02.07.23

Don’t play poker with Charlie Ergen…

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!

02.05.23

Direct-to-Device hype is Starlink’s new, new thing…

Posted in Globalstar, Handheld, Iridium, Operators, Regulatory, Services, SpaceX, Spectrum, T-Mobile at 9:42 pm by timfarrar

There’s been plenty of hype about the Direct-to-Device (D2D) market for satellite to smartphone connectivity in the last couple of years, and that has only intensified in the wake of recent announcements about Apple’s partnership with Globalstar and Qualcomm’s partnership with Iridium. Some analysts have even gone so far as to suggest that D2D represents the “largest opportunity in Satcom’s history“.

But the reality is that going beyond basic messaging presents significant technical challenges, and the messaging market will remain modest in size, anchored as it is by the size of Apple’s deal with Globalstar, which costs Apple little more than $100M per year for both global coverage and the ability to support tens of billions of messages per year. Regulatory challenges are still significant, with some regulators going so far as to ban systems that plan to use terrestrial spectrum from operating anywhere near their territory.

Nevertheless, D2D is becoming the next opportunity that SpaceX can hype, beyond its core fixed broadband market, as it looks for additional increases in the company’s valuation so it can keep raising money to keep developing Starship, while putting even more distance between Starlink and broadband competitors like OneWeb and Kuiper. And just as SpaceX has scared away potential investors in nascent LEO broadband systems like Telesat’s Lightspeed, we expect SpaceX to crowd out many of the other players in the D2D market, now that funding for speculative space projects is becoming more scarce.

Unfortunately, the perspectives of some investors and commentators have been skewed by the unrealistic D2D projections that were made during the SPAC boom, and they have failed to look at relevant benchmarks such as current levels of spending on international roaming. Our new 70+ page report on the D2D satellite smartphone communications opportunity, which has just been released, looks in detail at the regulatory constraints and technical limits to system performance, and projects revenue growth in both the messaging segment and in the voice and data segment over the next decade.

Our conclusion is that while D2D messaging is likely to deliver meaningful upside for existing MSS networks like Globalstar and Iridium, it will be much more difficult to gain global consensus on use of terrestrial spectrum. As a result, SpaceX is likely to hedge its bets and pursue a twin-track strategy of seeking access to both terrestrial and satellite spectrum, and potentially follow up its 2021 acquisition of Swarm with further deals to buy satellite operators and their spectrum licenses.

Then, as Starlink moves beyond its initial D2D messaging capabilities later this decade, and perhaps even amplifies the hype still further by suggesting that the next step will be to build a SpaceX smartphone, Starlink is likely to gain a majority share of the D2D market. Even so we project the potential market size to remain far smaller than Starlink’s fixed broadband opportunity and it is not at all clear that it will be possible to make an economic return on these D2D investments.

If you’d like to order a copy of the report then an order form is available here. And you can hear me speak about many of these issues this coming week at the SmallSat Symposium in Mountain View, CA.

11.10.16

Back to the Future Part 2…

Posted in Globalstar, Iridium, Operators, Regulatory, Spectrum at 10:31 am by timfarrar

So now Trump has won the White House, the opportunity for Globalstar to secure approval for its Terrestrial Low Power Service (TLPS) that was first proposed four years ago has finally disappeared. Instead of a 22MHz WiFi Channel 14, that was supposed to have access to a “massive and immediate ecosystem” (an assertion that was challenged by opponents), Globalstar is now asking for a low power terrestrial authorization in only its 11.5MHz of licensed spectrum.

That takes us back essentially to the compromise that Jay Monroe rejected in summer 2015, apparently because he didn’t believe that it would be possible to monetize the spectrum for low power LTE. However, with the FCC still keen to allow Iridium to share more of the L-band MSS spectrum for NEXT, and even Google supporting the concept of Globalstar using only its licensed spectrum for terrestrial operations, an approval seems very plausible in the near term, albeit with a further comment period required on the proposed license modification, as Globalstar acknowledges in its ex parte letter.

UPDATE (11/11): This email, produced earlier in the year by the FCC in response to a FOIA request, gives some further insight into the key June 2015 meeting with Globalstar that I referred to in my post. With its reference to “the conditions for operation in Channels 12 and 13″ and changes to “out-of-band emission levels in the MSS licensed spectrum” it seems clear that FCC staff were contemplating operation by unlicensed users right up to the 2483.5MHz boundary at least, presumably in conjunction with some reciprocity for Globalstar to operate below 2483.5MHz. Thus the deal proposed by FCC staff (although not necessarily validated with Commissioners’ offices) and rejected by Globalstar appears to have been somewhat different to this latest proposal from Globalstar (and perhaps more similar to the Public Knowledge proposals of shared use that came to the fore later in 2015). However, it seems hard to argue that the deal on the table in summer 2015 wouldn’t have been more favorable to Globalstar (due to the ability to actually offer a full 22MHz TLPS WiFi channel), if approved by Commissioners, than Globalstar’s latest proposal.

So the question now becomes, is there value in a non-standard 10MHz TDLTE channel, which is restricted to operate only at low power? Back in June 2015, I noted that there clearly would be some value for standard high power operation, but the question is a very different one for a low power license. After all, even Jay didn’t believe this type of authorization would have meaningful value last year.

Of course, its only to be expected that lazy analysts will cite the Sprint leaseback deal, which supposedly represented a huge increase in the value of 2.5GHz spectrum (though in practice this deal included cherry picked licenses for owned spectrum in top markets, and the increase in value was actually quite modest). And they will also presumably overlook the impact of the power restrictions and lack of ecosystem.

What is really critical is whether Globalstar could use such an approval to raise further funds before it runs out of money next year. Globalstar’s most recent Q3 10-Q admitted that “we will draw all or substantially all of the remaining amounts available under the August 2015 Terrapin Agreement to achieve compliance with certain financial covenants in our Facility Agreement for the measurement period ending December 31, 2016 and to pay our debt service obligations.”

In other words, Globalstar does not have the money to pay its interest and debt payments in June 2017. And with an imminent Terrapin drawdown of over $30M in December, Globalstar really needs an immediate approval to get its share price up to a level where Terrapin won’t be swamping the market with share sales next month. So how will the market react to the prospects of a limited authorization, and will investors be willing to put up $100M+ just to meet Globalstar’s obligations under the COFACE agreement in 2017?

Its important to note that the biannual debt repayments jump further in December 2017 and Globalstar will not be able to extend the period in which it makes cure payments beyond December 2017 unless “the 8% New Notes have been irrevocably redeemed in full (and no obligations or amounts are outstanding in connection therewith) on or prior to 30 June 2017″. Thus its critical that the financing situation is resolved through a major cash injection in the first half of 2017. As a result, it looks like we should find out pretty soon whether this compromise is sufficient for Thermo (or more likely others) to continue funding Globalstar.

11.09.16

Still up in the air?

Posted in Aeronautical, Broadband, Globalstar, Operators, Services, VSAT at 10:09 am by timfarrar

Yesterday was an eventful day, not only for the US as a whole, but also for the inflight connectivity sector when both ViaSat and GEE announced their quarterly results at the same time. We’ve all been waiting for Southwest Airlines to make a decision about their future connectivity choices, so when ViaSat announced that “Subsequent to the end of the second quarter of fiscal year 2017 (i.e. since September 30), ViaSat was selected by a North American airline to retrofit more than 500 aircraft from its existing, mainline domestic fleet with ViaSat’s highly advanced in-flight internet system” it was natural to assume that this was Southwest.

Coming after Inmarsat and Rockwell Collins’ recent win of Norwegian Airlines for GX, which is GEE’s second biggest connectivity customer, this would also have helped to explain GEE’s announcement of a Chinese investment and joint venture which will serve over 320 planes in China.

However, GEE has now denied that the ViaSat’s new customer is Southwest and when asked about the progress of the Southwest RFP on their results call, GEE stated that investors should “stay tuned” for an announcement but that GEE “expect[s] to continue to enhance the product and services that we provide at Southwest. And our expectation that we will remain a major customer of our connectivity business well beyond the current commitments.”

What this doesn’t say is that GEE is likely to retain anything like its current business with Southwest, indeed this statement is eerily reminiscent of Gogo’s assertion in February that it hoped to “retain a strong and lasting relationship” with American, when American ultimately split its orders between Gogo and ViaSat. And a conclusion to the Southwest competition appears imminent, with either Panasonic or ViaSat expected to capture a major share of Southwest’s fleet. Panasonic certainly think they are still in the game, but others (not just ViaSat itself) appear to believe ViaSat is now in the lead on the back of aggressive terminal pricing.

So what did ViaSat actually announce? Most have assumed that if it wasn’t Southwest, it must be the outstanding mainline aircraft at American Airlines, which American has the option to move away from Gogo’s ATG service. But those orders were expected to be decided in two separate batches and not necessarily in the immediate future, since American has still not even received the first installations for either of the existing contracts with Gogo 2Ku and ViaSat.

UPDATE: So its a big surprise that American has now confirmed that it will be moving essentially all of its mainline fleet to ViaSat (other than the pending 2Ku installations). I had wondered if the order might instead be for upgrades at United (where ViaSat already serves 360 planes) combined with United’s rumored pending order for 100-120 new planes. And that might very well still be another win for ViaSat in the next month or two.

FURTHER UPDATE: Back in late May, Gogo signed a term sheet with American Airlines which specified that its “terms will form the basis for transition to a new unified agreement to be negotiated in an effort to sign no later than October 1st, 2016.” Curiously, Gogo’s Q3 10-Q filed on November 3, makes no mention of a new agreement being signed with American Airlines either before or after the end of the quarter, which raises the question of exactly what is the status of this relationship right now, and whether the companies were unable to finalize the agreement because American decided to move the remaining mainline aircraft off Gogo’s ATG network without making any further commitment to 2Ku. However, we may not get much clarity on this issue for some time, perhaps not until Gogo’s Q4 report at the end of February.

Sorry I jumped the gun on Southwest, but things still look bad for GEE, and may in fact be even better for ViaSat than I expected if they win both American and much of Southwest’s fleet, not to mention another possible win for 100+ new planes and 360 upgrades at United.

In the meantime, we face more intrigue with respect to SmartSky and Gogo’s unlicensed ATG plans, with Microsoft filing with the FCC for tests to “develop channel models for air-to-ground operations in the 2.4 GHz ISM band” and to “examine various techniques that might minimize the potential for the air-to-ground link to disrupt Wi-Fi communications on the ground in the area surrounding the ground station.”

After Microsoft tested Globalstar’s proposed TLPS solution (which incidentally may have been administered the coup de grace by Trump’s win last night) and claimed a “profound negative impact,” it would not be in the least surprising if they now propose that the FCC should commence a rulemaking on where these ATG ground stations should be located (presumably not in the vicinity of Xboxes!), similar to the work on LTE-U (which also complies with existing FCC rules for unlicensed spectrum).

While those rules would not necessarily prevent deployment (ATG ground stations would simply be located in rural areas away from other buildings), any rulemaking could result in delays of 1-2 years before the network can be deployed. The consequence of that would potentially be to accelerate the migration of mainline commercial aircraft away from ATG and towards satellite solutions, in order to free up more capacity on Gogo’s network for smaller aircraft and business jets.

Overall, my concerns about continued ruinous competition in the inflight connectivity market have now been amplified further. Inmarsat has achieved key wins with Norwegian and IAG, which have put it firmly back in the game. ViaSat continues to grow its market share and now GEE’s refocusing on China and new investment from ShareCo could allow it to continue to compete in some international markets as well. Thales may be able to take JetBlue away from ViaSat (as Inmarsat suggested at its Capital Markets Day last month) and move these aircraft onto AMC-15/16 and ultimately SES-17. And Gogo and Panasonic still have a massive backlog of orders to work through. So despite all the talk of potential consolidation, it looks like airlines (and hopefully passengers) will continue to benefit from terminal subsidies, lower wholesale session costs and increasing bandwidth for some time to come.

05.11.16

Jay cries uncle (or not)…

Posted in Globalstar, Operators, Regulatory, Spectrum at 5:47 pm by timfarrar

As I predicted last week, TLPS missed its chance for approval on April 22, despite Jay Monroe being convinced that it was in the bag when he presented at the Burkenroad conference earlier that day. He presumably had been assured of that by Globalstar’s General Counsel, Barbee Ponder, who thought they had answered all the FCC’s questions in late March and seemingly didn’t bother to follow-up after that point.

Now today we have seen an experimental license filing from Microsoft to test TLPS in Redmond, WA. Microsoft’s application states:

“Microsoft will test terrestrial operations in the 2473-2483.5 MHz unlicensed band and the adjacent 2483.5-2500 MHz band, consistent with Globalstar Inc.s proposal to operate a terrestrial low-power service on these frequencies nationwide (see IB docket no. 13-213). Microsoft seeks to quantify the affect [sic] of such operations on the performance and reliability of unlicensed operations in the 2.4 GHz ISM band.”

The application also includes the incidental admission that Gerst is correct that the Ruckus APs have been modified (by removal of coexistence filters) from the approved versions (the testing will include “the use of an intentional radiator in the 2473-2483.5 MHz unlicensed band that has not received an equipment authorization as ordinarily required under 47 C.F.R. § 15.201″) although it should be noted that Microsoft plans to use different APs from those in Globalstar’s own tests, including a consumer model which was one of Microsoft’s primary concerns.

The duration of the experimental license is requested to be 6 months, from May 23 to November 23, suggesting that we may not see results until the fall. This could perhaps permit FCC consideration of the results after the November election if Microsoft identified no problems whatsoever (or if the FCC sets a hard deadline for further testing, though as noted below Bloomberg is reporting that the initial authorization will last at least a year), but more likely it will set the scene for additional back and forth between Globalstar and its opponents in the period before the next FCC Chairman gets his or her feet under the desk in spring 2017.

UPDATE (5/13): Despite Microsoft’s experimental application, Globalstar’s TLPS proposal has finally made it onto the FCC’s circulation list this afternoon. That raises the question of whether Microsoft’s application was made with Globalstar’s cooperation (as I had assumed) or if Microsoft anticipated the issuance of an order that all sides acknowledged would require more testing and simply jumped the gun in preparing to conduct its own testing after that point (which now seems the most plausible explanation).

So now the focus will shift to what this order contains. It seems to basically be taken for granted that there will be increased sharing of L-band spectrum with Iridium (though that would come in a separate parallel ruling by the International Bureau on delegated authority) and that additional power limits will be imposed as an interim measure, probably at a 200mW level. Bloomberg is also reporting that there will be constraints on the number of APs that may be deployed, with a limit of 825 in the first year, and “the FCC will assess whether they cause interference to other services”. However, prior to the rejected deal last summer the FCC also contemplated changes to the OOBE restrictions that would permit increased use of Channels 12 and 13 by terrestrial users, and it will be interesting to see if these changes are still present, or if they have been modified, perhaps due to concerns about possible impacts on Bluetooth LE users in the upper part of the unlicensed spectrum.

05.05.16

Go with the flow…

Posted in DISH, Financials, Globalstar, Operators, Regulatory, Spectrum at 8:35 pm by timfarrar

Its interesting to hear that Kerrisdale is apparently raising $100M to short DISH stock, after its previous attacks on Globalstar and Straight Path. As I said back in October 2014 when Kerrisdale mounted its attack on Globalstar, all spectrum (even that owned by Globalstar) does have value, its just a question of what someone will pay for it.

The spectrum bubble has clearly deflated considerably since late 2014 (despite DISH’s successful efforts to push up the price of the paired spectrum sold in the AWS-3 auction) with DISH’s share price roughly halving since that time, and other spectrum plays (like LightSquared/Ligado) also trading at much lower price levels.

This reduction in valuation clearly seems be the result of lower anticipated prices in the upcoming incentive auction, and last week’s FCC announcement that the initial clearing target will be at the maximum level of 126MHz, allowing 100MHz to be auctioned in most of the country (other than close to the Mexican border), will reduce the initial reserve price from $1.25/MHzPOP to $0.875/MHzPOP (although that could rise if broadcasters bid too much in the reverse auction to give up their spectrum).

However, arguments that DISH’s share price will fall much further seem to rely on DISH being forced to sell its spectrum at an even more discounted price due to impending buildout deadlines, competition (not least from Ligado, which secured a Public Notice from the FCC on its revised spectrum plans a couple of weeks ago) and very low prices in the incentive auction. Its useful to look back at what has happened previously, when operators have overpaid for spectrum, notably Verizon’s lower A and B block purchases in the 700MHz auction in 2008. In that case Verizon simply waited until someone (T-Mobile and AT&T respectively for those blocks) was prepared to pay the same as Verizon had paid (plus its cost of capital over the holding period).

If DISH is not under time or competitive pressure, then Ergen could also potentially wait to realize a reasonable price, at least in line with what DISH has already invested in its spectrum holdings (including the $10B spent on AWS-3 spectrum). Verizon might even decide to do a deal to buy spectrum from DISH sooner rather than later if it believes Ergen can wait indefinitely. And all of these problems can be addressed by spending money: bidding up the prices in the incentive auction this year, outbidding Ligado for the 1675-80MHz spectrum next year, and building out a fixed broadband network in the 1695-1710/1995-2020MHz band (as I suggested in November) to meet its FCC buildout deadlines.

Those three items could represent a sizable amount of money: perhaps $3B-$5B in the incentive auction (something that does not appear to be contemplated by most of the analysts covering the auction), $1B-$2B for 1675-80MHz and $2B-$3B for a fixed wireless broadband network, for a total of $6B-$10B over the next couple of years. And at first blush many would view that as another negative for DISH’s equity.

But the key issue here is to understand DISH’s capital structure and how the money flows around. DISH has raised its existing debt in the form of unsecured bonds at the DBS subsidiary, with no recourse to the parent entity which holds DISH spectrum assets. And the DBS bonds are not protected from being structurally subordinated to new bank debt at DBS (indeed part of the plan to fund a bid for T-Mobile last year was to raise $10B-$15B of new bank debt at DBS).

So if Ergen agrees with his kids, that its crazy to be in the pay TV business long term, then it makes absolute sense to raise say $6B+ of bank debt at DBS, flow that up to the parent company to support its spectrum plans, and (depending on how quickly the pay TV business declines and if a spectrum deal can be done in the interim) eventually file Chapter 11 for the DBS subsidiary (but not the DISH parent company). In fact raising that money sooner rather than later would make sense – DISH would have to convince the bankruptcy court that the subsidiary was not insolvent at the time of the transfer, unless that transfer happened several years before the filing. Note also that DISH has no need to spin off a spectrum holdco – the parent is exactly that, once it has extracted all of the equity value from the DBS subsidiary via this bank debt.

What does all this mean? All of the upside from any spectrum deal flows to DISH’s equity, but relatively little of the downside from no deal being struck: that downside is much more likely to be a problem for the DBS bonds. So if Kerrisdale’s plan is to short the equity, then it may face an asymmetric exposure risk. In fact, some people taking the other side of Kerrisdale’s trade might even decide to be long DISH equity and buy credit default swaps on the DBS bonds. That would create the possibility that they could win from a spectrum deal taking place, but also win if DISH can’t do a deal this year and has to raise money to wait out Verizon and/or AT&T.

In conclusion, remember what DISH said in response to rumors of the Kerrisdale report: “We will continue to manage the business for the long-term benefit of our shareholders as we have done over the last 35 years.” After all, Charlie Ergen’s a shareholder, with much of his wealth tied up in DISH stock, but as far as I know he’s not a DBS bondholder.

05.02.16

Heading for last chance saloon…

Posted in Financials, Globalstar, Operators, Regulatory, Spectrum at 9:05 pm by timfarrar

Its interesting that Globalstar has decided to announce its Q1 results this Thursday afternoon, which may be just before the FCC releases the draft agenda for its May open meeting and would presumably therefore mean Globalstar management is not in a position to discuss TLPS, just as in late February.

UPDATE (5/3): On the other hand, if the FCC issues the agenda on Wednesday or Thursday, its possible that Globalstar will either be able to celebrate or will face questions during the call on why the process has not yet reached a conclusion.

The May open meeting could be the last chance for Globalstar to get a ruling on TLPS from the FCC in 2016, as Chairman Wheeler tries to triage his enormously long to-do list before the change of administration at the end of the year. Otherwise Globalstar might well find itself being measured up for a “political funeral”.

The results of Smitty’s triage efforts became evident on Friday April 22, with the release of the final agenda for the April open meeting (which addressed the 3.5GHz band) accompanied by the public notices on LightSquared/Ligado’s modification applications resulting from its GPS settlement and petition for a 1675-80MHz rulemaking.

It seems clear that Globalstar also expected to be included in the day’s releases, with Jay Monroe announcing that morning at the Burkenroad conference that TLPS “authority expected shortly”. That was a notable contrast to the Q4 results call on February 25, where he said only that “it is in all of our best interest not to provide any additional comments or answer any questions during the Q&A on the subject of the proceeding”.

However, it looks probable that Globalstar was derailed not just by Google’s poison pill, but also by growing worries about potential interference with Bluetooth hearing aids, a topic that was brought up by Gerst Capital in a meeting on March 30, and elevated to a more significant concern by a letter from two members of Congress on April 7. Technical meetings with the Hearing Industries Association on April 19 and 20 then seem to have failed to put these issues to rest.

Its not only Globalstar’s TLPS ambitions that now may be prepared for burial, but also its prospects for MSS business growth. Distributors appear to expect that release of new devices based on the Hughes chipset will be delayed, with the Sat-Fi 2 unlikely to be available in volume until the fall (amid only tepid interest after the struggles of other satellite WiFi devices), the new two-way SPOT expected after that, in winter 2016/17, and the next generation handheld phone delayed to as late as the end of 2017 (even assuming funds are available for product development next year).

Voice pricing has been changed to remove the popular $25 per month service plan, with little or no notice given to current subscribers that their bill will jump by $15 this month. While that may lead to an increase in ARPU, it may also prompt an increase in churn, unless Globalstar caves when customers threaten to terminate their service. Instead, Globalstar will presumably intensify its efforts to give away free phones to new $65 per month customers, including an increase in internet advertising that I’ve noticed recently. However, the handheld market remains pretty slow for all MSS operators.

So now the question is whether Jay Monroe can keep up his optimism about Globalstar’s promising mass market future and multi-billion dollar spectrum opportunity, despite all these problems. More to the point, once the Terrapin equity line is exhausted later this year, will he put his own money on the line to keep Globalstar afloat, or will he once again be able to find others willing to keep buying Globalstar’s equity?

03.27.16

Finding the poison pill…

Posted in Financials, Globalstar, Operators, Regulatory, Spectrum at 2:41 pm by timfarrar

As I noted after the Satellite 2016 conference a couple of weeks ago, the outline of an FCC compromise over Globalstar’s TLPS proposal has become clear in recent weeks. That would involve increased sharing of the Big LEO L-band spectrum (which led Jay Monroe to use nearly as many F-words about Matt Desch as he did about me at the conference) and a restriction of the initial approval to operate at a power level of not more than 200mW (consistent with, but not specifically limited to, indoor operation). Then testing of Globalstar’s (supposedly all-capable, but apparently not yet contracted from ViaSat or even fully defined) Network Operating System would be required to demonstrate that any interference would be prevented, before any potential increase in power levels would be contemplated.

This mechanism was sought by Globalstar because then it would have an authorization for commercial deployment and, on the back of that, could go and raise $150M to keep the company funded (and avoid Jay having to put in any more money) for the next couple of years, while Globalstar looked for a partner that would attribute value to TLPS. Of course that may well be an endless task, if the cable companies do not “have an interest in leasing or buying Globalstar’s spectrum even if that company received approval by the FCC” and Cisco is unwilling to pay billions of dollars to acquire Globalstar.

I was told that an FCC order would very likely come before the end of this month, because the FCC wanted to get a precedent in place (of non-interference with existing unlicensed services, as recommended by Public Knowledge) before it considered what to do about LTE-U.

However, it seems everyone reckoned without Google’s continued interest in the proceeding, which has now forced Public Knowledge to change its tune, and emphasize that the FCC should impose the “public interest condition” of “authoriz[ing] reciprocal public use of Wi-Fi Channel 14 in locations where Globalstar’s TLPS is not deployed…in return for the auction-free windfall that Globalstar seeks.”

Google’s insistence on the “examination of options for general public use of Wi-Fi Channel 14″ seems like just the sort of poison pill that would prevent Globalstar from raising additional funding after the initial approval, because who would give Globalstar money for spectrum that they could use anyway whenever Globalstar had not deployed in a given location?

So if the FCC does include this condition, it seems highly likely that Jay will reject the deal, just as he did last summer when the FCC tried another compromise that would have involved low power approval only within Globalstar’s licensed spectrum, along with increased L-band sharing with Iridium. As a result, the uncertainty about the eventual outcome of the TLPS proceeding may last a little longer yet.

03.09.16

2001: A Space Odyssey

Posted in Broadband, Financials, Globalstar, Inmarsat, Operators, Regulatory, Services, Spectrum, VSAT at 8:34 pm by timfarrar

The Satellite 2016 conference this week has reminded me of years past. All the talk has been of ViaSat and their new ViaSat-3 1Tbps high throughput satellite (depicted above), just like in 2004 when Mark Dankberg used his Satellite Executive of the Year speech to describe his ambitions to build a 100Gbps satellite. Unlike back then (when most dismissed Dankberg’s plans as pie-in-the-sky), ViaSat’s announcement has already caused some large investment decisions by major operators to be postponed, and re-evaluated or perhaps even cancelled. Indeed the entire industry seems frozen like a deer in the headlights, trying to decide which way to run.

Some competitors, like Inmarsat, have chosen to portray ViaSat-3 as a “mythical beast” and ViaSat’s current offering of free streaming video on JetBlue as a “marketing stunt”. However, its far more serious than that. One perceptive observer suggested to me that its like competing for the presidency against Donald Trump: how do you respond to a competitor who is clearly intelligent and has a plan to win, but deliberately says things that fundamentally contradict your (supposedly rational) world view.

In the satellite industry the prevailing world view is that (at least in the foreseeable future) there is no need to build 1Tbps satellites offering capacity at $100/Mbps/mo, because satellite broadband will never compete directly with terrestrial and capture tens of millions of subscribers. But if ViaSat is determined to blow up the industry, most current business plans for two-way data applications (including essentially all Ku-band data services) are simply no longer viable. And if competitors remain frozen (or worse still dismissive) in response to ViaSat’s plans, then ViaSat will gain a head start on building these new higher capacity satellites.

In addition to this overarching theme, several other nuggets of information emerged: Inmarsat is acquiring a seventh “GX payload” by taking over Telenor’s Thor-7 Ka-band payload in Europe on a long term lease, presumably at a very attractive rate (perhaps even approaching the Eutelsat-Facebook-Spacecom deal price of ~$1M/Gbps/year, given Telenor’s lack of Ka-band customers). And Globalstar now appears to have a roughly 60%-70% chance of getting FCC approval for TLPS in the next couple of months, given the FCC’s desire to set a precedent of protection for existing unlicensed services that can be used in the upcoming LTE-U rulemaking. However, it appears that any deal would require a compromise of 200mW power limits (the maximum level demonstrated to date) and sharing of Globalstar’s L-band spectrum above 1616MHz with Iridium.

Going back to the title of this post, if last year’s conference felt like 1999, with exuberance about multiple new satellite projects, this year felt like 2000, as attendees peer over the edge of the precipice. Following on from that, next year could be like 2001, with pain to be shared all around the industry: a sharp fall in satellite orders, as operators re-evaluate the feasibility of their planned satellites, a continuing fall in prices, and the possibility of stranded capacity, either at operators, who are unable to sell their growing inventory of HTS capacity, or at distributors, who entered into contracts for capacity leases at prices far above current market rates.

01.15.16

Smitty, Smitty, give me your answer do…

Posted in Financials, Globalstar, Operators, Regulatory, Spectrum at 3:17 pm by timfarrar

“I’m half crazy all for the love of you” is a good description of the state of mind of Globalstar investors and perhaps even more appropriately, this is the song HAL sings as he’s shut down in 2001: A Space Odyssey. But now Globalstar apparently has its answer, delivered by “Smitty” and the heads of the International Bureau and the Office of Engineering and Technology in a meeting on January 14.

It seems Globalstar was nervous about the outcome, carefully scheduling its Odeon conference call several days before this meeting (on January 11), so that the company could say that it “has not been asked by the Commission to provide any further technical data or engage in any additional testing.” Even now there would not be any formal demand made by the Commission, merely a discussion of how the proceeding could be brought to a conclusion.

Globalstar’s hopes were raised by the intervention of Public Knowledge in November, who (while not thinking much of Globalstar’s attempt to devise “yet-another-sure-fire-plan-to–make-beaucoup-bucks-using-ATC-and-this-time-TOTALLY-not-go-bankrupt“), saw this as an opportunity to set a precedent for the upcoming rulemaking on LTE-U, requiring new users of unlicensed spectrum (i.e. cellular operators) to guarantee that they will prevent interference and resolve any complaints that do arise.

However, numerous technical issues remain outstanding, because Globalstar has steadfastly maintained that its program of demonstrations (rather than cooperative laboratory testing) provides a sufficient record for the FCC to reach a decision, and as I indicated previously, Globalstar rejected a proposed FCC compromise last summer.

What is notable about the latest ex parte filing is how half-hearted Globalstar’s statements are compared to its submission in December, which at least tries to highlight some of the technical arguments. In the new filing, Globalstar doesn’t even bother to put additional details about its “Network Operating System” for resolving interference on the record, despite Public Knowledge stating last week that “For the Commission to formulate service rules, Globalstar must provide greater detail on how its proposed mitigation mechanism would work” and Globalstar apparently telling investors on the Odeon call that the “Company will succinctly address ‘framework’ and ‘additional testing’ from the new PK Ex Parte in the coming days.”

Its therefore pretty easy to conclude that far from this representing the last step before approval as some of Globalstar’s “half crazy” investors apparently think, the FCC indicated that more information will be required before they are prepared to even consider moving forward, likely in the form of a cooperative testing plan agreed with opponents. Some have suggested that if such a discussion had happened, Globalstar would have been obligated to put it in the ex parte filing, but the FCC’s ex parte rules at §1.1204 (a)(10)(iii) specifically note that “information relating to how a proceeding should or could be settled, as opposed to new information regarding the merits, shall not be deemed to be new information” that must be summarized.

Given these developments, and a share price which has now fallen by more than 50% in the last six weeks, it hardly seems like great timing for Globalstar’s new COO to start work. However, if TLPS is not going to be approved any time soon, Globalstar will have to focus on making something (however modest) of the MSS business, if only to minimize the cure payments due under the COFACE agreement in the next couple of years, and hope that additional funding can be found to meet these obligations.

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