Competitive Impact of Restructuring Depends Largely on Two Factors

Currently, there is a wide belief among those that favor more competition, such as private satellite companies, and those that favor more flexibility for the treaty organizations, such as some signatories, that changes are necessary in the structure and functioning of INTELSAT and Inmarsat. However, according to officials in the U.S. Department of State, most of the member governments and signatories, especially in the developing countries, are concerned that without the treaty organizations, their access to certain basic telecommunications services—including telephone and data services at reasonable rates—may be threatened. Key factors in developing options to promote competition are the number of new entities that are created and the extent of their ties to the parent organization or its owners. For any option to enhance competition by reducing some of the barriers to competition, it must address the fundamental competitive problems of the present structure, such as (1) the incentives for the signatories to favor any newly created affiliates, in which they have an ownership interest, over other potential competitors for access to their domestic markets; (2) the potential dominance of the market by either a residual treaty organization or any resulting new entities; and (3) the advantages, such as tax privileges, immunity from lawsuits, and easier access to orbital slots and spectrum, currently enjoyed by INTELSAT and Inmarsat. The United States supported the formation of ICO on condition that its structure include certain principles that favor competition. Another proposal, which has been supported by a coalition of several U.S. satellite companies, calls for separating INTELSAT into at least three entities: a residual intergovernmental entity and at least two affiliates. As such, the group that developed the U.S. proposal stated that the 20-percent limit on the amount of the affiliate that the signatories could own was an important upper limit to ensure that INTELSAT and its signatories have minimal influence on any new entities created. Making changes to the present structure of the treaty organizations could be difficult because doing so would likely depend on achieving consensus among member nations around the world that have a broad range of perspectives and interests. 3. 4. 5. 6. 7. 8. 9. 10. Additional copies are $2 each. A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

GAO provided information on the potential competitive impact of restructuring the international satellite organizations, focusing on: (1) possible alternative approaches to enhance market access; (2) the affiliate created by the International Maritime Satellite Organization (Inmarsat) to provide new services; and (3) proposals for restructuring the International Telecommunications Satellite Organization (INTELSAT).

What GAO Found

GAO found that: (1) there is widespread belief that changes are necessary in the structure and functions of INTELSAT and Inmarsat; (2) many satellite companies believe that private competitors already offer or will offer better global services at lower rates to the developing world; (3) most member governments and signatories in developing countries are concerned that their access to certain basic telecommunications services may be threatened without the presence of treaty organizations; (4) although most of the options for restructuring the organizations favor enhancing competition by dismantling the organizations or creating affiliates, the competitive impact of these options depends on how these organizations are structured, the number of entities created, and the degree of parent organization ownership; (5) the new Inmarsat affiliate may have competitive advantages over other potential competitors; (6) although the United States originally supported the creation of the Inmarsat affiliate, the United States and its signatory are pursuing action to ensure that it adheres to certain principles that favor competition; (7) restructuring INTELSAT into two entities and limiting the amount of signatory ownership in those entities to 20 percent could improve the competitiveness of the global telecommunications market; (8) another proposal supported by a coalition of U.S. satellite firms favors establishing two new private companies in addition to a scaled-down parent organization; (9) the effect on competition of either proposal depends on whether INTELSAT market dominance can be reduced and new companies are allowed to gain entrance into foreign telecommunications markets; and (10) changing the present structure of the treaty organizations would likely depend on reaching a consensus among world member nations that have broad perspectives and interests.