PARIS — Four companies that purchase satellite capacity from Intelsat are accusing the large fleet operator of anti-competitive practices, including price manipulation on a recent U.S. Navy contract that favored an Intelsat subsidiary’s winning bid over competing offers that included Intelsat satellite links.
The companies, two of which have filed separate protests of the Navy contract, are asking the U.S. Federal Communications Commission (FCC) to take a fresh look at Intelsat’s status a decade after the fleet operator was privatized, and specifically to consider a forced divestiture of the Intelsat General subsidiary that handles government contracts.
The FCC makes an annual report to Congress on whether the privatization of Luxembourg-headquartered, Washington-based Intelsat and mobile satellite services operator Inmarsat of London has promoted “a fully competitive global market for satellite communications services,” as it was intended to do under the Open-market Reorganization for the Betterment of International Telecommunications (ORBIT) Act that accompanied the privatization. In preparation of its annual report, the FCC asked for comment on how privatization has affected “U.S. industry, jobs, and industry access to the global marketplace.”
Intelsat and Inmarsat, established as intergovernmental cooperatives, were privatized about a decade ago.
Officials from two of the companies that have complained to the FCC said they would not rule out separate appeals to the U.S. Justice Department based on what they allege is Intelsat’s misuse of a dominant position.
“Intelsat is engaging in a number of strategic business practices … causing price escalation, directly manipulating the procurement process and restricting competition,” satellite services provider CapRock Communications Inc. of Fairfax, Va., said in an April 7 filing to the FCC.
In a separate FCC filing, Artel Inc. of Reston, Va., said Intelsat in the past two years has substantially changed the way it deals with outside companies, viewing them now more as competitors to Intelsat General than as longstanding Intelsat customers.
Intelsat General, Artel says, “has aggressively taken steps that restrict other users from directly accessing the legacy” satellite fleet that Intelsat built as an intergovernmental organization before it was privatized.
Artel says it has been blocked from accessing Intelsat’s in-orbit capacity directly, and instead has been forced to deal exclusively with Intelsat General, which competes with Artel for some of the same government business. Intelsat General, in turn, “has begun to discriminate against, and deny access to, independent distributors.”
Artel and CapRock further allege that Intelsat has taken retaliatory action against companies that protest Intelsat General’s practices by refusing to renew satellite leases and by quoting above-market prices to the protesters.
In an April 15 interview, CapRock officials reiterated that since their protest earlier this year of the large Navy contract, Intelsat has made it difficult for CapRock to get access to Intelsat satellites.
In its filing to the FCC, Artel says Intelsat has asked satellite services distributors to refrain from bidding on contracts being sought by Intelsat General. When these companies have refused, they have been “denied pricing for later opportunities, apparently as retaliation for failing to comply” with Intelsat General’s request.
Artel and CapRock are among the losing bidders for the Navy’s Commercial Broadband Satellite Program (CBSP), potentially worth more than $500 million. The two companies have since filed protests of the award to Intelsat General, and the contract is stalled awaiting U.S. government review.
The CBSP protest documents have not been made public, but Artel and CapRock officials said their FCC filings summarize what they view as the most striking example of Intelsat General’s alleged anti-competitive practices.
The companies in particular say that when they requested Intelsat capacity as part of their separate CBSP bids, Intelsat General responded by insisting that the companies purchase a bundle of services, including Intelsat capacity that they did not want. They say Intelsat General refused to permit the companies to pick and choose the Intelsat capacity they would include in their bids.
CapRock, in its FCC filing, says it wanted to include in its Navy bid satellite links from other fleet operators, both to save money and to meet the contract’s requirements. An optimal proposal, CapRock says, would have included a mix of satellites from several operators and fewer Intelsat satellites.
CapRock estimates that accepting Intelsat General’s forced bundling of capacity added about $40 million to the cost of the CapRock bid.
“Despite multiple appeals and complaints to Intelsat and Intelsat General management that this practice was … tantamount to price-fixing, Intelsat General forced and insisted on the approach,” CapRock says in its FCC filing.
“This bundle was so sub-optimal that Intelsat General’s own direct bid did not employ it,” the CapRock filing says.
Intelsat General’s winning bid featured more capacity from SkyPerfectJSat Corp. of Japan than from Intelsat’s own fleet. Also included was capacity from SES of Luxembourg and, in the military X-band frequency, from Paradigm Secure Communications of Britain.
