*Pages 1--8 from Microsoft Word - 6557.doc* Federal Communications Commission DA 01- 6 1 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of ) ) ICO- Teledesic Global Limited ) ) Application for Transfer of Control of ) File No. SAT- T/ C- 20000531- 00097 Space Station License of Teledesic LLC ) Call Sign S2136 to ICO- Teledesic Global Limited ) ) ICO Services Limited ) File No. SAT- PDR- 20000612- 00106 Petition for Declaratory Ruling ) ) Amendment of Letter of Intent of ) File Nos. SAT- AMD- 20000612- 00107 ICO Services Limited to Access the ) SAT- LOI- 19970926- 0163 2 GHz MSS Frequency Bands ) 188- SAT- LOI- 97 MEMORANDUM OPINION, ORDER AND AUTHORIZATION Adopted: January 8, 2001 Released: January 9, 2001 By the Chief, International Bureau: I. INTRODUCTION 1. In this Order, we grant ICO- Teledesic Global Limited (“ ITGL”) authority to transfer control of a license held by Teledesic LLC to construct, launch, and operate a non- geostationary orbit (“ NGSO”) Fixed Satellite Service (“ FSS”) system, from Teledesic Corporation (“ Teledesic”) to ITGL. We also address a related Petition for Declaratory Ruling filed by ICO Services Limited (“ ICO”) regarding the same transaction. Specifically, we grant ICO an exemption from the space station “cut- off” rule, which will allow ICO to continue prosecuting its pending letter of intent (“ LOI”) 1 to access the 2 GHz Mobile Satellite Service (“ 2 GHz MSS”) frequency bands. These actions will permit completion of the planned merger of Teledesic and ICO within a single organizational structure, ITGL, and will serve the public interest by facilitating rapid deployment and competition in the provision of advanced broadband services using ITGL’s satellite authorizations. 1 An LOI is filed by a non- U. S.- licensed satellite system requesting that the Commission “reserve” spectrum for that system in a space station processing round, in anticipation of earth station applications to be filed in the future to access the non- U. S.- licensed satellite system. See Amendment of the Commission’s Regulatory Policies to Allow Non- U. S. Licensed Space Stations to Provide Domestic and International Satellite Service in the United States, IB Docket No. 96- 111, Report and Order, 12 FCC Rcd 24094, 24173- 74 ¶ 185 (1997) (“ DISCO II Order”) (detailed discussion of the procedures under which foreign- licensed satellite systems may provide service in the United States). 1 Federal Communications Commission DA 01- 6 2 II. BACKGROUND 2. Teledesic LLC currently holds a license to implement an NGSO FSS system in the Ka- band frequencies. 2 Teledesic LLC is controlled by Teledesic, a Delaware corporation, which is the Manager of Teledesic LLC and owns approximately 66. 1% of its interests. 3 Teledesic shares are held by a number of investors and no one shareholder has sufficient voting power to control the company single-handedly. 4 However, Craig O. McCaw is Chairman of the Board and Co- Chief Executive Officer of Teledesic, manages Teledesic’s business and affairs, and has significant Teledesic voting interests. Specifically, Mr. McCaw’s investment company, Eagle River Investments LLC (“ Eagle River”), owns 13. 3% of Teledesic, and has 49. 0% voting control by ownership or proxy. 3. ICO, a corporation organized under the laws of the United Kingdom, filed an LOI proposing to operate a 2 GHz MSS system in the United States. 5 As a result of a reorganization in bankruptcy, ICO is 100% owned and controlled by New ICO Global Communications (Holdings), Inc. (“ New ICO”), a Delaware corporation. New ICO’s controlling shareholder is ITGL, a Delaware corporation. ITGL is controlled by Mr. McCaw through his investment company, Eagle River. 