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RATE REDUCTIONS

Mr. ROBACK. You are aware that in the authorized user decision there was a kind of injunction or advioe put upon the carriers by FCC that if they expect to be in the picture they have to come in with interesting rate offers.

Mr. HAWKINS. Yes.

Mr. ROBACK. Are you aware of that general injunction? What is your company's position on this?

Mr. HAWKINS. We are firmly committed to the position that the benefits of satellite communications should be reflected in the rate structure and we are quite prepared to reflect those benefits in lower rates, both to the Government and to the public as a whole.

Mr. RoBACK. Have you made any filing!

Mr. Hawkins. We have not as yet made our filing, but we expect to shortly.

Mr. ROBACK. Do you expect that filing will apply to all users of these channels, leased channels?

Mr. Hawkins. Well, the immediate filing we are talking about is the filing with respect to the 30 circuits from Hawaii on the Far East, and we would expect in those circumstances

Mr. ROBACK. You are not going to be able to match that low price for satellite circuits alone; that is, you are not proposing that all circuits are going to carry the price that Comsat is quoting for satellite circuits, are you?

Mr. HAWKINS. No.

Mr. RoBACK. So therefore, if your price is more, there is not any advantage to the Government considered as a customer for satellite services only, but there could be some advantage if those rates resulted in economies to the Government as a cable user, and of course other users would have the benefit of the lower rates across the board.

Mr. HAWKINS. Well, yes; there could be. Both the Government and the public as a whole should get communications services at lower costs because the economic benefits of satellite communications will be reflected in the total rate structure.

Mr. ROBACK. But what the Government would have to do if you proposed a lower rate, in the light of this evaluation of the Comsat offer that was before it and a contract already awarded, they would have to balance off the lower rates that Comsat is offering for satellite services alone against the across-the-board economies that they might realize from lower rates both for satellites and cables.

Mr. HAWKINS. Right.
Mr. ROBACK. Since the Government uses both; is that not right?
Mr. HAWKINS. Yes.

Mr. ROBACK. That is the issue that the Government would be confronted with.

Mr. HAWKINS. That is the economic issue; yes.

Mr. ROBACK. If you file rates for 30 circuits, will you offer this to other customers, those same rates ?

Mr. Hawkins. Do you mean the composite rate you are talking about?

Mr. ROBACK. Yes.

Mr. HAWKINS. We would anticipate whatever composite rate we should offer for both cable and satellite circuits would be available to other customers requiring the same service.

Mr. ROBACK. Does that follow as a matter of course because preferential rates to the Government are not permitted ?

Mr. HAWKINS. Yes. Somebody comes in and wants 10 additional circuits somewhere or 5 additional circuits out of Hawaii to these points, why they can get it at the same rate.

Mr. ROBACK. Have you made any estimate as to what savings to the Government would accrue from your portion of the business on a reduced rate that you would be prepared to offer?

Mr. HAWKINS. We have not made any precise estimates, but I am confident, Mr. Roback, that it could well be several million dollars. I think another very important point is that when we consider costs to the Government, it is important to look not only at the U.S. end but the foreign end as well. The established carriers have relationships with their correspondents around the world. I would venture the opinion that if this service is provided through the authorized carriers, there is a greater likelihood of lower foreign end charges than if Comsat merely provides the service on some Government rate at the U.S. end.

Mr. ROBACK. In other words, the carriers on the foreign end would be persuaded or at least encouraged to match these reductions.

Mr. HAWKINS. That is right.

Mr. RoBACK. Even in this particular procurement, the foreign rates, as I understand it, are cable rates; there are not any significant savings to the Government on the foreign end but only on the up link.

Mr. HAWKINS. I think that is right. As a matter of fact, the foreign end charges are quite high, particularly at the early period.

Mr. ROBACK. I wanted to get that rate issue clarified, but we were discussing a little earlier the question of the contingency of the Hawaiian earth station, and there was a vast interchange of correspondence between you and the Defense Department. We will want to examine all that and check with you as to whether we have all of it. We have got it from sources other than you.

Mr. HAWKINS. You are welcome to have copies of anything that you do not already have.

REQUEST TO REMOVE CONTINGENCY

Mr. ROBACK. Well, there came a time in the correspondence where DCA wanted some clarification. They objected to your making an offer lower than Comsat's attached to a contingency that you be the Hawaiian earth station owner, and they wanted you to remove the contingency or at least give positive substantiation of ownership, and they gave you from June 21 until June 27—June 21 was a Tuesday and June 27 was the following Monday. Did they want to get you to get the FCC to rule on the earth station ownership during the balance of the week? What did they expect?

Mr. HAWKINS. I really do not know what they expected at the time. I would like to say that

Mr. ROBACK. Here is what their letter said: "Either you remove the earth station contingency,” which later you did, “or else you provide positive substantiation that the condition of RCAC ownership you have imposed will be satisfied.”

What does that mean to you?
Mr. HAWKINS. What is meant to us?

Mr. ROBACK. Did they want you to get a secret promise from the FCC?

Mr. HAWKINS. Well, I am sure we could not get that. I want to be perfectly fair to DCA at this point.

Mr. RoBACK. I do, too.

Mr. HAWKINS. We thought DCA was, in effect, giving us an option. They were saying, “Okay, if you remove your contingency or give substantiation, that is fine." Obviously it would be impossible to get a ruling from the FCC within a period of 5 days' time.

Mr. ROBACK. So this was just a kind of formality with alternatives, one of which was not practical, and one of which was—at least it was an avenue which you took.

Mr. HAWKINS. DCA was, you have know, giving us the options and it was up to us to respond to them as best we could.

Mr. ROBACK. Is there anything you want to comment on, so the record will not be muddy?

Mr. HAWKINS. May I ask my counsel who has been listening while I have been talking ?

Mr. ROBACK. Sure.

Mr. HAWKINS. There is one point, Mr. Roback. I did not want to leave any inference on the record that DCA did not tell us why they made the award to Comsat. They did give us a debriefing session, they did give us a letter and we did of course hear General Starbird testify. We differ with them as to the basis for the evaluation.

Mr. ROBACK. I understand. You can supply a copy of that letter in which they notified you. I do not believe we have that.

Mr. HAWKINS. That is the letter of July 26.
Mr. ROBACK. 26.

Mr. HAWKINS. I will check it to make sure. Yes, it is dated July 26, and we will provide a copy for the record.

AGENT AND PRINCIPAL RELATIONSHIPS

Mr. ROBACK. You several times made the point that you started out as a Government agent, presumably reading the RFP where that kind of relationship was specified, and then you ended up as a principal. Will you explain that? I take it that you were being asked to assume obligations with respect to the foreign entity as a business risk proposition and not as an agent of the Government. That is where you became concerned.

Mr. HAWKINS. Yes. Now I think I can best explain this to you, Mr. Roback, by describing the basis on which service has for a long period of time been rendered by the international carriers to the Government. Our tariffs on file with the FCC for leased channel service quote rates and charges for the U.S. terminal. Then the tariffs have a further provision in them which says in effect: “We will make the arrangements at the foreign end for the service,” and we do that, in effect, as agent of the customer.

Mr. ROBACK. That is a best-effort service to the Government and you charge them-do the best job you can and charge them whatever you have to based upon what the foreign counterpart or entity charges

Mr. HAWKINS. As a practical matter it turns out that way. This has been the standard way of doing business, and this is the way the tariffs have been structered for some period of time.

Mr. ROBACK. When did it become an issue? How was the issue precipitated that you were no longer an agent for the Government with regard to foreign entities but you are now a company who is going to have to make certain commitments to the Government, and if they did not work out with the foreign entity, you were going to pick up the tab?

Mr. HAWKINS. Well, this became clear to us when we met with the contracting officer of DCA on Friday, July 15.

Mr. ROBACK. What happened? Was this because on Friday the 15th the Government, after this prolix interchange of correspondence. wanted to know where they stood with you or you with them, so they asked you to sign up a CSA, is that right?

