07.06.25
Posted in Echostar, Financials, Operators, Regulatory, SpaceX, Spectrum at 1:05 pm by timfarrar
After focusing my public posts mainly on Twitter/X threads for the past couple of years, I thought it would be better to resume blogging, especially as it’s got harder and harder to search X posts effectively. I’ve also been publishing numerous research publications, which included a detailed report on the IFC market last summer, an updated profile and revenue forecasts for Starlink in October 2024, and a new report projecting demand for satellite capacity in May 2025 that gives a full breakdown between LEO and GEO out to 2033 across the key professional verticals (maritime, aviation, backhaul, enterprise and government). Unlike some other industry forecasts, we are happy to share full details of our spreadsheets containing the historical base data, forecasting methodology and assumptions. One major satellite operator told us, “your assumptions (especially on the GEO outlook) differ from Novaspace’s, which is a bit more optimistic about the future of GEO (for now). And I tend to agree with your assessment/assumptions.”
And due to increased interest in the sector from investors, and the rapid pace of announcements, particularly in D2D, the research service now includes regular (approximately monthly) updates in response to key developments in the industry and takeaways from industry conferences. These include:
A summary of the WSBW conference (Sep 2024)
A note on the Globalstar-Apple deal (Nov 2024)
A briefing on the Globalstar investor day (Dec 2024)
An update on D2D and Starlink (Jan 2025)
A note on Starlink’s C-band filing (Feb 2025)
A summary of developments at Satellite 2025 (Mar 2025)
A review of AST’s technology (Apr 2025)
An update on EchoStar and the FCC (May 2025)
An update on EchoStar and AST (Jun 2025), and
A briefing giving details of Starlink’s international financials that have never been reported in the press (Jun 2025).
As another subscriber said recently, “Fascinating, as ever. Thanks for your continued bar-settingly-brilliant analysis.”
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02.07.23
Posted in Echostar, Financials, Globalstar, Handheld, Operators, Services, SpaceX, Spectrum at 8:35 pm by timfarrar
Yesterday, Globalstar filed an 8-K noting that on January 31 it had entered into a forbearance agreement with MDA and Rocket Lab, the contractors building 17 new satellites, under which additional payments beyond an initial $20M will be delayed until March 15. In addition, Globalstar noted that:
“The Company is currently exploring financing options for satisfying its remaining payment obligations under the Contractor Agreements, as well as its obligation to refinance its 2019 Facility Agreement. It cannot currently predict whether, and on what terms, any such financing will be available but maximizing shareholder value is the driving consideration.”
The reason for these financing challenges is that Globalstar is unable to close on the new first lien debt agreement to fund the satellites (that was expected to be backed by Apple to the tune of $450M) unless and until it has refinanced the $150M currently owed to Echostar under the 2019 Facility Agreement. Under the September 2022 Partnership Agreements between Apple and Globalstar, Globalstar is required:
“(i) upon commencement of the Services, to convert all loans outstanding under the 2019 Facility Agreement that are held by affiliates of the Thermo Companies (collectively, “Thermo”) into non-convertible perpetual preferred stock with a cash pay interest rate of 7% per annum or lower, convertible preferred stock with cash pay interest rate of 4% per annum or lower, common stock, or another security acceptable to Partner (the “Thermo Debt Conversion”) and (ii) within 90 days of the commencement of the Services, to refinance or convert all loans outstanding under the 2019 Facility Agreement that are held by persons other than Thermo on terms that are no less favorable to the Company than the Thermo Debt Conversion.”
Of course there was no chance whatsoever that Charlie Ergen would agree to exchange first lien debt with a PIK interest rate of 13.5% for preferred stock that would be subordinate to ~$500M of new first lien debt with an interest rate of 4%-7%, so the only plausible reason for Jay Monroe to agree to these terms was a Hail Mary bet that he could find a buyer for Globalstar before the deadline occurred for Echostar’s debt conversion.
That deadline is coming due on Monday February 13, 90 days after Apple began offering services on November 15, 2022 and no buyer has appeared for Globalstar. The Key Terms Agreement has specific provisions dealing with an offer for the company:
(i) Sale Notice. If a third party submits a non-frivolous proposal to acquire any material Required Resource or the Spectrum Subsidiary or for a Change of Control transaction involving Globalstar or Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) approves a process with respect to the potential sale of any material Required Resource or the Spectrum Subsidiary or a Change of Control transaction (each, a “Sale Transaction”), Globalstar shall provide written notice of the Sale Transaction, with the material terms and related process of such transaction, including (A) at a minimum the structure of, and the assets proposed to be sold in the Sale Transaction and any relevant timelines or deadlines relating to the Sale Transaction, and (B) other material terms and related process to the extent permitted by Globalstar’s confidentiality obligations (a “Sale Notice”), to Partner within one day following Globalstar’s receipt of such proposal or such determination by Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee), which Sale Notice shall be considered Globalstar Confidential Information. If Globalstar enters into any confidentiality agreement relating to a potential Sale Transaction after the Effective Date, such agreement shall not restrict Globalstar from providing to Partner any of the information set forth in Section 10.2(e)(i)(A) that is required to be included in the Sale Notice.
