SATELLITE COMPANIES ASK FCC TO ELIMINATE BOND REQUIREMENT

A petition for reconsideration by Boeing, Hughes Network Systems (HNS), Lockheed Martin, Loral Space & Communications, Mobile Satellite Ventures (MSV), PanAmSat and SES Americom said the Commission wasn’t authorized to charge licensees for anything not authorized by statute. Currently, application and regulatory fees, “penalties and forfeitures in amounts specified by statute and in accordance with specified procedures” and auction payments are the only payments the Commission may request, they said, and its order cited no authority for such a penalty. A bond also is unnecessary in light of the fact that there the agency had adopted a number of other provisions, including limits on transferability of licenses and strict milestones, to reduce license speculation, they said: “The fact that replacement satellites are exempt from the bond requirement means that the burden of the bond falls on new spacecraft -- those that by definition are more risky to deploy because of the need to develop new markets and services and/or because of the challenges inherent in deploying in ‘new’ frequency bands.”

If bonds were implemented, companies would be required to pay when a milestone was missed, the companies said, a substantial risk due “to the inherently risky and capital- intensive nature of the satellite industry.” Even if a new system were accepted by the market and the company didn’t default on its milestones, they said, the bond still would be a significant cost to maintain an escrow account or pay a surety company: “All elements of the satellite industry are adversely affected by satellite operators’ bearing these costs -- incumbents and new entrants alike, as well as manufacturers downstream.” One satellite official said it often was hard for companies to commit to bonds because it “goes on the books and that has an impact on the bottom line. It’s an obligation on the company.” Existing players also will feel the chill on new ventures and new projects testing new technologies, he said: “It’s not a free ride.”

Intelsat called the FCC’s proposed $5 million bond requirement “appropriate” and said that would allow “financially capable” companies to obtain licenses: “Licensing more financially capable companies will help ensure that orbital resources are assigned to companies that actually intend to use them. However, none of these gains will accrue if the amount at risk is relatively insignificant. A financial incentive that is too small would be viewed as ineffective as none at all.” One satellite official said Intelsat’s position would establish “an exclusionary business practice on their part. They're just trying to exclude others from the market.” He said the old rules already were draconian in that a company either met a milestone or lost its license: “If that isn’t enough incentive, I don’t know what is. The bond issue is like double jeopardy: you lose a license and lose your money.”

Northrop Grumman asked the Commission to reconsider the rules where the bond posting requirement would be applied to certain pending applications. Northrop said that V- and Ka- band NGSO system applicants would be required to post bonds, but that Ku-band NGSO applicants wouldn’t, “even though both comparable satellite services are new, and the systems in the 2 services will be direct competitors of one another in the marketplace for broadband [telecom] services.” The company said the order cited no rationale for the decision to differentiate between pending applications, so none of the applications filed before the bonding requirement was adopted should be held to the new rule: “At the very least, and given the current difficulties being experienced in the satellite industry, the Commission should correct actions that have the effect of singling out some applicants for additional, inconsistently imposed cost burdens.”

The Satellite Industry Assn. (SIA) didn’t comment specifically on the bond issue, but proposed that the Commission provide an escrow option in addition to the bond. Intelsat agreed in its filing, as long as the escrow agreements would survive bankruptcies. SIA also said non- U.S.-licensed operators of GSO-like satellite should be exempt from the bonds because landing rights for foreign satellites were different from a space station application: “Independently imposing space station implementation milestones and enforcing them with performance bonds is akin to relicensing the satellite, and creates the risk of multiple and inconsistent obligations.” The organization also said that if foreign operators were required to follow U.S. rules on bonds and milestones, other countries could be encouraged to treat potential U.S. entrants the same way. Separately, SES Americom and Telesat Canada expressed similar views. In particular, Telesat said that for non-U.S. satellite operators seeking to enter the market through the permitted space station list, they wouldn’t get a U.S. license or orbital slot, so they couldn’t warehouse spectrum or create additional speculation.

In relation to the bond, SIA also asked that: (1) The period for critical design review (CDR) be extended to 1.5 years to allow companies enough time to complete CDRs after entering into a contract. (2) The FCC consider granting milestone extensions when in the public interest, even if situations weren’t beyond a company’s control. (3) The FCC clarify that replacement satellites, even when adding frequency bands or additional spectrum, weren’t required to post bonds.

One satellite analyst said it was easy to understand the plight of companies that might not have the money to post large bonds, but it was unlikely that the new requirement actually would reduce the number of satellite applications to be filed: “I don’t see a whole lot of downside from forcing those guys to be more rational.” He said that with the land rush mentality that took hold when Ka-band licenses were first being accepted, there were companies that filed a dozen or more applications. “I don’t think it would hurt to be a little more cautious about filing for different things,” he said.

Other petitions addressed various parts of the new rules. ICO said the Commission should overturn a spectrum cap placed on NGSO satellites and systems, saying that decision was flawed. The FCC presumes that the correct number of mobile satellite service (MSS) operators in a frequency band is 3, the company said, “irrespective of the size of the allocated frequency band or of any assessment of competition from licensees in other frequency bands allocated to the same or similar services.” HNS asked the FCC to clarify which modified applications would be placed in the queue and that non-U.S. licensees with ITU priority would be processed regardless of whether an authorization existed for a U.S. company with a lower ITU priority.