spectrum resources will be tied up until that license or authorization is revoked. Accordingly, we 67. We also disagree with SIA's contention that the Commission does not have authority 9163 d. U.S. Satellites at Orbit Locations Licensed to Non-U.S. Operators 164 68. Background. In the First Report and Order, the Commission observed that it has 69. Discussion. SIA requests that the Commission "clarify" that U.S. licensees will be 161 162 SIA Petition at 22. See DISCO II Order, 12 FCC Rcd at 24183 (para. 214), 24174 n.359 ("We reiterate our 163 Implementation of the AM Expanded Band Allotment Plan, Memorandum Opinion and 164 First Report and Order, 18 FCC Rcd at 10870 (para. 295), citing PanAmSat Corporation, 165 First Report and Order, 18 FCC Rcd at 10870 (para. 295), citing KaStarCom World 166 until the regularly authorized operator begins operation at that location. According to SIA, this would ensure that spectrum does not lie fallow, and so would eliminate the need for a bond requirement for non-U.S.-licensed satellite operators." 167 70. As an initial matter, on a case-by-case basis, we will continue to consider authorizing U.S. licensees to operate at a particular orbit location on a temporary basis, pending the launch of a non-U.S.-licensed satellite with higher ITU-date priority at that location. 168 We emphasize, however, that these kinds of temporary authorizations are requested infrequently and we do not expect this to change. Further, the prospect of allowing a U.S. satellite to operate on a temporary basis only does not obviate the need a bond to be posted by the satellite operator that is ultimately authorized to serve the United States from that location. Relieving the foreign operator of the bond requirement could encourage speculation and would allow an entity that is not committed to going forward to dictate the terms of the service being provided from that location. That is, it would allow that party to limit a U.S. satellite operator immediately able to provide service to offering that service only on a temporary or interruptible basis. 3. Pending Applications 170 71. Background. In the First Report and Order, the Commission stated that it would apply the bond requirement to all satellite licenses it issues after the Order's effective date, including those for which the underlying applications were pending at the time the Order was adopted. 169 Northrop and @Contact argue that the bond requirement should not be applied to any application pending at the time the First Report and Order was adopted. These parties also assert that the current weak economy has made speculation unlikely. Furthermore, Northrop contends that the bond requirement cannot create a disincentive to speculative filers after the applications are filed. Northrop further maintains that some parties have prosecuted their applications for years, and that they should not be "penalized" with a bond requirement now.' 172 171 173 72. Discussion. Contrary to Northrop's assumption, the bond requirement applies to all licenses granted after the requirement took effect, regardless of when the application for each of those licenses was filed. Further, Northrop has not persuaded us to eliminate the bond requirement for licensees whose applications were pending at the time the First Report and Order was adopted. The bond will still provide an assurance that the licensee remains committed to and is capable of implementing its system upon licensing. In addition, we disagree with Northrop that 170 Northrop Petition at 2-8; @Contact Comments at 3-4. See also SES Americom Reply at 2; SES Americom Further Reply at 2; Joint Commenters Further Reply at 2-3. 171 Northrop Petition at 8; @Contact Comments at 2-3. See also SES Americom Reply at 3. applicants were less likely to file speculative applications in 1997 than they are under current economic conditions. This is because the V-band applications, including Northrop's application, were filed pursuant to a procedure that may have encouraged speculative applications. In addition, a stronger economy would make it easier for a speculative applicant to sell a license for profit because there would be more potential buyers, and so would further encourage speculative applications. In any case, Northrop does not explain why prosecuting an application for a long time by itself shows that the applicant will proceed with its business plan and, accordingly, construct and launch its licensed satellite. 4. Earth Exploration Satellite Service 73. Background. Space Imaging, an Earth Exploration Satellite Service (EESS) licensee operating in the X-band, 175 argues that EESS licensees should be able to request additional frequencies within the X-band for next generation satellites without posting a bond. Space Imaging maintains that such a request reflects increased consumer demand rather than a speculative motive.176 Space Imaging further contends that bonds are unnecessary because EESS licenses transmit only to a limited number of earth stations for only a few minutes a day. Thus, according to Space Imaging, EESS satellite systems are coordinated on the basis of the time of their transmissions, and so two EESS can use the same spectrum, provided that they schedule their transmissions at different times of day. Therefore, Space Imaging argues that increasing the spectrum assigned to one EESS operator does not preclude others from using that spectrum. 177 74. Discussion. Although increasing the spectrum assigned to one EESS operator would not preclude others from using that spectrum, we find that this, by itself, is not a sufficient basis for creating an exception from the bond requirement for next-generation EESS systems. Because more than one EESS licensee can operate in the same frequency band, EESS satellites are similar to GSO satellites. In this Order above, we considered and rejected a proposal to exempt nonU.S.-licensed GSO satellite operators from the bond requirement. We found that, even though granting a GSO license does not preclude other licensees from operating in that spectrum, it does preclude other licensees from operating at that particular orbit location in that frequency band. Thus, if a GSO licensee does not construct or launch its satellite, scarce orbit and spectrum resources will be warehoused until that license is revoked. 178 Even though EESS systems are generally NGSO constellations, the same reasoning applies, because granting an EESS license precludes other EESS licensees from using the same frequencies, orbits, and transmission times. Therefore, EESS licensees can warehouse orbit and spectrum resources, in the same manner as GSO licensees, and so should be subject to a bond requirement. 