07.29.11

You say you want a revolution…

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:47 am by timfarrar

You say you want a revolution
Well you know
we all want to change the world
You tell me that it’s evolution
Well you know
We all want to change the world
But when you talk about destruction
Don’t you know that you can count me out

So now Sprint has confirmed a network sharing deal with LightSquared, under which LightSquared plans to pay Sprint $9B in cash plus $4.5B in service credits to cover spectrum hosting fees for a period of 11 years. Indeed, as I mentioned last week, LightSquared has already paid Sprint a total of $290M in prepayments to secure the deal. However, there are various contingencies which could cause the deal to be terminated if LightSquared does not secure approval from the FCC or is unable to raise the money to pay Sprint to undertake the rollout. Sprint has also not committed at this stage to actually use LightSquared’s capacity, and is deferring until October 7 a more detailed announcement of its 4G strategy, partly to allow the FCC to rule on LightSquared’s plan, but also to see if Sprint can add a “fourth chapter” to its strategy (perhaps providing support to Charlie Ergen’s potential new venture?).

Unfortunately the LightSquared-Sprint deal was pre-empted by the leaking of a new FAA report which estimates that LightSquared’s deployment “would result in an estimated impact to the aviation community of at least $70 billion” and could cause the loss of approximately 800 lives over a 10 year period. More bad news for LightSquared is also expected to emerge in the next few weeks as other federal agencies have been asked to give their own estimates of the cost impact that LightSquared’s plans would have.

You say you got a real solution
Well you know
we’d all love to see the plan
You ask me for a contribution
Well you know
We’re all doing what we can
But when you want money while making our planes run late
All I can tell you is brother you have to wait

LightSquared has reacted to the FAA report by claiming that it “discusses a LightSquared plan that is no longer on the table” but of course LightSquared stated in its June 30 submission that it intends to ultimately use all frequencies the FCC authorized, and indicated at the time that use of only the lower 2x10MHz block would only be adequate for “the next several years“.

Now according to Sprint’s CFO, “during this period of time that [LightSquared] are trying to achieve clearance, they’re going to be out in the marketplace going to raise money” because Sprint “will be getting pre-funding of any work that we would be doing for LightSquared”. Notably, LightSquared is paying its $9B of cash over 9 years, even though it covers an 11 year hosting period, which seems to imply that LightSquared may need to pre-fund up to 2 years of network buildout in advance. Judging by Crown Castle’s expectations that it will receive substantial incremental revenues from Sprint in the second half of 2011 (over and above what it had expected 3 months ago), but the option to add LightSquared has not yet been exercised, Sprint also does not appear to be waiting for LightSquared before it moves ahead with the Network Vision buildout.

It therefore definitely appears that LightSquared will now have to raise at least $1B+ of the $3.5B it claims is its peak funding requirement very soon and more than likely before Sprint announces how it will move forward on October 7. This would fit with LightSquared’s assertion that it expects the FCC “to issue an order within four or five weeks [after the completion of the consultation], and that is by mid-September” and any outcome other than approval to move forward on the basis of the June 30 plan “is not a scenario we contemplate”. Although LightSquared indicated that the only way Sprint can terminate the deal is if it fails to get FCC clearance, that of course omits to mention that if LightSquared is unable to meet its payment obligations then Sprint could declare a default and foreclose on LightSquared’s prepayments and the second lien on its spectrum assets. Potentially this could happen as soon as early October, given the timetable set out by Sprint’s CFO, especially if Sprint is able to come up with the “fourth chapter” to its strategy, which could provide it with a more interesting alternative to LightSquared.

However, with the FAA Administrator stating publicly that “I’m very comfortable in saying that we are going to protect the GPS signal”, it seems “almost inconceivable” as Craig Moffett of Sanford C. Bernstein put it that the FCC would do anything other than ask for a period of further testing and it is therefore hard to imagine how LightSquared could be able to raise a very substantial sum from outside investors by early October.

You say you’ll change the constitution
Well you know
We all want to change your head
You tell me it’s the institution
Well you know
You better free your mind instead
But if you go saying our farms can’t plow
You ain’t going to make it with anyone anyhow

Of course, even if the FCC could be persuaded to give LightSquared approval to operate, then its seems highly likely that Congress would overrule the FCC and forbid LightSquared from commencing service. Indeed if further testing pushes a decision point into next year, then it seems inconceivable that LightSquared would be allowed to operate even in the lower 2x10MHz band given the impact that would have on precision agricultural equipment, and the power of the farming lobby in an election year.

Perhaps that is why LightSquared has now pushed back its date for commencing operations yet again, until the second half of 2012, presumably after the November election. However, it seems clear from the emphasis that LightSquared is placing on its 2015 obligation to cover 260M people that it is now certain to miss the 100M coverage obligation at the end of 2012, which would require further cooperation from the FCC if LightSquared’s authorizations are not to become null and void.

In conclusion it seems that while Sprint benefits from the pre-payments it is receiving from LightSquared, nothing in yesterday’s announcement really solves LightSquared’s key regulatory and financing problems. In fact I think that this announcement makes it less likely that the LightSquared saga will drag on into next year, and instead it could all come to a head by October 7. Perhaps it will therefore soon be time to tell the GPS industry (but not LightSquared’s investors) don’t you know it’s gonna be alright.

POSTSCRIPT: A well-known telecom analyst suggested to me that this would be a more appropriate song.

07.19.11

The most expensive press release in the world?

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 3:21 pm by timfarrar

In recent days, CNET has reported that Sprint “will confirm its network-sharing agreement with LightSquared in conjunction with its earnings announcement on July 28″. However, today Sprint has indicated that details of their 4G story will not come until “this fall”. That fits with what I had been told about Sprint’s Network Vision announcement coming after the Q2 results. However, it does leave something of a puzzle as to what might be announced on July 28.

What I’m hearing now is that LightSquared apparently made a fairly substantial advance payment to Sprint (rumored to be $300M) a couple of weeks ago, in order to keep their agreement alive, and that is what will be disclosed on Sprint’s Q2 results call next week. This will give LightSquared more time both to get FCC approval, and presumably to raise the significant additional money needed to pay Sprint to incorporate LightSquared’s spectrum into the Network Vision rollout (which at the moment apparently baselines only an 800 and 1900MHz network).

It will also provide confirmation from Sprint, rather than just leaks from Harbinger, that there actually is an agreement (albeit highly conditional) under which Sprint would host LightSquared’s deployment. In addition, LightSquared will then be able to ramp up the pressure still further on the FCC for a quick, favorable decision (indeed LightSquared’s CEO is already indicating that he “isn’t planning for the possibility that the FCC denies LightSquared the waiver when the decision comes out in September”). Of course, for LightSquared’s first lien debtholders, it represents another $300M that they might struggle to recover in the event of a LightSquared default, and thus ties them even more closely into Harbinger’s plan.

If this rumor is true, then its not all all surprising that Sprint was happy today, because if LightSquared is unable to move forward, Sprint is getting paid $300M to do nothing other than put LightSquared’s name in a press release. However, in these circumstances, it will be very interesting to see whether Sprint answers questions about the terms of the agreement, including what deadline LightSquared will have to meet and what additional security and/or funding LightSquared will need to provide for Sprint to get started.

07.13.11

The perfect storm…

Posted in ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 3:49 pm by timfarrar

As LightSquared continues to be engulfed by a tidal wave of criticism from the GPS industry, it now appears that this storm is setting up perfectly for DISH Network to solve the FCC’s problem: how to ensure that a competitive wholesale mobile broadband network can be deployed when it seems nearly impossible for LightSquared to use its L-band spectrum. While some think that DISH could lease its 2GHz spectrum holdings to LightSquared, to me it seems far more likely that DISH has plans for its own national 4G LTE wireless network, in partnership with “somebody who is more of an expert in that business than we are“.

Indeed in the application to transfer DBSD’s spectrum licenses to DISH, filed back in April, the company stated that “we expect the transaction to result in the provision of mobile broadband services” and in particular:

DISH plans to deploy a hybrid satellite/terrestrial system dedicated to the provision of mobile broadband services. If successful, consumers will be able to use their mobile terminals for high-speed Internet access as well as a myriad of Internet Protocol-based, over-the-top applications, including mobile video. DISH expects that the consumer equipment will include broadband-capable tablet computers, among other devices. DISH anticipates offering services both on a stand-alone basis and in a consumer-friendly bundle with its multichannel video services.

If DISH does manage to line up the partners to deploy such a network (potentially including MetroPCS, whose interest in the 2GHz band is well known), then that might well leave LightSquared to sink without a trace, as it would make it much easier for the FCC to defer to demands from the NTIA for six months of additional testing on LightSquared’s new spectrum plan. Of course, a six month delay would put the decision timeframe into the midst of a presidential election year, when it is all but inconceivable that either the White House or Congress would go against the wishes of millions of farmers, engineers, aviators and boaters.

In contrast, an alternative network proposed by DISH would have a ready made support base, not only from those parties demanding increased wireless broadband competition, but also from all those who have demanded that LightSquared’s network be moved outside the L-band. It seems both sides would therefore be eager to support the FCC granting DISH a waiver similar to LightSquared, permitting terrestrial-only devices, if DISH was to commit to aggressive buildout milestones and to providing wholesale access to its network capacity as Harbinger did back in March 2010.

Today there have been renewed rumors that Sprint will announce a deal with LightSquared during its Q2 results call on July 28, although another source has suggested to me that Sprint does not intend to set out its Network Vision plans at that time. Thus I’m left wondering whether this is an attempt to derail DISH’s plans, which certainly seem to be in pretty high gear, judging by the number of visits DISH has made to the FCC in recent weeks to discuss the 2GHz MSS spectrum band.

Maybe we are therefore moving towards the last few minutes of this Seinfeld episode. However, as Charlie Ergen knows only too well, in Seinfeld there are very few happy endings, except when they come at someone else’s expense.

07.05.11

Building a network or a legal case?

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 10:07 pm by timfarrar

I noted 10 days ago that one possible outcome for LightSquared would be for the company to sue the US government and/or FCC if it was unable to move forward because of the GPS interference issues. Last week’s Technical Working Group report submission was accompanied by a very strongly worded set of recommendations by LightSquared blaming the GPS industry as “it is inescapable that their disregard for the Commission’s policies regarding the immunity of receivers to transmissions in nearby frequency bands that is the source of the technical problem”.

This set of recommendations served to deflect from the results of the TWG itself, which highlighted widespread interference and the difficulties in mitigating this even under LightSquared’s revised plan. However, it also may act as something of a red rag to a bull, in terms of Congress’s reaction if the FCC does allow LightSquared to move forward. Of course, if Congress did act to ban LightSquared from operating, then that would provide a much more definitive trigger for any legal action by LightSquared (compared to a move by the FCC to delay any decision or postpone authorizing LightSquared’s operations until more testing is carried out).

On the other hand, while the FCC is still considering whether to give LightSquared the go ahead, it seems unlikely that we will see more overt legal threats. Indeed, the FCC’s deliberations about how to treat LightSquared are especially sensitive because it seems that some blame for the interference problems could very well attach to the FCC, given its apparent failure to live up to the commitments made in the 2005 ATC Order:

While we agree with the GPS Industry Council, NTIA, and other government agencies that it is essential to ensure that GPS does not suffer harmful interference, it is also important to ensure that new technologies are not unnecessarily constrained. In this regard, we recognize that the President’s new national policy for space-based positioning, navigation, and timing (PNT) directs the Secretary of Commerce to protect the radio frequency spectrum used by GPS and its augmentations through appropriate domestic and international spectrum management regulatory practices . . . . Furthermore, the President’s PNT policy calls for the establishment of an inter-agency Executive Committee, on which the Chairman of the FCC will be invited to participate as a liaison, and a National Space-Based PNT Coordination Office. It is our intention to establish discussions with other agencies, through the PNT Executive Committee and Coordination Office as appropriate, to better understand what protection levels for GPS are warranted. The results of those discussions may lead to future rulemaking proposals in order to ensure that all FCC services provide adequate protection to GPS, and produce a more complete record upon which to establish final GPS protection limits for MSS ATC
licensees

Since the release of the TWG report, LightSquared has been attempting to highlight other signs of progress, including raising $265M of additional funding today. However, it seems that the vast majority of this new funding is likely to have been in the form of Harbinger having to stump up its previously unfunded $250M commitment to LightSquared. Harbinger also seems to be experiencing some internal turmoil, and it will be very interesting to see what has happened at the end of the second quarter in terms of redemptions. Most problematically, with the FCC comment and reply period on the TWG report now extending until August 15, and indications that the FCC will not rush to judgment after that, it appears more likely that Sprint will announce details of its Network Vision plan before it has been determined whether LightSquared is able to move forward or not.

In parallel with this activity, it seems we may know more about DISH’s plans for DBSD and TerreStar relatively soon, as comments are due on Friday in the 2GHz spectrum consultation. After Charlie Ergen met with the FCC Chairman on June 22 to discuss matters including DISH’s recent 2GHz MSS spectrum acquisitions, it now seems ever more likely that DISH could provide a readily available alternative source of spectrum for prospective LightSquared partners.