by Gerry Oberst

A small provision in the recent Intelsat privatization law adopted by the United States in mid-March this year could have large implications for the international satellite field. A scarcely noticed provision in the law takes away FCC authority to use competitive bidding procedures for international satellites, and instructs the U.S. government to oppose any such competitive bidding in the International Telecommunication Union (ITU) or other international settings.

The main target of the “Open-Market Reorganization for the Betterment of International Telecommunications” Act (ORBIT), was privatization and restructuring of Intelsat and Inmarsat. The bulk of the law sets up licensing standards, criteria for privatization, and other terms relating to the international satellite organizations.

Section 647 of the law, however, in elegantly simple terms rules out U.S. support for auctions of international orbital slots or spectrum. It says that “notwithstanding any other law,” the FCC has no authority to rely on competitive bidding to assign orbital locations or spectrum “used for the provision of international or global satellite communications services.” Moreover, it instructs the President, in mandatory terms, to “oppose in the ITU and in other bilateral and multilateral fora any assignment by competitive bidding of orbital locations or spectrum used for the provision of such services.”

There is little background on how this provision came to be in the ORBIT Act, but its impact is very welcome. The satellite industry for the last several years has sought to explain to policy makers that auctions might be fine for some domestic services, but are economically impossible for global or international systems. No system operator can devise a rational bidding procedure for signals that cover multiple countries. The problem of sequential auctions means that satellite operators would be foreclosed from making sensible business plans or obtaining licenses to fit their footprints.

This point was recognized several years ago by the ITU, in a 1997 report on the “economic aspects of spectrum management,” which noted that auctions would be “inefficient or impractical” for such satellite systems. Holding auctions in multiple countries could delay new and innovative services.

The European Radiocommunications Committee, within the pan-European CEPT structure, reiterated this caution on satellite auctions in May 1998, and said that auctioning international satellite services could be “extremely difficult.” And a few months later, in July 1998, the U.K. administration submitted a paper to the ITU on these issues, in general supporting economic criteria for spectrum management, but also acknowledging the views of industry that “pan-national” satellite coverage makes auctions inappropriate.

The Satellite Industry Association in the United States consistently has argued against the use of auctions to assign satellite slots or spectrum, pointing out that high fees in general can impede new services from this industry. On the other side of the Atlantic, the Satellite Action Plan Regulatory Working Group (SAP RWG) has advanced the same arguments. In April 1999 comments to the European Commission, the group said that auctions would make it “impossible to build global or regional platforms.”

Subsequently, in October last year, the SAP RWG commented that a satellite operator would find it impractical to assess the licensing costs it might face to implement a pan- European or global system if auctions are applied. In this sense, creating auctions around the world would make the current concern over “paper satellites” even more of a problem if operators had to try to deal with a shifting series of auction procedures after proposing a new satellite network.

Despite these various arguments, it can be expected that pressure to rely on auctions will continue. For although regulators are always quick to claim that auctions should not be justified as a means to raise money for government coffers, those kind of revenues are tempting.

Proponents of auctions try to argue that high auction prices will not lead to higher consumer prices, which assumes that the cost of financing new communications ventures is not included in the price of the ultimate service. Analysts already are predicting that it might take 20 years before the investments in the U.K. third generation mobile licenses can be recouped. For satellite networks with lifetimes that last about half that time, it is an ominous thought that the same prices could ever be applied for satellite spectrum.

For this reason, the new provision in the ORBIT Act is a refreshing victory for the satellite industry, and the consumers the industry serves. Success in space already is a risky venture. The ORBIT limit on orbital auctions will help.v

Gerry Oberst is a partner in the Brussels office of the Hogan & Hartson law firm. His email address is [email protected].