Direct Access to the INTELSAT System

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[IB Docket No. 98-192, FCC 98-280]

Direct Access to the INTELSAT System

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is seeking comment on the legal, economic, and

policy ramifications of permitting direct access to the INTELSAT system

in the United States. Direct access to INTELSAT would enable U.S.

carriers and users to obtain space segment capacity directly from

INTELSAT rather than through Comsat, the U.S. Signatory to INTELSAT.

The Commission tentatively concludes that the Communications Satellite

Act of 1962 and the Communications Act give it discretion to permit

U.S. carriers and users the option of obtaining contractual, or Level

3, direct access to the INTELSAT system. The Commission does not,

however, reach tentative conclusions as to whether and under what

circumstances the Commission may permit direct access. On this issue,

the Commission is seeking comments on: What are the potential benefits

of direct access?; what competitive concerns are raised by direct

access?; how would direct access affect U.S. efforts to privatize

INTELSAT?

DATES: Comments must be submitted on or before December 18, 1998; reply

comments must be submitted on or before January 8, 1999.

ADDRESSES: Magalie Roman Salas, Office of the Secretary, Federal

Communications Commission, 445 12th Street, SW, Washington, D.C. 20554.

Also, comments should also be filed with: Kathleen A. Campbell,

International Bureau, 2000 M Street, N.W., Suite 800, Washington, D.C.

20554.

FOR FURTHER INFORMATION CONTACT: Jim Ball at (202) 418-0427 or Sande

Taxali at (202) 418-7586.

SUPPLEMENTARY INFORMATION: This is a summary of the commission's Notice

of Proposed Rulemaking in IB Docket No. 98-192; FCC 98-280, adopted

October 22, 1998 and released October 28, 1998. The complete text of

this Notice of Proposed Rulemaking is available for inspection and

copying during normal business hours in the FCC Reference Center (Room

239), 1919 M Street, NW., Washington, DC and also may be purchased from

the commission's copy contractor, International Transcription Service,

1231 20th Street, N.W., Washington, DC 20036, phone: (202) 857-3800,

fax: (202) 857-3805.

To file formally in this proceeding, comments may be filed using

the Commission's Electronic Comment Filing System (ECFS). See

Electronic Filing of Documents in Rulemaking Proceedings (63 FR 24121,

May 1, 1998). Comments filed through the ECFS can be sent as an

electronic file via the Internet to http://www.fcc.gov/

[[Page 59756]]

ecfs.html>. Generally, only one copy of an electronic submission must

be filed. If multiple docket or rulemaking numbers appear in the

caption of this proceeding, however, commenters must transmit one

electronic copy of the comments to each docket or rulemaking number

referenced in the caption. In completing the transmittal screen,

commenters should include their full name, Postal Service mailing

address, and the applicable docket or rulemaking number. Parties may

also submit an electronic comment by Internet e-mail. To get filing

instructions for e-mail comments, commenters should send an e-mail to

[email protected], and should include the following words in the body of the

message, ``get form .'' A sample form and

directions will be sent in reply.

Parties may also choose to file comments by paper. To file by

paper, parties must file an original and four copies of each filing. If

more than one docket or rulemaking number appear in the caption of this

proceeding, commenters must submit two additional copies for each

additional docket or rulemaking number. All filings must be sent to the

Commission's Secretary, Magalie Roman Salas, Office of the Secretary,

Federal Communications Commission, 445 12th Street, SW, Washington,

D.C. 20554. Paper filings will be received at a designated counter

located at TW-A325 in the 12th street lobby. In addition, comments

should be filed with: Kathleen A. Campbell, International Bureau, 2000

M Street, N.W., Suite 800, Washington, D.C. 20554. The Commission

expects to complete its relocation to The Portals within the next six

months. During the transition period, paper filings also will be

accepted at 1919 M Street, NW, Room 222, but only between the hours of

4:00pm to 5:30pm.

