06.29.09

More costs for ICO and TerreStar?

Posted in Financials, ICO/DBSD, Operators, Regulatory, Spectrum, TerreStar at 9:23 am by timfarrar

In a recent Report and Order, released on June 12, 2009, the FCC addressed the issue of when ICO and TerreStar can offer commercial service in North America, which has been delayed by the need to clear their uplink band (2000-2020MHz) of existing Broadcast Auxiliary Service (BAS) users, who are being transitioned to frequencies above 2025MHz. In the Order, the FCC removed the requirement that ICO and TerreStar must wait until all of the top 30 broadcast markets have been transitioned before they can launch service. However, ICO and TerreStar will have to coordinate with BAS users if they are to operate in uncleared markets, and Sprint Nextel now has until February 8, 2010 to complete the transition. As a result, though TerreStar intends to begin offering service in late 2009, it looks likely that national service will not be available until several months later.

More importantly, as part of the order, the FCC initiated a Further Notice of Proposed Rule Making (FNPRM) related to the sharing of costs for the BAS transition (which Sprint Nextel has paid but is seeking to reclaim from other operators who will use the spectrum). The FCC “tentatively conclude[d] that MSS operators and future AWS licensees will have an obligation to share, on a pro rata basis, in the costs associated with the relocation of BAS incumbents if they “enter the band” prior to the BAS sunset date of December 9, 2013″ and “tentatively conclude[d] that an MSS operator “enters the band” and thus incurs an obligation to share in the costs associated with relocation of BAS incumbents when its satellite is found operational under its authorization milestone”. In April 2009, Sprint Nextel estimated these costs at $100M each for ICO and TerreStar. ICO and TerreStar have previously argued that they should not be liable for any of these transition costs, so if confirmed, the FCC’s tentative conclusions would be a significant additional cost for both companies. However, it is uncertain if the recent bankruptcy of ICO North America will affect Sprint Nextel’s claim, including whether the ICO Global parent company (which was not part of the bankruptcy filing) will avoid this liability.

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