174 See First Report and Order, 18 FCC Rcd at 10796-97 (para. 85) (traditional procedure encourages "place holder" satellite applications). 175 For purposes of this Order, the term "X-band" refers to the 8025-8400 MHz band. 176 Space Imaging Comments at 10-11. See also SES Americom Reply at 9. 177 Space Imaging Comments at 11-12. See also Space Imaging Petition for Clarification, filed September 12, 2003, cited in Space Imaging Petition at 12 n.28. The International Bureau (Bureau) will address the Space Imaging Petition for Clarification in a separate Order. 5. Other Clarification Requests 75. SIA asserts that the First Report and Order is not clear on whether non-U.S.-licensed satellite operators may reduce the amounts of their bonds as they meet milestones. This is implicit in Section 25.137(d)(4), which cross-references the rule for U.S. licensees' bond requirements, including the right to reduce the bond amount as the licensee meets its milestones. We will revise our rules to make this explicit for non-U.S.-licensed satellite operators posting bonds. 76. Intelsat argues that the surety should be a "bona-fide U.S.-licensed bond company. 180 The Commission's rules require that licensees use a surety company deemed acceptable within the meaning of 31 U.S.C. § 9304 et seq., which authorizes the Department of the Treasury to establish criteria for surety companies. We conclude that this adequately addresses Intelsat's concern. E. Escrow Account 181 182 77. Background. The Commission also invited comment on allowing licensees to establish an escrow account, as an alternative to posting a bond. Under this proposed option, licensees would be required to establish an escrow account equal to the final bond amount adopted by the Commission, and to turn over the account to the U.S. Treasury upon missing a milestone without an adequate basis for extending the milestone. Licensees would also be permitted to withdraw interest from the account at any time, and withdraw principal upon meeting each milestone, just as licensees posting bonds may reduce the amount of the bond. 184 183 185 186 78. Discussion. SIA and EchoStar support the escrow account option. Intelsat also supports the escrow account, as long as it is an alternative to the bond requirement, because some licensees might consider an escrow account to be more burdensome than the bond requirement. In addition, Intelsat argues that, in order to make the escrow account a real disincentive against speculation, the Commission will need to perfect its security interest in the escrow account so that its interest survives bankruptcy.' Intelsat explains that, in most states, the Commission can 187 182 First Report and Order, 18 FCC Rcd at 10882 (para. 335), citing Private Paging Exclusivity Order, 8 FCC Rcd at 8326. 189 188 perfect its security interest by notice to the escrow agent maintaining the funds. Intelsat also recommends that we require the escrow account agreement to specify that the licensee cannot exert any direct control over the escrow account, including withdrawal of funds without Commission authorization. In an ex parte statement, Intelsat explains in more detail the procedures for perfecting a security interest in escrow account funds. Intelsat notes, however, that many of those provisions can become the subject of litigation, can vary from state to state, and in any case, cannot entirely "bankruptcy-proof" the funds in an escrow account." 191 190 79. We agree with Intelsat that the escrow account proposal would not provide a sufficient safeguard against speculation if the licensee's obligation to the U.S. Treasury does not survive bankruptcy. We disagree, however, that perfecting an interest in the escrow account would adequately address the concern raised by Intelsat. Specifically, a court could question whether the account in fact reflected a true escrow arrangement, given the Commission's role in identifying the triggering events for the disposition of the escrowed funds (i.e., determining whether the licensee had met a particular milestone). In a typical escrow relationship, the escrow agent holds the responsibility for assessing the conditions for release of the funds. If a bankruptcy court were to determine that the escrow agent lacked sufficient authority to make the requisite type of decisions that define an escrow relationship, then the court could treat the escrow agent as an agent of the FCC and the escrowed money as property of the licensee's estate in bankruptcy. Under this scenario, the Commission would be regarded as a creditor of the estate, and the monies in escrow would be at risk (even if the Commission had perfected a security interest in the funds). In light of this possibility, we conclude that the proposed escrow account approach would not provide a sufficiently meaningful disincentive against speculation. 192 80. Moreover, as Intelsat notes, some licensees might consider establishing an escrow account to be more burdensome than the bond requirement because it would require the satellite company to deposit a significant amount of funds with the escrow agent (i.e., $3 million dollars for GSO satellite licensees and $5 million dollars for NGSO satellite constellation licensees). This might prove particularly difficult for smaller satellite operators. Therefore, even if the Commission were to adopt an escrow account option, it is at best unclear whether or to what 193 190 See Letter from Carl R. Frank, Counsel for Intelsat, to Marlene H. Dortch, Secretary, FCC (dated Mar. 22, 2004). 191 5 COLLIER ON BANKRUPTCY, para. 541.09A (15th ed. rev. 2003) and cases cited therein. While the Commission would likely avoid this risk by ceding to the escrow agent the responsibility for determining whether the licensee had met the milestones, this responsibility is a core function of this agency and should not be delegated to a private party. Moreover, even if we attempted to limit such a delegation by stating that the escrow agent's determinations of milestone compliance were effective only with respect to the release of the escrowed funds; such an approach could give rise to conflicting determinations regarding such compliance, which, at best, would create the appearance of irrational decision making. therein. 192 5 COLLIER ON BANKRUPTCY, para. 541.09A (15th ed. rev. 2003) and cases cited |