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REGULATORY DIRECTIONS FOR SATELLITE COMMUNICATIONS IN EUROPE

Address by Dr H. UNGERER
INTELSAT SUMMIT
London
2/3/1995

I INTRODUCTION

The G7 meeting in Brussels last weekend has consecrated the concept of the Information Society at a world level. Satellite communications are an integral - and essential - part of the new global information highway. Intelsat, of course, and the other International Satellite Organisations continue to be the backbone of this development.

At the same time, new satellite technologies are emerging. The Low Earth Orbit satellite consortia are setting themselves up to offer world-wide satellite-based communications by the end of the decade. It seems that satellite communications are moving world-wide into a new phase of development.

This new phase of development is posing major challenges for competition rules and regulatory policies world-wide - particularly for the European Union. This is why the definition of the future regulatory directions for satellite communications is both required and timely.

II BACKGROUND

The future regulation of the market for satellite communication services in

Europe was first contemplated in the Commission Green Paper of 20 November 1990 "Towards Europe-wide systems and services - Green Paper on a common approach in the field of satellite communications in the European Community". Basic regulatory directions were set at that time :

  • full liberalisation of the earth segment, including the abolition of all exclusive or special rights in this area ;
  • free (unrestricted) access to space segment capacity ;
  • full commercial freedom for space segment providers ;
  • harmonisation measures as far as is required to enable the provision and use of Europe-wide services.

The Commission's proposal to extend the scope of the 1988 and 1990 Directives concerning respectively telecommunications terminal equipment and telecommunications services, to include satellite communications, was welcomed by the EU-Council of Ministers, initially in Resolution 92/C8/01 of 19 December 1991 on the development of the common market for satellite communications services and equipment, and again in its Resolution of 22 July 1993 on the review of the situation in the telecommunications sector and the need for further development in that market. The Council considered this extension to be a major and immediate goal for the Community's telecommunications policy. In its Resolution of 18 January 1993 on the Hoppenstedt report, the European Parliament also expressed its strong support for such an extension.

The Council Resolution of 1993 also committed the EU-Member States to the opening of public voice telephony to competition by 1 January 1998. In November 1994 the Council agreed to the Commission's proposal to extend 1998 liberalisation to include the lifting of restrictions on infrastructure for the provision of telecoms services. This has led to the current broad consultation on the future regulatory framework for telecommunications and cable-TV networks in the EU; The consultations are based on the Infrastructure Green Paper which was issued in January.

In parallel, in the field of satellite communications, some first implementation steps were taken. In October 1993, an EU- Council Directive relating to mutual recognition of type approval for satellite terminals was adopted. In January 1994, the Commission submitted a proposal for the mutual recognition of licences for the provision of satellite networks and services in the European Union.

III LIBERALISATION : THE SATELLITE DIRECTIVE

Where competition in markets is restricted or distorted by government regulation allowing special or exclusive rights to particular bodies, and where such regulation can no longer be justified as being necessary in the interests of public service, then the European Commission's responsibility as guardian of the Treaty is to seek to abolish such rights. Article 90 of the Treaty allows us to act under these circumstances. When such a distortion of competition (without justification) occurs in a number of Member States at the same time, paragraph 3 of Article 90 gives the Commission the practical option of issuing a general directive to all Member States. This allows to give clear guidance to all Member States and to achieve an equal implementation of Community law throughout the Union.

This was the aim in 1988 with the adoption of the telecoms Terminal Equipment Directive and in 1990 with the adoption of the Services Directive. These Directives, adopted under Article 90(3), direct Member States to lift the existing restrictions and to open up these markets to competition, while allowing them to establish the necessary safeguards. The latter includes, in particular, to maintain, during a transitional period (up to 1st January 1998, as now decided) exclusive rights for the public.

In the satellite field, on 13 October 1994, the Commission adopted Directive 94/46/EC, the Satellite Liberalisation Directive. This requires the abolition of all exclusive rights granted for the provision of satellite services and equipment, and the abolition of all special rights to provide any telecommunications service covered by the Directive. The Directive, in fact, extends the 1988 Terminal Directive to include satellite earth station equipment and extends the 1990 Services Directive to include satellite communications services.

The aim is to stimulate without delay the greater use of satellite communications in the EU. Our studies anticipate that the liberalisation of markets in earth and space station and hardware and satellite services will lead to their rapid expansion in Europe. Growth is estimated to be, at least, threefold in the short term. This is particularly important given the widening gap between the delayed development of EU business satellite communications and that in the other major trading areas, particularly the United States.

The Directive does not affect still existing restrictions on the offering of voice telephony for the public via satellite network. However, this should not imply technical restrictions. Whilst it is recognised in the directive that "commercial provision [of voice] for the public in general can take place only when the satellite earth station network is connected to the public switched network", this is merely a guide as to what is normally the case. It certainly does not imply that such connections necessarily constitute the reserved service. In fact, the provision of voice for closed user groups (which is not reserved) will often involve connections with the public switched network, since some members of such groups will not be connected to the network via satellite stations.

The fact that public voice telephony is not liberalised until 1st January 1998 should therefore not be understood as a "carte blanche" to allowing technical restrictions to protect the monopoly.

Like voice telephony, the status of broadcasting services is unaffected by the satellite directive. However, one has to distinguish between the provision of programming content of broadcasting and the provision of the technical means to carry and distribute such services. The provision of the satellite network services for the conveyance of radio and television programmes is, by its very nature, a telecommunications service and there is therefore no justification for treating it differently from any other telecommunications service. The Directive, thus, makes a clear distinction between:

  • the services provided by the carrier (transmission, switching and other activities) necessary for the conveyance of the signals, which are telecommunications services liberalised under the Directive, and
  • the activities of those bodies which produce and control the contents of the messages to be broadcasted, which are broadcasting activities falling outside the scope of this Directive.

Services which are now liberalised under this Directive therefore include services provided over telecommunications operator's feeder links from studios/events to uplink sites, as well as uplink services for point to point, point to multipoint, direct-to-home (DTH) satellite broadcast services and services to cable-head ends.

The Satellite Directive is directly applicable as of the date of its entry into force - that is November 8 1994. However, it gives the Member States nine months - i.e. up to August of this year - to inform the Commission of the measures taken to transpose the Directive into national law, in particular those for the establishment of licensing regimes where Member States wish to do so.

The Commission will, in assessing these measures, take account of the particular situation of Member States in which the terrestrial network is not yet sufficiently developed. It may agree additional transition periods in this context up to 1st January 1996. There must, however, be a justification by the relevant Member States within the time period provided for the communication of the implementation measures of the Directive, i.e. before 8 August 1995.

IV ACCESS TO SPACE SEGMENT

Member States are required by the Directive to abolish all restrictions on the offer of space-segment capacity on their territory.

This means, in particular, that governments must ensure that:

  • any regulatory prohibition or restrictions on the offer of space segment capacity to any authorised satellite earth station network operator are abolished, and that
  • any space segment supplier is authorized, within its territory, to verify that the satellite earth station network for use in connection with its space capacity conforms to the published standards

A Commission Communication on access to space segment was published by the Commission in June 1994 and the Council adopted a Resolution in response to it at its November Council. The Communication addresses, among other things, the problem of the need to reform the traditional signatory / client relationship of the International Satellite Organisations, including the right to negotiate direct contracts instead of being obliged to deal through the Telecommunications Organisations who may also be a competitor. The Commission's conclusion, supported by the Member State Telecoms Ministers last November, is that the procedures of International Satellite Organisations should be adjusted to be in line with the overall European telecoms environment.

The Communication makes it clear that, in order to ensure direct access to space segment, the Commission intends to make full use of EU-Treaty provisions, particularly the competition rules, to remove existing restrictions.

This means that access to satellite capacity of the International Satellite Organisations must, in particular be non-discriminatory, i.e. all services providers and users should have access to capacity on an equal basis and differences in treatment must be justified by objective and transparent criteria.

The Communication further urges joint management in the future of the space segment as a common resource in the European Union.

V REQUIREMENTS ON THE INTERNATIONAL SATELLITE

ORGANISATIONS

The new obligations in the Satellite Directive related to access to space segment do not directly affect the position of the Telecommunications Organizations as signatories of international organisations. The Member States are obliged, however, to ensure that there are no restrictive provisions in their national regulations which would have the effect of preventing the offer of space segment capacity in their territory by either another signatory or by independent systems. Member States must also abolish restrictions which prevent space segment capacity, already leased from the International Satellite Organisation by a licensed operator in one Member State, from being freely accessed by users from their own national territory. The main aim is to achieve maximum commercial flexibility for all concerned parties within the context of the current regulations.

The Directive emphasises that measures relating to International Satellite Organisations must comply with the competition rules of the EU-Treaty. It requires Member States to communicate to the Commission any information which might prejudice such compliance.

An example of such could be the coupling of investment obligations and utilisation if this effectively dissuades signatories to market space segment due to the threat of having to bear an increased investment share. Since international satellite organisations are operating in increasingly competitive markets, the current investment requirements may have to be assessed under the competition rules.

VI NEW PARTNERSHIPS AND ALLIANCES

With the prospect of a liberalised market for the provision of satellite services across the European Union, and the ability to shop around for the signatory offering the best deal on space access, significant opportunities are created for new projects, partnerships and alliances in the field. A major example in this rapidly developing market, has been the recent setting up of International Private Satellite Partners, or, as they are more commonly known "Orion". The partnership is made up of nine companies including one national telecoms operator.

The joint venture was notified to the Commission, who, according to the provisions of Article 85 of the EU treaty, found that there were no grounds for action under the EU competition rules. It was, thus, passed without further conditions. The Decision was published in December.

In fact the IPSP partnership represents a prime example of the current transformations in the global satellite communications sector. It also demonstrates the future rule of EU competition rules in this area. Projects of this kind tend to address the growing need of multinational companies for advanced end-to-end communications between their geographically dispersed locations around the world and, also, between themselves and their customers and suppliers. This segment of the telecoms market is the one with the biggest potential for growth in the years to come, taking full advantage of both liberalisation and technological developments.

The IPSP project also demonstrates the possibilities of the new market environment. Orion Atlantic and its partners had already been working hard for several years to obtain authority to provide services over International Satellite Organisation space segment in order to build up a business base for the new Orion-1 satellite. In a majority of Member States it seems they have faced significant barriers to providing services. In some Member States they were granted only very short term licences, in others they were obliged to work through the TO under unfavourable conditions, and in the worst cases Orion devoted years of effort without obtaining the requested operating authority.

IPSP is now in a position to provide space segment and satellite services on a pan-European basis using their first Orion-1 satellite. This case also shows the new challenges for the International Satellite Organisations vis a vis competition for end customers. The latter are in a position to exploit this introduction of competition and should push the International Satellite Organisations and their signatories to reform and streamline their operations in order to face the new competitive environment.

This is really more a question of corporate philosophy than anything else. International Satellite Organisations will need to start acting more like companies and less like cosy conventions if they are to stay in the game in the longer term. Both satellite services and space segment are becoming an open market.

This development will be substantially accelerated with the advent of the satellite-based personal communications systems. In anticipation of this, the EU-Council of Ministers has adopted a resolution, confirming an EU position vis-B-vis the introduction of satellite personal communications in Europe. It aims to assist European industry in their endeavours to participate in provision of PCS by assuring that the necessary and appropriate regulatory and policy frameworks are developed.

The Commission's November Communication on the results of the consultations on the EU Mobile Green Paper has proposed the launching of EU-wide allocation of licences for such systems by 1st January 1996 at the latest. This time schedule is confirmed by the recent issuing of LEO licences in the United States.

The Commission is also working closely in this field with the European Committee for Regulatory Affairs (ECTRA, the committee of European regulatory authorities in the field of telecommunications) and its newly created European Telecommunications Office (ETO).

VII THE AGENDA FOR THE IMMEDIATE FUTURE - MAKING

LIBERALISATION WORK

In the immediate future, the Commission will focus on three inherently related areas, as far as satellite communications are concerned :

i implementation of the Satellite Services Directive ;

ii access to the space segment :

iii promoting reform of the International Satellite Organisations

L Implementation of the Directive

As I mentioned earlier Member States must inform us of measures taken to implement the Satellite Directive by August of this year. Since a number of Member States have limited experience of procedures and drafting provisions concerned with authorizations for new satellite entrants we anticipate the need for a certain amount of contact and discussions with Member State authorities before this time. I would also emphasise that individual complaints regarding non-implementation of the Directive's provisions are legitimate as of last November when the Directive was published. Indeed, we have already been alerted to problems in some Member States by market players who recognise that the situation may now represent legitimate grounds for complaint.

L Improving access to the space segment

The major part of space segment continues to be offered by the International Satellite Organisations. A major element of the improvement of access must therefore be the reform of the rules governing access to this part of the space segment.

We recognise that efforts have been made, but more has to be done. This is not only in the interests of new service entrants and their users, but in the interests of the International Satellite Organisations themselves. It is increasingly realised that the latter must transform themselves into sleeker, more commercially minded operations if they are to compete with new rivals in the form of private satellite systems.

We are well aware that Intelsat is sympathetic to such reform movements and has begun streamlining its operations in order to meet the new challenges.

L future reform process in the International Satellite Organisations

The Commission's June 1994 Communication on space access spells out the main objectives of joint action by the Member States in the broad reform of the International Satellite Organisations.

In the Communication, the Commission sets as major goals the working out of common positions guided by the following principles :

  • > strict separation of all regulatory and operational aspects also within the International Satellite Organisations to enable moves towards a more commercial environment ;
  • > separation of user and shareholder interests in the International Satellite Organisations through, inter alia, a separation in the linkage of investment share and usage, including adjustment and strengthening of the financial base and opening participation to new shareholders ;
  • > within the International Satellite Organisations, structural separation of space segment provision on the one hand, and the provision of satellite communication services on the other ;
  • > the marketing and selling of the International Satellite Organisations' space segment by either the organisation directly, or by agents (brokers) for whom conflicts of interest do not exist.

While we recognise this to be an ambitious programme, it also seems to be the only way of ensuring compatibility with a competitive market environment - and with the competition rules which must govern such an environment - in the longer term.

VII CONCLUSIONS

The current liberalisation of the satellite markets, the transformation of the International Satellite Organisations and the emergence of completely new private competitors initiate a new - and exciting - stage of the development of the world's satellite sector.

The EU Satellite Liberalisation Directive, together with the EU's Communication and Resolution on access to space segment equip Europe to face this new satellite age. Before the year 2000, liberalisation should result in up to tenfold increases in significant segments of the satellite communications market.

US de-regulation (the 'Open Skies' policy) greatly stimulated the satellite market in North America during the 80s.

L We expect substantial benefits in the EU market :

  • Reduction of costs of deploying and operating satellite networks which will be translated into lower prices for the consumer: Competition and liberalisation will mean lower charges for licensing, terminal type-approvals (which will become 'one-stop') and space segment access.
  • Pan-European networks: The harmonised regulatory environment will facilitate the establishment of pan-European satellite networks which has been frequently recognised as a key requirement for market growth. This will be critical to the development of trans-European communications networks.
  • The rapid deployment, especially in less developed or remote areas of multimedia applications and access to the information highway.
  • Removal of prohibitions on service provision and interconnection and Simplification of operations such as licensing, equipment registration and installation and, most importantly, increased confidence of users, operators and investors in satellite solutions for Europe

L We have, of course, some way to go to match US developments in this market :

In Europe, due to tardy liberalisation and therefore of development of the market, we start from a point of disadvantage because our costs for equipment, hub stations and access to space segment are higher and we still face the cost of low utilisation of expensive hub stations.

There are still not enough European products in key parts of the ground equipment market. There was no commercially significant market in Europe for small satellite terminals until beginning of this decade.

Finally, liberalisation in the US has led to a proliferation of satellites and substantial falls in transponder access prices. Europe still has some of the highest access prices of any region.

However, we believe that the right regulatory directions are now set down. The lights are switching from red to green for the European satellite communications market.


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