I commented last week that Nokia Siemens Networks seemed rather unenthusiastic about the prospects for LightSquared in its comments at the Mobile World Congress. Yesterday news emerged that LightSquared may be in negotiations with Sprint to use their cell sites and equipment to help build out its network. However, the article make no mention of any role for NSN in the event that this deal comes to fruition. [It is worth noting that it is in the interests of both Sprint (due to their ongoing price negotiations with Clearwire) and LightSquared (who are trying to ensure that T-Mobile and other potential partners take them seriously) to leak the news of talks at this stage, even if a deal is unlikely to be reached]
Now GigaOm is reporting that NSN may have suspended its tower permitting and siting work, and according to the article NSN did not deny this suggestion. This also seems to be confirmed by a former LightSquared vendor sourcing consultant, whose public LinkedIn profile indicates that from October 2010 to January 2011 he “Conducted Site Development Vendor Sourcing initiative for LightSquared. Drafted scopes of work, selected vendors, negotiated pricing and terms, and executed contracts for a nationwide cell site deployment plan. Developed and ran a Build to Suit RFP. Reviewed lease negotiation process and Master License Agreements with the major tower companies”. The termination of this role in January 2011 would certainly fit with the rumors that I have been hearing about the timing of NSN’s apparent suspension of work.
Interestingly enough this consultant has also now published a blog post indicating that he “applaud[ed] this creative approach [in the reported LightSquared/Sprint negotiations] which could remove 4-6 months off the deployment schedule for each cell site”. However, this article does not make clear what NSN’s role in such a deal would be, other than that “LightSquared will be using its own equipment purchased from Nokia Siemens Networks”. If NSN really is reduced to the position of simply supplying base station equipment for LightSquared and/or Sprint to deploy, then it hardly seems plausible that the contract would still be valued at $7B. As a result, it is now far from clear what (if anything) will ultimately materialize from a contract that was touted just last July as “the largest order ever placed in the mobile telecoms gear industry”.
Its curious that LightSquared’s Chief Marketing Officer has now disclosed that the company has “agreements with five customers to provide wholesale fourth-generation service” consisting of “a national retailer, a device manufacturer, one Web site, and two carriers”, but declined to name those customers “because the agreements aren’t yet public”. That doesn’t sound like a huge advance from last October, when LightSquared said it “is in advanced negotiations with a dozen partners — “we are exchanging term sheets with them” — and has signed up others, but has been forbidden from naming them” and certainly nothing like the major announcement that many observers, including myself, had been led to expect.
UPDATE: LightSquared has indicated in another article that it “has an agreement with a major retailer that it will name before the end of March” and it “has signed wholesale deals with two U.S. operators and [is] in discussions with three more”.
Interestingly, LightSquared also indicated that “We’re not going to raise more [money] in the short term” because “The company has sufficient funding for the immediate future and will seek more as it achieves network buildout targets”. However, this funding is now stated as “about $1.75 billion in debt and equity”, which is less than the “more than $2 billion in equity and debt proceeds and in commitments” that LightSquared indicated in a press release last October.
LightSquared’s network buildout targets are now to “begin network trials this year in Las Vegas, Baltimore, Denver and Phoenix after completing testing in a lab in the Dallas area” which appears to represent a slowdown from the previous target to “trial the network in the first half of 2011 and launch commercial service in the second half”. Indeed Harbinger told the FCC last March that “Service will begin in two trial markets, Denver and Phoenix, with a commercial launch before the third quarter of 2011 providing service to up to 9 million POPs”. The FCC’s January 2011 Waiver Order, also mandates that “LightSquared shall ensure that integrated, dual-mode MSS/ATC-capable L-Band devices are readily available in the marketplace no later than September 30, 2011, for datacards and no later than the June 30, 2012, for smartphones” (although this does not necessarily require LightSquared to have an operational terrestrial network at that time). Apparently confirming this delay, Nokia Siemens Networks indicated this week that “LightSquared’s deployment, however, won’t get in high-gear until next year, assuming it gets fully funded, at which points NSN’s North American revenue picture could take a dramatic turn” (though that seems to me to be a suprisingly non-committal statement from a partner with a $7B contract).
Overall, today’s report appears to confirm my supposition last week, that LightSquared and Clearwire may now have to wait while T-Mobile takes its time to reach a decision on 4G spectrum. Let’s hope therefore that the fistful of dollars from Harbinger’s sale of its remaining shares in Inmarsat are enough to achieve LightSquared’s current “network buildout targets” and convince T-Mobile to choose LightSquared as its 4G network partner. However, with just one key potential partner, and at least three possible choices, I wonder which of DBSD/TerreStar, Clearwire and LightSquared will ultimately turn out to be the good, the bad and the ugly.
“Waiting for a train to go or a bus to come,
Or a plane to go or the mail to come,
Or the rain to go or the phone to ring,
Or the snow to snow
Or waiting around for a Yes or No
Or waiting for their hair to grow.
Everyone is just waiting.”
(Dr Seuss, Oh! The Places You’ll Go)
This week we’ve seen news that Clearwire is apparently abandoning its retail strategy, “opening the door for additional investment in the struggling company by Sprint Nextel Corp.” Clearwire is also now suggesting that it “has enough funds to continue operating through the end of the year”, reducing the drumbeat of articles that have recently suggested a deal with T-Mobile would come before the end of the first quarter.
We’ve also seen Harbinger selling its remaining 14% stake in Inmarsat, which also suggests that no partner announcement is imminent from LightSquared, otherwise the sale would presumably have been delayed until after that announcement. This is because Inmarsat’s share price would have been boosted by the confidence in LightSquared’s future that such an announcement would create, and so Harbinger could then have got a better price for its shares. (By way of comparison, LightSquared announced additional funding immediately before selling the first half of its Inmarsat shareholding back in October).
All this points to T-Mobile maintaining the stance, set out in its investor day presentation last month, that it does not have a pressing need to acquire more spectrum, and by implication can wait until later this year before making a decision. In that context, Clearwire and Harbinger’s actions could be interpreted as seeking to demonstrate that they will have sufficient funding to wait for T-Mobile’s decision.
Yesterday the President also indicated that he will press for more spectrum to be auctioned, which may well include the release of the 1755-1780MHz government spectrum that could be paired with the AWS-3 block, and would likely be one favored option for T-Mobile. By waiting until later this year, T-Mobile could also see if there is an opportunity to make use of the 2GHz MSS spectrum, and with the cable companies apparently not seeing much success from their wireless offerings, SpectrumCo might also be more open to a sale of its 20MHz of AWS-1 spectrum.
In the meantime, we’re seeing more attempts to discredit LightSquared, apparently designed to prompt further enquiries by Republicans in Congress. This is likely to turn more attention towards the interference issues created by the LightSquared network, and though Inmarsat has maintained that it “is confident that the effects on [Inmarsat] customers will be minimal”, I understand that view is not shared universally within the MSS community or apparently within the Department of Defense.
I wonder how the FCC feels at this point in time, as it waits for LightSquared to announce how it plans to move forward, assuming that (like me and the “two industry officials” cited in a February 7 Space News article) it expected the announcement of partners to come almost immediately after the waiver was granted. The FCC’s language already appears to have shifted slightly, from stating that “LightSquared would be a new competitor and entrant into mobile broadband with new sources of capital…” when it granted the waiver in late January, to indicating this week that LightSquared “deserves every opportunity to succeed”. Let’s hope for the FCC’s sake that it does, and soon, before there is any problem meeting the “Unique Terrestrial Buildout Obligations” cited by the FCC to justify grant of LightSquared’s waiver.
The most intriguing aspect of today’s announcement by Aircell that it had raised $35M and was preparing for an IPO, was buried deep in the press release, which indicated that “in 2011, Aircell expects to increase its base of installed aircraft by an average of three per day in the airline market”. At the end of 2010, Aircell was on nearly 1100 planes, and we know about some of the planned installations for 2011, including 223 of Delta’s regional jets and the possibility that United will eventually decide which way to jump.
Nevertheless, I have a hard time getting to 1100 more installations in 2011, given Aircell’s existing dominance of the US market and the fact that Canadian network deployment is not expected until the end of the year. However, with recent personnel changes at Southwest and the fact that Southwest’s purchase of AirTran will mean it has more aircraft equipped with Aircell than with Row44, it is intriguing to speculate about whether Southwest might once again be up for grabs, just as Alaska switched a year ago. Certainly that seems rather more plausible than the idea that Southwest will now decide to buy Row44, and would fit with my prediction back in March 2010 that Southwest will never complete its fleetwide deployment with Row44.
Sometimes when trying to understand Harbinger’s actions, I feel like I don’t just live in another city, but I’m from another planet altogether. That’s certainly the case with the latest revelation, that LightSquared “may bid” for TerreStar and DBSD. Just a few months ago, Harbinger was suggesting that “TerreStar is no longer critical to Falcone’s master plan”, so what has changed now?
Presumably Harbinger would say that TerreStar’s “spectrum holdings would help LightSquared handle wireless traffic” because there is so much demand for capacity on LightSquared’s network. Yet LightSquared is still to announce its wholesale partners, and 40MHz of spectrum seems to be enough for Verizon and AT&T to build out their own LTE networks (in the 700MHz and AWS-1 spectrum). Especially with this development coming immediately after the concerns about GPS interference, it is inevitably going to raise questions about whether LightSquared might be unable to use all of its L-band spectrum, even if, when all is said and done, the interference issues are not a major problem. (However, it is certainly the case that LightSquared is not expected to have access to its full 40MHz of L-band MSS-ATC spectrum until the end of July 2013, 30 months after it gave the Phase 2 notice to Inmarsat).
Harbinger’s move also raises the profile of the 2GHz spectrum band as an alternative source of spectrum for potential partners like T-Mobile and highlights that this spectrum is much less expensive than the cost basis of LightSquared’s L-band holdings.
