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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Hughes Communications, Inc. and Affiliated Companies and Anselmo Group Voting Trust/ PanAmSat Licensee Corp. and Affiliated Companies Application for Transfer of Control and/or Assignment of Various Space Station, Earth Station, and Section 214 Authorizations ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) File No. 2-SAT-AL-97(11) File No. 20-DSE-AL-97(22); KL92-X File Nos.3-SAT-TC-97;LEASAT F5 30-DSE-TC-97(2);E5701-X File Nos.21-DSE-TC-97; KA71 ITC-96-552-TC File Nos.4-SAT-TC-97(5) 31-DSE-TC-97(15) 5496-EX-TC-96;K12XET 5497-EX-TC-96;KE2XLZ ITC-96-551-TC ORDER AND AUTHORIZATION Adopted: April 4, 1997 Released: April 4, 1997 By the Commission: 1. On October 8, 1996, Hughes Communications, Inc. ("Hughes") and PanAmSat Licensee Corp. ("PanAmSat") filed the above-captioned applications. The applications seek consent for a transfer of control of PanAmSat from its current owners to Hughes. The applications were placed on public notice on October 23, 1996. GE American Communications, Inc. ("GE Americom") filed comments, and COMSAT Corporation ("Comsat") filed a petition to deny and comments. Hughes and PanAmSat filed oppositions, and Comsat and GE Americom filed replies. For the reasons discussed below, we will grant the application. Background 2. General Motors, Inc., through several subsidiaries, owns Hughes. Hughes, in turn, has several subsidiaries, including Hughes Communications Galaxy ("HCG"), Hughes Communications Services, Inc. ("HCS"), Hughes Communications Satellite Services, Inc. ("HCSS"), and Hughes Communications Carrier Services, Inc. ("HCCS"), through which it owns and operates a fleet of satellites and associated earth stations that are utilized primarily to provide satellite services within the United States. 3. PanAmSat, through its parent corporation PanAmSat Corporation, is controlled by the Anselmo Group Voting Trust. The Anselmo Group Voting Trust also controls, through PanAmSat Corporation, another corporation, PanAmSat Carrier Services, Inc., which holds a common carrier authorization under Section 214 of the Communications Act. PanAmSat operates a fleet of satellites and associated earth stations that provide primarily international service. PanAmSat holds licenses for four in-orbit satellites: PAS-1 and PAS-2(R), which serve the Atlantic Ocean Region (AOR); PAS-4, which serves the Indian Ocean Region (IOR); and PAS-6, which serves the Pacific Ocean Region (POR). PanAmSat also holds a conditional authorizations to construct, launch and operate PAS-7 in the IOR, and PAS-8 in the AOR and has pending applications to construct launch and operate i) PAS-5 as an expansion POR satellite, ii) PAS-21 as an expansion IOR satellite, iii) PAS-9 as an expansion AOR satellite, iv) PAS 12 and PAS-13 for expansion service to the Americas, and v) a global fleet of Ka-Band FSS Satellites. PanAmSat also holds various earth station and experimental authorizations. 4. The proposed transaction involves the transfer of control of PanAmSat and PanAmSat Carrier Service, Inc. from the Anselmo Group Voting Trust to Magellan International, Inc. ("New PAS"), a corporation controlled by Hughes, the pro forma assignment of licenses from HCG and HCSS to New PAS, and the pro forma transfer of control of HCS and HCSS from Hughes to New PAS. The net effect of these transactions will be to consolidate PanAmSat's operations with several of Hughes' operations, under the control of Hughes. Discussion 5. Hughes and PanAmSat submit that the approval of the transaction would serve the public interest by enhancing competition in the satellite services market, both domestically and internationally. Supporting commenters argue that substantial benefits will accrue from the transaction, including reduced video distribution costs and enhanced services, and in particular, seamless global service. Opposing commenters and petitioners raise concerns about the effect of this transaction on other pending Commission proceedings, the appropriate regulatory treatment of New PAS and its competitors, and the effect of the transaction on specific markets, including the Latin American satellite video market and the satellite manufacturing market. 