the business in ways consistent with maintaining this newly burgeoning
industry, fine. But not until then.
(4) Finally, I cannot but bemoan our
failure to provide expressly for -- at least -- free interconnection for the
Public Broadcasting Corporation and other educational users. I always
felt that the Ford Foundation had made a fairly persuasive case that more was
called for. The American people, having invested more than $40 billion in
the soaring growth stock called civilian space, are entitled, someday, to a
little bit of a dividend. One has yet to be declare4. Ford proposed
that a proportion of the savings to the commercial networks from the use of
space be passed on to the public in terms of a funding source for public
broadcasting. It seemed to me a fair idea.
But all this is history. We're
now in countdown. It's no time to dissent. I'm on board.
DISSENTBY:
BURCH
DISSENT:
DISSENTING STATEMENT BY CHAIRMAN
BURCH
In this proceeding, the Commission
is dealing with matters of extraordinary complexity and even subtlety. We
are called on to establish ground rules for an industrial technology that does
not yet exist, to serve some present markets and some that are at best
speculative -- and, most d9fficult of all, the interrelationships between the
two. The policy decisions thus arrived at are not in the usual sense
definitive: rather, they represent "signals" to the applicants that
will cause them to reformulate their proposals, and these in turn will almost
surely not be the same as those with which the Commission is here ostensibly
dealing. Our objective is to engraft a new and untested technology onto
an existing domestic communications complex, whose characteristic problems are
essentially independent of satellite technology per se.
In approaching such a maze of
unpredictables and potential pitfalls, the Commission would have been well
advised to adopt a posture of "least is best" (thus making only those
decisions necessary to elicit the applicants' genuine intentions), to build
from the base of irreducible marketplace realities (namely, AT&T traffic),
to discipline itself against the temptation to piggyback on this already
complex policy finding its favorite regulatory schemes and hangups (for
example, the desire to "get a handle on AT&T"), and to offer all
applicants a maximum of options (which might well lead to the evolution of a
competitive marketplace in which the consumer will benefit). As a general
proposition, I believe the Commission has violated every one of these counsels
of caution.
And to whose real benefit?
That is most difficult to say. For, although the thread runs through the
majority document that its key findings have been made in the interest of
"competition", somewhere along the line the overriding purpose of the
competitive marketplace seems to have gotten lost: namely, benefit to the
consumer in the form of better and/or cheaper goods and services than would
otherwise be available. Instead, the Commission has gone off in pursuit
of a peculiar and novel form of competition -- measured, so far as one can
tell, by how many satellite systems go aloft in how many "space
segments" (a benchmark that I strongly suspect would strike the typical
consumer as irrelevant even if he could grasp its meaning). "Space
segment" competition may, of course, translate into consumer benefit one
day. Then again it may not. It all depends -- and it is here that
the majority document leaves pragmatic reality behind and takes off into the blue
sky of academic abstraction. For example:
(a) There is repeated reference (see
in particular par. 10 and fn. 2a) to "meaningful" and
"definitive comparison" between the relative costs "and other
advantages" of satellite technology as against terrestrial facilities in
providing communications services to the public -- most of which services are
not unique to satellite technology anyway. This is used as a principal
rationale for imposing inhibitions on AT&T, for example. I agree that
such "basing point" comparisons are desirable. But this
proceeding is no mere academic exercise. Tens of millions of investment
dollars are involved, and so are services to the consuming public -- present
and near-term as well as future. In my judgment, there is an excessive
trade-off of present and near-term benefits for mostly speculative longrange
developments that, in any case, may be a wash from the consumers' perspective.
(b) Other inhibitions and
restrictions are rationalized (see in particular pars. 9 and 11) on the ground
that AT&T's "unique advantage" of being able to fill satellite
capacity with existing and predictable future traffic will inevitably produce
"unfair" competition and somehow disserve the public. I find
this an ironic twist indeed -- that "success" is to be penalized
rather than rewarded and that economies of scale must be foresworn as
inconsistent with a theoretical model of pure competition (for traffic that is
mostly a gleam in some speculators' eyes). The Commission would have been
better advised, in my view, to take existing traffic as a "given" and
then attempt to build from there -- with safeguards, as specified in the
earlier Specialized Common Carrier decision, against undue dominance of these
specialized markets by existing carriers. This might have redounded to the
immediate benefit of the consuming public, available alike to AT&T's
customers and to its competitors', in the form of lowest unit costs.
(c) The Commission majority, by
contrast, stands the usual norms of competition on their head. In its
attempt to "structure" the marketplace rather than permit full and
fair competition between new and existing carriers, the Commission in effect
ignores its sound commitment in the Specialized Common Carrier decision not to
create any "protective umbrella" for new entrants or "any
artificial bolstering of operations that cannot succeed on their own
merits". Thus, AT&T is precluded from providing point-to-point
private-line services via satellite -- even though, as the majority
acknowledges, "other applicants, lacking [an]... initial traffic nucleus,
would be operating... with lightly loaded, costly facilities". All
of which presumably means that the consumer will have to pay artificially
inflated rates for specialized services during an initial three-year dev5lopmental
period (unless by terrestrial facilities alone, wholly in line with the
"full and fair" competitive entry formula of the earlier decision,
AT&T is able to undersell its competitors anyway). And further,
because the majority document is open-ended (see par. 21), this initial period
could be extended ad infinitum at the Commission's sole discretion.
Again, there is the question "who benefits" -- except possibly the
stockholders of a few specialized carriers operating in a protected marketplace,
and all in the much abused name of "competition"!
My overriding concern is not so much
that this decision will lead to irrational results as that it may lead to no
results at all that will be of substantial public benefit. It is doubly
ironic, in view of the majority's determination to inhibit AT&T and that
company's own downbeat projections as to the cost/benefits of satellite
technology, that AT&T may in the end simply apply for a satellite system of
its own. And because its monopoly services -- MTT, WATS, AUTOVON --
constitute the vast preponderance of present traffic, an AT&T system is the
only one that could conceivably achieve an immediate fill and thus conclusively
demonstrate its economic viability.
The big loser seems to be the one
applicant with genuine experience in space-segment management -- namely,
Comsat. By rejecting the AT&T/Comsat contractual arrangement out of
hand, rather than attaching conditions that might encourage the evolution of
real competition, the Commission majority has reduced Comsat's effective choice
to one: that is, electing to become an end-to-end retail carrier. But
even here, the option is more apparent than real. Because of a seemingly
innocuous sentence at the end of par. 26 ("In the event that Comsat elects
to proceed other than as a carrier's carrier, it will be prohibited from owning
or operating domestic satellite facilities at any overseas point served by
INTELSAT facilities (staff recommendation, paragraph 114)."), Comsat would
be barred from serving any noncontiguous state or territory, would lose its
present traffic to these points (almost all of which is traffic to the
mainland), and would be left with virtually unutilized "white
elephant" earth stations in Alaska, Hawaii, and Puerto Rico. Some option.
The other option -- becoming a
carrier's carrier and leasing transponders on tariff to all comers, including
AT&T -- is in the end AT&T's choice and not Comsat's at all. And
my own strong conviction, in view of the decision as here formulated, is that
AT&T will not so choose. Why should it, in effect, subsidize its own
competition -- and competition operating under a protective umbrella at that --
by filling idle satellite capacity with the only substantial traffic now
available?
There is, in all candor, no ideal
solution to this problem. Our job is to come up with the best alternative
available -- and I make no apologies for thus relying on marketplace realities
in an effort to bring to the consuming public some immediate benefits of a new
technology. In my view, the answer is to be found in an approach that
affirms in essence the AT&T/Comsat contractual arrangement but then
attaches to it one critical condition: namely, that Comsat, with its unique
technical and managerial expertise, also provide satellite service to those
entities who, lacking the initial nucleus of assured traffic, might be
unwilling or unable to risk the huge investment necessary to launch satellite
facilities of their own. As an alternative, Comsat should be free to
elect the route of an end-to-end retailer.
The majority attempts to
"structure" behavior largely by recourse to penalties and blue-sky
"models" of pure competition. But the proposal before us, in my
judgment, suffers from two fatal flaws: it may retard the evolution of satellite
technology, not get it going, and it may thus withhold realistic benefits to
the public. The Commission can and must do better than that.
(Commissioners Reid and Wiley join
with Chairman Burch in this Dissenting Statement.)