United States: The FCC's Satellite Anti-Trafficking Rules

Last Updated: January 19 2001
Article by William Wiltshire

The Federal Communications Commission periodically issues licenses to construct, launch, and operate individual satellites and satellite systems. As spectrum and orbital resources have become increasingly scarce, these licenses have become increasingly valuable. The Commission has adopted a variety of strategies to discourage speculative applications and encourage its licensees to move expeditiously into operation. One such strategy is the recent adoption of explicit "anti-trafficking" rules to codify the policy prohibiting the sale of a "bare" satellite license – i.e., one with no associated operational satellites -- for profit.

The goals underlying this policy – the deterrence of spectrum speculation and the prevention of unjust enrichment of those who do not implement their proposed satellite systems – are generally laudable. However, as applied in the satellite context, the anti-trafficking rules are dangerously vague and present a potential trap for unwary entrepreneurial satellite ventures looking for strategic investors. This article outlines the development of the anti-trafficking policy and suggests compliance strategies for licensees in this capital-intensive industry.

Origins Of The Rule

For almost forty years, the Commission has defined trafficking as speculation, barter, or trade in licenses to the detriment of the public interest.2 The paradigmatic trafficking case is one in which an applicant receives a license and a short time later sells its entire interest to another party without ever taking any steps toward providing the licensed service. The Commission's anti-trafficking concept first manifested itself in a rule that imposed a three-year holding period on broadcast licenses. This rule was not specifically designed to prevent attempts to profit from the sale of an unbuilt station license – since there was a separate no-profit rule that prohibited a buyer from paying a seller more than reimbursement for his out-of-pocket expenses.3 Rather, it was intended to reduce annual turnover of broadcast licenses and control station prices. Nonetheless, over time the "no turnover" and "no profit" concepts have been merged into a single policy against "trafficking."

In 1982, the Commission held that any sale of a bare license or permit for profit is prohibited by Sections 301 and 304 of the Communications Act of 1934, which provide that a license does not convey any property interest, since profiting on such a transfer would be "contrary to the letter and spirit" of these sections. Not surprisingly, the "no profit" principle was thereafter extended to services in addition to broadcasting.

In 1988, however, the Commission reconsidered its earlier holding and concluded that the Communications Act did not absolutely bar the for-profit sale of construction authorizations for unbuilt facilities 4Instead, the Commission found that it had discretion to allow for-profit sales, and that the particular sale of a cellular license in that case would serve the public interest. Ten years later the Commission finally rescinded its ban on the for-profit sale of unbuilt broadcast authorizations.5

Application To Satellite Licenses

Until fairly recently, the Commission had applied its trafficking policy to some satellite transactions but it had not adopted any anti-trafficking rules for the satellite services. In fact, it declined to apply trafficking principles to the Direct Broadcast Satellite service in 1994, concluding that due diligence and semi-annual reporting requirements should be sufficient to deter spectrum speculators. In the last five years, however, the Commission has begun to codify its anti-trafficking policy, adopting rules banning trafficking in bare licenses for Big LEO and Ka-band satellite licensees and proposing to adopt a similar rule for non-geostationary satellites operating in the Ku-band. In each case, the Commission has explicitly stated that its policy is "not intended to prevent the infusion of capital by either debt or equity financing." But it may well do just that. Moreover, because the Commission adopted its rules without explaining exactly what was meant by "trafficking," licensees have only limited guidance as to how the Commission will apply its policy in the satellite context.

The few transactions in the satellite services that implicated the anti-trafficking rules provide little illumination on the Commission's thinking, but perhaps reflect a bias in the application of trafficking rules. There was no discussion of trafficking in the order approving Loral's acquisition of Orion's assets (including its Ka-band licenses). Similarly, the order granting Lockheed Martin authority to relinquish control over the licenses issued to Astrolink in order to bring on two strategic partners, each of which would hold a one-third interest in the venture, is totally silent on the question of trafficking. No one raised trafficking as an issue in either proceeding. The Commission is currently considering two cases in which trafficking has been alleged as a central challenge to transactions proposed by entrepreneurial Ka-band licensees. The apparent assumption seems to be that trafficking is a concern with new entrants but not with the larger, established satellite operators. If so, the Commission's anti-trafficking rules would restrict access to capital for precisely those licensees most in need of it. Thus, although the goals underlying the policy are sound, its implementation may as a practical matter unintentionally but seriously diminish opportunities for entrepreneurial satellite ventures.

Given the prevailing state of Commission precedent, it is possible to argue that virtually any transaction involving a significant equity investment in a company holding an authorization for a non-operational satellite system constitutes trafficking. The issue arises most frequently in the context of a proposed assignment of or transfer of control over a license, although there is precedent suggesting that even the sale of a non-controlling interest can run afoul of the trafficking policy.6 Thus, unless a licensee has the wherewithal to finance its satellite system on its own, it must decide how best to raise necessary capital without running afoul of the anti-trafficking policy.

There is a limited amount of satellite precedent from those occasions on which the Commission applied its anti-trafficking policy to satellite applications. These cases and other Commission precedent suggest strategies through which a licensee can obtain financing in a manner that at least limits its exposure to a trafficking allegation.

