10.16.12

Net neutrality or favoritism?

Posted in LightSquared, Operators, Regulatory, Spectrum at 12:30 pm by timfarrar

Today the House Energy & Commerce Committee has released the documents from last month’s hearing, which makes for some interesting reading.

For one, its intriguing that the FCC Chief Economist (on p33 of the PDF) highlights “just how lucrative ATC service could be”, noting that “an entrepreneur that purchased a mobile satellite property wth 34 MHz of ATC-eligible spectrum and successfully rolled out ATC service in partnership with a CMRS incumbent could obtain a rent of $11 billion, equal to the difference between the value of the spectrum ($12 billion) and the cost of developing the required satellite system ($1 billion).”

That $12B valuation of course is the same as LightSquared’s economic consultants used, back in June 2011, to estimate that the January 2011 waiver was worth $10B to LightSquared. The documents also indicate (p10 of the PDF) that the FCC Chairman was warned in September 2009 about the “equity considerations of providing a ‘windfall’ to companies who did not acquire the licenses at auction” and even at that time “changing the ATC handset requirements” was under discussion.

However, far more interesting are the details of the discussions over the extension to the very short comment period on the waiver request in November 2010 (pp13-15 of the PDF). It is clear that the FCC had essentially already agreed the waiver with LightSquared and had “discussed [the timetable] previously”. The FCC was working to this “tight” timetable (later derailed by NTIA concerns about GPS interference) so that order could be issued on December 20, a date that was described as “critical”.

Of course (although it is not stated in the emails) the reason that this date was so critical was that (as I suspected at the time), the Commission intended to (and did) vote on net neutrality rules at the December 21, 2010 Open Meeting, which excluded wireless networks from net neutrality obligations. As a result, if the FCC had been able to announce the LightSquared waiver at that meeting, it would have been possible to say that at least one major 4G network provider had signed up to net neutrality principles of its own accord, effectively endorsing LightSquared as a competitor to the major cellular operators.

4 Comments »

  1. ORBITRAX said,

    October 18, 2012 at 12:49 pm

    The complaint filed against the FCC/USDA by the Trustee of Open Range, which has now been re-sealed by the courts, talked about a requirement placed on Open Range by he USDA, that required Open Range to acquire permanent replacement spectrum “by late December” or funding would be once again terminated. I would suspect that given that the Globalstar order was handed down on Sept. 14th, 2010, that a requirement for a late December finalized spectrum lease agreement might indicate a 90 day cure notice from the USDA.
    This seems much more of a “critical deadline” for December 20th than some “Net Neutrality” ruling. In Open Ranges’ December 29th filing, they noted that they had entered into a LOI with one potential spectrum partner. (obviously Lightsqured), but could not finalize due to the mounting uncertainty of the GPS interference problems.

    From the documents released at the hearing, including the transcripts between DaSa, Adlestein, etc regarding a coordinated effort to steer Open Range to Lightsquared in a hurried format. It appears that it was “critical” to get Open Range signed up with Lightsquared so that RUS funding would continue past “Late December”

    As a matter of fact, in Open Range’s September 21st filing with the FCC, they indicate that they wanted the “performance milestone requirement” in the STA modified. This “performance milestone” was never publicly disclosed, which required Open Range to secure alternative spectrum within the initial 60 day STA granted by the FCC. An impossible event unless a backroom deal was already structured.

    The record shows this was being driven by the White House (EOP) as per the records provided. I would suggest the “critical date” was the Open Range deadline from the RUS, some farcical Net Neutrality Press Release.

    All in all, a plan concocted months earlier, which is why the email regarding the launch delay of the Skyterra 1 satellite was included, and Commission members were concerned. The FCC was concerned about the delay of the Skyterra-1 satellite because the FCC was not going to float the Lightsquared waiver until after the satellite was launched, which happened on Sunday Nov.14, and the Lightsquard waiver request came out on the 19th.

    In the end, the FCC/USDA got exactly what they deserved for their tortuous interference.

    ORBITRAX

  2. timfarrar said,

    October 18, 2012 at 1:13 pm

    The FCC and USDA had certainly got themselves into a bit of a mess with Open Range. However, the Sept 23, 2010 Order on Reconsideration had already extended Open Range’s STA until January 31, 2011. According to the Open Range complaint this followed “substantial input from the RUS and Open Range’s announcement of its intention to seek Chapter 7 bankruptcy protection at that time if only the 60 days were granted.”

    The Open Range complaint further notes that “The RUS approved a revised business plan from Open Range on October 8, 2010 based on the 264 markets limited by the FCC Order, which included up to $93 million in additional costs that Open Range anticipated for transition to new spectrum and to be funded under the 1/9/09 Loan Agreement, but the RUS subsequently reversed itself in February 2011 and declared Open Range could not use loan funds for its necessary transition”.

    Taken together these statements suggest that there was no pressing need to secure a deal between Open Range and LightSquared by Dec 20, 2010. As a result, the coincidence of timing with the Dec 21, 2010 FCC Open Meeting, plus LightSquared’s attempts to position itself as an advocate of Net Neutrality and secure more political backing, are hard to ignore. Note for example LightSquared’s moves just before that to ingratiate itself through donating phones to the Indian Health Service, which was “unveiled” by the FCC Chairman himself.

  3. ORBITRAX said,

    October 18, 2012 at 3:37 pm

    While it is true the complaint states that the RUS approved a revised business plan on October 8th for the 264 markets, a business plan pressed by the FCC to engage Open Range spectrum transition discussions. It should be noted that the FCC would have sold the RUS, that the transition to Lightsquared was a “done deal” when the October 8th agreement was struck. This due to the expected ease of approval of the waiver request that was forthcoming from Lightsquared after the launch of Skyterra1. But, the complaint also states:

    “After the FCC granted Open Range the STA in the Fall of 2010, the RUS claimed that it lifted its suspension of disbursements to Open Range.
    But, upon information and belief, the RUS continued to delay disbursements and refused to release monies that had been previously approved for advance.”

    So there was a “disconnect between what the FCC was saying the RUS had agreed to, and what the RUS was actually doing. The FCC was the one that was under the magnifying glass, and while they made an attempt to portray that the RUS and FCC were in harmony. The reality appears differently. The RUS simply wanted a Globalstar waiver, and for Open Range to move forward. The FCC spent considerable resources attempting to sway the RUS to their viewpoint, and the FCC finally played “hardball with the RUS” with the Globalstar Order. The complaint shows that the RUS took matters into their own hands to prevent additional losses with some sort of “show us the permanent spectrum” requirement, and documents from Open Range show that the FCC had issued a “performance milestone” on it’s own that required permanent spectrum agreements intertwined with the issuance of the STA. So are we to assume that the FCC had issued Open Range transitional “performance milestones” and the RUS did not?

    As a matter of fact, the complaint shows that:

    On or about February 21, 2011, an Open Range representative advised the RUS that it was insolvent as a result of the RUS’s refusal to make disbursements of amounts previously approved for advance.

    You seem to indicate that everything was good between the FCC, Open Range, and the RUS through the Jan 31, 2011 STA. But, that simply can not be correct as Open Range claimed insolvency just 21 days after the expiration of the STA. So it is clear that the RUS was not making payments, and as you pointed out..

    ” but the RUS subsequently reversed itself in February 2011 and declared Open Range could not use loan funds for its necessary transition””

    So are we to believe that everything was great until Jan 31st due to the Oct. 8th agreement, and then suddenly a few days after, the RUS said no money for transitional expenses, no money for reimbursements?

    The FCC had the White House breathing down their neck on one side and the RUS on the other. They had a public relations nightmare on their hands.

    The FCC conditionally awarded the waiver in January 2011, in the face of a tsunami of concerns from US Government agencies including the FAA DoD and Defense Contractos regarding the potentially devastating interference issues.

    If the FCC’s “hurry up deadline” was centered on the Net Neutrality “event”, it appears that the rush continued even after the “event’ culminating in the late January “conditional waiver”. After all, Lightsquared and Open Range announced their spectrum lease deal only weeks after the “conditional waiver” was released. The RUS was not impressed, and the RUS turned off the cash.

    If the “Net Neutrality” event was the crucial date, then the pressure should have waned for a quick waiver decision, but the FCC pushed forward, long after the Net Neutrality announcement. It was the IB actions, post Net Neutality, and in the face of mounting evidence that raised so many eyebrows with the conditional waiver approval in January.

    ORBITRAX

  4. timfarrar said,

    October 18, 2012 at 6:32 pm

    You’ve not indicated any reason why Open Range would be linked to a specific Dec 20 deadline. And as far as the continued rush in January was concerned, the LightSquared project itself was a high political priority, and LightSquared had threatened that it would not meet the rollout deadlines (notably coincident with the current election) if “quick, favorable action” was not taken.

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