01.12.11

Moving towards the spectrum endgame

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 11:41 am by timfarrar

In the game of musical chairs being played by spectrum holders such as Clearwire, LightSquared, TerreStar, DBSD and NextWave, it looks like we may be approaching the point at which the music stops and we see who has secured a strategic partner and who hasn’t. At the moment there certainly appears to be a scramble to get into T-Mobile’s chair, as Clearwire reinforces its efforts to secure funding and Harbinger looks to move forward with its LightSquared buildout.

Clearwire’s newly appointed director, Ben Wolff, is taking the role of strategic adviser to secure a deal, with the most plausible outcome involving an equity investment from T-Mobile. In December, Sprint indicated it would be receptive to such a deal (and later turned down the chance to invest more money itself), after seemingly vetoing that prospect back in September, and pushing instead for Clearwire to move forward with a spectrum sale. However, the spectrum sale apparently went pretty badly, given that expectations were quickly downgraded from “$2.5 billion to $5 billion” to a more recent “up to $2 billion“.

LightSquared is also expected to announce its next moves pretty soon, given that LightSquared said last October it would “accelerate its planned implementation of the Phase 2 [spectrum lease] agreement [with Inmarsat], which now will take effect by the end of the year”. However, if a Phase 2 notice had been given to Inmarsat last month, then I understand Inmarsat would have been obligated to make a public release to that effect. LightSquared said at that time it had “already signed wholesale distribution agreements ‘and is in advanced negotiations with numerous potential partners’”, although with the exception of last summer’s 1.4GHz spectrum deal with Airspan, we are still waiting to hear about who those partners might be.

It seems that LightSquared may have to wait for approval from the FCC for the proposed change to its business plan before it is able to finalize its next round of investments and partnerships. Somewhat to my surprise, this did not get approved in conjunction with the FCC’s net neutrality ruling in December, apparently because of objections from the GPS Industry Council about potential interference with GPS receivers. In fact, the GPS Industry Council has now proposed that action on the LightSquared waiver application should be deferred (for what appears to be a 3-6 month period) until the NTIA has analyzed this interference question. Such a delay would clearly make it all but impossible for LightSquared to meet its objectives of launching commercial services later this year, and calls into question its ability to meet the FCC deadline of December 31, 2012 for LightSquared to offer service to 100M POPs. Of course, if delays in regulatory approvals caused LightSquared to miss this deadline, then the FCC would presumably issue a waiver. However, one key issue is that Inmarsat has 30 months from the point at which LightSquared issues its Phase 2 notice to make this spectrum available to LightSquared, and without this additional spectrum the capacity of LightSquared’s terrestrial LTE network would presumably be rather constrained.

How all these regulatory challenges are impacting the considerations of LightSquared’s potential partners is hard to tell, but this series of events (now potentially complicated further by the Mexican L-band satellite contract with Boeing in December) does help to explain why it has been so difficult for ATC spectrum holders to find strategic partners, and why MSS spectrum assets generally trade at a discount to similar terrestrial spectrum.

UPDATE: The NTIA has just filed a rather devastating letter with the FCC, indicating that “Several Federal agencies with vital concerns about this spectrum band, including the Departments of Defense, Transportation and Homeland Security, have informed the NTIA that they believe the FCC should defer action on the LightSquared waiver until these [GPS] interference concerns are satisfactorily addressed”. Its not clear whether the FCC will now be in a position to approve the Draft Order and Authorization that it had sent to the NTIA (according to the DoD letter attached to the NTIA submission) when it is already facing significant criticism for supposed overreach in the net neutrality proceeding. If that doesn’t happen, then it will be interesting to see where Harbinger goes from here.

FURTHER UPDATE: LightSquared’s CEO sent a letter to the NTIA on January 6 offering $20M to fund a six month study of the GPS interference issues. Obviously LightSquared wants this study to take place after FCC approval of its new business plan (which it notes is “an essential building block for our network and requires quick favorable action so that we may continue to roll out our network”), whereas the NTIA has requested that this approval should not be granted until after the study has been completed and their concerns addressed.

1 Comment »

  1. ORBITRAX said,

    January 13, 2011 at 1:41 pm

    You stated:

    ” Such a delay would clearly make it all but impossible for LightSquared to meet its objectives of launching commercial services later this year, and calls into question its ability to meet the FCC deadline of December 31, 2012 for LightSquared to offer service to 100M POPs. Of course, if delays in regulatory approvals caused LightSquared to miss this deadline, then the FCC would presumably issue a waiver.”

    I was under the impression that the approval of Lightsquared’s “Updated Business Plan” and associated “waiver application” were not part of the original deployment commitments and waivers. Just because Lightsquared now seeks to modify the definition of an integrated product offering which now appears to affect their ability to raise funding and find partners, I am not sure that lack of approval of these new modifications would be grounds for a waiver. After all, Globalstar had a delay in raising funds to meet their waiver commitments, and it’s ATC authority was promptly suspended.

    Unless of course, if the FCC has devised a policy to pick “winners and losers” in the MSS marketplace.

    ORBITRAX

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