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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** FCC 97-315 Before the FEDERAL COMMUNICATIONS COMMISSION Washington D.C. 20554 In the Matter of COMSAT RSI, Inc. ) ) File No. I-T-C- 95-457 Application for Authority pursuant to ) Section 214 of the Communications Act ) of 1934, as amended, to Operate as an ) International Resale Carrier of ) Space Segment Service ) ORDER ON APPLICATION FOR REVIEW Adopted: September 2, 1997 Released: September 9, 1997 By the Commission: INTRODUCTION 1. In this decision, we deny AT&T Corp.'s ("AT&T") and PanAmSat Corporation's ("PanAmSat") applications for review of the decision by the International Bureau's Telecommunications Division ("the Bureau") to grant COMSAT RSI, Inc. (RSI), authority pursuant to Section 214 of the Communications Act of 1934, as amended, to operate as an international resale carrier of space segment service. BACKGROUND 2. On July 18, 1995, RSI, a wholly owned COMSAT subsidiary, was awarded a contract by the Department of Defense (DoD) to provide transponder services to the Defense Information Systems Agency (DISA) for its Commercial Satellite Communications Initiative ("CSCI"). RSI proposed to obtain the transponder services pursuant to a tariffed offering by COMSAT World Systems (CWS), another COMSAT subsidiary, and resell these services to DISA. CWS' tariff provided for term and volume discounts to the winner of the contract to provide services to DISA for its CSCI program, but these discounts were not available to CWS' non-governmental customers. 3. PanAmSat filed an opposition to CWS's tariff, contending that it violated Section 202 of the Communications Act because (1) it offered the federal government or its agents term and volume discounts not available to CWS' non-governmental customers, and (2) the discounts were so great that CWS was engaging in predatory pricing to prevent other systems from competing for government business. 4. On August 8, 1995, RSI filed a Section 214 application to resell the space segment to DISA for private network voice and data communications, not interconnected to the public switched network. RSI asserted that granting the Section 214 application would meet a public need by permitting RSI to support the federal government's national security-related CSCI program at DISA. RSI stated it would observe strictly the Commission's structural separation regulations between CWS and its corporate affiliates. 5. AT&T and PanAmSat opposed RSI's Section 214 application. AT&T argued that granting RSI's application would be inconsistent with the public interest because COMSAT's pricing scheme was anticompetitive and predatory. AT&T also argued that grant of the application would violate the structural separation requirements applicable to COMSAT. PanAmSat urged the Commission to deny, or, at a minimum, defer RSI's application until the Commission had investigated CWS' tariff filing and determined whether it violated Section 202 by offering below-cost and predatory rates. 6. On October 1, 1995, the Tariff (now Competitive Pricing) Division of the Common Carrier Bureau concluded that the parties did not present "compelling arguments" that the tariff rates were "patently unlawful" so as to require rejection or investigation, and allowed the tariff to become effective. 7. On October 17, 1995, the Bureau issued an order granting RSI's application. The Bureau concluded that PanAmSat's argument that CWS' tariff violated Section 202 was moot because the Tariff (now Competitive Pricing ) Division had concluded that the tariff was not "unlawful" and permitted the tariff to become effective. Next, the Bureau determined that granting RSI's application would not be anticompetitive, because CWS' tariffed rates would have been available to any bidder (not just RSI) who won the contract from DISA. The Bureau also noted that RSI's competitors could offer similarly priced space segment services, using COMSAT, competing satellite systems, or new facilities. Finally, the Bureau rejected AT&T's claim that COMSAT and RSI violated the Commission's structural separation requirements. Accordingly, the Bureau decided that granting RSI's Section 214 application would serve the public interest by providing DoD with additional capacity to meet its growing needs for satellite services. 8. On November 20, 1995, AT&T and PanAmSat filed applications for review. AT&T argues that the Bureau did not address its claim that COMSAT violated the Commission's structural safeguards by permitting "rate-funded COMSAT World personnel" to assist in RSI's bid to obtain the contract from DoD. PanAmSat argues that the Bureau erred as a matter of law in declaring as moot its claim that CWS' tariff violates Section 202. RSI filed an opposition to AT&T's and PanAmSat's applications, and AT&T and PanAmSat filed replies. 9. PanAmSat also filed a Section 208 complaint on February 21, 1996, alleging that CWS' tariff offerings violate Sections 201 and 202 of the Communications Act of 1934, as amended. On May 20, 1997, in the PanAmSat Order, we denied PanAmSat's complaint that CWS' tariff violated Sections 201 and 202. We concluded that PanAmSat had failed to establish the essential elements of a predatory pricing charge: that CWS' tariffed rates were below its average variable cost and there is a substantial prospect that CWS would be able to recoup its losses from profits earned later through its predatory scheme. We also concluded that CWS did not violate Section 202 by making its tariff available only to the federal government. DISCUSSION 10. Structural separation. AT&T argues that the Bureau should have investigated whether RSI violated the Commission's structural separation requirements for COMSAT by using ratepayer-funded personnel from CWS (hereafter "jurisdictional personnel") to bid and perform the CSCI contract. To support its claim that an investigation is warranted, AT&T asserts that RSI was a former antenna manufacturing company that could not have had the expertise in-house to win the contract without receiving technical assistance from CWS' jurisdictional personnel. AT&T notes that DISA's request for proposals specified that bids would be evaluated, among other factors, on the bidder's prior experience with contracts of comparable size and complexity -- and RSI had no such prior experience. AT&T concludes, accordingly, that RSI "necessarily must have relied on experience, personnel and facilities that had been shuffled between and among various COMSAT affiliates" in violation of the structural separation rules. AT&T also points out that RSI, in its pleadings, did not specifically deny that it had used jurisdictional personnel in bidding on the contract or performing the contract after it was awarded. 11. On March 24, 1997, the Bureau's Telecommunications Division requested RSI to state whether CWS jurisdictional personnel had bid or performed the CSCI contract, and, if any individuals had done so, to identify them. In response, RSI flatly states that it "did not use any employees of COMSAT's ratepayer-funded operations to prepare its bid for the CSCI Contract [.]" or "perform the CSCI Contract." RSI also states that while its bids included the resumes of three individuals who had previously worked for COMSAT's ratepayer-funded operations, none of the three had done so since 1988. RSI further notes that no COMSAT employees from its ratepayer-funded operations were transferred to RSI at the time RSI was formed in 1994, and none of the 10 employees transferred from COMSAT's ratepayer-funded operations to RSI since 1994 "had any role in bidding on, or performing, the CSCI Contract." 12. In light of RSI's response to the Bureau's inquiry, and the lack of any contrary evidence, we are satisfied that COMSAT did not violate its structural separation rules by permitting any CWS jurisdictional employees to bid or perform the CSCI contract for RSI. 13. Mootness. PanAmSat urges us to rescind the Bureau's order granting Section 214 authority to RSI because the Bureau had not ruled on the merits of its allegation that CWS' tariff to provide service to DISA was unlawful. PanAmSat argues that the Bureau erred in finding that this was a moot issue, because the Tariff Division's decision to permit the tariff to go into effect "in no way reflects a final decision on the merits of PanAmSat's challenge to the [CWS] tariff." 14. As we stated in our order on PanAmSat's Section 208 complaint, even if a tariff is permitted to go into effect because it is not "patently unlawful" under Section 203, a complaining party is not precluded from asserting in a Section 208 action that the tariff is predatory and discriminatory. Because we have decided the merits of PanAmSat's Section 208 complaint in the intervening time since the Bureau's order, we find that PanAmSat's claim is now moot. CONCLUSION 15. For the foregoing reasons, we deny the applications for review by AT&T and PanAmSat which urge us to rescind the International Bureau's order granting RSI's Section 214 application. ORDERING CLAUSES 16. Accordingly, IT IS ORDERED, pursuant to Section 1.115(g) of our rules, 47 C.F.R. 1.115(g), the above-captioned applications for review are DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary