*Pages 1--18 from Microsoft Word - 28559* ________________ Federal Communications Commission_____________ FCC 03- 131 FCC REPORT TO CONGRESS AS REQUIRED BY THE ORBIT ACT Adopted: June 11, 2003 Released: June 16, 2003 1 ________________ Federal Communications Commission_____________ FCC 03- 131 2 FCC REPORT TO CONGRESS AS REQUIRED BY THE ORBIT ACT This report is submitted in accordance with Section 646 of the Open- Market Reorganization for the Betterment of International Telecommunications Act (ORBIT Act or the Act). 1 Section 646 states: (a) ANNUAL REPORTS - The President and the Commission shall report to the Committees on Commerce and International Relations of the House of Representatives and the Committees on Commerce, Science, and Transportation and Foreign Relations of the Senate within 90 calendar days of the enactment of this title, and not less than annually thereafter, on the progress made to achieve the objectives and carry out the purposes and provisions of this title. Such reports shall be made available immediately to the public. (b) CONTENTS OF REPORTS - The reports submitted pursuant to subsection (a) shall include the following: (1) Progress with respect to each objective since the most recent preceding report. (2) Views of the Parties with respect to privatization. (3) Views of the industry and consumers on privatization. (4) Impact privatization has had on United States industry, United States jobs, and United States industry’s access to the global marketplace. I. Progress as to Objectives and Purposes The purpose of the ORBIT Act is “to promote a fully competitive global market for satellite communication services for the benefit of consumers and providers of satellite services and equipment by fully privatizing the intergovernmental satellite organizations, INTELSAT and Inmarsat.” 2 The ORBIT Act: (1) mandates the privatization of INTELSAT and Inmarsat; (2) establishes criteria to ensure a pro- competitive privatization; (3) requires the Commission to determine whether INTELSAT, Inmarsat, and the INTELSAT spin- off, New Skies Satellites N. V. (“ New Skies”), have been privatized in a manner that will harm competition in the United States; (4) requires the Commission to use the privatization criteria specified in the ORBIT Act as a basis for making its competition determination; and (5) directs the Commission to “limit through conditions or deny” applications or requests to provide “non- core” services to, from, or within the 1 47 U. S. C. § 765e (2000). 2 47 U. S. C. § 761 NOTE. 2 ________________ Federal Communications Commission_____________ FCC 03- 131 12 B. Status of INTELSAT Privatization Intelsat privatized and became a U. S. licensee, as of July 18, 2001. As part of its decision to privatize INTELSAT, the Assembly of Parties (comprised of the governments party to the Inmarsat Convention) retained a small residual intergovernmental organization known as ITSO, an acronym for the International Telecommunications Satellite Organization. ITSO, through a “Public Services Agreement” with Intelsat LLC, monitors the performance of the company’s public service obligations to: maintain global connectivity and global coverage, provide non-discriminatory access to the system, and honor the lifeline connectivity obligation (“ LCO”) to certain customers (those customers in poor or underserved countries that have a high degree of dependence on Intelsat LLC). 56 Under these commitments, the privatized Intelsat LLC keeps capacity available to lifeline users at fixed pre- privatization costs for approximately 12 years, while the lifeline users are only committed for its capacity on a year- to- year basis at their option. ITSO has no operational or commercial role. INTELSAT as Privatized Upon privatization, substantially all of INTELSAT’s operational assets and liabilities were transferred to several companies within an affiliated group with a holding company structure. Intelsat, Ltd. is the holding company for all other companies in the group and is organized under the laws of Bermuda. It holds the United Kingdom authorizations for INTELSAT's ITU registrations in the Ka-, BSS-, and V- bands. 57 Intelsat (Bermuda), Ltd. (“ Intelsat Bermuda”), a wholly owned subsidiary of Intelsat, Ltd., is responsible for the oversight of satellite procurement and operational matters, including matters involving control of space and ground segment assets, from Bermuda. Intelsat Global Service Corporation, a wholly owned subsidiary of Intelsat Bermuda and organized as a Delaware corporation, provides technical, marketing, and business support services to Intelsat, Ltd. and its subsidiaries pursuant to intercompany contracts. These services include the day- to- day operation of the satellite network. Intelsat Holdings LLC, a Delaware limited liability company and also a wholly owned subsidiary of Intelsat Bermuda, functions only as a holding company for Intelsat LLC, a Delaware limited liability company that is the U. S. licensee for operation of existing and planned satellites in the C-band and Ku- band. All space segment assets operating in these bands have been transferred to Intelsat LLC. Intelsat LLC sells all of its space segment capacity to Intelsat Bermuda. 58 Intelsat Global Sales & Marketing Ltd. (“ Intelsat U. K.”), a wholly owned subsidiary of Intelsat Bermuda organized under the laws of England and Wales, is the contracting party for most of Intelsat’s customer contracts. Going forward, Intelsat’s U. S. customers will contract with Intelsat USA Sales Corp., a wholly owned subsidiary of Intelsat U. K. and a Delaware corporation. Some of Intelsat’s U. S. customers have already transferred their existing customer service commitments to Intelsat USA Sales Corp. Most of the customer service commitments entered into by INTELSAT 56 INTELSAT Assembly of Parties Record of Decisions of the Twenty- Fifth (Extraordinary) Meeting, AP-25- 3E FINAL W/ 11/ 00 ¶ 34 at 6- 8 (Nov. 27, 2000) (“ 2000 Assembly Decision”). 57 In the Matter of Applications of Intelsat LLC for Authority to Operate, and to Further Construct, Launch and Operate C- band and Ku- band Satellites that form a Global Communications System in Geostationary Orbit, Intelsat LLC Supplemental Information, at 3 (August 17, 2001). 58 In the Matter of Applications of Intelsat LLC for Authority to Operate, and to Further Construct, Launch and Operate C- band and Ku- band Satellites that form a Global Communications System in Geostationary Orbit, Intelsat LLC Information Regarding Post- Privatization Distribution Arrangements at 2, note 6 (Mar. 16, 2001). 12 ________________ Federal Communications Commission_____________ FCC 03- 131 13 prior to the privatization were transferred to Intelsat U. K. pursuant to novation agreements. Intelsat U. K. buys space segment capacity from Intelsat Bermuda to serve existing and future customers. Customers are able to acquire Intelsat space segment capacity either through distributors or on a wholesale customer basis. The Intelsat holding company structure also includes regional support centers and field offices, which provide marketing and sales support and are located in various countries. The companies have created fiduciary boards of directors. The companies do not maintain an immune or privileged status. The selection procedure for members of the board of directors of Intelsat, Ltd. has resulted in a board that is compliant with the ORBIT Act. The licensing companies have licenses through notifying administrations in countries (U. S. and U. K.) that have effective competition laws and have commitments under the WTO Agreement that include non- discriminatory access to their satellite markets. 59 These companies are subject to U. S. or U. K. licensing authorities and conduct satellite coordinations according to ITU procedures under the auspices of these authorities. In January 2003, Intelsat completed its exchange offer for debt issued by the company, securing $600 million in long term financing, 60 and is now subject to information reporting requirements of the Securities Exchange Act of 1934, as amended. Accordingly, Intelsat is required, as a foreign private issuer, to file with the U. S. Securities and Exchange Commission an annual report on Form 20- F within six months after the end of each fiscal year. Intelsat filed a Form 20- F on March 28, 2003. The current deadline for Intelsat to conduct its IPO is December 31, 2003, unless the Commission extends the deadline until no later than June 30, 2004 based on the factors listed in section 621( 5)( A)( i) of the ORBIT Act. On April 1, 2003, Intelsat filed a progress report. 61 In the Progress Report, Intelsat noted that being subject to SEC information reporting requirements might facilitate the IPO when conditions improve, but that the market in general, and for fixed satellite services in particular, remains depressed and its financial advisors have continued to recommend that Intelsat delay moving forward with an IPO until market conditions are more favorable. II. Views of INTELSAT Parties on Privatization The Commission, in response to the Public Notice, has not received any views from INTELSAT Parties regarding privatization. 59 In the Matter of Applications of Intelsat LLC for Authority to Operate, and to Further Construct, Launch and Operate C- band and Ku- band Satellites that form a Global Communications System in Geostationary Orbit, Intelsat LLC Supplemental Information, at 3 (August 17, 2001). 60 Intelsat, Ltd., Form 6- K, Report of Foreign Private Issuer Pursuant to Rule 13a- 16 or 15d- 16 under the Securities Exchange Act of 1934, for the month of February 2003. 61 Progress Report, In the Matter of Applications of Intelsat LLC for Authority to Operate, and to Further Construct, Launch, and Operate C- band and Ku- band Satellites that Form a Global Communications System in Geostationary Orbit, File Nos. SAT- A/ O 20000119- 00001/ 18; SAT- AMD- 20000119- 00029/ 41; SAT- LOA- 20000119- 00019/ 28, filed April 1, 2003. 13 ________________ Federal Communications Commission_____________ FCC 03- 131 14 III. Views of Industry and Consumers on Privatization Deere & Company, Inmarsat, Intelsat, Mobile Satellite Ventures Subsidiary, LLC (“ MSV”), PanAmSat Corporation (“ PanAmSat”), Stratos Mobile Networks, Inc. and Stratos Communications, Inc. (collectively “Stratos”) and Telenor responded to the Commission’s public notice inviting comments appropriate to the development of this report. Intelsat Privatization Comments Intelsat maintains that it is continuing to respond to market forces. Intelsat notes that it has acquired substantially all the assets of COMSAT World Systems (“ CWS”) and certain associated COMSAT business enterprises, and that this transaction, through integration of its satellite facilities with CWS’s expertise, has allowed Intelsat to more efficiently compete with its integrated competitors. Intelsat also announced its intention to make a minority investment in WildBlue Communications, Inc., which plans to offer “two- way broadband services via satellite to individual consumers in the U. S.” 62 Intelsat states that this will provide them with a strategic position in the North American retail broadband market. Intelsat also notes that it has announced a joint venture with Television Broadcasts Limited, through which Intelsat will own a 51% stake in Galaxy Satellite Broadcasting Limited. This joint venture will provide pay television service in Hong Kong. Intelsat states that its privatization has allowed Intelsat to provide new services and increase competition in the market. PanAmSat argues that although privatized, Intelsat still maintains market access privileges it had enjoyed as an intergovernmental organization (“ IGO”) in contravention of the ORBIT Act. PanAmSat maintains that Intelsat, while retaining market access, is generally exempt from certain authorization processes that other satellite operators find rigorous, expensive and time- consuming. PanAmSat notes that the General Accounting Office (“ GAO”) had been asked to review two market access issues. 63 PanAmSat suggests that the Commission should continue to work with other agencies and non- U. S. regulators to increase overseas market access, including: (1) the promotion of transparent and non- discriminatory licensing procedures; (2) efforts to make non- U. S. regulators aware that exclusive access for Intelsat is no longer obligatory; and (3) encouragement of other regulators to provide access to more than one global satellite operator. PanAmSat also encourages U. S. Government participation in the work program of the ITU’s Development Sector (“ ITU- D”) Study Group 1, provisionally titled “New Question on Satellite Regulation in Developing Countries.” While, as an example, PanAmSat claims that Intelsat has privileged market access in Mexico, PanAmSat also acknowledges recent successes in increasing market access in other countries, such as the decision by Jamaican regulators adopting pro- competitive regulatory policies. In the Intelsat LLC Licensing Order, the Commission conditioned the authorizations granted to Intelsat LLC on, among other things, compliance with the ORBIT Act restrictions on exclusive arrangements for the provision of satellite services between the United States and other 62 Application for Authority to Transfer Control of Wildblue Communications, Inc. Request for Designation as Permit- But- Disclose Proceeding, Exhibit A, p. 2, December 26, 2002. 63 In November 2002, the GAO was asked to review U. S. Department of Defense commercial satellite procurement practices. In February 2003, the GAO was asked to determine whether Intelsat currently enjoys competitive advantages over its competitors in terms of whether access by U. S. companies to foreign markets has improved and whether Intelsat’s tax status as a Bermuda company gives it an advantage over U. S. satellite operators. 14 ________________ Federal Communications Commission_____________ FCC 03- 131 15 countries. 64 We found in the INTELSAT ORBIT Act Compliance Order that the INTELSAT privatization would not violate this restriction and said we would enforce it in the future on a case- by- case basis as facts may require. 65 While no specific case has been presented for enforcement action at this time, we agree with PanAmSat that market entry is fundamental to achieving and maintaining competition in satellite communications. The Commission therefore will continue to work with the U. S. government agencies that have the primary responsibility for ensuring equitable access by U. S. operators to markets overseas. We believe that PanAmSat’s specific proposals are beyond the scope of this Report and should be considered in an inter-agency context. Inmarsat Privatization Comments In its comments, Inmarsat provides further details on the status of its IPO. Inmarsat notes that in the three years since ORBIT was enacted, Inmarsat had prepared for an IPO five times, and each time was advised that, due to prevailing financial market conditions, the IPO would not be successful. Inmarsat also states that, even though it has not been able to conduct an IPO, there has been a reduction in the shares owned by former Signatories, such that entities that were not former Signatories now own about 16% of the Inmarsat shares. 66 In addition, Inmarsat notes that 60% of Inmarsat’s shares are owned by companies that are not controlled by their governments. This 60% consists of 38% of the shares that are owned by companies with no government ownership and 22% of the shares that are owned by companies with some government ownership, but not controlled by their governments. Inmarsat, Telenor, Deere and Stratos maintain that Inmarsat’s privatization and the October 9, 2001 Commission decision to open the domestic U. S. market to Inmarsat services, have resulted in the expansion of service choices and opportunities for U. S. customers. Specifically, Telenor discusses its ability to offer customers a range of high- speed data services in maritime, land mobile, and aeronautical markets. Telenor notes its recently introduced Regional Broadband Global Area Network (“ R- BGAN”) service and the financial incentives provided to users of the analog Inmarsat service to convert to the digital “Fleet” services and thereby use spectrum more efficiently. Deere discusses its ability, through access to Inmarsat Ltd. non- core services via receive-only VSAT terminals, to provide a high level of positioning accuracy for its GreenStar® precision farming applications, which Deere maintains has produced substantial efficiencies in agriculture in the U. S. and abroad. 64 Intelsat Licensing Order at ¶¶ 27- 28. 65 In the Matter of the Applications of INTELSAT LLC for Authority to Operate, and to Further Construct, Launch and Operate C- band and Ku- band Satellites that Form a Global Communications System in Geostationary Orbit, Memorandum Opinion Order and Authorization, at ¶¶ 57- 62, FCC 01- 183, 16 FCC Rcd 12299- 12300 (2001) (File Nos. SAT A/ O- 20000119- 00002 to SAT A/ O- 20000119- 00018; SAT-AMD- 20000119- 00029 to SAT- AMD- 20000119- 00041; SAT- LOA- 20000119- 00019 to SAT- LOA-20000119- 00028) (“ Intelsat LLC ORBIT Compliance Order”) 66 Lockheed Martin acquired COMSAT Corporation, but sold some Inmarsat shares to Telenor, a former Signatory. Lockheed Martin now holds just under 12% of Inmarsat. In December 2001, Telecom Italia sold its Inmarsat shares, just over 2% of Inmarsat, to Genesis Sechste Verwaltungsgesellschaft GmbH, now Mirror International GmbH, an investment vehicle for Lehman Brothers. Comments of Inmarsat Ventures PLC, p. 3. 15 ________________ Federal Communications Commission_____________ FCC 03- 131 16 Stratos, a distributor of mobile satellite services offered by Inmarsat, MSV, and Iridium, maintains that the ORBIT Act and related Commission decisions have contributed to growth in the marketplace for satellite communications and increased jobs in the United States. Stratos also maintains that privatization of Inmarsat and authorization for Stratos to access Inmarsat has increased the availability of high- speed MSS data services through lap- top- size mobile terminals. MSV, the successor to Motient Services, Inc., formerly known as AMSC Subsidiary Corporation, and also the successor to TMI Communications and Company Limited Partnership with respect to L- band MSS in the United States, maintains that Inmarsat acts in an anticompetitive manner through its use of proprietary protocols and technology, and by failing to expeditiously replace the spectrum- inefficient Inmarsat- A terminals. MSV also notes that Inmarsat has not yet completed its IPO and is seeking either an extension of its IPO deadline or elimination of the IPO deadline. MSV states that Inmarsat is still owned by foreign government post, telephone and telegraph (“ PTT”) administrations, and that the disclosures required by a public company would provide a safeguard against anticompetitive and anti- consumer conduct. MSV also repeats its comments in several ongoing Commission proceedings. MSV requests that Inmarsat only be given relief from its ORBIT Act obligations if it: “( i) cooperates in providing MSV with stable access to sufficient spectrum for a competing system; (ii) shares its intellectual property on reasonable terms, sufficient to permit MSV to provide competitive service to Inmarsat customers; and (iii) ceases opposition to reasonable deployment of ancillary terrestrial facilities in the L- band.” 67 In response, Inmarsat maintains that it is not still owned “in large part” by foreign PTTs, and that Inmarsat is required by the International Maritime Organization to give ship owners five years’ notice to phase out the spectrum- inefficient Inmarsat- A terminals, but that Inmarsat and its distributors offered financial incentives to encourage users to upgrade to more spectrum- efficient services. 68 In its comments, Inmarsat states that there are a handful of countries where Inmarsat shareholders do not allow competition with the local incumbent operators, but that the policies appear to be designed to protect the local incumbent operator, not Inmarsat. 69 The issue of obtaining sufficient spectrum for MSV is being addressed in continuing annual L- Band coordination meetings, including MSV, Inmarsat and others. In an earlier proceeding, the Commission found that the Motient request for access to proprietary technical information was based on a commercial dispute as to the value of the information sought and the terms and conditions under which it would be provided. The Commission declined to resolve the dispute in that proceeding. 70 Ancillary terrestrial facilities have been addressed in another Commission proceeding. 71 The Commission will continue to work with the U. S. government agencies that have the primary responsibility for ensuring equitable access by U. S. operators to markets overseas. 67 MSV Comments, p. 15. 68 Inmarsat Reply Comments, pp. 1- 3. 69 Inmarsat Comments, p. 4. 70 Inmarsat ORBIT Compliance Order at ¶ 76. 71 Flexibility for Delivery of Communications by Mobile Satellite Service Providers in the 2 GHz Band, the L- Band, and the 1. 6/ 2.4 GHz Bands, IB Docket No. 01- 185, Review of the Spectrum Sharing Plan among Non- Geostationary Satellite Orbit Mobile Satellite Service Systems in the 1. 6/ 2.4 GHz Bands, IB Docket No. 02- 364, Report and Order and Notice of Proposed Rulemaking, 18 FCC Rcd 1962, FCC 03- 15 (2003). 16 ________________ Federal Communications Commission_____________ FCC 03- 131 17 Copies of the comments are attached. IV. Impact of Privatization Section 646 requests that we report on the impact of privatization on U. S. industry, jobs, and industry access to the global market. INTELSAT’s privatization was designed to allow Intelsat LLC to continue to operate and provide services in a manner that meets U. S. commercial and governmental (including national security) needs. Privatization has enabled Intelsat to compete freely for all U. S. satellite business opportunities, thereby allowing it to explore new and dynamic services to better serve the public. This positively impacts the global marketplace for communications services, ensuring increased competition and more access. The United States retains under its jurisdiction a company with valuable satellite assets and associated orbital locations. Furthermore, the location of the service and licensing companies in the United States contribute to jobs and productivity increases in the United States. In its capacity as Notifying Administration to the ITU for the FSS C- and Ku- band frequency assignments transferred at privatization, the Commission has participated in a number of international coordination negotiations as Intelsat’s licensing administration and, consistent with the U. S. domestic process, has ceased to participate in coordinations between Intelsat and U. S. operators. Since the last Report, the Commission has participated in meetings with the United Kingdom and Russia on behalf of Intelsat and a number of other U. S. licensees. In addition, a coordination agreement has been concluded by correspondence with Singapore. The United States has in place a coordination process whereby operators may reach operational arrangements with operators of other administrations, which are then submitted to the operators’ respective jurisdictions for approval. Once approved by both administrations, the operational arrangements become, or form the basis for, a coordination agreement between the administrations under the ITU procedures. Since the last Report, Intelsat has participated in a number of meetings with the operator from India as well as the ARABSAT organization as part of this process. In due course, this will lead to coordination agreements between the United States and these foreign administrations. Inmarsat’s privatization has also had a positive impact on the domestic U. S. market. Privatization has provided Inmarsat the opportunity to develop new, innovative services for the U. S. market that promises to result in the expansion of options and resources for U. S. customers. This also promises to lead to increased industry competition. As a result of privatization and Commission authorization, distributors were given access rights to distribute Inmarsat services in the United States. Finally, both Inmarsat’s and INTELSAT’s privatization have placed a priority on continued provision of service to all portions of the globe. Inmarsat committed to support global maritime distress and safety services (“ GMDSS”) and the INTELSAT Assembly of Parties determined that Intelsat LLC should be contractually bound under a Public Service Agreement with the International Telecommunications Satellite Organization to ensure continued global connectivity -- particularly to countries dependent on Intelsat LLC’s satellite services. 17 ________________ Federal Communications Commission_____________ FCC 03- 131 18 V. Summary The Commission has undertaken a number of proceedings required by or related to the ORBIT Act. The Commission will continue to implement and enforce the requirements of the ORBIT Act. On the whole, we believe that U. S. policy goals regarding the promotion of a fully competitive global market for satellite communications services are being met in accordance with the Act. The Commission will continue to inform Congress of the actions it takes to implement the requirements of the ORBIT Act and the impact of those actions in its next annual report. Enclosures: Comments received in response to the Commission’s Public Notice. 18