ISSUE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP05T02051R000200390003-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 18
• Document Creation Date: December 22, 2016
• Document Release Date: September 9, 2011
• Sequence Number: 3
• Publication Date: November 4, 1980
• Content Type: MISC

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~~ vL eon- a ~c cx~r
Jerry Ostrov Issue
11/4/80
Should the rates charged by the private sector owner and
operator be regulated so as to ensure that certain classes of
users are able to receive land remote sensing satellite services
at affordable costs, or should other means be used to ensure that
such users have access to needed data.
II. Background
The problem of insulating certain classes of users from
prices that may exceed their means is related to Ostrov's Issue
Paper 8 which considered the question whether the system should
be designed to satisfy the needs of legislatively specified
classes of non-Federal users.
Because the private sector owner will enjoy a property
interest in the products of the system, the price charged for
data need only reflect the owner's predilections and the
willingness of the market to bear the price charged. However,
there are countervailing policy issue at stakes. Since it may be
argued that land remote sensing from space was developed to serve
the public, there is the issue-whether potential users should be
denied access to remote sensing r-rvices due to an inability to
pay prevailing market rates. State and local governments and
planning Agencies might be included within this class of users.
In addition to the above, there may also be foreign users
whose interests are of importance to U.S. foreign policy and who
may not be in a position to pay the prevailing market rate for
services supplied by the U.S. operator. Denying such users
Landsat data solely on cost grounds could produce adverse foreign
policy consequences. If these countries can obtain data from
foreign operators at a subsidized rate, the U.S. may lose per-
manently the benefits associated with assisting such user
countries through the provision of land remote sensing satellite
data.
(1) Rely on existing grant, revenue sharing and foreign
aid programs to assist favored classes of users.
(2) Legislatively establish special grant, revenue sharing
or foreign aid programs to supply needed level of
subsidization.
(3) Through ratemaking or other appropriate provisions,
legislatively control the price that can be charged
certain classes of users.
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IV. Pros and Cons
(1) Rely on existing financial authorities.
Pros:
o Defers to a later and, perhaps, more appropriate time,
question of who should receive price subsidies and under what
circumstances relief should be provided.
o Avoids complex legislation which, in the case of options 2 and
3, might divert legislative attention from more pressing
Landsat issues.
o Adequate funds may not be available under existing
authorities.
o Addressing isue on an ad hoc basis may produce inconsistent
results.
o Failure to address issue in the legislation may raise concerns
of .
--legislators who are sympathetic to the needs of state and
local agencies;
----elements within the Administration e.g., DOS and AID, who
are concerned with the needs of foreign users.
(2) Establish new subsidy programs tailored to needs of specified
classes of users. The programs could be administered by NOAA
or by those agencies now possessing responsibility for such
assistance programs.
o Forces legislature to confront question of who is entitled to
price relief and under what circumstances relief is to be
granted.
o Tailors subsidy program to needs of specified classes of
users.
o Avoids uncertainty associated with relying on existing authority.
o If administered by NOAA, puts NOAA in untenuous position of
regulating a new industry and subsidizing its users.
o Complex legislative process, potentially involving a variety
of Congressional committees.
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o Will add measurably to NOAA's administrative burden if NOAA is
responsible for subsidy programs.
o Legislatively ranking subsidy entitlement of different classes
of users likely to be difficult task.
o May divert legislative attention from more pressing Landsat
issues.
(3) Through ratemaking, or otherwise, legislatively control price
that can be charged specified classes of users.
o Promotes confidence of certain users e.g., state and local
governments, that data will continue to be made available
at fair and reasonable prices.
o Provides certain results, tailored to needs of specified
classes of users.
o May not be necessary. Corporation cannot afford to price
itself out of the non-Federal user market.
o May require ratemaking program--attendant regulatory burdens
may be more than NOAA wishes tj bear or is capable of managing
without substantial additional resources.
o Effectively establishes a two (multi)-tiered pricing
system--for system to be viable, Federal users will probably
have to absorb the difference between the legislatively
limited price and price that would otherwise be paid by
favored classes of users.
o Absent substantial offsets as described in above "con", may
make system economically unattractive to prospective private
sector operator.
o Complex legislation may divert attention from pressing Landsat
issues.
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Jerry Ostrov Issue 7
11/6/80 (Revised)
Title: Legislated monopoly
Should the legislation provide that only the competitively
selected or legislatively created private sector corporation be
allowed to engage in land remote sensing or should it provide
that other companies may also compete in the land remote sensing
satellite arena?
