|
October 15, 2003
On May 19, 2003, the United States Federal Communications
Commission (“FCC”)
released its Order amending its Space Station Licensing Rules and Policies.
The Order makes sweeping changes to the domestic satellite licensing process
that are designed to speed the allocation of orbital slots and frequencies.
The Order relies on the efficiency of the market to fill gaps created by this
change in processing.
The FCC developed different processes for considering frequency applications
for two categories of satellite systems, non-geostationary satellite orbit
systems (“NGSO”) and geostationary satellite orbit systems (“GSO”).
For GSO system operators, the new procedures should make the licensing process
quicker, permitting companies to bring their systems into service in a commercially
viable timeframe. For NGSO applicants, the licensing procedures also appear
to be streamlined, but the regulations create a risk of increased application
costs and post-licensure costs. To mitigate some of these potential costs and
to avoid abuses in the licensing procedures, the FCC also put into place safeguards
against speculative applications. As a whole, the industry should be well-served
by the changes in the licensing process.
Objectives of the Order
The FCC identified delay as the primary problem with its prior satellite licensing
process. It noted that an application could take years before it was granted,
due to increasing complexity of the applications and cumbersome licensing procedures.
The processing delay increased the costs to satellite operators and their customers
and, perhaps most importantly to the FCC, it allowed “scarce orbit and
spectrum resources to lie fallow.” The International Telecommunications
Union’s (“ITU”) decision to shorten the time by which operators
must bring their satellites into service put further pressure on the FCC to
shorten the delay to licensure.
Following its Notice of Proposed Rulemaking and a comment period, the FCC adopted
its Order with the objectives of “faster provision of satellite services
to the public, and maintenance of the United States’ position as the
leader of the global satellite industry.” Underlying the Order was a
long-standing FCC policy that its regulations and procedures should not unreasonably
interfere with licensees’ business negotiations and operations, but should
allow market forces to drive those activities. The FCC therefore sought to
adopt regulations that “rely on market mechanisms to achieve the same
or substantially similar results more efficiently, on a faster time scale,
and with greater administrative ease once licenses are granted…[to] ensure
that there is the most efficient use of the satellite spectrum and orbit resources.”
Changes to Application Processing Procedures
During the rulemaking process, the FCC assessed whether it could apply its
proposed new procedures to all satellite systems without distinction. Based
in part on comments received by the industry in that rulemaking process, it
determined that two distinct categories of satellite systems exist that warrant
differing treatment. An NGSO system is one in which the earth station has little
or no directivity towards a satellite, so that the earth station must track
the satellite in all directions. This includes geostationary orbit mobile satellite
systems in which the satellites are designed to communicate with earth stations
with omni-directional antennas. By contrast, a GSO system means satellites
designed to communicate with earth stations with directional antennas, such
as fixed-satellite service and mobile satellite system feeder links which use
GSO satellites.
GSO satellites can operate on the same spectrum with two-degree orbit spacings
without risk of interference with other satellite systems, and several licensees
may be authorized to operate throughout the frequency band. With NGSO licenses,
however, a licensee may operate in so much of the orbit-spectrum resources
as to preclude market entry from any other competitor. Because of these differences,
the FCC adopted different processing rules for the two systems.
A. NGSO: Modified Processing Rounds
For NGSO systems, the FCC adopted a processing round procedure that is slightly
modified from its prior procedures. Under the modified approach, the FCC issues
public notice of its receipt of an application to use a particular spectrum,
and it establishes a deadline for submission of competing applications to use
the same spectrum. The lead application will be considered with all competing
applications, and the FCC will grant the applications to the extent they do
not interfere with each other. If there is insufficient spectrum for all applicants,
then the FCC will divide the spectrum equally among all applicants.
The FCC acknowledged that the amount of spectrum each satellite operator would
need for a particular service depends uniquely on the satellite system design
and the operator’s business assessment. Despite this, it adopted a
process that splits the spectrum equally, without regard for the particular
needs of
the individual satellite system or operator. The FCC couples this approach
with the elimination of its anti-trafficking rules that previously had prevented
the transfer of licenses, so that market forces may rectify any inefficiency
in the allocation.
[W]e have relied on market mechanisms to the extent possible. Rather
than attempting to judge whether an applicant has justified its spectrum
request … we
believe that a more efficient way of awarding spectrum for NGSO-like systems
is through a modified processing round approach with a pre-set band-splitting
mechanism. This, together with eliminating the anti-trafficking rule for satellite
licenses … will allow the secondary market to determine the appropriate
amount of spectrum for each NGSO-like system.
Under this new approach, licensees will be free to purchase spectrum rights
from other licensees after the licenses have been granted. While this purchase
option might be quick and will pose fewer administrative burdens, it creates
the risk of additional costs for the satellite operator, which must negotiate
with other licensees for the spectrum rights necessary to operate within its
system design and business parameters. Under the prior procedure, the negotiations
occurred while the applications were pending, so no applicant could be assured
of a license and, therefore, had more incentive to negotiate a reasonable sharing
of the spectrum. With the new FCC Order, the licenses are granted quickly but
may have little practical value until additional spectrum is purchased on the
open market. As a result, other licensees can be more aggressive in their negotiations
for spectrum rights.
Another risk is that the NGSO applicants will seek more of the spectrum than
is operationally required, out of concern that the license will represent only
a portion of what was originally requested. The applicant could experience
higher costs in its effort to technically support a broader spectrum request.
If competing applicants take the same approach, then the regulations may have
unintentionally created a false indication of the market demand. Fortunately,
as discussed below, the FCC adopted certain safeguards against speculative
application, designed to make this type of commercial leveraging unprofitable.
Despite encouraging a market-driven allocation, the FCC does not permit market
forces to function without limitation. The FCC regulations constrain market
forces by requiring a minimum number of participants for the processing rounds
and frequency allocations. In the modified processing round, if fewer than
three applicants participate, then the FCC will not allocate the entire requested
spectrum between the two applicants or to the sole applicant. Instead, it will
reserve one-third of the spectrum for future market entrants and will allocate
one-third to each existing applicant. Similarly, if a licensee loses its license,
the spectrum rights will be allocated among the applicants that were earlier
granted licenses in the same processing round, unless there are fewer than
three. In this event, the FCC may initiate a processing round to invite other
applicants to apply for the spectrum rights, without permitting participation
by current license-holders in that portion of the spectrum.
This procedure was adopted out of concern that a significant reduction in
the number of competitors and a substantial increase in concentration would
hinder
future market entry and harm competition. The Order creates a presumption that
three applicants or licensees are need to foster necessary competition. Although
this presumption is rebuttable, the applicant must provide convincing evidence
that allowing only two licensees will result in “extraordinarily large,
cognizable, and non-speculative efficiencies.”
If one desires to have the market drive an efficient allocation and use of
the spectrum by satellite operators, then such limitations should be unnecessary.
Future market entrants, which have not shown any intent or financial ability
to compete for frequencies, would not have the market leverage to reduce the
spectrum to be awarded under the lead applicant’s license. Conversely,
allowing the lead applicant to use its market strength to acquire more of this
spectrum in the processing round could have the benefit of quickly bringing
into service the most viable system operator.
Under the new regulations, however, this lead applicant cannot be guaranteed
all of the spectrum it requests, with one of two probable results: (1) the
applicant requests more spectrum than it needs or can justify from an operational
perspective; or (2) the applicant is granted a license in only a portion of
the spectrum and lacks sufficient spectrum to achieve its business plan. Yet,
in this latter scenario, the licensee cannot “buy spectrum” on
the open market because that portion of the spectrum has been reserved by the
FCC for future use. These potential difficulties in how well the market will
function remain to be seen.
B. GSO: First-Come, First-Served
Because GSO systems are better able to exclude transmissions from satellites
other than the one at which the earth station antenna is pointed, the FCC did
not follow the processing method for NGSO systems. Rather than have GSO systems
participate in processing rounds, as had been done previously, a new “first-come,
first-served” procedure permits the FCC to consider GSO applications
in their order of submission. In this process, the FCC will not consider competing,
but later-filed applications in the same queue. So long as the first applicant
is qualified and the application is not mutually exclusive of protection granted
under an existing license, then the license may be granted. The FCC’s
new requirement that all applications be electronically filed will help to
resolve any questions about priority in the queue.
The FCC recognized that this new procedure might result in a rush of “place-holder” applications,
filed only to obtain an early position in the queue. To avoid this result and
to prevent other speculative applications for both GSO and NGSO systems, it
adopted several safeguards.
Changes to Financial Requirements, Milestones, and Anti-Trafficking Rules
The FCC Order made significant improvements in financial requirements, milestones,
and anti-trafficking rules; all of these changes were made to support viable
business enterprises, while precluding speculative and place-holder applications.
First, the FCC eliminated its requirement that the applicant show sufficient
financial resources to construct, launch, and operate the satellite or satellite
constellation. The FCC had found that this financial requirement was not an
accurate gauge of a licensee’s ability to bring the satellite system
into service, and so repealed this license requirement.
It did, however, impose a bond requirement, under which the licensee must post
a bond, within thirty days of the grant of the license, that is payable to
the United States Treasury if the licensee misses defined project milestones.
The bond requirement serves three FCC objectives. First, the FCC hopes to deter
speculative applications because the licensee will not want to post the required
bond, if it does not seriously intend to construct the satellite system. Second,
tying payment of the bond to performance of project milestones will either
prompt operators to bring their systems into service quicker, or will allow
the FCC to reclaim unused spectrum in a timely manner and to assign that spectrum
immediately to licensees which are proceeding to construction. Finally, the
bond requirement speeds the application process because, once again, the market
(and not the FCC) is judging the financial soundness of the applicant.
As the licensee meets each milestone, the amount of the bond will be reduced.
For NGSO systems, each milestone completion results in a 20% reduction of
the bond; for GSO systems, the bond is reduced by 25% at each milestone.
The milestone requirements (defined in years) are similar, but not identical,
for both NGSO and GSO systems as follows:
|
