01.18.14
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 6:16 pm by timfarrar
It seems that contrary to Phil Falcone’s testimony on Thursday, its not true that “if you talk to anybody, they’ll tell you LightSquared will get the FCC license” at least if that “anybody” is FCC Chairman Wheeler (who of course did talk to LightSquared just before Christmas). It seems he wanted to send that message loud and clear with a Friday evening court filing, telling Judge Chapman that:
“The FCC is not in a position to confirm whether it will able to complete the work required to act on each of the conditions specified in the FCC Exit Condition before December 31, 2014. It is also impossible to predict what decisions the Commission may reach on these matters.”
The filing went on to explain that the first Exit Condition in the LightSquared bankruptcy plan (which requires approval for use of LightSquared’s 20MHz of uplink spectrum) “is not solely within the FCC’s control” because “the FCC coordinates certain spectrum-related matters with the NTIA, which in turn consults with all federal stakeholders through the Interdepartmental Radio Advisory Committee.”
That’s particularly important in view of a Bloomberg article earlier this month which indicated that “The Transportation Department, whose concerns that the LightSquared network could affect airliner navigation helped kill the company’s original plan, is withholding assent from the Interdepartment Radio Advisory Committee.” So in effect, the FCC is saying that if the DoT/FAA veto is maintained (and remember they would have to walk back the prediction that LightSquared’s operations could cause 800 deaths), it will not approve LightSquared’s application.
In addition, the filing noted that with respect to the second Exit Condition (which requires LightSquared to have gained approval to use the 10MHz of downlink spectrum between 1670-80MHz) “the FCC will need to conduct a notice-and-comment rulemaking process…[which] will include issuing a Notice of Proposed Rulemaking (“NPRM”), seeking comments from the public and adopting a Report and Order to allocate, develop service rules for and assign the [1675-80MHz] spectrum. At this time, it is not possible to provide any assurances that the processes outlined herein will be completed by December 31, 2014.”
This intervention potentially throws the LightSquared bankruptcy into chaos, and could leave Judge Chapman in a near impossible position, because as the FCC emphasized “Under the Revised Second Amended Plan, if the Effective Date has not occurred on or before December 31, 2014, the Plan shall be null and void.” We’ve already had DISH withdraw its bid, and as I noted the other day, it looks very much like DISH has alternative deals in mind. Commitments were also due on the LightSquared exit financing on Friday, and the FCC’s intervention could make the status of that financing even more uncertain.
So the question now is whether there is any feasible plan for Judge Chapman to confirm at this point in time? If she decides there is not, perhaps she could order the company to resume the auction of assets, this time without any conditionality on FCC approval. Would that mean Ergen jumping back in with a personal bid at a lower price? After all he suggested on Monday that had been a possibility, backed by a loan against his stake in EchoStar. Would the other LP debtholders compete against him (and put up cash to buy him out) if they weren’t going to get paid off at par plus accrued interest as they expected a few days ago?
Worryingly for LightSquared’s own reorganization plan, if the FCC intervention, which few expected at this point in time, is regarded as a direct smackdown in response to Falcone’s comments in court, that again raises the question of how big a “Phil risk premium” needs to be attached to the regulatory process, if Falcone maintains a substantial ownership stake in the company (even if he is no longer involved on a day-to-day basis, which seems to be the intent of the Fortress-backed plan).
After all, Senator Grassley (who has been a vocal critic of how “the FCC nearly granted billions of dollars in taxpayer assets to someone accused by our nation’s financial regulator of having ‘victimized’ ‘clients and market participants alike’ and leading a ‘graduate school course in how to operate a hedge fund unlawfully’”) was only too happy to give a statement for Bloomberg’s recent story about the lack of progress in Washington, and I’m sure that he won’t remain silent about any future FCC approvals while Phil remains involved with LightSquared.
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01.16.14
Posted in DISH, Financials, Operators, Regulatory, Spectrum, Sprint at 5:27 pm by timfarrar
After all the back and forth in court this week, with testimony from Charlie Ergen and Phil Falcone about Ergen’s purchases of LightSquared debt, the casual reader could be forgiven for thinking that this is still a battle between the two of them for control of LightSquared. However, a court filing from LBAC today emphasized that DISH is withdrawing its bid and if their argument (that DISH’s bid is not locked-up) stands, it appears that the Ad Hoc Committee will have an uphill task in moving to confirm a plan based on sale of the assets.
Instead, if LightSquared can get sufficient commitments tomorrow so that the $2.5B of new debt needed to back its reorganization plan is in place (contingent of course on FCC approval), then both Ergen and DISH appear happy to step back and wait to see what happens. If the FCC did give LightSquared the approvals it wants, which Falcone has “a pretty good feeling about” (mirroring his confidence back in 2011 that GPS interference issues could easily be solved), then Ergen would get repaid with interest (assuming he wins the current trial), and if the FCC refused (or declined to rule), then he could come back with another (lower) bid later on.
What’s far more intriguing is why DISH now seems to regard LightSquared as dispensable, at least for the time being. Remember that Ergen testified DISH only became interested in LightSquared as a backup plan once it became clear DISH would not succeed in buying Sprint or Clearwire. In addition, rebanding the AWS-4 uplinks to downlinks and pairing with LightSquared’s uplinks would delay any network deployment by at least a couple of years.
So it seems highly likely that Ergen has another plan in mind, which DISH will move to implement soon after the H-block auction is complete. There are repeated rumors about a Sprint bid for T-Mobile and an expectation that DISH would mount a counterbid. But it still seems that Sprint would have a tough job getting regulatory approval.
BTIG seem to think that a asset sale by Sprint to DISH would be one solution (what assets this would be is unclear, but we suspect DISH’s main objective would be to get hold of Clearwire spectrum, not a retail wireless business, and Sprint doesn’t need to buy T-Mobile for its spectrum). But isn’t a direct Sprint/DISH partnership a simpler solution, with a Sprint bid for T-Mobile acting as a backstop option if a deal with DISH falls through?
Its surprising how few people really seem to have grasped what DISH’s key asset is, namely that its 14M potential towers (i.e. rooftop satellite dishes) are at least as valuable as its spectrum (and perhaps more so, since using the AWS-4 spectrum for a fixed wireless broadband network wouldn’t be a very high value use).
Consider for example, a wireless broadband network deployed to 20% of DISH’s current customer base (2.8M households), let along the 8.5M targeted in DISH’s April 2013 Sprint bid proposal. If DISH can rent even a fraction of this tower space for $100 per month (compared to the $1700 or so that is charged by traditional tower companies) to Sprint to host its 2.5GHz small cell buildout, then that could generate at least $1B per year of incremental cashflow, with little or no offsetting costs (remember the power and space is provided by the homeowner). Moreover, DISH’s best use of its money would then be to try and buy DirecTV, offering a national broadband fixed wireless competitor and ensuring that AT&T couldn’t gain a similar buildout opportunity via DirecTV’s satellite dishes.
We’ll see what happens in the H-block auction next week, but even that may not be particularly critical to DISH’s near term plans, and I’d expect DISH could be quite content to be outbid on many licenses by non-strategic investors. Then regardless of what happens to LightSquared in the next few weeks (and things may go at least somewhat quiet for much of this year while the company makes yet another effort to secure FCC approval), my bet is that we’ll be hearing a lot more about Ergen’s wireless plans in the next few months.
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01.09.14
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum, Sprint at 9:42 am by timfarrar
The announcement today that DISH is pulling its bid for LightSquared has thrown what was already a massively complicated and controversial bankruptcy case further into chaos, as we start the trial on whether Ergen’s purchase of LightSquared debt was illegitimate (and warm-up for a lengthy contested confirmation hearing over the next 3 weeks). Of course, the withdrawal of the bid completely undercuts LightSquared and Harbinger’s arguments that Ergen always knew DISH would come in and buy out his debt holdings and it will be interesting to see the effect on this part of the trial. Thus the withdrawal is certainly a logical move simply for that reason alone.
However, as we move forward into confirmation, there are two further possibilities to be considered. If DISH’s move is simply a strategic maneuver to undercut LightSquared’s lawsuit against Ergen, then it would be logical to expect DISH would ultimately give in when the debtholders attempt to force specific performance of the Asset Purchase Agreement (assuming the Ad Hoc debtholder reorganization plan is approved by the judge).
A second more intriguing alternative is that DISH and Sprint might be nearing a partnership deal, under which Sprint could use DISH’s satellite TV antennas (backhauled via a fixed wireless network using AWS-4 spectrum) for a 2.5GHz small cell hosting strategy in suburban and rural areas and DISH would resell Sprint wireless services. After all, if there is a near term deal to move forward with a wireless partner and an AWS-4 buildout, then the rebanding and delay associated with a DISH acquisition of LightSquared would probably cause more problems than it solves.
Certainly a hiatus in negotiations between DISH and Sprint seemed to be behind the leaks before Christmas that Sprint was planning a bid for T-Mobile and DISH’s rejoinder that it would consider a rival bid. Indeed one could view AT&T’s recent offer of a $450 incentive to T-Mobile customers as an attempt to kill any prospects of regulatory approval for a Sprint/T-Mobile tie-up. So from that point of view, Sprint’s only viable big move in the near term is a deal with DISH, and I’m told large scale deployment of such a network could double the total wireless network capacity available in the world today.
Another factor worth considering is that DISH’s move creates further uncertainty for the H-block auction as well, because (especially after Echostar’s purchase of Solaris, which has overlapping 2GHz band spectrum in Europe at 1995-2010MHz uplink and 2185-2200MHz downlink) the possibility that DISH will not decide to switch its AWS-4 uplinks to downlinks is back on the table.
Nevertheless, even if DISH doesn’t buy LightSquared, and no deal is ultimately worked out with Sprint, DISH could still come back and buy the 1695-1710MHz unpaired uplink spectrum in the FCC auction later this summer, likely at a lower price (and with rather less risk) than it would be taking with LightSquared – as unpaired uplink this band will probably sell for around $0.30 to $0.40/MHzPOP unless AT&T and DISH both bid aggressively against one another. So DISH certainly still has many spectrum options left on the table this year.
Today and tomorrow the LightSquared hearing will involve live testimony from both Ergen and Falcone about the debt purchases. Given that DISH’s maneuver has now undercut many of Harbinger’s arguments, and Ergen still seems to have plenty of cards up his sleeve, it will be interesting to see just how far Phil is out of depth in this great game.
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12.20.13
Posted in DISH, Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum at 3:19 pm by timfarrar
As we head towards the holiday season, LightSquared’s attempts to find an alternative to being bought by Charlie Ergen are becoming ever more desperate, as the December 24 deadline to put forward an alternative plan approaches and the company takes a “time machine back to the summer…to formulate from scratch their own refinancing plan
…like the failed effort with Jefferies.”
Reuters is reporting the terms of a $2B-$2.5B three year term loan to back a Fortress-sponsored exit plan as including 12% interest, all paid-in-kind, with an additional unspecified amount of equity injected into the company (presumably mostly achieved through rolling over existing investments). Unless a substantial amount of warrants are also included in this deal, the terms appear worse than those offered by Jefferies (and rejected by investors) back in July, which comprised mostly cash pay interest plus an ongoing ticking fee and substantial warrants.
We find it hard to imagine that the judge will be happy with a proposal which involves waiting another 6-9 months for an FCC decision, with no certainty at the end of the process, and which would presumably result in DISH terminating its non-contingent cash offer. Remember that there are numerous other uncertainties in the near future as well, including the resolution of LightSquared’s Mexican coordination negotiations, the Cooperation Agreement with Inmarsat, LightSquared’s difficult relationship with the DoD (which led to the termination of a contract accounting for one third of LightSquared’s total satellite revenue earlier this year) and most importantly the unprecedented amount of spectrum that will be auctioned by the FCC in 2014 and 2015. All of these issues are discussed in detail in our new 49 page LightSquared profile, released yesterday – please get in touch if you are interested in purchasing a copy.
The AWS-1 auction in 2006 provides one good example of how large amounts of new spectrum coming to the market can have a major effect on the perceived value of spectrum. Take for example ICO’s July 2005 Offering Memorandum, which suggested its spectrum was worth $1.64/MHzPOP, whereas after 2006, ICO had to use an AWS-1 benchmark instead (in that case the most optimistic number that could be justified was $0.73/MHzPOP for the 20MHz F-block spectrum).
One of the underrated issues that is still to play out in the bankruptcy (and a key sticking point in negotiation of DISH’s proposed Asset Purchase Agreement) was that DISH’s bid included acquiring all of the litigation rights of the LightSquared estate. The most obvious effect that would have is on LightSquared’s lawsuit against Ergen for buying up its debt. However, it would also have significant consequences for the suit against the GPS industry and potential litigation against the FCC: whereas LightSquared soon may have nothing to lose by employing scorched Earth tactics, we suspect DISH would look for a compromise that would be acceptable to all parties. Finally, DISH could even sue Harbinger on behalf of LightSquared investors who lost money as a result of the “guarantees” that there was no GPS interference problem whatsoever.
We should soon know if this will be Phil’s last gasp, so just like the Delorean above, he will find himself “OUTATIME” or if we will have many months more of uncertainty about the FCC process. Either way, it looks like it is no longer FCC Chairman Wheeler who will have an unhappy Christmas, but instead it will be Judge Chapman, who is charged with resolving the LightSquared bankruptcy case and now has to determine just how much of LightSquared’s “alarming and reckless” efforts to fend off DISH she will tolerate.
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10.21.13
Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, LDR, Maritime, Operators, Services at 9:33 am by timfarrar
I won’t belabor the errors of physics in the movie, instead just noting that even though you might think that in space things can keep going in a straight line indefinitely, they are still subject to gravity and you can’t get to a higher orbit without some form of propulsion.
We’ve now seen confirmation from Iridium of what I pointed out last week, that Q3 was very bad for the MSS industry. Iridium missed its expectations for equipment revenues (i.e. handset sales) and subscriber growth (i.e. M2M net adds), although at least the government contract renewal is more favorable than expected – the unlimited nature of the contract removes the incentive for the DoD to scrub its user base to remove unused handsets, which has been a headwind for Iridium in the last couple of years.
Its far from clear that anyone else is doing better: it looks like Iridium’s competitors also saw pretty poor handset sales in Q3 and the SPOT 3 has been very slow to arrive in stores as well. Moreover, the government business is dire – Intelsat’s profit warning (which included its off-net business reselling MSS) is a bad sign for Inmarsat, as are the large scale layoffs in Astrium’s government business last week.
Inmarsat has now followed up its promise not to raise FleetBB prices in 2014 with an enormous 48% rise in maritime E&E prices from January, in an attempt to sustain maritime revenue growth next year. While the stated intention is to persuade the remaining pay as you go customers to move off the E&E network and choose FleetBB instead, the vast majority of higher spending B and Fleet customers have already migrated and many of the remaining users are mini-M voice-only users or really want the PAYG service because they are only occasional users, so FleetBB is not necessarily the ideal option.
Inmarsat is clearly calculating that these customers won’t want to risk moving to Iridium after the OpenPort problems earlier this year and has stepped up its efforts to portray Iridium’s network as “failing”. Despite all this, no-one believes that Inmarsat could possibly achieve its 8%-12% revenue growth target for 2014 and I expect this to be “softened” in the near future as well. Inmarsat is also likely to emphasize its opportunities for internal cost savings next year and move to dispose of some retail business units like Segovia.
Its interesting to speculate about implications for the wider satellite industry as well. Last time around (in 1999-2003), problems in the MSS industry were a harbinger of a downturn in the FSS industry a couple of years later. That came in the wake of a peak in satellite orders in the 1999-2001 timeframe and after the launch of these satellites, which resulted in a sharp decline in prices, the FSS industry took a big hit. We’ve seen a similar peak in orders in recent years (2009-10), and while the major operators are much more likely to retain pricing discipline (in a far more consolidated industry than a decade ago), the advent of High Throughput Satellites, especially those owned by smaller players like Avanti (who might become the most desperate for contracts), could pressure prices in certain market segments and geographies.
Just as an example, in recent years, underlying transponder demand has grown at roughly 4% p.a., but revenues have been boosted by around 2% p.a. by price rises. Even if demand growth continues (not a foregone conclusion in some sectors like government where WGS is an alternative), a reversal of the pricing trend would certainly make a big difference to the FSS revenue outlook. As I said at the beginning of this post, gravity clearly exerts a force, even in space.
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10.14.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum, Sprint at 10:51 am by timfarrar
As others have noted, in order to get a 700MHz interoperability deal, which will largely benefit Verizon and AT&T (as AT&T are now the only plausible national user of the A block spectrum and are likely to acquire both Verizon and Leap’s spectrum holdings in this band), DISH has secured a pretty good deal in Washington from interim FCC Chairman Clyburn: in exchange for DISH agreeing to low power use of the 700MHz E block (and bidding $0.50 per MHzPOP in the H block auction), DISH appears set to obtain an option to reband its AWS-4 uplinks to downlinks and an extension of the AWS-4 buildout milestones.
UPDATE (11/13): T-Mobile is raising $2B for spectrum purchases and is now rumored to be contemplating a bid for Verizon’s 700MHz A block spectrum. This would only give T-Mobile a 5x5MHz LTE network, which would not add much capacity in urban areas, but if T-Mobile is seeking to improve its rural coverage then it would have to buy other A block licenses as well.
This gives DISH a significant advantage both in the upcoming LightSquared bankruptcy auction, where no-one really expects any alternative bidder to emerge for the L-band spectrum, because the FCC has all but guaranteed it will not propose the so-called spectrum “swap” that LightSquared has asked for: it’s understood that Ergen will simply drop the request when he buys LightSquared’s satellite assets, so there is no point in the FCC annoying those in Congress who would want to see the 1675-80MHz spectrum band auctioned instead.
More importantly, if DISH is given an option but not an obligation to reband the AWS-4 uplinks (DISH has asked for 30 months to decide, but I would expect the FCC to only allow 12-18 months at most), then it also has a huge advantage in the H-block auction, because if Sprint were to win the spectrum then DISH could hold up standardization of the band (and delay any ability for Sprint to use the H block to relieve capacity constraints in its PCS G block LTE network). After years of experience in being held hostage by Ergen, its therefore hardly surprising that the smart move for Sprint will be to let DISH have the H block at the reserve price. That will force DISH to drive the standardization efforts, and potentially even allow Sprint to put roadblocks in DISH’s way instead of vice versa.
UPDATE (11/13): Both T-Mobile and Sprint have now ruled out bidding for the H-block spectrum. So it seems that both have made the smart move by leaving Ergen to contemplate what to do with ~80MHz of spectrum and no partners.
Moreover, it will establish a low benchmark price for the rest of DISH’s spectrum holdings, well below the $1.00 per MHzPOP that many analysts have been touting recently, and Ergen will then have doubled his bets on spectrum to roughly $8B, when taking into account both the LightSquared and H-block spectrum, without any clear route to monetization. With AT&T focused on European expansion and Verizon encumbered by the debt from buying out Vodafone’s stake, Sprint could then hope to hold the whiphand in any partnership negotiations with DISH.
Indeed next year’s auctions of 70MHz of additional spectrum (AWS-3, 1695-1710MHz and J block) may further impact perceptions of spectrum value: a $0.50 per MHzPOP valuation will again be ample to cover the costs of clearance plus the $7B needed to fund FirstNet. That is the FCC’s key objective in the upcoming spectrum auctions, so it can limit AT&T and Verizon’s participation in the 2015 broadcast TV incentive auction and ensure that Sprint and T-Mobile gain sufficient low frequency spectrum to preserve a four player market after the next presidential election. Once no net revenues need to be raised from the incentive auction, then it won’t matter if AT&T and Verizon refuse to participate, as that would simply keep the price low for Sprint and T-Mobile (or ensure that not as much broadcast spectrum is cleared).
However, rather than negotiating with Sprint on their terms, I expect that Ergen will instead pursue a merger with DirecTV, as an alternative to any wireless partnership, and I still expect a commitment to build out a fixed wireless broadband network with rural coverage to be key to getting regulatory approval for such a deal. Nevertheless, if DirecTV doesn’t put as much value on DISH’s spectrum holdings as Ergen does, it may be difficult to reach agreement on the respective value of the two companies. As a result, while Ergen builds his tower of spectrum cards ever higher, it will be interesting to see whether investors stay confident that he can ultimately create substantial value from these holdings.
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Posted in Financials, Globalstar, Government, Handheld, Inmarsat, Iridium, LDR, Operators, Orbcomm, Services at 10:03 am by timfarrar
Incredible…it’s even worse than I thought
That’s been the reaction to my 57 page Globalstar profile, released on Friday (you can see the contents list here and get an order form here), because of the history of challenges that the MSS industry has faced in the past and more particularly the difficulties that the industry is seeing this year.
After discussions with a number of people in the industry over the last few weeks, it looks like Q3 has been pretty disastrous for MSS sales across the board, with none of the usual surge in demand expected in the summer months, as customers stock up to prepare for outdoor adventures or potential hurricanes. Part of that relates to slow government orders, as a result of the sequester (predating the current shutdown), but commercial demand has also been poor, and that’s much harder to explain.
In the handheld segment, one suggestion is that Hurricane Sandy proved that terrestrial cellphone networks are now considerably more reliable during disasters (and far more data capable than MSS phones), so companies are no longer giving as high a priority to MSS equipment in their disaster planning. In the M2M segment, a fairly convincing explanation is that service providers who formerly specialized in MSS are now focusing more and more on selling cellular-based solutions to customers who find they don’t need MSS as a backup.
As a result, I’m now convinced that subscriber growth (and equipment sales) will fall short of expectations this year, particularly in the handheld and M2M segments, for almost all of the major MSS players, with knock-on effects for subscriber revenues in Q4 and more particularly next year. The defense business also looks poor (as shown by Intelsat’s recent profit warning): the word on the street is that Inmarsat may dispose of its Segovia government FSS business, as revenues in Inmarsat’s US Government business unit fell by 11% year-on-year in the first half of 2013 and appear to have eroded further in recent months, particularly in Segovia’s VSAT business. The sale price would be a fraction of what Inmarsat paid for Segovia, but in exchange Inmarsat would hope to secure a GX airtime contract, similar to its RigNet deal in the energy sector.
In the case of Globalstar, the implications of the MSS downturn are that while Globalstar should be able to meet the new bank case revenue forecasts, it won’t be easy to beat them. However, unlike some other players, Globalstar is fortunate in having the potential upside from monetizing its spectrum, if it can complete a deal with Amazon or another company. The report looks at spectrum valuation for both LTE and TLPS and concludes that there could be substantial value for Globalstar, although realizing this will require both rapid approval from the FCC and for a deal to be struck fairly quickly, before new spectrum bands such as 3550-3650MHz develop an alternative ecosystem at what will likely be much lower prices. If you are interested in getting a copy, please contact me for more details.
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09.23.13
Posted in DISH, Financials, LightSquared, Operators, Regulatory, Spectrum at 9:34 am by timfarrar
Tomorrow’s hearing in the LightSquared bankruptcy case was supposed to be the showdown at which the judge would decide between LightSquared’s own proposed bidding procedures (which attempt to reject Ergen’s $2.2B bid for the company) and the alternative bidding procedures which have now been proposed jointly by the LP and Inc secured creditors (and would accept Ergen’s stalking horse bid). However, LightSquared has appointed an independent committee of its directors (including a new member, Donna Alderman, who fought with DISH over the resolution to the DBSD case) and this committee (whose independence is disputed by the LP creditors) has requested that the hearing be delayed until September 30.
Of course, no-one is taking seriously the alternative plan proposed by Harbinger, which would simply keep the existing debt in place (converting it to PIK interest) and allow Harbinger to stay in charge, but LightSquared’s plan would allow it to deem a non-cash bid, contingent on FCC approval, superior to DISH’s cash bid, which could potentially further delay a resolution of the case. In contrast, under the secured creditors plan, any competing bid must be non-conditional on FCC approval, making it hard to see how any strategic buyer could emerge – although since potential bidders have already had two months to make an offer, and none have done so, it is likely that no-one else other than Ergen is actually interested.
LightSquared spent last week groveling to the FCC, suggesting that “The current stalking horse bid might be the only one submitted, if the FCC does not make its decisions quickly, because the company’s assets cannot be fully valued until the Commission acts on the pending modification applications.” However, the FCC’s recent grand bargain with DISH and AT&T over the 700MHz A and E blocks, AWS-4 downlinks, and the PCS H block auction makes it pretty clear that the FCC would prefer DISH as a buyer of the LightSquared assets, so that just the L-band uplinks would be used, rather than Harbinger getting a spectrum “swap” (which in reality would represent another windfall and lead to more criticism in Congress).
Given Phil’s troubles with the SEC, its hardly surprising that Chairman Mignon Clyburn would now choose DISH over Harbinger. That’s in contrast to my post last year asking if Phil was finally right about something with his comment that “Everyone knows Ergen is not going to build out a network. No one trusts him, including the FCC. They are not going to put their eggs in that basket because they know he will make them look foolish” (which prompted this response).
Harbinger’s attempt last month to sue the GPS industry for $1.9B also appears to have backfired, with LightSquared creditors pointing out that Harbinger was violating the bankruptcy exclusivity order by asserting claims of the estate. Moreover, this action, coming immediately after the FCC put LightSquared’s request for uplink approval on public notice, appeared likely to delay rather than expedite any regulatory approval from the FCC. Not only has Phil therefore caused further angst in the bankruptcy case, but I’m told that he is also struggling to find a credible plaintiffs firm to take the lawsuit forward, while the GPS industry have hired Boies Schiller to fight their side of the case. So perhaps now is the time to ask if Phil can get anything right?
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09.19.13
Posted in Financials, Globalstar, Handheld, Inmarsat, Iridium, Operators, Regulatory, Services, Spectrum at 9:32 am by timfarrar
Why didn’t Phil think of this first?
With MSS revenues in a bit of a funk this year, its not surprising that MSS operators are pursuing opportunities to attract consumers and expand the voice market outside the traditional verticals. We saw this first of all with Thuraya’s SatSleeve, announced at the Satellite 2013 conference in March. The SatSleeve connects via Bluetooth (and in the latest version WiFi) to an iPhone allowing the customer to use their iPhone contacts and touch screen interface. However, a key limitation is the need for compatibility of the sleeve with a particular phone form factor, and Thuraya has just launched a new version of the SatSleeve compatible with the slightly larger iPhone 5 handset rather than the original iPhone 4.
One way to overcome this handset compatibility issue is to use an external puck-like device, similar to a SPOT Connect or DeLorme inReach product, but offering voice and data capability in addition to simple messaging. This concept has been around for many years, and indeed was part of Craig McCaw’s new business plan when he bought ICO out of bankruptcy back in 2000: ICO told the FCC in its original ATC application in March 2001 that
“The use of already-permitted wireless technology such as Bluetooth or IEEE 802.11 could allow a whole range of consumer devices – standard terrestrial phones, PDAs, or laptop computers – to communicate with a satellite transceiver that houses the antennas, amplifiers, and other electronics unique and specific to the satellite link”.
Subscribers to my MSS research service heard 6 weeks ago about Iridium’s new handheld product, scheduled for launch at the end of the year, which is apparently exactly this puck-like device. It will be positioned to compete at the low end of the handheld market with a broadly comparable price to Thuraya’s SatSleeve (which was originally announced at $499 but is now selling for $599 to $799) and the Inmarsat and Globalstar handheld phones. I’m now told that Inmarsat is working on a similar device for release towards the end of next year, and meanwhile Globalstar has announced that it is “aiming to bring a $100 satellite device to market in 18 months time…to enter into a totally different market”.
I understand that Globalstar’s new device is likely to be the long-awaited two-way SPOT product, and may not be voice-capable like Iridium and Inmarsat’s new devices. It remains unclear whether the form factor will be a smartphone-connected puck (like SPOT Connect) or a standalone device: certainly the standalone device has sold much better for Globalstar to date, but equally well this might make it harder to expand beyond the current market of techie-focused backpackers and outdoorsy people (the vast majority of SPOT users are like me: 40-something relatively high income males with an interest in technology). Given the 18 month timetable stated by Globalstar, its also unclear whether this would be based on the new Hughes chipset or the current SPOT uplink plus a similar downlink channel, as the second generation ground segment upgrades are supposed to take about two more years to complete.
As Globalstar moves to raise its profile with investors, it seems the next stage will be a new round of fundraising (Globalstar noted in its 2013Q2 10-Q that “In June 2013, the Company entered into an agreement with Ericsson which deferred to September 1, 2013 or the close of a financing approximately $2.4 million in milestone payments scheduled under the contract”), presumably helping to reduce some of Thermo’s $85M backstop commitment (of which $40M had been provided by the end of July and $4.4M had been offset by receipts from termination of the 2009 share lending agreement). Indeed, it would be plausible for fundraising to go beyond this ~$35M level given the rise in Globalstar’s share price in the expectation of a positive outcome from the FCC, though it appears unlikely Globalstar will order more satellites anytime soon, given that the legal disputes with Thales are apparently still ongoing (Thales has “alleged that Thermo had failed to pay Thales $12,500,000 by December 31, 2012 as required by the Settlement Agreement“).
It seems Globalstar is highly confident that its NPRM will be issued by the time Chairman Clyburn leaves office, so it would be reasonable to suspect that this new financing is intended to take place in the next month or so, helping to cover payments of $20M+ due to Hughes between August 2013 and January 2014). Last week’s grand bargain over the 700MHz A&E blocks, DISH’s AWS-4 downlink waiver request and the H block auction, certainly indicates that I was too pessimistic in believing that Clyburn didn’t want to address spectrum issues and would leave these for Wheeler, and it would therefore now not be in the least bit surprising to see the Globalstar NPRM released at or around the time of the September FCC Open Meeting (when Clyburn will have what might be the last chance to trumpet her accomplishments as Chairman). Clyburn also appears less likely than Wheeler to pursue the “harm claim threshold” approach favored by the FCC’s TAC, which is good news for Globalstar in terms of how long it would take to issue an FCC order, although given that the FCC highlighted the speed with which it had moved to complete the DISH ruling last December (within 9 months of issuing the NPRM), it is still hard to imagine a final ruling on TLPS before early summer 2014.
So the key issues for Globalstar are likely to be how successfully it can build up its MSS business (note that the revenue projections given for the bank case in the new COFACE agreement generate just enough cash to cover debt, interest and capex payments through 2022 but little else) and more importantly whether Globalstar can find a partner to exploit its spectrum assets. We know about Amazon, but will there be other interest either from the cellular industry or (perhaps more plausibly) from non-traditional players? What are the best comparisons for spectrum valuation for TLPS and/or LTE authorization? I’ll be publishing my updated profile of Globalstar shortly and all of these issues will be discussed along with my revenue projections for the MSS business.
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09.12.13
Posted in Clearwire, DISH, Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 3:39 am by timfarrar
DISH’s submission to the FCC earlier this week, offering concessions on 700MHz E block power limits (thereby securing support from AT&T), and the prospects of a bid of up to $0.50/MHzPOP ($1.5B) for the PCS H block, in exchange for the option to use the 2000-2020MHz AWS-4 uplink band for downlink operation, confirms that DISH’s plan is to use LightSquared’s L-band spectrum for uplink operations. That would presumably be paired with the 2180-2200MHZ AWS-4 downlink, which would give DISH the opportunity to offer the 2000-2020MHz band as supplementary downlink for PCS operators. It also confirms that DISH’s two targets for a potential partnership are now AT&T and Sprint, since they will be the two main LTE operators in the PCS band, and strongly suggests that DISH no longer has any interest in buying T-Mobile (though a deal with DirecTV remains plausible in 2014).
Its important to remember that now it hasn’t got access to the Clearwire spectrum, DISH is essentially offering a partnership under which it would host AT&T or Sprint’s mobile spectrum (most likely in the WCS and BRS/EBS bands respectively) on its planned fixed broadband wireless network (which would use the AWS-4 downlink and L-band uplink for backhaul). In other words, DISH becomes a tower company, offering small cell hosting for as little as $100-$200 per cell per month, because DISH’s wireless broadband subscribers will be providing the site (on their rooftop satellite TV antenna) and the power for free.
If DISH secures auxiliary PCS downlink spectrum then it will also have an even more attractive set of additional spectrum to lease to AT&T or Sprint for their macrocell rollouts. That’s in addition to the 700MHz E block spectrum which AT&T desperately wants (and will feel even more pressure to secure, now it will be able to move forward with the rollout of the Qualcomm D/E block spectrum). Stating that DISH will bid for the H block also puts additional pressure on Sprint to come to a deal, which would substantially reduce the cost of SoftBank’s planned small cell rollout in the 2.5GHz BRS/EBS band in suburban and rural areas.
UPDATE (9/13): With the FCC confirming plans for a Jan 2014 H-block auction this afternoon, with DISH’s proposed reserve price of $0.50/MHzPOP, it seems near certain that DISH’s deal is on a fairly smooth path to being approved by mid December (30 days before the auction starts), so DISH should have clarity in time for the LightSquared auction. It is possible that this could lead to other subordinated debt/preferred holders attempting to push up the price DISH will have to pay, but it is also important to note that DISH will have other potential choices (such as the 1695-1710MHz block) for uplink spectrum and will have the option but not the obligation to switch the AWS-4 uplink band to downlinks. Thus the timetable this time around is likely to be highly favorable for DISH: it will know about the FCC before the LightSquared auction wraps up, which comes before the H block auction, which comes before the 1695-1710MHz auction.
However, one key consideration for DISH is whether it will be forced to pay lease fees to Inmarsat for the LightSquared spectrum, starting next April, which would be around $90M-$100M p.a. if LightSquared’s application for 20MHz of terrestrial uplink authorization is ultimately approved. (Note that DISH is certain to drop LightSquared’s request for a purported “swap” of downlink spectrum in the 1675-80MHz band, as it only wants the L-band uplink in the near term, and this is an obvious concession to offer to the FCC).
I believe that DISH is unwilling to pay Inmarsat anything material in cash while it is waiting for a terrestrial deal, and therefore needs to gain leverage over Inmarsat in the run up to the April 2014 deadline for payments to resume. To do that I understand that EchoStar’s Hughes subsidiary is working on a dual mode L/S-band satellite phone, and Ergen is considering a roaming agreement/partnership with Thuraya, enabling Thuraya to gain access to the North American market via the TerreStar and/or LightSquared satellites. Alternatively, in order to entice Inmarsat into a deal, DISH is prepared to enter into a European S-band joint venture, using the TerreStar-2 satellite to secure Inmarsat’s S-band license (of course if Inmarsat refuses then DISH could instead partner with Solaris Mobile, the Eutelsat/SES joint venture).
So it now looks like we are set for a tense few months of dealmaking in the MSS industry, and investors will have to wait and see whether Inmarsat is prepared to compromise over the LightSquared Cooperation Agreement. Of course, if Inmarsat refuses, and the Cooperation Agreement lapses, then Inmarsat could prevent any terrestrial use of the L-band spectrum by DISH. However, that might not go down too well with the FCC, if it is relying on DISH to bring the additional spectrum into use soon (and provide rural broadband competition to boot), so it is far from clear who has the most leverage here.
In addition, I’m told that Inmarsat signed the contract with Boeing on Tuesday for the fourth GX (backup) satellite, so it now will incur an extra $150M+ of capex in the next few years (assuming that this satellite remains a ground spare, which is not a foregone conclusion in the medium term).
UPDATE (9/13): Inmarsat also told potential customers this week not to expect global GX coverage until Q1 or Q2 of 2015.
That could be an awkward message for Inmarsat’s investors, who have bid up the company’s shares substantially in recent months, if Inmarsat not only has to spend more money on satellites, but is also facing the prospect of no more cash from the L-band spectrum, the possibility of investment to exploit the European S-band license (if it does partner with DISH) and perhaps even additional competition for its core MSS services (if Inmarsat rejects DISH’s offer).
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