09.20.10

LightSquared continues to raise more money

Posted in Services at 9:45 am by timfarrar

Last week it was reported that LightSquared had raised another $750M loan from UBS, to add to the $400M loan it secured from UBS back in July. Today it is also being reported that SK Telecom is considering an investment of up to $100M in LightSquared.

This is undoubtedly good news for LightSquared, although it appears that the new $750M loan is likely to be a refinancing of SkyTerra’s outstanding $750M in first lien debt, which would otherwise have become cash pay on October 1. Even so, Harbinger held the majority of the original first lien loan, and so if the $750M is all new money from third parties, this would enable Harbinger to inject as much as $400M to $500M of additional funding into the LightSquared venture, simply by rolling over its original first lien holdings into subordinated debt or equity. Given that Harbinger stated back in July that it was raising up to $1.75B, then this would appear to match with that target ($400M July loan + $750M September loan + $400M-$500M of new Harbinger equity + $100M of third party funding), although in reality there would only be $1B of additional funding for the network buildout (plus potential vendor financing from Nokia Siemens Networks, which has not yet been announced).

However, last week also brought more ominous news for Harbinger in the form of the FCC’s denial of Globalstar’s ATC waiver request. As we noted at the time, Harbinger faces aggressive buildout milestones and has a pending request for a waiver of the SkyTerra-1 satellite launch deadline. If the FCC is sending a signal to Harbinger that it will not tolerate missed deadlines due to funding problems, which was the principal rationale for the Globalstar ruling, then investors in LightSquared will have to worry about how valuable the spectrum assets would be if LightSquared failed or otherwise could not meet the FCC’s deadlines. Indeed Harbinger’s own “voluntary commitments” included the condition that the LightSquared “authorizations” (its ATC license and perhaps even its MSS license depending on the interpretation of this phrase) will automatically be “null and void” without any need for further action by the Commission if LightSquared fails to meet the buildout milestones.

In particular, the question arises of whether the FCC would impose costly buildout conditions on a potential purchaser of the spectrum assets, or possibly even veto a purchase by AT&T/Verizon on competition grounds. In our view, the Globalstar ruling introduces rather more uncertainty about whether it will be possible to guarantee active bidding in the event that the LightSquared assets are sold in the future (especially in a bankruptcy auction where approval of the transfer would have to be sought afterwards from the FCC), and thereby makes it harder to put a floor under the value of LightSquared’s spectrum.

6 Comments »

  1. ORBITRAX said,

    September 20, 2010 at 4:10 pm

    The FCC has not requested any documentation to support that the delays were not financial. I expect the Commission to continue it’s heavy-handed regulation of Globalstar versus it’s MSS peers.

    I also was under the impression that Lightsquared had about ~100 million in satellite payment deferrals due Boeing in late December 2010?

    Orbitrax continues to believe that the FCC has no legal basis or authority to require specific levels of space segment MSS performance “High Speed MSS”, ATC/MSS user terminal performance which exceeds the maximum level of the original Qualcomm RAN 9.6kbs when their ATC authorizations were originally issued in 2006.

    See MSV ATC authorization.

    Orbitrax

  2. timfarrar said,

    September 20, 2010 at 9:27 pm

    The $1B available to build out the LightSquared network refers to both satellite and terrestrial expenses. A significant fraction of this sum will need to be devoted to Boeing vendor financing repayments, Inmarsat rebanding payments and launch insurance.

    With respect to Globalstar, the FCC stated in Globalstar’s 2008 ATC license that (as per its 2005 Order) the gating criteria must be satisfied separately in each frequency band. Thus a simplex (L-band) satellite transmission would not be sufficiently “integrated” with respect to an S-band ATC network. Exactly what level of “high speed” data capabilities are required by the gating criteria (as opposed to Globalstar’s own promises of specific data rates in its application) once a two-way chipset is developed and integrated into the ATC terminal remains unclear. As far as I am aware LightSquared, TerreStar and DBSD did not make specific promises to the FCC that they would achieve a particular data rate over the satellite with their ATC terminals, and of course in the case of LightSquared and TerreStar no terminals have yet been approved for ATC service, while DBSD’s terminal was focused on one way broadcast service (MIM).