II. Background
In the Transition Plan submitted to OMB, NOAA recommended
initiation of preliminary system studies on the basis of a
hypothetical Middle System with a 15 meter TM band 3, using
either the Landsat D multi mission spacecraft or a newly designed
spacecraft. No decision was reached on inclusion of the
stereoscopic capability sought by the non-renewable resource
industry. If stereo is not included in the system contract with
the private sector operator, the question arises whether someone
other than the contracting entity should be allowed to develop
it. However, this question is answered, there is the related
question of what regulations should be imposed on the chosen
system operator? The latter question will be considered in
discussion 7 (A) .
(1) Legislatively, confer monopoly status on competitively
selected or legislatively established corporation for
all land remote sensing space services (including
those not required by the Federal government.)
(2) Allow other U.S. companies to develop and market land
remote sensing satellite capabilities not provided to
the Government by the chosen corporation.
IV. Pros and Cons
(1) Conferral of monopoly status.
Pros:
o In the case of competitively selected corporation, may be
necessary to induce risk capital.
o In the case of legislatively created corporation, insulation
from competition may make investment more attractive.
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o Experience acquired by single corporation may contribute to
more orderly development of new system capabilities.
o Enables system subsidized by U.S. dollars to develop, unim-
peded by competing domestic systems.
o Prevents "cream skimming."
o Development of new capabilities may be inhibited if they
depend upon monopolistic rather than competitive market forces.
o In case of competively selected corporation, contracting cor-
poration may be extended to the point where additional invesment
not possible.
(2) No monopoly status.
o Promotes competition for potentially valuable services in
field which might, in any event, be entered by foreign operators.
o May appease members of the non-renewable resource industry and
their legislative supporters who may be upset over failure to
include stereo in initial provision of service.
o In case of competitively selected corporation, may make it
difficult to attract risk capital.
o If new capabilities successfully developed by a second
corporation, might make it difficult for government-financed
corporation to market its products thereby undermining poten-
tial for government to recoup its investment.
o "Cream skimming" possible and likely encouraged.
To enable the private sector operator to receive an accept-
able return on those services provided to the government, monopoly
status, coextensive with the terms of the contract with the govern-
ment, will be required. Anything less would likely discourage
investor interest due to the threat of non-contracting companies
skimming off the most valuable components of the program. A
contract for government services might be possible in a non-monopolistic
setting, but at a price that would likely be unacceptable to the
government.
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By contrast, no persuasive arguments exist in favor of
vesting the private sector operator-with monopoly status over those
remote sensing activities, that extend beyond the terms of its
contract with the government. Vesting the corporation with the
exclusive right to develop new systems shelters it little since
foreign operators are not foreclosed from developing whatever
systems they choose. Moreover, by providing the new corporation
with the exclusive right to develop new system options, advances
in the field will be dependent on the whim, vision and financial
wherewithal of just one company. This is undesireable from the
standpoint of basic competition theory. It is also likely to
alienate both those concerned about the monopolistic position of
the company as well as those concerned about specific avenues of
development. Accordingly, unless an exclusive contract is the
only means available to attract initial investor capital, it
should be rejected in the legislative process.
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Jerry Ostrov Issue 7($Iooo'
11,!6/80 (Revised)
What regulatory requirements should apply to private sector
operators other than the competively selected or legislatively
created corporation?
II. Background
In issue paper 7, I concluded that the legislation should
not confer de jure monopoly status on the corporation that provides
satellite-based land remote sensing services to the Federal govern-
ment. The result is that any other company can, at its own expense,
develop remote sensing capabilities such as stereosat and market its
own products to augment services provided by /ctrpetitively selected
or legislatively created corporation.
(1-11)
In issue paper 7(A)A, I considered the regulatory requirements
that would be required to ensure that the competitively selected
or legislatively established corporation satisfied U.S. domestic
and foreign policies. I noted that many of the policies were
generated by Presidential Directive, but that many were developed
in-house within NOAA and were motivated by two factors. The first
was the de facto mononoly_status that such a corporation would
enjoy and the concern that it not abuse this status or use its
position to deny services to user groups whose needs were deemed
to be in the public interest. The second reason had to do with
the fact that much of the financial support for the system would
be coming from the Federal government and that, for the foreseeable
future, most of the system's data products would be used to satisfy
Federal requirements. Under these circumstances, regulation was
deemed appropriate both to protect the Federal interest and as a
Quid pro quo for the favored position enjoyed by the corporation
largely at Federal expense.
