The following two pleadings were Submitted to the FCC on June 7, 2002.
The first pleading is the Reply Comments of LRT.
The second filing is the LRT PROPOSAL FOR ADMINISTRATIVE DISPUTE RESOLUTION OF ISSUES
Before the
Federal Communications Commission
Washington, D. C. 20554
In the Matter of }
}
Lockheed Martin Corporation COMSAT }
Corporation, and COMSAT Digital } IB DOCKET NO. 02-87
Teleport, Inc., Assignor, }
}
And }
}
Intelsat, Ltd., Intelsat (Bermuda), Ltd., }
Intelsat LLC, and Intelsat USA License Corp. }
Assignee }
And Telenor Satellite Inc., Assignee }
}
Applications for Assignment of Sections 214 }
Authorizations and Earth Station Licenses and }
Declaratory Ruling Requests }
REPLY COMMENTS
Litigation Recovery Trust (“Petitioner” or “LRT”), on behalf of its members and its associated entities , hereby submits its Reply Comments in this proceeding. Previously, Petitioner submitted a Provisional Petition to Deny, including Request for Protective Orders (“Petition”), which referenced, among other actions, the LRT Reconsideration Petition (“Reconsideration Petition”) in the Commission’s current reconsideration proceeding related to the merger of Comsat Corporation (“Comsat”) and Lockheed Martin Corporation (“Lockheed”) (File Nos. SAT-T/C-20000323-00078, et al). The said LRT Reconsideration Petition referenced a number of issues related to the sale of Comsat assets by Lockheed. As outlined in the Petition , certain of the issues raised in the Reconsideration Petition are related to the issues under consideration in the current proceeding.
1. Issues Raised By Other Parties
LRT has reviewed the various comments submitted in this proceeding, i.e. those submitted by AT&T Corp, (“ATT”), WorldCom, Inc. (“WorldCom”) and Sprint Communications Company L.P. (“Sprint”) and Verestar, Inc. (“Verestar”). As outlined below, the primary concerns of the foregoing parties, as detailed in their comments, is to seek appropriate safeguards through the establishment of specific conditions imposed by the Commission on any assignment grants to assure that Intelsat will observe certain structural and rate regulation policies.
Specifically, the parties seek the adoption of the following policies and/or protections:
1. The mandated acceptance by Intelsat of the price reductions and price caps previously accepted by Comsat set forth in the Alternative Rate Regulation Order (14 FCC Rcd. at 3071-77) as follows:
(a) reduction of prices for switched voice services by the greater of (i) four percent per year or (ii) the amount of price reductions for such services on competitive routes; and
(b) no future price increases for private line services or occasional-use video services
2. The adoption of a condition requiring that for the period extending to the termination of the committed terms of Intelsat circuits that are currently purchased through Comsat, the prices charged by the combined Intelsat/Comsat for such circuits will be at the same non-discriminatory levels that would have been available directly from Intelsat (i.e. the Intelsat Utilization Charges) at the time the circuits were originally purchased.
3. The adoption of a condition requiring that with respect to new space segment capacity sold by the merged Intelsat-Comsat, the services offered shall be the same as those offered by Intelsat throughout its system, and the wholesale prices offered by Intelsat to U.S. customers shall be:
(a) the same as those offered to other non Intelsat affiliated customers for capacity on the same satellite(s) and
(b) no higher than those offered to Intelsat’s own downstream operations
(c) the existing incentive-based regulation of Comsat rates shall apply to the prices of the merged Intelsat/Comsat, using current Intelsat prices as the base prices
4. The adoption of a condition requiring that the former Comsat World Systems following its purchase by Intelsat will operate as a separately organized entity independent from Intelsat
5. The adoption of a condition requiring that the former Comsat World Systems following purchase by Intelsat will provide space capacity to customers on a common carrier basis.
6. The adoption of a condition requiring that Intelsat will provide space capacity in accordance with tariff schedules as filed with the Commission.
LRT is of the opinion that the rationale offered by the parties in support of the foregoing proposals is sound, and the conditions as outlined are quite appropriate in view of the serious issues raised.
As correctly observed by ATT in its Petition to Deny, a series of policies and rules adopted by the Commission in carrying out the terms of the ORBIT Act were premised on the fundamental assumption that Comsat would continue to function as an independent, regulated retailer of Intelsat space segment capacity in the United States. Now, as a result of the proposed transaction entered into by Intelsat and Lockheed, Comsat will in essence be merged into Intelsat and, as a result, Intelsat itself will become a retail distributor of its own space segment capacity in the U.S.
This transaction in effect turns the former Intelsat-Comsat wholesaler-retailer relationship on its head, and produces the prospect of possible anti-competitive conduct on the part of the expanded Intelsat company. The conditions proposed in the W/S Comments and the ATT Petition to Deny address the most serious of the potential anti-competitive issues which must be confronted as a result of the proposed Intelsat-Comsat transaction.
For the reasons stated herein and in a supplemental pleading, LRT supports the adoption of the conditions proposed by ATT, WorldCom, Sprint and Verestar. LRT favors the inclusion of the proposed conditions in any order granting the requested assignment of CWS licenses to Intelsat.
2. Issues Raised by LRT
In its Petition, LRT raised a series of what it views as very serious issues which call into question the legal rights of Intelsat and Lockheed to enter the subject purchase and sale transaction and to file the pending Application with the Commission. Other issues raised by LRT address a number of critical compliance issues, anti-competitive issues and concerns, as well as national security matters.
A. The Application is Defective and Should be Dismissed
LRT remains of the opinion that the Application as submitted by the parties is defective on its face. As outlined in detail in the Petition, the Application misrepresents (i.e. fails to disclose) the current status of the Lockheed/Comsat licenses, and further fails to disclose information critical to assessing the qualifications of Lockheed and Comsat to continue as Commission licensees. These actions constitute violations of Sections 1.17 and 1.65 of the Commission’s rules.
As noted by LRT, the failure to make these requisite disclosures affects not only the licensee qualifications of Lockheed and Comsat, but also the status of joint applicant Intelsat, both before the Commission, as well as the Securities and Exchange Commission (SEC), where it has filed a preliminary prospectus under Form F-1 (Notice of Election to Register Securities).
As outlined in detail in the Petition, Lockheed and Comsat included a number of representations in the Application which, based on evidence filed with the Commission, are untrue. These misrepresentations are viewed by LRT as constituting an effort by these companies to conceal basic and vital facts from the Commission staff and, most importantly, from all parties to the proceeding, including ATT, WorldCom, Sprint and Verestar, as well as other competitors, customers, public interest groups and governmental institutions- that may have been and may continue to be interested in, and/or may be directly or indirectly affected by, the proposed transaction and this proceeding.
Stated simply, as presented by LRT, Lockheed does not possess a final grant of authority to the Comsat licenses, which it is seeking to assign to Intelsat. Furthermore, in the context of the Comsat-Lockheed merger reconsideration proceeding brought by LRT, a series of disqualification issues have been raised against Lockheed, including, but not limited to, fraud, misrepresentation, failure to disclose and violation of public interest standards, directly impacting the right of Lockheed to continue as a licensee, as well as its associated right to assign its licenses to Intelsat.
In view of the foregoing, LRT remains of the opinion that the subject Application should be dismissed and returned to the parties as defective. The parties would then be free to refile the Application, including therein the necessary amendments so as to present all information relevant to the legal, technical, financial and character qualification requirements of assignors and assignees under the Commission’s rules. Once the amended Application is refiled, the Commission will be able to determine what additional actions should be properly required, including, but not limited to, a full evidentiary hearing and/or investigation of the qualifications of Lockheed/Comsat and, where necessary, Intelsat.
B. In the Alternative, the Application Should be Noticed for Hearing or Investigation
Prior to Conducting a Supplementary Round of Comments
In the event that the Commission does not dismiss the Application as defective, LRT requests that the agency immediately notice a full evidentiary hearing and/or investigation of Lockheed/Comsat and, where necessary, Intelsat, including, in addition to issues related to relevant legal, technical, financial and character qualifications, matters concerning the approval of the Lockheed-Intelsat purchase and sale agreement, including a full investigation of board authorization of the proposed Lockheed-Intelsat transaction and joint board memberships of the two companies.
Given the evidence that has heretofore been placed upon the record in other proceedings before the Commission, issues posed for hearing/investigation should be premised on the assumption that Comsat and Lockheed have violated the Commission’s disclosure rules, have submitted false information to the Commission and have therefore violated the basic character qualifications required of licensees. All parties in this proceeding, as well as other interested parties, should be permitted to participate in the hearing/investigation.
Following the completion of the hearing/investigation, the Commission should conduct a further round of supplementary comments before the staff proceeds with its review of the Application.
C. In the Alternative, the Commission Should Adopt a Series of Conditions
in Connection with any Grants to Safeguard the Public Interest
In the event that the Commission determines that sufficient grounds exist to approve the Application, such approval should be made subject to the following conditions:
1. The Commission shall adopt the Protective Orders heretofore submitted as Exhibit A to the LRT Petition.
2. The Commission shall adopt an order requiring Lockheed to pay over to the Commission all net proceeds paid by Intelsat for its purchase of Comsat World Systems for the purpose of establishing a fund (Digital Conversion Fund) to assist through loans and grants the financing of the digital conversion of small market, minority owned and public television stations and cable systems, lacking ready access to capital for such technical upgrades. The term “net proceeds” shall be deemed to mean million, constituting the gross sale proceeds to be paid to Lockheed by Intelsat for its purchase of Comsat World Systems, less certain costs and expenses, including Lockheed’s transaction costs.
3. The Commission shall adopt an order requiring Lockheed to pay over to the Digital Conversion Fund any and all proceeds realized from the following sales of Comsat assets:
(a) the sale of Comsat Mobile Communications assets and shares Inmarsat, Ltd. to Telenor, ASA ;
(b) the sale of all Comsat International division assets ;
(c) the sale of Intelsat shares sold by Lockheed in connection with the Intelsat ipo or to any third party purchaser in other sale(s);
(d) the sale of Inmarsat shares sold by Lockheed in connection with the Inmarsat ipo or to any third party purchaser in other sale(s); and
(e) any consideration in cash or otherwise (including inter-company charges/credits for transfers of Comsat assets to other Lockheed divisions) realized from the sale or other disposition or transfer of any other Comsat assets not included within paragraphs (2) and (3) (a) through (d) above.
4. The Commission shall adopt an order requiring Lockheed to pay the expenses and costs of the parties to this proceeding.
5. The Commission shall adopt an order requiring Lockheed to undertake the following actions:
(a) Lockheed shall covenant that so long as it is an FCC licensee, it shall immediately report to the Commission any notices of government investigations, inquiries, indictments or other official actions involving allegations of fraud, price fixing or manipulation, misrepresentation, abuse of process, obstruction of justice, violation of Federal False Claims Act, activities in restraint of trade or violations of antitrust statutes.
(b) Separately, Lockheed shall covenant to comply with all FCC rules, including the ex parte rules, and the public interest requirements of the Satellite Act and agree to accept fines or forfeitures of ,000 per assessed violation.
(c) Lockheed shall execute an appropriate Consent Decree and Compliance Plan as submitted separately by LRT in this proceeding.
3. Proposed Administrative Dispute Resolution
Given the type of issues, which have been raised by the parties in this proceeding, LRT has come to the position that the most appropriate way to proceed at this juncture would be to explore a modified type of Administrative Dispute Resolution. Such a process can allow the expedited resolution of the issues and avoid a series of administrative and possible judicial reviews of complex issues that have been raised to date. For this purpose, LRT is submitting a separate filing in this proceeding, outlining proposed terms of settlement and proposing an expeditious approach to resolving the key issues which have been raised.
The Commission heretofore has adopted a policy that supports and encourages the use of alternative dispute resolution procedures in its administrative proceedings, as well as proceedings in which the Commission is a party. These procedures include the use of regulatory negotiation in Commission rulemaking matters, as authorized under the Administrative Dispute Resolution Act and Negotiated Rulemaking Act. Such procedures have been adopted in accordance with the Commission's policy to encourage the fullest possible use of alternative dispute resolution procedures in its administrative proceedings
LRT is of the opinion that the current proceeding involves a series of matters, which lend themselves to expedited settlement among the concerned parties. Assuming appropriate resolutions are reached, such a process will permit this proceeding to be concluded at an early date, and allow all related matters to be concluded as well. This is the express objective, which has been set by the Commission in adopting its Administrative Dispute Resolution procedures.
4. National Security Concerns
As outlined in its Petition, LRT remains of the opinion that the Commission, in coordination with the Executive Branch, carefully study and assess the possible effects with this particular transaction can have with respect to a full range of national security issues.
As LRT outlined in its initial filing, the licenses and authorizations at issue were originally issued to Comsat in its capacity as a US Government sponsored enterprise. From the time of its creation in 1962 and continuing until its acquisition by Lockheed in August 2000, Comsat operated simultaneously as a quasi- government agency and a private stock corporation. Comsat was (and continues) as the government’s signatory representative to INTELSAT and Inmarsat inter- governmental organizations, which pursuant to treaty covenant necessarily limited its activities to non defense matters. These restrictions notwithstanding, as a government sponsored entity, Comsat could freely and routinely coordinate its activities with US Government law enforcement and intelligence agencies and departments.
LRT is concerned that with the assignment of the CWS licenses to Intelsat, a non-US corporate entity controlled by non-US interests (including foreign government shareholders), such immediate and wide-ranging coordination with US law enforcement and intelligence agencies, including the newly proposed Homeland Security Department, will not be possible. These critical matters must be properly addressed by the Applicants and reviewed and investigated by the Commission.
This having been said, the regulatory process being followed in this proceeding has required LRT to submit its reply comments on the national security issues (and other matters) without having the opportunity to review the Applicants’ responses to the concerns raised by LRT in its earlier submission. Such a limited review and comment procedure, in the view of LRT, is not in the public interest as it necessarily restricts the ability of LRT and others to review and comment upon the Applicants’ responses on matters of national security, as well as other vital issues. This restricted procedure by its very nature denies the due process rights of LRT and the other participants.
Given this situation, LRT respectfully requests that the Commission provide all parties the opportunity to submit additional comments in response to the Applicant’s filings made in this second comment round. The additional comments should be submitted within 14 days of the Commission’s notice. Only in this way will all parties be able to properly review the Applicants’ responses, and provide the Commission with detailed comments on all key issues, which will be useful to the staff in making their recommendations to the Commission.
If interested parties are not allowed to submit a third round of comments as proposed herein, the findings and recommendations ultimately forming the basis of a report and order will be found to be fatally flawed. Unless the procedures are altered as requested, LRT and other concerned parties will be denied the opportunity to properly and completely review, analyze and comment upon the Applicants’ responses dealing with national security and other vital issues, a number of which have become issues of increasing importance and the highest priority since the tragic events of September 11.
Furthermore, as noted, with the sale of the CWC assets to Intelsat, ready and continuing access to these Comsat facilities and information would no longer be provided by a US Government sponsored corporation. Rather, access to data will be through a company, which counts among its key owners, a number of sovereign governments. This must raise very serious considerations, which must be carefully studied and assessed. Given the size and international scope of communications facilities operated by CWC, the national security implications are far more complex than those involved in the typical terrestrial wireline or cellular system. In light of this fact, LRT remains of the opinion that the Commission and the Executive Branch should establish a special task force, which would involve all appropriate law enforcement and intelligence agencies and departments to review all aspects of this the proposed transaction which necessarily involve national security issues.
LRT believes the national security concerns involved in operating CWC are of such a complex nature as to preclude the possibility of transferring this business to the control of a foreign company, which, in turn, is owned in significant part by foreign governments. For this reason, consideration should be given to establishing a trust or other structure, which would assure immediate and continuing access to CWS facilities by US Government law enforcement and intelligence agencies.
LRT recognizes that these considerations are matters delegated to the appropriate US Government agencies and departments. LRT therefore reserves judgment pending its review of a complete analysis by the Commission of the national security concerns at issue in this transaction.
5. Special Considerations Raised With Respect to Assignor
In the Application, Lockheed/Comsat has presented a series of facts and arguments, which seek to bolster its primary argument, i.e. that the transaction in combing CWC and Intelsat will produce better, more efficient and expanded satellite services for US customers. However, LRT remains concerned that neither Comsat nor Lockheed has provided any explanation as to the reason why, following just over one year of ownership and operation of Comsat, the decision has been made by Lockheed to liquidate the company. Not only has Lockheed/Comsat failed to address this key question, but more importantly, Comsat and Lockheed have neglected to confront the related issue- the failure of the transaction to comply with the strict terms of the Orbit Act and the intent of Congress in passing the said legislation.
As outlined in its initial Petition, LRT is concerned that the actions taken by Lockheed in failing to properly invest resources in Comsat to restore it to its previous position of leadership in the global satellite industry constituted a direct violation of undertakings and representations which the company made to Congress. As documented in the Congressional Record , Lockheed, in seeking Congressional approval to merge with Comsat, made specific commitments to provide necessary support- both in terms of financial investment and management expertise- to rebuild and reinvigorate Comsat, which had fallen upon difficult, if not desperate, times . Yet, as noted earlier by LRT, literally within days of completing the merger, Lockheed began to strip Comsat of its assets , selling them to competing carriers. And, of course, in December 2001, Lockheed advanced from the gradual sale of assets approach to the wholesale liquidation of Comsat, including its stock interests in Intelsat and Inmarsat.
Given these facts, it is critical that the Commission conduct a full investigation into the circumstances surrounding the Lockheed-Comsat merger and the representations made by the corporations to Congress and the Commission, as well as the subsequent actions undertaken by Lockheed and its management to fully liquidate its interest in Comsat.
6. Notice As to Proposed Protective Orders
In the event that the Commission approves the Application, in whole or on part, LRT has proposed that the Commission make any grant of authority subject to the Protective Orders set out in Exhibit A to its Petition.
Intelsat is a foreign company seeking the grant of key federal communications licenses and permits, originally granted to Comsat, a U.S. sponsored corporation. The said licenses and permits can properly be considered national assets. In light of the unique nature of the licenses and permits at issue, LRT maintains that the Commission should adopt strict monitoring procedures as outlined in Exhibit A to assure Intelsat’s continuing compliance with the rules and regulations of the Commission, as well as all applicable federal statutes.
7. Conclusion
LRT continues to view this proceeding as a very serious matter. The joint Application is defective and should not and indeed cannot be properly processed. It must be withdrawn and corrected prior to resubmission (if this is the choice of the parties) or amended. Consequently, the pleading cycle must be altered.
In any event, LRT requests that the issues related to the technical, legal, financial and character qualifications of the parties be noticed for evidentiary hearing or investigation before further actions are taken with respect to the Application.
Further, in the interest of due process, the Commission is respectfully requested to extend the pleading cycle in this proceeding to a third round of filings, so as to allow all interested parties the opportunity to comment upon any joint or independent filing made by Lockheed/Comsat and Intelsat in this second or reply comment round. Only in this way will the parties be able to fully review, analyze and comment upon the Applicants’ filing in response to the various petitions and other pleadings submitted by the parties to date.
LRT also requests the appointment by the US Government of a joint department/agency task force to review and report upon the national security issues, which are necessarily involved as result of the proposed assignment of licenses to Intelsat, a foreign corporation which is in part controlled by foreign governments.
LRT requests that the issuance of any orders permitting the assignment of the subject licenses to Intelsat be made subject to the Protective Orders submitted as Exhibit A to the Petition.
Finally, LRT observes that it is proceeding through the submission of a second filing of even date to encourage the utilization of Administrative Dispute Resolution procedures to permit the parties hereto to reach a proper and expedited settlement of the various matters at issue which have been raised to date.
Respectfully submitted,
Litigation Recovery Trust
515 Madison Avenue Suite 2306
New York, NY 10022-5403
By____________________
William L. Whitely
Trustee
June 7, 2002
CERTIFICATE OF SERVICE
I, William L. Whitely, hereby certify that I have this 7th day of June, 2002 forwarded the foregoing Reply Comments via Email, Federal Express or US Mail, postage prepaid to the following:
David B. Meltzer
General Counsel and Senior Vice President
Intelsat Global Service Corporation
3400 International Drive, NW
Washington, DC 20008
Larry W. Secrest
Wily Rein & Fielding
1776 K Street NW
Washington, DC 20006
Counsel to Lockheed and Intelsat
Mark C. Rosenblum
Lawrence J. Lafaro
James J. R. Talbot
ATT Corp.
Room 1121M1
2195 N. Maple Ave.
Baking Ridge, NJ 07920
Alfred M. Mamlet
Maury D. Shrenk
Steptoe & Johnson
1330 Connecticut Ave
Washington, DC 20036
Counsel to WorldCom and Sprint
Scott H. Lyon
Asst. Gen Counsel
Verestar, Inc.
3040 Williams Drive
Fairfax, VA. 22031
____________________________
William L. Whitely
Before the
Federal Communications Commission
Washington, D. C. 20554
In the Matter of }
}
Lockheed Martin Corporation COMSAT }
Corporation, and COMSAT Digital } IB DOCKET NO. 02-87
Teleport, Inc. ,Assignor, }
}
And }
}
Intelsat, Ltd., Intelsat (Bermuda), Ltd., }
Intelsat LLC, and Intelsat USA License Corp. }
Assignee }
And Telenor Satellite Inc., Assignee }
}
Applications for Assignment of Sections 214 }
Authorizations and Earth Station Licenses and }
Declaratory Ruling Requests }
LRT PROPOSAL FOR ADMINISTRATIVE DISPUTE RESOLUTION OF ISSUES
Litigation Recovery Trust (“LRT”), pursuant to 47 CFR § 1.18 (a) and (b) Administrative Dispute Resolution and the applicable rules and policies of the Federal Communications Commission , proposes to seek the adoption of the settlement terms set forth herein by the parties in the above referenced proceeding. The terms are proposed to be incorporated in the Order to be issued by the Commission with respect to the pending Application providing for the assignment by Lockheed Martin Corporation (“Lockheed”) of Comsat Corporation (“Comsat”) licenses to Intelsat, Ltd. (“Intelsat”).
It is noted that the Administrative Dispute Resolution procedures were adopted by the Commission pursuant to the Administrative Dispute Resolution Act and Negotiated Rulemaking Act in an effort to facilitate the use of negotiations to settle outstanding matters in dispute.
The Commission heretofore has adopted an initial policy statement that supports and encourages the use of alternative dispute resolution procedures in its administrative proceedings and proceedings in which the Commission is a party, including the use of regulatory negotiation in Commission rulemaking matters, as authorized under the Administrative Dispute Resolution Act and Negotiated Rulemaking Act. Such procedures have been adopted in accordance with the Commission's policy to encourage the fullest possible use of alternative dispute resolution procedures in its administrative proceedings
These ADR procedures have been adopted by the Commission as part of an effort to make the Federal Government operate in a more efficient and effective manner, and to encourage, where possible, consensual resolution of disputes and issues in controversy involving the United States, including the prevention and avoidance of disputes. The Federal Government has designated Interagency Committees to facilitate and encourage agency use of alternate means of dispute resolution and negotiated rulemaking.
1. Outline of Proposed Settlement
LRT believes that the present proceeding involves a series of issues, which can be properly addressed through negotiated settlement by the following parties: Lockheed and Intelsat , the Applicants, as well as AT&T Corp, (“ATT”), WorldCom, Inc. (“WorldCom”) and Sprint Communications Company L.P. (“Sprint”) and Verestar, Inc. (“Verestar”), the participants. The participants , in addition to LRT, have to date filed petitions and/or comments in this proceeding. Accordingly, LRT proposes the following settlement terms and conditions for consideration by the said parties:
1. Intelsat shall accept the price reductions and price caps previously accepted by Comsat set forth in the Alternative Rate Regulation Order (14 FCC Rcd. at 3071-77) as follows:
a. reduction of prices for switched voice services by the greater of (i) four percent per year or (ii) the amount of price reductions for such services on competitive routes; and
b. no future price increases for private line services or occasional-use video services
2. For the remaining duration of the committed terms of Intelsat circuits that are currently purchased through Comsat, the prices charged by the combined Intelsat/Comsat for such circuits will be at the same non-discriminatory levels that would have been available directly from Intelsat (i.e. the Intelsat Utilization Charges) at the time the circuits were originally purchased
3. With respect to new space segment capacity sold by the merged Intelsat-Comsat, the services offered shall be the same as those offered by Intelsat throughout its system, and the wholesale prices offered by Intelsat to U.S. customers shall be:
a. the same as those offered to other non Intelsat affiliated customers for capacity on the same satellite(s) and
b. no higher than those offered to Intelsat’s own downstream operations
c. the existing incentive-based regulation of Comsat rates shall apply to the prices of the merged Intelsat/Comsat, using current Intelsat prices as the base prices
d. The former Comsat World Systems will operate as a separately organized entity independent from Intelsat under the name “ Intelsat USA” (or another similar name)
4. Intelsat USA will provide space segment capacity to customers on a common carrier basis.
5. Intelsat USA will provide space segment capacity in accordance with tariff schedules as filed with the Commission.
6. Lockheed will pay over to the Commission all net proceeds paid by Intelsat for its purchase of Comsat World Systems for the purpose of establishing a fund (Digital Conversion Fund) to assist through loans and grants the financing of the digital conversion of small market, minority owned and public television stations and cable systems, lacking ready access to capital for such technical upgrades. The term “net proceeds” shall be deemed to mean million constituting the gross sale proceeds to be paid to Lockheed by Intelsat for its purchase of Comsat World Systems less the following: an appropriate sum payable to Lockheed as compensation for transaction costs and expenses and a sum payable to LRT as set by mediation or arbitration as partial compensation for tort litigation costs and expenses. Any issues of disagreement hereunder shall be referred to arbitration in New York, New York.
7. Lockheed shall pay over to the Digital Conversion Fund any and all proceeds realized from the following sales of Comsat assets:
(a) the sale of Comsat Mobile Communications assets and shares Inmarsat, Ltd. to Telenor, ASA ;
(b) the sale of all Comsat International division assets ;
(c) the sale of Intelsat shares sold by Lockheed in connection with the Intelsat ipo or to any third party purchaser in other sale(s);
(d) the sale of Inmarsat shares sold by Lockheed in connection with the Inmarsat ipo or to any third party purchaser in other sale(s); and
(e) any consideration in cash or otherwise (including inter-company charges or credits for transfers of Comsat assets to other Lockheed divisions) realized by Lockheed from the sale, disposition or transfer of any other Comsat assets not included within paragraphs (2) and (3) (a) through (d) above.
8. The parties agree to execute covenants not to appeal the order issued by the Commission.
9. Lockheed shall pay the expenses and costs of the parties to this proceeding.
10. Lockheed shall undertake the following actions:
(a) Lockheed shall covenant that so long as it is an FCC licensee, it shall immediately report to the Commission any notices of government investigations, inquiries, indictments or other official actions involving allegations of fraud, price fixing or manipulation, misrepresentation, abuse of process, obstruction of justice, violation of Federal False Claims Act, activities in restraint of trade or violations of antitrust statutes.
(b) Separately, Lockheed shall covenant to comply with all FCC rules, including the ex parte rules, and the public interest requirements of the Satellite Act and agree to accept fines of ,000 per violation.
(c) Lockheed shall execute a Consent Decree and Compliance Plan substantially similar to that attached hereto as EXHIBIT 1.
2. Proposed Process for Review of Proposal
To provide an appropriate procedural mechanism for the review and consideration of the proposed terms outlined above, LRT proposes to undertake the following actions in an effort to resolve outstanding issues:
a. LRT shall nominate an independent interlocutor to communicate with the parties referenced herein.
b. The appointed interlocutor shall communicate with all parties to determine their position with respect to the proposal.
c. The interlocutor shall circulate a report among all parties outlining the positions of the parties.
d. Depending upon the reactions of the parties, a meeting of the parties chaired by the interlocutor shall be held at the Commission or other suitable location to discuss issues and open points.
e. Assuming a resolution is reached, the proposal will be submitted to the International Bureau staff of the Commission.
3. Conclusion
As outlined in its Reply Comments, LRT is of the opinion that the current proceeding involves a series of matters, which lend themselves to expedited settlement among the concerned parties. Assuming appropriate resolutions are reached, such a process will permit this proceeding to be concluded at an early date , and allow all related matters involving the parties to be concluded as well. This is the express objective, which has been set by the Commission in adopting its Administrative Dispute Resolution procedures.
Respectfully submitted,
Litigation Recovery Trust
515 Madison Avenue Suite 2306
New York, NY 10022-5403
By____________________
William L. Whitely
Trustee
June 7, 2002
EXHIBIT A
PROPOSED
DRAFT LOCKHEED MARTIN CONSENT DECREE
INCLUDING DRAFT LOCKHEED COMPLIANCE PLAN
I. INTRODUCTION
1. The Federal Communications Commission (the ``Commission'' or the ``FCC'') and Lockheed Martin Corporation (“Lockheed” or the ``Company'') hereby enter into this Consent Decree for the purpose of terminating inquiries by the Commission related to allegations raised by the Litigation Recovery Trust (“LRT”) concerning admitted and possible violations of FCC rules and regulations, including the submission of false information to the FCC and violations of applicable sections of the Communications Act of 1934, as amended (``the Act''),and sections 1.17 and 1.65 of the Commission's Rules. The inquiries focused on the circumstances surrounding Lockheed’s submission to the Commission of false information related to the licensee status of a subsidiary and inaccurate and /or incomplete factual information in various FCC applications, forms and responsive pleadings, including affidavits provided by Lockheed staff attorneys and others. Specifically, these pleadings, forms, applications and affidavits contained false, incomplete and/or inaccurate information as submitted by Lockheed, its affiliates and agents.
II. BACKGROUND
2. Section 1.17 of the Commission's Rules states that no applicant shall make any misrepresentation or willful material omission in any application submitted to the Commission.
3. Section 1.65 of the Commission's Rules requires applicants to furnish ``additional or corrected information'' whenever information furnished in a pending application is no longer substantially accurate and complete in all significant respects or when there has been a substantial change as to any
other matter that may be of decisional significance in a Commission proceeding involving that application. Applicants that violate these rules are subject to the Commission's enforcement authority.
4. Over the past two years, LRT has submitted various pleadings in connection with various applications submitted by Lockheed and its affiliates seeking Commission authorization to merge with Comsat ( FCC File Nos. SAT-T/C-20000323-00078, et al.,); to establish a new Ka Band satellite system (File No. 39-SAT-P/LA-98; Call Sign S2332 IBFS File No. SAT-LOA-1997122-0208, et al); to sell Comsat assets to Telenor, ASA (File No. SES- ASG20010504-0896, et al) and currently to sell additional Comsat assets to Intelsat (IB Docket No. 02-87). Among the allegations raised by LRT in these and other proceedings are, among other things, violations of Section 1.17, 1.65, and violations of the ex parte rules.
5. LOCKHEED and the Commission agree that this Consent Decree
does not constitute either an adjudication of the merits, or any
factual or legal finding or determination of noncompliance by LOCKHEED
with the requirements of the Act, as amended, with the
Commission's Rules, or with the Communications Satellite Act of 1962, as amended (“Satellite Act”).
III. DEFINITIONS
6. For purposes of this Consent Decree and the attached
Compliance Plan, the following definitions shall apply.
(a) ‘`FCC'' or the ``Commission'' means the
Federal Communications Commission and all of its bureaus
and offices.
(b) ``Lockheed'' or the ``Company'' means Lockheed Martin Corp. and its wholly owned subsidiaries, including, but
not limited to, the following: Comsat Corporation, Comsat General Corporation and Lockheed Martin Global Telecommunications (“LMGT”)
(c) ``Parties'' means Lockheed and the FCC.
(d) ``Lockheed FCC Representatives'' means LOCKHEED employees
authorized by LOCKHEED to represent LOCKHEED in ``Contacts with
the Commission,'' as that term is defined in
subparagraph (h) of this paragraph. LOCKHEED will provide
the Chief of the International Bureau a list of LOCKHEED
employees so authorized within 10 calendar days after
the Commission Order adopting this Consent Decree
becomes final, and will provide the Chief of the
International Bureau an updated list on a monthly basis.
This updated list will identify any LOCKHEED employees who
have been added or removed from the previously submitted
list. This list will include: (1) the Chairman and CEO
of LOCKHEED and the LOCKHEED Officers who report directly to
Chairman and CEO; (2) staff assigned to the Lockheed Federal
Regulatory Affairs Group located in Arlington, VA and the
Officer to whom this Group reports; (3) attorneys
assigned to the FCC Legal Group located in Bethesda,
MD and the LOCKHEED Legal Officer to whom this Group
reports; (4) attorneys assigned to the LOCKHEED Legal
Team and the LOCKHEED Legal Officer to whom this Team
reports; (5) all other LOCKHEED employees who have been
authorized to make ``contacts'' with the FCC by one of
the LOCKHEED FCC Representatives listed above; and (6) LOCKHEED
employees who sign and submit sworn affidavits or
statements on behalf of LOCKHEED to the FCC after the
effective date of this Consent Decree.
(e) ``LOCKHEED Compliance Guidelines'' means the Compliance
Primer used by LOCKHEED to provide training to LOCKHEED FCC
Representatives on the requirements of the LOCKHEED
Consent Decree, this Consent Decree, sections 1.17 and
1.65 of the Commission's Rules, and any other FCC rule
pertaining to contacts with and representations to the
FCC.
(f) ``Compliance Training'' means training LOCKHEED provides to
LOCKHEED FCC Representatives on the requirements of the
LOCKHEED Consent Decree, this Consent Decree, sections
1.17 and 1.65 of the Commission's Rules, and any other
FCC rules pertaining to contacts with and
representations to the FCC.
(g) ``Contacts with the Commission'' is defined as an in-
person meeting with an FCC Commissioner or FCC staff, or
participation in a telephone or conference call with an
FCC Commissioner or FCC staff that has been scheduled,
initiated, coordinated or authorized by an LOCKHEED FCC
Representative for purposes of discussing substantive
matters concerning a pending matter relating to LOCKHEED, or
the submission of a written statement, including an
affidavit or sworn statement, to an FCC Commissioner,
FCC staff, or the FCC.
(h) ``Order'' or ``Adopting Order'' means an order of the
FCC adopting this Consent Decree without change,
addition, or modification.
(i) ``Final Order'' means an order that is no longer
subject to administrative or judicial reconsideration,
review, appeal, or stay.
(j) ``Investigations'' or ``investigation'' means,
collectively or singularly, the investigations or inquiries into the allegations of LRT in its various filings and information learned from interviews, documents, informal complaints, ex partes, or other information received by the Commission related to the issues addressed therein (excluding information received in, or in connection
with, any formal complaint proceeding) prior to the date
of the Adoption Order.
(k) ``Effective Date'' means the date on which the
Commission adopts the Adopting Order.
IV. AGREEMENT
7. The Parties agree that this Consent Decree is for settlement purposes only and that by agreeing to this Consent Decree, the Company does not admit any noncompliance, violation, or liability associated with or arising from any alleged actions or failures, including any problems or failures described in the LRT proceedings, or in any informal complaints, ex partes, or other information the Commission received on or before the Effective Date of this Consent Decree.
8. In express reliance on the covenants and representations contained herein, the Commission agrees to terminate the investigations.
9. The Parties agree and acknowledge that this Consent Decree shall constitute a final settlement between LOCKHEED and the Commission of the Investigations. In consideration for the termination of these Investigations in accordance with the terms of this Consent Decree, LOCKHEED agrees to the terms, conditions, and procedures contained herein and in the accompanying and incorporated Compliance Plan. To ensure LOCKHEED's future compliance with the Act and FCC rules, LOCKHEED agrees, effective thirty days after the release of the Order, to implement the specific measures contained in the attached Compliance Plan. LOCKHEED also agrees that the definitions of ``LOCKHEED FCC Representatives'' and ``Contacts with the Commission'' contained in this Consent Decree shall apply to the terms ``LOCKHEED's FCC representatives'' and ``FCC Contacts'' in the LOCKHEED Compliance Plan Regarding FCC Rules and Regulations attached to the LOCKHEED Consent Decree.
10. LOCKHEED has performed an internal investigation concerning an LOCKHEED employee's representations to the International Bureau related to the operation and control of Electromechanical Systems Inc.(“EMS”) , by former senior executives of Comsat Corporation (“Comsat”), a subsidiary of Lockheed, and the filing of false information concerning the licensee status of EMS, violation of the ex parte rules, and failure to observe the requirements of Rule 1.65 ( 47 C.F. R. § 1.65).
11. In relevant part, section 1.65, 47 C.F.R. § 1.65, provides that each applicant is responsible for the continuing accuracy and completeness of information furnished in a pending application or in Commission proceedings involving a pending application. Whenever the information furnished in the pending application is no longer substantially accurate and complete in all significant respects, the applicant is required as promptly as possible and in any event within 30 days, unless good cause is shown, to amend or request the amendment of the pending application so as to furnish such additional or corrected information as may be appropriate. Whenever there has been a substantial change as to any other matter which may be of decisional significance in a Commission proceeding involving the pending application, the applicant shall as promptly as possible and in any event within 30 days, unless good cause is shown, submit a statement furnishing such additional or corrected information as may be appropriate, which shall be served upon parties of record in accordance with § 1.47. . . For the purposes of section 1.65, an application is ``pending'' before the Commission from the time it is accepted for filing by the Commission until a Commission grant or denial of the application is no longer subject to reconsideration by the Commission or to review by any court.
12. Because of the unique circumstances of the various facts involved in the representations and other rule violations, LOCKHEED has no basis upon which to determine whether each of the facts contained in those representations, other than the false information concerning the licensee status of EMS, are or are not accurate. LOCKHEED confirms that it is LOCKHEED corporate policy that if, after an internal investigation and based upon a preponderance of the evidence, LOCKHEED concludes that one of its employees has intentionally made any misrepresentation, or engaged in any willful material omission in any submission to the Commission, either orally or in writing, LOCKHEED will take appropriate disciplinary action, up to and including dismissal.
13. LOCKHEED will make a voluntary contribution to the United States Treasury in the amount of million dollars (,000,000) within 10 calendar days after the Commission Order adopting this Consent Decree becomes final. LOCKHEED must make this payment by check, wire transfer or money order drawn to the order of the Federal Communications Commission, and the check, wire transfer or money order should refer to ``NAL Acct. No. 200132080059'' and ``FRN Nos. 0004-3051-24, 0004-3335-71, and 0005-1937-01.'' If LOCKHEED makes this payment by check or money order, it must mail the check or money order to: Forfeiture Collection Section, Finance Branch, Federal Communications Commission, P.O. Box 73482, Chicago, Illinois, 60673-7482. If LOCKHEED makes this payment by wire transfer, it must wire such payment in accordance with Commission procedures for wire transfers.
14. The Commission agrees that, in the absence of material new evidence related to these matters, it will not use the facts developed in the LRT litigation through the date of this Consent Decree, or the existence of this Consent Decree, to institute, on its own motion, any new proceedings, formal or informal, or to take any actions on its own motion against the Company concerning the matters that were the subject of the LRT litigation. The Commission also agrees that, in the absence of material new evidence related to these matters, it will not use the facts the Bureau developed in the LRT litigation to institute on its own motion any proceeding, formal or informal, or take any action against LOCKHEED with respect to its basic qualifications, including its character qualifications, to be a Commission licensee. Consistent with the foregoing, nothing in this Consent Decree limits the Commission's authority to consider and adjudicate any complaint that may be filed pursuant to sections 208 or 271 of the Communications Act, as amended, and to take any action in response to such complaint.
15. The Company waives any and all rights it may have to seek administrative or judicial reconsideration, review, appeal or stay, or to otherwise challenge or contest the validity of this Consent Decree and the Order adopting this Consent Decree, provided the Order adopts the Consent Decree without material change, addition, or modification.
16. The Company's decision to enter into this Consent Decree is expressly contingent upon issuance of an Order that is consistent with this Consent Decree, and which adopts the Consent Decree without material change, addition, or modification.
17. In the event that this Consent Decree is rendered invalid by any court of competent jurisdiction, it shall become null and void and may not be used in any manner in any legal proceeding.
18. If the Commission, or the United States on behalf of the Commission, brings a judicial action to enforce the terms of the Adopting Order, neither LOCKHEED nor the Commission will contest the validity of the Consent Decree or Adopting Order, and the Company will waive any statutory right to a trial de novo.
19. Any violation of the Consent Decree or the Adopting Order will constitute a separate violation of a Commission order, entitling the Commission to exercise any rights and remedies attendant to the enforcement of a Commission order.
20. The Parties agree that the terms of the accompanying Compliance Plan are incorporated into this Consent Decree. The parties further agree that Part II of the accompanying Compliance Plan will remain in effect only until LOCKHEED has received final authorization for its merger with Comsat. For the purposes of this Consent Decree, final authorization will mean once a Commission grant of an application is no longer subject to reconsideration by the Commission or to review by any court.
21. The Parties agree that Part I of the accompanying Compliance Plan, and the LOCKHEED Consent Decree shall remain in effect until June 1, 2007, unless the Commission votes to extend either of them.
22. This Consent Decree shall terminate at such time as Parts I and II of the accompanying Compliance Plan have both terminated.
23. The Parties also agree that if any provision of the Consent Decree conflicts with any subsequent rule or order adopted by the Commission (except an order specifically intended to revise the terms of this Consent Decree to which LOCKHEED does not consent) that provision will be superseded by such Commission rule or order.
24. This Consent Decree may be signed in counterparts.
_____________________________
By: __________________________________
________________________________
By: ___________________________________
Authorized Representative
PROPOSED
DRAFT LOCKHEED COMPLIANCE PLAN
I. Contacts with and representations to the FCC.
I.A. LOCKHEED FCC Representatives:
I.A.1. LOCKHEED will train and provide materials to its
FCC Representatives concerning the requirements of
this Consent Decree, and Commission rules, regulations and policies.
Specifically, LOCKHEED will:
I.A.1)a. train its LOCKHEED FCC Representatives in
LOCKHEED's obligations regarding contacts with and
representations to the FCC under the terms of the
this Consent Decree, and sections 1.17 and
1.65 of the Commission's Rules and;
I.A.1)b. provide each of its FCC Representatives
with the LOCKHEED Compliance Guidelines setting forth
LOCKHEED's obligations regarding contacts with and
representations to the FCC under the terms of the
LOCKHEED Consent Decree, and
sections 1.17 and 1.65 of the Commission's Rules.
I.A.2. LOCKHEED will provide the materials and training
described in I.A.1., above:
I.A.2)a. to all LOCKHEED FCC Representatives each
year;
I.A.2)b. except in the case of an employee who
signs and submits a section 271 affidavit on
behalf of LOCKHEED, to each employee LOCKHEED designates
as an LOCKHEED FCC Representative by including such employee
on LOCKHEED's list of authorized LOCKHEED FCC Representatives
before such employee participates in a contact with the FCC; and
I.A.2)c. to each LOCKHEED employee who signs and
submits an FCC affidavit on behalf of LOCKHEED no later
than five business days after the date on which
such employee is assigned responsibility to
prepare his or her initial affidavit, or before
the date the employee signs such affidavit,
whichever occurs first.
I.A.3. LOCKHEED will maintain written certification from
each employee in I.A.2. certifying that he or she has
received the training and understands the obligations
regarding contacts with and representations to the FCC
under the terms of the LOCKHEED Consent Decree, this
Consent Decree, and section 1.17 and 1.65 of the
Commission's Rules, and reviewed and understands the
LOCKHEED Compliance Guidelines.
I.B. Contacts with the FCC: LOCKHEED will take reasonable
steps to ensure that only an LOCKHEED FCC Representative
schedules or participates in a Contact with the Commission.
In particular, at quarterly each calendar year, LOCKHEED will
notify its management employees (i.e., non-bargained for
employees) via e-mail that they may not contact the FCC, an
FCC Commissioner, or FCC staff for purposes of discussing
substantive matters concerning a pending matter relating to
LOCKHEED, unless they are authorized by LOCKHEED to engage in such
contact and have received Compliance Training, as defined in
paragraph 6(g) of the Consent Decree.
I.C. Disciplinary Action: If, after an internal
investigation and based upon a preponderance of the
evidence, LOCKHEED concludes that one of its employees has
intentionally made any misrepresentation, or engaged in any
willful material omission in any submission to the
Commission, either orally or in writing, LOCKHEED will take
appropriate disciplinary action, up to and including
dismissal.
I.D. Compliance Tracking: LOCKHEED will assign a manager in
its Federal Regulatory Group the responsibility for tracking
LOCKHEED's compliance with the foregoing requirements, including
the maintenance of records documenting such compliance. LOCKHEED
will make copies of relevant records available to the FCC,
upon written request, within ten days of such request,
unless negotiated otherwise.
II. Affidavits
II.A. Affiant Training: LOCKHEED will inform each affiant
who files an affidavit with the FCC in support of any
application or form of LOCKHEED's obligations under section
1.17 and 1.65 of the Commission's Rules no later than five
business days after the affiant is assigned the
responsibility to prepare his or her initial
affidavit, or before the date the employee signs such
affidavit, whichever occurs first.
II.B. Affidavit Verification: LOCKHEED will require that,
prior to signing an affidavit that is filed with the
Commission in support of an FCC form or application, each
affiant verify to a reasonable certainty, in writing, that
the factual assertions included in the affidavit are
accurate and complete in all significant respects. Such
verification must be based on either the affiant's own
personal knowledge, or the personal knowledge of one or more
LOCKHEED employees whom the affiant reasonably believes are
knowledgeable and reliable. If an LOCKHEED employee verifies
factual information in an affidavit filed with the
Commission in support of an FCC application or form based on
personal knowledge, then that LOCKHEED employee will identify the
factual assertions about which he or she has personal
knowledge and verify to a reasonable certainty, in writing,
that the factual assertion is accurate and complete in all
significant respects.
II.C. LOCKHEED Employees Verifying Factual Information Filed
with the Commission: LOCKHEED will provide all employees
verifying factual information in an affidavit that is filed
with the Commission in support of an FCC application or form
with written instructions summarizing that employee's
responsibility under sections 1.17 and 1.65 of the
Commission's Rules.
II.D. List of Employees Verifying Information in
Affidavits: LOCKHEED will maintain a list of those employees
who, after the effective date of this Consent Decree, verify
the factual assertions contained in an affidavit, or any
portion thereof, filed with the FCC in support of an FCC form
or application. The list shall specify which affidavit(s)
the employee verified and, if an employee verified only part
of an affidavit, which paragraphs of the affidavit the
employee verified.
II.E. Affidavit Statement: LOCKHEED will require that
affidavits signed by an LOCKHEED employee that are filed with the
FCC in support of an FCC form or application include a
statement that the affiant has:
II.E.1. received the training LOCKHEED is obligated to
provide to all LOCKHEED FCC Representatives;
II.E.2. reviewed and understands the LOCKHEED Compliance
Guidelines;
II.E.3. signed an acknowledgement of his or her
training and review and understanding of the
Guidelines; and
II.E.4. complied with the requirements of the LOCKHEED
Compliance Guidelines.
II.F. Compliance Tracking: The Manager referenced in
Section I will have responsibility for tracking LOCKHEED's
compliance with the foregoing requirements, including
maintaining records documenting such requirements. LOCKHEED will
make copies of the relevant records available to the FCC,
upon written request, within ten days of such request,
unless negotiated otherwise.
III. Independent Audit
III.A. An independent auditor shall perform a compliance
attestation of the requirements of this Compliance Plan for
the period July 1, 2002 through June 30, 2005 in accordance
with the standards promulgated by the American Institute of
Certified Public Accountants (``AICPA''). The independent
auditor shall file its audit report with the Chief,
Enforcement Bureau no later than 90 days after the end of
the audit period. In particular, the independent auditor
shall perform an examination engagement resulting in a
positive opinion (with all exceptions noted). The
following terms and conditions shall apply to the conduct of
the audit:
III.A.1. The independent auditor shall be Ernst and
Young, LLP unless otherwise agreed by LOCKHEED and
International Bureau;
III.A.2. The independent auditor shall submit its
preliminary audit program to the Enforcement Bureau and
LOCKHEED for review and comment before starting any work.
The final audit program shall be determined by the
independent auditor based upon AICPA standards, taking
into consideration the comments of the Enforcement
Bureau and LOCKHEED; and
III.A.3. The independent auditor shall make available
to the International Bureau upon request its working
papers and supporting documentation for a period of two
years after completing the audit.
III.A.4. This Compliance Plan incorporates Section III: Definitions from the Consent Decree.
CERTIFICATE OF SERVICE
I, William L. Whitely, hereby certify that I have this 7th day of June, 2002 forwarded the foregoing LRT PROPOSAL FOR ADMINISTRATIVE DISPUTE RESOLUTION OF ISSUES via Email, Federal Express or US Mail, postage prepaid to the following:
David B. Meltzer
General Counsel and Senior Vice President
Intelsat Global Service Corporation
3400 International Drive, NW
Washington, DC 20008
Larry W. Secrest
Wily Rein & Fielding
1776 K Street NW
Washington, DC 20006
Counsel to Lockheed and Intelsat
Mark C. Rosenblum
Lawrence J. Lafaro
James J. R. Talbot
ATT Corp.
Room 1121M1
2195 N. Maple Ave.
Baking Ridge, NJ 07920
Alfred M. Mamlet
Maury D. Shrenk
Steptoe & Johnson
1330 Connecticut Ave
Washington, DC 20036
Counsel to WorldCom and Sprint
Scott H. Lyon
Asst. Gen Counsel
Verestar, Inc.
