Attachment 2002Constellation Pe

2002Constellation Pe

PETITION FOR RECONSIDERATION submitted by Constellation

Petition for Reconsideration

2002-12-09

This document pretains to SAT-AMD-20010829-00081 for Amended Filing on a Satellite Space Stations filing.

IBFS_SATAMD2001082900081_1072869

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                                   Before the                                                                BEHEFaF=g§ proop
                    FEDERAL COMMUNICATIONS COMMISSION                                                        Qg@@g V&z@
                             Washington, D.C. 20554
                                                                                                               DEC — 9 2092
                                                                                                        feemal commuhoamions    commean
In the Matter of                                       ;                                                     orfics gfimffim

CONSTELLATION COMMUNICATIONS )
 HOLDINGS, INC.              )
                                         )
Request for Limited Waiver and Extension )                             File No. 17—DSS—P—91(48); CSS—91—013;
_of Time                                               )                                      SAT—AMEND—95; 159—SAT—
                                                       )                                      AMEND—96; SAT—MOD—
And                                                    )                                      20000907—00131
                                                       )
Application for Amendment of its Pending               )               File No. SAT—AMD—20010829—00081
Application for Modification of the                    )
Milestone Schedule Established for its                 )
Above 1 GHz Low—Earth Orbit Mobile—                    )
Satellite System                                       )                                                                5%@P 9

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                         PETITION FOR RECONSIDERATION                                                           gfi?”‘*@fi@ :




                                                                       Robert A. Mazer
                                                                       R. Edward Price
                                                                       Vinson & Elkins L.L.P.
                                                                       1455 Pennsylvania Avenue, N.W.
                                                                       Washington, D.C. 20004—1008
                                                                       (202) 639—6500

                                                                       Attorneys for Constellation
                                                                         Communications Holdings, Inc.

December 9, 2002


                                           SUMMARY
       In a November 8, 2002 Memorandum Opinion and Order ("MO&O"), the International

Bureau denied Constellation‘s request that certain milestones contained in the company‘s

authorization to provide Big LEO mobile satellite services ("MSS") be extended or waived. The

Bureau‘s decision is inconsistent with the purpose underlying the milestones, and the Bureau

relies on Commission precedent that is inapposite or actually supports grant of a waiver to

Constellation. Cofistellation qualifies for an extension under Section 25.117(e) of the

Commission‘s Rules because the requested extension is the result of the current lack of financing

in the capital markets for satellite systems, which is due to the failures of Iridium and Globalstar.

This clearly is a circumstance beyond Constellation‘s control, thus qualifying the company for an

extension under Section 25.117(e)(1). This outcome is consistent with Commission precedent,

particularly in light of the efforts and more than $50 million Constellation has expended thus far

in meeting its construction commencement milestone and in attempting to satisfy its other

milestones.

       An extension is also warranted under Section 25.117(e)(2) because it would serve the

public interest in having additional competitive entry in the Big LEO MSS. Denial of the

extension request will not advance the Commission‘s policy against spectrum warehousing and

will not result in additional competitive entry in the Big LEO services. To the contrary, the

Bureau‘s decision will limit competition in the Big LEO MSS and could ultimately provide a

Wihdfall to the two remaining Big LEO licensees, which are principally responsible for creating

today‘s difficult financial climate for MSS.

       Even assuming, arguendo, that Constellation does not meet the Commission‘s standard

for an extension of its milestones, grant of a waiver of those milestones would be consistent with

the Commission‘s waiver standards. Constellation has expended significant effort and financial


resources thus far; the company is clearly not warehousing spectrum; and the public interest

would be furthered by the existence of a Constellation as a viable Big LEO MSS operator. Grant

of a milestone waiver for Constellation would actually speed new entry, whereas denial of the

waiver could foreclose such new entry for years to come and perpetuate the existing Big LEO

MSS duopoly.




                                                11


                                                      TABLE OF CONTENTS

I.     BACKTOUMG .......2.002002s2v2eresrssseveerserssrsreresrreerevesererserecssressseserserecsecssrres se ces ies es recrserreerer se rer se rees 2

II.    Constellation Meets the Standard for Granting Milestone EXtenS1IOMS ............................}}.. 6

       A.          Constellation Requires Additional Time Due to Unforeseeable
                   Circumstances BeYOAd It$ COMITOL....,..2..2022020022002ee 02e 2s rs es es es es s en es se es en se r es rererernereres 7

       B.         There Are Unique and Overriding Public Interest Concerns That
                   JUStifY @M EXE@MASIOM ....,..2.02.,2000er2eeee se se es se vevree es ce e rr es er se ren ie n es e ce se en es rscererers es es err en es 11

IIL.   Even Assuming, Arguendo, That Constellation Does Not Satisfy the Standard for
       Milestone Extensions, Waiver of the MilestONES IS JUStifi@G .................0...00..0e06ee6600e00.e0}. 15

IV.    COMCIUSIOM....22...r0202eserersssessrssrseeescrserseetsseseeseressscescsseceserescessessesscerercesecersesecserecesese ces es e enc e es 17




                                                                           i


                                           Before the
                     FEDERAL COMMUNICATIONS COMMISSION
                              Washington, D.C. 20554


In the Matter of




                                             Nt Nuse! Nes Nue! Nes Nuee! Ned Nes Neust! Nue! Nt Nuue! Suu! Sune! Nun!
CONSTELLATION COMMUNICATIONS
 HOLDINGS, INC.

Request for Limited Waiver and Extension                                                                                File No. 17—DSS—P—91(48); CSS—91—013;
of Time                                                                                                                         SAT—AMEND—95; 159—SAT—
                                                                                                                                AMEND—96; SAT—MOD—
And                                                                                                                             20000907—00131

Application for Amendment of its Pending                                                                                File No. SAT—AMD—20010829—00081
Application for Modification of the
Milestone Schedule Established for its
Above 1 GHz Low—Earth Orbit Mobile—
Satellite System


                           PETITION FOR RECONSIDERATION

       Constellation Communications Holdings, Inc. ("Constellation"), by its attorneys, hereby

requests thét the International Bureau ("Bureau") reconsider its Memorandum Opinion and

Order ("MO&O") issued on November 8, 2002, in the above—referenced proc:eeding.1 The

MO&O denied Constellation‘s request that certain milestones contained in the company‘s

authorization to construct, launch and operate a low earth orbit mobile—satellite system above 1

GHz ("Big LEO License") be extended or waived. As a consequence, the MO&O concluded

that Constellation‘s Big LEO License is null and void. However, the MO&O relies on an

erroneous interpretation of Commission precedent and on precedent that is inapposite to



       Memorandum Opinion and Order, DA 02—3086 (Int‘l Bur., released Nov. 8, 2002)
       ("MO&0"). In the MO&O the Bureau addresses a milestone extension request filed by
       Constellation in 2000 and an amendment to that request filed in 2001. However, the
       Bureau does not address an additional amendment that Constellation filed in August
       2002. See infra note 12 and accompanying text.


 Constellation‘s situation. For these reasons, and because reinstatement of Constellation‘s Big

 LEO License and grant of the requested extension or waiver would serve the public interest, the

 Bureau should reconsider the MO&O, reinstate Constellation‘s Big LEO License and grant the

requested milestone extensions.

 1.     Background

        The Bureau granted Constellation‘s Big LEO License in 1997 to operate as one of only

five licensees in the Above 1 GHz Mobile Satellite Service ("MSS"). The other Big LEO

 licensees are Iridium LLC ("TIridium")," Globalstar Telecommunications LP ("Globaistar"),"

 TRW Inc.‘ and Mobile Communications Holdings, Inc. ("MCHI)." The Constellation License

 Order required that Constellation: (1) commence construction of its first two system satellites by

 July 1998 ("July 1998 Construction Commencement Milestone"); (2) commence construction of

 the remaining satellites by July 2000 ("System Construction Commencement Milestone"); (3)

 complete construction of the first two satellites by July 2001 ("T‘wo Satellite Construction




        See Constellation Communications, Inc., 12 FCC Red 9651 (1997) ("Constellation
        License Order‘). As the MO&O points out, Constellation‘s Big LEO License was
        granted to Constellation Communications, Inc. See MO&O para. 2 n.2. The Bureau
        subsequently granted a request for the proforma assignment of the license to CCI
        International N.V. ("CCII"). See Letter to Robert Mazer from Thomas S. Tycz, dated
        Sept. 14, 1999 (File No. SAT—ASG—19990222—00023). The Bureau later granted a
        request for the proforma assignment of the license to Constellation, a wholly owned
        subsidiary of CCII. See Letter to Robert Mazer and Albert Shuldiner from Thomas S.
        Tycz, dated Dec. 22, 1999 (File No. SAT—ASG—19991028—00105).
 3      See Motorola Satellite Communications, Inc., 10 FCC Red 2268 (Int‘l Bur. 1995).
        See Loral/Qualcomm Partnership, L.P., 10 FCC Red 2333 (Int‘l Bur. 1995).
 5      See TRWInc., 10 FCC Red 2263 (Int‘l Bur. 1995).
        See Mobile Communications Holdings, Inc., 12 FCC Red 9663 (1997). There are
        currently applications pending with the Commission to transfer control of MCHI and
        Constellation to ICO Global Communications (Holdings) Limited. See File Nos.


Completion Milestone"); and (4) ensure that the systerfi be operational by July 2003 ("System

Operational Status Milestone").‘

       Constellation early on recognized the substantial challenges that were presented by a

global MSS system. Unlike the other Big LEO licensees, Constellation predicated its business

plan on a phased approach to the introduction of its MSS business. In phase one, service would

be established around the equator in a ring from 23° North Latitude to 23° South Latitude. This

required a single equatorial ring of twelve satellites. In phase two, the number of satellites would

be expanded to fifty—four to provide service on a global basis. This phased approach allowed

Constellation to commence service and obtain revenue with significantly fewer satellites and

capital expenditures than required for the Iridium and Globalstar systems. More importantly, it

minimized the upfront business risk for its investors."