(ii) Discussions. Following the delivery of the Sale Notice to Partner, Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) shall, and shall cause the management, employees and other representatives of Globalstar to conduct discussions with Partner in good faith and on a non-exclusive basis and provide Partner with all information made available or provided to any potential third party acquiror, to enable Partner to make a proposal to Globalstar for a Sale Transaction, during the ten business day period following the date of the Sale Notice. Globalstar hereby agrees that it shall not, and shall cause its Related Entities, management, employees and other representatives not to, enter into a term sheet or letter of intent or other binding agreement or obligation with any other third party with respect to a Sale Transaction during the ten business day period commencing on the date of the Sale Notice.
(iii) Proposals. If Partner makes a proposal for a Sale Transaction prior to the expiration of the ten business day period, then Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) will exercise its fiduciary duties to evaluate Partner’s proposal along with any other proposals for a Sale Transaction. In the event Globalstar’s board of directors (or any committee thereof, including the Strategic Review Committee) determines the proposal from Partner is in the best interests of Globalstar and its stockholders, then Globalstar will enter into a binding agreement to negotiate in good faith with Partner on an exclusive basis for a period of not less than 20 business days.
(iv) Consummation. If Partner declines to make, or Globalstar (after having considered such offer or proposal in good faith) declines to accept or pursue, a proposal for a Sale Transaction from Partner, then Globalstar shall be permitted to consummate a Sale Transaction with a third party, provided that Globalstar shall have first obtained and delivered to Partner a written agreement from the acquiror in the form included as Attachment 7.
So what happens next? The statement in the 8-K that “maximizing shareholder value is the driving consideration” suggests that Ergen will soon (or perhaps already has) submitted a “non-frivolous proposal” to acquire Globalstar, presumably at a very low price, given that Globalstar will soon be in breach of its obligations to Apple. This will trigger the 30 (business) day period for Globalstar to advise Apple of a sale transaction and then negotiate on an exclusive basis, which would also run through the mid March satellite payment deferral period (assuming Ergen has now made an offer for the company).
However, given the cards that Ergen and Apple hold in respect of a potential forced default on the Apple agreement, and that neither appears to have much interest (or belief that there is meaningful value) in Band 53, it is hard to see how their offers would meaningfully exceed the value generated by Globalstar’s satellite services, including the value of Apple’s messaging contract. I estimate that in those circumstances the best Globalstar might obtain would be roughly $1B-$1.5B in cash plus an agreement to assume the costs of the construction contract. That would be a pretty disastrous outcome for Jay Monroe after he’s invested over $800M and 20 years of his life in trying (against overwhelming odds) to make something of Globalstar, and Globalstar shareholders would also be hugely disappointed.
The most interesting question is what Ergen would seek to gain from Apple, if he was to either enable Apple to buy Globalstar at a low price or buy Globalstar himself (presumably through Echostar) and continue the partnership. One obvious possibility could be to collaborate to include the 2GHz satellite spectrum held by DISH and Echostar into future iPhones for additional NTN capacity. Perhaps not entirely coincidentally, Echostar announced plans to build a 28 satellite LEO IoT network just last week.
I also noted a few days ago that D2D is likely to be the next focus for hype over Starlink’s future prospects (which we can already see in the decision of SpaceX’s Jonathan Hofeller to join the Satellite-Cellular panel at Satellite 2023). And I predicted in my D2D report that SpaceX’s next step might be to acquire more MSS spectrum, most obviously Omnispace, but perhaps even Ligado. So now we could face the real prospect of a fight for this new market opportunity and the associated global satellite spectrum rights between Musk and Ergen, building on prior skirmishes over the 12.2-12.7GHz band. Wouldn’t that be fun!
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09.08.22
Posted in Broadband, Financials, Operators, SpaceX, Spectrum at 10:06 am by timfarrar
Up until 2020, I was very skeptical about the LEO broadband opportunity, and whether any of the planned systems would be able to raise enough money and build out a constellation that could deliver a service that is competitive with existing GEO operators. That skepticism seemed entirely justified after the failure of LeoSat in late 2019 and OneWeb’s spiral towards a bankruptcy filing in March 2020. SpaceX had also given wildly over-ambitious forecasts for Starlink’s revenue and timing, with projections for $6B of revenue in 2021, rising to over $30B in 2025.
But over the last two years, Starlink has launched a consumer broadband service that has upended the industry by providing vastly more capacity per subscriber than Viasat and Hughes, with a simple, easy to install terminal, and as of June 2022 already served over 400K users. Successfully developing such a system is an extraordinary technical feat when so many previous broadband constellation plans have failed. And after raising over $6B in the last 2.5 years at ever increasing valuations, SpaceX has been able to launch thousands of Starlink satellites and build scale that competitors will struggle to match.
I didn’t think that SpaceX would pull this off, but they did, and today too many people in the industry, who are rightly skeptical of Elon Musk’s litany of unfulfilled promises, remain far too complacent and are continuing to dismiss Starlink as just a consumer service that won’t threaten other parts of the satellite market, or are even suggesting that the network remains economically unviable and is doomed to failure.
However, the dam is starting to break for acceptance of Starlink amongst professional users, with Royal Caribbean’s recent move to deploy Starlink representing just the start of disruption in traditional satellite verticals. And SpaceX’s latest $2B in equity funding should see the company through to late 2023, by which time I expect Starlink to have captured around 1M users and have reached cash flow breakeven (even accounting for ongoing satellite replenishment costs).
