Attachment reply

reply

REPLY submitted by Inmarsat

reply

2006-06-19

This document pretains to SAT-LOA-20030827-00174 for Application to Launch and Operate on a Satellite Space Stations filing.

IBFS_SATLOA2003082700174_509934

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     Ms. Marlene H. Dortch
     Secretary                                       JUN 5 9 2006
     Federal Communications Commission         c era, Communications ammission
     445 12th Street, SW, TW-B204                      mice of S e c r W
     Washington, DC 20554

           Re: Inmarsat Ventures Limited, Reply
               File Nos. SAT-LOA-19980702-00066 (Call Sign S2358); SAT-LOA-20030827-
               00174 (Call Sign S2487)

     Dear Ms. Dortch:

                     Inmarsat Ventures Limited respectfully requests that the Commission accept for
     filing the enclosed redacted, public version of its Reply in these proceedings. This submission is
     made pursuant to the Protective Order issued by the Commission (DA 06-1037, rel. May 15,
     2006). A non-redacted, confidential version of the Reply was filed under separate cover on June
     16,2006. Due to unexpected technical problems involved with redacting confidential
     information, Inmarsat was unable to submit this redacted version of the Reply on Friday, June
     16,2006.

                                                  Respectfully submitted,




                                                  Jeffrey A. Marks
                                                  Counsel for Inmarsat Ventures Limited

     cc:    CurTrisha Banks, International Bureau
            Bruce Jacobs, David Konczal, Tony Lin, Counself o r MSV

     Enclosure


                                        PUBLIC COPY
                                                                            RECEIVE
                                            Before the                         JUN 1 9 2006



In the matter of                               )
                                               1
Mobile Satellite Ventures Subsidiary, LLC      )   File No. SAT-LOA- 19980702-00066
                                              )    File No. SAT-LOA-20030827-00174


                                             REPLY

               Inmarsat Ventures Limited (“Inmarsat”) replies to MSV’s opposition to

Inmarsat’s Petition for Reconsideration of the milestone determinations with regard to MSV’s

authorizations for two new spacecraft: MSV-1 at 101”W.L. and MSV-SA at 63.5” W.L.’

               In its Petition for Reconsideration, Inmarsat demonstrated that the contract that

MSV filed on January 11 2006 (the “Boeing Contract”) fails to satisfy the requirement that

MSV enter into a “binding non-contingent contract” to construct the MSV- 1 and MSV-SA

spacecraft. In particular, MSV’s ability to terminate for convenience   mcoupled
                                                                         y




                                                                    -
with MSV’s low initial payment obligations, indicates that the Boeing Contract is a mere option

and is not a firm commitment to implement MSV’s two licensed spacecraft in accordance with

its Commission milestones. In the intervening time, MSV has tendered for cancellation its

license for MSV-SA, because MSV made a business decision not to construct that spacecraft in a

timely fashion.2 This development underscores the significance of




  Public Notice, Report No. SAT-00356, DA 06-918, at 2 (rel. Apr. 21,2006).
  Letter from Jennifer Manner, MSV, to Marlene Dortch, FCC, June 12,2006 (surrendering
  MSV’s authorization to launch and operate MSV-SA at 63.5” W.L. and requesting return of
  performance bond).


                                           PUBLIC COPY


under the Boeing Contract in circumstances where MSV chooses not to implement its licensed

systems.

                 In its Opposition, MSV fails to refute the principal argument of Inmarsat's



Boeing Contract.

                 Moreover, MSV's responses to Inmarsat rely on entirely new information: a May

19,2006 amendment to the Boeing Contract that has not been submitted as part of the record.

MSV indicates that the amendment alters the payment schedules and other contractual terms in

the Boeing Contract that are in dispute in this proceeding, but MSV does not submit the

amendment.4 Obviously, neither Inmarsat nor the Commission can comment on such new

information unless and until they have access to it and can review it.' In the meantime, there is

no record basis to conclude that MSV is committed to constructing its spacecraft in accordance

with a non-contingent contract and in accordance with MSV's milestone requirements.

I.        MSV CANNOT RELY ON INFORMATION THATIS NOTPART OF THE RECORD

                 In its Opposition, MSV indicates that it has amended the Boeing Contract and

touts the aspects of the amendment that purport to show an increased commitment to launch and

operate its Canadian-licensed spacecraft at 106.5" W.L. (MSV-2) and its FCC-licensed


     MSV is wrong that Inmarsat has "sat on the sidelines" in implementing new
     technologies. MSV Opposition at i. Just last year, Inmarsat launched two next-
     generation Inmarsat-4 spacecraft, which are the most advanced commercial communications
     satellites currently in orbit, and enable BGAN service -broadband MSS at speeds of almost
     half a megabit per second to satellite earth terminals one third the price, size and weight of
     those previously used. In stark contrast, MSV has held FCC licenses for four L-Band
     spacecraft (at 62" W.L., 63.5" W.L., 101" W.L. and 139" W.L.), and has tendered three of
     those licenses for cancellation without implementing the systems.
4
     See, e.g., MSV Opposition at nn.5 & 7.
     Based on a review of the Commission's public file as of May 16,2006 by counsel for
     Inmarsat, there is no indication that MSV has submitted this amendment to the Commission.

