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mission and advise them of the requirement. The Commission then would determine whether or not it was a situation in which Comsat should deal directly with the Government or the large user.

Mr. ROBACK. RČA wants an advance determination

Mr. TOWER. Right.

Mr. ROBACK (continuing). Before DCA gets into a contract situation, is that the substance of their petition for reconsideration? Mr. HARTMAN. Yes, sir; that is right.

Mr. TOWER. That is right.

Mr. ROBACK. They are not putting a petition for reconsideration on the same grounds as the Government?

Mr. HARTMAN. Oh, no; not at all. They are supporting the substantial

Mr. ROBACK. They want an advance determination so they won't go through the hassle of a contract without a real knowledge of what the ultimate decision would be by the FCC over rates and everything else that is involved: is that correct?

Mr. HARTMAN. Correct, at least as I read their petition. I probably should not be interpreting for them.

Mr. ROBACK. Are you standing behind the argument in your petition for a restraining order as to FCC jurisdiction?

Mr. HARTMAN. Oh, yes.

Mr. ROBACK. Do you still interpret the applicable statutes as requiring the FCC to approve any business, and to control any business that Comsat has with the Defense Department?

Mr. HARTMAN. Yes, sir.

Mr. ROBACK. This is a constructive interpretation, so to speak, of the situation.

Mr. HARTMAN. Yes, sir.

Mr. ROBACK. This is your interpretation of the matter.

Mr. HARTMAN. That is correct.

Mr. TOWER. That is right.

Mr. ROBACK. Is there anything else, any other observations that you would want to make to the committee?

Mr. TOWER. I think not, sir. I think I have said as much as I am prepared to today. Thank you very much again.

Mr. HOLIFIELD. We appreciate your testimony, Mr. Tower, and we find it quite helpful.

Mr. TOWER. Thank you very much, sir.

(The following correspondence was submitted for the record :)

INTERNATIONAL TELEPHONE & TELEGRAPH CORP.,
New York, N.Y., August 30, 1966.

Gen. JAMES R. MCCORMACK,
Chairman of the Board, Communications Satellite Corp., Washington, D.C.
DEAR JIM: At the last meeting of the board of the corporation the attention of
the directors was drawn to hearings held during the preceding several days by
the Holifield subcommittee in which committee counsel and witnesses discussed
(a) the recent quotation by the corporation to the Defense Communications
Agency for 30 satellite channels to serve between Hawaii and various points in
the Far East; (b) quotations for similar service by the international record
carriers; and (c) the complaint against the corporation and application for a
preliminary injunction filed by ITT World Communications, Inc. (Worldcom).
Reflection on the discussion at the board meeting has led me to the conclusion
that it would be helpful to review this situation in some detail, not only helpful
to you in preparation for your appearance before the subcommittee, but also to
the other directors in coming to an understanding of this complex situation.

At the outset it should be understood that Worldcom's basic position in this matter is, and has been based on the following principles: (1) That Congress delegated to the Federal Communications Commission the authority and responsibility for regulating the corporation as a common carrier subject to the Communications Act; (2) that the FCC, in the exercise of that authority, has the plenary power to license or not to license the corporation to provide services directly to the U.S. Government; and (3) that rates for communications services have not heretofor been and cannot be established, consistent with the long-run public interest in maintaining diversity of facilities and capabilities, on the basis of the costs of one type of facility or medium of communication, but must be on a composite basis reflecting the costs of all media and facilities.

The actions of Worldcom in connection with the DCA's requirements for satellite channels have been consistent with these principles.

Thus, although other carriers may have submitted bids which were based solely upon the costs of satellite channels and thus may have been at a level competitive with the corporation's bid, the quotation submitted by Worldcom to the DCA was a composite rate for both satellite channels and cable channels based upon the costs of operating a communication system consisting of diverse facilities. While this rate was substantially lower than that presently established for cable rates, it was clearly noncompetitive with the quotation submitted by the corporation, which was, since it was based solely on the costs of satellite channels, much lower than the Worldcom bid. However, since the rates quoted by Worldcom were stated to be rates applicable to cable channels as well as satellite channels, the Worldcom quotation gave promise of broader benefits, not only to the DCA, but to all other users of cable channels.

Second, the complaint and petition for injunctive relief, which Worldcom continues to believe were well-founded in law, were instituted primarily as a means of bringing up for immediate consideration the question of the FCC's jurisdiction for administrative and judicial consideration, since both the corporation and the DCA were unwilling to acknowledge the authority of the FCC in this matter. The course of the corporation in this situation appeared to be one calculated to undermine the effective exercise of such regulatory jurisdiction by the FCC, to pose the FCC with a fait accompli when it came to determination of the authorized-user proceeding, much as the FCC has found was the course followed by the corporation in connection with the TRW contract.

Finally, it was Worldcom's purpose to bring under the scrutiny of those with experience in the economics of the communications industry the impossible situation which would be created by the action of the corporation in establishing rates to users based only on the costs of the satellite medium of communication as against the long followed practice of establishing rates based upon all types of facilities required by the users.

The situation is clearly illuminated by the following chronology of events: 1. The FCC issued its notice of inquiry in the "authorized user" proceeding (docket No. 16058) on June 16, 1965, among the issues raised by the Commission were the following:

"(a) The extent to which, as a matter of law, persons and entities in the United States, other than communications common carriers, can be authorized to obtain telecommunications channels or services directly from the corporation.

"(b) The extent to which, as a matter of policy, such persons or entities should be authorized to obtain channels or services directly from the corporation."

Briefs and comments were filed by 24 parties on or before November 1, 1965, and reply briefs were filed on or before January 3, 1966. The question of whether the corporation could or should be authorized to deal directly with the Government was squarely placed in issue, not only by the Commission, but more specifically by the parties to the proceeding, including the corporation, the General Services Administration, which appeared on behalf of the Government in its capacity as a customer for communications services, and Worldcom.

2. As you have noted in your letter of August 9, 1966, to Gen. James D. O'Connell, Director of Telecommunications Management, the corporation was first apprised by the DCA of its requirements for satellite channels in December 1965. Despite the fact that the FCC had included in its authorized user proceeding the question of whether, as a matter of law or policy, or both. the corporation should be authorized to provide service directly to the Government, and the corporation was well aware of the conflicting views on that question, the corporation proceeded to undertake negotiations with foreign governments with a view to making

agreements necessary to provide the foreign segments of the satellite channels as though this issue had not been raised by the FCC. During the next several months the corporation substantially completed arrangements to provide the channels. During this period the DCA was dealing with the corporation on a "sole source basis."

3. On January 18, 1966, Mr. Sampson, vice president, operations, of the corporation, told Mr. J. R. McNitt, president of Worldcom, of the DCA inquiry of Comsat during the course of an informal discussion. This was the first word which Worldcom had had of the DCA's requirements.

4. On February 10, 1966, representatives of Worldcom met with Admiral Boyle, Chief of the DCA Communications Satellite Office, to urge that the international record carriers be permitted to submit proposals to serve the DCA's requirements. The Worldcom representatives left that meeting under the impression that the DCA was negotiating with Comsat on a sole source basis because the DCA bad been directed by higher authority to do so.

5. On February 24, in a letter to Admiral Boyle thanking him for the opportu nity to discuss the matter, it was stated by Mr. Joseph Gancie, a vice president of Worldcom, that he understood that the DCA had dealt only with Comsat because it had been "directed by higher authority to secure satellite channels solely from Comsat."

6. Subsequently, on March 3, Colonel Paschall, in responding to Mr. Gancie's letter, wrote that this statement did not accurately reflect the situation. The DCA, he explained, had gone to Comsat and not to the other carriers in accord with the current practice of going to the carrier which is in a position to provide the facilities. However, it would appear from the transcript of colloquy between Mr. Roback and Colonel Forbes at the Holifield subcommittee hearings held last week which was shown us at the board meeting, that General Starbird had received a letter dated January 21, 1966, which directed him to negotiate with Comsat.

7. On March 14, Mr. Gancie wrote back to Colonel Paschall stating that Worldcom met the criteria he had set forth, that it is in a position under the Communications Satellite Act of 1962 to provide facilities secured from Comsat and that it had had recent experience in providing such satellite channels.

8. No direct response to Mr. Gancie's letter was had from the DCA. During the month of April, however, Mr. Gancie had occasion to discuss the matter with Gen. James O'Connell, Director of Telecommunications Management, and according to the account given by General O'Connell later, apparently convinced General O'Connell that the Worldcom position was correct. General O'Connell later re ported at a meeting I attended on June 22 that he secured agreement by the DCA to the proposition that requests for proposals to provide the 30 satellite channels should be directed to the international carriers.

9. On May 2, 1966, after the decision had been made to seek quotations from the international record carriers as well as from Comsat, the DCA directed an inquiry to Worldcom requesting a firm quotation of the terms and conditions under which it would supply the 30 satellite channels which it had previously had under discussion with the corporation.

10. Subsequently, on May 6, 1966, Worldcom directed an inquiry to Comsat requesting a firm quotation of the terms and conditions under which Comsat would provide to Worldcom the 30 channels desired by the DCA.

11. In response to that request, on May 13, 1966, Comsat quoted to Worldcom a rate of $48,000 per year per half circuit between Hawaii and Japan, the Philippines or Thailand. This quotation was set forth in a letter from Mr. Sampson to Mr. Alfred A. Hennings, vice president of Worldcom. In part, Mr. Sampson's letter reads as follows:

"At the present time, Comsat is expecting to propose a rate for service to anthorized common carriers of $48,000 per year per half circuit, Hawaii through half of the satellite to Japan, the Philippines or Thailand. However, this figure could change as the determinations of cost are refined in which case you will be immediately notified." [Italic supplied.]

12. On May 31, 1966, in accord with the DCA request for proposals, Worldcom. submitted a proposal to the DCA for the 30 channels. No notice of a change in the corporation's quotation had been received by that date. The Worldcom quotation was based in part on the quotation set forth in Mr. Sampson's letter, however other matters, such as the costs of cable channels and the anticipated shifting by DCA of existing leases from cables to satellites, also were factors. A copy of Mr Sampson's letter to Mr. Hennings was appended as attachment 6 to that propose L

13. At a prehearing conference on March 17, 1966, held by Hearing Examiner Fredericks in the FCC's proceeding on Comsat's initial tariff, Comsat's counsel had announced that the corporation expected to file a new tariff covering services in the Pacific during the first week of June 1966. This statement was made in support of a suggestion that the prehearing conference and the hearing itself be postponed pending that event. It should be noted that the corporation is required by the terms of the Communications Satellite Act of 1962 to file tariffs covering its charges to other carriers for satellite channels. Hence, it was anticipated that the rate which was quoted to Worldcom in Mr. Sampson's letter of May 6 would be the basis for the tariff filing to be made by the corporation early in June 1966. 14. Thereafter, on June 15, I received a copy of your memorandum prepared for the directors in anticipation of the June 17 meeting of the corporation's board. In that memorandum you stated, at page 3, that the corporation proposed to file tariffs establishing new rates for service beginning in the fall of 1966 in the Atlantic and Pacific "in the next few days." It was stated, in part, the "The annual rates proposed are $45,600 per half circuit from Hawaii to the Far East * * * [Italic supplied.] It will be remembered that the rate quoted

to Worldcom and the other carriers was not $45,600 but $48,000.

15. Although it appeared then (a) that the corporation intended to charge a lower rate than that which had been quoted to Worldcom, and that it was likely that this lower rate had been used in preparing the corporation's bid to the DCA, (b) that Worldcom's rate, based as it was, in part, upon the rate quoted in Mr. Sampson's letter could be reduced if the corporation's rate was reduced, and (c) although Worldcom had been accorded the opportunity to submit a revised proposal prior to 5 p.m., Friday, June 17, Worldcom did not do so since it had not been informed by the corporation, other than through the information I received as a director, of the corporation's new rate of $45,600 per half circuit between Hawaii and the Far East.

16. Thereafter, on June 21, it appearing to Worldcom's counsel that there were reasonable grounds for believing that the corporation had used the proposed lower rate in the formulation of its bid to the DCA, a complaint charging discrimination against the corporation was filed on behalf of Worldcom. The grounds for the belief that the corporation had discriminated against the carrier to permit Comsat to submit a more favorable bid was based upon the proposed rate set forth in the memo I had received on June 15, and the statement by Comsat's counsel at the prehearing conference referred to above, that the corporation intended to file tariffs for service in the Pacific early in June 1966, and the requirement of the Satellite Act that Comsat file tariffs covering its charges to the other carriers. However, as noted above, the major purpose sought to be served was to raise immediately the issue of the FCC's jurisdiction over the authorized user question and Comsat's rates, and to seek to slow the corporation and the DCA in what appeared to be a clear effort to frustrate the administrative process in the event that the FCC were to rule against the position taken by the corporation and the DCA in the authorized user proceeding.

17. On June 22, Worldcom had filed its complaint with the FCC and after it had filed an application to the court of appeals, described later, Comsat abruptly informed Worldcom and the other carriers that the corporations' charges to them for the space segment to be used in fulfilling the DCA requirements in fact would be reduced to $45,600, and publicly announced the reduction in its quotation.

18. The application to the court of appeals was a further effort to preserve the jurisdiction of the FCC and the court of appeals, which has the statutory jurisdiction to review determinations by the FCC. The application was made under the so-called All Writs Act, which provides that the court of appeals has the power to issue all writs necessary to preserve its jurisdiction. The application was made for an order requiring the corporation to desist from doing anything which would prevent the FCC from granting the relief requested by Worldcom in its complaint.

19. On June 23, 1966, the FCC publicly announced its determination in the authorized user proceeding, stating in part, that it would authorize Comsat to deal directly with the U.S. Government only in unique and exceptional circumstances where the other carriers could not fulfill the Government's needs. 20. Upon a statement by the General Counsel of the FCC to counsel for Worldcom that the Commission's determination in the authorized user proceeding rendered such a writ unnecessary, since the Commission, under its ruling, could act appropriately in the circumstances, the Worldcom applica

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tion for the special writ to the court of appeals was withdrawn on Friday, June 24, without prejudice to renewal.

21. On July 21, the FCC issued its full opinion in the authorized user proceeding. On July 22, Chairman Hyde, at a meeting of the international carriers held in his office, told those present that he had received assurances from Comsat officials that the corporation would act promptly, within a few days, to bring before the Commission the question of whether the supplying of the 30 satellite channels to the DCA could be accomplished under the carriers' carrier concept, or falls within the criteria justifying direct service to the Government by Comsat set forth in the Commission's unanimous opinion. Chairman Hyde asked the carriers to similarly act promptly so that the matter could be resolved as rapidly as possible.

22. As of August 24, Comsat had not fulfilled this commitment, thus having put off for an additional month the determination of this important issue. In order to bring this matter before the Commission in a timely fashion once again Worldcom had to act and on that day, Worldcom filed an application for authority to supply the channels to the DCA, and assume the contract between the DCA and the corporation.

As is clear from the foregoing, the information transmitted to me as a director of the corporation was not used by Worldcom either to prepare its original proposal or to submit a revised bid, as it was given an opportunity to do. Further, it is manifested that Worldcom's proposal was not competitive with the corporation's bid since the Worldcom proposal was to supply satellite channels as part of an integrated offering of satellite and cable channels at a composite rate based upon the cost of both types of facilities and not just satellite costs, as was the much lower bid of the corporation. Finally, it is clear that the principal sources of the friction and controversy between the carriers and the corporation have been (a) the corporation's refusal to submit to the jurisdiction of the FCC, and (b) its refusal to recognize that the continued viability of existing communications facilities and skills of the established carriers would be imperiled by a rate structure which allows a customer to pay different rates for channels be tween the same points.

In light of Committee Counsel Roback's expressed interest in this matter as pointed out to me at the last board meeting, and in light of the similar interest of the other directors, I am taking the liberty of sending them each a copy of this letter.

Very truly yours,

Gen. JAMES MCCORMACK,

T. B. WESTFALL, Executive Vice President.

INTERNATIONAL TELEPHONE & TELEGRAPH CORP.,
New York, N.Y., March 17, 1966.

Chairman and Chief Executive Officer,
Communications Satellite Corp.,
Washington, D.C.

DEAR JIM: This has reference to your memorandum of February 16, 1966, which you sent to all directors concerning a protest entered by an "(unnamed) U.S. company" concerning Comsat's activities in southeast Asia which I responded to at the February board meeting. Since the minutes of the February board meeting contained no reference to my remarks and since you had, as you say, taken a very serious view of this "mysterious charge against Comsat,” it appears necessary to reduce to writing my answer to your memorandum and request that it be made a part of the minutes and distributed to all the directors, in order to set the record straight.

I would like to deal first with the "mysterious" nature of the protest. The protest was entered by Mr. Howard Aibel of ITT with Mr. Hoyt Price of the State Department. At the time it was entered, Mr. Price was advised that he was at liberty to use ITT's name in any discussion of the protest. Moreover, we are informed by Mr. Price that prior to your visit to the State Department he discussed the matter with members of your staff who were very clear as to the fact that it was ITT which had entered the protest. Additionally, we knew that ITT's identity as the complainant had been disclosed to your staff since Mr. John Ryan of our Washington office was called by a member of your staff in connec tion with this matter almost at once. Furthermore, we are advised by Mr. Price

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