Federal Communications Commission DA 98-985

Before the FEDERAL COMMUNICATIONS COMMISSION Washington. D.C. 20554

In the Matter of )

COMSAT CORPORATION ) File No. CSS-93-009(4)-A

Application for authority to participate ) in a program for the construction of up ) lo four INTELSAT VIII satellites and ) to provide its authorized INTELSAT ) services via these facilities * )

MEMORANDUM OPINION. ORDER AND AUTHORIZATION

Adopted: May 22, 1998 Released: May 22, 1998

By the Chief. International Bureau:

1. On December 16. 1993 Comsat Corporation, through its Comsat World Systems business unit, filed an application requesting authority to participate in an INTELSAT program to procure and operate four INTELSAT VIII and VIII-A satellites, including the INTELSAT 805 and 806 satellites. 1 By this Order, we authorize Comsat. to provide its authorized INTELSAT services via the INTELSAT 805 satellite.2 In addition, we dismiss Comsat©s request for authority to participate in the procurement of the INTELSAT 805 and 806 satellites because, as explained below, such authorization is no longer required. In view of the Commission©s recent decision reclassifying Comsat as a non-dominant carrier in competitive markets. Comsat may participate in INTELSAT procurements without

© Comsat filed its application pursuant to Section 20l(c) of the Communications Satellite Act of 1962. as amended. 47 U.S.C. § 721 (c) ( the "Satellite Act of 1962") and Sections 214, 308, 309 and 319 of the Communications Act of 1934. as amended, 47.62 U.S.C. §§ 214, 308, 309 and 319 (the "Communications Act"). In an order released September 22. 1997 we granted Comsat authority to participate in the procurement of the INTELSAT 803 and 804 satellites. See Comsat Corp., 12 FCC Red 15971 (1997). Thus, only Comsat©s request lo participate in the procurement of the INTELSAT 805 and 806 satellites is at issue here.

: Columbia Communications Corporation ("Columbia"), PanAmSat Licensing Corp. ("PanAmSat"), Orion Network Systems ("Orion") and the Alliance for Competitive Satellite Services ("ACISS") filed petitions to deny and/or comments in response to Comsat©s application and various supplements. Columbia no longer opposes a grant of Comsat©s application.

25202 Federal Communications Commission DA 98-985

Commission authorization/ Third, we deny Comsat©s request for permanent operation of the 806 satellite in view of the imminent transfer of ownership of this satellite from INTELSAT to New Skies Satellites, N.V. ("New Skies"). Finally, subject to conditions, we grant Comsat temporary authority to operate via the 806 satellite until such time as INTELSAT transfers ownership of the 806 satellite to New Skies. To continue operation with the 806 satellite after the date of transfer, earth station licensees must obtain modifications to their existing licenses to permit operation with a New Skies satellite. Pending Commission action on their requests for modification of earth station licenses, licensees may Hie appropriate requests for temporary authority under Section 25.120 of the Commission©s rules/

1. BACKGROUND

2. Comsat is the United States Signatory to INTELSAT. a world-wide satellite consortium consisting of approximately 142 members. As Signatory. Comsat provides commercial satellite services over the INTELSAT system. In addition, as the U.S. Signatory. Comsat is required to file applications with this Commission in order to participate in INTELSAT programs to construct and operate additional INTELSAT satellites no later than 60 days prior to anticipated action by the INTELSAT Board of Governors approving the procurement/ In light of this requirement. Comsat typicaHy files an initial application based on the information available to it at the time, and periodically supplements the application as i lore information becomes available regarding INTELSAT©s decisions.

