05.14.10

Is there a future for TerreStar’s Genus phone?

Posted in Financials, Handheld, Operators, Services, Spectrum, TerreStar at 10:26 am by timfarrar

Back in March, I was lucky enough to try TerreStar’s Genus phone at the Satellite 2010 conference. At that time it was clear that the phone needed further work to get it ready for commercial service, and recent filings from TerreStar indicate that the company is now working with HNS on an “ATT-QoS Workaround” to address some “APN Issues” (APN or Access Point Node relates to data services, which I did not try to use back in March).

UPDATE: I’m told by a technical expert in this area that the GMR1-3G protocol used by TerreStar treats all information as packet data, including voice (which has the highest QoS). Given that AT&T’s terrestrial network carries voice over GSM and does not normally provide an equivalent voice over packet data service at this point in time, it appears quite plausible that the workaround relates to an attempt to optimize voice performance rather than being an issue for TerreStar’s data services.

However, my concerns about the viability of the Genus phone relate much more to whether the orientation-sensitivity of the phone will actually be acceptable in real world usage conditions. To use the phone you need to know where the satellite is located (roughly southwest when you are on the East Coast) and have clear visibility in that direction. Though that was simple at the Satellite conference, where this direction was out over the Potomac river, it certainly won’t always be the case in rural areas, unless its a desert or a prairie. I still remember only too well the joke I was told by a Globalstar engineer ten years ago – that their system was designed for a “man out standing/outstanding in his field”. More to the point you also need to stand still and not turn around – very different to the situation with Iridium and Globalstar handsets, where the extending antenna goes above your head and allows you to “walk and talk”.

If orientation-sensitivity does prove to be a big problem for potential users, as I think it will, then TerreStar is faced with an unpalatable choice: design a phone with an extending antenna, which will work fine, but would have no mass market appeal, or sell a phone like the Genus, which could conceivably have wider appeal, but won’t provide acceptable performance in satellite mode. Fundamentally, I therefore don’t see any reason to change the opinion I expressed last year during the DBSD bankruptcy, that “the part of TerreStar’s business plan directed to a mass market service is very unlikely to succeed”.

However, there has been one important change in the environment for TerreStar over the last six months, because the FCC has now held out the possibility that 2GHz MSS spectrum holders will be able to participate in an incentive auction, which would potentially allow them to return their spectrum to the FCC for re-auction as terrestrial spectrum without any ATC restrictions. Given the difficulty in realizing value from a satellite roaming business plan, then unless Harbinger negotiates a lease agreement for TerreStar’s satellite spectrum, as part of its planned L-band ATC deployment, it seems likely that this would be the best exit TerreStar could hope for. However, given that the FCC would only give TerreStar a proportion of the proceeds from the auction, and it would probably take a couple of years before that auction even happened (during which period TerreStar will have to raise more money to keep its satellite in operation), it is hard to imagine that the proceeds could exceed the secured debt load that TerreStar has accrued to date. Even if TerreStar did enter some sort of lease agreement with Harbinger (some details of the draft term sheet for the Spectrum Pooling Agreement, which appears to contemplate a “potential purchase of the S-band Spectrum” as one option, but not a takeover of TerreStar itself, have also been publicly filed), then it seems implausible that this payment would exceed the value of SkyTerra’s lease agreement with Inmarsat, which calls for payments of $115M per year, and it could very well be much less. Unfortunately even $115M per year would be insufficient to pay the interest on TerreStar’s secured debt, when it becomes cash pay next year. Remember also that if TerreStar stays out of bankruptcy, it will at some point have to pay Sprint’s spectrum clearing expenses, which Sprint has claimed exceed $100M for each of TerreStar and DBSD.

At this point in time, the future for TerreStar therefore looks pretty uncertain. More importantly for the rest of the MSS market, it is far from clear whether the Genus phone will provide meaningful competition to other handheld MSS providers, and even whether AT&T will actually go ahead with any large scale commercial launch of the handset. I’m sure everyone will be watching with interest to see what news emerges over the next few weeks.

4 Comments »

  1. PCSTEL said,

    May 17, 2010 at 7:50 pm

    Interesting move by Harbinger with the prepaid satellite airtime. Up until now. They (Terrestar) could return the spectrum to participate in an incentive auction, or any company could purchase the company in/or out of bankruptcy, and divorce the spectrum from the Satellite, with the FCC’s nod of course. With one possibility of sending the satellite over to Solaris in Europe, who just so happens are in need of a fully functional GBBF 2Ghz MSS satellite.

    However, with the 40 million in prepaid airtime, it appears that this transaction may in effect bind the satellite and the spectrum together. Making it less palatable to a competing bidder whom may have also had an eye on divorcing the spectrum from the satellite. In other words. It may be worth more broken up, than in one piece. In this case… The only company that could divorce the spectrum from the Satellite would be Harbinger.

    Anyone else going to the Globalstar Annual Meeting next week in Milpitas?

    PCSTEL

  2. flatcat said,

    May 28, 2010 at 9:02 am

    There may or may not be success in selling the Genus phone, but it has nothing to do with the way the phone must be oriented during use. The Genus phone allows both bluetooth and wired headsets. This makes it easy to hold the phone in the proper orientation while talking and using the smartphone features.

    TMF comment: Its worth noting that the same argument was made for Inmarsat’s original ISatPhone (where the manual explicitly advised using the hands-free mode and pointing the phone antenna at the satellite). In reality that phone completely failed to gain any traction against competitors like Iridium which allowed “walk and talk”, and Inmarsat has now made a big deal of saying its new ISatPhone Pro will allow “walk and talk”. Unless the Genus phone is mainly used in smartphone mode for data/SMS the same outcome may occur.

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