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we have had similar results in Latin-American countries where we have old, long-term international franchises, and have substantial investment which would be imperiled by Government ownership. In this connection we have been informed repeatedly that your represetatives have indicated availability of IADB and AID financing to governments where private companies have offered to install ground stations to upgrade their present communication facilities. Mr. Price told Mr. Aibel that Embassy reports on the Comsat visit to the Philippines disclosed that Comsat representatives suggested that funding for earth stations could possibly be secured from AID. I think you should be aware, if you are not already aware, that it is contrary to U.S. Government policy for either AID or the IADB to loan money where private capital is available as it has been in each of the cases where American carriers are now operating abroad.

Then, in Mr. Aibel's letter to Mr. Throop, I would like to read this into the record, part of it, since it is, I think, quite important:

The impact of Comsat's activities has been greater than otherwise would have been the case if Comsat were a more conventional commercial enterprise. Since Comsat's representatives may call on foreign governments as an instrumentality of the Government of the United States in connection with participation by those foreign governments in Intelsat, Comsat's representatives appear to be cloaked with a special status. It has appeared to us that, at the very least, the limitation of the official mission of Comsat's representatives has not been made clear to many foreign governments, with the result that conversations which go beyond participation in the space segment consortium appear to be similarly suggestions of the U.S. Government. In such a context, discussion of the possibility of government ownership of ground stations takes on special significance to a foreign government. We believe that Comsat has a special duty to avoid even the appearance that the U.S. Government or Comsat encourages government ownership and, in fact, should promote the abiilty of American-owned companies to continue to serve in those lands.

We have suggested that the interests of all would be served if in those instances where American-owned companies are franchised carriers serving the country, representatives of those companies were invited to participate in Comsat's meetings with the governments in those lands. Since this suggestion has been rejected, we have no direct knowledge of what has been said by Comsat's representatives at those meetings.

However, we have received reports from time to time that suggestions have been made by Comsat's representatives which, in these circumstances, make it appear that Comsat actively promotes such Government ownership in derogation of the existing carriers' position. For instance, we have been told that it has been suggested that AID funds or International Bank financing might be available to fund a governmentally owned station, and that two governments were offered the use of transportable earth stations owned by Comsat for use prior to completion of construction of permanent facilities owned by the governments.

As I said earlier, we have no direct knowledge of what was said; however, we do know from direct experience that the effects of Comsat's visits has been to delay us in our efforts to install ground stations.

Our protests and complaints have been met by your associates with vehement denials that they have in any way encouraged government-ownership and operation of international telecommunication facilities in preference to ownership by private entities. It was therefore with surprise and dismay that I read a copy of a letter recently forwarded to me which purports to be from Mr. John T. Griffith, Pacific-Asia supervisor, Communications Satellite Corp., which is addressed to Mr. Filesion Rodriquez, Chairman, National Economic Council, Republic of he Philippines, Manila. In his letter Mr. Griffith states the following:

“The (Comsat) team will have to reach an understanding with your entitythe Public Works and Communications Department-for the charges that will accrue from providing service commencing in 1967 to our customer, the U.S. Government, through a Philippine earth station using the Pacific Intelsat satellite. The understanding would cover revenues mutually agreed upon for the

years 1967, 1968, and 1969, to the Philippine earth station for the level of channels which I described to you in our earlier conversations. This understanding will then be used in Comsat negotiations with our customer, the U.S. Government, for a contract for these"

And then there is something illegible in the letter.

“Subsequent to this contract execution, Comsat will execute a formal contract with your Philippine Government entity, preserving the features contained in our memorandum of understanding, which we hope to arrive at by March 5, 1966."

As noted in the excerpt set forth above, communications services sought by Comsat from the Philippine Government are to be provided by the U.S. Government.

As, perhaps you know, the Public Works and Communications Department of the Philippines is not, and has not been engaged in the providing of international telecommunications services to and from the Philippines. Such services are currently provided by an ITT company, by RCA communications and by the Philippines Long Distance Telephone Co., a company affiliated with the General Telephone System. It therefore certainly is extraordinary that Comsat would be seeking a quotation from a Philippine Government entity not presently engaged in rendering such services in preference to the American companies currently providing such services.

Mr. Throop replied—I will just read his last paragraph:

Your letter repeats at length a point of view which has been previously expressed with respect to the nature of our activities abroad, and continues to reflect a substantial misunderstanding on the part of ITT as to such activities. In view of the repeated explanation of the approach which has been taken by Comsat representatives abroad in encouraging satellite communication, I see no point in further discussion of this subject by letter.

After the issuance of the Commission's "authorized user" decision, DCA awarded a communications service authorization to Comsat for the 30 circuits. Although DCA took that action on July 16, 1966, Comsat filed with the Commission its application for authority to provide the service only last Tuesday, a span of 6 weeks. This, I must note, was despite the tremendous element of urgency which both DCA and Comsat had insisted was a part of this project. Frequent references have been made before the Committee to the assignability feature of the DCA/Comsat agreement but as of today and despite oral and written requests the contract has not been made available to the

general public service carriers to determine whether assignability, in fact, it a potential.

As a matter of fact, Mr. Chairman, I have another letter dated September 6, which I would like to insert for the record. This is from DCA to our vice president in Washington, and I will read the last paragraph:

Your further conclusion

This is in connection with our request for obtaining informationthat you are unable to respond to the FCC and to Congress as to whether you understand and accept the conditions of the CSA, is also noted. Since the Government is not at this time considering an assignment of the OSA, your concern as to whether you understand or accept the conditions of the CSA is premature. It would appear, therefore, that your response to the FCC and the Congress, should you be asked, would be to this effect. Further, it should be noted that the FCC and the Congress have a copy of the CSA and therefore are already aware of its terms and conditions.

Mr. HOLIFIELD. Without objection, the entire letter will be accepted in the record. Mr. TOWER. Thank you, sir.

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Mr. HORTON. Mr. Chairman, could I ask the date of that letter!
Mr. TOWER. September 6.
Mr. HORTON. Of?
Mr. TOWER. 1966.
Mr. HORTON. Who is that from and to whom?

Mr. Tower. It is from the Defense Communications Agency to our vice president, Mr. Joe Gancie in Washington, ITT Worldcom.

Mr. HORTON. Is there a copy of that in here? Mr. TOWER. Yes, sir. Mr. HOLIFIELD. Proceed. Mr. Tower. Our company is qualified to, prepared to, and has applied for the privilege of providing DCA's requirement for 30 chanels in the Pacific satellite system. Mr. Chairman, we filed this application on August 24 without yet having seen the contract which we might have to accept. Comsat filed theirs on September 8.

We have proposed a composite rate structure designed to apply to existing circuits the benefits of lower cost satellite channels as they become available so overall circuit rates can be achieved.

By “composite" we mean a rate structure which permits the continuation of current communications modes and which recognizes that total communications costs must be supported by the total communications revenue from high-frequency radio, cables, satellites, and planned or proposed laser and high-capacity cable systems.

There is little doubt that the maintenance of satellite circuits only would provide lower costs to the military. But, the establishment of such a cost basis would lose for the military the alternate routes, the flexibility, the security, and the assurance of uninterrupted service which they require and which are provided by this diversification of media. The carriers are capable of furnishing to all users this diversified capability. Comsat cannot do the same job.

The importance of the public service international carriers and their facilities in the national interest and the rationale of a rate basis premised on the maintenance and use of all existing media of communications was the subject of a recent letter from Mr. Westfall of ITT to General O'Connell. I ask that that letter be made a part of this record.

Mr. HOLIFIELD. Without objection, the various letters will be received.

Mr. TOWER. That letter is dated July 13, and refers to conversations which were held at that time or on or about that time by General O'Connell with various officials of the communications carriers.

Mr. HOLIFIELD. In order to facilitate the acceptance of these letters, if they are contained with your presentation, why, we will accept them all.

Mr. TOWER. Thank you, sir.
Mr. HOLIFIELD. If you have different letters, please specify.

Mr. TOWER. All the letters I have referred to are attached to your copies.

(The letters referred to appear at the end of Mr. Tower's testimony.)
Mr. HOLIFIELD. Yes, because they are all pertinent to the issue.
Mr. TOWER. I would just like to quote a couple of things here.
In recalling the conversations, Mr. Westfall said:
As I recall it, these in summary were

And I will read a couple of these

1. that the skills, facilities, experience and oversea operating arrangements possessed by the public service international carriers are a national resource of great importance in peace, but especially in times of emergency;

2. that every effort should be made to integrate communication services via satellite with the existing systems and facilities so as to maintain the ability of those carriers to continue to serve not only governmental needs, but also those of the general public, at reasonable rates.

Just a little further along, Mr. Westfall is saying to General O'Connell:

As a communications executive of long experience, you accepted without reservation the concept that it is impossible to maintain a communications system of different media if rates for the same services over the different media varied.

A composite rate averaging the differing costs of available facilities is the way in which communications entities the world over have passed on to users the benefits of new technology while at the same time protecting investments previously made in facilities needed to serve the public needs. For instance, you agreed that it would be an impossible situation if there were one rate for a telephone call from Washington, D.C., to Los Angeles if the call went over microwave, and another rate if it went via a coaxial cable.

Recognizing these facts, it is impossible to accept the proposition advanced by the Department of Defense to you that they can obtain lower cost communications facilities by doing business directly with Comsat. This ignores the funda-mental principle that the total communications facilities must be supported by the total revenues.

We realize, of course, that the determination of reasonable rates is a function which has been specifically delegated by Congress to the FCC, but, in view of the impact of such rates on DOD it is also a matter of concern to this committee.

The composite rate structure we have proposed is designed to answer the fundamental question as to how to maintain the usefulness of existing facilities and capabilities, while at the same time taking full advantage of the economic and technical benefits offered by the satellite media. Such a rate structure will permit the coexistence of the alternate type of communications facilities.

General O'Connell pointed out that in the past, rate structures have found a level even though various media were used. Creation of a satellite system does not change the philosophy of that approach.

Mr. Westfall's letter to General O'Connell was occasioned by General O'Connell's letter to Chairman Hyde of the FCC uging the Commission to reconsider its announced determination in the authorized user" proceeding. Since then the General Services Administration and Consat have formally requested reconsideration of that decision based on the theory that the determination of direct use of Comsat services was a matter to be decided exclusively by the executive branch of the Government.

We have not yet replied to those requests for reconsideration but it is our opinion and we will advise the Commission this week that the position is not supportable either in law or in equity. My company maintains that the Commission's jurisdiction over Comsat is the same as it is with respect to the general public service carriers and that, except where specifically negated by the Satellite Act, jurisdiction over Comsat is controlled by the Communications Act.

The Communications Act has the express purpose of providing for "regulation of interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States, the rapid, efficient, nationwide and worldwide wire and radio communication service with adequate facilities at reasonable charges, for the purpose of the national defense * * *."

It is inconcoivable that Congress would have established a different regulatory concept to govern the relationships between the U.S. Government and Comsat on one hand and the U.S. Government and the general public service carriers on the other.

RECOMMENDATIONS

The committee has inquired, also, into recommendations for organizational changes in the industry to provide more efficient and economical communication services to the Government.

As the committee is aware, an intragovernmental committee has been studying the communications field for some time and has recently submitted recommendations to the Senate Commerce Committee looking toward a merger or mergers of communications carriers. Although we have not yet seen a proposed bill, we are entirely in accord with the principle of permissive merger legislation. The need for such action has been accentuated by the development of satellite communications. We believe that the enactment of such legislation and a resulting change in the structure of the industry would provide more efficient and economic communications services. Lacking detailed information on the specific proposal which will be made, we cannot now indicate our recommendations.

In the meantime, the establishment of the principle of a “composite rate” will permit the maintenance of diversified media and make it possible to provide to the U.S. Government the alternative routes, flexibility, security, and the assurance of uninterrupted capacity which it requires at reasonable cost. We believe that with Comsat's position being maintained as that of a common carriers' common carrier such a rate structure can sustain both the general public service carriers and Comsat in a viable condition and permit maximum efficiency and economy in the provision of communications services to the Government as well as to all users.

We wish to thank this committee, again, for the opportunity it has afforded us to express our views with respect to the highly volatile communications industry; although it has many problems, the industry is certainly a vital national asset.

Mr. HOLIFIELD. Thank you, Mr. Tower, for your presentation and your letters that you have appended thereto.

Mr. Horton, do you have any questions?

Mr. HORTON. Mr. Chairman, I do not have any questions. I just want to thank Mr. Tower for the succinct and well-organized presentation of the problems. I have been familiar with the problems throughout these hearings, and I think that this statement points up what has been brought out as a result of these hearings.

I think it is a very serious problem that concerns not only the national defense but also the future of these private companies, as such, and I certainly hope that in the consideration by this committee we will be able to take these factors into consideration when we come out with our recommendations.

Mr. HOLIFIELD. Thank you, Mr. Horton.

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