*Pages 1--55 from Microsoft Word - 57861.doc* Federal Communications Commission FCC 06- 82 FCC REPORT TO CONGRESS AS REQUIRED BY THE ORBIT ACT Adopted: June 13, 2006 Released: June 15, 2006 1 Federal Communications Commission FCC 06- 82 FCC REPORT TO CONGRESS AS REQUIRED BY THE ORBIT ACT SEVENTH REPORT 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, as originally passed in 2000: (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 United States if it finds that competition will be harmed. 3 It provides for certain exceptions to limitations on non- core services in the 1 47 U. S. C. § 765e (2000). 2 47 U. S. C. § 761 NOTE. 3 The Act defines “non- core” services as “services other than public- switched network voice telephony and occasional- use television” with respect to INTELSAT, and as “services other than global maritime distress and safety services or other existing maritime or aeronautical services for which there are not alternative providers” with respect to Inmarsat. 47 U. S. C. § 769( a)( 11). 2 Federal Communications Commission FCC 06- 82 2 event of such a determination. The Act also prohibits the Commission from authorizing certain “additional” services pending privatization consistent with the criteria in the Act. 4 In addition, the Act directs the Commission to undertake a rulemaking proceeding to assure U. S. users the opportunity for direct access to the INTELSAT system. In October 2004, Congress amended the ORBIT Act, adding Sections 621( 5)( F) and (G), to provide a certification process as an alternative to the initial public offering (“ IPO”) requirements under Sections 621( 5)( A) and (B). Additionally, in July 2005, Congress further amended the ORBIT Act, striking certain privatization criteria for Intelsat separated entities, removing certain restrictions on separated entities and successor to Intelsat and for other purposes. 5 The Commission made its first report to Congress on its actions to implement the ORBIT Act on June 15, 2000, following enactment of the Act on March 17, 2000. 6 The Commission made its second report on June 15, 2001, 7 its third report on June 14, 2002, 8 its fourth report on June 11, 2003, 9 its fifth report on June 15, 2004, 10 and its sixth report on June 15, 2005. 11 In anticipation of this seventh report, the Commission issued a Public Notice on March 9, 2006 inviting public comment. 12 Comments were filed by Inmarsat PLC (formerly Inmarsat Group Holdings, Limited) (“ Inmarsat”), Intelsat LLC (“ Intelsat”), Mobile Satellite Ventures Subsidiary, LLC (“ MSV”) and the International Telecommunications Satellite Organization (“ ITSO”). 13 Reply comments were filed by Intelsat and Inmarsat. 14 4 The Act defines “additional” services as “direct- to- home” (“ DTH”) or direct broadcast satellite (“ DBS”) video services, or services in the Ka or V bands” for INTELSAT and as “those non- maritime or non- aeronautical mobile services in the 1. 5 and 1.6 GHz band on planned satellites or the 2 GHz band” for Inmarsat. 47 U. S. C. § 769( a)( 12). 5 Open- Market Reorganization for the Betterment of International Telecommunications Act, Pub. L. No. 106- 180, 114 Stat. 48 (2000), as amended, Pub. L. No. 107- 233, 116 Stat. 1480 (2002), as amended, Pub. L. No. 108- 228, 118 Stat. 644 (2004), as amended, Pub. L. No. 108- 371, 118 Stat. 1752 (October 25, 2004), as amended, Pub. L. No. 109- 34, 119 Stat. 377 (July 12, 2005). In the July 2005 amendment to the ORBIT Act, Congress added a requirement that the Commission submit to Congress a separate annual report (“ Satellite Competition Report”) that analyzes the competitive market conditions with respect to domestic and international satellite communications services. In anticipation of this Report, the Commission issued a Public Notice on March 20, 2006 inviting public comment. Public Notice, DA 06- 635, IB Docket No. 06- 67 (rel. March 20, 2006). Comments were due by April 19, 2006 and Reply Comments were due by May 4, 2006. Comments that were filed are currently being reviewed and will be addressed in the Satellite Competition Report. 6 FCC Report to Congress as Required by the ORBIT Act, 15 FCC Rcd 11288 (2000). 7 FCC Report to Congress as Required by the ORBIT Act, 16 FCC Rcd 12810 (2001). 8 FCC Report to Congress as Required by the ORBIT Act, 17 FCC Rcd 11458 (2002). 9 FCC Report to Congress as Required by the ORBIT Act, 18 FCC Rcd 12525 (2003). 10 FCC Report to Congress as Required by the ORBIT Act, 19 FCC Rcd 10891 (2004). 11 FCC Report to Congress as Required by the ORBIT Act, FCC 15- 127 (2005). 12 Public Notice, Report No. SPB- 215, March 9, 2006. 13 See Comments of Inmarsat PLC, filed on March 30, 2006 (“ Inmarsat Comments”); Comments of Intelsat LLC, filed on March 30, 2006 (“ Intelsat Comments”); Comments of Mobile Satellite Ventures Subsidiary, LLC, filed on (Continued) 3 Federal Communications Commission FCC 06- 82 15 Additionally, as detailed above, at the end of 2004 the Commission authorized the transfer of control of Intelsat’s licenses and authorizations to Zeus, and the transaction was consummated in 2005. 78 As also detailed above, in 2005, the Commission determined that Intelsat’s certification complied with the ORBIT Act and it could forgo an IPO and listing of securities. 79 Thus, the Commission concluded that the provisions relating to additional services under Section 602 of the ORBIT Act were no longer applicable to Intelsat. 80 II. Views of INTELSAT Parties on Privatization The Commission, in response to the Public Notice for this Report to Congress, has not received any views directly from INTELSAT Parties 81 regarding privatization. The Commission has, however, received comments from the International Telecommunications Satellite Organization (“ ITSO”) concerning potential effects of Intelsat’s proposed acquisition of PanAmSat on Intelsat’s fulfillment of its obligations under the Public Service Agreement. The issues raised by ITSO have also been raised in the context of the Intelsat/ PanAmSat Transfer of control transaction, which is pending before the Commission. 82 III. Views of Industry and Consumers on Privatization As previously noted, Inmarsat, Intelsat, and MSV responded to the Commission’s public notice inviting comments related to the development of this Report to Congress. 83 Reply comments were filed by Intelsat and Inmarsat. 84 Intelsat Privatization Comments Intelsat maintains that it has fully privatized consistent with the purposes of the ORBIT Act. It also contends that as a privatized entity, it continues to face intense competition in the commercial environment. This competition comes from traditional providers of satellite services, as well as newer providers and resellers of satellite services. Intelsat furthers asserts that it also faces significant competition from terrestrial sources, such as fiber optic cable, broadband- enabled IP applications and terrestrial wireless platforms. Additionally, Intelsat maintains that since privatization, it continues to respond to these competitive market forces. Intelsat notes that, most recently, it has announced its 78 See page 5- 6 above. 79 See page 6 above and footnote 30. 80 Id. 81 The INTELSAT Parties are nations for which the INTELSAT agreement has entered into force. 47 U. S. C. § 769( a)( 4)( A). Following privatization, the ITSO Agreement defines “Party” to mean a State for which the ITSO Agreement has entered into force or has been provisionally applied. See Agreement Relating to the International Telecommunications Satellite Organization, As Amended by the Twenty- Fifth (Extraordinary) Assembly of Parties in Washington, D. C. (Nov. 17, 2000), at Art. I( p). 82 We note that in its reply, Intelsat responds to a number of arguments that ITSO makes in its comments. These also relate to the Intelsat/ PanAmSat Transfer of Control transaction which is pending. 83 See note 13 above. 84 See note 14 above. 16 Federal Communications Commission FCC 06- 82 16 intention to acquire PanAmSat Holding Corporation (“ PanAmSat”) and that the Commission is currently reviewing its applications for the transfer of control of FCC licenses held by PanAmSat Licensee Corp. and PanAmSat H- 2 Licensee Corp to Intelsat. 85 Inmarsat Privatization Comments Inmarsat notes that in June 2005, the Commission determined that Inmarsat’s privatization was consistent with the non- IPO criteria specified in Sections 621 and 624 of the ORBIT Act, as amended, in part, because the Commission found that former Inmarsat Signatories no longer held a majority of financial interests in, or controlled, Inmarsat. Inmarsat also maintains that since the Commission’s June 2005 decision, ownership of Inmarsat has become more broadly diversified. Inmarsat further states that shortly after the Commission determined that Inmarsat met the applicable ORBIT Act criteria, Inmarsat completed a successful IPO, resulting in a listing of Inmarsat shares on the London Stock Exchange. As a result of this IPO, Inmarsat contends that the remaining interests of former Inmarsat Signatories and foreign government entities that owned Inmarsat shares were diluted. 86 Additionally, Inmarsat maintains that it continues to provide a wide range of services to users with mobile communications needs. Inmarsat states that both the private and public sectors use the Inmarsat system for various communications purposes, including, aeronautical and maritime navigation, distress messaging, search and rescue reporting coordination, remote reporting, streaming video, Internet access, and voice communications. Further, Inmarsat points out that its services have been of critical importance to public safety, military, governmental, humanitarian, and commercial users. Inmarsat maintains that its MSS system provides crucial communications support, when terrestrial communications services are precluded as a result of natural or man made disasters. Additionally, Inmarsat states that, users such as, the United States military and Coast Guard, the Federal Emergency Management Administration (“ FEMA”), Red Cross, the New York City Fire Department and others rely on Inmarsat for their critical communications needs. Specifically, in the aftermath of last year’s hurricanes Katrina, Rita and Wilma, when terrestrial networks were unavailable, FEMA, the National Guard, the United States Army, and others used Inmarsat services to facilitate voice communications and internet access. Further, Inmarsat states that its BGAN service was successfully deployed internationally with the launch of two Inmarsat- 4 satellites, in March 2005 and November 2005. 87 Inmarsat notes that Inmarsat resellers have pending applications to provide BGAN service in the United States. 88 Inmarsat states that its current services in the United States will be further enhanced by the proposed BGAN services. 89 Since the filing of Inmarsat’s comments, we note that as described above, the Commission has granted Inmarsat 85 Intelsat Comments 2- 4. 86 Specifically, Inmarsat notes that after the IPO, no Inmarsat shareholder now owns 10 percent or more of the company. Additionally, Inmarsat contends that today, 7 percent of its shares are owned, in the aggregate by former Signatories, while in last June, prior to the IPO, former Signatories owned, in the aggregate, 42. 54 percent of Inmarsat shares. Inmarsat Comments at 2. 87 Inmarsat Comments at 3- 4. 88 See note 44 for list of applications. 89 Inmarsat Comments at 3- 4. As mentioned above, MSV filed comments, and Inmarsat responded to these comments. The issues raised by such comments directly relate to the pending applications filed by the Inmarsat resellers. See note 44. 17 Federal Communications Commission FCC 06- 82 17 resellers special temporary authority to provide BGAN services in the United States subject to conditions. 90 IV. Impact of Privatization Section 646 requires that the Commission report on the impact of privatization on U. S. industry, jobs, and industry access to the global market. INTELSAT’s privatization from an intergovernmental organization to a fully commercial operation has enabled it to more effective compete to provide services to U. S. commercial and governmental customers. Privatization has enabled Intelsat to compete freely for U. S. satellite business opportunities, thereby increasing competition in the U. S. market and encouraging the development of service offerings to U. S. customers. Further, the geographic location of Intelsat service and licensing companies in the United States contribute to jobs and productivity increases in the United States. Inmarsat’s privatization also appears to have had a positive impact on the domestic U. S. market. 91 Privatization has provided Inmarsat the opportunity to develop new services for the U. S. market that potentially will result in the expansion of service options and providers 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. Inmarsat maintains that its services promote economic growth and job development in the United States. Inmarsat describes the use of Inmarsat’s system in the Deere Company’s precision farming service, and the use of Inmarsat’s system for ship operations and crew calling by U. S.- flag vessels. Inmarsat also points to use of its system in managing the sustainability of fisheries, and the use of portable terminals in remote regions by U. S. companies in energy, mining exploration, construction, and journalism activities. In its capacity as Notifying Administration to the ITU for Intelsat’s fixed satellite service 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. Since the 2005 Report to Congress, the Commission has participated in coordination meetings with Malaysia and the United Kingdom on behalf of Intelsat and a number of other U. S. licensees. In fact, a coordination agreement has been concluded with the United Kingdom. The United States has, in place, a coordination process whereby operators may reach operational arrangements with operators of other Administrations. These arrangements are then submitted to the operators’ respective Administrations 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 2005 Report to Congress, Intelsat has participated in meetings with operators from Belarus, Canada, Israel, and the United Kingdom. In addition, Intelsat has concluded operational arrangements by correspondence with Canada and Belarus. In due course, this will lead to coordination agreements between the United States and these foreign Administrations. 90 See page 10 and notes 45 and 47 above for a list of STAs and related text for description of action. 91 Inmarsat Comments at 4- 5. 18 Federal Communications Commission FCC 06- 82 18 Finally, both Inmarsat’s and INTELSAT’s privatization appears to have had a positive impact on the global marketplace for communications services by ensuring increased competition and increased access. Inmarsat and Intelsat have placed a priority on continued provision of service to all portions of the globe. Additionally, Inmarsat states that it is committed to support global maritime distress and safety services (“ GMDSS”). 92 We also note that the ITSO Assembly of Parties continues to maintain that Intelsat 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’s satellite services. 93 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 regarding the development of this report. 92 Inmarsat Finance plc. Offering Circular for 7 5/ 8% Senior Notes, January 27, 2004, p. 114. 93 ITSO Assembly of Parties, Record of Decision of the Twenty- Ninth Meeting, Document AP- 29- 3E, Agenda Item No. 8, paragraph 36. (dated February 6, 2006). 19 Federal Communications Commission FCC 06- 82 19 ATTACHMENTS: Comments, March 30, 2006 Comments of Intelsat LLC Comments of Inmarsat PLC Comments of the International Telecommunications Satellite Organization Comments of Mobile Satellite Ventures Subsidiary 20 Federal Communications Commission FCC 06- 82 20 21 Federal Communications Commission FCC 06- 82 21 22 Federal Communications Commission FCC 06- 82 22 23 Federal Communications Commission FCC 06- 82 23 24 Federal Communications Commission FCC 06- 82 24 25 Federal Communications Commission FCC 06- 82 25 26 Federal Communications Commission FCC 06- 82 26 27 Federal Communications Commission FCC 06- 82 27 28 Federal Communications Commission FCC 06- 82 28 29 Federal Communications Commission FCC 06- 82 29 30 Federal Communications Commission FCC 06- 82 30 31 Federal Communications Commission FCC 06- 82 31 32 Federal Communications Commission FCC 06- 82 32 33 Federal Communications Commission FCC 06- 82 33 34 Federal Communications Commission FCC 06- 82 34 35 Federal Communications Commission FCC 06- 82 35 36 Federal Communications Commission FCC 06- 82 36 37 Federal Communications Commission FCC 06- 82 37 38 Federal Communications Commission FCC 06- 82 38 39 Federal Communications Commission FCC 06- 82 39 40 Federal Communications Commission FCC 06- 82 40 41 Federal Communications Commission FCC 06- 82 41 42 Federal Communications Commission FCC 06- 82 42 43 Federal Communications Commission FCC 06- 82 43 Reply Comments, April 13, 2006 Reply Comments of Inmarsat PLC Reply Comments of Intelsat LLC 44 Federal Communications Commission FCC 06- 82 44 45 Federal Communications Commission FCC 06- 82 45 46 Federal Communications Commission FCC 06- 82 46 47 Federal Communications Commission FCC 06- 82 47 48 Federal Communications Commission FCC 06- 82 48 49 Federal Communications Commission FCC 06- 82 49 50 Federal Communications Commission FCC 06- 82 50 51 Federal Communications Commission FCC 06- 82 51 52 Federal Communications Commission FCC 06- 82 52 53 Federal Communications Commission FCC 06- 82 53 54 Federal Communications Commission FCC 06- 82 54 55