$// MO&O, Directsat/Echostar Transfer of Control FCC 94-284 //$ ///newjob/// $///FCC 94-284,12/28/94///$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 FCC 94-284 In re Application of ) ) DIRECTSAT CORPORATION ) ) and ) File No. DBS-88-01/88-02/94- ) 08TCP/M ECHOSTAR COMMUNICATIONS CORPORATION ) ) For Commission Consent to ) Transfer of Control of ) Direct Broadcast Satellite ) Construction Permit ) MEMORANDUM OPINION AND ORDER Adopted: November 4, 1994 Released: January 4, 1994 By the Commission: 1. Directsat Corporation ("Directsat") holds a Direct Broadcast Satellite ("DBS") construction permit under which it is authorized to construct satellites to provide eleven channels of eastern half-CONUS or full-CONUS DBS service on even-numbered channels 2-20 at orbital position 119øW and on channel 24 at orbital position 110øW, and eleven channels of western half-CONUS service on odd- numbered channels 1-21 at orbital position 175øW, on the condition, inter alia, that its authorization for full-CONUS service may be modified or rescinded if subsequent technical studies indicate that such operation would violate the interference parameters of international treaties or agreements. Directsat Corporation, 8 FCC Rcd 7962 (1993). 2. Now under consideration is the above-captioned application filed on April 7, 1994, in which Directsat and EchoStar Communications Corporation ("Echo/Comms") seek Commission consent to a transfer of control of Directsat from SSE Telecom, Inc. ("Telecom") to Echo/Comms. Echo/Comms is already the 100% owner of EchoStar Satellite Corporation ("Echo/Sat"), which holds a DBS construction permit under which it is authorized to construct satellites to provide eleven channels of eastern half-CONUS or full-CONUS DBS service on odd- numbered channels 1-21 at orbital position 119øW, and eleven channels of western half-CONUS DBS service from an as yet unspecified western orbital position, subject to certain non-interference conditions. EchoStar Satellite Corporation, 7 FCC Rcd 1765 (1992). Under the organizational structure proposed in the instant application for Commission consent to transfer of control, DBS permittees Directsat and Echo/Sat both would be controlled by Echo/Comms, and Telecom would become a minority stockholder in Echo/Comms, the value of which interest, the applicants represent, would exceed the out-of-pocket expenses incurred in the prosecution of the Directsat application. DBS permittee Dominion Video Satellite, Inc. ("Dominion") has filed informal comments in this proceeding. 3. This application presents two fundamental issues concerning our regulatory policies for the DBS service. First, although there exists no rule barring the for-profit sale of a DBS construction permit, this is the first time that the issue has been presented to the Commission in the practical context of a transfer application. Given the concern we traditionally have expressed over the adverse impact of permitting for-profit sales of unbuilt construction permits in other services, it is appropriate that we here evaluate the propriety, under the public interest standard of Section 310(d), of such sales in the DBS service. Second, this application also represents the first instance in which competing DBS conditional permittees propose to combine their interests. While the Commission expressly declined to impose general multiple ownership restrictions for DBS permittees and licensees when it initially established rules for the DBS service in 1982, it is appropriate to consider whether the particular ownership combination proposed here raises any public interest concerns in light of current market conditions. 4. Transfer of Control/Assignment of Construction Permit for an Unbuilt DBS Facility. The for-profit sale of a construction permit for an unbuilt radio or television broadcast station is prohibited by the Commission's rules, specifically 47 C.F.R. 73.3597. Implicit in the filing of a construction permit application is the intent to construct the station and commence service. This for-profit sale restriction seeks not only to maintain the integrity of the Commission's application process, but also to promote the expeditious inauguration of new service. E.g., Assignment and Transfer of Construction Permits, 16 FCC 2d 789 (1969). While we find that the reasons underlying the for-profit sale prohibition serve important Commission objectives, we believe that a similar restraint applied to the DBS service is unnecessary and undesirable. In the DBS service, all construction permits are conditioned on the permittee's due diligence in making progress towards the initiation of DBS service. Within one year of the grant of the permit, the DBS permittee must begin actual construction or complete contracting for construction of its satellite station. Section 100.19 of the Commission's Rules, 47 C.F.R. 100.19. Direct Broadcast Satellite Processing Procedures, 95 FCC 2d 250, 253 (1983). A permittee must demonstrate the existence of a contract that contains no unresolved contingencies which could preclude substantial construction of the satellite and that sets forth regular, specific construction progress milestones and payment schedules in the construction timetable, which indicate the certainty of the plan, the reasonableness of the projected completion date and the permittee's investment or commitment to completion and the inauguration of DBS service. Pursuant to this due diligence requirement, DBS permittees are also required to submit semi-annual reports to the Commission describing the progress they have made in implementing their proposals. We believe that the due diligence and semi-annual reporting requirements have been sufficient to promote progress and to deter permittees from seeking to delay or postpone construction with the expectation that the permit would nevertheless become more valuable and could be sold later at an increased price for profit. Here, Directsat's investment in the development of its DBS system has been substantial and the progress set forth in its semi-annual reports has been steady and consistent with the schedule established in its construction contract. The mere fact that Telecom would now realize a profit from the sale of Directsat's permit does not, standing alone, evidence an intent to speculate in the sale of unbuilt DBS permits to the detriment of the public. On the contrary, the public's interest in the expeditious inauguration and development of the DBS service may well be advanced by this sale. Consolidations of the nature before us may result in certain economies of scale that would ensure a DBS transferee, such as Echo/Comms, a greater likelihood of competing effectively in this emerging service which may ultimately facilitate the introduction of its DBS service to the public. Our minimum regulatory approach to DBS appears to have been successful and operational DBS service is now a reality. Under these circumstances and since we are unaware of any behavior on the part of DBS permittees in general, and Directsat in particular, that would cause us to alter our approach, we believe that the public interest would best be served by allowing this for-profit sale of Directsat's DBS construction permit. 5. Multiple Ownership. When the Commission declined to establish any multiple ownership restrictions for the DBS service, it noted that the domestic satellite industry existing at that time consisted of several operators, and that the numerous proposed DBS systems, as well as other alternative video program delivery services, "would provide sufficient competition to prevent monopolistic pricing or other abuses of market power." DBS R&O, supra 90 FCC 2d at 712. Thus, the Commission determined that "existing antitrust laws...provide adequate protection against possible abuses of market power due to horizontal concentration of control." Id. Further, the Commission determined that multiple ownership restrictions were not necessary to assure diversity of sources of programming. Id. 90 FCC 2d at 713. 6. The basic conditions which led the Commission to believe that multiple ownership restrictions for the DBS service were not necessary still exist, and will continue to exist if the instant transfer of control application is granted. There would still remain eight separate and independent DBS permittees proposing to provide DBS service to the American public. These proposed DBS operations, plus other video program delivery services, like cable television, "wireless" cable and over-the-air broadcast, will continue to "provide sufficient competition to prevent monopolistic pricing or other abuses of market power", id. 90 FCC 2d at 712. Further, if the instant application is granted, Echo/Comms will control DBS permittees which are authorized to construct satellites to provide a total of 22 channels of national DBS service. There are seven other independent DBS permittees proposing at a minimum 8 channels of service, and two of those, Hughes Communications Galaxy, Inc. and Advanced Communications Corporation, are authorized to provide 27 channels of national DBS service apiece. In this regard, Hughes Communications Galaxy and United States Satellite Broadcasting Inc., which proposes to provide 8 channels of service, have recently commenced direct broadcast operations. Accordingly, Echo/Comms' proposed utilization of 22 channels does not raise a significant concern regarding competitiveness and diversity in the emerging DBS marketplace. Moreover, we believe that combining the resources of Directsat and Echo/Sat and the economies of scale that could be realized as a result of aggregating their channel assignments could, as maintained by the applicants, facilitate the introduction of their DBS service to the public. Currently, Directsat and Echo/Sat are each authorized to provide 11 channels of nationwide DBS service. Their respective services will, in fact, be in direct competition with established cable systems offering as many as 100 or more channels, and the two recently operational DBS systems that will provide a total of 35 channels of national DBS service. According to the applicants, a single DBS entity controlling 22 channels of nationwide service would be able to compete more effectively with such cable and DBS operations than would their respective existing 11-channel facilities operating alone. 7. Dominion's Informal Comments. In its informal comments, Dominion states that Echo/Comms and Telecom have issued press releases that "mislead the business and financial community" because such press releases do not state that Directsat's assignment of channels at 119øW is conditioned on the outcome of the petition for reconsideration of Dominion Video Satellite, Inc., supra. See Footnote 2, supra. Dominion also asserts that the applicants "are attempting to create...an ex post facto environment" (emphasis omitted) for the denial of that petition for reconsideration; and that in making its decision in the petition for reconsideration proceeding as to whether Dominion is entitled to the assignment of channels at 119øW, the Commission should not consider the financial liabilities and risks to which Echo/Comms has committed itself in connection with the instant transfer application. 8. The Commission's decision on Dominion's petition for reconsideration of the cancellation of its reservation of channels at 119øW will be made on the basis of the arguments contained in the pleadings in that proceeding, the facts of that case, and the Commission's established rules and policies. The instant transfer of control proposal and its financial consequences are not at issue in that proceeding, and are not relevant to that proceeding. Further, in their application the parties state that the instant transfer of control proposal "is not contingent upon Directsat maintaining its channel assignments at any particular orbital location." Accordingly, Dominion's stated concerns about the impact of this proposed transfer of control on its petition for reconsideration are without merit, and do not require any Commission action. With regard to the allegedly "mislead[ing]" press releases, the conditional nature of Directsat's assignment of channels at orbital position 119øW is clearly part of the public record. See Directsat Corporation, supra 8 FCC Rcd at 7964 fn.5, 7965. This Commission has no rules or policies which regulate the content of press releases issued by permittees, and Dominion has not identified any harm, either to itself or to the public interest, arising out of the content of the press releases about which it complains. In view of the foregoing, the informal comments submitted by Dominion do not raise any substantial or material questions of fact as to whether the grant of the instant transfer of control application would serve the public interest, convenience or necessity, and Dominion's informal comments therefore will be denied. 9. In view of the foregoing, and having found the applicants are fully qualified, we conclude that grant of the instant application for Commission consent to transfer of control of Directsat to Echo/Comms would serve the public interest. 10. Accordingly, IT IS ORDERED That the application for transfer of control of DBS permittee Directsat Corporation, from SSE Telecom, Inc. to EchoStar Communications Corporation, File No. DBS-88-01/88-02/94-08TCP/M, IS GRANTED. 11. IT IS FURTHER ORDERED That the informal comments filed by Dominion Video Satellite, Inc., ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary