Satellite companies accuse Intelsat of anticompetitive practices

On June 15, the FCC sent its eleventh annual report to Congress on the privatization of Intelsat and Inmarsat, as required by the ORBIT Act. (ORBIT Act? That would be the Open-Market Reorganization for the Betterment of International Telecommunications Act, a law passed in 2000 to ensure that INTELSAT and Inmarsat were transformed from intergovernmental organizations to privately-held businesses in a “pro-competitive manner”.) The Act requires the FCC to report to Congress at least once a year about how things are going with INTELSAT/Inmarsat privatization, including (among other things) the views of “the industry and consumers.” 

The past few years, the report has been a snooze, mainly because Intelsat and Inmarsat have been the only ones bothering to comment. Relying on such a limited, one-sided record, the Commission’s reports to Congress have tended to describe a rosy, peaceful view of the privatization process.

This year’s report, however, is anything but rosy or peaceful. Rather, it reveals a growing acrimony within the Fixed Satellite Services (FSS) industry.

A bit of history. Before 2006, Intelsat’s product was bare satellite transponder capacity—or “space segment” capacity—sold wholesale to others (such as ARTEL, CapRock, SpaceNet and Globecomm), who then integrated it into their own end-to-end network service offerings. This changed in 2006, when Intelsat acquired its major competitor PanAmSat. As part of the deal, Intelsat became the proud owner of its own end-to-end service arm – Intelsat General Corporation (IGEN). That put Intelsat in possession of a very large share of the world’s transponder capacity, a huge debt load, and a subsidiary in direct competition with Intelsat’s wholesale customers, all of whom who are dependent on Intelsat’s capacity.  Hmm . . .

According to the commenters, Intelsat gradually succumbed to temptation and began to use its control over the space segment capacity supply to choke off IGEN’s competitors, in a classic antitrust bottleneck scenario. And as a result, this year multiple parties – including ARTEL, CapRock, SpaceNet and Globecomm (disclosure: FHH assisted Globecomm in the preparation of its comments) – felt compelled to advise the Commission that the FSS playing field may not be exactly level.

Specifically, the commenters alleged that: they have been forced to negotiate with their direct competitor IGEN for Intelsat capacity; they are precluded (by various cozy arrangements which Intelsat has struck with, among others, its primary competitor) from looking elsewhere for transponder capacity; and IGEN receives preferential pricing from its parent.  The commenters suggested a variety of specific cures, but one consistent thread runs through all their suggestions: they would all have the FCC initiate an inquiry into competitiveness in this market and to clarify Intelsat’s obligations as the recipient of “legacy” intergovernmental assets.

For its part, Intelsat sniffed that the various complaints and recommendations are just inappropriate efforts to undo the past ten years of privatization by re-regulating Intelsat as an inter-governmental organization. Furthermore, obviously casting a longing eye on the non-contentious past, Intelsat claimed that the annual ORBIT Act report is meant merely to confirm that the privatization of Intelsat is complete, and not to serve as an opportunity to carp about anticompetition and the like. According to Intelsat, the critical comments should have been tossed out as an inappropriate attempt to drag the FCC into essentially private disputes.

Appropriate or not, the various comments (all duly reflected in the Commission’s annual report) have squarely placed the issue of the competitiveness within this industry before Congress and the Commission. The FCC seems inclined to take the first cut at the issue. It concludes the report by saying:

Going forward, the Commission will consider the appropriate options for addressing those issues raised by the commenting parties and Intelsat that are within our jurisdiction under the ORBIT Act and other laws.

We wouldn’t be surprised if some sort of proceeding follows, such as a Notice of Inquiry (NOI) seeking further comment on the state of competitiveness within this sector of the satellite industry. Interested parties should take note.