Ico Global Communications Ltd. v. F.C.C., 04-1248.

• Decision Date: 28 October 2005
• Docket Number: No. 04-1248.,04-1248.
• Parties: ICO GLOBAL COMMUNICATIONS (HOLDINGS) LIMITED, et al., Appellants v. FEDERAL COMMUNICATIONS COMMISSION, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

428 F.3d 264

ICO GLOBAL COMMUNICATIONS (HOLDINGS) LIMITED, et al., Appellants v. FEDERAL COMMUNICATIONS COMMISSION, Appellee.

No. 04-1248.

United States Court of Appeals, District of Columbia Circuit.

Argued September 13, 2005.

Decided October 28, 2005.

Appeal of an Order of the Federal Communications Commission.

Seth M. Galanter argued the cause for appellant. With him on the briefs were Robert A. Mazer, James H. Bailey, and Phuong N. Pham.

Stewart A. Block, Counsel, Federal Communications Commission, argued the cause for appellee. With him on the brief were Austin C. Schlick, Acting General Counsel, and Daniel M. Armstrong, Associate General Counsel. John A. Rogovin, Counsel, entered an appearance.

Before: RANDOLPH and ROGERS, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

STEPHEN F. WILLIAMS, Senior Circuit Judge.

Appellants ICO Global Communications (Holdings) Ltd.,¹ Constellation Communications Holdings, Inc., and Mobile Communications Holdings, Inc. are licensees who had been authorized by the FCC to provide mobile satellite services using the 2 GHz frequency band. They seek review of a Federal Communications Commission order finding that Constellation and Mobile had not satisfied the first of several "milestone" requirements on which their licenses had been conditioned. See In the Matter of Joint Application for Review of Constellation Communications Holdings, Inc., et al., 19 FCC Rcd 11,631, 2004 WL 1403561 (2004) ("Constellation/Mobile Order"). Appellants argue that Constellation and Mobile had in fact satisfied the first milestone requirement by entering a set of satellite-sharing agreements with ICO and that the FCC's rejection of the agreements was inconsistent with the relevant precedent. We disagree.

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The Commission imposes its milestone requirements on spectrum licensees in order to "ensure speedy delivery of service to the public" and to "prevent warehousing of valuable orbital locations and spectrum." See In the Matter of the Establishment of Policies and Service Rules for the Mobile Satellite Service in the 2GHz Band, 15 FCC Rcd 16,127, 16,177, ¶ 106, 2000 WL 1209424 (2000) ("2GHz MSS Order"). It sees "warehousing" not only as impeding prompt service delivery but also as allowing a licensee to "block[ ] entry by other entities willing and able to proceed immediately with the construction and launch of their satellite systems." Constellation/Mobile Order, 19 FCC Rcd at 11,632-33, ¶ 2. Appellants don't question these policy judgments.

To meet the first milestone, licensees must enter into "non-contingent" satellite-manufacturing contracts within one year of receiving their licenses. 2GHz MSS Order, 15 FCC Rcd at 16,177, ¶ 106. Meeting this first milestone is particularly important, says the FCC, because "it provides an early objective indication of whether a licensee is committed to proceeding with implementation of its proposal." Constellation/Mobile Order, 19 FCC Rcd at 11,635, ¶ 7. The FCC uses additional milestones to assess further progress in constructing and launching satellites. See 2GHz MSS Order, 15 FCC Rcd at 16,177, ¶ 106. It enforces the milestone requirements by canceling licenses automatically if licensees fail to comply. Id.

In July 2001 the FCC granted licenses for mobile satellite service in the 2 GHz band to eight firms including ICO, Constellation, and Mobile. ICO then entered into a satellite-construction contract with Boeing Satellite Systems International, Inc., and in February 2003 the FCC announced that ICO had passed the first milestone. 2GHz MSS Systems in Compliance with First Milestone Requirement, 18 FCC Rcd 1732, 2003 WL 277592 (2003).

Shortly before Constellation's and Mobile's deadlines for meeting the first milestone, those firms entered a set of satellite-sharing agreements with ICO.² Under the satellite-sharing agreements, Constellation and Mobile agreed to purchase title to channels on ICO's satellites. Constellation and Mobile would gain access to those channels once they became available for commercial services and would use them to provide independent services to their customers. In re Applications of Mobile Communications Holdings, Inc. and ICO Global Communications (Holdings) Ltd., 18 FCC Rcd 1094, 1095, ¶ 4, 2003 WL 202603 (2003) ("Int'l Bureau Order"). Constellation and Mobile argued that they satisfied the first milestone requirement by executing the sharing agreements with ICO. Affidavit Accompanying Letter from Robert A. Mazer, Counsel for Constellation Communications Holdings, Inc., to Marlene H. Dortch, Secretary, FCC (July 29, 2002); Declaration Accompanying Letter from Tom Davidson, Counsel for Mobile Communications Holdings, Inc., to Marlene H. Dortch, Secretary, FCC (July 29, 2002).

The FCC's International Bureau determined that Constellation's and Mobile's agreements with ICO did not constitute non-contingent satellite-construction contracts and declared their licenses null and void for failure to satisfy the first milestone requirement. Int'l Bureau Order, 18 FCC Rcd at 1103, ¶ 24. The FCC affirmed the International Bureau's conclusion regarding the first milestone, see Constellation/Mobile Order, 19 FCC Rcd at 11,640, ¶ 18, and rejected appellants' argument that the FCC's precedents provided insufficient notice of the limits that the FCC was placing on the use of sharing agreements to meet milestone requirements, id. at 11,646-48 ¶¶ 32-36. The FCC also affirmed the International Bureau's denial of a waiver request, id. at 11,648-49 ¶ 39 and rejected the argument that it had violated 47 U.S.C. § 312 by failing to provide appellants a hearing before canceling their licenses, id. at 11,650 ¶ 42. Appellants contest each of these four aspects of the FCC's decision, and we address them in turn.

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Under the Administrative Procedure Act we are to uphold the FCC's order unless it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(a).

In evaluating whether appellants' satellite-sharing agreements satisfied the first milestone requirement, the FCC invoked its earlier order, In re Applications of Tempo Enterprises, Inc. et al., 1 FCC Rcd 20, 1986 WL 292426 (1986). There, the FCC articulated a number of factors that it believed showed that the satellite licensee had successfully met the first milestone:

There is a contract, signed by both parties, which contains no unresolved contingencies which could preclude substantial construction of the satellites. . . . Specific satellites and their design characteristics are identified, and dates for the start and completion of construction are specified. The payment terms and schedule are described sufficiently to demonstrate the parties' investment/commitment to completion of the system. While the payments are not evenly spread through the contract term, the initial payments are significant, and the majority of payments are due during the middle phases, well before the end of the construction period. The major milestones in the construction schedule are provided, and with the payment schedule, establish the certainty of the plan and the reasonableness of its projection for timely completion.

Id. at 21, ¶ 7. Although appellants are correct that the FCC gave no indication in Tempo itself that it intended the decision to establish a general minimum standard, at least one FCC order that preceded appellants' actions here identified Tempo as "articulat[ing] the basic foundation for demonstrating compliance" with the first milestone requirement (referred to there as the first component of the due diligence requirement). See In re Applications of United States Satellite Broadcasting Co. et al., 7 FCC Rcd 7247, 7250, ¶ 19, 1992 WL 690796 (1992) ("USSB").

The key problem the FCC identified with the sharing agreements is that they "did not commit either Constellation or [Mobile] to implement[ing] the proposed satellite system they were licensed to operate." Constellation/Mobile Order, 19 FCC Rcd at 11,640, ¶ 19. While Constellation and Mobile each paid a $1 million deposit to ICO, this amount "comprised less than one-half of one percent of the total purchase price specified in each contract." Int'l Bureau Order, 18 FCC Rcd at 1100, ¶ 17. Nor did the agreements require any additional payments from Constellation and Mobile until ICO's satellites were launched, in sharp contrast with the Tempo contract, where "the majority of payments [were] due during the middle phases, well before the end of the construction period." Tempo, 1 FCC Rcd at 21, ¶ 7.

Even more problematic for appellants are the contractual consequences of breaching the sharing agreements. If ICO breached, the only penalty it would incur is the obligation to refund Constellation's and Mobile's $1 million deposits. See Constellation/Mobile Order, 19 FCC Rcd at 11,647-48, ¶ 36; Int'l Bureau Order, 18 FCC Rcd at 1100 n. 28. The sharing agreements gave Constellation and Mobile no leverage to ensure that Boeing completed construction of ICO's satellite system in a timely manner, and, even if Boeing did so, that ICO would follow through with the transfer of channel capacity.

Constellation's and Mobile's lack of financial commitment to the transaction was thus nicely matched by ICO's. ICO was pretty much free to pull out at any time. And if it did so at the end of satellite construction, Constellation and Mobile would be back at square one, no closer to providing mobile satellite services than they were on the day the FCC issued their licenses. During that time, the spectrum assigned to them would have been unavailable to other entities including those willing and able to start construction immediately. While ICO's satellite-construction contract evidently would have created enough new capacity for three licensees, that circumstance would not have been the result of Constellation's or Mobile's making any commitment or any exertion whatsoever, and Commission...