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Towards Competition in International Satellite Services
Endnotes
Demand from end users appears to be driving satellite
technology toward the provision of services directly to end users
(e.g. direct to home (DTH) television broadcasts) rather than the
historical emphasis on network connectivity through large earth
stations.
Whether rights to use GEO slots should be a consideration in
the restructuring debate depends, inter alia, on the level of
scale economies in operating a global satellite network. If the
minimum efficient scale were 25 satellites, then a case could be
made for letting INTELSAT retain its slots, and for regulating it
as a natural monopoly. However, if the minimum efficient scale
were four or even eight, then a better regime might be
divestiture of excess satellites and slots to promote competition
among multiple providers. The fact that private satellite
systems are proposing to operate global systems with far fewer
satellites strongly suggests that scale economies may not be very
significant.
A different type of "scale economy" might arise from the
need to coordinate positioning in GEO orbit, coordination that
may be smoother within an existing system than among different
heterogeneous systems. This issue perhaps merits further
investigation.
Drawing an analogy from the U.S. telephone industry, when
the integrated telephone monopolist AT&T was broken up into a
long distance provider and seven regional local-service Bell
companies, competition became the vehicle of choice for keeping
prices low in long distance service. To guard against Bells
abusing their market power and charging excessive interconnection
rates, the FCC regulates these rates. An important difference in
the world arena is that there is no global regulator (nor would
we advocate one), and individual countries may be tempted to
charge excessive access fees (if they act in their national
rather than global interest). Such excessive fees could harm
foreign countries in two ways: by reducing the profit that
foreign telecom suppliers might have earned, and by increasing
the cost of global interconnection, thereby injuring also foreign
consumers.
But INTELSAT's role in mitigating such incentives is
uncertain. It would seem preferable to rely on explicit
agreements between countries that ensured satisfactory access
terms to all, perhaps within a multilateral context such as the
General Agreement on Trade in Services.
To be sure, rents could arise from two other sources: INTELSAT's
greater efficiency, or economies of scope. The latter,
if important, argues against the viability of setting up a
separate subsidiary.
On the other hand, if all cross subsidization between a
proposed restructured "core INTELSAT" and its affiliate(s) is
prohibited (and assuming such a prohibition is enforceable), it
is not obvious what is gained by retaining the affiliate status
rather than creating completely separate private entities.