REASONS FOR REJECTION OF RCA

Mr. ROBACK. You got yourself trapped here in a sense. This was nly a ceiling, yet you were trying to cover your risk. You were villing to knock off a contingency on the earth station, but you were fraid on this issue, so the Government, you see, had a real issue gainst you, namely that you were proposing a ceiling on liability which is $1.1 million more than Comsat's was. Is this not what nocked you out?

Mr. HAWKINS. Well, I think this is one of the factors that apparently DCA relied upon.

Mr. ROBACK. What else? You offered a service at the same rate as Comsat, your final offer. You had finally come from a lower offer up to a same offer.

Mr. HAWKINS. That is the U.S. segment, yes.

Mr. ROBACK. And on the foreign segment you are offering a lower price, but they said, "We won't look at that because we are equalizing the prices," and they said, "We are going to knock you out because you are putting a higher estimate on termination liability, which is higher than what Comsat is offering by $1.1 million."

Mr. HAWKINS. Well, the letter we had from DCA was not very specific on that point.

Mr. ROBACK. By the way, what did DCA tell you when they rejected your final offer? You summarize

Mr. HAWKINS. I have the letter of July 26, from DCA.

Mr. ROBACK. Did it spell out the reasons?

Mr. HAWKINS. Not in detail. I will read it to you.

Mr. ROBACK. All right.

Mr. HAWKINS. The award was made on the basis that: "(a) The Government has greater assurance that the services will be provided on time if ordered from CSC.

"(b) The Government has greater assurance of having obtained the most economical proposal taking into account the regulatory situation, acceptable recurring charges and contingent liabilities."

Mr. ROBACK. In other words, they did not really evaluate your bid. They just said they decided it was not satisfactory. You do not know. You summarized before our committee the reasons for the rejection and that was based upon what you heard from General Starbird and Colonel Paschall.

Mr. HAWKINS. Largely, yes.

Mr. ROBACK. In other words, you are telling us what you learned in the testimony, but you did not know until then, I gather, as to why you were turned down, is that right?

Mr. HAWKINS. That is right. In addition to this letter we had two other sources. There was a subsequent debriefing session and we have seen General Starbird's testimony.

Mr. ROBACK. Did General Starbird ever tell you that the reason you were turned down is because your cancellation charges were too high?

Mr. HAWKINS. Not me personally, no.

Mr. ROBACK. Did he tell anybody in your company that?

Mr. HAWKINS. I do not recall that we were told that, although I was not personally at the debriefing session.

Mr. ROBACK. After all, you have summarized some information before us as to why you were turned down. One of the issues was the no-profit feature. In your final offer, you said, "We will match Comsat's price and we will do this as a public service without any profit." and that issue came up for discussion, and Colonel Paschall ventured the observation that it would be discriminatory and therefore improper for you to make a no-profit offer to the Government. Well. that is, you might say, a passing comment. He is in no position to say what the FCC's is going to do, and even if he were in position to antici pate it based upon some other and earlier decisions, it was not his business as the one looking at the price competition to worry about that, was it?

Mr. HAWKINS. I think I could agree with your statement; namely, that this is a matter ultimately for the FCC.

Mr. ROBACK. What I mean is, you were gathering some various reasons why you were turned down gleaned from discussions that we have had.

Mr. HAWKINS. Yes.

Mr. ROBACK. Some of which were incidental, in a sense, but you really do not know why you were turned down, is that what your testimony is?

Mr. HAWKINS. I would not quite put it that way. We do understand what was given in the testimony, and what was given at the debriefing session."

Mr. ROBACK. You cannot expect to have a committee hearing every time you are involved in a turndown to learn what the issue is.

COMSAT-CARRIER RELATIONSHIPS

Mr. HAWKINS. I think that is right. But the purpose of my testimony, Mr. Roback, is to illustrate broadly the problem of the relationships between Comsat and the carrier. The point I want to stress is the difficult situation in which we found ourselves with Comsat, when we were forced into a position of trying to compete with our sole supplier.

Mr. HOLIFIELD. Which you had helped finance by a large stock purchase.

Mr. HAWKINS. Yes.

Mr. HOLIFIELD. In other words, the carriers put about one-half of the

Mr. HAWKINS. Fifty percent.

Mr. HOLIFIELD (continuing). Of the $200 million thinking that they had an arrangement which would furnish them satellite services, and suddenly they find out that the corporate entity which they had helped to build was in a position to be their competitor and put them at a disadvantage in communications services.

Mr. HAWKINS. Exactly.

Mr. HOLIFIELD. You never contemplated this, of course.

Mr. HAWKINS. No, I personally participated extensively in the deliberations before the enactment of the Communications Satellite Act of 1962. I also was present at a number of the hearings at that time. We fully understood and contemplated at that time that Comsat would really be a carriers' carrier.

RATE REDUCTIONS

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

Mr. HAWKINS. Yes.

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

Mr. HAWKINS. We are firmly committed to the position that the enefits of satellite communications should be reflected in the rate tructure and we are quite prepared to reflect those benefits in lower ates, 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 o shortly.

Mr. ROBACK. Do you expect that filing will apply to all users of hese 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 corre spondence 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 pro

vide 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.