Finally, its not even clear where the money would come from for a purchase of TerreStar and DBSD or whether the FCC would allow it, given the concerns they expressed last March that “Harbinger’s acquisition of SkyTerra does pose some risk of anticompetitive harm for users of MSS in the near future” (due to its existing minority ownership stakes in Inmarsat and TerreStar). Thus, while Harbinger’s intervention might be an attempt to cause more trouble in the DBSD and TerreStar bankruptcies, I wonder if in the end this will do more harm than good to LightSquared’s prospects?
Speculation is intensifying that a victor will be declared soon in the battle between Clearwire and LightSquared for a deal with T-Mobile, although developments in the 2GHz band remain interesting and could delay this process, as could positive noises about additional paired AWS spectrum (1755-1780MHz) being made available by the DoD.
UPDATE: Bloomberg is reporting that LightSquared “is considering bidding on satellite companies TerreStar Corp. and DBSD North America Inc.” because their “spectrum holdings would help LightSquared handle wireless traffic as it prepares to roll out a nationwide fourth-generation network”. This seems very curious, given that LightSquared will already have access to 40MHz of L-band ATC spectrum through its Phase 2 agreement with Inmarsat. It is also not obvious where the money for such a bid would come from. However, it does highlight the discrepancy in the cost of LightSquared’s spectrum versus DBSD and TerreStar. Of course, if Clearwire is prepared to sell 40MHz of spectrum to T-Mobile for “up to $2B“, it it far from clear that DBSD and TerreStar are worth much more than $1B each. Nevertheless, it appears this battle is a long way from being over, especially as DBSD’s second lien noteholders also appear to have reached an agreement with Sprint and will challenge the DISH bid for DBSD.
As I mentioned last week, it seems unlikely that the FCC would have approved the LightSquared waiver without some reassurance that LightSquared had the partners and funding to move forward, and journalists have apparently heard “rumblings that LightSquared may in fact be the partner of choice” for T-Mobile. On the other hand, other reports are suggesting that T-Mobile “may be close to a deal to buy wireless spectrum from Clearwire” which “could happen by the end of the first quarter”.
Obviously both sides are trying to shape media perceptions of themselves as the likely victor, while painting their opponents as being in dire straits. However, the battle is getting pretty ugly, with a request this week from a conservative watchdog group for a Congressional investigation into the FCC’s waiver grant to LightSquared, which appears suspiciously well timed, just like the news of an SEC investigation into Harbinger back in November. Nevertheless, it seems quite plausible that the request might be taken up by the Republicans, simply because it could provide a mechanism for “fishing expeditions” to question the White House, especially given the intervention of Democratic party officials on LightSquared’s behalf.
At this point, the most interesting question is whether we will now have to wait until the “end of the first quarter” or later to hear more about LightSquared’s plans to move forward, beyond the fact that it has exercised its Phase 2 option with Inmarsat to gain access to more spectrum in 30 months time. Even if the “end of the first quarter” is the timeline on which T-Mobile plans to reach a decision, it is unclear whether LightSquared will wait that long, or if it will instead be able to announce additional partners and investors beforehand, which would help to build confidence in the achievability of its buildout timetable and that it does not expect GPS interference issues to hold up its plans. More importantly, an early announcement would demonstrate some of the alternatives available to LightSquared, in the event that T-Mobile ultimately decides to go elsewhere for its 4G spectrum, and perhaps could even provide some indication as to the potential value of LightSquared’s spectrum assets.
“I have heard there are troubles of more than one kind.
Some come from ahead and some come from behind.
But I’ve bought a big bat. I’m all ready you see.
Now my troubles are going to have troubles with me!”
(Dr Seuss, I Had Trouble in Getting to Solla Sollew)
I commented last week that the waiver granted to LightSquared risked causing additional trouble in the TerreStar and DBSD bankruptcies, which could potentially be to Harbinger’s advantage, because it could 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.
Today it has been announced that DISH has agreed to acquire DBSD for $1B. In conjunction with TerreStar, which is also valued at roughly $1B in its bankruptcy, this creates the opportunity for potential partners to consider using a rival 40MHz block of 2GHz MSS spectrum instead of investing in LightSquared or Clearwire. The FCC’s LightSquared ruling last week, laid out a roadmap for the 2GHz players to gain the same waiver (i.e. to sell terrestrial-only devices), namely committing to a national terrestrial rollout with strict deadlines, and settling the ongoing dispute with Sprint over clearance costs for the 2GHz band. If both of these conditions were satisfied, it is now hard to see how the FCC could refuse to grant a similar waiver.
I’ve noted before the challenges of achieving a high spectrum valuation in the current situation of oversupply. Now in addition to the Clearwire spectrum, apparently valued at “up to $2B” for 40MHz of spectrum, we may also have an even more direct comparison of 40MHz of MSS-ATC spectrum also valued at around $2B.
This makes the $2.9B that Harbinger has invested to date in LightSquared look quite expensive, especially when considering that LightSquared must pay Inmarsat for its Phase 2 spectrum lease on an ongoing basis (amounting to a future liability of more than $2B). It will therefore be very interesting to see which way T-Mobile and other cellular operators decide to go now and whether this new development pushes back the decision point for any key potential partners.