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 explain-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

status of dealing with international entities on the one hand, but on the other hand, as far as the bread and butter service is concerned, in the communications business you were up on them. You had the advantage on them, is that the sense of it?

Mr. HAWKINS. We think so. As we had been providing these end to end services for quite a long period of time, and they are not simple. They are difficult.

Mr. ROBACK. In trying to rebut your allegation that you were better experienced in that field, General Starbird in his initial statement to the Comptroller General pointed out that in the test of Early Bird service, which the Government, by the way, does not buy from the Comsat, but in a test of using these services, it worked out very well, and they cited that as an issue. You in your correspondence cited that to the opposite effect, namely that a lesson of that test, as far as the Defense Department were concerned, was that they were missing the experienced hand of an international carrier.

Mr. HAWKINS. That is correct.

Mr. ROBACK. Is that your position on the matter?

Mr. HAWKINS. That is correct. We think that the international carriers have

Mr. ROBACK. You interpret the test results in that way.

Mr. HAWKINS. That is right. I have before me a statement which is from a report issued by DCA in July 1965 on that precise point. which I will be glad to read.

Mr. ROBACK. Read a sentence or two.

Mr. HAWKINS. The report is entitled "Communications Test of the Early Bird Satellite."

"Some difficulty and delay was experienced in establishing properly equalizing and testing user to user configurations. This was due primarily to the absence of an international carrier which could be officially tasked with the responsibility for the technical sufficiency of end to end circuitry.

"To assure technical sufficiency of user to user circuitry routed via satellite links, the international carrier must be tasked with the responsibility for the technical sufficiency of all leased segments."

Mr. ROBACK. Do you interpret that as meaning, when they were referring to international carriers, of the kind that RCA is?

These

Mr. HAWKINS. Yes, I am sure that is what the report meant. end to end circuits are not easy to put together and make them operate perfectly. We have had some critical experiences on these circuits out in the Pacific area, and it is not merely a case of turning up a circuit and then turning it over to DCA. The circuit has to be fully equalized on an end to end basis. It has to work in a manner compatible with the terminal equipment.

I recall one case where, in order to make a circuit for the Government work between the United States and the Far East point, we practically had to rebuild some local circuitry out in the Far East. In a foreign country this is one of the areas where the international carriers perform a very useful function. Also important is the fact that the foreign government, of course, desires to maintain continuity of service.

Now, an authorized carrier such as RCA is in a position to restore services when one medium is out. We have all three media of com

munications out in the Western Pacific. We have high frequency radio, we have cable, and hopefully we will have satellite. These are functions an authorized carrier can provide, but which Comsat cannot.

RATE REDUCTIONS

Mr. ROBACK. What do you think is going to happen if this contractand I am only speculating now for the purposes of getting your judgment in the matter-if Comsat is the authorized user and provides these services? Do you think that anything like a rate they are offering would be approved, and what position would that place you in? Mr. HAWKINS. Well, I do not know what the FCC would do with

the rate.

Mr. ROBACK. Is it likely

Mr. HAWKINS. But certainly based on the experience we have had in the 30-circuit situation, if Comsat can provide service at the rate at which it is proposing and if we are denied ground station ownership, we are obviously in a noncompetitive position. Comsat is in effect charging us the same rate it would charge to the Government. This puts us in an economically impossible competitive position.

Mr. ROBACK. You could not hope to compete on the satellite services, but you would still be providing cable services to the Government. Mr. HAWKINS. Yes.

Mr. ROBACK. And the Government has had a feeling, as evidenced by certain petitions and applications and what not to the FCC, that these international carriers are really hanging it on the Government in these rates, because the capital costs are recovered in a very short time if you look at it from the standpoint of maximum revenues. You put in a cable or you put in another facility, and if you figure out the channel or circuit costs and you make some assumptions about the volume of the traffic, why it looks like anywhere from 6 months to 2 years you can recover your investment. This is what some of the feeling in the Defense Department is, that you fellows are hanging it on them.

Mr. HAWKINS. I think there has been some difference of opinion between the carriers and the Defense Department on what the proper rate level should be. This is a very complex question and there are a number of very important aspects to it. First of all, if you look at the cable technology, it costs a large sum of money to put the cables in in the Pacific area. There are about $150 million down there under the ocean. These cables were put in service without any commitment by the Government as to the extent of usage. When the cables first went in, we and other carriers carried a substantial amount of idle capacity. We are still carrying idle capacity in certain segments of the Pacific cable. We do not know how long the Government may continue to use the circuits. Alternate facilities must be maintained to insure continuity of service. And there are many questions with respect to what should be the proper depreciation rate in the cables. Maybe they should be written off in a much shorter period of time. Mr. ROBACK. Well, since proposals apparently are forthcoming for substantially reduced rates, does this reflect altogether the economies of the satellite service, or does it reflect in part a belated rate reduction in the cable business?

Mr. HAWKINS. I would think as far as these are concerned, they reflect economies of satellite communications.

Mr. ROBACK. They must be very substantial then if you are going to be able to make substantial rate reduction that will save the Govern ment from your company alone several million dollars a year.

Mr. HAWKINS. Well, in part there are substantial economies fror. satellite communications which would be included in the rate structure.

OWNERSHIP OF HAWAIIAN STATION

Mr. ROBACK. At page 12 of your statement you said that the DCA advised you that they would not consider that ownership of the Hawaiian station would be in anybody but Comsat. Was that in the form of one of the letters or was that an oral advice?

Mr. HAWKINS. That was in a letter from DCA.

Mr. ROBACK. When was that dated?

Mr. HAWKINS. That letter was dated June 21.

Mr. ROBACK. That was a construction you put on the letter really, was it not?

Mr. HAWKINS. That is right.

Mr. ROBACK. They did not advise you that "We won't consider any body else." All they said is "The way we read it the FCC has give this over to them." Whether they read it right is another question. but they did not really advise you, did they?

Mr. HAWKINS. My statement is a brief summary of the position that DCA took in its June 21 letter. I will be glad to make a copy of that available in case you do not have it.

Mr. ROBACK. Well, we are asking for and want to have all the relevant correspondence.

Mr. HAWKINS. This DCA letter, Mr. Roback

Mr. ROBACK. This was a construction of that letter of June 21. Mr. HAWKINS. Yes, but that DCA letter specifically quotes from the Commission's interim earth station policy decision.

Mr. ROBACK. They did not quote the portion which came later in a construction authorization which said that there was no vested ownership

Mr. HAWKINS. No, they did not.

Mr. ROBACK (continuing). Or operating rights until further authorization. They did not quote that part.

Mr. HAWKINS. No, they did not.

Mr. ROBACK. They just quoted the part which seemed more congenial to the position they were taking at that time.

Mr. HAWKINS. Well, I guess the only response I could give you would be that the final action that DCA took was consistent with the brief summary that appears on page 12 of my statement.

Mr. ROBACK. Mr. Hawkins, is there anything else you want to comment or submit for the record that you think is relevant?

Mr. HAWKINS. No, Mr. Roback, I would merely say that I do appreciate the opportunity to set forth our position. And if the committee should consider that we can be helpful in some other way, why we would be glad to cooperate.