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No.2V S'N X'#XP\  P6QߊXP# Federal Communications Commission FCC 98280  S' #&S\  P@Q/&P#____________________________________________________________________________________N  1#XP\  P6QߊXP##&I7  PT6Q&P##&a\  P6G;/&P# Before the " Federal Communications Commission U:Washington D.C. 20554 S'c ` `  ,hh]  S' In the Matter of ,) hh]  S'` `  ,)hh]  S' Direct Access to the  ,)hh]IB DOCKET NO. 98192  Sp' INTELSAT System  ,)hh]File No. 60SATISP97  X ` `  ,hh]  S '  S ' + NOTICE OF PROPOSED RULEMAKING  S '  SX'Adopted:` ` October 22, 1998hhCqReleased:ppOctober 28, 1998  S' Comments due: December 18, 1998 Reply Comments due: January 8, 1999 By the Commission:  S' I. A. 1. a.(1)(a) i) a) 1. a. i.(1)(a)(i) 1) a)1.` ` On April 24, 1998, we granted Comsat Corporation's (Comsat) petition for reclassification as a nondominant carrier in competitive product markets and denied its petition for  S'reclassification in noncompetitive markets." yO0'ЍXComsat Corporation Petition pursuant to Section 10(c) of the Communications Act of 1934, as Amended, for Forbearance from Dominant Carrier Regulation and for Reclassification as a Non yO'Dominant Carrier, Order and Notice of Proposed Rulemaking, FCC 9878 (released April 28, 1998).  {O'(Comsat NonDominant Order)(#ư In noncompetitive markets where Comsat remains dominant, we also denied Comsat's request for forbearance under Section 10 of the Communications  Sx'Act of 1934, as amended (the Communications Act).Ex yO'ԍ 47 U.S.C.  16.E We indicated, however, that we would consider favorably in evaluating any new forbearance request any actions that Comsat might undertake to promote competitive market conditions. One of the potential procompetitive actions to which we referred was Comsat granting U.S. carriers and users direct access to the International  S'Telecommunications Satellite Organization (INTELSAT) satellite systemB yO#'ԍXThe phrase "direct access to the INTELSAT system" is also phrased as "direct access to INTELSAT" or "direct access to INTELSAT satellites." (# for the purpose of providing"0*&&99R"  S'international communication services.l {Oh'ԍXComsat NonDominant Order at para. 156.(#l We also committed to initiate expeditiously a proceeding to  S'explore the legal, economic, and policy ramifications of direct access.]Z {O'ԍXId. at paras. 6 and 156.(#]  S'2.` ` This Notice of Proposed Rulemaking requests comment on issues related to permitting direct access to the INTELSAT system in the United States. We tentatively conclude that the  S8'Communications Satellite Act of 1962M8 yO 'ԍ 47 U.S.C.  701 et seq.M and the Communications Act give discretion to the Commission to permit U.S. carriers and users the option of   obtaining contractual, or Level 3, direct  S'access to the INTELSAT system.| {O 'ЍXSee paragraph 8 for definitions of the various types of direct access that INTELSAT offers to nonSignatories. (#Ƹ We request comment on whether Level 3 direct access would introduce competition in noncompetitive markets and enhance competition in markets where competition does exist.  SH '3.` ` A number of parties asked that direct access to INTELSAT be made a condition of  S 'granting Comsat the regulatory relief it sought in the Comsat NonDominant proceeding. In this  S 'NPRM, we have made use of the comments and other filings made in the Comsat NonDominant  S 'proceeding addressing direct access to identify many of the issues that need to be considered in this proceeding, and in making tentative conclusions in this Notice. We will incorporate by reference into  S 'this proceeding the relevant portions of the record in the Comsat NonDominant proceeding.  S6'4.` ` Congress is also considering the issue of direct access in connection with proposed  S'legislation.v yO'ЍXH.R. 1872 which was passed by the House of Representatives on May 13, 1998, would require the Commission to permit Level 3 and Level 4 direct access subject to a determination that certain  {O'circumstances exist.  See Report of the Committee on Commerce to accompany H.R. 1872, "Communications Satellite Competition and Privatization Act of 1998", House of Representatives, 105th Congress, 2nd Session, Report 105494, dated April 27, 1998, at pp. 5862. Legislation has been introduced but not passed in the Senate (S.1328 and S.2365). (#v This Notice requests comment on legal, economic, and policy issues arising from permitting direct access under existing law. We will consider issuing a further notice if legislation  S'relating to direct access is enacted during the pendency of this proceeding.u P  yO 'ЍXThe Commerce Committee stated in its Report on H.R. 1872 that it "does not intend to prevent the Commission from exercising its discretion to provide for direct access to INTELSAT or Inmarsat prior to the deadlines outlined in the bill". Commerce Committee Report on H.R. 1872 at p 61. The original sponsors of H.R. 1872 asked the Commission to implement direct access if the Commission granted Comsat's petition for nondominant classification. Letter from Chairman Thomas J. Bliley and Edward J. Markey to Chairman William E. Kennard, dated April 16, 1998. (#u " 0*&&99Q"Ԍ S'ԙ à  S'GI. BACKGROUND Đ\  S'5.` ` The Commission considered direct access to the INTELSAT system in 1984, before INTELSAT developed its current direct access offerings. In 1982, the Commission commenced an  S8'inquiry into whether U.S. carriers should be permitted direct access to INTELSAT's space segment. 8 yO'ЍXRegulatory Policies Concerning Direct Access to INTELSAT Space Segment for U.S. International  {Oh'Service Carriers (Notice of Inquiry), 90 FCC 2d 1446 (1982) (1982 Direct Access Inquiry).(# The Commission considered two alternatives for carriers to obtain direct access to INTELSAT:  S'indefeasible right of use [IRU] and capital leases. " {O 'ԍX1982 Direct Access Inquiry at 14521454. The Commission posed two general direct access options that were described in its Notice. Under the first option, Comsat would have leased space segment facilities to the carriers on a "costpassthrough" basis, plus a "ministerial fee" to cover administrative and maintenance costs incurred by Comsat in connection with the provision of the particular facilities leased to them. Under the second option, the endtoend carriers would have purchased investment interests in a specific number of circuits known as indefeasible rights of user (IRUs) in the INTELSAT system through Comsat. Under this approach, the carriers, in addition to their investments, would have paid Comsat a fee to cover its costs of providing satellite service and carrying out its functions as U.S. Signatory.(#Ƃ In 1984, the Commission terminated the proceeding, concluding that both alternatives then under consideration would result in little savings to  S'end users and would not be in the public interest. \  yO,'ЍXRegulatory Policies Concerning Direct Access to INTELSAT Space Segment for the U.S.  (#(# {O'International Service Carriers, (Report and Order), 97 FCC 2d 296 (1984) (1984 Direct Access Order);  {O'aff'd, Western Union International, Inc. v FCC, 814 F.2d 1280 (D.C. Cir. 1986).(#ƚ The Commission indicated that it would be amenable to reconsidering the issue of direct access at a future date should alternative measures the  SH 'Commission was then pursuing to benefit Comsat's customers prove ineffectual.m H  {O'ԍ1984 Direct Access Order, 97 FCC 2d at 298 and 326. m The Commission did not address its legal authority to require direct access.  S '6. ` ` In the 1984 Direct Access proceeding, proponents of direct access pointed to the difference between the INTELSAT utilization charge (IUC) which INTELSAT Signatories pay INTELSAT for space segment and the space segment portion of Comsat's tariff as proof that Comsat's rates were not costjustified. They argued that, by allowing the carriers to obtain service at rates that were based on the IUC, direct access would enable those carriers to compete effectively with  S 'Comsat in providing leasedchannel service.u  {OT!'ԍ#X\  P6G;sP#XId. at 304305.(#u The Commission concluded that the carriers had not  S'shown that the adoption of direct access would promote the public interest.p< {O#'ԍ#X\  P6G;sP#XId. at 298(#p The Commission found that the IUC, while serving as a measure of the costs INTELSAT incurs in operating the system, is not"0*&&99k" a measure of Comsat's costs because it does not reflect the internal costs which Comsat incurs making satellite circuits available to U.S. customers and engaging in other activities connected with its role as  S'U.S. Signatory.t {O'ԍ#X\  P6G;sP#XId. at 310319(#t The Commission reviewed the categories of costs included in Comsat's revenue requirements and found (without approving any particular level of costs) that all were costs Comsat incurs operating the satellite system and providing service. While some of those costs arguably might be assumed by other carriers under a regime of direct access, the Commission found that none of them  S'were likely to be eliminated or even substantially reduced by that process.tZ {O 'ԍ#X\  P6G;sP#XId. at 313319(#t The Commission concluded that direct access at best would redistribute, rather than reduce, the costs of providing  S'INTELSAT satellite service; thus, it decided any benefit to end users would be negligible.t {OL 'ԍ#X\  P6G;sP#XId. at 318319(#t  Sp'7.` ` In 1985, the Department of Commerce petitioned the Commission to consider authorizing "competitive access" to INTELSAT by U.S. carriers and users for certain customized international communications services. Without commenting on the merits of the petition, the Commission dismissed the petition without prejudice in 1990 because the record was stale and did not  S 'reflect relevant developments occurring after the filing of the petition. ~ yO'ԍXPetition for Rulemaking to Consider Authorizing Competitive Access to INTELSAT, (RM 4904) FCC 906 Memo No. 37839, released January 11, 1990.(# Since then, the Commission  S 'has not considered the issue of permitting direct access to INTELSAT.ID  yO'ЍXIn 1989, the Commission considered with respect to Inmarsat a proposal that would have allowed  {O'service providers in addition to Comsat to access Inmarsat for aeronautical services directly.  Provision  {O'of Aeronautical Services via the Inmarsat System, 4 FCC Rcd 6072 (1989). The proposal then under consideration would have involved a dual Signatory approach which the Commission found to be infeasible because it would require amendment of the Maritime Satellite Act, 47 USC 75 and the Inmarsat Convention to permit more than one Signatory per country. The Commission found the operational cost and regulatory complexities in implementing an access scheme absent dual U.S. signatories to be unacceptable. 4 FCC Rcd, 60806082.(#I  SX'8.` ` Beginning in 1992, INTELSAT developed procedures for nonSignatory carriers and users to obtain space segment capacity directly from INTELSAT rather than through INTELSAT  S'Signatories. INTELSAT now offers to nonSignatories four types or "levels" of direct access.$ {O 'ԍ XSee "Accessing INTELSAT...Directly", reprinted in Record of Hearing before the Subcommittee on  {OT!'Telecommunications, Trade, and Consumer Protection on H.R. 1872, at 135141. See also  yO"'INTELSAT's worldwide web page at "http://www.intelsat.com/cmc/connect/daccess.htm;" INTELSAT AP217E "Report by the Board of Governors on INTELSAT Access Arrangements," March 18, 1997. (# The first two levels involve access to information: (a) Level 1 direct access permits customers to receive operational and technical information and attend global traffic meetings as an operation representative"0*&&99^" and (b) Level 2 direct access permits customers to meet with INTELSAT management and staff regarding capacity availability, commercial and INTELSAT tariff matters. The third and fourth levels involve access to communication services: (a) Level 3 direct access permits customers to enter into a contractual agreement with INTELSAT for ordering, receiving, and paying for INTELSAT space segment capacity at the same rate that INTELSAT charges its Signatories and (b) Level 4 direct access permits customers, in INTELSAT member countries only, to make a capital investments in INTELSAT in proportion to utilization of the INTELSAT system. Customers are also permitted to obtain INTELSAT space segment at INTELSAT tariff rates.  S'9.` ` INTELSAT only permits direct access in countries where direct access is authorized by the Signatory representative. For both Level 3 and Level 4 direct access, a customer is required to enter into a service agreement with INTELSAT that sets forth the general terms and conditions for  S 'INTELSAT supply of its space segment capacity.  yO 'ЍXCopies of the service agreements are available on INTELSAT's worldwide web page: http://www.intelsat.com/cmc/connect/servform.htm.