Attachment Petition

Petition

PETITION TO DENY submitted by Iridium Satellite, LLC (Iridium)

Petition

2007-06-29

This document pretains to SES-T/C-20070404-00440 for Transfer of Control on a Satellite Earth Station filing.

IBFS_SESTC2007040400440_576091

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



In the Matter of                                                      WC Docket No. 07—73




                                          wz n n sn sn s n n n n sz
Stratos Global Corporation                                            DA 07—2557

Consolidated Application for Consent to                               FCC File Nos.:
Transfer Control
                                                                      ITC—T/C—20070405—00136
                                                                      ITC—T/C—20070405—00133
                                                                      ITC—T/C—20070405—00135
                                                                      SES—T/C—20070404—00440
                                                                                through —00443
                                                                      0002961737 and
                                                                      ISP—PDR—20070405—00006




                               PETITION TO DENY




Nancy J. Victory                                    Michael R. Deutschman, Esq.
Wiley Rein LLP                                       Chief Counsel and Chief Administrative
1776 K Street, NW                                    Officer
Washington, DC 20006                                 Iridium Satellite, LLC
202.719.7000                                         6707 Democracy Blyd., Suite 300
Counselfor Iridium Satellite, LLC                    Bethesda MD 20817
                                                     301.571.6222




June 29, 2007


                                              TABLE OF CONTENTS

                                                                                                                             Page

       INTRODUCTION AND SUMMARY 1100000000 mm revvrerererrererrvrrrrvrveenerrrnerrerrerrerrereevenean en 2
IL.    THE TRANSACTION‘S PROPOSED USE OF A TRUST DOES NOT COMPLY
       WITH COMMISSION POLICY AND PRECEDENT a:0.2 000000000000 nevvververerererrrnmeerreeens 6
       A.        The FCC‘s Policy Statement Governs Proxy Contests and Tender Offers
                 and Does Not Support GT@Rt Of the APPIICAHION .....c...0 es e eeeeeeeeememneenmennnenereees 6
       B.        The Application Must Also Be Found Deficient under Other Aspects of
                 the POICY SHAEEMEML ... eerrneereerrerverreerrrrrnrenee en rerenereernrereseeneeraree 9
       C.        The Proposed Transaction Is Inconsistent with the Other Limited
                 Situations in Which the FCC Has Allowed Use Of & TFUSt ... 11
HIL.   ALLOWING USE OF THE TRUST WILL HARM THE PUBLIC INTEREST............ 14
IV.    CONCLUSION 1200000000 e en rvrnvererrrnrnverrenerrenrnrer en e rvernerrereerrrerren en ervrrererreererrennereenrrrrarerenes 18


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



In the Matter of                                                         WC Docket No. 07—73




                                                   wlz n w S n n s esz
Stratos Global Corporation                                               DA 07—2557

Consolidated Application for Consent to                                  FCC File Nos.:
Transfer Control
                                                                         ITC—T/C—20070405—00136
                                                                         ITC—T/C—20070405—00133
                                                                         ITC—T/C—20070405—00135
                                                                         SES—T/C—20070404—00440
                                                                                   through —00443
                                                                         0002961737 and
                                                                         ISP—PDR—20070405—00006



                                      PETITION TO DENY


         Iridium Satellite, LLC ("Iridium"),‘ pursuant to Sections 1.939 and 25.154 of the

Commission‘s rules® and the Public Notice released May 30, 2007 respectfully requests that the

Commission deny the consolidated application ("Application") of Stratos Global Corp.

("Stratos") and Robert M. Franklin ("Trustee"), which seeks consent to the "indirect transfer of


|       Iridium is a provider of satellite services and a direct competitor of Inmarsat, the real
party—in interest to the proposed transaction. Stratos, the companyfor which transfer approval is
sought, is an independent distributor for many satellite providers, including Iridium and
Inmarsat. Stratos is currently one of the largest commercial distributors of Iridium‘s satellite
services. As set forth below, grant of the Application would risk significant competitive harm to
Iridium by creating incentives for Stratos to favor Inmarsat in the distribution market during the
pendency of the proposed trust period. For these reasons, Iridium has standing to file this
petition.
2        47 C.F.R. §1.939; 47 C.F.R. §25.154
3      Stratos Global Corp. and Robert M. Franklin, Trustee, Seek FCC Consent to the Indirect
Transfer of Control ofStratos Global‘s Wholly—Owned, FCC—Authorized Subsidiaries from
Stratos to an Irrevocable Trust, Public Notice, DA 07—2257, WC Docket No. 07—73 (rel. May 30,
2007).


control of Stratos Global‘s wholly—owned FCC—authorized subsidiaries. .. from the current

shareholders of Stratos Global to an irrevocable trust."* The Application references, but does not

name as a party, the real party—in—interest to the proposed transaction —— Inmarsat ple ("Inmarsat").

Inmarsat, through its subsidiary, has agreed to finance the trust‘s acquisition of Stratos and to

purchase a call option to acquire the company in April 2009 when Inmarsat is no longer

contractually prohibited from owning or controlling a distributor of its services.

       The relief Inmarsat and Stratos request is an anti—competitive attempt to circumvent

contractual obligations, Communications Act requirements and procedures established by the

Commission to ensure that transfers of control serve the public interest. The Application

proposes a mullti—stage deal concocted to enable Inmarsat to acquire a company it is currently

prohibited from owning or controlling. The proposed transfer of Stratos to a trust financed by

Inmarsat is a blatant attempt to evade existing contractual prohibitions as well as to avoid

serutiny of the full transaction by the Commission. As such, the Application seeks extraordinary

relief that is not only wholly unsupported in FCC precedent, but directly at odds with

requirements designed to protect the public interest. For these reasons, Iridium urges the

Commission to deny Stratos‘ Application.


L.     INTRODUCTION AND SUMMARY.

       Stratos, the target company in the proposed transaction, is an independent distributor of

mobile satellite services ("MSS"). It serves as the distribution partner for numerous MSS

providers, including Iridium (Stratos is one of Iridium‘s largest commercial distributors) and

Inmarsat. Inmarsat currently is prohibited from acquiring an interest in Stratos or any ofits



*    Statos Global Corp. Consol. Application for Consent to Transfer Control, Docket No.
WC Docket No. 07—73 (filed Apr. 5, 2007) ("Narrative").


distributors pursuant to a distribution structure established at the time of Inmarsat‘s privatization.

Specifically, Inmarsat‘s agreements with its numerous distributors prohibit the company from

selling its service directly to end users," as well as from acquiring an interest in any ofits

distributors (except in extremely limited circumstances}." These prohibitions were put in place

to "protect distribution partners‘ investment in their distribution channels."‘ »7 They are a product

of the privatization process as well as of commercial negotiation between Inmarsat and its

distributors. These prohibitions are set to expire in April 2009.

       Inmarsat and Stratos have now proposed an unprecedented multi—step transaction in an

attempt to have the Commission authorize a structure that would allow them to bypass these

contractual prohibitions, maintain a sham fagade of neutrality, and evade full FCC review.

Through this Application, Stratos proposes transferring control of its FCC licenses to an

irrevocable trust, owned by CIP Canada Investment Inc., a wholly—owned subsidiary of CIP UK

(collectively CIP)." CIP‘s acquisition of Stratos is to be funded by Inmarsat, through "a loan

facility under which CIP UK may draw up to $250 million to fund the costs of CIP Canada‘s




5     See INMARSAT FINANCE PLC, INMARSAT GROUP LTD., INMARSAT INVESTMENTS LTD.,
Annual Report (Form 20—F), at 32 (Apr. 30, 2007), at
http://www.sec.gov/Archives/edgar/data/1291396/000119312507094923/d20f.htm (last visited
June 18, 2007) ("Under the Distribution Agreements, we are restricted from owning or
establishing land earth stations that access our existing services (other than R—BGAN and
BGAN) except in limited circumstances").
6      See id. at 85 (Inmarsat has "the right to establish, acquire or affiliate with [an entity
owning or controlling] land earth stations" only "in an ocean region" under certain
circumstances; "with the consent of distribution partners responsible for 66 2/3 percent of[its]
revenues derived from all LESO Agreements in the previous 12 month period; or under certain
defined cireumstances where no distribution partner has agreed to match [its] offer of marketing
funds to promote a specific service in a promotional scheme").
7      1d. at 84.
8      See Narrative at 6—8.


acquisition of Stratos."" In addition, Inmarsat will pay CIP $750,000 for a call option to acquire

CIP‘s interest in Stratos beginning in April 2009.‘" Inmarsat will pay an additional $750,000 to

$1,000,000 to CIP when it exercises this option."‘

        In an obvious attempt to evade contractual provisions prohibiting Inmarsat‘s acquisition

of Stratos, the Application concocts a two—step transaction in which Stratos would be parked in a

trust until these provisions expire in April 2009." Although CIP is inserted as the beneficial

owner of the trust, it is clear that its role is merelythat of a strawman. Inmarsat‘s financing of

the trust arrangement and call option make clear that the relationship between Inmarsat and

Stratos would hardly be the arm‘s length neutrality required by the existing distribution

agreements.


        Stratos is an independent distribution channel today and has economic reasons not to

discriminate against or in favor of any ofits suppliers. However, during the pendency of the

trust arrangement, Stratos would have strong and obvious reasons to favor Inmarsat services over

those ofother distribution partners, such as Iridium. If Inmarsat does not exercise its option, the

interest rate on Inmarsat‘s loan to CIP to finance the trust increases substantially — from 5.75% to

11.5%." Accordingly, despite the use of a trust to erect a fagade of independence and neutrality,

Stratos would have a substantial incentive to favor Inmarsat, a major competitor ofIridium. All

of Stratos‘ decisions will be made with an eye toward its ultimate transfer to Inmarsat. Further,




9      Id. at 7.
10     1d. at 8.
M      Id



        If FCC approval for the transfer to Inmarsat cannot be obtained, the trust will transfer
control of Stratos to CIP UK or arrange for an investment bank to auction the shares. Id.
1      TMF Associates, 4// Change for MSS Distribution?, at
http://www.tmfassociates.com/Stratos.pdf (last visited June 19, 2007).


since the financial benefits of the acquisition for CIP lie in cash flow from the Stratos business

while it is held by the trust, CIP would be dissuaded from making any investments to promote

services that might compete with Inmarsat, even if it would promote long term value for Stratos

or benefit end users.""

