By Maury Mechanick

In January, the Federal Communications Commission (FCC) ruled on one of the major satellite-related matters on its docket, the ability of licensed mobile satellite service (MSS) operators to incorporate a terrestrial transmission component (known as ancillary terrestrial component, or ATC) into their satellite service offerings. At the same time, the FCC also revoked a number of licenses previously issued to MSS operators for failure to meet specific construction milestones. Lastly, the FCC addressed the reallocation of a portion of the spectrum previously allocated for MSS purposes to terrestrial wireless services.

These intertwined decisions resulted in a topsy-turvy mix of winners and losers, while generating ample controversy for all involved. Where access to valuable spectrum is at stake, the solutions are never as straightforward as would be desired. Indeed, the FCC was called upon to function as a regulatory Solomon, resorting to cutting the proverbial baby into a number of parts.

First, by authorizing ATC, the FCC gave MSS operators in three distinct frequency bands – 2 GHz, Big LEO and L-band – the ability to use satellite frequencies to provide “ancillary” services via means of terrestrial transmission technology. The proponents of allowing MSS to use ATC had argued that such authorization would enable them to build out their networks and enhance the breath and quality of their services, particularly in urban environments. The FCC in fact concluded that approving ATC would afford a number of public interest benefits, including increased efficiency in spectrum utilization, improved service provision and market expansion, enhanced public protection and increased competition.

Simultaneously, the FCC cancelled licenses that had been issued to four MSS operators where the FCC determined that insufficient progress had been made by the licensees in meeting specified construction milestones. This decision was driven by the FCC’s desire to put teeth into its licensing/milestone regime, although it had the collateral effect of freeing up spectrum to alleviate the critical shortage experienced by the wireless industry.

Separate Proceeding

Indeed, these cancellations made it possible for the FCC to reassign the 2 GHz MSS spectrum among remaining licensed operators in a manner that cleared 30 MHz of spectrum for reallocation to the terrestrial wireless industry. The FCC next initiated a separate proceeding to determine how this newly available spectrum would in fact be assigned, with some or all of it potentially available for new generations of advanced wireless services (AWS), such as third generation (3G) wireless.

The FCC’s prime stumbling block centered on the staunch opposition of the terrestrial wireless industry to the basic ATC concept. Their overriding preference would have been for the MSS industry to fail altogether, freeing up all of that spectrum for them. (Indeed, one of the issues disposed of by the FCC was denial of an application filed on behalf of the wireless industry seeking reallocation of the 2 GHz band in its entirety for wireless purposes.) Competitively, the wireless industry also feared the possible back-door emergence of ATC as a competitive wireless service, which would have been made available to MSS operators on terms significantly more favorable (meaning no spectrum fees or auctions) than those imposed on most wireless carriers for their spectrum. Finally, the wireless industry and some other MSS operators were concerned about potential interference from ATC operations.

The FCC was confronted with a difficult set of choices. On the one hand, it could not afford to deny any ATC authorization because of the public interest benefits and the danger that denial could easily lead to the demise of the MSS industry. Alternatively, the FCC could not acquiesce in ATC evolving into a stand-alone wireless services, conferring a potent competitive advantage to MSS operators at the expense of the wireless operators.

Tight Criteria

In walking this fine line, the FCC formulated some fairly tight criteria to ensure that ATC as implemented would function truly as an ancillary service and nothing more. These include the requirements that the operator provide and maintain substantial satellite services to the public, provide coverage throughout the total geographic area (but not beyond) in which satellite service is provided, and provide a truly integrated satellite/wireless service offering. To mitigate interference concerns, the FCC required that, among other things, MSS operators in each of the three frequency bands use core MSS spectrum in providing ATC.

While the MSS operators might find some of these requirements annoying, it will be difficult for them to protest too much, given that the underlying intent is to preserve ATC’s ancillary nature. As such, the MSS operators will need to find a way to tolerate, if not embrace, these conditions. The MSS operators also should breathe a huge sigh of relief that the FCC did not elect to treat the ATC spectrum in the same manner as the multichannel video distribution and data service (MVDDS) spectrum, which was deemed suitable for auction.

At the same time that it threw a major lifeline to the MSS industry, the FCC found a way to bolster the spectrum starved wireless industry. By taking a very tough line on the milestone obligations imposed in the case of various MSS licenses that had previously been issued, the FCC was able to clear a significant amount of MSS spectrum that could then be reallocated for wireless purposes. The outcome here is again hard for the MSS industry to criticize, given their victory on the ATC issue, although individual operators whose licenses were cancelled may still cry foul. The one problem with the FCC’s action is that a portion of the spectrum reallocated had previously been harmonised at the international level for MSS, something the U.S. government had championed. At best, the U.S. government looks fickle or foolish, at worst, its ability to seek future harmonisation may be compromised. But given the absence of other practical alternatives, any damage to future U.S. international credibility simply became the price to be paid to free the additional spectrum needed by the wireless industry.

One final issue considered was whether the controversy could have been avoided altogether if a differently regulatory paradigm had been in place. The ATC decision contains the lament that things would have been better if the FCC were able to eschew the command and control approach to spectrum decisions, and allow the marketplace to decide through auctions, although this would require repeal of the ORBIT Act’s ban on auctions for international satellite spectrum. It is difficult to imagine how, in these circumstances, this would have materially improved the situation. The potentially random interweaving of wireless and MSS services, which could easily be the outcome of an auction process, might in fact do nothing more than diminish the market value of both offerings and deprive customers of high quality and innovative services.

Thus, the FCC basically made the best of the ATC quagmire. Once again, the tried and true regulatory mechanisms on which it has traditionally relied provided a suitable means for moving forward, albeit in an ungainly but pragmatic manner. Where the dust will finally settle is now up to the lawyers and lobbyists.

Maury Mechanick is an attorney in the Washington, D.C., office of White & Case and a member of the firm’s Telecommunications Practice Group. He can be contacted by e-mail: Mmechanick@washdc.whitecase.com and by phone at 202/626-3635.