Attachment Clarification

Clarification

PETITION submitted by VIZADA Services LLC

Petition for Expedited Clarification or Correction

2007-12-13

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

IBFS_SESTC2007040400440_612340

                                    Washington, D.C. 20554

In the Matter of
                                                      )
Stratos Global Corporation, Transferor                        WC Docket No. 07-73
                                                      1
Robert M. Franklin, Transferee                        1       FCC File Nos.:
                                                              ITC-T/C-20070405-00133
Applications for Consent to Transfer of               1       ITC-T/C-20070405-00135
Control and Petition for Declaratory Ruling           1       ITC-T/C-20070405-00136
                                                              SES-T/C-20070404-00440
                                                                        through -00443
                                                      )       0002961737and
                                                      )       ISP-PDR-20070405-00006

To: The Commission


          PETITION FOR EXPEDITED CLARIFICATION OR CORRECTION

               VIZADA Services LLC (“VIZADA”) submits this Petition for Expedited

CIarification or Correction (“Petition”) of the Commission’s Memorandum Opinion and Order

and Declaratory Ruling, FCC 07-213 (released December 7,2007) in the above-captioned docket

(the “Stratos Order” or “Order”).

                                         INTRODUCTION

               Expedited action is needed to clarify or correct the ordering clauses of this

decision with respect to its fundamental condition restricting communications between Inmarsat

plc and Stratos Global Corporation (“Stratos Global”). Specifically, the Commission states in

Paragraph 48 of the Order that its consent is conditioned on a “prohibition on communications

by any employee or officer” of Stratos Global - relating to management and operation of the

company - with either Inmarsat plc (“Inmarsat”) or Communications Investment Partners

Limited and its affiliates (collectively, “CIP”). Order at 7 48. However, it is not clear that the


ordering clauses of the decision adequately restate this prohibition; instead they could be read to

apply the prohibition to only a single person.

               Expedited action is required here. The “Paragraph 48 Condition” goes to the

heart of the Commission’s approval of the transaction, and the public interest requires that the

ordering clauses in the Stratos Order clearly reflect the Commission’s intent as expressed in the

Order itself. The parties already have closed their deal, L/ and thus are subject to the

Paragraph 48 Condition today, including both its substantive restrictions and its associated

recordkeeping requirements. However, the risk exists that Inmarsat and Stratos Global will

engage in prohibited communications on the hyper-technical theory that the ordering clauses do

not expressly forbid them, notwithstanding the condition stated in Paragraph 48. In that case the

parties would be violating the key principle underlying the Commission’s approval of the

transaction under Section 3 10. Inmarsat and Stratos Global also might later try to use this

situation to challenge the Commission’s ability to audit and enforce its intended condition on

communications between the companies.

               As we discuss, the Commission can address this matter very quickly because it

already has made the underlying substantive decisions in the Order itself. All that is required is

the issuance of a very brief erratum or further order with a supplemental ordering clause

consistent with the Commission’s intent as explained in the Order’s text. The Commission

should do so as rapidly as possible to minimize the risk of harm to the public interest that would

arise from impermissible inter-party communications. 2/



1/
-      The parties announced that they closed the transaction on December 1 1, two days ago.
2/
-      This pleading is not a petition for reconsideration; it seeks only correction or clarification
of ordering clauses appropriate to address the substantive decisions made in the Order. While
VIZADA disagrees with some of those substantive conclusions, it will separately continue to
review the Order and decide at a future time whether it will file either a petition for
                                                  2


I.     THE ORDER RESTS ON STRICT LIMITATIONS IN PARAGRAPH 48 ON
       COMMUNICATIONS BETWEEN INMARSAT AND STRATOS GLOBAL
       EMPLOYEES AND MANAGEMENT
               The fundamental issue in this proceeding has been whether Inmarsat will exercise

de facto control over Stratos Global by virtue of the proposed transaction. VIZADA presented

extensive evidence to demonstrate the degree to which Inmarsat would be able to dominate the

affairs of Stratos Global through its financing, call option, and other sources of control and

influence. Two other parties - Iridium Satellite, LLC and Vizada, Inc., f M a Telenor Satellite

Services, Inc. (collectively with VIZADA, the “Opponents”) - raised the same objections.

               The Commission recognized that Inmarsat’s “loan facility is equivalent to a

100 percent indirect beneficial ownership interest.” Order at 7 77. The Commission noted that it

does “not rely on the labels that parties put on arrangements” and instead looks at “the totality of

the circumstances, the economic reality and substance of the transaction.” Id. at 7 80 (citing

Fox II) 3/. In this case the Commission observed that CIP’s anticipated debuequity ratio would

be an astounding 137,000 to 1, far in excess of the 14 to 1 ratio the Commission had found to

evidence ownership in another transaction. Id. at 7 83. The Commission concluded that the Call

Option, together with the loan, demonstrate that Inmarsat expects CIP to repay the note by

handing over the Stratos Global stock. Id. at 784. The Commission took notice of other features

of the transaction that reinforced Inmarsat’s position, such as the interest and subordination

provisions. Id. at 77 8 1-82. Based on these conclusions, the Commission required Inmarsat to

provide information regarding its foreign ownership as if it were the acquiring party itself,

notwithstanding Inmarsat’s claims that it is not a real party in interest to the Application.



reconsideration with the Commission or a judicial appeal.
3/
-      See Fox Television Stations, Inc., Second Memorandum Opinion and Order, FCC 95-313,
11 FCC Rcd 5714 (1995).
                                                  3


                Despite all of the above, however, the Commission has declined to find that

Inmarsat will exercise de facto control over Stratos Global during the period that the Trust is in

place. The Commission “recognize[s] that the loan in this transaction will give Inmarsat an

economic interest in Stratos Global and that all parties to the proceeding are aware of it.” Id. at

7 56.   Indeed, the Commission correctly finds that the economic stake is 100%. Id. at 7 77.

However, the FCC declines to find that Inmarsat will exercise de facto control for essentially one

major reason; the Commission relies on a broad restriction it imposes on communications

between Inmarsat and Stratos Global. Specifically, in Paragraph 48 of the Order the

Commission expressly stated: “We shall, therefore, condition our consent to the transfer of

control of Stratos Global to the Trust upon compliance with the prohibition on communications

by any employee or officer of Stratos Global and Inmarsat or CIP relating to the management

and operation of Stratos Global.” Id. at 7 48 (emphasis added). 4/ This prohibition is not

absolute. Inmarsat and Stratos Global employees may engage in certain communications

associated with “the exchange of technical information’’ necessary to deliver Inmarsat services to

end users. Id. “Permissible communications” are those that occur “in the ordinary course of

business” as that term is defined by Stratos Global in its September 18, 2007 ex parte letter. Id.

No other communications between Inmarsat and Stratos Global personnel are allowed.



41
-        This is not new. The Commission has previously restricted communications between the
shielded party and employees of the licensee company, in addition to restricting communications
with the trustee. See e.g.,Lorimar Telepictures Corp., 3 FCC Rcd 6250,6255 [I      351 (1988)
(approving trust with conditions prohibiting communications with Trustee and with “personnel
of trust assets”); KKR Associates L.P., 2 FCC Rcd 7 104,7107 [y 221 (1 987) (approving trust
with conditions restricting communications with Trustee and with “personnel” of licensee
corporations). Restricting communications at all levels of the company under a trust clearly
promotes the policy set forth in the Commission’s Tender Offer Policy Statement that “the
offeror will be strictly prohibited from either becoming involved in, or seeking to influence,
directly or indirectly, the operation or management of the corporation.” See 59 RR 2d 1536,
1578 [I  601 (1986) (emphasis added).
                                                  4


               Because this restriction is so important, the Commission established tools to

facilitate compliance audits and enforcement. The Commission required that the parties “keep

records” of all their communications and make them available for review. Id. Only then, relying

on the “Paragraph 48 condition” and the surrounding enforcement mechanism, was the

Commission able to conclude that “Inmarsat cannot control the operation of Stratos Global

during the pendency of the Trust. Id.


11.    THE COMMISSION SHOULD CONFIRM THAT THE ORDERING CLAUSES
       REFLECT THE INTENDED COMMUNICATIONS PROHIBITION

               To be clear, VIZADA does not agree with the Commission’s conclusion

regarding de facto control. We do not think this communications prohibition is sufficient to

prevent Inmarsat from exercising undue influence over Stratos Global while sidestepping the

requirements of Section 3 1O(d) of the Communications Act. While we agree that de facto

control is determined based on the totality of the circumstances, we believe that Inmarsat has

stepped far over that line here based on its financial levers, contractual rights, and ability to exert

influence over fundamental Stratos Global business policies, notwithstanding the restrictions on

communications imposed by the Commission. 51

                This Petition, however, goes to a much more narrow point. Having found that the

“Paragraph 48” communications prohibition condition is central to its de facto control analysis,

the Commission should be certain that this prohibition is adequately reflected in its ordering

clauses. This is necessary so that no communications occur that involve impermissible


5/
-       Even by their own terms, the “ordinary course of business” discussions permissible under
the Paragraph 48 condition could be read to go beyond the mere technical discussions necessary
to service end users, see Stratos Order at 7 48, and easily slip into operational and policy matters.
The FCC will need to ensure that the parties keep sufficiently detailed records of their
communications in these areas so that the Commission has a foundation upon which to undertake
any requisite audit and enforcement action.
                                                   5


operational and policy matters. It also is necessary so that Inmarsat and Stratos Global cannot

pose hyper-technical objections to future audit and enforcement actions by the Commission

based on an argument that they are not formally bound by the Paragraph 48 Condition.

               We believe some of the ordering clauses here reflect the “Paragraph 48

Condition.” For example, the Commission incorporated this critical restriction in the general

Ordering Clause Paragraph 1 13, which references conditions set forth in the Order:

               Accordingly, having reviewed the Transfer of Control Application,
               the petitions, and the record in this matter, IT IS ORDERED that,
               pursuant to sections 4(i) and (i),214, 309, and 3 10(d) of the
               Communications Act of 1934, as amended, 47 U.S.C. $6 154(i), (j),
               2 14, 309, 3 1O(d), the Transfer of Control Application for consent to
               transfer control of the licenses and authorizations from Stratos Global
               Corporation to Robert M. Franklin, is GRANTED, to the extent
               specified and as conditioned in this Memorandum Opinion and Order
               and Declaratory Ruling. (emphasis added)

By its terms this provision incorporates the “Paragraph 48 Condition” in full.

               If the Stratos Order contained no other ordering provisions, we would not be

filing this Petition. However, the Commission appears to have unintentionally introduced

ambiguity elsewhere, potentially inviting Inmarsat and Stratos Global to violate the

Commission’s condition on their authorization. Specifically, Ordering Paragraph 1 19 states that

the grant also is conditioned on “compliance with the Trust provisions forbidding

communications from Inmarsat or the CIP entities to the Trustee during the Trust relating to the

operations of Stratos Global and its U.S. licensed subsidiaries, except those communications

necessary to permit the offering of Inmarsat services to end users of the types specified in

Appendix C.” Order at 7 1 19 (emphasis added).

               This condition is clearly much more narrow than the one in Paragraph 48. It

relates only to communications by Inmarsat with the Trustee, not Inmarsat’s potential

communications with Stratos Global management and employees. Thus, this condition is largely
                                                 6


irrelevant to the underlying goals of the “Paragraph 48 Condition” - to prevent Inmarsat from

exercising de facto control directly over Stratos Global. 61

               In that regard, we note that Appendix C references another communications

limitation in the Trust Agreement, also much more narrow than the “Paragraph 48 Condition.”

Specifically, Section 4(b) of the Trust Agreement provides that directors appointed by the

Trustee may not communicate with Inmarsat. However, this restriction also is far removed from

the broad communications prohibition in the “Paragraph 48 Condition.” As VIZADA discussed

in its Petition to Deny and Reply, (1) the restriction does not apply to those directors not

appointed by the Trustee; and (2) the restriction does not apply at all to any Stratos Global

management and employees who are not directors. Individuals in those capacities can

communicate with Inmarsat at will and on any subject without any restriction arising from either

the Trust Agreement or any other source - except as restricted by the “Paragraph 48 Condition”

in the Commission’s Order.

               Confusion may exist because Section 4(b) of the Trust Agreement does limit

communications with Inmarsat by one Stratos Global employee - its CEO - who can

communicate on defined “ordinary course of business” matters even though he also is a Stratos

Global director. But the “Paragraph 48 Condition” by its terms applies these same

communications restrictions to every other Stratos Global employee, and imposes recordkeeping

requirements for such communications.

               Again, the general ordering clause in Paragraph 1 13 by its terms cross-references

all conditions in the Order, including Paragraph 48. However, the Order leaves open the risk that



-
6/      Indeed, the restriction on Inmarsat communications with the Trustee is largely irrelevant
given that the Trustee has expressly disclaimed any intention to oversee the operations of Stratos
Global himself. See VIZADA Reply at 2.
                                                  7


Inmarsat and Stratos Global will act otherwise, violating the communications restrictions

underpinning the Commission’s decision regarding de facto control of Stratos Global. The

Commission’s ability to enforce its condition also will be strengthened if the ordering clauses are

clarified.

               The Commission has a simple and straightforward path to resolve this matter, and

it should do so as quickly as possible given that the parties already have closed their transaction.

The Commission should issue a brief erratum or supplemental order adding an additional

ordering clause expressly restating the Paragraph 48 Condition. Specifically, to make the

insulation provisions perfectly clear, the Commission should clarifl its intent as follows:

               IT IS FURTHER ORDERED that the above grant IS
               CONDITIONED UPON no employee or officer of Stratos Global
               engaging in any communications to, from or with Inmarsat or CIP
               relating to the management and operation of Stratos Global and its
               U. S. licensed subsidiaries, except those communications necessary to
               permit the offering of Inmarsat services to end users of the types
               specified in Appendix C.

