TESTIMONY OF REED E. HUNDT, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION BEFORE THE HOUSE SUBCOMMITTEE ON TELECOMMUNICATIONS ON THE GLOBAL INFORMATION INFRASTRUCTURE AND THE ROLE OF SATELLITES July 28, 1994 I. Introduction Mr. Chairman and Members of the Subcommittee. Good morning. I would like to thank the Subcommittee for the opportunity to appear this morning to testify on the important issue of the Global Information Infrastructure, and the role of communications satellites in building that infrastructure. Satellite technology offers opportunities to build global, seamless communications networks. In my tenure as Chairman of the FCC, I am committed to ensuring that satellites continue to be an important component of our overall policies that are designed to foster the development of both the National Information Infrastructure (NII) and the Global Information Infrastructure (GII). Mr. Chairman, my testimony will focus on the role of satellites in international telecommunications. I particularly welcome the opportunity to speak to you at this time since last week we celebrated the 25th anniversary of humankind's landing on the moon. That flight and remarkable landing not only stretched our imaginations and the very boundaries of our world, but also helped spur the development of remarkable technologies which are used today in communication, computing, manufacturing and a variety of other areas. President Kennedy's dream of a space program that would take us to the moon also included a vision of satellites orbiting the earth to enable people all over the world to communicate. That dream has flourished in the communications satellite industry in which the U.S. plays a major role, domestically and internationally. Since their introduction for commercial use in the 1960's, communication satellites have been crucial in bringing long-distance telephone service to people all over the world. That service is particularly critical in areas where the telecommunications infrastructure is not well developed. Even today, 70% of the world's telephone lines are concentrated in 24 countries of the OECD. While the United States has 54 main telephone lines for every 100 people, Sub-Saharan African countries average 0.43 telephone lines for every 100 people. Many countries, particularly in the developing world, would have a very limited long-distance network and would be virtually cut off from international telecommunications, were it not for satellites. At the World Telecommunications Development Conference in March in Buenos Aires, Argentina, Vice-President Gore announced an initiative to foster the development of a Global Information Infrastructure. That network of networks would increase our ability to communicate around the globe. Guided by the principles of private investment, competition, open access to the network, appropriate and flexible regulation and universal service, we hope to foster the growth of a communications infrastructure that is truly global in its reach and diverse in its service. The information skyways are an important part of that vision. By linking Lagos to Los Angeles through satellite technology, more trade and cultural exchange is possible. Numerous other uses of satellites have been developed. Business applications include global positioning services, which, for example, help identify trucks on their way to market and make transportation and distribution of goods more efficient. Satellites can also enable patients in rural areas to be diagnosed by doctors in the finest hospitals in the world without having either patient or doctor travel. Through educational applications, students in classrooms around the world learn together and can access distant libraries and other repositories of knowledge. Satellites also play a crucial role in environmental monitoring and search and rescue operations. Offering a diverse array of services, the communications satellite industry has become an important engine for the U.S. economy. For example, cable television could never have become the $22 billion industry it is today in the United States without satellites' reliable and low cost delivery of programming. U.S. manufacturing of these systems will lead to a substantial investment in the U.S. economy, and create a significant number of high-paying jobs in the areas of research and development, production and administration. As the systems are implemented, additional job and business opportunities will be created, such as in mobile end user services, equipment, and the launch industry. Development of the communications satellite industry will also assist in the conversion of defense-based businesses into civilian-based ones. In the U.S. alone, communications satellite services generated approximately $1.85 billion in revenues in 1993, 23 percent higher than in 1992. The production of both the space and ground components of satellite systems generated $2.7 billion in revenues for the U.S. commercial satellite industry in 1992. Half of the communications satellites manufactured in the U.S. that were delivered in 1993 were sold to foreign customers or international satellite organizations. The communications services offered by the satellite industry will also spur economic growth in other areas. Immediate access to an advanced global communications infrastructure can increase the efficiency of existing businesses and create new ones; provide developing countries with a state-of-the-art communications system that can be used for governmental, educational, personal and commercial purposes; and contribute to the quality of life which will, in turn, promote sustainable economic development. Satellites have