do you have any doubts that there will be substantial savings of an order greater than those you analyzed in connection with the I.T. & T. Worldcom proposal?

Mr. ENDE. They would be very substantial.

Mr. DAHLIN. Would there be at least million-dollar savings to the Government, coming out of this kind of a rate structure?

Mr. ENDE. I would say, if I could just check on the number of circuits--we do not have the breakdown of the carriers by points—but knowing the growth of facilities in the Pacific, the 30 circuits by themselves result in a net saving on the order of $400,000; many of these other points do not have an offsetting potential for a lower price by Comsat so that the saving to the Government is a pure saving.

In other words, Hawaii-Guam, if you go from $19,000 to $13,000, the Government saves $72,000 per year per circuit and there is no offset, because there is no proposal for a satellite circuit in the offing. This proposal here should have the effect of at least doubling or possibly tripling the savings in this area alone.

Mr. DAHLIN. Will you be able to get a listing of the Government circuits to which this applies?

Mr. ENDE. Yes, sir.

Mr. DAHLIN. And will you be able to assume in your presentation that they would apply to all the carriers and therefore all the circuits? Mr. ENDE. Yes, sir.

Mr. DAHLIN. What is the issue with respect to the difference between the $8,000 rate quoted by Western Union with respect to the three points in the DCA 30-circuit contract and the $7,100 proposed by I.T. & T.? Is that taken account of or can you take account of that in your estimate you are making up?

Mr. ENDE. We follow the basic rule, which is true, that the lowest charge proposed by any competing carrier is the highest charge any other carrier can make. In other words, if Western Union files

a rate of $8,000 and I.T. & T. has $7,100 rate, I would be very amazed if DCA chose to pay $8,000 instead of $7,100.

I think Western Union is aware of this. They actually state, as pointed out by one of the staff in their petition on page 16

However, WUI will meet the $7,100 competitive rate proposed by I.T. & T. for DCA.

I think what Western Union was trying to do here was to give a logical presentation of an entire Pacific rate pattern. You see, I.T. & T. just proposed rates for three points and did not make any proposals to reduce the other rates.

Mr. ROBACK. They held themselves open though; that is, they indicated they were willing to do that, is that not right?

Mr. ENDE. That is exactly right. What Western Union said is: If we have a $7,100 Hawaiian-Philippine rate, what sort of rate can we propose for Hawaii-Guam where we have a long and expensive cable and we have no opportunity to composite with satellite? We could not very well have a Hawaii-Philippine rate which is lower than a Hawaii-Guam rate for a much shorter distance.

So I think they compromised in this situation by suggesting in essence a one-half $6,500 monthly charge for one-half circuit HawaiiGuam and a higher charge of $8,000 for the Hawaii-Philippines. This

was their attempt to present a logical picture, and recognizing the competitive facts of life they went on to say:

Of course, if anybody underbids us, we will meet that underbidding.

Mr. DAHLIN. Will you prepare your estimate to show the savings you would estimate to the Government from this composite rate approach, with the Western Union, with the inclusion of the I.T. & T. proposed rates, and your estimate of how this would apply if it were applied on both halves of cable circuits; can you do that?

Mr. ENDE. We will be glad to. We will show it for the one-half, and for the foreigners. I will just say that, if the foreigners do meet it, there will be an additional amount of savings for each point as they meet it.

(The following information was furnished for the record:)

FEDERAL COMMUNICATIONS COMMISSION,
Washington, D.C., September 22, 1966.

Hon. CHET HOLIFIELD,

House of Representatives,
Washington, D.C.

DEAR CONGRESSMAN HOLIFIELD: At page 2385 of the transcript of the hearings before The Military Operations Subcommittee of The Government Operations Committee on September 14, 1966, Mr. Asher H. Ende was asked to prepare for the record an estimate of the savings which should enure to the United States Government if it were to take service from the terrestrial carriers to meet its requirements for 30 satellite circuits between Hawaii, on the one hand, and Japan, Philippines and Thailand, on the other, at their proposed composite rates for voice-grade cable and satellite circuits, rather than from Comsat at its proposed rates and cable circuits from the other carriers at the rates scheduled to become effective October 1, 1966.

I am pleased to furnish your Committee the attached table showing such estimated savings to the United States Government.

As indicated in the left section of the table, the U.S. Government, on September 1, 1966 had under lease 118 voice-grade cable circuits in the Pacific area. On these circuits, the total annual billings to the Government would be reduced by about $2.5 million if the lower rates of the U.S. carriers become effective, as now scheduled, on October 1, 1966. Additional annual savings of some $216,000 may also be expected if foreign administrations were to adopt the U.S. carriers' lower rates, resulting in total possible annual savings of some $2.7 million.

As shown in the right section of the table, under the lowest composite rates for both cable and satellite circuits as proposed by the U.S. carries in recent filings for authority to operate circuits via the Pacific satellite, the Government may be expected to enjoy annual savings of some $4.9 million, in addition to the above described savings from the scheduled October 1, 1966 reductions ($4.3 million from Western Union International, Inc. proposed rates and $.6 million from certain lower rates proposed by ITT World Communications, Inc. and RCA Communications, Inc.) on its present 118 cable circuits, and the 30 satellite circuits under order. Further annual savings of some $4.6 million may also be expected if foreign administrations were to adopt the U.S. carriers' lowest composite rates resulting in total possible annual savings of some $9.5 million.

It is to be noted that the composite rates for voice-grade channels will apply to all customers, government and commercial. In addition, the proposed composite voice-grade circuit rates should also result in further reductions of the October 1, 1966 rates for teleprinter circuits in the Pacific area. Normally these teleprinter services are priced at about forty percent of the voice-grade services. We are presently gathering information in order to compute the savings to both the government and commercial users for the expected lower teleprinter circuit rates and for commercial voice-grade users. I should point out that the leasing of voice-grade circuits by users other than the U.S. Government has been limited; therefore the dollar savings will be minor. I expect to furnish you with this additional information shortly.

If you have any questions concerning the attached table, please let me know.

Sincerely yours,

BERNARD STRASSBURG, Chief, Common Carrier Bureau.

Savings from Oct. 1, 1966, rates

(2)

(5)

(6)

Total monthly billing to U.S. Government for cable circuits at through rates effective Oct. 1, 1966 3.

$2,451, 000 2,243,000

1 Count of circuits as at Sept. 1, 1966, obtained from U.S. overseas carriers. 2 Applicable to Hawaii/Japan; Hawaii/Australia and Guam/Japan circuits.

3 Monthly through (terminal-to-terminal) rates used herein for cable circuits are as follows (where the rate for the foreign and is not quoted by the U.S. carriers, it has been assumed that it is equal to the present United States end):

$9,800.00
16,000.00
*10, 500. 00
13,000.00
*8,000.00
*4,900.00

U.S. CARRIERS' MONTHLY TERMINAL RATES ONLY

The 30 satellite circuits contracted for by DCA are 10 circuits, Hawaii/Japan; 10
circuits Hawaii/Philippines: and 10 circuits, Hawaii/Thailand. Such circuits are prices
at proposed rate of $4,000 per month for COMSAT plus the assumed current cable rates
per month for each foreign end including the Philippines. Since there is no cable service
with Thailand, a rate equal to that for Philippines has been used in the computations.
5 Absent information as to the position foreign administrations might take as to com-
posite rates, the through rates used for the WUI proposal are composed of its proposed
composite rates shown in footnote 3 plus a rate for the foreign end equal to the U.S. car-
riers' present terminal rates for Japan, Australia, and Thailand, and 1⁄2 of the Oct. 1
through rates for the Philippines.

6 This amount of $49,000 represents further savings of $900 per circuit (WUI's composite
rate of $8,000 versus ITT's and RCAC's of $7,100) for 55 circuits (10 cable and 10 satellite,
Hawaii/Japan; 15 cable and 10 satellite, Hawaii/Philippines; and 10 satellite, Hawaii/
Thailand).

7 This amount represents additional savings on the assumption that the foreign admin-
istrations may reduce their current rates for both cable and satellite circuits to the lower
levels proposed by WUI shown in footnote 3 and ITT and RCAC shown in footnote 5.

*Proposed rates to the Philippines which are now tariffed on a terminal-to

terminal basis are shown above for the WUI terminal share only. It is not known at this time whether the Philippine terminal share will change.

**No change.

Estimated savings to the U.S. Government from offering of voice-grade cable and satellite circuits at composite rates proposed by Western Union International, Inc., for Pacific area by circuits

408, 440.00

100

202, 270 142, 954 45, 600 78, 883. 00 2,371, 961

(4) Monthly through rates for cable
circuits to become effective
Oct. 1, 1966.

(5) Total monthly billing for cable
circuits (line 1 times line 4).

(6) Proposed monthly through rates
of Comsat for satellite circuits 2.
(7) Total monthly billing for satellite
circuits (line 2 times line 6).

(8) Combined total monthly billing
for cable and satellite circuits
(line 5 plus line 7)

(9) Proposed composite

through rate of WUI 3.

(10) Total monthly billing under WUI
Tcomposite rates for cable and
satellite circuits (line 3 times
line 9)-