ANTITRUST PROBLEMS OF THE SPACE SATELLITE

COMMUNICATIONS SYSTEM

THURSDAY, APRIL 5, 1962

U.S. SENATE,

SUBCOMMITTEE ON ANTITRUST AND MONOPOLY OF THE

COMMITTEE ON THE JUDICIARY,

Washington, D.C. The subcommittee met, pursuant to recess, at 9:30 a.m., in room 235, Old Senate Office Building, Senator Estes Kefauver presiding. Present: Senators Kefauver (chairman) and Dirksen.

Also present: Bernard Fensterwald, Jr., staff director; Peter N. Chumbris, counsel for the minority; James E. Bailey, counsel for the minority; Ronald D. Raitt, counsel for the minority; Herman Schwartz, assistant counsel; Cecil Mackey, assistant counsel; Robert M. Hausman, assistant counsel; Paul S. Green, editorial director; and Gladys E. Montier, clerk.

Senator KEFAUVER. The committee will come to order.

We are delighted to have with us this morning the Honorable William Fitts Ryan, a Representative in Congress from the 20th District of New York.

Congressman Ryan is the author of the bill H.R. 9907 which was the first bill filed in connection with control of the communications satellite system on the principle of public ownership of the corporation. He has given the matter a great deal of study.

We certainly do appreciate your coming to testify before our committee. We are glad to have your statement. You may proceed.

STATEMENT OF HON. WILLIAM FITTS RYAN, A REPRESENTATIVE IN CONGRESS FROM THE 20TH CONGRESSIONAL DISTRICT OF NEW YORK

Representative RYAN. Mr. Chairman, I appreciate the opportunity to appear before your distinguished committee and to discuss a matter which has been of deep concern to me. During the spring of last year when officials of NASA testified before the House Science and Astronautics Committee, I seemed to sense that there was a deep policy question involved which seemed to be overlooked by the officials in the Government in their rush to keep up in the race for space. Since that time, I think that more and more attention has been paid to this. And I want to congratulate you, Senator Kefauver, for the leadership you have shown in bringing to public attention some of the crucial issues which I believe are involved.

The spectacular developments

Senator KEFAUVER. Congressman Ryan, you are a member of the Space Committee of the House, are you not?

Representative RYAN. Yes, sir.

Senator KEFAUVER. And I believe Congressman Miller of California is the chairman?

Representative RYAN. He is.

Senator KEFAUVER. I have read most of the very fine staff report adopted by the committee, which I think is the most succinct discussion of the problem I have seen. The recommendations are particularly interesting.

Go right ahead, sir.

Representative RYAN. The spectacular developments in space research and technology present us with breathtaking possibilities in communications, navigation, and weather forecasting. We are now at a point where operable communications and meteorological satellite systems are within reach.

A workable communications system is possible only because of vast expenditures of taxpayer dollars on Government-financed space research. The value of this expenditure is incalculable, for we cannot know the maximum revenues which this investment will make possible-we can only know that they will be huge. The benefits to be derived from these research billions should not be turned over to a private monopoly which will (1) be dominated by A.T. & T., the greatest monopoly in our Nation today; (2) be immune to any meaningful regulation; (3) increase concentration and facilitate conduct inconsistent with our antitrust laws; and (4) be inevitably inclined to lag in further research and development in order to preserve present huge investments in existing and contemplated facilities.

We must retain a flexibility of organization which will permit us to enter into international arrangements in the best interests of the United States and of the entire world; indeed, the recent correspondence between President Kennedy and Premier Khrushchev raises the possibility that cooperation with the Soviet Union in space matters may be feasible. I do not believe we want a private monopoly to handle or influence such negotiations on cooperation in space.

I favor retention of the satellite communications system in the hands of the Government where it can be most effectively utilized on behalf of all the people whose tax dollars have made it possible, and on January 25, 1962, as you pointed out, Mr. Chairman, I introduced H.R. 9907 to accomplish this by establishing a Communication Satellite Authority.

This bill is similar to the Senate bill which you and others, Senator Kefauver, are sponsoring in the Senate.

If we set up the private system contemplated by the so-called compromise, or of any other type, we shall be handing over to a private monopoly a part of our natural resources whose value we cannot even yet estimate.

The single most important fact in this whole question is this: any system of private ownership will be a private monopoly, not free enterprise, for such a system will lack the single most important element of free enterprise-competition. There will be no competition because we cannot afford, either technically or economically, to have more than one commercial satellite system. This corporation

will, therefore, be a governmentally created private monopoly, contrary to all our traditions, and the exact antithesis of free enterprise. The organization proposed by the administration, Kerr, and compromise bills will not only be a private monopoly-it will be a monopoly itself dominated by the most powerful monopoly in America today, A.T. & T.