  3. ORBITRAX said,

    September 21, 2010 at 9:52 am

    We understand the FCC interpretation of the “integrated service offering” requirements ad the Commission choses to apply to Globalstar. However, In the case of MSV’s approved MSS/ATC user terminal solution. The FCC in the MSV Order (DA 04-3553) ruled that

    “We find that MSV’s proposal to deploy dual-mode handsets that will initially require use of a plug-in booster for MSS communication is a reasonable temporary solution that will enhance economic efficiency by making it possible to use the same LIGHTWEIGHT HANDSET for dual-mode operation with both first- and second-generation satellites. WE CONDLUDE THAT THE PROPOSAL IS CONSISTENT WITH THE COMMISSION’S INTEGRATION REQUIREMENT,”

    Here the FCC clearly provided a definition of the “integrated service requirement”. A low-water mark if you will. The FCC claims that the stand alone ATC terminal would actually be a Single Mode ATC terminal that would be capable of Dual Mode operations if a bulky external amplifier and antenna were to be “plugged-in”. There is no requirement that the stand alone “LIGHTWEIGHT HANDSET (FCC DESCRIPTION)” would be rendered non-operational if the external Dual Mode Enabling device was not attached.

    It should also me noted that the FCC called this “a temporary solution” even thought the Satellite that would eventually allow Dual Mode Operations with the approved “lightweight” ATC device had not even been approved for a license, let alone provided a start of construction milestone.

    Furthermore, in the MSV Order. The Commission clearly understood that ATC terrestrial component services would provide high capacity mobile services by re-using the space segment spectrum.

    DA 04-3553 (MSV ORDER AND AUTHORIZATION)@2.

    2. In the ATC Report and Order released last year, the Commission adopted rules under which MSS operators can obtain authority to integrate ATCs into their MSS networks. THIS WOULD ENABLE the operators to provide HIGH-CAPACITY MOBILE SERVICES by re-using spectrum already assigned to them.

    It should be noted that the AMSC satellite which served and still serves as the basis of MSV/Skyterra/LightSquared ATC authorization provided no data services at the time of the ATC authorization in 2004. Yet the FCC clearly understood that the services provided on the terrestrial segment would be “high capacity” versus the Space Segment. So it is ironic that the FCC opined that low data rate SPOT service would not satisfy the “integrated service requirement” offsetting high speed WiMax services on the MSS segment. There is absolutely no indication in the Rules that claim that there is any relationship between ATC service offerings and those available on the MSS segment. The FCC requiring such as a basis for ATC authorization is without merit or legal standing. We understand that there is the requirement for forward and reverse band utilization. So the question becomes one of definition of S Band service.

    For instance we know that the S Band Amplifiers have experienced a gradual degradation over the last decade, and there becomes a point that the S Band Link Margin reaches a point were S Band services are no longer capable to existing “Small Form Factor” user terminals due to weak signals emitting from the S-Band Amplifiers. But, what if Globalstar employed “plug in” external receiver amplifiers (MSV/Skyterra) and directional antennas that require user participation (Terrestar, Inmarstat) to achieve suitable link margin on the S-Band?

    Then is Globalstar’s constellation really in violation of it’s MSS Coverage and Spare Satellite gating requirements?

    Are the operational and technical requirements (High-Speed MSS)required by Globalstar by the Commission to maintain it’s ATC authorizations in excess of it’s MSS peers? Are the Commissions rulings far stricter on Globalstar than it’s peers, and if so, what are their motivations to do so.

    As I have opined before. I wouldn’t know what “tortious interference” looked like if it passed me on the street. But, If I had to guess, it might look something like what we have seen.

    ORBITRAX

  4. timfarrar said,

    September 22, 2010 at 1:57 pm

    Clearly in the case of the 2004 MSV authorization the key issue was that the dual mode device would work without the “signal booster” once the next generation MSV/SkyTerra/LightSquared satellites were launched. The signal booster is thus a temporary measure. This concept is different but not inconsistent with Globalstar’s approach of having a single mode device which is upgraded later to a new chipset.

    It is certainly the case that the original MSV authorization did not include milestones for launch of the next generation satellites. In that sense the Commission’s 2008 ruling on Globalstar, which did include specific deadlines, is “stricter” than the 2004 MSV ruling. However, this is arguably part of a process where the FCC has progressively tightened the criteria associated with ATC authorizations over time. Notably, the LightSquared authorization in March 2010 included specific deadlines for the ATC network as well, and we will have to see how these are treated by the FCC, if LightSquared needs them to be relaxed. Only if the Commission was more lenient in that case would it be reasonable to argue that Globalstar is being treated unfairly at this point in time. Indeed, as noted above, the fact that Globalstar’s waiver request has been denied should be a pretty strong signal to LightSquared not to ask for any similar waivers of its ATC deployment deadlines.

    Of course there is the pending request for a delay of LightSquared’s satellite launch, but given that there is no LightSquared ATC network in operation at the moment, their ATC plans should not be impacted by that request. Satellite launch deadlines have repeatedly been missed in the past, and waivers given (e.g. to both DBSD and TerreStar), but the FCC appears to be drawing a distinction between satellite and ATC authorizations.

    As an aside, DBSD and TerreStar’s ATC authorizations do not contain deadlines for deployment, but at present these are better thought of as “prospective” authorizations rather than “real” deployment plans as Globalstar/Open Range and LightSquared have put forward.

  5. ORBITRAX said,

    September 22, 2010 at 9:12 pm

    The issue with the MSV ATC order and the resulting affirmation that the MSV proposed ATC terminal fulfilled the Commissions “Integrated Offering” gating requirement is not consistent with the proposed Globalstar solution. First and foremost. There is no reason as to why the FCC did not require that MSV provide a complete Dual-Mode stand alone solution in 2004. The FCC made a determination that the MSV ATC single-mode stand alone solution that simply would provide an Dual-Mode integrated solution at a future point in time, to a satellite that was completely void of regulatory authorities at the time of the grant is actually the only definitive definition of what the FCC considers “acceptable”.

    As you noted, the MSV solution did not provide satellite launch and operational milestones, nor did it have any RAN QoS service qualification. As a matter of fact, I believe that you will be unable to find another MSS company that is a peer to Globalstar that has specific space segment service level requirements “High Speed MSS”. This requirement is arbitrary, discriminatory, and not supported by the codified ATC rules. You opined that the FCC regulatory modifications of Globalstar’s ATC requirements is “arguably part of a process where the FCC has progressively tightened the criteria associated with ATC authorizations over time.” Unfortunately, there is no case to support this viewpoint. All one has to do is read the current NPRM/NOI to understand the wind appears to be blowing in the complete opposite direction for all the other MSS companies, minus Globalstar. For instance, when Terrestar received it’s ATC authorizations in January of this year. There is no requirement for specific levels of service “High Speed Data” that was arbitrarily added to their ATC gating requirements. If Globalstar had simply planned to launch satellites, are restart two-way voice and data services, without eventual upgrades to the RAN, then would they still have been tied to a “HIgh Speed MSS” requirement? Only with Globalstar does the FCC make these demands. Not one of Globalstar MSS peer, either before, or after the November 2008 ATC Wimax ruling has a requirement to provide a specific level of service on the Space Segment, in order to deem specific service levels on the terrestrial ATC reuse as being deemed. An integrated offering.

    The FCC has a storied history of regulating Globalstar differently than its MSS peers. From the cancellation of it’s 2Ghz MSS license, to the complete lack of action on outstanding STA’s since 2007.

    http://orbitrax.com/?p=2192

    ORBITRAX

  6. Coming Soon – The L’Aquila Earthquake. The FCC outsmarts itself. said,

    September 23, 2010 at 5:33 pm

    [...] “However, last week also brought more ominous news for Harbinger in the form of the FCC’s de… [...]

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