11.13.09

Regulatory storm in a teacup

Posted in Globalstar, Iridium, Operators at 9:56 am by timfarrar

It seems a lot of noise is being made about the potential impact of Globalstar filing the license application for its second generation constellation with the French regulatory agency ANFR instead of the FCC. Indeed this was even raised as a concern on Iridium’s 3Q2009 results call yesterday. In our view this is basically a storm in a teacup: both Iridium and Globalstar are licensed to use particular parts of the Big LEO L-band frequency allocation (1610-1626.5MHz), and in the US the FCC decided (in Nov 2007) to share this spectrum equally between the two companies (Globalstar has the bottom 7.775MHz, Iridium the top 7.775MHz and the middle 0.95MHz is shared). However, in certain other countries (e.g. Russia), some of this band is reserved for Radioastronomy and Microwave Landing Systems and so Globalstar is unable to use much (in some cases any) of the lower 8MHz of the band. Thus Globalstar wants to keep operating up to 1621.35MHz as it was allowed to in the US before the FCC’s November 2007 ruling.

In theory, the FCC’s November 2007 ruling applied to the global operations of both systems, although in reality, Iridium would still need to seek a license from individual country regulators to operate below its originally authorized 1621.35-1626.5MHz frequency band, which may or may not have been granted. Iridium still has the opportunity to make this argument, even when Globalstar is licensed by ANFR, but it will not be able to seek sanctions against Globalstar by the FCC if it is unsuccessful and Globalstar remains authorized to operate some of its gateways up to 1621.35MHz. Instead, the licensing of the two systems will depend on the decisions of individual regulators.

Some observers have seen this as a potential problem for Iridium, but that’s not really the case. Iridium will certainly need to build the capability into its next generation system to adjust frequency allocations on a country by country basis, but that’s far from an insurmountable (software) challenge. The places where Iridium will need additional frequencies for broadband and/or voice services include the oceans (for evolutions of OpenPort), where there is unlikely to be an issue as there is relatively little Globalstar coverage, and a few key countries (e.g. Afghanistan) where support from the DoD may count in Iridium’s favor in securing additional spectrum. Thus we believe Iridium is unlikely to face any meaningful incremental capacity constraints as a result of this decision. Globalstar will benefit by avoiding potential regulatory sanctions that Iridium might have pushed the FCC to impose, but there are much bigger issues for both companies: in particular, whether sufficient growth potential remains in the handheld MSS market for all of the MSS operators to be successful.

On another topic, we’ve just released the latest report in our MSS information service, with extensive discussion of the outlook for ATC, the growth prospects for in-flight connectivity and the competition between Inmarsat and maritime VSAT. In the last few months we’ve also produced detailed profiles of Iridium and Thuraya, and will be releasing profiles and forecasts for Inmarsat and TerreStar in the near future. Subscribers to the research service include the majority of leading MSS operators, distributors, equipment suppliers and satellite manufacturers, as well as a number of investors in the MSS sector. As one MSS operator recently told us: “your reports are the only ones on the MSS sector that actually provide valuable insight for someone working in the industry”. According to another provider: “I base my business targets on your forecasts; they are the only projections that you can rely on to be realistic”.

If you are interested in finding out more about our research, then contact us for more details.

6 Comments »

  1. PCSTEL said,

    November 16, 2009 at 6:45 pm

    One may ponder Iridium’s exact designs of Iridium NEXT. If Iridium NEXT was only to occupy it’s current L Band home. Then the ANFR filing should only affect the Spectrum awarded Iridium in the 2007 Ruling outside of the US.

    However, we should remember that Iridium petitioned for the FCC to reclaim 10Mhz of Globalstar’s S Band authority earlier in this decade. Since Iridium successfully orchestrated the division of the L Band. There is no reason not to suspect they had designs on the S Band as well. After all, this would probably provide Iridium a entrance point into potential ATC authority and the ATC valuation crap-shoot.

    If so, then the timely filing of Globalstar’s Second Generation Space Station regulatory authority with the ITU via France versus the FCC could become a pivotal move in effectively blocking Iridium’s potential S Band aspirations.

