On July 9, DISH Network filed a letter in the ICO North America (DBSD) bankruptcy case, indicating that it had purchased all of the $43.7M of first lien secured debt from the pre-petition lenders.
The first lien lenders had been objecting to ICO’s proposed restructuring which their financial advisers (Chanin Capital Partners) characterized as “a ‘plan’ that is doomed to fail, due to lack of financing, overwhelming debt and inability to move the company from the developmental (non-revenue producing) stage into an operating, revenue producing one”, while DISH Network stated in its letter that it “adopts those objections in their entirety and is prepared to prosecute the objections…”
According to Chanin, ICO/DBSD’s plan “seeks to put the Debtors in a holding pattern in the hope that the capital markets will become more accessible in the future. During this time the Debtors have no intention of furthering their business”.
However, with Echostar already holding a significant stake in TerreStar, ICO’s 2GHz rival, which just launched its own satellite earlier this month, could this development provide renewed impetus to the long rumored merger of the two companies and provide an alternative way forward for the development of MSS and ATC services in the 2GHz band?
In April 2009, Inmarsat announced that it would be taking a 19% stake in SkyWave, facilitating SkyWave’s acquisition of Transcore’s satellite communications assets. However, SkyBitz, Wireless Matrix, XATA and Comtech Mobile Datacom [the Commenters] jointly objected to SkyWave’s FCC application for the transfer of these assets, citing “numerous and substantial negative impacts on MSS Providers and other end-users using L-band capacity”. Although the submission is heavily redacted, it appears that one of their primary concerns relates to the “restrictive trade covenants included by Inmarsat” in the Transaction and they demand an explanation of how Inmarsat “will ensure non-discriminatory treatment of all MSS Providers and other end-users with respect to capacity, availability and contractual terms and conditions”. The Commenters “believe in fact that the Transaction will (i) actually eliminate competition for end-users (as a result of the Covenant), (ii) delay deployment of advanced satellite services to end-users other than SkyWave’s customers, (iii) result in higher pricing to end-users at the expense of higher margins for SkyWave and Inmarsat, and (iv) ultimately reduce the affordability of MSS services for end-users.”
While it remains unclear exactly what is contained in the “Covenant” referred to in these comments, Inmarsat noted at its recent investor conference that one of its motivations for investing in SkyWave was to promote consolidation in the Low Data Rate (LDR) industry, and that more than half of the investment comes in the form of future airtime credits. The Transaction also “provides for a fully funded development programme for new products and services” and will drive “traffic growth on Inmarsat satellite network”, we assume at least partly as a result of SkyWave and Transcore committing to use Inmarsat’s capacity exclusively (Transcore currently uses SkyTerra’s L-band capacity in North America). The airtime credits and development program certainly give SkyWave an advantage over other providers using leased L-band capacity, and this financial and commercial advantage is presumably what would induce the “consolidation” that Inmarsat seeks.
What is particularly interesting is that on June 29, SkyWave withdrew its FCC application to undertake the Transaction and on June 23, Inmarsat (in conjunction with other MSS operators) sought an extension of time until July 14 to respond to the FCC’s consultation proceeding for its Third Annual Report to Congress on Status of Competition in the Provision of Satellite Services in which the only meaningful concern was also expressed by SkyBitz.
With SkyBitz (which currently uses leased SkyTerra capacity) cited by Inmarsat as one of the “key competitors” in the LDR market (and the only plausible one that could switch to Inmarsat capacity, since the other key competitors listed, namely Iridium, Qualcomm and Orbcomm, all use incompatible technologies), it will be very interesting to see what happens over the next few weeks: will Inmarsat restructure (or even abandon) the SkyWave Transaction to eliminate the “restrictive trade covenants” that SkyBitz is concerned about (presumably making it more difficult to promote the consolidation Inmarsat seeks), or will Inmarsat actually facilitate a deal between SkyBitz and SkyWave to fulfill its market consolidation objective and eliminate the most prominent source of objections?
With apologies to the Eagles…its a lovely place, for MSS consumers at least. However, for MSS operators it seems to be somewhere you can check out [or go bankrupt] anytime you like, but you can never leave.
Today we’ve seen confirmation that Globalstar is now fully funded to complete the construction and launch of its first 24 second generation satellites by the end of 2010, while TerreStar has launched its new S-band satellite from Kourou, French Guiana and intends to initiate commercial services at the end of this year. Iridium also looks increasingly likely to complete its deal with GHL, since GHL’s shares and warrants are now trading well above the $10 value that would be refunded to investors if they voted down the deal. While there has been much speculation about potential mergers in the last two years, these now look less, rather than more, likely to occur in the near future (with the sole exception of SkyTerra’s Harbinger-backed bid for Inmarsat, which should be decided one way or another later this year).
Thus by early 2011, it looks like we will have at least four and more likely six voice and data MSS systems providing service in North America (Inmarsat, Iridium, Globalstar and TerreStar plus ICO and SkyTerra) and four systems (Inmarsat, Iridium, Globalstar and Thuraya) providing service in most of the rest of the world. With new advanced satellites, consumers will benefit from improved data capabilities and smaller, cheaper handheld satellite phones.
However, the development of at least three new systems (ICO, TerreStar and SkyTerra) and to some extent Globalstar as well (based on financial analysts’ comments at the time of its IPO in November 2006) has been justified largely by the value of MSS spectrum, due to the FCC’s rules enabling deployment of Ancillary Terrestrial Components (ATC), rather than by the intrinsic potential of the market for mobile satellite services itself. Thus, unless and until demand for MSS spectrum and ATC materializes, we run the risk of overcapacity for land-based MSS services, particularly in North America. This will certainly benefit end users, and price reductions (especially in conjunction with cheaper, more attractive terminals) may help to stimulate significant market growth, but it remains to be seen whether this will enable all the MSS operators to deliver a return for their investors or whether we’ll see more of them “checking out” with a bankruptcy filing as ICO North America did in May this year.