01.05.12

LightSquared fading…

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 4:49 pm by timfarrar

Over the last couple of weeks a steady drumbeat of negative reports have emerged about LightSquared, including that it is “running out of cash“, that the National Defense Authorization Act (NDAA) has “stack[ed the] deck against LightSquared” and now that Sprint has put its investment in the partnership with LightSquared “on hold”. Indeed the FCC Chairman reportedly even joked at a December dinner that “LightSquared has two tables…A quick note from the Hilton staff – those of you sitting at the upper table will need to vacate the table, and those of you at the lower table are still too loud.”

However, I’m told that even more damaging information is likely to emerge shortly, indicating that the NTIA’s planned testing of the compatibility of high precision GPS devices with LightSquared’s network has been put on hold. This testing was supposed to take place in the near future (perhaps as soon as this month, although a more realistic timetable was spring 2012). It was reported in December that LightSquared had not yet provided the filters for this testing program and it is unclear whether this is a contributing factor in the decision, or if the NTIA has simply decided that it is not worth expending resources on the testing until the issues revealed in December about the interference with general purpose navigation devices and an aviation terrain avoidance system have been addressed. It seems that the full details should be forthcoming once the NTIA sends its formal report and recommendations from the December 14 meeting to the FCC.

UPDATE (1/6): When FierceWireless asked the NTIA about this blog post, their spokesperson indicated that “federal testing has not yet begun on high-precision devices. We won’t speculate further on timing other than the fact that it would be appropriate for the high-precision testing to take place after the analysis of the location-based/navigation device testing is complete.” This certainly appears to be a change in stance from the September 9 letter from the NTIA to the FCC, which stated “At that time [when LightSquared presents its filtering solution for testing and evaluation], the federal agencies will need to develop and execute a plan to test and analyze LightSquared’s proposed mitigation”, because LightSquared certainly believes it has already “presented” its proposed solution to the Federal agencies for testing and evaluation. Separately, another source has confirmed to me that there is no agreed timeline or funding for the high precision and timing testing, especially given recent cuts in the FAA budget.

As an aside, the Reuters article on LightSquared’s finances appears to broadly confirm my assessment that LightSquared is likely to run out of money by the second quarter of 2012. In view of the net loss of $427M in the first three quarters of 2011, it also seems that my estimate of LightSquared’s cash burn rate is in roughly the right range. However, I’m told by another source that my supposition that LightSquared might not have repaid the Boeing vendor financing is incorrect, and that in fact, as LightSquared has stated, the company has raised “over $2.5B in debt and equity” (at least $150M more than I had estimated), which accounts for this discrepancy. Indeed, with the Boeing loan repayment only being $120M, LightSquared’s cash burn over the last two years must have been even more than I had projected.

5 Comments »

  1. SteveCrowley said,

    January 6, 2012 at 3:29 am

    Tim, what do you make of the CFO change?

  2. markc21 said,

    January 6, 2012 at 5:06 am

    So now it’s up to Clearwire to show what it can do with its newfound resources. or is a walking dead?

  3. timfarrar said,

    January 6, 2012 at 6:09 am

    With respect to the CFO change, LightSquared has indicated that Mr Montemarano left due to his wife’s illness in mid-November. What I find curious is that they waited six weeks to announce a replacement, only to select someone who has been involved with LightSquared/SkyTerra for several years. Making a fuss about the new CFO’s prior relationship with Sprint seems strange, since he could well have been (and likely was) involved in discussions with Sprint all along. The way I look at it is that there isn’t much specific need for a new CFO right now (fundraising is essentially impossible while the FCC issues remain unresolved), but there would be a lot for a CFO to do after a bankruptcy filing.

    With respect to the question on Clearwire, I think its more important to look to what happens with AT&T/DISH this month, because if the outcome is what I’ve suggested previously, then there would be little room left for Clearwire as a wholesale provider to multiple players (and Sprint alone doesn’t make Clearwire a good business). LightSquared has largely been announcing a different sort of wholesale customer – small players without any existing wireless network (Leap being the obvious exception), whereas Clearwire will provide supplementary hotspot capacity to major existing wireless players. Thus the outcome with LightSquared won’t have very much direct impact on Clearwire’s opportunity (though it might make people more negative on spectrum plays generally).

  4. TMF Associates MSS blog » Don’t stop believin’…??? said,

    January 11, 2012 at 3:06 pm

    [...] that they will succeed where Harbinger has failed, especially as the NTIA now appears determined to spin out the testing process for as long as possible (and almost certainly to beyond the November 2012 election). In addition, [...]

  5. TMF Associates MSS blog » No additional testing is warranted at this time… said,

    January 13, 2012 at 4:53 pm

    [...] I indicated in my post on Thursday last week, the PNT Excom has recommended today, in a letter sent to the NTIA Administrator, that the high [...]

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