02.11.11

The waiting place…

Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 1:57 pm by timfarrar

“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.

4 Comments »

  1. ORBITRAX said,

    February 11, 2011 at 6:47 pm

    “Deserves every opportunity to succeed”? Does this mean that Lightsquareds MSS competitors don’t deserve “every opportunity to succeed”? We believe that Lightsquared’s MSS competitors also “deserve every opportunity to succeed”. Providing a regulatory framework which provides just one competitor in the MSS marketplace “every opportunity to succeed”, is nothing less than attempting to craft policy to pick “winners and losers” through government regulation versus free markets.

    Given the FCC’s “policy standards”, there is little question as to the validity of Globalstar’s decision to seek foreign sponsorship through the ANFR.

    As far as the “Unique Terrestrial Buildout Obligations” go, nothing that a quick Waiver Extension or STA won’t solve. They won’t even have a “Global Financial Meltdown”, to blame their “delay in funding” on. No “Force Majeure”, No AWOL Thrusters. After all, Lightsquared does “deserve every opportunity to succeed”.

    As you alluded to yourself earlier…. “Friends in High Places”

    We would also suggest that the GPS interference debate may be a dissuading unresolved factor in any long term relationship with Lightsquared. You can just imagine the News headlines of potential “life threatening” incidents being blamed on the lack of GPS availability due to Lightsquared terrestrial transmitters. If spectrum is such an abundance as you note. Then why would any operator accept these kinds of “unresolved” liabilities with such an agreement.

    On the other hand, the 2Ghz MSS Spectrum looks much more like a “Slam Dunk” for streamlined terrestrial repurposing, which would likely lack the “interference overhang” of portions of the the L Band. Falcone appears to now turn his attention back to the 2Ghz MSS band, but there appear to be several interested parties, and the price will likely be no where near the discounted prices he paid for Skyterra. We would suggest that the 2Ghz MSS spectrum could become quite a spectacle, as one might expect one party would want both the DBSD/Terrestar allocations to provide paired 20Mhz FDD functionality. Likewise, there may be other interested parties in attempting a to prevent a “single company” appropriating both 2Ghz MSS licenses. The number of companies interested in the 2Ghz MSS spectrum repurposed for terrestrial use might be numerous i.e. T-Mobile, MetroPCS, Lightsquared, DISH, etc.

    ORBITRAX

  2. timfarrar said,

    February 11, 2011 at 9:55 pm

    Its hard to see how Harbinger paid “discounted prices” for SkyTerra. Whether or not you believe the $2.9B valuation placed on Harbinger’s contributions to LightSquared, it is a matter of public record that Harbinger invested $150M in Senior Unsecured Notes in Jan 2008, bought shares and warrants from Apollo for $164M in April 2008, purchased another $500M of Senior Unsecured Notes (in four tranches) starting in July 2008 (although the last $100M was deferred until after the takeover in April), acquired more than half of the first lien debt in spring 2008 (probably paying at least $200M), bought Terrestar’s shares in SkyTerra for $97M in September 2008, undertook other open market purchases in 2008-09 (potentially totaling $50M+) and bought out the remaining shares and options for more than $200M in April 2010. That alone totals of order $1.4B, before you consider expenditures on the 1670-75MHz and 1.4GHz spectrum leases.

    It is also clear that the NPV of the Inmarsat lease and clearance costs is at least another $2B ($115M + 3% p.a. discounted at 8% = NPV of $2.3B, plus clearance costs and other equity contributions totaling ~$370M). As such this expenditure and future obligation is well above the combined ~$2B valuation currently put on DBSD and TerreStar in their bankruptcies.

  3. ORBITRAX said,

    February 12, 2011 at 8:50 am

    We were speaking of Harbinger’s investment in “Skyterra”, not in the totality of it’s investment in “Lightsquared” i.e. Inmarsat/One Dot Four, etc. The “discounted price”, is derived from the value of the spectral assets “post-flexibility” vs. “pre-flexibility”. If Skyterra had been issued “flexibility” before the Harbinger “re-zoning”, then the value of Skyterra’s assets, “pre-purchase” would have been considerably higher. Unless of course, Skyterra and it’s previous investors did not deserve “every opportunity to succeed”. It is apparent that all of the MSS companies had provided comments to the FCC encouraging them to provide the exact same flexibility ultimately granted to Lightsquared. Yet, only LightSquared is the only company “deserving” of the “opportunity”?

    Also, it seems that a company like T-Mobile would be far more interested in a direct spectrum acquisition via a network lease at the L-Band.
    [TMF: I think this intended to say "T-Mobile would be far more interested in a direct spectrum acquisition at 2GHz versus a network lease at the L-Band"]
    T-Mobile already has the core network in place in most markets, and would simply require additional spectrum in the markets with higher population densities to support additional capacity/LTE. Leasing capacity on another network whose forward and reverse links are not easily supported without new user terminals does not seem logical. On the other hand, the 2Ghz MSS spectrum can/is already supported in some currently produced cellular baseband chipsets.

    We believe that there is substantial operational and network efficiencies in combining the 2Ghz MSS spectrum (Terrestar/DBSD) under a single company. Hence, there will be competitive forces to attempt to make that combination a reality, and those that will attempt to prevent it from occurring.

    ORBITRAX

  4. timfarrar said,

    February 12, 2011 at 9:51 am

    It is certainly the case that (at any given point in time) Harbinger would have had to pay more for SkyTerra if it had already been granted explicit flexibility to deploy terrestrial-only devices. However, that doesn’t necessarily mean it paid too little for the spectrum overall, given that the market value of terrestrial spectrum appears to have declined since the 700MHz auctions in 2008 (not least due to a change in the balance of supply and demand) and the Inmarsat deal, which creates a large fixed liability for LightSquared, was struck at the top of the cycle.

    Thus the only question that really matters is what the MSS-ATC spectrum (whether L-band or 2GHz band) is worth right now. Some will argue that 40MHz of L-band spectrum (with explicit flexibility but possible interference risks) is not worth $5B (or whatever value Harbinger is currently prepared to accept). Some will argue that 40MHz of 2GHz band spectrum (with the potential for flexibility under a somewhat unclear set of conditions) is worth more than $2B. Others will argue both.

    The challenge for achieving greater value in the 2GHz band is that any potential bidder has to consider the (unpredictable) risk of how the FCC will rule with regard to flexibility, buildout conditions, merger of DBSD/TerreStar, acquisition by an existing wireless operator, etc. and if necessary be prepared to follow through with litigation, appeals to Congress, etc. That risk is magnified by the lack of a consistent precedent to follow (viz Globalstar and LightSquared).

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