TESTIMONY OF LARRY IRVING ASSISTANT SECRETARY FOR COMMUNICATIONS AND INFORMATION U.S. DEPARTMENT OF COMMERCE ON SATELLITE-BASED TECHNOLOGIES AND THE GLOBAL INFORMATION INFRASTRUCTURE BEFORE THE SUBCOMMITTEE ON TELECOMMUNICATIONS AND FINANCE COMMITTEE ON ENERGY AND COMMERCE JULY 28, 1994 Good morning, Mr. Chairman, it is a pleasure to have this opportunity to address your Committee's hearings on international satellite communications policy. These sessions are particularly timely and useful as we enter an era of unprecedented change and promise. As we celebrate the 25th anniversary of the Apollo 11 moonlanding, we are reminded that Intelsat and Comsat made possible the first truly worldwide television event by transmitting live broadcasts of humankind's first steps on the moon. Since that historic mission, revolutionary changes have occurred in telecommunications to allow for the establishment of a Global Information Infrastructure or GII. Earlier this year in Buenos Aires, Argentina, Vice President Gore captured the attention of the world's telecommunications community with a straightforward statement of our goals and principles to encourage development of the GII. The Vice President endorsed five principles as the foundation for a GII: private investment, competition, open access to networks, universal service, and a flexible regulatory framework. Since the Vice President's speech, the Administration has been besieged with calls from every corner of the world from national governments and telephone operating companies to individual businesspeople and private citizens. All seek to learn more about the GII and how they can participate in its future deployment. In the years ahead, it is this enthusiasm, coupled with technologies that could not have been dreamed of 30 years ago, that will change the way we communicate with each other, improve the way we work, facilitate learning, and revolutionize the way medicine is practiced around the world. A wide range of technologies will be required to accomplish this goal, and we anticipate that satellites will play a crucial role in creating a truly global information infrastructure. Last week the single most observed astronomical event in history occurred -- the cataclysmic collision between the Shoemaker-Levy 9 comet and the planet Jupiter 500 million miles away from earth. Millions of earthbound explorers were able to experience first- hand the images of Jupiter as they were relayed around the world on the Internet. People in some countries around the world were able to receive these images only through satellite telephone links. Due to accelerating improvements in satellite, computer, and networking technologies, users have benefitted from an expanded range of services at lower costs and higher quality. Indeed, these technological innovations have enabled international satellite organizations to achieve their public service objectives even in an increasingly competitive market environment. Mobile satellite services have pushed forward the global information infrastructure to places previously cut off from the outside world. Today, thousands of people owe their lives to the disaster communications provided by systems such as Inmarsat. Still, the facts are that one-half the world's population has never used a telephone and that half the world's population lives two or more hours from the nearest telephone. Much has been accomplished but much remains to be done. The continued successful operation of Intelsat and Inmarsat relies upon realistic evaluations of how their organizational structures will enable them to effectively operate in radically transformed market and technology environments. Both Intelsat and Inmarsat are encumbered by an awkward and gradualist governance and management structure ill-suited for a competitive telecommunications market. Changes in these organizations are needed. Indeed, Intelsat and Inmarsat -- our vehicles for radical change yesterday -- are themselves considering change. Change is not only inevitable, it is essential and desirable. The questions are: What change? When and how? These are questions that the Administration is addressing now, and we expect to have specific answers shortly. Today, many other nations are encouraging competition in their telecommunications markets. Many countries have commenced wide ranging domestic reforms while others are considering their options before initiating their own privatization and regulatory reforms. This makes the formulation and implementation of international policy a far cry from the PTT (Postal Telegraph and Telephone Ministry) dominated era of only a few years ago. In fact, over 60% of Intelsat's ownership is now privatized. This means that the relationship between governments, signatories, and the satellite organizations also will change. Although the momentum of Inmarsat and Intelsat appears to be towards privatization, neither organization has, as yet, fully defined privatization within the context of their decision-making structures. As these satellite organizations make these determinations, we will be defining what the appropriate role for governments will be. We anticipate that proposals for the reform of these international satellite organizations will probably correspond to the following options: total privatization, partial privatization, and status quo. The first option, total privatization, would mean these organizations would eliminate the role of mandatory government oversight. They would no longer function as intergovernmental organizations and, therefore, would be ineligible for privileges and immunities. A totally privatized organization's primary operational focus would be the maximization of profits in a competitive worldwide marketplace. Proposals in this category would create a private company, or group of companies, much as private carriers have private carriers have replaced government- run PTTs in countries like Chile and Argentina. Although the analogy between the international satellite sector and U.S. domestic marketplace is not perfect, it is worth noting that, across the globe, both technology and the telecommunications marketplace have changed dramatically. The decision to end the long-distance telephone monopoly in the United States and to introduce competition in that market has resulted in: lower end users costs, new services and technologies that have created hundreds of new U.S. companies and tens of thousands of new jobs for Americans. Thus, the Administration cannot dismiss the possibility of pursuing a course that would encourage greater competition in the international satellite arena. The next option, partial privatization, would entail some kind of intergovernmental role, but the decision-making structure would be focused on the provision of competitive satellite services although some provision of public service interconnectivity would still be required. Reform proposals in this category envision an entity