       The proposed transaction is a clear attempt by Inmarsat and Stratos to distort and

manipulate the Commission‘s transfer processes to skirt their contractual obligations and secretly

gain private anti—competitive advantage. The Application seeks extraordinary treatment — the

parking of a company operating in a competitive market in a trust for nearly two years with no

review of the ultimate transferee or the implications of its ownership of Stratos. The Application

argues that the Commission can defer review of the company‘s role until it exercisesits call

option. However, this would turn the agency‘s transfer review policy on its head — all to secure

Inmarsat private advantage in contravention of its contractual relationships. Under the approach

proposed in the application, any entity could set up a trust arrangement to acquire FCC assets

without triggering Commission review, regardless of the qualifications ofthe entity or whether

its involvement violates agency rules or raises policy concerns. Such an approach is

unsupportable in the Commission‘s rules and precedent and plainly contrary to the public

interest."


14     1d.


15      Stratos points to Lockheed Martin Corp., Regulus, LLC and COMSAT Corp.,
Memorandum, Order and Authorization, 14 FCC Red 15,816 (1999), as permitting
postponement of the Commission review of Inmarsat‘s ownership of Stratos. Narrative at 10—12.
However, the Lockheed Martin case in no way supports what Inmarsat is attempting to do. That
case did not involve a trust arrangement or an end run around commercial agreements. Rather, it
involved a very typical scenario of a company acquiring a minority interest and then later a
controlling interest in an FCC licensee. Significantly, in that case, the Commission specifically
considered and passed on Lockheed Martin‘s qualifications in the step one portion of the
transaction. This is exactly what Inmarsat would have the Commission not do with respect to the
instant transaction.


        Further, the transaction proposed is patently anti—competitive in effect. Inmarsat and

Stratos are proposing a watershed change in the satellite distribution market —— the elimination of

Stratos‘ independence as a distributor of satellite services. Yet, they are attempting to do this

through the use of a trust to mask this significant development from Stratos‘ suppliers and

customers. The Commission must not permit this subterfuge.


II.    THE TRANSACTION‘S PROPOSED USE OF A TRUST DOES NOT COMPLY
       WITH COMMISSION POLICY AND PRECEDENT.

        The Application‘s proposed use of a trust to park Stratos and avoid scrutiny of Inmarsat‘s

influence and relationship with the company until some later date is unprecedented and wholly

unsupported by FCC policy. The Commission has authorized the use of trusts only in limited

circumstances, none of which is applicable here. The Application‘s reliance on the

Commission‘s 1986 Policy Statement for Tender Offers and Proxy Contests ("Policy

Statement")"° as precedent for its approach is extremely disingenuous. The Policy Statement

obviously does not apply and in no way authorizes what Inmarsat and Stratos are proposing.

Even if the Policy Statement were deemed to extend to the type of transaction presented — which

it clearly does not — the Application would still fail to meet the requirements for grant. In

addition, the other limited situations in which the Commission has authorized the use of trusts

plainly do not apply here. Accordingly, the Application must be denied.

       A.      The FCC‘s Policy Statement Governs Proxy Contests and Tender Offers and
               Does Not Support Grant of the Application.

       The Application repeatedly cites to the Policy Statement as authorizing the proposed

transaction. Yet, these references express an obviously distorted and wholly unsupportable



16     See Tender Offers and Proxy Contests, Policy Statement, 59 Rad. Reg. 2d (P&F) 1536
(1986) ("Tender Offer Policy Statement‘).


interpretation of this authority. The Policy Statement is plainly inapposite as it establishes

procedures only for temporary voting trusts created as part of a time—sensitive "takeover bid"

tender offer or proxy contest."" Indeed, the Commission has clarified that the Policy Statement‘s

procedures apply only to (1) hostile takeovers by tender offer, which by their nature require

prompt action, and (2) friendly tender offers where "a competing offer already exists, so that the

second offeror must be promptly empowered to present its offer to the shareholders.""*

       This Policy Statement was adopted to afford comity to the securities laws by allowing for

expedited approvals and the use of trusts to ensure that shareholders have a choice, and to

eliminate lengthy regulatory procedures that could prevent shareholder choice from occurring.

Here, there is neither urgency nor concern that FCC procedures will not allow for shareholder

choice. Rather, the proposed transaction would do just the opposite — lock up Stratos for an

ineligible buyer, thereby limiting shareholder choice.

        Clearly, the proposed transaction has none of the characteristics of a hostile "takeover

bid" tender offer — it is not hostile and obviously cannot be characterized as a "takeover bid"

17      Tender Offer Policy Statement, 59 Rad. Reg. 2d at 1557—1562 (§% 27—33) (noting that the
Commission was implementing special procedures governing changes in licensee control in the
context of tender offers and proxy contests).
18      Rogers Comme‘ns Inc., for Consent to Interim Transfer of Control ofMaclean Hunter
Ltd., Memorandum Opinion and Order, 9 FCC Red 7350, 7356 ((14) (Cable Services Bureau
1994) (citing Frank K. Mayers, Herbert M. Shayne, Jackson W. Smart, Jr., and Robert L. Stone,
Voting Trustees for JB Acquisition Corp.; Application for Consent to Interim Transfer of Control
ofJohn Blair and Company, Memorandum Opinion and Order, 60 Rad. Reg. 2d 1095, (( 3)
(1986)). Although the Commission has allowed the grant of an STA to a trustee when there is
friendly tender offer, it has done so to remain neutral when there is a competing tender offer. See
Applications of Viacom Inc. for Comm‘n Consent to Interim Transfer ofControl ofParamount
Communications, Inc. Memorandum Opinion and Order, 8 FCC Red 8439 (1993). The
Commission has repeatedly made clear that such procedures are not normally necessary in the
case of a friendly tender offer. Rogers Comme‘ns Inc., 9 FCC Red at 7355—56 (« 13) (citing
Frank K. Mayers, Herbert M. Shayne, Jackson W. Smart, Jr., and Robert L. Stone, Voting
Trustees for JB Acquisition Corp.; Applicationfor Consent to Interim Transfer ofControl of
John Blair and Company, Memorandum Opinion and Order, 60 Rad. Reg. 2d 1095, (§ 3)
(1986)).


transaction because the incumbent management is not being replaced.19 There is also no

competing offer here. As such, the Policy Statement‘s procedures expressly do not apply to the

transfer of Stratos‘ FCC licenses to a trust. That the Applicants repeatedly cite to it as precedent

for their proposed transaction is frankly outrageous.

       Moreover, the purpose behind the Policy Statement underscores that the trust procedure it

sets forth can not apply to the instant transaction. The Commission created the concept of the

trust as an intermediate transferor in order to alleviate problems associated with lengthy

processing times for "long form" or traditionaltransfers of control."" A key objective in

establishing the policy statement was to avoid unnecessary delay, which "can [] deprive

sharcholders of an effective choice in determining whether to tender their stock or to vote their

shares by proxy.”21 The Commission found that unless it allowed an expedited procedure that

provided temporary authorization to a trustee, its regulatory process would effectively preclude

the use of tender offers as a means by which to obtain control over companies." The

Commission also sought to assure that its policies ensured government neutrality, so that

marketplace considerations, rather than the artificial dictates of governmental procedures, should

influence the decisions of the shareholders."     The Commission, therefore, authorized the use of

a trust mechanism in order not to constrain shareholder choice and to minimize the danger that

its regulatory process could aid either side in the battle for corporate control.""



19      Tender Offer Policy Statement, 59 Rad. Reg. 2d at 1540, 1555—56, 1558—59, and 1560
(9) 6—7. 24. 28, 30).
2      1d., 59 Rad. Reg. 2d at 1538, 1540—41 (4§ 1. 8).
2      Id. at 1539 (§ 5).
22      Id. at 1570 (« 46).
23     Id. at 1540 (4 6).
24     1d. at 1562—63, 1570 (4§ 35, 46).


       These concerns clearly do not exist in the instant transaction. Here, the proposed use of a

trust would limit, rather than enhance, shareholder choice. There is no emergency in this case

and no basis for concern that Commission procedures will somehow constrain shareholder

decision—making. Further, "long form" consideration of the transfer to Inmarsat would in no way

prevent its acquisition of Stratos. Accordingly, the Policy Statement‘s justifications for utilizing

an intermediate trust are entirely and completely absent here. Indeed, the Application does not

point to any corporate urgency that warrants use of the trust procedures in the Policy Statement.

Therefore, those procedures — upon which Stratos relies almost exclusively — plainly fail to

provide precedent for the proposed transaction.

        B.      The Application Must Also Be Found Deficient under Other Aspects of the
                Policy Statement.

        Even if the Policy Statement were somehow deemed to authorize the use of a trust for the

type of transaction proposed in the Application — which it clearly does not — the relief sought and

the proffered showings would still not be eligible for grant under the Policy Statement‘s

requirements.

        First, the Application‘s request for "regular" transfer authority is inconsistent with the

Policy Statement‘s procedures. The Policy Statement contemplates only the transfer of FCC

licenses to a trust that is limited in duration."" Relying upon Section 309(f), the Commission in

the Policy Statement determined it necessary to issue special temporary authorizations ("STAs"),

given the extraordinary cireumstances ofa "takeover bid" tender offer."" The STA would, the

Commission reasoned, allow a trustee to act as a temporary conservator or caretaker charged

with preserving the nature and character ofthe corporation in order to facilitate the


25
        1d. 59 Rad. Reg. 2d at 1566—67 (4 42).
2       1d. at 1568—1578 (9 45—59).


Commission‘s consideration of the transfer to the ultimate pmchaser.27 The Policy Statement

does not permit or even contemplate a grant of permanent authority to a trust. The Application

nonetheless requests exactly that —a grant of permanent authority to the trust for almost two

years (or perhaps longer if Inmarsat does not exercise its option). This extended timeframe is

clearly inconsistent with the "limited" duration of an STA. Thus, the grant of permanent

authority, as requested in the Application, is not permitted under the Policy Statement.

        The Application also fails to provide sufficient information regarding the qualifications

ofthe proposed trustee to acquire control of Stratos, a globalsatellite company. Under Section

310(d) of the Communications Act, the Commission must consider the qualifications ofthe

proposed transferee as if it were applying for licenses directly under Section 308."° The Policy

Statement and the precedent under it make clear that trustee transferees are no exception to this

requirement."" Yet, the Application does not provide the information required for such an

evaluation. The proffered one—paragraph description of Mr. Franklin and his Curriculum Vitae


27       1d. at 1581 (4 66). Rogers Comme‘ns Inc., 9 FCC Red at 7355—56 (( 13)
("{mjechanically, the first step of the bifurcated procedure entails the grant of an STA to a
trustee to permit the collection and purchase of the tendered shares and to operate the licensed
facilities, subject to specified conditions").
28      47 U.S.C. § 310(d), 308(b) (applications must set forth such facts as the Commission may
require as to citizenship, character, and financial, technical and other qualifications); see also
Applications ofAirTouch Comme‘ns, Inc., Transferor, and Vodafone Group, PLC, Transferee,
For Consent to Transfer of Control ofLicenses and Authorizations, Memorandum Opinion and
Order, 14 FCC Red 9430, 9432—34 («« 5—9) (1999).
29      Tender Offer Policy Statement, 59 Rad. Reg. 2d at 1562—63 (% 35 fn.124) (the FCC will
"require {the informational short form] application to contain sufficient information on the
qualifications ofthe trustee to permit us to make a determination that the grant of temporary
authorization is in the public interest"); QVC Network, Inc., Memorandum Opinion and Order, 8
FCC Red $485, 8486 (« 4) (1993) ("the Commission . . . consider{s] the trust instrument, the
trustee‘s legal qualifications, and, if challenged, the bidder‘s ability to finance the tender offer");
CNCA Acquisition Corp., Memorandum Opinion and Order, 3 FCC Red 6088, 6094 (« 40)
(1988) ("review at [the STA] stage will generally be on the procedures proposed and on the
qualifications of the trustee"); Macfadden Acquisition Corp., 104 F.C.C. 2d 545, 565—66 ((« 36—
40) (1986).




                                                   10


lack any meaningful detail and provide no evidence that Mr. Franklin is qualified to control a

global satellite company. Under the proposed transaction, Mr. Franklin will be the trustee of

Stratos for almost two years or more. The information included in the Application is deficient

under the Communications Act and the Policy Statement to permit the Commission to find that

Mr. Franklin is qualified to control the licenses at issue and that the proposed transfer to him

would serve the public interest, convenience and necessity.

       C.      The Proposed Transaction Is Inconsistent with the Other Limited Situations
               in Which the FCC Has Allowed Use of a Trust.

       Apart from the tender offer/proxy contest scenario, the Commission has authorized the

use of a trust to hold FCC licensees only in very limited cireumstances."" These are: (1) in the

bankruptcy context, and (2) in the aftermath of a merger where the buyer is required to divest its

spectrum holdings as a condition of grant of the transaction.    Clearly, these other situations in

which trusts have been authorized are not applicable to the instant transaction.

       In the bankruptcy context, the Commission allows the transfer of control of FCC licenses

to a trustee within 30 days of the involuntary transfer."‘ The trustee then finds a qualified

purchaser and structures the sale."" This practice prevents conflicts with federal bankruptey

court orders and furthers the public interest of protecting creditors."" The use of a trust in such



30     See, e.g., Shareholders ofJacor Comme‘ns, Inc. (Transferor) and Clear Channel
Comme‘ns, Inc. (Transferee), Memorandum Opinion and Order, 14 FCC Red 6867, 6895—96
(4 35) (1999) (noting that trusts should be "employed only where necessary").
31     See, eg., 47 C.F.R. §63.24(g) (pertaining to Section 214 authorizations); 47 C.F.R.
§24.839 (pertaining to PCS authorizations).
3       La Rose v. F.C.C., 494 F.2d 1145, 1146 n. 2, 1148 (D.C. Cir. 1974) ("[the Commission‘s
regular practice is to approve an involuntary assignment of the license to a receiver in
bankruptey, who must then find a qualified purchaser and structure the sale").
4#      Id. at 1148 (noting that administrative agencies have been required to consider other
federal policies and further stating that "in recognition ofthe public interest in protecting
innocent creditors, the Commission will approve the sale and assignment of the bankrupt‘s



                                                 11


cases is generally temporary — lasting only until the bankruptcy proceeding is completed and the

assets can be transferred to a qualified purchaser. In this case, Stratos has not filed for

bankruptcy protection and thus this basis for utilizing a trust plainly cannot apply.

        In the divestiture context, the Commission has found that "trusts [may be} occasionally

established specifically to effect compliance with the Commission‘s rules for holdings which

would violate the rulesif held outright.""" Thus, the Commission has authorized the use of a

trust to permit a company to close a transaction before it fully transfers licenses it is required to

divest as a condition of the transaction grant or to comply with FCC rules."" The Commission



(Continued . . .)
license when the transaction will not unduly interfere with the FCC mandate to insure that
broadcast licenses are used and transferred consistently with the Communications Act."); D.H.
Overmyer Telecasting Co., Inc., Debtor in Possession — Bankruptcy Court S.D. New York
(Assignor); and D. H. Overmyer Telecasting Co., Inc., (Assignee), Memorandum Opinion and
Order, 94 F.C.C. 24 117, 126 (« 13) (1983) (noting that the La Rose Court emphasized the need
for the Commission to reconcile its policies under the Communications Act with those of other
federal laws and statutes).
34      Attribution of Ownership Interests, Report and Order, 97 F.C.C. 24 997, 1023—24 (1984)
(emphasis added). See, e.g., Stockholders ofInfinity Corp., 12 FCC Red 5012, 5040—41 (1996);
Viacom Inc., 9 FCC Red 1577, 1578 (1994).
35      See, e.g., Jacor Comme‘ns, Inc., 14 FCC Red at 6895—96 (« 35) (approving divestiture of
licenses to a trust to effect compliance with the Commission‘s local radio ownership rules if any
of the proposed divestitures to third parties could not be consummated at the time of the merger);
SFX Broad., Inc. (Transferor) and SBI Holding Corp. (Transferee), Memorandum Opinion and
Order, 13 FCC Red 12,366, 12,378—379, (( 20) (1998) (approving divestiture of licenses to a
trust where the trust was used to ensure local radio ownership rule compliance in the event that
the merger and some of the required divestitures could be consummated concurrently);
Stockholders ofInfinity Broad. Corp.(Transferor) and Westinghouse Elec. Corp. (Transferee),
Memorandum Opinion and Order, 12 FCC Red 5012, 5041—42 («) 57—60) (1996) (approving
assignment to a trust for the limited purpose of providing a means for the merger to proceed
should the good faith and diligent efforts of the parties to close the divesting transactions fail);
Applications for Consent to the Transfer of Control ofLicenses and Section 214 Authorizations
from Tele—Comme‘ns, Inc., Transferor to AT&T Corp., Transferee, Memotandum Opinion and
Order, 14 FCC Red 3160, 3160 (« 1) (1999) (conditioning approval of a proposed merger on the
transferor placing its ownership interest in a wireless licensee in a trust and Commission
approval of that Trust Agreement prior to closing because the interest would violate the
Commission‘s spectrum cap).




                                                  12


permits the use of trusts in such cases because it may not be possible to consummate all other

third party divestitures prior to or concurrently with the merger."" Nevertheless, the Commission

has emphasized that "[gliven the trusts‘ limited purpose of effecting compliance with the

Commission‘s rules . . . as well as their potential for abuse, it follows that insulated trust

arrangements . . . should be employed only where necessary, and then to as limited an extent as

possible.""" For this reason, the length of such trusts are generally strictly circumscribed by the

Commission, generally to a six—month timeframe.""        This allows a reasonable period of time for

the necessary divestitures to be completed and the trust to be terminated.""

        In this case, no party to the Application is attempting to divest an interest or otherwise

comply with FCC rules by placing its licenses in a trust. Quite the contrary, Inmarsat wants to

acquire the FCC licenses held by the trust as soon as its contractual obligations permit. For this

reason, the Commission‘s past authorization of trusts in the divestiture context — as well as in the

bankruptcy context —— plainly do not and cannot serve as precedent for the proposed transaction.

36       See, e.g., Applications ofShareholders ofAMFM, Inc. (Transferor) and Clear Channel
Comme‘ns, Inc. (Transferee), Memorandum Opinion and Order, 15 FCC Red 16,062, 16,072
(4 22) (2000) (approving assignment to a trust where Clear Channel had not secured third party
buyers acceptable to DOJ in three markets and was unsure it would be possible to consummate
all other third party divestitures prior to or concurrently with the merger); Shareholders ofAm.
Radio Sys. Corp., Transferor and CBS Corp., Transferee, Memorandum Opinion and Order, 13
FCC Red 12,430, 12,441—442 (« 24) (1998) (finding approval of assignment to trusts would
facilitate the merger where the merger would otherwise not consummated because the parties
had not filed applications to assign a sufficient number of stations in local radio markets in three
areas to new parties).
37     Jacor Comme‘ns, Inc., 14 FCC Red 6895—96 (« 35) (citations omitted).
38     See, e.g., Am. Radio Sys. Corp., 13 FCC Red at 12,441—442 (" 24) (limiting the trust to
six months); Jacor Comme‘ns, Inc., 14 FCC Red at 6894—95 (« 33) (limiting the trust to six
months); SEX Broad., Inc., 13 FCC Red at 12,389 (« 50) (limiting the trust to six months).
39     Jacor Comme‘ns, Inc., 14 FCC Red 6867 at 6895 (§ 33) ("a limited period of up to six
months [] will allow a reasonable period of time for the necessary divestitures to be completed
and the trust to be terminated"); Am. Radio Sys, Corp., 13 FCC Red at 12,442 (" 24) ("approval
ofthe trust applications will allow for a reasonable period of time for the necessary divestitures
to be completed and the trusts to be terminated").




                                                  13


IHL     ALLOWING USE OF THE TRUST WILL HARM THE PUBLIC INTEREST.

        Pursuant to Section 310(d) of the Communications Act, the Commission may approve a

transfer of control only if it affirmatively determines that the grant will serve the public interest,

convenience, and necessityz40 To make this determination, the Commission must weigh "the

potential public interest harms [of the transaction] against the potential public interest

benefits."*‘ In this case, the potential harms of the proposed transfer of Stratos to the trust far

outweigh the minimal private benefit asserted by the applicants.