6. We review this transaction using the statutory framework in the Communications Act of 1934, as amended. Section 310(d) requires prior approval for the transfer of control of a licensee, and a review of the proposed transaction to determine whether the public interest, convenience and necessity would be served thereby. Petitions to deny such transfers may be filed. The petition must make specific allegations of fact sufficient to show that approval of the transaction would be prima facie inconsistent with the public interest, convenience, and necessity. Allegations of "ultimate, conclusory facts" are inadequate under the statutory standards of Section 309. A. Effect on Other Licensing Proceedings 7. In its comments, GE Americom states that it has no objection to approval of the proposed assignment. Its primary concern is what effect approval of the transaction will have on other pending proceedings, including the current C- and Ku-Band FSS processing round, and the current Ka-Band processing round. GE Americom argues that several of PanAmSat's pending applications have disqualifying defects, noting that Hughes and others have opposed those applications as untimely. GE Americom argues that the applications must be acquired "as is." GE also argues that the effect of the merger should be considered in pending processing rounds, to the extent that it is relevant, and particularly in connection with GE's request for reconsideration of the C/Ku- Band Orbital Assignment Plan and associated authorizations. 8. Pursuant to Section 1.65 of the Commission's Rules, Hughes and PanAmSat will be required to amend the applications that each has pending to reflect the transaction approved by this order. The effect, if any, of this transaction on other pending applications will be considered in connection with the amended applications. Pursuant to Section 25.116(c)(2) and relevant precedent, we will exempt these pending applications from our cut-off rules to the extent necessary to permit continued consideration. By this action, however, we are not addressing the separate requests for waiver of Section 25.116 that PanAmSat has filed in connection with PAS-12, 13, and 21 and in connection with the Ka-Band processing round. As GE Americom correctly notes, New PAS will acquire no greater rights than PanAmSat. In short, the subject applications will be transferred "as is." B. Asymmetric Regulation 9. Comsat observes that the market for international telecommunication services is now substantially competitive. Comsat argues that the Hughes/PanAmSat merger will create the largest satellite entity in the world by marrying Hughes' dominant position in the United States market with PanAmSat's position as the leading international satellite system separate from INTELSAT. Comsat argues that the New PAS would dwarf Comsat on a number of scales, including number of employees, annual revenues, annual profits, market share in certain key markets, and growth potential. 10. Comsat contends that if the Commission approves the proposed merger, it would be arbitrary and capricious to continue to regulate Comsat as a dominant common carrier. Comsat details a number of respects in which it is subject to regulations more onerous than those currently applied to PanAmSat and Hughes. Comsat argues that these asymmetries protect Hughes and PanAmSat from competition, and provide the opportunity for PanAmSat, in particular, to engage in regulatory gaming. Comsat notes that Hughes itself has sharply criticized PanAmSat for filing "vexatious pleadings", and notes that PanAmSat has opposed virtually every attempt by Comsat to participate in INTELSAT satellite procurement, to change rates, or to relax regulatory burdens. 11. Comsat requests that the Commission take the following steps to address this alleged regulatory asymmetry. First, it asks that the Commission withhold approval of the merger until COMSAT is granted "regulatory status equivalent to that of the applicants." Comsat specifically requests that the Commission grant its pending petitions for streamlined video relief, non-dominant status, and partial reconsideration of the DISCO I Order. In addition, it indicates it will soon file a petition for non-dominant regulation. Comsat argues, that, in the alternative, the Commission should apply "minimum common carrier regulations" to the international services of Hughes/PanAmSat until such time as Comsat is deregulated, including imposing tariff and cost- support filing responsibilities, and structural safeguards separating the domestic and international operations of the merged entity. 12. Hughes and PanAmSat reply that their merger will not diminish, and will in fact enhance, competition. They note that they currently serve substantially different markets, and that the merger will allow them to provide "one stop shopping" for customers. They also argue that Comsat and the INTELSAT system in which it participates remain substantial competitors in many markets. Hughes and PanAmSat argue that the regulatory restrictions that Comsat seeks to impose would serve no legitimate purpose, in light of the substantial competitiveness of the markets involved. They also note that the grant of Comsat's request for structural separation of the merged entity's domestic and international businesses would be expressly contrary to the Commission's DISCO I Order. 