Compliance Strategies

There are only two ways to absolutely ensure that the sale of an equity interest in a satellite licensee does not constitute trafficking. The first is to sell the interest for no more than its proportionate share of the amount that has been invested in the satellite license and system, including fees incurred in preparing, filing, and advocating the grant of the license and funds paid for satellite construction.7 Although safe, this approach is of almost no utility since it allows a licensee to recoup money but not to raise additional capital for the venture. The second option is to seek a declaratory ruling from the Commission prior to consummation that a particular transaction would not constitute trafficking. This approach would also be of limited practical utility, since it would be time-consuming and cumbersome to have to seek approval in advance for every potential investment.

Unfortunately, no other financing scenario can ensure that trafficking will not be an issue. But there are some approaches that are less susceptible to a trafficking charge than others. For example, because the trafficking rules apply to selling an interest in a bare license for profit, debt transactions should fall outside their parameters. Thus, rather than seeking equity investors a satellite licensee could access the high-yield debt market for funding prior to launch of its satellite system. This same logic would suggest that a licensee could secure financing using options, warrants, convertible debt instruments – which, like debt, the Commission does not view as equity investments and therefore should not be viewed as a sale of an interest in the license. This would seem to be a more attractive option, since the instruments could be converted into stock once the licensee's commencement of satellite operations renders the anti-trafficking rules no longer applicable. Nevertheless, Commission policy in this area might have the perverse effects of severely limiting the sources of financing available and forcing satellite licensees to become burdened with expensive debt financing rather than seeking strategic investors who could actually strengthen the enterprise.

There is a caveat to using either debt or future interests. Although the Commission stated that its satellite anti-trafficking rules were not intended to prevent the infusion of capital by either debt or equity, it cryptically added that "any such transaction" will be monitored to ensure compliance. It would therefore appear that the question of whether a debt transaction could run afoul of the anti-trafficking rules remains at least somewhat open. It may be that the Commission meant to indicate that the rules could be applied if these instruments are not bona fide debt or future interests – i.e., if they were equity in disguise. The Commission has employed a bona fide debt analysis in the context of foreign ownership issues, and it could be signaling that it is prepared to look behind the parties' characterizations of transactions to assess for itself the real economic consequences. While that would be a logical and reasonable reading of the language in the promulgating orders, it is by no means the only possible one.

A licensee that decides to seek equity investment can take steps to decrease the likelihood that the Commission will find a trafficking violation. First, if all of the money invested goes directly to the company holding the license and not to any of the individual investors, there is a good case to be made that no one is "profiting" from the sale. The Commission has explicitly held that "a sale to the highest bidder of the right to seek the assignment of a broadcast license does not constitute trafficking where, as here, there is no evidence that the assignor acquired the station for the purpose of reselling it at a profit, rather than for the purpose of rendering a public service."8 If all funds from new investors go to the licensee rather than to the prior investors, there is no reason to believe that the license is being sold for personal gain. Although the Commission has stated its desire not to prevent such capitalization transactions, it has also in the past examined the increase in value of a "carried interest" in light of trafficking principles.

Second, the Commission has looked favorably upon licensees that have demonstrated their commitment to the licensed satellite system. Such commitment can be demonstrated by beginning construction and executing launch and other agreements.9 This, of course, requires funds that may not be available without an outside investor, presenting a chicken-and-egg problem. Investments where the core management and operational personnel remain essentially unchanged are also less problematic as they indicate a continuing commitment by the original licensee to its system.10

While none of these indicia is dispositive, they have proven important to the Commission's trafficking analysis in the past.

All of the satellite services in which anti-trafficking rules have been adopted or proposed include due diligence and reporting requirements. The Commission has stated on a number of occasions that trafficking is less of a concern where these requirements are imposed, and it even declined to apply trafficking principles to the DBS service precisely for this reason. The satellite industry in general and new entrants in particular might have been better served if the Commission had extended the DBS precedent and eschewed anti-trafficking rules for all satellite services. Under the current regime, however, satellite licensees in need of capital must bear trafficking principles in mind when structuring financial transactions.

William M. Wiltshire is one of the founding partners of Harris, Wiltshire & Grannis LLP, a Washington, D.C. law firm that focuses on telecommunications with a particular emphasis on satellite, wireless, Internet, and other high-technology companies in the digital economy. He can be contacted at 202-730-1350, or through the firm's web site at www.harriswiltshire.com


1. The author has represented numerous satellite and other telecommunications companies. The views expressed here are entirely his own.

2. See, e.g., Applications for Voluntary Assignments or Transfers of Control, 32 F.C.C. 689 (1962); Amendment of Section 73.4597 of the Commission's Rules, 4 FCC Rcd. 1710 at ¶2 (1989).

3. 47 C.F.R. § 73.5397(c)(2).

4. See Bill Welch, 3 FCC Rcd. 6502, 6504 (1988).

5. 1998 Biennial Regulatory Review – Streamlining of Mass Media Applications, Rules, and Processes, 13 FCC Rcd. 23056, 23070-72 (1998)

6. Petition of Contemporary Digital Services, Inc., 59 R.R.2d (P&F) 617 (1985) ("trafficking and transfer of control are separate issues").

7. Pan American Satellite Corp., 2 FCC Rcd. 441, 442 (1987).

8. Cleveland Board of Education, 87 F.C.C.2d 9, 14 (1981).

9. See, e.g., Satellite CD Radio, Inc., 12 FCC Rcd. 8359, 8364 (Int'l Bur. 1997).

10. Constellation Communications, Inc., 11 FCC Rcd. 18502, 18515 (1996).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions