*Pages 1--18 from Microsoft Word - 39245* ________________ Federal Communications Commission_____________ FCC 04- 132 FCC REPORT TO CONGRESS AS REQUIRED BY THE ORBIT ACT Adopted: June 9, 2004 Released: June 15, 2004 1 ________________ Federal Communications Commission_____________ FCC 04- 132 1 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 (the “ORBIT 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 04- 132 11 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. 52 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 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. 53 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, 54 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 June 30, 2005. The Commission has discretionary authority to further extend the deadline no later than December 31, 2005. 55 On April 1, 2004, Intelsat filed a progress report. 56 In the Progress Report, Intelsat noted that on 52 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). 53 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). 54 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. 55 Public Law No. 108- 228, 118 Stat. 644 (May 18, 2004). 56 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 12 ________________ Federal Communications Commission_____________ FCC 04- 132 12 March 15, 2004, Intelsat had filed with the U. S. Securities and Exchange Commission (“ SEC”) a registration statement on Form F- 1 in connection with its IPO. Intelsat also noted the receipt of SEC comments concerning the registration statement, and stated that they would amend the statement to include updated information, including information on the March 17, 2004 closing of the Loral Transaction. Intelsat filed with the SEC an amendment to the registration statement on April 22, 2004. On May 21, 2004, however, Intelsat, Ltd. issued a press release announcing that it had withdrawn its planned initial public offering and had filed with the SEC a Form RW to withdraw its registration statement. Intelsat also announced that it had engaged Morgan Stanley and Merrill Lynch to explore the potential of another party’s investment in or acquisition of Intelsat. 57 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. III. Views of Industry and Consumers on Privatization As previously noted, Inmarsat, Intelsat, Lockheed Martin, MSV, SES and Stratos responded to the Commission’s public notice inviting comments appropriate to the development of this report. Inmarsat, Intelsat, Lockheed Martin and SES all filed reply comments as well. Intelsat Privatization Comments Intelsat maintains that it is continuing to respond to market forces. Intelsat notes that it has acquired certain satellite assets and customer contracts of Loral Space & Communications Corporation, and that with this acquisition, they will have full coverage of North America and will expand the customer base in broadcasting, cable television and corporate networking segments. 58 Intelsat also notes that it has expanded beyond its traditional space segment services with the launch of its North American video fiber network. SES maintains that Intelsat’s acquisition of the Loral assets raises competitive concerns. SES states that Intelsat might be able to leverage market power in some international portions of U. S. Government contracts and eliminate competition for the domestic portion of those contracts. SES is also concerned about the possibility that there will be continuing extensions on the special temporary authority to provide additional services. On March 12, 2004, SES filed an Application for Review on these two points. These issues will be discussed in that proceeding. 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, 2004. 57 “Intelsat Announces Decision to Withrdraw Planned Initial Public Offering of Shares and Intentional to Explore Strategic Alternatives,” Intelsat, Ltd, Press Release, May 21, 2004. 58 Intelsat Comments at 1. 13 ________________ Federal Communications Commission_____________ FCC 04- 132 13 Inmarsat Privatization Comments In its comments, Inmarsat notes that it had submitted a letter to the Commission describing the initial public offering of debt and the equity transaction it financed, and requested a determination from the Commission of whether Inmarsat has satisfied the remaining requirements of the ORBIT Act. 59 Inmarsat states that the new ownership will invigorate the company and promote the growth and development of Inmarsat’s MSS services. Inmarsat also states that they anticipate that the first Inmarsat- 4 satellite will be launched during the second half of 2004 and the second satellite will be launched in 2005. In addition, they are also building a ground spare. With these launches, Inmarsat expects to be able to offer advanced mobile satellite broadband and voice services on its next generation network in the United States in 2005. They also note that these spacecraft might be used by the U. S. military to train troops. 60 SES and MSV maintain that the ORBIT Act unambiguously requires that Inmarsat conduct an IPO of equity securities as the only means for achieving compliance with Section 621. 61 MSV notes that a public equity offering would subject Inmarsat to more meaningful securities regulation than a debt offering. 62 In response, Inmarsat asserts that the appropriate standard of review is whether the proposed transaction is “consistent with” the ORBIT Act, and that the ORBIT Act does not include transformation of Inmarsat into a publicly held and traded corporation with broad ownership and control as a stated purpose of the act. 63 Inmarsat also claims that the “consistent with” standard is appropriate for the authorization of “additional services.” 64 Stratos and Lockheed support Inmarsat’s request that the Commission find that Inmarsat has satisfied the remaining requirements of the ORBIT Act. 65 MSV states that Inmarsat has a dominant position in MSS and engages in anticompetitive practices to maintain and expand that position. MSV contends that Inmarsat has opposed generic spectrum allocations in international forums and has refused to provide competing L- band MSS systems with assured access to sufficient spectrum, and that Inmarsat has only agreed to year- to-year agreements. 66 MSV maintains that Inmarsat acts in an anticompetitive manner by failing to expeditiously replace the spectrum- inefficient Inmarsat- A terminals, and also through its use of proprietary protocols and technology. 67 MSV states that, in the Commission’s proceeding on 59 Inmarsat Comments at 4. 60 Inmarsat Comments at 5. 61 SES Comments at 9 and MSV Comments at 9- 12. 62 MSV Comments at 12. 63 Inmarsat Reply at 7- 8. 64 Inmarsat Reply at 8- 10. 65 Stratos Comments at 1, Lockheed Comments at 1- 2, and Lockheed Reply Comments at 1- 3. 66 MSV Comments at 17- 19. 67 MSV Comments at 19- 20. 14 ________________ Federal Communications Commission_____________ FCC 04- 132 14 ancillary terrestrial facilities in the L- band, Inmarsat has used the regulatory process to delay and limit MSV’s terrestrial operations. 68 MSV also asserts that it understands that some of Inmarsat’s distribution agreements contain exclusive arrangements, 69 and that Inmarsat is leveraging its position in the maritime MSS market to gain market share in other MSS markets. 70 In response, Inmarsat maintains that it has supported generic allocations in the 1997 World Radio Conference and in other proceedings since that conference. It also maintains that the issue of long- term coordination agreements is addressed in other proceedings 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. 71 Inmarsat further states that it has no obligation to provide its intellectual property to MSV, and that its concerns in the ATC proceeding are based only on interference issues. 72 Inmarsat states that MSV’s allegations of exclusive agreements are unsubstantiated, that Inmarsat’s efforts to inform existing customers of new services is consistent with healthy competition and that the maritime distress market is open to competition. 73 In an earlier proceeding, the Commission found that MSV’s 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. 74 Ancillary terrestrial facilities were addressed in separate Commission proceeding. 75 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. 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 68 MSV Comments at 21- 23. 69 MSV Comments at 23- 24. 70 MSV Comments at 24. 71 Inmarsat Reply at 17- 18. 72 Inmarsat Reply at 19- 21. 73 Inmarsat Reply at 21- 22.. 74 Inmarsat ORBIT Compliance Order, 16 FCC Rcd at 21700 (para. 76). 75 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 (2003). 15 ________________ Federal Communications Commission_____________ FCC 04- 132 15 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. 76 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 Brazil and Holland on behalf of Intelsat and a number of other U. S. licensees. In addition, a coordination agreement has been concluded with Russia. 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 meetings with operators from Israel and Japan 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. 77 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. 78 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”) 79 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. 80 76 For example, Intelsat has begun providing services other than its traditional space segment services. Intelsat recently launched its North American video fiber network which offers broadcasters an enhanced opportunity to reliably transmit video content to, from and within North America using a global terrestrial and satellite infrastructure, Intelsat Comments at 2. 77 Inmarsat Comments at 4- 5. 78 For example, since Deere & Company’s StarFire receivers were authorized to receive Inmarsat signals in the U. S., the improved accuracy on its farming equipment resulted in increased farming equipment capabilities and product demand. See, Reply Comments of Deere & Company in the Inmarsat Ventures Limited proceeding (File No. SAT- MSC- 20040210- 00027 filed April 20, 2004, at 2. 79 Inmarsat Finance plc. Offering Circular for 7 5/ 8% Senior Notes, January 27, 2004, p. 114. 80 Intelsat, Amendment 2 to F- 1 Registration Statement, p. 35. 16 ________________ Federal Communications Commission_____________ FCC 04- 132 16 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 ORBIT 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. 17 ________________ Federal Communications Commission_____________ FCC 04- 132 17 ATTACHMENTS: Comments, May 07, 2004 Comments of Inmarsat Ventures Limited Comments of Intelsat LLC Comments of Lockheed Martin Corporation Comments of Mobile Satellite Ventures Subsidiary LLC Comments of SES AMERICOM, Inc. Comments of Stratos Mobile Networks, Inc. and Stratos Communications, Inc. Reply Comments, May 14, 2004 Reply Comments of Inmarsat Ventures Limited Reply Comments of Intelsat LLC Reply Comments of Lockheed Martin Corporation Reply Comments of Mobile Satellite Ventures Subsidiary LLC Reply Comments of SES AMERICOM, Inc. Additional Submissions SES AMERICOM, Inc. Letter in Response to Reply Comments of Inmarsat Ventures Limited, May 20, 2004 18