Tweener DBS Authorizations Raise Industry Eyebrows

Spectrum 5’s Arlington phone number wasn’t in service Nov. 29 when the International Bureau released the Spectrum 5 and EchoStar tweener orders. Spectrum 5’s D.C.-based attorney didn’t respond to our request for updated contact information. Skyworks, a partnership of multiple investors, holds the other 14.5% of Spectrum 5, with voting rights held by Scott Crawford of Baton Rouge, La. Spectrum 5’s board includes the Wilsons, Crawford and Raymond McGuire of Destin, Fla., according to FCC filings.

According to Spectrum 5’s application, it wants to use 2 satellites -- Spectrum 1A and 1B -- to access the U.S., Netherlands and Netherlands Antilles DBS markets. An Oct. 22, 2004, agreement with the Netherlands Radio Communications Agency gives Spectrum Five exclusive use of the 114.5 degrees W orbital location’s DBS frequencies, Spectrum 5 said. A 2005 letter from the Netherlands’ head of frequency coordination to Chmn. Martin confirmed the Spectrum 5 statement. “We find that, cumulatively, this documentation satisfies the information requirements,” the Nov. 29 International Bureau order said.

Spectrum 5 and EchoStar late last week won the first 2 short-spaced “tweener” DBS authorizations from the FCC. SES Americom’s 105.5 degrees W application was dismissed for technical reasons, but can be refiled. Granted Nov. 29 by the International Bureau, the licenses beat the rulemaking that they're part of out the FCC door, leaving industry sources scratching their heads. The tweener rulemaking, a contentious one on the feasibility of reduced orbital spacing for DBS satellites and licensing procedures, continues in IB Docket 06-160. Comments are due later this month.

Industry sources across several satellite sectors said they don’t see why the Commission moved forward on tweener applications by Spectrum 5, EchoStar and SES Americom while the tweener rulemaking is still under way. Several called the tweener decisions procedurally bizarre. “Why act on licensing an application when the processing rules aren’t even decided?” asked a source. Said a veteran satellite attorney: “Why would the Commission act on something so controversial before it’s finished dealing with the controversy?”

FCC Comr. Adelstein raised those questions last week in a satellite conference keynote (CD Nov 29 p4). The Commission should refrain from approving tweener applications until after a tweener licensing framework is carved out, he said. Comrs. Copps and Adelstein made similar remarks when the tweener NPRM debuted, saying that ruling on applications before finishing the rulemaking would be “putting the cart before the horse.” Industry sources questioned why the tweener authorizations were granted at the bureau level. DirecTV and others strongly urged that they be decided by the full Commission. “These novel issues involved are not amenable to action on delegated authority,” DirecTV argued in a recent ex parte.

Others minimized industry tweener angst. One source said the Commission did its job, “removing uncertainty” about the tweener applications by granting the authorizations. They are “appropriately caveated,” the source said, so “why not grant them?” The EchoStar and Spectrum 5 authorizations carry 2 major conditions: (1) The licenses are subject to any rules adopted in the tweener rulemaking. (2) EchoStar and Spectrum 5 must coordinate operations with existing 9 degrees-spaced operators.

The pending tweener rulemaking “does not prevent us from acting on the Spectrum Five Petitions,” the Spectrum 5 order said: “We find we can process the Spectrum Five Petitions consistent with the public interest, convenience, and necessity.” And a Commission freeze on DBS applications doesn’t apply, the orders said, since Spectrum Five, EchoStar and SES Americom filed prior to the DBS block.

The Commission’s lack of processing procedures for DBS satellite applications, due to recent court action, “does not prevent us from acting on the Spectrum Five Petitions at this time,” the bureau said: “We have granted applications in the past, absent specific licensing procedures when, as now… the public might benefit from expeditious processing and delivery of new or expanded service offerings.” The order cited licenses granted Digital Broadband Applications Corp. and Pegasus, which filed to use Canadian DBS satellites for U.S. service. Ironically, those satellites -- Nimiq 1 and 2 -- are the ones EchoStar’s 86.5 degrees W tweener spacecraft, opposed by Telesat, would sit between.

An FSS industry source said the coordination conditions in the Spectrum 5 and EchoStar licenses may signal things to come in the tweener rulemaking. “It’s likely that the tweener NPRM will result in tweeners being required to coordinate with incumbent 9 degrees-spaced satellites,” the source said. Some have urged parity between new tweener entrants and incumbents, the source said. The most obvious mechanism to use would be the International Bureau’s first- come, first-served satellite licensing protocol, the source said.

The International Bureau said granting 114.5 degrees W access to Spectrum 5 will spur DBS competition and innovation. But Spectrum 5 will have a tough go in the U.S. DBS and video market, industry analysts said. Incumbents DirecTV and EchoStar, despite combined millions of customers and over 2 dozen satellites, are grappling with competition from cable’s triple-play and telco video entrants, plus lack of a broadband offering. Many on Wall Street are bearish on the firms’ long-term prospects and suggest DirecTV and EchoStar would be more competitive if they merged, not if they had another DBS rival.

With only 2 satellites, can Spectrum 5 compete in the U.S., we asked TelAstra analyst Roger Rusch. “It’s a really good slot, but it would be a little bit like the situation with Voom,” Rusch said, citing the DBS service that shut down in 2005, done in by low subscriber count and high operating costs. A year ago the FCC approved EchoStar’s purchase of Voom’s Rainbow 1 DBS satellite and licenses. Aside from a $200 million EchoStar bid, there were no other offers for Voom’s DBS assets or FCC authorizations, the International Bureau said in the Rainbow 1 order (CD Oct 13/05 p5).

If Spectrum 5 ever puts its 114.5 degrees W authorizations up for sale, EchoStar should consider pursuing them, Rusch said: “It would be smart for EchoStar to do a deal with these guys. They have almost all of their traffic at 110 degrees W and 119 degrees W.” A separate industry source said, however, that interference concerns might so limit EchoStar operations at 114.5 degrees W, the effort wouldn’t be worthwhile. “I think if [114.5 degrees W] was really good for them, they would have found a way to jump on it already,” the source said.

To keep their tweener authorizations, Spectrum 5 and EchoStar must close on a satellite contract within one year. Other milestones include a critical design review after 2 years, construction within 4 years and system operation within 6 years. The bureau can’t impose a 30-day bond requirement on the firms due to the lack of DBS licensing rules, it said. “If the Commission adopts rules requiring DBS licensees to post a bond, we will modify Spectrum Five’s market access grant accordingly,” Spectrum 5’s order said.