Maj. Gen. GEORGE E. PICKETT, RCA COMMUNICATIONS, INC., Deputy Director, Defense Communications System, Defense Communications Agency, Washington, D.C. DEAR GENERAL PICKETT: This is in further reference to your letter of May 2, 1966, addressed to our Mr. C. J. Rennie, relative to Department of Defense requirement for leased facilities in the Pacific Ocean area. We appreciate this opportunity given us to review our response of May 31, 1966, with respect to the rates between Hawaii and the satellite, including the earth station and Hawaii half of the space segment. We understand that DOD will require as many as 10 circuits each from Hawaii to Thailand, the Philippines, and Japan. In view of the latest information and new approach adopted by RCA, our revised proposed rate for the circuit segment between Hawaii and the satellite is $3,690 per month for each circuit regardless of destination. This rate amounts to $44,280 per year and applies from the RCA Paumalu Control Center. In the event DOD requires extensions from Paumalu to a common control center for RCA and other circuits at Wahiawa, an approximate additional monthly charge of $250 per circuit will apply. This is the landline rate between Paumalu and Wahiawa to be charged by the Hawaiian Telephone Co., and will be uniform regardless of the international carrier selected to provide the satellite circuits. These rates are shown on attachment A, which should be substituted for page 20 of our original proposal dated May 31, 1966. Attachment B shows the estimated installed costs, operating expenses, and return used to arrive at the estimated charges. Attachment B should be substituted for page 23 of our original proposal. Attached are three copies of our revised proposal, including new pages 20 and 23, dated June 17, 1966. These revised rates referred to above are, of course, subject to the usual regulatory approvals, including the grant of RCA's pending application before the Federal Communications Commission to supplement RCA's facilities by the acquisition of earth station capacity in Hawaii. The Commission has authorized construction of the Paumalu earth station, but it has not granted any right to Comsat to own or operate the earth station facilities. RCA's pending application filed September 1, 1965, is to acquire ownership and operating rights in the Hawaii earth station. There will be no termination charges, penalty clauses, or liabilities for early termination of service offered by RCA. As stated in our original proposal, it is anticipated that rates for the overseas terminals will be fixed by the administrations concerned and uniform via all international carriers. These, therefore, remain unchanged from our previous schedule. RCA is prepared to proceed with this project immediately on receipt of an award. We will exercise our best efforts to be operational by January 1, 1967, if this is desired by DOD, and in any event expect to provide service by April 1, 1967. RCA is the only international carrier that currently operates direct circuits with all three of the countries in question. We believe that RCA's revised rate proposal will be very attractive to DOD. In addition, RCA is the best qualified international carrier to provide the circuits required by DOD and to perform all the functions outlined in your letter of May 2, 1966. RCA is by far the most experienced international carrier in providing long-haul voice-data circuits in the Pacific area. RCA has an extensive history of highly successful close cooperation and operations jointly with the telecommunications agencies of Japan and Thailand, and it has itself operated in the Philippines for almost 40 years. We believe this experience and this unique capability are not elsewhere available to DOD and speak for themselves. RCA would proceed immediately upon an award to it to implement the proposed service in close cooperation with representatives of DOD. RCA would dedicate the resources of the RCA organization, including my personal attention and that of other top management, to providing the best possible service for the Department of Defense. Respectfully, HOWARD R. HAWKINS, President. ATTACHMENT A The rates quoted below are applicable to 30 satellite circuits from a United States military technical control facility in Hawaii to specified points in Japan (10 circuits), Philippines (10 circuits), and Thailand (10 circuits). (a) Hawaii terminal For each satellite circuit of up to 10 circuits to Japan, Philippines, or Thailand: 1. Contingent termination liabilities--- None. 2. Minimum revenue guarantee, minimum service charges, or equivalent None. 3. One-time charges such as special construction, installation, conditioning, etc-- None. 4. Monthly recurring charges per circuit: RCA Paumalu Control Center to Satellite (including earth station and Hawaiian half of space segment) RCA Paumalu Control Center to "a military technical control facility in Hawaii"_ 1 $3,690 per month. (2). Conditioning and alternate use charge applicable to the circuits between RCA Paumalu Control Center and "a military technical control facility in Hawaii”. (3). 1 In the event DOD prefers, the RCA Control Center will be established in a hardened location in Wahiawa, Hawaii, at an additional charge of $250 per month. 2 These charges will depend upon the location in Hawaii of the military technical control facility and upon the military requirement for conditioning. These will be in accordance with the tariffs of the Hawaiian Telephone Co. ATTACHMENT B VII. BASIS FOR COST ESTIMATES The rates were developed on the basis that RCA's pending application to supplement its facilities by the acquisition of earth station capacity in Hawaii will be granted by the FCC. Under such an arrangement RCA would (1) bear its proportionate share of the earth station capital costs and operating expenses; (2) pay the normal lease rate for the space segment; and (3) incur the full cost of providing the RCA control center and the terminal equipment associated therewith. Based on estimates of capital and operating costs and of the circuit utilization factor, the charge of $44,280 per circuit per year ($3,690 per month) is made up of the following components: DEAR MR. HAWKINS: Please refer to your letter of June 17, 1966, wherein you submitted revised pricing for certain urgent communications needs of the Department of Defense (DOD) in the Pacific area. The primary factor of concern to the DOD is the need for service on the dates specified. We must question anything which appears to endanger those dates. In this regard it is noted that your bid is contingent upon an FCC order granting RCAC authority to participate in the ownership and operation of the initial satellite terminal station in Hawaii, but, at the same time, FCC Docket No. 15735 gives to the Communications Satellite Corporation (ComSat) "responsibility for planning, construction, operation, an dcontrol of the initial stations," one of which is the earth station in Hawaii. The DOD cannot await FCC resolution of the issue of ownership without jeopardizing the service dates. Accordingly, your proposal will be considered responsive only if you: (1) Remove the contingency cited above, modifying the price quoted if necessary; or, (2) Provide positive substantiation that the condition of RCAC ownership you have imposed will be satisfied. Please confirm that the following terms and conditions inherent in our RFP are fully understood and acceptable to you. (1) A complete failure to orbit a satellite shall be regarded as a failure on the part of the company to provide service and, therefore, a breach of contract. No termination charges or cancellation charges by the foreign correspondents would be submitted to the Government. In case the reliability or quality is substantially lower than specified, the Government can cancel in whole or in part without termination liability. (2) If determined feasible, and at our request an earlier availability date for the 85-foot earth station can be achieved, the following charges might apply: (a) No termination charges applied on the 42-foot, or (b) An aid to construction payment to expedite the 85-foot terminal with no termination charge applicable for the 42-foot terminal, or (c) The amortized termination charge. (d) The above action would be taken at the Government's option and only if the cost of offsets in reduced recurring charges for service from an 85-foot terminal would exceed the one-time payment required by (b) or (c) above. (3) In the event that the earlier availability date for the 85-foot terminal is to meet a requirement of the company or the foreign correspondent there shall be no termination charges applied to the Government for the 42-foot terminal. (4) All cost figures in the company's proposal shall be incorporated in the preliminary CSA as maximum figures with the requirement that the company negotiate their final agreements with the foreign correspondents at lesser amounts, if possible. (5) The requirement shall be included that any future increases proposed by the foreign correspondents are to be referred to DCA before acceptance by the company. Moreover, if the foreign correspondents seek a significant increase in recurring charges, the Government will be afforded the option of termination in whole or in part without having to pay any termination charges. (6) In case there is any major slippage in the date of available service, the Government should be allowed to cancel in whole or in part without termination liability. (7) In case there is slippage beyond forecast date of the 85-foot terminals at Bangkok and the Philippines, the Government will still be entitled to the lesser rate as though the 85-foot terminal was in on time or allowed to cancel in whole or in part without termination liability. (8) Every effort will be made to seek protection from the situation where the laws of Japan require the seizure of services provided to foreign entities for the Japanese public message service including television. In view of the urgency associated with these services, we request your reply by June 27, 1966. Sincerely, GEORGE E. PICKETT, COMMUNICATIONS SATELLITE CORP., Mr. HOWARD HAWKINS, Vice President, RCA Communications, DEAR MR. HAWKINS: Reference is made to our letter of May 13th in which you were advised that Comsat is expecting to propose a rate for service to interested common carriers of $48,000 a year per half circuit for the Hawaii earth stationto-satellite portion of two-way voice circuits between Hawaii and Japan, Hawaii and the Republic of the Philippines, and Hawaii and Thailand. You were advised in that letter that this figure could change as determinations of cost are refined, in which case you would be notified. This is to inform you that, as a result of its cost refinements, Comsat now plans to propose to authorized carriers a rate of $45,600 per year ($3,800 per month) for each of the above-mentioned two-way voice circuits between Hawaii and the satellite. In order that you may be in a position to evaluate the significance of this change with respect to the submission you may have made in response to DCA's request for service to the Far East, this is to advise you that, in submitting its response to DCA's request, Comsat based its submissions on the same rate mate rial as was used in arriving at the previous quotation to the carriers of $48.000 per annum, and the rate quoted to DCA was higher than the $48,000 which was quoted to the carriers. Very truly yours, Maj. Gen. GEORGE E. PICKETT, GEORGE P. SAMPSON, Vice President, Operations. RCA COMMUNICATIONS, INC., Deputy Director for Defense Communications System, Defense Communications Agency, Washington, D.C. DEAR GENERAL PICKETT: This is in response to your letter of June 21, 1966. relative to the proposal of RCA Communications, Inc., to provide the Department of Defense with certain urgent communications needs in the Pacific area. We fully share DOD's primary concern of the need for service by the dates specified, and we welcome your request for additional information. We believe that it may be helpful to explain more fully RCA's basic proposal and, as requested, to develop an alternate special DOD satellite rate for the circuits in the event it should become necessary for RCA to lease from Comsa: the earth station segment of the end-to-end circuits. Thus, while DOD would have the proposed rate on either basis, it is assured in awarding the circuits to RCA that there would be no service delay pending a resolution of the earth sta tion ownership question. In ordering the circuits from RCA, DOD also would obtain the overall service from an established international carrier and an operating organization which is unequalled in experience and capabilities in providing longhaul voice-data circuits in the Pacific area. RCA would assume responsibility for coordinating the end-to-end circuits, contribute its expertise and know-how to the service. work closely with its overseas correspondents, and cooperate fully with Comsat and the Defense Communications Agency. RCA confirms its basic proposal of June 17, 1966, to provide the 30 circuits for DOD between Hawaii and the satellite for $3,690 monthly or $44,280 annually per circuit based on participation in the ownership of the Hawaii earth station. As further explained below, this rate is, of necessity, contingent upon the grant of RCA's pending application of September 1, 1965, before the Federal Communications Commission to supplement its facilities by the acquisition of earth station capacity on an ownership basis in Hawaii. RCA intends to pursue this applica tion for ownership vigorously and seek a favorable decision before the satellite circuits become operational. In the event that RCA is not authorized to participate in the ownership of the Hawaii earth station and must lease from Comsat the earth station segment, the proposed rate for the circuits would not exceed the following special DOD satellite leased channel rate development: 1. Per circuit annually: Space segment and earth station___. Terminal equipment, equalization, and technical control____ General and administrative pretax profit.. Total annual rate per circuit 2. 2. Annual charges, 30 circuits----- 1 Based on Comsat letter to RCA of June 22, 1966. 2 Exclusive of Hawaiian Telephone Co., landline charges between Paumalu and Wahlawa of approximately $3,000 annually per circuit. The proposed annual charge for the 30 circuits of $1,752,600 for the Hawaii end compares with a total of up to $7,396,000 which may be charged in the first year for the foreign ends of these same circuits in the Philippines, Japan, and Thailand. RCA welcomes DOD's examination of its rate development in the foregoing table. RCA is prepared to discuss it in detail and to consider any questions raised by DOD. In considering the reasonableness of the rate, we invite your attention to the broad scope and complexities of the project, the work to be performed as DOD's agent, the uncertainties involved, and the special efforts that will be required by RCA in establishing the service by the dates specified. In addition, RCA has undertaken to proceed with the establishment of a common leased facilities Control and Test Center in Hawaii as desired by DOD and described in your letter of May 26, 1966. We believe it is important to note that upon the establishment of the satellite circuits for DOD continuing efforts will be required to provide the overall service specified by DOD. Even under circumstances where we obtain the raw satellite circuits from Comsat, RCA would be required to perform many technical, operational, and management functions in order to meet the stringent end-to-end circuit specifications established by DOD. These will include, for example, phase and amplitude equalization, amplification, line monitoring, and circuit coordination, none of which are presently performed by the Government communications entities in Thailand, Japan, or the Philippines. We have been informed that these 30 satellite circuits are not in substitution for existing circuits but are required by DOD for urgent communications with Thailand and for additional and alternate routings with Japan and the Philippines. It is therefore possible to make this particular proposal to DOD and work out arrangements for the construction of the additional facilities with the foreign correspondents in these countries. As stated above, RCA's proposed rate of $44,280 annually per circuit is, of necessity, contingent upon the grant of RCA's pending FCC application of September 1, 1965. The FCC's interim policy determination in docket No. 15735, which is referred to in your letter, permitted Comsat to commence construction of the Hawaii earth station, but it was subject to any modification by the FCC in the public interest and the outcome of FCC proceedings on competing earth station applications. The FCC authorization to Comsat states that it does not constitute a precedent, confer a preference, or vest in Comsat any right "to own or operate" the earth station. The FCC's letter to Comsat of June 9, 1966, states that the furnishing by it of this service "is contingent upon obtaining necessary authorizations from the Commission which have not yet been applied for" by Comsat. Attention also is invited to the FCC's announcement of June 23, 1966, that Comsat may furnish satellite channels only to other cominon carriers except in unique circumstances. We submit that in any event RCA's proposal as supplemented by this letter is responsive to DOD's request. The furnishing of the service at the Hawaii terminal would of course be subject to the usual regulatory approvals of the FCC whether provided by RCA or any other authorized carrier. The following material constitutes our responses to your second series of numbered items one through eight. We have replied to them in the same order for easy reference. Based on informal discussions with DOD, unless otherwise indicated, we understand that these questions concern only the foreign terminals with respect to which RCA would act as DOD's agent. Since RCA would be acting as DOD's agent, RCA would use its best efforts to maintain these charges at the lowest possible level in the interest of the lowest cost to the Government for the foreign terminals. We understand that such charges would be uniform whether RCA or another carrier operated at the Hawaii terminal. 1. RCA understands that the complete failure to orbit a satellite shall be regarded as a failure on the part of the company to provide the requested service. Insofar as RCA is concerned, there will be no termination or cancellation charges nor any other liability by or to DOD. We will use our best efforts to negotiate the same terms with the foreign correspondents involved. The same provision applies to cancellations of the service by the Government in whole or in part as a result of service quality substantially lower than specified. 2. If an early availability date for the 85-foot earth station is determined to be feasible and desired by DOD, there will be no termination or cancellation charges on the 42-foot terminals insofar as RCA is concerned under the condi |