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April 15, 1987

COMSAT EXPOSED BY CONTEL THREAT TO WALK AWAY FROM MERGER AGREEMENT

By CBR Staff Writer

There is little doubt that the proposed merger with Contel Corp of Atlanta promised Communications Satellite Corp with the safe haven it needed to shelter it from the gathering storm of much increased competition and the threat of growth of optical communications crimping the market for satellite links. Contel gives the impression that it has had second thoughts about the agreement, first announced last September, and was looking for an excuse to walk away from the merger. The Federal Communications Commission demand that Comsat repay $62m of alleged excess profits made on regulated services in past years provided the opportunity for its move this week (CI No 663). In writing to Comsat to ask it to agree to a termination of the agreement, Contel also expresses concern at three other developments that it believes makes the company less attractive. It doesn’t like the FCC’s recent recommendation that the rule that requires US phone companies to route half their international calls via Intelsat be dropped – Comsat is the US partner in Intelsat; there is doubt that Comsat will be permitted to represent the US in Inmarsat; and the likelihood of a second transatlantic fibre cable will further crimp Comsat’s business. If the Contel deal is ended, Comsat needs another partner.

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