[Federal Register Volume 65, Number 177 (Tuesday, September 12, 2000)]
[Notices]
[Pages 55066-55069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-23342]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24633: 812-12236]


Propel, Inc.; Notice of Application

September 6, 2000.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'').

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SUMMARY OF THE APPLICATION: The order would permit applicant and its 
controlled companies to engage in certain foreign telecommunications 
ventures without being subject to the provisions of the Act.

FILING DATES: The application was filed on August 30, 2000.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on October 2, 2000, 
and should be accompanied by proof of service on applicant, in the form 
of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reasons 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. Applicant, c/o Thomas P. Holden, Motorola, Inc. 425 North 
Martingale Road, Schaumburg, IL 60173.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0564, (Division 
of Investment Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 5th Street, N.W., Washington, D.C. 
20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. Propel, Inc. (``Propel'') a Delaware corporation, was formed in 
1999 to succeed to a portion of the business conducted by the Network 
Management Group (``NMG'') of Motorola, Inc. (``Motorola''), a Delaware 
corporation. The assets used in connection with NMG's business are 
currently owned by Motorola or by one of the following subsidiaries of 
Motorola: Motorola International Development Corporation and Motorola 
International Network Ventures, Inc. (the ``Holding Companies''). These 
assets consist predominantly of voting security positions in various 
foreign cellular telephone network operating companies (``Operating 
Companies''). Upon Propel succeeding to NMG's business,\1\ Propel will 
effect a public offering of its equity securities and/or its equity 
securities will be distributed by Motorola to its security holders in a 
spin-off transaction. Immediately prior to such offering or 
distribution, the Holding Companies will be merged into Motorola and 
the majority of the NMG assets contributed to Propel. This transaction 
is expected to occur in the third or fourth quarter of 2000.
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    \1\ Certain NMG assets, including a domestic holding, will not 
be contributed to Propel due to various tax, legal, and business 
considerations. Propel will hold an interest in a domestic entity 
that operates an international Internet protocol based 
communications platform. In the future, Propel may hold interests in 
other domestic entities that are involved in the telecommunications 
business in the United States. The requested order will not address 
Propel's activities in the United States.
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    2. NMG is actively engaged in the operations of the Operating 
Companies. The personnel of NMG serve as directors and officers of, and 
in some cases hold management-level employee positions with, the 
Operating Companies. NMG's directors, officers and employees are 
experienced

[[Page 55067]]

operating, financial, engineering, legal and/or business development 
personnel. Through negotiated contractual and other arrangements with 
the Operating Companies and their other owners, NMG possesses and 
exercises significant control over key operational and economic aspects 
of the Operating Companies.
    3. Propel requests relief to permit it and each entity that is now 
or in the future controlled by, or under common control with, Propel 
(each, including Propel, a ``Covered Entity'') to engage, either 
directly or indirectly through subsidiaries, in certain foreign 
telecommunications ventures without being subject to the provisions of 
the Act. For purposes of the application, Propel represents that 
``foreign telecommunications venture'' means any and all activities 
outside the United States involving: communications; media; the 
creation, storage and transmission of analog or digital voice, video or 
data; programming, including entertainment, news, information and home 
shopping services; broadband and satellite distribution; over the air 
broadcast; telecommunications; wireless and wireline distribution and 
telephony; network construction; design, operation and ownership of 
related transport construction; wireless handsets and accessories; and 
any and all related or similar activities, services and assets.
    4. Applicant would participate in foreign telecommunications 
ventures in either of two ways. In one, applicant, directly or through 
one or more other Covered Entities, would invest in a foreign 
telecommunications company. ``Foreign telecommunications company,'' as 
used in the application, means any corporation, partnership, joint 
venture, association, joint stock company, limited liability company, 
or other form of organization (a) substantially all of whose operations 
are conducted outside of the United States, (b) that owns the assets of 
a foreign telecommunications venture (which may consist of capital 
assets or stock of operating subsidiaries), and (c) whose business 
primarily relates to, or whose operations consist primarily of, the 
ownership, development and operation of, or the provisions of 
management or operational services relating to, foreign 
telecommunications ventures. Propel or one or more other Covered 
Entities would acquire a substantial interest in the foreign 
telecommunications company, and provide active developmental assistance 
to the foreign telecommunications venture. For purposes of the 
application, applicant represents that ``substantial interest'' means 
any ownership interest that represents at least a 10% economic or 
voting interest. In addition, applicant represents that ``active 
developmental assistance'' means material involvement in the creation 
(including but not limited to license acquisition), development or 
operation of, the provision of material managerial, advisory, 
technical, or operational services relating to, or significant input on 
material decisions affecting the development or operations of, a 
foreign telecommunications venture.
    5. The second way applicant would participate in foreign 
telecommunications ventures is to invest, either directly or through 
one or more other Covered Entities, in a telecommunications 
partnership. Applicant represents that, for purposes of the 
application, a ``telecommunications partnership'' means any 
partnership, joint venture, limited liability company or other 
unincorporated association (a) substantially all of whose operations 
are conducted outside of the United States, and (b) whose purpose is to 
acquire interest in, and to develop, operate, or provide management 
services to, one or more foreign telecommunications companies. 
Representatives of Propel or another Covered Entity would satisfy the 
active development assistance requirement generally by participation on 
the management committee or similar governing body of the 
telecommunication partnership. Propel or one or more other Covered 
Entities would acquire a substantial interest in the telecommunications 
partnership. That telecommunications partnership would, in turn 
directly or through one or more subsidiaries, acquire a substantial 
interest in one or more foreign telecommunications companies and 
provide active developmental assistance to the foreign 
telecommunications ventures of the telecommunications partnership.
    6. Propel represents that providing ``active developmental 
assistance'' requires Propel or another Covered Entity to be or have 
been materially involved in providing such assistance. Thus, Propel or 
another Covered Entity may rely on the exemptive order even though it 
no longer provides active developmental assistance so long as it 
continues to have a substantial interest in the foreign 
telecommunications venture, which is past the developmental stage, and 
a Covered Entity or NMG provided active developmental assistance during 
the venture's developmental stage. Similarly, if a Covered Entity 
acquires (or NMG while the predecessor to Propel acquired) a 
substantial interest in a foreign telecommunications venture after the 
development stage and a Covered Entity provides (or NMG provided) 
active developmental assistance to the foreign telecommunications 
venture, then a Covered Entity may continue to rely on the exemptive 
order, even through active developmental assistance ceases, so long as 
a Covered Entity continues to have a substantial interest in the 
venture, and (a) the business of the foreign telecommunications venture 
was significantly enhanced by the active developmental assistance of a 
Covered Entity or NMG or (b) the foreign telecommunications venture (i) 
is merged or combined with, or acquired by, a company in the same or a 
related business, or (ii) effects an initial public offering of voting 
stock.
    7. Propel represents that NMG has provided. and Propel or another 
Covered Entity will provide, active developmental assistance to each 
foreign telecommunications company or telecommunications partnership in 
which a Covered Entity takes a substantial interest by either 
developing, conducting or expanding the company's or partnership's 
operations.\2\ This assistance includes one or more of the following 
areas: license acquisition (through bid preparation or otherwise); 
network/system design and engineering; employee hiring and training; 
operations including marketing, sales, billing, collections, customer 
care, and computerization; and purchasing.
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    \2\ To date, NMG has not held an interest in a 
telecommunications partnership but Propel may do so in the future.
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    8. In preparation of the bid for a license, NMG performs 
comprehensive market demand analysis in the potential country market 
and evaluates future wireless telephony demand. NMG next translates 
this information into a business plan, developed in conjunction with a 
proprietary business model of NMG. This model generates information 
that helps determine whether a bid should be made and the amount of the 
bid. In preparation of the bid, NMG also relies on its previous bid 
experiences in other foreign markets.
    9. Networks/system design and engineering services begin before a 
bid is submitted for a license and continue until completion of network 
build out. In the pre-bid phase, NMG provides engineering and design 
expertise in planning and constructing the cellular system. NMG 
provides marketing research, market analysis, system design

[[Page 55068]]

and technology choice consulting during the bid process.
    10. NMG provides assistance with recruiting and training qualified 
senior executives and other personnel to operate a foreign 
telecommunications venture during the early stages of the development 
of some ventures. NMG provides employee training to localize expertise 
in all areas of operations. NMG personnel help select management 
employees and train them in various areas, including systems 
operations, financial and billing, customer care, marketing and sales, 
and general back-office support. In many instances, NMG employees were 
seconded to the foreign telecommunications company in the initial 
stages of setting up the operations and participated in the selection 
and training of their replacements. In some instances NMG provides 
senior management on a longer-term basis.
    11. Assistance may also be provided in deploying, servicing, 
trouble shooting and operating the networks of foreign 
telecommunications ventures. When these ventures win licenses, NMG 
assists in the design, installation and optimization of the cellular 
systems, as well as providing consultation and support services in 
implementing the system. NMG assists in the design and installation of 
financial control procedures and accounting systems and in training 
people to use the systems. NMG provides back-up support for billing 
procedures and billing software selection, as well as marketing and 
sales assistance. NMG also helps its ventures with purchasing goods and 
services, including hardware and software, necessary in building and 
operating a cellular network.
    12. Applicant's participation in foreign telecommunications 
ventures with local and strategic partners is generally made necessary 
by both restrictions on ownership of foreign telecommunications 
ventures under the laws of many countries, as well as by the benefits, 
both tangible and intangible, that applicant may obtain from joining 
with strategic partners both local and international, to create, 
develop and operate such ventures. The structure of NMG's ventures was 
not established for the purpose of creating an investment company 
within the contemplation of the Act. Motorola entities through which 
NMG operates have never been registered investment companies (or 
subject to any analogous regulatory scheme in another jurisdiction) nor 
been held out as primarily engaged in the business of investing, 
reinvesting, or trading in securities. Applicant represents that it is 
seeking the requested exemptive order because going forward it would be 
constrained in its participation in exiting and future foreign 
telecommunications ventures by the requirements of the Act.

Applicant's Legal Analysis

    1. Section 3(a)(1)(C) of the Act defines an ``investment company'' 
to include any issuer that is engaged in the business of investing, 
reinvesting, owning, holding, or trading in securities, and owns 
investment securities having a value exceeding 40% of the value of the 
issuer's total assets (exclusive of Government securities and cash 
items). Section 3(a)(2) of the Act defines ``investment securities'' to 
include, in pertinent part, all securities except securities issued by 
majority-owned subsidiaries of the owner which are not investment 
companies and which are not excepted from the definition of investment 
company by section 3(c)(1) or section 3(c)(7). Section 2(a)(24) defines 
a ``majority-owned subsidiary'' of a person as a company 50% or more of 
the outstanding voting securities of which are owned by the person, or 
by a company which, within the meaning of section 2(a)(24), is 
majority-owned subsidiary of the person.
    2. Rule 3a-1 under the Act deems certain issuers that meet the 
statutory definition of investment company in section 3(a)(1)(C) of the 
Act not to be investment companies, provided the issuer meets certain 
criteria. An issuer can qualify for this exemption only if no more than 
45% of its total assets consist of, and no more than 45% of its net 
income is derived from securities other than, among others, securities 
of certain companies controlled primarily by the issuer.\3\
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    \3\ ``Primary control'' under rule 3a-1 means a degree of 
control that is greater than that of any other person. See Health 
Communications Services, Inc. (pub. avail. Apr. 26, 1985).
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    3. NMG's business has been conducted almost exclusively in 
countries outside the United States. In many instances, foreign laws 
will prohibit or constrain Propel and the other Covered Entities from 
obtaining or holding controlling positions in telecommunications 
operating companies. Bidding for a telecommunications license must in 
many cases be done through a joint venture or consortium. Beyond these 
legal constraints, a joint investment with one or more strategic 
partners may be advisable in foreign ventures for a variety of 
additional reasons, including: (a) a desire to structure ventures so 
that Propel's management expertise, experience in other markets, and 
ability to leverage telecommunications services to maximize economies 
of scale and operating efficiencies complement the assets and local 
business connections of a partner; (b) the desire for capital financing 
from third parties; (c) the expertise one or more partners may bring to 
a foreign venture, including knowledge of local preferences and 
business practices and existing relationships with suppliers, 
contractors, government agencies or potential customers; (d) the 
enhanced intangible appeal that the involvement of an additional major 
international investor may lend to a bidding contest for a 
telecommunications license in a developing country; and (e) Propel's 
desire to test a new market through a relatively small initial 
commitment of capital undertaken with one or more partners, thereby 
diversifying the business and financial risks attendant to establishing 
operations where wireless and other telecommunications businesses have 
a relatively modest or no established infrastructure or subscriber 
base.
    4. Applicant's holdings at its inception will be such that it may 
come within the definition of investment company in section 3(a)(1)(C) 
of the Act. In the absence of the requested relief, applicant would be 
required to restructure its positions in its existing ventures in order 
to avoid having to register under the Act. With respect to future 
ventures, applicant states that the need to structure participation in 
foreign telecommunications ventures in a manner that complies with the 
Act would result in severe constraints on Propel's ability to 
effectively and efficiently operate and grow its business. These 
constraints principally occur in two areas. The first is in the 
formation of a potential foreign telecommunications venture. If a 
Covered Entity is unable to obtain either a majority interest or 
primary control for purposes of section 3(a)(1)(C) or rule 3a-1, or the 
type of control that would allow it to obtain an opinion of counsel 
that it can classify its participation as a joint venture interest, 
then the Covered Entity would most likely abstain from participating in 
that foreign telecommunications venture.
    5. The second constraint arises after a Covered Entity has acquired 
its interest in a foreign telecommunications venture. As a venture 
grows out of the development stage, it will often seek to expand its 
businesses through acquisitions, or will seek financing in the public 
capital markets. However, these goals are often in direct conflict with 
the Covered Entity's need to

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maintain its ownership interest at a level that avoids an issue under 
the Act. Applicant submits that this can result in serious restraints 
on the development of certain foreign telecommunications ventures, a 
Propel seeks to structure transactions around the requirements of the 
Act. Applicant states that, at times, when the Covered Entity's 
interest would fall below the level of presumptive control set forth in 
section 2(a)(9) of the Act, the Covered Entity may have to deny the 
foreign telecommunications venture permission to undertake a 
transaction that would have been in the best interests of the Covered 
Entity and that venture.
    6. Applicant states that a Covered Entity's ability to structure 
its participation in a foreign telecommunications venture as an 
unincorporated joint venture or partnership interest is not adequate to 
permit Propel to conduct its business free of the constraints of the 
Act. Propel states that whether an arrangement is a joint venture is 
sometimes difficult to determine.
    7. Section 6(c) provides that the SEC may exempt any person, 
security or transaction from any provision of the Act or any rule or 
regulation under the Act, if and to the extent that the exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Applicant requests an order under section 
6(c) to permit applicant and the other Covered Entities to engage, 
directly or through subsidiaries, in foreign telecommunications 
ventures without being subject to the Act.
    8. Applicant represents that the requested exemption is necessary 
and appropriate in the public interest. Applicant asserts that its 
interests in the foreign telecommunications ventures, unlike the assets 
of investment companies, will not be liquid, mobile or otherwise 
readily negotiable. Applicant also states that neither it nor any other 
Covered Entity will be a ``special situation'' investment company that 
takes a controlling position in other issuers primarily for the purpose 
of making a profit in the sale of the controlled company's securities. 
Applicant states that the Covered Entities will provide active 
developmental assistance for the purpose of participating in the 
profits from the foreign telecommunications ventures' operations. 
Applicant maintains that active developmental assistance requires 
personnel with expertise in planning, operating, managing, and 
providing services to a foreign telecommunications venture. 
Accordingly, applicant asserts that the Covered Entities will engage in 
business activities that do not entail the types of abuses that the Act 
was designed to address.
    9. Applicant believes that the requested relief is consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act. Applicant represents that the 
requirements of its business, its strategy that each Covered Entity own 
or hold directly or indirectly a substantial interest in a foreign 
telecommunications company or partnership, and its representation that 
each Covered Entity will provide active developmental assistance to a 
foreign telecommunications venture demonstrate that the applicant is 
not of the type that engages in the activities that the Act was 
designed to address.

Applicant's Conditions

    Applicant agrees that the order granting the requested relief will 
be subject to the following conditions:
    1. No Covered Entity that proposes to rely on the requested relief 
will hold itself out as being engaged in the business of investing, 
reinvesting or trading in securities.
    2. A Covered Entity may rely on the order granting the requested 
relief only to the extent that the manner in which it is involved in 
foreign telecommunications ventures does not differ materially from 
that described in the application.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-23342 Filed 9-11-00; 8:45 am]
BILLING CODE 8010-01-M