09.20.11

LightSquared and the FCC’s $10B problem

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:55 pm by timfarrar

Despite, Mr Falcone’s attempts yesterday to dismiss the January 2011 FCC waiver as “irrelevant” to the question of GPS interference, it seems very likely to become a central feature in the Congressional investigations that the House Oversight Committee is now initiating.

A former FCC Commissioner has now told The Daily Beast that the “decision from January was an unprecedented and surprising development. That they would make this decision at the bureau level and not at the full commission level is just stunning.” However, even though LightSquared told the FCC just before the waiver was granted that “grant of this application is an essential building block for our network and requires quick, favorable action so that we may
continue to roll out our network” it appears there is very little understanding of why the waiver was so important for LightSquared.

Fundamentally, as Commissioner Furchtgott-Roth pointed out, “the Commission said LightSquared could use its license for exclusive terrestrial purposes”, which meant that the spectrum rights would be considered (and valued) as equivalent to terrestrial spectrum, allowing LightSquared to raise additional funds to build out its network. In fact that is exactly what LightSquared then proceeded to do, by raising $586M, secured against its spectrum assets, in February 2011.

So how much did the January 2011 waiver potentially increase the value of LightSquared’s spectrum assets by (assuming, as both LightSquared and the FCC did, that the GPS interference issues would be overcome)? Well LightSquared itself provided the answer to that question, in a report it commissioned from Brattle Group in June 2011. The report states specifically (in footnote 2) that “the economic value for LightSquared’s 40 MHz of nationwide L band spectrum dedicated to terrestrial broadband is approximately $12 billion”. This stands in stark contrast to Brattle’s assessment (on page 8-9) that “satellite licenses [would be] worth about $2 billion [for] approximately 50 MHz of commercial satellite spectrum” which “is consistent with other satellite spectrum transactions”. In particular:

“the bankrupt MSS provider TerreStar Networks Inc. is expected to be bought at auction for $1.37 billion. Assets of a similar bankrupt MSS operator, DBSD North America, were purchased for $1.4 billion in March. The major assets of both companies are licenses for 20 MHz of S-Band spectrum.”

Thus Brattle Group’s analysis implies directly that after the January 2011 waiver, which allowed it to be “dedicated to terrestrial broadband”, LightSquared’s 40MHz of L-band spectrum was worth $12B compared to the (just over) $2B that DBSD and TerreStar’s combined 40MHz of spectrum (which is similarly situated, but is still subject to the FCC’s ATC regulations) was worth.

Once this $10B windfall is more widely recognized, I think it is going to represent an enormous political problem for both LightSquared and the FCC Chairman during the upcoming Congressional hearings, making Solyndra’s $535M loan look like small beer. After all in July 2010 current FCC Commissioner Copps noted in conjunction with the MSS NPRM/NOI that he “appreciate[d] the willingness of my colleagues to raise questions regarding the need for any mechanisms—such as spectrum fees—to compensate the American people for the terrestrial use of the public spectrum resource”, which is exactly why January’s action (which was not even brought before the full Commission) was such “an unprecedented and surprising development”.

12 Comments »

  1. Michelle Malkin » LightSquared: Obama’s Dangerous Broadband Boondoggle said,

    September 21, 2011 at 5:53 am

    [...] its initial satellite bandwidth license for “exclusive terrestrial purposes.” As the Telecom, Media and Finance Associates, Inc. blog explains, this meant that “the spectrum rights would be considered (and valued) as equivalent [...]

  2. ORBITRAX said,

    September 21, 2011 at 8:26 am

    What should be especially interesting is the eventual comparison of the September 14th, 2010 Globalstar Order which stripped Globalstar of its ATC authority, and the Lightsquared application in November of that same year.

    First, we should remember that Globalstar’s ATC authority was essentially stripped due to the FCC interpretation of “non-compliance” of the “integrated service requirement”.

    As we may remember, a potential MSS/ATC provider can provide, under a “safe harbor” method, that they can establish compliance with the integrated-service requirement by demonstrating that it will use a dual-mode handset that can communicate with both the MSS and the MSS ATC component in order to provide the ATC service.

    In it’s May 16th, 2008 application. Globalstar submitted their “Safe Harbor” interpretation of a “first generation” “Dual-Mode” MSS/ATC user terminal. A user terminal that provided a NextWave WiMax modem for ATC services, enclosed in the same basic “user terminal” as a MSS SPOT Simplex Transmitter. Thus, Globalstar advanced the concept that this would suffice as a “dual-mode” user terminal that would satisfy the “safe harbor”/”integrated service requirement”. SPOT Simplex for MSS/ WiMax for ATC.

    While years earlier, MSV’s advanced the concept that a “integrated service” compliant dual-mode terminal consisted of a dual-mode ATC broadband terminal that “could” communicate with the MSS segment only if an awkward/cumbersome external antenna and antenna gain booster were connected to the user-terminal. MSV argued that requiring MSV to build a user terminal that physically “integrated”all of the components to connect to the MSS segment (antenna/booster assembly) into a integrated user terminal would lower commercial demand for the “integrated offering”. The FCC ultimately concluded that this user-terminal, which effectively lacked the capability of any communication with the MSS segment, without the attachment of the “external booster contraption” met the “integrated service requirement”, as long as the terminals would be sold in conjunction with the Booster assembly, but the booster assembly was not required to be attached. A configuration that given the existing on-orbit satellite would provide Medium/High Speed Data services and extremely low-speed data via the MSS portion of the terminal.. IF they Booster Contraption was installed.

    Globalstar’s “interpretation” of the “integrated service offering” i.e. SPOT/WiMax terminal would have satisfied both the “continuous coverage” and the “spare satellite” gating requirement. As there were an abundance of satellites that could receive data from the SPOT portion of the “dual-mode” user terminal. Providing a handful of spare satellites.

    However, it was the FCC “interpretation” of the “integrated service requirement” that led them to determine that the SPOT/WiMax user-terminal advanced by Globalstar as a “Safe Harbor” exhibit DID NOT MEET the “integrated service requirement. While MSV’s approved terminal lacked the capability to communicate with the satellite segment in either direction, without the attachment of the “booster assembly” which was not a prerequisite for operation.

    MSV established the concept that actually attaching the booster assembly would lower the commercial attractiveness of the device. The FCC thus agreed and basically allowed the envisioned MSS/ATC user-terminal to operate “temporarily” in this configuration “ATC only” until their new satellite was launched which could then communicate without the booster assembly . The new satellite was expected, via launch milestones in 2007. Which did not actually launch until 2010.

    The FCC ruled that the proposed “Safe Harbor” Globalstar terminal did not meet the “integrated service rule”, because it only provided Low Rate Data on the MSS portion, with High Speed Data on the ATC portion.

    A measure that was not applied to the MSV “approved” integrated service terminal which would also only provide low speed data on the MSS segment “only if “commercially unattractive booster were attached”.

    Likewise the FCC advanced the concept that since the SPOT/ATC terminal was only Simplex on the MSS component, and could communicate with the MSS segment in only one direction (transmit, not receive) natively, that this prevented it from being classified as an “integrated service”. While again, the MSV approved terminal lacked complete functionality in either direction to the MSS component without attachment of the “commercially unacceptable” booster system, which again was not even required to be attached.

    Globalstar’s “Safe Harbor” dual-mode terminal was deemed not to meet the “integrated service” benchmark. The FCC then stated that only a terminal that provided “High Speed MSS which provided similar performance to that of the ATC component would qualify as a “integrated service” compliant device. A High Speed MSS capability requirement had been levied on no other MSS/ATC licensee. Thus the FCC deemed that Globalstar “Safe Harbor” device did not meet the “integrated service requirement” and Globalstar would require a duplex terminal that provided “High Speed MSS”, thus they found that Globalstar lacked the required coverage/spare satellite/ and High Speed MSS capability which would qualify it to meet the “integrated service” benchmark, and thus were in violation of their ATC gating requirements.

    As history has shown, the FCC International Bureau revoked Globalstar’s ATC authority, and ruled that Globalstar “ATC Partner”, Open Range Communications must “vacate” operations in the S-Band, and seek alternative spectrum partners. A requirement that eventually led Open Range to enter into an agreement with who else… “Lightsquared”.
    Which has been issued a “contingent” permanent and complete waiver of the “integrated service rules”, and allowed to use “terrestrial-only” devices.

    The FCC International Bureau deemed that the ~$250 million USDA/RUS Government loans to build the Open Range System on Globalstar’s S-Band did not provide enough “public interest” to provide a additional “temporary waiver” to Globalstar.

    In the end, if Open Range eventually files a petition. You can then add that ~250MM onto the administrations bill.

  3. timfarrar said,

    September 21, 2011 at 8:45 am

    LightSquared’s January 2011 waiver was clearly out of step with the previous history of FCC rulings, and does stand in contrast to the September 2010 ruling which stripped Globalstar of its ATC authority.

    However, I fail to see the difference between the November 2004 waiver that granted MSV temporary permission to operate terminals with a booster (until the new satellites were ready, when these terminals would be able to communicate directly with those new satellites) and the October 2008 waiver that granted Globalstar temporary permission to operate terminals with only a simplex satellite capability (until the new chipsets were ready, at which point they would have to be replaced with “high speed” two-way satellite-capable terminals).

  4. ORBITRAX said,

    September 21, 2011 at 12:52 pm

    MSV’s terminal did not operate with “temporary permission” similar to Globalstars. i.e.” Hard Termination Date”. The only expiration date was the expiration of the AMSC space station license 6 years into the future. However, they would be prevented to sell “additional” ATC terminals if the MSV-1 (Skyterra-1) license was unapproved or terminated at some future date, but ATC authority would not be suspended as it reads until the space station license expired, if not renewed. The MSV “envisioned terminal” was deemed to fully meet the “Safe Harbor” standard with the understanding that it would be able to communicate with a future satellite that I believe at the time, was “unlicensed, un-financed, and lacked at construction contract”. Let alone having any “firm expiration date” attached to it, only that the ATC authority would expire when the AMSC space station license expired 6 years in the future.

    The issue is that of meeting the “Safe Harbor” requirements.

    If the Globalstar “dual-mode” user terminal, as originally proposed, i.e. “stand alone” “commercially acceptable form factor” providing low speed MSS simplex data, High Speed duplex ATC data, had been deemed to meet the Safe Harbor requirement, then the timing of the launch of next generation satellites, spare satellite requirements, and integrated service offering would be moot. Or at least equal treatment with the MSV that stated that the ATC “Safe Harbor” would expire with the Globalstar Space Station License in 2012,pending a new satellite/new constellation.

    While, at the same time, the MSV “Safe Harbor” compliant terminal in a ‘stand alone”, “commercially acceptable” configuration could not communicate in any form with the existing on-orbit satellites. Let alone having the requirement to provide “High Speed” Data services on the MSS segment.

    The issue for Globalstar was not so much gating requirements, i.e. Satellite Coverage, Spare Satellite requirements, but more so that the FCC failed to establish that the originally envisioned ATC user terminal met the “Safe Harbor” standard, while MSV’s “envisioned” and approved “Safe Harbor” ATC terminal could not establish any communications with the on-orbit satellite without being converted into a “commercially unacceptable” form factor, i.e. external power boosters/antennas. Hence, the MSV (now Lightsquared) ATC user terminal was effectively a “stand-alone” Terrestrial device until a future time, which was unmetered, that a new satellite was licensed, financed and launched at a future date.

    In the end, we tend to think you have it backwards. That your view that the 2011 waver was out of step with previous history of FCC rulings. Versus our view that the September 14, 2010 ruling against Globalstar was “clearly out of step” with the overall history of FCC rulings associated with ATC.

    I believe you yourself described the Globalstar ruling as “shocking to most observers”

    http://tmfassociates.com/blog/2010/09/14/the-fcc-takes-a-hard-line-on-atc/

    Like you opined at the time:

    “, and in the near term, LightSquared recently delayed the launch of its first next generation satellite to December 2010, which will also require a waiver from the FCC, and questions are sure to be raised about whether this delay was solely attributable to technical problems.”

    However.. Not one question was raised.

    ORBITRAX

  5. ORBITRAX said,

    September 21, 2011 at 6:12 pm

    You stated… “which is exactly why January’s action (which was not even brought before the full Commission) was such “an unprecedented and surprising development”.

    Especially given the same International Bureau’s Globalstar ruling 2 months earlier which stated @42

    “42.

    Thus, to the extent the Commission would consider changes in its rules that “might permit more extensive standalone terrestrial operations” in this frequency band, this action would be taken following a proceeding in which a full record concerning all potentially available options can be developed.”

    http://fjallfoss.fcc.gov/edocs_public/attachmatch/DA-10-1740A1.pdf

    ORBITRAX

  6. TMF Associates MSS blog » DISH plays it cool, Sprint changes its tune… said,

    October 26, 2011 at 11:04 am

    [...] the FCC still has to avoid giving DISH a similar spectrum windfall to LightSquared and if DISH is to avoid having to give up part of the spectrum for reauction, it will have to come [...]

  7. TMF Associates MSS blog » Sprint’s fundraising efforts… said,

    November 14, 2011 at 8:48 am

    [...] course, that statement once again highlights the issue of LightSquared’s own $10B windfall problem which the GPS industry are now making so much of, and makes it harder for the FCC to grant DISH a [...]

  8. TMF Associates MSS blog » Discretion is the better part of valor… said,

    December 2, 2011 at 12:53 pm

    [...] it makes recent assertions by Brattle Group that generic “unencumbered spectrum” (such as LightSquared’s spectrum with a waiver) should have a value of roughly $1.00/MHzPOP look hugely [...]

  9. An interesting direction : monoblogue said,

    February 20, 2012 at 5:44 pm

    [...] raise $586 million from a variety of sources. Estimates of the value of this spectrum ranged up to $12 billion, based on the value of other (failed) companies which possessed smaller frequency segments. [...]

  10. TMF Associates MSS blog » Spectrum bill dishes on DISH deal… said,

    February 21, 2012 at 6:15 pm

    [...] Assuming that this additional 15MHz of spectrum is intended to be contiguous with the other spectrum listed above (rather than being a single 15MHz contiguous block, which seems unlikely to be feasible), then it appears that DISH will give up 2x5MHz of its 2x20MHz of DBSD/TerreStar spectrum (2000-05/2180-85MHz), and move its uplink frequencies up by a further 5MHz into the original J block uplink (2020-25MHz) in exchange for the waiver, and so that there is no windfall to be criticized as in the case of LightSquared. [...]

  11. Another one bites the dust « THE FIRST STREET JOURNAL. said,

    May 14, 2012 at 5:42 pm

    [...] more at the link. The Telecom, Media and Finance Associates, Inc. blog noted: Once this $10B windfall is more widely recognized, I think it is going to represent an [...]

  12. TMF Associates MSS blog » It’s academic… said,

    May 1, 2013 at 4:27 pm

    [...] cap should obviously bound these losses in exactly the same way (as an aside the $10B number was actually the windfall to LightSquared from the FCC’s waiver, not the value of the licenses themselves). If it does not bound either estimate, then of course [...]

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