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DC\823237.1


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spacecraft at 101” W.L. (MSV-I). Namely, MSV references accelerated construction and

payment schedules.6 As an initial matter, MSV’s supposedly renewed commitment to implement

its Canadian-licensed satellite is entirely irrelevant to this FCC proceeding. More fundamentally,

MSV appears to have amended the very terms of the Boeing Contract that are at issue in this

proceeding. There is no way for the Commission, or any interested party, to address the impact

(if any) of the amended contract until MSV files the amendment with the Commission and

makes it available to Inmarsat.

                  Contrary to MSV’s assertion, MSV’s amendment to the Boeing Contract is

r e l e ~ a n t .MSV
                 ~   relies on its amendment to address issues in dispute, and to attempt to respond

to the deficiencies Inmarsat highlighted in its Petition for Reconsideration.8 Moreover, MSV

entered into the amendment just six days before the May 26,2006 initial milestone for MSV-1.9

Any contract amendment made prior to such a “enter into a binding non-contingent contract”

milestone could be of consequence to a determination whether that milestone has been met.”




6
     See, e.g., MSV Opposition at 9-10 & nn.5, 8, 9 & 27.
7
     Cf:id. at n.5 (claiming that the contract amendment is not relevant).
*    See, e.g., id. at 9-10 & nn.5, 8, 9 & 27.
     See MSV, 20 FCC Rcd at 9752,9776 fi 78 (2005) (requiring MSV to enter into a “binding non-
     contingent contract” by May 26,2006). Thus, MSV was not “between” milestones for MSV-1
     when it amended the Boeing Contract, as MSV suggests. MSV Opposition at n.5.
lo   MSV erroneously relies on Columbia Communications Corporation, 16 FCC Rcd 10867,
     10873-10874 77 17-22 (2001) (“Columbia”),for the assertion that its contract amendment is
     not relevant. MSV Opposition at 2, n.5. In Columbia, the Commission found, in relevant
     part, that the following issues did not warrant reconsideration that Loral met its initial
     milestone: (i) that modifications to Loral’s license to include inter-satellite links may require
     contract amendments; (ii) that a press release omitted affirmative statements related to the
     spacecraft at issue; and (iii) that a prospectus indicated delay in development of the spacecraft
     when the Commission already had found that such delay was not dispositive. Id. In contrast,
     here, MSV’s ownfilings with the Commission rely on, and cite to, its amendment to the Boeing
     Contract.

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Without Inmarsat and the Commission having the opportunity to review the amendment to the

Boeing Contract, interested parties cannot meaningfully comment on the amended terms.            ’   I


11.       THEBOEING
                  CONTRACT IS NOTA “BINDING
                                          NON-CONTINGENT
                                                     CONTRACT”

                    Inmarsat’s principal argument in its Petition for Reconsideration is that the




                      -
Boeing Contract (dated January 9,2006) is not the type of “binding non-contingent contract”

mandated by MSV’s authorizations because of the combination of three factors: (i) MSV has the




                                                                                   -
ability to terminate for convenience

                                                                          , (ii) MSV made a down

payment equal to                       of the total contract price, and (iii) MSV is obligated   =
              Thus, as Inmarsat explained in its Petition for Reconsideration,




’’ See Amendment of the Commission’s Space Station Licensing Rules and Policies; Mitigation
     of Orbital Debris, 18 FCC Rcd 10760, 10831 7 185 (2003) (“Space Station Licensing
     Reform”) (requiring licensees to submit their contracts for milestone review because the
     “licensee’s certification has not always proven dispositive in the past”); Pegasus Development
     Corporation Submission of Executed Satellite Construction Contract and Request for
     Confidential Treatment, 20 FCC Rcd 14661, 1462 f 2 (2005); PanAmSat Corporation, 17
     FCC Rcd 4639,4640 fi 5 (2002); GE American Communications, Inc. Application for
     Authority to Construct, Launch, and Operate a Ka-Band Satellite System in the Fixed-Satellite
     Service, 16 FCC Rcd 17607,17608 7 4 (2001).




                                      -
12
     See Inmarsat Petition at 6 V‘If. for any reason whatsoever. MSV chooses not to Droceed with



     therefore does not demonstrate sufficient commitment to proceed with system implementation
     to satisfy the contract execution milestone. Under these circumstance

     payment and initial payments are inadequate under Commission precedent.”(emphasis
     sumlied) (internal auotations omitted): id. at 7 PThese modest initial Davment obligations.
              I \                                                              I   d    ”
     wt’&zviewed in ligh’t of MSY’s                            make clear the contingent nature of
     MSV’s commitment to implement its licensed system during the early part of the Boeing
     Contract.” (emphasis supplied). Cf:MSV Opposition at i (incorrectly claiming that

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DC3823237.1


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.-                    This is why Inmarsat characterized the Boeing Contract as a mere option, not

 a “binding non-contingent contract” under Commission precedent.

                 MSV fails to squarely address this argument. Rather than looking at the totality

 of the circumstances, MSV addresses each individual element in isolation, and argues that the

 Commission has never established “absolute or relative expenditure req~irements.”’~
                                                                                   But the

relevant inquiry is not whether a low down payment or a certain payment schedule, viewed in

isolation, has been found acceptable. The relevant inquiry is whether the contract terms, taken as

a whole, evidence that the licensee has “significant current obligation[s],” and is substantially

“committed to the completion of construction of the    satellite^."'^
                 Commission precedent is clear that a termination for convenience provision that

allows too much discretion to terminate at too little cost can constitute an “unresolved

contingency” that can render a contract inadequate for purposes of an initial license milestone. l 5

In fact, an analysis of the termination for convenience provision in a contract was an essential

part of the Commission’s determination whether EchoStar had satisfied its obligation to enter

into non-contingent contract.I6 In that case, the Commission favorably noted termination



     “Inmarsat’s primary argument [is] that MSV’s initial payments under the contract are not
     significant.”).
I3   MSV Opposition at i.
l4   EchoStar Satellite Corporation, 5 FCC Rcd 1765, 1769 f 18 (1 992) (“EchoStar”);c$ MSV
     Opposition at n.28 (characterizing the Commission’s treatment of termination provisions in
     Echostar).
l5   Echostar, 5 FCC Rcd at 1769 77 12-18.
I6   Thus, the resolution of that case turned on far more than whether the contract term was 40 or
     47 months, and precisely what payments were made over the initial period. As MSV correctly
     notes, in EchoStar, there appears to have been a gap between the initial down payment and the
     start of the 40-month payment period. MSV Opposition at 8-9.

                                                  5
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provisions where the licensee’s liability could include (i) the total projected contract cost of the

spacecraft; (ii) the manufacturer’s total direct and indirect costs reasonably incurred with respect

to termination and settlement with its vendors and subcontractors, and (iii) “a profit of twelve

and one-half percent through month 24 of the construction schedule and fifteen percent thereafter

(total profit not to exceed eleven million dollar^)."'^ Under these circumstances, the

Commission found that:

                 Rather than constituting “unresolved contingencies” which might prevent
                 construction of the satellite, it appears that the terminatioddefault
                 provisions in Echostar’s construction contract are designed and intended
                 to minimize the possibility and impact of future events by providing
                 incentives for both parties to perform, and penalties for failure to
                 perform.



                 In its Space Station Licensing Reform decision, the Commission confirmed this

unremarkable proposition that “a contract that allows the licensee to cancel construction of the

satellite without significant penalty is not sufficient to meet the construction commencement

milestone.”’ As such, contrary to MSV’s assertion,                   termination for convenience,



demonstrating a current obligation to complete construction of a satellite, especially when initial



l7   EchoStar, 5 FCC Rcd at 1769 7 18.
l8   Id.
l9   Space Station Licensing Reform, 18 FCC Rcd at 10831 7 184; see also Columbia 16 FCC Rcd
     at 10871, 10872 77 11, 15 (noting requirement to pay “penalties” for cancellation as a key
     element in ascertaining whether a satellite construction contract is binding); TMI
     Communications and Company, Limited Partnership and TerreStar Networks Inc., 19 FCC
     Rcd 12603, 12611 7 2 1 (“contract prescribed substantial penalties, moreover, for non-
     performance and termination without cause”). The range of termination penalties that applied
     to the contracts at issue in TMI and Columbia are not apparent from the text of the decisions,
     and there is no indication in those decisions that the licensees could terminate the ameement


                                                  6
DCM23237.1


                                             PUBLIC COPY


payments are low or non-existent, as they were in EchoStar2’ and MCHI,” and as they are in the

Boeing Contract.




                                                                             -
                   Rather than addressing Inmarsat’s explanation why the Boeing Contract, in its

totality, fails to evidence a binding commitment by MSV to build its licensed spacecraft, MSV

resorts to mischaracterizing Inmarsat’s assertions. For example, MSV wrongly claims that

Inmarsat’s “primary argument” is that “MSV’s initial payments under the contract are not

significant.”22 As detailed above, Inmarsat’s main theme was, and is, that

=             for termination for convenience 1                    1                      , and that

MSV’s low down payment and low initial payment obligations are decisional significance in

light of that fact.23 Similarly, MSV misleadingly quotes half a sentence from the Petition for

Reconsideration, when it addresses the relevance of MSV’s low down payment under

Commission precedent.24 Inmarsat accurately characterized the MCHI case when it stated that

“In a context where a licensee did not otherwise demonstrate a commitment to implement its

licensed system, the Commission characterized a down payment of less than 0.5% as ‘miniscule’

and indicative that the contract was not satisfactory in meeting the initial license rnile~tone.”~~

                   Moreover, the Bureau’s order in the MCHI case was clear that these types of

deficiencies in the contracts at issue were a separate basis for finding the contracts inadequate for



2o   EchoStar, 5 FCC Rcd at 1765-1766 77 3-4.
21   Applications of Mobile Communications Holdings, Inc. and I C 0 Global Communications
     (Holdings) Limited for Transfer of Control, 18 FCC Rcd 1094 at 7 17 (2003) (“MCHI”).
22   MSV Opposition at i.
23   See supra note 12.
24   MSV Opposition at 7-8.
25   Petition for Reconsideration at 6 (emphasis supplied) (citing MCHI, 18 FCC Rcd at 1100 7
     17).

                                                   7
DC\823237.1


                                                   PUBLIC COPY


license milestone purposes, apart from the issue whether the satellite sharing arrangements at

issue also were acceptable.” In any event, MSV misses the point. Just as the “miniscule” down

payment was one of the factors that indicated that the licensees had not met their milestone

requirements in MCHI, MSV’s low down payment similarly is one of several factors that

demonstrates why the Boeing Contract is not a “binding non-contingent contract,” but rather was

simply an option when it was executed.

                                                                    - 1
                         Furthermore, the significance of MSV’s ability




not whether brief delays in construction may be acceptable. The issue is whether MSV is

contractually committed to actually start construction in the first instance. MSV has           =
     ~        ~~~~~~~~




111.         INMARSAT HASSTANDING TO SEEK RECONSIDERATION

                         MSV does not dispute (i) that Inmarsat has a vested interest, as a competitor, in

the determination whether MSV has met its milestones, or (ii) that Inmarsat was adversely

affected by the Bureau’s finding that MSV complied with its initial milestones.28 Rather, MSV

argues that Inmarsat lacks “standing” because Inmarsat did not raise its concerns earlier. As an

initial matter, MSV is simply wrong. Inmarsat did timely raise its concerns with the

Commission on March 24, 2006, well before the issuance of the milestone determination, and

based largely the publicly available information revealed in Motient’s SEC Form 8-IS, which was


26
         Cf MSV Opposition at n.19.
27
         Cf MSV Opposition at 9-10.
28   See Petition for Reconsideration at 4 n. 15 (citing 47 C.F.R. 0 l.l06(b)( 1); FCC v. Sunders
     Brothers Radio Station, 309 U.S. 475,477 (1940)).

                                                          8
DCM23237.1


                                           PUBLIC COPY


dated just eleven days earlier.29 Moreover, in an effort to further buttress its arguments, Inmarsat

sought FOIA access to the Boeing Contract. That it took 52 days for confidential portions of the

Boeing Contract to be made available was not a matter within Inmarsat’s control. As such, “it

was not p o ~ s i b l e ’ for
                          ’ ~ ~Inmarsat to provide meaningful comments on the redacted portions of the

Boeing Contract prior to the Bureau’s Public Notice. Therefore, Inmarsat has standing under

Commission rules to seek reconsideration of the Bureau’s decision.

IV.      CONCLUSION

                 For the foregoing reasons, the Commission should reconsider its determination

that MSV has met its initial milestones.

                                                      Respectfully submitted,




                                                      John P. Janka
                                                      Jeffrey A. Marks
                                                      LATHAM & WATKINS LLP
                                                      555 Eleventh Street, N.W.
                                                      Suite 1000
                                                      Washington, D.C. 20004
                                                      Telephone: (202) 637-2200

                                                      Counsel for Inmarsat Ventures Limited

June 16,2006




29   See Letter from Counsel for Inmarsat to FCC, File Nos. SAT-LOA-19980702-00066 et al.,
     at 2 (Mar. 24,2006).
30 47   C.F.R. 0 l.l06(b)(l).

                                                  9
DC\823237.1



Document Created: 2006-07-03 15:42:50
Document Modified: 2006-07-03 15:42:50

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