05.25.10

Can I interest you in some spectrum?

Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 4:08 pm by timfarrar

As Harbinger tries to secure partners for its proposed 4G LTE network, it now looks like Craig McCaw and Clearwire could potentially end up playing spoiler.

A research note from Credit Suisse, published on Monday highlighted the potential value of MSS spectrum and suggested it could be worth as much as $0.50 per MHzPOP. It also noted that the spectrum value of Clearwire “is likely underappreciated”. No substantive justification is given for the $0.50 per MHzPOP valuation suggested in the research note, other than the fact that this is close to the median value in the 2006 AWS spectrum auctions, and there are a number of elementary mistakes in the analysis of TerreStar (most notably that no mention is made of the more than $400M of Convertible Preferred Stock which must be repaid before any value from the 1.4GHz spectrum is realized by the equity holders). The fact that the FCC “will expect a portion of the
step up in value for both [2GHz] MSS and broadcast spectrum” is also only mentioned in passing, despite the fact that this will have a huge impact on the realizable value if the spectrum is ultimately included in an incentive auction. Despite this, the research certainly seems to have stimulated some increased interest in MSS-ATC spectrum, as evidenced by the jump in the price of TerreStar’s stock on Monday, and could be seen as potentially helping Harbinger in its quest to attract investors for its 4G network.

However, perhaps coincidentally, last Friday, Business Week published an article highlighting Clearwire’s spectrum value (which it puts at “$20B or more” or $0.50/MHzPOP). In my view, this article clearly indicates that Clearwire is now open to offers for purchase of some of its spectrum. In that case, wireless operators who are looking for spectrum in the short or medium term, such as T-Mobile, would certainly have a viable alternative to MSS-ATC spectrum if they are looking to build out a 4G network. Given that there are only a few potential purchasers of wireless spectrum at the moment (and the it now looks like the FCC doesn’t want AT&T and Verizon to buy any more spectrum in forthcoming auctions), the fact that Clearwire and Harbinger may end up competing to attract one of this limited number of partners won’t do anything to push up the price that can be secured for their spectrum in the near term.

3 Comments »

  1. PCSTEL said,

    May 26, 2010 at 10:18 am

    Overall. An interesting report. But so many inconsistencies. As you pointed out. The lack of the 425 million preferred plus dividends obligation, or any mention of the FCC implication of the “step up in value” penalty for the 2Ghz MSS licensees. Which if included would still put the equity holders of Terrestar out of the money until we reach the extreme high end of the Mhz/POP calculation valuations.

    In my opinion. Terrestar is worth more in pieces than as a whole. i.e. Spectrum returned for reauction and Satellites sold. However, I believe Harbinger’s recent $40 million in pre-payments of Satellite Airtime may prevent such an occurrence without the approval of same. Harbinger has certainly provided the appearance of attempting to provide funding to keep Terrestar out of Bankruptcy. Which won’t hurt him is court.

    The report also uncovers a bit of a dichotomy of sorts between Harbinger and Echostar. Where Echostar’s recovery via the debt, might be greatest post-pettiion, while Harbingers recovery might be greatest absent of a petition.

    On the Big LEO front. The report provides a Spectrum Valuation for all of Iridium’s L Band Spectrum, even though non has been applied for, let alone approved for ATC operations, while only the portion of Globalstar’s spectrum (20Mhz) associated with ATC approval was included. Nor were the potential valuations for possible international ATC authorizations as the company reported being in regulatory processes in several additional countries at the recent shareholder meeting.. France and Brasil being mentioned at one point.

    PCSTEL

  2. Is Clearwire Prepping for a Spectrum Sale? said,

    June 3, 2010 at 3:31 pm

    [...] according to analyst Tim Farrar of TMF Associates. Farrar, who covers satellite companies closely, blogged about the potential for Clearwire to sell its spectrum last week after BusinessWeek published an article touting the estimated $20 [...]

  3. Is Clearwire Prepping for a Spectrum Sale? - Salon.com said,

    May 21, 2011 at 5:54 am

    [...] according to analyst Tim Farrar of TMF Associates. Farrar, who covers satellite companies closely, blogged about the potential for Clearwire to sell its spectrum last week after BusinessWeek published an article touting the estimated $20 [...]

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