6 4. Teledesic, ICO, and ITGL now seek to effect a corporate reorganization designed to bring the satellite assets in which Mr. McCaw holds substantial interest within a single organizational structure, ITGL. On May 31, 2000, ITGL applied for authority to transfer control of the license held by Teledesic LLC from Teledesic to ITGL. 7 On June 12, 2000, ICO filed an amendment to its LOI, disclosing the reorganization of the company pursuant to the bankruptcy proceedings, as well as the pending merger of Teledesic into ITGL. 8 ICO also filed a Petition for Declaratory Ruling seeking to remove any uncertainty 2 See Teledesic Corporation, Order and Authorization, 12 FCC Rcd 3154 (Int’l Bur. 1997), modified, Teledesic LLC, Order and Authorization, 14 FCC Rcd 2261 (Int’l Bur. 1999). See also Letter from Thomas S. Tycz, Chief, Satellite and Radiocomm. Div. to Mark A. Grannis, Counsel for Teledesic LLC (January 26, 1998) (File No. 28- SAT- AL- 98) (granting pro forma assignment of license from Teledesic Corporation to Teledesic LLC). The term “Ka- band” generally refers to the space- to- Earth (downlink) frequencies at 17.7- 20.2 GHz and the corresponding Earth- to- space (uplink) frequencies at 27.5- 30.0 GHz. Teledesic was authorized to operate its customer service links on a primary basis in the 28.6- 29.1 GHz (uplink) and 18.8- 19.3 GHz (downlink) bands. 3 Motorola Inc. (18.4%) and Teledesic Holdings Limited (15.5%) own the remainder of Teledesic LLC. 4 Teledesic’s primary investors are Craig O. McCaw, William H. Gates III, Motorola, Saudi Prince Alwaleed Bin Talal, the Abu Dhabi Investment Company and the Boeing Company. 5 Letter of Intent of ICO Services Limited, File No. 188- SAT- LOI- 97; IBFS File Nos. SAT- LOI- 19970926- 00163, SAT- AMD- 20000612- 00107, SAT- AMD- 20001103- 00155. 6 Letter from Cheryl Tritt, Counsel for ICO Services Limited to Magalie Roman Salas, Secretary, Federal Communications Commission (May 17, 2000). As a result of the reorganization, the original shareholders and creditors of ICO hold approximately 20. 3% ownership and 8. 5% voting interests in New ICO. 7 See FCC Form 312 Application for Transfer of Control of Space Station License of Teledesic LLC to ICO- Teledesic Global Limited, File No. SAT- T/ C- 20000531- 00097 (May 31, 2000) (“ Teledesic/ ITGL Application”). 8 See Amendment of Letter of Intent of ICO Services Limited to Access the 2 GHz MSS Frequency Bands, File No. SAT- AMD- 20000612- 00107 (June 12, 2000) (attaching FCC Form 312) (“ ICO LOI Amendment”). 2 Federal Communications Commission DA 01- 6 3 as to whether ICO’s LOI should remain in the 2 GHz MSS processing round, given the significant ownership changes described in its amendment. 9 5. The proposed transaction would result in the following ownership structure: 10 Teledesic LLC would remain controlled by Teledesic; ICO would remain a wholly- owned subsidiary of New ICO; and ITGL would be the parent of both Teledesic and New ICO. Eagle River (controlled by Mr. McCaw) would own stock representing 27. 0% of the equity and 62. 3% of the voting rights in ITGL; William H. Gates III would own stock representing 10. 1% of the equity and 14. 2% of the voting rights in ITGL; and the remaining 62. 9% equity ownership and 23. 5% voting rights would be held by current Teledesic LLC and New ICO shareholders, none of whom individually would hold a 10% or greater equity or voting interest. 11 6. The International Bureau placed these filings on public notice on July 14, 2000. 12 No petitions to deny or other objections or comments were filed in response to the public notice. III. DISCUSSION A. Public Interest Considerations 7. Under Section 310( d) of the Communications Act, we must find that a proposed transaction serves the public interest, convenience, and necessity before we can approve the transfer of control of authorizations or licenses. 13 To make this finding, we must weigh any potential public interest harms against any potential public interest benefits, considering competitive effects and other public interest factors. 14 In conducting our analysis of potential public interest harms and public interest benefits, we first take note of the fact that no party has opposed this transaction. 9 See Petition for Declaratory Ruling of ICO Services Limited, File No. SAT- PDR- 20000612- 00106 (June 12, 2000) (“ ICO Petition for Declaratory Ruling”). 10 Some intermediate steps in the merger transaction as described in the Teledesic/ ITGL Application and ICO LOI Amendment were subsequently modified for tax purposes. See Letter from William M. Wiltshire, Counsel for Teledesic Corporation to Magalie Roman Salas, Secretary, Federal Communications Commission (August 25, 2000) (“ Teledesic Update Letter”); Letter from Cheryl A. Tritt, Counsel for ICO Services Limited to Magalie Roman Salas, Secretary, Federal Communications Commission (August 25, 2000) (“ ICO Update Letter”). However, the ultimate ITGL ownership and voting structure remains as set forth in the original filings. 