That doesn’t mean Starlink (or SpaceX more broadly) will offer a positive return to those recent investors at the ludicrous valuation of $127B, because satellite will remain a last resort solution compared to terrestrial fiber, cable modem and even 5G fixed wireless options, but it does mean that there’s no reason to suppose that Starlink will cease to be an enormous competitive threat to the satellite industry in the foreseeable future.
One largely unrecognized issue in the LEO market is that there are significant benefits to scale, due to the virtuous circle that comes from adding more satellites to a constellation, as shown in the diagram below.
With more satellites in the sky, the user terminal antennas don’t have to scan as far to find a satellite to connect to, so they can be cheaper, with fewer antenna elements. And the altitude of the constellation can be lower, improving the link margin and capacity, and allowing the user terminal to operate at lower power. Capacity provisioning also becomes more uniform, as traffic loading can be averaged across multiple satellites, improving the quality of service. Starlink has been designed from the ground up to minimize the cost of the terminal, unlike traditional satellite systems (even recent designs like Telesat’s Lightspeed), which optimize the satellite and treat the terminal as an afterthought. Cheaper terminals and more capacity attract more users and generate more revenue, which can be fed back into building yet more satellites, making it ever harder for competitors to catch up.
So now we’re in a position where Starlink has clearly won the race for LEO broadband (at least for the next 4-5 years, since Amazon’s Kuiper won’t be completed before 2026-27), and is likely to become the largest satellite operator by revenue within that timeframe. Our new report on LEO broadband and the future of the satellite industry forecasts what this means for industrywide growth in revenue and traffic, and analyzes how satellite operators, distributors and equipment suppliers are likely to respond to what for many will represent an existential threat. The outcomes will include an acceleration of industry consolidation, decisions to exit, and even bankruptcies. The report also complements our June 2022 Starlink profile, which analyzes Starlink’s technology and forecasts Starlink’s revenue growth by segment. You can order one or both reports using the form here, or contact us to discuss subscription options for all of our industry analysis.
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11.19.21
Posted in Financials, Operators, SpaceX at 4:31 pm by timfarrar
There’s been a lot of breathless commentary over the last year about SpaceX’s ever-increasing valuation, which reportedly nearly tripled between spring 2020 and October 2021, with the share price rising from $220 to $560 and the valuation increasing from $36B to $100B.
However, there is a distinct inconsistency between what SpaceX has been telling the FCC about Elon Musk’s stake in the company and the amount of dilution implied by sales of new shares at these prices. Specifically, SpaceX told the FCC in November 2016 that Musk owned 54% of the company, which declined to 50.5% in November 2018, 47.4% in April 2020 and finally 43.61% in August 2021.
Over this period, SpaceX reported selling a total of $5.31B in equity, based on its Form D submissions to the SEC. Using the public reports on the share price for the transactions through April 2021 (before last week’s equity raise of $345M), I calculate that this represents approximately 22.4M shares, which increased the share count from a little over 154M shares to just under 177M shares.
However, if the valuations and share prices quoted to financial reporters are accurate, Musk’s stated ownership percentage over the same period would have equated to 83.4M shares in November 2016, 80.3M shares in November 2018, 78.9M shares in April 2020 and 77.2M shares in August 2021. Did Musk really dispose of his SpaceX shares on a regular basis over this period? That seems unlikely, especially given that he had minimal taxable income in 2017 and 2018.
Or is SpaceX reporting a fully diluted share count to the FCC, including options or restricted shares granted to employees, but not mentioning those to the financial press and investing public? If Musk didn’t sell any of the 83.4M shares corresponding to his 54% stake in November 2016, then in order to dilute his stake to 43.61% over the following four and a half years, the company would have needed to issue an extra 14M shares, over and above those sold and reported via Form D to the SEC.
If that’s the case, then SpaceX would appear to have granted options worth up to $8B at the current $560 share price to employees (although the exercise price for any options would presumably be somewhere between 20% and 40% of this amount and it is possible some of these shares might have been used to acquire technology or incentivize suppliers). Are SpaceX investors aware that the shares they bought might be diluted by about 7%? Does this mean that senior SpaceX executives are now extremely rich and some are perhaps even paper billionaires? That certainly could help to explain a number of recent retirements.
In addition, the most recent (October 2021) reported valuation of $100.3B at a $560 share price appears to reflect an increase of around 2.1M shares since spring 2021. How much of that amount (worth $1.2B at this valuation) represents the shares used to acquire Swarm in August 2021? Although part of this increase might represent conversion of some of the options noted above (since SpaceX was selling 1.35M existing shares), it seems very plausible that a significant proportion of these shares went to Swarm’s owners, which would represent a very high valuation (many hundreds of millions of dollars) for a company that had barely begun to offer commercial services.
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04.05.20
Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX at 11:41 am by timfarrar
Eight and a half years ago, I wrote a blog post that got a lot of attention inside the FCC, comparing LightSquared’s request for a license that would give it a $10B windfall to the relatively small beer of the $535M Solyndra loan scandal. Despite knowing that LightSquared’s promise of an integrated satellite-terrestrial network was nonsense (not least because LightSquared had already told the FCC in November 2010 that the wholesale cost of its satellite data would be $10 per Mbyte), the FCC and White House offered strong backing for LightSquared right up until summer 2011 when political pressures became too great and their support was withdrawn.
