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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* DA 96-1943 Before the Feder al Communications Commission Washi ngton, D.C. 20554 In the Matter of the Applications of ) ) ECHOSTAR SATELLITE ) File Nos. 36-DSS-LA-94 CORPORATION ) 37-DSS-P/LA-94 ) 154-SAT-AMEND-95 ) For Authority to Construct, Launch and ) Operate Space Stations in the Domestic ) Fixed-Satellite Service ) MEMORANDUM OPINION AND ORDER Adopted: November 20, 1996 Released: November 21, 1996 By the Chief, International Bureau: Introduction 1. On May 7, 1996, we authorized the construction, launch, and operation of eleven satellites in the domestic fixed-satellite ("domsat") service and assigned them to satellite orbit locations, with separate opinions addressing the merits of each application to follow. We issue this MO&O for the conditional authorizations granted to EchoStar Satellite Corporation to construct, launch, and operate two Ku-band domestic fixed-satellites at the 830 W.L. and 1210 W.L. orbital positions. These conditional authorizations require EchoStar to submit additional documentation of its financial qualifications. If the conditions are met, EchoStar will be unconditionally authorized to enter the domestic fixed-satellite service market, increasing competition and service options to the public. Backgrou nd 2. EchoStar Communications Corporation ("ECC"), as the parent company of EchoStar Satellite Corporation, holds space station licenses in the Direct Broadcast Satellite ("DBS") service. In the 1996 processing round, EchoStar applied for a domsat authorization. It requested authority to construct, launch, and operate two Ku-band satellites, FSS-1 and FSS-2. 3. The National Broadcasting Company, Inc., Hughes Communications Galaxy, Inc. ("HCG"), and GE American Communications, Inc. ("GE Americom") filed comments concerning EchoStar's applications. For the reasons discussed below, we granted EchoStar's applications, with conditions. 4. Echostar's proposed satellites will each have 16 Ku-band transponders. These Ku- band transponders each have a selectable bandwidth of 27 or 54 MHz, a space station transmitter power of 130 watts, and a maximum effective isotropically radiated power ("EIRP") of 52.54 dBW. EchoStar proposed to provide coverage to the 48 contiguous states ("CONUS"), parts of Canada, and northern Mexico. It estimated the cost to construct and launch both satellites, and to operate them for one year to be $270.7 million. It requested the 79o W.L. and 1350 W.L. orbit locations. It proposed to launch FSS-1 and FSS-2 within 30 and 36 months, respectively, of authorization. Discussi on A. FSS-1 and FSS-2 5. Our rules permit us to assign new licensees "up to two orbital locations in each pair of frequency bands proposed" if the applicant is legally, technically, and financially qualified to hold a space station license. To this end, each domsat applicant must demonstrate its ability to finance proposed satellite construction, launch, and first-year operating costs. Because Echostar's financial demonstration was incomplete we granted EchoStar, in our May 7 Order, an authorization to construct, launch, and operate each of its two proposed in-orbit satellites, FSS-1 and FSS-2, conditioned on it providing additional financial information. 6. Our rules stipulate that an applicant may demonstrate financial ability by submitting the following financial information: (1) Current balance sheet and documentation of any financial commitments that show current assets and operating revenues sufficient to meet these costs; or (2) irrevocably committed debt or equity financing, sufficient to meet the costs of construction and launch of all planned satellites and operating them through the first year. 7. To demonstrate its financial qualifications EchoStar submitted its corporate parent's, ECC, balance sheet which showed current assets and operating income totalling $94.9 million, and communication from investment bankers expressing their interest and belief that the necessary funds could be raised. Later, it filed an amendment stating that if it were unable to raise sufficient financing from outside sources, EchoStar's President, Charles Ergen, would fund the remaining costs. Specifically, EchoStar stated that Mr. Ergen owns over 29 million shares of EchoStar Class B stock, which are convertible to Class A common stock on a one-to-one basis. EchoStar further represented that Mr. Ergen has unconditionally agreed to liquidate or pledge this stock to secure adequate financing. According to EchoStar, as of April 9, 1996, Charles Ergen's convertible Class B shares had a market value of $1,058,056, 235. EchoStar also noted that, as a result of an offering memorandum and debt offering, EchoStar had raised its current assets to $206.6 million. It indicated that it would file financial statements reflecting this as soon as they were prepared. 8. GE Americom and HCG argued that EchoStar's initial showing was not sufficient to demonstrate its financial qualifications. We agree that the record does not provide clear documentation showing adequate current assets. Specifically, EchoStar's showing of $94.9 million in current assets and operating income falls far short of the $270.7 million EchoStar projects its system will cost. We further note, the Commission has repeatedly held that letters from potential investors stating an interest and/or intent to raise money do not satisfy our requirement for non-contingent financing. Consequently, we look to Mr. Ergen's commitment to determine whether EchoStar is financially qualified to hold a domsat license. In particular, we must find that Mr. Ergen is capable of selling or pledging sufficient stock to make up the $175.8 million shortfall in EchoStar's financial showing. 9. HCG contends that the representation regarding Mr. Ergen's stock are not adequate to cure the deficit in EchoStar's demonstration. It asserts that the value of Mr. Ergen's stock cannot be based upon the current Class A common stock share price. According to HCG, if Mr. Ergen decided to raise the needed financing by "flooding" the market with millions of his shares, the stock's value could quickly change. It further argues that a bank would be unlikely to consider Mr. Ergen's Class B shares as sufficient collateral for a loan. HCG also notes that the Securities Act of 1933, Rule 144(e), restricts the number of shares Mr. Ergen can sell in any three month period, which, according to HCG, casts doubt on whether EchoStar has the "current" ability to finance its system. Finally, HCG argues that such an outflow of capital could "devastate EchoStar financially." 10. In considering the sufficiency of Mr Ergen's commitment, we are not concerned about whether Mr. Ergen can sell only a specified number of shares in a given time period. In adopting satellite financial qualification requirements in 1985, the Commission did not intend to require companies to demonstrate that the internal or external sources of financing relied upon are liquid and will be set aside, in full, immediately upon grant. Rather, the Commission stated that its intention was to evaluate a company's ability to finance its system promptly. The Commission stated that "[c]urrent assets -- which include cash, inventory, and accounts receivable -- provides a general measure of a company's ability to raise funds on the basis of its on-going operations." In other words, we require a company to demonstrate that it has sufficient resources to cover its projected costs, or receive an irrevocable commitment from lenders and equity investors who have concluded that the applicant is credit worthy under the particular circumstances. Consequently, if the value of Mr. Ergen's shares meets or exceeds the $175.8 million shortfall needed from a stock sale, we would find EchoStar financially qualified. 11. Mr. Ergen holds over 31 million shares of Class B stock. Almost 30 million of these shares are convertible into Class A Stock. As of March 28, 1996, the Class A stock was trading at $34 per share. EchoStar states, therefore, that Mr. Ergen's stock is worth over $1 billion. EchoStar's March 31, 1994 balance sheet, however, indicated that only 3.8 million shares of the Class A stock have been issued and are outstanding. Consequently, an infusion of millions of additional shares into the market as EchoStar represents it might do, if necessary, may affect the per share price by likely causing it to drop significantly. We, therefore, conditioned EchoStar's licenses upon its submission of additional documentation, in our May 7 Order. 12. Specifically, EchoStar must submit an independent market valuation of Mr. Ergen's Class B shares showing that the shares' value is sufficient to cover its proposed system costs. EchoStar must submit this information within 60 days of the release of this order. Failure to do so or to submit other documentation evidencing its financial qualifications will result in an automatic cancellation of EchoStar's conditional licenses. In the alternative, EchoStar may submit documentation justifying a waiver of our financial requirements. The waiver request should include specific information regarding attempts to obtain adequate financing and an explanation as to why such financing could not be obtained. In evaluating any waiver request we will, among other things, consider whether qualified entities seek to operate satellite systems in the orbital locations to which EchoStar is assigned. Conclusion and Ordering Clauses 13. We find pursuant to Section 309 of the Communications Act, 47 U.S.C  309, that grant of EchoStar's FSS-1 and FSS-2 applications, subject to the condition specified in paragraph 16, will serve the public interest, convenience, and necessity. As specified in the May 7 Order, we have assigned EchoStar FSS-1 and FSS-2 to the 83o W.L. and 121o W.L. orbital locations, respectively. 14. Accordingly, IT IS ORDERED that application file Nos. 36-DSS-LA-94, 37-DSS- P/LA-94, and 154-SAT-AMEND-95 ARE CONDITIONALLY GRANTED, as discussed in this order, and EchoStar Satellite Corporation IS CONDITIONALLY AUTHORIZED to construct two Ku-band fixed satellites, in accordance with the conditions and technical specifications set forth in its applications. 15. IT IS FURTHER ORDERED that EchoStar Satellite Corporation IS CONDITIONALLY AUTHORIZED to launch and operate two space stations in the fixed-satellite service in accordance with the Assignment of Orbital Locations to Space Stations in the Domestic Fixed-Satellite Service, DA 96-713 (May 7, 1996), as well as the relevant terms and conditions of all previous orders and authorizations concerning the operation of space stations. These requirements include the filing of annual reports on the progress of space station construction, traffic on in-orbit satellites and transponder use. See Streamlining the Commission's Rules and Regulations for Satellite Application and Licensing Procedures, IB Docket No. 95-117 (adopted October 29, 1996). 16. IT IS FURTHER ORDERED that these authorizations ARE CONDITIONED upon EchoStar Satellite Corporation submitting, within 60 days of the release of this order, either an independent market valuation of Charles Ergen's class B common stock shares, as addressed in paragraph 12, or other evidence of EchoStar's financial qualifications. Failure to do so, or to present documentation that justifies a waiver of our financial requirements, will AUTOMATICALLY RENDER these CONDITIONAL authorizations NULL AND VOID. 17. IT IS FURTHER ORDERED that unless extended by the Commission for good cause shown, each of the authorizations shall become NULL AND VOID in the event the space station is not constructed, launched, and successfully placed into operation in accordance with the technical parameters and terms and conditions of the authorizations by the following dates: Construction Commenced Construction Completed Launched EchoStar FSS #1 1/30/97 3/30/99 6/30/99 EchoStar FSS #2 3/30/97 6/30/99 9/30/99 18. IT IS FURTHER ORDERED that the license term for the space stations is ten years and will begin to run on the date the licensee certifies to the Commission that the satellite has been successfully placed into orbit and the operations fully conform to the terms and conditions of this authorization. 19. IT IS FURTHER ORDERED that EchoStar Satellite Corporation will prepare, within 90 days of the release of this order, the necessary information for submission to the International Telecommunication Union ("ITU") to initiate the advance publication, international coordination, and notification process of these space stations in accordance with the ITU Radio Regulations and for consultation in accordance with Article XIV of the INTELSAT agreement. We also remind all licensees that no protection from interference caused by radio stations authorized by other Administrations is guaranteed unless coordination procedures are timely completed or, with respect to individual administrations, by successfully completing coordination agreements. Any radio stations authorization for which coordination has not been completed may be subject to additional terms and conditions as required to effect coordination of the frequency assignments of other Administrations, 47 C.F.R.  25.111(b). 20. IT IS FURTHER ORDERED that the assignment of any orbital location to EchoStar Satellite Corporation is subject to change by summary order of the Commission on 30 days notice and does not confer any permanent right to use the orbit and spectrum. Neither this authorization, nor any right granted by this authorization, shall be transferred to any person except upon application to the Commission and upon a finding by the Commission that the public interest, convenience, and necessity will be served thereby. 21. EchoStar Satellite Corporation is afforded thirty days from the date of release of this order and authorization to decline this authorization as conditioned. Failure to respond within that period will constitute formal acceptance of the authorization as conditioned. 22. This Order is issued under Section 0.261 of the Commission's rules, 47 C.F.R.  0.261, and is effective upon release. Petitions for reconsideration under Section 1.106 or applications for review under Section 1.115 of the Commission's rules, 47 C.F.R.  1.106, 1.115, may be filed within 30 days of the date of public notice of this order (see 47 C.F.R.  1.4(b)(2)). FEDERAL COMMUNICATIONS COMMISSION Donald H. Gips Chief, International Bureau