        The Application asserts that the transaction will promote the public interest because it

will allow Stratos shareholders to sell their shares quickly and at a fair price." This alleged

benefit is really no benefit at all. The Application provides no evidence that Stratos shareholders

would be unable to sell their shares absent the proposed transaction. Indeed, Stratos‘ stock has

been steadily increasing for the last nine months." Thus, all this transaction will really

accomplish is to limit to whom shareholders may sell their stock. In addition, even if credited,

the articulated benefit is a private benefit, rather than the kind of "public interest" benefit that the
       m22s      .           .     k20      .    44
Commission typically considers in its review.



a0      47 U.S.C. § 310(d) ("No... station license...shall be transferred, assigned, or disposed of
in any manner...except upon application to the Commission and upon finding by the
Commission that the public interest, convenience, and necessity will be served thereby").
41     See, e.g., Loral Satellite, Inc. (Debtor—in—Possession) and Loral SpaceCom Corp. (Debtor
in Possession), Assignors and Intelsat North America, LLC, Assignee, Order and Authorization,
19 FCC Red 2404, 2411—2412 (« 18) (2004); Stratos Application at 9.
42     Narrative at 11.
*#     See Reuters Stock Quote Home Page, Stratos Global Corp. SGB.TO (TSX)
http://stocks.us.reuters.com/stocks/overview.asp?symbol=SGB.TO (last visited June 19, 2007).
44     See Application ofEchoStar Comme‘ns Corp., (a Nevada Corp.), General Motors Corp.,
and Hughes Electronies Corp. (Delaware Corps.) (Transferors) and EchoStar Comme‘ns. Corp.
(a Delaware Corp.) (Transferee), Hearing Designation Order, 17 FCC Red 20,559, 20,663 («
200) (2002) (rejecting a claim a private benefit should be considered a public interest benefit).




                                                      14


        In any event, on the other side of the coin, there are very substantial harms that will result

 from the proposed transaction. As an initial matter, parking Stratos in a trust for two years (or

more) will significantly hamper the company‘s ability to compete effectively in the marketplace.

The satellite market is a fast—paced, evolving industry."" Consumers‘ and other users‘ needs are

constantly expanding and more advanced technologies are being developed and deployed every

day to meet those needs. A trustee, however, is expected to act in a manner that preserves the

status quo and maintains the general character of the corporation."" Indeed, the primary

obligation of the trustee is to conserve, rather than enhance, corporate assets and, in this regard,

the Commission expects that trustees will act cautiously."‘ The Trust Agreement‘s provisions

concerning itemized accounting reporting and removal of the trustee reinforce conservative

behavior on the part of the trustee."" Accordingly, the placement of Stratos in a trust will

necessarily limit the company‘s ability to respond to quickly changing market trends, essentially

putting Stratos in a straightjacket to the detriment of its customers and distribution partners.

        In the few scenarios where the Commission has authorized the use of a trust in the past,

the duration of the trust has been limited — generally to a several month time frame. This has

been in recognition of the fact that a company held in trust cannot be a nimble, effective

competitor in the marketplace."" Here, the Application proposes to place Stratos in a trust for


45      Annual Report and Analysis ofCompetitive Market Conditions with Respect to Domestic
and Int ‘I Satellite Commens. Servs., First Report, 22 FCC Red 5954, 5955 (4 1) (2007)
(concluding that there is effective competition in both the wholesale and retail satellite services
markets).
46      Tender Offer Policy Statement, 59 Rad. Reg. 2d at 1582 (§68).
400     1d. atn.206.
a8      Trust Agreement, §§ 7(c), (h), attached as Appendix C to the April 5, 2007 lead
application.
49      See Tender Offer Policy Statement 59 Rad. Reg. 24 at 1581—82 ("* 66, 68) ("the trustee
should recognize that he or she receives a special temporary authorization for a limited purpose —



                                                  15


two years or more, just to accommodate a buyer who cannot move forward now. Parking a vital

business in trust for that length of time is unprecedented — and for good reason. Constraining

Stratos for such a duration will limit its ability to compete effectively and thwart business

investment. Stratos not only will be unable to "expand" its business as it contends,"" but its

business likely will recede. As a result, Stratos‘ customers and distribution partners, including

Iridium, will be significantly harmed. Such a result is clearly and substantially contrary to the

public interest.

        The proposed transaction will also trigger competitive harms by substantially altering the

current distribution market for satellite services — and doing so through subterfuge. As noted

previously, Stratos is an independent distribution channel today. As such, it distributes the

services of multiple satellite providers —— Inmarsat, Iridium and others. As discussed in Section I

above, the pendency of the call option and the fact that Inmarsat is financing the trust cannot help

but create incentives for Stratos to favor and promote the distribution of Inmarsat‘s services over

those of Iridium and Inmarsat‘s other competitors. The arrangement also plainly discourages

Stratos from investing in any new Iridium applications or services. Such behavior would

obviously result in significant competitive harm to Iridium and Stratos‘ other suppliers. It could

also result in competitive harm to Inmarsat‘s other distributors, who would potentially suffer

from the favored relationship between Inmarsat and Stratos.


(Continued .. .)
that of a temporary conservatoror caretaker charged with preserving the nature and character of
the corporation . . . The trustee is a temporary steward with a limited mission"); Rogers
Comme‘ns. Inc., 9 FCC Red at 7368 (§ 4) ("the trustee {must] act so as to maintain the present
management and operations of [the corporation}. The trustee will have the discretion to oppose
only actions inconsistent with the preservation of corporate assets or actions that would be
inconsistent with the transfer of control, if approved . . .").
5o      Narrative at 11 ("Stratos will continue to have the ability to expand its business, to the
benefit of both existing and future customers").