This dominance will result from at least three factors:

First, A.T. & T. will put up most of the money. At the ad hoc carrier committee, which included all the major carriers but the General Telephone & Electronic Corp., A.T. & T. indicated a willingness to put up more than 80 percent of the then contemplated financing$65 million. Under the proposed compromise plan, A.T. & T. will have the right to buy all the stock it can, up to 50 percent of the total. In light of the ad hoc committee estimates, A.T. & T. will probably own at least 40 percent of the total stock. Indeed, the administration's own spokesman, Assistant Attorney General Katzenbach, has conceded that A.T. & T. is likely to take 35 percent.

Secondly, many other carriers such as Western Union, RCA, and others are currently dependent on A.T. & T. for oversea and other long distance cables. These carriers are hardly likely to oppose A.T. & T.'s wishes.

Thirdly, A.T. & T. will be by far the largest commercial user. Thus, it will be responsible for much of the corporation's revenues, and by threatening to withhold use, it can force the private company to charge higher rates in order to survive. A Government-owned corporation will not have this survival problem.

Limitation of directors is an illusory safeguard, as both Western Union and the Department of Justice pointed out in testimony before the Senate Space Committee. Assistant Attorney General Katzenbach pointed out that the size of A.T. & T.'s financial interest was sufficient to insure its dominance, even without any directors-hearings before Senate Space Committee, 726, March 7, 1962. Judge Loevinger has concurred as has Western Union-hearings before the Long Committee, 576, November 8, 1961.

A.T. & T.'s anticipated huge financial interest, its high usage, the present dependence by others on its facilities, its truly colossal size and enormous power beside which every other potential investor is dwarfed all these factors will inevitably join to make A.T. & T. the dominant force, despite all the Administrator's professed concern that this should not happen.

The fact that we have a good telephone service in this country does not mean we are safe in relying on a monopoly. In the first place, since we have never had competition in telephone service, no one can say that the monopoly we have is better than anything a more competitive system could provide. Secondly, A.T. & T. takes its tribute in high rates our local phone bills continue to climb and on international calls there has been no decline in rates for a New York-toLondon call since 1946, despite a great increase in traffic and great advances in technology. Congressman Celler's extensive hearings some years ago demonstrate overwhelmingly how much less than benign this monopoly is.

Finally, comparisons between American and foreign telephone service are inappropriate for one good reason: our communications system

did not suffer total destruction during the last war. Instead, great new technologies were developed here and the vast amount of telephone traffic in this rich country has provided the revenues for investing in improvements. Europe has had to rebuild anew from a shattered base and with far less use and revenue.

It seems to me, Mr. Chairman, that the proposed satellite communications system offers us a magnificent opportunity to reduce concentration and to encourage competition.

In the first place, Government ownership will insure equitable access to all, which will relieve all other carriers from dependence on the facilities of A.T. & T.

Secondly, it will reduce concentration in long-line and cable facilities. At present, A.T. & T. owns most of these facilities. An independent satellite corporation, governmentally owned, would bring competing facilities into the picture, perhaps lowering rates and improving service.

Thirdly, it will offer a vast new market for small manufacturers who, up to now, have been frozen out of the telephone and communications equipment business by A.T. & T. Only Government ownership offers a real opportunity for such equipment manufacturers for, as I shall show later, the proposed system of private ownership will only help those who can afford to buy a substantial block of stock.

The administration relies on wide ownership as the panacea. Such reliance betrays a shocking ignorance of the facts of American corporate life-the wider the ownership, the smaller the amount necessary for control and the easier it is for a tightly concentrated bloc to dominate a corporation.

Moreover, even some of the bigger shareholders will not be inclined to oppose A.T. & T. With the latter's 35- to 40-percent investment, and with no other company being able to buy more than 10 percent, who will oppose A.T. & T.'s wishes, especially when further financing is necessary? Who will play David? It will be far wiser for the other investors to join A.T. & T. rather than fight it.

But the problems do not stop with the communications industry. This corporation will be buying equipment in enormous amounts. Most of the prospective investors are in the equipment business, either directly or through affiliates. As a matter of fact, of the communications carriers themselves, I.T. & T. and RCA are primarily manufacturers: 60 percent of General Tel's revenues are from equipment; and A.T. & T. itself has a huge equipment subsidiary, Western Electric; from which it buys its telephone equipment.

Only Western Union is not in the hardware business. On the basis of past experience and normal human tendencies, these carrier-manufacturers will almost certainly try to favor themselves or their affiliates in procurement. For example, A.T. & T. buys all of its telephone equipment from and through Western Electric. It is for this reason that General Electric and other purely equipment manufacturers have sought access to the "club" of investors, so as not to be frozen out.

Wider ownership will not eliminate this problem, as Chairman Minow noted when he said before the Committee on Interstate and Foreign Commerce of the House, on March 14, 1962:

The danger of such abuses is also inherent in unrestricted ownership.