(# So long as the service agreement remains in effect, a customer is able to access INTELSAT space segment directly. Level 3 customers have no investment obligations or rights to participate in the operation of the INTELSAT system. A Signatory permitting Level 3 direct access will earn a return on its investment in space segment capacity used by  S 'a Level 3 customer (currently up to 21 percent).b  yO@'ԍXINTELSAT operates on a commercial basis as a cost sharing cooperative with the long term objective of providing services at prices which meet its revenue requirements. Each shareholder contributes to INTELSAT and receives capital repayments and compensation for the use of capital in proportion to its investment share. Capital repayments are calculated so as to return all surplus cash to shareholders. Generally, the amount is equivalent to depreciation and other similar types of noncash expense. Compensation for the use of capital is calculated based on a target rate, or range, of return which is established by the INTELSAT Board of Governors and periodically reviewed. All shareholders (Signatories and Level 4 direct access investors) are entitled to the target rate of return. In 1997, the INTELSAT Board of Governors decided to establish a range of 1721 percent for the target rate of return and to review the range annually. During 1997, the actual return on shareholders' invested  {O'capital was approximately 18 percent, which was within the target range.  See INTELSAT 1997 Annual Report at pp. 30 and 37. (#Ƽ A Level 4 customer undertakes all of the financial obligations under the INTELSAT Operating Agreement that are applicable to Signatories and thus is entitled to earn a return on its investment in INTELSAT. A Level 4 customer is not accorded rights to participate in the INTELSAT governance process unless special arrangements are made by the Party and Signatory representing its country.  S' 10.` ` In our Comsat NonDominant Order, we noted that while direct access is not available  Sj'in the United States, 93 countries permit either Level 3 or Level 4 direct access.gjJ  {OT"'ԍXComsat NonDominant Order, at para. 157.(#g Seventysix countries permit Level 3 direct access and 17 countries permit Level 4 direct access to INTELSAT, as noted in Appendix A. Nonsignatory investment has become a significant portion of INTELSAT's ownership structure. Level 4 direct access investors cumulatively account for approximately 6.83"0*&&99G"  S'percent of the total share of investment in the INTELSAT system.a {Oh'ԍXSee INTELSAT's 1997 Annual Report.(#a Comsat subsidiaries, Comsat Argentina in Argentina and Comsat General in the United Kingdom, are permitted Level 4 direct access to INTELSAT in those countries.  S`' 11.` ` In the record established in response to Comsat's request for reclassification as a non S8'dominant carrier, which will be referred to herein as the "Comsat NonDominant proceeding," U.S. carriers and users of INTELSAT services urged the Commission to permit direct access to the INTELSAT system. AT&T, MCI, and WorldCom submitted a study to support their argument that  S'there would be substantial cost savings from direct access.Z {O 'ЍXSee Satellite Users' Coalition "Analysis of Privatization of Intergovernmental Satellite Organizations Proposed in H.R. 1872" filed by AT&T on March 16, 1998.(# They also filed a legal analysis to  S'support their contention that the Commission has authority to permit direct access. {O 'ЍXSee Satellite Users' Coalition "The Legal Authority of the Federal Communications Commission to Authorize Direct Access to the INTELSAT System" filed on March 6, 1998.(# AT&T, MCI, and WorldCom contend that direct access will allow carriers to handle more efficiently international  SJ 'traffic which would serve consumers and the public interest.E\J  yO'ԍXLetter from the Satellite Users' Coalition (AT&T, MCI, and WorldCom) to Secretary, Federal  {O'Communications Commission, dated February 19, 1998.  See also Comments of WorldCom at p. 14.   {O'See also para. 45, infra.(#E In addition, in comments filed in the  S" 'Comsat NonDominant proceeding, several Networks (ABC, CBS, NBC, and Turner Broadcasting) requested that the Commission reexamine the direct access issue. The Networks contend that direct access to INTELSAT by U.S. entities other than Comsat is banned only by Commission policy which  S 'it has not addressed since 1984. /\ 2  {O~'ԍXSee Partial Opposition of ABC, Inc., CBS, Inc., National Broadcasting Company, Inc. and Turner  {OH'Broadcasting System, Inc. (the Networks) in the Comsat NonDominant proceeding, filed on June 16, 1997 at p. 23. (#/ The Networks maintain that direct access by carriers and end users could provide benefits in terms of reduced end user rates and providing a competitive check on  S\'Comsat.V\V  {OR'ԍXId. at pp. 2324.(#V U.S. earth station operators, Keystone Communications Corporation, and Washington International Teleport, point out that direct access is available in many major telecommunications  S 'markets and request that the option be made available in the United States.  yO 'ԍXComments of Keystone Communications at p. 3 and comments of Washington International Teleport,  {O\!'Inc. at pp. 45 in the Comsat NonDominant proceeding.(#  S' 12.` ` Comsat opposes the introduction of direct access in the United States. Comsat argues"B0*&&99k"  S'that the Commission has no authority to permit direct access.  {Oh'ԍXSee Comsat Corporation "An Analysis of the FCC's Authority to Mandate 'Direct Access' for the INTELSAT System," dated December 24, 1997.(# Comsat contends that some forms of direct access would do more harm than good to users and would harm intermodal competition, i.e. competition between satellite and fiber optic cable service providers. Comsat further maintains that direct access would threaten Comsat's ability to speak with a unified voice within the INTELSAT  S`'system!`" {O"'ԍXReply Comments of Comsat in the Comsat NonDominant proceeding at p. 49.(#ƍ and would delay the restructuring of INTELSAT.O"` {O 'ԍXId. at pp. 4950(#O It also argues that direct access would result in increased regulatory and administrative costs and a loss in economies of scale to Comsat that  S'benefit small users.V#F {O 'ԍXId. at pp. 4247.(#V Under a direct access regime, Comsat argues that it would not be adequately compensated for costs it incurs in providing services via INTELSAT. Comsat submitted an economic  S'evaluation of direct access,$" {O8'ԍXSee Comsat Corporation, "An Economic Evaluation of Direct Access to the INTELSAT System by U.S. Telecommunications Customers" by Professor Jerry R. Green, Harvard University, and Brattle/PR, dated october 1995 and submitted by letter from Howard D. Polsky, Comsat Corporation to Secretary, Federal Communications Commission, dated March 17, 1998.(#ƙ and a response to the Satellite Users' Coalition analysis challenging the  S'Coalition's claim that benefits will result from direct access.%   yO'ԍXComsat Corporation, Joint Response to the Satellite Users' Coalition, "Analysis of the Privatization of the Intergovernmental Satellite Organizations as Proposed in H.R. 1872 and S. 1382", dated March 9, 1998, submitted by letter from Howard D. Polsky, Comsat Corporation to Secretary, Federal Communications Commission, dated March 17, 1998.(#Ə Comsat argues that the commenters' analysis of the benefits of direct access is flawed because direct access would allow U.S. carriers "a free ride on Comsat's investment and statutory Signatory functions" and not allow Comsat to recover  S 'costs for services it must provide to all U.S. users.&  {Oj'ԍXReply Comments of Comsat in the Comsat NonDominant proceeding at p. 47. (#ƈ  S ' 13.` ` PanAmSat also addressed the issue of direct access in the Comsat NonDominant proceeding. PanAmSat argued that direct access would permit INTELSAT to operate at the "retail  S 'level" in the U.S. market while enjoying full immunity from liability for anticompetitive behavior.' < {O^ 'ԍXReply Comments of PanAmSat in the Comsat NonDominant proceeding at pp. 23.(#Ƌ PanAmSat also stated that direct access should not be permitted in the U.S. market unless  S2'accompanied by an INTELSAT waiver of its immunities.(2 yO#'ԍXLetter from Henry Goldberg on behalf of PanAmSat Corporation to Secretary, Federal Communications Commission, dated December 2, 1997.(#ƾ"2&(0*&&99"Ԍ S'ԙ!J II. DISCUSSION ă  S' 14.` ` Consideration of direct access at this time is necessary and appropriate for several  S'reasons. First, since our 1984 Direct Access Order, INTELSAT has instituted a formal program permitting nonSignatory direct access to INTELSAT services. In light of INTELSAT's direct access program, it is appropriate for the Commission to consider whether U.S. carriers and users should have an opportunity to avail themselves of direct access. Second, Comsat's customers, both carriers and users, are asking the Commission and Congress to permit direct access in the United States. Third, we recently found that Comsat continues to be dominant in 63 countries for switched voice and private  S'line services and in 142 countries for occasional use video services.{) {O 'ԍXComsat NonDominant Order at para. 132 and Appendix A and B.(#{ We refer to these markets where customers have no choice but to use Comsat in obtaining satellite capacity for those services as the "noncompetitive markets."  S" '  S '15.` ` We intend to take a broad look at Level 3 direct access options in this proceeding.  S 'We request comment on implementation of Level 3 direct access in the United States in connection  S 'with services to both competitive and noncompetitive markets, as defined in our Comsat Non S 'Dominant Order. As discussed below, we do not believe that the Commission currently has authority to implement Level 4 "investment" direct access under the Communications Satellite Act of 1962  S6'("Satellite Act"). We note in the Comsat NonDominant Order that the U.S. carriers seeking Level 3 direct access agree that the Commission is barred by the Satellite Act from permitting Level 4 direct  S'access.*Z yO'ԍ XSatellite Users Coalition, "The Legal Authority of the Federal Communications Commission to Authorize Direct Access to the INTELSAT system", at pp. 45. (# We therefore will focus on issues related to implementing Level 3 contractual direct access in the United States. This assessment raises the following questions: (1) does the Commission have authority to implement direct access in the United States?; (2) what are the potential benefits of direct access?; (3) what competitive concerns are raised by direct access?; and (4) how would direct access affect U.S. efforts to privatize INTELSAT? These questions are interrelated and the conclusions we arrive at for any one may affect the conclusions we make with respect to others. Also, we recognize that these questions may not be comprehensive. We therefore request comment on related issues that may not be raised in the discussion below.  S' (1)` ` Does the Commission have the authority to implement direct access in the United States?(#`  S0'   S'16.` ` Comsat argued in the Comsat NonDominant proceeding that the Commission lacks the authority to permit direct access to the INTELSAT system by other U.S. carriers. Comsat contends that the provisions of the Satellite Act, as well as court and Commission decisions, give Comsat the  S'exclusive right to access the INTELSAT system.+ {O#'ԍXSee generally "An Analysis of the FCC's Authority to Mandate 'Direct Access' to the INTELSAT System," filed by Comsat Corporation, dated December 24, 1997.(# Comsat states that the Satellite Act makes it the" +0*&&99" sole participant in INTELSAT and that the language of the Act and legislative history demonstrate  S'Congressional intent that Comsat have exclusive access to INTELSAT.S, {O@'ԍXId. at pp. 25(#S Comsat argues that Commission decisions and Congressional action subsequent to the Satellite Act support an  S'interpretation barring direct access.S-Z {O'ԍXId. at pp. 78(#S Comsat also maintains that Commission action permitting direct access to the INTELSAT system would contravene the "Takings Clause" of the Fifth Amendment of the U.S. Constitution because it would deny Comsat's shareholders a return on their investment in  S'Comsat to which they have a reasonable expectation.. {O 'ԍXId. at p. 12; see also Reply Comments of Comsat in Comsat NonDominant proceeding at p. 50.(#Ƭ PanAmSat argued in the Comsat Non S'Dominant proceeding that permitting direct access would disrupt the scheme created under the Satellite Act to regulate Comsat. PanAmSat maintains that the INTELSAT system and its foreign Signatories  S'would be outside of the U.S.'s regulatory reach./~ {O'ԍXReply Comments of PanAmSat in Comsat NonDominant proceeding at p. 2.(#Ɗ  SL '17.` ` In the Comsat NonDominant proceeding, the Networks and AT&T, MCI, and WorldCom maintained that the Commission has the authority to permit Level 3 direct access to  S 'INTELSAT satellites and that Commission policy is the only bar to direct access.X0X  yO'ЍXReply Comments of Networks at pp. 1011; Comments of Networks at pp. 2324; Comments of WorldCom at pp. 1014. Satellite Users Coalition "The Legal Authority of the Federal Communications Commission to Authorize Direct Access to the INTELSAT System", March 6, 1998 at pp. 45.