                                                  16


       Additionally, the manner in which Inmarsat and Stratos are attempting to invoke this

watershed change in the distribution market is particularly troubling. By utilizing a trust, they

seek to preserve for Stratos a sham fagade of independence. But this approach will only mislead

the public and harm consumers, who may be unaware of Stratos‘ incentives to favor Inmarsat

during the trust period in their dealings with Stratos to purchase satellite service. The ultimate

effect is to reduce full and fair competition in the satellite distribution market, which could have

substantial negative effects on end users. Such subterfuge to hoodwink customers and other

market participants must not be permitted.

        Finally, the proposed transaction, if granted, will turn the FCC‘s transfer review policy on

its head, providing a huge loophole for permitting a party to place an asset in trust while evading

rigorous Commission review. Under the Application‘s approach, any entity could establish a

trust to acquire FCC assets without triggering agency scrutiny, regardless of the qualifications of

the entity or whether its involvement violates agency rules or raises policy concerns. Such a

result is inconsistent with the Commission‘s established licensing policy®‘ and is clearly contrary

to the public interest.




51      See Lone Cypress Radio Associates, Inc., Initial Decision of Chief Administrative Law
Judge Joseph Stirmer, 7 FCC Red 415, 422 ( 75) (1992) ("[t}he Commission considers an
individual a real party—in—interest if such person has an ownership interest or will be in a position
to control, actually or potentially, the operation of the station") (citing San Joaguin Tel.
Improvement Corp.., 2 FCC Red 7004, 7008, (1987); High Sierra Broad., Inc., 96 F.C.C. 2d 423,
435 (1983)).




                                                  17


IV.     CONCLUSION

        For these reasons, Iridium strongly urges the Commission to move promptly to deny the

Application to transfer control of Stratos to a trust.



                                                  Respectfully submitted,



                                                  By:
Nancy J. Victory                                         Michael R. Deutschman, Esq.
Wiley Rein LLP                                           Chief Counsel and Chief Administrative Officer
1776 K Street, NW                                        Iridium Satellite, LLC
Washington, DC 20006                                     6707 Democracy Blvd., Suite 300
202.719.7000                                             Bethesda MD 20817
Counselfor Iridium Satellite, LLC                        301,571.6222


Dated: June 29, 2007




                                                  18


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



In the Matter of                                                       WC Docket No. 07—73




                                                 wl n snn n n sn s w
Stratos Global Corporation                                             DA 07—2557

Consolidated Application for Consent to                                FCC File Nos.:
Transfer Control
                                                                       ITC—T/C—20070405—00136
                                                                       ITC—T/C—20070405—00133
                                                                       ITC—T/C—20070405—00135
                                                                       SES—T/C—20070404—00440
                                                                                 through —00443
                                                                       0002961737 and
                                                                       ISP—PDR—20070405—00006


                    DECLARATION OF MICHAEL R. DEUTSCHMAN
                    IN SUPPORT OF IRIDIUM‘S PETITION TO DENY


I, Michael R. Deutschman, declare under penalty of perjury the following is true and correct:

1.     I am the Chief Counsel and Chief Administrative Officer of Iridum Satellite LLC.

2.     I have read the foregoing "Petition to Deny", and any facts stated therein, of which the
       Federal Communications Commission may not take official notice, are true and correct to
       the best of my knowledge, information, and belief.

Executed on June 29, 2007                                              L‘/Q    Lfl


                                                            /                 A


                              CERTIFICATE OF SERVICE


       I, Christopher Ryan, do hereby certify that on this 29°" day of June 2007, I caused copies
of the foregoing "Petition to Denyof Iridium Satellite, LLC" to be delivered to the following via
First Class U.S. mail:

Alfred Mamlet, Esq.                               Robert Franklin (Trustee)
Steptoe & Johnson LLP                             6901 Rockledge Drive, Suite 900
1330 Connecticut Ave., N.W.                       Bethesda, MD 20817
Washington, DC 20036

Bruce Henoch                                      David Strickland*
Stratos Communications                            Policy Division, International Bureau
6901 Rockledge Drive, Suite 900                   445 12th Street, S.W.
Bethesda, MD 20817                                Washington, D.C. 20554

John F. Copes*                                   Karl Kensinger*
Policy Division, International Bureau             Satellite Division, International Bureau
445 12th Street, S.W.                             445 12th Street, S.W.
Washington, D.C. 20554                            Washington, D.C. 20554

Erin McGrath*                                    Gail Cohen*
Wireless Telecommunications Bureau               Wireline Competition Bureau
445 12th Street, S.W.                            445 12th Street, S.W.
Washington, D.C. 20554                            Washington, D.C. 20554

Regina Dorsey*                                   Neil Dellar®*
Office of Managing Director                      Office of General Counsel
445 12th Street, S.W.                            445 12th Street, S.W.
Washington, D.C. 20554                           Washington, D.C. 20554




                                                            /

                                                            Chris;,?éher Ryan
                                                  *                /
                                                                 1/
                                                                 f}/




*Delivered via email



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Document Modified: 2019-06-12 06:15:52

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