Article Appearing in Satellite Finance 20 January 2006.
The Right Orbit
Among the most discreetly managed satellite industry innovations of 2005 was Bermuda’s emergence as a jurisdiction in which to establish a satellite business. As US FCC policies have driven companies off shore, and as ambiguities surrounding UK satellite policy and European processes have created trepidation among some companies, Bermuda is quietly developing a world-class satellite industry that has made it a player in both North America and Europe.
After filing for its first satellite network, BermudaSat-1, to provide broadcast services over the United States from the end of this decade, the Government of Bermuda has put its weight behind development of another pillar of its already world-class economy. It has met with a success that is a function of much more than the island’s location as a glamorous meeting and travel venue. And its position (both geographical and cultural) between the United States and Europe has allowed it to develop quickly into the first foreign port of call for the US and UK satellite industry.
Stealing a March on the Imperial Capital
Two years after its reorganization into a single agency the UK regulatory authority, Ofcom, continues to define its role in the international arena, and continues to consider many of the regulations that affect UK satellite operators. Nonetheless, the UK has been managing a thriving satellite industry for years, so how is it possible that Bermuda is able to provide more regulatory certainty to satellite operators than the United Kingdom?
In part, because it is leveraging its experience as a home for other international businesses – in the international finance and insurance markets, as well as shipping – and leveraging its affiliation with other UK institutions such as the British National Space Centre, all while developing its own regulatory environment.
Not Just a Flag
It is worth recalling here that Bermuda is a self-governing and self-financing British Overseas Territory. Although external relations and most aspects of defence are the responsibility of the United Kingdom, the island has its own constitution, institutions and legislative process. Bermuda’s Parliament, therefore enacts its own telecommunications legislation after the Ministry of Telecommunications and eCommerce consults with the industry. Their hand is relatively free given that Bermuda’s laws need not follow those of the UK or other Overseas Territories. However, because the UK represents the Overseas Territories to international organisations such as the International Telecommunication Union (ITU), it makes practical sense for Bermuda to build on established UK procedures when regulating and promoting activity with international consequences, as with the satellite industry.
Building on the UK’s regulatory experience provides significant benefit. So Bermuda’s Department of Telecommunications maintains an active, co-operative relationship with both Ofcom and the UK Department of Trade and Industry. The first provides regulatory international support where necessary, the second provides international advocacy for Bermuda-based companies. Such contacts allow Bermuda companies to use these channels, for purposes of representation, policy development, and market access. In this way Bermuda delivers a suite of services to help launch a satellite business, and access to markets in both Europe and North America.
Companies Heed the Call
The result of this fast, flexible, and customer-focussed regime is that in 2005 two mobile satellite companies joined two of the world’s best-known fixed satellite service operators in making Bermuda their headquarters. In addition, Bermuda has begun to host co-ordination meetings and policy congresses that allow participants to take advantage of its mid-point location in the Atlantic Ocean.
Meanwhile, the Department of Telecommunications is refining streamlined procedures that enable Bermuda companies to submit proposals to establish or modify satellite networks. The Department exercises due diligence to confirm the status of the satellite operator, and ensures that the proposal is complete and in the correct format for submission to the ITU-BR for filing. This preliminary assessment shortens the overall filing process. Once complete, the Department forwards the proposal, administrative information and a preliminary assessment report to the UK’s Ofcom. Thus satisfied, Ofcom deposits the proposal to the ITU-BR for filing.
Throughout the filing, co-ordination and notification processes, the Department will ensure the participation of and, if required, manage the interface with the UK’s Ofcom and DTI. If the satellite operator wishes to conduct its own co-ordination negotiations, the Department will secure appropriate letters of introduction from the UK. Above all, however, the Department’s participation increases regulatory certainty in an area of UK regulation which, until now, has been seen by some operators as uncomfortably informal.
Flexibility Is Having No Bonds
Whilst increasing regulatory certainty and predictability, the Department also demonstrates a greater degree of flexibility than many other regulatory authorities. The regulations forgo the kinds of onerous requirements imposed by many other Administrations.
Significantly, operators will not be required to post performance bonds to underwrite their proposals as a means of assuring milestone compliance. Instead, through occasional project review meetings between the Department and the satellite operator, the Department will have advance warning of any obstacle that is likely to affect the milestones of a project. If a project is delayed (which is not uncommon in the satellite industry), rather than imposing financial penalties, jeopardizing the license or otherwise calling a halt to the project, the Department will work with the operator to revise the project plan and to make the most effective use of the time available for completion. In the worst case, if a satellite operator concludes that they cannot bring the project to completion but the project appears still to be viable, the Department can assist in transferring the project to another suitable satellite operator.
Although the island was home to a world-class tracking station, Bermuda will not require that satellite operators perform tracking, telemetry and control (“TT&C”) directly from Bermuda. This requirement would be unreasonably restrictive in the case of a satellite whose orbital location would put it “below the horizon”, or where the operator already had commercial arrangements in place. If a satellite operator does intend to perform TT&C from Bermuda, the Department will assist through an earth station licensing and co-ordination scheme.
Service Levels and Taxation
For many years, Bermuda has been known for the sophistication of its professional services sector. The provision of auditing, accounting, banking and legal services match the highest international standards. With respect to taxation, Bermuda has maintained a long established consumption-based tax model that yields tax revenues equivalent to about 20-22 per cent of GDP. Local and international companies are subject to the same taxation regime. Given the consumption based tax model, there are no direct taxes on sales, income, profits, dividends or capital gains in Bermuda. As there are no taxes on capital, firms domiciled in Bermuda are able to allocate capital efficiently. Subsidiaries or branches that operate in various other countries of the world pay all taxes that are applicable in the country where the business activity takes place. As the pool of capital generated in Bermuda remains intact, Bermuda provides an “incubator” location for newly formed satellite companies, as all revenue can be kept and re-invested in the critical early stages of development.
The Shipping News
Bermuda already has considerable experience regulating other industries which are subject to domestic, UK and international laws. One such example is Bermuda’s Register of Shipping, established in 1789 and administered by the Department of Maritime Administration. Ships on the Bermuda register have Hamilton as their port of registry, and are entitled to fly the famous Red Ensign, showing their right to the protection of the Royal Navy and to British Consular support. Bermuda is creating a comparable environment for satellite operators established in Bermuda, whilst at the same time actively supporting international policies and initiatives that decrease regulatory burdens and opposing those that have a negative impact on equitable access to the orbital resource.
Bermuda has quietly established itself as a desirable alternative to filing administrations with requirements that can restrict an operator’s flexibility in network development. The approach, one that other international businesses have long recognized and rewarded by building stable industries on the island, has already begun producing results for satellite operators choosing to work with Bermuda. While Bermuda has long been inviting as a place on which to land, satellite operators are increasingly recognising the jurisdiction’s comparative advantage as a place from which to launch.