Now it appears that the FCC’s LightSquared debacle could be exceeded by an even greater debacle in the satellite sector, because SpaceX is seeking to participate in the upcoming Rural Digital Opportunity Fund auction later this year, which will offer up to $16B of funding over 10 years to service providers that commit to offer voice and broadband services to fixed locations in eligible unserved high-cost census blocks. While the Wall St Journal highlighted competitors’ complaints a few weeks ago, SpaceX has now upped its demands even further, suggesting in a March 27 letter to the FCC that “the laws of physics” dictate that SpaceX should be allowed to bid in the highest performance tiers (which carry the most money per potential customer) because “far from [being] untested or hypothetical, SpaceX has already launched over 360 satellites and demonstrated that its network is capable of offering high-speed, low-latency service”.
That of course is complete nonsense, because the laws of physics aren’t the only factor determining the latency of a LEO constellation, especially one that is (or apparently was in SpaceX’s case) supposed to have onboard processing and crosslinks. For example, Iridium’s latency on voice calls is not actually much better than a GEO satellite network and certainly exceeds “the Commission’s 100-millisecond threshold for low-latency services” (this paper estimated it at “between 270-390 milliseconds”). In fact one should regard claims of extremely low (and improved) latency for Starlink’s current satellites as indicating that in reality some of the most important design features, such as onboard processing, have likely been discarded.
To date SpaceX has certainly not demonstrated anything whatsoever about the performance of its planned commercial voice and broadband services for consumers. Notably SpaceX has still not published details of its terminals (except to advise that the antennas will need mechanical steering, raising the cost significantly), and last year’s testing by the US Air Force onboard a plane did not even use a SpaceX antenna. Moreover, that test did not involve most of the operational elements needed to offer a scalable commercial service, such as provisioning and sharing of capacity between multiple users, because SpaceX simply dedicated an entire satellite to one user terminal.
In particular, SpaceX makes great sounding (but carefully worded) claims in its submission to the FCC that “SpaceX also specifically designed Starlink to provide high-speed broadband service, using advanced phased-array antennas that allow the system to automatically optimize service to certain locations and dynamically adjust its throughput per user” when in fact many features of the supposed “design” have not actually been implemented in practice. While some of those discarded design features, such as crosslinks, are well known, I’m told that to date the satellites also don’t have any ability to dynamically reallocate capacity between beams, because that was apparently “too hard”. Perhaps that’s not surprising, when SpaceX is writing the software itself, rather than looking to companies with actual experience in designing scalable satellite broadband networks, like Hughes and Viasat.
But what is truly outrageous in SpaceX’s submission is the suggestion that the FCC should now let SpaceX participate in an auction to win $16B of ratepayers’ money without ever providing service to a single consumer, because SpaceX has now pushed back the launch date until after the FCC’s planned October 2020 auction date. The latest letter states simply that (even if you are foolish enough to take Elon Musk’s ever-optimistic timelines at face value) “SpaceX will now begin to offer its Starlink broadband service for consumers—first in the United States and Canada—by the end of 2020″. Of course now that Starlink’s primary competitor, OneWeb, has gone into bankruptcy, the urgency of pushing Starlink forward as quickly as possible has diminished (not to mention SpaceX being short of money itself), and why would SpaceX now want to risk consumers experiencing a service that in the early days may not work very well, if at all, before the FCC auction takes place?
But as I pointed out a couple of weeks ago, bidders are not required to actually provide service to any specific number of customers at all in order to receive the RDOF funding, and instead are simply expected to use the funding to subsidize their buildout and make it available. So SpaceX could then take the FCC’s money, never provide service to a single customer that the money was meant to help, and reallocate its capacity to serve other users like the DoD anywhere within the country or even the rest of the world.
Perhaps the FCC and Congress, like the rest of us, are pre-occupied with the coronavirus, and think this issue should not be at the forefront of our concerns right now. But when Elon Musk has convinced many gullible people that Starlink will “catalyze enormous positive change, bringing, for the first time, billions of humans into our future global cybernetic collective” and so it would be “stupid to put one more federal dime into rural broadband when Starlink could solve the whole problem by later this year” it remains possible that SpaceX will be able to get away with this nonsense and walk away with billions of dollars of funding that were intended to help close the homework gap while we are all distracted.
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03.21.20
Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX at 12:36 pm by timfarrar
Over the last couple of months its been interesting to watch the maneuvering by SpaceX as it sought to raise its next funding round, in large part from a range of new investors with little or no knowledge of the satellite sector. My understanding is that the original ambition was to raise well over $1B, to be announced in conjunction with Elon Musk’s appearance at Satellite 2020, and attempt to flatten the competition as OneWeb struggled to complete its own planned $1B round.
SpaceX staffed up in anticipation of this new funding, doubling the staff in Boca Chica in February, which has increased the company’s burn rate even further. According to data disclosed at the time of the November 2018 debt funding round, SpaceX generated $270M of adjusted EBITDA in the 12 months to September 2018, but only by counting hundreds of millions of dollars of customer deposits, such as that paid by Japanese billionaire Yusaku Maezawa for his trip around the moon. As a result it seems clear that SpaceX was otherwise burning cash even in 2018, when its revenues were projected to be $2.5B+. And in 2019, revenues roughly halved as the number of launches fell from 21 to 13 (of which 2 were unpaid Starlink launches). So before the staffing ramp up in early 2020, SpaceX had already been burning over $100M per month in cash, and so far in 2020 four of the six launches have been unpaid Starlink launches, resulting in even less revenue now coming in the door.