  2. timfarrar said,

    November 16, 2009 at 10:25 pm

    I don’t think Iridium has or ever had any “designs on the S-band”. Both Iridium and Globalstar have been fighting each other over the Big LEO band for nearly 20 years on any front available to them, so Iridium would have been happy to see Globalstar lose spectrum (even to terrestrial) if it had made Globalstar 2 less viable. But remember the reason why Iridium chose a TDD system operating in the L-band only: because the S-band suffers from interference (e.g. microwave ovens) which (in Motorola’s opinion in the early 1990s) made it unusable for a TDMA system. In contrast Globalstar opted for CDMA which could cope with the interference. It seems highly unlikely that Iridium would opt for some hybrid TDMA and CDMA system for Iridium NEXT at this (or any other) point (it needs TDMA for backwards compatibility).

    In addition, the FCC ruled (in respect of Globalstar’s ATC application for the Open Range deal) that you can’t operate only in one half of the band (simplex L-band uplinks) as the basis for ATC in the other half of the band (S-band ATC), though it gave Globalstar a strictly limited waiver until its new system was launched. Thus if Iridium wanted to do ATC in the S-band (and notably it has always disclaimed any interest in ATC) it would have to build a satellite system operating in this part of the band, gain permission from the FCC to do that, and coordinate with Globalstar. I very much doubt this would be seriously contemplated – NEXT is already plenty hard enough to build within the $2.7B budget.

  3. PCSTEL said,

    November 17, 2009 at 10:23 pm

    Tim:

    Thanks for your feedback.

    However, we should remember that Iridium actually provided a proposed Big LEO Band Plan to the FCC that included the award of 5 Mhz (2495-2500Mhz shared BRS) of “S Band” spectrum to Iridium for TDD/ATC operations that would be exclusive to Iridium. The document was entitled: IRIDIUM URGES THE COMMISSION TO DEFER AUTHORIZING BIG LEO ATC UNTIL IT REVISES THE OBSOLETE AND ANTICOMPETIVE [sic] BAND PLAN

    http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6513399826

    One of their suggested revised Big LEO Band Plans, Plan “A”, is shown on this document provided by Iridium’s consul on Page 4. Plan “A” clearly shows “S Band” modifications to provide Iridium “S Band” spectrum.

    On Page 2, it clarifies: Iridium proposes that the Commission ensure competition between the Big LEO licensees by allocating and additional 6 Mhz of spectrum either within the 2.4 Ghz or 1.6 Ghz band to Iridium, and by reclaiming 10Mhz of spectrum for other users.

    To be fair…. One can argue of their exact intent of this suggestion.

    Perhaps a Hybrid TDMA/CDMA variant system is not such a reach of the imagination? Thus, this topology would allow backward compatibility within the TDMA exclusive spectrum in the upper third of the L Band, and allow shared CDMA/OFDM-FDD operations in the rest of the Big LEO spectrum as originally outlined in the Fourth Report and Order Adopted on June 10th, 2004. Can Iridium really justify a 2.7 Billion dollar price tag for maintaining what could be only 5.15 Mhz of globally harmonized TDMA/TDD spectrum. Will Iridium’s Broadband initiatives be supported in a backwardly compatible TDMA/TDD waveform?

    Yes, the FCC did state that providing reverse link only operations was no basis for approval of ATC operations in the forward link mode, and then promptly turned around and provided a waiver to allow exactly that. A waiver whose space segment coverage milestone date will be clearly missed, with the recently announced launch delays at Globalstar. However, with ~270 million of RUS loans, and the “rural public interest” implications, one can be reasonably assured that the Commission will not “pull the plug” on Open Range due to the space segment coverage requirement milestones being violated.

    ATC milestone/gateing requirements keep falling by the wayside, as recently exhibited by modifications to the MSS GEO spare satellite requirements to obtain ATC authority. A trend that I would expect to continue as “public interest” issues begin to weigh heavily on MSS operators available ATC spectrum assignments.

    For instance. Exactly what does, “MSS capable” imply regarding ATC user terminal gateing requirements? Globalstar claims that the inclusion of the Hughes Chipset into the BOM will create MSS “capable” user terminals. Does the inclusion of the chip alone qualify as being “MSS Capable”? Globalstar has also shown designs on a standalone space segment module that will connect to terrestrial user terminals via Bluetooth or Wi-Fi. Using this device, is a terrestrial only user terminal that possess Bluetooth connectivity then considered “MSS capable”?