11 Specifically, pre- merger Teledesic LLC stakeholders (other than Messrs. McCaw and Gates) will hold ITGL stock representing approximately 49. 6% of the equity and 19. 2% of the voting rights, and original ICO stakeholders will hold ITGL stock representing approximately 13. 3% of the equity and 4. 3% of the voting rights. 12 See Public Notice, Report No. SAT- 00051 (rel. July 14, 2000). 13 47 U. S. C. § 310( d). 14 See, e. g., Lockheed Martin Corporation, COMSAT Government Systems, LLC, and COMSAT Corporation, Order and Authorization, FCC 00- 277, at ¶ 15 (rel. July 31, 2000) (“ Lockheed/ COMSAT Merger Order”); GE American Communications, Inc., CCC Merger Sub, Inc., and Columbia Communications Corp., Order and Authorization, 15 FCC Rcd 11590, 11592 ¶ 5 (Int’l Bur. 2000) (“ GE Americom/ Columbia Merger Order”). The Commission evaluates whether an applicant has met its burden of proof that the transfer will advance the public interest by considering four factors: “( 1) whether the transaction would result in a violation of the Communications Act or any other applicable statutory provision; (2) whether the transaction would result in a violation of Commission rules; (3) whether the transaction would substantially frustrate or impair the 3 Federal Communications Commission DA 01- 6 4 8. To evaluate the competitive effects of the proposed transaction, the Commission first identifies the relevant product and geographic markets. For satellite service providers, the Commission has determined that the relevant product markets include domestic and international telecommunications markets. 15 In such cases, we consider whether the proposed transaction will lessen or enhance competition in the provision of communications services in, to or from the United States. 16 9. According to the parties, upon consummation of the proposed transaction, Craig O. McCaw and his affiliated companies will exercise de jure and de facto control of Teledesic and ICO, under ITGL’s corporate umbrella. 17 Currently, neither Teledesic nor ICO provide telecommunications services within the United States or internationally, as neither company has any operating facilities or services at this time. Accordingly, this transaction will not eliminate an existing competitor in any telecommunications service market. Mr. McCaw does have substantial interests in at least two operational Commission licensees: a commercial mobile radio service (“ CMRS”) operator, 18 Nextel Communications, Inc. (“ Nextel”), 19 and a competitive local exchange carrier, XO Communications, Inc. (“ XO”). 20 We note that Commission’s implementation or enforcement of the Communications Act, or would interfere with the objectives of the Communications Act or other statutes; and (4) whether the transaction promises to yield affirmative public interest benefits.” See Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from MediaOne Group, Inc., Transferor, to AT& T Corp., Transferee, CS Docket No. 99- 251, Memorandum Opinion and Order, 15 FCC Rcd 9816, 9820- 21 ¶ 9 (2000) (citations omitted). 15 See Application of WorldCom, Inc., and MCI Communications Corporation for Transfer of Control of MCI Communications Corporation to WorldCom, Inc., CC Docket No. 97- 211, Memorandum Opinion and Order, 13 FCC Rcd 18025, 18039 ¶ 23, 18070 ¶ 78 (1998); GE Americom/ Columbia Merger Order, 15 FCC Rcd at 11593 ¶ 7. 16 Lockheed/ COMSAT Merger Order, FCC 00- 277, at ¶ 18. 17 Teledesic Update Letter at 2; ICO Update Letter at 3. 18 Section 332( d)( 1) of the Communications Act defines “commercial mobile service” as “any mobile service . . . that is provided for profit and makes interconnected service available (A) to the public or (B) to such class of eligible users as to be effectively available to a substantial portion of the public, as specified by regulation of the Commission.” 47 U. S. C. § 332( d)( 1). 19 Nextel Communications, Inc. lists FCC licenses among its significant intangible assets, and discloses that “entities controlled by Craig O. McCaw hold significant blocks of our outstanding stock. In addition, an affiliate of Mr. McCaw may designate at least one fourth of our board of directors and may select, from these McCaw representatives on the board of directors, a majority of the operations committee of our board of directors, which has significant authority relating to our business strategy, budgets, financing arrangements and in the nomination and oversight of specified executive officers. As a result, Mr. McCaw may exert significant influence over our affairs.” See, e. g., Nextel Communications, Inc., Amendment 1 to Form S- 3, Registration Statement Under the Securities Act of 1933, at 12, U. S. Securities and Exchange Comm’n, Registration No. 33- 37102 (filed June 16, 2000), available at http:// www. sec. gov/ Archives/ edgar/ data/ 824169/ 000095013300002613/ 0000950133- 00- 002613- 0001.txt. 20 XO Communications, Inc. (formerly, NEXTLINK Communications, Inc.) states that it has acquired FCC fixed wireless licenses covering 95% of the population of the 30 largest U. S. cities, and “is majority controlled by Craig O. McCaw through shares of Class A and Class B common stock held by Eagle River Investments, LLC, an entity controlled by Mr. McCaw, and other shares of the Company’s Class A and Class B common stock owned by Mr. McCaw or over which he has voting control.” See, e. g., XO Communications, Inc., Form 10- Q, Quarterly Report Pursuant to Section 13 or 15( d) of the Securities and Exchange Act of 1934, For the Quarterly Period Ended September 30, 2000 at 6, 12, U. S. Securities and Exchange Comm’n, Commission File No. 0- 30900, 4 Federal Communications Commission DA 01- 6 5 Teledesic plans to provide worldwide, broadband access to the Internet, computer networking, interactive multimedia and high- quality voice, 21 and ICO plans to provide global Internet protocol services, including data, standard voice and fax services. 22 Both Nextel and XO provide, or plan to provide, similar services terrestrially to customers seeking individualized market coverage. However, it appears unlikely within the near- term future that either of these firms is capable of offering the ubiquitous worldwide services proposed by Teledesic and ICO to customers demanding extended global coverage, such as maritime users, the transportation, oil and gas and construction industries, and governmental agencies. Thus, this merger is not likely to increase significantly Mr. McCaw’s ability to exercise market power in the provision of domestic telecommunications services, nor will it adversely affect competition in any international telecommunications market. 10. In evaluating the public interest benefits of this transaction, we review the parties’ claims of public interest benefits based on a consolidation of resources and increased operational efficiencies. Particularly, we note Teledesic’s assertion that the proposed transaction will strengthen its financial position, enabling the resulting entity to attract financing more effectively, and thus, expedite the construction, launch, and operation of its global satellite constellation, 23 originally licensed in 1997. According to ICO, the ITGL financing package increases the likelihood that ICO will complete build- out of its system and launch service rapidly, bringing wider choice of MSS services and service providers to U. S. consumers. 24 Given our finding that the proposed transaction is not likely to cause competitive harm in either domestic or international telecommunications services, we find that there should be significant competitive and other public interest benefits in authorizing this transaction, including moving idle assets into productive use. Therefore, on balance, we find that the proposed transaction is in the public interest under Section 310( d) of the Communications Act. B. Cut- Off Rule 11. ICO has an LOI pending in the 2 GHz MSS space station processing round. 25 This processing round was established pursuant to public notices in which the Commission established filing deadlines for applications and LOIs. 26 Applications or LOIs filed after a cut- off date are not entitled to comparative consideration with applications or LOIs filed on or before the cut- off date. 27 available at http:// www. sec. gov/ Archives/ edgar/ data/ 1111634/ 000095013300004526/ w42519e10- q. htm. 21 See http:// www. teledesic. com/ about/ about. htm. 22 See http:// www. icoglobal. com/ about/ index. htm. 23 See Teledesic/ ITGL Application, Exhibit B at 5- 6. 24 See ICO Petition for Declaratory Ruling at 6- 7; ICO LOI Amendment at 4. 25 See footnote 5, supra. 26 See Public Notice, Report No. SPB- 88, 12 FCC Rcd 10446 (1997) (establishing August 21, 1997 as cut- off date for applications and LOIs for the 2 GHz MSS systems); Public Notice, Report No. SPB- 95 (rel. August 13, 1997) (extending deadline for filing 2 GHz MSS applications and LOIs from August 21, 1997 to September 5, 1997); Public Notice, Report No. SPB- 99 (rel. September 4, 1997) (extending deadline for filing 2 GHz MSS applications and LOIs from September 5, 1997 to September 26, 1997). The Commission received six applications from entities seeking FCC licenses and three LOIs from non- U. S.- licensed companies to provide service in the United States. See Public Notice, Report No. SPB- 119 (rel. March 19, 1998) (providing summary of each of the 5 Federal Communications Commission DA 01- 6 6 12. Section 25.116( c) of the Commission’s rules provides generally that if a major amendment to a processing round application is submitted after a cut- off date, the application will be considered to be newly filed, 28 and will lose its status in the processing group. Section 25. 116( b)( 3) defines a major amendment as, inter alia, one that “specifies a substantial change in beneficial ownership or control” of the underlying entity. 29 Section 25.116( c)( 2) allows for an exemption to the cut- off rule, however, where the major amendment reflects only a change in ownership or control found by the Commission to be in the public interest and for which a requested exemption from the cut- off date is granted. 30 ICO requests such an exemption, 31 acknowledging that the merger of Teledesic into ITGL disclosed in the ICO LOI Amendment presents a significant change in the beneficial ownership and control of ICO. 32 In previous decisions in which the International Bureau granted an exemption to the cut- off rules, the Bureau considered two factors: (1) whether the proposed transaction had a legitimate business purpose; and (2) whether the change in ownership otherwise served the public interest. 33 13. With respect to the first factor, the Commission’s overriding concern is whether the applicant or LOI filer has attempted to profit solely from the sale of an application. 34 Unless there is evidence of this, we see no reason to prevent applicants or LOI filers from procuring partners to help finance the enormous cost of these systems. 35 Because the transactions described in the ICO LOI Amendment involve a reorganization and infusion of capital necessary for ICO to emerge from bankruptcy, there are no substantial questions concerning profits deriving solely from the sale of an application. ICO has articulated a clearly defined and legitimate business purpose for its transfers of control to New ICO and ultimately, post- merger ITGL: in order to emerge from bankruptcy, launch its satellites, and deploy its service, it was essential that ICO obtain the new financing provided by the group of investors led by Mr. applications and LOIs filed prior to the cut- off date, including ICO’s LOI, and establishing deadlines for filing comment/ petitions to deny and responsive pleadings). 27 See DISCO II Order, 12 FCC Rcd at 24158 ¶ 149 (“[ A] foreign operator may choose to participate in a U. S. space station processing round, a vehicle by which we concurrently consider all requests to implement satellites in the same frequency bands.”). 28 47 C. F. R. § 25.116( c). 29 Id. § 25.116( b)( 3). 30 Id. § 25.116( c)( 2). 31 ICO Petition for Declaratory Ruling at 8. 32 Id. at 6. 33 See, e. g., Loral Space & Communication Ltd. and Orion Network Systems, Inc., et al., Order and Authorization, 13 FCC Rcd 4592, 4598- 99 ¶¶ 14- 19 (Int’l Bur. 1998) (granting exemption of the cut- off rule to allow Loral to “strengthen its financial resources” by merging with Orion); Satellite CD Radio, Inc, Declaratory Order, 12 FCC Rcd 8359, 8362- 64 ¶¶ 7- 13 (Int’l Bur. 1997) (granting a waiver of the cut- off date to allow a public offering); Starsys Global Positioning, Inc., Order and Authorization, 11 FCC Rcd 1237, 1238 ¶¶ 8- 11 (Int’l Bur. 1995) (granting a waiver of the cut- off date to allow GE Americom to acquire a controlling interest in Starsys). See also Airsignal International Inc., Memorandum Opinion and Order, 81 F. C. C. 2d 472, 474- 76 ¶¶ 6- 10 (1980). 