(11) Monthly savings under WUI's composite rates (line 8 minus line 10). Annual savings subtotal (line 11 Additional monthly sav- (14) Additional monthly savings (line (15) Total possible monthly savings Annual rate of total savings (line 1 Count of circuits as at Sept. 1, 1966, obtained from U.S. overseas carriers. 2 The through rates are a combination of the proposed rate of $4,000 per month for 3 Absent information as to the position foreign administrations might take as to com- FEDERAL COMMUNICATIONS COMMISSION, Hon. CHET HOLIFIELD, House of Representatives, DEAR CONGRESSMAN HOLIFIELD: In the penultimate paragraph of my letter of September 22. 1966, concerning the estimated savings which the U.S. Government may realize were it to take service from the terrestrial carriers to meet its requirements for 30 satellite circuits in the Pacific, I advised that we would furnish you estimates of the possible savings on circuits leased by the U.S. Government in the Pacific for use for other than voice or voice/data and the approximate possible savings to users other than the U.S. Government. This information is now available, and I am pleased to set it out below. Although the carriers' filings with the Commission in which the composite rates for voice-grade circuits were proposed did not contain any reference to lower rates for teleprinter circuits, it would appear that the rates for such circuits (currently priced at between 25% and 40% of voice-grade circuits) should proportionately decline along with rate for voice-grade circuits. Thus, based on 20 leases (one 1200-band data and 19 teleprinter of various speeds) which the U.S. Government had in effect on December 31, 1965, (the latest readily available count) it is estimated that the annual billings to the U.S. Government therefor should decline some $360,000 from the institution of a lower composite rate by the U.S. carriers, as compared with the rates filed to become effective October 1, 1966. These savings should increase by about $140,000 if foreign administrations were to adopt the U.S. carriers' composite lower rates, resulting in possible total annual saving of some $500,000. Since the composite rate pattern for the Pacific area would also apply to users other than the U.S. Government, such users should enjoy lower costs for their leased circuit needs of some $600,000, annually, based on 46 circuits (2 voice/data and 44 teleprinter of various speeds) leased from the U.S. carriers as at December 31, 1965, (the latest readily available count) as compared with the costs under the rates filed to become effective October 1, 1966. Further annual savings of some $400,000 may also be expected if foreign administrations were to adopt the U.S. carriers' lower composite rates resulting in total possible annual savings of about $1 million. Thus, under the composite rate approach the total possible savings to both government and non-government for voice, data and teleprinter circuits in the Pacific area could amount to over $11 million annually. Sincerely yours, BERNARD STRASSBURG, Chief, Common Carrier Bureau. Mr. ROBACK. What is the timing on this? Do you have some cutoff date on submissions? Do you have to make some kind of a finding now? Mr. ENDE. Yes, we have-I think the cutoff date on the I.T. & T. one is coming very shortly. The cutoff date on this one, of course, is going to be some time in the future because it was not filed until a couple of hours ago. Mr. ROBACK. If the DCA saw fit to exercise an assignment clause in line with rates, it would have to wait for a determination, would it? Mr. ENDE. Well, I have grave doubts that there would be any delay on that because this application here, unless something appears that we have not seen, is for a service which is a normal function of a carrier. What they are doing is expanding their normal services to take advantage of satellite facilities, which we have been urging them to do, and if they do not have some kicker in here that might not be in the public interest, or unless their rates are unduly discriminatory somewhere, such applications are and should be granted by the Commission as a matter of course. In other words, a carrier has an obligation to supply services and to equip himself to supply those services. Mr. ROBACK. Competing carriers would not come in and say that is a noncompetitive rate; that is, it is below costs or anything like that. Mr. ENDE. Well, from a quick glance at these rates, they are not below costs. Mr. ROBACK. They are not below costs. They are still profitable to the carriers. Mr. ENDE. I think the carriers will make a reasonable profit on them if they get satellite business. If they just cut rates without getting satellite business, then I think they might be in very serious trouble. Mr. ROBACK. The reduction is substantial nevertheless. Mr. ENDE. Yes, sir. Mr. ROBACK. And is this the first or the second rate reduction within the last 5 years, let us say? Mr. ENDE. We have had Mr. ROBACK. In the Pacific. Mr. ENDE. In the Pacific, Hawaiian-mainland, we have had a series of reductions. The original circuit from Hawaii to the mainland was $25,000. I think it dropped down to $20,000 in the late fifties. A year ago it dropped down to $17,000-a year and a half ago. Now they are proposing $9,800. Now for the other points in the Pacific there have not been any leased line reductions because until the Vietnam situation we were suffering from very serious problems of empty circuits. When you lay a cable, since you cannot dig it up and add facilities to it, you therefore estimate reasonable needs for a foreseeable period consistent with the state of the art and install facilities accordingly. They laid a 128-circuit cable when there was no need for it, but in the last year and a half it filled up, and that was when there was pressure on the carriers for reductions. Mr. DAHLIN. How about telegraph rates? Mr. ENDE. You mean message telegraph rates? Mr. DAHLIN. All kinds. There are several kinds other than straight voice? Mr. ENDE. Well, message telegraph and Telex rates are the two main items. In Telex rates we have not had reductions in the sense of a per minute reduction, but until relatively recently the minimum charge was for 3 minutes and you had to pay $9. When the carriers were able to automate, they reduced the minimum period to 1 minute so that in essence if you do not have 3 minutes worth of Telex message to send, you can buy 1 minute for $3. So this is a reduction to all customers who previously had to buy $9 worth of time whether they needed it or not. Message telegraph has been the most expensive part of the business at all times because that is where the carrier has its highest labor costs. You prepare a telegram, somebody has to handle it. It has to be counted and billed individually and we think we have been very fortunate in being able to maintain those rates for international traffic almost completely stable over the last decade as against what has happened domestically. This has been possible for two reasons-the availability of the lower cost cable facilities, and the growth of the nonmessage services which 67-906-66- 49 increase the ability of the carriers to earn by filling up capacity without having these very high labor costs. Incidentally, I have been using the term "Western Union" here. I, of course, have been referring to Western Union International, the divested company, and not the domestic telegraph company. So telegraph message rates have stayed relatively stable in the face. of very sharply increasing labor costs. The other rates have all been reduced considerably either by the reducing of the Mr. ROBACK. Go ahead. Mr. ENDE (continuing). Reducing the minimum of the unit or the actual costs as in these circuits. Mr. ROBACK. The Defense Department examined some of the costs of installing cables. They figured how many circuits you get and how many voice circuits can be translated into message circuits and the aggregate capacity. Then they figured out what the charge is, what the tariff is, and they came out with estimates that in periods ranging from 6 months to 2 years a carrier can amortize, looking at the capital cost part, can seem to amortize a whole system and therefore they concluded from that there is a vast overcharge in the tariff. Would you agree with that? Mr. ENDE. Well, that depends on the nature of the fill. If you have a 128-circuit cable and you have leased to the Government 6 circuits, it is true that you can amortize those circuits over a relatively short period of time, but if you have 122 that you are carrying empty, that does not apply. Secondly the figures shown by them assume that the cables never break and need no maintenance. I have not seen any allowance there for a rather major problem which we have had, particularly in the Atlantic, and to a lesser extent in the Pacific, of cable maintenance and cable outages. However, there is no doubt that if the cables get full and stay full, the current rates certainly give the carriers much larger earnings than when they are relatively empty. The other problem the Commission must face of course, is a rate structure one; that is, to determine what contribution each category of service shall make to the totality of the requirements of the carrier, and how shall overheads be allocated. It was to do this that we instituted about a year or a year and a half ago an informal cooperative proceeding with the carriers designed to have them allocate for the first time, on a uniform basis among all the carriers, costs which are general to the various services. Our hope was that the next step would be, when we got agreement on this, to apply it to the various services and make such adjustments as would be required. Science and demand ran ahead of us, so that we did not have to await the results of the study. When the cables became full, we recognized that no matter what the studies showed, there was room for reductions. We got the first installment in the October 1 reductions. Mr. ROFACK. You judged from the testimony of General Starbird that the 30-circuit requirement would be in addition to and not in replacement of the cable, any cable service, is that right? Mr. ENDE. That is what I got from his testimony. He was saying, as a matter of fact, that there might be an increased cable demand before April because of the Vietnam situation. Mr. ROBACK. What consequences for a regulatory agency would flow he displaced some cable circuits? Mr. ENDE. That would depend on the magnitude of the displace ent. Mr. ROBACK. That is to say, cable circuits on the assumption that he ould buy satellite services at the rate offered by Comsat. Mr. ENDE. Well, if all 25-cable circuits involved were to be displaced y satellite circuits, this would have a disastrous effect on the carriers. hey would not only lose revenue but they would be carrying idle caacity. They would have 25 circuits that are relatively idle. There night be other fill for them in the current Vietnam situation, but Mr. ROBACK. The problem for the Defense Department would be hether they are looking at this as a saving to the Government on atellite service alone or across-the-board savings even at higher rates o the industry than to Comsat. Mr. ENDE. Higher rates, and, secondly, they do want diversity from ll we have ever understood in the matter, so that if the cable circuits vere to fill with other services and a satellite went dead, the Governnent would face a serious problem. Mr. ROBACK. Mr. Chairman, I think we can close down, in view of he quorum call. We might submit to the Defense Department people in the room the submission by Western Union International and ask them to comment, and we might confer with them at an appropriate time on any of the matters that have come in here as an extension of hese hearings. (The following cost comparison was submitted by the Defense Communications Agency :) Cost comparison of monthly charges for DOD leased voice grade channels in the Pacific cables |