certain comparative technological and economic advantages that make them particularly appropriate for many telecommunication applications, positioning them strategically to play an important role in the Global Information Infrastructure. First, unlike other communication technologies, satellites are equipped to provide point- to-multipoint telecommunications to large portions of the earth's surface. For example, one geo-synchronous satellite (a satellite whose rotation is the same as the earth's, so that it stays above a "fixed" point) can deliver service to as much as one-third of the earth's surface. Domestic satellites can be designed to cover large nations such as the United States or Russia, while regional satellites can serve a large landmass area, such as Western Europe or Africa. Second, the cost of satellite communication is the same regardless of distance, whether 100, 1,000 or 10,000 miles. The cost of constructing wire-based facilities, by contrast, increases as the length of the fiber or wire increases. Additionally, as satellite technology has improved, the costs of satellite communications services have declined. Satellite services have traditionally provided voice (telephone service), data transmission, and video to users operating at fixed points, i.e., from one business office to another, or from a broadcaster to the home. Satellites can also serve fixed communication needs in remote areas or in other areas where a traditional telecommunications network does not yet exist. By setting up an earth station wherever needed, satellites can provide fixed communications through less investment in land- based infrastructure than would be possible through wireline services. This feature is particularly important in environmentally sensitive areas, such as wetlands, where laying wire may disturb the fragile ecosystem. Satellites also play a pivotal role in mobile communications services, such as those serving the maritime, aeronautical and land mobile communities. Mobile satellites can provide world-wide coverage to and from people in transit, i.e. from a moving ship or to a business person traveling out of the country. Fixed and mobile communications satellite services have traditionally been provided through International Satellite Organizations (ISOs), principally: the International Telecommunications Satellite Organization (INTELSAT) and the International Maritime Satellite Organization (Inmarsat). INTELSAT, a fixed satellite system that provides global telecommunications services, has more than twenty operational satellites, while Inmarsat, a mobile satellite system that provides maritime, land mobile and aeronautical satellite services, has four satellites operational. The United States was instrumental in developing INTELSAT and Inmarsat. In 1962, President Kennedy asked for Congress' approval to create Comsat, a U.S. corporation, to facilitate development of a global communications satellite system and to provide for private investment by United States entities in such a system. From these beginnings grew the international satellite organizations, INTELSAT in 1964, to provide fixed satellite communications, and Inmarsat in 1978, to provide mobile satellite communications. Comsat, by virtue of statute, is the privately-owned commercial entity that acts as the Signatory to the operating agreements of INTELSAT and Inmarsat. Signatories such as Comsat are involved in making the commercial decisions of these organizations and Parties (governments) are charged with making policy decisions. There are 133 member nations in INTELSAT and 73 member nations in Inmarsat. Comsat is the largest single investor in these organizations holding a 20% share in INTELSAT and a 22% share in Inmarsat. The success of these organizations in providing global telecommunications for both fixed and mobile applications surpassed even Kennedy's vision. For several nations, particularly some developing countries, the INTELSAT and Inmarsat systems serve a majority of their telecommunications needs and may continue to do so, along with other satellite systems, well into the next century. II. Principles Guiding FCC Satellite Regulation The FCC has broad authority under the Communications Act in the international satellite arena. First, in coordination with the Departments of State and Commerce, we work internationally to obtain spectrum allocations in which U.S. service providers can operate. Second, domestically, the FCC allocates spectrum, licenses U.S. service providers, and regulates their domestic operation. Third, under the Communications Satellite Act, the FCC has authority (jointly with the Departments of State and Commerce) to instruct Comsat in the international satellite organizations, INTELSAT and Inmarsat, as well as to regulate Comsat domestically in its provision of INTELSAT and Inmarsat services. In fashioning regulatory policies governing international communications satellites, the FCC believes that promoting competition in the satellite telecommunications industry both domestically and internationally is key to realizing the potential of the Global Information Infrastructure. We believe that our policy to provide choice, opportunity and fairness to consumers and incumbents will help ensure that the U.S. satellite industry will continue to be the most innovative and competitive in the world, and will offer consumers an expanding range of services at reasonable rates. Choice means giving the public the benefit of competition - allowing consumers to select among competing service providers who use the same or different technologies. Choice will promote lower prices for consumers and growth in the U.S. economy. To that end, we are working domestically and internationally to promote competition and discourage monopolies in the satellite telecommunications service sector. This includes encouraging competition to incumbent satellite service providers such as INTELSAT and Inmarsat. We also believe that as many telecommunications service providers as possible should have the opportunity to compete in the telecommunications marketplace. For the satellite industry, this means that competing service providers should be able to: have access to the spectrum on a timely basis; ensure that coordination among systems is complete prior to the planned date of service; and be subject to a rational regulatory framework. The FCC also believes that competition to build the NII and GII must be fair, both within the satellite industry and between satellite service providers and other telecommunications industry players. Open access and interconnectivity for all service providers, such as between satellite service providers and personal communications or cellular service providers, are essential to fair competition. This will ensure that the satellite industry can deliver products and services that compete with terrestrial telecommunications systems in delivering voice, video and data. A competitive telecommunications marketplace will benefit consumers, the satellite industry and other sectors of the economy. The FCC plans to pursue these goals, and the principles guiding the NII and GII, as we craft our rules governing the satellite industry, whether in regard to fixed satellite services, mobile satellite services, or the restructuring of INTELSAT and Inmarsat. While satellites have the ability to improve communications around the globe, in order for them to be most effective, a number of regulatory issues must be addressed in domestic, bilateral and multilateral fora. Constraints on spectrum availability and entry barriers other countries have erected to participation in their satellite markets are prime examples of the type of regulatory issues that require our attention. Our objective is to foster a competitive satellite industry and marketplace which will create incentives for lower prices, as well as fuel U.S. and international economic growth. III. International Spectrum Allocation and Coordination In practice, creating a competitive satellite industry requires resolution of very difficult international and domestic spectrum issues. Spectrum availability is determined by regulations that "allocate" specific bands to selected radio services, and by technical expertise that promotes the sharing and "coordination" of spectrum use between various systems within and outside of the United States. Sufficient spectrum needs to be allocated and coordinated, both domestically and internationally, to meet growing satellite needs. First, there are technical constraints on spectrum availability. The radio spectrum is the critically important resource that is utilized to support satellite and other radio communications. The channel capacity (or speed of data transmissions) of operating systems is directly related to the amount of "bandwidth" available. The U.S. is not only a large user of the radio spectrum, it is also a leader in developing and implementing more efficient uses of the available bandwidth. Nevertheless, increasing demand for faster and higher capacity systems has led us to become concerned about the amount of spectrum available to satisfy these needs. Second, there are difficult issues in spectrum allocation among competing carriers from many different countries and international satellite organizations. On the international level, spectrum allocations are considered at World Radio Conferences (WRCs), sponsored by the International Telecommunications Union (ITU). The ITU's 180 member countries and many private sector members meet in biannual WRCs to discuss international spectrum allocation for telecommunications and associated concerns. To be successful at WRCs, the U.S. needs to define its goals early for future satellite services, and engage in bilateral negotiations on satellite issues prior to the WRCs. We are preparing for WRC-95 by working in close coordination with the Department of Commerce (NTIA) and the Department of State to develop consensus U.S. positions on satellite issues at an early date. As part of our coordination efforts, the Principals of the FCC, the Department of State and NTIA have monthly meetings to discuss international telecommunications issues affecting all three agencies, such as privatization of the international satellite organizations and spectrum coordination. I believe that this process has enabled the three agencies to formulate a unified position on the important international telecommunications issues of the day, and to develop coordinated plans for advocating their positions at international conferences. This process has been working smoothly. I have enjoyed participating in these meetings and have learned much from the exchange with my colleagues in the Departments of State and Commerce. As part of the coordination and advisory process, the FCC has also initiated a public notice of inquiry proceeding that addresses all issues that will be considered at WRC-95. Initial public comments have been received and we expect a second round of responses in early August. Finally, we have established a WRC-95 Industry Advisory Committee and appointed as Chair from private industry, Mr. Gary Epstein, former Chief of the FCC's Common Carrier Bureau. This advisory committee will develop private sector views on WRC-95 issues. The advisory committee and its informal working groups have held regular meetings since the committee's inception in May. In accordance with the WRC-95 agenda, a large part of its work will relate to mobile satellite service (MSS) matters. Specifically, WRC-95 will address constraints on the use of MSS allocations made at the World Administrative Radio Conference-92 (WARC-92), review the date on which previously adopted MSS allocations in the 2 GHz range will enter into force, discuss regulatory and allocation issues regarding feeder link spectrum to support satellite services, and discuss the possibility of making additional worldwide MSS allocations. The third major factor in promoting access to usable radio spectrum is to ensure a competitive opportunity for U.S.-based satellite service providers in international satellite spectrum coordination. The international coordination process requires the U.S. to publish notices of proposed satellite systems with the ITU, and to notify potentially affected foreign administrations of such proposals. The U.S. must then negotiate who will use what part of a given satellite spectrum allocation. As more foreign administrations, such as Russia, Mexico and Canada, announce plans to implement satellite systems, and as system configurations become more complex, the spectrum allocation and coordination processes become more demanding. This has required significant and increasing engineering resources over the last few years, and in the future our success will depend on having sufficient resources available to engage in effective satellite coordination. However, I am optimistic that, with continued inter-agency cooperation, active involvement of the private sector, and the support of the Congress in the reauthorization process, we will be able to meet these challenges and win favorable treatment for U.S. systems. To achieve the goal of global communications available to anyone, anywhere, anytime, the U.S. and the world must use the spectrum more effectively. This involves active consideration of international telecommunications standards at the ITU to promote coexistence and interoperability of increasingly complex systems such as LEO systems and personal communication services. U.S. industry has been a key player in WRC technical standards groups which consider issues such as interoperability. To make important and meaningful U.S. contributions to the ITU technical groups, the WRCs and the spectrum coordination process, the FCC will require more engineering resources, as detailed in our recent reauthorization proposal. We have been working closely with Congress in the reauthorization process for the FCC, and appreciate this committee's support. To serve the public and industry effectively, the FCC must train and commit additional engineers for the spectrum coordination and allocation processes. Developing and implementing complex standards also requires the time and talent of many of our best people. As an example of the resources required in this area, for PanAmSat to launch its satellite this past month, the FCC devoted the energies of several engineers logging many hours over a two and a half year period to facilitate the necessary coordination with INTELSAT and numerous foreign governments, including the Japanese and the Russians, as well as several satellite operators. This is just one of more than 35 geo-synchronous satellites currently in the coordination process, not to mention the many LEO satellite systems that will need to be coordinated shortly. To facilitate growth in the satellite industry and improve our spectrum coordination and allocation work, we are considering as part of the FCC's reorganization proposal consolidation of all satellite activities into one International Bureau. This will better enable us to foster a more competitive domestic satellite industry that is responsive to consumer needs. It will also help us to deal effectively with the specialized issues associated with the international nature of satellite technology. As these proposals are finalized later this summer, we look forward to discussing them with members of Congress and, in particular, with this Committee. IV. Competition in International Fixed Satellite Systems The FCC's regulatory policies governing international fixed satellite systems also reflect the principles of choice, opportunity and fairness. Traditionally, international fixed satellite services in the United States have been provided by INTELSAT through Comsat. The INTELSAT system has grown dramatically since its founding, but faces increasing competition from separate satellite systems that seek a share of the international market, as well as fiber optic cable and other new technologies. In the 1980s and the 1990s, in order to create direct facilities-based competition to INTELSAT, the U.S. licensed three separate fixed satellite system providers, PanAmSat, Orion and Columbia. PanAmSat, a U.S. company, began offering in 1988 innovative services to South America, a previously underserved region. As demand for its services has increased, PanAmSat has digitized its services, such as satellite news gathering, to make more efficient use of its satellite capacity. PanAmSat's success has led it to launch its second satellite just this month. It has also planned two more satellites which will be launched over the next year or two. Other separate system providers are also successful. Columbia has been operational since 1992 offering a variety services through transponders leased from NASA. Additionally, Orion is planning to launch its first satellite this Fall which will be aimed at the video, satellite news gathering and multimedia distribution markets. We expect, as demonstrated by the PanAmSat example, that separate satellite systems will increase in both size and number in the near future. V. Competition in International Mobile Satellite Systems Following the World Administrative Radio Conference in 1992 (WARC-92), which allocated frequencies for MSS, the FCC has taken several actions to make mobile services more widely available. Mobile satellite services have been able to expand beyond their traditional safety and distress role largely due to the decrease in cost of advanced signal processing technology for mobile terminals. In fact, mobile satellite communications has the potential to be a billion dollar plus industry. The FCC hopes that our regulatory regime will help the U.S. retain its lead in this area, and foster innovative services to the American public to meet their mobile satellite communication needs. Low earth orbit satellite (LEO) systems are an important new satellite-based technology for mobile communications. The FCC currently has pending before it three applications to operate LEOs on frequencies below 1 GHz. Those "Little LEOs" would be capable of providing certain data services within the U.S. and around the world, including tracking and position determination, data transmission, and emergency services. There are five applications pending to operate low earth orbiting systems above 1 Ghz. Those "Big LEOs" would be capable of providing a wide range of voice and data services, including cellular-like telephone services and data transmission for applications such as satellite-based news gathering, position location, search and rescue, disaster management, environmental monitoring, paging, facsimile, cargo tracking, industrial monitoring and control services. The proposed LEO systems offer the potential for significant economic and social advances and for service to developing countries by providing an instant telecommunications infrastructure at minimum costs. We believe that the introduction of new services, such as those to be provided by the LEOs, will promote competition in the satellite service marketplace and stimulate economic growth in the U.S. and abroad. LEO technology and services will also enhance productivity and economic growth in other sectors, such as the launch industry and the satellite manufacturing industry. Recently, the FCC has taken the following actions in regard to LEOs: a) we were instrumental in obtaining spectrum allocations for LEOs at WARC-92, working in coordination with the Departments of State, Commerce and private industry; b) we provided domestic spectrum allocations for both Big and Little LEOs; c) we conducted two negotiated rulemakings, one for Little LEOs and one for Big LEOS; and d) we adopted regulations for licensing and operation of Little LEO systems, and proposed regulations for licensing and operation of Big LEO systems. The FCC still has to issue licenses for the Little LEOs, draft rules governing Big LEO licensing and operation, issue licenses for Big LEOs, and coordinate all the LEO systems internationally. The primary focus of the FCC's proceedings on LEOs is to ensure that the benefits of LEO technology are available to U.S. consumers as soon as possible and in a competitive manner. The three Little LEO applicants should all be able to operate technically within the planned spectrum, with room for additional entrants. Our proposed spectrum sharing plan would permit authorization of up to five Big LEOs. Big LEOs, high frequency (HF) radio and other such services are expected to compete with Inmarsat's mobile communications services. Through Comsat, the U.S. has been a major participant in the Inmarsat organization and a major user of Inmarsat's services. In response to this increasingly competitive environment, Inmarsat is, among other things, considering restructuring and is planning for a subsidiary to offer a hand- held mobile satellite service, Inmarsat-P. Mr. Chairman, the MSS arena has been, and continues to be dynamic. We believe that the new mobile satellite technologies and services that the FCC is encouraging will produce a multitude of consumer benefits, such as declining prices and an expanded telecommunications network. In addition, we believe that a more competitive MSS environment will lead to more choices for consumers. VI. Restructuring of the International Satellite Organizations, INTELSAT and Inmarsat As mentioned previously, the international satellite organizations (ISOs) INTELSAT and Inmarsat play an important role in providing efficient and cost-effective communications to the world community. However, last year, Comsat expressed its view that the ISOs' present treaty-based structures may hamper them in responding to competitive pressures. Comsat called for privatization of the ISOs in the form of corporations with publicly traded shares. Comsat has also stated its belief that, despite this preference, some form of continued intergovernmental involvement may be necessary politically in order to achieve long term restructuring of the ISOs. Both INTELSAT and Inmarsat have recently started down the path of change in order to compete more effectively with, for example, separate satellite systems and planned Big LEO systems. For example, Article 14(d) of the INTELSAT Convention, which governs the determination of whether separate satellite systems will cause significant economic harm to the INTELSAT system, has been liberalized. The economic harm test has been eliminated for all separate satellite systems not interconnected with the public switched telephone network, and for separate satellite systems interconnected with the public switched network, for up to 1,250 circuits. We expect that this Fall INTELSAT will change its economic harm determination so that only separate satellite systems providing over 8,000 interconnected public switched network circuits will require an economic harm determination under Article 14(d). Additionally, INTELSAT management and the INTELSAT Board of Governors recently have taken steps to streamline the INTELSAT decision-making process. INTELSAT formed a Working Group to address the issue of whether INTELSAT should be restructured and if so, in what form. The U.S., through the FCC and the Department of State and the Department of Commerce, has participated in this group on a regular basis. There has also recently been significant activity with respect to Inmarsat. Article 8 of the Inmarsat Agreement which governs the determination of economic harm to the Inmarsat system (and is the Inmarsat equivalent to the INTELSAT Article 14(d)) was liberalized in 1993 to allow automatic approval of all economic harm consultations by separate systems for Inmarsat for a period of approximately two years. Additionally, over the past several months, Inmarsat management and the Inmarsat Council have taken steps to streamline their decision-making processes. To grapple with privatization, Inmarsat has also established a working group in which the U.S., through the FCC, the Departments of State and Commerce, and Comsat, actively participates. As required by statute, the FCC, the Department of Commerce and the Department of State all participate in the instructional process to Comsat in Inmarsat and INTELSAT. This process allows these agencies to advise and instruct Comsat on actions it should or should not take in these international satellite organizations and includes regular meetings between U.S. government staff and Comsat. To formulate a U.S. government position on the privatization and future structure of INTELSAT and Inmarsat, the Department of State, the Department of Commerce and the FCC have formed a fourteen agency task force. As the task force completes its ongoing work, a recommendation on privatization and restructuring will be issued later this year. On July 14, the Department of State hosted a public hearing concerning the potential restructuring of the ISOs. While there was no consensus among the participants on privatization and restructuring, or the timing of such changes, the views expressed will be an important consideration for the inter-agency task force as it formulates its own views. I believe that any restructuring of INTELSAT and Inmarsat should rely on the GII principles and promote effective competition; promote operational efficiency to respond to an emerging competitive market; encourage the ISOs to meet consumer needs with reasonable rates; promote universal service; ensure open and nondiscriminatory ownership of the ISOs; provide maritime safety and distress services; satisfy national security requirements; and ensure the peaceful use of outer space. We believe that reliance on these goals will assist the United States in fostering a competitive domestic and international satellite services industry, without allowing any unfair advantages to flow to any particular entity. These goals will also benefit developing nations by ensuring that satellite services remain available to them. The U.S. government has been considering several models that a privatized INTELSAT or Inmarsat could take. These range from divestiture of the organizations, similar to the approach taken with AT&T in the 1980s, to creating corporate entities with publicly traded shares, to retaining some form of intergovernmental involvement in the privatized entities. However, the FCC believes that whatever structure is ultimately developed for the ISOs, there will be a need for a transitional phase if any major restructuring occurs. There are several possible options during the transition period. The United States could, for example, permit competitive and/or direct access to the INTELSAT or Inmarsat space segment by entities other than Comsat. However, no decision has been made regarding these transitional or final structure issues. If the ISOs are restructured and privatized: a) Comsat's special status as a statutory monopoly for INTELSAT and Inmarsat service will likely need to be revisited (which would require amendments to the Communications Act); b) a restructured INTELSAT or Inmarsat should permit ownership by U.S. companies other than Comsat; c) Comsat should be entitled to the full value of its investment in the restructured organizations under any scenario; and d) direct access in the United States to the space segment should be permitted, allowing U.S. carriers and users to go directly to INTELSAT and Inmarsat to obtain satellite services. Taking these steps, I believe, Mr. Chairman, will help to ensure a competitive satellite marketplace domestically and internationally and will foster incentives for lower rates to U.S. consumers. VIII. Conclusion Mr. Chairman, Arthur C. Clarke, the man who first proposed the concept of the geostationary orbit satellite, said, "I believe that communication satellites can unite mankind." Satellites are a critical part of the information highways that, in the words of Vice-President Gore, "will allow us to share information, to connect, and to communicate as a global community. From these connections we will derive robust and sustainable economic progress, strong democracies, better solutions to global and local environmental challenges, improved healthcare, and - ultimately - a greater sense of shared stewardship of our small planet." I believe that these connections will be fostered through a competitive and innovative satellite telecommunications industry, with the U.S. continuing to play a leading role.