Summary of Notice of Proposed Rulemaking

1. On April 29, 1998, the Commission granted Comsat's petition for

reclassification as a non-dominant carrier in competitive product

markets and denied its petition for reclassification in non-competitive

product markets.1 For non-competitive markets where Comsat

remains dominant the Commission denied Comsat's request for forbearance

under Section 10 of the Communications Act. The Commission stated it

would consider favorably in its analysis of any forbearance request

certain actions that Comsat might undertake to promote competitive

market conditions, including, for example, the provision of direct

access and a waiver of privileges and immunities. The Commission said

that it would expeditiously initiate a proceeding to explore the legal,

economic, and policy ramifications of direct access.

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\1\ Comsat Corporation Petition pursuant to Section 10(c) of the

Communications Act of 1939, as amended, for forbearance from

Dominant Carrier Regulation and for Reclassification as a Non-

Dominant Carrier, Comsat Non-Dominant Order, and Notice of Proposed

Rulemaking, FCC 98-78, (released April 28, 1998) (Comsat Non-

Dominant Order).

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2. The Commission previously considered direct access to the

INTELSAT system in 1984.2 At that time, the Commission

concluded that the specific direct access alternatives then under

consideration would result in little savings to end users and would not

be in the public interest. The Commission did, however, indicate that

it would be amenable to reconsider the issue of direct access at a

future date.

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\2\ Regulatory Policies Concerning Direct Access to INTELSAT

Space Segment for the U.S. International Service Carriers (1984

Direct Access Order) 97 FCC 2d 296 (1984), Western Union

International, Inc. v FCC 814 F.2d 1280 (D.C. Cir. 1986).

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3. Beginning in 1992, INTELSAT developed procedures for non-

Signatory carriers and users to obtain space segment capacity directly

from INTELSAT rather than through Signatories. INTELSAT now offers to

non-Signatories four types or ``levels'' of direct access. The first

two levels involve access to information.3 The third and

fourth levels involve access to communication services: (a) Level 3

direct access permits a customer to enter into a contractual agreement

with INTELSAT for ordering, receiving and paying for INTELSAT space

segment capacity at the same rate that INTELSAT charges its

Signatories; and (b) Level 4 direct access permits a customer to make a

capital investment in INTELSAT in proportion to its customers'

utilization of the INTELSAT system at INTELSAT tariff rates.

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\3\ Level 1 direct access permits a customer to receive

operational and technical information and attend global traffic

meetings as an operations representative. Level 2 direct access

permits a customer to meet with INTELSAT management and staff

regarding capacity availability, commercial and INTELSAT tariff

matters.

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4. For both Level 3 and Level 4 direct access, a customer is

required to enter into a service agreement with INTELSAT that sets

forth the general terms and conditions for INTELSAT supply of its space

segment capacity. So long as the service agreement remains in effect, a

customer is able to access INTELSAT space segment directly. Level 3

customers would benefit from INTELSAT rates lower than Signatory

``marked up'' rates, and would have no investment obligations in the

system. A Signatory permitting Level 3 direct access, however, will

earn a return on its investment in space segment capacity used by a

Level 3 customer (currently up to 21 percent as established by the

INTELSAT Board of Governors).4 A Level 4 customer undertakes

all of the financial obligations under the INTELSAT Operating Agreement

that are applicable to Signatories and thus is entitled to earn on its

investment (but is not entitled to participate in the INTELSAT

governance process absent special arrangements with the Party and

Signatory of its country).

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\4\ Under the INTELSAT Operating Agreement, the Board of

Governors establishes a target rate of compensation (return) on

shareholders (Signatories) invested capital. All shareholders are

entitled to the target rate of return. See INTELSAT Operating

Agreement, Article 8; See also INTELSAT Annual Report, 1996,

``Report of Independent Public Accountants, Arthur Anderson LLP'' at

p. 36.

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5. INTELSAT offers direct access only in countries where it is

authorized by the Signatory. Currently 94 countries permit either Level

3 or Level 4 direct access. Seventy-six countries permit contractual

Level 3 direct access and 18 countries permit Level 4 direct access to

INTELSAT. Comsat has not authorized direct access in the United States.

