Today the FCC has released a very carefully worded Order, granting LightSquared and its wholesale partners permission to offer terrestrial-only service to consumers. Despite LightSquared’s original assertion that its plan to provide “integrated service” to wholesale partners (who could resell terrestrial-only services to end users) complied with the ATC rules, the FCC found that LightSquared’s wholesale partners did not have the right to provide terrestrial-only services, unless LightSquared also had these rights. Nevertheless, the FCC decided that LightSquared merited a waiver of the rules, because “this is a promising opportunity to promote mobile broadband” which “increases competition and provides consumers with more choices”.
Importantly, the Order is written specifically to justify only giving LightSquared a waiver, without the FCC being obliged to provide a similar waiver to other MSS competitors. The FCC cites five reasons that the waiver would serve the public interest:
1) Provision of Ubiquitous, Nationwide MSS: the FCC notes “LightSquared’s current service offerings and demonstrated commitment to providing MSS” and that the company “is already a significant and substantial provider of MSS”. DBSD and perhaps even TerreStar might find it hard to provide comparable justification.
2) Rationalization of MSS L-band for Improved MSS and MSS/ATC Use: the FCC notes the large sums being spent by LightSquared “to rationalize narrow, interleaved bands of L-band spectrum”. Other MSS providers obviously do not have the same justification, and by way of contrast DBSD and TerreStar have disputed their band clearing reimbursement obligations to Sprint.
3) Investment in Dual-Mode Service and Device Offerings: the FCC notes LightSquared’s “commitment to developing an integrated MSS/ATC marketplace, including dual-mode devices”. While DBSD and TerreStar were originally parties to the LightSquared agreements with Infineon and/or Qualcomm, they have not continued to fund those development agreements since their bankruptcies. TerreStar has launched the Genus phone, but that device is not ATC-compatible.
4) Unique Terrestrial Buildout Obligations in the MSS L-band: the FCC notes LightSquared’s commitment to “significant terrestrial buildout milestones”. This is probably the most critical of all the elements in the eyes of the FCC, but it would obviously require huge expenditure for any other MSS operator to commit to a similar nationwide terrestrial rollout.
5) LightSquared Commitments: the FCC notes that “LightSquared offers numerous commitments, many of which we impose as waiver conditions, below, to ensure consistency with the purposes of the gating criteria and the integrated service rule.” Similar commitments would presumably be required of any other MSS operator.
One of the main outcomes of this ruling is that the 2GHz spectrum holders could face additional confusion and potential delay in both their bankruptcies and subsequent service deployment. Some creditors may see the FCC waiver for LightSquared as increasing the value of the 2GHz MSS spectrum, if they think DBSD and/or TerreStar will not have to resort to incentive auctions to remove the ATC gating conditions (and share the resulting proceeds with the government). This could mean further arguments in the bankruptcy courts over the appropriate valuation of these assets.
However, without a concrete promise to deploy a nationwide broadband network on a strict timetable (and to reimburse Sprint for their band clearing costs), it appears that the FCC is determined to deny DBSD and TerreStar a similar waiver of the ATC rules. Such a refusal might well set the stage for prolonged litigation, and potentially delay further the prospects of bringing the 2GHz spectrum into use.
Of course that would also be to Harbinger’s advantage, because it would limit the competition that LightSquared will face from the 2GHz MSS spectrum holders in the race to secure key partners like T-Mobile and MetroPCS. Nevertheless, it would be ironic if the FCC’s decision that “in the absence of a waiver, the substantial public benefit of rationalizing MSS L-band spectrum might not be realized any time soon” resulted in 40MHz of L-band spectrum being brought into use (despite worries about GPS interference) while leaving the 40MHz of 2GHz MSS spectrum (and perhaps even the adjacent 30MHz of AWS-2 and 3 spectrum, whose allocation was supposed to be coordinated with the 2GHz MSS band) languishing for years to come.