       With this business plan in mind, Constellation satisfied its July 1998 Construction

Commencement Milestone with the execution of a contract between Constellation‘s parent

company, CCI International N.V. ("CCII"), and Orbital Sciences Corporation ("Orbital") for the

construction of twelve spacecraft." Under separate contracts, Orbital agreed to make substantial

phased equity investments in CCII and provide vendor financing for a significant portion of the

initial satellite system construction effort. CCIl also entered into contracts in 1999 with



7      See Constellation License Order, 12 FCC Roed at 9661.
        As the Commission is aware, Iridium and Globalstar investors have lost billions of
        dollars in investments from their global MSS systems.
        The Commission was notified of this fact on July 2, 1998, with the filing of an affidavit
       of C.J. Waylan, President and Chief Executive Officer of Constellation. This was filed as
       part of the annual report required by Section 25.143(e) of the Commission‘s Rules, 47
        C.F.R. § 25.143(e). See Letter to Magalie Roman Salas from Robert A. Mazer, dated
       July 2, 1998, File Nos. 159—SAT—AMEND—96, 11 SAT—LA—95, 10—SAT—AMEND—95—
       CSS—91—013, 17 DSS—P—91(48). Constellation also filed timely annual reports in 1999,
       2000, 2001 and 2002.


Raytheon Company ("Raytheon") and ASRC Aerospace Corporation ("ASRC"). Raytheon

agreed to make an equity investment in CCII and to provide substantial vendor financing in

connection with a satellite system subcontract with Orbital. ASRC agreed to become a member

of the ground segment team for the system and to make a phased equity investment in CCII. As

part these activities, CCIHraised and expended in excess of $50 million in support of the

development of its MSS system."

       Along with the financial support CCII received from Orbifal, Raytheon, ASRC and other

sources, CCII recognized that additional resources were necessary in order to complete the

system. To this end, CCII established a working relationship with Lehman Brothers in 1999 to

explore sources of funds within the financial community. Lehman Brothers expressed support

for CCIHI‘s phased approach business plan, but cautioned that the market uncertainties created by

the Iridium and ICO bankruptcies, and the operating results of Globalstar at the time, raised

significant hurdles in the path of CCII‘s financing efforts. CCII retained Banc of America

Securities ("BAS") in 2000 as its primary financial advisor. BAS also validated the company‘s

phased approach business plan, but found that investor caution had continued with respect to the

Big LEO industry because of the Iridium, ICO and Globalstar problems and suggested deferring

further attempts to secure additional financing until market conditions improved.

       For these reasons, Constellation filed a request in 2000 asking that the Two Satellite

Construction Completion Milestone be extended to July 2001, the System Construction

Completion Milestone be extended to July 2002 and the System Operational Status Milestone be




10     See Letter of Robert A. Mazer to Marlene H. Dortch, dated Oct. 15, 2002, File No. SAT—
       T/C—20020718—00114 (with attached information responding to inquiry from the Satellite
       Division). This includes the development of Constellation‘s Big LEO and 2 GHz
       systems.


extended to July 2004."" Because market conditions had not improved, Constellation amended

its extension request in 2002, asking that the T‘wo Satellite Construction Completion Milestone

be extended to July 2004, the System Construction Completion Milestone be extended to July

2005 and the System Operational Status Milestone be extended to July 2006. There have been

no oppositions filed to any of Constellation‘s requests, and they remain unopposed.

       On November 8, 2002, the Bureau issued the MO&O denying Constellation‘s extension

request.13 The Bureau noted that "milestone extensions are granted only when the delay in

implementation is due to circumstances beyond the control of the licensee or when there are

unique and overriding public interest concerns that justify an extension."""* According to the

Bureau, Constellation has not met this standard because "failure to attract investors, an uncertain

business situation, or an unfavorable business climate in general have never been an adequate


U      See Constellation Communications Holdings, Inc., Request for Limited Waiver and
       Extension of Time, File No. SAT—MOD—20000907—00131 (filed Aug. 9, 2000). The
       Commission placed this request on public notice, see Public Notice, Rep. No. SAT—00055
       (Sept. 28, 2000), and no comments were filed in response, MO&O para. 4. Constellation
       amended its extension request in 2001 and asked that the Two Satellite Construction
       Completion Milestone be extended to July 2002, the System Construction Completion _
       Milestone be extended to July 2003 and the System Operational Status Milestone be
       extended to July 2005. See Constellation Communications Holdings, Inc., Request for
       Modification of Request for Limited Waiver and Extension of Time, File No. SAT—
       AMD—20010829—00081 (filed Aug. 29, 2001). The Commission placed this request on
       public notice, see Public Notice, Rep. No. SAT—00085 (Sept. 19, 2001), and MCHI filed
       comments supporting Constellation‘s amended application, MO&O para. 4 & n.15.
12     See Constellation Communications Holdings, Inc., Request for Modification of Request
       for Limited Waiver and Extension of Time, File No. SAT—AMD—20020828—00160 (filed
       Aug. 27, 2002). The Commission placed this request on public notice, see Public Notice,
       Rep. No. SAT—O00121 (Sept. 13, 2002), and no comments were filed in response. The
       Bureau does not cite or discuss this August 2002 amendment in the MO&O.
13     The MO&O addresses the filings Constellation made requesting milestone extensions in
       2000 (File No. SAT—MOD—20000907—00131) and 2001 (File No. SAT—AMD—20010829—
       00081), but it does not mention the filing made in 2002 (File No. SAT—AMD—20020828—
       00160). See MO&O para. 4.
14     Id. para. 7 (footnotes omitted).


excuse for failure to meet a construction ’cime’cablAe.”15 The Bureau also attempts in the MO&O to

distinguish prior cases involving extensions of deadlines from Constellation‘s situation.

        As discussed more fully below, the Bureau‘s decision to deny Constellation‘s extension

request is inconsistent with the purpose underlying the milestones. Specifically, denial of the

request will not advance the Commission‘s policy against spectrum warehousing and will not

result in additional competitive entry in the Big LEO services. To the contrary, the decision in

the MO&O will result in a delay of new Big LEO competition and could ultimately reward only

the two remaining Big LEO licensees, which are principally responsible for creating today‘s

difficult financial climate for MSS. The cases the Bureau cites are either inapposite to

Constellation‘s situation or support a result‘ contrary to that reached in the MO&O. Moreover,

even if Constellation does not meet the Commission‘s standard for an extension of its

milestones, grant of a waiver of those milestones would be consistent with Commission

precedent and serve the public interest.

II.     Constellation Meets the Standard for Granting Milestone Extensions

        Under Section 25.117(e) of the Commission‘s Rules, milestone extensions will be

granted where: (1) "additional time is required due to unforeseeable circumstances beyond the

applicant‘s control";"" or (2) "there are unique and overriding public interest concerns that justify

an extension.""" As described below, Constellation clearly qualifies for an extension under both

of these criteria.




        Id. (footnote omitted).
16      47 C.F.R. § 25.117(e)(1).
17      47 C.FR. § 25.117(6)(2).


       A.      Constellation Requires Additional Time Due to Unforeseeable
               Circumstances Beyond Its Control

       As Constellation described in its extension requests, the company has been unable to

raise the necessary financing for its system due to the poor state of the financial markets in the

United States and abroad for satellite operators. The lack of receptivity in the financial markets

to investment in Big LEO systems is predominantly the result of the bankruptcies of Iridium and

Globalstar."" The Commission is well aware of the market conditions that currently afflict the

telecommunications industry overall and satellite operators in particular. Earlier this year

Chairman Powell declared the telecommunications industry to be in a state of "utter crisis."""

The Commission specifically has acknowledged the inability of satellite operators to raise

funding from capital markets by granting extensions to New Skies Satellites, N.V. (an Intelsat

spin—off) and Inmarsat Ventures Ltd. (an Inmarsat spin—off) to conduct initial public offerings

("IPOs") required under the Open—Market Reogranization for the Betterment of International

Telecommunications ("ORBIT") Act."" Moreover, Congress recently passed an extension of the




18     iSee, e.g., Constellation 2002 Amendment Request at 3.
19
       Yochi J. Dreazen, FCC‘s Powell Says Telecom "Crisis" May Allow a Bell to Buy
       WorldCom, WALL ST. J., July 15, 2002, at A1.
20
       iSee Inmarsat Ventures Ltd., 16 FCC Red 13494 (2001); New Skies Satellites, N.V., 15
       FCC Red 11934 (2000). In these cases the FCC noted the "volatility and decline of U.S.
       and international capital markets since February 1, 2001," and observed that "the
       performance of technology and satellite sectors has been particularly negative . . . ."
       Inmarsat, 16 FCC Red at 13500. In the MO&O, however, the Bureau claims that these
       decisions do not support a milestone extension for Constellation because "no explicit
       market condition exception exists for the Commission‘s milestone rules, and the
       Commission has already found that milestone extensions based on market conditions are
       not in the public interest." MO&OQO para. 9. As discussed below in this Part II, however,
       in one of the cases the Bureau cites regarding milestone extensions based on market
       conditions not being in the public interest, the Bureau actually granted a milestone
       extension. See infra notes 27—28 and accompanying text. That case therefore supports
       the grant of an extension to Constellation. See id.


ORBIT Act‘s IPO deadlines."‘ If companies such as Intelsat and Inmarsat cannot successfully

implement an IPO, it is hard to imagine how a company in Constellation‘s sitfiation can raise

capital through either debt or equity financing.

       As a practical matter, there is nothing further from a licensee‘s ability to control than the

macroeconomic climate. No single licenseenor group of licensees, nor the satellite industry, nor

the entire telecommunications industry for that matter, can influence the nature and development

of the capital markets. These markets aré influenced by a number of factors, including stock

market performance, productivity, consumer and capital spending, employment and inflation.

The Commission has already recognized that the public markets are unavailable for ongoing

businesses such as Intelsat, New Skies and Inmarsat. The problems faced by these companies

are directly applicable to companies such as Constellation. This is because Intelsat, New Skies

and Inmarsat will now have to access private equity market to obtain additional capital. These

companies that already produce revenue will swallow significant amounts of private equity

available for satellite ventures, leaving little for emerging companies such as Constellation.

Once the public markets begin to reemerge, private equity funds will once again be available for

earlier state businesses.

        In the MO&O, the Bureau does not refute the information Constellation has provided in

its extension requests concerning market conditions and the inability of satellite operators to

raise the funding to complete their systems. Indeed, nothing in the MO&O indicates that the

Bureau believes Constellation‘s situation to be attributable to factors within Constellation‘s

control. Nevertheless, the Bureau states that a "failure to attract investors, an uncertain business


21      SATELLITE WK., Sept. 16, 2002. "In comments on Senate floor, Senate commerce
        Committee Chmn. Hollings (D—S.C.) said ‘uncontrollable external events‘ such as
       WorldCom bankruptcy had created environment that was ‘extremely unsupportive‘ of
       IPO at this time." SATELLITE WXK., Aug. 5, 2002.                      .


situation, or an unfavorable business climate in general have never been an adequate excuse for

failure to meet a construction timetable."""   In support of this proposition, the Bureau cites three

cases: United States Satellite Broadcasting Co. ("USSB),*" EchoStar Satellite Corp.                |

("EchoStar")"* and Advanced Communications Corp. ("Advanced")."" These cases, however, do

not support a denial of Contellation‘s milestone extension request.""

       In USSB, the Commission granted an extension to USSB and Dominion Video Satellite,

Inc. due in part to market conditions that hindered the ability of these operatérs to obtain

financing for their direct broadcast satellite ("DBS") systems and because of the nascent

technology involved with these systems and the associated businesses. The Commission


22     MO&O para. 8.
23     3 FCC Red 6858 (1988).
24     17 FCC Red 8831 (Int‘l Bur. 2002).
25      10 FCC Red 13337 (Int‘l Bur. 1995).
26     The Bureau also cites five other cases in which it has denied milestone extension requests
       because the delay at issue was not deemed to be outside the licensee‘s control under
       Section 25.117(e)(1). See MO&O para. 7 n.20. These include Intelsat LLC, 17 FCC Red
       2391 (Int‘l Bur. 2002), Columbia Communications Corp., 15 FCC Red 16496 (Int‘l Bur.
       2000), National Exch. Satellite, Inc., 7 FCC Red 1990 (Comm. Car. Bur. 1992)
       ("Nexsat"), Hughes R and Galaxy A—R Domestic Fixed—Satellites, 5 FCC Red 3423
       (Comm. Car. Bur. 1990), and MCI Communications Corp., 2 FCC Red 233 (Comm. Car.
       Bur. 1987). However, none of these cases supports the denial of Constellation‘s
       extension request. In Intelsat the Bureau granted a milestone extension request due to
       the licensee‘s need to correct technical problems. In Columbia the Bureau denied an
       extension request for a licensee that, unlike Constellation, had already been granted one
       extension, had nevertheless failed to satisfy its construction commencement milestone
       and had itself caused the delay due to merger negotiations. In Nexsat the Bureau denied
       an extension request for a licensee that, unlike Constellation, had already been granted
       one extension, had nevertheless failed to satisfy its construction commencement
       milestone and had itself caused the delay by failing to make decisions about which
       technologyto use. In Hughes the Bureau granted an extension for reasons that were not
       beyond the licensee‘s control but that otherwise satisfied the public interest (conforming
       C— and Ku—band launch milestones for a hybrid satellite). And in MM/CI the Bureau denied
       an extension request the licensee had sought as part of its decision to acquire the prior
       licensee — a circumstance that, unlike current market conditions for licensees such as
       Constellation, was not beyond the licensee‘s control.


acknowledged that the negative publicity surrounding earlier DBS failures "may have cooled the

ardor of potential investors,""" pointed out that USSB and Dominion had in fact been working on

their systems and, for those reasons, concluded that the Commission‘s construction deadlines

"proved to be inappropriate during this initial period of DBS developmoant.”28 In the MO&O,

however, the Bureau denies Constellation‘s extension request despite 'poor market conditions

outside of the company‘s control and the efforts that Constellation has undertaken thus far in

complying with its construction commencement milestone, obtaining financing from and

entering into relationships with manufacturers and making significant efforts to secure financing

in an environment where it has proven impossible to do so. The Bureau also fails to recognize

the significant progress Constellation has achieved in the actual development of its system.

Moreover, as in USSB, Constellation‘s system involves a new technology and a service that, like

DBS, has suffered from suffered from the failures of its initial market entrants. Under these

circumstances, USSB actually supports an extension of Cosntellation‘s milestones rather than the

denial for which the Bureau cites it.

       In EchoStar, the Satellite Division denied a request to extend EchoStar‘s milestones for a

second time because the company had failed to take "any concrete steps toward the construction,

launch, and initiation of service" and because this failure was the result of the company‘s

business decision "to defer construction in favor of a full—CONUS location.""" In Advanced, the

Bureau denied a request for a further extension of milestones because the delay giving rise to the




27      USSB, 3 FCC Roed at 6859.
28     Id. at 6860. USSB‘s milestones were extended again in 1992. See United States Satellite
       Broadcasting Company, Inc., 7 FCC Red 7247 (Mass Media Bur. 1992).
29     EchoStar, 17 FCC Red at 8834.


                                                10


request was the result of the licensee‘s decision to modify it system design*" — a business

decision clearly within the company‘s control. Unlike EchoStar and Advanced, Constellation

has not previously had its milestones extended; it has met its construction commencement

milestone; and it has expended significant effort to continue developing its system. Moreover,

Constellation‘s difficulties in moving forward are not due to a business decision the company has

made — as was the case in EchoS‘tar and Advanced. Rather, Constellation‘s difficulties have

been the result of market conditions, of which the Commission is aware, that are completely

outside of Constellation‘s control.

       Constellation‘s need for an extension is clearly due to factors clearly beyond its control,

and it therefore meetsthe test for milestone extensions set forth in Section 25.117(e)(1) of the

Commission‘s Rules. Contrary to the MO&O‘s assertions, grant of an extension to Constellation

would be consistent with Commission precedent. The cases the Bureau cites inthe MO&O are

either inapposite or in fact support grant of an extension in this instance.

       B.      There Are Unique and Overriding Public Interest Concerns That
               Justify an Extension

       Constellation also meets the test in Section 25.117(e)(2) because there are "unique and

overriding public interest concerns that justify an extension.‘""‘ In the MO&O, the Bureau

emphasized the public interest need to enforce milestones because they prevent licensees from

warehousing orbital resources and spectrum. According to the Bureau, "it is manifestly in the

public interest to ensure that licensees proceed expeditiously in completing construction of their

systems and commencing service . . . .‘However, an overly formalistic application of


30     See Advanced, 10 FCC Red at 13342—43.
31     47 CFR. § 25.117(0)(2).
32     MO&O para. 5. In its discussion of the public interest considerations behind the
       prohibition on warehousing of spectrum and the enforcement of milestones, the Bureau


                                                  11


construction milestones without an independent consideration of facts and circumstances can

result in situations where the underlying public interest purposes behind milestones are not

served.

          In the MO&O, the Bureau merely made a judgment that Constellation had not met its

second and third milestones. It did not consider at all whether the termination of the

Constellation license was consistent with the public policy goals inherent in construction

milestones. Specifiéally, the Bureau did not address Constellation‘s argument that it was not

warehousing spectrum or the fact that the regulatory framework for the 1.6/2.4 GHz Mobile

Satellite Service is highly unlikely to provide the opportunity for future entry. In its August 8,

2000 Request for Limited Waiver and Extension of Time, Constellation demonstrated that it had

been diligently pursuing the development of its 1.6/2.4 GHz MSS system. As the Commission is




          cites Norris Satellite Commmunications, Inc., 12 FCC Red 22299 (1997), Astrolink Int‘I
          LLC, 17 ECC Red 11267 (Sat. Div. 2002), Columbia Communications Corp., 15 ECC
          Red 15566 (Int‘l Bur. 2000), Pand4mSat Licensee Corp., 16 FCC Red 11534 (2001),
          Morning Star Satellite Co., 15 FCC Red 11350 (Int‘l Bur. 2000) (as well as the
          Advanced, MCI and Nexsat cases discussed above). See MO&O para. 5 nn.16—19. While
          these cases may support the use of milestones in general, they do not support the
          cancellation of Constellation‘s license and denial of its milestone extension request. In
          Norris the Commission upheld the Bureau‘s denial of a milestone extension for a licensee
          that, unlike Constellation, had already had one extension and nevertheless failed to satisfy
          its construction commencement milestone. In Astrolink the Satellite Division granted a
          waiver of the licensee‘s construction commencement milestone. In Columbia the Bureau
          denied a request to "toll" a licensee‘s milestones during the pendency of a request to add
          Ku—band authority to the licensee‘s C—band authorization — a scenario that does not
          resemble Constellation‘s situation. In Pand4mSat the Commission upheld the Bureau‘s
          denial of a milestone extension for a licensee that, unlike Constellation, had not satisfied
          its construction commencement milestone because it had decided to apply for a
          modification to add inter—satellite link frequencies to its license ten days before its first
          milestone deadline. Morning Star involved a licensee that, unlike Constellation, had
          clearly taken no steps toward construction, had not even satisfied its first milestone, had
          not requested an extension and had therefore provided no evidence that its failure to meet
          the milestones was due to cireumstances beyond its control.


