The U.S. House of Representatives should follow the lead of the Senate and agree to amend the law that prevents Intelsat from buying New Skies Satellites, the company that Intelsat spun off in April 1998 in preparation for its now-completed privatization.
The law in question is the Open Market Reorganization for the Betterment of International Telecommunications (ORBIT) Act. Enacted in 2000, the ORBIT Act set the conditions for privatizing Intelsat and Inmarsat, both of which were established as intergovernmental cooperative organizations.
Among those conditions was that New Skies not be permitted to merge with Intelsat within 11 years of the latter’s privatization. A similar provision bars Inmarsat from merging with its spinoff company, ICO Global Communications, for 15 years.
Intelsat’s breakup was driven by concern that as a private company, it would use the size and clout it had accumulated as a treaty organization with special rights and privileges to crush all competition, be it global, regional or national. So Intelsat’s members agreed, in consultation with the U.S. Department of State, to give up five satellites and their associated orbital slots and contracts to create a new global competitor — New Skies Satellites.
The ORBIT Act’s anti-merger provisions were intended to preserve the new status quo as a way of ensuring competition in satellite services. But the authors of those provisions failed to take into account the changes that had already taken place in the industry, not to mention pre-existing U.S. laws.
To begin with, Intelsat had competition by the time the ORBIT Act was enacted. PanAmSat Corp. had emerged by then as a strong and viable global player, for example, while other operators were adding capacity and expanding their global reach.
Further, the U.S. government has long had laws designed to prevent monopolistic behavior on the part of companies. It also has regulatory agencies, such as the Commerce Department, Justice Department and Federal Communications Commission (FCC), that have responsibility for ensuring that corporate mergers are consistent with the public interest.
This system is not perfect, but it works. In 2002, for example, the FCC derailed the proposed merger of DirecTV and EchoStar Communications Corp. when it declared that the deal would not serve the public interest because it would create a U.S. monopoly in satellite television.
There were good reasons not to include the anti-merger provisions in the ORBIT Act in the first place, and the case for doing away with them today is even more compelling.
Intelsat is no longer the 800-pound gorilla in the global satellite telecommunications marketplace. In 2001, SES Astra, the European satellite direct broadcast television provider, gobbled up GE American Communications to create SES Americom, now the world’s largest satellite fleet operator.
In addition, the telecommunications boom that was under way in the late 1990s went bust, leaving an unhealthy excess of satellite transponder capacity that persists. Most industry observers see more consolidation as not only inevitable but also desirable.
Finally, several satellite operators, including Intelsat, Inmarsat, PanAmSat, New Skies and regional operator Eutelsat, have been purchased by private equity investment houses.
It is time to let the satellite telecommunications industry do what commercial industries do, which is adapt to market conditions in whatever way they see fit.
This is not to say that an Intelsat-New Skies merger is the only possible consolidation outcome, or even the one that is best for the industry at large. Government regulatory agencies around the world — and these are now global service providers — should scrutinize any proposed merger for anti trust implications.
But the ORBIT Act provisions barring specific mergers amount to U.S. government meddling that has no place in a commercial industry already subject to antitrust laws and regulatory agencies. Congress should strike that measure from the ORBIT Act at the earliest opportunity.