PARIS — U.S. regulators have approved a plan by Motient Corp. and SkyTerra Communications Inc. to simplify their ownership of the TerreStar and MSV satellite systems, respectively.
U.S. Federal Communications Commission (FCC) approval of the plan encountered opposition from a Motient shareholder and also led to close examination of MSV’s foreign ownership. In addition, it also needed to pass muster with U.S. law-enforcement agencies seeking guarantees that, if needed, they could conduct electronic surveillance of MSV’s traffic.
The ownership transfer of MSV licenses from Motient to SkyTerra is designed to end the complex cross-ownership structure that the companies say has hampered their ability to raise funds for the two systems. While using separate sections of the radio spectrum, TerreStar and MSV ultimately will compete with each other to provide broadband mobile satellite services in North America and perhaps elsewhere.
Both systems will require substantial additional financing to pay for a network of ground-based signal amplifiers, called Ancillary Terrestrial Components (ATCs), to permit the signals to reach into buildings and other obstacles to their satellite signals. Their ability to find partners willing to make these multibillion-dollar investments will determine whether either system will be deployed.
For the moment, both projects have secured sufficient funding to allow them to sign contracts with satellite manufacturers.
Lincolnshire, Ill.-based Motient is the majority owner of TerreStar Networks, which has ordered two S-band satellites from. New York-based SkyTerra will become the majority owner of MSV L.P., which has ordered two satellites from Boeing Satellite Systems.
In accepting the transfer of MSV’s satellite operating licenses from Motient to SkyTerra, the FCC rejected protests by Dallas-based Highland Capital Management, a Motient shareholder. Highland contended that the transaction would have negative consequences for Motient’s balance sheet and make it less likely that TerreStar will be funded to completion.
In its Sept. 18 ruling, the FCC says Motient’s management and its other shareholders have approved the transaction, and Wall Street analysts have also encouraged it. The FCC says it sees no danger to TerreStar in the transfer, and that in any case it is not the commission’s job to predict the effect of the transaction on TerreStar’s finances.
Highland is suing Motient in the U.S. District Court for the Western District of Texas in an attempt to stop the Motient-SkyTerra transaction, but the FCC declined to wait for that lawsuit to be processed before making its own ruling.
In making its case to the FCC, Motient said Highland’s previous lawsuits have already cost the company $2 million in legal fees even though all have been dismissed. Motient also says Highland has invested in ICO, a competing S-band satellite project, and may have competing interests.
The FCC also decided to overrule its own 2001 ruling that set a 25 percent ceiling on MSV’s foreign ownership. Under a complicated formulation that weighs direct and indirect voting rights, the FCC concluded that non-U.S. entities will have voting rights in the new MSV L.P. totaling 25.32 percent.
MSV’s main foreign owner is Canada’s TMI Communications Co., a subsidiary of BCE Inc. of Ottawa. It is a relationship that goes back to the 1990s when the companies collaborated on a mobile satellite services business with each contributing its own satellite. BCE also owns satellite-fleet operator Telesat Canada.
In a separate transaction pending before the FCC, TMI has asked that its own S-band spectrum reservation at the FCC be transferred to TerreStar.
The FCC authorization followed approvals given by the FBI, and the U.S. departments of Justice and Homeland Security. The agencies wanted confirmation from MSV and SkyTerra that legally authorized electronic surveillance would be feasible under the new license and corporate-ownership structure.
The agencies were specifically concerned that the TMI shareholding might lead MSV to station some of its key ground infrastructure outside the United States and thus beyond the reach of agencies wishing to perform surveillance of communications.
The company said, as it had agreed in 2001 when similar issues with TMI were raised, that it will guarantee that all domestic U.S. communications are routed through control centers on U.S. territory. The system also will be configured so that U.S. law enforcement authorities are able to conduct surveillance on non-U.S. customers as well.