6. The Commission tentatively concludes that the Commission has

authority under the Communications Satellite Act of 1962 to permit

Level 3 direct access but not level 4 direct access. The Satellite Act

requires Comsat to be the sole U.S. participant in INTELSAT. This

requirement is satisfied under Level 3 direct access because Comsat

continues to be the only U.S. investor in INTELSAT and the only U.S.

representative within the governing bodies of INTELSAT. This

requirement is not satisfied under Level 4 direct access which would

involve investment in INTELSAT by U.S. direct access customers.

Further, nothing in the Satellite Act requires Comsat to be the only

provider of INTELSAT services in the U.S. and the Commission

tentatively concludes that the Satellite Act gives the Commission

discretion to mandate Level 3 direct access. The Commission tentatively

concludes that permitting level 3 direct access would not violate the

Fifth Amendment to the Constitution. The Commission seeks comment on

these tentative conclusions and corresponding analysis.

7. The Commission does not reach tentative conclusions as to

whether and under what circumstances it may permit direct access in the

United States. The Commission seeks comment on (1) What are the

potential benefits of direct

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access? (2) what competitive concerns are raised by direct access? and

(3) how would direct access affect efforts to privatize INTELSAT?

8. On the issue of potential benefits of direct access, the

Commission compared the differences between prices Comsat offers to

customers and services providers and INTELSAT tariffs, the latter which

reflect substantially lower prices in most instances. It noted the

potential for greater customer choice and cost savings from direct

access. It requests comment on the desirability of allowing direct

access to INTELSAT with respect to all product and geographic markets

including those markets that are competitive and for which Comsat is

non-dominant. The Commission requests comments on whether direct access

to all markets would further increase the level of competition to the

extent that prices to consumers would be likely to fall, even in

competitive markets. The Commission also requests, however, comment on

whether Comsat would be able to recover its costs under a Level 3

direct access scheme and asks whether Comsat, as a matter of law and

policy, must be allowed to recoup its costs and the Commission requests

comment on whether circumstances have changed since the Commission's

1984 Direct Access Order. Further, it asks carriers seeking direct

access to comment on how cost savings would be passed on to their

customers.

9. Finally, on the question of competitive concerns, the Commission

asks for comment on whether permitting direct access in the United

States would result in a concentration of control of cable and

satellite facilities by U.S. carriers, and whether INTELSAT should be

allowed to compete in the U.S. market free from FCC jurisdiction over

rates and under cover of immunity from suit and process. As to INTELSAT

privatization, the Commission requests comment on whether permitting

direct access in the U.S. will reinforce U.S. efforts to promote

competition and privatize INTELSAT. The Commission noted that, in the

Comsat Non-Dominant Order, it determined that Level 3 direct access

would neither dilute Comsat's voting power on the INTELSAT Board of

Governors nor give direct access customers any right to participate in

the INTELSAT governance process. The Commission, therefore, then found

no basis to find that direct access would undermine U.S. efforts to

privatize INTELSAT in a pro-competitive manner.

Administrative Matters

10. This is a non-restricted notice and comment rulemaking

proceeding. Ex parte presentations are permitted, except during the

Sunshine Agenda period, provided they are disclosed as provided in the

Commission's rules. See generally 47 CFR 1.1202, 1.203 and 1.206(a).

The Sunshine Agenda period is the period of time that commences with

the release of public notice that a matter has been placed on the

Sunshine Agenda and terminates when the Commission (1) releases the

text of a decision or order in the matter, (2) issues a public notice

stating that the matter has been deleted from the Sunshine Agenda; or

(3) issues a public notice stating that the matter has been returned to

the staff for further consideration, whichever occurs first 47 CFR

1.202(f). During the Sunshine Agenda period, no presentations, ex parte

or otherwise, are permitted unless specifically exempted (47 CFR 1.203.

Pursuant to applicable procedures set forth in Secs. 1.415 and 1.419 of

the Commission's Rules, interested parties may file comments on or

before December 18, 1998 and reply comments on or before January 8,

1999. To file formally in this proceeding, you must file an original

and five copies of all comments, reply comments and supporting

comments. If you want each Commissioner to receive a personal copy of

your comments, send additional copies to Office of the Secretary,

Federal Communications Commission, 445 12th Street, SW., Washington, DC

20554. Comments and reply comments will be available for public

inspection during regular business hours in the Federal Communications

Commission Reference Center, Room 239, 1919 M Street, NW., Washington,

DC 20554. For further information concerning this rulemaking, contact

Jim Ball at (202) 418-0427 or Sande Taxali at (202) 418-7586.

Initial Regulatory Flexibility Analysis

11. As required by the Regulatory Flexibility Act, (``RFA''),

5 the Commission has prepared an Initial Regulatory

Flexibility Analysis (``IRFA'') of the expected significant economic

impact on small entities by the rules proposed in this Notice of

Proposed Rulemaking (``NPRM''). Written public comments are requested

on the IRFA. Comments must be identified as responses to the IRFA and

must be filed by the deadlines for comments set forth in paragraph 65

of the NPRM. The Commission will send a copy of the NPRM, including

this IRFA, to the Chief Counsel for Advocacy of the Small Business

Administration. See 5 U.S.C. Sec. 603(a).

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\5\ See 5 U.S.C. Sec. 603. The RFA, see 5 U.S.C. Sec. 601 et

seq., has been amended by the Contract with America Advancement Act

of 1996, Public L. 104-121, 110 Stat. 847 (1996) (``CWAAA''). Title

II of the CWAAA is The Small Business Regulatory Enforcement

Fairness Act of 1996.

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Need for, and Objectives of, the Proposed Rules

12. The purposes of the NPRM are to initiate a notice and comment

proceeding that explores the legal, economic and policy ramifications

of permitting direct access to the INTELSAT 6 system in the

United States and to propose rules for permitting U.S. carriers and

users to obtain non-discriminatory direct access to INTELSAT's

satellites. ``Direct access'' is a term used to refer to the means by

which users of the INTELSAT satellite system obtain service directly

from INTELSAT rather than through INTELSAT's Signatories.

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\6\ INTELSAT is an acronym for the International

Telecommunications Satellite Organization.

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13. The NPRM tentatively concludes that (a) the Commission has

authority under applicable statutes to permit U.S. carriers and users

to obtain services from INTELSAT directly at the same rates that

INTELSAT charges its Signatories; and (b) direct access presents the

opportunity to introduce competition in markets where competition does

not exist and enhance competition in markets where it does exist.

Consistent with these tentative conclusions, the NPRM proposes rules

that would permit U.S. carriers and users to obtain direct access to

INTELSAT. The NPRM invites interested parties to comment on these

tentative conclusions and related proposed rules. If commenters believe

that the proposed rules discussed in the NPRM require additional RFA

analysis, they should include a discussion of this in their comments.

Legal Basis

14. The authority for the NPRM is the Administrative Procedure Act,

5 U.S.C. 553; and sections 4(i) and 201(b) of the Communications Act of

1934, as amended, 47 U.S.C. 154(i) and 201(b), and sections 201(c)(5)

and (c)(11) of the Communications Satellite Act of 1962, 47 U.S.C.

721(c)(5), (c)(11) and 741.

15. Description and Estimate of the Number of Small Entities to

Which Proposed Rule Will Apply Under the Small Business Act, a ``small

business concern'' is one that: (1) Is independently owned and

operated; (2) is not dominant in its field of operation; (3) meets any

additional criteria

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established by the Small Business Administration.7

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\7\ See 15 U.S.C. 632.

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16. The Commission has not developed a definition of small entities

applicable to satellite service licensees. Therefore, the applicable

definition of small entity is the definition under the Small Business

Administration (``SBA'') rules applicable to Communications Services

``Not Elsewhere Classified.'' This definition provides that a small

entity is one with $11 million or less in annual receipts.8

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\8\ 13 CFR 121.201, Standard Industrial Classification (SIC)

Code 4899.

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17. If the Commission adopts the proposed rules permitting U.S.

carriers and users to obtain direct access to INTELSAT, the Commission

would require Comsat Corporation (``Comsat'') to take appropriate

actions within INTELSAT to give effect to these rules. Comsat's 1996

revenues were in excess of $11 million. Thus, Comsat does not qualify

as a small entity under the SBA's definition. U.S. carriers and users

that may benefit from the Commission's adoption of the proposed rules,

may include small entities that offer communications services.

According to the SBA, the Census Bureau estimates that there are

approximately 848 entities providing communications services, not

elsewhere classified. Of those, approximately 775 reported annual

receipts of less than $9.999 million or less and would qualify as small

entities subject to the proposed rules.9 More precise data

is not available.

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\9\ U.S. Bureau of the Census, U.S. Department of Commerce, 1992

Census of Transportation, Communications, and Utilities, UC92-S-1,

Subject Series, Establishment and Firm Size, Table D, Employment

Size of Firms: 1992, SIC Code 4899 (May 1995).

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Description of Projected Reporting, Recordkeeping or Other

Compliance Requirements

18. The proposals in the NPRM are not expected to result in any

additional reporting, recordkeeping and other compliance.

Steps Taken To Minimize Significant Economic Burden on Small

Entities, and Significant Alternatives Considered

19. The NPRM considers two alternatives for U.S. carriers and users

to obtain direct access to INTELSAT: Level 3 direct access and Level 4

direct access. Level 3 direct access permits a customer to enter into a

contractual agreement with INTELSAT for ordering, receiving and paying

for INTELSAT space segment capacity at the same rate that INTELSAT

charges its Signatories. Level 4 direct access permits a customer to

make a capital investment in INTELSAT in proportion to its customers'

utilization of the INTELSAT system at INTELSAT tariff rates. The NPRM

proposes rules that would permit U.S. carriers and users to obtain

Level 3 direct access to INTELSAT. The NPRM does not propose a rule

permitting Level 4 direct access to INTELSAT because the NPRM

tentatively concludes that such a rule would contravene the requirement

under the Communications Satellite Act of 1962 that Comsat be the sole

U.S. participant in INTELSAT. The proposed rules would permit small

entities to obtain Level 3 direct access to INTELSAT, however, as a

Level 3 direct access customer of INTELSAT, such small entities would

not be required to undertake any of the financial obligations or be

entitled to participate in the INTELSAT governance process as are

Signatories. We believe that the proposed rules will permit authorized

carriers and users, including small entities, to benefit from direct

access through greater choice and lower rates in connection with use of

the INTELSAT system and we seek comment on these and other benefits

that may result from direct access. We recognize that other issues not

raised in the NPRM may be significant to carriers and users, including

small entities, and we also request comment on issues relating to

direct access that are not raised in the NPRM. We do not expect the

proposed rules to cause any economic burden to small entities, and seek

comment on any issues pertinent to this.

Federal Rules That Overlap, Duplicate, or Conflict With These

Proposed Rules

20. None.

Ordering Clauses

21. Accordingly, it is ordered that pursuant to the authority

contained in sections 4(i), 4(j) 201, 214, 301 et seq., and 403, and

sections 201(c)(5) and (c)(11) and 401 of the Communications Satellite

Act of 1962, 47 U.S.C. 721(c)(5) and (c)(11) and 741 of the applicable

procedures set forth in sections 1.415 and 1.3-419 of the Commission's

rules, 47 CFR 1.415 and 1.419 that this Notice of Proposed Rulemaking

is hereby adopted.

22. It is further ordered that interested parties may comment until

December 18, 1998 and file reply comments until January 8, 1999.

23. It is further ordered that the Commission's Office of Public

Affairs Reference Operations Division shall send a copy of this Notice

of Proposed Rulemaking, including the Initial Regulatory Flexibility

Analysis, to Chief Counsel for Advocacy of the Small Business

Administration.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 98-29572 Filed 11-4-98; 8:45 am]

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