Is the value of spectrum going up or down?

Posted in LightSquared, Spectrum at 10:10 am by timfarrar

Investors in MSS-ATC spectrum are hoping to see the value of spectrum assets increase over time, as wireless operators are forced to acquire additional spectrum to serve surging data demand. Some recent benchmarks, such as the Canadian AWS spectrum auction which raised four times what was expected, are encouraging. However, Nextwave has struggled to sell its spectrum assets (including holdings at both 2.3GHz and 2.5GHz), with the exception of a modest amount of AWS spectrum. This sale took place at an average price of $0.25 per MHzPOP, which although it represents a profit on NextWave’s investment, is much lower than the prices paid for AWS spectrum in many major metro areas during the 2006 auction.

Now Clearwire has announced that its investors will receive $1.62B of stock in New Clearwire in exchange for their existing equity. Clearwire owns 15.9B MHzPOP of 2.5GHz spectrum in the US and a further 8.7B MHzPOP internationally (which it values at $0.03 per MHzPOP). Given Clearwire’s existing cash and debt, this places a value of between $0.09 and $0.13 per MHzPOP on Clearwire’s US spectrum (the higher value assumes all of Clearwire’s enterprise value is attributed to spectrum, while the lower value includes its $633M of PP&E). This is also a relatively low value, given that Clearwire paid $300M for the 1.7B MHzPOP of spectrum it purchased from BellSouth in early 2007, equating to $0.18 per MHzPOP.

Thus it seems the current credit crunch may also be putting a damper on spectrum valuations, as NextWave highlighted when explaining its failure to sell spectrum assets. The impact seems to be particularly significant in spectrum bands that have yet to be exploited, which is unsurprising since these bands tend to be the most attractive to new entrants, who are worst affected by the market downturn. As a result, MSS-ATC operators may have to wait a while for the perceived value of their spectrum to increase.


Will Cablevision now consider using ATC spectrum?

Posted in Inmarsat, LightSquared, Spectrum at 8:41 am by timfarrar

Harbinger Capital has just acquired a 4.9% stake in Cablevision at a cost of some $350M, only a few days after we suggested that it would have to invest billions of dollars in a wireless operator to facilitate the deployment of ATC.

Notably, Cablevision is not participating in the Clearwire JV with other cable companies and instead has opted to deploy a WiFi network in the New York area with a planned investment of some $300M over the next two years. Most other operators have found the use of unlicensed spectrum less than satisfactory, particularly for providing indoor coverage, which requires much higher power levels. As a result, Cablevision may ultimately find that it needs to move to licensed frequencies for its deployment, and there has been speculation that it would be a potential purchaser of NextWave’s 2.5GHz spectrum. However, to date NextWave’s efforts to sell this spectrum appear to have been unsuccessful.

While Harbinger’s initial stake in Cablevision is relatively small, its past record suggests that it may increase its stake over time and seek to influence the direction of the company. Cablevision could well be a potential user of the L-band MSS-ATC spectrum block that Harbinger is seeking to put together via a merger of Skyterra and Inmarsat. We speculate that Harbinger might even try to engineer a consortium of Cablevision and Leap (and perhaps other companies), similar to the Clearwire JV, to build and sell broadband services on a national ATC network.


Is SPOT generating cash for Globalstar?

Posted in Globalstar at 11:50 am by timfarrar

Globalstar hasn’t given much detail about how much it costs to acquire a SPOT customer, but it looks from the company’s 2008Q2 10-Q like the growing demand for SPOT might not do much to improve Globalstar’s cash situation in the immediate future. The company’s marketing (MG&A) costs are about $5M higher than for the corresponding period in 2007, and they look to have added close to 20K SPOT customers in the quarter. At an ARPU of say $11 per month (a mix of the $100 basic subscriptions and the $50 tracking add-on), then if all the increase in MG&A is from SPOT, the subscriber acqusition cost is roughly about 24 months of revenue. That means that SPOT is unlikely to generate much if any incremental cash for Globalstar in the near term.

Of course SAC is always higher in the early days, when there are a lot of launch and start-up costs, and should decline to a more reasonable level in the future. A reasonable benchmark is probably satellite radio, given their similar ARPU levels, which has a cost per gross subscriber addition of around 10 months revenues (although much greater scale). At this level, then once things settle down, Globalstar should be able to generate at least some cash from the first year upfront payment made by each new subscriber. However, SPOT probably won’t help Globalstar generate cash to pay their satellite construction costs over the next 12 months.

How much will cellphones be used in-flight?

Posted in Aeronautical, Inmarsat at 11:28 am by timfarrar

According to a recent Economist article Air France has found that “On a typical flight about 100 text messages were sent or received and ten megabytes of data transferred by a dozen BlackBerry users”. This level of usage seems very high, given that Blackberries can usually synchronize with 100kbytes or less of data and the usage level given here is 800kbytes per Blackberry. We questioned OnAir’s PR representatives and they confirmed that the data (which comes from the first phase of the Air France trial, before introduction of voice) was quoted correctly.

Inmarsat also stated on its Aug 6 results call that initial Air France trials had seen usage levels of around 300 minutes per day, so combined this would produce total end user revenues of well over $1000 per plane per day, significantly in excess of our expectations (and the Qantas trial which had data only usage of $100-$150 per day). However, we have heard from another source that usage revenues (for voice and data combined) on the Air France aircraft in the second phase of the trial were at a rather lower level of around $400 per day, very close to (or even below) our expectations.

We’re waiting to see if any more data emerges to clarify likely usage. As we’ve noted before, this is critical to determining the rate of installation, particularly on short haul aircraft, since airlines need to see a minimum usage of about $800 per day to make a profit after paying for the equipment and cost of flying it around. Only then will financially strapped airlines be willing to push forward with fleetwide installations in the current economic climate.

Welcome to our new MSS blog

Posted in General at 9:04 am by timfarrar

This blog is intended to reflect brief comments on current issues in Mobile Satellite Services, highlighting market developments, and new data on the industry.
It will also provide a forum to provide feedback on longer articles on our website www.tmfassociates.com/articles and to suggest topics for coverage in our MSS information service