Mr. HAWKINS. We were invited at that point to meet with the contracting officer.

Mr. ROBACK. Is that because you thought you were going to get a contract or was it because you thought-and did the Government erplain—they wanted to really know where RCA stood? After all, this correspondence was a little confusing. You were making so many different offers all over the place, they wanted to pin it down to a form, is that right?

Mr. HAWKINS. Well, I am not sure it went quite that way.

Mr. ROBACK. When they said, “Let's sign up a CSA," did you think. like many people would think, “Look, we are getting a contract." After all, why sign a contract form unless you were getting one?

Mr. HAWKINS. We did not actually know why we were going to meet with DCA.

Mr. ROBACK. They did not tell you what they really wanted to do was pin you down, and the best way to do it in their judgment was to pin you down on a CSA form.

Mr. HAWKINS. They did say they wanted to get direct comparisons.

Mr. ROBACK. And it was hard to do it through the correspondence, was it? Correspondence was not necessarily confined to a comparative number of specified issues because you could talk about anything you wanted in the correspondence.

Mr. HAWKINS. Yes. At this point in time the discussion or negotiation, whichever you want to call it, was put in the posture of a definitive contract document for the first time.

Mr. ROBACK. All right. And it was on the 15th. What was it in that CSA that made you feel you were no longer the Government's agent?

Mr. HAWKINS. Because they asked us to assume financial responsibility for the foreign end charges.

Mr. ROBACK. Are you legally entitled to do that?
Mr. Hawkins. Well, I think it is a good question.

Mr. ROBACK. You made the point in some of your interchange with the DCA that Comsat might be illegally absorbing some charges if

they came in with a termination liability estimate that was lower than yours.

Mr. Hawkins. This all depends, I think, on what you end up finally tariffing and what the FCC ends up approving

Mr. RoBACK. If the FCC ended up approving a different rate, would that mean that you would have to make good in case your rate was lower to the Government?

Mr. HAWKINS. The CSA, of course, was subject to or in accordance with the basic communications service contract which, in turn, is subject to FCC approval. I really do not know the answer to the question that you have raised. But there is a problem here that a carrier might well have a contractual obligation which it would have to underwrite, which it could not collect from the Government.

Mr. ROBACK. The sense of the statement that you started out with, that is the RFP, was that as far as the foreign entities were concerned, you were going to do your best and make the best deal for the Government and convey to the Government any economies or any reductions.

Mr. HAWKINS. That is the way we understood it.

Mr. ROBACK. That was your obligation, and you say the rules of the game were changed when you had to fill out this CSA.

Mr. Hawkins. We started out in the ball game the way in which business had historically been conducted and the way in which we read the May 2 letter. We did feel that there was a change in the rules when we were asked to assume responsibility at the foreign end.

Mr. ROBACK. Did it make any difference as between you and Comsat based on the fact that they are a participant in an international entity? In other words, are the legal obligations different?

Mr. HAWKINS. Well, it is possible that because of Comsat's relationships with these countries, through the consortium and otherwise, that they might be able to do things that we would not be in a position to do. But I do not think, if I understand your question correctly-and I am not sure I do—there would be any difference between the two carriers on that precise point that you pose.

Mr. Roback. In any case, you were asked by the Government to deliver a firm rate.

Mr. HAWKINS. Right.

Mr. ROBACK. And if you are asked to deliver a firm rate, that is, an estimate of costs based upon what you can do with a foreign entity, why would they then equalize the recurring charges? It seems they really had no ground to do that.

Mr. HAWKINS. I do not know.

Mr. ROBACK. I mean in the light of this it did not make any sense, did it? Mr. HAWKINS. No.

END-TO-END SERVICE Mr. Roback. In your discussions with the DCA you made representations that you were a more experienced carrier than Comsat in providing end-to-end service.

Mr. HAWKINS. Yes.

Mr. Roback. I gather from this discussion that on the one hand you believe that by virtue of its international position Comsat was advantaged. It had a privileged position in regard to its governmental

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