11.29.10

Could the FCC end up torpedoing its own NPRM?

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 3:57 pm by timfarrar

Last Friday the FCC extended the deadline for comments on the LightSquared’s updated ATC plans to December 2, with reply comments due by December 9, after a request from the CTIA. As I noted last week, it will be interesting to see the response from different cellular industry players, to what the CTIA characterizes as a “new precedent with significant legal, regulatory, and policy effects”.

If the FCC does agree to LightSquared’s request that it should be permitted to offer integrated service just to its wholesale customers, with no obligations upon those customers to offer only integrated service packages, this would mean that end users would then be able to purchase terrestrial-only terminals and service plans. In such circumstances, it is hard to see what would be gained by the 2GHz MSS players agreeing to relinquish their spectrum for an incentive auction, and to share the proceeds of that auction with the government. As a result, the FCC could end up torpedoing the intentions of its own NPRM/NOI, particularly the objective of gaining “appropriate compensation for the step up in value” of the 2GHz spectrum, because, as the FCC admits, it cannot force DBSD and TerreStar to give up their satellite spectrum, while these companies have operational satellites in orbit. Both companies would therefore presumably be well within their rights to hold out for a similar wholesale ATC-based arrangement to that planned by Harbinger and LightSquared, under which they could keep all of the proceeds from (for example) a leasing arrangement with a major cellular operator.

The FCC might still have some leverage, as it would be able to impose buildout conditions on any proposed ATC license modifications (or on a future merger of DBSD and TerreStar). However, any deal could also be delayed considerably by the additional uncertainty that would be introduced over the value of the 2GHz MSS spectrum in the current bankruptcy proceedings. This is likely to be particularly problematic in the case of TerreStar, where it already appears that there will be substantial disagreements between the parties concerned, due to the numerous classes of creditors, including both secured and unsecured debt holders at TerreStar Networks, plus preferred and common stock holders at TerreStar Corporation.

Such an outcome would clearly help Harbinger, as it looks to attract investors and partners for LightSquared, because the 2GHz spectrum would then provide a less clear-cut alternative for cellular operators such as T-Mobile. In that context it was particularly interesting to see a research note issued last week by New Street Research in London, which rated a “deal with Echostar (as likely owner of TerreStar and DBSD spectrum)” as the most probable of five alternative spectrum sources for T-Mobile USA, while suggesting that “a deal with LightSquared (or its successor)” was the least likely option for T-Mobile.

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