In early 2020, a key objective was to raise enough money to last until the end of the year, when SpaceX anticipated that it would receive considerable funding from the DoD (we heard rumors that up to $1B was being sought) and planned to obtain billions more from the FCC’s Rural Digital Opportunity Fund auction (which was expected to start in October and will offer up to $16B of funding over 10 years to service providers that commit to offer voice and broadband services to fixed locations in eligible unserved high-cost census blocks). Importantly, bidders are not required to actually provide service to any specific number of customers at all in order to receive the funding, but instead are expected to use the funding to subsidize their buildout and make it available. While this is a rational approach for a terrestrial network that can only make a return on the investment to the extent that it is then able to win customers within the coverage footprint that has been built out, it makes no sense whatsoever for a satellite system that covers all customers immediately but can then reallocate its capacity anywhere within the country or even the rest of the world.
SpaceX downplayed expectations in February as rumors began to spread about its funding round, telling CNBC on February 21 that it was raising $250M to buy back employees’ shares (an obvious attempt to boost its hiring efforts), while hoping to maintain the element of shock and awe, just as happened in May last year when it launched 60 satellites, a far higher number than anyone had expected. As markets began to teeter, SpaceX had to be content with telling CNBC on March 9 that the company had “authorized” $500M in new shares, but when the Form D was filed on March 13 it became clear that investors had contributed far less than expected, with only $221M contributed to date and the round listed as just $250M. That’s no more than two months of cash burn at SpaceX’s current rate of spend.
Elon Musk’s appearance at Satellite 2020 didn’t go well, and was notable mainly for his comments that “zero LEO constellations haven’t gone bankrupt” and that he “just wanted to be in the not bankrupt category”. His obsession with the problems in closing the SpaceX funding round was also very evident from the fact that he was still tweeting about the market correction when he should have already been on stage.
So it’s hardly surprising that we now see reports that the Commercial Spaceflight Federation is asking for a bailout for SpaceX and other member companies and that Musk has adopted a high risk approach of criticizing the coronavirus as exaggerated and insisting that SpaceX remain open and working at full speed. But what articles suggesting that Tesla has the cash to weather the storm miss is that Musk’s most critical near term cash problem is now at SpaceX not at Tesla.
It’s hard to imagine the company changing course and abandoning either Starship or Starlink, which means the enormous cash burn will continue. However, the recent equity valuation of $36B is now completely untenable (especially if OneWeb collapses, as has been rumored this week), although a several hundred million dollar secured loan might still be a feasible option to tide the company over for several months. Nevertheless, unless Musk is proved right about the coronavirus and the markets improve quickly enough that new funding becomes available to SpaceX relatively soon, or alternatively the US government offers to bail him out (either publicly or with off the books money from the DoD), SpaceX is currently heading on autopilot towards a concrete wall of bankruptcy.
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11.15.19
Posted in AT&T, Financials, Intelsat, Operators, Regulatory, SES, Spectrum, Verizon at 2:13 pm by timfarrar
It looks like the CBA’s offer today to make a (not particularly generous) defined contribution to the US Treasury may have come too late to rescue a private auction, with reports that FCC Chairman Pai will shortly lay out a plan for a public auction of the C-band spectrum. That comes after what I’m told was a call to Chairman Pai from President Trump, at the instigation of Sen. Kennedy, who has used increasingly heated rhetoric to demand a public auction in recent weeks.
The irony of that action will not be lost on those who remember Pai’s statement in March 2016 on the prior Commission’s net neutrality decision that “Moving forward, the Commission must recommit itself to being a truly independent agency that makes decisions based on the facts and the law, not on the whims of any White House.”
UPDATE (11/18): Chairman Pai has now announced that the FCC will conduct a public auction before the end of 2020. However, the FCC has also stated that the President “did not express an opinion” in his call to Chairman Pai, and it is “categorically false” that Trump drove the decision on a public auction. A bill to mandate a public auction, with at least 50% of the proceeds going to the Treasury, has also been introduced in the Senate, although it is unclear if it will be taken up expeditiously.
A great backgrounder on the issues involved was laid out by Harold Feld on Wednesday, where he points out that a major issue is that Congressional rules do not permit a “voluntary contribution” to be spent by Congress, unlike the proceeds from an FCC run auction. Moreover, Congress can spend whatever the CBO estimates the proceeds will be, and a ludicrously optimistic $50B-$60B figure is being widely banded about.
As Harold also points out, the FCC does have authority to repurpose the C-band spectrum in the public interest by only paying transition costs to the parties involved. However, he doesn’t note that in recent years Republican policy wonks such as Tom Hazlett have been encouraging private transactions to repurpose spectrum for its “highest and best use”, arguing (correctly) that FCC intervention has often directed spectrum to politically connected players rather than serving the public interest.