34 See, e. g., Motorola Satellite Communications, Inc., Order and Authorization, 10 FCC Rcd 2268, 2270 ¶ 11 (Int’l Bur. 1995) (“ Iridium License”), erratum, 10 FCC Rcd 3925 (Int’l Bur. 1995), recon. denied, Memorandum Opinion and Order, 11 FCC Rcd 18502 (1996). 35 See, e. g., Loral/ Qualcomm Partnership, L. P., Order and Authorization, 10 FCC Rcd 2333, 2334 ¶ 12 (Int’l Bur. 1995); Iridium License, 10 FCC Rcd at 2270 ¶ 11. 6 Federal Communications Commission DA 01- 6 7 McCaw. 36 We find that the transfers of control disclosed in the ICO LOI Amendment serve a legitimate business purpose, and are not primarily for acquiring pending applications. 37 14. With respect to the second factor, for the reasons discussed in Section III. A. above, we find that the public interest would be served by approving the change in ownership. Consequently, we will exempt ICO’s pending LOI from the Section 25.116( c) cut- off rule, and will continue to consider ICO’s LOI concurrently with the other applications and LOIs in the 2 GHz MSS processing group. Although ICO argues that this rule is not applicable to LOI filers, 38 in light of our conclusion that continued consideration of ICO’s LOI would serve the public interest, we need not address this contention. IV. CONCLUSION 15. In view of the foregoing, we find that approval of the proposed transaction will serve the public interest, convenience and necessity by increasing competition in the satellite services market to the benefit of U. S. consumers. For this reason, and the reasons described in this Order, we grant ITGL’s application for consent to the transfer of Teledesic LLC’s authorization to construct, launch, and operate an NGSO FSS system in the Ka- band frequencies from Teledesic to ITGL. We also grant ICO’s related request for exemption of Section 25.116( c) of the Commission’s rules, which will allow ICO to prosecute its pending LOI in the 2 GHz MSS processing round, notwithstanding the significant change in the beneficial ownership and control of ICO resulting from merger of Teledesic into ITGL. 39 V. ORDERING CLAUSES 16. Accordingly, IT IS ORDERED that the FCC Form 312 Application for Transfer of Control of Space Station License of Teledesic LLC to ICO- Teledesic Global Limited, File No. SAT- T/ C-20000531- 00097, IS GRANTED. 17. IT IS FURTHER ORDERED that the Petition for Declaratory Ruling filed by ICO Services Limited, File No. SAT- PDR- 20000612- 00106, IS DENIED to the extent indicated herein. 18. IT IS FURTHER ORDERED that, pursuant to Section 25.116( c)( 2) of the Commission’s rules, 47 C. F. R. § 25.116( c)( 2), the request of ICO Services Limited for an exemption from the space station processing round cut- off rule IS GRANTED, and that the consummation of the transactions disclosed in the ICO LOI Amendment, File No. SAT- AMD- 20000612- 00107, will not disqualify ICO’s Letter of Intent, File Nos. 188- SAT- LOI- 97, SAT- LOI- 19970926- 00163, SAT- AMD- 20000612- 00107, SAT- AMD- 20001103- 00155, from Commission consideration in the currently- pending 2 GHz MSS processing group. 36 ICO LOI Amendment at 4. 37 Airsignal, 81 F. C. C. 2d at 475 ¶ 9. 38 ICO Petition for Declaratory Ruling at 5- 6. But see DISCO II Order, 12 FCC Rcd at 24162 ¶ 159 (rules governing participation in processing rounds equally applicable to U. S. and non- U. S. space stations). 39 The documents we considered here did not address public interest considerations with respect to any other pending applications filed by ITGL or its affiliated companies. Therefore, our rulings today are limited only to those filings before us, and are without prejudice to any action that we may take in response to requests to amend other pending applications. See, e. g., Public Notice, Report No. SAT- 00013, at 3 (rel. March 23, 1999). 7 Federal Communications Commission DA 01- 6 8 19. IT IS FURTHER ORDERED that the transaction approved herein shall be completed within 60 days from the date of this Order. Within 30 days of consummation, ICO- Teledesic Global Limited shall notify the Commission in writing of the date of consummation and the file numbers of the applications involved in the transaction. 47 C. F. R. § 25. 119( f). 20. This Order is issued pursuant to Section 0.261 of the Commission’s rules on delegated authority, 47 C. F. R. § 0.261, and is effective upon release. FEDERAL COMMUNICATIONS COMMISSION Donald Abelson Chief, International Bureau 8