    We have seen many companies game Commissions rules by interpreting the rules as they see fit vs. the “Spirit of the Rules”. (See XM/Sirius and their requirement to build a combined XM/Sirius receiver earlier this decade. Which the two companies claimed they meet the rules requirements by building ONE combined receiver, as they claimed the FCC only required them to build a combined receiver, but never required them to build/sell a combined receiver as a commercial product to customers.). The FCC responded by granting them a merger.

    My viewpoint is that the market will see greatly increased demand for “Private Label Networks” to support company specific product developments and to provide device specific competitive advantages. (See MediaFlo as the Pioneer in this concept). Others will follow. i.e. Apples own PLN to support Itunes/App. Store/Mobile Me/Data Services to Ipod Touch, Iphone, Itablet product lines.

    The four major CMRS providers no longer provide “Unlimited Data Plans” to Laptop Connect cards, most now capped at 5GB per month. How will these trends in capped data plans affect a company like Google and their soon to be released Chrome OS for netbooks? An OS built on the topology of “Cloud Computing”. Conceived on the premise of moving large/unlimited amounts of Broadband Mobile Data capacity at low prices. Will the loss of unlimited data plans via the CMRS providers effect the Chrome OS’s operational costs and efficiencies? Hence Googles investment in Clearwire?

    I believe we will have exponential increases in spectral demand to make way for these PLN’s, whilst available spectrum coming to market in the next 4-6 years is at a near-time low.

    The question that needs to be answered is…… Will the FCC’s MSS ATC gateing requirements and the exact definition of “MSS Capable” stand up to the test of the overall “public interest”, in bringing additional terrestrial capacity to the marketplace?

    PCSTEL

  4. timfarrar said,

    November 18, 2009 at 9:11 am

    Well, just because Iridium wanted to give Globalstar a poke in the eye with a sharp stick, doesn’t mean anything about what they did or didn’t intend to build for NEXT. In this case the 2495-2500MHz band is (and was) part of the BRS relocation, so it was never expected to be (and has not been) authorized for ATC (and would be problematic for MSS uplink/TDD operations for the same reason).

    The question of what the new Commission intends to do with the ATC gating requirements is a good (and open) one. Remember that the waivers and favorable conditions to promote ATC (for both LEO and GEO providers) were granted by the last Commission, before the inauguration in January 2009. Now the new Commission is actively in search of more terrestrial wireless spectrum, and the CTIA and terrestrial operators have once again hardened their attitudes towards MSS spectrum (basically returning to their hostility of several years ago) presumably because they now see another chance to reclaim satellite spectrum for terrestrial services.

    The FCC has called in SkyTerra to “learn more” about their ATC plans (http://gigaom.com/2009/11/09/satellite-cos-pitch-their-spectrum-to-the-fcc-and-eventually-carriers/) and while further waivers could be granted, the Commission could just as easily decide to take a hard line in the future, i.e. use it or lose it. After all, the proposal on the table for broadcast TV spectrum to be returned in exchange for compensation and/or a share of future auction proceeds is a perfectly valid methodology to apply to MSS-ATC spectrum (albeit far more easily to the 2GHz band where there are no existing satellite users than to the L-band or Big LEO band).

  5. PCSTEL said,

    November 18, 2009 at 5:53 pm

    While it is true that many of the modifications and waivers for pre-existing ATC gating requirements were granted during the previous (Martin) Administration at the Commission. It should be noted that it was largely a right-leaning regulatory body with Martin, Tate, and McDowell in the majority, with Copps and Adelstein as the Democratic minority.

    However, the measures passed, much to this authors surprise, promoted by the minority based Copps and Adelstein supporting the Globalstar initiatives, and Martin and McDowell dissenting.

    With the new makeup of the Commission, we now have a left-leaning Commission. So, I would expect more of a “public interest” theme to the ATC proceedings versus a hard line approach.

    I would also suggest that Globalstar becoming, in effect, registered under a Foreign Flag, may greatly complicate the simplicity in any space segment spectrum recapturing process that the Commission may compile designs on. Both from a national perspective, and most definitely an international basis. After all, one could not dismiss the possibility of reciprocating sanctions in other countries on US flagged Big LEO participants. A feud I doubt the US would want to initiate.

    This would have of course been easier dealt with if both Globalstar and Iridium had maintained US FCC registrations. In this instance, the French Government has certainly placed Globalstar under it’s wing, and have a rather large financial interest in protecting it’s national investment. I guess Globalstar got tired of the constant “poke in the eye’s” (see Iridium’s current petition filed with the U.S. Court of Appeals DC for review of the FCC’s ATC Order), and decided to seek outside representation. Or as Matt Desch said in the Iridium CC on Monday.

    “a tactical decision that they (Globalstar) happen to make, to go through a friendlier environment”

    I personally think it was “Brilliant”, but the fallout remains to be seen.

    The Open Range ATC Lease Agreement set a bit of a precedent. I believe it is a solution that provides the answers to several problems.

    First, it provides relief for the question of how to deploy/administer terrestrial frequency reuse of MSS space segment resources. The terrestrial reuse generally requires some amount of coordination between the terrestrial and space segment operations, so a lease arrangement would provide the best avenue for terrestrial/space segment coordination. This Lease arrangement promotes the “public interest” in reducing time to market of what may become critical terrestrial spectrum resources into the public marketplace. Obviously, any sort of Government Spectrum Recapturing would be tied up for years in the Courts. (See Nextwave Telecom)

    Second, it provides an answer to the continued funding requirements of MSS systems that cost Billions to build and launch, have limited commercial appeal, but provide tangible “public interest” benefits. From SPOT PLB services to First Responder communications, the public interest benefits are numerous.

    As we all know, the business case for MSS systems/services are poor, as we have seen Billions of dollars in investments disintegrate over the last decade. Perhaps ATC spectrum leasing provides the best answers to the overall “public interest” demands?

    This reclassification of spectrum “Free spectrum” is nothing new. FleetCall successfully migrated non-auctioned Taxi Dispatch Licenses (SMR spectrum) into a Nationwide Cellular Telephone Company in the later parts of the 1980′s and early 1990′s.

    I am quite keen on the proceedings of the funding of Iridium NEXT though.

    It appears to me that any type of COFACE supported funding for a Thales Contract would be remote at best. Iridium has stated that even if Thales were to receive the contract. Integration of the Satellites would have to be completed on US soil for DoD requirements. Would COFACE provide support for a project that integration would be largely based in the US? In addition, in the case of Globalstar, COFACE required secured debtor status, in which the satellites are secured assets. I doubt the DoD would be open to such an arrangement with Iridium. While the Iridium constellation provides several unique operational characteristics. It also possess the problematic single satellite/Gateway view in the equatorial regions.

    PCSTEL

  6. timfarrar said,

    November 18, 2009 at 8:50 pm

    We’ll have to see how the “public interest” arguments play out. At the moment there’s a lot of public interest in wireless broadband (not something you’ll get through a handheld satellite phone). We haven’t yet seen much in the way of public interest benefits from the enormous effort put into the ATC regulations (although several satellite systems wouldn’t even have got built without them, we’ve not got any of the promised new services quite yet, and we still don’t know how well they will actually work or how many people will want to subscribe).

    The current restrictions have so far proven too tough to persuade any of the major wireless operators to commit to ATC, but I wasn’t suggesting that the FCC needs to force MSS operators to give up their spectrum, merely that some (North American) players might voluntarily choose such an option if it was available, and they have no meaningful satellite business to speak of. If you really are going to generate significant revenues from both satellite and terrestrial services, then you either need to split the band (and remember that band segmentation now looks like the preferred implementation option for many providers), or (if feasible) strike an ATC deal.

    Is a lease better than owning spectrum from the point of view of a wireless carrier? Clearwire has a much lower book value for its EBS leases than for its owned BRS spectrum (considerably more of a gap than would be accounted for by the NPV of the lease payments on a MHzPOP basis) due to the risks involved (lease termination, etc.). If a wireless operator owns the spectrum then its an important asset if they can’t make a go of their business plan (viz Clearwire again). Also a relatively modest annual lease payment doesn’t go far in paying for any satellites (or the very expensive debt interest for some operators).

    Would COFACE provide support for a project doing its integration in the US? Well the integration of the Globalstar satellites is in Rome, so I don’t see much of a distinction here (you can argue that it would be a subcontractor, not a Thales factory, but the amount of value transferred to the subcontractor could presumably be taken into account in the amount of funding supported). I’m also doubtful about your secured debt concern – its not like COFACE or any other secured debt lender would be able to listen in on the DoD’s communications in the event of a default.

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