13. We conclude that prompt action concerning this transaction would serve the public interest. Delay pending completion of the several other proceedings Comsat deems critical to maintaining regulatory symmetry would delay the benefits to the public from this transaction, as identified by the applicants and supporting parties. We are prepared to consider the matters Comsat has raised in the context of the specific proceedings involved, or those Comsat may wish to initiate. We also decline to impose otherwise unnecessary regulatory requirements on private commercial systems in the name of regulatory "symmetry," in the absence of any specific and credible threats to competition in the marketplace. In fact, Comsat's fundamental contention appears to be that the global satellite market is substantially competitive. To the extent Comsat has raised arguments that, in particular instances, safeguards are needed to address potential anti-competitive conduct, those arguments are addressed below. C. Regulatory Status 14. Comsat argues that, regardless of considerations of "symmetry," a number of the international services PanamSat provides must be regulated on a common-carrier basis. Comsat argues that, with the expiration of limits on the number of circuits that international satellite systems separate from INTELSAT may interconnect with the public switched telephone network ("PSTN"), the historical basis for treating such systems as non-common carriers has disappeared. Comsat also argues that Panamsat's business practices justify treating it as a common carrier. Comsat submits a copy of PanAmSat's "rate card" for occasional video services, and argues that this document evidences the type of indiscriminate offering of transmission services to the public considered the hallmark of common carrier operations. It argues that the rate card raises a substantial and material question of fact as to whether PanAmSat should be regulated as a common carrier. 15. PanAmSat argues that the Commission has consistently found that U.S. separate system licensees, domestic satellite licensees, and earth station licensees that do not make indifferent service offerings may operate as non-common carriers. It notes that the rate card Comsat submitted applies only to ad hoc, occasional or special event video services that amount to less than 10% of PanAmSat's business. It submits an affidavit from its Executive Vice President that describes the rate card as a "starting point in negotiations," reflecting "PanAmSat's policy to treat each customer uniquely based on its needs, requirements and the costs of doing business with that customer." PanAmSat notes that it is standard industry practice to provide rate information in this fashion for ad hoc, occasional and special event services. PanAmSat also observes that the bulk of its business consists of full-time services, and that there is no "rate card" for these services. Instead, Panamsat "negotiates agreements with its full time customers on a case-by-case basis in order to meet their individual needs and requirements." 16. We decline to impose common carrier regulation on portions of PanAmSat's current service offerings not already regulated as common carriage. First, we do not view the expiration of limitations on the number of circuits interconnected with the PSTN that an international separate satellite system may provide as requiring that we now regulate such systems, in their entirety, as common carriers. The elimination of the circuit limitations means that PanAmSat and other separate systems are no longer limited in the amount of capacity they may provide common carriers that may want to use their systems to provide PSTN services. It also means that operations by PanAmSat to provide PSTN services directly are now an option, but not a requirement. 17. Nor do we view PanAmSat's current full time and occasional video service offerings as requiring regulation as common carrier offerings. Under NARUC I, we may regulate an entity as a private carrier unless: (1) there is or should be any legal compulsion to serve the public indifferently; or (2) there are reasons implicit in the nature of the service to expect that the entity will in fact hold itself out indifferently to the eligible user public. We have also indicated that, in making determinations under NARUC I, we will rely on the "realities of the service provided." Furthermore, Congress has committed to the FCC the discretion to determine whether fixed and mobile satellite services should be treated as common carriage. 