you are going to provide the service and it goes through a carrier, it seems to me insofar as the corporation is concerned, that you are not going to be subject to any punitive action by the corporation.

Dr. CHARYK. I think your premise is unfounded, because I think there is a relationship between the number of satellite circuits that the Government is going to procure and the cost of the circuits; therefore, there is an incentive for us to deal with the Government and an incentive for the Government to deal with us if thereby it can acquire necessary communications circuits at a more favorable price. This turned out to be the case in this instance.

So the total procurement by the Government of satellite circuits is certainly going to be related to the price of these circuits.

Mr. HORTON. Was this an executive decision or did you submit this question as to whether or not you would bid to the board of directors? Dr. CHARYK. The board of directors approved the submission of the proposal.

Mr. HORTON. On the question as to whether you would or would not make the offer?

Dr. CHARYK. Absolutely.

Mr. HORTON. OK.

GOVERNMENT CONTROL OVER COMSAT

Mr. DICKINSON. Let me ask one question.

Mr. Charyk or either of you gentlemen, as a matter of fact, taking Mr. Horton's premise a little further, the Government does have life and death power over your corporation, does it not?

Mr. McCORMACK. Its business also has a very large impact on the economic welfare of all the overseas record carriers in particular, too. Mr. DICKINSON. I understand that, but actually in the final analysis

Mr. McCORMACK. The Government has more controls over Comsat than it has over any other carrier; yes, sir.

MR. DICKINSON. And if the Government did not want you to put up any more satellites you could not put up any more satellites, could you? Mr. McCORMACK. I suppose that is true; yes.

Mr. DICKINSON. You would be pretty well out of business then, would you not? You have only one satellite now. If you did not put up any more you would be pretty well out of business. So, in fact, the U.S. Government does have just about life and death power over your corporation, and you are, I suppose, by virtue of this, very responsive to the wishes of the Government and DOD.

Mr. McCORMACK. I would place the emphasis a little differently, Mr. Dickinson, if I may, and try to respond to a part of Mr. Horton's question at the same time.

Why did the corporation, having gotten to this point, feel it absolutely incumbent upon us to put in the proposal? If the executive branch had only had before it the proposals that the overseas record carriers turned in, it would not have had a choice among prices as low as it finally got.

If, through an example like this and, perhaps, in subsequent ones, the Government were encouraged to move away from commercial communication satellite services and move more strongly toward pro

viding its own services, then I think our public shareholders would have a real case against us. I hope this is responsive.

Mr. DICKINSON. Thank you.

Mr. HOLIFIELD. Mr. Roback.

FCC JURISDICTION OVER COMSAT

Mr. ROBACK. The corporation frequently is identified as having several hats. It is a carrier, a carrier's carrier, a member of Intelsat, and manager for Intelsat.

Now since you have to, as a corporation, perform with these various modes of attire, are you in the position of setting aside, really, the jurisdiction of the Federal Communications Commission whenever you want?

You are dealing with an international entity of some sort, and I might ask first-and perhaps this is a legal question-you have referred to this at one time or another as an international joint venture. Is it also an international organization, and if it is an international organization, does it have the privileges and immunities of an international organization?

Mr. McCORMACK. I believe there has been a tax ruling that the Intelsat accounts are relieved from liability for U.S.Federal income tax. Other than that I think mostly we are waiting around for the definitive arrangements to come in in 1969. But, to take your

Mr. ROBACK. Are you immune from Federal income tax because you are a member of Intelsat?

Mr. McCORMACK. We are not subjected to Federal income tax at the moment mainly because we are not making any money. But, no, we are a completely regulated U.S. corporation subject to all of the laws of the United States. We do not have immunity from the Federal Communications Commission, to answer your lead question.

In our position as manager of Intelsat, the Federal Communications Commission is quite clear on this, they do not intend to regulate Intelsat, but there is a preceding set of circumstances here which have to be taken into account in one of our other sets of garments you have referred to, where we represent the United States in the so-called Interim Communications Satellite Committee, the executive board of Intelsat.

We represent the United States there, and-with a few bobbles in the past we have all been on a learning curve as to how to make this entirely new organization, Comsat, work-we now have a set of prodecures supplied to us formally by the State Department, but having the concurrence of the Federal Communications Commission and Mr O'Connell's office, a set of procedures giving step by step what Com-at does with the U.S. Government to get the proper guidance and instruction before going to the board meetings, the committee meetings of Intelsat.

But when the Intelsat vote is over and, of course, with a majority vote Intelsat cannot act without the United States.

On the other hand, the United States cannot act without a sul stantial number of other votes to go with it. But by whatever way w work out the solution within the Interim Committee when its decisi is made, that becomes an instruction to Comsat, which is not regulate

But we come back to the Federal Communications Commission again, as we close the loop, because Comsat's part of this in due course ends up as rate, tariffs, approval of launch satellites, the concurrence of the National Aeronautics and Space Administration in the Federal Communications Commission action as to the technological validity of the proposal, and so forth. We are always subject to the Federal Communications Commission except specifically that in acting as manager for the consortium carrying out directives in which we have concurred on behalf of the United States, this is not regulated.

COMSAT SUBJECT TO INCOME TAX

Mr. HORTON. Just for clarification, earlier you said that some part of this was not subject to income tax, and then subsequent to that you said that you were not making any money. They are two different situations. Are you or are you not subject to Federal income tax?

Mr. McCORMACK. Comsat is completely subject. I may have had a slip of the tongue. I was talking about Intelsat as such, our partners in Intelsat. Intelsat owns the space segment. The Interim Committee decides on what the charges shall be for that space segment. It decides on the assessment to be put on the member nations, the capital required to buy the satellite, to launch it, to keep it in orbit. This is a financial transaction within Intelsat. This, I believe, has been ruled by the Treasury Department to be not subject to U.S. tax. However, whatever comes out of this for Comsat is. It so happens that it won't be until the next calendar year when Comsat breaks into the black, and then we have our past expenses to pick up. I do not know just when Comsat will have procured enough income to overcome the initial expenses, and to be in a taxable position, but it will not be right away.

STATUS OF INTELSAT

Mr. HORTON. Who owns Intelsat?

Mr. McCORMACK. Intelsat is owned by, at the moment, 53 nations. Approximately 55 percent of the undivided shares in Intelsat rests n Comsat as the U.S. representative, which means we put up 55 percent of the costs of getting the space segment going, and we get 5 percent of the revenues therefrom, and it is this transaction, that s the international transaction, which would not in any normal cirumstances be considered a U.S. taxable operation.

Mr. HORTON. Well, will Intelsat then own all the satellites that ou put up?

Mr. McCORMACK. That pertain to the global system; yes, sir. Mr. HORTON. Do you have some sort of a chargeback or some way of reimbursing the Federal Government for whatever services it renlers in putting up these satellites?

Mr. McCORMACK. Yes, sir. That is in the law. The National Aeroautics and Space Administration is required to launch satellites for s, to come back to Mr. Dickinson's question, but at prices which they et to cover their costs.

Mr. HORTON. Could Intelsat be a bidder on a contract, similar to the ne that you bid on recently, with DCA?

Mr. McCORMACK. Not in the present framework; no, sir.

Mr. HORTON. As Comsat, do you have to depend upon Intelsat for your services and facilities when you submit a bid to DCA?

Mr. McCORMACK. For the use of the space segment. Before that we have to go to the Federal Communications Commission and get authority to apply for an allocation of space utilization units, as they call it.

Then Intelsat, which may have a bit of a rationing problem ahead of it in the course of a year but has not so far, approves at the going rate that is a rate that was set by everybody. One unit of space segment utilization comes to x U.S. dollars per year, so if we go in for 10 more circuits across the Atlantic in Early Bird, having gone through the proper procedures, and having approval to apply, since the circuits were there and available, they would be assigned to us, and we would pay into Intelsat the stated charges for these, and then periodically the finances are readjusted. Up until now, the take has been applied against the assessments on the countries. But in due

course

Mr. HORTON. Is Intelsat a corporation?

Mr. McCORMACK. No, sir. It is an international body set up under a special agreement. What the permanent arrangements will be in 1969 I do not know.

Mr. HORTON. Who controls Intelsat?

Mr. McCORMACK. We have the, the United States has the, majority vote which is control in a negative sense, if you wish, because Intelsat could not act without U.S. acquiescence. But we cannot act on our own vote alone. We have to have 1212 percent of the ownership voting with us on all matters of any significance.

Mr. HORTON. If I am a carrier and I am interested in bidding on a contract being offered by the U.S. Government similar to the one that we have been discussing, what procedure would I use to get these services from Intelsat?

TARIFF AND USER ISSUES

Mr. McCORMACK. Under the international agreements, and here this stems also from the U.S. law, only Comsat can go to Intelsat for the circuits. But I would like to add one thing which may help in clearing up the picture in the future, Mr. Horton, if I may.

A part of the difficulty in the circuits in the Pacific has resulted from the fact that we had to work up a proposed tariff schedule from scratch. We were dealing with satellites that had not yet been launched, we were dealing with traffic forecasts which were not yet firm. There will, in due course, be standard tariffs for all services we have to offer, and one question which has plagued us here will have disappeared.

Mr. HORTON. Well, I am not so sure it will. We will still have Consat controlling, a monopoly, and bidding on Government contracts in competition with domestic carriers who cannot really compete becaus they do not have the facilities. They have to depend on you for their base figure, and they have to make some profit on it.

Mr. McCORMACK. I agree with you. I was dealing with only half of the difficulty in which the carriers at least claim that they did not have information far enough in advance to make a proper bid. That i

the one I said will disappear, and it will disappear rather rapidly as soon as we do have a complete set of tariffs.

The other part, which is the "authorized user" question, as I remarked at the end of my prepared statement, Comsat really looks forward eagerly to the time when this question shall have been settled to the satisfaction of the executive branch and the Federal Communications Commission. This would be a nice new high ground for us.

Mr. HORTON. It looks to me like the carriers are going to be dead ducks. They do not have the facilities and they cannot possibly compete with you on these services. So it seems to me they are either going to have to go into other areas or fields or get out of the business. They cannot compete with you. So you will have a true monopoly when we are all through.

Mr. McCORMACK. I would make this suggestion, Mr. Horton, that the Federal Government, through whatever branch or mechanism it comes to its conclusions as to whether to deal directly with Comsat in a specific situation, surely has in mind and before it all of the Federal Government's interests and obligations to the communications industry generally.

It would not seem logical to me that the Federal Government would, by coming directly to Comsat on so many different sorts of business, destroy the international carriers. We have behind us, we have before us

Mr. HORTON. That is wishful thinking. I mean, you are hoping that is not going to happen.

Mr. McCORMACK. I am expressing confidence in the wisdom of our Government.

Mr. HORTON. But practically, it is beginning to happen already. And the thing that bothers me is, we had hearings in the 88th Congress where we were concerned about the Federal Government providing with Comsat the facilities on a shared basis, and now it seems to me that we have an even worse situation than we looked at there. In essence, whatever the DOD demands are, you can furnish them better competitively than can the carriers.

It seems to me we are just leaving the present carriers out in the cold. Mr. McCORMACK. It is a difficult situation, as I mentioned, perhaps before you came in, and we recognize it is difficult. It is difficult for the Federal Communications Commission.

We in no way envy them the problem presented here.

The basic trouble here is that a new technology has thrust itself on an existing establishment under a law which puts the new technology, at least the satellites, in the hands of an organization created separately from this structure, although we are tied into it with 50 percent carrier ownership, and directors on our board, and so on. At the heart of the present matter is the one point in the law as to whether the U.S. Government, which is clearly legally an "authorized user" of these services, whether this decision can be made in the executive branch or whether it must be approved by the Federal Communications Commission, and it was this question which I was looking forward to

Mr. HORTON. I understand that.

Mr. McCORMACK (continuing). A solution of.

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