What the FCC does not have is authority to share the proceeds of a public auction with the satellite operators, unless it can contort the incentive auction statute (which requires at least two competing bidders) to fit this situation. However, if the FCC cannot share the proceeds with the satellite operators then not only will there be prolonged litigation, but the satellite industry may be plunged into even more of an existential crisis than it already faces from declining revenues and the loss of customers to terrestrial alternatives. Moreover, there will be no incentive for satellite operators to move swiftly to make the spectrum available for terrestrial use within the next three years.
As a result, there is a clear imperative for satellite operators to receive a meaningful proportion of the proceeds, which was recognized by the proposed Matsui bill earlier this summer. That bill would have allowed the satellite operators to keep 75% of the net proceeds if they had cleared 300MHz, as is now on the table (the current CBA offer is less generous to the government, despite specifying a minimum 30% voluntary contribution, because that contribution is “inclusive of all Federal income tax liabilities incurred by the CBA member companies as a direct result of the auction”). However, it is unclear whether any such legislation will be able to pass into law in the current fevered political climate, especially when Sen. Kennedy has railed against giving away “$60 billion that belongs to the people of America to two companies in Luxembourg and one other one in Canada”.
What options does that leave the FCC with? Well the most obvious possibility might be for the FCC to return to the original concept, before the October 2017 offer from Intelsat and Intel, and conduct a public overlay auction for spectrum rights in 300MHz of the C-band before the end of 2020. If the CBA can come up with a agreed, concrete price and timetable for clearing the spectrum for the benefit of the overlay rights holders, set at a level that is acceptable to the cellular operators, then the FCC can claim to have complied with the Congressional (and Presidential) demands to conduct a public auction, without needing new legislation or to work around the language of the incentive auction statute. Of course the public auction would then raise a much more limited amount of money, assuming the CBA is going to receive many billions of dollars for moving out of the spectrum and giving up its rights to this part of the band.
However, it is unclear whether the CBA is capable of agreeing to a specific clearing price in the short time remaining before Chairman Pai has to decide how to move forward. One of the biggest problems in this whole process has been how long it took to come up with a concrete commitment to clear 300MHz and now to publish a specific revenue share for the government. Of course the CBA has been worried that by publishing specific figures it would be bidding against itself. But by allowing the process the drag on for so long, it became possible for Sen. Kennedy and others to consolidate their opposition to a private sale.
Now that Eutelsat is on the sidelines (and has its own interests in worsening Intelsat’s financial position), it may be even more difficult to reach agreement. Investors’ unreasonable expectations about the price that could be realized in an auction, represent another barrier to agreeing a fixed clearing price with AT&T and Verizon. With 280MHz on offer, it is very hard to see how demand could significantly exceed supply, which would be needed for auction prices to rise to $50B or $60B. Verizon and AT&T are unlikely to spend more than $10B each to buy 100MHz per operator, and T-Mobile will not need to participate in a major way if its merger with Sprint goes through. Beyond that there are very few companies who will want to pay billions of dollars for C-band spectrum, because it makes little sense to start in that band as a potential new entrant. So I struggle to see the gross total raised from a C-band spectrum sale getting to more than $30B (~$0.30/MHzPOP).
More importantly, a fixed clearing price certainly could not exceed the amount AT&T and Verizon are collectively prepared to pay for their share of the spectrum (i.e. $20B), since they would be instrumental in negotiating that figure. More likely, AT&T and Verizon would be unwilling to agree to a clearing price above about $15B (if not less), leaving net proceeds after ~$3B of actual costs at roughly $5B each for Intelsat and SES. Compared to where we stood two years ago, when no value was attached to C-band spectrum, that seems like a pretty stunning achievement. But at this point in time, after two years of declines in the core satellite business, it would be unlikely to make Intelsat shareholders happy.
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02.09.19
Posted in AT&T, Financials, Intelsat, Operators, Regulatory, Spectrum, T-Mobile, Verizon at 2:02 pm by timfarrar
It’s now just over a year since I first wrote about the possibility of a “pioneering market-based transfer of [C-band] spectrum to higher value uses” which could allow satellite operators to sell part of the C-band to boost Verizon’s 5G network capacity. In that time, the process has moved forward significantly, with the FCC issuing an NPRM in July, to which comments and reply comments were received late last year.
Opposition from the cable companies has been growing, as they’ve become scared by the prospect of new wireless broadband competition, with Verizon, T-Mobile and AT&T all admitting that they have no better plan than to use the huge amounts of capacity that their new 5G networks will create, to compete in the fixed broadband market.
But it was truly ironic to see New America and Google team up with the cable industry last week to claim that the plan put forward in the NPRM for a private market transaction represents “The Great Airwaves Robbery” because satellite operators rather than the Treasury will receive the proceeds. Not only are these very odd bedfellows, but Google has traditionally been on the side of freeing up more spectrum and encouraging broadband competition, rather than trying to block such an effort.
However, it now seems that if Google can’t get what it wants in the C-band (meaning essentially free access to the band on a shared basis), it will seek to derail the plan for a market-based approach. While one reason for Google to mount this effort is to prevent C-band from undermining interest in the CBRS band in which has invested a lot of time and resources, a cynic might also say that Google would prefer a “Political Spectrum” where the FCC would be able to insert policy provisions that suit Google, especially since an FCC-run auction wouldn’t take place until after the next Presidential election in November 2020.