18. We conclude that it would serve the public interest to continue to treat the combined entities' current video offerings as non-common carrier offerings, and that Comsat has failed to allege facts sufficient to meet the statutory standard for petitions to deny in Section 309 of the Act. With respect to full-time video services, Comsat has made only conclusory factual allegations that these services are offered indiscriminately to the public. With respect to occasional and special event services, the only non-conclusory factual allegations submitted concern PanAmSat's "rate card". However, there are no specific allegations of fact concerning the extent to which the rate card is made available to potential end users, and the manner in which it is made available. The mere existence of a "rate card" proves only that PanAmSat has developed a pricing policy used as a starting point in negotiations with occasional video purchasers. The statement of PanAmSat's Executive Vice President to this effect is uncontradicted by any party alleging that it has sought to negotiate for use of PanAmSat's services. The "rate card" thus provides no indication of the extent of the offerings or the indiscriminateness of those offerings. Nor do the terms of the rate card provide any evidence to contradict the statement of PanAmSat's Executive Vice President. Although the rate card does not expressly indicate that the rates and terms concerning PanAmSat's services are negotiable, it does expressly indicate that rates and terms quoted are subject to change without notice. Therefore, we cannot conclude, based on the evidence, that PanAmSat's use of a "rate card" is equivalent to maintaining a "public tariff," or that it in any way evidences an indiscriminate public offering of service. In fact, it is our experience that the class of users utilizing such services is relatively restricted, consisting in significant part of news and sports programming organizations. 19. Even assuming, however, that there are facts which would support a finding of an "indiscriminate" offering under the NARUC I criteria, we would decline to impose the types of common carrier regulation Comsat seeks. The NARUC I criteria have traditionally served as the basis for decisions as to satellite services should be regulated as common carriage. For example, in the DISCO I Order, we stated that a service provider "must operate on a common carrier basis if it chooses to make indiscriminate offerings to the public under the NARUC I criteria." That statement was made prior to adoption of the Telecommunications Act of 1996, which included an explicit grant of discretion to the Commission to determine the appropriate regulatory status of fixed and mobile satellite services. We view this statement as providing authority to consider additional factors, beyond the NARUC I factors. 20. Comsat's arguments for imposing common carrier regulations appear to relate primarily to its private interest in imposing the same regulatory costs on its competitors that it is required to shoulder under the Communications Satellite Act. It makes no argument that common carrier regulation is necessary to insure just and reasonable rates, or to prevent unjust and unreasonable discrimination by Hughes/PanAmSat. It makes no claim that consumers will be harmed if the merged company continues operations on a private carriage basis. 21. Furthermore, we conclude that competition could be impeded if, even in the absence of any indication that the merged entity will be dominant in any particular non-competitive market, we imposed on the merged entity the types of common carrier regulations Comsat proposes. Comsat's position, in this regard, is that, with limited exceptions, discussed below, international fixed satellite service markets are substantially competitive. Although there are legitimate questions as to the competitiveness of specific segments of the fixed satellite communications market, those questions arise in connection with market segments in which INTELSAT and its signatories, including Comsat, have historically been the dominant service provider. In fact, the international "occasional video" market -- the market for which PanAmSat's rate card was developed -- is one such market. The public interest would be disserved by imposing additional regulatory costs on an emerging competitor in a market in which INTELSAT and its signatories have historically enjoyed a dominant position. Doing so could provide a disincentive for the provision of additional services by emerging competitors, thereby limiting the alternative capacity available. Furthermore, there is no basis to anticipate any adverse impact on the public interest from declining to impose additional regulations. Under these circumstances, we conclude that no additional regulations should be applied. D. Latin American Video Services 22. Comsat argues that New PAS should be regulated as a dominant carrier in the Latin American video market. It argues that after its own joint venture with News Corp. failed, Hughes and Panamsat were the two remaining competitors in the Latin American direct-to-home market. Comsat argues that the merger of the two entities creates a monopoly that must be carefully regulated. 