The ORBIT Act, enacted by the Congress in March 2000, was designed to  promote a competitive global satellite communication services market. The act did so primarily by calling for the privatization of INTELSAT after  about three decades of operation as an intergovernmental entity. Concerns That INTELSAT Enjoyed Competitive Advantages Provided Impetus for Its Privatization

When satellite technology first emerged as a vehicle for commercial  international communications, deploying a global satellite system was  both risky and expensive. To do so under the  INTELSAT treaty agreements, President Reagan determined that  competing international satellite systems were required in the national  interest of the United States. As competition to INTELSAT grew throughout the 1990s, commercial  satellite companies became concerned that INTELSAT enjoyed certain  advantages stemming from its intergovernmental status. In 1999, INTELSAT  announced its decision to become a private corporation, but to leave in  place a residual intergovernmental organization that would monitor the  privatized Intelsat’s remaining public service obligations. Two months before the privatization, FCC determined that  INTELSAT’s privatization plan was consistent with the requirements of the  ORBIT Act for a variety of reasons, including the following:  Intelsat, Ltd.’s Shareholders’ Agreement provided sufficient evidence that  the company would conduct an initial public offering (IPO). In light of these findings, FCC conditionally authorized Intelsat LLC to use  its U.S. satellite licenses to provide services within the United States. However, FCC conditioned this authorization on Intelsat, Ltd. conducting  an IPO of securities as mandated by the ORBIT Act. On August 16, 2004, Intelsat,  Ltd. announced that its Board of Directors approved the sale of the  company to a consortium of four private investors. Specifically, Intelsat, Ltd.  may forgo an IPO under certain conditions, including, among other things,  certifying to FCC that it has achieved substantial dilution of the aggregate  amount of signatory or former signatory financial interest in the  company. FCC is still reviewing this transaction to determine whether  Intelsat has met the requirements of the ORBIT Act as amended and thus  is no longer required to hold an IPO. While Market Access Has Improved, Some Companies Say That Certain Market Access Challenges Remain

According to most stakeholders and experts we spoke with, access to non- U.S. satellite markets has generally improved during the past decade,  which they generally attribute to global trade agreements and privatization  trends. According to several  stakeholders, market access was already improving when the ORBIT Act  was passed. Despite the general view that market access has improved, some satellite  companies and experts expressed concerns that market access issues still  exist. Since INTELSAT  was the dominant provider of global satellite services for approximately 30  years, several stakeholders noted that Intelsat may benefit from the long- term business relationships that were forged over time, as  telecommunications companies in many countries may feel comfortable  continuing to do business with Intelsat as they have for years. Alternatively, representatives of  Intelsat, Ltd. told us that Intelsat seeks market access on a transparent and  nondiscriminatory basis and that Intelsat has participated with other  satellite operators, through various trade organizations, to lobby  governments to open their markets. For example, one satellite company said that section  648 of the ORBIT Act, which prohibits any satellite operator from  acquiring or enjoying an exclusive arrangement for service to or from the  United States, provides a vehicle for FCC to investigate the status of  access for satellite companies to other countries’ markets. Telecommunications: Intelsat Privatization and the Implementation of  the ORBIT Act.
Why GAO Did This Study

In 2000, the Congress passed the Open-market Reorganization for the Betterment of International Telecommunications Act (ORBIT Act) to help promote a more competitive global satellite services market. The ORBIT Act called for the full privatization of INTELSAT, a former intergovernmental organization that provided international satellite services. In this testimony, GAO discusses (1) the impetus for the privatization of Intelsat as competition developed in the 1990s, (2) the extent to which the privatization steps required by the ORBIT Act have been implemented, and (3) whether access by global satellite companies to non-U.S. markets has improved since the enactment of the ORBIT Act.

What GAO Found

When commercial satellite technology was first deployed, a worldwide system was seen as the most efficient means to facilitate the advancement of a fully global provider. INTELSAT was thus established as an intergovernmental entity, originally established by 85 nations, that was protected from competition in its provision of global satellite communications services. By the 1980s, however, technology developments enabled private companies to efficiently compete for global communications services, and in 1984, President Reagan determined that it would be in the national interest of the United States for there to be greater competition in this market. New commercial satellite systems emerged, but soon found that INTELSAT enjoyed advantages stemming from its intergovernmental status and ownership by telecommunications companies in other countries that impeded new satellite companies from effectively competing. The new satellite companies began to call for INTESLAT to be privatized. Decision makers within INTELSAT also determined that privatization would enable more rapid business decisions. Just prior to INTELSAT's privatization in July 2001, FCC determined that INTELSAT's privatization plan was consistent with requirements of the ORBIT Act. The Federal Communications Commission (FCC) thus authorized the privatized Intelsat--the official name of the company after privatization--to use its U.S. satellite licenses to provide services within the United States pending an initial public offering (IPO) of securities that was mandated by the ORBIT Act to occur at a later time. New legislation was passed in 2004 that allows Intelsat to forgo an IPO if it has achieved substantial dilution of its "signatory" ownership--that is, dilution of ownership by those entities (mostly government-controlled telecommunications companies) that had been the investors in INTELSAT when it was an intergovernmental entity. Since Intelsat has recently been sold to a consortium of four private investors, it no longer has, according to an Intelsat official, any former signatory ownership. FCC is still reviewing this transaction to determine whether Intelsat has met the requirements of the ORBIT Act as amended and thus is no longer required to hold an IPO. Most of the stakeholders we spoke with said that access to non-U.S. satellite markets has generally improved during the past decade. This improvement in market access is generally attributed to global trade agreements and privatization trends. Despite this general view, some satellite companies expressed concerns that some market access issues still exist. For example, some companies noted that some countries may favor domestic satellite providers or may choose to continue obtaining service from Intelsat because of long-term business relationships that were forged over time. Nevertheless, Intelsat officials noted that it seeks market access on a transparent and nondiscriminatory basis and that Intelsat has participated with other satellite operators, through various trade organizations, to lobby governments to open their markets.