The committee has also asked us to comment on the Comsat-carrier relationship, and I come now to that subject.

THE COMSAT-CARRIER RELATIONSHIP

The problems faced by other carriers in their relationship with Comsat extend far beyond any particular contract for service with any particular Government agency or other noncarrier user. Our problems with Comsat are in part inherent in a federally created monopoly, intended by Congress to serve a limited function. In part, they result from the efforts of Comsat to rid itself of its intended limitations and to take advantage of its privileged position as a U.S. spokesman on space segment policy to advance its private commercial

interests.

By virtue of its being the sole U.S. representative to the international consortium, Intelsat, Comsat is in a position to provide assistance to foreign correspondents in areas which the carriers cannot provide. For example, as Mr. McCormack's August 9, 1966, letter to General O'Connell shows, Comsat alone can take advantage of its "special international position" to offer a foreign government both consortium membership and a business deal, "in effect handling the entire project as a single package." Those quotes are from Mr. McCormack's August 9 letter.

Another factor which would undoubtedly impress a foreign correspondent is that Comsat presents it with a specific proposal and requests an agreement to cover that proposal months before any contact by an authorized U.S. carrier. Because of Comsat's relationships and because DCA must rely on and coordinate with it on technical matters which precede the issuance of form bid requests, Comsat has an "insider" information advantage in competing with the carriers. Another fundamental problem faced by the authorized carriers arises when Comsat, disregarding its role as a carrier's carrier, aggressively seeks to exploit its exclusivo satellite position and thus compels the carriers to compete with their sole supplier.

This means that if a carrier leases from Comsat and bids a composite rate or simply adds on a modest profit to the price it must pay Comsat in arriving at its bid price to DCA, the carrier loses because its price is too high. Comsat's price to the carrier already includes Comsat's profit.

On the other hand, as I have pointed out, if a carrier attempts to compete with Comsat's separate satellite rate and bids at a rate that only covers its cost, DCA concludes that the rate is noncompensatory and will not be approved by the FCC. The carrier then loses because its rate is too low.

This places an authorized carrier in the impossible position of "heads you win; tails I lose."

RECOMMENDED SOLUTIONS

International cable and high-frequency radio communications facilities, as well as satellites, are essential to the national interest. Satellites alone are not enough either for military use or for other Government and private use.

With several different means of international communications available, it is unwise to entrust all of our traffic to a single one of them. This is not simply a matter of national security although that alone could justify the maintenance of alternate facilities.

In the glamor that frequently surrounds satellites and space technology, we are apt to overlook the remarkable and continued improvement in both performance and economy achieved in cable and radio communications as a result of continuing research, development, and investment in new facilities. Coaxial cables, for example, promise to rival satellites for some time to come in both capacity and economy in providing voice and record communications. Furthermore, the same process of technological advancement that leads to better satellite services will lead as well to more advanced techniques in cable and radio communications.

Certainly, it would be rash to proceed now on the thesis that satellites can entirely replace cable and radio facilities as a more effective and economical method of providing international communications circuits. To neglect cable and radio facilities in favor of satellites would, I submit, perform a major disservice to all who need rapid and efficient international communications.

The question, then, is how the development of satellite communica-" tion technology and the expenditious utilization of that technology can be accomplished without impairing or destroying our necessary national resource in international cable and radio communications and the international record carriers essential to the maintenance of that resource. A healthy multimedia system of international communications can be maintained by establishing substantially the same rates for comparable service through each medium of communications.

RCA contemplates extensive use of satellite facilities to improve and expand its global services. Our long-range forecasts indicate that by 1975 RCA will need approximately 150 to 200 satellite voice grade circuits. These forecasts assume that present conditions continue both as to demand and the maintenance of the Commission's authorized user policy.

If Comsat is allowed to sell satellite services directly to noncarrier users, it will drain off revenues needed to support modernization and research and development of our Nation's total international communications system. If Comsat is permitted to offer special low rates for the Government or other larger users only, it creates an incentive for them to find some excuse for claiming uniqueness, no matter how invalid, and to put pressure on the FCC to find that the contemplated service meets the exception of the authorized user policy. This, in turn, would permit Comsat to escape from the carriers' carrier primary mission assigned to it by the Congress and to expand upon its existing monopoly.

Comsat should not be permitted to skim the cream off the international communications market; that is, to provide services directly through its technologically economical medium only in those areas where substantial demand already exists. Such cream-skimming will inevitably deny to small domestic users and small foreign nations the advantage of new satellite communications technology.

International communications facilities are a total national resource. Therefore, a total rate base should be established for such

facilities. Without a total rate base, technological breakthroughs and increased efficiency in one medium cannot be reflected in the overal service rates to the public.

Accordingly, I support the approach for maintaining rate parity. In this manner, the economic benefits of satellite technology will be reflected in lower charges for all communications service. These benefits will be then shared by all the users of commercial communications and not by just a favored few and large leased channel customers. That would preclude Comsat from leasing its facilities directly to noncarrier users in all except unique and most unusual situations where the particular service involved is completely discrete and of such a nature that it can be furnished only directly by Comsat. This is the carriers' carrier approach adopted by the Commission in the authorized user decision.

The carriers' carrier approach recognizes the fact that ours is a total international communications network, not a patchwork of duplicative separate satellite, cable, and radio systems.

The carriers' carrier approach can be carried out by adherence to and implementation of the Commission's authorized user policy. As matters now stand, this must be done if the benefits of satellite technology innovation are made available to all users, large or small, and if a viable multimedia system is to be preserved.

The 30-circuit situation dramatically illustrates the difficulties which the Commission can anticipate in attempting to implement its authorized user decision. We believe there is a simple and sound way to make the Commission's policy work. If the Commission were to make its determination whether Comsat can or cannot sell directly to the Government on any particular project in the first instancerather than after a contract has been signed and individual agreements have been negotiated with foreign correspondents-the Government could then effectively act on the basis of what the Commission has decided, and not speculate on what it believes the Commission might decide. We have already formally recommended to the Commission that appropriate procedures be adopted to implement its policy and thus make it effective.

International carrier ownership and operation of earth stations is also essential to a viable multimedia system. This would permit the carriers effectively to spread their respective rate bases to cover all forms of communications and allow all rates to be established on a total rate base principle. There is a public interest in the total revenues from all forms of communications being employed to foster an ever expanding multimedia system. The international carriers are the only entities which can insure that all of the public is well served. Comsat, as a private corporation, has an understandable drive to expand its market and improve its position. But we do not believe that Congress intended, in enacting the Communications Satellite Act, to lay the foundation for Comsat to preempt the field of international communications and put the established carriers in an economically impossible position that can result in their being driven out of business. Comsat's primary mission is to be the U.S. vehicle by which a global communications system is established which will contribute to world peace and understanding. Having created by statute a private profit

seeking corporation for that purpose, we submit that it is the responsibility of the Congress to see to it that Comsat does not ignore its statutory mission and seek instead to destroy the international carriers it was designed to serve and the international communications complex it was designed to supplement.

The fact that Comsat was created by Congress as a compromise is no reason to permit it to dominate U.S. international communications and destroy the viability of the international record carriers.

The committee has also requested our recommendations on organizational changes in the international communications industry.

David Sarnoff, chairman of the board of the Radio Corp. of America, has been actively concerned for many years with the establishment of a unified international communications policy which would be suitable to our current and future needs and which would provide more efficient and economical communications services for both the Government and the general public. General Sarnoff has proposed the creation of "a single, privately owned American company, uniting the facilities and operations of the present competing U.S. carriersboth voice and record-in the international communications field." This company would be completely independent in its policies and operations, subject only to appropriate Government regulations. In making this proposal, General Sarnoff has pointed out that such a unified enterprise would offer these principal advantages among

others:

1. It would be able to render an efficient, complete, and economical international communications service to the public with all the advantages made possible by modern technology.

2. It would simplify relationships with Comsat, as a carrier's carrier, to the benefit of the unified international carrier, Comsat, and the public.

3. It would advance and strengthen both the voice and record services now offered to the public.

Since I have only referred to General Sarnoff's proposal, I offer for the record a copy of his address in which it appeared. This address is entitled "The Communications Explosion", and it was delivered on May 26, 1965, at the Nineteenth Annual Convention of the Armed Forces Communications and Electronics Association in Washington, D.C.

I strongly support this proposal. I have attempted to show in this statement why we need such a unified international communications system. These hearings themselves are evidence of the difficult problems that will arise as long as disunity prevails in our structure of international communications by cable, high-frequency radio, and satellite.

Thank you for the opportunity to express our views.

Mr. HOLIFIELD. Thank you, Mr. Hawkins. It is a very complete

statement.

Mr. Roback?

MERGER PROPOSALS

Mr. ROBACK. You might comment, for clarification, without getting into any great discussion of the merger issue, whether it is General Sarnoff's concept that Comsat would not be involved in the merger?

Mr. HAWKINS. The address that I referred to, Mr. Roback, which. I believe, you have been given a copy of

Mr. ROBACK. Yes.

Mr. HAWKINS (continuing). Does specifically set forth that Comsat would continue to serve as a carrier's carrier.

Mr. ROBACK. Does that contemplate that the international portion of A.T. & T. would be split off and made a part of this merger?

Mr. HAWKINS. Yes. It contemplates a unification of all international voice and record services. And one of the principal reasons for combining both voice and record services into a single company is the vanishing distinction between voice and record in our communications facilities.

You take a circuit, whether it be cable or satellite and that facility is capable of being used for either voice or record transmission merely depending upon the terminal equipment put on it.

Mr. ROBACK. So, in that concept, you would have integrated communications domestically with a large carrier dominant in the industry, A.T. & T., and you would have one international carrier with an integrated service, but the only entity that would not have any integrated service under those conditions would be Comsat.

Do you think they could continue in a profitable position if they did not have any record-I mean if they did not have diversified services to offer?

Mr. HAWKINS. I see no reason why they should not continue to be a very profitable operation. As a matter of fact, it might very well help Comsat because this concept, which General Sarnoff has set out, does not in any way contemplate a change in the functions of Comsat as they were envisioned in the Communications Satellite Act.

Mr. ROBACK. That is true, I am sure.

Mr. HAWKINS. Comsat would continue to perform its mission as assigned to it by Congress.

Mr. ROBACK. But you are objecting to Comsat skimming the cream off the heavy traffic market. You know Comsat is not going to make any money by just extending communications to the underdeveloped areas where the traffic is light.

Mr. HAWKINS. No. Comsat would function as a carrier's carrier for the unified international voice and record carriers.

Mr. ROBACK. So that, insofar as the traffic was heavy and the indus try was prosperous, Comsat, as the wholesaler, would share in the industry's prosperity.

Mr. HAWKINS. Yes.

Mr. ROBACK. That is your contention?

Mr. HAWKINS. Yes. Comsat would continue, for example, to furnish satellite circuits to the unified carrier just as Comsat does now furnish satellite services to A.T. & T. and the other carriers.

HOT LINE

Mr. ROBACK. In your statement, you say "RCA has the Hot Line." Does it have a foreign counterpart?

Mr. HAWKINS. Yes. It is the Russian Government.

Mr. ROBACK. What part do you play?