3. In its application. Comsat states that the INTCLSAT VIII procurement program represents the next phase in INTELSAT©s program of satellite deployment, and will permit introduction of satellite services based on updated technology designed to be responsive to emerging demands for additional satellite services. Comsat periodically supplemented the information contained in its initial application for the INTELSAT 805 and 806 satellites with regard to traffic demand, costs, orbital location, projected launch dates, and the status of negotiations between INTELSAT and Columbia Communications Corporation ("Columbia") concerning the 40.5/41 W.L. orbital location. Comsat states that the INTELSAT 805 satellite, which is currently scheduled for launch in June 1998. is a replacement for the INTELSAT 512 satellite at 55.5 W.L. and will provide continuity of service for users at that location. The INTELSAT 806 satellite was launched on March 3. 1998 and is located at 40.5 degrees W.L. Comsat estimates the total cost to manufacture, deliver, and haunch the

! Comsat Corporation. Petition Pursuant to Section I0(ci ot©the Communications Act of 1934. us amended, for Forbearance from Dominant Carrier Reuulation and for Reclassification as a Nondominant Carrier. Order and Notice of Proposed Rulemaking. FCC 98-78, __ FCC2d _:__ (released April 28. 1998) ("Comsat Non-Dominant Order").

J 47 C.F.R. § 25.120.

Policy Statement. 46 FCC2d 338, 339 (1974).

25203 Federal Communications Commission DA 98-985

INTELSAT 805 and 806 satellites to be $219.7 million and $211.4 million, respectively.6 Based on its current INTELSAT ownership share of 17.95%, Comsat©s share of the cost associated with the INTELSAT 805 and 806 satellites will be approximately $77.3 million in the aggregate.

4. Comsat states that there is sufficient demand for the INTELSAT 805 and 806 satellites to warrant their authorization. Comsat also states that the Signatory of Brazil has submitted eighteen Guaranteed and First Right of Refusal Reservations ("FRRs") for 36-MHz of bandwidth each on the INTELSAT 805 satellite. Ten of these arrangements are for fifteen- year terms ending in the year 20I3.7 Comsat states further that five other INTELSAT member countries have submitted reservations on the INTELSAT 805 satellite for a mix of domestic, VSAT. and cable restoration services. According to Comsatr three of these reservations are currently operational on the INTELSAT 512 satellite, which is in inclined orbit at the 304.5 E.L. orbital location, and will be continued on the INTELSAT 805 satellite once it is placed into operation at that location.8 With respect to the INTELSAT 806 satellite, Coinsal notes that six INTELSAT members have submitted FRRs or Guaranteed Reservations for service on the 806 satellite for a mix of domestic, regional VSAT, and international video services for a total of thirty-one 36-MHz equivalent transponders.

5. PanAmSat and Orion oppose Comsat©s participation in INTELSAT©s procurement of the INTF.I.SAT 805 and 806 satellites. They argue that the procurement of "landmass" satellites designed to meet the regional requirements of©lNTELSAT members represents a dramatic departure from INTELSAT©s historic mission of providing transoceanic services. Alternatively. PanAmSal believes that action on the instant application should be delayed until the Commission conducts a proceeding on the need for "landmass" satellites. Further. PanAmSat states that Comsat©s application should be denied or deferred because Comsat has failed to provide any traffic projections that specifically address the need for "landmass" services." Orion and PanAmSat also take issue with various aspects of the agreement between INTELSAT and Columbia resolving a dispute concerning Columbia©s desire to continue C-band operations at the 41 W.L. orbital location. In particular, PanAmSal and Orion argue that the agreement is anti-competitive in that it constitutes a "give

Comsat©s January 22. 1998 Further Supplement.

7 Sec Comsat©s September 15. 1997 Consolidated Opposition to petitions to deny filed by Columbia. Orion, and PanAmSat at 5-7.

* Comsat subsequently filed a Supplement to its application on October 22. 1993, a Further Supplement on April 18. 1994. and a Further Supplement on July 2. 1996 to reflect subsequent decisions by the INTELSAT Board of Governors regarding the purchase of the INTELSAT VIII/VIII-A satellites. Comsat has also filed additional information in the course of updating the status of its applications requesting launch authority for the INTELSAT 803 and 804 satellites.

See PanAmSat©s Comments filed September 2, 1997 and Petition to Deny filed February 2, 1998.

