09.05.12

So much to do, so much to see…

Posted in Financials, Globalstar, ICO/DBSD, Inmarsat, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 9:55 am by timfarrar

It looks like the next month or so may be filled with interesting developments in the US spectrum market. Last week, it was reported that the FCC is preparing to launch of review of its “spectrum screen” at the September Commission meeting. Of course if the FCC suggests a preference for distinguishing between low frequency (sub 1GHz) and higher frequency spectrum, in response to concerns that AT&T and Verizon have been accumulating too much of the most valuable spectrum, then that might not only put a damper on the prospects for broadcast TV incentive auctions (recall that AT&T and Verizon contributed over 85% of the 700MHz auction proceeds back in 2008), but could be taken as a clear signal that the FCC would approve of AT&T buying DISH for its higher frequency spectrum.

In that context, it seems increasingly likely that the release of a LightSquared ruling (almost certainly confirming the FCC’s February proposal to withdraw LightSquared’s ATC license) will also come this month, along with approval of DISH’s terrestrial network in the 2GHz MSS band. This week DISH has been continuing its campaign to avoid its uplink allocation being shifted up by 5MHz to 2005-2025MHz, which is an option being considered very seriously by the Commission, as it would satisfy Sprint’s desire to access the H-block (which Sprint probably considered to be a done deal last November when it settled with DBSD and TerreStar), and mitigate both windfall and timeline concerns. However, it is notable that the Public Interest organizations who have been most vocal in raising the windfall issue actually oppose a relocation of the uplink due to the delay it would could in the standardization process.

Intriguingly, if we do see a ruling (at least partly) in DISH’s favor in the next month or two, it may make it even more difficult for Clearwire to pull off any potential spectrum sale. Then we may be faced with exactly the same situation in December as at the end of last year, namely does Clearwire pay the large interest payment due in December, or use the threat of a bankruptcy filing as leverage to raise more money from Sprint and others to fund it through next year.

LightSquared is also wheeling out the big guns in its lobbying campaign right now, with former FCC Chairman Kevin Martin lobbying the Commission on LightSquared’s behalf last week, and the company is once again ramping up attempts to get its side of the story across. This may raise a few eyebrows, given that Martin was key to approving ATC back in 2005 and then requiring Inmarsat to cooperate with LightSquared via their Dec 2007 agreement. However, it seems unlikely to change many minds at the Commission, especially in advance of the November election. Apparently the best that LightSquared could hope for is for the initial decision to be taken by the full Commission, rather than by the International Bureau on delegated authority, which would give LightSquared an earlier opportunity to challenge the decision in court (because an IB decision must first be appealed to the full Commission before any legal action is initiated).

After LightSquared’s attempts to insert consideration of its own situation into the DISH proceeding, it would seem natural for both rulings to emerge at about the same time. The FCC will also need to indicate in the DISH ruling how it plans to take forward any similar flexibility proceedings in other MSS bands, notably the Big LEO band, where Globalstar has emphasized that “Greater flexibility for mobile broadband in Big LEO spectrum [is] necessary to enhance financial viability of Globalstar and its mission-critical MSS offerings” (emphasis mine). With Globalstar looking to raise substantial financing (perhaps as much as US$250M to $300M if Globalstar aims to fund both the remaining satellites and the ground segment buildout) by the end of the year in order to move forward with the final phase of its second generation constellation buildout, it is plausible to conclude that a positive signal from the FCC in this regard within the next month or two may be a pre-requisite for completion of that financing (which would presumably involve a combination of additional Export Credit Agency funding and further investment from Thermo).

Finally, and separately, TerreStar Corporation appears to have basically resolved its bankruptcy, and the existing preferred shareholders will convert their holdings to equity and keep control of the company. It is interesting to note that the valuation put on the 8MHz of national 1.4GHz spectrum in the event of a liquidation was only $80M to $100M (or $0.03-$0.04/MHzPOP) for an M2M smart grid type network (which is gratifyingly close to my estimate of $60M to $100M two years ago at the beginning of this process). It is hoped that FCC waivers can be secured, which would make the spectrum more valuable and usable for LTE, but that is a long term process, and there is no guarantee that it will be attractive to manufacturers to include this small, isolated band in future LTE chipsets. As a result, although there is a proforma offer for sale of the spectrum, it is inconceivable that any bid would be higher than the $400M+ that the existing preferred holders could credit bid in any auction. Of course its also another example of how just assuming spectrum is always a valuable asset, without consideration of the limitations applicable to that spectrum, is a quick way to lose a lot of money.

So going back to my title above, the next few months should reveal a lot more about who’s going to show that they’re an “All Star” and who will prove to have “the shape of an L on [their] forehead”. However, one thing seems pretty clear: when the FCC announces its decisions, not everyone is going to be a winner.

5 Comments »

  1. sboZ said,

    September 6, 2012 at 10:33 am

    Tim,

    What do you think will be the outcome of Dish’s recent 10-Q’s strategic investment in one unnamed company?

    And, even though the Cableco Verizon deal is already approved by the FCC, do you think the FCC will have any reaction to DirecTv’s recent filing which requested to have the Cable Companies divest their Clearwire interests within 6 months?

    Thanks,
    Sboz

  2. timfarrar said,

    September 6, 2012 at 10:48 am

    It seems most likely that Dish’s recent investment was in Clearwire (which suggests that the mystery LightSquared investor was Carlos Slim, as I previously surmised). That could be regarded as a potential blocking move to prevent a firesale of Clearwire spectrum impacting the value of Dish’s holdings. Alternatively it could be a prelude to some sort of collaboration between Dish and Clearwire (though rather unlikely to be a takeover or spectrum purchase). The most interesting question is whether Slim is also the potential partner that Ergen has hinted at for Dish’s wireless network.

    Is DirecTV interested in investing in Clearwire? Realistically, Clearwire’s curent LTE buildout plan is only suitable for providing incremental capacity to an existing wireless operator, not for a new entrant. Though some point to DirecTV’s 2.5GHz deployment in Brazil, that’s a completely different fixed wireless access (DSL competitor) model, not mobile broadband.

  3. sboZ said,

    September 6, 2012 at 11:15 am

    The Slim and Ergen potential partnership is very interesting. What type of moves do you think Slim will make next in order to gain more share in the U.S.?

  4. timfarrar said,

    September 6, 2012 at 11:19 am

    Good question. A lot to ponder there…
    But an Ergen/Slim partnership might be threatening enough to AT&T that they would feel forced to take out Dish at whatever Ergen’s asking price is.

  5. TMF Associates MSS blog » Five minutes to midnight? said,

    September 14, 2012 at 12:07 pm

    [...] I noted last week, it appears that the FCC ruling on LightSquared is expected to be released very soon, and two more [...]

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