COMSAT Argument: "COMSAT is not a 'middleman.'"

· COMSAT is a middleman. COMSAT does not deny that it collects large mark-ups over the INTELSAT Utilization Charge ("IUC") on services for which it provides no facilities - i.e., where carriers have their own INTELSAT earth stations.

· COMSAT's only response is that it is entitled to play a middleman role because it is an "owner" of the INTELSAT system. In fact, INTELSAT owns the INTELSAT system. COMSAT is an investor in the INTELSAT system, and earns a target 17-21 percent return for its investment.

· COMSAT relies on the fact that the Communications Satellite Act in 1962 made COMSAT the sole initial U.S. investor in INTELSAT, in arguing that COMSAT must remain the exclusive U.S. provider of INTELSAT services. This position is not tenable.

COMSAT Argument: "Direct access abroad is intended to solve problems not present in the U.S."

· COMSAT does not deny that direct access is available in 94 countries.

· The fact that some foreign markets (those with a single dominant telecommunications provider) do not have competition is not a reason that the U.S. should inhibit further competition in its own market. The United States should be a leader in telecommunication liberalization with respect to direct access (as it is in other areas), but now it is not.

· Liberal direct access regimes have been implemented in a significant number of countries with open telecommunications markets, many of which are among the largest users of INTELSAT capacity. Such countries include the UK (2nd largest user of INTELSAT capacity), Norway (4th), Germany (5th), France (7th), Australia (9th), Canada (11th), Sweden, Switzerland and Chile.

COMSAT Argument: "COMSAT is not a monopolist."

· COMSAT does have de facto monopoly over access to the INTELSAT system from the United States.

· The INTELSAT system is the only viable way to provide international telephone service on routes to countries with no fiber optic capacity (many developing countries), where fiber optic cable does not reach the entire country (e.g., Russia, India), or where routing by fiber is inefficient (e.g., Eastern Europe). On these routes, COMSAT has a de facto monopoly. These routes cover a significant volume of traffic, particularly for those U.S. customers who do business or have friends or family in the countries in question.

COMSAT Argument: "COMSAT does not charge excessive markups."

· COMSAT does not dispute the statements of the Satellite Users Coalition regarding the size of its mark-ups over the INTELSAT Utilization Charge ("IUC"), including mark-ups averaging over 100 percent for voice services, but simply argues that these mark-ups are justified by cost.

· COMSAT refused the invitation of the FCC in the Direct Access proceeding to provide detailed cost data justifying its mark-ups.

· It is the market - not COMSAT - that should decide what level of mark-ups are cost-justified. BT recently made this point in Senate testimony, stating: "[T]here is no room for companies to charge the mark-ups over the IUC that U.S. carriers experience from Comsat. Prices for INTELSAT capacity in the UK, and for services delivered using INTELSAT capacity, are determined solely by what the market will bear."

· COMSAT's claim that the return implicit in the IUC does not cover COMSAT's costs is contradicted by COMSAT's recent decision to increase its investment share in INTELSAT. COMSAT's President and CEO stated that this investment (which earns returns only from IUC revenues) "makes good business sense, and [COMSAT] expects to see a strong return on this investment."

COMSAT Argument: "COMSAT has not raised short-term rates by 500%."

· COMSAT does not deny that in 1995 it raised monthly rates for a 1.544 Mbps INTELSAT Business Service duplex half-circuit (at forward error correction rate ½) from $9,620 to $59,245 (an increase of over 500 percent). The rise in this important short-term rate was part of COMSAT's effort to force customers to sign long-term contracts.

· The Satellite Users Coalition has never claimed that COMSAT raised all short-term rates by 500 percent.

COMSAT Argument: "COMSAT's affiliates do not have a competitive advantage over non-affiliated carriers."

· COMSAT does not deny that the Satellite Users Coalition is correct regarding COMSAT's advantages to the extent that COMSAT's rates are not cost-based (which they are not).

· The FCC decided in the COMSAT RSI case only that COMSAT makes the same rates available to all carriers and that COMSAT's rates are not predatory, not that the rates are cost-based or that the rates do not benefit COMSAT affiliates.

· The U.S. government will get better prices for INTELSAT services if direct access introduces competition to the INTELSAT market.

COMSAT Argument: "COMSAT's role does not interfere with freedom of contract."

· This is simply incorrect. U.S. carriers want to enter into contracts directly with INTELSAT. INTELSAT is willing to contract directly with U.S. carriers. COMSAT's de facto monopoly is the only barrier to contract between U.S. carriers and INTELSAT.

· COMSAT, by opposing "fresh look," seeks to prevent U.S. customers from entering into contracts directly with INTELSAT. If COMSAT's argument prevails, the benefits of direct access would be significantly delayed, because U.S. customers would be bound to long-term contracts signed when there was no alternative to buying INTELSAT capacity through COMSAT. Customers entered into long-term contracts with COMSAT due to the substantial and non-cost-based pricing differential between short-term and long-term contracts.

COMSAT Argument: "Direct access would not result in any savings for consumers."

· The Satellite Users Coalition strongly disagrees. As in other competitive markets - such as the international telephone market (other than for INTELSAT-based services) and the U.S. wireless market - competition will make the benefits of cost savings available to consumers. A recent FCC study (prepared for Senator Hollings) shows significant declines in prices for international calls, demonstrating the effect of such competition.

· Even the State Department, which has not been a strong advocate of direct access, concedes that "[d]irect access to INTELSAT … is a pro-competitive policy that has been implemented in 90+ countries to the benefit of consumers."