******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 Loral Space & Communication Ltd. and Orion Network Systems, Inc. International Private Satellite Partners, L.P. (d/b/a) Orion Atlantic, L.P. Application for the Transfer of Control of Various Space Station, Earth Stations, and Section 214 Authorizations File Nos. 1-SAT-TC-98(5) 2-SAT-TC-98(3) 3-SAT-TC-98 46-DSE-TC-98(32) 47-DSE-TC-98(16) 48-DSE-TC-98 49-DSE-TC-98(3) 50-DSE-TC-98(2) ITC-97-610-TC ORDER AND AUTHORIZATION Adopted: February 26, 1998 Released: March 2, 1998 By Chief, International Bureau: Introduction 1. By this Order, we grant the applications of Loral Space & Communications Ltd. and Orion Network Systems, Inc. to transfer control of Orion to Loral Ltd. Granting these applications should allow Loral Ltd., which serves primarily the domestic telecommunications market, and Orion, which serves primarily the international telecommunications market, to compete more effectively in the global telecommunications market. The resultant competition will lead to wider service offerings and lower prices for consumers. Backgrou nd 2. Orion is a publicly traded company, incorporated in Delaware. Through various affiliates and subsidiaries, Orion holds authorizations for space stations and associated earth station facilities providing fixed-satellite service, that is, satellite service to users at fixed locations. Orion is a general partner of International Private Satellite Partners L.P. (d/b/a Orion Atlantic L.P.), which holds authorizations and applications for additional fixed-satellite space stations. In addition, Orion Asia Pacific Corporation, a wholly-owned subsidiary of Orion, holds authorizations for and has applied for additional fixed-satellite space stations. Orion and its affiliates provide primarily international fixed- satellite service communications services. 3. Loral Ltd., a Bermuda company, is a publicly held company. Loral Ltd. has a broad range of satellite interests. It holds authorizations for two hybrid C and Ku-band satellites and three fixed-satellite service Ka-band satellites. One of its subsidiaries, Loral Skynet, operates the Telstar fleet of fixed-satellite service satellites. Loral Ltd. provides primarily domestic service from its in-orbit fixed-satellites. Loral Ltd. also has interests in the Globalstar "Big LEO" mobile satellite service system and in R/L DBS Company L.L.C., a direct broadcast satellite operator. In addition, Loral Ltd. owns one-hundred percent of Space System/Loral, Inc. a leading manufacturer of satellites. Loral Ltd. and its affiliates also have several satellite applications pending for 2 GHz, 40 GHz and "extended Ku-band" satellite systems. 4. Loral Ltd. formed Loral Satellite Corporation, a wholly owned subsidiary, to facilitate the proposed merger. In order to effectuate the proposed merger, Loral Satellite Corporation will merge with Orion. The merged entity will be renamed Loral Orion Network Systems, Inc. Orion's subsidiaries will remain in their current form as subsidiaries of Loral Orion Network Systems, Inc. The net effect of this transaction will be to consolidate Orion's operations with Loral Satellite Corporation, under the control of Loral Ltd. 5. The Loral/Orion application was placed on public notice on October 22, 1997. No petitions to deny or comments were filed. Discussi on 6. Public Interest Considerations. Section 310(d) of the Communications Act of 1934, as amended, requires that a licensee must obtain prior Commission approval before transferring control of a license. The Act further requires the Commission to review the proposed transaction to determine whether grant would serve the public interest, convenience and necessity. 7. Loral Ltd. and Orion submit that the approval of the transaction would serve the public interest by creating a global satellite network capable of providing integrated satellite communication services throughout the world. The parties contend that approval of this transaction will enhance competition in the satellite services market, both domestically and internationally. The resulting entity will have the capability to better compete with other global communications satellite providers. 8. The parties submit that Loral Ltd. serves primarily the domestic telecommunications market and Orion serves primarily the international telecommunications market. Loral Ltd. points out that with the addition of the Orion personnel, assets, and relationships, Loral Ltd. will be able to compete more efficiently and effectively as it enters the international market. Loral Ltd. and Orion argue that there are very substantial existing competitors in the satellite communications markets, including Hughes/PanAmSat and INTELSAT and prospective competitors such as Lockheed Martin and Motorola. Loral Ltd. and Orion also note that there are substantial non-U.S. competitors. 9. In previous mergers and acquisitions, the Commission has evaluated the competitive effects of the proposed transaction to determine if the transaction would serve the public interest. The Commission has previously stated that satellite services are a portion of the domestic telecommunications market. The domestic telecommunications market includes "all interstate, domestic interexchange telecommunications services with no relevant submarkets," and the relevant geographic market for satellite services is nationwide. The Commission has also divided the international telecommunications market into three relevant service markets: international message telephone service ("IMTS"), non-IMTS and television service. Non-IMTS services include telex, telegram, private line, high and low speed data and other enhanced service offerings. More recently, the Commission has determined that the international television market actually consists of two relevant markets: full-time video and occasional-use and short-term video services. Full-time video services generally are provided to transmit regularly scheduled television broadcasts over the densest traffic routes for periods greater than three months. Occasional-use and short-term video services, on the other hand, are provided for the short-term transmission (from one day to three months) of video programming, like a fast breaking news story, from different geographic origination and termination points from one day to the next. The Commission has also analyzed the international telecommunications market on a country-by-country basis, where each country represents a separate geographic market. 10. The parties state that neither Loral Ltd. nor Orion competes in the IMTS business. Additionally, neither Loral Ltd. nor Orion has a dominant position in either the domestic telecommunications market or any of the other international telecommunications markets. In evaluating previous transfers of control, the Commission has found that market share of one percent in the domestic telecommunications market would not raise competitive concerns. Loral Ltd.'s and Orion's combined share of the domestic market will not exceed one percent under any calculation based on currently available public data. According to the figures submitted by the parties to the Securities and Exchange Commission, Orion's revenue for the twelve months immediately preceding September 30, 1997 was $66.37 million. Loral Ltd.'s revenue for the twelve months preceding September 30, 1997 was $1.337 billion. Thus, Orion's and Loral Ltd.'s combined revenues for that period were $1.40 billion. For the previous year, 1996, total reported U.S. domestic telecommunications service revenues for all carriers with any interstate revenues were $222.3 billion. The combined revenue for Loral/Orion for 1997 is less than one percent of $222.3 billion. This calculation overstates Loral/Orion's share of the domestic telecommunications market, since not all of their revenue is derived from domestic operations. Thus, Loral/Orion's share of the domestic telecommunications market is below the one percent and does not raise competitive concerns. 11. Orion is a relatively new entrant in the international telecommunications marketplace, a market in which our concerns with concentration have historically focused on the market shares of Comsat, INTELSAT and its affiliates. The Commission recently established a new policy framework that allows non-U.S. licensed satellites into the U.S. market. This new framework creates substantial incentives and opportunities for facilitating a more competitive global satellite services market. We have received applications from foreign-licensed systems requesting authority to provide international and domestic service. We anticipate that there will be multiple regional and global players and that competition will be increasingly robust. 12. Under the circumstances noted above, we find that the merger raises no concerns about substantial harm to competition in the United States. Loral Ltd. and Orion serve substantially different and distinct markets. Although neither party is precluded from entering the other's market, Loral Ltd. has remained primarily a domestic service provider while Orion principally serves the international telecommunications marketplace. 13. In addition, based on the uncontradicted statements of the applicants, the combined Loral/Orion entity should accrue benefits from this transaction, including reduced transaction costs to the end users of the satellite services and substantial efficiencies in the consolidation of combined resources. In the absence of any evidence to the contrary, we accept the parties' position that the combination of Loral Ltd. and Orion will create opportunities for economies of both scale and scope. As a result of the merger, customers may be able to secure a broader range of value-added services, both domestic and international, from a single source. Additionally, the merger will permit the production of those services more efficiently by permitting a combination of operational, marketing, and administrative resources and functions across the range of existing and proposed Loral Ltd. and Orion business. Further, the new Loral/Orion entity should be better poised to compete in the global satellite services market. Given that there are no substantial concerns regarding harm to competition resulting from this transaction, these stated benefits are sufficient to establish that authorization of this transaction would serve the public interest. 14. Cut-Off Rules. Both Loral Ltd. and Orion have several satellite applications pending in various space station "processing groups." These processing rounds were established pursuant to public notices in which the Commission established filing deadlines for applications to be considered simultaneously. Applications filed after a cut-off date are not entitled to comparative consideration with applications filed by the deadline. 15. Section 25.116(c) of the Commission's rules provides generally that if a pending application is amended by a "major amendment" after a cut-off date, the application will be considered to be a newly filed application. This means the application will lose its status in the processing group. Section 25.116(b)(3) specifies that an amendment to an application will be considered "major" if it involves a "substantial change in beneficial ownership or control of an applicant such that the change would require the filing of a prior assignment or transfer application." The rule allows for an exception to this policy, however, where the amendment reflects a change in ownership found by the Commission to be in the public interest and for which a requested exemption from the "cut-off" date is granted. 16. Both Loral and Orion recognize that the proposed transfer of control constitutes a major amendment involving a significant change in ownership of Orion. In the application, Loral/Orion request prior Commission authorization to transfer control of facilities licensed to Orion. They also request us to waive the cut-off dates with respect to their pending applications, preserving the status of these applications in their respective processing groups. 17. In previous decisions in which the International Bureau granted an exemption to the cut-off rules, the Bureau considered two factors: (1) whether the proposed transaction had a legitimate business purpose; and (2) whether the change in ownership otherwise served the public interest. 18. With respect to the first factor, Loral Ltd. has articulated a clearly defined and legitimate business purpose for its merger with Orion -- to "strengthen its financial resources" by consolidating Orion's ongoing and primarily international satellite service business with Loral Ltd.'s primarily domestic business. The merger in turn, would enhance Loral Ltd.'s ability to compete globally. In addition to the pending applications, the merger involves satellites already licensed. As such, we find that the merger serves an "independent business purpose, and is not primarily for the purpose of acquiring pending applications." 19. With respect to the second factor, for the reasons discussed above, we find that the public interest would be served by approving the proposed transaction. Consequently, we will exempt these pending applications from our cut-off rules, and will continue to consider Loral Ltd. and Orion's applications concurrently with others in the processing groups. Pursuant to Section 1.65 of the Commission's rules, Loral Ltd. and Orion will be required to amend the applications that each has pending to reflect the transaction approved by this order. Conclusion 20. Upon review of the aforementioned application, we find that pursuant to the Communications Act of 1934, as amended, grant of this application will serve the public interest, convenience, and necessity. Ordering Clauses 21. Accordingly, IT IS ORDERED that File Nos.1-SAT-TC-98(5); 2-SAT-TC- 98(3); 3-SAT-TC-98; 46-DSE-TC-98(32); 47-DSE-TC-98(16); 48-DSE-TC-98; E970023; 49-DSE-TC-98(3); 50-DSE-TC-98(2); ITC-97-610-TC ARE GRANTED. 22. IT IS FURTHER ORDERED that pursuant to Section 1.65 of the Commission's Rules, 47 C.F.R.  1.65, Loral Ltd. and Orion are afforded thirty days from the date of the release of this Order to amend all applications to reflect the new ownership structure approved in this Order. 23. This Order is issued pursuant to Section 0.261 of the Commissions rules on delegated authority, 47 C.F.R.  0.261, and is effective upon release. FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, International Bureau