(#X AT&T, MCI, and WorldCom agree with Comsat that the Satellite Act deems Comsat the only U.S. participant in INTELSAT; however, they contend that participation applies to investment in and governance of  S 'INTELSAT, not access to the system.1 0  yOV'ԍ XSatellite Users Coalition, "The Legal Authority of the Federal Communications Commission to Authorize Direct Access to the INTELSAT System", at pp. 45.(# They argue that Level 3 direct access is therefore not barred by the Act. The Networks state that, as U.S. carriers are permitted to operate earth stations accessing INTELSAT, the Satellite Act gives them the same "nondiscriminatory and equitable" access to  S'INTELSAT as it gives Comsat.S2  {O6'ԍXId. at pp. 67(#S Finally, they contend that the Commission has never determined that  S'there is a legal bar to direct access.R3 {O 'ԍXId. at p. 16.(#R  S'18.` ` As discussed above, the Commission decided in 1984 not to require direct access for  Sn'policy reasons.a4n {O$'ԍ 1984 Direct Access Order at 310 and 326.a The Commission did not address its legal authority to require direct access.E5n> {O'ԍXId. (#E The"n Z50*&&99" D.C. Circuit affirmed the Commission's decision in 1986. However, there is nothing contained in its decision suggesting that the Commission did not have discretion to impose direct access had it found  S'policy grounds to do so.6Z {O'ԍXWestern Union International, Inc. v. FCC, 804 F.2d 1280 (D.C. Cir. 1986).(#ƈ The Court simply found that the Commission's decision not to mandate direct access was reasonable based on the record.  S8'19. ` ` We tentatively conclude that the Commission has the authority to permit other U.S.  S'carriers and users to obtain Level 3 direct access to INTELSAT.7  yO 'ԍXThe Commerce Committee Report to H.R. 1872 stated that the FCC has the current authority to institute direct access and further stated that the Committee did not intend the provisions in H.R. 1872 applying to direct access to imply a need for amendment of the 1962 Satellite Act to permit direct access. See H.R. Report No. 105499 at p. 61.(#Ə We tentatively find that Level 3 direct access is consistent with the Satellite Act and the requirements of the Fifth Amendment. As discussed below, however, we tentatively conclude that we do not have authority under the Satellite Act to permit U.S. carriers and users to obtain Level 4 direct access to INTELSAT. We request comment on these tentative conclusions and our analysis below.  SH '  S '20.` ` Satisfaction of Satellite Act Requirements: The Satellite Act declares it the policy of the U.S. to establish a commercial communications satellite system with global coverage "in  S 'conjunction and in cooperation with other countries."O8  yOD'ԍX47 U.S.C.  701(a).(#O It directs that "care and attention will be directed toward providing such services to economically less developed countries and areas as well as  S 'those more highly developed."[9 d  {O'ԍX47 U.S.C.  701(b).(#[ In addition, it provides that "United States participation in the global  SX'system shall be in the form of a private corporation subject to appropriate governmental regulation."S:X  yO'ԍ47 U.S.C.  701(c).S The Satellite Act requires that "all authorized users have nondiscriminatory access to the system" and "that maximum competition be maintained in the provision of equipment and services utilized by the  S'system."B;  {O'ԍXId.(#B The corporation formed under the Satellite Act is required to "be so organized and operated  S'as to maintain and strengthen competition in the provision of communications services to the public."B< {Op!'ԍXId.(#B  Sh'21.` ` In order to achieve the objectives and carry out the purposes of the Satellite Act, the President is required by the Act to exercise oversight of the Corporation's development and"@ <0*&&99"  S'participation in the global satellite system.h=B yOh'ԍX47 U.S.C.  721. The Satellite Act requires the President to: (a) aid in planning and developing the system, including fostering and executing a national program toward this end; (2) review all phases of system development, including Comsat's activities under the Act; (3) coordinate activities of governmental agencies; (4) supervise Comsat's relationships with foreign governments or entities or with international bodies; (5) ensure timely arrangements for foreign participation in the system; (6) ensure availability of the system for governmental purposes; and (7) exercise authority to attain efficient  {O'spectrum use and system compatibility with communications facilities in the U.S. and abroad. See also Executive Order 12046, 43 F.R. 13349 (March 27, 1978). (#h The Satellite Act requires the Commission to exercise certain regulatory functions in its administration of the provisions of the Communications Act as  S'supplemented by the Satellite Act.[> yO" 'ԍX47 U.S.C.  721(c).(#[ Among the requirements placed on the Commission is to "ensure that all present and future authorized carriers shall have nondiscriminatory use of, and equitable access  S`'to, the communications satellite system and satellite terminal stations."^?`b  yOb'ԍX47 U.S.C.  721(c)(2).(#^ The Commission also is to "prescribe such ratemaking procedures as will ensure that any economies made possible by a communications satellite system are appropriately reflected in rates for public communication services," and the Act empowers the Commission to"make rules and regulations to carry out the  S'provisions of [the] Satellite Act."@   yOR'ԍX47 U.S.C.  721(c)(4) and (c)(11). In addition, the Satellite Act places additional requirements on the Commission: (1) ensure competitive bidding in procurement for the system; (2) upon advice of the Secretary of State, institute proceedings under Section 214(d) of the Communications Act to require establishment of communications links to a foreign point; (3) ensure technical compatibility of system facilities with existing communications facilities; (4) approve system technical characteristics; (5) authorize construction and operating of satellite terminal stations; (6) authorize Comsat to issue capital stock, borrow money, or assume security obligations; (7) ensure that proposed additions to the system are in the public interest; and (8) in accordance with Section 214 of the Communications Act, require  {O'additions to the system where such additions would serve the public interest. See 47 U.S.C. 721(c). (#  Sp'22.` ` The Satellite Act created Comsat as a forprofit corporation to be the U.S. participant  SH 'in the global satellite system that became INTELSAT.XAH  yO'ԍX47 U.S.C.  731.(#X The Act authorizes Comsat to: ` ` (1) plan, initiate, construct, own, manage, and operate itself or in conjunction with foreign governments or business entities a commercial communications satellite system;x` ` ` (2) furnish, for hire, channels of communication to United States communications common carriers and to other authorized entities, foreign and domestic; andx` " TA0*&&99"Ԍ` ` (3) own and operate satellite terminal stations when licensed by the  S'Commission under section 201(c)(7).[B yO@'ԍX47 U.S.C.  735(e).(#[x` The Satellite Act also authorizes Comsat "to contract with authorized users, including the United States  S`'Government, for the services of the communications satellite system."XC`X yOX'ԍX47 U.S.C.  735(b)(4).(#X It deems Comsat a common carrier within the meaning of the Communications Act and, as such, fully subject to titles II and III of  S'the Communications Act.RD yO 'ԍX47 U.S.C.  741.(#R  S'23.` ` Comsat argues that implementing Level 3 direct access would violate the Satellite Act  S'provisions providing for Comsat's sole participation in the global system that became INTELSAT.Ex yO'ԍXComsat "An Analysis of the FCC's Authority to Mandate 'Direct Access' to the INTELSAT System" dated December 24, 1997, at pp. 28, citing 47 U.S.C  701(c) and 702(8). (# The Satellite Act clearly created Comsat to undertake an exclusive role as the U.S. participant in the global system that became INTELSAT. That governmentsanctioned role entails Comsat investment in the system and its participation in system governance. We tentatively find, however, that Level 3 direct access would not be inconsistent with Comsat's role as the sole U.S. participant in INTELSAT. If we were to permit Level 3 direct access, Comsat would continue to be the only U.S. investor in INTELSAT earning a return of up to 21 percent on its investment in space segment used by U.S. direct access customers. Comsat also would continue to be the only U.S. representative on the INTELSAT Board of Governors, as well as the Meetings of Signatories participating in INTELSAT. Thus, Comsat would remain the sole U.S. entity in INTELSAT activities that "plan, initiate, construct, own, manage, and operate" the satellite system in conjunction with other members of INTELSAT. We seek comment on this analysis and these tentative findings.  S'24.` ` Comsat argues that other provisions in the Satellite Act make it the sole entity  Sh'authorized to provide INTELSAT services to U.S. customers.EFh {O'ԍId at pp. 24.E Comsat cites provisions that authorize it to provide U.S. customers with access to the INTELSAT space segment through its own common  S'carrier service offerings.gGb  {O 'ԍXId at 4, citing 47 U.S.C.  731735. (#g The Act's authorization of Comsat to undertake certain activities, including furnishing "for hire channels of communication" to U.S. customers, is not, however, expressed in  S'terms of exclusivity.KH  yO\#'ԍX47 U.S.C.  735(#K We request comment on this tentative finding.  Sx'25. ` ` Comsat also points to the provisions of the Act requiring that customers have "non"x H0*&&99"ԫdiscriminatory" and "equitable" access to the satellite system as evidence of Congressional intent that customer access be only through Comsat owned capacity. Comsat states that the Act "specifies that Comsat must provide its customers with access to its space segment capacity in a "nondiscriminatory"  S'and "equitable manner."I yO'ԍXComsat "An Analysis of the FCC's Authority to Mandate Direct Access to the INTELSAT System," at p. 3, citing 47 U.S.C. 721 (c)(2).(# It is the Commission, however, that is mandated by language of the Act to insure "nondiscriminatory" and "equitable" access to the satellite system as part of its "administration  S8'of the provisions" of the Act.CJZ8  {O'ԍX47 U.S.C.  201(c)(2).  See also Report of the Committee on Interstate and Foreign Commerce to accompany H.R. 11040, "Communications Satellite Act of 1962", House of Representatives, 87th Congress, 2d session, Report No. 1636, dated April 24, 1962 at p. 12.(#C Moreover, the Satellite Act does not specify, as Comsat argues, that  S'customer access to the INTELSAT satellite system must be through Comsat space segment.KB yO 'ԍXSatellite Users Coalition "The Legal Authority of the Federal Communications Commission to Authorize Direct Access to the INTELSAT's System" at p. 7.(# The Act states that customers are to have "nondiscriminatory" and "equitable access to" the "communications  S'satellite system."QL yO'ԍX47 U.S.C.  201(c)(2)(#Q The Act defines "communications satellite system" in general and technical terms  S'without referencing Comsat space segment.9M *  yOb'ԍX47 U.S.C.  702(1). The term "communications satellite system" refers to a system of communications (#(# yO*'satellites in space whose purpose is to relay telecommunication information between satellite terminal (#(# yO'stations, together with such associated equipment and facilities for tracking, guidance, control, and (#(# yO'command functions as are not part of the generalized launching, tracking, control, and command (#(#(#9 Our review of the legislative reports accompanying the Satellite Act does not reveal a Congressional requirement that Comsat maintain its own space segment  SH 'within the satellite system for purposes of providing service to U.S. customers.NzH  {O'ԍXSee Report of the Committee on Interstate and Foreign Commerce to accompany H.R. 11040, "Communications Satellite Act of 1962", House of Representatives, 87th Congress, 2d session, Report No. 1636, dated April 24, 1962; Report of the Committee on Aeronautical and Space Sciences to accompany S. 2814, "Communications Satellite Act of 1962", Senate, 87th Congress, 2d Session, Report No. 1584, dated June 11, 1962. Report of the Committee on Commerce to accompany H.R. 11040, "Communications Satellite Act of 1962", Senate, 87th Congress, 2d Session, Report No. 1584, dated June 11, 1962.(#Ɗ Neither do the legislative reports require the global satellite system to be structured in such a way that its investors are the sole distributors of services from the system. Accordingly, we tentatively find that provisions of the Satellite Act relied upon by Comsat do not mandate that Comsat be the sole provider of access to the INTELSAT system. We request comment on this analysis and these tentative findings.  