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The Legal and Regulatory View
by J. Steven Rich, Attorney,
Paul, Hastings, Janofsky & Walker LLP

The year 2008 has been a time of change in many respects. Continuing turmoil in worldwide markets, for example, has created challenges for numerous companies in virtually every sector of the economy and the satellite industry has not been immune. Regulators around the world have faced challenges of their own this year, and while their actions may have sometimes been overshadowed by world events, they have nevertheless kept themselves busy addressing numerous satellite-related matters in 2008. The issues addressed this year have varied as much as the countries addressing them, and range from significant mergers to content regulation to market access. Here are some of the highlights from 2008...

North America
In the United States, by far the highest-profile regulatory action in 2008 involving satellite operators was the Federal Communications Commission’s (“FCC”) long-delayed and controversial approval on a 3-2 vote of the merger between satellite radio broadcasters XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc.

XM and Sirius received their FCC licenses in April 1997 pursuant to FCC rules that expressly prohibited either entity from ever acquiring the other. However, neither entity had ever turned a profit as a standalone business. The two had posted cumulative, combined losses in the billions of dollars prior to their merger.

While the FCC expressed skepticism about the operational efficiencies to be gained by the merger, as well as certain other benefits the parties claimed would result from the merger, the FCC found the merger was, nevertheless, in the public interest based largely upon a number of conditions to which the parties agreed. For example, XM and Sirius agreed to make à la carte programming options available for the first time. The parties also agreed that the combined company would set aside eight percent of its channels for public interest and minority programming at no charge to the programmers. In addition, the parties agreed not to raise the cost of their basic programming packages for three years, and the FCC imposed the additional requirement that the combined company not reduce the number of channels contained in its current packages or new packages for three years. Finally, XM and Sirius agreed to specific timeframes to comply with preexisting FCC rules requiring that interoperable receivers be offered to consumers.

While the XM-Sirius merger attracted the most news coverage, the FCC also has spent time this year reviewing other significant transactions in the satellite sector. For example, in February the FCC approved the spin-off of DIRECTV from News Corp. to Liberty Media. The FCC is continuing to review the proposed acquisition by Inmarsat plc of Stratos Global Corporation.

The U.K. Department for Culture, Media and Sport commenced a rulemaking proceeding in July in which the U.K. government seeks to implement the EU Audiovisual Media Services (“AVMS”) Directive. The AVMS Directive, which came into effect on December 19 , 2007, establishes rules for determining the jurisdiction for satellite broadcasters located outside the EU whose broadcasts are received by consumers residing in the EU.

Under the AVMS Directive, jurisdiction over such broadcasters is assigned to either (1) the EU Member State whose satellite capacity is used to broadcast the channel into the EU, or (2) if the channel is not using any satellite capacity belonging to a EU Member State, the Member State, if any, from which the channel is uplinked to the satellite. The U.K. government has tentatively concluded that it should include non-EU channels within its current regulatory framework and ensure that its rules can be applied to non-EU broadcasters. At the EU level, the European Parliament and the Council of Ministers enacted regulations in July that pave the way for the implementation of the Galileo satellite navigation system. The regulations include authorization for a budget of €3.4 billion, to be funded by European taxpayers, and also impose security requirements and procurement rules that will apply to the Galileo system. According to the timetable contained in the rules, the first satellites are to be launched and the first ground-based infrastructure is to be installed by 2010.

Middle East and Africa
In March, the Nigerian Communications Commission (“NCC”) took a significant step in promoting the availability of telecommunications services, including Internet access, in rural and underserved areas, by awarding a 10-year telecommunications services license to Nigeria Communications Satellite (“NIGCOMSAT”). Under the terms of its license, NIGCOMSAT is authorized to provide International Data Access (“IDA”) connectivity for voice, data, or other services directly to customers, and also may interconnect with the PSTN. (ED—Since the writing of this article, the satellite NigComSat-1 has been declared a total loss.)

As described in the November issue of SatMagazine, the Arab League adopted a controversial set of guidelines this year entitled “Arab Satellite Broadcasting Charter: Principles for Regulating Satellite Transmission in the Arab World.” Under the charter, a satellite broadcaster may not broadcast content that would jeopardize “social peace, national unity, public order and general propriety.

The charter further provides that satellite broadcasters must act in a way that protects “the supreme interests of Arab countries and the Arab world.” Satellite broadcasters also must, among other things, “eliminate from satellite broadcasting any material that would promote smoking and/or alcohol drinking, but rather highlight their dangers.

The Chinese government took measured, but noteworthy, steps in 2008 to allow the expansion of satellite television broadcasting within China. In March, the State Administration of Radio, Film, and Television (“SARFT”) announced it would allow 33 foreign television channels to be broadcast selectively within China. Under this new policy, SARFT now allows channels such as CNN, HBO, BBC World, Cinemax, and Discovery Channel to be broadcast to three-star and above hotels and expatriate apartments in China.

Additionally, SARFT announced in June that it planned to loosen restrictions on satellite television use by individuals after the Chinasat-9 satellite is launched. According to SARFT, direct-to-home satellite services will initially be offered at no charge to users located in remote and underdeveloped users in China.

The View For 2009
In reviewing the significant legal and regulatory milestones of 2008, it is natural to speculate about what 2009 may hold, even though prognostication is always risky in an industry as dynamic as the satellite sector. However, it does not require a tremendous leap of faith to conclude that regulators will continue to face many of the same challenges in 2009 as they have faced in 2008.
For example, it is likely regulators in many parts of the world will continue to struggle with the issue of content regulation, an issue made much more complex by the inherently cross-border nature of the satellite industry. Regulators also will continue to face difficult public interest issues in the context of mergers and acquisitions involving satellite companies, particularly in light of the challenging economic circumstances faced by many companies, which may make business combinations a necessity for some.

About the author
J. Steven Rich is an attorney in the Washington, DC office of Paul, Hastings, Janofsky & Walker LLP and specializes in corporate and regulatory matters involving communications, media, information, and satellite technology companies. For further information, select this direct link for their informative website regarding their services.