23. Hughes and PanAmSat point out several flaws in Comsat's argument. They note that the ownership structure of the two currently announced Latin American direct-to-home programming ventures, Galaxy Latin America and Sky Latin America, will not be altered by the instant transaction. Although the transaction would consolidate control of the space segment capacity for both ventures in the New PAS, the programming ventures themselves would remain separately owned and competitive in the market. Hughes also observes that several other direct-to- home services have emerged, notably in Argentina and Mexico, and points to a number of readily available means of market entry. With respect to space segment capacity, Hughes and PanAmSat argue that there is substantial satellite capacity available in Latin America from non-U.S.-licensed satellites, including Mexico's Morelos/Solidaridad system, Argentina's Nahuelsat, Spain's Hispasat, Brazil's Brazilsat, and INTELSAT. Hughes also notes that there are a number of planned DBS assignments that have not yet been brought into service. Hughes and PanAmSat argue that, under these circumstances, no anti-competitive effects will result from the proposed merger. 24. Comsat, in reply, notes that there are currently no companies other than Hughes and PanAmSat providing direct to home space segment capacity for U.S.-based programmers. Comsat also argues that there is a possibility for collusion between Galaxy Latin America and Sky Latin America, since both will own interests in New PAS. 25. We conclude that there is no basis for imposing common carrier regulation, much less dominant common carrier regulation, on New PAS, in connection with its provision of space segment capacity for Latin American direct-to-home services. The evidence submitted indicates that the market is substantially competitive at this juncture, both with respect to space segment capacity and with respect to programming ventures. In this connection, we cannot ignore the substantial satellite capacity available on non-U.S. licensed satellite systems, nor the emergence of satellite programming ventures in Mexico and Argentina. These facts, combined with the existence of planned assignments for DBS service to Latin America, suggest that competition is both the current state of affairs and the likely future state of affairs in this market. E. Manufacturing Safeguards 26. Comsat raises a number of concerns regarding the relationship between Hughes' satellite services and satellite manufacturing arms. Specifically, Comsat raises a concern that Hughes could use confidential or proprietary information obtained by its satellite manufacturing arm to benefit its satellite services arm. This information could give New PAS an anti-competitive advantage vis-a-vis a company that is a customer of the manufacturing arm and a competitor of the satellite services arm. Comsat argues that the Commission should mandate a number of safeguards to prevent this, including requiring arm's length dealings between separate and independent subsidiaries, and requiring the maintenance of customer confidences by the manufacturing arm. 27. Hughes argues that Comsat's concerns are unfounded. Hughes states that its satellite acquisition agreements commonly provide for restrictions on the use of proprietary information. It notes that any incentive there may be for the type of conduct Comsat is concerned about is also substantially constrained by the competitiveness of the satellite manufacturing industry. As an example of the number and competitiveness of manufacturers, it recounts that INTELSAT has not in recent years purchased any satellites from Hughes, instead turning to Space Systems/Loral (subcontracting with Alcatel Espace) for the nine satellites in the INTELSAT 7 and 7A series, with GE Astro Space for the INTELSAT K satellite, and with Martin Marietta Astro Space for the six INTELSAT 8 and 8A satellites. Hughes also notes press reports that INTELSAT will purchase additional satellites from Matra/Marconi Space and Loral. 28. We decline to impose the safeguards Comsat requests. Comsat has alleged no facts to indicate that market forces will be inadequate to prevent the specific type of abuse with which it is concerned. Both the competitiveness of the satellite manufacturing market and the fact that Hughes' customers have been able to obtain contractual protections concerning proprietary information persuade us that this is an area in which regulatory intervention is unnecessary at this time. Conclusion 29. After review of the evidence submitted we find no substantial and material questions of fact as to whether this transaction would serve the public interest. Approval would enhance competition in the satellite services market, reduce video distribution costs, and enhance services, including seamless global services, and would thereby serve the public interest. 30. Accordingly, IT IS ORDERED, that the Petition to Deny filed by COMSAT Corporation IS DENIED. 31. IT IS FURTHER ORDERED, pursuant to Section 310(d), of the Communications Act of 1934, as amended, that the above-captioned applications ARE GRANTED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary