01.13.12
Posted in Financials, Inmarsat, Maritime, Operators, Services, VSAT at 9:26 am by timfarrar
Back in 2008, the decision of Maersk to choose Inmarsat’s FleetBroadband service for 150 (later increased to 370) vessels was described by Inmarsat as “a ground-breaking deal” which represented “the strongest possible endorsement of our revolutionary FleetBroadband service”. As a result, this week’s revelation that Maersk is now going to shift 400 vessels to VSAT must be a correspondingly earth-shattering blow to Inmarsat, because not only has Maersk decided to move away from FleetBB, but it has opted for a Ku-band solution from Ericsson and Thrane & Thrane (with a 7 year service agreement), rather than the XpressLink service from Inmarsat which would provide an upgrade path to the Ka-band Global Xpress service.
Maersk’s average spend for the 370 ships using the FleetBB service was about $2600 per ship per month retail, implying that wholesale revenues to Inmarsat in 2011 were between $8M and $9M (and making them Inmarsat’s biggest single maritime customer for L-band service). While Maersk will presumably keep Inmarsat as a backup, its safe to say that the vast majority of this revenue will likely be lost once the transition is completed. The decision to make this change comes after Inmarsat’s move to impose usage caps on maritime vessels in October 2011 (with the data rate limited to 20kbps once the cap is reached), because Maersk had apparently been generating as much as 25% of all I4 (BGAN+FBB+SBB) traffic under its former unconstrained deal, and Inmarsat was worried about the saturation of its I4 network in regions such as the Middle East, which could impact higher value traffic from defense and media users.
This news also comes in the wake of Inmarsat’s major reorganization, which was revealed in early January, and has led to the exits of a number of senior managers in the government and maritime business. Despite Inmarsat’s claims that it “does not intend to change its policy of distributing its services primarily through independent channel partners”, the new management structure will have both direct and indirect sales reporting to the same people, which has been very poorly received by Inmarsat’s distributors, who clearly expect Inmarsat to cut them out of the business in the future, as Inmarsat emphasizes its own direct sales channels and gets “closer to our partners and customers” as the new CEO describes it.
I’m told another part of the reorganization is that Inmarsat’s financial reporting will be realigned from Q1 2012 so that the four new business sectors (Inmarsat Maritime, Inmarsat Government US, Inmarsat Government Global and Inmarsat Enterprise) will report their own results on a total (retail) basis, rather than breaking out wholesale L-band revenues in land, maritime and aeronautical sectors separately. This will mean that a maritime customer transitioning from a FleetBB L-band service to a resold Ku-band service such as XpressLink will bring in the same (or more) retail revenue (albeit with a much lower gross margin), whereas previously Inmarsat would have had to take a hit to its wholesale L-band revenues to facilitate this transition.
However, this is going to make financial analysts even more confused about the prospects for the company than they already are. Most analysts have maintained a very positive view of the company, and apparently the consensus view is that Inmarsat should continue to derive value from its North American spectrum assets, whether or not LightSquared files for bankruptcy. With the triple threats of continuing bad news in the maritime sector (where there is a pretty bleak outlook for shipping companies), reductions in defense spending (including the pullout from Afghanistan) and that Inmarsat might ultimately end up paying money to LightSquared’s creditors rather than receiving future lease payments, Inmarsat’s next results call is definitely going to be worth listening to.
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01.11.12
Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 3:05 pm by timfarrar
Yesterday, LightSquared held an investor call to provide an update on regulatory progress, including Mr. Falcone’s meeting last week at the FCC (which failed to gain the attention of the FCC Chairman, unlike Mr. Ergen’s visit to the FCC the same day). LightSquared’s investors clearly want to know whether there is any prospect of approval being granted, and a Debtwire story on Jan 3 reported that some of the previous investors have lost confidence in a successful resolution of the issue:
Farallon Capital Management dumped its stake in LightSquared’s USD 1.6bn first lien loan last month as the telecom company and sponsor Harbinger Capital battle regulatory controversies, according to two buyside sources and a source familiar with the matter. Displaying a greater taste for potential distress, Icahn Enterprises has emerged as a recent buyer of LightSquared’s bank debt in the low 40s, the two buyside sources said.
The exit of Farallon signals the loss of one of LightSquared’s former anchor investors. The California hedge fund was one of the biggest par holders in LightSquared’s capital structure, owning more than USD 150m of the Libor+ 1,200 bps term loans the company raised to finance the build out of the its 4G long term evolution (LTE) network, the sources said.
The loans were recently quoted at 43-45 from 90-92 at the beginning of August, according to Markit.
However, I understand that the new investors, including Icahn, haven’t stopped believing that they will be able to overcome the opposition of the GPS community, and ultimately gain approval on the back of (what was described to me as) their greater “sophistication” and financial resources compared to Harbinger. Indeed, part of Mr. Falcone’s objective in his FCC meeting may have been to suggest that the FCC would have to deal with less cooperative owners of the assets in the future, if they delay approval and allow LightSquared to fall into bankruptcy.
Its suprising that anyone could believe 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, it would be easy for the FCC to initiate a (multi-year) rulemaking proceeding on receiver standards for GPS receivers, if they want to kick this issue even further into the long grass. Nevertheless, the implications are that LightSquared’s debt investors are likely to allow the company to keep pushing for approval, rather than trying to force it into bankruptcy more quickly in order to liquidate the assets before all the cash is gone. That would suggest a bankruptcy filing later in the second quarter rather than in the next couple of months.
Ultimately, I think this will look a lot like the Iridium bankruptcy in 1999, where investors thought there was something worth billions of dollars that could be rescued with a bit more money and better execution, and spent nine fruitless months before they finally conceded that $5B of investment needed to be completely written off. The fundamental reason why I think their efforts will fail is that the continuing lease payments to Inmarsat ($115M per year) very likely outweigh the value of 20MHz of L-band spectrum, which at best might be usable terrestrially in 5-10 years time (if approval was even granted).
At this point there is no way that Inmarsat is going to compromise on these lease payments, because the whole LightSquared affair (which Inmarsat enabled through the 2007 Cooperation Agreement) has deeply upset the DoD, which accounts for ~20% of Inmarsat’s total revenues (and probably an even higher proportion of the Global Xpress business plan). Indeed, some within Inmarsat might feel they would give back the money paid to date, if only the whole LightSquared mess could be made to go away. Inmarsat already appears to be telling the DoD that it was not their fault, because they were ordered by the FCC (under a Republican administration) to enter into the Cooperation Agreement, against their better judgment. In that context, Inmarsat’s protests in January 2005 that approval of the ATC plans proposed by LightSquared (then MSV) would lead to substantial degradation of MSS services due to overload interference, now appear very prophetic.
As a result, I expect the end game (which is now unlikely to be reached before 2013) to involve a combination of trying to recover the money paid to Sprint and not spent on deployment, selling the ground spare to Boeing, and agreeing to sell Inmarsat the in-orbit satellite and spectrum assets in exchange for a return of a sizeable proportion of the ~$500M paid to date. Whether that will be sufficient to provide downside protection to buyers of LightSquared’s first lien debt (totalling ~$1.6B) “in the low 40s” remains to be seen.
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01.05.12
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.
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12.25.11
Posted in Aeronautical, Financials, General, Services at 6:42 am by timfarrar
Gogo has finally decided to strut its stuff, by filing an S-1 with the SEC in preparation for a potential IPO early next year. However, it needs to put on a very good performance over the next couple of years if this IPO is going to be successful.
The filing reveals some interesting statistics about the company, and highlights just how wrong most analyst forecasts for the passenger communications market have been. Bizarrely, the S-1 quotes Forrester projections that “in-flight internet usage is expected to increase rapidly over the next five years, from approximately 15.6 million North American sessions in 2011 to 96.9 million by 2015″ when the company knows that the 2011 number is simply wrong – Gogo (which had over 90% of usage in 2011) had “provided more than 15 million Gogo sessions” since its inception by the end of September, and previously stated at the beginning of this year that it had reached 10 million sessions, after the success of the free promotion with Google late last year (which itself generated 3 million sessions in 6 weeks). As a result, the total number of sessions in 2011 (when there hasn’t been the same level of promotional activity) across all providers in North America is certainly well below 10 million and more likely close to half the level estimated by Forrester. In fact the total number of sessions (free and paid) might be no higher in 2011 than in 2010 because of the distorting effect of the free promotion last year.
