2-1-2-2 ESTABLISHMENT OF DOMESTIC COMMUNICATIONS--SATELLITE FACILITIES BY NON-GOVERNMENTAL ENTITIES (DOMSAT II), SECOND REPORT & ORDER, 35 FCC 2nd 844 (1972)

III. Determinations on the Issues

B. Conditions on system applications 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).⁴ However, we will address the question of what policy conditions and/or further showings will be required in the case of particular applicants.

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 out 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.⁵

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.⁶

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.⁷ 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.

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 an equitable and non-discriminatory basis, including—if necessary therefor—by means of access to the Hughes transmit-receive earth stations and space segment facilities.

⁴ 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.

⁵ 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).

⁶ 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 therefor pursuant to Section 214 of the Communications Act.

⁷ 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.