SX'26. ` ` We believe that the Act accords the Commission discretion as to how to insure "nondiscriminatory" and " equitable access" to the system, and that we may permit Level 3 direct access in the exercise of that discretion. This is evidenced by the fact that the Act requires the" TN0*&&99" Commission to "regulate the manner in which available facilities of the system and stations are  S'allocated among users."RO yO@'ԍX47 U.S.C.  201(c)(2).(#R Should we decide to permit Level 3 direct access, we would carry out our discretion to ensure "nondiscriminatory" and "equitable" access by requiring that Comsat, as the U.S. Signatory, undertake such actions necessary under INTELSAT procedures to make Level 3 direct  S`'access available to all U.S. carriers and users that seek it.lP `X yOX'ԍXAs noted in paragraph 9, INTELSAT only permits direct access to a country if authorized by the Signatory. Under INTELSAT procedures, the Signatory may determine the level of direct access subject to national regulatory requirements. A Signatory that issues a direct access authorization is indicating its commitment to both the customer and to INTELSAT that the Signatory is willing to allow the customer to have direct access to INTELSAT in accordance with the terms of the authorization. Depending on national regulatory requirements, the Signatory may revise or alter an authorization it has previously issued, including revocation of the authorization. Each customer must be individually authorized by the Signatory. The customer must sign a service agreement that establishes a contractual relationship between INTELSAT and the customer and the general terms and conditions of doing business with INTELSAT. Because the INTELSAT Agreements require that INTELSAT must provide service to all customers at the same tariff, and on the same terms and conditions, the service agreement  {O'cannot be modified for individual customers.  See "Accessing INTELSAT...Directly", reprinted in Record of Hearing before the Subcommittee on Telecommunications, Trade, and Consumer Protection H.R. 1872, at 139-140.(#l We request comment on this approach.  S'27.` ` In the Comsat NonDominant proceeding, Comsat further contended that a Commission order implementing direct access would conflict with prior Commission decisions recognizing "the general concept pervading the Satellite Act of [Comsat] as a monopoly (insofar as the  S'space segment of international communications is concerned)."Q yOL'ԍXComsat "An Analysis of FCC's Authority to Mandate 'Direct Access' to the INTELSAT System", at 11,  yO'citing In re Authorized Entities and Authorized Users Under the Communications Satellite Act, 4 FCC  {O'2d 421 (1966) (Authorized User 1); In re Establishment of Regulating Policies Relating to Authorization Under Section 214 of the Communications Act of 1934 of Satellite Facilities for Handling of Transiting  {On'Traffic, 23 FCC 2d 9 (1970) (Satellite Facilities for Handling Transiting Traffic), citing Authorized User  {O8'I as support. (# In the Authorized User I decision, the Commission stated that Comsat is given a virtual monopoly position in the operation of the INTELSAT space segment and that the Commission lacks authority to authorize other carriers to  S$ 'operate space segment facilities from INTELSAT.vR$  {OT'ԍ XAuthorized User I, 4 FCC 2d at 428, 430 and 435.(#v The Commission's decision in Authorized User I, however, addressed whether the Satellite Act allowed Comsat to provide services directly to entities  S 'other than carriers.S" " {O"'ԍ XId. at p. 422. In Satellite Facilities for Handling Transiting Traffic, the Commission did not resolve issues involving direct access to Intelsat. Rather, it considered and rejected the argument that the Satellite Act requires U.S. carriers to deal through Comsat for space segment facilities to be used with foreign earth station facilities. 23 FCC 2d at 12. (#Ʊ The issue of whether Comsat has exclusive direct access to the INTELSAT"  S0*&&99 "  S'space segment under the Satellite Act was not before the Commission in Authorized User I, so the  S'statements on which Comsat relies are dicta. Moreover, the Commission's Authorized User I decision contained virtually no analysis of the relevant statutory language or legislative history. For these  S'reasons, we do not believe that we are foreclosed from an analysis of our authority under the Satellite  Sd'Act to permit direct access now that INTELSAT offers direct access to nonsignatory users.Td yO'ԍXComsat cites additional cases as precedent for its argument that it is the sole provider of INTELSAT  {O'space segment capacity in the United States.  Communications Satellite Corporation, 56 FCC 2d 1101  {O^'(1975), remanded sub nom. Communications Satellite Corp. vs. FCC 611 F 2d 883, modified 68 FCC  {O('2d 941 (1978) (Comsat Rate Case). Communications Satellite Corporation v. FCC, 836 F. 3d 623 (D.C.  {O'Cir. 1988); and, Alpha Lyracom Space Communications, Inc. v. Communications Satellite Corporation,  {O '19902 Trade Cas. 64,578 (S.D.N.Y. 1990), aff'd in part, reversed and remanded in part, 946 F. 2d 168  {O '(2d Cir. 1991), cert. denied, 502 U.S. 1096 (1992). These cases, however, did not determine whether the Commission has authority to permit direct access to INTELSAT by other carriers. Rather, they merely recognized Comsat's role as the U.S. participant in INTELSAT, and the fact that Comsat currently is the only available means to access INTELSAT services in the United States.(#ƫ We seek comment on our analysis.  S'28.` ` Comsat cites our 1997 DISCO II decision implementing the World Trade Organization Agreement on Basic Telecommunications Services (WTO Agreement) as support for its arguments that direct access is not permissible under the Satellite Act. In that decision, we stated that the U.S. Schedule of Specific Commitments "maintains access to INTELSAT and Inmarsat satellites through  SN 'Comsat for the provision of any service, domestic or international."UN l  {OZ'ԍXSee Non U.S. Licensed Satellites providing Domestic and International Service in the United States 12  {O$'FCC Rcd 24094, 24146 (1997) (DISCO II Order). (# However, neither our DISCO II Order nor the language of the U.S. Schedule of Specific Commitments in the WTO Agreement supports a finding that the Satellite Act prohibits direct access. These are simply reflections of existing policy and practice that are not intended to be changed by the WTO Agreement. More recently, in response to a Congressional inquiry as to whether any part of the Satellite Act was inconsistent with the U.S. offer in the WTO, the Department of Commerce, on behalf of the administration, responded that "nothing in the WTO telecommunications agreement requires the United States to change its telecommunications laws or precludes the FCC's ability to make decisions on the  S'basis of the public interest".V"  {Ox'ԍXSee Record of Hearing on the Communications Satellite Competition and Privatization Act, H.R. 1872, Subcommittee on Telecommunications, Trade, and Consumer Protection. 1st Session, September 30, 1997, Serial No. 1056, at page 210 citing Letter to Thomas Bliley, Chairman, Committee on Commerce, from Jack Gleason, Department of Commerce, dated January 23, 1998.(#Ʃ Thus, those provisions of our DISCO II Order have no bearing on our possible future decision to require direct access under the Satellite Act.  S'29. ` ` Further, we believe the 1978 amendments to the Satellite Act show that when Congress intended to give Comsat an exclusive role in the operation of a satellite system, it used specific language to make that intent clear. Congress amended the Satellite Act in 1978, designating  S"'Comsat "as the sole operating entity of the United States for participation in Inmarsat for the purpose""V0*&&99w"  S'of providing international maritime satellite telecommunications services."X01Í ÍX01Í ÍSWhV Sh'ԍX#X\  P6G;sP#47 U.S.C.  752(a)(1), (emphasis added); See also H.R. Rep. No. 951134, Part 1, 95th Cong., 2d Sess. 15 (1978); H.R. Rep. No. 951134, Part II, 95th Cong., 2d Sess. 12 (1978); S. Rep. No. 951036, 95th Cong., 2d Sess. 20 (1978)(#S The Commission has consistently viewed Comsat's provision of Inmarsat space segment for the provision of maritime  S'services as an exclusive role within the United States by virtue of the Maritime Satellite Act.KXV {OH'#X\  P6G;sP#эXSee Provision of Aeronautical Services in the Inmarsat System, 2 FCC Rcd. 390 (1987) (Aeronautical  {O'Services Order I; Appeal docketed, No. 871077/78 (D.C. Cir. February 12, 1987), remanded by Order of the Court on November 22, 1988 in response to the November 15, 1988 Commission request; In the matter of Provision of Aeronautical Services via the Inmarsat System, 4 FCC Rcd. 6072 (1989)  {Ol '(Aeronautical Services Order II);  See also Participation by Comsat Corporation in a New Satellite  {O6 'System Designed to Provide Service for Handheld communications Devices (InmarsatP Declaratory  {O 'ruling), 9 FCC Rcd. 7693 (1994) motion for temporary relief denied, 10 FCC Rcd. 1061 (Intl. Bur.  {O '1993); petition for review denied, D.C. Court of Appeals, No. 951057, Comsat Corporation v. FCC,  yO 'March 15, 1996.#&a\  P6G;/&P#(#K In contrast, the 1962 Satellite Act specified no such exclusive role for Comsat with respect to access to INTELSAT system services nor did it make any reference to Comsat space segment in the system. We believe that this contrasting approach suggests that Congress did not intend to give Comsat exclusive access to the INTELSAT system, but intended rather to give it an exclusive role in system governance and ownership. We request comment on this analysis.  S'30. ` ` Finally, the Satellite Act empowers the Commission to implement the provisions and achieve the goals of the Satellite Act. We tentatively conclude that permitting U.S. carriers and users to obtain Level 3 direct access for services to those markets where Comsat remains dominant would further the purposes of the Satellite Act to: (a) "maintain and strengthen competition in the provision  S 'of communications services to the public";Y V Sl'ԍ#X\  P6G;sP#X47 U.S.C.  701(c).#&a\  P6G;/&P#(#Ɲ and (b) direct "care and attention ... toward providing  S 'such services to economically less developed countries."vZ t V S'ԍ#X\  P6G;sP#X47 U.S.C.  701(b).(#v Many of the countries included in our list of noncompetitive markets for switched voice and private line services and for occasional use video services are designated by the International Telecommunication Union (ITU) as "least developed  SX'countries".8[|XV yO '#X\  P6G;sP#ЍXThe ITU has identified 48 Least Developed Countries (LDCs) about which it provides analysis and statistics on LDC telecommunication networks and services. The LDCs are defined as "low income countries that are suffering from longterm constraints by growth, in particular low levels of human resource development and severe structural weaknesses." See Telecommunications Indicators for the Least Developed Countries, First Edition, 1995, at pp. 13. Of the 48 listed LDCs, 38 are included on  {O"'our list of thin route countries for switched voice and private line service. Comsat NonDominant  {O#'Order, at para. 4142 and Appendix A. #&a\  P6G;/&P#(#8 We tentatively conclude that imposing Level 3 direct access would serve the Satellite Act's purpose of promoting growth in communications between the U.S. and economically less well"0X[0*&&99" developed countries by promoting competition and expanding user choice for U.S. services to these  S'markets.\V yO@'#X\  P6G;sP#эXSee paragraph 54 in which we ask for comments as to whether to impose Level 3 direct access in competitive markets. (# We seek comment on this tentative conclusion.   S'Constitutional Issues  S8'31.` ` In the Comsat NonDominant proceeding, Comsat argued that a Commission decision permitting other U.S. carriers to obtain direct access to INTELSAT would violate the Fifth  S'Amendment.%] V S 'ԍ#X\  P6G;sP#XU.S. CONST. amend. V. The Fifth Amendment provides that "private property [shall not] be taken for  yO 'public use without just compensation."#X\  P6G;sP#(#% X01Í ÍX0ÍComsat asserts that permitting direct access would breach the regulatory contract between Comsat and the U.S. Government, and constitute an uncompensated "taking" in violation of  S'the Fifth Amendment.=^ep {O'#X\  P6G;sP# XSee Comsat "An Analysis of the FCC's Authority to Mandate 'Direct Access' to the INTELSAT  yO_'System," at p. 12.#X\  P6G;sP#(#= According to Comsat, direct access would deprive Comsat of its exclusive INTELSAT franchise without just compensation, and would likewise deprive its shareholders of a return on their investment.  S '32.` ` We tentatively conclude that permitting other U.S. carriers and users to obtain Level 3 direct access to INTELSAT satellites would not violate the Fifth Amendment. We tentatively conclude that the provisions of the Satellite Act and the regulatory scheme created thereby do not result in a regulatory contract between the U.S. Government and Comsat that confers on Comsat an exclusive right to access INTELSAT satellites from the U.S. In addition, we tentatively conclude that Comsat possesses no contractual property right with respect to its access to INTELSAT satellites that could be considered vested property within the meaning of the Fifth Amendment. Moreover, the allowance of Level 3 direct access would not result in a permanent physical occupation, a physical invasion or an economic regulation of Comsat's private property that would constitute a taking requiring just compensation under the Fifth Amendment. We request comment on these tentative  Sj'conclusions and the corresponding analysis._ jp yO'#X\  P6G;sP##G\  P6G; ]P#эX# G\  P6G; ]P## X\  P6G;sP#The House Commerce Committee addressed similar issues in its recent consideration of H.R. 1872. The Commerce Committee Report on H.R. 1872 concluded that H.R. 1872, which includes provisions mandating direct access, would not result in a taking under the Fifth Amendment. See H.R. Rep. No. 105494 at pp. 2526.(#  S' 33.` ` No Comsat Property Right Exists: Comsat argues that a regulatory contract arises under the Satellite Act between the U.S. Government and Comsat, and that U.S. Government action that permits U.S. carriers and users to access INTELSAT satellites directly from the U.S. would" _0*&&99$"  S'breach this contract.%`p yOh'#X\  P6G;sP#ÍXComsat "An Analysis of the FCC's Authority to Mandate 'Direct Access' to the INTELSAT System" at  X4p. 12.#Xj\  P6G;ߊXP# (#% In the cases cited by Comsat in support of its argument, the Supreme Court  S'concluded that express promises made by the government had been breached./aep {O'#X\  P6G;sP#ÍXThe Binghamton Bridge, 70 U.S. 51, 74 (1865); U.S. v. Winstar Corporation et al., 518 U.S. 839  yO*'(1996).#X\  P6G;sP#(#/ In The Binghamton  S'Bridge case, the Court held that a state breached an express statutory provision conferring geographical exclusivity on a bridge builder when the state subsequently permitted another bridge builder to  Sd'construct a bridge in violation of the first bridge builder's exclusive rights. In U.S. v. Winstar, the Court concluded that the U.S. Government was liable for breach of contract when a Federal statute and implementing regulations invalidated a specific provision in contracts previously negotiated between thrifts and U.S. bank regulatory authorities permitting the thrifts to count supervisory goodwill and capital credits toward their regulatory capital requirements.  Sv' !34. ` ` A vested property right may be conferred upon a private party by the U.S.  SN 'Government.X0ÍX0ÍÍbN BS S0'ԍ#X\  P6G;sP# See, e.g., Lynch v. United States, 292 U.S. 571 (1934). #&a\  P6G;/&P# Whether such a property right is vested depends upon the nature of the relationship  S& 'between the private party and the U.S. Government. Under the Supreme Court's decision in U.S. v.  S 'Winstar the first inquiry may be whether there was a contract at all between the private party, and the  S 'U.S. Government.c S S\'ԍ#X\  P6G;sP# XSee U.S. v. Winstar Corporation et al., 518 U.S. 839, 860861 (1996). #Xw PE37 WXP#(# This inquiry focuses in part upon whether the relationship was one of governmental regulation of the private party as opposed to a contractual undertaking with that private  S 'party.dh S S'ԍ#X\  P6G;sP# XId. at 86164, 89697. See also Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 55 (1986) ( alleged contract right in issue was part of a regulatory program over which the  yOL'Congress retained its right to amend in the exercise of its power to provide for the general welfare).#&a\  P6G;/&P#(# In U.S. v. Winstar, the Court indicates that, assuming that a governmental contract may exist, the inquiry next moves to consideration of "special rules, not generally applicable to private contracts,  S<'[that] govern the enforcement of the governmental contracts . . .."e< S S'ԍ X#X\  P6G;sP#U.S. v. Winstar Corporation et al., 518 U.S. at 860. #&a\  P6G;/&P#(# Application of these special rules may preclude the enforcement of a contract right against the U.S. Government, and hence preclude the existence of a vested property right. The Court explained that these special rules include, among others, the canon of contract construction that surrenders of sovereign authority must appear in unmistakable terms, and the rule that an agent's authority to make such surrenders must be delegated  St'in express terms.}f4(tR S Sf"'ԍ #X\  P6G;sP# X Id at 860, citing Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. at 52  {O>#'(surrenders of sovereign authority must appear in unmistakable terms) and Home Telephone &  {O$'Telegraph Co. v. City of Los Angeles, 211 U.S. 265 (1908) (an agent's authority to make such  yO$'surrenders must be delegated in express terms).  Other special rules that may apply include the doctrine"$e0*&&$"  {O'that a government may not, in any event, contract to surrender certain reserved powers, Stone v.  {OZ'Mississippi, 101 U.S. 814 (1880), and the principle that a Government's sovereign acts do not give rise  {O$'to a claim for breach of contract, Horowitz v. United States, 267 U.S. 458 (1925). See U.S. v. Winstar  {O'Corporation et al., 518 U.S. at 860.#&a\  P6G;/&P#(#} In other words, U.S. v. Winstar makes clear that the creation of a vested property"tf0*&&99" right on behalf of a private party against the U.S. Government must be unambiguous or clearly implied from the instruments at issue.  S'"35. ` ` Applying these standards, we tentatively conclude that, in this instance, no vested property right exists. Comsat cites to no contract negotiated with the U.S. Government akin to what private parties might negotiate. What does exist is regulation of Comsat. In the preceding section, we discussed at length the statutes and regulatory scheme which govern Comsat's access to INTELSAT satellites. We tentatively concluded that Congress did not vest in Comsat an exclusive right under the Satellite Act, and the regulatory scheme created thereby, to access INTELSAT satellites from the U.S. It is this alleged exclusivity upon which Comsat appears to rely for its assertion of the existence of a regulatory contract. Beyond this, Comsat cites to no particular statutory provision or regulatory program that amounts to a contractual undertaking by the U.S. Government with respect to Comsat's  S 'access to INTELSAT satellites.8g2 S Sx'ԍ#X\  P6G;sP# XBy contrast, in U.S. v. Winstar Corporation et al., the Court found a number of specific commitments by the U.S. Government which were identified by petitioners that amounted to contractual undertakings. 518 U.S. at 86064. For example, the Court found that the U.S. Government had expressly agreed to  {O'indemnify the private party for costs associated with regulatory change.  Id. at 88687. #&a\  P6G;/&P#(#8 Thus, we tentatively conclude that there is no commitment by the U.S. Government relating to Comsat's access to INTELSAT satellites that amounts to a governmental contract.  S '#36. ` ` Comsat also fails to demonstrate that consideration of "special rules," such as those  SX'identified by the Court in U.S. v. Winstar, require a finding of a vested contractual right in this case. Comsat fails to show that there was an unmistakable or unambiguous surrender of sovereign authority, or that there was an express delegation to an agent to surrender such authority, that effectively vested a property right in Comsat with regard to access to INTELSAT satellites. Indeed, Congress expressly reserved the "right to repeal, alter, or amend" the Satellite Act as part of a pervasive program to  S'regulate international satellite communications,hS S'ԍ#X\  P6G;sP# XSee 47 U.S.C.  732.#&a\  P6G;/&P#(#Ʀ and the Commission is free to amend its regulatory  Sj'scheme as permitted by its governing statutes.iTjR S S\'ԍ#X\  P6G;sP# XCourts have held that such reservations preclude the existence of a vested contract or property right.  {O4 'See, e.g., Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. at  d  54 (a termination provision in an agreement entered into pursuant to Federal statute in which Congress reserved the right to amend the Federal statute was not a contractual right or a property right within the  {O"'meaning of the Fifth Amendment); see also State of Delaware v. Cavazos, 723 F. Supp. 234, 241 (D.C. 1989)(a reserve fund managed by a state under a Federal statute and regulations where Congress expressly reserved the power to amend the statute did not rise to the level of a contractual right or  yO$'private property protected by the Fifth Amendment).#&a\  P6G;/&P#(# Therefore, for these additional reasons, we conclude"jni0*&&99"  S'that there is no property right#&a\  P6G;/&P# vested with regard to Comsat's access to INTELSAT satellites. We seek comment on these tentative conclusions.   S'$37.` ` Not a Taking under Fifth Amendment: Having tentatively concluded in the preceding section that Comsat possesses no vested property right with respect to its access to INTELSAT satellites from the U.S., we need not reach the question of whether there would be a taking of "property" in violation of the Fifth Amendment if Level 3 direct access were permitted. Assuming, however, that Comsat might possess a "property" interest with regard to its access to INTELSAT satellites from the U.S., on some basis other than a regulatory contract, we tentatively conclude that Comsat has failed to demonstrate that there would be a violation of the Fifth Amendment if Level 3 direct access were permitted.  S '%38. ` ` As a threshold matter, courts generally find a taking where the character of the  S 'governmental action results in a "permanent physical occupation" of property.Jj$ S {O` 'ÍX#A\  P sP##X\  P6G;sP#See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 101516 (1992); Loretto v. Teleprompter  {O*'v. Manhattan CATV Corp. et al., 458 U.S. 419, 43435 (1982) (a taking occurs to the extent of the occupation without regard to whether the governmental action achieves an important public benefit or  yO'has only minimal impact on the owner).#X\  P6G;sP# (#J We tentatively find permitting other U.S. carriers and users to obtain Level 3 direct access to INTELSAT satellites would not result in a permanent physical occupation of Comsat's or INTELSAT's property. Level 3 direct access is a voluntary contractual arrangement between a U.S. carrier or user and INTELSAT that permits use, but not permanent physical occupation, of INTELSAT satellites. Pursuant to a service agreement with the direct access customer, INTELSAT agrees to make available its space segment  S'capacity on a best efforts basis in return for payment from the customer._keS {O\'ÍX#A\  PsP##X\  P6G;sP#See INTELSAT Service Agreement para. 2 (May 1, 1997) available at:  yO'http://www.intelsat.int/cmc/connect/servform.htm.#X\  P6G;sP#(#_ Other contractual terms and conditions also apply to the arrangement. The U.S. Government is not a party to the service agreement or in the arrangement. Consequently, we tentatively find that a direct access customer's use of INTELSAT satellites does not result in a permanent physical occupation of Comsat's or INTELSAT's property such that a property right of Comsat would be taken within the meaning of the Fifth Amendment. We seek comment on this tentative finding.  S'&39. For governmental action that results in a physical invasion of property (short of a permanent physical occupation), or a regulation that merely affects the use of property, courts base their Fifth Amendment taking analysis on a factual inquiry that applies the following three factors: (a) the character of the governmental action; (b) its economic impact on the owner of the property; and  SP'(c) its interference with reasonable investmentbacked expectations.Kl(PS {O!'ÍX#A\  P sP#Ruckelshaus v. Monsanto Company, 467 U.S. 986, 1005 (1984). See also Loretto  at 426 (the degree of  {O"'interference with investmentbacked expectations is of particular significance); Penn Central  {Oe#'Transportation Company et al. v. City of New York, 438 U.S. 104, 124 (1978); Lucas v. South Carolina  {O/$'Coastal Council, 505 U.S. 1003, 1015 (1992).#X\  P6G;sP#(#K A Commission rule or policy permitting other U.S. carriers and users to obtain Level 3 direct access to INTELSAT satellites"( l0*&&99W" arguably could be viewed as a form of governmental action resulting in a shortterm physical invasion or economic regulation of the use of Comsat's and INTELSAT's property. Applying the three factors identified by the Supreme Court to this type of governmental action, we tentatively conclude that such a rule or policy would not give rise to a taking under the Fifth Amendment. We request comment on this tentative conclusion and our analysis.  S''40.