3040 Williams Drive
Fairfax, VA. 22031
____________________________
William L. Whitely
LRT Provisional Petition to Deny
Before the
Federal Communications Commission
Washington, D. C. 20554
In the Matter of }
}
Lockheed Martin Corporation COMSAT }
Corporation, and COMSAT Digital } IB DOCKET NO. 02-87
Teleport, Inc. ,Assignor, }
}
And }
}
Intelsat, Ltd., Intelsat (Bermuda), Ltd., }
Intelsat LLC, and Intelsat USA License Corp. }
Assignee }
And Telenor Satellite Inc., Assignee }
}
Applications for Assignment of Sections 214 }
Authorizations and Earth Station Licenses and }
Declaratory Ruling Requests }
PROVISIONAL PETITION TO DENY
Litigation Recovery Trust (“Petitioner” or “LRT”), on behalf of its members and its associated entities , hereby submits the instant Provisional Petition to Deny including Request for Protective Orders. Previously, Petitioner submitted a Petition for Additional Issue for Review (“LRT Reconsideration Petition”) in the Commission’s current reconsideration proceeding related to the merger of Comsat Corporation (“Comsat”), a District of Columbia corporation, and Lockheed Martin Corporation (“Lockheed”), a Maryland corporation (File Nos. SAT-T/C-20000323-00078, et al). The said LRT Reconsideration Petition referenced a number of issues related to the sale of Comsat assets by Lockheed. As outlined below, certain of the issues raised in the Review Petition are related to the issues under consideration in the current proceeding.
The instant pleading is submitted with reference to the recent filing of the above-referenced Application for Consent to Assignments (“Application”) submitted to the Commission in the above referenced docket by Lockheed, Comsat and Comsat Digital Teleport, Inc. (collectively “Comsat” or “Assignor”), together with Intelsat, Ltd., Intelsat (Bermuda), Ltd., Intelsat LLC, and Intelsat USA License Corp. (collectively “Intelsat” or “Assignee”) (jointly “Applicants”).
1. Introduction
In issuing its public notice related to the above submission, the International Bureau has taken the position that the Application has been found, upon initial review, to be acceptable for filing. The Commission, however, has reserved the right to return the Application if, upon further examination, it is determined to be defective and not in conformance with the Commission’s rules or policies.
The Commission’s finding notwithstanding, upon its examination of the Application, LRT has found it to be defective and not in conformance with the Commission’s rules and policies. It should be withdrawn by the parties or dismissed by the Commission as defective.
As outlined below, the Application misrepresents (i.e. fails to disclose) the current status of the Lockheed/Comsat licenses, and further fails to disclose information critical to assessing the qualifications of Lockheed and Comsat to continue as Commission licensees. The failure to make these requisite disclosures affects not only the licensee qualifications of Lockheed and Comsat, but also the status of joint applicant Intelsat, both before the Commission, as well as the Securities and Exchange Commission (SEC), where it has filed a preliminary prospectus under Form F-1 (Notice of Election to Register Securities) SEC File Number: 333-87064
In view of the seriousness off the instant situation, LRT earlier this week was in communication with the Applicants to provide them the opportunity to voluntarily withdraw their joint Application immediately. Under this procedure, they would be able to have the option, if they so chose, to revise and resubmit the filing, containing full, complete and proper disclosures of all relevant information, including current license status. In the alternative, Applicants were given to the close of business on Wednesday , May 22 to withdraw the Application. They took no such action. Accordingly, this pleading is being submitted by LRT.
2. Failure to Disclose Pending Commission Proceedings and Licensee Disqualification Issues
At page 14 of the Application, the Applicants represent that the transaction in question is consistent with the “public interest, convenience and necessity.” The parties also make the following representations:
1. “Comsat holds various Commission licenses and authorizations that will be assigned to Intelsat upon the completion of the proposed transaction.”
2. “Intelsat LLC and Intelsat USA possess all requisite legal qualifications to hold Commission licenses and authorizations.
3. “The transaction…does not violate any applicable statutory or regulatory provision.
4. “…a grant of these applications would pose no impediments to Commission enforcement of the Communications Act or any of its goals underlying relevant statutes” Application, pp 11, 14-15
These representations are untrue and are viewed by LRT as constituting an effort to conceal basic and vital facts from the Commission staff and, most importantly, from all parties – competitors, customers, public interest groups and governmental institutions- that may be interested in, and/or may be directly or indirectly affected by, the proposed transaction.
Stated simply, Lockheed does not possess a final grant of authority to the Comsat licenses, which it is seeking to assign to Intelsat. Furthermore, in the context of a reconsideration proceeding brought by LRT, a series of disqualification issues have been raised against Lockheed, including, but not limited to, fraud, misrepresentation, failure to disclose and violation of public interest standards, directly impacting the right of Lockheed to continue as a licensee, as well as its associated right to assign its licenses to Intelsat.
3. LRT Reconsideration Proceeding
Lockheed originally sought the authorization of the Commission to receive the transfer of the subject licenses through its merger with Comsat. While the Commission initially approved the merger (In re Comsat Corporation, 14 FCC Rcd 2714 (1998)), LRT sought reconsideration of the merger order. This proceeding (“LRT Reconsideration”) remains pending, as recently confirmed to LRT by the staff of the International Bureau. Consequently, the Comsat-Lockheed Merger Order remains “non final.”
The issues raised in the LRT Reconsideration are quite serious. In its series of filings, LRT has established that:
1. Comsat’s former Florida subsidiary (Electromechanical Systems Inc. (“EMS”)) on July 17, 2000 entered a plea agreement with the US Attorney for the Middle District of Florida, admitting that it had defrauded the US Department of Defense and US Navy and obstructed justice in selling communications equipment for use on Navy ships. The Comsat company was fined and ordered to pay nearly million in restitution and was placed on probation for five years. This information was not revealed to the Commission prior to its initial grant approving the Lockheed-Comsat merger on July 27, 2000. (See USA v. Electromechanical Systems, Inc., Criminal No. 8:00-CR-00253 ( US District Court, Middle District of Florida (Tampa Division) (“USA v. EMS”).
2. Contrary to the Comsat/Lockheed representations, LRT has established through the submission of documentary evidence secured through the Secretary of State of Florida that senior management of Comsat exercised control over the Comsat Florida subsidiary, raising serious issues of liability.
3. Lockheed/Comsat have admitted to filing false information with the Commission, misrepresenting the licensee status of the Comsat Florida subsidiary.
4. Lockheed/Comsat failed to inform the Commission that Comsat was made the subject of a Federal False Claim action related to the actions of its Florida subsidiary, involving fraud, misrepresentation, intimidation and coercion related to the company’s involvement in defrauding the Defense Department and Navy and illegally discharging company employees who sought to report the illegal activity to authorities. This litigation was ultimately settled by Lockheed through payment of substantial damages to the plaintiffs. (United States ex rel. Beattie et al v. Comsat Corporation et al Case No. (1996CV00966) (“USA v Comsat”).)
5. In an another license proceeding, (the Ka Proceeding ) Lockheed failed to disclose any information concerning the disqualification issues before the Commission in the LRT Reconsideration proceeding.
6. In its filing in the Ka Band License Proceeding, LRT revealed that Lockheed has also been made the subject of another Federal False Claim action prosecuted by the Department of Justice, based on allegations of defrauding the US Air Force in connection with the sale of communications equipment. The amount of the fraud is estimated in excess of million.
The Applicants have failed to present any information concerning the serious matters raised in the context of the LRT Reconsideration and other pending proceedings, involving serious character qualification issues filed against Lockheed and Comsat, including fraud, misrepresentation, affirmative failure to disclose, abuse and misuse of power and repeated and continuing violation of disclosure rules.
4. Character Qualification Issues
As the instant Application does not reference in any way the LRT Reconsideration or other pending proceedings and the character issues to which they give rise, it is clear that Lockheed has failed to provide this relevant and critical information concerning licensee conduct, as required under applicable Commission rules and regulations.
The Commission maintains a longstanding policy for administering character qualification issues raised with respect to license applications. Violations of the Communications Act, the Communications Satellite Act or the Commission's rules and regulations can be found to raise character concerns with respect to broadcast and non broadcast license applications, including providing the basis for disqualification of an applicant. See Virginia RSA 6 Cellular Ltd. Partnership, 6 FCC Rcd 405, 407 (1991) (citing Policy Regarding Character Qualifications in Broadcast Licensing, 102 Commission 2d 1179, 1210 ("Policy Statement") (subsequent history omitted)).
A conviction for fraudulent conduct and obstruction of justice occurring over an extended period of time as clearly involved in the Comsat EMS case, and related efforts to conceal this activity from the Commission as reflected in the LRT Reconsideration proceeding, the Comsat-Lockheed merger and other proceedings, plainly calls into question Lockheed’s ability to act in a manner consonant with Commission regulations. A finding that Lockheed is not qualified to continue as a licensee or should be made subject to sanctions would likely terminate or severely limit its right to assign or transfer its licenses to a third party such as Intelsat.
The Commission has observed that fraud "is a subject area the Commission has traditionally considered to be pertinent to its evaluation of a licensee's character." Decision, 13 F.C.C.R. at 15,038. Commission regulations specifically forbid applicants from "mak[ing] any misrepresentation or willful material omission bearing on any matter...." 47 C.F.R. § 1.17; see also 47 U.S.C. § 312(a)(1). The Commission has found that a licensee's complete candor is important because "effective regulation is premised upon the agency's ability to depend upon the representations made to it by its licensees." Leflore Broad. Co. v. Commission, 636 F.2d 454, 461 (D.C. Cir. 1980); see also Character Policy, 5 F.C.C.R. at 3253.
It is well recognized that the Commission may disqualify an applicant who deliberately makes misrepresentations or lacks candor in dealing with the agency. See Swan Creek Communications, Inc. v. Commission, 39 F.3d 1217, 1221-24 (D.C. Cir. 1994); Garden State Broad. Ltd. v. Commission, 996 F.2d 386, 393-94 (D.C. Cir. 1993).
Lockheed, and Comsat before it, have exhibited a continuing pattern of behavior involving misrepresentation of critical information and affirmative failure to disclose information directly related to licensee qualification and rules compliance issues. Full information concerning these serious matters must be included in the joint Application. The Applicants’ failure to include this information must be found to constitute grounds for the immediate dismissal of the said Application and related filings.
5. Lockheed/Comsat Violations of Commission Rules and Regulations
In the Comsat Merger Proceeding, serious wrongdoing has been admitted by the parties, and substantial and material questions of fact have now been raised regarding the basic character qualifications of Lockheed and Comsat.
For example, it has been established in the Criminal Plea Agreement in USA v. EMS and has been further alleged in USA v. Comsat, that Comsat, for over five years, directed and operated a subsidiary engaged in fraud in providing communications equipment and services to the US Navy, and pleaded guilty to repeated violations of 18 USC § 1516. Comsat was also made subject to civil charges brought by the US Department of Justice in USA v. Comsat, a Federal False Claim action for defrauding the US Navy and obstructing justice, through the destruction of evidence and submission of false data in connection with a federal audit and intimidating and coercing employees. Evidence submitted to the Commission clearly establishes that senior Comsat management personnel were directly involved in the operation and control of the Florida company.
The further evidence shows that Lockheed and Comsat have systematically followed a course of action involving the deliberate failure to disclose information or to misrepresent material acts concerning the status of the USA v. EMS and USA v. Comsat proceedings in connection with their various communications service applications, and the Comsat Merger transfer application and reports filed with the Commission. These actions by Lockheed and Comsat have involved direct and continuing violations of the Commission’s rules and regulations, including, in particular, 47 CFR § 1.65.
The record clearly confirms that Comsat has in the past not dealt truthfully with the Commission (e.g. the company has admitted filing false information with the Commission) and other agencies of the federal government, including the Department of Defense, the Defense Contract Audit Agency and the US Navy Department, and has failed comply with the Communications Act, the Communications Satellite Act , the Commission's rules and policies, the US Criminal Code and other federal laws. The record also establishes that Lockheed has, since October 1998, been a party to this continuing deception and dissembling in connection with the prosecution of the Ka-band system application.
It is observed that the Commission has recognized that prior misconduct can have a material bearing on qualifications for non- broadcast, as well as broadcast licensees, and it has assessed the relevance of such matters in non-broadcast license cases consistently based on the principles set forth in the Broadcast Character Policy Statement. see MCI Telecommunications Corporation For Authority to Construct, Launch and) File No. 73-SAT-P/L-96 Operate a Direct Broadcasting Satellite System at 110 W.L. Memorandum Opinion and Order , released: May 19, 1999 (“MCI Order”).
It has also been established that the criminal and civil violations of a non licensee parent or subsidiary corporation can be found to create disqualifying conditions for the licensee. Lockheed’s continuing failure to notify the Commission concerning the details of the criminal investigation in USA v. EMS and the charges of fraud, misrepresentation and obstruction in USA v. Comsat in the context of the Merger Order, LRT Reconsideration, Telenor Proceeding and Ka band Application, must be found to directly impact Lockheed’s status as licensee. Furthermore, only after issues of licensee qualification can be determined in its favor, can Lockheed’s application for the right to assign the subject licenses to Intelsat be entertained by the Commission.
Lockheed willingly entered into the Comsat Merger transaction paying some .6 billion to acquire the assets and business of Comsat to serve for what it described as the foundation for its newly organized, but poorly performing, worldwide telecommunications enterprise . On completing the Comsat Merger (before securing a final order from the Commission), Lockheed assumed full and complete responsibility for directing and controlling Comsat. However, Lockheed’s transfer application to acquire the Comsat licenses has yet to become final. Therefore, before the present Application can be reviewed, Lockheed’s qualifications to receive the grant of the Comsat licenses must be fully and finally adjudicated.
6. Failure To Disclose License Qualification Information Impacts
the Commission and All Potential Interested Parties
Lockheed has clearly participated in the filing of a defective application. Evidence submitted by LRT in its Reconsideration proceeding reflects the full participation of Lockheed in filing false and misleading information with the Commission, in an effort to avoid liability for the past illegal actions of Comsat, including the criminal activities of its EMS subsidiary. Further, Lockheed has admitted to filing misleading information with the Commission in the LRT Proceeding by falsely representing EMS as a non licensee, in an effort to avoid liability for the action of the Comsat subsidiary (obstruction, destruction and falsification of evidence, intimidation and coercion). Lockheed also failed to file any information concerning Comsat and EMS in connection with the Ka-band license application. None of this information has been referenced in the Application.
This deliberate and continuing concealment of information as reflected in the pending Application directly impacts the Commission’s ability to properly review the Application. It cannot be presumed that the Commission staff has full knowledge of the LRT Reconsideration and other proceedings involving the parties. Indeed, the Applicants have undertaken to supply the “Commission staff reviewing this application” information concerning at least one other related proceeding involving Lockheed that is pending before the agency. The Applicants cannot therefore argue that the staff has available to it full information concerning the license disqualification issues involving Comsat and Lockheed.
Furthermore, and most importantly, the concealment of vital licensee qualification information affecting the Applicants directly affects all parties – competitors, customers, public interest groups and governmental organizations - seeking to review, comment upon or possibly oppose the proposed Lockheed-Intelsat transaction.
As all parties and legal practitioners participating in Commission proceedings fully recognize, the disclosure requirements have been established by the Commission to assure that applicants provide all relevant and current information for review by the Commission staff and the other parties participating in individual proceedings.
Lockheed and Intelsat must clearly expect that the subject Applications will be reviewed by, and quite possibly contested by, a number of other parties . The failure of Lockheed and Intelsat to amend their joint applications to include information directly related to Lockheed/Comsat character qualifications will foreclose all potential contesting parties from having a full and informed opportunity to raise objections concerning Lockheed’s and Comsat’s unfitness to receive the subject license grants and to be granted full and final authority to assign them to Intelsat.
In the final analysis, the rules are the rules, even for large and powerful companies such as Comsat and Lockheed. Disclosure of all material matters affecting licensee character qualifications is critical to the proper review and evaluation of applications by the Commission and all interested parties. Lockheed’s intentional failures to comply with these regulations can properly be deemed to constitute separate grounds for sanctions, including license revocation. Such behavior on the part of a licensee (or potential licensee) is unacceptable, and can be seen as representative of the conduct of Lockheed and Comsat, involving their continued fundamental failure to comply with the Commission’s rules, regulations and policies. Such failures are especially troubling in the case of Lockheed (the country’s largest defense contractor) and Comsat (a government sponsored corporation, originally founded by Congress).
7. Issues Concerning Future Actions With Respect to Intelsat Stock
In the joint Application, the parties state that “Lockheed Martin holds approximately 24.05 percent of the total Intelsat, LTD. shares through Comsat Corporation and related Comsat business entities.” Application, p.9. The Applicants provide further information on this point:
Lockheed Martin’s decision to exit the business of providing global commercial telecommunications services has not affected its investment interest in Intelsat; in fact, Lockheed Martin’s ownership share in Intelsat has increased slightly since the Commission issued the Intelsat Licensing Order (15 FCC Rcd. At 15480) in August 2000. Application, fn 11.
The implication of the above representations is obviously that Lockheed is and intends to remain a majority holder of Intelsat stock. In fact, as noted above, the Application gives the impression that Lockheed is increasing its share interest. However, there is other information available, which raises questions concerning this representation.
A recent wire press story carried by Reuters on April 29, stated that “Intelsat's stockholders also plan to participate in the IPO,” and adding that “the company will not receive any proceeds from the sales of those shares.” No information was included in the Reuters story identifying the selling Intelsat founding shareholders. Specifically, it was not stated whether Lockheed would be included in this group of shareholders disposing of their interests.
In addition, Lockheed in its Form 10-K Report submitted to the SEC on March 7, 2002 stated that certain investment assets, including its 24% stock interest in Intelsat, are being held by the corporation and reported under its “Corporate and Other” segment. The 10 K Report also states that the “ Corporation is continuing to explore the sale of various investment holdings and surplus real estate” held in the Corporate and Other segment. (Lockheed Martin, 10-K Report, p. 10).
Thus, LRT questions the accuracy of the disclosure of information regarding the possible future disposition of Lockheed’s stock ownership interest in Intelsat. If Lockheed is planning on selling shares in the IPO or at any other time, it should so disclose in its Application. If it has such plans and has not disclosed this information, it should be found to have misrepresented its position to the Commission.
Should Lockheed fail to provide further information with respect to its share ownership in Intelsat, based on the representations set forth in the Application, the Commission should condition any grant of authority hereunder upon the express requirement that Lockheed not sell any Intelsat shares in the ipo or in any other transaction(s) without applying for and securing the Commission’s approval for any such sales.
8. The Proposed Assignment Does Not Satisfy the
Commission’s Public Interest Criteria
The parties state that the “proposed acquisition of CWS by Intelsat merits approval under Sections 214, 310(b) 4 and 310 (d) of the Communications. “ Application, p.12. In the absence of additional information addressing certain issues as outlined above, LRT must take a counter view. However, LRT is willing to assess additional information provided by the parties. As a result, pending review of supplemental data, LRT is submitting this conditional petition to deny.
LRT does not believe that the parties have made a sufficient case supporting the proposition that the assignment will “deliver significant benefits to U.S. consumers, without harming competition.” Application,p.13. The parties state that the companies will in effect be combining Intelsat’s massive space segment with the marketing and service components of Comsat. This combination clearly raises serious issues.
According to the last published reports, Comsat maintained a staff of about 1500 people. This is over three times the reported employment rolls of PanAmSat, as well as other US satellite carriers. Since most of the Comsat employees are devoted to sales and marketing, it is clear that the expanded Intelsat will have a decided advantage over other domestic satellite companies. Certainly, some type of sales impact analysis should be submitted by the Applicants for review by the Commission and other interested parties.
As noted, while the Applicants represent that Intelsat possesses all “requisite legal qualifications to hold FCC licenses and authorizations,” this representation can only be true and correct if Intelsat can legally acquire the Comsat licenses. This representation is therefore false, since, as noted above, the Comsat licenses are not yet final and are subject to reconsideration and Court review. Intelsat cannot claim compliance with Commission rules if it is seeking to acquire licenses, which have not been granted to assignor Comsat.
The parties also represent that potential public interest benefits harms of the proposed transaction on balance outweigh the public interest harms. This is not true. It can never be found that a party proposing to acquire licenses that are still under review by the Commission can be determined to serve the public interest, convenience and necessity. To say otherwise, would reduce the Commission’s rules and regulations, not to mention federal communications statutes, to nullities.
The parties also represent that Intelsat’s expansion into the U.S. marketplace will be in the public interest. (Application, p. 15) However, the parties do nor provide any marketing analysis or other data to permit a reviewer to judge the impact of Intelsat’s expansion on the U.S. market. Certainly, the parties should be expected and required to make such a showing.
The parties represent that the aggregate level of foreign government interest in Intelsat is no higher than 30% (Application, fn. 23) However, the parties fail to supply any analysis of the likely impact of the pending ipo on the foreign ownership figures. Here again, the Applicants should be expected and required to make this showing.
9. The Proposed Transaction Directly Violate the ORBIT Act
It is further represented that the transaction is consistent with the ORBIT Act. Here also, LRT must strongly differ from the parties. The transaction clearly violates key provisions of the ORBIT Act.
In passing the ORBIT Act, Congress encouraged both the privatization of INTELSAT and Inmarsat, and the revitalization of Comsat, a company that by all accounts had experienced serious reverses and significant management troubles over the last several years. To accomplish this latter purpose, the Act authorized the acquisition of Comsat by Lockheed, the country’s largest defense contractor.
Congress worked long and hard in developing the ORBIT legislation. As all industry members recognize, the legislation followed a slow and arduous path through Congress, encountering many obstacles. When the necessary changes were adopted and compromises were reached in March 2000, various members marked this achievement in speeches on the Senate and House floors, which reflected the understandings of the members with regard to the purpose and intent of the ORBIT legislation.
The general objectives of the Congress were summarized by Congressman Billy Tauzin, chairman of the Telecommunications, Trade and Consumer Protection Subcommittee as follows:
Moreover, this compromise legislation will enable the completion of Lockheed Martin's proposed .7 billion dollar acquisition of COMSAT, which will further enhance market competition. I am pleased that the legislation repeals unconditionally upon enactment the current ownership restrictions on COMSAT that have prevented Lockheed Martin from purchasing 100% COMSAT. COMSAT has carried out its job as the U.S. signatory to INTELSAT quite successfully. However, COMSAT's business performance acutely demonstrates that COMSAT must reinvent itself if it is to better react to the ever-evolving marketplace. Because of its inability to swiftly take advantage of new market opportunities, COMSAT, over the years, has experienced a steady decline in market share. This compromise legislation unshackles COMSAT from the antiquated regulatory burdens that have to date hampered its success. This legislation enables Lockheed Martin to complete its acquisition of COMSAT. By fortifying COMSAT, through an infusion of financial and human capital, Lockheed Martin will transform COMSAT into a vibrant commercial company, thereby introducing a new American company in the satellite services marketplace. . Cong. Rec.: March 9, 2000 (House)] [Page H902], emphasis added.
In the Senate, Sen. Conrad Burns, Chairman of the Communications Subcommittee included the following remarks upon the adoption of the Conference Report:
This compromise legislation represents the desire of Congress to inject more competition and more privatization into the international satellite communications market. …. The conference has produced an agreement that will encourage expeditious privatization of INTELSAT and Inmarsat and allow Lockheed Martin to reinvigorate COMSAT as a competitor in the international satellite marketplace. At the end of the day, the conference agreement will lead to enhanced competition in telecommunications services, resulting in real consumer benefits of more choices, lower prices and new services. For this, we should all be very proud. I strongly urge my colleagues to adopt this conference report. Congressional Record: March 2, 2000 (Senate)] [Page S1155], emphasis added.
From these statements, it is quite obvious that the members expected that, among other things, they were amending the Satellite Act to permit the Comsat-Lockheed merger as a way to rescue Comsat from its precarious position. What they foresaw was Lockheed providing significant resources – financial and otherwise- to shore up Comsat and allow it to reclaim its former leadership position in the communications industry.
Clearly, the proposed sale of CWC to Intelsat was never contemplated by the Congress. Further, the proposed transaction is directly contrary to the objectives of the members. It was their express purpose to authorize the Lockheed acquisition of Comsat to create an independent, financially strong and technologically advanced company. This goal will not be achieved by the proposed transaction. Indeed, it is highly unlikely that the Congress would have given approval to a proposal to allow Comsat, the country’s first ,and formerly leading, satellite company to be broken up and acquired in part by Intelsat.
The Congressional statements with regard to the adoption of the ORBIT legislation include a Joint Statement of Primary Original Sponsors of Legislation Committee on Commerce, former representative and Committee Chairman Tom Bliley (R-Va) and Ranking Democrat of the Telecommunications, Trade and Consumer Protection Subcommittee Edward J. Markey Representative John Dingell (D-MI), ranking Democrat on the House Commerce Committee. The Joint Statement sets out the following observation:
The policy reasons for section 624 [of the ORBIT act] were that Inmarsat should not be able to expand by repurchasing all or some of, or control, its spin-off, ICO. A primary purpose of the legislation is to dilute the ownership by signatories or former signatories of INTELSAT, Inmarsat and their spin-offs. Cong. Rec.: March 9, 2000 (House)] [Page H902], emphasis added
The statement reflects the Committee’s clear intention, as a matter of national policy, to mandate the dilution of the interests of the original INTELSAT and Inmarsat entities by reducing the share interests of their signatories. The proposed transaction , which in effect increases the interests of Intelsat through its acquisition of CWS, is directly contrary to the express goals and interests of the Congress.
It was a key objective of the Congress to assure that the ownership interests of all INTELSAT and Inmarsat signatories in existence as at the date of the enactment of the ORBIT legislation (“Identified Signatories”) be strictly limited, as per the intent of Congress. Further, it was the objective of the Congress to limit the original ownership interest of Intelsat. These objectives are not met by the proposed transaction, which would result in the expansion of Intelsat through its acquisition (and dissolution) of Comsat, an original finding shareholder of Intelsat..
10 LRT’s Comsat Liquidation Proposal
LRT is particularly concerned with the disposition of all Comsat assets by Lockheed, including its share interest in Intelsat and Inmarsat Ventures, Ltd. This long standing concern dates to 1995, when LRT developed a proposal, which it subsequently submitted to the Commission, designed to provide a new and needed source of funding to assist the digital conversion of small market, low power, minority owned and public television stations and cable systems. The vast majority of these operators lack any ready means to finance the upgrading of their transmission facilities.
The original LRT proposal called for the adoption of a Commission order directing that all proceeds received by Comsat from the privatization of Intelsat and Inmarsat be paid to the US Treasury and dedicated to a Digital Conversion Fund to provide loans or grants for the digital conversion of under-funded tv station operators and cable system owners. Recently, based on certain events, LRT has amended its proposal to require that Lockheed, as the current owner of Comsat, pay over all proceeds, which it receives from its sale of any and all Comsat assets, including the sale of its equity interests in Intelsat and Inmarsat and the sale of Comsat assets to Intelsat and Telenor, ASA.
As has been outlined in earlier LRT filings to the Commission on this subject, its proposal is based on sound policy objectives. Further, it is LRT’s view that its plan is consistent with the Commission’s delegated powers and precedents.
When Comsat was founded by Congress in 1962, it provided Comsat a monopoly over the sale of Intelsat space capacity in the US. This monopoly, which operated as an indirect tax on major US carriers purchasing transponder circuits, returned literally billions of dollars to Comsat over a 30 year period. The company never paid or offered to pay any amount of these monopoly proceeds to the US Treasury, an action, which LRT contends would certainly have been appropriate.
In light of the foregoing considerations, LRT submitted its proposal to the Commission in early 1996, which called for the adoption of an order requiring Comsat to divest all windfall proceeds received from the privatizations of Intelsat and Inmarsat. As outlined in the initial LRT submission, and as restated in subsequent filings, the ownership interests held by Comsat in the two international satellite organizations, which were largely purchased with revenues derived from the transponder sales monopoly, should properly be regarded as national assets. Accordingly, it is LRT’s position that the proposed divesting of Comsat’s financial windfall created through the privatization of Intelsat (and Inmarsat) should be found to be a small return of the billions of dollars realized by Comsat through its transponder sales monopoly.
As the LRT proposal has remained before the Commission, events have occasioned a further amendment to its basic terms. Lockheed’s acquisition of Comsat was undertaken pursuant to special authority provided by Congress in the ORBIT Act, and came at a time when Comsat was experiencing severe financial reverses, reflected in continuing operating losses and its sale of all of its non core assets. In securing Congressional action approving the merger, Lockheed represented that it would invest resources- both financial and manpower- to stabilize and restore Comsat. These representations were clearly reflected in the Congressional Record.
As has now been made clear by subsequent events, Lockheed did not maintain its commitments to Congress. Indeed, within days of closing the merger on August 3, 2000, Lockheed sold one third of Comsat’s stock interest in Inmarsat to Telenor, ASA for million, in a transaction, which LRT maintains violated the ORBIT Act. This was followed within a few more months by Lockheed’s sale of the Comsat Mobile Satellite division to Telenor, notwithstanding the fact that 79% of the stock of the acquiring company is owned by the Kingdom of Norway. The Commission approved this transaction, marking the first time that US communications licenses have been transferred to a company controlled by a foreign sovereign (In re Comsat Corporation, Commission 01-369).
Then, in December of last year, Lockheed announced its decision to terminate its Global Telecommunications subsidiary and its plan to liquidate substantially all remaining Comsat assets. At the same time, Lockheed revealed that it would be taking a $1.8 billion tax write-off as a result of its inability to operate its telecommunications business.
LRT views Lockheed’s failure to invest financial resources in Comsat and its precipitous actions in selling off Comsat assets and exiting the telecom business as a total denial of fundamental trust, and more accurately, an outright misrepresentation to the Congress and the Commission. Simply stated, it appears that Lockheed did not invest any funds in an effort to restore Comsat. Rather, it pursued a plan to acquire the Comsat assets based on a series of representations fully reported in the Congressional Record, which proved to be untrue. It now is seeking to profit through the sale of these assets.
LRT believes that this is a matter, which demands full and complete review and investigation by the Commission and the Congress.
As a result of Lockheed’s actions, LRT has amended its basic Digital Conversion Fund proposal to seek an order of the Commission requiring that Lockheed divest all proceeds which it receives from the sale of Comsat assets, including the sale of Intelsat and Inmarsat stock, so that they may be directed to the public purpose of assisting with the funding of digital conversion of tv broadcasters and cable operators in the US.
As has been noted in each of LRT’s filings on this subject, the Commission is fully empowered to order the proposed divestiture of proceeds from the sale of Comsat assets. As referenced above, this authority was provided in the Communications Satellite Act of 1962.
Clearly, the segments of the television and cable industries- small market, minority, low power and public owners- targeted by the LRT proposal lack ready access to the funding necessary to convert to digital transmission facilities. It is LRT’s position that Lockheed’s windfall proceeds generated from Intelsat/Inmarsat privatizations and the dissolution of Comsat can and should be dedicated to this critical public purpose.
The LRT proposal serves the public interest. Indeed, it is hard to see how any party could not favor and support this proposal. Comsat, which has for all practical purposes ceased to exist, certainly cannot be heard to object. Lockheed, the country’s largest defense contractor and a leading recipient of federal funds, should find no reason to object to the proposal, which in essence returns to the US Treasury a part of the monies generated by the operation of Comsat as funded through its Intelsat monopoly. Finally, Intelsat, which has contracted to purchase CWC, the basic Comsat operating division, for million, should favor this particular utilization for the proposed public interest purpose. Indeed, the LRT proposal actually benefits Intelsat as it will facilitate the upgrading of US television and cable facilities, thereby directly aiding a key segment of Intelsat’s user base.
In view of the fact that Lockheed is now seeking to speed the liquidation of Comsat assets, LRT is undertaking to bring its Comsat Divestiture Proposal to the attention of concerned industry representatives (National Association of Broadcasters, NCTA, PBS, etc), as well as television station and cable system owners and operators to provide them the opportunity to register their support for the LRT proposal. The support of concerned Members of Congress and Congressional committees is also being sought.
As witnessed by the Commission’s recent actions in commencing a rule making to sanction those tv licensees that do not comply with the digital conversion rules, severe problems are being encountered throughout the industry as stations seek to upgrade of their production and transmission facilities. It is obvious by the Commission’s recent action that many stations lack access to capital necessary to convert to the digital standard. Commission staff has previously commented on the soundness of the LRT proposal. It is now the appropriate time to bring this matter to the attention of the full Commission.
11. Non Compliance With Foreign Ownership Restrictions
As reported by the Applicants, the assignment of the common carrier Title III licenses from Comsat to Intelsat will apparently result in the indirect foreign ownership of the licensee, in excess of the 25- percent foreign ownership limit in Section 310 (b)( 4) of the Communications Act of 1934, as amended (“ the Communications Act”).
Applicants request approval of the Application based upon the finding that the transaction will serve the public interest under Section 310 of the Act. Additionally, Applicants request that the Commission approve the assignment of various international Section 214 authorizations from Comsat to Intelsat.
The Applicants contend that the proposed transaction poses no risk of harm to the already competitive marketplace for U.S. international satellite communications services. It is the position of the Applicants that the proposed transaction will enhance the range and quality of satellite based telecommunications services available to US customers, while also satisfying the United States’ market-opening commitments under the World Trade Organization’s Agreement on Basic Telecommunications Services (the “WTO Basic Telecom Agreement’).”
Applicants contend that the proposed transaction presents no legal impediments to the Commission’s approval grant. Citing the Deutsche Telekom-VoiceStream order , the parties maintain that the US subsidiaries of the Bermuda-incorporated Intelsat are fully qualified to hold the Title III licenses and Title II authorizations at issue here. Further, it is argued that the entry of Intelsat’s US subsidiaries into the domestic marketplace are presumed to be pro-competitive.
Applicants also report that Intelsat has not initiated negotiations with relevant U.S. executive branch agencies and will abide by the terms of an anticipated agreement with those agencies with respect to national security and law enforcement issues.
12. Special Considerations Raised With Respect to Assignee
Applicants maintain that Intelsat is financially, legally and technically qualified to receive a grant of the assignments of the subject licenses and authorizations. In support of this position, it is noted that Intelsat, indirect owner of the assignee, is a leading global supplier of satellite telecommunications services and Intelsat, with over $1 billion in annual sales, is financially and technically qualified to operate CWC.
Applicants also contend that Intelsat’s eligibility to hold CWC’s Title II authorizations and Title III licenses is consistent with the Communications Act and the rules and policies adopted thereunder. Specifically, applicants maintain that the proposed ownership and control structure as outlined in the Application is fully consistent with the corporate governance approach adopted in the Deutsche Telekom-VoiceStream Order. LRT objects to this conclusion.
The proposed assignment of licenses and authorizations by Comsat to Intelsat will result in these U.S. government permits being issued to companies ultimately wholly-owned by Intelsat, a company organized under the laws of Bermuda and in which a series of sovereign nations own at least 30% of the issued stock. It is left to be determined how these various governments exercise their powers over the activities of the corporation. This situation is clearly distinguished from Deutsche Telekom where a single government, Germany, was not in control of the US licenses following the Voice Stream merger.
In the DT-VS merger, the parties petitioned the Commission to find that the resulting indirect foreign and government ownership of their common carrier wireless licenses was permissible under section 310(b)(4) of the Act. In the Deutsche Telekom-VoiceStream Order the Commission resolved the relationship between the restrictions on foreign government ownership in section 310(a) of the Communications Act and the provision providing for indirect foreign government ownership in section 310(b)(4),as a matter of first impression for the Commission. In its ruling, the Commission concluded that, pursuant to the terms of the statute, indirect ownership of the licensee by a foreign government, foreign corporation, and aliens resulting from the proposed transaction should be addressed only under section 310(b)(4). The said section provides that an alien or foreign government or their respective representatives or any corporation organized under the laws of a foreign country may hold greater than a 25-percent interest in a corporation that controls a corporate licensee, unless the Commission finds that the public interest will be served by refusal or revocation of the license.
Actually, Section 310 provides several discrete categories of restrictions on foreign ownership of radio licenses. First, sections 310(a) and 310(b)(1) and 310(b)(2) provide:
The station license required under this Act shall not be granted to or held by any foreign government or the representative thereof.
No broadcast or common carrier or aeronautical en route or aeronautical fixed radio station license shall be granted to or held by –
any alien or the representative of any alien;
any corporation organized under the laws of any foreign government;
Thus, sections 310(a), (b)(1), and (b)(2) by their express terms prohibit radio licenses from being “granted to or held by” foreign governments and their representatives, aliens and their representatives, and foreign corporations. Section 310(b)(3) extends the prohibition to corporations that are more than 20 percent owned directly by the entities identified in sections 310(a), (b)(1), and (b)(2). Section 310(b)(3) provides:
No broadcast or common carrier or aeronautical en route or aeronautical fixed radio station license shall be granted to or held by –
any corporation of which more than one-fifth of the capital stock is owned of record or voted by aliens or their representatives or by a foreign government or representative thereof or by any corporation organized under the laws of a foreign country.
Finally, section 310(b)(4) provides:
No broadcast or common carrier or aeronautical en route or aeronautical radio station license shall be granted to or held by –
any corporation directly or indirectly controlled by any other corporation of which more than one-fourth of the capital stock is owned of record or voted by aliens, their representatives, or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country, if the Commission finds that the public interest will be served by the refusal or revocation of such license.
Therefore, section 310(b)(4) extends the prohibition to any corporation that is directly or indirectly controlled by another corporation that is more than 25 percent owned by the entities identified in sections 310(a), (b)(1), and (b)(2), if the Commission finds that the public interest will be served by not granting a license in this circumstance.
In the Deutsche Telcom-Voice Stream Order, the Commission concluded :
that the legislative evolution of these statutory provisions indicates that the categories of restrictions developed over time to reach situations where the foreign connection was progressively less direct and imposed restrictions that were progressively less absolute. The first restrictions, set forth in the Radio Act of 1912, required licensees to be U.S. citizens or domestic corporations (effectively prohibiting aliens, foreign governments, or foreign corporations from holding licenses). That requirement was almost immediately interpreted, according to its plain language, to allow a license to be held by a domestic corporation that was itself a subsidiary of a foreign corporation. The Radio Act of 1927 imposed foreign ownership restrictions in language quite similar to that currently contained in sections 310(a), (b)(1), (b)(2), and (b)(3). It addressed a circumstance not covered under the 1912 Act (foreign ownership of domestic corporations holding licenses) by extending the prohibition of alien ownership to corporations that were more than 20 percent owned by the prohibited entities, in language now reflected in section 310(b)(3). Like sections 310(a), (b)(1) and (b)(2), section 310(b)(3) establishes an absolute prohibition on interests exceeding the 20 percent limit. At the same time, by allowing licensee corporations with up to 20 percent foreign ownership, the provision allows some degree of investment in licensees by those barred from holding licenses directly.
In the Communications Act of 1934, Congress added the provision now contained in section 310(b)(4) to address another circumstance not previously covered: foreign ownership of domestic holding companies that directly or indirectly controlled domestic corporations holding licenses. The provision represented a compromise between competing policy considerations. The Navy argued for an absolute prohibition against foreign participation and control of licenses through holding companies. Others countered that restricting foreign control in holding companies that controlled licenses, such as International Telephone and Telegraph, would be detrimental to domestic and international competition and would lead to international retaliation. Balancing these conflicting concerns, Congress chose not to adopt an absolute prohibition. Instead, it barred the entities described in sections 310(a), (b)(1) and (b)(2) from owning more than 25 percent of such a holding company only if the Commission found such restrictions to be in the public interest in the particular case.
When section 310 of the Communications Act was enacted in 1934, the provisions contained in current sections 310(a) and (b) were contained in a single section 310(a). In 1974, the Communications Act was amended to separate sections 310(a) into the current sections 310(a) and 310(b). The legislative history reflects that this structural change was designed to lessen the burden on private radio licensees and permit entities other than foreign governments and their representatives to hold private radio licenses directly.
However, the legislation as adopted by Congress did not consider the situation which obtains in the case of Intelsat, i.e., the joint ownership by a group of sovereign countries.
As a central finding in the Deutsche Telekom-VoiceStream Order, the Commission concluded that section 310(a) does not expressly prohibit indirect foreign government control of licensees and that the express terms of section 310(b)(4) allow indirect ownership of a licensee corporation in excess of 25 percent by foreign governments and their representatives—as well as aliens, aliens’ representatives, and foreign corporations—provided the Commission does not find it would serve the public interest to deny such ownership. It also found that nothing in the language of section 310(b)(4) limits its application to holdings that amount to less than control. See Deutsche Telekom VoiceStream Order at 39.
Historically, the Commission has analyzed cases involving indirect alien ownership as described in section 310(b)(4) under that section rather than sections 310(b)(1) or (3), even where the ownership amounted to indirect de jure control of the licensee through a holding company that controls the licensee. For example, in the Cable & Wireless decision the Commission had to decide whether the proposed controlling interest in the licensee by an indirect, wholly-owned, subsidiary of a publicly-traded English parent company would be permitted. There, the Commission considered the transaction solely under section 310(b)(4). In similar fashion, when adjudicating the GRC Cablevision application, where the ultimate shareholders were Canadian citizens, the Commission analyzed the transaction directly under the provisions of section 310(a)(5) (the precursor to section 310(b)(4)), rather than first under section 310(b)(1).
In the alien ownership decisions, the Commission has determined that section 310(b)(4) applies where a holding company is controlled by alien ownership. The language in section 310(b)(4) gives no indication that foreign governments are to be treated any differently than aliens or foreign corporations.
Further, in the Intelsat case, the Commission resolved an indirect alien ownership issue by referring solely to section 310(b)(4), since Intelsat involved alien control of a holding company that owned the entity holding the license. In that case, the Commission considered that the matter was governed exclusively by section 310(b)(4).
In the Deutsche Telekom Order, the Commission concluded that a consistent approach ought to be applied to its analysis of foreign government ownership, as the language in section 310(b)(1) prohibiting aliens from holding licenses parallels the language in section 310(a) prohibiting foreign governments from holding licenses. The Commission also distinguished its discussion of section 310(a) in the Intelsat case which it admitted could be read to take a different approach:
… we find that discussion not controlling. In response to arguments made by PanAmSat asserting that foreign government components of Intelsat had de jure and de facto control over Intelsat LLC (the licensee), the Commission pointed out that the 30 percent government-controlled interest in Intelsat constituted neither de jure nor de facto control over the licensee. That statement was sufficient to dispose of the arguments in Intelsat; nothing in the language was intended to imply that section 310(a) is applicable to indirect de jure control or to reflect any determination concerning the appropriate scope of matters covered by section 310(a). To the extent that there is any confusion, we take this opportunity to make clear that nothing in the Intelsat case should be read as contrary to our current analysis of section 310(a) as the issue is squarely presented by this case.
The public interest provisions of the Act allow the Commission to examine a transaction and reach a conclusion based on the particular facts in cases involving indirect control of licensees by a foreign government. In a particular case, for example, section 310(b)(4) allows the Commission to take into account the potential adverse impacts of prohibiting indirect ownership and control in this case (e.g., lost domestic competition and international retaliation) at a time when the structure of international competition in telecommunications markets is at least as critical to U.S. consumers and businesses as it was in 1934.
In making its public interest determination, the Commission, consistent with the Deutsche Telekom-Voice Stream Order, must first analyze whether there are special risks to competition in the United States associated with the Intelsat’s ownership structure. The Commission must also determine whether Intelsat control of the licenses and authorizations at issue raises concerns relating to national security, law enforcement, and public safety.
13. Need for Analysis of the Competitive Impact of the Transaction
The Commission has previously set forth the standards for analyzing competitive concerns resulting from foreign participation in U.S. telecommunications markets (see Foreign Participation Order. ) Specifically, the Commission found that applying an “open entry” standard under section 310(b)(4) to indirect foreign ownership in licensees involving WTO Members, in conjunction with enhanced safeguards and WTO Members’ commitments to liberalize and privatize their markets, would better achieve its pro-competition goals. The Commission removed the previous Effective Competitive Opportunities (ECO) test from the public interest analysis in making section 310(b)(4) determinations with respect to WTO Members. As observed by the Applicants , the Commission replaced the ECO test with a rebuttable presumption in favor of entry for applicants from WTO Members. In adopting this presumption as a factor in its public interest analysis, the Commission made no distinction between government and private foreign ownership.
Over the past decade, the Commission has generally acknowledged the benefits of increased foreign participation in the U.S. telecommunications marketplace, while remaining sensitive to its responsibility to promote U.S. competition and to protect national security and other interests raised by the Executive Branch in reviewing proposed foreign ownership. In this process, the Commission has correctly acknowledged the possibility that entry by a foreign carrier might under some circumstances be so detrimental that the standard competitive safeguards would be ineffective. In such a case, the Commission has made clear that it would impose conditions on an authorization, or where an application poses a “very high risk to competition” in the U.S. market that cannot be addressed by such conditions, deny an application.
Certainly, consideration here must be given to the possible competitive impact, which the proposed combination of CWC and Intelsat may have on the marketplace. Applicants have downplayed any negative impacts by providing a picture of an ever-expanding marketplace where a strengthen combined Intelsat-CWC will contests with larger and expanding companies.
Another picture could be presented, one that is hardly as rosy. The marketplace for the full range of satellite carriers is presently peopled with as many bankruptcy lawyers as communications engineers. Over the last three years, Iridium, ICO and Orbital Sciences have found their way into Chapter 11 proceedings. It is also noted that Globalstar, which some 12 months ago ceased servicing its debt , has been unable to maintain its listing requirements with NASDAQ. Meanwhile, the industry awaits the entry of Teledesic and Spaceway. Against this landscape, the entry of a combined Intelsat-CWC operation can be seen to constitute a potential new and growing market force, which Applicants stress will offer worldwide service, incorporating a host of technical and operational efficiencies. The Commission must seriously weigh all of these factors to determine the competitive impact which will likely result from the creation of the expanded Intelsat satellite services business.
Applicants present a cogent argument that the combining of the Intelsat and CWC operations will produce a broad array of new services and, by joining earth station resources, create a more efficient operation. At the same time, this situation can produce a new company, which can grow over time to exercise market dominance. This is especially the case where the industry, includes large companies experiencing severe economic reverses and hundreds of small companies (Inmarsat service providers) that can exercise no market powers whatsoever.
It is therefore vital that the Commission acquire the necessary data from the Applicants and other industry participants to be able to reach a proper assessment of the potential economic impact of the proposed transaction upon the relevant market. Only with access to such comprehensive data can the Commission and all interested parties be able to reach an informed judgment concerning the estimated competitive effect with the combined companies will have on the communications satellite services marketplace in the US and in foreign countries.
Furthermore, specifically with respect to the US market, it is necessary for the Commission to determine the likely impact the proposed transaction will have in promoting competition. Based on the data included in the Application, the Commission cannot make such a finding. While the parties include general information describing hoped for gains through increased efficiencies produced by joining technical facilities and operating staffs, no assessment is included to predict the likely effect with the transaction will have to drive competition in the US mobile satellite market.
In this connection, serious attention must be given to the market power which can result from the participation in and control of Intelsat by its shareholdings which includes a number of sovereign governments. Sovereign governments are unlikely private sector control parties. A government, any government, has unique powers to raise and spend monies different from private sector entities. These capital raising and spending decisions of a government can be driven by many considerations, which are not market driven and can disrupt normal market forces. For example, it is possible for the a government to increase its spending for communications services and facilities ordered and received from Intelsat at price levels which can in effect operate as a type of subsidy to Intelsat. Again, the governments could undertake such actions for various reasons, which may not marketplace related. However, the end result of such actions could artificially increase cash flow and operating margins and thereby permit Intelsat to reduce its prices for satellite facilities, leading to an increase in its share of market and adversely impacting other competitors in the US and other countries.
14. National Security Concerns
It is critical that the Commission, in coordination with the Executive Branch, carefully study and assess the possible effects with this particular transaction can have with respect to a full range of national security issues.
The licenses and authorizations at issue have been issued to Comsat, a US Government sponsored enterprise. Since its creation in 1962, Comsat has operated simultaneously as a quasi- government agency and a private stock corporation. Comsat was (and continues) as the government’s signatory representative to INTELSAT and Inmarsat inter- governmental organizations which by treaty covenant necessarily limited its activities to non defense matters. These restrictions notwithstanding, as a government sponsored entity, Comsat could freely and routinely coordinate its activities with US Government agencies and departments.
In the case of Inmarsat related activities conducted by CWC, it goes without saying that the vast amount of communications data flowing through Comsat ground stations could be coordinated, monitored, and exchanged within the proper national security parameters as requested and required by the US. With the increasing sophistication of communications transmission equipment and satellite monitoring facilities, the vast Intelsat network quite clearly has taken on ever increasing importance with regard to security matters. This matter has become an issue of the highest priority since the events of September 11.
With the sale of the CWC assets to Intelsat, ready and continuing access to these Comsat facilities and information would no longer be provided by a US Government sponsored corporation. Further, it will not be provided by an independent, foreign company. Rather, access to data will be through a company which counts among its key owners, a number of sovereign governments. This raises very serious considerations, which must be carefully studied and assessed. Given the size and international scope of communications facilities operated by CWC, the national security implications are far more complex than those involved in the typical terrestrial wireline or cellular system. In light of this fact, the Commission and the Executive Branch should establish a special task force, which would involve all appropriate law enforcement and intelligence agencies and departments.
LRT believes the national security concerns involved in operating CWC are of such a complex nature as to preclude the possibility of transferring this business to the control of a foreign company, which, in turn, is owned in significant part by foreign governments. However, LRT recognizes that these considerations are matters reserved to the appropriate US Government agencies and departments. LRT therefore reserves judgment pending reviewing a complete analysis by the Commission of the national security concerns at issue in this transaction.
15. Special Considerations Raised With Respect to Assignor
In the Application, Lockheed/Comsat has presented a series of facts and arguments which seek to bolster its primary argument, i.e. that the transaction in combing CWC and Intelsat will produce better, more efficient and expanded satellite services. What Comsat has failed to address in any way is the reason why it, or rather its controlling parent Lockheed, has decided to sell CWC to Intelsat. Not only has Comsat failed to address this key question, but more importantly, it has neglected to confront the related issue- does the transaction comply with the strict terms of the Orbit Act and the intent of Congress in passing the said legislation.
While LRT remains of an open mind on this vital question, it must be convinced that the instant transaction does in fact comply with the Orbit Act and related policy considerations.
15. Notice As to Proposed Protective Orders
Without respect to the ultimate decision reached by LRT concerning the Application, in the event that the Commission approves the Application, in whole or on part, LRT proposes that the Commission make any grant of authority subject to the Protective Orders set out in Exhibit A hereto.
Intelsat is a foreign company seeking the grant of key federal communications licenses and permits, originally granted to Comsat, a U.S. sponsored corporation. The said licenses and permits can properly be considered national assets. In light of the unique nature of the licenses and permits at issue, LRT maintains that the Commission should adopt strict monitoring procedures as outlined in Exhibit A to assure Intelsat’s strict and continuing compliance with the rules and regulations of the Commission, as well as all applicable statutes.
14. Conclusion
LRT views this as a very serious matter. The joint Application is defective and should not and indeed cannot be properly processed. It must be withdrawn and corrected prior to resubmission (if this is the choice of the parties) or amended. In either case, the pleading cycle must be altered.
As noted above, LRT is continuing to analyze this situation and will, based on this analysis, determine ultimately whether it can support the Application or move for its dismissal. Until such time, LRT is taking the position that its petition seeking dismissal of the Application is provisional in nature.
Respectfully submitted,
Litigation Recovery Trust
515 Madison Avenue
New York, NY 10022-5403
By____________________
William L. Whitely
Trustee
May 24, 2002
Footnotes
Litigation Recovery Trust represents the rights and claims of the following members: William L. Whitely, Scott H. Robb, John T. Whitely and William J. Hallenbeck and includes the following entities: Committee to Restructure the International Satellite Organizations (“CRISO”) and BelCom Minority Shareholders and Claimants Committee (“BelCom Committee”). Certain of the LRT members, commencing in 1993, became business partners with Comsat in the operation of a communications company (BelCom, Inc. (“BelCom”)) in the former Soviet Union. Beginning in late 1995, the LRT members became involved in a business dispute with Comsat over the operation of BelCom. Comsat seized the corporation in mid 1995, in direct violation of the company’s shareholders agreement, charter, by-laws, and Delaware law. Comsat continued to operate BelCom at a loss until December 2001, when its assets were sold by Lockheed. In 1995, Comsat caused BelCom to bring legal action against one of the LRT members, and subsequently prevailed before the Delaware Chancery Court. In past pleadings by Comsat and Lockheed in the LRT Reconsideration and other proceedings, attorneys for these parties have included personal attacks against one or more LRT members. These attacks were based in part on the Delaware litigation. On May 20, 2002, LRT obtained the necessary affidavit and associated agreements from a successor in interest to BelCom, which support findings that the entire litigation brought in the past by Comsat against LRT and its members was premised on fraud and misrepresentation. LRT will be proceeding immediately with the filing of necessary federal and state actions to rescind, revoke and/or annul all prior rulings secured by Comsat/Lockheed and to seek appropriate compensatory and punitive damages against the companies and their agents. In view of the fact that Comsat/Lockheed has premised its attacks against LRT on the Delaware decision and associated orders, LRT will keep the staff informed concerning the supplementary actions undertaken to rescind, revoke and/or annul these earlier rulings..
Based on various grounds (some of which are referenced below), LRT member William L. Whitely is currently moving for dismissal and revocation of the Chancery Court decision. Additionally, LRT members in December 2000 filed suit against Comsat and Lockheed in the United States District Court for the Southern District of New York (WL Whitely, et al v. Comsat, et al, Case No. 00 CIV. 9401 ) for a series of causes of action including contract breach, coercion and violation of Constitutional rights.
As a result of the merger, Comsat became a wholly owned subsidiary of Lockheed Martin Global Telecommunications(“LMGT”)
COMMISSION File No. SAT-T/C-20000323-00078 ; File No. SAT-T/C-20000323-00073 (“Comsat Merger Proceeding”)
These and other issues have also been raised in other proceedings including the Lockheed ,Ka Band License Proceeding, File No. 39-SAT-P/LA-98 (“Ka Proceeding”) and the Comsat-Telenor Assignment Proceeding File No. SES- ASG-20010504 -00896 (“Telenor Proceeding”).
Lockheed is in the process of becoming a licensee. The joint Application states that Lockheed is a party to a pro forma transfer of control application of all Comsat General Corporation licenses. The Applicants have assumed the responsibility for notifying the Commission staff processing the Application when the pro forma transfer is granted. Application, fn. 5.
See MCI Order In a case involving the subscription DBS application of Tempo Satellite, Inc., for instance, the Commission held that antitrust and tort convictions entered against the applicant's parent corporation in a civil lawsuit raised prima facie questions regarding the applicant's character qualifications.
As discussed below, there is a contrary theory that, judging from its subsequent actions, Lockheed never had the intention to operate Comsat, but rather acquired it as part of and overall plan to close Comsat through an initial purchase by Lockheed, retiring the interest of Comsat’s 38,00 shareholders, and a later, systematic liquidation of Comsat, an action which commenced within 30 days of closing the transaction.
Application, fn. 5.
LRT understands that the parties had a pre-filing meeting with Commission staff during which the parties were asked if they expected any counter filings to their Application. The parties reportedly answered that it was expected that LRT would file against the transaction.
In the LRT Reconsideration Proceeding, while admitting that it had filed false information concerning the licensee status of Comsat’s Florida subsidiary, Lockheed sought to excuse its conduct by claiming that its operations were too large to be able to accurately monitor all licensee activities. Such an explanation of bigness equating to carelessness or incompetence cannot be accepted by this or any other licensee.
http://www.reuters.com/news_article.jhtml?type=search&StoryID=895335
Open-market Reorganization for the Betterment of International Telecommunications Act (the “ORBIT Act”)Pub.L 106-180
The record before Congress reflected facts that showed Comsat to be experiencing severe financial reverses throughout the prior five years, reaching a point that for some dozen quarters, Comsat was required to reduce its dividends to 5 cents per share, which were paid from retained earnings as the corporation lacked earnings from current operations to meet these and other obligations.
The Lockheed acquisition of Comsat was accomplished through a merger between Comsat and Lockheed Martin Global Telecommunications (“LMGT”)
The Commission has regularly confirmed that Comsat must be held to its public interest standard and limitations imposed by the Commission. (see Comsat Study, 77 Commission 2d at 581). This ultimate standard, in the Commission’s view, must be deemed to be well understood by the corporation and its investors. The Commission has observed that :
“...Comsat’s investors clearly had prior notice that the corporation created by the 1962 Act would have special responsibilities and potential limitations. Prospective investors were made fully aware that (1) the scope of the corporation’s activities would be limited to those defined by the 1962 Act, and (2) the corporation would be a rate-regulated firm subject to governmental oversight. (citing Prospectus of Communications Satellite Corporation, June 2,1964.)” Comsat Study, 77 Commission 2d at 581-82.
The Commission has concluded that the investing public must be found to have “knowingly assumed the risk of any governmental limitations that would be placed on Comsat as a result of its special public obligations.” Id. Certainly, if Comsat shareholders have been found to have assumed the risk of governmental limitations, there can be no question that the company’s senior officers and directors, given their knowledge and involvement in the company’s operations, must be deemed to have assumed similar, if not greater risk with respect governmental limitations which may be placed on their interests. Finally, Lockheed must be presumed to have purchased Comsat stock with full knowledge of and subject to the aforesaid governmental limitations and related policies, including divestiture.
This sale included the spin off of Comsat’s interest in its entertainment subsidiary, which included among its activities the distribution of pornographic films to over 1 million hotel rooms throughout the US. LRT continues to prosecute a rule making proceeding before the Commission seeking the adoption of rules to prevent companies such as Comsat from distributing obscene materials without proper safeguards to prevent viewing by minors. It is noted that these activities by Comsat violated the public interest standard of the Communications Satellite Act, constituting an independent character disqualification issue.
The general objectives of the Congress in passing the ORBIT Act were summarized by Congressman Billy Tauzin (R-LA), chairman of the Telecommunications, Trade and Consumer Protection Subcommittee as follows:
Moreover, this compromise legislation will enable the completion of Lockheed Martin's proposed .7 billion dollar acquisition of COMSAT, which will further enhance market competition. I am pleased that the legislation repeals unconditionally upon enactment the current ownership restrictions on COMSAT that have prevented Lockheed Martin from purchasing 100% COMSAT. COMSAT has carried out its job as the U.S. signatory to INTELSAT quite successfully. However, COMSAT's business performance acutely demonstrates that COMSAT must reinvent itself if it is to better react to the ever-evolving marketplace. Because of its inability to swiftly take advantage of new market opportunities, COMSAT, over the years, has experienced a steady decline in market share. This compromise legislation unshackles COMSAT from the antiquated regulatory burdens that have to date hampered its success. This legislation enables Lockheed Martin to complete its acquisition of COMSAT. By fortifying COMSAT, through an infusion of financial and human capital, Lockheed Martin will transform COMSAT into a vibrant commercial company, thereby introducing a new American company in the satellite services marketplace. . Cong. Rec.: March 9, 2000 (House)] [Page H902], emphasis added.
LRT has petitioned for reconsideration of this ruling. LRT maintains that this transaction violates Congressional policy reflected in 47 USC § 310(b). Additionally, LRT views this a violative of homeland security orders and directive adopted in the wake of the tragic events of September 11.
Indeed, the LRT proposal actually benefits Intelsat as it will facilitate the upgrading of US television and cable facilities, thereby directly aiding a key segment of Intelsat’s user base.
See Commission SETS RULEMAKING TO ESTABLISH REMEDIAL MEASURES FOR UNEXCUSED FAILURE TO CONSTRUCT DIGITAL TELEVISION FACILITIES; MM Docket 02-113 http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-222561A4.doc
Applications for Consent to the Transfer of Control of Licenses and Authorizations by Deutsche Telekom AG and VoiceStream Wireless Corp. et al, Memorandum Opinion and Order, Commission No. 01-142, IB Docket No. 00-187 (rel. April 27, 2001) (" Deutsche Telekom-VoiceStream Order”)
Specifically, the parties requested that the Commission find that DT’s indirect foreign control over VoiceStream’s and Powertel’s licensee subsidiaries and non-controlling interests in other wireless carriers is in the public interest. VoiceStream DT Application at 1, 18, 33-44; Powertel DT Application at 1, 9, 22-24.
The Commission’s International Bureau also addressed this issue in In the Matter of Telecom Finland, Ltd, Order, 12 FCC Rcd 17648 (Int’l Bur. 1997) (Telecom Finland).
See 47 U.S.C. § 310(b)(4).
47 U.S.C. §§ 310(a), 310(b)(1)-(b)(2).
47 U.S.C. § 310(b)(3).
47 U.S.C. § 310(b)(4).
See Radio Act of Aug. 13, 1912, Pub. L. No. 62-264, § 2, 37 Stat. 302, 303 (stating “such license shall be issued only to citizens of the United States or [Puerto] Rico, or to a company incorporated under the laws of some State or Territory or of the United States or [Puerto] Rico”).
Radio Communication—Issue of Licenses, 29 Op. Att’y Gen. 579 (1912); see also J. Gregory Sidak, Foreign Investment in American Telecommunications 27-28 (1997) (Foreign Investment) (discussing Attorney General George W. Wickersham’s advisory opinion concerning the Radio Act’s foreign ownership provisions).
Section 12 of the Radio Act of 1927 provided, among other things, that:
The station license required hereby shall not be granted to, or after the granting thereof of such license shall not be transferred in any manner, either voluntarily or involuntarily, to (a) any alien or the representative of any alien; (b) to any foreign government, or the representative thereof; (c) to any company, corporation, or association organized under the laws of any foreign government; (d) to any company, corporation, or association of which any officer or director is an alien, or of which more than one-fifth of the capital stock may be voted by aliens or their representatives or by a foreign government or representative thereof, or by any company, corporation, or association organized under the laws of a foreign country.
Radio Act of 1927, Pub.L. No. 69-632, § 12, 44 Stat. 1162, 1167.
Id.
Study of Communications by an Interdepartmental Committee; Letter from the President of the United States to the Chairman of the Committee on Interstate Commerce transmitting a Memorandum from the Secretary of Commerce Relative to a Study of Communications by an Interdepartmental Committee, S. Comm. Print, 73d Cong. 2d Sess. 6 (1934) (Interdepartmental Study) (“In 1927 when the Radio Act was made law, Congress . . . went to a great length in section 12 of that act to prevent foreign influence from entering our communication system. They were unsuccessful, to some extent, as a loophole in the law permits a foreign-dominated holding company to own United States communication companies. This flaw in the law has already been utilized for that very purpose and the one member strongly advises that now is the time to remedy the defect.”) (emphasis added).; see also Federal Communications Commission: Hearings on S. 2910 Before the Sen. Comm. on Interstate Commerce, 73d Cong., 2d Sess. 166-68 (1934) (1934 Senate Hearings); Sidak, Foreign Investment at 64-73.
Federal Communications Commission: Hearings on H.R. 8301 Before the House Comm. on Interstate and Foreign Commerce, 73d Cong., 2d Sess. 51-53 (1934). For example, Captain Hooper, Director of Naval Communications testified that “the communications facilities of a nation must be controlled and operated exclusively by citizens of that nation, and entirely free from foreign influence.” 1934 Senate Hearings at 170; see also Sidak, Foreign Investment at 64-65 (discussing Hooper’s testimony).
See To Amend the Radio Act of 1927: Hearings on H.R. 7716 Before the Sen. Comm. on Interstate Commerce, 72d Cong., 1st Sess. 16 (1932) (statement of Sen. White) (“It might cost this American company its entire foreign setup in some of the countries that might be affected by it. I think, we would all agree that we would much prefer that there were none of these foreign directors but I think that weighs but a feather against the tremendous advantage of having this company maintain its radio services throughout the world and maintain for us here in this country the competitive services which result from their system.”).
See H.R. Conf. Rep. No. 1918, 73d Cong., 2d Sess. 48-49; H.R. 7716, 72d Cong., 2d Sess., at 17 (1932); see also Noe v. Federal Communications Commission, 260 F.2d 739, 741 (D.C. Cir. 1958). Congress declined to adopt an outright ban on alien interests, fearing that such a ban would invite international retaliation. See 1934 Senate Hearings at 123.
This restriction also applied to aliens serving as officers or as more than 25 percent of the board of directors until Congress removed the restriction in 1996.
Section 310(a)(1)-(5), prior to the 1974 amendments, provided as follows:
(a) The station license required shall not be granted to or held by –
(1) Any alien or the representative of any alien;
(2) Any foreign government or the representative thereof;
(3) Any corporation organized under the laws of any foreign government;
(4) Any corporation of which any officer or director is an alien or of which more than one-fifth of the capital stock is owned of record or voted by aliens or their representatives or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country;
(5) Any corporation directly or indirectly controlled by any other corporation of which any officer or more than one-fourth of the directors are aliens, or of which more than one-fourth of the capital stock is owned of record or voted, after June 1, 1935, by aliens, their representatives, or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country, if the Commission finds that the public interest will be served by the refusal or the revocation of such license.
47 U.S.C. § 310(a)(1)-(5) (1970).
See S. Rep. No. 795, 93d Cong., 2d Sess. 1 (1974) (“The purpose of this legislation is to amend section 310 of the Communications Act of 1934, as amended, to permit direct licensing of aliens and corporations with certain alien officers, directors or stockholders rather than licensing them indirectly under subsection 310(a)(5) of the Communications Act of 1934, as amended, which has been utilized to set up a subsidiary corporation with no alien officers or directors, to be the radio licensee.”). See also infra para. 46 discussing the purpose of the 1974 amendments.
See In the Matter of the Applications of Intelsat LLC, Memorandum, Opinion, Order and Authorization, 15 FCC Rcd 15460, 15481, para. 48 (2000) (Intelsat) (analyzing indirect holding or control under section 310(b)(4)); In the Matter of Petition of Cable & Wireless, Inc., Declaratory Ruling and Memorandum Opinion and Order, Authorization and Certificate, 10 FCC Rcd 13177, 13178-80, paras. 11-23 (1995) (Cable & Wireless) (approving controlling interest by aliens of parent corporation that controlled corporation applying for very small aperture terminal licenses); In re Applications of GRC Cablevision, Inc., Memorandum Opinion and Order, 47 Commission 2d 467-68, para. 3 (1974) (GRC Cablevision) (approving controlling interest by aliens of parent corporation that controlled corporation applying for cable antenna radio services licenses at time when such licenses were covered by section 310(b)); see also In re Application of MAP Mobile Communications, Inc., Order, 12 FCC Rcd 6109, 6115-16 (Int’l Bur., 1997) (authorizing wholly-foreign owned company to bid for PCS and CMRS licenses); In the Matter of Melbourne International Communications, Ltd., Order, Authorization and Certificate, 12 FCC Rcd 898, 902, para. 11 (Int’l Bur., 1997) (approving controlling interest by aliens of parent corporation that controlled corporation holding two common carrier satellite earth stations); In the Matter of GCI Liquidating Trust, Memorandum Opinion and Order, 7 FCC Rcd 7641, paras. 3-4 (Dom. Fac. Div. 1992) (approving acquisition of controlling interest by aliens of parent corporation that controlled common carrier microwave licensee).
See Cable & Wireless, 10 FCC Rcd at 1378-80, paras. 11-23.
See GRC Cablevision, 47 Commission 2d at 467-68, para. 3.
Intelsat, 15 FCC Rcd at 15481-84, paras. 48-55.
In Intelsat, the Commission described the test for invoking a section 310(a) analysis as “whether a foreign government or representative thereof exercises direct de jure or de facto control over a licensee.” Id.
Foreign Participation Order, 12 FCC Rcd at 23894, para. 4 (U.S. companies allowed to enter previously closed foreign markets and develop competing networks for local, long distance, wireless and international services).
See generally Foreign Participation Order, 12 FCC Rcd at 23894, para 4. In the Foreign Participation Order, the Commission determined that U.S. consumers and companies would reap tangible benefits from the removal of obstacles to entry into all telecommunications service markets, including those entry barriers that exist in the U.S. market. Id. at 23894-95, paras. 4-5. The Commission concluded that in light of market access commitments undertaken by WTO members, as well as the Commission’s increasingly more deregulatory framework, it served the public interest to take steps, in parallel with the United States’s major trading partners, to ease requirements for entry by foreign companies into the U.S. market. Id. at 23983-94, para. 2. The Commission observed that the WTO commitments would create obligations on foreign governments to allow U.S. companies to enter previously closed foreign markets and to develop competing networks abroad for local, long distance, wireless, and international services. Id. at 23894, para. 4. Likewise, the Commission reasoned that additional foreign investment in the U.S. market would promote further competition and result in substantial benefits to U.S. consumers, including lower prices for existing services and greater service innovation. Id. at 23896-97, para. 10.
Foreign Participation Order, 12 FCC Rcd at 23897-98, para. 13.
Id. The ECO test required, as a condition of foreign carrier entry into the U.S. market, that there be no legal or practical restrictions on U.S. carriers’ entry into the foreign carrier’s market. See Market Entry and Regulation of Foreign Affiliated Entities, IB Docket No. 95-22, Report and Order, 11 FCC Rcd 3873, 3877, para. 6 (1995) (Foreign Carrier Entry Order).
See Approval Application, 24
Foreign Participation Order, 12 FCC Rcd at 23913, para. 50 (applying standard to applications for section 214 authority, as well as for approval under section 310(b)(4)). We note that several of DT’s German competitors urge the Commission not to apply this rebuttable presumption to the DT Transfer Applications. See Novaxess Comments at 3-4; QSC Comments at 10-11. Specifically, these commenters argue that (i) the Foreign Participation Order did not abolish the ECO test and only contemplated using the open entry presumption in routine cases as a single factor in the public interest analysis; (ii) the Commission should not “[u]nthinking[ly] [apply] the presumption to the German local access market in which a dominant, government-controlled ex-monopolist maintains its stranglehold on competition and is keeping U.S. and other telecommunications carriers from [entering the market.];” (iii) the distinction between WTO and non-WTO Members should not apply to global players like DT; (iv) the Commission’s assumptions about competition in WTO member countries do not hold true for Germany and DT, especially given the increasingly global market for roaming services which was unforeseen at the time the Foreign Participation Order was adopted; and (v) the Foreign Participation Order did not specifically address foreign government ownership. Novaxess Comments at 3-4; QSC Comments at 10-11.
These commenters essentially seek further reconsideration of the Foreign Participation Order. Even if such requests were timely, many of their arguments were considered and rejected in the original Order and the subsequent Order on Reconsideration; the remaining arguments simply misinterpret the foreign entry policies the Commission adopted in 1997. First, the Commission in 1995 considered the possibility that a foreign carrier may operate in multiple markets and decided to conduct its analysis pursuant to section 310(b)(4) by reference to a single “home market” for a carrier. See Foreign Carrier Entry Order, 11 FCC Rcd at 3949, para. 201; Foreign Participation Order, 12 FCC Rcd at 23941, para. 116. The Commission retained this “home market framework” when it adopted the rebuttable presumption favoring market entry by carriers with indirect ownership from WTO members. Second, contrary to commenters’ claims, the Commission expressly eliminated the ECO test for WTO Members. Foreign Participation Order, 12 FCC Rcd at 23897, para. 13 (noting that “[o]ur rules will no longer require applicants from WTO members to demonstrate that their markets offer ‘ECO’”) and 23896, para. 9 (removing the ECO test and replacing it with an open entry standard, without making any distinction between routine or non-routine applications). In fact, in the Foreign Participation Order, the Commission declined a similar request from AT&T to continue to evaluate whether an applicant’s country provides unrestricted market access and satisfies its market opening commitments. Id. at 23905-07, paras. 32, 36-37. Our open entry policy does not distinguish among WTO Members, and is not premised, as commenters conclude, on an analysis of actual conditions of entry in a foreign market. The Commission instead relies on the increase in global competition coupled with dominant carrier safeguards to protect competition in U.S. markets. We note that, to the extent that a WTO member fails to fulfill its WTO obligations, these are trade violations that can be addressed through the WTO dispute resolution process.
Foreign Participation Order, 12 FCC Rcd at 23914, para. 52.
Id.
EXHIBIT A
PROPOSED
INTELSAT PROTECTIVE ORDERS
DEFINITIONS
For the purposes of these procedures, the following definitions shall apply:
“Intelsat” means Intelsat, Ltd., all of its wholly owned subsidiaries, and any entities controlled by Intelsat.
“Compliance Period” means the period of time commencing on the Merger Closing Date and continuing for a period to be defined by the Commission in the order approving the Comsat-Lockheed merger application, or until the procedures described herein terminate pursuant to their terms.
“Corporate Compliance Officer” means an employee of Lockheed appointed pursuant to the terms hereof who shall be responsible for overseeing Intelsat’s compliance with these procedures.
“Closing Date” means the day on which, pursuant to their acquisition agreement, Comsat/ Lockheed and Intelsat cause a license assignment certificate to be executed, acknowledged and filed with the appropriate state governments.
“Communications Satellite Act” means the Communications Satellite Act of 1962, as amended, 47 USC § 701, et seq.
“Communications Act” means the Communications Act of 1934, as amended, 47 USC § 151, et seq.
CORPORATE COMPLIANCE OFFICER
Intelsat shall appoint a Corporate Compliance Officer to oversee the implementation of and compliance with the Communications Satellite Act and other rules and regulations of the Commission by Intelsat LLC (ICO1) and Intelsat USA License Corp. (ICO2) (Delaware corporations) and to monitor ICO1 and ICO2’s actions and oversee the legal compliance activities of all Intelsat companies, and to consult with the Chief of the International Bureau and other appropriate individuals as the Chief deems necessary on an on-going basis regarding Intelsat’s compliance activities. The Corporate Compliance Officer shall provide to an independent auditor copies of all documents regarding compliance that Intelsat provides to the Commission and consult with the independent auditor regarding Intelsat’s compliance activities. The audit committee of Intelsat’s Board of Directors shall oversee the Corporate Compliance Officer’s fulfillment of these responsibilities.
The Corporate Compliance Officer shall notify the independent auditor and Chief of the International Bureau immediately on discovering a material failure on the part of Comsat to violate the Communications Satellite Act and rules and regulations of the Commission.
Not later than 60 days following the r Closing Date, Intelsat shall submit to the International Bureau a plan for compliance with these procedures. The compliance plan shall be afforded confidential treatment in accordance with the Commission’s normal processes and procedures. A letter providing notice of the filing shall be filed the same day with the Secretary of the Commission.
The Corporate Compliance Officer shall designate Intelsat’s corporate secretary to attend the Intelsat Board of Directors meetings and those of ICO1 and ICO2 on his or her behalf and to carry out the duties of the Corporate Compliance Officer during such meetings. The Corporate Compliance Officer shall meet with the corporate secretary prior to the Intelsat, ICO1 and ICO2 Board of Directors Meetings to ensure that procedures described herein are fully understood, and after the said directors meetings to ensure that the said procedures were adhered to during the meetings.
INDEPENDENT AUDITOR
a). Within 30 days of the Closing Date, Intelsat shall, at its own expense, engage an independent auditor to conduct an examination resulting in a positive opinion (with any exceptions noted) regarding the compliance of Intelsat, ICO1 and ICO2 with these procedures during the Compliance Period. The engagement shall be supervised by persons licensed to provide public accounting services and shall be conducted in accordance with the relevant standards of the American Institute of Certified Public Accountants (“AICPA”). The independent auditor shall be acceptable to the Chief of the International Bureau. The independent auditor shall file a report regarding Lockheed’s compliance with the procedures described herein every 6 months from the Merger Closing Date until the end of the Compliance Period.
b). The independent auditor shall have access to books, records, and operations of Intelsat and key Intelsat personnel, which are necessary to fulfill the audit requirements of this section. The independent auditor shall notify Intelsat’s Corporate Compliance Officer of any inability to obtain such access.
c). The independent auditor may verify Intelsat’s compliance with these procedures through contacts with the Commission, or with Intelsat.
d). The independent auditor shall notify the Corporate Compliance Officer and the Chief of the International Bureau immediately upon discovering a material failure on the part of Intelsat, ICO1 or ICO2 to comply with any of the procedures described herein.
e). The independent auditor’s reports shall include a discussion of the scope of the work conducted, a statement regarding Intelsat’s compliance or non-compliance with theses procedures, and a description of any limitation imposed on the auditor in the course of its review by Intelsat or other circumstances that might affect the auditor’s opinion. The independent auditor’s report shall be made publicly available, except for any confidential material it may include.
f). For 6 months following submission of the final audit report, the Commission shall have access to the working papers and supporting materials of the independent auditor at a location in Washington, D.C. that is selected by Lockheed and the independent auditor. Copying of the working papers and supporting materials by the International Bureau shall be allowed but shall be limited to copies required to verify compliance with and to enforce these procedures. Any copies made by the International Bureau shall be returned to Intelsat by the International Bureau no later than 12 months after the submission of the final audit report. The International Bureau’s review and/or copying of the working papers and supporting materials shall be kept confidential pursuant to the Commission’s rules and procedures.
ENFORCEMENT
The specific enforcement mechanisms established by these procedures do not abrogate, supersede, limit or otherwise replace the Commission’s powers under the Communications Satellite Act and the Communications Act. Compliance or non-compliance with these procedures by Intelsat, ICO1 or ICO2 does not in itself constitute compliance or non-compliance with any federal, state, or local law or regulation, except the obligation of the Intelsat companies to comply with these procedures.
a). Penalties During The Compliance Period
1). If the Chief of the International Bureau issues a written determination that during the Compliance Period a failure to comply with one or more of these procedures has occurred, the Bureau Chief may, at his or her discretion, impose penalties as follows:
for the first failure, a forfeiture not to exceed ,000; and
for additional failure, forfeitures not to exceed ,000 per each such failure
b). If the Chief International Bureau issues a written determination that during the Compliance Period there has been a continuing failure to comply with one of the procedures described herein, then the Chief may, at his or her discretion, impose the penalties described in the previous subparagraph (if such penalties have not previously been imposed for such failures), plus the following additional penalties:
a maximum of ,000 per day from the start of such continuing failure (such starting date to be determined by the Chief of the International Bureau);
to the extent that Intelsat does not file with the International Bureau within 5 business days of receiving the written determination of a continuing failure a document providing adequate assurance, as determined by the International Bureau, that such continuing failure has been cured, a maximum of ,00 per day for each day beyond the 5 day cure period.
Penalties At The End Of The Compliance Period
No later than 60 days before the end of the Compliance Period, Intelsat shall file a written document with the International Bureau indicating that:
Intelsat, ICO1 or ICO2 will come into compliance with the provisions of the Communications Satellite Act by the end of the Compliance Period and describing the method by which it will come into compliance; or
Intelsat, ICO1 or ICO2 will not come into compliance with the provisions of the Communications Satellite Act by the end of the Compliance Period. In this event, Intelsat will also describe the extent to which Intelsat companies will not be in compliance, identify such steps that, if taken, would bring Intelsat companies into compliance, and submit an Affidavit of Compliance certifying as to the actions to be undertaken by Intelsat to come into compliance.
d). If Intelsat, ICO1 or ICO2 will not be in compliance with the provisions of the Communications Satellite Act and the rules and regulations adopted thereunder at the end of the Compliance Period, then the International Bureau shall have authority to require that by the end of the Compliance Period Comsat will undertake all actions necessary to bring Intelsat companies into compliance with said regulations (such requirement shall become effective at the end of the Compliance Period or within 14 days after Intelsat’s receipt of a written order from the International Bureau imposing this requirement, whichever is later).
e). In determining the appropriateness and extent of any penalties imposed pursuant to these procedures, the Chief of the International Bureau shall take into account the materiality of the failure to comply with such procedures, and the good faith efforts and reasonable commercial diligence of Comsat in attempting to comply with such procedures. Any determination by the Chief of the International Bureau pursuant to the procedures described herein is appealable by Intelsat to the Commission.
f). Intelsat shall strictly obligated to make the payments for failure to comply as required by these procedures, and no showing of a willful violation shall be necessary in order to enforce such payments. Intelsat shall not be liable for any payments, however, if the Chief of the International Bureau grants a waiver request filed by Intelsat in which Intelsat will have the burden of proof to demonstrate that the failure to meet a procedure was caused by a force majeure event or an Act of God. If the Chief to the International Bureau refuses to grant a waiver, Intelsat may appeal that decision to the Commission.
g). Intelsat shall make payments due under these procedures within 10 business days of a determination by the Chief of the International Bureau of the Commission that payment is due. If the Commission has not taken an action to designate or administer a fund in order for Lockheed to make payment required under these procedures, Intelsat shall make its payment into an interest bearing escrow account pending such action. If Intelsat’s obligation to make payment is disputed by Intelsat, Intelsat shall make the disputed payment into an interest bearing escrow account within 10 business days of the date the payment was due. Within 10 business days of making a payment of a disputed amount into escrow, Intelsat shall file with the International Bureau a verified statement of the grounds on which payment is not required. Subject to rights of rehearing and appeal, the escrowed payments (including any accrued interest) shall be returned to Intelsat or paid to the appropriate fund in accordance with the final and non-appealable Commission or judicial order resolving the dispute.
SUNSET PROVISION
All procedures set out herein shall terminate immediately upon any of the following events.
If an appellate court of competent jurisdiction issues a final and non-appealable decision that the Communications Satellite Act and rules and regulations adopted thereunder are unconstitutional or otherwise unenforceable;
Intelsat informs the Commission that it has divested its ownership and control of ICO1 and ICO2 and has no other interests in any licenses or permits granted by the Commission.
For whatever reason, the Congress repeals the Communications Satellite Act.
CERTIFICATE OF SERVICE
I, William L. Whitely, hereby certify that I have this 24th day of May, 2002 forwarded the foregoing Provisional Peition to Deny Email, Fedral Express or US Mail, postage prepaid to the following:
Via Email
David B. Meltzer
General Counsel and Senior Vice President
Intelsat Global Service Corporation
3400 International Drive, NW
Washington, DC 20008
Larry W. Secrest
Wily Rein & Fielding
1776 K Street NW
Washington, DC 20006
____________________________
William L. Whitely
The FCC Acknowledges Receipt of Comments From …
Litigation Recovery Trust
…and Thank You for Your Comments
Your Confirmation Number is: '2002524840282 '
Date Received: May 24 2002
Docket: 02-87
Number of Files Transmitted: 1
File Name File Type File Size
(bytes)
OTHER Microsoft Word 157185
DISCLOSURE
This confirmation verifies that ECFS has received and
accepted your filing. However, your filing will be rejected
by ECFS if it contains macros, passwords, redlining,
read-only formatting, a virus or automated links to
source documents that is not included with your filing.
Filers are encouraged to retrieve and view their filing
within 24 hours of receipt of this confirmation. For
any problems contact the Help Desk at 202-418-0193.
LRT PROVISIONAL PETITION TO DENY
|
|
