06.24.11

The be-all and the end-all

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:33 am by timfarrar

As the Shakespearian drama (or should that be tragedy?) of LightSquared’s battle over GPS interference plays out, the question arises as to what is the contingency plan if Congress or the FCC prevents LightSquared from operating? This issue came up indirectly in yesterday’s House subcommittee hearing, where LightSquared indicated that if there is “extraordinary action taken on a legislative or regulatory basis as result of this [GPS industry opposition] and we are not allowed to try to work this out on a cooperative basis, … certainty about spectrum and the valuation of spectrum will be severely undermined in this country.”

This answer seems to hint at one possible outcome, where LightSquared might sue the government and/or FCC for compensation, if “extraordinary action” prevented LightSquared from operating its network under the waiver granted in January. Another possible action on LightSquared’s part might be to withdraw the waiver request and simply try to operate under the prior March 2010 Order, although it is hard to imagine that the FCC could allow such operations to go forward (at least under the Phase 0, 1 or 2 plans) when LightSquared has admitted that its original plans would interfere with GPS. In particular, LightSquared’s March 2010 ATC authorization is conditioned on continuing “to work with the DoD in order to resolve the DoD’s concerns” and more generally, the FCC’s regulations require that “If harmful interference is caused to other services by ancillary MSS ATC operations, either from ATC base stations or mobile terminals, the MSS ATC operator must resolve any such interference”. However, it is notable that the FCC was prepared to override the complaints of Amtech and Skywave that this rule should protect their existing FCC-authorized operations when it approved SkyTerra’s ATC modifications in March 2010.

Nevertheless, the litigation path appears (at least on its face) to be a more plausible option for LightSquared to pursue, claiming that restrictions imposed by such “extraordinary action” would be an unconstitutional “taking” of their property rights. After all, NextWave had considerable success with its claim against the FCC a few years ago. Otherwise it is hard to see why LightSquared would sponsor yesterday’s study by the Brattle Group claiming that “LightSquared’s proposed 4G terrestrial LTE network will create approximately $12 billion in direct economic value to the economy”.

Astonishingly, the basis for this value (as per footnote 2 stating that “the economic value for LightSquared’s 40 MHz of nationwide L band spectrum dedicated to terrestrial broadband is approximately $12 billion”) is that $12 billion is the price that Brattle estimate uncumbered terrestrial spectrum in this band would supposedly sell for in an FCC auction (although I would suggest that is far too optimistic). The same study also estimates that 50MHz of satellite spectrum (for GPS) would only be worth $2B and highlights the relatively lower values that DBSD and TerreStar (who have not been granted a waiver to permit terrestrial-only service, even though both companies have ATC licenses) are selling for. Thus Brattle’s analysis is directly implying that the FCC’s January 2011 waiver was a regulatory gift to LightSquared worth $10 billion, something that at this point in time could well act as a red flag to the Congressional bull, but could easily form the basis of a demand for compensation if LightSquared cannot move forward. (Ironically the press release accompanying the report highlighted that the GPS industry had supposedly benefited to the tune of $18B from free access to the GPS system).

In the end, therefore, I wonder if the final act of this play might be the diametric opposite of another Shakespeare quote: “First hire all the lawyers”.

2 Comments »

  1. TMF Associates MSS blog » Let’s blame the FCC (or maybe Inmarsat?) said,

    September 8, 2011 at 1:58 pm

    [...] created by the FCC’s 2003 and 2005 rulings, presumably setting the bar for litigating a compensation claim if its terrestrial buildout does not go forward. However, not only the government witnesses, but [...]

  2. TMF Associates MSS blog » Coyote ugly… said,

    September 15, 2011 at 7:50 pm

    [...] the FBI for providing satellite services and equipment in the current fiscal year, not to mention its own estimate that the January 2011 FCC waiver was worth over $10 billion in incremental spectrum value to the [...]

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