resembling the current regional Bell operating companies, which are a combination of purely commercial and government regulated entities. The last option is continued operation as an intergovernmental organization with some improvements to the current structure, governance and management. The primary focus would continue to be on global interconnectivity for the provision of conventional services and safety-of-life at sea. The structure and functions of such an entity would be dominated by its intergovernmental status as stipulated by treaty. While reform proposals will probably advocate one of these options over another for the restructuring of Intelsat and Inmarsat, our paramount concern remains that the public service obligations fulfilled by Intelsat and Inmarsat not be discarded. Both Intelsat and Inmarsat have proposed continuation of their public service obligations even when restructured and we are confident that if the proper care is taken, they will be even better able to serve the world community due to better technology and a more flexible structure -- without using their intergovernmental status as a barrier to other service providers. Intelsat's public service obligation has included provision of global interconnectivity -- often referred to as universal service -- at non-discriminatory prices. In total, there are about 70 fixed satellite global, regional and domestic systems with approximately 200 commercial satellites planned or in operation. In addition, Intelsat has 20 satellites in operation and another 14 planned. Regional and domestic satellite systems throughout the world are growing and are expected to grow with even greater speed as a more level playing field is introduced in international satellite telecommunications. Thus, although there are some areas that are currently underserved by satellite communications -- Africa is such an area -- one may reasonably predict that all these facilities-based providers should be able to collectively ensure global interconnectivity. Inmarsat was created to test the then-uncharted waters of mobile satellite communications and its public service obligation has been to ensure maritime safety-of-life communications. Inmarsat is considering a new role -- offering a full range of commercial mobile satellite services. Before proceeding down that course, we must ensure that this new role is consistent with its core public service responsibilities and is otherwise appropriate in the emerging competitive market for mobile satellite services. The Administration is concerned that the proposed Inmarsat affiliate would reap the advantages of Inmarsat by being named, managed and owned by Inmarsat, without also fulfilling the public service obligations of Inmarsat. Another issue of concern is that Intelsat and Inmarsat currently conduct their business with certain privileges and immunities accorded to them as part of their treaty status. While these international satellite organizations believe the privileges and immunities to be of little commercial value, they do confer a standing unavailable to competitors. Thus, it can and has been argued that Intelsat and Inmarsat should surrender these privileges and immunities in conjunction with any effort to become privatized commercial enterprises. The Administration is working hard to fully coordinate and develop an appropriate U.S. government policy regarding satellite issues. My colleague at the State Department, Ambassador- Designate Vonya McCann, has undertaken the task of chairing an interagency committee on these matters. In the committee, we are addressing these policy issues from the perspective of the following principles: promoting an open, competitive market for telecommunications services, ensuring equal status for all satellite service providers, maintaining public service obligations, and enhancing the growth of the global information infrastructure. Further meetings of the interagency group will occur this summer and fall. Earlier this month, public hearings were held by the interagency committee on the entire range of satellite issues. At the hearing, we heard from a number of satellite providers, users, and interested individuals. We anticipate that some of these same issues will come up at the GII hearings sponsored by Secretary Brown and the Department of Commerce that are being held this week. In addition, NTIA has conducted a series of interagency meetings focused solely on the proposed Inmarsat affiliate. In a somewhat related matter, NTIA is also involved in the development of U.S. proposals for the 1995 International Telecommunication Union (ITU) World Radiocommunication Conference (WRC-95), the results of which could have a direct impact on the U.S. satellite industry. NTIA, for a number of years, has promoted the needs of the mobile satellite service at the ITU, in such fora as Administrative Council meetings and, most recently, at WARC-92 and WRC-93. On the domestic front, NTIA, through the Radio Conference Subcommittee of the Interdepartment Radio Advisory Committee, is currently reviewing proposals that include items for WRC-95, as well as the agenda for WRC-97 and the preliminary agenda for WRC-99. NTIA will coordinate these positions with the Federal Communications Commission to identify final U.S. proposals and positions for these conferences. Mr. Chairman, let me assure you of this: this Administration recognizes the complexity of the policy issues and legal perspectives attendant to the debate over the future of the global satellite industry. The Administration's goal is to keep the focus of our deliberations on what is best for the end users -- American users surely, but users around the globe as well. We believe that we can and we will develop the correct answers to these difficult issues if we continue to put the end user first. Mr. Chairman, just as you have helped marshall new legislation through the House of Representatives that will introduce more competition into the telecommunications market, the Administration hopes to assist in an effort to ensure a level playing field for satellite telecommunications networks. We are on the threshold of a great opportunity in the area of global interconnectivity through satellites. We are transitioning from networks that have served us well in the past, but now must reconfigure themselves to deal with current and future competition. President Kennedy called for a world woven together by the invisible tethers of satellite communications, a vision that became Intelsat. Just as the Kennedy Administration had the foresight to see technology not for what it is but for what it could be, the Clinton Administration also calls for a world woven together through a global information infrastructure. We intend to venture beyond the original vision to make global communications and information exchange by the end of this century as easy, ubiquitous, and cost-competitive as domestic calling is in the United States today.