09.07.11

Start planning now…

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 8:20 pm by timfarrar

Back in July, LightSquared’s CEO claimed that he was “so confident…that he isn’t planning for the possibility that the FCC denies LightSquared the waiver when the decision comes out in September”. Unfortunately, after today’s news that government witnesses will tell tomorrow’s hearing of the House Committee on Space, Science and Technology that LightSquared “should face more testing for interference with the global-positioning system before it’s cleared to operate,” it appears LightSquared had better start that planning pretty soon.

In addition to the Bloomberg report, Communications Daily has a full copy of the testimony and is reporting that even Democrats on the House Committee are giving less than fulsome support to LightSquared by admitting that the hearing will not settle the conflict over “whether we are looking at an engineering challenge (building better filters, shaping cell tower antennas) or an insoluble physics problem (whether the sheer power of terrestrial cell signals inevitably overwhelms GPS devices),” and concluding that “Until there are clearer answers to whether the LightSquared versus GPS conflict is about engineering or physics, we cannot know whether we can have both thriving GPS services and more broadband to spur innovation and employment”.

Thus, as I suggested a few weeks ago, it definitely appears that LightSquared will be consigned to a period of additional testing for now and any approval to move forward will be deferred for at least several months. The problem this presents is that by my calculations, LightSquared is likely to exhaust its current funding by about the end of the year, even if it does not pay Sprint to move forward with a full network deployment. My guess is that LightSquared’s payments to Sprint under the hosting agreement announced at the end of July include a regular quarterly payment plus a lump sum payable before Sprint begins the actual deployment. Plausibly, given the payment of $200M at the beginning of July, and the $9B total cash payment over 9 years, the regular payment could well be $200M at the beginning of each quarter, with the balance of $1.8B due (probably in several stages) over two or three years, as the network is deployed. Under the assumption that LightSquared continues to pay Sprint a regular quarterly payment but does not make any incremental payment to commence deployment, my estimate of LightSquared’s approximate quarterly cashflows is given in the table below.

UPDATE: An alternative payment schedule, under which the next payment to Sprint is not due until early 2012 would show LightSquared running out of cash in Q1 of 2012 and needing to raise about another $1B next year.

As noted by Sprint’s CFO in July, “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”. It appears LightSquared has been going about this task with considerable urgency, but given the delays for further testing, and the lack of certainty about the ultimate outcome, it is harder than ever to imagine where the money is going to come from.

It is therefore somewhat ironic that “President Obama apparently sees LightSquared’s plan as a centerpiece of a wireless broadband initiative that he hopes to make part of his re-election campaign“. However, the President certainly seems to have a track record of selecting companies that go bankrupt as the “true engine of economic growth”.

4 Comments »

  1. TMF Associates MSS blog » Testing, 123 testing… said,

    September 12, 2011 at 8:37 am

    [...] LightSquared is now faced with a major funding crisis, because it seems there is no way it can survive with its current resources until it receives final approval to move forward (assuming that even happens). It is also very hard [...]

  2. TMF Associates MSS blog » Beware the Ides of September… said,

    September 13, 2011 at 4:53 pm

    [...] more months before we finally see the end game emerge, its hard to see why anyone is going to fund the enormous costs necessary to keep the LightSquared plan on track, including the ongoing payments to Inmarsat (and [...]

  3. TMF Associates MSS blog » The final countdown… said,

    September 14, 2011 at 1:54 pm

    [...] as it apparently suggested to the Wall St Journal yesterday. The reason for this timetable is that as I’ve previously noted, LightSquared needs to raise significant additional funding by the first quarter of 2012 at the [...]

  4. TMF Associates MSS blog » What happened to LightSquared’s second satellite? said,

    October 31, 2011 at 9:18 am

    [...] in September I tried to analyze LightSquared’s cashflows, in order to predict when it might run out of money. A Debtwire article published in the FT earlier [...]

Leave a Comment

You must be logged in to post a comment.