Perhaps one reason for quoting Forrester is that the other widely cited analyst projection (by InStat in October 2011) is even further off the map (one person deeply involved in the industry said to me that he “didn’t know what they had been smoking”), with InStat noting that “take rates have increased significantly, moving from an average of 4% in 2010 up to 7% in 2011” (contradicted by Gogo’s actual numbers showing no more than ~4% take rate in 2011) and that “in-flight Wi-Fi revenue is expected to grow from about $225 million in 2011 to over $1.5 billion in 2015” (again miles away from Gogo’s passenger revenues of $58M in the first 9 months of 2011).
However, now we have the public S-1 filing, perhaps some of these erroneous forecasts will come back down to Earth. The key data in the S-1 shows that current take rates are only about 4%, with users spending an average of $10 to $10.50 per flight, implying a severe (but unsurprising) skew towards laptop use on long flights (charged at $12.95). A survey (strangely citing data from 2009) showed that the average Gogo user had taken 14.2 domestic business flights in the last 12 months, indicating exactly as Connexion-by-Boeing found in 2006, that it is frequent business travelers who pay for in-flight WiFi and rarely anyone else. Of course, only about 10%-15% of airline passengers fly this frequently on business, so it is hardly surprising that current usage levels are so low (especially once very short flights are taken into account). It is also unsurprising that the service is dominated by repeat users (15 million sessions from 4.4 million unique users – and some of these unique users may have only used the service in late 2010, when free access attracted 2 million users in 6 weeks).
What is critical for the future growth of Gogo is therefore its ability to expand usage dramatically amongst leisure travelers and more occasional business travelers. The key statistic to watch is the average revenue per passenger, which has climbed from $0.32 in 2010 to $0.41 in the first 9 months of 2011. It would be useful to see in the roadshow how much of this growth is due to new leisure users (as opposed to growing awareness after major fleetwide rollouts were completed in 2010), e.g. by looking at the trajectory on Virgin America (which had fleetwide availability very early) and by examining more recent data on the average number of annual flights taken by a Gogo user.
If the average revenue per passenger (ARPP) only grows to say $0.50, because paid usage remains limited to frequent business travelers, then it will be hard for Gogo to generate more than about $100M in EBITDA by 2015, but if ARPP grows to say $1.00, then EBITDA could grow to ~$200M, due to the nearly fixed cost base of the ground-based system (airlines receive about a 15% revenue share at present, though this payment might be on a tiered system so could increase in the future if usage is higher). Clearly, to have a successful IPO at a value not less than the $500M invested to date, Gogo therefore needs to demonstrate convincingly how its ARPP can more than double within 2-3 years, which can only happen by achieving much greater take-up amongst leisure and occasional business travelers.
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12.20.11
Posted in Financials, Regulatory, Spectrum at 9:35 am by timfarrar
Stifel Nicolaus’s note on DISH is getting a lot of attention in the press today, with DISH shares sharply higher on the news. Of course, if you’d read this blog, you would have seen all the salient points of their note in my post last week, including:
- how the “windfall” issue could be avoided “through an agreement to reimburse the government if the adjacent AWS spectrum sells for a higher price in a subsequent auction”
- why the FCC would “want to address both deals simultaneously…to extract matching commitments for…the wholesale access conditions needed to ensure that other wireless operators such as T-Mobile remain viable”
- why AT&T “needs to find additional clean paired spectrum for Carrier Aggregation with the 700MHz unpaired downlink…outside the 700MHz band”
- and why AT&T “will have to buy the whole company, not just the spectrum”.
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12.09.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 12:46 pm by timfarrar
Bloomberg now has a copy of the results from the recent NTIA testing that I noted yesterday and is reporting that “LightSquared signals caused harmful interference to majority of GPS receivers tested” and “millions of fielded GPS units are not compatible” with the planned network. The presentation goes on to conclude that “No additional testing is required to confirm harmful interference exists”. This language is particularly important because the FCC Public Notice in September requesting this further testing stated that:
This Public Notice is issued pursuant to the provision of LightSquared Subsidiary LLC’s (LightSquared) conditional Ancillary Terrestrial Component (ATC) authorization that LightSquared may not commence ATC operations until the Commission, in consultation with the National Telecommunications and Information Administration (NTIA), finds that Global Positioning System (GPS) interference concerns have been satisfactorily resolved. Following extensive comments received as a result of the technical working group process required by the International Bureau’s Order and Authorization dated January 26, 2011, the Federal Communications Commission, in consultation with NTIA, has determined that additional targeted testing is needed to ensure that any potential commercial terrestrial services offered by LightSquared will not cause harmful interference to GPS operations.
In other words, assuming this conclusion is endorsed by the NTIA at its meeting next week, the FCC would be perfectly within its rights to deem that no further testing is required to confirm that the conditions of the January 2011 waiver cannot be met and it must be revoked. Not only that, but LightSquared committed in January that “this process must be completed to the FCC’s satisfaction before LightSquared commences offering commercial service pursuant to approval of our requested modification with regard to our L-band MSS frequencies”, so it appears the FCC could potentially prevent LightSquared from offering any terrestrial commercial service at all. Though I suspect LightSquared will try to argue that this commitment is only applicable to service under the waiver, it will be hard to win that point when it was very clear from LightSquared’s discussions with the FCC and White House in January what was intended.
The FCC therefore is now confronted with a tricky decision: does it simply wait for LightSquared to run out of money, so it can try and avoid the inevitable legal action, or does it allow testing to continue, and risk the wrath of Congress (and Sen. Grassley in particular) for appearing to be supportive of LightSquared.
Coming after the SEC issued a Wells Notice to Harbinger Capital this morning, and Harbinger subsequently suspended redemptions from its funds, this news could hardly have come at a worse time.
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12.07.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 11:49 am by timfarrar
Today LightSquared has been making a big deal about how its “independent tests” have shown that “LightSquared is well on its way to demonstrating that GPS interference issues have been resolved”. This is in line with LightSquared’s statement to the FCC on November 15, that “any determination that the federal precision and timing coexistence issue has been resolved would have to be based on objective and independent test results and not the subjective views of the federal agencies involved”. However, now LightSquared appears to have lost its backing from both the White House and the FCC (and the views of the federal agencies are pretty clear), LightSquared cannot seriously expect the FCC to change the currently defined PNT testing process, and so I think that the only place LightSquared will be trying to argue that point is in the court of public opinion, followed sooner or later by a court of law.
LightSquared also appears to be renewing the tired arguments about how its integrated satellite network can provide coverage everywhere, even quoting the Commissioner of Randolph County, GA who suggested that “this powerful new high-speed network will finally allow them to access broadband wherever they might live or work or travel”. However, LightSquared has never intended to provide terrestrial service in Randolph County, GA, as shown in this chart of planned terrestrial coverage that LightSquared presented at a conference in October 2010.
Even if its deal with Sprint comes to fruition (which now seems unlikely to say the least), LightSquared won’t provide terrestrial coverage there, because Sprint has no towers in Randolph County either.
Thus any potential LightSquared customers in Randolph County will have to rely on satellite coverage. I wonder if they realize that they will get at most 200-300kbps downlink speeds and 10-20kbps uplink speeds from a LightSquared handset? And that they will have to stand outside in an open area and make sure they know which direction the satellite is in? Even more problematically, the total data capacity for all the handsets using the SkyTerra-1 satellite anywhere in the US is roughly equivalent to the capacity of a single LTE base station. And remember that LightSquared’s wholesale partners get 500kbytes of satellite data for every Gbyte of terrestrial capacity that they buy, so they will only be allocating 1Mbyte of satellite data per month for each customer on a standard 2Gbyte terrestrial data plan (if they even sell service to customers who live outside terrestrial coverage).
UPDATE (2/9/12): LightSquared’s satellite capabilities have now been revealed in documents produced by the FCC in response to FOIA requests. The total capacity of each LightSquared satellite is stated to be 100 gigabytes per hour (222Mbps) compared to 2800 terabytes per hour on the terrestrial network (28,000 times more, or in other words the satellite capacity for all users in North America is approximately equal to the capacity of a single base station). Furthermore, LightSquared’s intended wholesale pricing for satellite data (before it was marked up by their partners) was $10 per Mbyte, or 1600 times the price of LightSquared’s terrestrial data services.
Of course I’m sure that none of the endless parade of former politicians that LightSquared has hired has any conception of the technical issues involved, so they will presumably keep touting the company right up to the point at which the money runs out and the lawsuits start flying.
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12.02.11
Posted in Financials, Regulatory, Spectrum at 12:24 pm by timfarrar
After losing an arm and a leg on their investments in Clearwire, and being utterly unsuccessful in their repeated attempts to sell wireless services, Comcast, TWC and BrightHouse have now apparently concluded that its not worth incurring any more flesh wounds in their attempts to become competitors in the wireless market and have agreed to sell their AWS spectrum holdings to Verizon. Of course, this acknowledges that smaller players will basically find it impossible to challenge the dominance of Verizon and AT&T in the US wireless market.
This deal puts further pressure on AT&T to buy DISH, if (and when?) the proposed T-Mobile merger finally falls apart. However, it leaves TMO in a much more difficult situation, with no easy way to acquire more AWS spectrum (at least prior to a future AWS-3 auction) and no potential cable partnership. As a result, the most likely outcome in my view would be for the FCC to make any AT&T/DISH purchase conditional on providing TMO and others with wholesale access to the network if the potential AT&T/T-Mobile network sharing agreement does not come to fruition.
Clearwire is also left with one less potential purchaser for its spectrum, now that Verizon has satisfied its spectrum needs for most of the next decade (and recall that T-Mobile looked at the Clearwire spectrum last year and decided not to buy any of it). Yesterday’s announcement of a deal with Sprint kicks the can down the road a little, but actually reduces Sprint’s near term payments to Clearwire, unless Clearwire is able to raise additional equity funding. However, that might be challenging in current market conditions unless Clearwire has a new potential strategic investor lined up. The obvious candidate would be China Mobile, which has a strong interest in establishing TD-LTE in the 2.5GHz band as a widely used international 4G standard (something of strategic importance for the Chinese government, given the earlier failure to ensure widespread adoption of TD-SCDMA as a 3G standard).
Another interesting factor to consider is the price paid by Verizon for the spectrum, which some are claiming “ratchets up the price of spectrum“, because SpectrumCo is making a profit on the extraordinarily low price it paid through a smart bidding strategy in the auction. In fact at $0.69/MHzPOP the price is almost identical to that paid by Verizon for its AWS spectrum in the auction 5 years ago (the quoted price then was $0.73/MHzPOP but the number of POPs is not directly comparable because the 2006 POPs were based off the 2000 census and Verizon’s stated 259M POPs for these licenses presumably relates to the 2010 census), and very likely was used as the benchmark in negotiating the value of the current transaction. In the intervening 5 years the AWS block has been cleared and has an established chipset ecosystem, thereby become much more readily usable, but Verizon is not paying any more for this spectrum. Certainly it makes recent assertions by Brattle Group that generic “unencumbered spectrum” (such as LightSquared’s spectrum with a waiver) should have a value of roughly $1.00/MHzPOP look hugely exaggerated.
UPDATE: If this really is “the end of broadband competition” as some believe, then its pretty obvious what the FCC does next, simply mandate wholesale access to Verizon and AT&T’s networks (as conditions on the purchase of SpectrumCo and DISH respectively). That enables two high capacity national LTE networks to be built and allows cable companies (on the Verizon network) and TMO (on the AT&T network), as well as smaller players, to compete for wireless customers, but leaves wholesale business plans like Clearwire and LightSquared out in the cold. Sprint gets stuck with a second rate LTE network using the spectrum (SMR, G-block, BRS/EBS) that no-one else wants.
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11.25.11
Posted in Financials, Regulatory, Spectrum at 8:34 am by timfarrar
After AT&T’s notice to the FCC that it is withdrawing its T-Mobile merger application, attention is now turning to AT&T’s alternatives for acquiring more spectrum. The FCC’s approval of the Qualcomm spectrum purchase puts the focus squarely on DISH’s 700MHz E block holdings, which would bring the Qualcomm spectrum up to a national 12MHz unpaired block. However, AT&T also needs a separate clean block of paired spectrum to implement its planned Carrier Aggregation Technology (as part of an LTE Advanced network). The original intention was to use AT&T’s AWS-1 spectrum holdings for this purpose, but AT&T would be required to give up the majority of its AWS-1 holdings (1.5B MHzPOPs out of ~2.5B MHzPOPs) as part of the break fee for the TMO merger agreement. As a result, AT&T will also now have to look for another clean block of spectrum away from the 700MHz band to enable deployment of the Qualcomm spectrum. Though this could in theory be done in the 850MHz band, it may be hard for AT&T to put together enough clean contiguous spectrum (2x10MHz?) for a near term LTE Advanced deployment, especially if the FCC’s conditions on the Qualcomm purchase mandate a rapid buildout of the spectrum.
In this context I think a much bigger deal with DISH is the only logical outcome, and that will mean either a companion purchase of DISH’s 2GHz spectrum holdings (DBSD/TerreStar) or even a takeover of DISH itself (which could complement AT&T’s U-verse service and satisfy Randall Stephenson’s ambitions to complete a major deal). Though getting FCC approval for an ATC waiver would have to be finessed (probably by offering the government some compensation for the step-up in value), this would allow the DBSD and TerreStar spectrum to be brought into use more quickly. Indeed, by designating the AT&T/TMO merger (as DISH requested), approving the Qualcomm spectrum transaction, and apparently supporting “the efficient use of spectrum without decreasing competition“, the FCC seems to be implying that this would be its preferred course of action for AT&T to take.
The outcome for a jilted TMO would certainly be more challenging, but when the Justice Department has stated explicitly in its antitrust arguments that reducing the number of national wireless operators from 4 to 3 is unacceptable, a sale to Sprint also seems to be off the table. Of course that would be a good reason for AT&T to pursue the February court case to a conclusion, because a ruling against AT&T on these grounds would also prevent a future Sprint/TMO or Verizon/Sprint merger. Instead, a spinoff and float of TMOUSA, potentially with the cable companies injecting their AWS-1 spectrum in exchange for an equity stake in what would then be a listed company, could give TMOUSA a much stronger position with roughly 50MHz of AWS-1 spectrum (used for HSPA+ in the near term) and roaming rights onto AT&T’s network.
That would leave Sprint as the Thanksgiving turkey, with no good spectrum options other than to do some form of deal with Clearwire. Ironically, with Sprint having agreed with DISH just a few weeks ago to withdraw its objections to the use of the DBSD/TerreStar spectrum, it may be hard pressed to credibly object to a deal between DISH and AT&T. Unfortunately for Sprint, it also seems that Clearwire may have increased the amount of funding it is asking Sprint to provide in the near term (as an advance against an extended capacity purchase agreement), because it is proving harder than expected for Clearwire to raise money from others (e.g. vendor financing). Whether that will be acceptable to Sprint, in an environment where it faces severe cash pressures to execute its Network Vision strategy, is unclear. It will therefore be very interesting to see what happens next Friday, when Clearwire’s interest payment is due.
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11.10.11
Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 10:07 am by timfarrar
So apparently yesterday’s PNT Advisory Board meeting was “a watershed moment” for LightSquared, because “the GPS interference issue can be solved” and “the entire debate has turned from whether there is a solution to who pays for it”. Of course, that’s a massive oversimplification of reality, because as the introductory presentation to the meeting set forth, there are vast amounts of testing still to perform. In particular, the latest PNT newsletter has confirmed that LightSquared’s proposed solution for precision devices will not be tested until at least “early 2012″.
However, what no-one seems to have picked up on is that in LightSquared’s semi-annual progress report, filed with the FCC on October 31, the company confirmed that it is ignoring the FCC mandated timeline (from the January 2011 waiver) to make devices available by September 30, 2011 and now has postponed the anticipated availability of “embedded modules, USB data modems and other devices” from BandRich and AnyData until “late 2012″. While LightSquared still expects Qualcomm to make chipsets available in “late 2011″ that could “facilitate access to LightSquared’s network” there is no associated commitment to actually make devices. Though Sharp and Airtouch “have agreed” to develop a range of devices, there is apparently no timeline for this to take place (indeed Sharp has stated publicly that it “would need a minimum purchase order before it would build such devices”). Basically, therefore it appears there will now be no devices capable of accessing LightSquared’s network for at least a year or more, making LightSquared’s continued assertions that it will launch service in the “second half of 2012″ even more laughable than they already were.
More importantly, if testing of LightSquared devices is also a pre-requisite for FCC approval, as the PNT Advisory Board apparently desires, then it now seems that this will not be possible for many months to come. Of course, this gives the FCC yet another excuse to hold off from making any ruling on the LightSquared issue, even to ban terrestrial deployment in the upper 10MHz band which everyone knows can never be used, because that will simply provide LightSquared with the excuse it is looking for to initiate litigation over the supposed expropriation of “part of LightSquared’s spectrum – worth billions of dollars”.
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