No connection to reality?

Posted in Financials, Handheld, LightSquared, Operators, Regulatory, Services, Spectrum at 7:14 pm by timfarrar

What would you know? I go camping for a weekend, and suddenly we have a $20 billion network sharing “deal” between Sprint and LightSquared “to share network expansion costs and equipment, and to provide high-speed wireless service to the phone company” described in a leaked letter to “Harbinger Capital Partners hedge fund investors”. This seems like a very peculiar way to reveal such a ground-breaking deal, especially as Sprint notably declined to comment on whether or not a deal had been signed, and there is little clarity about whether this is a new deal or simply the same “accord” that was reached some time ago.

UPDATE (6/20): LightSquared’s CEO today “declined comment on whether a deal had been finalized”, after telling Bloomberg in an interview on June 10 that “if we have something to announce we will be back here”.

Regardless, the obvious question is what conditions remain to be satisfied, before Sprint actually moves forward with the buildout. As I’ve noted before, it is critical that Sprint gains sufficient security to cover its upfront costs, either from rights to LightSquared’s spectrum assets or LightSquared raising additional cash through an IPO. However, a near term IPO looks like a stretch, and it is unclear whether the second lien spectrum rights granted this week are sufficient to satisfy Sprint. Also LightSquared obviously needs to resolve the GPS interference issues, so it can actually use its spectrum. If the leaking of this deal (presumably by Harbinger) serves to plunge Sprint into the firestorm of the GPS interference debate, then it will be very interesting to see whether Sprint decides to actively support LightSquared or takes a more neutral position with the FCC and Congress.

However, all that is somewhat of an aside to the real purpose of this post. My camping trip was only 40 minutes away from my home in Silicon Valley, but in an area with absolutely no cellphone coverage. Wouldn’t it have been great to have one of LightSquared’s new dual mode satellite phones (if and when they come to market) so I could have had a connection to the real world that would have allowed me to hear about the breaking news? Unfortunately not, because when I looked up at the sky, all I could see was trees, and as with any MSS network, you need a line of sight to the satellite to be able to make or receive a call.

TerreStar’s Genus satellite phone has proven to be a complete disaster, despite the expectation that there would be vast global demand for these phones. As a result, I wonder if some of the commentators in the LightSquared proceeding really have any idea what they would be getting from the LightSquared network in rural areas (after all, a terrestrial network covering 92% of the population will leave at least 25M people relying on satellite coverage).

For example, this letter asks us to “think of Native American communities who do not even have basic cellphone service now but would with this network” and this letter notes how the “new super-fast broadband wireless network that is backed up by satellite communications…would provide our staff seamless connectivity even in extremely remote locations”. However, that’s hardly surprising when we are told how you’ll have voice connectivity and can get your e-mails “no matter where you are, if you step out of your car, in the Yellowstone National Park” (where there’s also an awful lot of trees and mountains) or “in the middle of Grand Canyon” (pretty difficult when there’s a 5000ft cliff to your south). Haven’t we heard that one somewhere before?

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