That’s certainly been the case in the past, when Google persuaded (Republican) FCC Chair Kevin Martin to include Open Access provisions covering the upper C-block into the rules for the 700MHz auction in 2008. Of course, despite the fact that the Open Access conditions ultimately proved to have no effect on the wireless market, Google didn’t care that these provisions meant that the C-block spectrum sold (to Verizon) for less than half the price of the unrestricted paired A and B blocks, costing the Treasury something like $6B in auction proceeds.
Nevertheless, it is clear that the various sides of the C-band debate appear to want to capture all of the benefits for themselves, without looking for a compromise solution. This includes the satellite operators, where Preston Padden of the C-band Alliance (CBA) has claimed that there is “no alternative” to the CBA Plan, which gives all of the control and sale proceeds to the satellite operators. In fact there is a fairly simple compromise option, which follows the traditional FCC model of splitting the baby, so everyone gets something out of the process. That was followed back in 2003, when the initial approval of Ancillary Terrestrial Component (ATC) flexibility for MSS operators was given in exchange for 30MHz of the 70MHz of 2GHz band MSS spectrum being reallocated to terrestrial services (this ultimately became the G block and H block spectrum).
So a relatively simple solution at this point would be to allow the satellite operators to sell the 180MHz of spectrum at the bottom of the C-band, and keep the proceeds (part of which would be used to pay for new satellites and filters to enable continuation of video delivery in the remaining 300MHz of spectrum), while the FCC conducted an overlay auction of terrestrial mobile licenses in the rest of the band (excluding a modest guardband of perhaps 50-100MHz below 4200MHz to preserve key services and protect aeronautical users in the 4200-4400MHz band). Purchasers of the overlay licenses (which would cost considerably less than the spectrum being sold by the CBA) would then be able to pay C-band earth station owners to move their earth stations away from major cities or migrate them to fiber, in order to clear the spectrum in high demand areas, with no additional compensation due to the satellite operators (since the satellite operators would already be receiving a windfall from the spectrum they sold).
All parties could then be compensated: the satellite operators would receive proceeds from selling 180MHz of spectrum (potentially worth $11B-$18B at $0.20-$0.30/MHzPOP), the Treasury would receive proceeds from the overlay auction (potentially worth $4B-$5B from selling 270MHz at $0.05/MHzPOP) and the earth station operators would receive compensation if they decided to migrate to fiber or relocate their earth stations to clear the overlay spectrum. And both the FCC and the wireless operators would be happy, with T-Mobile’s demand for 300MHz+ to be made available being met if they bought the overlay licenses and paid to clear the spectrum in the areas where they needed spectrum, while Verizon and AT&T could get the spectrum they need in the near term by agreeing a deal with the CBA. Even Google could acquire spectrum in the overlay auction, if they really did want to buy spectrum, rather than just prevent others from getting hold of it.
Of course the cable operators might not be happy with the additional competition for their broadband business, but they would also have the option to acquire spectrum in the overlay auction, and compete in the wireless market themselves, especially since they would have an easier time clearing their own earth stations out of the band. And if they didn’t want to do that, they could hold out for compensation from the holders of the overlay licenses.
Will the CTIA and the wireless operators now be prepared to push for such a compromise? Will the satellite operators accept that they can’t have it all? And will the cable operators and Google accept that blocking the reallocation of C-band spectrum to terrestrial is an unacceptable outcome? That depends on whether the FCC is willing to rule that none of the parties should get all of what they want, but everyone can get something.
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11.09.18
Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX, Spectrum at 5:32 pm by timfarrar
Michael Lewis’s book “The New New Thing” was published the same week as I moved to Silicon Valley in October 1999 and provided a great tour through the landscape at the high point of the Dotcom Bubble, just as his Liar’s Poker was a signature story of the 1980s Wall Street boom. Unfortunately we don’t have anything quite the same about New Space, although Tim Fernholz’s book comes close.
However, just as it was obvious back in 1999 quite how untethered Silicon Valley had become from real world business models, the New New Space industry seems intent on demonstrating the same about the space sector. In recent months I’ve heard about numerous planned nano-satellite constellations that are struggling to raise funding (beyond their $10M or so in proof of concept venture capital) and may run out of money soon, because they simply don’t have a credible business plan.
Looking elsewhere, it seems that 5G IoT and “Armani WiFi” are not really such convincing buzzwords after all (sorry Charlie and Jay), and Ligado’s lobbyists can’t outwit Brad Parkinson’s “fervent ally” in the White House, so some if not all of those multi-billion dollar investments will soon prove to be a complete debacle as well.
But the poster child for the bursting of the bubble can be seen in SpaceX’s increasing frantic attempts to raise money in the face of a rapid decline in launch demand, and increasing competition from Blue Origin, which doesn’t need to make a profit. Firing your bankers because they are nervous about how much additional debt you will take on in the future is a bad sign, and redesigning your constellation to hide its problems seems even more bizarre.
SpaceX’s launch tempo is already falling, with 10 launches now scheduled for the second half of 2018 compared to 12 in the first half, far short of the 50% increase in 2018 launches and medium term 30-40 launches per year that the company predicted only a year ago. So its an open question what the core business is worth, but with $270M in LTM adjusted EBITDA (which counts deposits and excludes some R&D) and a declining revenue outlook for 2019, the valuation of $28B achieved this spring is clearly ludicrous.
