Legal Legacies: Milestones In Satellite History – From our Archive
The Federal Communications Commission (FCC) today voted to repeal net neutrality rules that had been set in place by the previous administration. While it’s unclear what the wider ramifications of this major decision will be, some have lauded the decision as a potential boon for satellite and other Internet Service Providers (ISPs). Here, we take a look back at some of the biggest historical milestones that have shaped the commercial satellite industry thus far. This article was originally published in the March 2003 issue of Via Satellite.
Welcome to Washington DC. This is where one sight-sees. The monuments, the White House, the Capitol, the Smithsonian, and in the spring, the cherry blossoms. It’s where our President works, and where our Supreme Court Justices ponder.
Washington, DC, is also where 40,000 lawyers work. Among them, an estimated 3,000 work frequently on communications matters. Many have spent a considerable number of years encouraging the growth of the satellite communications industry.
Del Smith, senior telecommunications counsel at Jones, Day, Reavis and Pogue provides one perspective on the changes that have taken place in the legal profession. “What began as a governmental, regulatory practice has become primarily a private sector-based business practice,” he says.
Via Satellite decided to poll a council of DC lawyers, to rehash history. We begin with scenes from the late 1950s and early 1960s.
The Political Beginning
During President Dwight D. Eisenhower’s farewell State of the Union address on January 12, 1961, he relaxed and at last told U.S. citizens, “The ‘bomber gap’ of several years ago was always a fiction, and the ‘missile gap’ shows every sign of being the same.”
He was responding, of course, to constant accusations from political foes who had painted Eisenhower as a president “asleep” in matters of defense, science and outer space. His foes invented the word “gap” and persuaded the news media to use it with frequency. “Gap” implied a wide lead supposedly held by the Soviets.
The public was still haunted by the Soviets’ first two Sputnik overflights of the U.S. on October 4 and November 3, 1957. Would these frightening satellites turn outer space into a new battlefield?
Ike’s “Stalking Horse”
What our former five-star general could not publicly talk about before 1961 was his “stalking horse” strategy, a multi-faceted reconnaissance program that assured Eisenhower that the dastardly “gaps” were myths.
As early as 1954, the U.S. Air Force had been flying “weather balloons,” equipped with automatic onboard cameras, from an air base in Germany across the wide expanse of the former Soviet Union to the Pacific Ocean, for retrieval from water by the United States.
By 1955, the Central Intelligence Agency (CIA) and aircraft manufacturer Lockheed Martin, working with the Air Force, began designing a low-orbit reconnaissance satellite system. The project was soon moved out of the Air Force and became the Discoverer “science” satellite system. From August 1960 through February 1962, Discoverer satellites were able to obtain a vast amount of reconnaissance photography, dropped in capsules to the Pacific Ocean for U.S. retrieval.
The third facet, also involving the CIA and Lockheed Martin, centered on the high-flying U-2 jet aircraft and CIA pilots engaged in “weather studies.” The flights began in 1956 and continued flying over the Soviet Union until pilot Francis Gary Powers and his U-2 were shot down by Soviet missiles on May 1, 1960.
These reconnaissance tactics revealed clearly that the Soviets had far fewer bombers and intercontinental missiles than Soviet propaganda claimed. The photography enabled Eisenhower, before he left office, to hold back on the nation’s defense spending, despite Congressional pressures.
The aviation overflights, however, threatened to be a major legal issue.
Although he was not a law school graduate, Ike was one cool chess player.
He and Nikita Khrushchev attended a summit meeting in Geneva on July 21, 1955, both knowing that each side would soon launch peaceful scientific satellites. Eisenhower proposed a broad and peaceful “freedom of space” agreement, but the Soviets flatly rejected it.
Historian Roger Launius wrote, “The Eisenhower administration was working behind the scenes to achieve permanent free access to space and to avoid international overflight issues common to aviation. He was concerned … that if the United States was the first nation to orbit a satellite, the Soviet Union could invoke territorial rights in space. Soviet Sputniks 1 and 2 had overflown international boundaries without provoking a single diplomatic protest.
“On October 8, 1957, Deputy Secretary of Defense Donald Quarles told the president, ‘The Russians have … done us a good turn, unintentionally, in establishing the concept of freedom of international space.’ Eisenhower immediately grasped this as a means of pressing ahead with the launching of a reconnaissance satellite.
“The precedent held for Explorer 1 and Vanguard 1, and by the end of 1958 the tenuous principle of ‘freedom of space’ had been established. By allowing the Soviet Union to lead in this area, the Russian space program had established the U.S.-backed precedent for free access,” Launius explained.
The issue arose, not surprisingly, for lengthy discussion at the United Nations in the early 1960s. In 1961, the Kennedy administration appointed Adlai Stevenson as U.S. Ambassador to the United Nations. His work on this issue was successful.
Communications Satellite Act
In 1962, the 87th U.S. Congress created the Communications Satellite Corp. (Comsat). It opened the door for international space telecommunications, based on a determination that the technology of communications satellites should be exploited commercially.
“The regulatory framework which first was encompassed by the Comsat Act has become a user-based set of guidelines for maximizing corporate assets,” says Smith.
There was heated debate in the Senate, followed by a vote to impose cloture for the first time in 35 years. One group strongly argued that the federal government should run Comsat. Another group advocated that AT&T, the major international communications carrier, should be in charge. The winning solution, in which neither the government nor AT&T would dominate, was sold to Congress by the Kennedy administration’s Deputy Attorney General Nicholas Katzenbach. Half of the shares would be sold to the general public, and the other half to established international carriers. Comsat would be the U.S. member of Intelsat, which would operate the international satellite system.
The initial offering of Comsat shares raised $200 million. Eyeing the future, the Federal Communications Commission (FCC) declared at the time, “Satellite communication is one of the most spectacular electronic developments of all time.”
Intelsat became operational in 1964 and began relaying trans-Atlantic traffic on June 27, 1965, via the Hughes-built Early Bird 1 spacecraft.
The original Intelsat agreement was entered into (“done”) on August 20, 1964, in Washington, DC. There were originally 14 countries that signed the Agreement: Australia, Canada, Denmark, France, Federal Republic of Germany, Italy, Japan, The Netherlands, Norway, Spain, Switzerland, United Kingdom, United States and Vatican City. Today’s Intelsat serves about 200 countries.
The United States was the third country, after Canada (Telesat) and Russia (Molniya), to launch domestic satellites. The FCC had issued a Notice of Inquiry for its Docket 16495 on March 2, 1966.
Ben Fisher, senior counsel at Shaw Pittman, remembers it well. His Fisher Wayland Cooper Leader and Zaragoza law firm had been the FCC counsel for Hughes Aircraft from 1970 to mid-1984. Three years ago, the Fisher group combined operations with Shaw Pittman.
He recalls, “The FCC’s Docket 16495 was not a high priority subject during the Johnson administration or at the FCC.” In January 1970, however, the Nixon administration–with a pro-competition, pro-business attitude–proposed to the FCC, then headed by Dean Burch, a policy of maximum flexibility for private industry interests. In March 1970, the FCC instituted a proceeding that invited all interested parties to file applications for satellite services. Although the FCC used the term ‘open entry,’ the news media preferred ‘open skies.’
“A rulemaking proceeding was instituted to develop an appropriate domestic satellite policy. In the period 1970-73, the disputes and differences of opinion were bitter, the stakes were high, and the entire future of a new industry was on hold. The final regulatory results reflect the incredibly successful adoption of a flexible and positive government policy. The first satellites were launched in 1974-75. Ten years later, in the mid 1980s, there were some 50 fixed service satellites in either C-band or Ku-band frequencies, or as C-/Ku- hybrids.”
In June 1972, the FCC divined that “special purpose users (such as local broadcasters) should have the option of owning receive-only earth stations.” The late A. James Ebel, chairman of the ABC-CBS-NBC Affiliate Satellite Committee, called this decision “the Magna Carta of the U.S. satellite industry.” Affiliates would soon be able to unshackle the terrestrial bondages of the networks and AT&T.
In the early 1970s, an earth station license required an antenna diameter to be at least 9-meters (30 feet). The size requirement was reduced in 1976 to 4.5-meters (15 feet) and by 1979 all TVROs (TV-receive only), as well as small radio broadcast receiving dishes, had been deregulated. Consumers could access “satellite TV” by purchasing a “backyard dish.”
Reduced Orbital Spacing
By 1980, because traffic for both broadcast and cable TV programming had grown so voluminous in the Fixed Satellite Service (FSS) band, more satellites would soon be needed. The FCC undertook a lengthy study to determine whether reduced spacing between orbital slots could be accomplished without signal interferences. By 1983, the FCC was prepared to double the number of orbital slots by reducing all C- and Ku-band spacing from 4 degrees and 3 degrees down to 2 degrees.
DBS In The United States
In October 1980, the FCC invited applicants to operate a Direct Broadcast Service (DBS) in the Broadcast Satellite Service (BSS) band, where 9 degrees satellite separations would enable the use of high power signals plus antennas as small as 18 inches in diameter. The first application, less than two months later, came from Comsat’s new subsidiary, Satellite Television Corp. (STC).
From the beginning, legal arguments were intense. For example, in a 200-page tome, the National Association of Broadcasters unsuccessfully argued that the FCC had no right under the Communications Act of 1934 to license a national broadcasting system that would pay no heed to the sacred duty of all broadcasters, known as “localism.”
During more than two decades, many companies large and small were applicants. Numerous construction permits (CPs) were issued by the FCC but most of the applicants failed to satisfy due diligence requirements.
Four years after its application was filed, Comsat announced that STC would be discontinued. During 1984 and 1985, Comsat reported losses from STC that totaled $145 million. In addition, STC built two unused satellites at a cost of $113 million.
The survivors included United States Satellite Broadcasting (USSB), owned by Hubbard Broadcasting; Dominion Video Satellite Inc.; Hughes Communications and Echostar.
USSB entered into a joint agreement with Hughes in 1991, leading to the launch of Hughes’ DBS 1 satellite and the start-up of DirecTV/USSB in June 1994. In May 1999, Hughes acquired USSB’s assets and business in a transaction valued at $1.3 billion.
Echostar obtained its CP in 1989 and opened for business with its first satellite launch in early 1996. Dominion obtained its CP in 1984 but subsequently entered into a technical agreement with Echostar. Since December 1996, Dominion’s program content has been carried on Echostar 3 at 61.5 degrees W.
The Transponder Sales Decision
Selling, rather than leasing, became a major change in the commercial marketing of FSS satellite transponder capacity in 1982. Lawyer Phillip Spector, now a partner at Paul, Weiss, Rifkind, Wharton and Garrison, recalls, “Cable TV programmers were using domestic satellites to distribute programming to cable headends. Prices for satellite distribution were set at artificially high levels, in large part because of the FCC’s regulatory approach.
“In a pioneering move,” says Spector, “Hughes Communications sought FCC permission to break out of the common carrier mold with respect to Hughes’ new Galaxy 1 satellite. Hughes proposed to sell transponders in individualized transactions, treating the satellite like a real estate condominium, with separately owned transponders and certain commonly owned elements, such as the satellite bus. Hughes also proposed to establish Galaxy 1 as a ‘cable neighborhood’ with certain key anchors (such as HBO and WTBS) making the satellite’s orbital slot one at which all cable headends would have to have dishes pointed, thereby making the slot more valuable.” In 1982, the FCC approved the concept and ushered in a period of competition.
Bruce Lederman was a senior partner and co-founder of Latham and Watkins, which represented Hughes from 1981 to 1997. Lederman is now the co-founder and COO of Assuresat Inc., working with ex-Hughes executive Jerry Farrell. His recollections of the Transponder Sales Decision are shared with Gary Epstein, who was chief of the FCC’s Common Carrier Bureau from 1981 to 1983 and is now a Latham and Watkins corporate partner.
“In the early 1980s,” they recall, “the satellite industry was hobbled by regulatory and financial constraints. Galaxy 1 knocked down many of these constraints. Clay (Tom) Whitehead, the head of Hughes Communications Galaxy, proposed a concept that Hughes supported, to create a ‘cable bird’ by selling selected programmers capacity on the bird. Whitehead felt that if he could convince HBO and at least one other major cable programmer to act as ‘anchor customers’, the other desirable programmers would be attracted to the satellite as if it were a shopping mall. By selling, rather than leasing, Hughes would obtain sufficient cash to justify the large investment required to build a fleet of at least three satellites, which became Galaxy 1, 2 and 3.
“The results exceeded everyone’s wildest hopes. Ultimately, the value of Hughes Communications Galaxy, which merged with Panamsat, as well as DirecTV, represented a substantial portion of the value of Hughes’ parent, General Motors.”
In addition to the above Transponder Sales Decision, Spector was involved with the important “Separate Systems” issue that sought alternatives to Intelsat.
He recalls, “Intelsat was conceived as a means of connecting the world’s nations. Under the Intelsat treaty, any nation seeking to provide international satellite services had to coordinate its proposed system with Intelsat, not only on technical grounds, but also to ensure there would not be ‘economic harm’ to Intelsat. This requirement effectively precluded any competitors to Intelsat from emerging for many years, until in the early 1980s U.S. policy began to change, allowing trans-border transmissions from U.S. satellites to Canada, Mexico and other points.
“In the mid-1980s, a frontal assault was launched on Intelsat’s international satellite services monopoly, in the form of FCC applications filed by several companies–led by Rene Anselmo’s Panamsat–to provide ‘separate system’ satellite services (called ‘separate’ because they were separate from the Intelsat system.) After extensive rulemaking, the FCC in 1985 approved the concept of separate systems and granted the applications of Panamsat and others to provide separate system services.
“It was 1988 before Panamsat launched the first separate system satellite, and even more years before Panamsat was able–in the face of stiff resistance from Intelsat’s members, which included most of the world’s then-monopoly telephone companies–to gain ‘landing rights’ in a sufficient number of countries to make its service economically viable.
“Today, Panamsat is one of the world’s largest satellite operators, competing head-to-head with a now-privatized Intelsat and with other large operators.”
Maury Mechanick, now counsel and a member of the Telecom Practice Group at the giant White and Case law firm, had a 20-year career at Comsat that included two years at Lockheed Martin Global Communications, which acquired Comsat in August 2000. He was chairman of the Intelsat Board of Governors in the period immediately prior to Intelsat’s privatization in July 2001.
As to the Separate Systems issue, Mechanick recalls, “The reaction of the Intelsat community outside of the United States was to argue strenuously that allowing these systems to go forward would force the United States to violate its commitment not to cause economic harm to Intelsat. Generally, the separate systems were limited to services other than switched telephony, which was the core service provided by Intelsat.
“Over the course of the next decade or so,” Mechanick recalls, “restrictions on the services that separate systems could provide fell away, and by the mid-1990s they had totally disappeared. Only two of the original six separate systems actually went into service–Panamsat and Orion, which is now part of Loral Skynet. The Orion 1 satellite is now Telstar 11 and Orion 2 is Telstar 12.”
Bruce Jacobs, a partner at Shaw Pittman, provided an update on the new satellite radio systems. He says, “The FCC’s authorization of satellite digital audio radio systems (SDARS) in the mid 1990s is another important milestone for the satellite communications industry. The FCC faced a number of difficult issues in making its decision, but the one that may have the most long-term consequences for the satellite industry generally was the decision to permit XM and Sirius to operate terrestrial repeaters.”
Jacobs notes, “This decision took a great deal of courage for the Commission, because it had to overcome the argument that the satellites were just a Trojan horse and the ‘real service’ would be provided by the repeaters. In fact, the FCC’s confidence in the industry was justified, as both XM and Sirius launched state-of-the-art high-power satellites that provide excellent coverage. Urban repeaters have been used to provide the kind of high-quality signal availability that consumers expect in a broadcast service.”
The SDARS repeater decision, Jacobs said, also helped to pave the way for the request by mobile satellite providers to be able to operate ancillary terrestrial facilities to improve their ability to serve customers in urban areas.
“The future will bring Washington telecommunication lawyers closer to the issue of cyberspace and the Internet. The practice will also become entirely regional and international as the character and size of the client telecom companies consolidate and expand. Multifaceted teams of lawyers will become commonplace, as the issues become more complex,” says Smith.
At Wiley Rein and Fielding, young Texas-bred lawyer Todd Stansbury was asked how they describe communication satellites for new members of their Communications Practice Group. “A satellite business begins by placing a multi-hundred million dollar, high-technology asset on top of explosive fuel, and then lighting the fuse,” he said. “It’s a big risk, but from that risk comes, literally, out-of-this-world-rewards. What could be better than that?”