Mr. Milton Brown
National Telecommunications and
Information Administration
U.S. Department of Commerce
Room 4713
14^th and Constitution Avenue, NW
Washington, D.C. 20230

Re: NTIA Docket No. 990405086-9086-01
RIN 0660-2A08

Dear Mr. Brown:

Because the Satellite Users Coalition (SUC) persists in filing legally and factually erroneous pleadings in this proceeding, COMSAT Corporation ("COMSAT") has no choice but to respond to SUC's June 8 filing to correct the record. We regret having to make this supplemental filing. Moreover, COMSAT is at a loss to understand how any of the issues raised by SUC relate to implementation of the International Anti-Bribery and Competition Act of 1998. We will make this response as short as possible.

1. COMSAT is not a middleman: Despite the fact that the 1962 Satellite Act was enacted years ago, it remains the law today. SUC seems to suggest that the passage of time has changed COMSAT's statutory role from the one Congress originally adopted -- making COMSAT the sole U.S. owner and provider of satellite services over the INTELSAT system. Congress did not create COMSAT to act as a middleman, reselling facilities owned by third parties.

SUC continues to ignore the fundamental fact that INTELSAT is a cooperative. The ownership of this cooperative is shared among INTELSAT's Signatories, who in turn pay to manufacture and launch the INTELSAT space segment. The owners of the cooperative then use their facilities to provide service in their own countries. Simply put, COMSAT is the owner of the U.S. portion of the INTELSAT system, consistent with its legal obligation to contribute capital in proportion to U.S. users' utilization of the system, including SUC member usage. In exchange for assuming this investment responsibility and risk, Congress granted COMSAT the exclusive right to provide service over the facilities paid for by COMSAT's shareholders. Middlemen, of course, do not own underlying transmission capacity, as COMSAT does. Thus, SUC is simply wrong in its strained attempt to separate COMSAT's exclusive investment obligation from its exclusive service provider role under the Satellite Act.

As for the assertion that COMSAT earns a target 17-21% return on this investment, SUC should know better. COMSAT's filings at the FCC have made clear that the company's actual after-tax return on assets for 1998 was approximately 9%. This is well below comparable return levels for similarly situated telecommunications firms, as documented in COMSAT's FCC filings. Furthermore, even COMSAT's pre-tax return on its INTELSAT investment for 1998 was only 15%.

2. Direct access in other countries is inapposite: Just because this country has consistently rejected direct access does not mean our policies lag behind other nations. To the contrary, COMSAT was created in large part to keep the existing U.S. carriers from controlling competing modes of international facilities -- undersea cables and satellites. COMSAT was created to promote intermodal competition. As a result, U.S. users today have an abundance of facilities-based satellite and undersea cables to choose from in sending voice, video and data communications around the world. Other countries are just trying to catch up! Direct access is used in those countries to allow new entrants to bypass the dominant or monopoly national carrier to create at least some competition. No such problem exists here, and thus direct access is a solution looking for a problem. Of the 90+ countries referred to by SUC, only six allow unrestricted direct access for all services, as SUC members are advocating here. In fact, to give INTELSAT direct access to the U.S. market before it is privatized will harm competition, given its current immunity from U.S. antitrust laws, FCC regulation and U.S. taxation.

3. COMSAT is not a monopoly. The SUC submission conveniently fails to mention that COMSAT's current global market share in international voice and private line services is 15% and in international video is 25%. That is why the FCC declared COMSAT a non-dominant international carrier over a year ago for over 90% of its business, and adopted an incentive regulation plan for the remaining "thin routes". These routes represent less than 2% of the circuits utilized by SUC members for carrying voice and data transmissions overseas. This is a far cry from the SUC characterization of thin routes representing a "significant volume of traffic". COMSAT is unaware of any economist who would maintain that these figures translate into a monopoly market position. The fact that COMSAT has exclusive access to the facilities it owns is not any economist's definition of a monopoly.

4. The bogus "mark-up" issue: COMSAT does agree with SUC that the market should decide the justifiable level of mark-ups. If COMSAT's margins are not market-based, users are free to select from many other satellite and fiber operators to carry their traffic. Obviously, users do exercise those choices, as reflected by COMSAT's market shares. Moreover, as the Administration has previously explained (see Administration Answers To Additional Questions For The Record From Chairman Bliley, January 23, 1998), the use of the term mark-up in this context is "misleading", because it does not account for COMSAT's costs that are not collected by INTELSAT as part of INTELSAT's Utilization Charges (IUCs). Not only has the FCC previously declined to adopt direct access based on these worn claims, but COMSAT recently provided the FCC with an exhaustive explanation and quantification justifying the amounts it collects above the IUC in the FCC's current direct access rulemaking. In contrast, however, the FCC asked the SUC members a single question -- if there are substantial savings to be realized from direct access, as the SUC members claim, how did the carriers intend to flow through those savings to benefit consumers? The silence was deafening.

5. COMSAT believes contracts should be honored: Claims by SUC members that they should be free to walk away from their commitments to COMSAT deserve no credence. The Administration, the FCC and a federal court have all examined the facts and circumstances surrounding the very contracts at issue, and each time have rejected claims that they were extracted in a monopoly environment or have any anticompetitive effect. In fact, when a COMSAT satellite competitor filed a fresh look petition with the FCC in 1995, just two years after these long term contracts were executed, not one of the SUC members (or anyone else) filed comments supporting fresh look, or expressed any concerns whatsoever with the terms and conditions that COMSAT and the carriers agreed upon.

6. Other Irrelevant Arguments: SUC makes numerous efforts to raise concerns about COMSAT rates, some related to FCC tariff filings made over four years ago. The FCC is the proper forum to raise those concerns when tariff revisions are filed, but tellingly the agency allowed all these rates to take effect, consistent with requirements in the Communication Act that a carrier's tariffs be cost-justified, which COMSAT's are. Moreover, as COMSAT noted previously, its rates have changed many times since then to remain attractive in a more competitive environment, including substantial rate reductions for SUC members over the last five years for the vast majority of services they obtain from COMSAT. Finally, COMSAT is again at a loss to understand the relevance of 1995 rate revisions to the implementation issues involved with the International Anti-Bribery and Competition Act of 1998.
 

Respectfully submitted,
 

Howard D. Polsky

cc: Lawrence J. Lafaro (AT&T Corp.)
Robert S. Koppel (MCI WorldCom, Inc.)
Kent Nakamura (Sprint Communications Company L.P.)