David Myers, executive vice president and general manager of CapRock Government Solutions, said the Navy contract was “the straw that broke the camel’s back. It has gotten to a point where it’s really untenable.” He said CapRock has turned to the FCC and may seek U.S. Justice Department assistance because the company has no choice. “Why would we want to irritate them?” he said. “This is not because of one contract loss.”
Globecomm Systems of Hauppauge, N.Y., also a losing bidder in the Navy competition, says in its FCC filing that Intelsat General has become increasingly opaque in its pricing policy in the past two years. Globecomm Chief Executive David Hershberg said a full FCC review should be undertaken.
“We are not going to make allegations without proof,” Hershberg said April 15. “We have to live in the world with Intelsat. But we want to know what’s going on. We see smoke and we want to find out if there’s fire. We’d like the FCC to take a look at it, because our concern is that all of us are going to end up on the outside looking in.”
Hershberg said Globe-comm’s dealings with other satellite fleet operators “have felt like they were giving the same price to everybody.”
Abbas Yazdani, chief executive of Artel, echoed Hershberg’s remarks.
In an April 15 interview, Yazdani said Intelsat “has been our partner — up until about a year and a half ago, when they started acting as a competitor, not a supplier. Now they are taking on the role of a dominant power. They say they make the rules, and the rules made the day before they have broken the day after. It has become difficult to work with them because they change the rules.
“When CBSP came, they [Intelsat] flipped 180 degrees. They started to control the market and they blocked everybody so that they became the only viable provider. I believe the intent was to prevent any competition for the U.S. Navy contract. That was not good for us, for the taxpayer, or for the Navy. They controlled the pricing. I am not saying they fixed prices, but the end result is the same. They had said [post-privatization] that they would continue their equal-access and non-discrimination practices. They obviously have violated both the spirit and the letter of that. So we filed our comments with the FCC to bring some of these practices to light.”
Intelsat officials declined to respond to the allegations in detail, but Intelsat Chief Executive David McGlade said in a March interview that the company has set up firewalls that separate those parts of Intelsat General that bid on contracts from those that sell raw satellite capacity.
Intelsat issued the following statement April 15: “The comments filed at the FCC by the unsuccessful bidders for the CBSP have no merit and reflect a fundamental lack of understanding of the requirements of the ORBIT Act. Intelsat is fully compliant with the ORBIT Act, as the FCC has repeatedly found. We will respond in due course in the FCC proceeding. We believe that our solution for the CBSP program will provide the Navy with an efficient and technically outstanding solution, and we look forward to the expeditious resolution of the CBSP protest process.”
One industry official knowledgeable of Intelsat’s post-privatization regulatory status said the company is not a common carrier and generally is not obligated to sell capacity to anyone. If Intelsat had restricted its satellites to the Intelsat General bid for the Navy contract, this would be permitted under the law, this official said. The fact that Intelsat General appears to have offered to other bidders on the program a package of capacity might be considered evidence that the company wishes to maintain a competitive market, the official said.
The fourth company filing Intelsat-related comments to the FCC is Spacenet Inc. of McLean, Va., which did not bid on the Navy contract but is concerned that Intelsat has gotten too big to serve the general interest.
“When Intelsat was privatized it had 22 satellites and was forced to divest itself of some of its orbital positions and satellites,” Spacenet Chief Executive Andreas Georghiou said April 16, referring to the creation of Intelsat spin-off New Skies Satellites, since purchased by SES. “Now they have around 50 satellites. So with 22 satellites they were considered too big, and with 50 satellites they are not too big?”
Georghiou said Spacenet, which uses Intelsat capacity to provide data links to corporate customers, is urging the FCC to force Intelsat and other U.S.-licensed satellite operators to stop what he called “orbital slot warehousing,” a practice in which operators refuse to return the orbital position for use by someone else, but also refuse to develop the slot.
“You can’t claim the liberties of a free market when it suits you, and then ask regulators [who govern access to radio spectrum and orbital slots] to protect you,” Georghiou said. Spacenet, which recently created its own government services division, is likely to have more dealings with Intelsat General in the future.
Georghiou said firewalls are difficult to maintain when “it is supposed to separate people who work in offices next to each other, who visit the same cafeteria and socialize together. If you want a true wall to be there, spin the company off.”