Given the PD 37 directive that "all United States earth-
oriented remote sensing satellites will require United States
government....supervision or regulation,"the question which arises
is whether the regulatory requirements applicable- to the competitively
selected or legislatively created corporation ought also to apply in
the case of a self-funded corporation providing a remote sensing
service not covered in the chosen corporation's contract with the
government.
(1) Limit regulations to those national policies which
transcend regulation of the competitively selected or
legislatively established corporation. Basically, such
policies would be those found in lists (A) ("Policies
contained in International Treaties and Presidential
Directives").and (g) ("Policies relevant to National
Security") of Ostrov's Issue Paper 7(A)/Ja,
(2) To maximum extent possible, make regulations coextensive
mith t},ncc imnncAA nn comnetitivP1v selected or legislatively
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IV. Pros and Cons
(1) Limit regulations-to those required by treaty, Presidential
Directive or national security.
o Tailors regulations to national needs, rather than rationale
unique to (Federally assisted) competitively selected or
legislatively created corporation.
o Consistent with Presidential Directives which by their terms
extend to all civil space programs.
o Arguably the regulatory provisions dealing with value-added
services and information extraction are equally applicable
to both the competitively selected or legislatively established
corporation-and the non-contracting corporation since in each
case the company will have an exclusive hold on the services
being rendered.
Make regulations co-extensive.
(2)
Pros.
o No "pros" unless-sheltering de facto monopoly status of competitively
selected or legislatively created corporation by making itdifficult
for other firms to enter field is seen as a "pro."
o Some of the regulations applicable to competitively selected or
legislatively created corporation bear no relationship to
self-funded company that might enter field.
Option 1 is recommended. Once it has been decided that self-
funded companies will be allowed to compete in the land remote
sensing arena (see Ostrov's issue paper 7), little justification
exists for imposing regulatory road blocks not otherwise dictated
by treaty, Presidential Directive or national security.
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q
10/24/80
W.H.E.
Title: Value Added Services and Exploitation of Derived Information
Issue: Should The Option 1 or 2 owner/operator be precluded from engaging
in added services* or from exploiting derived information*?
Background: Most value added service companies are concerned that the
operator will be in a preferred position to task the system*
or to have more irnnediate access to data than will non-operator
competitors. Some end users (in both the renewable and non-
renewable resource fields) are concerned that the system
operator will be in a position to exploit for economic advantage
the information to which it will have access because of this
preferred position. Some foreign governments have similar
concerns. The feeling among these groups is that the operator
should be forbidden by statute or regulation from engaging in
the value added services or the exploitation of derived infor-
mation.
On the other hand, because the market for data and standard
products is largely potential, rather than existing at this time,
it is recognized that the operator must have considerable
latitude in developing the future market and seeking additional
revenues to offset investments and system costs. A prohibition
against value added or -lata interpretation services by the
operator would severely limit its potential for market develop-
ment, leading to even larger, longer lasting Federal support.
One suggested solution to this dilemma is to allow the
operator to conduct demonstrations, training and other actions
as are necessary for market development, but forbid it (by
legislation, regulations or contract stipulations) form engaging
in competitive value added services, or exploiting derived
information. Regulations or contract stipulations would have to
be developed carefully to distinguish between allowable market
expansion activities and exploitations that are prohibited.
Enforcement of these prohibitions be difficult. Such a prohibi-
tion would not necessarily preclude creation by the operator of
an independent wholly owned subsidiary company for such compe-
tition and exploitation, provided this company had no preferental
access to tasking the system or to access to data, and pays the
same price paid-by all other users.
Options:
1. Take no action to limit activities of the owner/operator in
value added and information extraction services.
2. Preclude the owner/operator (or any wholly-owned subsidiary,
or parentcorporation) from engaging in any competitive value
added services or exploitation of derived information.
3. Limit the value added and information extraction activities of
the owner/operator to demonstration, training and market develop-
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ment. By not stating any progibitions against it, allow a
subsidiary conpany to engage in such operational and compe-
titive activities, provided that it has no preferental access
to the system or its data services.
* See definitions on the last page
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. Pros and Cons :
Option 1 - Take no action to limit value added services or information
exploitation activities of the owner/operator.
o Allows for maximum market development and building of future
revenues to offset investments.
o No enforcement or penalties required.
o Improves the possibilities for attracting capital.
o Maximm opportunity to reduce long term Federal support.
o Would be opposed by value added firms which are already in the
field. Would add competition in an industry that is now strug-
gling to be established.
o There will be opportunities for abuse and/or the perceptions of
abuse.
Option 2 - Preclude any value added services or information exploitation
activities by the owner/operator or by any wholly-owned
subsidiary or by a parent corporation.
PIS
o Minimizes domestic competition and international concerns.
o Enforcement relatively simple, because company activities of this
nature would be relatively easy to detect.
CDN
o Precludes market, development.
o Could further inhibit investment.
o Could inhibit raising capital.
o Minimizes opportunity to reduce long term Federal support.
o Prohibition against activities by a parent corporation would effec-
tively eleminate existing private sector competition, because rmst
candidates are parts of conglomerates, or they have other business
interests which may already be involved in activities that would
be prohibited.
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Option 3 - In the legislation allow market development but preclude routine
value added services or exploitation of derived information.
Negotiate the distinction between allowed and prohibited activi-
ties in the development of regulations, in the contract between
the owner/operator and the government, or both. Allow these
activities by a subsidiary company or parent corporation.
PFD -
o Allows market development by the system owner.
o Allows parent corporation to explore other sources of revenue.
o Improves the possibilities for attracting capital over option 2.
o Improves the chances of reducing long term Federal support over
option 2.
o Separation between parent and subsidiary company may not be seen
as clean.
o National and international concerns may still be raised.
o Could be difficult to enforce and regulate limitations on market
development activities of the owner/operator. Regulation to
ensure no preferential access by a subsidiary or parent corpora-
tion might be difficult.
Preferred Option
The difficulties (under Option 3) of distinguishing between allowed and
prohibited activities, and of enforcement and regulation are recognized.
However, Option 3 is preferred because it allows greater opportunities for
market development and increasing system revenues, while it avoids most of
the objections of Options 1 and 2.
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Value Added Services-- functions of that portion of the private sector which
derive information from the Landsat data and standard data products, either
independently or in combination with other data sources, under contract to
an end user, or as a proprietary service which is offered for.sale to one
or nnre end users.
Information- knowledge gained by an end user (through analysis and inter-
pretation of Landsat data and standard data products) about renewable
resources (e.g., crop production forecasts), non-renewable resources (e.g.,
the possible location of minerals), and environmental conditions and other
applications. This knowledge can be obtained by purchasing the products of
the value added industry, or by analysis or interpretations conducted by the
end user.
Task the System- to request special data collection activities from the
satellite, or to request special priority procesing once the data is received
at the ground station.
Exploiting Derived Information-through trading in the commodities market,
purchasing leases, and other activities of a business nature, obtain economic
advantage as a result of having access to the information derived from the
Landsat data and standard data prods ts.
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/0,
UNITED STATES DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
Washington, D.C. 20230
OFFICE OF THE ADMINISTRATOR
November 4, 1980
TO: S - David Johnson
Sx1 - Diana Josephson
FROM: GCL - Michael A. Levitt
SUBJECT: Provisions Relating to In-House Conflict of
Interest/Use of Insider Information
If a corporation (either legislatively-created or
already established) is granted a monopoly by the Government
to produce land remote sensing satellite data and standard
data products, it would be inequitable to allow the system
owner/operator to take advantage of this position to gain a
competitive edge in exploiting this information. End users
(in both the renewable and non-renewable resources fields)
have expressed concerns that the system operator will be in
a position to exploit for economic advantage the information
to which it"will have advance access. Some foreign govern-
ments have expressed similar concerns. (See Eskite Issue
Paper No. 1) The question has arisen whether provisions are
needed in the legislation to regulate the use of insider
information by the system owner/operator.
Discussion
It is clear that the system operator must not be
given a preferred position in exploiting for economic
advantage the data and standard data products 1 ~hich it
acquires from land remote sensing satellites.- At a
minimum, legislation should provide that each officer or
1 It may be possible, however, to allow the corporate
owner/operator to form a subsidiary for purposes of
exploiting land remote sensing data, if a system can be
devised which assures other standard data product users
that the subsidiary will not receive preferential treatment.
10TH ANNIVERSARY 1970-1980
National Oceanic and Atmospheric Administration
A young agency with an historic
,,,11111~cd' I tradition of service to the Nation
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employee of the corporation who performs any duties for the
land remote sensing satellite program, and who has any
financial interest in any commercial enterprise which may
benefit from the data or standard data products produced by
the satellite system shall file a written statement disclosing
all such interests on an annual basis. In addition, the
legislation should probably provide that employees of the
corporation who have advance access to data and standard
data products be precluded from either obtaining a financial
benefit or aiding other57 from obtaining a financial benefit
based on their access.- Finally, the legislation might
include provisions assessing fines or mandating other
penalties against persons who wrongfully disseminate data or
standard data products to users or other outside entities.
2 Care must be taken in drafting legislation to avoid
proposing laws which conflict with existing conflict of
interest laws, such as SEC prohibitions against stock
trading based on "insider knowledge." The remote sensing
satellite program conflict-of-interest rules should
supplement and not supersede existing prohibitions.
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,Jerry Ostrov Issue
11/4/80 (Revised)
To what degree should the legislation regulate the activities
of the private sector operator?
II. Background
At private sector workshops held during the development of
the transition plan, firms evidencing interest in Landsat
recognized that some regulation was necessary, but expressed concern
that regulation be kept to a minimum. Their concern presumably
reflects the fact that any firm confronted with the costs and
uncertainties of the Landsat program will want to be able to make
corporate decisions in an environment of maximum flexibility. To
a degree, similar concerns apply to an option 2 corporation,
though, in the case of such a corporation, it is assumed that
government assurances will provide the necessary inducement to
attract investment.
The problem that arises is that much of the Landsat
program will be governed by domestic and foreign policies which,
by their very nature, will restrict the flexibility of the private
sector operator, possibly to the point where private sector
assumption of risk becomes impracticable.' It is against this
background that one must decide which policies applicable to the
Landsat program are of sufficient"' .importance to warrant statutory
language and regulatory oversight. A glance at the list which
follows indicates the magnitude of the problem. The list is
divided into policies contained in international treaties and
presidential directives, policies developed in-house within NOAA
and policies required on grounds of national security.
(A) Policies contained in International Treaties and
Presidential Directives.
(i) Commitment to the principle of the exploration
and use of outer space by all nations for
peaceful purposes and for the benefit of all
mankind. (Outer Space Treaty)
(ii) Data and results from the civil space program
will be provided the widest practical
dissemination, except where otherwise prohi-
bited by law, executive order or regulation.
(iii) The United States will generally support non-
discriminatory direct readout to foreign ground
stations.
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-2-
(iv) Pricing policies must be developed that are
consistent for foreign and domestic users.
(v) The U.S. will promote development of
complementary nationally operated satellite
systems so as to limit U.S. program costs, but
protect against unwarranted technology transfer.
(B) Policies developed in-house within NOAA
Many of the policies which follow reflect the fact
that the private sector operator, having obtained a contract with the
Government,will enjoy a de facto monopoly or near-monopoly status
in the satellite-based land remote sensing arena. The policies
attempt to deal with this situation by ensuring that, on the one
hand, the owner/operator does not take undue advantage of its
position, and, on the other, that it satisfies requirements which
are deemed to be in the public interest. The policies also
reflect the fact that much of the support for the system will
come from the Federal government and that, for the forseeable
future, the Federal government will continue to be the dominant
user of the system.
(i) Limitation of he value-added and information
extraction activities of the owner/operator
to demonstration, training, and market
development.
(ii) Legislatively established corporation: Limitation
of non-remote sensing activities of the corporation
so as to ensure adequately focused attention
on space-based land remote sensing.
(iii) Legislatively established corporation: Procure-
ment of design and fabrication requirements
through the competitive process and in
compliance with small business and minority
set-aside requirements.
(iv) Provision of services that satisfy the needs of
specified classes of non-Federal users and
which are economically practicable from the
standpoint of the owner/operator.
(v) Provisions to ensure that certain users whose
interests are deemed to be consistent with
public policy are able to avail themselves
of land remote sensing satellite services at
an affordable price. (Unresolved as of 11/4/80.)
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(vi) Profit sharing: rules governing the keeping of
books, paper trails and apportionment of revenues
and expenses such that profit sharing provisions
can be satisfactorily implemented.
(vii) Extraordinary remedies: rules specifying
conditions under which services will be deemed
inadequate and provision made for returning theme
system to government ownership.
(C) Policies relevant to national security
(i) Maximum resolution of sensors.
(ii) Overflight patterns.
(iii) Compliance with existing national security
requirements.
III. Alternatives and Conclusion
There are no real alternatives to the issue of whether
policies important to the public interest should be included in
the statute and reflected in regulatory oversight. PD 37 speci-
fies that "all United States government earth oriented remote
sensing satellite will require United States authorization and
supervision or regulation." Such supervision or regulation can
only be for the purpose of ensuring that U.S. policies are
satisfied. The real question is which, if any, of the enumerated
policies, are sufficiently benign, incapable of intelligent admi-
nistration or so likely to stand in the way of private investment
as to warrant exclusion from the statute. This is obviously a
complex question which will likely be resolved only after the
legislative process is in full swing. At this point, a good case
can be made for each of the enumerated policies.
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