` ` The first factor in determining whether there has been a taking requires an analysis of the character of the governmental action. "A 'taking' may more readily be found when the interference with property can be characterized as a physical invasion by government, than when interference arises from some public program adjusting the benefits and burdens of economic life to  Sp'promote the common good."mpS {O 'ÍX#X\  P6G;sP#Penn Central v. City of New York at 124.#X\  P6G;sP#(# As discussed above, the Commission has the authority under Section 201(c)(2) and (11) of the Satellite Act to adopt a rule or policy permitting other U.S. carriers and  S 'users to obtain nondiscriminatory and equitable Level 3 direct access to INTELSAT satellites.n ZS {O'ÍX#X\  P6G;sP#47 U.S.C.  721(c)(2) and (11); see supra para. 4143.#X\  P6G;sP#(# A rule or policy permitting other U.S. carriers and users to obtain Level 3 direct access would not compel physical use of Comsat's or INTELSAT's facilities. Rather, such a rule or policy would be permissive because a carrier's or user's direct access to INTELSAT's facilities would be based on a voluntary contractual arrangement entered into between a carrier or user and INTELSAT. In addition, the rule or policy would serve the important Commission objective of promoting competition. We tentatively conclude that the character of the Commission's proposed action is reasonably related to an important Commission objective and is likely to produce a widespread public benefit. Hence, we find no taking on this ground. We request comment on our tentative conclusion and the accompanying analysis.  Sh'(41.` ` The second factor in a takings inquiry is the economic impact of the government's action on the owner of the property. The proposal permitting Level 3 direct access would not have a significant economic impact on Comsat. Under a Level 3 direct access contractual arrangement, customers will be required to compensate INTELSAT for the use of INTELSAT satellites. In addition, Comsat and its shareholders will continue to have a reasonable opportunity to earn a fair return from INTELSAT in connection with the traffic attributable to INTELSAT's U.S. customers with Level 3 direct access contractual arrangements. Level 3 direct access may result in some of Comsat's customers switching to competing carriers for switched voice, private line and occasionaluse video service particularly in markets where Comsat now is dominant. As a consequence, Comsat may lose the benefit of monopoly rents in markets where Comsat is now dominant. With direct access, however, Comsat would be free to price and package its services in response to competitive market  S'conditions to counter any adverse economic effect from new competition.oZS {M<"'#X\  P6G;sP#ÍXSee Concrete Pipe and Products of California, Inc. v. Construction Laborers Pension Trust for Southern  {O#'California, 508 U.S. 602, 645 (1993)("[O]ur cases have long established that mere diminution in the  yO#'value of property, however serious, is insufficient to demonstrate a taking.")#X\  P6G;sP#(# For these reasons, we find that the second prong of the taking inquiry is not satisfied. We request comment on our tentative"o0*&&99" conclusion and the accompanying analysis.  S')42.` ` The third factor in a takings inquiry is the degree of interference that the governmental action has on an owner's reasonable investmentbacked expectations regarding its property. We tentatively conclude that Comsat and its shareholders were on notice of the Satellite Act and the regulatory scheme established thereby and, therefore, they could not have had a reasonable investmentbacked expectation that other U.S. carriers or users would not be able to obtain direct access to INTELSAT satellites from the U.S. The Satellite Act explicitly provides that the Commission "shall insure that all authorized carriers shall have nondiscriminatory use of, and equitable access to," the  S'INTELSAT systempS yO '#X\  P6G;sP#ÍX47 U.S.C.  721(c)(2).#X\  P6G;sP#(# and gives the Commission discretion as to how we should implement these and other provisions of the Satellite Act. The Satellite Act also expressly reserves to Congress the "right  SH 'to repeal, alter, or amend" its provisions.qH XS yO@ '#X\  P6G;sP#ÍX47 U.S.C.  732.#X\  P6G;sP#(# Regulatory agencies historically have ordered access to common carrier bottleneck facilities for the purpose of increasing competition and facilitating the  S 'development of new servicesr S {O'ÍX#A\  PsP#See, e.g., United States v. Terminal Railroad Ass'n, 224 U.S. 383 (1912) (antitrust court ordered  {OJ'railroads to provide competitors equivalent access to bottleneck railway terminal facilities), appeal after  {O'remand, 236 U.S. 194 (1915); Cellular Communications Systems, 86 FCC 2d 469, 49596 (1981) (Commission required telephone companies to furnish interconnection to cellular systems upon terms no  {O'less favorable than those used by or offered to wireline carriers), modified, 89 FCC 2d 58 (1982),  {Op'further modified, 90 FCC 2d 571 (1982); Need to Promote Competition and Efficient Use of Spectrum  {O:'for Radio Common Carrier Services, 59 RR 2d 1275 (1986), clarified, 2 FCC 2d 2910 (1987), aff'd on  {O'recon., 4 FCC Rcd 2369 (1989) (Commission clarified policies regarding interconnection of cellular and  {O'other radio common carrier facilities to landline network); Lincoln Tel. & Tel. Co. v. FCC, 659 F.2d 1092, 1103 (D.C. Cir. 1981) (court upheld Commission's order requiring Lincoln to provide  yO`'interconnection facilities to MCI).#X\  P6G;sP#(# or they have imposed other requirements to satisfy statutorily S 'mandated public interest objectives.s X S yO'Í#A\  PsP#XFor example, the Commission required AT&T to de-tariff and sell its customer premises equipment  {O'(CPE). CPE De-tariffing (Computer II), 95 FCC 2d 1276, 129596, recon. denied, 100 FCC 2d 1290 (1983). We rejected AT&T's Fifth Amendment claim because we found that the sale requirement was reasonably related to our legitimate objective of protecting the ratepayer's equitable share of the gains  {O'on regulated assets and the public's interest in the availability of reasonably priced CPE. Id.  at 1295.#X\  P6G;sP#(# Because Comsat and its shareholders have been on notice of the regulatory framework within which the company operates, this knowledge should have been  S 'factored into their investmentbacked expectations regarding the company.t" S {O,!'ÍX#A\  PsP#See Concrete Pipe and Products, 508 U.S. at 645 (readjusting rights and burdens in a particular field subject to federal regulation is not unlawful solely because it "upsets otherwise settled expectations"  yO"'even if new duties or liabilities are imposed).#X\  P6G;sP#(#  yO#' Consequently, we tentatively conclude that neither Comsat nor its shareholders could have reasonably maintained an expectation that Comsat's access to INTELSAT satellites from the U.S. would be exclusive. We"0t0*&&99" request comment on this tentative conclusion and analysis. ` `   S'*43.` ` Comsat's Return from INTELSAT: Even if permitting Level 3 direct access were to be construed as a taking, we tentatively conclude that just compensation to Comsat, which would normally be required, is not an issue here. It is not required because Comsat will still have a reasonable opportunity to earn a fair financial return from its INTELSAT investment. Comsat cites  S'Duquense Light Company v. Barasch to support its contention that the Fifth Amendment protects public utilities owned by private investors from being limited to a rate that is so unjust as to be  S'confiscatory.IuS {O* 'ÍX#X\  P6G;sP#Duquense Light Company v. Barasch, 488 U.S. 299, 307 (1989)(citing Covington & Lexington Turnpike  {O 'Road Co. v. Sandford, 164 U.S. 578, 597 (1896)).#X\  P6G;sP#(#I As discussed below, we tentatively conclude that Level 3 direct access may impede Comsat's ability to earn monopoly rents in the switched voice, private line, and occasionaluse video noncompetitive markets, but Comsat would continue to have a reasonable opportunity to earn a fair return on its investment from INTELSAT in connection with the voice, data, and video traffic that  S" 'Comsat and other U.S. direct access customers originate and terminate via the INTELSAT system.Rv" $S {O'ÍX#A\  PsP#See Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172, 19495 (1985) (it is only necessary that a reasonable, certain and adequate provision for obtaining compensation exist at the time of the taking; "[i]f the government has provided an adequate process for obtaining compensation, and if resort to that process [results in compensation], then the property owner [has no  yO'takings claim]").#X\  P6G;sP#(#R Thus, notwithstanding other carriers and users obtaining Level 3 direct access to INTELSAT satellites, Comsat's opportunity to earn a reasonable return from its INTELSAT investment will be preserved. Accordingly, we tentatively conclude that, even if other carriers and users obtain Level 3 direct access to INTELSAT satellites, Comsat will have a reasonable opportunity to earn a fair financial return from  SZ'its INTELSAT investment, independent of the issue of just compensation.:wZS S'ԍ#X\  P6G;sP#XThere is also the legal issue of whether the Commission or the U.S. Court of Claims would be the  yO'proper entity to determine what constitutes just compensation.#&a\  P6G;/&P#(#: We request comment on these tentative conclusions and analysis.  S' (2)` ` What are the potential benefits of direct access?  S'+44.` ` INTELSAT has described various benefits that direct access may offer to customers: (1) improved responsiveness to customer inquiries on service implementation; (2) avoidance of markup costs charged to third parties; (3) greater control over service quality, performance costs, connectivity, redundancy, and earth station capabilities; and (4) more flexibility (than through third parties) in tailoring services in terms of bandwidth, time duration, performance standard, redundancy  S'and service applications.x> S {O"'ÍX#X\  P6G;sP#See "Accessing INTELSAT...Directly", reprinted in Record of Hearing before the Subcommittee on Telecommunications, Trade, and Consumer Protection on H.R. 1872, at pp. 135141. (# The fact that 93 countries already permit some level of direct access may indicate international recognition of some of these benefits. "z x0*&&99"Ԍ S',45.` ` As illustrated by comparison in Appendix B, Comsat and INTELSAT 1997 rates are  S'substantially different. yS S@'Í X#X\  P6G;sP#We note that Comsat's tariffs in Appendix B are based on rates before the release of the  Commission's  {O'Comsat NonDominant Order. (#  In the Comsat NonDominant proceeding, AT&T, MCI, and WorldCom claimed that Comsat rates are 250 percent higher than the INTELSAT Utilization Charge (IUC), "even  S'though Comsat itself was providing no facilities to its customer."z2S yO\'ÍX#X\  P6G;sP#Satellite Users' Coalition, Analysis of privatization of the Intergovernmental Satellite Organizations at pp. 17 and 2324.(# The IUC is the rate Signatories  Sb'pay INTELSAT for use of the space segment. AT&T, MCI, and WorldCom state that Comsat's average margin over the IUC is 68 percent and estimate that the competition from carriers with direct  S'access would reduce this margin to 35 percent.~{S {O< 'ÍX#X\  P6G;sP#Id. at p. 24(#~ AT&T, MCI, and WorldCom project savings from  S'direct access of over $1 billion over a ten year period (which they calculate has a present value of  S'$690.3 million).|S yO~'Í#X\  P6G;sP#XComsat Corporation "Joint Response to Satellite Coalition Analysis" at pp. 1314.(#ƽ  Sr'-46.` ` In contrast, Comsat contends that direct access would not result in significant cost savings. Comsat states that it is not a "reseller" of INTELSAT services but is an investor owning a  S" 'share of INTELSAT space segment capacity that it uses to provide services to U.S. customers.}" S {On'ÍX#X\  P6G;sP#Id. at pp. 3 and 13(#ƅ Comsat contends that, as the U.S. investor in INTELSAT, it must be allowed to earn a return on its investment and recover costs, and that factoring these considerations into any direct access scheme would demonstrate that customers would not realize any meaningful savings. Comsat argues that its  S 'rates include a "markup" over the IUC because it needs to recover all of its costs associated with its  SZ'Signatory and carrier functions. ~Z> S {O8'ÍX#X\  P6G;sP#Comsat Corporation, Consolidated Reply in the Comsat NonDominant proceeding, at p. 49, footnote  yO'134.#&a\  P6G;/&P#(#  Comsat claims that the IUC does not reflect many costs (e.g., launch and satellite insurance and Signatory functions) that it would bear on behalf of direct access  S 'customers.  S yOB'ÍX#X\  P6G;sP#Comsat "Joint Response to Satellite Coalition Analysis" at p. 13.#&a\  P6G;/&P#(# Comsat contends that Level 3 direct access at the IUC would allow carriers and users a "free ride" because Comsat would not be able to recover its full cost of providing INTELSAT  S'services.(S yO!'ÍX#X\  P6G;sP#Comsat Corporation "Joint Response to Satellite Coalition Analysis" at pp. 1314.#&a\  P6G;/&P#(# According to Comsat, if its costs are properly quantified, the savings from direct access  S'for AT&T, MCI, and WorldCom would be zero, not the 35 percent estimated by the these carriers.S {O#'ÍX#X\  P6G;sP#Id. at pp. 3 and 1314.#&a\  P6G;/&P#(#ư  Sj'  "jJ0*&&99%"Ԍ S'.47.` ` In our Comsat NonDominant Order, we recognized Comsat's concern about adequate compensation for costs of carrying out its statutorilyimposed official Signatory functions  S'under a direct access regime.S {O'ÍX#X\  P6G;sP#Comsat NonDominant Order at para. 157.#&a\  P6G;/&P#(#ƺ We also stated, however, that Comsat, like any other company facing  S'new competition, must control its costs to remain competitive.ZS {M'ÍX#X\  P6G;sP#Id.#&a\  P6G;/&P#(#Ɯ The IUC has three components: a) INTELSAT's operating expenses; b) depreciation of capital assets; and c) a rate of return for use of  S:'Signatories' capital.:S yO 'Í#X\  P6G;sP#XINTELSAT Operating Agreement, Article 8, T.I.A.S. No. 7532.#&a\  P6G;/&P#(# Comsat has stated that its markup over the IUC rate includes operational expenses such as: (a) signatory costs; (b) marketing/sales costs; (c) satellite insurance costs; (d)  S'transactions costs; (e) operational costs; (f) regulatory compliance costs; and (g) taxes.zS yO 'ÍX#X\  P6G;sP#Comsat Press Conference, February 4, 1998, Comsat Vice President of Federal Policy and Regulation  yO 'Howard Polsky.#&a\  P6G;/&P#(# We request that Comsat specify the activities or transactions that give rise to these costs and the magnitude of these costs. Comsat should specify which of these costs it believes should be added to the IUC to allow for fair recovery. Comsat should also specify how the costs it deems recoverable should be allocated among the different INTELSAT services. Since some costs which Comsat believes should be recoverable may be incurred by functions which also generate nonrecoverable costs, we ask Comsat to discuss how it would assign its costs. For example, a Comsat employee's role may involve Signatory functions for part of the day and involve marketing functions for the remainder. We also request Comsat to specify how it would plan to allocate these recoverable costs between itself and Level 3 users. Comsat should also demonstrate how these costs would be allocated if Level 3 direct access is adopted only for services in noncompetitive markets.  S '/48.` ` We request parties to respond to the cost information that Comsat provides. We seek comment from all parties on which costs, if any, should be recovered by Comsat, irrespective of whether consumers purchase INTELSAT capacity through Comsat or by direct access to INTELSAT.  S' We request comment on whether as a matter of law and policy, Comsat should have an opportunity to  Sj'recover any of the costs it currently recovers from its markup over the IUC, or whether the up to 21  SB'percent return reflected in the IUC is already adequate to compensate Comsat for any such costs and  S'still provide Comsat with a fair net return on its investment.f0S yO'#X\  P6G;sP#Í#&a\  P6G;/&P#X#X\  P6G;sP#INTELSAT's Level 3 direct access program assures Signatories of a return on investment (currently up to 21 percent) for all INTELSAT traffic attributable to direct access customers in their country. Thus, Comsat would receive up to a 21 percent return on its investment in INTELSAT space segment utilized  S 'by U.S. carriers and users under Level 3 direct access arrangement. #&a\  P6G;/&P# (#f Comsat should in particular address why there should be a cost recovery concern with respect to direct access users when Comsat invests in INTELSAT beyond its annual usage rate of the INTELSAT system.  Sz'049. ` ` We also request all parties to address in their comments the relevance of findings"z 0*&&99"  S'made by the Commission in its 1984 Direct Access Order.S {Oh'Í#X\  P6G;sP#1984 Direct Access Order at 313319.#&a\  P6G;/&P#ѵ In 1984, the Commission concluded that neither an IRU nor a capital lease direct access alternative then under consideration would produce significant cost savings and related efficiencies for customers. The Commission determined that direct access would not save users money either by increasing efficiency, enhancing competition, or curbing  Sb'Comsat's allegedly excessive tariffs.bZS {M\'Í#X\  P6G;sP#Id.#&a\  P6G;/&P#` ` ė In assessing the likelihood that direct access would lower costs, the Commission examined each category of costs on which Comsat based its space segment  S'tariff.S S 'Í #X\  P6G;sP#Id. at 310319.#&a\  P6G;/&P#ћ It concluded that each category was properly allocable to the tariff. In the Commission's view, neither the IRU or capital lease options under consideration would reduce any of these costs;  S'rather, either alternative would redistribute the costs among Comsat and the carriers.S S 'Í  #X\  P6G;sP#Id.#&a\  P6G;/&P# đ The Commission did not, however, then have the opportunity of considering application of the direct access programs that INTELSAT later put into place. As we described above, Level 3 direct access offers nonSignatory carriers and users an opportunity to obtain service directly from INTELSAT without having to make a capital investment. As the U.S. Signatory, Comsat would earn up to a 21 percent return on its investment in connection with Level 3 direct access usage in the United States. We request comment on whether the availability of Level 3 direct access might lead us to different conclusions than we made in our l984 Direct Access Order as to cost savings to customers.  SZ'150.` ` We also request comment on whether permitting direct access in the United States would result in cost savings to U.S. carriers and users if we were to determine that Comsat has unavoidable support costs that must be added to the IUC. Commenters should adjust their estimate of the cost savings to take into account any additional tax incurred as a result of the cost savings to Level 3 direct access users. We request comment on Comsat's argument that no cost savings would exist because Comsat must be permitted to recover certain costs that are not recoverable through the IUC. We also request comment from Comsat and other parties on how our recent decision to reclassify Comsat to nondominant carrier status for most of its services, as well as our pending consideration of incentivebased rather than rate of return regulation of Comsat's remaining dominant services, should affect our consideration of Comsat's cost recovery concerns in connection with direct access. In view of our decision to substantially deregulate Comsat on the basis that competitive markets have developed, parties should comment on whether, and to what extent, the Commission should be concerned about Comsat's ability to recover costs beyond those associated with its "statutorily imposed  SR'official Signatory functions."R,S S"'ԍ#X\  P6G;sP# See para. 47 supra.#&a\  P6G;/&P#џ  S*'#&a\  P6G;/&P#  S'251.` ` Carriers seeking direct access should also comment on how they would pass any cost savings to consumers in view of the efficiencies that they predict would result from direct access. "0*&&99" We ask proponents of direct access to specify the nature of the efficiencies they foresee and provide  S'information as to the level and timing of cost savings to consumers. T o the extent information may be available, we ask all parties to comment on whether any of the other 76 countries that permit Level 3 direct access had concerns about Signatory cost recovery and, if so, what actions they may have taken to resolve such concerns. For example, do carriers in countries that allow direct access pay the same rates to INTELSAT as do Signatories, or do carriers pay a higher rate to cover certain Signatory costs? ` `  S'352.` ` Comsat argues that direct access would result in a loss of economies of scale,  S'resulting in harm to low volume users of INTELSAT.3S S 'Í X#X\  P6G;sP#See Comsat Corporation "An Economic Evaluation of Direct Access to the INTELSAT System by U.S.  yO 'Telecommunications Customers" at pp. 4344.#&a\  P6G;/&P#(#3 We request comment generally on the possible impact of direct access on low volume users. We also seek comment on Comsat's argument that loss of economies of scale as a result of direct access would lead to an increase in rates to low volume users that might not elect to purchase capacity directly from INTELSAT.  S '453. ` ` In the Comsat NonDominant Order, we stated that if U.S. carriers and users were permitted to obtain nondiscriminatory, contractual direct access to INTELSAT satellites, or Level 3 direct access, Comsat would no longer be the sole provider of switched voice, private line, and  SZ'occasional use video service in noncompetitive markets.Z0S {O*'ÍX#X\  P6G;sP#Comsat NonDominant Order at para. 155.#&a\  P6G;/&P#(#ƺ We found that Level 3 direct access  S2'would: (1) reduce Comsat's control over INTELSAT capacity serving these markets; (2) give U.S. carriers and users the option of using another supplier; and (3) reduce Comsat's market power in these  S'markets.S {MD'ÍX#X\  P6G;sP#Id.#&a\  P6G;/&P#(#Ɩ We noted that additional suppliers would likely provide competitive market conditions  S'with the potential for price competition, service quality improvements, and innovation.RS Q'ÍX#X\  P6G;sP#Id#&a\  P6G;/&P#.(#Ɯ We concluded that the availability of direct access for switched voice and private line services and occasional use video services in noncompetitive markets would provide a basis for forbearance from  SB'dominant carrier regulation of Comsat.BS {O'ÍX#X\  P6G;sP#Id. at para. 156.#&a\  P6G;/&P#(#ƪ We therefore request comment on whether permitting Level 3 direct access for switched voice, private line, and occasional use video service in noncompetitive markets would provide competitive alternatives and consumer benefits that do not now exist.  S'554. ` ` The carriers seeking direct access request that it be permitted without distinction to  Sz'competitive and noncompetitive markets and services.@z S yO#'ÍX#X\  P6G;sP#Satellite users Coalition "The Legal Authority of the Federal Communications Commission to Authorize  yOf$'Direct Access to the INTELSAT System," at pp. 15 and 15. #&a\  P6G;/&P#(#@ In our Comsat NonDominant Order, we"z 0*&&99" found Comsat to be nondominant with respect to most of its international services on most of its international routes, except for those mentioned above. We request comment in this proceeding, however, on the desirability of allowing direct access to INTELSAT with respect to all product and geographic markets including those markets that we have found to be competitive and for which we have found that Comsat is nondominant. Parties should address whether direct access to all markets would further increase the level of competition to the extent that prices to consumers would be likely to fall, even in competitive markets. We have already noted that a large number of foreign countries have authorized direct access to INTELSAT. In the countries where direct access to INTELSAT is authorized, is direct access allowed for the provision of all services to all locations? If so, would that fact suggest that we should authorize direct access with respect to all markets?  SH ' 655.` ` In our Comsat NonDominant proceeding, Comsat argued that direct access is not needed because U.S. users already can choose between alternative cable and satellite facilities. Comsat also states that the Canadian Signatory, Teleglobe, is aggressively pursuing U.S. customers for its  S 'INTELSAT service offerings. S yO:'ÍX#X\  P6G;sP#Comsat "Joint Response to Satellite Coalition Analysis" at p. 3.#&a\  P6G;/&P#(# Comsat maintains that it does not control bottleneck facilities and is not a vertically integrated Post Telephone and Telegraph carrier like many other Signatories, and thus  S 'the arguments in favor of allowing direct access in many foreign countries do not apply in the U.S.( XS {Oz'ÍX#X\  P6G;sP#Id. at 12, citing Marius Schwartz "Introducing Direct Access by U.S. Users to INTELSAT, An  yOD'Economic Assessment", September, 1997.#&a\  P6G;/&P#(#( We request comment on these contentions. We seek comment on how and to what extent Teleglobe can effectively compete with Comsat, given its similar Signatory status as Comsat. In addition, parties seeking direct access should provide information showing why existing customer choice is limited or inadequate in competitive markets and how direct access would be necessary to provide adequate customer choice.   Sj' (3) What competitive concerns are raised by direct access?  S'756.` ` In the Comsat NonDominant proceeding, both Comsat and PanAmSat raised competitive concerns associated with permitting direct access in the United States. Comsat argued that Level 4 direct access would lead to an undesirable concentration of control of cable and satellite  S'facilities if U.S. carriers were permitted to invest in INTELSAT.S yO'ÍX#X\  P6G;sP#Comsat "Joint Response to Satellite Coalition Analysis", at p. 13. #&a\  P6G;/&P#(# Comsat also argued that permitting direct access in the United States would allow INTELSAT to compete in the U.S. market  ST'immune from any regulatory jurisdiction and oversight of its rates and practices.fXTBS yO6!'ÍX#X\  P6G;sP#Comsat Corporation "An Economic Evaluation of Direct Access to the INTELSAT System by U.S. Telecommunications Customers" at 47; Comsat "Joint Response to the Satellite Coalition Analysis" at p.  yO"'14.#&a\  P6G;/&P#(#f Similarly, PanAmSat maintained that INTELSAT must waive its immunities from suit and process before being",b 0*&&99q"  S'permitted to provide service directly to customers in the U.S. market.S {Oh'ÍX#X\  P6G;sP#PanAmSat Reply Comments in the Comsat NonDominant proceeding at p. 3.#&a\  P6G;/&P#(# We seek comment on Comsat's concern that direct access would encourage concentration of control of cable and satellite facilities. We request that parties distinguish between Level 3 and Level 4 direct access, in light of  S'the fact that  Level 3 customers would not have an investment in INTELSAT and would exercise no control over or participation in the governance and the operation of the INTELSAT system.  S'857. ` ` We seek comment on Comsat's and PanAmSat's concern that direct access would result in INTELSAT entering the U.S. market immune from Commission jurisdiction over rates and practices. Will the Commission be able to protect consumers by treating INTELSAT in the same manner that it treats other foreign satellite systems that may enter the U.S. market under the terms  Sp'under which we have implemented the 1997 WTO Agreement?pZS {Oj '#X\  P6G;sP#эXDISCO II Order at 2414824150.(#Ƅ That is, will the Commission's authority to license earth stations be a sufficient means of overseeing INTELSAT operations in the U.S. markets through a carrier with direct access? If not, what other regulatory protection might have to be imposed?  S '958.` ` We also seek comment on PanAmSat's concern about INTELSAT's immunity from suit and process, and the potential for INTELSAT to use its immunity to insulate itself from liability  SX'for any anticompetitive activities.XS {O'ÍX#&a\  P6G;/&P##X\  P6G;sP#See Comsat NonDominant Order at para. 158162.#&a\  P6G;/&P#(# What steps are available to minimize the effects of INTELSAT's  S0'immunities?'0~S yON'#X\  P6G;sP#эXCongress recently passed legislation addressing the competitive advantages of the immunities of  {O'intergovernmental satellite organizations such as INTELSAT. See International AntiBribery Act of 1998,  5 "Treatment of International Organizations Providing Commercial Communications Services,"  {O'action by consent on S. 2375, 105 Cong. Rec H11670 H11672 (Octboer 20, 1998); 105 Cong. Rec. S.  {Or'12973 S.12974 (October 21, 1998); See also Report of the Committee on Banking, Housing, and Urban Affairs to accompany S. 2375, International AntiBribery Act of 1998," Senate, 105th Cong., 2d.  {O'Sess., Report No. 105277, dated July 30, 1998; See also Report of the Committee on Commerce to accompany H.R. 4353, "International AntiBribery and Fair Competition Act of 1998," House of Representatives, 105th Cong., 2d Session, Report 105102, dated October 8, 1998. (#' Are the risks associated with INTELSAT's continuing immunity under direct access outweighed by the public interest benefits that may accrue to U.S. customers under a direct access scheme? We request parties pose other options that may resolve the competition concerns that have been raised.  Sh' (4) ` ` Would direct access affect U. S. efforts to privatize INTELSAT?  S':59.` ` Comsat asserts that direct access in the United States would delay or undermine U.S. influence toward privatization of INTELSAT. Comsat emphasizes the need to speak with one U.S."V 0*&&99a"  S'voice in INTELSAT.S {Oh'ÍX#X\  P6G;sP#Comsat Reply Comments in Comsat NonDominant proceeding at p. 49.#&a\  P6G;/&P#(# Comsat's argument appears based on the presumption that U.S. carriers and users that are permitted direct access will gain a benefit, in the form of underpriced space segment  S'service, that would cause carriers and users to oppose INTELSAT privatization options.ZS yO'ÍX#X\  P6G;sP#Comsat Corporation "Joint Response to Satellite Users Coalition Analysis" at p. 13.#&a\  P6G;/&P#(# Comsat  S'anticipates that privatization would result in U.S. customers obtaining "direct access" to INTELSAT.%S yO'ÍX#X\  P6G;sP#Comsat Corporation, "An Economic Evaluation of Direct Access to the INTELSAT System by U.S.  yO'Telecommunications Customers", at p. 41.#&a\  P6G;/&P#(#%  S`'In the Comsat NonDominant Order, we found that Level 3 direct access would neither dilute Comsat's voting power on the INTELSAT Board of Governors nor give customers the right to  S'participate in the INTELSAT governance process.BS {M 'ÍX#X\  P6G;sP#Id.#&a\  P6G;/&P#(#Ɩ We further note here that the companies seeking  S'direct access also have stated their support for privatization of INTELSAT at an early date.#S {O\'ÍX#X\  P6G;sP#See Satellite users Coalition "Analysis of the Privatization of the Intergovernmental Satellite  yO&'Organization in H.R. 1872".#&a\  P6G;/&P#(## Under these circumstances, we request comment on how implementing direct access in the United States might impact the U.S. objective of a privatized INTELSAT.  SJ ' ` `  S" ' III. PROCEDURAL MATTERS ă  S ' 1.` ` Ex parte Presentations  S '  S ';60.` ` This is a permitbutdisclose notice and comment rulemaking proceeding. Ex Parte presentations are permitted, except during the Sunshine Agenda period, provided that they are  S2'disclosed as provided in the Commission's rules. See generally 47 C.F.R.  1.1202, 1.1203, 1.1206.  S' 2.` ` Regulatory Flexibility Act  S'  S'<61.` ` See Appendix C, infra for the Initial Regulatory Flexibility Analysis.  SB' 3.` ` Comment filing Procedures  S'=62.` ` General Requirements: Interested parties may file comments on before December 18, 1998, and reply comments on or before January 8, 1998. Comments may be filed either by filing  S'paper copies or using the Commission's Electronic Comment Filing System (ECFS). See Electronic  Sz'Filing of Documents in Rulemaking Proceedings, 63 FR 24,121 (1998). Pursuant to applicable procedures set forth in sections 1.415 and 1.419 of the Commission's rules 47 CFR  1.415, 1.419, for paper filings, interested parties must file an original and four copies of all comments, reply comments, and supporting comments. If you want each Commissioner to receive a personal copy of", 0*&&99u" your comments, you must file an original and 11 copies. All filings must be sent to the Commission's Secretary, Magalie Roman Salas, Office of the Secretary, Federal Communications Commission, 445 12th Street, SW, Washington, D.C. 20554, with a copy to Kathleen A. Campbell of the International  S'Bureau, 2000 M Street, N.W., Suite 800, Washington, D.C. 20554. Paper filings will be received at a designated counter located at TWA325 in the 12th street lobby. The Commission expects to complete its relocation to The Portals within the next six month. During the transition period, paper filings also  S'will be accepted at 1919 M Street, NW, Room 222, but only between the hours of 4:00pm to 5:30pm. Parties should also file one copy of any documents filed in this docket with the Commission's copy contractor, International Transcription Services, Inc., 1231 20th Street, N.W., Washington, D.C. 20036. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C. 20554.  S '>63.` ` Electronically filed comments that conform to the Commission's Rules will be considered part of the record in this proceeding. Generally, only one copy of an electronic submission must be filed. If multiple docket or rulemaking numbers appear in the caption of this proceeding, however, commenters must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the caption. In completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket or rulemaking number. Comments filed through the ECFS can be sent as an electronic file via the Internet to . To file electronic comments, you must use the electronic filing interface available on the FCC's World Wide Web site at . Further information on the process of submitting comments electronically is available at that location and at . You must note whether an electronic submission is an exact copy of the formal comments on the subject line. You also must include your full name and Postal Service mailing address in your submission. To get filing instructions for email comments, commenters should send an email to ecfs@fcc.gov, and should include the following words in the body of the message, "get form ." A sample form and directions will be sent in reply.  Sx'?64.` ` Other requirements: Comments and reply comments must include a short and concise summary of the substantive arguments raised in the pleading. Comments and reply comments must  S('also comply with Section 1.49 and all other applicable sections of the Commission's rules.\(S {O'ÍX#X\  P6G;sP#See 47 C.F.R.  1.49. We require, however, that a summary be included with all comments and reply  {OZ'comments. The summary may be paginated separately from the rest of the pleading (e.g. as "i, ii"). See  yO$'47 C.F.R.  1.49.#&a\  P6G;/&P#(#ƶ We also direct all interested parties to include the name of the filing party and the date of the filing on each page of their comments and reply comments. Comments and reply comments also must clearly  S'identify the specific portion of this Notice to which a particular comment or set of comments is responsive. If a portion of a party's comments does not fall under a particular topic listed in the  S`'outline of this Notice, such comments must be included in a clearly labelled section at the beginning or end of the filing.  S '@65.` ` Parties submitting diskettes should submit them along with their formal filing to the" 0*&&99" Office of the Secretary. These diskettes should be submitted to: Kathleen A. Campbell of the International Bureau, 2000 M Street, N.W., Suite 800, Washington, D.C. 20554. Such a submission should be on a 3.5 inch diskette formatted in an IBM compatible format using WordPerfect 5.1 for Windows or compatible software. The diskette should be accompanied by a cover letter and should be submitted in "read only" mode. The diskette should be clearly labelled with the commenter's name, proceeding (including the lead docket number in this case IB Docket No.98192, type of pleading (comment or reply comment), date of submission, and the name of the electronic file on the diskette. The label should also include the following phrase "Disk Copy Not an Original." Each diskette should contain only one party's pleading, preferably in a single electronic file. In addition, commenters must send diskette copies to the Commission's copy contractor, International Transcription Service, Inc., 1231 20th Street, N.W., Washington, D.C. 20037.  SH '  S '  S 'w) IV. ORDERING CLAUSES ă  S 'A66.` ` Accordingly, IT IS ORDERED that pursuant to the authority contained in sections 4(i), 4(j) 201, 214 and Title III and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  S0' 154(i)(j), 201, 214, 301 et seq., and 403, and sections 201(c)(5) and (c)(11) and 401 of the Communications Satellite Act of 1962, 47 U.S.C.  721(c)(5) and (c)(11) and 741 and the applicable procedures set forth in sections 1.415 and 1.3419 of the Commission's rules, 47 C.F.R.  1.415 and  S'1.419 that this Notice of Proposed Rulemaking is hereby ADOPTED.  Sj' B67.` ` IT IS FURTHER ORDERED that interested parties may file comments on or before December 18, 1998, and may file reply comments on or before January 8, 1999.  S'C68.` ` IT IS FURTHER ORDERED that the Commission's Office of Public Affairs  S'Reference Operations Division shall send a copy of this Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. ` `  hhCqFEDERAL COMMUNICATIONS COMMISSION ` `  hhCqMagalie Roman Salas ` `  hhCqSecretary " 0*&&99."  S'X Appendix A Qh'Í X#X\  P6G;sP#Source: INTELSAT document provided to the United States Party. #&a\  P6G;/&P# (#   S' Countries In Which Level 3 Direct Access Is Authorized \ H 8(#҇Afghanistan Armenia Australia Austria Azerbaijan Bangladesh Belarus Belize Benin BosniaHerzegovina Botswana Brazil Brunei Darussalam Burundi Cambodia Cameroon Central African Republic Chad Colombia Comoros Congo Costa Rica Czech Republic Denmark Egypt El Salvador Ethiopia Gabon Georgia Germany Guyana Hungary Indonesia Iraq Israel Japan Kiribati Korea""!h0*&&99!"ԌKuwait Lao, P.D.R. Latvia Lithuania Macedonia Malaysia Mali Malta Moldova Monaco Morocco Namibia Nepal Netherlands Niger Nigeria Paraguay Portugal Qatar Romania Russia Sao Tome E Principe Somalia Spain Sri Lanka St. Lucia Sudan Switzerland Tajikstan Tonga Turkmenistan Tuvalu Uganda Ukraine Taiwan Venezuela Yemen Zambia""!h0*&&99!"ԑ S`'^ R`!h0*&&99.p#p#!!`!h&&99R  S'Ԉ  S';Level 4 Direct Access TH 8(#(#҇ \ Argentina Chile China Ivory Coast France Ghana Guinea Haiti Ireland Kazakhstan Madagascar New Zealand Peru Singapore Swaziland Sweden United Kingdom ""0*&&99Z" H"0*&&99$""&&99H  S'Z APPENDIX B  S' \  S8' "#0*&&99}"  S' $( WX` hp x (#%'0*,.8135@8: