What happens in Alaska…

Posted in Handheld, Operators, Services, TerreStar at 7:41 pm by timfarrar

Its been known for at least a year that TerreStar’s Genus phone would need an external antenna to provide good performance in Alaska and most of Canada. TerreStar’s latest coverage map indicates this, and also recommends the use of the external antenna in Hawaii and Puerto Rico/US Virgin Islands as well.

We’ve now obtained a picture of the cradle and external antenna, which we understand will be announced soon, presumably once approval is received for this equipment from the FCC.

UPDATE: SatPhoneStore are now selling what is referred to as the Genus External Antenna and Sled for $265. Interestingly, the Genus phone itself is priced at $1150 (down from a “regular price” of $1299), suggesting that the wholesale price of the phone to distributors other than AT&T may be approaching $1000.

It looks like the Genus phone will be a rather harder sell if users need to buy a separate and relatively bulky external antenna to improve performance, so let’s hope that what happens in Alaska stays in Alaska.


Deja vu all over again?

Posted in Financials, Handheld, Iridium, Operators, Services, TerreStar at 10:42 pm by timfarrar

When I read this review of the TerreStar Genus phone, not only did it confirm my own views about the limited prospects for the phone and the wider lack of interest in dual mode satellite phones, but it brought back quite a few memories from the late 1990s.

Most notably, likening a satellite phone to a “brick” is never a good sign (“It’s huge! It will scare people…If we had a campaign that featured our product, we’d lose“).
Also the suggestion that AT&T hasn’t identified the market correctly if it thinks people will use this as their “everyday mobile device”, along with criticism of the “hefty series of price tags” (“What it looks like now is a multibillion-dollar science project. There are fundamental problems: The handset is big, the service is expensive, and the customers haven’t really been identified“)


Where does the ISatPhone Pro work?

Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services at 8:46 am by timfarrar

One of the most interesting questions about Inmarsat’s new ISatPhone Pro is how well it will work at low elevation angles, including for example whether the phone antenna needs to be pointed towards the satellite. This is going to be particularly relevant in Alaska, much of which lies very close to the nominal edge of coverage, and well outside the 20 degree elevation angle contour (where Inmarsat suggests that “more user cooperation is required”), as shown below.

However, I’ve been told by Inmarsat that the phone is performing better than expected, even at relatively low elevation angles, so it will be interesting to see what this means in practice. Given that the beams used for registering the phone on the Inmarsat satellite are lower power than the beams used for a call, it appears probable that either the phone will register successfully and then calls can be made OK, or the phone won’t register and then no calls can be made at all.

Its surprising that we haven’t yet seen any published real world tests of the Inmarsat phone in comparison to Iridium, similar to the Frost & Sullivan reports which compared Iridium and Globalstar in 2008 and 2002. However, I’m sure similar analyses will be undertaken by both Iridium and Inmarsat at least for their own internal purposes, and possibly even for external publication if they believe the results are favorable. If you’ve tried out the phone in “fringe” coverage areas then feel free to let us know about your experience in the comments section below.

UPDATE: So now Frost & Sullivan has released its comparison of the Iridium and Inmarsat phones, which was commissioned by Iridium. It is notable that in Anchorage, Alaska, Frost & Sullivan “was unable to make or receive a call despite dozens of attempts and was only able to briefly find a satellite”. This points to difficulties with registration, as we suspected. However, Inmarsat sources tell us that it is perfectly possible to register on the satellite in Alaska, and make calls there. We haven’t yet got an independent view, but it would seem likely that the actual answer may lie somewhere between these two opposing views. We would speculate that you will probably have to have a pretty good idea where the Inmarsat satellite is so you can point the phone antenna at it during registration (maybe using a compass would be helpful?).


Does AT&T care about the Genus phone?