25204 Federal Communications Commission DA 98-985 away" of capacity in order to achieve a prominent position for INTGLSATs competitive spin- off. INC. (now called New Skies), which will receive the INTELSAT 806 satellite as part of the spin-off. 10 Orion also argues that it should have been party to the negotiations between Columbia and INTELSAT. that the agreement does not have the requisite U.S. Government approval and the placement of the INTELSAT 515 satellite at 37.5 W.L. is not technically feasible."

II. DISCUSSION

6. Comsat traditionally files applications pursuant to, inter aliu. Section 201(c) of the Satellite Act and Section 214 of the Communications Act to participate in INTELSAT programs for the procurement of additional satellite capacity and to operate such facilities to provide its authorized services. Commission authorization of Comsat©s participation in INTELSAT procurements has been required in order to determine that the public interest would be served by inclusion of new capital investments in Comsat©s rate base.©: In considering previous Comsat applications to participate in INTELSAT©s procurement of additional satellites, we have found Comsat©s investment in additional satellite facilities warranted based on the need to replace existing satellites and/or to meet increased traffic demands. 1 "©

7. Recently, based on a new assessment of Comsat©s position in the market, the Commission substantially changed its regulatory approach to Comsat. Specifically, in an Order released April 28. 1998, the Commission granted Comsat©s request for reclassificalion as a non-dominant carrier for certain services in certain markets. 14 The Commission found that Comsat no longer possesses market power in the provision of switched voice, private line, and occasional use video services in markets the Commission determined to be competitive and in the provision of full-time video service in all geographic markets.© 1 Consequently, the Commission found Comsat non-dominant in these markets. Based on the findinu that Comsat

©" PanAmSat and Orion made these arguments prior to INTELSAT©S final creation of New Skies and decision to transfer the INTELSAT 806 satellite to New Skies.

" Specific arguments concerning the Columbia-INTELSAT agreement will be addressed in the context of Columbia©s request for modification of its international license to permit it to operate the INTELSAT 515 satellite at the 37.7 W.L. orbital location. See Application of Columbia Communications Corp.. l-©ilc Nas. CSS-90-OIOand CSS-92-002-ML.

i: Communications Satellite Corp.. 82 FCC 2d 377. 380 (1980).

l! See Communications Satellite Corporation. 7 I©CC Red 3430 (1992).

14 See supra note 3.

" ]d. at para. 130.

25205 Federal Communications Commission DA 98-985 is non-dominant in the provision of INTELSAT services in competitive markets, the Commission concluded that elimination of rate of return regulation for these services is justified. The Commission noted that, in a competitive environment, such continued regulation is not needed to encourage competitive prices once Comsat is no longer dominant. 16 According to the Commission, competition, rather than rate of return regulation, provides C©omsat with an incentive to reduce costs in order to earn greater profits. 17 In addition, the Commission determined that a competitive market could protect consumers and therefore, promote the public interest, by providing ratepayers a choice in the selection of service providers thereby countervailing the effect of any investment decision by Comsat. For example, a poor investment decision by Comsat could result in higher prices to its customers, but in a competitive market, those customers could seek service elsewhere.

8. In addition, in the Comsat Non-Dominant Order, the Commission denied Comsat©s request for nondominant reclassification with respect to the provision of switched voice and private line services and occasional use services in markets it found not to be competitive. 1 " The Commission, however, stated its intention not to continue rate of return regulation of C©omsat services in those markets and sought comment on an alternative form of incentive based regulation.©"

9. Procurement of the- INTELSAT 805 and 806 satellites. Typically, Comsat applications requesting a©.ilhorit\ to participate in INTCLSAT©s procurement of additional satellite capacity fall into three categories: 1) the need to replace existing satellites that have reached the end of their useful life; 2) the need to replace satellites lost due to launch or in- orhit failure: and 3) the need to procure a new satellite in order to satisfy increased traffic demand. With respect to replacement of existing satellites that reach the end of their design life or satellites lost to launch or in-orbil failure, the Commission has routinely granted such requests recognizing the need to ensure a continuation of traffic at designated orbital locations. Furthermore, the Commission has questioned the efficacy of requiring detailed analysis of the traffic data in support of Comsat .procurement applications to add satellites to satisfy increased demand.:" The Commission has recognized that, even with the speculative nature of traffic projections. INTELSAT has an incentive to try to forecast accurately so as to

! " kl. at para. 131.

