Communication breakdown?: The future of global connectivity after the privatization of INTELSAT.

• Author: Katkin, Kenneth
• Position: International Telecommunications Satellite Organization

ABSTRACT

In 1971, eighty-five nations (including the United States) formed the International Telecommunications Satellite Organization (INTELSAT), a public intergovernmental treaty organization. INTELSAT was charged with operating the world's first global telecommunications satellite system, to guarantee the interconnectedness of the world's communications systems and the availability of international telecommunications service to every nation on earth. By the late 1980s, however, INTELSAT's operations began to experience substantial competition from the private sector. In 2000, the proliferation of privately-owned telecommunications satellites and transoceanic fiber-optic cables led the U.S. Congress to mandate the privatization of INTELSAT. That privatization process began in 2001, and was substantially completed on April 8, 2005, when the Federal Communications Commission approved the $5 billion sale of INTELSAT'S former satellite system to private investors.

The privatization of INTELSAT has been said to threaten universal global connectivity, the continuation of international telecommunications service to developing countries, or both. Are the legal safeguards instituted during the privatization (which include the maintenance of a residual treaty organization) sufficient to dispel such economic and political threats? Economically, the privatized satellite system is now legally obligated to serve developing countries at rates no higher than those charged prior to privatization. It likely will remain capable of honoring this legal commitment. Even if its business operations fail, however, this commitment would survive bankruptcy. Politically, the privatized satellite system has been rendered subject to U.S. law, including U.S. international trade policies. Current U.S. law, however, strongly protects the satellite system's ability to serve every country on earth. Congress, of course, retains power to amend U.S. law. But certain political safeguards, including U.S. participation in the World Trade Organization, would interpose significant obstacles to any Congressional attempt to implement telecommunications sanctions as a means of advancing U.S. foreign policy. Accordingly, the privatization of INTELSAT is unlikely to undermine the universal global connectivity of the world's communications systems.

 TABLE OF CONTENTS I. INTRODUCTION II. INTELSAT's FORMATION AND STRUCTURE III. CALLS FOR INTELSAT's DISSOLUTION

1. Calls From Without B. Calls From Within IV. INTELSAT PRIVATIZATION A. The ORBIT ACT of 2000 B. Transfer of INTELSAT's Assets to a Private U.S.-Licensed Successor Entity C. Establishment of Residual Treaty Organization ITSO V. DOES INTELSAT's PRIVATIZATION THREATEN GLOBAL UNIVERSAL SERVICE?

1. Economic Threats to ITSO's "Public Service" Mission

   1. Can Lifeline Countries be Charged Rates Higher than the Average Rates Paid by High-Volume Users?

   2. Are the LCO Eligibility Criteria So Stringent that They Fail to Protect Underserved "Lower-Middle-Income"

   Nation? 3. Have Implicit Subsidies to Underserved

   Nations Been Eliminated, Without Being Replaced by Explicit Subsidies? 4. Will Global Connectivity Survive the Possible Retirement in 2013 of the Residual Treaty Organization ITSO? 5. What Will Happen if Intelsat Ltd.

   Goes Bankrupt? B. Political or Legal Threats to ITSO's "Public Service" Mission 1. Is Intelsat Ltd. Violating Current U.S. Law by Providing Service to Countries

   that Are Subject to U.S. Trade Sanctions?. 2. Does the U.S. Administration Have Authority to Promulgate New

   U.S.-International Trade Sanctions that Might Threaten Intelsat Ltd.'s Ability to Maintain Global Connectivity? ... 3. Does the U.S. Congress Have Authority to Enact New U.S.-International Trade Sanctions that Might Prevent Intelsat Ltd. from Maintaining the Global Connectivity of the Satellite Fleet Formerly Operated by INTELSAT? 4. If the U.S. Congress Enacts New U.S.-International

   Trade Sanctions that Hinder Intelsat Ltd.'s Ability to Maintain Global Connectivity, Would Intelsat Ltd.'s Non-U.S.-Licensed Satellites be Required to Comply with the Sanctions? 5. Does the United States Now Have the Ability to Disrupt the Universal Global

   Connectivity of the World's Communications Systems or Remove Individual Countries from the World's Communications Infrastructure? VI. CONCLUSION

   I. INTRODUCTION

   On January 28, 2005, a consortium of private investors paid $5 billion to purchase a global fleet of thirty commercial communications satellites used to transmit a variety of types of mass communication--television, radio, internet, and domestic and international telephone calls--to virtually every country or territory on earth. Despite its large price tag, the sale of these satellites passed largely unnoticed by the U.S. media. The transaction, however, marked the final major step in a remarkable four-year process in which the International Telecommunications Satellite Organization (INTELSAT), a multilateral intergovernmental treaty organization, was privatized.

   The INTELSAT treaty organization was formed in several stages in the 1960s. Before anyone knew whether the task was possible, INTELSAT was charged with creating and operating a global fleet of international communications satellites that would guarantee the universal connectivity of the world's telecommunications networks. In this effort, INTELSAT succeeded. By the mid-1990s, the INTELSAT treaty organization consisted of 148 member nations and operated a global fleet of twenty-five geostationary satellites that served virtually every populated location on earth.

   INTELSAT's success, however, also planted the seeds of the organization's eventual demise. In the 1980s, separate international satellite systems inspired by INTELSAT's success began competing against INTELSAT. By 2000, more than 200 operational geostationary commercial communications satellites orbited the earth, of which only nineteen belonged to INTELSAT. As competition intensified, some commentators questioned why a public intergovernmental treaty organization was still needed to provide telecommunications services that by then were substantially provided by the private sector. Acting on such concerns, Congress enacted the ORBIT Act of 2000, which mandated the privatization of INTELSAT. The privatization process began in July 2001, and essentially ended with the sale of INTELSAT's satellites on January 28, 2005.

   Although widely welcomed in the United States, the privatization of INTELSAT caused alarm in many developing nations. Particularly in "lifeline nations" not served by any other international telecommunications carrier, some voiced fears that the privatization of INTELSAT could threaten the interconnectedness of the world's communications systems by rendering the future of global connectivity subject to both market forces and U.S. international trade policies.

   To address such concerns, in executing its privatization, INTELSAT left in place a small residual International Telecommunications Satellite Organization (ITSO). ITSO's primary charge is to ensure that the new owners of INTELSAT's former satellite system preserve global connectivity and continue to serve those poor or underserved countries that remain highly dependent on INTELSAT for international telecommunications service. ITSO, however, has no role in operating the privatized satellite system, nor any satellites of its own. Thus, for the first time since 1971, the sole public international organization charged with ensuring that every country on earth receives international telecommunications service lacks the technological facilities to provide the service itself. Instead, ITSO must rely entirely on political and legal tools to accomplish its mandate.

   To date, INTELSAT's private successor has continued to serve every country and territory on earth. Indeed, under the supervision of ITSO, the private successor has executed lifeline connectivity obligation (LCO) contracts that guarantee the maintenance or expansion of existing service to lifeline nations. At present, no country is threatened with removal from the global network of communications systems.

   Concerns have been raised, however, that the global connectivity of the world's communications systems has been rendered less secure by the privatization of INTELSAT. Some of these concerns are economic in nature: Will the private successor honor its commitments to serve lifeline countries at reduced rates? Will honoring such commitments threaten the successor's financial viability? What will happen if the successor goes bankrupt? Other concerns are political in nature, and principally revolve around fears that the U.S. government might use its legal authority over the private successor to force the removal of certain "rogue states" from the world's communications grid.

   In Part II, this Article briefly reviews the formation of the INTELSAT treaty organization in the 1960s, and explains its structure and the nature of its operations from the 1970s through the 1990s. Part III surveys the pressures leading to privatization that arose both from outside and within INTELSAT in the 1990s. Part IV provides a detailed narrative documentary history of the privatization of INTELSAT, from the enactment of the ORBIT Act in 2000 through the sale of INTELSAT's satellites in January 2005. Part IV also documents the formation of the residual treaty organization ITSO in 2001 and the activities ITSO has engaged in since its formation. In Part V, this Article catalogues and evaluates certain specific claims that have been raised concerning the threat to global connectivity posed by INTELSAT's privatization. In particular, Part V.A evaluates whether the financial and economic framework left in place following the privatization of INTELSAT provides a sufficient and viable means of providing international communications service to underserved and developing nations. Part V.B then evaluates whether the legal and...