Posted in Handheld, Operators, Regulatory, Services, Spectrum, TerreStar at 10:02 am by timfarrar

We’re told that TerreStar is planning to announce (tomorrow?) that the Genus phone will be released by AT&T next week. However, surprisingly enough, AT&T’s filing yesterday in response to the FCC’s NPRM/NOI on MSS spectrum, didn’t mention the Genus phone once. Not only that, but AT&T actually suggested that “rationalizing the MSS bands for terrestrial wireless use is a
good first step to implementing a comprehensive broadband spectrum strategy”, and supported the concept suggested in the NOI, that “there may be opportunities to ‘meet future [MSS] needs with less allocated spectrum in some or all of the bands.’”

Therefore the obvious question is whether AT&T cares about the success of the Genus phone, or instead would actually benefit from it failing, because it believes that the “2 GHz MSS band is a good target for the creation of new terrestrial mobile services”. Of course AT&T is a large company, and what is in the interests of AT&T at a corporate level may differ from the priorities of the staff working on the Genus launch. However, given the challenges that the Genus phone already faces, it is noteworthy that the project does not appear to enjoy much recognition or support when AT&T is setting out its strategic interests in the wireless business.


What is TerreStar’s satellite spectrum worth?

Posted in Financials, Handheld, ICO/DBSD, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 12:09 pm by timfarrar

That’s the big question facing TerreStar and its investors, as the company moves towards a bankruptcy filing which we assume will come in the next week or so. TerreStar Networks has a very substantial amount of debt secured against its in-orbit satellite and 2GHz spectrum assets, with $857M of 15% Secured Notes and $109M of 6.5% Exchangeable Notes outstanding at June 30, 2010 according to TerreStar’s latest 10-Q.

TerreStar stated in the 10-Q that it had “commenced restructuring discussions with certain holders of our 15% Secured Notes and 6.5% Exchangeable Notes”. However, if these discussions are not successful, and TerreStar and its advisers want to argue that the satellite spectrum is worth considerably more than the outstanding first lien debt, then it is possible that they could try to keep this debt in place and raise DIP funding based on TerreStar’s other assets, such as its 1.4GHz spectrum and the ground spare satellite (which is encumbered by a separate $73M Purchase Money Credit Facility).

The result would likely be a dispute in bankruptcy court over whether it is better to halt TerreStar’s plans to launch commercial service, and sell off its satellite and spectrum assets in the near future (e.g. if the current FCC proceeding permits incentive auctions for the 2GHz MSS spectrum), or to keep the company afloat and moving forward with the launch of the Genus phone, which was recently postponed until September. Of course the second option would require considerably more funding to be made available, and it is extremely questionable whether a feasible business plan could be developed to justify commercial launch of the Genus phone. In our profile of TerreStar, published back in January 2010, we estimated that the handheld Genus phone could generate perhaps $25M in wholesale service revenues by 2014, but after trying out the phone in March, we scaled back our expectations.

It may also be difficult to argue that TerreStar’s in-orbit satellite and spectrum is worth significantly in excess of the $966M of outstanding Secured and Exchangeable Notes, when a judge found in the DBSD bankruptcy case last fall that DBSD (with a satellite in orbit and having chosen its 20MHz of spectrum ahead of TerreStar) should be valued at $492M to $692M.

It is far from clear that either DBSD or TerreStar are better positioned than they were last year to secure a strategic partner (such as a wireless operator) who is prepared to fund the rollout of a multi-billion dollar terrestrial ATC network. Indeed, given the recent decision of Harbinger to go it alone with a wholesale approach for LightSquared, major wireless operators have to date proved unwilling to invest on the basis of the ATC model and associated satellite spectrum (despite five years of trying on the part of SkyTerra, ICO/DBSD and TerreStar).

The FCC’s recent NPRM could potentially enable the 2GHz MSS operators to monetize their spectrum via an incentive auction or similar mechanism once the proceeding is completed in 2011, which does represent a change from last year, but the FCC has also emphasized that it will need to receive compensation for the step-up in value accruing from removal of the current ATC rules in the 2GHz MSS band. If the proceeds of an incentive auction were shared 50/50 between the current spectrum holders and the government, as appears plausible, then (taking into account the delay before an auction could take place, most likely in 2012, and the need for additional funding in the interim) such an auction would need to raise close to $0.50 per MHzPOP in order to repay the Secured and Exchangeable Notes.

Although such a valuation is similar to those mooted by Clearwire and Credit Suisse in recent months, the FCC’s interests are not necessarily supportive of increasing spectrum valuations, and the balance between potential buyers and sellers of spectrum is significantly different to that back in 2006, when the AWS auction raised an average of $0.54 per MHzPOP.


How to spoil a decent product launch

Posted in Globalstar, Handheld, Inmarsat, Iridium, Operators, Services, TerreStar, Thuraya at 2:37 pm by timfarrar

Inmarsat has now launched its ISatPhone Pro, which I was lucky enough to try out the other week. Although the phone itself is not particularly attractive, the call performance was better than I expected – voice quality was good (with the other party easily recognizable), and the ability to ‘walk and talk’ was far superior to my experience with the TerreStar Genus phone. Latency was also somewhat better than on the Genus phone. The main limitation was that the phone only registers on the Inmarsat satellite when the antenna is extended and pointed in the direction of the satellite, which means there is a delay of 1-2 minutes before a call can be made, and calls will rarely, if ever, be received on the phone (assuming the user doesn’t want to carry it around with the antenna extended).

Though Inmarsat’s phone is not expected to perform well at high latitudes (particularly in Alaska), it should generally be a good alternative for those MSS voice users who aren’t worried about carrying such a large device. The phone itself has been priced very aggressively, with pricing currently around $599 and in some cases close to $500.

However, the most surprising development is the airtime pricing that Inmarsat has set. Postpaid wholesale pricing has been set very low, leading to retail offers of $150 per year with 60 free minutes of calls. Even more extraordinary is the prepaid pricing, where a user can buy a 25 minute card, valid for 2 years, for only $20.

In my view the fact that Inmarsat has selected a uniform 2 year expiry date on its prepaid cards is a huge mistake, which I can only assume is due to the limitations of Inmarsat’s prepaid billing system (note also that prepaid service is currently not available in the US, due to patent litigation over the prepaid platform that Inmarsat uses). Iridium has previously indicated that about half of handheld MSS users are “glovebox”-type customers, who only use the phone for emergencies (and rarely use any minutes). To date such users have been paying at least $30 per month for satellite phone service (apart from occasional dual mode roamers on Thuraya), but now they will be able to get service for less than $1 per month. Inmarsat has thus completely undermined the economics of a significant part of the handheld MSS market, making it impossible for its service providers to justify targeting these customers (especially as SPs are busy competing away the margins which Inmarsat expected would be available on its handsets). In addition to leaving large amounts of money on the table, this action may also create added costs for Inmarsat, as these users are the least likely to be familiar with the limitations of satellite communications and thus may well end up consuming disproportionate levels of customer support resources.

Inmarsat may well have had a reason to act in such a destructive manner a few months ago, when it thought it might have the opportunity to prevent Iridium gaining funding in the public markets to pay for its NEXT contract. However, now that Iridium can rely on more money than expected from COFACE, such a calculation looks less sensible.

Despite having an attractive proposition for low end users, Inmarsat may still prove less successful than it hopes amongst higher volume users. In particular, these users will gain less of an advantage from the low occasional use tariffs, and may be somewhat reluctant to churn after making a substantial investment in buying an Iridium or Globalstar handset in recent years. Inmarsat has stated that it believes the average lifetime of a satellite handset is around three years, but in reality Iridium and Globalstar handsets are used for up to 8 years (and there is a thriving market for secondhand phones). As a result, churn in the handheld MSS market is much lower than Inmarsat apparently expects (even for Globalstar users, who have had to cope with a lack of two-way service in recent years), which will make it difficult to persuade large numbers of existing users to switch over rapidly to Inmarsat’s new service. On the other hand, competition from Inmarsat will potentially force Globalstar to offer rather more aggressive pricing as it tries to rebuild its subscriber base in 2011 and 2012.

In the end therefore, Inmarsat may end up being able to trumpet a fairly large number of handheld subscribers (potentially up to 150K by 2014), but many of these will be less desirable customers and ARPUs may be rather lower than expected. Thus the overall impact for the handheld MSS market of Inmarsat’s new service (even when combined with Globalstar’s two-way relaunch in 2011) may remain subdued, and at best we expect wholesale revenue growth of no more than 10% p.a. in the next five years. Indeed a more pessimistic view, assuming significant erosion of ARPUs at the low end of the handheld market could put wholesale revenue growth at less than 5% p.a. over this period.


Guaranteeing a competitive future for MSS

Posted in Aeronautical, Broadband, Financials, Globalstar, Handheld, Inmarsat, Iridium, Maritime, Operators, Services, VSAT at 2:57 pm by timfarrar

So Iridium has finally announced the contract to build its NEXT satellites, which was won by Thales Alenia Space (TAS) with the support of a stunning $1.8B loan package which will be 95% guaranteed by COFACE, the French Export Credit Agency (ECA). By the sound of it, Lockheed had been confident of winning the contract, but the US Ex-Im Bank simply couldn’t match the level of support offered by COFACE.

Even Iridium appears surprised by the $1.8B Promise of Guarantee, given the suggestions in their March 2010 results call that the company would need to raise additional unsecured or subordinated debt in the public market. We had expected Iridium might need to raise $300M or more in backstop financing, based on Iridium’s April 2010 investor presentation which stated that the company was “seeking support for a[n ECA] facility of approximately $1.5B”. COFACE’s additional support therefore clearly appears to have tipped the balance in favor of TAS, because it removes the risk that Iridium would have faced in trying to tap the public markets at this point in time.

We now expect Globalstar to point out that Iridium has received an even more favorable financing package than Globalstar did last year (when Thermo was required to provide additional backstop funding as a condition of the $586M COFACE-backed facility) and potentially to seek a $200M+ extension of its current facility. This would provide funding so Globalstar could exercise its option to purchase the last 24 second generation satellites, allowing them to add more satellites to their constellation before NEXT becomes operational (and before radiation problems are expected to start impacting their 8 first generation spares in about 2015). Such a facility could also give Globalstar more firepower to market its new second generation services in 2011 and 2012, without the risk of eating into the contingent equity and debt service reserve accounts previously established by Thermo.

The next stage in this war of the Export Credit Agencies may then come in the shape of Inmarsat’s upcoming Ka-band constellation, which we expect to involve 3 or 4 dedicated Ka-band satellites (costing at least $200M each including launch and insurance), providing oceanic coverage to complement and extend its existing FleetBroadband and SwiftBroadband services. With Inmarsat’s new satellites expected to be deployed between 2013 and 2015, an order could well come as soon as this summer, when Inmarsat announces its investor guidance for the next five years. More details of Inmarsat’s plans and our expectations for their future Ka-band revenues were given in the March 2010 report, available to subscribers to our MSS information service.

The competition to build Inmarsat’s new satellites appears once again to be shaping up as a US vs European battle with TAS, SS/L and Astrium all bidding for the contract. Will ECA financing once again prove to be a key factor in the decision, even though Inmarsat has much less need for a guarantee than Iridium and Globalstar? Certainly Inmarsat has not been reluctant to seek cheap government-backed funding when it is available, as seen in its recent European Investment Bank loan to fund the Alphasat project.

In summary, its clear that ECA financing is now going to play a very substantial role in supporting the MSS industry. As a result, the prospects for a long awaited consolidation of the sector appear to be diminishing. That is certainly good news for end users of MSS, as well as service providers and distributors, who will be able to take advantage of an increasing range of competitive alternatives. This is particularly true in the maritime and aeronautical markets, where Iridium is really the only potential MSS competitor for Inmarsat. Indeed Iridium’s ability to serve these markets gives it a much more sustainable long term position than some other systems, because most maritime and aeronautical opportunities are much less likely to be undermined by the buildout of terrestrial wireless systems.

Nevertheless, it also seems hard to justify the $8B+ of capital investment that has been committed by Iridium, Globalstar and all of the other players (Iridium NEXT, Globalstar 2, Inmarsat 4, Orbcomm, ICO/DBSD, SkyTerra and TerreStar) in an industry sector which only generated $1.1B in wholesale service revenues in 2009, and though growing healthily, doesn’t appear poised to breakout from the 8% annual growth rate seen in recent years. Unless new sources of value appear (spectrum monetization being the obvious option for several players) it appears unlikely that all of the MSS operators will be as successful as they and their investors hope.

Indeed the main story of the next decade is likely to be the competition between Iridium and Globalstar, as they both strive to be the second biggest player in an MSS market that will continue to be dominated by Inmarsat, while other providers may fall by the wayside. If Iridium can grow from its current 19% share of wholesale service revenues to about a 25% market share, or Globalstar can grow from its current 5% share to 15% or more (based on its lower cost satellite system), then that should be sufficient to achieve an attractive return on capital for either company. However, with Inmarsat holding a more than 60% market share today, it appears unlikely that both Iridium and Globalstar could achieve this level of success simultaneously.


Is there a future for TerreStar’s Genus phone?

Posted in Financials, Handheld, Operators, Services, Spectrum, TerreStar at 10:26 am by timfarrar

Back in March, I was lucky enough to try TerreStar’s Genus phone at the Satellite 2010 conference. At that time it was clear that the phone needed further work to get it ready for commercial service, and recent filings from TerreStar indicate that the company is now working with HNS on an “ATT-QoS Workaround” to address some “APN Issues” (APN or Access Point Node relates to data services, which I did not try to use back in March).

UPDATE: I’m told by a technical expert in this area that the GMR1-3G protocol used by TerreStar treats all information as packet data, including voice (which has the highest QoS). Given that AT&T’s terrestrial network carries voice over GSM and does not normally provide an equivalent voice over packet data service at this point in time, it appears quite plausible that the workaround relates to an attempt to optimize voice performance rather than being an issue for TerreStar’s data services.

However, my concerns about the viability of the Genus phone relate much more to whether the orientation-sensitivity of the phone will actually be acceptable in real world usage conditions. To use the phone you need to know where the satellite is located (roughly southwest when you are on the East Coast) and have clear visibility in that direction. Though that was simple at the Satellite conference, where this direction was out over the Potomac river, it certainly won’t always be the case in rural areas, unless its a desert or a prairie. I still remember only too well the joke I was told by a Globalstar engineer ten years ago – that their system was designed for a “man out standing/outstanding in his field”. More to the point you also need to stand still and not turn around – very different to the situation with Iridium and Globalstar handsets, where the extending antenna goes above your head and allows you to “walk and talk”.

If orientation-sensitivity does prove to be a big problem for potential users, as I think it will, then TerreStar is faced with an unpalatable choice: design a phone with an extending antenna, which will work fine, but would have no mass market appeal, or sell a phone like the Genus, which could conceivably have wider appeal, but won’t provide acceptable performance in satellite mode. Fundamentally, I therefore don’t see any reason to change the opinion I expressed last year during the DBSD bankruptcy, that “the part of TerreStar’s business plan directed to a mass market service is very unlikely to succeed”.

However, there has been one important change in the environment for TerreStar over the last six months, because the FCC has now held out the possibility that 2GHz MSS spectrum holders will be able to participate in an incentive auction, which would potentially allow them to return their spectrum to the FCC for re-auction as terrestrial spectrum without any ATC restrictions. Given the difficulty in realizing value from a satellite roaming business plan, then unless Harbinger negotiates a lease agreement for TerreStar’s satellite spectrum, as part of its planned L-band ATC deployment, it seems likely that this would be the best exit TerreStar could hope for. However, given that the FCC would only give TerreStar a proportion of the proceeds from the auction, and it would probably take a couple of years before that auction even happened (during which period TerreStar will have to raise more money to keep its satellite in operation), it is hard to imagine that the proceeds could exceed the secured debt load that TerreStar has accrued to date. Even if TerreStar did enter some sort of lease agreement with Harbinger (some details of the draft term sheet for the Spectrum Pooling Agreement, which appears to contemplate a “potential purchase of the S-band Spectrum” as one option, but not a takeover of TerreStar itself, have also been publicly filed), then it seems implausible that this payment would exceed the value of SkyTerra’s lease agreement with Inmarsat, which calls for payments of $115M per year, and it could very well be much less. Unfortunately even $115M per year would be insufficient to pay the interest on TerreStar’s secured debt, when it becomes cash pay next year. Remember also that if TerreStar stays out of bankruptcy, it will at some point have to pay Sprint’s spectrum clearing expenses, which Sprint has claimed exceed $100M for each of TerreStar and DBSD.

At this point in time, the future for TerreStar therefore looks pretty uncertain. More importantly for the rest of the MSS market, it is far from clear whether the Genus phone will provide meaningful competition to other handheld MSS providers, and even whether AT&T will actually go ahead with any large scale commercial launch of the handset. I’m sure everyone will be watching with interest to see what news emerges over the next few weeks.


Testing times for TerreStar and Harbinger

Posted in Financials, Handheld, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:27 pm by timfarrar

This morning I had a brief chance to try TerreStar’s new Genus phone before the MSS CEO panel at Satellite 2010/MSUA-7. As pointed out in previous posts, the link is quite sensitive to phone orientation (remember not to turn around during a call). In addition, the phone software is still being optimized to address various issues such as the delay in establishing a voice channel after a call is answered, and the registration time necessary to switch from cellular into satellite mode. However, satellite SMS appears to work well (both to and from the phone) and may end up being more important to TerreStar than originally anticipated. It will therefore be interesting to see to what degree TerreStar is able to take customers away from Iridium and other MSS providers (as TerreStar’s CEO indicated was his ambition) once the phone enters commercial service in the next few months.

While some questions remain about TerreStar’s satellite service, more clarity is emerging about Harbinger’s likely ATC plans after the release of the National Broadband Plan yesterday. As we noted a few weeks ago, it appears that a consortium is being put together by Harbinger (and a team of executives recruited) to build a new entrant LTE-based mobile broadband network, using a mixture of spectrum in the L-band, 2GHz band, 1.4GHz band and 1670-75MHz band, along with substantial vendor financing. The Broadband Plan indicates that the FCC is likely to be supportive of moves to accelerate the deployment of an ambitious ATC network, though Harbinger’s network would probably not require any substantive changes to current FCC regulations. It has been suggested to us that the network would ultimately require $4B of capex and another $4B in funding for subscriber acquisition and other costs, indicating a similar scale of ambitions to Clearwire, which is targeting a subscriber base of 30M users over a 10 year period. Such a plan would certainly be a transformative move for the entire MSS industry (even if its focus is almost entirely on terrestrial services), and so all of us will be waiting with bated breath to see whether Harbinger realizes its plans, something that now seems more likely than not to become clear in the very near future.


What does Harbinger do next?

Posted in Financials, Handheld, Inmarsat, LightSquared, Operators, Regulatory, Services, Spectrum, TerreStar at 8:05 pm by timfarrar

The FT’s Alphaville blog has highlighted various documents filed by SkyTerra with the SEC as part of its going private transaction with Harbinger, and suggested that Harbinger is still focused on the acquisition of Inmarsat that it originally proposed back in July 2008.

However, in our view these documents actually indicate the opposite, that although Harbinger is actively attempting to put together a consortium to fund an ATC network deployment, this is unlikely to include a bid for Inmarsat. The UBS analysis for Harbinger in July 2009, suggests three possible strategic options after the privatization of SkyTerra (Sol), namely:
(a) Acquire Inmarsat (Ignis)
(b) Pursue the Inmarsat (Ignis) Coordination Agreement
(c) Lease TerreStar (Taurus) Spectrum.

Over the last several months, it is clear that Harbinger has in fact pursued options (b) and (c) rather than option (a) (although admittedly it would not be able to launch a bid for Inmarsat prior to the SkyTerra takeover):
- SkyTerra declared the Inmarsat Coordination Agreement effective in December 2009 (prior to the two year deadline for this action); and
- TerreStar announced in January 2010 that it had entered a 90 day exclusive negotiation period to lease its satellite spectrum to Harbinger in exchange for an advance of $30M against its prior terrestrial (1.4GHz) spectrum lease to Harbinger.

While the Inmarsat coordination agreement (including its payment of $250M to Inmarsat to fit filters to existing Inmarsat terminals) is a necessity to make use of SkyTerra’s spectrum in any ATC network, in our view the potential Harbinger-TerreStar satellite spectrum lease is a direct alternative to pursuing a takeover of Inmarsat (albeit one which may not give access to European S-band spectrum, unless TerreStar is successful in its challenge to the European S-band process, or either Inmarsat or Solaris give up their licenses for this spectrum).

Similarly, while we understand that Harbinger is attempting to raise money from a consortium of investors over the next month or two, using this new funding to acquire Inmarsat would mean that it could not be used to fund a near term buildout of an ATC network. In fact, given the rise in Inmarsat’s stock price over the last year, it appears plausible that Harbinger might even decide to sell off some of its Inmarsat shares in order to provide funding for an ATC deployment, especially if Inmarsat decides to go down the route of spending its cashflows on a new I5 constellation with Ka-band capabilities.

There would be two ways in which an ATC network deployment could happen: if the buildout was funded by an existing wireless operator as a way to add capacity to its existing network, or as a (self-funded) standalone 4G new entrant to the US wireless market. We believe that Harbinger is pursuing the second of these alternatives at present, because the (less expensive and risky) first option is simply not open to it for the foreseeable future. As SkyTerra notes in its preliminary proxy statement:

“The Company had been actively pursuing a major strategic partner for a considerable period of time. In addition, during early to mid 2009 the Company had pursued and encouraged such parties to submit indications of interest to make an investment in and/or acquire the Company. No such partnering efforts were successful and no bona fide offers were received. In the judgment of Morgan Stanley, it was unclear that there was a short-or-medium term need for additional spectrum by ATC companies who were potential strategic partners. In addition, potential strategic partners had sources of spectrum other than through a partnership with SkyTerra, including via spectrum auctions by the FCC, and sales from SpectrumCo, Clearwire or from other entities in the satellite sector.”

Thus the pressing question is whether Harbinger will now be able to convince prospective partners/investors that a new entrant wireless business plan (presumably similar to that of Clearwire but based on LTE) would make sense. Though some funding might be available from (for example) an equipment vendor who would like to demonstrate its 4G technology (as has happened with Clearwire), it is less obvious who might be interested in providing distribution. Most importantly, with doubts persisting about whether Clearwire (with significant backing from wireless and cable operators) will be able to develop a sustainable 4G business, Harbinger will need to demonstrate a compelling reason why customers should choose its service over those of more established wireless providers. The only credible differentiator for such a wireless network lies in the satellite roaming capabilities that will be available (and mandated) in an ATC network deployment (and which Mr Falcone suggested to the Wall St Journal back in April 2009 would attract “vast global demand”). Thus potential partners’ attention will need to be focused on the TerreStar Genus phone (which now looks like it will come to market sometime in the second quarter of this year, after the deadline for Harbinger to complete its potential satellite spectrum lease with TerreStar), and whether they believe it can provide a compelling demonstration of competitive differentiation and market demand, based on this satellite roaming capability.

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