               This clarification would simply restate a condition the Commission already has

imposed in the text of the Order, so no additional work is required to render this action.

However, the Commission should act quickly. Until such clarification is given, the public

interest is at risk that this communications restriction, deemed so critical by the Commission to

ensure that Inmarsat does not exercise unauthorized control over Stratos Global, will not be fully

implemented by the parties.




                                                  8


                   Respectfully submitted,

                   VIZADA SERVICES LLC

                   By: /s/ Peter A. Rohrbach

                          Peter A. Rohrbach
                          Karis A. Hastings
                          Marissa G. Repp

                          Hogan & Hartson LLP
                          555 13'h Street, NW
                          Washington, D.C. 20004-1 109
                          parohrbach@hhlaw.com
                          (202) 637-5600

                   Its Counsel

December 13,2007




                      9


                               CERTIFICATE OF SERVICE

              I, Cecelia Burnett, hereby certify that on this 13‘h day of December, 2007, I

caused to be served a true copy of the foregoing “PETITION FOR EXPEDITED

CLARIFICATION OR CORRECTION” by hand delivery, electronic mail or by first-class,

postage-prepaid U.S. mail upon the following:

Chairman Kevin J. Martin                        Alfred Mamlet
Federal Communications Commission               Steptoe & Johnson LLP
445 - 1 2 ‘ Street,
            ~       S.W.                        1330 Connecticut Avenue, N.W.
Washington, D.C. 20554                          Washington, DC 20036
                                                amamlet@steptoe.com
Commissioner Michael J. Copps                       Counsel to Stratos Global Corporation
Federal Communications Commission
445 - 1 2 ‘ Street,
            ~       S.W.                        Patricia Paoletta
Washington, D.C. 20554                          Harris, Wiltshire & Grannis
                                                1200 18‘h Street, N.W.
Commissioner Jonathan S. Adelstein              Washington, D.C. 20036
Federal Communications Commission               tpaoletta@harriswiltshire.com
445 - 1 2 ‘ Street,
            ~       S.W.
Washington, D.C. 20554                          Laura Fraedrich
                                                Kirkland & Ellis
Commissioner Deborah Taylor Tate                655 Fifteenth Street, N.W.
Federal Communications Commission
                                                Washington, D.C. 20036
445 - 1 2 ‘ Street,
            ~       S.W.
                                                lfraedrich@kirkland.com
Washington, D.C. 20554
                                                     Counsel to CIP Canada Investment Inc.
Commissioner Robert M. McDowell
Federal Communications Commission               Diane J. Cornel1
445 - 1 2 ‘ Street,
            ~       S.W.                        Vice President, Government Affairs
Washington, D.C. 20554                          Inmarsat Inc.
                                                1101 Connecticut Avenue N.W., Suite 1200
Robert M. Franklin                              Washington, D.C. 20036
c/o 6901 Rockledge Drive                        Diane-Cornell@inmarsat .com
Suite 900
Bethesda, MD 208 17                             John P. Janka
Robert.Franklin@rogers.com                      Jeffrey A. Marks
                                                Latham & Watkins LLP, Suite 1000
Bruce Henoch                                    555 Eleventh Street, N.W.
Stratos Global Corporation                      Washington, D.C. 20004
6901 Rockledge Drive, Suite 900                 John.Janka@lw.com
Bethesda, MD 208 17                             Jeffrey .Marks@lw.com
Bruce.Henoch@stratosglobal.com                            Counsel to Inmarsat plc


James D. Scarlett                          Barbara L. Spencer
Torys LLP                                  Robert W. Swanson
79 Wellington Street West                  Vizada, Inc.
Box 270, TD Centre                         1101 Wootton Parkway, lothFloor
Toronto, Ontario                           Rockville, MD 20852
MSK 1N2 Canada                             barbara. spencer@vizada.com
jscarlett@torys.com                        robert. swanson@vizada.com
     Counsel to Robert M. Franklin
                                           Elaine Lammert
Michael R. Deutschman                      Federal Bureau of Investigation
Iridium Satellite, LLC                     U. S. Department of Justice
6707 Democracy Blvd, Suite 300             935 Pennsylvania Avenue, N.W.
Bethesda, MD 20817                         Washington D.C. 20530

Nancy J. Victory
Wiley Rein LLP
1776 K Street, N.W.
Washington, D.C. 20006
nvictory@wileyrein.com
     Counsel to Iridium Satellite, LLC



                                         /s/ Cecelia Burnett
                                         Cecelia Burnett




                                            ..
                                            11



Document Created: 2007-12-27 11:09:29
Document Modified: 2007-12-27 11:09:29

© 2024 FCC.report
This site is not affiliated with or endorsed by the FCC