SpaceX’s attempts to find new sources of revenue are also proving deeply problematic because the broadband satellite constellation business now appears to be in even more dire straits than the launch business. Recently rumors have circulated that SoftBank is looking to exit from OneWeb (before the next tranche of its $1B equity commitment is due after the test satellites are launched in early 2019), as the system costs increase and questions abound over the size of the market opportunity for satellite broadband. Certainly Masa Son’s attitude to the project appears to have changed dramatically in the last year, from touting satellite as an alternative to fiber, to not even mentioning satellite in a recent lengthy feature on the Vision Fund.
And finally, given the lack of demand for launch services, the need for the BFR now seems highly questionable, except as a vehicle for space tourism. Since SpaceX is likely to have investment needs of $1B+ per year just for BFR and the debt capacity of the company is unlikely to be more than about $2B, it therefore wouldn’t be in the least surprising if the company’s next step in 2019 is to start taking more deposits from potential tourists who want to emulate Japanese billionaire Yusaku Maezawa. In the meantime, soliciting contracts from anyone who might offer a cash deposit seems like another avenue SpaceX will be exploring.
Looking back once again to 1999, it seems quite relevant to note that the first major meltdown (the Iridium bankruptcy) came in August 1999, well before the bursting of the wider tech bubble. And it now appears that there are several multi-billion dollar satellite projects that could suffer the same fate within the next year. What will that mean for investor perceptions? Will incumbents benefit? And which elements of this new technology will prove to be useful in the long run?
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09.28.18
Posted in Broadband, Financials, Operators, Regulatory, Services, SpaceX, Spectrum at 1:03 pm by timfarrar
As students of history and those who were there at the time (such as FCC International Bureau chief Jose Albuquerque) know only too well, sometimes a dud satellite can be just as good as a real one for promoters of a new broadband LEO system. Back in February 1998, the Teledesic BATSAT apparently never worked properly (some say not at all), but the launch was instrumental in causing Prince Alwaleed to invest $200M in the company in April and more importantly in persuading Motorola to abandon its own Celestri LEO system and join forces with Teledesic in May 1998, investing $750M for a 26% stake.
So the question now is whether SpaceX is in the same position with Starlink? After all, when basking in the glow of apparent back-to-back successes with Falcon Heavy and Starlink during February 2018, followed by receipt of its constellation license from the FCC, SpaceX raised $500M the following month at a reported valuation as high as $27B, supposedly to develop the Starlink constellation.
And subsequently, SpaceX has been positioning itself to play a role in DARPA’s Blackjack satellite constellation program, which will provide total funding of up to $117.5M to be split between several bidders. Notably, SpaceX filed a new experimental application with the FCC in August 2018 “to reflect additional test activities undertaken with the federal government” and add “two new types of earth stations, one of which will transmit uplink signals to the Microsat satellites first from the ground and later from a moving aircraft”. In that application, SpaceX told the FCC that:
“These experimental engineering verification vehicles are currently engaged in the test regimen as authorized, in order to enable the company to assess the satellite bus and related subsystems, as well as the operation of space-based and ground-based phased array technologies.”
As he looks to secure both DARPA funding (which should be announced in the next couple of weeks) and FCC approval of the new experimental license application, Elon Musk is certainly extraordinarily sensitive to any suggestion that there might be a problem with Starlink. Notably, within a few hours after my previous blog post appeared on September 18, it seems he planted a (rather bizarre) question on Twitter so that he could state that “Starlink should be active by then [2023]“. Indeed, he was so keen to get this assertion out there that the same question was posted twice.
And if we look back to Elon’s previous tweet about the status of Starlink, its hard to believe it was purely a coincidence that this information was released the day after DARPA’s Blackjack solicitation.
But the reality is that the Starlink satellites have not performed in accordance with the plan that SpaceX presented to the FCC as recently as February 1, 2018, when Patricia Cooper told the FCC that:
“As set out in the original application, after system checkouts are performed and the system is evaluated as ready to proceed, SpaceX will engage in orbit-raising maneuvers until the spacecraft reach a circular orbit at an altitude of 1,125km.”
And the original application stated that:
“After system checkouts are performed and the system is evaluated as ready to proceed, the orbit-raising phase of the mission will commence. This segment will last approximately half a year depending on system performance.”
But what has actually happened? Both satellites have remained around the launch altitude of 514km, with TinTin A not showing any meaningful evidence of propulsion since at least early March, and TinTin B not experiencing any significant change in altitude after attempting a few orbital maneuvers. So it seems all but certain that there has been a major issue with the propulsion system onboard both of the Starlink satellites.
When confronted with the rumors of a satellite failure by SpaceIntelReport, SpaceX stated that the satellites “were delivered to their intended orbit, communicated with ground stations, continue to communicate with ground stations, and remain in operation today.” That may all be true, but says nothing about whether the propulsion system has failed.
Unsurprisingly such a failure would put SpaceX in a very awkward position, when there were already many questions about whether Starlink would go forward, not least because the satellites may not reach the correct orbit to bring SpaceX’s ITU filing into use, and the FCC’s experimental authorization was based on the assumption that mission operations would be conducted at 1125km. And if SpaceX cannot build satellites with a reliable propulsion system, that would reinforce concerns expressed by FCC Commissioner Rosenworcel in SpaceX’s license grant that “the FCC has to tackle the growing challenge posed by orbital debris.”
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