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Contents Intoroduction Preliminaries Chapter 1 Chapter 2
Chapter 3 Chapter 4 Appendix Index


C. Other Considerations

1. Pricing Flexibility


In the White Paper, the Executive branch states that INTELSAT possesses sufficient pricing flexibility in setting its rates for services and utilizes an established policy that prices should reflect costs. The White Paper also points out, though, that INTELSAT is somewhat limited in its flexibility because the rate that will actually compete with the separate system rates is the rate signatories charge end-users for the entire service and not the circuit utilization charge INTELSAT charges the signatories. The White Paper, however, concludes that INTELSAT has sufficient flexibility to structure its rates and, with its other competitive advantages, will be a strong competitor in the marketplace. In addition, the Department of States recently issued a paper which supports the findings set out in the White Paper and states that INTELSAT has the flexibility to price according to the operational parameters, type of service offered, bandwidth, type of transponder used, degree of protection and satellite to be used. The former paper also notes that INTELSAT can decide which services to provide to which markets under which conditions. Thus, it concludes that INTELSAT has sufficient flexibility in pricing to meet competition and that no change in the INTELSAT Agreement is required.136A


A recent document issued by the Director General of INTELSAT criticizes the State Department's position and argues that INTELSAT cannot price competitively to meet the rates that will be set by the separate satellite system.137 The document states that legal restraints exist which preclude INTELSAT from defining services and setting rates that discriminate directly or indirectly against a particular user or group of users. The paper notes that Article V(d) of the INTELSAT Agreement states:
All users of the INTELSAT space segment shall pay utilization charges determined in accordance with the provisions of this Agreement and the Operating Agreement. The rates of space segment utilization charge for each type of utilization shall be the same for all applicants for space segment capacity for that type of utilization.
According to the document, establishing services and charges on an individual route or geographic basis is necessary to compete with the separate systems, and Article V(d) prevents INTELSAT from doing so. The paper then concludes that the State Department's position improperly suggests that INTELSAT introduce pricing flexibility "though the back door" and that an amendment to the INTELSAT Agreement is required before INTELSAT could price on a route-by-route and region-by-region basis.


A number of parties believe that the pricing flexibility issue is an important factor that must be taken into consideration by the Commission to determine whether INTELSAT will be able to compete with new suppliers. We have already found that INTELSAT will not be harmed by separate systems. In view of this finding, and the fact that both INTELSAT and Comsat are free to establish rates closer to costs in response to competition, we see no reason why a determination of the adequacy of INTELSAT's pricing flexibility is a prerequisite to the authorization of separate systems. We note, also, that only INTELSAT has authority to change its pricing policy through an amendment to its charter.138 As a member of INTELSAT, the United States will have one vote in the Assembly of Parties on such a question. Moreover, the U.S. position on this matter is not determined by the Commission alone, but by the Executive branch in consultation with the Commission. Thus, in light of these considerations, we will not reach any conclusions in this proceeding as to the pricing flexibility issue. We will, however, consider the record in this proceeding in our consultations with the Executive branch on this matter.

2. Foreign Policy Considerations


Of related interest is a brief paper, accompanied by a more detailed study, filed as a public comment in this proceeding by Philip H. Trezise, a researcher, writer and consultant in the field of foreign economic policy.146 These documents, taken together, suggest that if the United States chooses to license separate satellite systems, it would still be faced with the critical choice of whether to license separate systems first and negotiate with other governments later or to negotiate with other sovereigns first and then to license separate systems in accordance with the outcome of the negotiations. The authors conclude that the second alternative is preferable, both from a foreign relations standpoint and from the perspective of obtaining increased competition in international communications. The first alternative is criticized in these filings as leading to intergovernmental confrontation, and examples are provided to support the notion that past attempts to implement U.S. policy unilaterally on sovereign nations have proved counter-productive. After analyzing the Trezise filings, we remain unconvinced of any dangers inherent in licensing international communications facilities prior to obtaining negotiating agreements overseas. For the United States to license international facilities does not in any way challenge the sovereignty of other nations to adopt whatever policy they see fit but merely suggests to these nations certain policies currently advocated by the United States. The discussion provided in the Trezise filings points out quite correctly, however, the importance of affording proper respect to international comity and of noting the past disagreements among various sovereigns over matters of international communications policy. These points had without a doubt been considered extensively by the Executive branch in reaching their "national interest" determination as we have considered them in analyzing whether the licensing of separate systems at this time is in the public interest.

136A Memorandum of Department of States. "Flexibility to Compete, INTELSAT in an Era of Separate Systems," (May 1985) reprinted in INTELSAT Document, BG-63-93E, Addendum No. 1 (June 14, 1985).

137 INTELSAT Document, "INTELSAT's Legal Flexibility to Compete," BG-63-93E (June 5, 1985).

138 Pursuant to Article XVII of the INTELSAT Agreement, Tanzania and Cameroon have proposed an Amendment to Article V(d) to give INTELSAT additional pricing flexibility "to meet competition in various ocean regions or traffic routes." This proposal will be considered by the INTELSAT Assembly of Parties at its ordinary meeting in October 1985.

146 Philip H. Trezise, "Unilateralism in International Trade: Will We Ever Learn?" (received July 12, 1984): accompanied by Bert W. Rein, Bruce L. McDonald, Danny E. Adams, Robert E. Nielson and Carl R. Frank, "Implementation of a U.S. 'Free Entry' Initiative for Transatlantic Satellite Facilities: Problems, Pitfalls and Possibilities," a study by the law firm of Wiley and Rein, counsel for Comsat in this proceeding.

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