17 kl. at para. 131.

©" Id. at para. 132.

" kl at paras. 164-165.

:" Communications Satellite Corp.. 5 FCC Red 5952. 5955 (1990).

25206 Federal Communications Commission DA 98-985

compete with fiber optic cables and other satellite systems.© 1 The Commission has stated that "the lull benefits of competition can be best realized if procurement decisions are the product of sound business judgment and not regulatory prescription.""©

10. In light of the Commission©s recent decision in the Comsat Non-Dominant Order to move away from rate of return regulation for Comsat, review of Comsat©s participation in 1NTELSAT procurements is no longer necessary to protect U.S. ratepayers. In other areas, the Commission has already lessened the level of review required in connection with applications for new facilities. For example, in connection with applications from non- dominant facilities-based carriers, the Commission no longer requires applicants to demonstrate the need and desirability of new submarine cable facilities.2 " We llnd that a logical outgrowth of the Comsat Non-Dominant Order is that Commission review of Comsat participation in INTELSAT procurement is no longer necessary. As described above. Commission authorization of Comsat participation in INTELSAT procurements had been required in order to determine that the public interest would be served by inclusion of new capital investments in the rate base. The Commission©s decision to move away from rate of return regulation effectively moots the need to make such a determination. Comsat©s investment decisions are better regulated by a competitive market; ratepayers can avoid high rates that may arise from poor investment decisions by obtaining service from one of Comsat©s competitors. Accordingly, we will not further consider the portion of Comsat©s application that seeks authority to include in its rate base Comsat©s investment in the INTHLSAT 805 and 806 satellites. Comsal may participate in those i)nn:iircnit.©iiix without further authorization from the Commission. We will, however, continue to consider issues that have been and continue to be raised in connection with operation of these satellites for services to and from the United States.

11. Operation of the 805 and 806 satellites. Under Section 201(c) of the Satellite Act, the Commission is responsible for overseeing Comsat©s INTELSAT operations. Thus, while we no longer need to review and approve Comsal s investment decisions by virtue of. our decision in the Comsat Non-Dominant Order, we will continue to review applications filed by Comsat to provide regularly authorized services over INTI-l.SAT facilities.

:i See Communicaiions Satellite Corporation. 7 FCC Red at 3433. The Commission afso recognized that INTELSAT has taken steps to minimize the risk ot" excess capacity resulting from overstated traffic projections. Id.

" See supra note 19.

:: See Streamlining the International Section 214 Authorization Process and Tariff Requirements. IB Docket No. 95-118. 11 FCC Red 12884 (1996). See also Morion of AT&T Corp. to be Declared Non- Dominant for International Service. FCC 96-209, 11 FCC Red I7%3 (1996). where the Commission, inter aj.ia. eliminated the Section 214 requirements imposed on AT&T as a dominant carrier in favor of the Section 214 requirements of non-dominant U.S. international carriers.

25207 Federal Communications Commission DA 98-985

12. We find that the public interest will be served by authorizing Comsat to provide its regularly authorized services via the INTELSAT 805 satellite. We do not agree with PanAmSat and Orion that INTELSAT should not be authorized to provide services via "landmass" satellites.-4 In authorizing Comsat©s application to participate in INTELSAT©s procurement of capacity on India©s INSAT-2E satellite system, we addressed the argument that INTELSAT©s procurement of landmass satellites is inconsistent with its historic mission.2© We stated that INTELSAT©s mission is "...the provision, on a commercial basis of the space segment required for international public telecommunications services...on a nondiscriminatory basis to all areas of the world and. domestic telecommunications services."26 Given the breadth of the mission statement, we concluded that INTELSAT©s mission is not limited to providing transoceanic service, to the exclusion of regional or hemispheric services. We find nothing inherently improper in INTELSAT©s decision to design satellites to satisfy recognizable traffic trends and the stated needs of its members.

13. We also rejected the suggestion that use of such .satellites created a new class of services known as "landmass services." We concluded in the IN SAT 2E Order that the only difference in services provided via these satellites is the increased emphasis on satisfying regional traffic demands. The fact that the INTELSAT 805 satellite will replace the INTELSAT 512 satellite at the 304.5 degrees E.L. orbital location where it will provide continuity of service, further argues against recognition of a separate category of new services known as "landmass services."

14. Comsat©s request for authority to provide its uulhori/.t:ci services via the INTELSAT 806 satellite is more problematic. Comsat©s application was filed before INTELSAT made a final decision as to which satellites would be transferred to New Skies as part of its privatization effort. At its 22nd Extraordinary Assembly of Parties in March, 199X. INTELSAT identified the INTELSAT 806 as one of the six satellites that it would transfer to its new subsidiary. New Skies.27 The 806 satellite will cease to be an INTELSAT satellite when it is transferred to New Skies. The transfer of these assets to New Skies may occur as early as July !. 1998.

15. The imminent transfer of the INTELSAT 806 satellite to New Skies raises

: © Landmass satellites are designed to satisfy regional traffic demands rather than transoceanic traffic requirements.

" CQMSAT Corp.. Memorandum Opinion. Order and Authorization. File No. CSS 95-002, (released February 12. 1997).

:" U} citing INTELSAT Agreement. Article III.

:? INTELSAT Assembly of Parties, Record of Decisions of the Twenty-Second (Extraordinary) Meeting, (AP-22-3E Provisional) Salvador. Brazil. March 31, 1998.

25208 Federal Communications Commission DA 98-985 significant questions as to whether a grant of permanent operational authority to Comsat is warranted at this time. Comsat©s use of the INTELSAT 806 satellite is different than Comsat©s use of other satellites to be transferred to New Skies, in that the 806 satellite will have minimal operational INTELSAT experience. Moreover, its transfer to New Skies was contemplated prior to initiation of any service over the satellite. As with other satellites to be transferred to New Skies, operation of the 806 satellite in the United States by New Skies will ultimately require Commission authorization pursuant to the standards established in the Commission©s DISCO II decision concerning the provision of service in the United Stales by affiliates of INTELSAT and Inmarsat,28 We find that it would be inappropriate, given the analysis the Commission must undertake in applying the DISCO II standard, to authorize Comsat©s permanent use of the 806 satellite at this time, thereby creating expectations among customers that the use of this satellite in the United States by New Skies would be continued.

16. Thus, we grant operational authority to Comsat on a temporary basis but only until the date of transfer of the 806 satellite to New Skies. To continue operation with the 806 satellite after its transfer, earth station operators must obtain modification of their existing earth station licenses to reflect operation with a New Skies satellite. Earth station licensees with potential 806 satellite customers already on INTELSAT satellites may choose to continue operating with other INTELSAT satellites pending Commission approval of their use of the 806 satellite under the DISCO II standards. In the alternative, licensees with customers that \ ill require continued service over the 806 satellite after the date of transfer may file an appropriate request for Special Temporary Authority under Section 25.120 of the Commission©s Rules, pending Commission action on modification of their earth station licenses. 29 In such case, they would be acting at their own risk with respect to continued operation of the 806 satellite in the United States as a New Skies satellite.

17. We require as a condition of the grant of temporary authority to Comsat that: 1) Comsat inform each earth station licensee or customer, as appropriate, that service is being provided pursuant to a grant of temporary authority and will terminate once New Skies assumes ownership of the 806 satellite: 2) Comsat inform earth station licensees of the need to seek authorization from the Commission to continue operation on the 806 satellite once New Skies assumes ownership: and 3) within thirty (30) days of the effectiveness of this authorization Comsat inform the Commission as to how it will assure that capacity on existing INTELSAT satellites, other than the 806 satellite, will be available to those earth" station licensees or customers who decide to remain on the INTELSAT system rather than seeking to continue operation on the 806 satellite with New Skies.

28 Amendment of the Commission©s Regulatory Policies to Allow Non-U.S. Licensed Space Stations Provide Domestic and International Satellite Service in the United States. IB Docket No. 96-111, Notice of" Proposed Rulemaking, 11 FCC Red 18178 (1996). Report and Order, FCC 97-399, 12 FCC Red 29094. 62 FR 64167 (released November 26, 1997) ("DISCO II").

:" 47 C.F.R. §25.120.

25209 Federal Communications Commission DA 98-985

18. Further, international coordination of the INTELSAT 806 satellite has not been completed with all affected U.S.-licensed satellite networks. International radio regulations provide that if a space station has not been fully coordinated pursuant to the International Telecommunication Union©s rules, it may not cause interference to satellite networks that have been coordinated.3" The regulations also provide that uncoordinated satellite networks cannot claim protection against interference caused to them by coordinated satellite networks.31 Consequently, until international coordination of the INTELSAT 806 satellite is completed, operations on the INTELSAT 806 satellite may not cause interference into coordinated U.S. satellite networks nor may INTELSAT claim protection against interference caused by coordinated networks. We therefore condition Comsat©s provision of service to and from the United States using the INTELSAT 806 satellite with these limitations.

III. ORDERING CLAUSES

19. Accordingly. IT IS ORDERED that application File No. CSS-93-009-(4)-A IS GRANTED IN PART and Comsat IS AUTHORIZED, pursuant to Section 201(c) of the Communications Satellite Act of 1962, as amended, 47 U.S.C. § 721(c) and Sections 214, 308. and 319 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 214, 308, and 319, to use the INTELSAT 805 satellite to provide its regularly authorized services.

20. IT IS FURTHER ORDERED that Comsat©s application to provide regularly authorized services via the 806 satellite on a permanent basis IS DENIED subject to and without prejudice to requests for Special Temporary Authority to operate via the 806 satellite pending its transfer to New Skies Satellites, N.V., and full Commission consideration of appropriate applications to operate with the 806 satellites as a New Skies satellite.

21. IT IS FURTHER ORDERED that Comsat IS GRANTED Special^Temporary Authority to operate via the 806 satellite pending its transfer to New Skies Satellite, N.V. and subject to the conditions specified in paragraph 17 of this Order.

22. IT IS FURTHER ORDERED that until international coordination of the INTELSAT 806 satellite is completed with all affected U.S.-licensed satellite networks, pursuant to the International Telecommunication Union©s Radio Regulations, Comsat©s provision of service to and from the United States and its territories using the INTELSAT 806 satellite is subject to the following conditions:

!" ITU Radio Regulation S4.4.

;1 Id.

25210 Federal Communications Commission DA 98-985

(a) Operations on the INTELSAT 806 satellite will receive no protection from interference caused by coordinated U.S. satellite networks;

(b) No harmful interference shall be caused to any other coordinated satellite networks; and

(c) Comsat must cease operations immediately upon notification of harmful interference.

23. IT IS FURTHER ORDERED that Comsat©s request to participate in the procurement of the INTELSAT 805 and 806 satellites ARE DISMISSED and Comsat may participate in those procurements without further Commission authorization.

24. IT IS FURTHER ORDERED that all petitions to deny/opp~ositions the application ARE DENIED.

25. This authorization is issued pursuant to Section 0.261 of the Commission©s rules and is effective upon adoption. Petitions for reconsideration under Section 1.106 or applications review under Section 1.115 of the Commission©s rules may be filed within 30 days of the public notice of this order (see Section 1.4(b)(2)).

FEDERAL COMMUNICATIONS COMMISSION

ReginAI. Keeney Chief, International Bureau

25211