                                                     12


aware, Constellation has expended in excess of $50 million towards the development of an its

system."" The work pursued by Constellation includes:

               Development of initial system design

               Formation of technical team including Orbital Sciences, Raytheon, ASRC
               Aerospace Corporation

               Negotiation and execution of construction contract with Orbital Sciences

               Negotiation and execution of contract with Raytheon for satellite subsystems

               Negotiation and execution of ground segment contract with ASRC

               Completion of proprietary technical specification for overall system

               Completion of Preliminary Design Review

               Development of air interface

               Development of phased array antenna

               Development of high gain antenna for fixed applications

               Development and execution of a business plan, with substantial market research,
               focused on phased implementation of an MSS system

               Raised in excess of $50 million in equity investment

       As the above demonstrates, Constellation has not been warehousing spectrum; it has

actively pursued the development of its MSS system. A mechanical application of the

milestones in Constellation‘s license does not lead to an accurate picture of Constellation‘s true

intent to complete its system or to an accurate evaluation of whether it is warehousing spectrum

contrary to the public interest. Although the failure to meet a milestone may create a

presumption of warehousing, if the underlying public interest reasons behind the milestones are

to be served, the licensee must be given an opportunity to rebut this presumption. In this case,

the activities and expenditures of Constellation demonstrate that it was not warehousing

33
       iSee supra note 10.


                                                13


spectrum but rather that it has been diligently pursuing the development of its MSS system. A

company warehousing spectrum does not sign major spacecraft contracts, complete significant

technical work or expend in excess of $50 million towards the development of its system. Nor

could a company warehousing spectrum raise over $50 million based on future potential profits.

Thus, one of the Commission‘s principal public policy goals associated with milesteone

enforcement is not served by the termination of Constellation‘s Big LEO License.

       Moreover, the Bureau‘s decision is highly unlikely to preserve an option for future

licensees to use the spectrum now licensed to Constellation. In the order establishing the Big

LEO service, the Commission determined that the 1.6/2.4 GHz band should be subject to a

frequency sharing plan and that the available spectrum could only accommodate four Code

Division Multiple Access ("CDMA") systems and one Time Division Multiple

Access/Frequency Division Multiple Access systern.34 The CDMA systems (including the

Constellation system) were capable of sharing use of the same frequencies. The Commission

originally proposed to reassign spectrum among the remaining licensees if any of the initial

licensees did not implement their systems."" Although, it chose to defer resolution of this issue,""

the practicalities clearly indicate that, at the end of the day, all of the 1.6/2.4 GHz spectrum is

likely to be divided up between the two remaining licensees: Globalstar and Iridium.""




34      See Amendment ofthe Commission‘s Rules to Establish Rules and Policies Pertaining to
        a Mobile Satellite Service in the 1610—1626.5/2483.5—2500 MHz Frequency Bands, CC
        Docket No. 92—166, Report and Order, 9 FCC Red 5936, 5955 (1994).
35      See id. at 5959—60.
36      iSee id.
3    > It is highly unlikely that any new entrant will apply for a Big LEO license in the
       foreseeable future. This is because of the Commission‘s proposal to provide Globalstar
       and Iridium all the remaining spectrum and the current state of the financial markets puts
        a chill on prospective applicants.


                                                  14


          There are currently no pending 1.6/2.4 GHz applicants, and no one opposed

Constellation‘s extension requests. If the environment for the 1.6/2.4GHz MSS changes next

week or next year as result of the authorization of auxiliary terrestrial component ("ATC") or a

renewed interest by the financial markets in MSS, equity would dictate that Constellation — a

pioneer in the industry that invested over $50 million in this business, completed significant

work towards system completion and actively promoted ATC at the Commission — should

benefit from this changed environment, rather than a different entity that is entirely new to the

market.

          For the foregoing reasons, reinstatement of Constellation‘s Big LEO License and

extension of its milestones is warranted under Section 25.117(e)(2) of the Commission‘s Rules.

III.      Even Assuming, Arguendo, That Constellation Does Not Satisfy the Standard for
          Milestone Extensions, Waiver of the Milestones Is Justified

          As demonstrated above, Constellation qualifies for a milestone extension request under

both criteria set forth in Section 25.117(e) of the Commission‘s Rules. However, even assuming,

arguendo, that Constellation does not meet these standards, it nonetheless qualifies for a waiver

of its milestones in accordance with Section 1.3 of the Commission‘s Rules."* In EarthWartch

Incorporated"" the Satellite Division ("Division") determined that EarthWatch did not qualify for

a milestone extension under Section 25.117(e) but nevertheless waived that rule and granted an

extension.

          According to fhe Division, "Waiver is appropriate if special circumstances warrant a

deviation from the general rule and such deviation would better serve the public interest than

would strict adherence to the general rule. Circumstances that would justify a waiver include


38        47 C.F.R. § 1.3.
39        15 FCC Red 13594 (Sat. Div. 2000).


                                                 15.


‘considerations of hardship, equity, or more effective implementation of overall policy."""" In

granting the waiver in EarthWatch, the Division articulated a two—pronged test for the review of

milestone waiver requests. First, the record must demonstrate that the applicant intends to

proceed with construction, is not engaged in warehousing of spectrum and the public interest

would be furthered by a grant of the waiver. Second, grant of the waiver should not preclude

new entrants from entering the market in question. Constellation qualifies for a waiver under

this standard.

       As noted above in Part II, Constellation has demonstrated its intent to construct its system

by satisfying its July 1998 Construction Commencement Milestone. Since then, additional

cofitracts have been concluded, significant technical development of its system has commenced,

further financing has been obtained, and Constellation and its advisors have undertaken efforts to

obtain the financing necessary to fund the system.*‘ Moreover, grant of a waiver would further

the public interest by allowing Constellation additional time to secure the level of funding

necessary to bring its system on—line to provide competitive Big LEO services. Denial of a

waiver would merely provide a windfall to Iridium and Globalstar — as an indirect result of their

own failures, which caused the current market conditions in which Constellation and other

companies must operate — with additional spectrum and a Big LEO duopoly that is contrary to

the public interest in competitive Big LEO services. With the perpetuation of the Iridium and


*      1Id. at 13597 (footnotes omitted) (quoting WAITRadio v. FCC, 418 F.2d 1153, 1159
        (D.C. Cir. 1969)) (citing Northeast Cellular Tel. Co. v. FCC, 897 F.2d 1166 (D.C. Cir.
        1990), Comeast Corp., 11 FCC Red 9622 (1996), and General Communications, Inc., 11
       FCC Red 2535 (Int‘l Bur. 1996)).
41
       See supra Parts I and II. In EarthWaitch, the Division noted that the determination of
       whether a licensee is warehousing spectrum turns on the extent to which the licensee had
       commenced and continued construction of its satellites. According to the Division, once
       a licensee had met its construction commencement milestone, the Commission "can be
       more certain that it will proceed with its business plan." 15 FCC Red at 13598.


                                                16


Globalstar duopoly, there would be no new entrants to provide competition in the Big LEO MSS

industry. Indeed, only the extension or waiver of Constellation‘s milestones, and the resulting

entry of Contellation into the market as a service provider, will result further the goal of

competitive entry enunciated in EarthWatch and thereby serve the public interest.

        In the MO&O, the Bureau says only that Earth Watch is distinguishable from

Constellation‘s situation because EarthWatch was apparently closer to physically completing its

satellite than Constellation.“i But drawing this distinction does not advance the criteria set out in

EarthWatch—i.e., that a waiver be granted where the licensee is not warehousing spectrum and

where new entry would not be precluded — or the public interest. Regardless of the degree to

which Constellation and EarthWatch had completed construction at the time of their respective

waiver requests, any new Big LEO entrant would be years behind Constellation in implémenting

a competitive MSS system, particularly in light of the time required for the Commission to

resolve its pending proposal to assign the rernaifiing licensees with all of the allocated spectrum

and process new applications and award new licenses. The MO&O‘s analysis and result are

therefore clearly contrary to the standard enunciated in Earth Watch," and a waiver is clearly

justified in this instance.

IV.     Conclusion

        Because, based on the foregoing discussion, Constellation qualifies for an extension or

waiver of its remaining milestones, Constellation respectfully requests that the Bureau reconsider




4*      See MO&O para. 11.
4#      For example, in NetsSat 28 Co., 16 FCC Red 11025 (Int‘l Bur. 2001), the Bureau granted
        a milestone waiver to a licensee due to a prior Commission decision that had contributed
        to the licensee‘s inability to raise financing for its satellite. That waiver was granted
        notwithstanding the fact that the Bureau had not found the licensee to have yet satisfied
        its construction commencement milestone.                 —


                                                  17


its decision in the MO&O, reinstate Constellation‘s Big LEO License and extend or waive the

milestones as requested.

                                           Respectfully submitted,

                                           CONSTELLATION COMMUNICATIONS
                                            HOLDINGS, INC.


                                           ns _Abb/e.
                                                   _Robert A. Mazer
                                                    R. Edward Price
                                                    Vinson & Elkins L.L.P.
                                                    1455 Pennsylvania Avenue, NW.
                                                   Washington, D.C. 20004—1008
                                                   (202) 639—6500

                                                   Its Attorneys

December 9, 2002




221869_1.D0C




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Document Modified: 2015-01-09 15:16:27

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