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Ky "i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDDDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddzHxxHvppDXd<"dxtldpxxd"i~'^:DTddDDDd4D48ddddddddddDDd||||DXp||dp||ppL8LTdDddXdX8dd88X8ddddLL8dXXXLP8PlD4lTDDD4DDDDDDdDd8|d|d|d|d|dX|X|X|X|XD8D8D8D8dddddddddpX|ddddpXd|d|d|d|dXXlXx|X|X|X|XdddldldD8DdDDDddllXp8pHpDp@p8dtdddd|L|L|LdLdLdLllpHp8pTddddddplpLpLpLdpDddLpDpdx4ddC,CWddddddddddddddddddddddddddddddddddddddddNHxxHhdLdddddd8@d<@d<DDppdDDxddzHxxHkddDpd<"dxtldxxd"i~'^:DpddȨDDDdp4D48ddddddddddDDpppd|Ld|pȐD8DtdDdpXpXDdp8Dp8pdppXLDpdddXP,PhD4htDDD4DDDDDDdDp8dddddȐXXXXXJ8J8J8J8pddddppppddpddddzpdddXXhXXXXXdddhdptL8LpLDLpphhp8ZDP8pppddƐXXXpLpLpLphfDtppppppȐhXXXpDppLDd4ddC6CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxHjdDdddddd8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""<.<<<<><q*"xxxxWWxxxWWkkxxxA.SSxSSJJSJS+SSSSS8SSSSSSSSS.xJxJxJxJxJorJiJiJiJiJ8.8.8.8.{SxSxSxSxS{S{S{S{SxSxJ{SxSxSxS{S`SxIxSxIqIqIrSrS{dgIiSiSgIxSxSxSxSxS{S{S8.SSSS8Sz]SSuSg/g(#,h>*f9 xr G;hXD7zC;,UXz_ pi7X",tB^ f ^;C]ddCCCdCCCCddddddddddCCdxN`xoCCCddCdoYoYFdo8Co8odooYNCodddYdddd4dddddCddddddddo8dddddYYYYYN8N8N8N8oddddooooddpddddxodddXXddXddXdddddooL8doddNorddo8PdN8ppoddXXdpLoNpLodPDdopoopodXYXodoodddCddCCCWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNdddCdUUddddddFddddFCCssd44ddzzddd~ooCsdF"dsd9dCCzCddoddCdYds`zUvdddCCCCzozoYNYYYN8YooYdYzzdzddYYzozzzNdzYzzzzCCdddddddzCzdYC\   pxtll\tll@\@\`L Y4FB X4  Federal Communications Commission FCC 9921  X4 t!t  Y4 F      #Xj\  P6G;8XP#  X4` `  ,hh]pp&   X  X' +Before the [ FEDERAL COMMUNICATIONS COMMISSION MWashington, D.C. 20554  X 'In re Application of:,hh]) ` `  ,hh])  X 'COMSAT Corporation,hh])pp&  Xxx   X '` `  ,hh])ppFile No. 106SATMISC95  X 'For Authority to Participatehh])  X 'in the Procurement of Facilitieshh])  X'of the ICO Global Communications)  Xy'Limited System  ,hh])  X'  X'  MEMORANDUM OPINION AND ORDER ă  X4Adopted: February 11 X&k , 1999ppReleased: February 25, 1999 By the Commission:   Xe4y Introduction ă  X741.` ` In this Order, we approve, subject to conditions, the participation of the Comsat Corporation (Comsat) in Inmarsat's investment in ICO Global Communications Limited (ICO). We find that Comsat's participation in ICO is consistent with the standards  X4set forth in our 1994 Declaratory Ruling{- Yk!4 x4 ԍ#c PE37L)P#XIn the matter of Motorola Satellite Communications, Inc. request for Declaratory Ruling, 9 FCC (1994)  zPT"' x 9 FCC Rcd 7693 (1994) (Inmarsat P Declaratory Ruling), appeal dismissed sub nom, Comsat Corp. v FCC, 77 F. 3d 1419 (D.C. Cir.) 1996.(#Ƃ for authorization of Comsat's participation in ICO  X4  under the International Maritime Satellite Telecommunications Act (Maritime Satellite Act){ - Y%4ԍX#c PE37L)P#47 U.S.C. 750 et seq.(#{"0*&&33k"  W&YR    W&YR  W&YR    W&YR and we conclude that grant of the application is in the public interest. We impose certain conditions to assure satisfaction of requirements for structural separation of ICO from Inmarsat established by the 1994 Inmarsat Assembly of Parties.  X42.` ` This Order addresses only issues relevant to Comsat's investment in ICO and not ICO's potential entry into the U.S. market. We do not address issues relating to the impact, if any, that ICO's relationship with Inmarsat may have on competition in the United States. We will consider spectrum and other issues relating to the provision of ICO services in the United States through Comsat or another U.S. distributor pursuant to any ICO  X14application to provide service in the United States."11 yO ' x #c PE37L)P##X\  P6G;(P#эXWe have received from ICO a Letter of Intent to access 2 GHz frequencies to provide mobile satellite  {Or ' x_ service in the U.S. market. The application also includes feeder links at 5 and 7 GHz. See ICO Services  x Limited, Letter of Intent to Access 2 GHz MSS Frequency Bands at 19902025/21652200 MHz, filed September 26, 1997.(# When reviewing any such applications,  X 4we will apply the standards articulated in our November 25, 1997 DISCO II Order  X 4implementing the 1997 World Trade Organization (WTO) agreement.{ 1 Yh4 x0 ԍ#c PE37L)P#XSee NonU.S. Licensed Satellites Providing Domestic and International Service in the United States,  zPQ' x# (DISCO II Order), 12 FCC Rcd 24094 (1997). ICO filed a petition for reconsideration on January 5, 1998. Our action in this Order is without prejudice to consideration of ICO's petition.(#Ʒ We also do not address the question of spectrum availability to ICO on any other nonU.S. licensed mobile satellite system.   X 4Yq I. Background ă  X{' _A. The ICO System ă  XM4 3.` ` ICO is the affiliate company established by Inmarsat (International Mobile Satellite Organization) for the purpose of creating a satellite system to provide global handheld services by the end of the decade. Inmarsat is an intergovernmental consortium originally created in 1979 to establish and operate a global satellite system to provide maritime communications services. Inmarsat also provides aeronautical and land mobile services. Comsat is the designated U.S. Signatory and operating entity within Inmarsat, pursuant to the Maritime Satellite Act. ICO was established as a private company in January  X41995 in the United Kingdom following a 1994 Inmarsat Assembly of Parties decision1 YR!4 x ԍ#c PE37L)P#XReport of the Tenth (Extraordinary) Session of the Inmarsat Assembly of Parties, Assembly/10/Report, December 13, 1994.(# to create the affiliate for the purpose of providing handheld mobile satellite services. "~n 0*$$33"Ԍ X44.` ` ICO's iinvestors include Inmarsat, 41 Signatories, including Comsat, two strategic investors, Hughes Electronics Corporation (Hughes) and TRW, Inc. (TRW), other investors in partnership with Signatories, and Inmarsat. ICO investors initially committed $1.4 billion. Inmarsat committed $150 million for 10.7 percent of the ordinary Class A shares in the affiliate and also received 700,000 Class B shares for inkind contributions. Inmarsat's investment entitles it to a weighted shareholder vote of 15 percent and a guarantee of two directors on the 13 member ICO board. Comsat is responsible for approximately 24 percent of Inmarsat's ICO investment or about $36 million (Comsat's indirect investment). Comsat also initially had direct investment in ICO of 6.5 percent and an additional 1.9 percent through its subsidiary, Comsat Argentina. Comsat sold part of these holdings and now directly holds 2.3 percent of ICO's current equity (including a Comsat Argentina  X 4investment of 0.9%) 1 Y| 4ԍ#c PE37L)P#XSee ICO News Release, dated March 6, 1997(#Ə   X 4  X 45.` ` The proposed ICO system will offer telephone, data, facsimile, and paging services over ten operational satellites (with two spare satellites) in two intermediate circular orbital spheres providing global coverage. The satellites will relay signals between handheld user terminals and land earth station (LES) terminals at twelve satellite access nodes (SANs) located around the world. Comsat states it plans to operate one of these SANs in the United States. The SANs will be interconnected using terrestrial facilities from a network the Pnet and linked through gateways, owned and operated by third parties, to the public switched network. The satellites and associated telemetry, tracking, and control equipment will be manufactured by Hughes Space and Communications International, Inc. (Hughes). Hughes also will provide launch and management services in support of the system.  X46.` ` ICO services will be provided to national markets through wholesale and retail arrangements in those markets. Service wholesalers will arrange for all aspects of ICO's service provision, including the availability of gateways and links of the "Pnet" to the public  X4network.yy1 yO'#X\  P6G;(P#эXComsat application at 21.(#y Service retailers will purchase and resell ICO services to end users registered in a designated country, and be responsible for sale and distribution of services and terminals, for  Xe4customer activation, for billing and collection, and for aftersales customer support.pe 1 {O '#X\  P6G;(P#эXId. at 22.(#p Initial investors in ICO (only Signatories and Inmarsat) may become wholesalers in their particular market if the investment exceeds a specified amount. Additional wholesalers in any national market may be determined by the ICO board. All Inmarsat Signatories, whether or not they are initial investors, have the nonexclusive right to be service retailers in their domestic" 0*$$33" markets.  X4  X47.` ` According to Comsat Inmarsat has the right to serve as exclusive wholesaler of ICO space segment capacity for specialized (nonhandheld) services to maritime and  X4aeronautical markets.u 1 {O'#X\  P6G;(P#эXId. at 8.(#u Inmarsat also has acquired the right to serve as wholesaler of ICO handheld services in any markets in which no ICO investor has exercised the option to  Xv4become the service wholesaler.u vZ1 {O '#X\  P6G;(P#эXId. at 9.(#u  XH44 B. Inmarsat's Creation of ICO ă  X 48.` ` At the 1994 Inmarsat Assembly of Parties, the United States conditioned its support for the creation of ICO on adoption by the Assembly of principles and elements of structural separation between Inmarsat and ICO to promote fair competition and ensure that ICO would not receive an unfairly advantageous position in the global handheld satellite market by virtue of its relationship to Inmarsat an intergovernmental organization. The U.S. representative stated:  Xy4XCritical to the U.S. is that the proposed InmarsatP affiliate not operate in a manner that gives it competitive advantages by virtue of its relationship with Inmarsat and Inmarsat's intergovernmental status that other competitors do not have. Annex IV to the Council report contains principles that are acceptable to the United States to assure fair competition in handheld services. Appropriate mechanisms must be identified  X4and utilized during the process of establishing the InmarsatP affiliate to implement and maintain these principles, including making appropriate reference to these basic  X4principles in the documents organizing the affiliate. 1 {Oy'#X\  P6G;(P#эXInmarsat Assembly /10/ Report, Annex V, p. A32.(#ƕ (# The Assembly of Parties decided to create ICO on the following basis:  X4X(1) broad and open ownership. ~1 {O '#X\  P6G;(P#эXId. at 13 referencing A28.(#ƀ(#  Xi4X(2) no enjoyment of treatybased privileges and immunities. i1 {O*#'#X\  P6G;(P#эXId. at 13 referencing A25.(#ƀ(#"i 0*$$33"Ԍ X4X(3) assurance of no crosssubsidization between Inmarsat and ICO.1 {Oy'#X\  P6G;(P#эXId. at A12 and 13 and referencing A25.(#ƌ(#  X4(4) separation of the financial and accounting systems of Inmarsat and ICO.Z1 {O'#X\  P6G;(P#эXId. at 13 referencing A24.(#ƀ  X4X(5) separate and independent toplevel staff for ICO.1 {Oo'#X\  P6G;(P#эXId. at 13 referencing A25.(#ƀ(#  X4X(6) no transfer of spectrum or orbital positions from Inmarsat to ICO.~1 {O '#X\  P6G;(P#эXId. at 13 referencing A31.(#ƀ(#  X4X(7) arm's length negotiation of service contracts between Inmarsat and ICO.1 {Oe '#X\  P6G;(P#эXId. at 13 referencing A25.(#ƀ(# X(8) nondiscriminatory access to national markets for all mobile satellite  Xv4communications networks, subject to spectrum coordination and availability;v1 Y4ԍX#]\  PC(P#Id at 13 referencing A30.(# and(# X(9) arrangements for provision of services to national markets consistent with  XH4domestic regulatory requirements.HS 1 {OL'#X\  P6G;(P#эXId. at 13 referencing A29.(#ƀ(# The Assembly decided that these principles would be included in the appropriate organizing  X 4documents of ICO.:$ 1 {O' x/ #]\  PC(P##X\  P6G;(P#эXId. at 13. The Assembly decided that the principles and recommendations of the Intercessional Working  x Group and the responses of the Council thereto (Assembly/10/7, Annex IV refers attached at Annex IV  x to [the Assembly] report) and the decision of the Assembly shall be included in the appropriate organizing  {O'documents of the InmarsatP affiliate.(#:  X 48 C. Prior Commission Rulings ă  X 49.` ` Prior to the 1994 Inmarsat Assembly of Parties, the Commission addressed domestic regulatory issues related to Comsat's authority to participate in ICO services. On November 17, 1994 it acted upon a petition from Motorola Satellite Communications, Inc.  Xy4(Motorola) for a declaratory ruling that provision of InmarsatP service would be inconsistent  Xd4with the Maritime Satellite Act. ("Inmarsat P" was the term given to Inmarsat's program to develop a hand held service prior to the creation of ICO). After agreeing with Motorola that  X84Comsat could not provide InmarsatP service through Inmarsat itself, the Commission held  X#4that it was possible to provide InmarsatP service through the affiliate if it were structured"#0*$$33f"  X4properly.1 {Oy'#]\  PC(P##X\  P6G;(P#эXInmarsat P Declaratory Ruling, 9 FCC Rcd at 77107713 (# Specifically, it stated that "if participation takes a form that extends Comsat's exclusive status within Inmarsat, then it is inconsistent with the Maritime Satellite Act. If,  X4however, Comsat's participation in InmarsatP takes a form which does not extend Comsat's  X4exclusive status, then such participation would be legally permissible."Z1 {O'#]\  PC(P##X\  P6G;(P#эXInmarsat P Declaratory Ruling at 9 FCC Rcd at 7694.(# The Commission  X4further said that we could not determine whether InmarsatP will extend Comsat's exclusive  X4status until Comsat filed a formal application with the Commission.1 {O. '#]\  PC(P##X\  P6G;(P#эXId. (#Ƒ  Xc410.` ` On January 10, 1995, the International Bureau denied an emergency motion filed by TRW asking the Commission to bar Comsat from participating in, or alternatively, investing in ICO until the Commission decided whether ICO is structured in compliance with  X 4the InmarsatP Declaratory Ruling.@ ~1 yOM' x} #]\  PC(P##X\  P6G;(P#эXParticipation by Comsat Corporation in a New Satellite System designed to Provide Service for HandHeld Communications Devices, 10 FCC Rcd.1061 (International Bureau 1995).(#@X01Í ÍX01Í Í The Bureau found that grant of TRW's emergency motion was not in the public interest and its denial would not result in irreparable injury to TRW. The Bureau established a May 1, 1995 deadline for Comsat to file an application for authority to participate in any procurement by ICO of facilities used to provide Inmarsat  X 4services. $z {OK'#]\  PC(P##X\  P6G;(P#эXId. at 1065.(#ƙ The Bureau required Comsat to include the organic documents of ICO, an analysis of the extent to which ICO's capital requirements affect Inmarsat rate payers, a  X4demonstration of ICO's structural compliance with the Inmarsat P Declaratory Ruling, and an outline of the extent to which ICO is or should be subject to Commission oversight beyond  Xj4that for which the Communications Act provides.jh $z {O'#]\  PC(P##X\  P6G;(P#эXId. (#Ƒ  X<4_ II . The Application  X%4  X411.` ` Comsat filed its application on May 1, 1995. The application requests the Commission to authorize Comsat's participation in Inmarsat procurement of ICO facilities to be used principally to provide Inmarsat maritime or aeronautical services. In support, Comsat describes the current configuration of operational Inmarsat satellites which, it states, will be replaced in the 1995 to 1997 time period by five Inmarsat 3 satellites. Comsat states that there are no concrete plans for further increments to the system and that use of ICO capacity" 0*$$33F" for "specialized" maritime and aeronautical services would defer the need for Inmarsat to  X4procure a fourth generation space segment by the year 2000.y$z yOb' xu #]\  PC(P##X\  P6G;(P##X\  P6G;(P#эXApplication at 8. Comsat suggests there may be a need to procure an additional Inmarsat satellite. However, Inmarsat filed applications in the 2 GHz MSS proceeding for its Horizons Project.(#y Comsat argues that use of ICO facilities instead of procurement of fourth generation satellites would result in a savings substantially in excess of Inmarsat's $150 million investment in ICO, and would allow Inmarsat to provide lower cost new services to its existing maritime and aeronautical base as  X4well as to additional small ships and aircraft. $z {O^ '#]\  PC(P#эX#X\  P6G;(P#Id. (#Ƒ  X_412.` ` Comsat submitted various documents associated with ICO's structure to demonstrate that ICO does not extend its exclusive statutory relationship with Inmarsat  X14contrary to our InmarsatP Declaratory Ruling.L1$z {O' x} #]\  PC(P#эX#X\  P6G;(P#Id. at 1314. Comsat initially submitted the ICO Memorandum of Association, the Articles of Association,  xV and the Subscription Agreement between ICO and Inmarsat and certain other documents. Subsequently,  x in response to requests by Motorola for production of additional material, Comsat submitted part of the  x_ requested information, including the ICOInmarsat Services Contract, Merrill Lynch valuation letter of  x8 Inmarsat's inkind contributions for InmarsatP, and certain sections of the Information Memorandum Commercial Rights and Preferences of Investors and Description of National Wholesale Obligations.(#L Comsat states that the pro-competitive principles established by the Inmarsat Assembly of Parties as reflected in the Assembly Report  X 4are incorporated in ICO's documents and reflected in ICO's corporate strategy. , $z {O'#]\  PC(P#эX#X\  P6G;(P#Application. at 14.(#Ʀ Additionally, Comsat contends that the net effect (if any) of Inmarsat's investment in ICO on Inmarsat space segment utilization charges (SSUCs) should be minor and that any impact on  X 4SSUCs should have no significant effect on rates to Inmarsat endusers. $z {O/'#]\  PC(P#эX#X\  P6G;(P#Id. at 26 and 27.(#ƞ Finally, Comsat states that the Maritime Satellite Act gives the Commission no direct jurisdiction over ICO but that the U.S. government instructional process agencies, through their oversight of Comsat as the U.S. Signatory, will have full access to ICO financial, business, and audit information,  Xd4and the ability to monitor effectively the relationship between Inmarsat and ICO.!dP $z {Oe'#]\  PC(P#эX#X\  P6G;(P#Id. at 32.(#Ɨ Comsat notes that the Commission also will have authority to oversee Comsat's ownership share of Inmarsat's investment in ICO and to act upon future applications under the Communications  X4Act related to the provision of ICO services in the United States."$z {O#'#]\  PC(P##X\  P6G;(P#эX#X\  P6G;(P#Id. (#Ƹ"t"0*$$33 "Ԍ X4ԙ13.` ` Comsat amended its application on July 11, 1995, to document modifications in ICO's form and governance the principal change being the creation of a holding company  X4called ICO Global Communications (ICO Holding) incorporated in the Cayman Islands.=#$z yOK' xc #]\  PC(P##X\  P6G;(P#эXAt annual general meeting of shareholders held May 22, 1997 the owners adopted a resolution to change the domicile of the corporation from the Cayman Islands to Bermuda.(#= ICO has structured itself in three companies: (1) ICO Global Communications (Holding) Ltd., the holding company; (2) ICO Global Communications (Operating) Ltd., the operating company that will own and operate the assets (including the satellites and SANs), incorporated in the Cayman Islands and owning the satellites; and (3) ICO Services Limited, a company incorporated in the United Kingdom providing costbased management services. The documents filed by Comsat supplementing its application include the ICO Holding Memorandum of Association and Articles of Incorporation, and several novation agreements that transfer to ICO Holding certain agreements that were formally between ICO and  X 4Inmarsat.A$ $z yO' x #]\  PC(P##X\  P6G;(P#эXThe novation agreements cover the 1)Inmarsat Subscription Agreement; 2) Inmarsat/ICO services contract; 3) service mark license; and an intellectual property rights license. (#A  X 4b III. The Pleadings ă  X 414.` ` Petitions to deny the application were filed by Motorola; TRW, % x$z X4 x ԍX#]\  PC(P#TRW subsequently withdrew its petition to deny. See letter from Raul Rodriguez,Counsel for TRW Inc., dated March 4, 1998.(# IDB Communications, Inc. (IDB); and the Alliance for Competitive International Satellite Services  Xy4(ACISS) (collectively referred to as the petitioners).-&y$z yO' x #]\  PC(P##X\  P6G;(P#эXACISS is comprised of Columbia Communications; Iridium, Inc.; Motorola; Odyssey Worldwide Communications; Orion Network Systems; and Panamsat Corporation.(#- Comments were filed by Personal Communications Satellite Corporation (PCSAT), Constellation Communications, Inc. (Constellation), and Mobile Satellite Users Association (MSUA). Comsat responded to the petitions and comments and four parties replied to the Comsat response (Motorola, IDB, ACISS, and MSUA).  X415.` ` In urging the Commission to deny Comsat's application, Motorola, IDB, and ACISS collectively make several arguments. First, they contend that ICO has failed to implement the pro-competitive principles that were a precondition to United States support of creation of an Inmarsat affiliate to provide global handheld services. They argue that: (1) the ICO documents do not bind ICO, its investors or even Inmarsat to the principles; (2)  X|4crosssubsidies exist between Inmarsat and ICO; and (3) the ICO/Inmarsat services contract"|I &0*$$33" was not negotiated on an armslength basis and extends competitive advantages to ICO. In  X4addition, they contend that ICO is not structured in accordance with the InmarsatP  X4Declaratory Ruling that is, the structure extends Comsat's exclusive status within Inmarsat and therefore, Comsat's investment in ICO is inconsistent with the Maritime Satellite Act. Third, they generally contend that ICO will have competitive advantages over other private providers of handheld services because of its close ties to an intergovernmental organization. They ask the Commission to preclude both Comsat's direct and indirect investment in ICO or, alternatively, disallow inclusion of Comsat's investment in its rate base. If we grant Comsat's application, they ask that we clarify that such action does not constitute authority to provide ICO services in the United States.  X 416.` ` In their comments, neither MSUA nor PCSAT takes a position on grant of Comsat's application. MSUA, however, raises concerns about the impact Inmarsat's ICO investment will have on Inmarsat investors. It contends that additional information is necessary to assess the impact on availability and costs of future Inmarsat services. PCSAT asks the Commission to expedite consideration of allocation of 2 GHz spectrum for mobile satellite systems and the processing of applications for such systems. PCSAT is concerned that delay in this process will advantage foreign systems such as ICO in securing 2 GHz spectrum. Constellation contends that: (1) Comsat has failed to satisfy the Commission's standards for grant of this application; (2) Comsat's direct investment in ICO must be treated by the Commission as an Inmarsat line of business; and (3) the Commission should condition any authorization to Comsat on ensuring access by U.S. systems to Inmarsat Signatory markets.  X417.` ` If the Commission grants Comsat's application, Motorola urges imposition of several conditions: (1) adherence to the Inmarsat Assembly principles; (2) prohibition on any future merger between ICO and Inmarsat, or increase in crossownership of ICO and Inmarsat; (3) prohibition on transfer of rights of radio frequency spectrum from Inmarsat to ICO; and (4) disallowance of the costs of the ICO procurement from Comsat's jurisdictional rate base for Inmarsat services, and refund to customers of any such costs previously included  XR4in the rate base.'R$z yO'#]\  PC(P#э#X\  P6G;(P#XLetter from Alfred M. Mamlet to William Caton, Acting Secretary, FCC, dated January 9, 1997.(# To enforce these conditions on Comsat, Inmarsat, and ICO, Motorola requests the Commission to provide for: (1) divestiture of Comsat's direct and indirect ICO investments in case of violation of any of these conditions (including expeditious consideration of any complaint that conditions have been violated); and (2) a Commission recommendation that the Executive Branch determine that activities of Comsat and Inmarsat with respect to ICO are not entitled to the immunities granted to Inmarsat under the International Organizations Immunities Act. Also, Motorola urges the Commission to emphasize that grant of the instant application does not authorize Comsat or anyone else to"! X'0*$$33 " provide services in the United States over the ICO system and that similar conditions to those requested above will be included in any authorization to provide ICO services in the United States. Motorola also asks the Commission to determine that regarding any future application to provide ICO services in the U. S., the Commission will consider whether: (1) MSS systems have equitable access to spectrum globally; (2) ICO ownership is broad and open; and (3) the applicant would inappropriately bundle ICO and Inmarsat services. .  X_418.` ` Finally, the Departments of Commerce and State jointly filed comments asking the Commission not to grant Comsat's application until remedial action is taken to ensure satisfaction of the principles and elements of structural separation that was the basis for  X 4United States' support of ICO's creation.W(X $z yO '#]\  PC(P#эX#X\  P6G;(P#Letter from Ambassador Vonya McCann, Department of State and Assistant Secretary Larry Irving, Department of Commerce, to Chairman Hundt, Federal Communications Commission, dated September 29, 1995.(#W Commerce/State argue that the application should not be approved unless the record demonstrates that: (1) ICO is bound by the Inmarsat principles; and (2) the costs set forth in the ICO/Inmarsat services contract are reasonable. Commerce/State also ask that the Commission take remedial action to protect U.S. rate-payers if it concludes that the costs of Comsat's contribution toward Inmarsat investment in ICO would be passed on to U.S. ratepayers. Finally, Commerce/State request the Commission to  X4prohibit Comsat and any other provider of ICO services in the United States from using the Inmarsat name and logo. Supplemental comments in response to the Commerce/State  Xb4comments were filed by ACISS, Comsat, Hughes, IDB, Iridium, and Motorola.6)"b$z yO'#]\  PC(P#эX#X\  P6G;(P#The International Bureau issued a notice providing opportunity for additional comments since the  {O'Commerce/State comments were filed after the pleading cycle had closed. See In the Matter of Comsat Corporation Application for Authority to Participate in the Procurement of Facilities of the ICO Global Communications Limited System, DA 952117 (International Bureau, released, October 4, l995).(#6  X4419.` ` The International Bureau sought the views of the Departments of Commerce and State as to whether the Inmarsat Convention allows the Commission to prohibit Comsat from funding its share of the Inmarsat ICO procurement, and if so, whether a prohibition on investment is more appropriately handled pursuant to the instructional authority contained in  X4the Maritime Satellite Act.*$z yO['#]\  PC(P#эX#X\  P6G;(P#Letter from Scott Blake Harris, Chief International Bureau to Ambassador Vonya McCann and Assistant Secretary Irving, dated December 27, 1995.(# Commerce/State responded that: (1) domestic law permits the United States to instruct Comsat not to make capital contributions to Inmarsat for ICO funding; (2) under certain circumstances, such action would be consistent with international law and U.S. obligations under the Inmarsat Convention and Operating Agreement; and (3)" * *0*$$33"  X4they would address this matter through the instructional process.+$z yOy' x #]\  PC(P#эX#X\  P6G;(P#Letter from Ambassador McCann and Assistant Secretary Irving to Chairman Hundt, dated December 6, 1995.(# Commerce/State also said the Executive Branch would determine whether ICO is bound by the Inmarsat principles and asked the Commission to resolve the question of whether the service contract costs are reasonable.  X420.` ` On July 30, 1996, Comsat amended its application to demonstrate that all three ICO companies are directly subject to the Inmarsat principles as a result of changes in their  X_4Memoranda of Association. ,_ $z yO0 ' xc #]\  PC(P#э#X\  P6G;(P#XLetter from Jack S. Hannon, Comsat Corporation to Ambassador McCann and Assistant Secretary Irving, dated July 30, 1996.(#  On November 14, 1996, the Departments of Commerce and State filed a letter in this proceeding stating that Comsat had demonstrated that ICO is bound by the Inmarsat Principles but they continued to maintain the other concerns expressed in their September 29, 1995 letter regarding reasonableness of the costs of the Inmarsat ICO  X 4services contract and protection of U.S. Inmarsat service ratepayers.- x$z yO,'#]\  PC(P#эX#X\  P6G;(P#Letter from Vonya McCann and Larry Irving to Chairman Reed Hundt dated November 14, 1996.#Xj\  P6G;8XP#(#  X 4ao IV. Discussion ă  X 4 21.` ` Comsat's application and the petitions and comments filed in response to it raise issues in several areas. First, we address the Commission authorization required by Comsat for any investment, direct or indirect, in ICO. Second, we determine whether ICO has been structured consistent with the principles established by the Inmarsat Assembly of Parties at the request of the United States. As noted above, the Executive Branch has requested the Commission to assure that ICO is effectively bound by these principles and that Inmarsat and ICO are in compliance with them. Third, we address several regulatory issues raised by the Executive Branch and other parties concerning the effect of Comsat's investment on U.S. ratepayers. Fourth, we determine whether Comsat's participation in ICO is consistent with the Maritime Satellite Act. Finally, we address several additional issues raised by parties in this proceeding. For the reasons discussed below, we grant Comsat's application and approve its participation in Inmarsat's procurement of ICO facilities, subject to certain conditions.  Xe4  A. Nature of Commission Approval Required  X74 22.` ` Comsat seeks Commission approval of its indirect investment in ICO through"7 -0*$$33R" Inmarsat of about $36 million. Comsat does not seek approval of its direct investment in ICO for about 2.3% of ICO's current equity. The petitioners and other commentors, however, challenge both Comsat's direct and indirect investment in ICO and argue that Comsat must seek Commission authority for the entire investment. Further, petitioners urge the Commission to disallow both the indirect and direct investment from inclusion in Comsat's rate base.  X_423.` ` Comsat need only apply for Commission authority for its $36 million indirect investment in ICO through Inmarsat. The Maritime Satellite Act requires Commission regulatory oversight of Comsat's financial participation in Inmarsat which includes review of its participation in proposed Inmarsat procurement through Inmarsat capital calls to its  X 4Signatories. ." $z {O| ' x #X\  P6G;(P##X\  P6G;(P#эXSee Statement of Policy Concerning Procedures Applications to Participate in Certain INTELSAT Activities,  yOF ' x' 46 FCC 2d 338 (1974). The Commission procedures originally adopted for Comsat participation in  x" INTELSAT procurement have, in practice, been applied to Comsat applications to participate in Inmarsat procurement.(#  Neither the Maritime Satellite Act nor Commission procedures, however, require an application for Comsat's direct investment in ICO because no payment to Inmarsat is involved. Nevertheless, although there is no requirement that Comsat obtain Commission approval for its direct ICO investment, it is clear that any business activity pursued by Comsat must comport with applicable law and policy. First, Comsat's participation in ICO must comply with existing requirements that are imposed on Comsat to separate its Inmarsat  Xy4business from other activities./gy$z X4 xy ԍ#X\  P6G;(P##]\  PC(P#X#X\  P6G;(P#See Comsat Study Order, 77 FCC 2d 564 (1980): Changes in the Corporate Structure and Operations of  {O' x Comsat, Memorandum Opinion and Order, 90 FCC 2d 1159 (1982); recon den, 93 FCC 2d 701 (1983);  {O' x Second Memorandum Opinion and Order, 97 FCC 2d 145 (1984);  recon den in part, 99 FCC 2d 1040  xc (1984). In these decisions, the Commission determined that Comsat should be separated into two distinct  x corporate elements. One element was to handle all nonjurisdictional, i.e., nonINTELSAT/Inmarsat  x_ activities and the other element was to handle its jurisdictional activities. The Commission prescribed  x accounting procedures, coupled with structural separation and armslength dealings between separate  {Oy'elements. See also Comsat Corporation et al 13 FCC Rcd 2714 (1998).#X\  P6G;(P#(#ư Second, Comsat's investment in ICO must comply with U.S. government policy established pursuant to its oversight responsibility under the Maritime Satellite Act and reflected in the principles of separation of ICO and Inmarsat adopted by the 1994 Inmarsat Assembly of Parties. We find below that the Inmarsat Assembly principles generally have been satisfied, with one exception of the requirement against crosssubsidization discussed below. In this Order we impose a condition to remedy the concerns raised by that exception. So long as Comsat satisfies this condition, we find that this exception does not require denial of Comsat's application.  X4   B. Consistency with Assembly Principles Ã" /0*$$33"Ԍ X4 ę24.` ` To determine consistency with the Inmarsat Assembly principles, we consider: (1) whether the ICO structure adequately incorporates the Assembly principles and elements of structural separation; (2) whether improper crosssubsidization has occurred; and (3) other issues relating to compliance with the Assembly principles.  X4 $  (1). Application of the Principles to ICO's Charter ă  X_425.` ` The initial question is whether ICO is legally bound by the Inmarsat  XH4principles.}0H$z {O '#X\  P6G;(P#эXSee paragraph 8, supra.(#} In its application, Comsat stated that the Inmarsat principles were fully incorporated in the organizing documents of ICO, specifically in the subscription agreement between Inmarsat and ICO and that the investor (Inmarsat), and ICO, is obligated to comply  X 4with them.1 Z$z yO'#]\  PC(P#э#X\  P6G;(P#XComsat Application at 1617.(#ƣ Motorola and ACISS contended that incorporation of the Assembly principles in the subscription agreement was insufficient because the agreement was not part of the ICO organizing documents and did not bind ICO itself, Inmarsat Signatories, or direct ICO  X 4investors to comply with the principles.2 $z yOY'#]\  PC(P#эX#X\  P6G;(P#Motorola Petition to Deny at 2427; ACISS Petition to Deny at 3.(# The Departments of Commerce and State agreed with the petitioners and stated the Inmarsat Assembly of Parties intended to bind ICO to the Inmarsat principles in ICO's organizing documents and it would have been pointless solely to  Xy4bind Inmarsat.3yz$z yO'#]\  PC(P#эX#]\  PC(P#Commerce/State Comments filed September 29, l995 at 2.(#ƽ They stated the Inmarsat ICO subscription agreement at that time did not bind ICO and concluded that ICO's organizing documents do not comport with Assembly requirements. They asked that we not approve Comsat's application until Comsat states on the record that ICO is bound by the Inmarsat principles and provides supporting  X4documentation.4 $z {O'#]\  PC(P#эX#]\  PC(P#Id.(#Ɛ  X426.` ` Pursuant to the Maritime Satellite Act, the Departments of State and Commerce and the Commission instructed Comsat to seek amendment of ICO organizing  X4documents to bind ICO to the Assembly principles.5$z yO!'#]\  PC(P#э#X\  P6G;(P# 47 U.S.C. 753(b) ICO subsequently amended its organizing documents by incorporating into the Memoranda of Association of ICO's three" , 50*$$33i"  X4corporate entities6Z$z {Oy' x #]\  PC(P#эX#]\  PC(P#See certified copies of amended Memoranda of Association of ICO Global Communications (operations)  xI Limited [at clause 7(c)], ICO Global Communications (Holdings) Limited [at clause 7(c)], and ICO Services Limited (at clause 6). Comsat Supplement to the Application, filed July 30, l996. (# language desired by the United States government to bind ICO to the Inmarsat Assembly principles. Comsat supplemented its application on July 30, 1996 reflecting this action. The Departments of Commerce and State, thereafter, informed the Commission that Comsat had demonstrated that ICO is now bound by the Inmarsat principles but said that it continued to have the other concerns expressed in its September 29, 1995 letter to the Commission regarding the reasonableness of the costs for the service contract and  Xv4protection of U.S. Inmarsat rate payers from crosssubsidization.7v$z {O '#]\  PC(P#э#X\  P6G;(P#X See supra n.40.(#ƣ  XH4 I. A. 1. a.(1)(a) i) a) 1 1 1. a.(1)(a) i) a)27.` ` Our approval of Comsat's authority to invest in ICO is conditioned upon continued satisfaction of the Inmarsat principles of structural separation. We anticipate that future authorizations that may be given to ICO, Comsat, or other providers of ICO services in the United States would also be conditioned upon continued satisfaction of these principles. We turn to the other concerns regarding the principles.  X 4I (2). CrossSubsidization ă  X4 1 1 1. a.(1)(a) i) a) 1. a. i.(1)(a)(i) 1) a)&28.` ` The second issue is whether improper crosssubsidization has taken place in the creation of ICO in violation of the Inmarsat principles against crosssubsidization, and contrary to the public interest. As a general matter, improper crosssubsidization would occur if a regulated entity is able to shift costs of unregulated competitive services to regulated noncompetitive services. In such cases, the carrier's rates for competitive services may be  X4artificially reduced while rates for monopoly services become artificially inflated.8|$z {OJ'#]\  PC(P##X\  P6G;(P##X\  P6G;(P#эXAT&T Communications, 7 F.C.C. Rcd. 5568 (l992).(# In keeping with the fundamental tenet that ratepayers of monopoly services should not pay for competitive ventures, the Inmarsat Assembly considered the financial and working relationship between Inmarsat and ICO and agreed that there should be: (1) no crosssubsidization between Inmarsat and ICO; (2) separation of the financial and accounting systems of Inmarsat  X4and ICO; and (3) separate and independent staff for ICO.9$z {Oi '#]\  PC(P##X\  P6G;(P#эXSee notes 811.(#Ɯ By requiring assurance of no crosssubsidization of ICO by Inmarsat the Assembly sought to protect Inmarsat Signatory ratepayers from bearing the costs of development and operation of the unregulated ICO affiliate. "N90*$$33"Ԍ X429.` ` Motorola and IDB contend that crosssubsidization has taken place from the inception of ICO and that we should disallow the costs of ICO procurement from Comsat's rate base and refund its customers any such costs previously included in the rate base for Inmarsat services. The Departments of Commerce and State express concern that existing users of Inmarsat services will subsidize development of ICO because Inmarsat Signatories, such as Comsat, pass on to rate payers the costs of signatory contributions towards Inmarsat's investment in the affiliate. Motorola, IDB, and MSUA argue that Inmarsat expenses in developing and investing in ICO constitute a crosssubsidy of ICO by Inmarsat prohibited by the Assembly principles and are against the public interest.  X 430.` ` The application and comments raise several questions relating to the issue of crosssubsidization:  X 4` ` (a) Has Inmarsat been adequately compensated for resources previously expended for ICO development?(#  X 4` ` (b)X Do U.S. ratepayers bear the expense of Comsat's contribution towards Inmarsat's capital investment in ICO?(#  Xy4` ` (c)  Did the services contract between Inmarsat and ICO ensure against crosssubsidization by Inmarsat? Was the contract negotiated at arm's length?(#  X44X` ` (d) Should the Commission require a rate refund to Comsat customers?(#  X431.` ` As discussed below, we find that Inmarsat resources were expended toward ICO development but that Inmarsat endusers were adequately compensated for the use of those resources. We further find that there is no basis for ordering a refund to customers as some petitioners propose. As proposed by Comsat, we are excluding from Comsat's jurisdictional rate base Comsat's contribution towards Inmarsat's investment in ICO. Therefore Comsat's Inmarsat ratepayers will not bear the expense of any aspect of that investment.  XN432` ` Has there been adequate compensation for Inmarsat for the use of its resources  X74expended toward ICO development? In its application Comsat states Inmarsat has invested resources, management time, and technical and marketing expertise in the development of the ICO system. Merrill Lynch states in its independent valuation letter establishing the value of Inmarsat's inkind contributions: "Inmarsat has committed significant funds, management time  X4and professional and technical resources to the development of the InmarsatP system. These expenditures total about $49 million from 1991 to 1995, with the bulk incurred in 1993, 1994" 90*$$33"  X4and the first quarter of 1995 prior to the funding and startup of the Company."?:$z yOy' x #]\  PC(P#э#]\  PC(P#XLetter from Jeffrey Bennett, Managing Director, Merrill Lynch (London) to Dr. Ramin Khaden, Director of Finance and Administration, Inmarsat, dated October 5, 1994 at p. 4.(#? In addition, Merrill Lynch states Inmarsat has incurred a financing cost which reflects the fact that Inmarsat has incurred outofpocket costs prior to the formation of the ICO system, and imputes the financing cost at 9 percent per year. Based on the letter, this financing cost is estimated at $14.9 million. In sum, Merrill Lynch estimates the development cost, which reflects both the expenditures and financing costs, at $63.9 million. Merrill Lynch also  Xv4calculates two other alternative valuations for Inmarsat's contribution to ICO.R; v $z yOG ' x& #X\  P6G;(P#эX#X\  P6G;(P#The first valuation is based on a Net Present Value of the savings brought onto ICO as a result of Inmarsat's  x involvement. The second valuation is based on Merrill Lynch's value of Inmarsat's role as sponsor and  x creator of the project. According to Merrill Lynch, the NPV value is $61.1 million, and the sponsorship value is $70.0 million. The three alternative valuation estimates yield similar results.(#R In return for this "inkind" contribution, ICO issued 700,000 "Class B Shares" to Inmarsat. Comsat notes that this inkind contribution will be paid for in Class B shares in accordance with an  X14independent valuation by Merrill Lynch.<1$z yO'#]\  PC(P##X\  P6G;(P#эXComsat Application at 17.(#Ƣ Class B shares do not confer any right to vote or participate in any offering for additional "ordinary shares" in ICO, but may be converted into ordinary shares in the future. The valuation letter prepared by Merrill Lynch establishing the value of Inmarsat's inkind contributions to ICO concluded that appropriate compensation to Inmarsat for inkind contribution would be 700,000 Class B shares at their nominal value of  X 4$0.01 each.= $z yO' x #]\  PC(P##X\  P6G;(P#эXResponse of Comsat to the Request of Motorola for Additional Documents and Extension of Time to Reply at Exhibit 2.(#  X4 33.` ` Motorola, IDB, and ACISS argue that Inmarsat receipt of ICO equity in return for an inkind contribution paid for by Inmarsat endusers would be an unfair and pernicious  Xb4crosssubsidy.>\b $z {O' x #]\  PC(P##X\  P6G;(P#эX#C\  P6Q(P#Motorola Comments at 3335. See also Alliance for Competitive International Satellite Services Petition  {O' x to Deny at 3; IDB Mobile Communications Petition to Deny at 25; IDB ex parte submission, June 11, l996.(#Ƽ IDB argues Inmarsat included ICO development cost in its operating budgets from l991 to l995, forcing Inmarsat users to pay higher space segment utilization charges (SSUC's). IDB adds that while Inmarsat Signatories, including Comsat, received equity in ICO in return for these development expenditures, they forced their customers to foot the  X4bill.?$z {O#'#]\  PC(P#эX#]\  PC(P#IDB ex parte submission, June 11, l996.#o\  PC8XP#(# Motorola questions the validity of the valuation because Merrill Lynch acted as the"?0*$$33" exclusive investment banking advisor to Inmarsat and thus does not qualify as an independent valuator. Motorola also claims the valuation was too low because Inmarsat developed the ICO project for at least four years and the valuation should take into account a higher rate of return to Signatories.  X434.` ` We find that the 700,000 Class B shares would compensate Inmarsat for ICO  Xv4development costs.@v$z X4 x} ԍ#]\  PC(P#XContrary to IDB's assertions , Inmarsat Signatories did not receive equity shares in ICO in return for these development expenditures.(# Merrill Lynch states the shares would be priced at $100 in the initial equity placement. This would then yield a $70 million reimbursement to Inmarsat for its 700,000 Class B shares, with potential dilution to $65.4 million, according to the Merrill Lynch letter. We find this reimbursement of $65.4 million would appropriately reimburse Inmarsat for the development costs it incurred, estimated at $63.9 million, with regard to the startup of ICO. The Merrill Lynch valuation confirms Inmarsat expended resources on ICO  X 4development from approximately l991 to l995. A A$z yO' x/ #]\  PC(P##X\  P6G;(P#эXResponse of Comsat to the Request Motorola for Additional Documents and Extension of Time to Reply at Exhibit 2 page 4.(#  This timeframe is in keeping with IDB's assertions and yet Merrill Lynch considers the value of the Class B shares to compensate the expenditures and financing costs. Regarding Merrill Lynch's qualifications as a valuator, the plain meaning of the Assembly's desire for an independent valuation indicates a desire that the valuation not be performed internally at Inmarsat or by Inmarsat Signatories. We find no language in the principles of the Assembly that would disqualify Merrill Lynch. In addition, nothing in the record contravenes the valuation's finding that Inmarsat would be adequately compensated through Class B shares. The Assembly of Parties agreed there should be no crosssubsidization between Inmarsat and ICO. We find Inmarsat was adequately compensated for ICO development work through Class B shares, and therefore no cross subsidy resulted in connection with Inmarsat costs in ICO's development.  X4  X435.` `  Do U.S. ratepayers bear Comsat's investment expense in ICO? Depending on fluctuations in its ownership share in Inmarsat, Comsat must make capital contributions for  X4about 24 percent of Inmarsat's $150 million cash investment, or approximately $36 million.BX$z yO' x #X\  P6G;(P#э#X\  P6G;(P#XThe Inmarsat Convention and Operating Agreement provide that Signatory ownership in Inmarsat is based  xV on its usage of the satellite system. Signatories are required to make capital contributions to Inmarsat are based on ownership.(#Ǝ Comsat states that, pursuant to the Inmarsat Convention and Operating Agreement, Inmarsat will make capital calls on Signatories, in proportion to their investment shares in Inmarsat, to"|B0*$$33"  X4fund that amount.C$z yOy'#]\  PC(P##X\  P6G;(P#эXApplication at 26 citing, Inmarsat Convention, art. 5(1)(2); Operating Agreement, art. III (1)(2).(# Comsat adds that despite its opposition, the Inmarsat Council in March l995 reaffirmed its November l994 decision that Signatory capital invested in ICO by Inmarsat will be included in the capital on which compensation for use of Signatory capital is  X4calculated.DX$z {O'#]\  PC(P##X\  P6G;(P#эXId. at 27.(#Ɨ  X436.` ` MSUA contends that the net effect of the Inmarsat Council's decision is that Inmarsat's cost of investing in ICO is factored into its overall operational costs and becomes part of the basis upon which Inmarsat calculates the space segment utilization charge (SSUC) levied on Signatories. Inmarsat end users are concerned that, until ICO is in a position to generate revenues sufficient to provide a return to ICO investors, Inmarsat's SSUC charges  X 4will be artificially inflated.E $z yO'#]\  PC(P##X\  P6G;(P#эXMobile Satellite Users Association Comments at 1.(#Ƹ IDB notes Inmarsat has included its $150 million capital contribution to ICO in its capital base, which is entitled to earn a 17 percent rate of return. IDB argues the contribution is included in the SSUC, thus requiring all Inmarsat users to pay  X 4$25.5 million more per year.F z$z {O'#]\  PC(P#эX#]\  PC(P#IDB ex parte submission, June 11, l996.#o\  PC8XP#(# IDB argues the public interest requires a refund of this crosssubsidy. The Departments of Commerce and State state, "even if the actual financial impact of inclusion of Inmarsat's ICO capital contribution in the capital account on which a target rate of return is paid is small, it creates an opportunity which is not available to investors in  Xy4competing systems."Gy $z {O6'#]\  PC(P##X\  P6G;(P#эXSee joint letter from the U.S. Departments of Commerce and State, September 29, l995 at p. 3.(#  XK437.` ` Comsat states that projected dividends from ICO will be used by Inmarsat to  X44reduce SSUC future charges to Signatories.H4$z {O'#]\  PC(P#эX#]\  PC(P#Comsat ex parte submission dated August 7, l996.(#ƽ Comsat adds that if SSUC charges rise, the increase would not be by more than five percent. Comsat also argues that if a Signatory paid in 10 percent of the total SSUCs and had a 10 percent investment share, any increase in SSUC levels would increase its SSUC payments and its share of the SSUC surplus by the same amount. Comsat asserts the result should be a wash that is, there would be no change  X4in the Signatory's net space segment cost.I0 $z {O"'#]\  PC(P#э#]\  PC(P#XId. at 30.(#Ɨ Finally, Comsat states that because of the longterm basis for SSUC levels, the benefits of ICO's dividends will be received by users long" I0*$$33"  X4before ICO distributes any dividends to ICO shareholders.J$z {Oy'#]\  PC(P#эX#]\  PC(P#Comsat ex parte submission, June 25, l996.#o\  PC8XP#(#  X438.` ` We find that even a five percent increase in SSUCs resulting from Inmarsat end users to pay for the ICO investment would be inconsistent with the Assembly principle against crosssubsidization. There is no evidence of the Assembly's intent to permit such a crosssubsidy and we cannot extrapolate an exception to the Assembly principle. In addition, we note that if the SSUC cost is passed on to users as a capital expense but the dividends from the acquisition are not used to offset costs the net effect is that users bear the investment expense. Thus, we are not persuaded that Inmarsat end users are protected from bearing the expense of the ICO investment. Even though Inmarsat end users could be compensated for the cash investment in ICO via Class A share dividends from Inmarsat's 10% interest in ICO, there is no assurance that this will necessarily happen in the future. The result would then be a crosssubsidy by Inmarsat users for the ICO investments.  X 439.` ` This Commission cannot direct Inmarsat to take corrective action to protect rate payers' from bearing the costs of Inmarsat's investment in ICO. As an intergovernmental organization, Inmarsat is not subject to the Commission's jurisdiction under Title II of the  Xy4Communications Act. Comsat is, however, subject to Title II.nKyZ$z X4ԍ#X\  P6G;(P#X47 U.S.C. 741.(#n We find that the remedy posed by Comsat is appropriate in this situation. Comsat states that it "...is willing, if the Commission deems such action appropriate, to segregate any revenues and costs associated with Inmarsat's investment so as to insulate U.S. users of Comsat's Inmarsat services from  X4any financial impact."L $z yO'#]\  PC(P#эX#X\  P6G;(P#Comsat reply to Executive Branch comments at 6. (#Ʒ We will therefore require Comsat to insulate and exclude from its jurisdictional rate base all past and future investment and expenses related to ICO and to adjust its rate base if any part of its investment in ICO has already been attributed to the rate base. This will assure that future U.S. Inmarsat users do not bear the costs of Comsat's ICO investment.  X440.` `  Were the costs of Service Contracts reasonable and negotiated on an arms X|4length basis?MX|$z yO '#]\  PC(P#эX#]\  PC(P#As noted above, Comsat's costs associated with the Inmarsat investment in ICO must be accounted for separately and may not be included in Comsat's Inmarsat jurisdictional rate base. Thus, Comsat's costs associated with the services contract are not passed on to Comsat's jurisdictional ratepayers in the U.S.(#: The Departments of Commerce and State asked the Commission to determine whether the services contract was negotiated on an armslength basis in keeping with the"eM0*$$33"  X4Inmarsat Assembly principles.@N$z {Oy'#]\  PC(P##X\  P6G;(P#эXSee letter from the U.S. Departments of Commerce and State, September 29, l995.  See also letter from the U.S. Departments of Commerce and State, December 6, l995.(#@ Further, the Departments of Commerce and State have asked the Commission to determine whether the costs set forth in the ICO/Inmarsat services contract are "reasonable and cost based." Comsat states a services contract governs certain business arrangements between Inmarsat and ICO. Pursuant to this service contract Inmarsat has  X4provided support services to ICO for three years._O"$z yOw'#]\  PC(P##X\  P6G;(P#эXApplication at 20. On June 7, l995 Comsat submitted the services contract for the record, Response of Comsat to the Request Materially for Additional Documents and Extension of Time to Reply at Exhibit 1. The services contract identifies the following categories of services ICO may obtain from Inmarsat: accounting; business and financial planning; legal; procurement; purchasing; contracts management/administration; regional program (market research); conference services; corporate communications (advertising and public relations); human resources support services; information technology support; satellite support programs (monitor contracts, operate satellites develop TT&C networks); communications engineering and system design network operations; spectrum, standards and special projects; system engineering and acquisition support; and information planning and marketing support associated with aeronautical, land mobile, and maritime services. (#_ The contract was recently extended by the Inmarsat Council for one year. The Inmarsat Assembly sought assurance that the services contract be negotiated at arm's length, ensuring no crosssubsidy of ICO by Inmarsat.  XH441.` ` The underlying purpose for the principle that the services contract be negotiated at arms length and for reasonable costs is to ensure that Inmarsat does not subsidize ICO operational costs and that ICO does not unduly benefit from Inmarsat's status as an  X 4intergovernmental organization.P" $z {On'#]\  PC(P##X\  P6G;(P#эXSee letter from the U.S. Departments of Commerce and State, September 29, l995 (The Departments of Commerce and State believe that the Assembly principle of arm's length negotiation of contracts is an important element in ensuring no crosssubsidization between Inmarsat and the affiliate and in achieving the desired level of separation between the two entities).(# In its application Comsat states: XThe Inmarsat Council has stated that all benefits provided under the services contract relating to equipment, facilities, services and other common activities, will be negotiated at arm's length with representatives of the Affiliate's board and will be paid for by the Affiliate on a fully allocated costs basis plus a reasonable fee (profit).   XK442.` ` The executed contract has been submitted as part of the record in this proceeding. The contract provides for payments by ICO of $13.2 million over a threeyear period ending April 30, 1998. Actual payments through this period are expected to total"P0*$$33"  X4$14.4 million, with the bulk of expenditures in 1995 and decreasing each year.Q$z Xy4ԍ#X\  P6G;(P#XInmarsat Council document, February 4, 1998.(#ƌ Under the contract, Inmarsat charges ICO as services are rendered on a fully allocated basis plus an  X4agreed upon fee.Ry$z yO' xI #X\  P6G;(P#эXSee Response of Comsat to the Request of Motorola for Additional Documents and Extension of Time to Reply, Services Contract at Exhibit 1, pp. 56.(# The labor schedules appended to the services contract are based on fully  X4costed average labor rates.S$z {O= '#]\  PC(P##X\  P6G;(P#эXId. at Exhibit 1, Schedule 4.(#ƫ Based on this methodology, for work done under the contract, Inmarsat would charge ICO the fully costed labor rate including a fee equal to or higher than Inmarsat's rate of compensation for use of Signatory capital. As a result, we are satisfied that the cost of the services contract is costbased, reasonable, and provides adequate compensation for Inmarsat's fully distributed costs.  X1443.` ` Motorola contends that the services contract was not negotiated on an arm'slength basis. Motorola asserts that there is a substantial question whether the contract was negotiated at armslength because the same individual was simultaneously Director General of  X 4Inmarsat and CEO of the ICO affiliate.T c$z yO'#]\  PC(P##X\  P6G;(P##X\  P6G;(P#эXMotorola Petition to Deny at 35.(# Comsat disputes this allegation, claiming the  X 4Director General played no role in the negotiations.U $z yOy'#]\  PC(P##X\  P6G;(P#эXComsat Response at 12.(#Ɲ The Inmarsat Director General became ICO's CEO but never held both positions simultaneously. He did, however, serve on ICO's board as an Inmarsat representative when he was Director General during part of the period when the services contract was negotiated between ICO and Inmarsat. Also, his transition from Director General to ICO CEO occurred when the contract was being negotiated. The contract was executed when he was CEO. We find these interlocking relationships  XK4inconsistent with the concept of armslength separation between ICO and Inmarsat.8VK $z X4Ѝ#]\  PC(P#XLetter from Alan Auckenthaler, Inmarsat General Counsel to Jack Gleason, Director, International Policy Division, National Telecommunications and Information Administration (NTIA) dated June 14, 1995. The Inmarsat Director General served as Inmarsat representative on the ICO board at its first meeting on January 24, 1995. The service contract negotiations commenced on February 14 of that year. The Director General left Inmarsat on March 31 and assumed the position as CEO on April 1. The service contract was executed on April 14. Inmarsat informed Comsat that the Director General "distanced  {OP!'himself" from the negotiations and gave "no direction" to Inmarsat negotiators. Id.(#8 The terms of the services contract, however, make it unnecessary to resolve what amounts to a factual dispute because we have found above that the terms require adequate compensation for Inmarsat's fully distributed costs. "V0*$$33"Ԍ X4ԙ44.` ` Motorola and ACISS generally contend that a continuing ICOInmarsat relationship is anticompetitive and that the services agreement is indicative of such a relationship. The issue of whether ICO is gaining competitive advantage as a result of these services need not, however, be resolved here. We will be in a position to review this issue further, if necessary, when ICO seeks to enter the U.S. market. In considering applications from ICO or its U.S. distributors to serve the U.S. market, we will assess the effect on competition in the U.S. market of any continuing InmarsatICO relationship under the  X_4standards set forth in our recent DISCO II Order implementing the WTO Agreement that went  XJ4into effect on February 9, 1998. The DISCO II Order set out a variety of factors we would consider in assessing how the continuing relationship between Inmarsat and ICO may affect  X 4competition in the U.S. market.W $z {O '#X\  P6G;(P#э#]\  PC(P#XDISCO II Order, at para. 136.(#ƪ  X 445.` ` Should the Commission require a refund to Comsat customers? IDB argues a refund is the only meaningful redress for Inmarsat ratepayers that have been forced to  X 4subsidize ICO.X Z$z {O'#]\  PC(P#эX#]\  PC(P#Id.X` ` (#` ơ IDB asserts a lengthy rate proceeding is not necessary because the Commission has the authority under Section 214(c) of the Communications Act, 47 U.S.C.  214(c), to condition an authorization upon a refund. IDB believes prospective returns on Class B shares do not adequately compensate users because users would have to bear the risk of ICO success and ICO will not pay dividends for at least five years. Finally, IDB asserts due process would not bar a refund here because Comsat has had an opportunity to present its  X84arguments in the record of this proceeding.Y8$z {O'#]\  PC(P#эX#]\  PC(P#Id.X` ` #o\  PC8XP#(#` Comsat argues that, because its ownership and usage levels are both approximately 25 percent, changes in SSUCs have no significant impact  X 4on Comsat's costs. Z ~$z {O9'#]\  PC(P#эX#]\  PC(P#Id. at 2 citing, Direct Access Order, 97 F.C.C.2d 296, 31112 (l984).  X#o\  PC8XP#(#   Comsat counters that IDB offers no authority for the proposition that the Commission has power to order refunds under Section 214 of the Communications Act. Comsat asserts it is anticipated that projected dividends from ICO will be reflected in Inmarsat's computation of future space segment utilization charges, thereby reducing  X4Inmarsat's revenue requirements, at a later date.)[$z Xo 4 x ԍ#]\  PC(P#XId. citing Communications Act  204, 47 U.S.C.  204. See also Comsat ex parte submission dated August  yOX!'7, 1996.#o\  PC8XP#(#)  X446.` ` We do not find a basis in the record to require Comsat to make a refund to its Inmarsat ratepayers. We have found the Class B shares compensate Inmarsat for"i [0*$$33" developmental costs and we are requiring that Comsat not charge U.S. ratepayers for its share of Inmarsat's investment in ICO. Nothing in this record leads us to conclude that a refund is required. IDB has not demonstrated a quantifiable impact on Comsat's ratepayers. We find that a more appropriate means of considering whether any refund is required, if one is required at all, is through other administrative processes, such as through a complaint filed pursuant to Section 208 of the Communications Act.  X_4  C. Compliance with the Maritime Satellite Act ă  X1447.` ` Motorola and IDB contend that Comsat's participation in ICO is inconsistent  X 4with our InmarsatP Declaratory Ruling and barred by the Maritime Satellite Act. The Maritime Satellite Act makes Comsat the U.S. Signatory and sole operating entity in Inmarsat.  X 4As discussed below, the Commission concluded in our 1994 InmarsatP Declaratory Ruling that Comsat could not be authorized to be the exclusive provider of ICO services in the United States by virtue of its exclusive status within Inmarsat under the Maritime Satellite Act. The Commission said, however, that nonexclusive Comsat participation in ICO and provision of ICO services could be authorized consistent with the Act. We find here the ICO structure provides opportunity for other U.S. companies to invest in and provide ICO services within the United States. As a result, Comsat's participation will be nonexclusive and may be authorized consistent with the Maritime Satellite Act.  X!448.` ` In the InmarsatP Declaratory Ruling, we identified two tests by which we could consider petitioners' arguments: (1) the "ancillary and supportive" test by which we have evaluated the scope of Comsat's authority under the Maritime Satellite Act to provide nonmaritime services via Inmarsat and (2) the "not inconsistent" test, by which we have  X4considered Comsat's authority to engage in nonINTELSAT/Inmarsat activities in general.\$z X@4ԍ#X\  P6G;(P#XInmarsat P Declaratory Ruling, 9 FCC Rcd at 77047710.(#Ɯ  X449.` ` The Commission has found Comsat's mandate under the Maritime Satellite Act to be limited that is, the Act confers upon Comsat an exclusive arrangement with Inmarsat  Xk4only relating to maritime satellite services.*]$ky$z {O'#]\  PC(P#э#X\  P6G;(P#XInmarsatP Declaratory Ruling, 9 FCC Rcd at 7703. The Commission emphasized that the premise of these decisions has been that competition is to be favored and restrictions on competition disfavored, and that exclusive dealing arrangements with Inmarsat conferred upon Comsat by the Maritime Satellite  {O 'Act are a departure from purely competitive principles. Id. at 77037704. (#* Also, the Commission held that while Comsat's provision of Inmarsat services "on a monopoly basis" is limited to maritime services, it may authorize Comsat to provide whatever other services are ancillary and supportive of the"=e]0*$$33"  X4provision of maritime services.c^8 $z {Oy'#]\  PC(P#э#X\  P6G;(P#XAeronautical Services Order II, 4 FCC Rcd 6072 at 60846087 (1989); Inmarsat P Declaratory Ruling 9 FCC Rcd at 7704. The ancillary and supportive test was applied in several proceedings prior to the InmarsatP Declaratory Ruling, in which the Commission addressed the extent of Comsat's mandate  {O'under the Maritime Satellite Act. In its Aeronautical Services Order I, the Commission denied Comsat applications to provide aeronautical services on the basis, in part, that Maritime Satellite Act limits Comsat's monopoly role in providing Inmarsat space segment to provision of international maritime  {O-'services. See Provision of Aeronautical Services in the Inmarsat System, 2 FCC Rcd. 390 (1987). In  {O'Aeronautical Services Order II, the Commission reaffirmed our prior conclusion that Comsat's only express authorization under the Maritime Satellite Act is limited to maritime services, but found that  {O '"ancillary and supportive" nonmaritime services are not expressly prohibited by the Act. Aeronautical  {OS 'Services Order II, 4 FCC Rcd. 6087 (1989). Under this standard it subsequently authorized Comsat to  {O 'provide aeronautical services [See Authorization, 4 FCC Rcd 7176 (1989)] and international land mobile  {O 'services [See Authorization, 8 FCC Rcd 638 (1993)] via Inmarsat 2 generation satellites. (#c In the InmarsatP Declaratory Ruling, the Commission  X4found that Comsat's participation in ICO`_z $z {Od'#]\  PC(P#э#X\  P6G;(P#XInmarsatP Declaratory Ruling at 9 FCC Rcd 77077709. The Commission found that: (1) the then proposed Inmarsat ICO separation appeared to be inconsistent with any suggestion if that Inmarsat maritime service would benefit from ICO especially because Comsat viewed the two services as competitive; (2) the sheer size of the InmarsatP project made an "ancillary" finding impossible; (3) the service would be offered over frequencies, ground facilities, and space stations distinct from Inmarsat's maritime frequencies and facilities; and (4) Comsat stated that the maritime aspects of service did not  yO'justify the expected huge outlays for the system.#X\  P6G;(P#(#` "would not be ancillary to and supportive of" maritime services. Nothing in the record in this proceeding changes this finding. The  X4Commission held in a 1980 Comsat Study and reiterated in our 1994 InmarsatP Declaratory  X4Ruling that Comsat may participate in nonINTELSAT/Inmarsat activities that "...are not inconsistent with, and do not hinder or interfere with the [Communication Satellite] Acts'  X|4purpose and objectives."`| 0 {O7'#]\  PC(P#э#X\  P6G;(P#XComsat Study, 77 FCC 2d 564 at 615 (1980);  InmarsatP Declaratory Ruling at 7719. .(# In its 1994 Inmarsat Declaratory Ruling, the Commission held out  Xg4the possibility that we might approve Comsat's participation under the Comsat Study "not inconsistent" test if ICO were structured in such a way as to qualify as a nonInmarsat line of  X;4business within the sense intended in the Comsat Study. The Commission said that a finding that we may approve Comsat's participation in ICO under the "not inconsistent" test depended on whether the ICO venture, viewed as a whole, effectively extends Comsat's statutory  X 4exclusive relationship with Inmarsata $z {OE '#]\  PC(P##X\  P6G;(P#эXInmarsatP Declaratory Ruling at 9 FCC Rcd. 77117712. (#. If Comsat's participation in ICO is found not to be exclusive, then we could authorize such participation consistent with the Maritime Satellite Act. The Commission determined at that time that the details of the ICO structure were not" .a0*$$33 "  X4then sufficiently clear from the record to reach these conclusions.pb$z Xy4ԍ#X\  P6G;(P#XId at 7713(#p  X450.` ` Comsat maintains that the ICO structure does not extend Comsat's exclusive relationship with Inmarsat. Comsat states that ICO provides an opportunity for nonsignatories to participate in the venture as strategic investors or partners, multiple wholesalers,  X4and/or syndicated partners.cy$z yO'#]\  PC(P##X\  P6G;(P#эXApplication at 23.(#ƙ The ICO board of directors may approve participation of strategic investors or partners that bring particular expertise or inkind contributions to the venture. Potential strategic investors include satellite manufacturers, launch vehicle suppliers, earth station manufacturers, and handset producers, according to Comsat. Comsat further states that the board of directors may appoint multiple service wholesalers where such an arrangement is required by "...any applicable national law or competent national regulatory authority...", and may add additional service wholesaler awards "in certain markets on a  X 4national or regional basis as it deems necessary to meet significant strategic requirements."d $z {O'#]\  PC(P##X\  P6G;(P#эXId. at 24.(#Ɨ Comsat emphasizes that service wholesalers will be pivotal to the success of ICO in their role as arrangers of all aspects of ICO service. Comsat also points out that a wholesaler may syndicate its rights to other entities as long as the wholesaler remains responsible to ICO for  X4the obligations of syndicate members in performing the service wholesaler role.e$z {O'#]\  PC(P##X\  P6G;(P#эXId. at 25.(#Ɨ Comsat concludes that the Commission's "nonexclusivity" requirement is satisfied by the variety of ways nonsignatories may participate in ICO.  X4451.` ` In response, Motorola and IDB allege that aspects of the ICO structure do, in fact, extend Comsat's statutory exclusive relationship: (1) Comsat, as the U.S. Signatory, is the only U.S. entity guaranteed the right to invest directly and indirectly in ICO, participate in its management, be a service wholesaler and/or retailer in the United States; (2) Inmarsat, through Comsat and other Signatories, will be the exclusive wholesaler of ICO maritime and  X4aeronautical services provided through nonhandheld terminals;f-$z yO'#]\  PC(P##X\  P6G;(P#эXMotorola Petition to Deny at 16; IDB Petition to Deny at 79.(# (3) Comsat and other  X4Signatories maintain financial and voting control of Inmarsat;g$z yO"'#]\  PC(P#э#X\  P6G;(P#XMotorola Petition to Deny at 1115; IDB Petition to Deny at 1617.(# (4) the 13 member ICO"M g0*$$335"  X4board of directors is comprised solely of Inmarsat Signatories and their representatives;h$z yOy'#]\  PC(P##X\  P6G;(P#эXMotorola Petition to Deny at 1112.(#ƪ (5) the directors determine whether and the conditions under which nonsignatories can invest in  X4ICO and provide service as wholesalers on a national and regional basis;iX$z yO'#]\  PC(P##X\  P6G;(P#эXMotorola Petition to Deny at 9; IDB Petition to Deny at 1517.(# (6) under the services contract Inmarsat is to perform many functions that a truly independent company  X4would perform itself;j$z yO= '#]\  PC(P##X\  P6G;(P#эXMotorola Petition to Deny at 1214.(#ƪ (7) Comsat and Signatories have the right to receive inkind equity in  X4ICO through Inmarsat;kx$z yO '#]\  PC(P##X\  P6G;(P#эXMotorola Petition to Deny at 8.(#Ʀ and (8) Comsat, other Signatories and ICO have the exclusive  Xv4privilege of using Inmarsat's political connections, name, and logo.lv$z yO/'#]\  PC(P##X\  P6G;(P#эXMotorola Petition to Deny at 1718.(#ƪ  XH452.` ` In view of these factors, Motorola and IDB contend that the ICO structure extends Comsat's exclusive relationship with Inmarsat, and therefore, the Commission cannot condone the investment under the "not inconsistent with the Maritime Satellite Act" standard.  X 4They are not persuaded by Comsat's contention that our InmarsatP Declaratory Ruling is satisfied by the various means by which nonsignatories have an opportunity to invest and participate in the provision of ICO services. The petitioners contend that those opportunities are second class, because nonsignatories would not have the same rights as Signatories, and are illusory, because Inmarsat and Signatories control participation of nonsignatories in  X4ICO.m$z yO'#]\  PC(P##X\  P6G;(P#эXIDB Petition to Deny at 1618.(#ƥ Their point is that only Signatories are guaranteed investment and other participation rights, and Comsat is the only U.S. entity with such guaranteed rights, solely because of its status as the U.S. Signatory under the Maritime Satellite Act. Finally, if the Commission finds that Comsat has not extended its statutory exclusive status within Inmarsat notwithstanding the above factors, IDB urges the Commission to require Comsat to commit in writing that it will not oppose, and will support, a Commission ruling opening up wholesaler status to all qualified U.S. entities. IDB adds Comsat should further commit that it will not oppose the subsequent applications of any qualified entity to become a national service  X4wholesaler for ICO handheld services in the United States.n( $z yO!'#]\  PC(P##X\  P6G;(P##X\  P6G;(P##X\  P6G;(P#эXIDB Petition to Deny at 13.(#  X453.` ` In response, Comsat emphasizes that ICO, as a private for profit corporation," n0*$$33" possesses none of Inmarsat's privileges and immunities and has a set of owners diverging  X4substantially from Inmarsat.o$z yOb' x #]\  PC(P##X\  P6G;(P#эXComsat points out that only 38 of 76 Signatories chose to invest in ICO with the British, French,  xc Norwegian, and Canadian Signatories being notably absent (accounting for second, third, fifth, and tenth  x rank investment share in Inmarsat, respectively). Comsat adds, some major Inmarsat signatories are  x investing in competing systems (France Telcom, Globalstar, Telcom Italia, Iridium, Teleglobe, Odyssey). Comsat Response to Petitions to Deny and Comments (Comsat Response) at 1314.(#ƴ Comsat further argues that the mere fact that Inmarsat is an  X4investor in ICO does not make the structure impermissible under the InmarsatP Declaratory  X4Ruling. Comsat states that Inmarsat's involvement in ICO was well known to the  X4Commission prior to its InmarsatP Declaratory Ruling. Comsat maintains that provisions for nonsignatory investment of up to 30 percent of ICO voting shares and signatory syndication of ownership shares are significant and already being implemented (e.g., Hughes' investment in ICO; Japan's KDD syndication of its initial investment in ICO to 20 other Japanese companies; joint ventures in Korea and Thailand) and other ICO strategic investors and  X74syndication arrangements are being considered.p7x$z yO`'#]\  PC(P##X\  P6G;(P#эXComsat Response at 1516.(#ơ Comsat suggests that ICO board approval of new investors and syndication arrangements are similar to requirements imposed by its potential U.S. licensed competitors. Further, Comsat disputes petitioners contentions that nonsignatory investors will be "second class citizens" incapable of participating in ICO governance. Comsat states that nonsignatory investors will have the same rights of ownership as signatory investors commensurate with their investment and representation on  X 4the board for a sufficient size investment.q $z yOf'#]\  PC(P##X\  P6G;(P#эXComsat Response at 16.(#Ɲ  X454.` ` Additionally, Comsat disputes petitioners contentions that provisions in ICO's structure for nonsignatories to become national and regional service wholesalers are illusory. Comsat states that nonsignatory wholesalers will be chosen "through a process created by the [ICO] board of directors or a process required by any applicable law or competent national or  X#4regional regulatory authority".r#$z yOl'#]\  PC(P##X\  P6G;(P#эXComsat Response at 1819(#Ɵ Comsat contends that the services contract does not compromise ICO's status as an independent company because it is a shortterm arrangement utilizing Inmarsat's experience and expertise to get ICO up and running until it is a fully  X4functioning independent company.s( $z yO!'#]\  PC(P##X\  P6G;(P#эX#X\  P6G;(P#Comsat Response at 20.#X\  P6G;(P# (# Comsat points out that ICO's competitors all have market advantages and disadvantages and that ICO must comply with a wide array of public policy principles established by the Inmarsat Assembly that are not imposed on its" s0*$$335"  X4competitors.t$z yOy'#]\  PC(P##X\  P6G;(P#эXComsat Response at 21.(#Ɲ Finally, Comsat disputes petitioners' claim that there is no guarantee that the competitive principles imbedded in the ICO structure will be realized arguing that they already are taking effect in the short time ICO has been in existence and that Comsat participation in ICO should not be barred on speculative assumptions that these principles will not be satisfied in the future.  Xv455.` ` Our principal inquiry on this issue turns on whether Comsat's exclusive status  X_4as the U.S. participant in regard to Inmarsat is replicated in ICO. In the InmarsatP  XJ4Declaratory Ruling, the Commission made some "observations" about how it would determine  X54whether the ICO structure extends Comsat's statutory exclusive relationship with Inmarsat.u5X$z {O> '#]\  PC(P##X\  P6G;(P#эXInmarsatP Declaratory Ruling, at 9 FCC Rcd. 7712.(# First, the Commission expressed interest in real world, competitive consequences, not mere matters of form. It said that it would neither apply common law "piercing the veil" or "alter ego" standards nor would it rely on corporate relationships, controlling interests, interlocking  X 4directorates or use of logos and trademarks per se.iv $z Xt4ԍ#X\  P6G;(P#XId.(#i The Commission also stated it would  X 4"examine not only who participates, but who is not permitted to do so"iw $z X4ԍ#X\  P6G;(P#XId.(#i. In this regard, it noted that substantial investment by Inmarsat Signatories would not necessarily fail the test as long as investment in the affiliate were "open to the participation of a suitable crosssection of nonsignatory telecommunications entities and other investors. The Commission further stated that if participation in the new venture were restricted to Inmarsat and its signatories, it would  XO4be impossible for us to conclude that Comsat was participating in a nonInmarsat venture."ixOL$z XL4ԍ#X\  P6G;(P#XId.(#i Next, the Commission stressed that the competitive focus of this test required an examination of the affiliate's operational principles as well as its finances, to see whether any special  X 4privilege is directly or indirectly attached to signatory status per se.iy $z X4ԍ#X\  P6G;(P#XId.(#i  X456.` ` It was apparent from the record at the time the Commission issued the  X4Inmarsat P Declaratory Ruling, that Inmarsat and its Signatories would likely have controlling interests in the affiliate at the outset if not indefinitely. In considering what might be permissible under domestic law, our focus was on whether the ICO organizational structure" y0*$$339" would provide for and result in meaningful participation in ICO by U.S. companies other than Comsat. The record before us shows that there exists such a structure and that U.S. participation in ICO other than Comsat in fact already exists.  X457.` ` The original ICO structure provides for up to 30 percent nonSignatory investment in ICO and for the provision of service in national markets by nonSignatory wholesalers and retailers. ICO has announced that in order to raise necessary capital before a service launch in the year 2000, the company is looking not only to current investors but also  XH4to public and nonstrategic investors.zH$z yO '#]\  PC(P##X\  P6G;(P#эX"ICO Magazine", Spring 1997, page 8.(#ƫ Arrangements for nonSignatory investment and provision of service by U.S. companies have already been made. Hughes has entered into a series of arrangements with ICO as: (1) manufacturer of ICO's satellites; (2) a strategic investor; and (3) a possible supplier of launch services. Most important to our analysis is that Hughes has the option to be a supplier of ICO services within the United States on a national  X 4wholesaler basis.{Z X$z yO'#]\  PC(P##X\  P6G;(P#эXHughes Comments at 2. Hughes states that cumulative manufacture and launch contract will be worth over $2 billion and its investment will be about $99 million the second largest investment tier in ICO  {On'following Inmarsat's investment.  Id.(#Ɯ Hughes stated in its initial comments that it intended to exercise its right  X 4to be a nonexclusive U.S. nationwide service wholesaler of ICO services|z z$z {O'#]\  PC(P##X\  P6G;(P#эXId. See also letter from Gary M. Epstein, Counsel to Hughes Space and Communications International to Donald H. Gips, Chief International Bureau dated September 27, 1996. See also letter from Howard D. Polsky, Comsat Corporation to Donald H. Gips, Chief International Bureau, dated September 6, 1996, stating that ICO's planned distribution arrangements for its handheld service in the United States, including the roles of nonexclusive national or regional wholesalers, continue to be as described in Comsat's application and that ICO's planned distribution arrangements call for two U.S. national service wholesalers.(# in the United States. In a letter filed with the Commission in different proceedings ICO stated that both  X4Hughes and Comsat intend to provide ICO handheld services in the United States.Z}X $z yO'#]\  PC(P#э#X\  P6G;(P#XLetter from Cheryl A. Tritt, Counsel to ICO Global Communications Inc., to Acting Secretary, Federal Communications Commission, in OET Docket No. 9518 and IB Docket No. 96111, dated October 18, 1996.(#Z Hughes is continuing to consider a role as distributor of ICO services although it has not made a final  Xb4decision.~b$z X 4ԍ#X\  P6G;(P#XSee Gary M. Epstein letter to Donald H. Gips, dated September 27, 1996.(#ƭ  X4458.` ` More recently, as part of a settlement in patent litigation between TRW and ICO, TRW announced that it is acquiring an equity interest in ICO of 1.5 million shares or"~0*$$33"  X4approximately seven percent of ICO's current outstanding shares.$z {Oy'#]\  PC(P#э#]\  PC(P#XSee TRW Public news Release "TRW to Integrate Odyssey Interests with ICO Global Communications."(# It is anticipated TRW will provide certain engineering expertise to ICO, and the companies will grant each other cross licenses for their respective patents relating to global telecommunications systems. Additionally, TRW will receive certain distribution rights in the United States for ICO products and services.  Xv459.` ` In view of the rights acquired by Hughes and TRW to invest in ICO and be service providers in the U.S. market, we find that there is meaningful opportunity for participation in ICO by a U.S. company other than Comsat in terms of both investment and provision of service. Any approval of the provision of ICO service would be conditioned  X 4upon the opportunity of nonSignatory participation in ICO by other U.S. companies. Z$z yO% ' x #]\  PC(P##X\  P6G;(P#эXComsat and Hughes will later have to file appropriate applications to provide ICO services in the United States.(# The fact that the ICO board must approve nonSignatory participation as investor or wholesaler or retailer roles does not change our analysis. It will be in ICO's interest to assure that its provision of service in the United States is consistent with the condition we are imposing to assure nonComsat participation. To the extent that the ICO requires a declaration by this agency that "applicable law or competent national or regional regulatory authority" requires nonSignatory investors and wholesalers from the United States, ICO should consider this order such a declaration. We will not authorize Comsat as ICO's sole U.S. investor and service wholesaler. We will not extend Comsat's Inmarsat exclusivity beyond what is  XK4permitted by the Maritime Satellite Act.K$z yO'#]\  PC(P##X\  P6G;(P#эXWe will not establish a regulatory process by which this agency substitutes itself for the ICO board in determining who should participate as investors and wholesalers in the United States. Selection of partners is a business decision. Nor will we require more than one nonsignatory investor or wholesaler in the United States although we encourage more than one because the benefits of ICO services to the U.S. public are more likely to be realized with greater competition. (#  yO'#X\  P6G;(P#Ѯ  X460.` ` There is, however, one aspect of the current ICO structure in which Comsat has  X4special exclusive privileges because of its Signatory status that runs afoul of our InmarsatP  X4Declaratory Ruling. This involves Inmarsat's exclusive wholesale rights for maritime and  X4aeronautical services through nonhandheld terminals. The Commission said in the Inmarsat X4P Declaratory Ruling that any ICO venture "structured so as to guarantee that Comsat, strictly by virtue of its status as an Inmarsat Signatory, exercises exclusive control over the availability of space segment, would appear on its face to constitute extension of Comsat's"* 0*$$33"  X4exclusive status within Inmarsat."$z {Oy'#]\  PC(P##X\  P6G;(P#эXInmarsatP Declaratory Ruling at 9 FCC Rcd. 7712.(#ƾ We understand that Inmarsat either will exercise its exclusive wholesale right through its Signatories that is, its Signatories would provide these services under existing Inmarsat arrangements, or Inmarsat will exercise it in its own name  X4once Inmarsat is privatized.MZ$z X4Ѝ#X\  P6G;(P#XInmarsat is moving to restructure itself into a private corporation. Under its restructuring plan, Inmarsat will transfer its assets to a newly created private company. Existing Inmarsat Signatories will be allotted shares in proportion to their investment shares in Inmarsat. Upon allotment of shares in the new company, Signatory investment shares in Inmarsat would be cancelled. The newly created company will own and operate the satellites previously owned and operated by Inmarsat. A residual intergovernmental organization (IGO) consisting of a small directorate and an Assembly of Parties will be created to ensure that the new company meets certain public service obligations as defined under a public services agreement that the company will make with the IGO. Those obligations will include the  {O' 'continued provision of Global Maritime Distress and Safety System (GMDSS) services. See Report of the Inmarsat Assembly, Twelfth Session, April 2024, 1998.(#M As a result, Comsat or Inmarsat would exercise an exclusive right to provide nonhandheld maritime and aeronautical services over ICO space segment in the United States. We cannot find that Comsat's participation in ICO is nonexclusive if Inmarsat is given exclusive dominion over ICO space segment for the provision of particular  X_4services._ $z {O%'#]\  PC(P##X\  P6G;(P#эXIn concluding in the InmarsatP Declaratory Ruling that InmarsatP could not satisfy the "ancillary and supportive" test that we apply to Comsat's provision of nonmaritime services through Inmarsat, the Commission did not distinguish between maritime and aeronautical services. The Commission recognized that Inmarsat may benefit from ventures that are in no way "ancillary" to its maritime services; however, its "evolution" into a wholesaler of space segment on a nonmaritime system, no matter how beneficial, would clearly be a brand new business. (# It appears that neither Hughes, TRW, nor any other U.S. service provider that may be named by ICO would be able to provide nonhandheld maritime or aeronautical services in the United States under the current ICO structure if Comsat exercised an exclusive right to distribute nonhandheld services. Accordingly, as a condition to our approval of Comsat's participation in ICO, we will not permit Comsat (through Inmarsat) to be the sole U.S. provider of nonhandheld maritime or aeronautical service authorized under our jurisdiction via ICO space segment. Likewise, we would be concerned if, upon privatization, Inmarsat exercises exclusive wholesale rights for nonhandheld maritime and aeronautical ICO services in the U.S. market. We would expect to address this issue when considering any application Inmarsat may file to provide such services in the United States.  Xb461.` ` Under these circumstances and subject to the conditions described herein, we conclude that Comsat's participation in ICO is not exclusive. We further find that such participation is neither "inconsistent with" nor would it "hinder or interfere with" the purpose and objectives of the Maritime Satellite Act and is therefore not barred by the Act. There is"0*$$33" nothing in the record to suggest that Comsat will not be able to fulfill its Inmarsat financial obligations as a result of its ICO participation. Comsat's ability to participate in nonINTELSAT/Inmarsat activities as long as it fulfills its obligations to these organizations is  X4well established.$z {O4'#X\  P6G;(P#э#X\  P6G;(P#XComsat Study at 77 FCC 2d 570. (#Ƭ The "notinconsistent" test is therefore satisfied.  X4*i D. Other Issues ă  X_462.` ` Future Applications: Motorola, ACISS, and IDB generally contend that the continuing InmarsatICO relationship is anticompetitive and gives ICO unfair advantages in the market by virtue of its connections with an intergovernmental organization. Motorola further asks that we specify that this order does not authorize ICO or anyone else to provide ICO services in the United States and that conditions similar to those Motorola requests in this order be included in any future orders and licenses authorizing ICO service in the United States. Motorola also asks that review of any application to provide ICO services consider whether: (a) all global MSS systems have access to spectrum globally; (2) ownership of ICO is broad and open; and (3) the applicant would inappropriately bundle ICO and Inmarsat  X4services.Z$z X4Ѝ#X\  P6G;(P#XLetter from Alfred Mamlet to Secretary, Federal Communications Commission dated January 9, 1997 (Motorola Ex Parte presentation).(# Comsat responds that there is no need to define now what issues will be relevant to applications that may not be filed for two years or more, although it agrees that it would be  Xb4appropriate for the Commission to consider compliance with Inmarsat Assembly principles.b$z X4 x ԍ#X\  P6G;(P#XLetter from Neil Kilminster, Comsat Corporation, to Secretary, Federal Communications Commission, dated January 29, 1997. (Comsat Ex Parte presentation).(#  X4463.` ` We have stated above that grant of this application does not authorize Comsat or any other entity to provide ICO services in the United States. Applications to provide ICO  X4services will be considered pursuant to the standards adopted in our DISCO II Order.L$z {O'#X\  P6G;(P#X` hp x (#%'0*,.8135@8: