Loral Bid for License May Irk FCC

A small company holds the last ticket to direct broadcast

When William Welty applied for a direct broadcast satellite license in 1986, he thought of himself as a visionary with dreams of transforming communications. After all, the Federal Communications Commission only received nine applications at that time.

But nine years later, Welty has found himself pitted against defense (and now infotech) giant Loral Corp. over a license to construct and operate a direct broadcast satellite system. His company, Nevada Broadcasting Systems Inc., last month asked the FCC to investigate Loral Aerospace Holdings Inc., which wants control of the license now in Nevada's possession. The agency said it would think about it.

For Loral, control of the license would open the gateway for the New York City based-company to become a builder of satellites in this increasingly lucrative industry and a provider of services. The stakes are huge. Only six companies hold the valuable licenses to build the broadcast systems. DirecTV, operated by Loral rival Hughes Co., already has begun to show its worth with industry analysts projecting billions in revenues for the company by 1999. United States Satellite Broadcasting is the only other company offering direct broadcast services in the nation today, and two other companies are poised to launch their satellites within the next year.

That leaves the disputed license dangling, tantalizingly, like so much low-hanging fruit.

Loral answered Welty's charges the old-fashioned way, by claiming it has been the abused party. In court documents filed with the FCC, Loral claimed that Nevada Broadcasting is "using the commission processes to inhibit Loral's effort to bring a new direct broadcast satellite system into service."

Welty has held a license since 1989, but he has yet to build a satellite. In fact, he is the only permit holder who still does not have his satellite channel assignments from the FCC. The commission, in a statement, said those assignments and Nevada's request for an investigation are under consideration.

Welty's saga began in 1989 when the FCC awarded the company he co-founded, Continental Satellite Corp., a license to build and operate a direct broadcast satellite. But in August 1990 Continental investors pulled out and left the company with no way to pay Ford Aerospace to build three satellites. Ford agreed to do the work anyway, in exchange for an option to own 51 percent of Continental stock. In October 1990, Space Systems/Loral Inc. inherited, but did not exercise, that 51 percent ownership option when it acquired Ford's Space Systems division.

Even if the Loral business unit wanted to exercise the Continental option, it still could not have owned the satellite license because its foreign ownership exceeded the 20 percent allowable under federal communications regulations. Loral's filings with the Securities and Exchange Commission show that four European investors own 49 percent of Space Systems. In an August 1992 memo to several colleagues, Dan Collins, a Space Systems executive, pointed out its option "would need to be transferred to another Loral activity before exercise to avoid any foreign influence concerns." Two months later, Loral Aerospace Holdings, which has majority ownership of Space Systems, tried to exercise the option. But Continental refused to transfer company control because Space Systems, not Loral Aerospace, had rights to the option.

Loral Aerospace Holdings sued Continental in December 1992, and an arbitrator finally settled the case in May 1994 by awarding Loral Aerospace 51 percent ownership of Continental. But the ruling came a month too late. Continental's CEO Jim Schollard already had received the commission's blessing in April 1994 to transfer the license to Welty's new company, Nevada. Both Welty and Schollard run Nevada today.

Unfazed, Loral Aerospace in January filed a petition with the FCC to transfer to the company the satellite license originally awarded to Continental in 1989. The FCC has yet to rule on Loral's request.

Nine companies received direct broadcast satellite licenses in 1986. Today, the field has narrowed to six. -Hughes' DirectTV

-United States Satellite Broadcasting

-Echostar (purchased Directsat; buying Direct Broadcasting Satellite Corp.)

-Tele-Communications Inc. (purchased Tempo, Advanced Communications Corp.)

-Nevada Broadcasting System Inc. (license transfered from Continental Satellite Corp.)

-Dominion Video Satellite

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