In the matter of                             )
                                                    )
Market for Satellite                       ) Docket No. 000410098-1077-02
Communications and the               ) RIN 0660-ZA12
Role of Intergovernmental             )
Satellite Organizations                   )
 

Lockheed Martin Corporation ("LMC") hereby submits comments in response to NTIA’s Federal Register Notice to assist the Secretary of Commerce in responding to various statutory requirements relating to the privatization of INTELSAT and Inmarsat.

Specifically, NTIA requests comments regarding the "advantages accorded to signatories of the International Telecommunications Satellite Organization (INTELSAT), in terms of immunities, market access, or otherwise, in the countries or regions served by INTELSAT, the reason for such advantages, and an assessment of progress toward fulfilling a pro-competitive privatization of that organization." NTIA also requests comments on the progress of privatization in relation to the objectives, purposes and provisions of the Open Market Reorganization for the Betterment of International Telecommunications (ORBIT) Act. The ORBIT Act requires the President to provide an annual report to Congress on such progress. The first such report was released on February 27, 2001, and concludes that there has been consistent progress in fully achieving the pro-competitive privatization of INTELSAT and Inmarsat. The report observes that Inmarsat was fully privatized in April 1999 with all of its assets transferred to a U.K. corporation, which has no special status, privileges or immunities, and that INTELSAT’s 144 member countries took the necessary decisions to privatize INTELSAT at INTELSAT’s Twenty-fifth (Extraordinary) Assembly of Parties meeting in November 2000.

Consistent with this assessment, LMC provides herein further updates demonstrating: 1) the lack of any competitive advantages resulting from Inmarsat’s or INTELSAT’s international intergovernmental status that negatively impact the satellite market, and 2) continued progress towards a pro-competitive privatization of INTELSAT and Inmarsat consistent with the ORBIT Act. LMC, through its acquisition of COMSAT – the U.S. Signatory to INTELSAT and the former U.S. Signatory to Inmarsat, provides satellite and telecommunications services through Lockheed Martin Global Telecommunications ("LMGT"), and has a strong interest in the successful privatization of Inmarsat and INTELSAT.

As the Department of Commerce recognized in its Second Annual Report to Congress on the International Anti-Bribery and Fair Competition Act (IAFCA):

INTELSAT

INTELSAT has made substantial progress towards privatization and any competitive advantages resulting from its ISO status are diminishing. The INTELSAT Twenty-fourth Assembly of Parties meeting in October 26-29, 1999, determined that INTELSAT should restructure in a manner that provides for operation as a corporation without privileges and immunities. The Twenty-fifth (Extraordinary) Assembly of Parties in November 2000 finalized this privatization structure. INTELSAT will cease to exist as an ISO and will have no privileges or immunities upon its privatization in July this year. As a private company, the new INTELSAT and its affiliates will be fully subject to all national laws in the jurisdictions in which they are incorporated and in which they operate. Any purported privileges or immunities accruing to signatories as a result of their signatory status also will cease with INTELSAT’s privatization in July 2001 at which time the signatory status will cease to exist. The private INTELSAT will provide service post privatization under non-exclusive distribution agreements not limited to ex-signatories. All distributors will be subject to the laws, regulations, and licensing requirements in the countries in which they provide service, and none will have any immunity.

In addition to immunities, the Notice requests comments on market access advantages and the nature of the market for satellite communications. The Department of Commerce already has concluded that whatever barriers satellite systems may face in foreign markets, these barriers were not created by INTELSAT. The First Annual Report to Congress found that although a number of satellite systems face barriers in many foreign markets, INTELSAT is not itself the source of these market access problems. The Report further concluded: "privatization of INTELSAT will not provide a lever for opening the monopoly foreign markets that resist competitive entry. The problems of foreign telecommunications monopolies must be addressed directly, through bilateral negotiations or by enforcing and expanding market-opening multilateral arrangements such as the WTO agreement." The Department of Commerce similarly concluded last year in its Second Annual Report to Congress: " We reiterate that INTELSAT, as a wholesale provider of satellite services, is not itself the cause of market access barriers."

As NTIA demonstrated in its September 25, 2000 report to the FCC, most of INTELSAT’s member countries are members of the World Trade Organization (WTO). Of those non-WTO members, 10 countries impose barriers to market access for private satellite systems. It cannot be concluded, however, that these national barriers have any relationship at all to membership in INTELSAT as these same countries have monopolies and barriers restricting market access for all international services, not only for satellites, and for most domestic services as well. INTELSAT’s intergovernmental agreements and structure do not dictate the market access or regulatory policies of its member countries. In fact, they were designed to be transparent to any single country’s regulatory requirements. Whether a country maintains market barriers for satellites or not has nothing to do with INTELSAT’s status as an ISO. Nor does its status as an ISO guarantee it market access. For example, in the United States, the FCC has not permitted INTELSAT, as an ISO, market access for providing purely U.S. domestic services.

As the commitments made in the WTO Basic Telecom Agreement continue to be implemented, market access barriers will continue to decrease. These commitments include not only market access for satellites, but also national treatment which guarantees that foreign suppliers be treated on a nondiscriminatory basis vis-à-vis national suppliers. In addition, virtually all of the 80 countries making WTO commitments also adopted the Reference Paper on regulatory principles. Under these principles, countries must establish regulatory authorities that are independent of any operators and must license on a transparent and nondiscriminatory basis. A majority of the shares in INTELSAT are owned by signatories from WTO-member countries with commitments to market access, national treatment and to the Reference Paper. These WTO-member governments, not INTELSAT or its signatories, are responsible for adhering to these WTO obligations.

In any case, INTELSAT, as an ISO with signatories, will cease to exist in July 2001 when INTELSAT privatizes. Notably, as part of INTELSAT’s privatization process, the first guidelines for privatization adopted by the Assembly of Parties were adherence to the principles of and practices of fair competition, market access on the same basis as provided to other entities providing similar services, and the commitment of signatories and member governments not to foreclose or seek to foreclose landing rights for the privatized INTELSAT’s competitors. Further, the FCC, in licensing the private INTELSAT to provide service in the United States, conditioned the license on the private company not acquiring or enjoying exclusive rights in providing telecommunications services to, from, or within the United States.

The Department of Commerce also has examined antibribery programs and transparency with respect to international organizations covered by IAFCA, including INTELSAT’s policies on bribery and transparency. It concluded in the Second Annual Report to Congress that the INTELSAT intergovernmental organization has the requisite tools in place to address antibribery and transparency issues in its policies and programs. INTELSAT’s provisions regarding procurement, conflicts of interest and contributions, and audit procedures were assessed and found to provide adequate protection. These policies remain in place.

Inmarsat’s privatization has been achieved consistent with the requirements of the ORBIT Act, including jurisdictional requirements, commercial structure and governance, planned conversion to a publicly traded company, and lack of preferential treatment.

Inmarsat Ventures plc is incorporated in a jurisdiction -- the U.K. -- that has effective laws that secure competition and that is a signatory to the WTO as required by Section 621(5)(7) of the ORBIT Act. The U.K., as a member of the European Union, has scheduled commitments under the WTO Basic Telecom Agreement that include market access and national treatment for satellites. Inmarsat is not accorded special status under English law and is subject to the same laws and regulations, including tax, competition, and employment, as its competitors.

Inmarsat Ventures plc operates as a commercial entity with a fiduciary Board of Directors. On March 14, 2001, four members of Inmarsat’s Board of Directors resigned so that no more than five of the thirteen directors are in any way affiliated with the former Signatories to Inmarsat, consistent with Sec. 621(5)(c ) of the ORBIT Act. Inmarsat Ventures plc has plans for an IPO by the end of this year, consistent with ORBIT, and its shares will be listed on one or more major stock exchanges in the U.S. and in the U.K. The IPO is expected to achieve a substantial dilution of ownership by former Inmarsat signatories.

As required by Section 621 (3) and (6) of the ORBIT Act, Inmarsat Ventures plc has no preferential treatment or access to orbital slots and must apply to the ITU through the U.K.’s national licensing authority, the Radiocommunications Agency of the Department of Trade and Industry, for international frequency assignments and orbital slots.

Inmarsat also meets the ORBIT Act criteria governing the relationship between the privatized corporation and the remaining intergovernmental entity, IMSO. IMSO exists as a separate legal entity responsible for ensuring that Inmarsat meets its public service obligations, notably the Global Maritime Distress and Safety System (GMDSS). IMSO holds a "special share" in Inmarsat, but has no voting rights and has no economic value. There are no common directors, officers, or managers and there are no commercial transactions. IMSO oversight over the GMDSS is through an arm’s length contract, the Public Service Agreement.

INTELSAT Privatization Meets ORBIT Act Criteria

On November 17, 2001, INTELSAT’s Assembly of Parties agreed to the full privatization of INTELSAT. The package of decisions agreed to by the Assembly required the consensus of INTELSAT’s 144 member nations -- all of which agreed that the transactions to effect the privatization must be completed by July 18, 2001. The decisions endorsed by the Assembly are consistent with the ORBIT Act criteria for a pro-competitive privatization as are decisions taken by INTELSAT’s Board of Governors.

The ORBIT Act establishes criteria for the jurisdiction of the privatized INTELSAT, its corporate structure and governance, its ownership structure and conversion to a publicly traded company, and lack of any preferential treatment.
 
 

Jurisdiction

Sec. 621(7) of ORBIT requires the private INTELSAT to be subject to the jurisdiction of a nation or nations that have effective laws and regulations that secure competition in telecommunications services, are signatories to the WTO Basic Telecom Agreement, and have a schedule of commitments that include non-discriminatory market access to satellite markets.

AP-25 endorsed recommendations by the Board of Governors that all of INTELSAT’s assets be transferred to a private entity or entities established under the law of one or more States. Upon privatization, all of INTELSAT’s assets and liabilities will be transferred to a group of affiliate national corporations with a holding company structure. The holding company will be organized under the laws of Bermuda with affiliate corporations in the U.S. and the U.K. serving as licensing jurisdictions for the orbital slots and frequencies. The U.S. and the U.K. are members of the WTO with full market access commitments under the Basic Telecom Agreement.

Corporate Structure and Governance

Section 621 (5) of the ORBIT Act requires the Board of Directors to have a fiduciary obligation. The majority of the Board shall not be directors, employees, officers, or managers or otherwise serve as representatives of any signatory or former signatory. In addition, no member of the Board shall be a director, employee, officer or manager of an IGO remaining after privatization. No officers or managers can be officers or managers of any signatories/former signatories, or have any direct financial interest in or financial relationship to any signatories or former signatories, except that such interest may be managed through a blind trust or similar mechanism. No directors, officers, or managers may hold such positions in any IGO.

The Board of Directors of the new Intelsat will have a fiduciary obligation and will meet all of the criteria set forth in the ORBIT Act. The Bye-Laws will ensure that the majority of the new Board will not be directors, employees, officers or managers or otherwise serve as representatives of any signatory/former signatory, and that there will be no overlap between the new Board and any employee, officer or manager of an IGO remaining after privatization. In addition, the procedures for nominating and for selecting the Board include provisions to ensure that the majority of the 17-member Board qualifies as "independent." The criteria for "independent" directors encompasses all of the ORBIT Act criteria plus the requirements of the London and New York Stock Exchanges. It is worth noting that these criteria go beyond the requirements of ORBIT. For example, to qualify as an independent director, the director may not have held a position as a partner, controlling shareholder, or executive officer of a signatory/former signatory during the three years prior to joining the Board of Directors. Nominations for the Board are due June 1, 2001. The Board will be elected at a special general meeting of shareholders expected to be held on July 19, 2001.

Ownership Structure and Conversion to Publicly Traded Company: IPO

Section 621(2) of the ORBIT Act mandates a pro-competitive ownership structure with an IPO to substantially dilute the aggregate ownership by signatories or former signatories. As required by Section 621(5), the IPO is to be conducted in October 2001, except the FCC may extend this date to no later than December 31, 2002 in consideration of market conditions and relevant business factors. Shares must be listed on one or more stock exchanges with transparent and effective securities regulation. In addition, Section 621(2) prohibits an IGO from having an ownership interest in the privatized Intelsat.

The privatization decisions taken by INTELSAT’s Assembly of Parties and Board of Governors are consistent with these mandates. The Shareholders Agreement clearly establishes that the Company intends to conduct an IPO not later than December 31, 2002. Shares will be listed on one or more stock exchanges with transparent and effective securities regulation. The remaining INTELSAT IGO, or International Telecommunications Satellite Organization (ITSO), will have no ownership share in the privatized Intelsat.

No Preferential Treatment

Section 621(3) prohibits the privatized Intelsat from retaining any privileged or immune treatment by national governments or privileges or immunities of the type accorded through the INTELSAT Agreement and Headquarters Agreement. In addition, there is to be no preferential access to orbital slots and access to new, or renewal of access to, orbital locations must be subject to the legal or regulatory processes of a national government that applies due diligence to prevent warehousing. Section 621(6) further mandates that the privatized company must apply through appropriate national licensing authorities for international frequency assignments and orbital slots for all satellites.

Intelsat Ltd and its affiliates are being organized under national laws and will not have any privileges or immunities. They will be subject to the same laws and regulations as any other private commercial company. The privatized Intelsat will have no preferential access to orbital slots and all ITU orbital slot registration and coordination will be conducted through national governments. The U.S. will serve as the notifying administration and hold the ITU satellite registrations for C and Ku-bands as "USA" slots, and the U.K. will perform this function for all other bands. The FCC already has imposed construction and launch milestones for Intelsat LLC’s ten planned satellites to guard against warehousing. The U.K.’s Radiocommunications Agency similarly has provisions to prevent warehousing. Any future orbital locations and frequencies will similarly be applied for at the ITU through an appropriate national licensing authority.

Conclusion

For the foregoing reasons, it is clear that Inmarsat already has privatized consistent with the mandates of the ORBIT Act, and INTELSAT will achieve a pro-competitive privatization consistent with ORBIT Act criteria in July 2001. Because Inmarsat no longer operates as an ISO, any competitive advantages resulting from this structure are now moot. INTELSAT very soon will cease to operate as an ISO. As the Department of Commerce has concluded in its two prior reports to Congress, any competitive advantages resulting from the ISO structure are diminishing with the conversion of the ISOs to private companies subject to the same national laws and regulations as other private companies. With the continued implementation of the WTO Basic Telecom Services Agreement, barriers to market access should be decreasing. Where market access barriers exist, the responsibility rests with those national governments that maintain them and it is with these governments that solutions must be sought.
 
 

Respectfully submitted,

LOCKHEED MARTIN CORPORATION

By: _____________________

Gerald Musarra

Vice President

Trade and Regulatory Affairs

Lockheed Martin Corporation

Crystal Square 2, Suite 403

1725 Jefferson Davis Highway

Arlington, Virginia 22202

703-413-5791

May 3, 2001